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Income Tax Act 2007
Income Tax Act 2007
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Income Tax Act 2007
Part H Taxation of certain entities
Subpart HA—Qualifying companies (QC)
Subpart HA heading: amended, on 17 July 2013, by section 172 of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Contents
Introductory provisions
HA 1 What this subpart does
Distributing profits and attributing tax losses
(1)
The rules in this subpart allow a company to choose, for taxation purposes,—
(a)
to have a distribution of profits to shareholders imputed or, to the extent not imputed, distributed as exempt income; and
(b)
[Repealed]Requirements for qualifying companies
(2)
A qualifying company must meet the requirements of sections HA 5 to HA 9, and must maintain the conditions set out in section HA 4.
Requirements for loss-attributing qualifying companies[Repealed]
(3)
[Repealed]Income year or part-year
(4)
In this subpart, a reference to an income year includes a reference to part of an income year.
Elections required
(5)
For a company to be a qualifying company, all the directors of the company, and every shareholder in the company with legal capacity, must sign an election referred to in section HA 5. An exception applies for a minority shareholder in the situation described in section HA 29.
Shareholder’s personal liability
(6)
A shareholder who makes an election referred to in subsection (5) must agree to take personal liability to the extent described in section HA 8.
Defined in this Act: company, director, exempt income, income year, pay, qualifying company, share, shareholder, tax, tax loss
Compare: 2004 No 35 ss HG 1(c), (d), HG 3(1), HG 4(1), HG 14
Section HA 1(1)(a): substituted (with effect on 1 April 2008), on 7 September 2010 (applying for the 2008–09 and later income years), by section 57(1) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
Section HA 1(1)(b): repealed, on 1 April 2011 (applying for income years beginning on or after 1 April 2011), by section 70(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section HA 1(3) heading: repealed, on 17 July 2013, pursuant to section 172 of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Section HA 1(3): repealed, on 17 July 2013, by section 172 of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).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 HA 1(5): amended, on 17 July 2013, by section 172 of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Section HA 1 list of defined terms exempt income: inserted (with effect on 1 April 2008), on 7 September 2010, by section 57(2) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
Section HA 1 list of defined terms loss-attributing qualifying company: repealed, on 17 July 2013, by section 172 of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
HA 2 Meaning of qualifying company
In this Act, a qualifying company means a company other than a unit trust that, for the whole of an income year, meets the requirements of sections HA 5 to HA 9.
Defined in this Act: company, income year, qualifying company, unit trust
Compare: 2004 No 35 s OB 3(1)
HA 3 Meaning of loss-attributing qualifying company
[Repealed]Section HA 3: repealed, on 1 April 2011 (applying for income years beginning on or after 1 April 2011), by section 71(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
HA 4 Conditions applying
Becoming and continuing as qualifying company
(1)
The requirements of sections HA 5 to HA 9 are preconditions of, and ongoing conditions for, qualifying companies. For a company to become and to continue as a qualifying company, the requirements of those sections must be met.
Losing status
(2)
Section HA 11 applies in relation to a failure to maintain the requirements and avoidance arrangements.
Avoidance
(3)
Section GB 6 (Arrangements involving qualifying companies) may apply to treat a company as not being a qualifying company.
Defined in this Act: arrangement, company, qualifying company
Compare: 2004 No 35 ss HG 7, HG 14(d)
Section HA 4(1): amended, on 17 July 2013, by section 172 of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Section HA 4(2): amended (with effect on 1 April 2008 and applying for the 2008–09 and later income years), on 27 February 2014, by section 82(1) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
Section HA 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).
Qualifying company status
HA 5 Elections to become qualifying company
Making elections
(1)
A company that meets the requirements of sections HA 6 to HA 9 may be a qualifying company only if all the directors of the company and every shareholder in the company with legal capacity, choose, before the start of the grandparenting income year, that the company is to become a qualifying company. Every director and every shareholder with legal capacity must sign a notice of election and give it to the Commissioner.
Extension of time in some cases
(1B)
An election is treated as made before the start of the grandparenting income year for the purposes of subsection (1), if the relevant persons choose before the end of the time allowed by section 37 of the Tax Administration Act 1994 for providing a return for the company’s first income year, and—
(a)
that income year is—
(i)
the grandparenting income year; and
(ii)
nominated under section HA 30(3); and
(b)
the company has not previously been required to provide a return of income.
Elections remaining in effect
(2)
The elections referred to in subsection (1) must remain in effect and must not have been revoked before the end of the relevant income year.
Director at time
(3)
For the purposes of an election, a person is considered a director of a company if they hold the office at the time the notice is provided.
Elections
(4)
The elections referred to in this section are dealt with in sections HA 28 to HA 39.
Meaning of grandparenting income year
(5)
In this section, grandparenting income year means the income year before the first income year that starts on or after 1 April 2011.
Defined in this Act: Commissioner, company, director, grandparenting income year, income year, notice, qualifying company, shareholder
Compare: 2004 No 35 ss HG 3(1), HG 4(1), HG 14(a), (b), OB 3(1)(f)
Section HA 5(1): amended, on 17 July 2013, by section 172 of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Section HA 5(1): amended (with effect on 1 April 2010), on 21 December 2010 (applying for income years beginning on or after 1 April 2010), by section 72(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section HA 5(1B) heading: inserted (with effect on 1 April 2010), on 21 December 2010 (applying for income years beginning on or after 1 April 2010), by section 72(2) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section HA 5(1B): inserted (with effect on 1 April 2010), on 21 December 2010 (applying for income years beginning on or after 1 April 2010), by section 72(2) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section HA 5(5) heading: added (with effect on 1 April 2010), on 21 December 2010 (applying for income years beginning on or after 1 April 2010), by section 72(3) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section HA 5(5): added (with effect on 1 April 2010), on 21 December 2010 (applying for income years beginning on or after 1 April 2010), by section 72(3) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section HA 5 list of defined terms grandparenting income year: inserted (with effect on 1 April 2010), on 21 December 2010, by section 72(4) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section HA 5 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).
HA 6 Corporate requirements
Requirements
(1)
A qualifying company must, in an income year,—
(a)
have 5 or fewer shareholders who meet the requirements of section HA 7; or
(b)
be a flat-owning company.
Exclusions
(2)
A company is not eligible to be a qualifying company if, at any time in an income year, it is—
(a)
a company that is not resident in New Zealand; or
(b)
a company that is resident in New Zealand but is treated under and for the purposes of a double tax agreement, as not resident in New Zealand; or
(c)
[Repealed]Exclusion: loss of continuity
(3)
A company is not eligible to be a qualifying company unless, at all times in an income year, a group of persons holds for the QC continuity period, minimum QC interests in the company that add up to at least 50%.
Exception for close relatives
(4)
For the purposes of subsection (3), a share transferred by a transferor to a close relative is treated as being held by a single notional person for the company from the time that the transferor acquired the share. A share subsequently transferred to a close relative of a subsequent transferor is similarly treated as held by the same single notional person.
Some definitions
(5)
In this section—
minimum QC interest, for a person and the QC continuity period, means the lowest voting interest or market value interest they have in the company during the QC continuity period
QC continuity period means the period starting on the day that the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 receives the Royal assent and ending on the last day in the income year.
Defined in this Act: close relative, company, double tax agreement, flat-owning company, income year, market value interest, minimum QC interest, QC continuity period, qualifying company, resident in New Zealand, shareholder, voting interest
Compare: 2004 No 35 ss HG 1(a), (b), OB 1 “foreign company”
, OB 3(1)(a), (b), (g)
Section HA 6(2)(c): repealed, on 17 July 2013, by section 172 of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Section HA 6(3) heading: inserted, on 1 April 2017 (applying for the 2017–18 and later income years), by section 123(1) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section HA 6(3): inserted, on 1 April 2017 (applying for the 2017–18 and later income years), by section 123(1) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section HA 6(4) heading: inserted, on 1 April 2017 (applying for the 2017–18 and later income years), by section 123(1) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section HA 6(4): inserted, on 1 April 2017 (applying for the 2017–18 and later income years), by section 123(1) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section HA 6(5) heading: inserted, on 1 April 2017 (applying for the 2017–18 and later income years), by section 123(1) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section HA 6(5): inserted, on 1 April 2017 (applying for the 2017–18 and later income years), by section 123(1) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section HA 6 list of defined terms close relative: inserted, on 1 April 2017, by section 123(2) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section HA 6 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 HA 6 list of defined terms market value interest: inserted, on 1 April 2017, by section 123(2) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section HA 6 list of defined terms minimum QC interest: inserted, on 1 April 2017, by section 123(2) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section HA 6 list of defined terms QC continuity period: inserted, on 1 April 2017, by section 123(2) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section HA 6 list of defined terms voting interest: inserted, on 1 April 2017, by section 123(2) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
HA 7 Shareholding requirements
Natural persons, certain trustees, and qualifying companies
(1)
A shareholder in a qualifying company must be 1 of the following:
(a)
a natural person; or
(b)
a trustee of a trust, but only if subsection (2) applies in relation to dividends derived by the trustee; or
(c)
another qualifying company.
Dividends derived by trustees
(2)
For the purposes of subsection (1)(b), all dividends that the trustee of a trust derives from a qualifying company in an income year must be beneficiary income of 1 or more persons who are not trustees or companies other than qualifying companies. However, this subsection does not apply to non-cash dividends other than taxable bonus issues.
Special shareholding rules
(3)
When the shares in a qualifying company that has 5 or fewer shareholders are held by relatives, other companies, and trustees, the following special rules apply:
(a)
if a shareholder in a qualifying company is connected within the first degree of relationship to another shareholder in the company by either blood relationship, marriage, civil union or de facto relationship, they are treated as a single shareholder, and this treatment continues while they remain a shareholder in the company despite any later death or dissolution:
(b)
shares in a qualifying company that are held by another company are treated as held by the shareholders in that other company:
(c)
if a shareholder in a qualifying company is a trustee, the shareholders are counted, without the trustee, as the larger of the following:
(i)
the group who signed the election as shareholder; or
(ii)
the group who derived beneficiary income from dividends from the qualifying company in the period between the first day of the 1991–92 income year and the time of counting.
Shareholder continuity requirements
(4)
For the application of shareholder continuity requirements to the memorandum accounts of qualifying companies, see section OA 8(3B) (Shareholder continuity requirements).
Defined in this Act: beneficiary income, company, dividend, income year, memorandum account, non-cash dividend, qualifying company, relative, share, shareholder, taxable bonus issue, trustee
Compare: 2004 No 35 s OB 3(1)(c), (3)
Section HA 7(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 HA 7(3)(a): amended, on 1 April 2023, by section 75 of the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Act 2023 (2023 No 5).
Section HA 7(4) heading: added (with effect on 1 April 2008), on 6 October 2009, by section 251(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section HA 7(4): added (with effect on 1 April 2008), on 6 October 2009, by section 251(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section HA 7 list of defined terms memorandum account: inserted (with effect on 1 April 2008), on 6 October 2009, by section 251(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
HA 7B Grandparenting requirement
A qualifying company must have been a qualifying company at the end of the income year before the first income year that starts on or after 1 April 2011 and must not have amalgamated, on or after the date on which the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 receives the Royal assent, with another company that is not a qualifying company.
Defined in this Act: amalgamation, income year, qualifying company
Section HA 7B: inserted, on 1 April 2011 (applying for income years beginning on or after 1 April 2011), by section 73(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section HA 7B: amended, on 2 November 2012, by section 75(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section HA 7B list of defined terms amalgamation: inserted, on 2 November 2012, by section 75(2) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
HA 8 Shareholders’ personal liability
Agreement required for election
(1)
A person making an election as shareholder as described in section HA 5 must agree for each income year in which the election is in effect, to take personal liability on the basis of their effective interest in the company—
(a)
for their share of the company’s income tax liability for the income year; and
(b)
if the company has made an election as shareholder in another company, for any income tax payable in relation to that other company for the income year.
Trustee shareholders
(2)
A person making an election as trustee under section HA 28 must agree to take personal liability under subsection (1), modified as follows:
(a)
the trustee together with 1 or more beneficiaries who have legal capacity must make the election; and
(b)
the personal liability as trustee is limited to the extent of the net assets of the trust; and
(c)
if the election is made for a majority shareholding under section HA 29, the personal liability includes the effective interests of the minority shareholding.
Majority shareholders
(3)
One or more persons whose effective interests in a company at a particular time add up to 50% or more, may make an election under section HA 29, agreeing to take personal liability described in subsection (1) in relation to the effective interests in the company of the minority shareholding.
Beneficiaries
(4)
In subsection (1), the person includes a beneficiary who makes an election under section HA 28 or a person who assumes liability on their behalf.
Nature of liability
(5)
In sections HA 13 to HA 27, when more than 1 person agrees to take personal liability as described in subsection (3) for a percentage of an income tax liability or for income tax payable in an income year, the liability is joint and several.
Defined in this Act: company, effective interest, income tax, income tax liability, income year, pay, shareholder, trustee
Compare: 2004 No 35 s HG 4(1)–(3)
HA 8B No CFC income interests or FIF direct income interests of 10% or more
A qualifying company must not have—
(a)
income interests in a CFC:
(b)
interests in a FIF that are a direct income interest of 10% or more.
Defined in this Act: CFC, direct income interest, FIF, income interest, qualifying company
Section HA 8B: inserted (with effect on 30 June 2009), on 6 October 2009, by section 252(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section HA 8B(b): amended (with effect on 1 July 2009 and applying for income years beginning on or after that date), on 7 May 2012, by section 73(1) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section HA 8B list of defined terms attributing interest: repealed (with effect on 30 June 2009), on 2 November 2012, by section 76 of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
HA 9 Limit on foreign non-dividend income
Dollar limit
(1)
The foreign non-dividend income of a qualifying company in an income year must be no more than $10,000 after subtracting the lesser of—
(a)
any income under section CC 3 (Financial arrangements); or
(b)
10% of the gross income of the company for the income year.
Change in threshold
(2)
The Governor-General may make an Order in Council increasing the sum set out in subsection (1). The order may apply—
(a)
from the start of the income year in which it is made; or
(b)
to amounts of income derived after the date on which the order is made.
Secondary legislation
(3)
An Order in Council under subsection (2) is secondary legislation (see Part 3 of the Legislation Act 2019 for publication requirements).
Defined in this Act: amount, foreign non-dividend income, gross, income, income year, qualifying company
Compare: 2004 No 35 s OB 3(1)(d), (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 HA 9(2): amended (with effect on 1 April 2008), on 6 October 2009, by section 253(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section HA 9(3) heading: inserted, on 28 October 2021, by section 3 of the Secondary Legislation Act 2021 (2021 No 7).
Section HA 9(3): inserted, on 28 October 2021, by section 3 of the Secondary Legislation Act 2021 (2021 No 7).
HA 10 Nature of LAQC shares
[Repealed]Section HA 10: repealed, on 1 April 2011 (applying for income years beginning on or after 1 April 2011), by section 74(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
HA 11 When requirements no longer met: qualifying companies
When this section applies
(1)
This section applies when, through changed circumstances, a qualifying company no longer meets the requirements of sections HA 5 to HA 9.
Status at end
(2)
The company’s status as a qualifying company is ended, whether or not it is, or could be, known at the time the circumstances arise that the company no longer meets the requirements.
Qualifying companies
(3)
The company’s status as a qualifying company is treated as ended from the start of the income year in which the change of circumstances occurs. Subsection (6) overrides this subsection.
LAQCs[Repealed]
(4)
[Repealed]Distribution of dividends
(5)
Despite subsection (1), a company’s status as a qualifying company is not ended merely because it does not comply with section HA 7(2) when—
(a)
all dividends that can, under general law, be distributed by the trustee are beneficiary income of a beneficiary other than—
(i)
a trustee beneficiary; or
(ii)
a beneficiary that is a company other than a qualifying company; and
(b)
some of the dividends derived by the trustee from the qualifying company have vested or have been distributed as beneficiary income of a beneficiary other than—
(i)
a trustee beneficiary; or
(ii)
a beneficiary that is a company other than a qualifying company.
Deferring date
(6)
On an application by a qualifying company, the Commissioner may defer the date on which the company’s status ends to the start of a later income year if—
(a)
the company did not know, and could not reasonably be expected to have known, at the time the circumstances arose that it no longer met the requirements; and
(b)
in the circumstances, it would be an unduly harsh or inappropriate outcome.
Examples for subsection (6)(a)
(7)
Examples of the circumstances that may apply for the purposes of subsection (6)(a) are a reasonable expectation or belief that—
(a)
the company would continue to meet the requirements through an extension under section HA 34, HA 35, or HA 37; or
(b)
an amount of foreign non-dividend income that the company derives would not breach the threshold in section HA 9; or
(c)
the dividends referred to in section HA 7(2) would be distributed as beneficiary income.
Examples for subsection (6)(b)
(8)
Examples of the circumstances that may apply for the purposes of subsection (6)(b) are—
(a)
the length of time between the start of the income year and the date of the change in circumstances:
(b)
the length of time between the date of the change in circumstances and the date when the company knew, or could reasonably be expected to have known, that the requirements were not met:
(c)
the kinds of transactions that the company made during the periods of time described in paragraphs (a) and (b).
Defined in this Act: amount, apply, beneficiary income, Commissioner, company, dividend, foreign non-dividend income, income year, qualifying company, trustee
Compare: 2004 No 35 ss HG 7, HG 18, OB 3(3A)
Section HA 11 heading: substituted (with effect on 1 April 2008), on 7 September 2010, by section 59(1) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
Section HA 11(4) heading: repealed (with effect on 1 April 2008), on 7 September 2010 (applying for the 2008–09 and later income years), pursuant to section 59(2) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
Section HA 11(4): repealed (with effect on 1 April 2008), on 7 September 2010 (applying for the 2008–09 and later income years), by section 59(2) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
Section HA 11(5): substituted (with effect on 1 April 2008), on 6 October 2009, by section 254(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section HA 11 list of defined terms apply: inserted, on 2 June 2016, by section 74 of the Taxation (Transformation: First Phase Simplification and Other Measures) Act 2016 (2016 No 27).
Section HA 11 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).
HA 11B When requirements no longer met: LAQCs
[Repealed]Section HA 11B: repealed, on 17 July 2013, by section 172 of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
HA 12 Avoidance arrangements
[Repealed]Section HA 12: repealed, on 17 July 2013, by section 172 of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Treatment of profits, dividends, and tax losses
HA 13 Qualifying companies’ distributions
A distribution that is a transfer of company value to a shareholder of a qualifying company must be treated in the way set out in sections HA 14 to HA 18.
Defined in this Act: qualifying company, shareholder, transfer of company value
Compare: 2004 No 35 s HG 1(c)
Section HA 13: amended, on 23 March 2020, by section 131(1) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
Section HA 13 list of defined terms transfer of company value: inserted, on 23 March 2020, by section 131(2) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
Section HA 13 list of defined terms transfer of value: repealed, on 23 March 2020, by section 131(2) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
HA 14 Dividends paid by qualifying companies
When this section applies
(1)
This section applies when a qualifying company pays a dividend to a person resident in New Zealand.
General treatment
(2)
The dividend is exempt income of the person under section CW 15 (Dividends paid by qualifying companies) to the extent to which it is more than a fully imputed distribution.
When shareholder has non-standard balance date
(3)
If the person has a non-standard balance date and the dividend is derived after the end of the tax year but before their balance date, the dividend is allocated to the day after the balance date.
No resident passive income
(4)
The dividend does not constitute resident passive income.
Defined in this Act: dividend, exempt income, fully imputed, non-standard balance date, pay, qualifying company, resident in New Zealand, resident passive income, shareholder, tax year
Compare: 2004 No 35 ss HG 9(1), HG 13(1)
Section HA 14(2): amended (with effect on 1 April 2008), on 6 October 2009, by section 255(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section HA 14 list of defined terms fully imputed: inserted (with effect on 1 April 2008), on 6 October 2009, by section 255(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
HA 15 Fully imputed distributions
When this section applies
(1)
This section applies when a qualifying company with an imputation credit account pays a dividend. However, this section does not apply to a non-cash dividend other than a taxable bonus issue.
Calculating amount of fully imputed distribution
(2)
The amount of a fully imputed distribution is calculated using the formula—
attached imputation credit ÷ tax rate.
Definition of items in formula
(3)
In the formula in subsection (2),—
(a)
attached imputation credit is the amount determined under subsection (4), and the amount is zero if no imputation credit is attached:
(b)
[Repealed](c)
tax rate is the basic rate of income tax set out in schedule 1, part A, clause 2 (Basic tax rates: income tax, ESCT, RSCT, RWT, and attributed fringe benefits) at the time the shareholder derives the dividend, modified as applicable by section OZ 14 (Dividends from qualifying companies).
ICA companies
(4)
A qualifying company that is an imputation credit account (ICA) company is treated as having attached an imputation credit to the dividend. The amount of the imputation credit is the lesser of—
(a)
the maximum imputation credit that may be attached to the dividend under section OA 18 (Calculation of maximum permitted ratios) modified as applicable by section OZ 14; and
(b)
an amount calculated using the formula in subsection (6).
FDPA companies[Repealed]
(5)
[Repealed]Formula
(6)
The formula referred to in subsection (4) is—
attached credits × amount of dividend ÷ amount paid before credits attached.
Definition of items in formula
(7)
In the formula in subsection (6),—
(a)
attached credits is the balance in the company’s imputation credit account on the last day of the tax year in which the dividend is paid before a debit is made for any imputation credits that are attached:
(b)
amount of the dividend is the amount before any imputation credits are attached:
(c)
amount paid before credits attached is the total amount of dividends, excluding non-cash dividends other than taxable bonus issues, paid by the company during the tax year before any imputation credits are attached.
Relationship with imputation rules
(8)
An imputation credit may not be attached to a dividend by a qualifying company except under this section.
Relationship with sections HA 14 and HA 16
(9)
If part of the dividend is exempt income under sections HA 14 and HA 16, an imputation credit is treated as attached to the part that is not exempt income.
Defined in this Act: amount, dividend, exempt income, ICA company, imputation credit, imputation credit account, imputation rules, income tax, income year, non-cash dividend, pay, qualifying company, resident in New Zealand, shareholder, taxable bonus issue, tax year
Compare: 2004 No 35 s HG 13(1)–(4)
Section HA 15(1): amended, on 1 April 2017, by section 124(1) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section HA 15(1): amended (with effect on 1 April 2008), on 6 October 2009, by section 256(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section HA 15(2) formula: replaced, on 1 April 2017, by section 124(2) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section HA 15(3)(b): repealed, on 1 April 2017, by section 124(3) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section HA 15(3)(c): amended, on 1 April 2008, by section 409(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section HA 15(3)(c): amended, on 1 April 2008, by section 562 of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section HA 15(4)(a): amended, on 1 April 2008, by section 409(2) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section HA 15(5) heading: repealed, on 1 April 2017, pursuant to section 124(4) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section HA 15(5): repealed, on 1 April 2017, by section 124(4) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section HA 15(6): amended, on 1 April 2017, by section 124(5) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section HA 15(7): replaced, on 1 April 2017, by section 124(6) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section HA 15(8) heading: replaced, on 1 April 2017, by section 124(7) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section HA 15(8): replaced, on 1 April 2017, by section 124(7) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section HA 15(9) heading: substituted (with effect on 1 April 2008), on 6 October 2009, by section 256(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section HA 15(9): substituted (with effect on 1 April 2008), on 6 October 2009, by section 256(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section HA 15(9): amended, on 1 April 2017, by section 124(8) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section HA 15 list of defined terms FDP: repealed, on 1 April 2017, by section 124(9) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section HA 15 list of defined terms FDP account: repealed, on 1 April 2017, by section 124(9) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section HA 15 list of defined terms FDP credit: repealed, on 1 April 2017, by section 124(9) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section HA 15 list of defined terms FDP rules: repealed, on 1 April 2017, by section 124(9) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section HA 15 list of defined terms FDPA company: repealed, on 1 April 2017, by section 124(9) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
HA 16 Dividends paid by qualifying companies to trustee shareholders
When this section applies
(1)
This section applies when a dividend referred to in section HA 14(2) is derived by a trustee to the extent to which the dividend is exempt income of the trustee under section CW 15(1) (Dividends paid by qualifying companies).
Exempt income
(2)
To the extent to which the dividend is also beneficiary income of a beneficiary resident in New Zealand, the dividend is exempt income of the beneficiary under section CW 15(2).
Defined in this Act: dividend, exempt income, resident in New Zealand, trustee
Compare: 2004 No 35 s HG 13(1)(a)(i), (1A)
Section HA 16: substituted (with effect on 1 April 2008), on 6 October 2009, by section 257(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
HA 17 Dividends derived by qualifying companies
What this section applies to
(1)
This section applies to a dividend—
(a)
that is derived by a qualifying company; and
(b)
to which section CW 10 (Dividend within New Zealand wholly-owned group) applies.
Dividend not exempt income
(2)
The dividend is not exempt income under section CW 10, except to the extent to which section CW 9 (Dividend derived by company from overseas) applies to it.
Defined in this Act: company, dividend, exempt income, qualifying company
Compare: 2004 No 35 ss HG 10(a), HG 13(1)(aa)
Section HA 17(1)(a): amended, on 30 March 2017 (with effect on 1 April 2008 and applying for the 2008–09 and later income years), by section 125(1) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section HA 17(1)(b): amended (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 74(1) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section HA 17(2): amended (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 74(2) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
HA 18 Treatment of dividends when qualifying company status ends
When this section applies
(1)
This section applies when a company’s status as a qualifying company ends under section HA 11(1).
Dividends distributed in tax year
(2)
Section HA 15 applies to a dividend distributed in the period of a tax year from the first day to the day before the date on which the status ends. References in that section to a tax year should be read as references to that period of the year.
Group companies: imputation credit accounts
(3)
On the day before the date on which the status ends, the company’s imputation credit account is debited under section OB 41 (ICA debit for loss of shareholder continuity) by the lesser of—
(a)
the balance of the credit account on that day after any credits are attached under section HA 15; and
(b)
the largest debit to the credit account that would have arisen before that day if section OB 41 had applied.
Group companies: FDP account[Repealed]
(4)
[Repealed]Defined in this Act: company, dividend, imputation credit account, qualifying company, tax year
Compare: 2004 No 35 s HG 13(6)
Section HA 18(4) heading: repealed, on 1 April 2017, pursuant to section 126(1) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section HA 18(4): repealed, on 1 April 2017, by section 126(1) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section HA 18 list of defined terms FDP account: repealed, on 1 April 2017, by section 126(2) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
HA 19 Credit accounts and dividend statements
When this section applies
(1)
This section applies when a qualifying company pays a dividend that is treated either as a fully imputed distribution under section HA 15 or as exempt income under sections HA 14 and HA 16.
Credit accounts
(2)
For the purposes of sections OB 30 to OB 59 (which relate to imputation debits), if an imputation credit is attached to the dividend, the amount of the credit is debited to the company’s imputation account. The debit arises on the day the company pays the dividend.
Dividend statements
(3)
For all dividends, whether or not credits have been attached, the company must complete the following statements detailing the extent to which the dividends are assessable income or exempt income:
(a)
a company dividend statement under section 25G of the Tax Administration Act 1994; and
(b)
a shareholder dividend statement under section 29 of that Act.
Date for completing statements
(4)
The company must complete the statements in subsection (3) by 31 May after the end of the tax year in which the dividends were paid.
Non-cash dividends
(5)
In addition to the information required in a shareholder dividend statement, if a shareholder asks the company to include in the statement the amount of a non-cash dividend that the company has paid them in the tax year, the company must provide the information.
Defined in this Act: amount, ask, assessable income, company dividend statement, dividend, exempt income, fully imputed, imputation credit, imputation credit account, non-cash dividend, pay, qualifying company, shareholder, shareholder dividend statement, tax year
Compare: 2004 No 35 s HG 13(5)
Section HA 19(1): substituted (with effect on 1 April 2008), on 6 October 2009, by section 258(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section HA 19(2): replaced, on 1 April 2017, by section 127(1) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section HA 19(3)(a): amended, on 1 April 2020, by section 112 of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
Section HA 19 list of defined terms ask: inserted, on 2 June 2016, by section 74 of the Taxation (Transformation: First Phase Simplification and Other Measures) Act 2016 (2016 No 27).
Section HA 19 list of defined terms FDP account: repealed, on 1 April 2017, by section 127(2) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section HA 19 list of defined terms FDP credit: repealed, on 1 April 2017, by section 127(2) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section HA 19 list of defined terms fully imputed: inserted (with effect on 1 April 2008), on 6 October 2009, by section 258(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
HA 20 Attribution of tax losses
[Repealed]Section HA 20: repealed, on 1 April 2011 (applying for income years beginning on or after 1 April 2011), by section 74(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
HA 21 Loss balances not carried forward
In an income year in which a company that is not a qualifying company becomes a qualifying company, subparts IA (General rules for tax losses) and IQ (Attributed controlled foreign company net losses and foreign investment fund net losses) do not apply to carry forward a loss balance of the company to the income year or to later income years.
Defined in this Act: company, income year, loss balance, qualifying company
Compare: 2004 No 35 s HG 11(3)
Section HA 21: amended (with effect on 1 April 2008), on 7 December 2009, by section 42 of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
HA 22 Group companies using tax losses
When this section applies
(1)
This section applies if a qualifying company is in the same group of companies as a company with a tax loss (company A).
When tax losses available
(2)
The amount of company A’s tax loss is available to the qualifying company to use under section IA 3(2) (Using tax losses in tax year) only if—
(a)
company A is also a qualifying company; and
(b)
the requirements of section IC 5 (Company B using company A’s tax loss) are met.
Defined in this Act: amount, company, group of companies, qualifying company, tax loss
Compare: 2004 No 35 s HG 10(b)
HA 23 Treatment of tax losses on amalgamation
If a company that is not a qualifying company amalgamates with a qualifying company and ends its existence on the amalgamation, subpart IA (General rules for tax losses) does not apply to carry forward the amalgamating company’s loss balance from earlier income years either to the income year of the amalgamation or to later income years.
Defined in this Act: amalgamating company, amalgamation, company, income year, loss balance, qualifying company, tax loss
Compare: 2004 No 35 s HG 11(3A)
Special tax matters for loss-attributing qualifying companies[Repealed]
Heading: repealed, on 1 April 2011 (applying for income years beginning on or after 1 April 2011), by section 74(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
HA 24 Treatment of tax losses other than certain foreign losses
[Repealed]Section HA 24: repealed, on 1 April 2011 (applying for income years beginning on or after 1 April 2011), by section 74(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section HA 24(1): replaced (with effect on 1 April 2008), on 30 March 2017, by section 128(1) (and see section 128(4) and (5)) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section HA 24(3)(a): amended (with effect on 1 April 2008), on 30 March 2017, by section 128(2) (and see section 128(4) and (5)) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section HA 24 list of defined terms net mining loss: inserted (with effect on 1 April 2008), on 30 March 2017, by section 128(3) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
HA 25 Treatment of certain foreign losses
[Repealed]Section HA 25: repealed, on 1 April 2011 (applying for income years beginning on or after 1 April 2011), by section 74(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
HA 26 Attribution when balance dates differ
[Repealed]Section HA 26: repealed, on 1 April 2011 (applying for income years beginning on or after 1 April 2011), by section 74(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
HA 27 Attribution when loss results in reduction in value of shares
[Repealed]Section HA 27: repealed, on 1 April 2011 (applying for income years beginning on or after 1 April 2011), by section 74(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Elections: qualifying companies
HA 28 Elections by trustee shareholders
If a shareholder referred to in section HA 5 is acting as trustee, they must make an election together with—
(a)
1 or more beneficiaries of the trust who are natural persons with legal capacity; or
(b)
if no beneficiary has legal capacity, a natural person, who may also be the trustee, who assumes liability on behalf of beneficiaries.
Defined in this Act: shareholder, trustee
Compare: 2004 No 35 s HG 4(2)(a)
HA 29 Elections by majority shareholders
When this section applies
(1)
This section applies when 1 or more shareholders (the majority) in a company have, at the time of making an election, effective interests in the company of 50% or more, and the effective interest of 1 or more other shareholders (the minority) is less than 50%.
Majority assuming minority’s liability
(2)
The majority may sign a notice of election advising the Commissioner that the company is to become a qualifying company. The notice has effect only if the majority agree to an extension of their personal liability under section HA 8(3).
Minority treated as making election
(3)
The minority is treated as having made an election under section HA 5 in relation to their shareholding in the company at the time the election is made.
Election additional
(4)
An election under this section may be made in addition to any other election a shareholder may make or have made under section HA 5.
Defined in this Act: Commissioner, company, effective interest, notice, qualifying company, shareholder
Compare: 2004 No 35 s HG 4(3)
HA 30 When elections take effect
When election takes effect
(1)
In a notice of election made under section HA 5, an income year later than the year of notice may be nominated as the year in which the election is to take effect and, if so, the election takes effect at the start of that income year. If no income year is nominated in the notice, the election takes effect at the start of the income year after the year of notice.
Shareholder’s election after company becomes qualifying company
(2)
If a shareholder makes an election when the company is already a qualifying company, the election takes effect when the Commissioner receives it.
Company’s first income year
(3)
Despite subsection (1), if the company has not previously been required to provide a return of income, the first income year of the company may be nominated as the year in which the election is to take effect, subject to section HA 5(1B). The Commissioner must be advised of this decision in the notice of election to be received within the time allowed by section 37 of the Tax Administration Act 1994 for providing a return for the company’s first income year.
Election in effect until revoked
(4)
An election remains in effect until revoked.
Defined in this Act: Commissioner, company, income year, notice, qualifying company, return of income, shareholder
Compare: 2004 No 35 ss HG 3(2), (3), HG 4(4)
Section HA 30(3): amended (with effect on 1 April 2010), on 21 December 2010 (applying for income years beginning on or after 1 April 2010), by section 75(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
HA 31 Revocation of directors’ elections
Revoking election
(1)
An election by directors under section HA 5 may be revoked only by a resolution of the board of directors. The board must advise the Commissioner of the resolution by providing a notice of revocation.
When revocation takes effect
(2)
The revocation of an election takes effect at the later of—
(a)
the start of the income year that the board nominates in the notice of registration; or
(b)
the start of the income year in which the notice of revocation is received by the Commissioner.
Defined in this Act: Commissioner, director, income year, notice
Compare: 2004 No 35 s HG 3(4), (5)
Section HA 31(2): replaced (with effect on 1 April 2008 and applying for the 2008–09 and later income years), on 30 June 2014, by section 121(1) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
HA 32 Revocation of shareholders’ elections: by notice
Notice
(1)
A person who, as a shareholder in a company, has made an election under section HA 5, may revoke it by notifying both the company and the Commissioner.
When revocation takes effect
(2)
In the notice, the person may nominate an income year later than the year of notice as the income year in which revocation takes effect, and the revocation takes effect at the start of that income year. If no income year is nominated, it takes effect at the start of the income year in which the Commissioner receives the notice.
Measuring effective interests
(3)
For measuring the effective interest in the company, as defined in section HA 43 and measured under section HA 44, of the person revoking the election, the revocation takes effect—
(a)
when both the company and the Commissioner have received the notice; or
(b)
on a later date nominated in the notice.
Periods of grace and Commissioner’s power to defer
(4)
Sections HA 11(6) and HA 34 to HA 37 override this section.
Defined in this Act: Commissioner, company, effective interest, income year, notice, notify, shareholder
Compare: 2004 No 35 s HG 5(1)
HA 33 Revocation of shareholders’ elections: by event
Event
(1)
An election by a person as shareholder under section HA 5 is revoked if an event described in the following paragraphs occurs:
(a)
the person dies:
(b)
the person disposes of all of their shares, unless they dispose of them to an existing shareholder in the company for whom an election exists:
(c)
if section HA 28(b) applies, or section HA 29 applies and the election is made in accordance with section HA 28(b), a beneficiary acquires legal capacity:
(d)
if section HA 29 applies,—
(i)
the effective interests of a minority shareholder increase to 50% or more; or
(ii)
the total effective interests of the majority shareholder or shareholders fall below 50%:
(e)
for an election made jointly by 2 or more persons, 1 person revokes the election or is treated as having revoked the election.
When revocation by event takes effect
(2)
The revocation of an election under this section takes effect at the start of the income year in which the event occurred.
Periods of grace and Commissioner’s power to defer
(3)
Sections HA 11(6) and HA 34 to HA 37 override this section.
Defined in this Act: Commissioner, company, effective interest, income year, share, shareholder
Compare: 2004 No 35 s HG 5(2)
Section HA 33(1)(c): amended (with effect on 1 April 2008 and applying for the 2008–09 and later income years), on 17 July 2013, by section 60(1) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
HA 33B Transitional rules for look-through companies, partnerships, and sole traderships
LTC election
(1)
All elections by shareholders under section HA 5 are revoked if, for the company and the relevant shareholders, a LTC election has been received by the Commissioner under section HB 13(3)(c) and (4) (LTC elections) for the first or second income year that starts on or after 1 April 2011.
When revocation takes effect
(2)
The revocation of the elections under subsection (1) takes effect at the beginning of the relevant income year.
Notice of intention
(3)
All elections by shareholders under section HA 5 are revoked if, for the company and the relevant shareholders, a notice of intention has been received by the Commissioner for the first or second income year that starts on or after 1 April 2011 under section HZ 4B(7)(a) or HZ 4D(4)(a) (which relate to transitions to partnerships and sole traderships).
When revocation takes effect
(4)
The revocation of the elections under subsection (3) takes effect at the beginning of the relevant income year.
Defined in this Act: Commissioner, company, income year, notice, shareholder
Section HA 33B: inserted, on 1 April 2011 (applying for income years beginning on or after 1 April 2011), by section 76(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section HA 33B 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).
HA 34 Period of grace following death of shareholder
12-month period
(1)
Despite section HA 33(1)(a), a company’s status as a qualifying company does not end because a shareholder or another person has died if, within 12 months of the death of the person, the company meets the requirements of sections HA 5 to HA 9.
Extension of time
(2)
The Commissioner may extend the 12-month period referred to in subsection (1) on the application of the company, the personal representative of the deceased person, or a person who is entitled as a shareholder to make an election under section HA 5.
Defined in this Act: apply, Commissioner, company, qualifying company, shareholder
Compare: 2004 No 35 s HG 6(1)
Section HA 34 list of defined terms apply: inserted, on 2 June 2016, by section 74 of the Taxation (Transformation: First Phase Simplification and Other Measures) Act 2016 (2016 No 27).
HA 35 Period of grace following revocation of election
When this section applies
(1)
This section applies when a company has been a qualifying company but no longer meets the requirement of section HA 5 through revocation of a shareholder’s election under section HA 32 or HA 33. But this section does not apply when—
(a)
the revocation is brought about by the death of a person; or
(b)
a joint election is revoked.
Revocation by notice
(2)
When section HA 32 applies, the company’s status as a qualifying company does not end if, within 63 days of the date on which the company received the notice of revocation, a person other than the shareholder who revoked the election makes an election relating to the whole of the relevant shareholding.
Revocation by event
(3)
When section HA 33 applies, the company’s status as a qualifying company does not end if, within 63 days of the date when the event that gave rise to the revocation occurred, an election relating to the whole of the relevant shareholding is made or is in effect.
Extension of time
(4)
In subsections (2) and (3), the Commissioner may extend the 63-day period on the application of the company or a person who is entitled to make an election under section HA 5.
Defined in this Act: apply, Commissioner, company, notice, qualifying company, shareholder
Compare: 2004 No 35 s HG 6(2)(a), (b)
Section HA 35 list of defined terms apply: inserted, on 2 June 2016, by section 74 of the Taxation (Transformation: First Phase Simplification and Other Measures) Act 2016 (2016 No 27).
HA 36 Period of grace following revocation of joint election
When this section applies
(1)
This section applies when a company has been a qualifying company, but an election that shareholders have made jointly has been revoked through an event described in section HA 33.
Cause of revocation
(2)
The company’s status as a qualifying company does not end if, within the relevant period in section HA 34(1) or HA 35(2) and (3), an election relating to the whole of the relevant shareholding is made.
Defined in this Act: company, qualifying company, shareholder
Compare: 2004 No 35 s HG 6(2)(c)
HA 37 Period of grace for new shareholder
When this section applies
(1)
This section applies when a company has been a qualifying company but fails to meet the requirement of section HA 5 when—
(a)
a person other than an existing shareholder acquires shares in the company; or
(b)
an existing shareholder acquires legal capacity.
Period for making election
(2)
The company’s status as a qualifying company does not end if, within 63 days of the date on which either the shares were acquired or the shareholder acquired legal capacity, an election relating to the whole of the relevant shareholding is made.
Extension of time
(3)
The Commissioner may extend the 63-day period in subsection (2) on the application of the company, the new shareholder, the existing shareholder, or a person who is entitled to make an election as shareholder under section HA 5.
Defined in this Act: apply, Commissioner, company, qualifying company, share, shareholder
Compare: 2004 No 35 s HG 6(3)
Section HA 37 list of defined terms apply: inserted, on 2 June 2016, by section 74 of the Taxation (Transformation: First Phase Simplification and Other Measures) Act 2016 (2016 No 27).
Elections: loss-attributing qualifying companies[Repealed]
Heading: repealed, on 1 April 2011 (applying for income years beginning on or after 1 April 2011), by section 77(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
HA 38 Elections by directors and shareholders required
[Repealed]Section HA 38: repealed, on 1 April 2011 (applying for income years beginning on or after 1 April 2011), by section 77(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
HA 39 Revocation of elections
[Repealed]Section HA 39: repealed, on 1 April 2011 (applying for income years beginning on or after 1 April 2011), by section 77(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Qualifying company election tax
HA 40 Liability for qualifying company election tax
Payment of tax
(1)
A company that becomes a qualifying company must pay a qualifying company election tax in relation to the change in status, of an amount calculated under section HA 41. The date for payment is set out in section HA 42.
Payment on amalgamation
(2)
If a company that is not a qualifying company amalgamates with a qualifying company and ends its existence on the amalgamation, the amalgamated company must pay a qualifying company election tax under subsection (1).
Defined in this Act: amalgamated company, amalgamation, amount, company, pay, qualifying company, qualifying company election tax
Compare: 2004 No 35 s HG 11(1), (1A)
HA 41 Calculating qualifying company election tax
Formula
(1)
The amount of qualifying company election tax that a company must pay under section HA 40 is calculated using the formula—
(dividends + balances − assessable income − (balances ÷ tax rate)) × tax rate.
Definition of items in formula
(2)
The items in the formula are defined in subsections (3) to (6).
Dividends
(3)
Dividends is the sum of the amounts that would be dividends if the company—
(a)
disposed of all its property, other than cash, to an unrelated person at market value for cash; and
(b)
met all its liabilities at market value, excluding income tax payable through disposing of the property or meeting the liabilities; and
(c)
was liquidated, with the amount of cash remaining being distributed to its shareholders without imputation credits attached.
Balances
(4)
Balances is the sum of the following amounts:
(a)
the balance in the company’s imputation credit account:
(b)
[Repealed](c)
an amount of income tax payable for an earlier income year but not paid before the relevant date, less refunds due for the earlier income year but paid after the relevant date.
(d)
[Repealed]Assessable income
(5)
Assessable income is the total assessable income that the company would derive by taking the actions described in subsection (3)(a) and (b) less the amount of any deduction that the company would have for taking those actions.
Tax rate
(6)
Tax rate is the basic rate of income tax set out in schedule 1, part A, clause 2 (Basic tax rates: income tax, ESCT, RSCT, RWT, and attributed fringe benefits) for the relevant income year of the company.
Relevant date
(7)
In subsections (3) to (5), the relevant date for measuring items in the formula is the date just before the company became a qualifying company or, as applicable, at the time the company ended its existence.
Income tax and refund
(8)
For the purposes of subsection (4)(c),—
(a)
income tax payable is income tax that would, when paid, give rise to a credit in the company’s imputation credit account under sections OB 4 to OB 29 (which relate to imputation credits):
(b)
a refund of income tax due is the amount that would, when paid, give rise to a debit to the company’s imputation credit account under section OB 30 to OB 59 (which relate to imputation debits):
(c)
if the company pays income tax with a purpose or intention of reducing the amount of election tax, the amount of credit in the imputation credit account is reduced by the amount of the credit arising from the company’s action, unless that purpose is merely incidental.
Defined in this Act: amount, assessable income, company, deduction, dividend, imputation credit, imputation credit account, income tax, income year, liquidation, pay, qualifying company, qualifying company election tax, shareholder
Compare: 2004 No 35 s HG 11(1B), (2), (4)
Section HA 41(3)(c): amended, on 1 April 2017, by section 129(1) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section HA 41(4)(b): repealed, on 1 April 2017, by section 129(2) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section HA 41(4)(c): amended (with effect on 30 June 2009), on 6 October 2009, by section 259(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section HA 41(4)(d): repealed (with effect on 30 June 2009), on 6 October 2009, by section 259(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section HA 41(6): amended, on 1 April 2008, by section 562 of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section HA 41(8)(c): substituted (with effect on 30 June 2009), on 6 October 2009, by section 259(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section HA 41 list of defined terms FDP: repealed (with effect on 30 June 2009), on 6 October 2009, by section 259(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section HA 41 list of defined terms FDP account: repealed, on 1 April 2017, by section 129(3) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section HA 41 list of defined terms FDP credit: repealed, on 1 April 2017, by section 129(3) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
HA 42 Paying qualifying company election tax
A company must pay a qualifying company election tax under section HA 40 to the Commissioner no later than the company’s terminal tax date for the tax year corresponding to the income year in which the company chooses to become a qualifying company.
Defined in this Act: Commissioner, company, income year, pay, qualifying company, qualifying company election tax, terminal tax date
Compare: 2004 No 35 s HG 12
Effective interests in qualifying companies
HA 43 Meaning of effective interest
What this section does
(1)
This section defines an effective interest in a company, which is the measure of a person’s liability under section HA 8.
Effective interest
(2)
Effective interest for a person and a company, at a particular time or for an income year, means—
(a)
the person’s voting interest in the company at the time or for the income year, unless paragraph (b) applies:
(b)
if there is a market value circumstance for the company at the time or at some time during the income year, the average of—
(i)
the person’s voting interest in the company at the time or for the income year; and
(ii)
the person’s market value interest in the company at the time or for the income year.
Defined in this Act: company, effective interest, income year, market value circumstance, market value interest, voting interest
Compare: 2004 No 35 s OB 1 “effective interest”
HA 44 Measuring effective interests
Subpart YC
(1)
A person’s voting interest and market value interest in a company is measured under subpart YC (Measurement of company ownership). If the person is a company, the voting interest and market value interest are measured at a particular time or for an income year under those sections as if—
(a)
the person were not a company; and
(b)
sections YC 4 and YC 6 (which relate to corporate shareholders and certain excluded securities) did not apply.
If interests vary during income year
(2)
If a person’s voting interest or market value interest varies during an income year, the measure of their effective interest is the weighted average of their voting interest or market value interest, as applicable, for the income year.
If election made during income year
(3)
If a shareholder makes an election under section HA 5 after the start of the income year, their voting interest and market value interest is measured from the earliest day in the income year when they became a shareholder in the company, even if the day is earlier than the date of the election.
Shareholders’ interests after revocation
(4)
A person who revokes an election under section HA 32 or HA 33 is treated as having no voting interest and no market value interest for the period of the income year after the revocation takes effect unless they make a later election for the same income year. In this subsection, the person is a trustee when an election is made under section HA 28 by a person other than the trustee.
When majority shareholders’ liabilities excluded
(5)
If a majority shareholder has made an election and agreed under sections HA 8 and HA 29 to take personal liability to the extent of a minority shareholder’s effective interest in the company, any effective interest for which the minority shareholder has agreed to be personally liable under section HA 8 is excluded in measuring the majority shareholder’s effective interest.
Minority shareholder’s liability after revocation
(6)
If a majority shareholder’s election is revoked under section HA 32(1) or HA 33(1)(d), the effective interest of the minority shareholder for which the majority shareholder is liable is treated as zero for the part of the income year that follows the day on which the revocation takes effect.
Defined in this Act: company, effective interest, income year, market value interest, shareholder, trustee, voting interest
Compare: 2004 No 35 s HG 2
Section HA 44(1): amended, on 2 November 2012, by section 77 of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Subpart HB—Look-through companies
Subpart HB: inserted, on 1 April 2011 (applying for income years beginning on or after 1 April 2011, and for the purposes of the Commissioner receiving LTC elections, on and after 21 December 2010), by section 78(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Contents
HB 1 Look-through companies are transparent
When this section applies
(1)
This section applies for the purposes of this Act, other than the PAYE rules, the FBT rules, the NRWT rules, the RWT rules, the ESCT rules, and the RSCT rules, for a person in their capacity of owner of an effective look-through interest for a look-through company (the LTC), for an income year, if—
(a)
for the LTC, an LTC election described in section HB 13(1) and (2) has been received by the Commissioner under section HB 13(3) and (4) for the income year; and
(b)
the LTC meets the requirements in the definition of look-through company at all times in the income year; and
(c)
the election has not been revoked for the income year by an owner of a look-through interest for the LTC by notice received by the Commissioner before the start of the income year.
When this section applies: Commissioner’s discretion as to revocation
(2)
A revocation notice that is received by the Commissioner after the start of the income year is treated as received before the start of the income year if the Commissioner decides that exceptional circumstances are the sole cause of the lateness.
When this section applies: revocation ignored
(3)
An owner’s revocation notice for the income year is ignored for the purposes of this section and section HB 13(4)(a) if the owner stops having a look-through interest in the LTC and the new owner reverses the revocation notice before the start of the income year by notice to the Commissioner.
Look-through for effective look-through interest
(4)
For a person, unless the context requires otherwise,—
(a)
the person is treated as carrying on an activity carried on by the LTC, and having a status, intention, and purpose of the LTC, and the LTC is treated as not carrying on the activity or having the status, intention, or purpose:
(b)
the person is treated as holding property that the LTC holds, in proportion to the person’s effective look-through interest, and the LTC is treated as not holding the property:
(c)
the person is treated as being party to an arrangement to which the LTC is a party, in proportion to the person’s effective look-through interest, and the LTC is treated as not being a party to the arrangement:
(d)
the person is treated as doing a thing and being entitled to a thing that the LTC does or is entitled to, in proportion to the person’s effective look-through interest, and the LTC is treated as not doing the thing or being entitled to the thing.
Effective look-through interest
(5)
For the purposes of this section, effective look-through interest means for a person and an LTC, treating the LTC as a company for the purposes of this subsection,—
(a)
a person’s average daily look-through interest for the company for the income year, if there is no market value circumstance for the LTC and paragraph (b) does not apply:
(b)
a person’s look-through interest for the relevant time of look-through under subsection (4), if there is no market value circumstance for the LTC, and—
(i)
the assessable income of the LTC, ignoring this subpart, is or will be $3,000,000 or more in a 12-month period including the relevant time of look-through, and the Commissioner has notified the LTC that look-through interests for the relevant time of look-through under subsection (4) must be used under this section:
(ii)
all persons with look-through interests have agreed to use their look-through interests for the relevant time of look-through:
(c)
if there is a market value circumstance for the LTC and paragraph (d) does not apply, the average of the following 2 amounts:
(i)
a person’s average daily look-through interest for the income year:
(ii)
a person’s average daily market value interest for the income year:
(d)
if there is a market value circumstance for the LTC, and the assessable income and notification requirements described in paragraph (b)(i) are met, the average of the following 2 amounts:
(i)
a person’s look-through interest for the time of look-through under subsection (4):
(ii)
a person’s market value interest for the time of look-through under subsection (4).
Elections and methods
(6)
Inland Revenue Act elections and methods relating to an LTC are chosen by the company ignoring subsection (4), and then subsection (4) applies so that the elections and methods are those of an owner of an effective look-through interest for the look-through company.
Defined in this Act: arrangement, assessable income, Commissioner, company, effective look-through interest, ESCT rules, FBT rules, income year, look-through company, look-through interest, market value circumstance, market value interest, notice, notify, NRWT rules, PAYE rules, RSCT rules, RWT rules
Section HB 1: inserted, on 1 April 2011 (applying for income years beginning on or after 1 April 2011, and for the purposes of the Commissioner receiving LTC elections, on and after 21 December 2010), by section 78(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section HB 1(6) heading: inserted (with effect on 1 April 2011), on 2 November 2012, by section 78 of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section HB 1(6): inserted (with effect on 1 April 2011), on 2 November 2012, by section 78 of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section HB 1 list of defined terms notice: inserted, on 2 June 2016, by section 74 of the Taxation (Transformation: First Phase Simplification and Other Measures) Act 2016 (2016 No 27).
Section HB 1 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).
HB 2 Previous income and expenditure or loss
Despite a person who has an effective look-through interest for a look-through company (the LTC) not having an interest at the relevant time, the person may be treated as deriving income or incurring an expenditure or loss which the LTC derived or incurred ignoring section HB 1, or would have derived or incurred ignoring section HB 1 if it had not ceased to exist. This section does not allow 2 deductions for 1 expenditure or loss, and may apply to income derived before the LTC becomes a look-through company.
Defined in this Act: effective look-through interest, income, income year, look-through company
Section HB 2: inserted, on 1 April 2011 (applying for income years beginning on or after 1 April 2011, and for the purposes of the Commissioner receiving LTC elections, on and after 21 December 2010), by section 78(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
HB 3 Loss balances extinguished
Despite sections HB 1 and HB 2, a loss balance under Part I (Treatment of tax losses) is cancelled if the loss balance arose in relation to an income year when a company was not a look-through company, or when a company that amalgamates with a look-through company was not a look-through company.
Defined in this Act: amalgamation, company, income year, look-through company, loss balance
Section HB 3: inserted, on 1 April 2011 (applying for income years beginning on or after 1 April 2011, and for the purposes of the Commissioner receiving LTC elections, on and after 21 December 2010), by section 78(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
HB 4 General provisions relating to disposals
Relationship between disposal under this section, disposal safe harbours, and subpart FB
(1)
This section overrides sections HB 5 to HB 9. This section does not apply, and sections HB 5 to HB 9 do not apply, for disposals of owners’ interests under transactions to which subpart FB (Transfers of relationship property) applies or is treated as applying.
Election for specified livestock disposed of to new owner
(2)
Section HB 10 applies for an entering owner if the entering owner furnishes a return of income that applies the section.
Permanent cessation
(3)
A person is treated as disposing of all of their owner’s interests for a look-through company to a single third party for a payment equal to the interests’ market value, if the look-through company ceases to exist as an entity through liquidation, court order, or otherwise.
Capital reduction
(4)
A person is treated as disposing of all of their owner’s interests for a look-through company to a single third party for a payment equal to the interests’ market value to the extent to which an owner’s capital is reduced by a cancellation or a buy-back by the look-through company that is not pro rata for all owners.
Receipt upon permanent cessation
(5)
Anything received by an owner in relation to permanent cessation or capital reduction, as described in subsection (3) or (4), is ignored.
Cessation due to revocation or otherwise
(6)
A person is treated as disposing of all of their owner’s interests for a look-through company to a single third party for a payment equal to the interests’ market value, if the look-through company ceases to be a look-through company because of a revocation or otherwise, but excluding cessation as described in subsection (3). The company is treated as acquiring all of the person’s interests immediately after the cessation, from the third party, for a payment equal to the interests’ market value, and for the purposes of section CB 15 (Transactions between associated persons), the person disposing of, and the company acquiring, the interests are treated as associated persons.
Market value of debts owed
(7)
In this section the market value of an owner’s interest in a financial arrangement as debtor must take into account the amount of any adjustment for credit impairment.
Defined in this Act: associated person, dispose, financial arrangement, look-through company, owner’s interests, pay, return of income
Section HB 4: inserted, on 1 April 2011 (applying for income years beginning on or after 1 April 2011, and for the purposes of the Commissioner receiving LTC elections, on and after 21 December 2010), by section 78(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section HB 4(7) heading: inserted, on 1 April 2017, by section 130(1) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section HB 4(7): inserted, on 1 April 2017, by section 130(1) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section HB 4 list of defined terms financial arrangement: inserted, on 1 April 2017, by section 130(2) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
HB 5 Disposal of owner’s interests
When this section applies
(1)
This section applies when a person (the exiting owner) disposes of some or all of their owner’s interests (the current interests) for a look-through company, if the amount calculated using the formula is less than zero—
disposal payment + previous payments
− (gross tax value − liabilities) − $50,000.
Definition of items in formula
(2)
In the formula,—
(a)
disposal payment is the total amount of consideration paid or payable to the exiting owner for the current interests:
(b)
previous payments is the total amount of consideration paid or payable to the exiting owner for other disposals of some or all of their owner’s interests (the other interests) that have occurred in the year before the disposal of the current interests:
(c)
gross tax value is the total of—
(i)
the value under this Act of the current interests and other interests at the time the relevant interest is disposed of, to the extent to which the interests are revenue account property or depreciable property or financial arrangements:
(ii)
the market value of the current interests and other interests at the time the relevant interest is disposed of, to the extent to which the interests are not revenue account property or depreciable property or financial arrangements:
(d)
liabilities is the amount of liabilities under generally accepted accounting practice at the time the relevant interest is disposed of, calculated by reference to the exiting owner’s ownership share for the relevant interest.
Exiting owner: excluded payment
(3)
The disposal payment described in subsection (2)(a) is excluded income of the exiting owner.
Exiting owner: no deduction
(4)
The exiting owner is denied a deduction in relation to the current interests for the income year in which the disposal of the interests occurs and later income years to the extent to which the entering owner is allowed a deduction because of subsection (6).
Entering owner: no deduction
(5)
An entering owner is denied a deduction for the disposal payment described in subsection (2)(a).
Entering owner: stepping in
(6)
For the purposes of calculating the income and deductions of an entering owner for the part of the income year after the disposal of the interests occurs and later income years (the post-disposal periods), the entering owner is treated for the post-disposal periods as if they had originally acquired and held the current interests, not the exiting owner. However, this subsection does not apply to a deduction carried forward under section HB 12.
Relationship with section HB 4
(7)
Section HB 4 overrides this section.
Defined in this Act: deduction, depreciable property, dispose, entering owner, excluded income, financial arrangement, income tax liability, look-through company, owner’s interests, pay, return of income, revenue account property, year
Section HB 5: inserted, on 1 April 2011 (applying for income years beginning on or after 1 April 2011, and for the purposes of the Commissioner receiving LTC elections, on and after 21 December 2010), by section 78(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
HB 6 Disposal of trading stock
When this section applies
(1)
This section applies when a person (the exiting owner) disposes of some or all of their owner’s interests for a look-through company, to the extent to which those interests include trading stock that is not livestock, and, for the income year of disposal, the total turnover of the look-through company, ignoring section HB 1, is $3,000,000 or less.
Exiting owner: excluded payment
(2)
The amount of consideration paid or payable to the exiting owner for the trading stock is excluded income of the exiting owner.
Exiting owner: no deduction
(3)
The exiting owner is denied a deduction in relation to the trading stock for the income year in which the disposal of the trading stock occurs and later income years, to the extent to which the entering owner is allowed a deduction because of subsection (5).
Entering owner: no deduction
(4)
The entering owner is denied a deduction for the amount of consideration paid or payable to the exiting owner for the trading stock.
Entering owner: stepping in
(5)
For the purposes of calculating the income tax liability of an entering owner, the entering owner is treated as if they had acquired and held the trading stock, not the exiting owner.
Relationship with section HB 4
(6)
Section HB 4 overrides this section.
Defined in this Act: deduction, dispose, entering owner, excluded income, income tax liability, income year, look-through company, owner’s interests, pay, trading stock, turnover
Section HB 6: inserted, on 1 April 2011 (applying for income years beginning on or after 1 April 2011, and for the purposes of the Commissioner receiving LTC elections, on and after 21 December 2010), by section 78(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
HB 7 Disposal of depreciable property
When this section applies
(1)
This section applies when a person (the exiting owner) disposes of some or all of their owner’s interests for a look-through company, to the extent to which those interests include an item of depreciable property that is not depreciable intangible property, and the total cost of the item when it was first acquired by the look-through company (whether or not it was at that time a look-through company) is $200,000 or less.
Exiting owner: excluded payment
(2)
The amount of consideration paid or payable to the exiting owner for the depreciable property is excluded income of the exiting owner.
Exiting owner: no deduction
(3)
The exiting owner is denied a deduction in relation to the depreciable property for the income year in which the disposal of the depreciable property occurs and later income years, to the extent to which the entering owner is allowed a deduction because of subsection (5).
Entering owner: no deduction
(4)
The entering owner is denied a deduction for the amount of consideration paid or payable to the exiting owner for the depreciable property.
Entering owner: stepping in
(5)
For the purposes of calculating the income tax liability of an entering owner for the part of the income year after the disposal of the depreciable property occurs and later income years (the post-disposal periods), the entering owner is treated for the post-disposal periods as if they had originally acquired and held the depreciable property, not the exiting owner.
Relationship with section HB 4
(6)
Section HB 4 overrides this section.
Defined in this Act: acquire, amount, deduction, depreciable intangible property, depreciable property, dispose, entering owner, excluded income, income tax liability, income year, look-through company, owner’s interests, pay
Section HB 7: inserted, on 1 April 2011 (applying for income years beginning on or after 1 April 2011, and for the purposes of the Commissioner receiving LTC elections, on and after 21 December 2010), by section 78(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
HB 8 Disposal of financial arrangements and certain excepted financial arrangements
When this section applies
(1)
This section applies when a person (the exiting owner) disposes of some or all of their owner’s interests for a look-through company, to the extent to which those interests include a financial arrangement or an excepted financial arrangement described in section EW 5(10) (What is an excepted financial arrangement?) and, ignoring section HB 1,—
(a)
the purpose for which the financial arrangement or excepted financial arrangement was entered into was necessary and incidental to the business of the look-through company; and
(b)
the look-through company does not have a business of holding financial arrangements.
Exiting owner: excluded payment
(2)
The amount of consideration paid or payable to the exiting owner for the relevant financial arrangement or excepted financial arrangement is excluded income of the exiting owner. The exiting owner is, for the relevant financial arrangement, a party that is not required to calculate a base price adjustment, despite section EW 29 (When calculation of base price adjustment required).
Exiting owner: no deduction
(3)
The exiting owner is denied a deduction in relation to the relevant financial arrangement or excepted financial arrangement for the income year in which the disposal of the financial arrangement or excepted financial arrangement occurs and later income years.
Entering owner: no deduction
(4)
The entering owner is denied a deduction for the amount of consideration paid or payable to the exiting owner for the relevant financial arrangement or excepted financial arrangement.
Entering owner: stepping in
(5)
For the purposes of calculating the income tax liability of an entering owner for the part of the income year after the disposal of the relevant financial arrangement or excepted financial arrangement occurs and later income years (the post-disposal periods), the entering owner is treated for the post-disposal periods as if they had acquired and held the financial arrangement or excepted financial arrangement, not the exiting owner.
Relationship with section HB 4
(6)
Section HB 4 overrides this section.
Defined in this Act: business, deduction, dispose, entering owner, excepted financial arrangement, excluded income, financial arrangement, income tax liability, income year, look-through company, owner’s interests, pay
Section HB 8: inserted, on 1 April 2011 (applying for income years beginning on or after 1 April 2011, and for the purposes of the Commissioner receiving LTC elections, on and after 21 December 2010), by section 78(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section HB 8(1)(b): amended (with effect on 1 April 2011), on 2 November 2012, by section 79 of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
HB 9 Disposal of short-term agreements for sale and purchase
When this section applies
(1)
This section applies when a person (the exiting owner) disposes of some or all of their owner’s interests for a look-through company, to the extent to which those interests include a short-term agreement for sale and purchase.
Exiting owner: excluded payment
(2)
The amount of consideration paid or payable to the exiting owner for the short-term agreement for sale and purchase is excluded income of the exiting owner.
Exiting owner: no deduction
(3)
The exiting owner is denied a deduction in relation to the short-term agreement for sale and purchase, to the extent to which the entering owner is allowed a deduction because of subsection (5).
Entering owner: no deduction
(4)
The entering owner is denied a deduction for the amount of consideration paid or payable to the exiting owner for the short-term agreement for sale and purchase.
Entering owner: stepping in
(5)
For the purposes of calculating the income tax liability of an entering owner for the part of the income year after the disposal of the short-term agreement for sale and purchase occurs and later income years (the post-disposal periods), the entering owner is treated for the post-disposal periods as if they had originally acquired and held the short-term agreement for sale and purchase, not the exiting owner.
Relationship with section HB 4
(6)
Section HB 4 overrides this section.
Defined in this Act: deduction, dispose, entering owner, excluded income, income tax liability, income year, look-through company, owner’s interests, pay, short-term agreement for sale and purchase
Section HB 9: inserted, on 1 April 2011 (applying for income years beginning on or after 1 April 2011, and for the purposes of the Commissioner receiving LTC elections, on and after 21 December 2010), by section 78(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
HB 10 Disposal of livestock
When this section applies
(1)
This section applies when a person disposes of some or all of their owner’s interests to an entering owner and section HB 4(2) applies, to the extent to which those interests include specified livestock and that specified livestock includes female breeding livestock and, for the income year, the owners use—
(a)
the national standard cost scheme for specified livestock, described in section EC 22 (National standard cost scheme); or
(b)
the cost price method for specified livestock, described in section EC 25 (Cost price, replacement price, or market value).
Entering owner’s cost base
(2)
Section EC 26B (Entering partners’ cost base) may apply to the entering owner for the purposes of determining the value of the specified livestock at the end of an income year for the purposes of section EC 2 (Valuation of livestock), treating the entering owner as an entering partner and making other necessary modifications to section EC 26B to give effect to the purpose of this section (for example, references in section EC 26B to “partners”
should be modified to references to “owners”
and references to “section HG 10”
should be modified to references to “section HB 10”
).
Defined in this Act: amount, cost price, dispose, entering owner, entering partner, income year, look-through company, national standard cost scheme, owner’s interests, specified livestock
Section HB 10: inserted, on 1 April 2011 (applying for income years beginning on or after 1 April 2011, and for the purposes of the Commissioner receiving LTC elections, on and after 21 December 2010), by section 78(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
HB 11 Limitation on deductions by persons with interests in look-through companies
When this section applies
(1)
This section applies for a look-through company (the LTC) and an income year when,—
(a)
but for this section, a deduction by virtue of section HB 1 or HB 12(2) or (3) would be allowed to a person who has an effective look-through interest for the LTC; and
(b)
the LTC is a partner in a partnership that includes another look-through company, or the LTC is a member of a joint venture described in section HG 1 (Joint venturers) that includes another LTC.
No deduction
(2)
The person is denied the deduction for an income year to the extent to which their look-through company deduction for the income year is greater than the amount (the owner’s basis) calculated using the formula in subsection (3) at the end of the income year.
Owner’s basis
(3)
For the purposes of subsection (2), the amount that is the owner’s basis is calculated using the following formula:
investments − distributions + income − deductions − disallowed amount.
Definition of items in formula
(4)
The items in the formula are defined in subsections (5) to (9).
Investments
(5)
Investments is the total of—
(a)
the market value of a person’s shares in the LTC at the time that the person acquires or subscribes for them:
(b)
amounts that the LTC is debtor for in relation to the person, including a loan to the LTC and a credit balance in a current account:
(c)
the secured amounts, if not accounted for under paragraph (b) by the person or another person.
Distributions
(6)
Distributions is the market value of distributions to the person from the LTC, including loans made to the person from the LTC and payments to which section DC 3B (Payments to working owners) does not apply.
Income
(7)
Income is the total of—
(a)
income that the person has by virtue of section HB 1 in the income year and previous income years:
(ab)
if the person has FIF income or a FIF loss, an amount under subsection (7B):
(b)
capital gain amounts under section CD 44(7)(a) (Available capital distribution amount) that the person would have by virtue of section HB 1 in the income year and previous income years, if the person were treated as a company for the purposes of section CD 44(7)(a), unless the gain is accounted for under paragraph (a):
(c)
assessable income that the person has in previous income years from goods and services they contributed to the LTC, if the income is not accounted for under subsection (5) or paragraph (a) or (b) of this subsection.
Formula
(7B)
The amount described in subsection (7)(ab) is given by the following formula, but if the calculation returns a negative number, the amount is zero:
dividend − FIF amount.
Definition of items in formula
(7C)
In the formula,—
(a)
dividend is the amount that would, under section HB 1, be the person’s proportion of the dividend paid by a FIF to the LTC, if section CD 36(1) were ignored:
(b)
FIF amount is—
(i)
zero, if subparagraph (ii) does not apply:
(ii)
the amount that is the person’s FIF income, for the relevant income year and FIF, if the person has such an amount.
Deductions
(8)
Deductions is the total of—
(a)
expenditure or loss in previous income years, to the extent to which the expenditure or loss is incurred by virtue of section HB 1 in the person deriving income by virtue of section HB 1, excluding any deductions denied in those previous years under this section:
(b)
capital loss amounts under section CD 44(9) that the person would have by virtue of section HB 1 in the income year and previous income years, if the person is treated as a company for the purposes of section CD 44(9), unless the loss is accounted for under paragraph (a):
(c)
deductions that the person is allowed in previous income years in relation to assessable income described in subsection (7)(c), if the deduction is not accounted for under subsection (6) or paragraph (a) or (b) of this subsection.
Disallowed amount
(9)
Disallowed amount is the amount of investments, as defined in subsection (5), made by the person within 60 days of the end of the income year, if those investments are or will be distributed or reduced within 60 days of the end of the income year, but an amount of investment made by the person within 60 days of the end of the income year is not a disallowed amount if the total amount distributed or reduced within 60 days of the end of the income year is $10,000 or less.
Exclusion
(10)
This section does not deny a person (the exiting person) a deduction that is equal to or less than the amount of net income that the exiting person has for the amount paid or payable to the exiting person for the disposal of their owner’s interests, ignoring other transactions.
Relationship with subject matter
(11)
This section is modified by section HZ 4C (Qualifying companies: transition into look-through companies).
Some definitions
(12)
In this section,—
guarantor means—
(a)
a person (person A) who has an effective look-through interest for the LTC, if—
(i)
person A, ignoring section HB 1, secures the relevant debt by guarantee or indemnity:
(ii)
an owner’s associate of person A secures the relevant debt by guarantee or indemnity:
(b)
a person who is not described in paragraph (a)(i) and (ii) but who secures the relevant debt by guarantee or indemnity, if person A or an owner’s associate also secures the relevant debt as described in paragraph (a)(i) or (ii)
look-through company deduction means, for the person and the income year, the amount of the deductions that the person would be allowed if they were treated as having only income and deductions arising from the application of this subpart
owner’s associate means a person who does not have an effective look-through interest for the LTC and who is—
(a)
a relative of a person who has an effective look-through interest for the LTC:
(b)
a trustee who is associated in their capacity of trustee, with a person who has an effective look-through interest for the LTC
recourse property means property to which a creditor has recourse, to enforce a guarantee or indemnity for the relevant debt, if the guarantee or indemnity expressly provides recourse to only that property
secured amounts means, for the person, the lesser of the following applicable amounts:
(a)
the amount of the look-through company’s debt ignoring section HB 1 (the secured debt) for which the person is a guarantor, divided by the total number of guarantors for the secured debt:
(b)
the market value of the recourse property for the secured debt to the extent of the interest that the person and their owner’s associates have in it, net of higher-ranking calls whether actual, future or contingent, divided by the total number of guarantors described in paragraph (a) of the definition of guarantor who have an interest in the recourse property or have an owner’s associate with an interest in the recourse property.
Defined in this Act: amount, assessable income, associated person, company, deduction, dispose, dividend, effective look-through interest, FIF, FIF income, FIF loss, guarantor, income, income year, loan, look-through company, look-through company deduction, loss, net income, net loss, owner’s associate, owner’s interests, partner, partnership, pay, recourse property, secured amounts, share
Section HB 11: inserted, on 1 April 2011 (applying for income years beginning on or after 1 April 2011, and for the purposes of the Commissioner receiving LTC elections, on and after 21 December 2010), by section 78(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section HB 11(1): replaced, on 1 April 2017 (applying for the 2017–18 and later income years), by section 131(1) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section HB 11(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 HB 11(5)(c): amended (with effect on 1 April 2011), on 2 November 2012, by section 80(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section HB 11(7)(a): replaced (with effect on 1 April 2011), on 2 November 2012, by section 80(2) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section HB 11(7)(ab): inserted (with effect on 1 April 2011), on 2 November 2012, by section 80(2) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section HB 11(7B) heading: inserted (with effect on 1 April 2011), on 2 November 2012, by section 80(3) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section HB 11(7B): inserted (with effect on 1 April 2011), on 2 November 2012, by section 80(3) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section HB 11(7C) heading: inserted (with effect on 1 April 2011), on 2 November 2012, by section 80(3) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section HB 11(7C): inserted (with effect on 1 April 2011), on 2 November 2012, by section 80(3) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section HB 11(12) heading: replaced (with effect on 1 April 2011), on 2 November 2012, by section 80(4) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section HB 11(12): replaced (with effect on 1 April 2011), on 2 November 2012, by section 80(4) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section HB 11 list of defined terms FIF loss: inserted (with effect on 1 April 2011), on 2 November 2012, by section 80(5) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section HB 11 list of defined terms guarantor: inserted (with effect on 1 April 2011), on 2 November 2012, by section 80(5) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section HB 11 list of defined terms owner’s associate: inserted (with effect on 1 April 2011), on 2 November 2012, by section 80(5) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section HB 11 list of defined terms partner: inserted, on 1 April 2017, by section 131(2) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section HB 11 list of defined terms partnership: inserted, on 1 April 2017, by section 131(2) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section HB 11 list of defined terms recourse property: inserted (with effect on 1 April 2011), on 2 November 2012, by section 80(5) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
HB 12 Limitation on deductions by owners of look-through companies: carry-forward
When this section applies
(1)
This section applies when, for an income year, a person is denied a deduction under section HB 11.
Carry-forward: conditional on continued existence of look-through company and holding of effective look-through interest
(2)
The person is allowed a deduction, for an amount for which the person is denied a deduction under section HB 11, for the income year (the later year) after the income year for which it is denied under section HB 11, unless—
(a)
the look-through company ceases to be a look-through company in the later year:
(b)
the person ceases to have an effective look-through interest in the later year.
Carry-forward: resumption
(3)
If a person would have been allowed a deduction for an amount but for the application of subsection (2)(a) or (b) for the later year, they are allowed a deduction for the amount for the first income year after the later year in which either they resume an effective look-through interest for the look-through company, or the relevant company resumes being a look-through company. However, the amount of that deduction is reduced by the total amount allowed as a deduction under subsections (4) and (5).
Exception for deductions against continuing company dividends
(4)
Despite subsection (2), the person is allowed a deduction for the later year for an amount (the protected amount) for which they would have been allowed a deduction but for the application of subsection (2)(a) or (b) for the later year to the extent to which the protected amount is equal to or lesser than the dividends received by the person from the company for the later year.
Further deductions against continuing company dividends
(5)
For an income year after the later year, an amount equal to the protected amount reduced by the total of deductions allowed in income years before the income year under subsection (4) and this subsection, is allowed as a deduction for the person to the extent to which the amount is equal to or less than the dividends received by the person from the company for the income year.
Relationship with subject matter
(6)
A deduction allowed under this section, other than under subsection (4) or (5), is subject to section HB 11, to the extent to which that section applies to the deduction and the relevant person.
Defined in this Act: amount, deduction, dividend, effective look-through interest, income year, look-through company
Section HB 12: inserted, on 1 April 2011 (applying for income years beginning on or after 1 April 2011, and for the purposes of the Commissioner receiving LTC elections, on and after 21 December 2010), by section 78(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
HB 13 LTC elections
LTC elections
(1)
For the purposes of section HB 1, an LTC election (the election) is a notice that—
(a)
is signed and dated by a director of the company that becomes a look-through company (the LTC) or other agent with appropriate authority; and
(b)
is in the form prescribed by the Commissioner; and
(c)
specifies an income year beginning on or after 1 April 2011 for which it may first operate; and
(d)
has attached to it notices—
(i)
signed and dated by all persons who, on the date of signing the election, own look-through interests in the LTC; and
(ii)
evidence unanimous agreement of the owners in choosing to apply section HB 1.
Legal incapacities
(2)
If a person owns a look-through interest in the LTC, and either they are under 18 years old with a guardian or a contract they enter into could be unenforceable, cancelled, void, or voidable due to any legal incapacity other than age, the notice requirement in subsection (1)(d) is modified so as to require a guardian, person with power of attorney, or other legal representative to sign and date the notice, instead of the person.
Time of receipt of LTC elections
(3)
For the purposes of section HB 1, the election—
(a)
must be received by the Commissioner before the start of the income year specified in the election; or
(b)
in the case of a company that has not previously been required to file a return of income for a year before the income year specified in the election, must be received by the Commissioner before the last day for filing the return of income required by section 42B of the Tax Administration Act 1994 for the year specified in the election; or
(c)
in the case of a company that was a qualifying company that first becomes a look-through company for the first or second income year that starts on or after 1 April 2011, must be received by the Commissioner within 6 months of the start of the relevant transitional income year described in section HZ 4C(1) (Qualifying companies: transition into look-through companies).
Income year for which LTC elections are treated as received
(4)
For the purposes of section HB 1, the election is treated as received for the first relevant income year described in subsection (3) and for each income year after that one, except it is treated as not received by the Commissioner for an income year (the income year) and subsequent income years if—
(a)
the election has been revoked for the income year under section HB 1:
(b)
the LTC does not meet the requirements in the definition of look-through company at all times in the income year:
(c)
the income year is 1 of the 2 income years straight after an income year for which either the LTC ceases to be a look-through company or the relevant election for the LTC is revoked.
Commissioner’s discretion as to LTC elections
(5)
An election that is late or does not have each person signing and dating as required by subsection (1)(a) and (d) is treated as an election that has been received by the Commissioner for the income year under subsection (3) but subject to subsection (4), if all relevant persons sign and date it during the income year it may first operate, and the Commissioner decides that exceptional circumstances are the sole cause of the lateness or failure to sign and date.
Valuation transfer
(6)
An entity that ceases to be a company upon becoming an LTC is treated as having, as an LTC, the same status, intention, purpose, and tax book timings and values it had as a company for its assets, liabilities, and associated legal rights and obligations.
Defined in this Act: Commissioner, company, director, income year, look-through company, look-through interest, notice, qualifying company, return of income
Section HB 13: inserted, on 1 April 2011 (applying for income years beginning on or after 1 April 2011, and for the purposes of the Commissioner receiving LTC elections, on and after 21 December 2010), by section 78(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section HB 13(2): amended, on 2 June 2016, by section 48 of the Taxation (Transformation: First Phase Simplification and Other Measures) Act 2016 (2016 No 27).
Section HB 13(5): amended (with effect on 1 April 2011), on 2 November 2012, by section 81 of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section HB 13(6) heading: inserted (with effect on 1 April 2011), on 30 March 2017, by section 132 of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section HB 13(6): inserted (with effect on 1 April 2011), on 30 March 2017, by section 132 of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section HB 13(6): amended (with effect on 1 April 2011), on 31 March 2023, by section 76 of the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Act 2023 (2023 No 5).
Subpart HC—Trusts
Contents
Introductory provisions
HC 1 What this subpart does
What this subpart does
(1)
This subpart, together with the trust rules,—
(a)
provides for the taxation of distributions from trusts, for this purpose defining—
(i)
beneficiary income:
(ii)
a taxable distribution:
(b)
provides for the taxation of trustee income:
(c)
classifies trusts into the following 3 categories for the purposes of determining the treatment of distributions that are not beneficiary income:
(i)
complying trusts:
(ii)
foreign trusts:
(iii)
non-complying trusts:
(d)
determines who is a settlor, and sets out their income tax liability:
(e)
sets out the treatment of trusts settled by persons becoming resident in New Zealand.
Excluded: certain funds and distributions
(2)
The trust rules do not apply to—
(a)
a unit trust:
(b)
a group investment fund to the extent to which it is treated as a company under this Act:
(c)
a Maori authority:
(d)
a distribution under section HZ 1 (Distributions from trusts of pre-1989 tax reserves).
Disclosure requirements: non-resident trustees
(3)
Section 59 of the Tax Administration Act 1994 requires the disclosure of a settlement on a trust with a non-resident trustee.
Avoidance arrangements
(4)
Section GB 22 (Arrangements involving trust beneficiary income) may apply to treat a beneficiary as receiving property, or enjoying services or benefits, in fact received, or enjoyed, by another person.
Superannuation funds entering trust rules
(5)
A superannuation scheme that is treated as a company because it is a unit trust and then becomes a superannuation fund is treated as—
(a)
liquidated under section CD 12 (Superannuation schemes entering trust rules) immediately before the date on which it becomes a superannuation fund; and
(b)
no longer a company.
Defined in this Act: arrangement, beneficiary income, company, complying trust, distribution, foreign trust, group investment fund, income tax liability, liquidation, Maori authority, non-complying trust, non-resident, resident in New Zealand, settlement, settlor, superannuation fund, superannuation scheme, taxable distribution, trust rules, trustee, trustee income, unit trust
Compare: 2004 No 35 ss GC 14, HH 1(8), (9), HH 3(6), HH 4(8), Income Tax Amendment Act 1988 (No 5) s 9
HC 2 Obligations of joint trustees for calculating income and providing returns
What this section applies to
(1)
This section applies for the purposes of the obligations imposed by section BB 2 (Main obligations) on 2 or more persons who derive income jointly as trustees of a trust.
Single person
(2)
The trustees of the trust are treated in that capacity as if they were a notional single person and are jointly and severally liable to satisfy the obligations imposed by section BB 2 on the notional single person.
Residence
(3)
If no election under section HC 33 is made for the trust, the notional single person referred to in subsection (2) is—
(a)
a New Zealand resident when 1 or more of the trustees is resident in New Zealand:
(b)
a non-resident when none of the trustees is resident in New Zealand.
Defined in this Act: income, income tax liability, New Zealand resident, non-resident, resident in New Zealand, return of income, tax year, taxable income, trustee
Compare: 2004 No 35 s HD 1(1)(a)
Section HC 2(2): replaced, on 23 March 2020, by section 132(1) (and see section 132(4) for application) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
Section HC 2(3) heading: inserted, on 23 March 2020, by section 132(2) (and see section 132(4) for application) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
Section HC 2(3): inserted, on 23 March 2020, by section 132(2) (and see section 132(4) for application) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
Section HC 2 list of defined terms New Zealand resident: inserted, on 23 March 2020, by section 132(3) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
Section HC 2 list of defined terms non-resident: inserted, on 23 March 2020, by section 132(3) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
Section HC 2 list of defined terms resident in New Zealand: inserted, on 23 March 2020, by section 132(3) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
HC 3 Multiple settlements
For the purposes of this subpart, if a settlement is made on a trust and further settlements are made on the same terms, a trustee of the trust may treat all the settlements as 1 trust.
Defined in this Act: settlement, trustee
Compare: 2004 No 35 s HH 1A
HC 4 Corpus of trust
Meaning of corpus
(1)
In the trust rules, corpus for a trust means the settlement value under subsection (1B) of property settled on the trust that is not excluded by subsection (2).
Settlement value of settled property
(1B)
For property meeting the requirements of subsection (1), the value under this subsection (the settlement value) of the property settled on a trust is—
(a)
the market value of the property determined at the time of the settlement of the property, for a single settlement on the trust; or
(b)
the total of the amounts determined under paragraph (a) for each settlement of property, if the trustee treats the settlements in the way permitted by section HC 3.
Settlements excluded from corpus
(2)
Corpus does not include an amount equal to the market value of the property settlements described in subsections (3) to (5).
Settlements on other trusts
(3)
A property settlement by a trustee of another trust is excluded from corpus to the extent to which, if the property were distributed to a beneficiary of the other trust, and the beneficiary was resident in New Zealand, the distribution would be beneficiary income or a taxable distribution to that beneficiary.
Deductions
(4)
A property settlement for which the settlor is allowed a deduction is excluded from corpus.
Income or dividend
(5)
A property settlement is excluded from corpus if, but for the fact of the settlement,—
(a)
it would be income of the settlor; or
(b)
[Repealed](c)
it would fall under paragraph (a) if the settlor were resident in New Zealand at the time of the settlement.
Defined in this Act: amount, beneficiary income, corpus, deduction, distribution, dividend, income, resident in New Zealand, settlement, settlor, taxable distribution, trust rules, trustee
Compare: 2004 No 35 s OB 1 “corpus”
Section HC 4(1) heading: replaced, on 23 March 2020, by section 133 of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
Section HC 4(1): replaced, on 23 March 2020, by section 133 of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
Section HC 4(1B) heading: inserted, on 23 March 2020, by section 133 of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
Section HC 4(1B): inserted, on 23 March 2020, by section 133 of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
Section HC 4(5)(b): repealed (with effect on 30 June 2009), on 6 October 2009, by section 260(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section HC 4(5)(c): substituted (with effect on 30 June 2009), on 6 October 2009, by section 260(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section HC 4 list of defined terms FDP: repealed (with effect on 30 June 2009), on 6 October 2009, by section 260(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Trust income
HC 5 Amounts derived by trustees
Either beneficiary or trustee income
(1)
An amount of income derived in an income year by a trustee of a trust is either—
(a)
beneficiary income under section HC 6; or
(b)
trustee income under section HC 7.
Statutory amounts treated as derived
(2)
For the purposes of subsection (1) and sections HC 6 and HC 7, if the trustee is treated as having an amount of income in the income year under a provision in this Act and the amount is not derived under ordinary concepts, then the amount is treated as derived in the income year.
Defined in this Act: amount, beneficiary income, income, income year, trustee, trustee income
Compare: 2004 No 35 s OB 1 “beneficiary income”
, “trustee income”
HC 6 Beneficiary income
Meaning
(1)
An amount of income derived in an income year by a trustee of a trust is beneficiary income to the extent to which—
(a)
it vests absolutely in interest in a beneficiary of the trust in the income year; or
(b)
it is paid to a beneficiary of the trust in the income year or by the date after the end of the income year referred to in subsection (1B).
Date by which income must be allocated
(1B)
The date referred to in subsection (1)(b) is the later of the following:
(a)
a date that falls within 6 months of the end of the income year; or
(b)
the earlier of—
(i)
the date on which the trustee files the return of income for the income year; or
(ii)
the date by which the trustee must file a return for the income year under section 37 of the Tax Administration Act 1994.
(1C)
Beneficiary income includes an RWT substitution payment made to a beneficiary under section RE 2(7) (Resident passive income) to the extent to which the payment meets the requirements of subsection (1) or is paid on a date referred to in subsection (1B).
Exclusions
(2)
Beneficiary income does not include—
(a)
an amount of income derived by a trustee of a trust in an income year in which the trust is a superannuation fund; or
(ab)
an amount of income derived by a trustee of a trust in an income year in which the trust is an approved unit trust referred to in clause 2 of the Income Tax Act (Exempt Unit Trusts) Order 1990; or
(b)
an amount of income derived by a trustee that is income to which sections CC 3(2) (Financial arrangements) and EW 50 (Income when debt forgiven to trustee) apply; or
(c)
an amount by which a tax credit of a beneficiary for resident withholding tax is reduced under section LB 3(6) (Tax credits for resident withholding tax); or
(d)
an amount of a tax credit of a beneficiary allocated under section LB 3(5).
Deriving beneficiary income in same year
(3)
When an amount derived by a trustee in an income year is also beneficiary income, the beneficiary is treated as having derived the income in the same tax year as that corresponding to the trustee’s income year.
Deriving beneficiary income in same year as trustee[Repealed]
(4)
[Repealed]Defined in this Act: amount, beneficiary income, income, income year, pay, return of income, superannuation fund, tax year, trustee
Compare: 2004 No 35 ss OB 1 “beneficiary income”
, OF 2(3)
Section HC 6(1)(b): substituted (with effect on 1 April 2009), on 7 December 2009, by section 43(1) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
Section HC 6(1B) heading: inserted (with effect on 1 April 2009), on 7 December 2009, by section 43(2) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
Section HC 6(1B): inserted (with effect on 1 April 2009), on 7 December 2009, by section 43(2) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
Section HC 6(1C): inserted, on 29 March 2018 (with effect on 1 April 2008), by section 114(1) (and see section 114(3) for application) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
Section HC 6(2)(ab): inserted, on 30 March 2021, by section 85(1) (and see section 85(2) for application) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
Section HC 6(2)(b): amended, on 29 March 2018 (with effect on 1 April 2008), by section 114(2) (and see section 114(3) for application) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
Section HC 6(2)(c): inserted, on 29 March 2018 (with effect on 1 April 2008), by section 114(2) (and see section 114(3) for application) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
Section HC 6(2)(d): inserted, on 29 March 2018 (with effect on 1 April 2008), by section 114(2) (and see section 114(3) for application) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
Section HC 6(3) heading: substituted (with effect on 1 April 2009), on 7 December 2009, by section 43(3) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
Section HC 6(3): substituted (with effect on 1 April 2009), on 7 December 2009, by section 43(3) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
Section HC 6(4) heading: repealed (with effect on 1 April 2009), on 7 December 2009, by section 43(3) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
Section HC 6(4): repealed (with effect on 1 April 2009), on 7 December 2009, by section 43(3) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
Section HC 6 list of defined terms non-standard income year: repealed (with effect on 1 April 2009), on 7 December 2009, by section 126 of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
Section HC 6 list of defined terms return of income: inserted (with effect on 1 April 2009), on 7 December 2009, by section 126 of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
HC 7 Trustee income
Meaning
(1)
To the extent to which it is not beneficiary income, an amount of income derived by a trustee of a trust is trustee income.
Minors’ beneficiary income
(2)
An amount of beneficiary income to which section HC 35 applies that is derived in an income year by a person who is a minor is treated as if it were trustee income for the purposes of—
(a)
determining the tax rate that applies; and
(b)
paying the tax; and
(c)
providing returns of income.
Exclusions from corpus
(3)
The trustee of a trust has, from a property settlement that is referred to in section HC 4(3) to (5) and made in an income year, an amount of trustee income for the income year equal to the market value of the property settlement reduced by the amount of the market value that the trustee treats as beneficiary income, or as a taxable distribution made by the trustee, in the income year.
Defined in this Act: amount, beneficiary income, corpus, income, income year, minor, pay, return of income, settlement, taxable distribution, trustee, trustee income
Compare: 2004 No 35 ss HH 1(7), HH 3A(1)(a), OB 1 “trustee income”
Section HC 7(2): amended (with effect on 1 April 2008), on 6 October 2009, by section 261(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section HC 7(3): replaced (with effect on 1 April 2008), on 23 March 2020, by section 134(1) (and see section 134(3) for application) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
Section HC 7 list of defined terms taxable distribution: inserted (with effect on 1 April 2008), on 23 March 2020, by section 134(2) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
HC 8 Amounts received after person’s death
When this section applies
(1)
This section applies when a trustee of an estate of a deceased person receives an amount in an income year that is not income that the person derived during their lifetime, but would have been included in the person’s income had they been alive when it was received.
Reportable income received within 28 days after person’s death
(1B)
The trustee may treat an amount of reportable income received by the trustee within the period of 28 days starting with the date of the person’s death as if it were income that was derived by the person before being received by the trustee.
Income
(2)
An amount not treated as being derived by the person under subsection (1B) is treated under section CV 12 (Trustees: amounts received after person’s death) as income derived by the trustee in the income year.
Defined in this Act: amount, income, income year, reportable income, trustee
Compare: 2004 No 35 s HH 8
Section HC 8(1B) heading: inserted (with effect on 1 April 2022), on 31 March 2023, by section 77(1) (and see section 77(4) for application) of the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Act 2023 (2023 No 5).
Section HC 8(1B): inserted (with effect on 1 April 2022), on 31 March 2023, by section 77(1) (and see section 77(4) for application) of the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Act 2023 (2023 No 5).
Section HC 8(2): amended (with effect on 1 April 2022), on 31 March 2023, by section 77(2) (and see section 77(4) for application) of the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Act 2023 (2023 No 5).
Section HC 8 list of defined terms reportable income: inserted (with effect on 1 April 2022), on 31 March 2023, by section 77(3) of the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Act 2023 (2023 No 5).
Classification of trusts
HC 9 Classifying trusts
A trust is classified at the time it makes a distribution as—
(a)
a complying trust under section HC 10:
(b)
a foreign trust under section HC 11:
(c)
a non-complying trust under section HC 12.
Defined in this Act: complying trust, distribution, foreign trust, non-complying trust
HC 10 Complying trusts
Requirements for complying trusts
(1)
A trust is a complying trust in relation to a distribution if—
(a)
the following requirements are met for the life of the trust up to the time of distribution:
(i)
no trustee income derived includes an amount of non-resident passive income, or non-residents’ foreign-sourced income, or exempt income under section CW 54 (Foreign-sourced amounts derived by trustees); and
(ii)
the tax obligations relating to the trustee’s income tax liability have been satisfied for every tax year; or
(ab)
the requirements of paragraph (a) are not met and—
(i)
a person makes an election meeting the requirements of section HC 30(2) and the requirements of subsection (2) are met; or
(ii)
a person makes an election meeting the requirements of section HC 33(1) and for all income years beginning on or after the date on which the election applies to the trust and before the time of distribution, the trustee’s tax obligations relating to the trustee’s income tax liability for the trustee income, determined consistently with section HC 33(1C), are satisfied; or
(ac)
the requirements of paragraph (a) are not met and the distribution meets the requirements of section HC 30(4)(ab); or
(b)
it is a superannuation fund.
Foreign trust choosing to become complying trust
(2)
A foreign trust may become a complying trust to the extent set out in section HC 30 by—
(a)
an election being made under section HC 30(2)—
(i)
before the time of distribution; and
(ii)
by the election expiry date given by section HC 30(5) for section HC 30(2); and
(b)
the requirements of subsection (1)(a) are met for trustee income derived after the election date.
Life of trust
(3)
The life of the trust referred to in subsection (1)(a) includes every income year from the start of the income year in which a settlement was first made on the trust up to the time of the distribution.
Complying trusts: meeting requirements
(4)
For the purposes of subsection (1)(a) and (ab), section HC 29(6) does not apply in determining whether the requirements are met.
Defined in this Act: amount, complying trust, distribution, exempt income, foreign-sourced amount, foreign trust, income tax liability, income year, non-resident passive income, non-residents’ foreign-sourced income, resident in New Zealand, settlement, settlor, superannuation fund, tax year, trustee, trustee income
Compare: 2004 No 35 ss HH 2(2), HH 4(5) proviso, OB 1 “foreign trust”
, “qualifying trust”
Section HC 10(1)(ab): replaced, on 23 March 2020, by section 135(1) (and see section 135(3) for application) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
Section HC 10(1)(ac): inserted (with effect on 23 March 2020), on 30 March 2021, by section 86(1) (and see section 86(2) for application) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
Section HC 10(2)(a)(ii): replaced, on 18 March 2019, by section 208 of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
Section HC 10(3): amended, on 23 March 2020, by section 135(2) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
Section HC 10(4): replaced (with effect on 1 April 2008 and applying for the 2008–09 and later income years), on 24 February 2016, by section 185(3) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
HC 11 Foreign trusts
A trust is a foreign trust at a moment in time if no settlor is resident in New Zealand at any time in the period that—
(a)
starts on the later of 17 December 1987 and the date on which a settlement was first made on the trust; and
(b)
ends with the moment in time.
Defined in this Act: foreign trust, resident in New Zealand, settlement, settlor
Compare: 2004 No 35 s OB 1 “foreign trust”
Section HC 11: amended, on 21 February 2017, by section 5(a) of the Taxation (Business Tax, Exchange of Information, and Remedial Matters) Act 2017 (2017 No 3).
Section HC 11(b): amended, on 21 February 2017, by section 5(b) of the Taxation (Business Tax, Exchange of Information, and Remedial Matters) Act 2017 (2017 No 3).
HC 12 Non-complying trusts
A trust is a non-complying trust in relation to a distribution if it is neither a complying trust nor a foreign trust.
Defined in this Act: complying trust, distribution, foreign trust, non-complying trust
Compare: 2004 No 35 s OB 1 “non-qualifying trust”
HC 13 Charitable trusts
In the trust rules, a trust is a charitable trust in an income year if—
(a)
all income derived or accumulated by the trustee in that or in any earlier income year is held for charitable purposes; and
(b)
any income derived by the trustee in the income year is exempt income under either section CW 41(1) (Charities: non-business income) or CW 42(1) (Charities: business income).
Defined in this Act: charitable purpose, charitable trust, exempt income, income, income year, trust rules, trustee
Compare: 2004 No 35 s HH 1(5), (6)
Distributions from trusts
HC 14 Distributions from trusts
Transfers of value
(1)
A trustee makes a distribution when the trustee transfers value to a person because the person is a beneficiary of the trust.
Transfers to other trusts included
(2)
Despite subsection (1), a settlement for the benefit of a beneficiary is treated as a transfer of value only—
(a)
if the amount or the property being settled would have been beneficiary income of, or a taxable distribution to, a beneficiary, had it been distributed at the time to a beneficiary resident in New Zealand; or
(b)
when sections EW 50 or EZ 39 (which relate to forgiveness of debt) applies, if the property being settled is an amount forgiven and treated as paid as described in section EW 44(1) or (2) (Consideration when debt forgiven for natural love and affection) or EZ 39(1).
Payment of interest at rate above market rate not distribution
(2B)
If a trustee pays to a beneficiary interest on an amount owed to the beneficiary, the payment is not a distribution by the trustee except to the extent to which the interest exceeds the amount given by the rate that is the greater of the market rate and the prescribed rate of interest.
When distribution made
(3)
A distribution is made when what is transferred—
(a)
vests absolutely in interest in the person; or
(b)
is paid to the person.
Manner of distribution
(4)
A distribution may be made directly or indirectly, or by 1 transaction or a number of transactions, whether related, connected, or otherwise.
Nil value of beneficiary relationship
(5)
The fact that a person is, or will become, a beneficiary of a trust does not constitute the giving or receiving of value.
Defined in this Act: amount, beneficiary income, distribution, interest, pay, prescribed rate of interest, resident in New Zealand, settlement, taxable distribution, transfer of value, trustee
Compare: 2004 No 35 s OB 1 “distribution”
Section HC 14(2B) heading: inserted, on 23 March 2020, by section 136(1) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
Section HC 14(2B): inserted, on 23 March 2020, by section 136(1) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
Section HC 14 list of defined terms interest: inserted, on 23 March 2020, by section 136(2) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
Section HC 14 list of defined terms prescribed rate of interest: inserted, on 23 March 2020, by section 136(2) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
HC 15 Taxable distributions from non-complying and foreign trusts
When subsection (2) applies
(1)
Subsection (2) applies for a trust that is a non-complying trust at the time a distribution to a beneficiary is made.
Taxable distributions: non-complying trusts
(2)
The distribution is a taxable distribution to the extent to which it is not a distribution of—
(a)
beneficiary income; or
(b)
a part of the corpus of the trust; or
(c)
a payment or a transaction that represents a distribution of the corpus of the trust.
When subsection (4) applies
(3)
Subsection (4) applies for a trust that is a foreign trust at the time a distribution to a beneficiary is made.
Taxable distributions: foreign trusts
(4)
The distribution is a taxable distribution to the extent to which it is not a distribution of—
(a)
beneficiary income; or
(b)
a part of the corpus of the trust; or
(c)
a profit from the realisation of a capital asset or another capital gain; or
(cb)
a foreign superannuation withdrawal; or
(cc)
a pension; or
(d)
a payment or a transaction that represents a distribution of either the corpus of the trust referred to in paragraph (b) or a capital gain referred to in paragraph (c).
Determining amount of gain
(5)
For the purposes of subsection (4)(c),—
(a)
the profit or other capital gain does not include a gain that must be taken into account for the purposes of determining an income tax liability:
(ab)
if the trustee is not a trustee of a trust referred to in paragraph (ac), the profit or other capital gain does not include an amount of capital gain (the gain amount) that is derived by the trustee through a transaction or a series of transactions if—
(i)
the transaction or series of transactions is between the trustee and an associated person who is not a natural person or corporate trustee; and
(ii)
the gain amount is greater than the capital gain that the trustee would derive from a transaction at market value:
(ac)
if the trustee is a trustee of a trust, for which a CFC is a settlor and no person is treated as a settlor under section HC 28(3) or (4), the profit or other capital gain does not include an amount of capital gain that is derived by the trustee through a transaction or a series of transactions between the trustee and an associated person:
(b)
the amount of the profit is determined after subtracting any capital loss that the trustee incurs in the income year in which the amount was derived.
Certain capital gains for trustee of foreign trust
(5B)
For a foreign trust, profit described in subsection (5)(ab) or (ac) is income of the trustee for the purposes of section HC 16.
Source of income from capital gain
(5C)
The source of a capital gain that is included in a taxable distribution is determined for the trustee under section YD 4 (Classes of income treated as having New Zealand source) as if the capital gain were an amount of income.
Source of capital loss
(5D)
The source of a capital loss for the trustee is given by subsection (5C), applied as if the capital loss were a capital gain included in a taxable distribution.
Amounts not subject to ordering rule
(6)
To the extent to which a distribution is made from a trust that is not a complying trust by disposing of property at less than market value or providing financial assistance or services to a beneficiary at less than market value, the distribution is a taxable distribution and is not subject to the ordering rule in section HC 16.
Inadequate records
(7)
If the records of a trust that is not a complying trust do not allow an accurate determination of the elements of a distribution under section HC 16, the distribution is a taxable distribution.
Defined in this Act: amount, associated person, beneficiary income, complying trust, corpus, distribution, financial assistance, foreign superannuation withdrawal, foreign trust, income, income tax liability, income year, non-complying trust, pay, superannuation fund, taxable distribution, trustee
Compare: 2004 No 35 ss HH 6(2)(c), (3), OB 1 “taxable distribution”
Section HC 15(4)(cb): inserted, on 1 April 2014, by section 83(1) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
Section HC 15(4)(cc): inserted, on 1 April 2014, by section 83(1) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
Section HC 15(5)(a): replaced, on 18 March 2019, by section 209(1) (and see section 209(3) for application) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
Section HC 15(5)(ab): inserted, on 18 March 2019, by section 209(1) (and see section 209(3) for application) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
Section HC 15(5)(ac): inserted, on 18 March 2019, by section 209(1) (and see section 209(3) for application) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
Section HC 15(5B) heading: inserted, on 18 March 2019, by section 209(2) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
Section HC 15(5B): inserted, on 18 March 2019, by section 209(2) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
Section HC 15(5C) heading: inserted, on 23 March 2020, by section 137(1) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
Section HC 15(5C): inserted, on 23 March 2020, by section 137(1) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
Section HC 15(5D) heading: inserted, on 23 March 2020, by section 137(1) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
Section HC 15(5D): inserted, on 23 March 2020, by section 137(1) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
Section HC 15(6): amended, on 23 March 2020, by section 137(2) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
Section HC 15 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 HC 15 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 HC 15 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 HC 15 list of defined terms financial assistance: inserted, on 23 March 2020, by section 137(3) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
Section HC 15 list of defined terms foreign superannuation withdrawal: inserted, on 1 April 2014, by section 83(2) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
Section HC 15 list of defined terms income: inserted, on 23 March 2020, by section 137(3) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
HC 16 Ordering rule for distributions from non-complying and foreign trusts
When this section applies
(1)
This section applies for the purposes of the trust rules when a trustee of a non-complying trust or a foreign trust makes a distribution in an income year to a beneficiary. Subsections (6) and (7) override this subsection.
Order of elements of distribution
(2)
The distribution is treated as consisting of the following elements in the following order:
(aa)
first, an amount derived by the trustee that is beneficiary income of the beneficiary in the previous income year:
(a)
second, an amount of income that the trustee derives in the income year:
(b)
third, an amount of income, other than beneficiary income, that the trustee has derived in an earlier income year:
(c)
fourth, an amount that the trustee derives in the income year from the realisation of a capital asset of the trust or another capital gain and that is not income under section HC 15(5B) for the purposes of this section:
(d)
fifth, an amount that the trustee has derived in an earlier income year from the realisation of a capital asset of the trust or another capital gain:
(e)
last, the corpus of the trust.
Order and elements
(3)
In subsection (2),—
(a)
an amount must not be treated as included in the distribution if the amount has been treated under this section as being included in an earlier or contemporaneous distribution from the trust:
(b)
the paragraphs are applied in order, and the next paragraph applies only to the extent to which the amount of the distribution is more than the cumulative amounts described in that paragraph and the preceding paragraphs.
Deductions and capital losses subtracted
(4)
For the purposes of subsection (2),—
(a)
in paragraphs (a) and (b), the amount of income is determined after subtracting the amount of a deduction that is taken into account in the income year in the calculation of net or taxable income for the corresponding tax year:
(b)
in paragraphs (c) and (d), the amount is determined after subtracting the amount of a capital loss that the trustee incurs in the income year.
Transactions that are not genuine
(5)
In the determination of the elements of a distribution to a beneficiary (beneficiary A), no amount of income or capital gain derived by the trustee of the trust is treated as distributed to another beneficiary of the trust (beneficiary B) if the effect is that some or all of the distribution to beneficiary A would be treated as not being beneficiary income or a taxable distribution, unless the distribution to beneficiary B meets all the following requirements:
(a)
it is a genuine transaction entered into and carried out in good faith; and
(b)
[Repealed](c)
it does not itself constitute a settlement.
Exclusions: terms of trust
(6)
This section does not apply to the following distributions which are instead treated as consisting of the amount that reflects the terms of the trust or the terms of the exercise of the trustee’s discretion:
(a)
a distribution by the trustee of a complying trust which is treated as exempt income under section CW 53 (Distributions from complying trusts), unless an election to pay income tax on trustee income has been made for the purposes of section HZ 2 (Trusts that may become complying trusts); or
(b)
a distribution from a non-discretionary trust—
(i)
created by will or codicil, or by an order of court varying or modifying the provisions of a will or codicil; or
(ii)
created on an intestacy or partial intestacy; or
(iii)
on which no settlement has been made after 17 December 1987; or
(c)
a distribution from a trust, other than a non-complying trust, that is settled by a natural person and for which an election is made under section HC 30(2).
Exclusions: taxable distributions
(7)
This section does not apply to a distribution described in section HC 15(6).
Meaning of non-discretionary trust
(8)
In this section, a non-discretionary trust is a trust in relation to which the trustee has no discretion as to the source, nature, and amount of distributions to beneficiaries, including but not limited to the classification of trust property as capital or income.
Defined in this Act: amount, beneficiary income, complying trust, corpus, deduction, distribution, exempt income, foreign trust, income, income tax, income year, net income, New Zealand resident, non-complying trust, non-discretionary trust, settlement, tax year, taxable distribution, taxable income, trust rules, trustee, trustee income
Compare: 2004 No 35 s HH 6(1), (2), (4)
Section HC 16(2)(aa): inserted, on 23 March 2020, by section 138(1) (and see section 138(8) for application) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
Section HC 16(2)(a): amended, on 23 March 2020, by section 138(2) (and see section 138(8) for application) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
Section HC 16(2)(b): amended, on 23 March 2020, by section 138(3) (and see section 138(8) for application) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
Section HC 16(2)(c): replaced, on 18 March 2019, by section 210(1) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
Section HC 16(2)(c): amended, on 23 March 2020, by section 138(4) (and see section 138(8) for application) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
Section HC 16(2)(d): amended, on 23 March 2020, by section 138(5) (and see section 138(8) for application) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
Section HC 16(5): amended, on 23 March 2020, by section 138(6) (and see section 138(8) for application) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
Section HC 16(5)(b): repealed, on 23 March 2020, by section 138(7) (and see section 138(8) for application) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
Section HC 16(6)(c): replaced, on 18 March 2019, by section 210(2) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
Tax treatment of amounts that beneficiaries derive from trusts
HC 17 Amounts derived as beneficiary income
Non-minor beneficiaries
(1)
An amount that a person derives in an income year as beneficiary income is income of the person under section CV 13(a) (Amounts derived from trusts), except to the extent to which it is beneficiary income to which section HC 35 applies.
Minor beneficiaries
(2)
Subsection (1) does not apply to beneficiary income derived by a minor. The beneficiary income is excluded income of the minor, and treated as trustee income under sections CX 58 (Amounts derived by minors from trusts) and HC 35.
Defined in this Act: amount, beneficiary income, excluded income, income year, minor, trustee income
Compare: 2004 No 35 ss HH 3(1), HH 3A(1)(b)
HC 18 Taxable distributions from foreign trusts
An amount that a person derives in an income year as a taxable distribution from a foreign trust is income of the person under section CV 13(c) (Amounts derived from trusts).
Defined in this Act: amount, foreign trust, income, income year, taxable distribution
Compare: 2004 No 35 s HH 3(1)
Section HC 18: amended (with effect on 1 April 2008), on 2 November 2012 (applying for the 2008–09 and later income years), by section 82(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
HC 19 Taxable distributions from non-complying trusts
Excluded income
(1)
An amount that a person derives in an income year as a taxable distribution from a non-complying trust is excluded income of the person under section CX 59 (Taxable distributions from non-complying trusts).
Relationship with other provisions
(2)
Despite subsection (1), section BF 1(b) (Other obligations) applies to impose income tax on the amount of the taxable distribution. Section HC 22 may apply to reduce the amount of the taxable distribution, and section HC 34 sets the rate of tax for the purposes of section BF 1(b).
Defined in this Act: amount, excluded income, income tax, income year, non-complying trust, taxable distribution
Compare: 2004 No 35 s HH 3(1), (4)
HC 20 Distributions from complying trusts
An amount that a person derives in an income year is exempt income of the person under section CW 53 (Distributions from complying trusts) if—
(a)
the amount is a distribution from a complying trust other than a community trust; and
(b)
the amount is not beneficiary income.
Defined in this Act: amount, beneficiary income, community trust, complying trust, distribution, exempt income, income year
Compare: 2004 No 35 s HH 3(5)
HC 21 Distributions from community trusts
What this section applies to
(1)
This section applies when a community trust distributes an amount other than beneficiary income to a person.
Exclusion
(2)
Subsection (1) does not apply to the extent to which the amount represents—
(a)
income derived by the trustee in or before the 2003–04 income year:
(b)
corpus of the trust:
(c)
a capital gain of the trust:
(d)
a distribution, settlement, or dividend made or paid to the trust in the 2004–05 or 2005–06 income year on the winding up of a trust or company, if—
(i)
the community trust provided the corpus of the trust and the trust would have been run for charitable purposes but for the distribution, settlement, or dividend:
(ii)
the company is wholly-owned by the community trust and would have been established and run exclusively for charitable purposes but for the distribution, settlement, or dividend.
Income
(3)
Despite sections HC 15 and HC 20, the amount is income of the person under section CV 14 (Distributions from community trusts).
Defined in this Act: amount, beneficiary income, charitable purpose, community trust, company, corpus, distribution, dividend, income, income year, pay, settlement, trustee, trustee income
Compare: 2004 No 35 s HH 3(5A)
Section HC 21(3): amended (with effect on 1 April 2008), on 6 October 2009, by section 263(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
HC 22 Use of tax losses to reduce taxable distributions from non-complying trusts
When this section applies
(1)
This section applies in an income year when a person—
(a)
has, for the corresponding tax year, a tax loss component or loss balance to which sections IA 2 to IA 10 (which relate to the use of tax losses) apply; and
(b)
derives a taxable distribution from a non-complying trust to which section HC 19 applies.
Reducing taxable distribution
(2)
The person may reduce the amount of the taxable distribution by an amount calculated using the formula—
tax loss × tax rate ÷ distribution rate.
Definition of items in formula
(3)
In the formula,—
(a)
tax loss is the amount of a tax loss component or loss balance that the person chooses to use:
(b)
tax rate is the basic rate of income tax set out in schedule 1, part A, clause 3 (Basic tax rates: income tax, ESCT, RSCT, RWT, and attributed fringe benefits):
(c)
distribution rate is the basic rate of income tax set out in schedule 1, part A, clause 4.
Loss no longer available
(4)
If a person takes an amount of a tax loss or a loss balance into account under this section, the amount cannot be subtracted from their net income for the corresponding tax year for the purposes of section IA 2(2) (Tax losses).
Defined in this Act: amount, income tax, income year, loss balance, net income, non-complying trust, tax loss, tax loss component, tax year, taxable distribution
Compare: 2004 No 35 s HH 3(4)
Section HC 22(3)(b): amended, on 1 April 2008, by section 562 of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
HC 23 Temporary absences of beneficiaries
When this section applies
(1)
This section applies when—
(a)
a person who is a beneficiary of a trust and who is resident in New Zealand stops being resident; and
(b)
within a period of 5 years from the date of the end of their residence, they become resident in New Zealand again.
Income derived during the period
(2)
The person is treated as deriving income under section CV 15 (Amounts derived from trusts while person absent from New Zealand) to the extent to which they would have been treated as deriving an amount of beneficiary income or a taxable distribution from a foreign trust or a non-complying trust if they had remained in New Zealand for the period of their absence.
Allocation
(3)
The amount is treated as derived on the day on which the person becomes resident in New Zealand again.
Defined in this Act: amount, beneficiary income, foreign trust, income, non-complying trust, resident in New Zealand, taxable distribution
Compare: 2004 No 35 s HH 3(3)
Tax treatment of trustee income
HC 24 Trustees’ obligations
Liability as individual for trustee income
(1)
A trustee must satisfy the income tax liability for their taxable income as if they were an individual beneficially entitled to the trustee income.
No tax credits
(2)
In determining the income tax liability, the trustee is not entitled to have a tax credit under subparts LC and LD (which relate to tax credits for natural persons and for certain gifts).
Beneficiary income of minors
(3)
Section HC 35 applies to treat beneficiary income derived by a minor as if it were trustee income.
Calculating trustees’ deductions
(4)
Section DV 9(2) (Trusts) applies for the purposes of calculating a trustee’s deductions.
Superannuation funds
(5)
Sections CX 40, and DV 1 to DV 4 (which relate to superannuation funds) override this section.
Defined in this Act: beneficiary income, deduction, income tax liability, minor, tax credit, taxable income, trustee, trustee income
Compare: 2004 No 35 ss DV 9(2), HH 4(1), (2)
Section HC 24(2) heading: replaced (with effect on 1 April 2009), on 2 November 2012 (applying for the 2009–10 and later income years), by section 83(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section HC 24(2): replaced (with effect on 1 April 2009), on 2 November 2012 (applying for the 2009–10 and later income years), by section 83(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section HC 24 list of defined terms cash basis person: repealed (with effect on 1 April 2009), on 30 March 2021, by section 87 of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
HC 25 Foreign-sourced amounts: non-resident trustees
When this section applies
(1)
This section applies when a non-resident trustee derives, as trustee income, in an income year a foreign-sourced amount that would be assessable income if derived by a person resident in New Zealand.
Trustee income
(2)
Despite section BD 1(4)(a), (b), and (5)(c) (Income, exempt income, excluded income, non-residents’ foreign-sourced income, and assessable income), the amount is assessable income of the trustee if, at any time in the income year,—
(a)
a settlor of the trust is a New Zealand resident who is not a transitional resident; or
(b)
the trust is a superannuation fund; or
(c)
the trust is a testamentary trust or an inter vivos trust, of which—
(i)
a trustee is resident in New Zealand; and
(ii)
a settlor died resident in New Zealand (whether or not they died in the income year) or the last surviving settlor was resident in New Zealand when that settlor ceased to exist.
First exception
(3)
Subsection (2) does not apply if—
(a)
the trustee is resident outside New Zealand at all times in the income year; and
(b)
no settlement has been made on the trust after 17 December 1987 and, if an election has been made under section HZ 2 (Trusts that may become complying trusts), the election has not been made by the trustee.
Second exception
(4)
Subsection (2) does not apply if—
(a)
the trustee is resident outside New Zealand at all times in the income year; and
(b)
when a settlement has been made on the trust after 17 December 1987, it was made only by a settlor who is not resident in New Zealand—
(i)
at the date of the settlement; and
(ii)
at any time between 17 December 1987 and the date of settlement.
Extent to which subsections (3) and (4) apply
(5)
Subsections (3) and (4) do not—
(a)
affect a settlor’s income tax liability under the trust rules:
(b)
apply to determine whether the tax obligations in relation to the trustee’s income tax liability are met for the purposes of section HC 10(1)(a)(ii) and meeting the requirements for a complying trust.
Treatment of non-resident trustee in other provisions
(6)
For the purpose only of calculating the taxable income of a trustee referred to in subsection (2), and not otherwise, the trustee is treated as resident in New Zealand for the purposes of—
(a)
sections EW 9 and EW 11 (which relate to financial arrangements):
(b)
section LJ 2 (Tax credits for foreign income tax):
(c)
section OE 1 (General rules for persons with branch equivalent tax accounts):
(d)
the international tax rules.
Defined in this Act: amount, assessable income, complying trust, foreign-sourced amount, income, income tax liability, income year, international tax rules, New Zealand, New Zealand resident, non-resident, resident in New Zealand, settlement, settlor, superannuation fund, taxable income, transitional resident, trust rules, trustee
Compare: 2004 No 35 s HH 4(3), (3A), (6) provisos
Section HC 25(1): amended (with effect on 1 April 2008), on 2 November 2012 (applying for the 2008–09 and later income years), by section 84(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section HC 25(2)(c)(ii): amended, on 23 March 2020, by section 139 of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
Section HC 25(6)(c): replaced, on 1 July 2012 (applying for income years beginning on or after that date), by section 75(1) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
HC 26 Foreign-sourced amounts: resident trustees
Exempt income
(1)
A foreign-sourced amount that a resident trustee of a foreign trust derives in an income year, and is included in trustee income for the income year, is exempt income under section CW 54 (Foreign-sourced amounts derived by trustees) if—
(a)
no settlor of the trust is at any time in the income year a New Zealand resident who is not a transitional resident or, if no settlor exists in the income year, the last surviving settlor was a non-resident when that settlor ceased to exist; and
(ab)
no election under section HC 33 has been made for the trust; and
(b)
the trust is not—
(i)
a superannuation fund; or
(ii)
a testamentary trust or an inter vivos trust of which a settlor died resident in New Zealand (whether or not they died in the income year); and
(c)
for a trust for which a resident trustee applies for registration within the period (the application period) given by section 59C of the Tax Administration Act 1994 and that is registered by the end of the income year (the post-deadline year) beginning next after the end of the application period,—
(i)
the trust has a trust deed or a will or other document that creates and governs the trust; and
(ii)
the income year ends after the day on which the Taxation (Business Tax, Exchange of Information, and Remedial Matters) Act 2017 receives the Royal assent; and
(iii)
for an income year that includes part of the application period or is the post-deadline year, the trust is registered before the end of the post-deadline year and is not deregistered before the foreign-sourced amount is derived; and
(iv)
for an income year beginning after the end of the post-deadline year, the trust is registered when the foreign-sourced amount is derived; and
(v)
the trustee complies with the requirements under sections 22, 59B, 59C, and 59D of the Tax Administration Act 1994 that the trustee must meet during the income year; and
(d)
for a trust to which paragraph (c) does not apply,—
(i)
the trust has a trust deed or a will or other document that creates and governs the trust; and
(ii)
the trust is registered at the beginning of the income year; and
(iii)
the trust is registered when the foreign-sourced amount is derived; and
(iv)
the trustee complies with the requirements under sections 22, 59B, 59C, and 59D of the Tax Administration Act 1994 that the trustee must meet during the income year; and
(e)
the amount is not beneficiary income derived by a minor that is treated as if it were trustee income.
Time for compliance with requirements
(1B)
For a trustee to satisfy subsection (1)(c)(iii), (iv), or (v) or (d)(ii), (iii), or (iv) for an income year, the trustee must—
(a)
comply in the income year with the requirements referred to in the subparagraph:
(b)
satisfy the Commissioner that the trustee made reasonable efforts in the income year to comply with the requirements referred to in the subparagraph and to remedy the non-compliance.
When subsection (3) applies[Repealed]
(2)
[Repealed]When knowledge offence committed[Repealed]
(3)
[Repealed]Exception[Repealed]
(4)
[Repealed]Defined in this Act: beneficiary income, Commissioner, exempt income, foreign-sourced amount, foreign trust, income year, minor, New Zealand resident, non-resident, settlor, superannuation fund, transitional resident, trustee, trustee income
Compare: 2004 No 35 s HH 4(3B), (3BB), (3BC)
Section HC 26(1): amended, on 1 April 2023, by section 78(1) of the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Act 2023 (2023 No 5).
Section HC 26(1): amended, on 23 March 2020, by section 140(1) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
Section HC 26(1)(a): amended, on 23 March 2020, by section 140(2) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
Section HC 26(1)(ab): inserted, on 23 March 2020, by section 140(3) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
Section HC 26(1)(b)(ii): amended, on 21 February 2017, by section 6(1) of the Taxation (Business Tax, Exchange of Information, and Remedial Matters) Act 2017 (2017 No 3).
Section HC 26(1)(c): inserted, on 21 February 2017, by section 6(2) of the Taxation (Business Tax, Exchange of Information, and Remedial Matters) Act 2017 (2017 No 3).
Section HC 26(1)(c): amended, on 1 April 2023, by section 78(2) of the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Act 2023 (2023 No 5).
Section HC 26(1)(c)(i): amended (with effect on 21 February 2017), on 31 March 2023, by section 78(3) of the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Act 2023 (2023 No 5).
Section HC 26(1)(d): inserted, on 21 February 2017, by section 6(2) of the Taxation (Business Tax, Exchange of Information, and Remedial Matters) Act 2017 (2017 No 3).
Section HC 26(1)(d): amended, on 1 April 2023, by section 78(4) of the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Act 2023 (2023 No 5).
Section HC 26(1)(d)(i): amended (with effect on 21 February 2017), on 31 March 2023, by section 78(5) of the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Act 2023 (2023 No 5).
Section HC 26(1)(d)(iv): amended, on 23 March 2020, by section 140(4) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
Section HC 26(1)(e): inserted, on 23 March 2020, by section 140(5) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
Section HC 26(1B) heading: inserted, on 21 February 2017, by section 6(3) of the Taxation (Business Tax, Exchange of Information, and Remedial Matters) Act 2017 (2017 No 3).
Section HC 26(1B): inserted, on 21 February 2017, by section 6(3) of the Taxation (Business Tax, Exchange of Information, and Remedial Matters) Act 2017 (2017 No 3).
Section HC 26(1B): amended, on 1 April 2023, by section 78(6) of the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Act 2023 (2023 No 5).
Section HC 26(1B)(b): replaced, on 1 April 2023, by section 78(7) of the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Act 2023 (2023 No 5).
Section HC 26(2) heading: repealed, on 21 February 2017, pursuant to section 6(4) of the Taxation (Business Tax, Exchange of Information, and Remedial Matters) Act 2017 (2017 No 3).
Section HC 26(2): repealed, on 21 February 2017, by section 6(4) of the Taxation (Business Tax, Exchange of Information, and Remedial Matters) Act 2017 (2017 No 3).
Section HC 26(3) heading: repealed, on 21 February 2017, pursuant to section 6(4) of the Taxation (Business Tax, Exchange of Information, and Remedial Matters) Act 2017 (2017 No 3).
Section HC 26(3): repealed, on 21 February 2017, by section 6(4) of the Taxation (Business Tax, Exchange of Information, and Remedial Matters) Act 2017 (2017 No 3).
Section HC 26(4) heading: repealed, on 21 February 2017, pursuant to section 6(4) of the Taxation (Business Tax, Exchange of Information, and Remedial Matters) Act 2017 (2017 No 3).
Section HC 26(4): repealed, on 21 February 2017, by section 6(4) of the Taxation (Business Tax, Exchange of Information, and Remedial Matters) Act 2017 (2017 No 3).
Section HC 26 list of defined terms beneficiary income: inserted, on 23 March 2020, by section 140(6) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
Section HC 26 list of defined terms minor: inserted, on 23 March 2020, by section 140(6) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
Section HC 26 list of defined terms non-resident: inserted, on 23 March 2020, by section 140(6) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
Section HC 26 list of defined terms trustee income: inserted, on 23 March 2020, by section 140(6) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
Settlors and their liabilities
HC 27 Who is a settlor?
When this section applies[Repealed]
(1)
[Repealed]Meaning of settlor
(2)
A settlor of a trust is a person who, at any time,—
(a)
transfers value—
(i)
to the trust; or
(ii)
for the benefit of the trust; or
(iii)
on terms of the trust:
(ab)
provides, for less than market value, services to the trust or for the benefit of the trust that are more than incidental to the operation of the trust:
(b)
provides financial assistance to the trust or for the benefit of the trust with an obligation to pay on demand, and the right to demand is not exercised or is deferred:
(bb)
is a beneficiary of the trust who is owed money by the trustee and does not meet the requirements of subsection (6):
(c)
is treated as a settlor under section HC 28.
Trusts for retirement benefits for employees
(3)
Despite subsection (2), a person resident in New Zealand who makes a settlement on a trust as an employer for the benefit of 1 or more employees is not a settlor of the trust if the following circumstances apply:
(a)
the trust is established or created mainly to provide retirement benefits to natural persons; and
(b)
the trust is neither a foreign superannuation scheme nor a superannuation fund.
Employee share purchase agreements[Repealed]
(3B)
[Repealed]Contributions to foreign superannuation scheme
(3C)
Despite subsection (2), a person who makes a contribution to a trust that is a foreign superannuation scheme is not a settlor of the trust.
Resettlements
(3D)
Despite subsection (2), a trustee of a trust (the head-trust) who is resident in New Zealand and settles an amount on a second trust (the sub-trust), or makes a distribution to, or on terms of, the sub-trust, is not a settlor of the sub-trust if, when the settlement or distribution is made on or to the sub-trust,—
(a)
a settlor of the head-trust exists and each settlor of the head-trust is a non-resident; or
(b)
no settlor of the head-trust exists and the last surviving settlor of the head-trust was a non-resident when that settlor ceased to exist.
Indirect settlement
(4)
A person may make a transfer of value, or provision of financial assistance, referred to in subsection (2) directly or indirectly and by 1 transaction or a number of connected transactions.
Nil value of beneficiary relationship
(5)
The fact that a person is, or will become, a beneficiary of a trust does not constitute the giving or receiving of value.
Beneficiaries owed money by trustee
(6)
When a trustee of a trust owes an amount to a beneficiary of the trust, the beneficiary does not become a settlor of the trust under subsection (2) solely as a result of being owed the amount if—
(a)
the amount owing at the end of the income year is not more than $25,000:
(b)
the amount owing at the end of the income year is more than $25,000 and the trustee pays to the beneficiary, for each income year in which the amount is owing and by the date given for the income year by section HC 6(1B), interest on the amount at a rate equal to the prescribed rate of interest or the market rate.
Determining amount owed to beneficiary
(7)
For the purposes of subsection (6), the amount of money owing to a beneficiary at the end of an income year is the amount of the debt at that time, adjusted to include the effect of transactions that are—
(a)
made after the end of the income year and by the date given for the income year by section HC 6(1B); and
(b)
included in the financial statements of the trust for the income year.
Defined in this Act: amount, assessable income, Commissioner, distribution, employee, employer, foreign superannuation scheme, income, income year, interest, non-resident, pay, prescribed rate of interest, resident in New Zealand, settlor, share, superannuation fund, transfer of value, trust rules, trustee
Compare: 2004 No 35 ss HH 1(10), OB 1 “settlor”
Section HC 27(1) heading: repealed (with effect on 1 April 2014), on 24 February 2016, pursuant to section 186(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section HC 27(1): repealed (with effect on 1 April 2014), on 24 February 2016, by section 186(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section HC 27(2)(ab): inserted (with effect on 1 April 2008), on 18 March 2019, by section 211(1) (and see section 211(5) for application) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
Section HC 27(2)(ab): amended, on 18 March 2019, by section 211(2) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
Section HC 27(2)(bb): inserted (with effect on 1 April 2020), on 30 March 2021, by section 88(1) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
Section HC 27(3): substituted (with effect on 1 April 2008), on 6 October 2009, by section 264(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section HC 27(3B) heading: repealed, on 29 September 2018, pursuant to section 115(1) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
Section HC 27(3B): repealed, on 29 September 2018, by section 115(1) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
Section HC 27(3C) heading: inserted, on 1 April 2014, by section 84 of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
Section HC 27(3C): inserted, on 1 April 2014, by section 84 of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
Section HC 27(3D) heading: inserted, on 18 March 2019, by section 211(3) (and see section 211(6) for application) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
Section HC 27(3D): inserted, on 18 March 2019, by section 211(3) (and see section 211(6) for application) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
Section HC 27(4): replaced, on 23 March 2020, by section 141(1) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
Section HC 27(6) heading: replaced (with effect on 1 April 2020), on 30 March 2021, by section 88(2) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
Section HC 27(6): inserted, on 1 April 2020, by section 67(1) of the Taxation (Annual Rates for 2019–20, GST Offshore Supplier Registration, and Remedial Matters) Act 2019 (2019 No 33).
Section HC 27(6): amended, on 1 April 2020, by section 141(2)(b) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
Section HC 27(6)(a): replaced (with effect on 1 April 2020), on 30 March 2021, by section 88(3) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
Section HC 27(6)(b): replaced, on 1 April 2020, by section 141(2)(c) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
Section HC 27(6)(b): amended (with effect on 1 April 2020), on 30 March 2021, by section 88(4) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
Section HC 27(7) heading: inserted (with effect on 1 April 2020), on 30 March 2021, by section 88(5) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
Section HC 27(7): inserted (with effect on 1 April 2020), on 30 March 2021, by section 88(5) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
Section HC 27 list of defined terms amount: inserted (with effect on 1 April 2008), on 7 December 2009, by section 126 of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
Section HC 27 list of defined terms assessable income: inserted (with effect on 1 April 2008), on 7 December 2009, by section 126 of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
Section HC 27 list of defined terms Commissioner: inserted (with effect on 1 April 2008), on 7 December 2009, by section 126 of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
Section HC 27 list of defined terms consolidation rules: repealed (with effect on 1 April 2014), on 24 February 2016, by section 186(2) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section HC 27 list of defined terms distribution: inserted, on 18 March 2019, by section 211(4) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
Section HC 27 list of defined terms income: inserted (with effect on 1 April 2008), on 7 December 2009, by section 126 of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
Section HC 27 list of defined terms income year: inserted, on 1 April 2020, by section 67(2) of the Taxation (Annual Rates for 2019–20, GST Offshore Supplier Registration, and Remedial Matters) Act 2019 (2019 No 33).
Section HC 27 list of defined terms interest: inserted, on 1 April 2020, by section 67(2) of the Taxation (Annual Rates for 2019–20, GST Offshore Supplier Registration, and Remedial Matters) Act 2019 (2019 No 33).
Section HC 27 list of defined terms non-resident: inserted, on 18 March 2019, by section 211(4) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
Section HC 27 list of defined terms prescribed rate of interest: inserted, on 23 March 2020, by section 141(3) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
Section HC 27 list of defined terms share: inserted (with effect on 1 April 2008), on 7 December 2009, by section 126 of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
Section HC 27 list of defined terms share purchase agreement: repealed, on 29 September 2018, by section 115(2) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
Section HC 27 list of defined terms trustee: inserted (with effect on 1 April 2008), on 7 December 2009, by section 126 of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
HC 28 Activities treated as those of settlor
When this section applies
(1)
This section applies for the purposes of the trust rules to describe certain activities of a person that result in the person being treated as a settlor.
Avoidance
(2)
A person is treated as a settlor if, in relation to a trust,—
(a)
they act, refrain from acting, or enter into a transaction or a series of transactions; and
(b)
what is done or not done has the effect of defeating the intent and application of the trust rules.
Shareholders in controlled foreign companies
(3)
A person is treated as a settlor of a trust if a controlled foreign company settles an amount on a trust and the person has a control interest of 10% or more in the CFC—
(a)
at the time of the settlement:
(b)
for the accounting period of the CFC in which the settlement occurs.
Shareholders in companies
(4)
A person is treated as a settlor of a trust if—
(a)
a company settles an amount on the trust; and
(b)
the company would have been a CFC at the date of settlement if it had been a foreign company at the time; and
(c)
the person would be treated as having a control interest of 10% or more in the company, if the company were a foreign company,—
(i)
at the time of the settlement:
(ii)
under section EX 1(3), for the accounting period of the company in which the settlement occurs.
Second trusts
(5)
A person is treated as a settlor of a trust (the sub-trust) if—
(a)
they are a settlor of a trust (the head-trust); and
(b)
a trustee of the head-trust settles an amount on the subtrust, or makes a distribution to, or on terms of the subtrust.
Control over trustee or settlor
(6)
A person is treated as a settlor of a trust if—
(a)
they acquire, directly or indirectly, rights or powers in relation to a trustee or a settlor of the trust; and
(b)
the acquisition has the purpose or effect of enabling them to require the trustee to treat them, or a nominee, as a beneficiary of the trust.
Defined in this Act: accounting period, amount, business, CFC, company, control interest, controlled foreign company, distribution, foreign company, nominee, settlement, settlor, shareholder, trust rules, trustee
Compare: 2004 No 35 ss HH 1(1)–(4), (8), (10), OB 1 “settlor”
Section HC 28(3): replaced, on 23 March 2020, by section 142(1) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
Section HC 28(4)(c): replaced, on 23 March 2020, by section 142(2) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
Section HC 28 list of defined terms accounting period: inserted, on 23 March 2020, by section 142(3) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
Section HC 28 list of defined terms controlled foreign company: inserted, on 23 March 2020, by section 142(3) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
HC 29 Settlors’ liability to income tax
When this section applies
(1)
This section applies to a person who makes a settlement to or for the benefit of a trust after 17 December 1987, and the settlor is resident in New Zealand in an income year. It applies whether or not they settled property on the trust on or before that date. Subsections (3) and (4) override this subsection.
Liable as agent
(2)
If a trustee of the trust derives trustee income in the income year, the settlor is liable as agent of the trustee for income tax payable by the trustee. For a trust with more than 1 settlor, the liability is joint and several. However, this subsection does not apply to income tax that the trustee is liable for as agent under section HC 32.
Exclusion: resident trustee
(3)
This section does not apply if the trust has a resident trustee for the full income year or, if the first settlement on the terms of the trust is made during the income year, from the day on which the settlement is made to the end of the income year.
Exclusion: trust types
(4)
This section does not apply to the settlor of—
(a)
a charitable trust; or
(b)
a superannuation fund; or
(c)
a trust to the extent to which trustee income is derived from the settlor’s remitting an amount under a financial arrangement to which section EW 31 or EZ 38 (which relate to base price adjustments) applies.
Exclusion: settlor not resident at time of settlement
(5)
This section does not apply if the settlor is a natural person who, unless they make an election under section HC 33,—
(a)
is not resident in New Zealand at the time of any settlement on the trust; and
(b)
had not after 17 December 1987 previously been resident in New Zealand.
Exclusion: other settlor more appropriately liable
(6)
This section does not apply to the extent to which the settlor establishes, through full disclosure to the Commissioner of the settlements made, that another person who has settled property on the trust should be liable, having regard to the respective settlements made.
Limited effect of disclosure
(7)
Subsection (6) does not apply to determine whether the tax obligations in relation to the trustee’s income tax liability are met for the purposes of section HC 10(1)(a) and (ab) and meeting the requirements for a complying trust.
Defined in this Act: agent, amount, charitable trust, Commissioner, complying trust, financial arrangement, income tax, income tax liability, income year, pay, resident in New Zealand, settlement, settlor, superannuation fund, trustee, trustee income
Compare: 2004 No 35 s HH 4(4), (5)
Section HC 29(7): amended (with effect on 1 April 2008 and applying for the 2008–09 and later income years), on 24 February 2016, by section 187(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Treatment of transition situations
HC 30 Treatment of foreign trusts when settlor becomes resident
What this section applies to
(1)
This section applies for the purposes of section HC 15 and the definition of taxable distribution when—
(a)
a settlor of a trust is a natural person who on a day (the transition date)—
(i)
becomes resident in New Zealand and is not a transitional resident:
(ii)
stops being a transitional resident and continues to be a New Zealand resident; and
(b)
the trust would be a foreign trust in relation to a distribution if a distribution were made immediately before the settlor became resident.
Choosing to satisfy tax liability
(2)
A settlor, trustee, or beneficiary of the trust may choose to satisfy the income tax liability of the trustee under section HC 33. They must make the election by the election expiry date.
Tax consequences of making election
(3)
If an election under subsection (2) is made, the trust is treated as follows:
(a)
as a foreign trust to the extent to which the distribution consists of an amount derived by the trustee before the date of the election and which does not give rise after the transition date to an income tax liability that is paid before the distribution is made:
(b)
as a complying trust to the extent to which the distribution consists of an amount that is derived by the trustee—
(i)
before the date of the election and gives rise on or after the transition date to an income tax liability that is paid before the distribution is made; or
(ii)
on or after the date of the election, if the requirements of section HC 10(1)(a) are met for the trustee income derived on or after the date of the election:
(c)
as a non-complying trust to the extent to which the distribution consists of an amount that would not be included in a distribution described in paragraphs (a) and (b).
Tax consequences when no election made
(4)
If an election under subsection (2) is not made, the trust is treated as follows:
(a)
as a foreign trust to the extent to which the distribution consists of an amount that is derived by the trustee before the election expiry date and does not give rise on or after the transition date to an income tax liability:
(ab)
as a complying trust to the extent to which the distribution consists of an amount derived by the trustee that gives rise on or after the transition date to an income tax liability meeting the requirements of subsection (4B) or section HC 10(1)(ab):
(b)
as a non-complying trust to the extent to which the distribution consists of an amount derived by the trustee that gives rise on or after the transition date to an income tax liability that is not satisfied before the distribution is made.
Tax shortfall voluntarily disclosed
(4B)
An income tax liability meets the requirements of this subsection if—
(a)
the income tax liability is satisfied before the distribution is made, other than for the trust as a complying trust under an election under section HC 33; and
(b)
the income tax liability gives rise to a tax shortfall for the trustee for an income year ending before the distribution is made; and
(c)
where a shortfall penalty arises for the tax shortfall, the shortfall penalty is satisfied before the distribution is made.
Election expiry date
(5)
In this section, the election expiry date is the day that is the first anniversary of the transition date.
Calculating income derived before election or election expiry date
(6)
For the purposes of subsections (3) and (4), the amount derived in the part of the income year before the person makes the election, or before the election expiry date, as applicable, is at the option of the person either—
(a)
the amount actually derived in the part year; or
(b)
an amount calculated using the formula—
amount derived in income year of election
× days before election date or election expiry date ÷ 365.
Defined in this Act: amount, complying trust, distribution, election expiry date, foreign trust, income tax liability, income year, non-complying trust, resident in New Zealand, settlor, taxable distribution, transitional resident, trustee
Compare: 2004 No 35 s HH 2
Section HC 30(3)(a): amended, on 18 March 2019, by section 212(1) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
Section HC 30(3)(b): replaced, on 18 March 2019, by section 212(2) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
Section HC 30(3)(c): replaced, on 18 March 2019, by section 212(2) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
Section HC 30(4)(a): replaced, on 18 March 2019, by section 212(3) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
Section HC 30(4)(ab): inserted (with effect on 23 March 2020), on 30 March 2021, by section 89(1) (and see section 89(4) for application) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
Section HC 30(4)(ab): amended (with effect on 23 March 2020), on 30 March 2021, by section 89(2) (and see section 89(5) for application) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
Section HC 30(4)(b): replaced (with effect on 23 March 2020), on 30 March 2021, by section 89(1) (and see section 89(4) for application) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
Section HC 30(4B) heading: inserted (with effect on 23 March 2020), on 30 March 2021, by section 89(3) (and see section 89(4) for application) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
Section HC 30(4B): inserted (with effect on 23 March 2020), on 30 March 2021, by section 89(3) (and see section 89(4) for application) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
Valuation of property, trading stock, and financial arrangements
HC 31 When existing trusts come into tax base
When this section applies
(1)
This section applies if, through a change in circumstances, an amount derived by a trustee of a trust on a day in an income year is assessable income when it would not have been assessable income had it been derived before that day. Examples of a change in circumstances are—
(a)
a non-resident settlor becomes resident in New Zealand, see section HC 30.
(b)
[Repealed]When this section does not apply
(1B)
This section does not apply if the relevant change in circumstances is a charitable trust failing to meet the requirements to derive exempt income under section CW 41 or CW 42 (which relate to charities). Instead, see sections HR 11 and HR 12 (which relate to non-exempt charities).
Person able to make choice
(2)
The choice given in subsections (3) and (4) is to be made by the person who is liable to satisfy the income tax liability of the trustee.
Establishing cost of trust property
(3)
For the purposes of this Act, the cost of premises, plant, equipment, and trading stock of the trust at the date of the change in circumstances is either—
(a)
the historical cost of the property or trading stock less accumulated depreciation loss, or other value, no higher than market value, that the trustee used at that date for income tax purposes in a country or territory in which the trustee is liable to pay income tax on trustee income; or
(b)
the value that would be used at that date under this Act, calculated as if the trustee income derived by the trustee had always been assessable income.
Consideration for financial arrangements
(4)
For the purposes of this Act, the consideration for a financial arrangement of the trust at the date of the change in circumstances is either—
(a)
the market value of the financial arrangement on that date; or
(b)
the value calculated using the formula—
consideration paid to person + expenditure
− consideration paid by person − income.
Definition of items in formula
(5)
In the formula,—
(a)
consideration paid to person is the consideration that is paid to the person before the date:
(b)
expenditure is the expenditure that would have been incurred under the financial arrangements rules before the date:
(c)
consideration paid by person is the consideration that is paid by the person before the date:
(d)
income is the income that would have been derived under the financial arrangements rules before the date.
Non-resident passive income
(6)
For the purposes of subsections (1) and (3)(b), assessable income does not include an amount derived only as non-resident passive income.
Defined in this Act: amount, assessable income, business, charitable trust, consideration, depreciation loss, financial arrangement, financial arrangements rules, income, income tax, income tax liability, income year, non-resident, non-resident passive income, pay, resident in New Zealand, settlor, trading stock, trustee, trustee income
Compare: 2004 No 35 s HH 5
Section HC 31(1)(a): amended (with effect on 1 April 2008), on 29 August 2011 (applying for the 2008–09 and later income years), by section 140(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section HC 31(1)(b): repealed (with effect on 14 April 2014), on 30 June 2014, by section 124(1) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section HC 31(1B) heading: inserted (with effect on 14 April 2014), on 30 June 2014, by section 124(2) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section HC 31(1B): inserted (with effect on 14 April 2014), on 30 June 2014, by section 124(2) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
HC 31B Value transfer by deferral, or non-exercise, of right to demand payment
When this section applies
(1)
This section applies when a person (the creditor) provides financial assistance to or for the benefit of another person (the debtor) with an obligation (the debtor obligation) that the debtor could meet, if performance of the obligation were demanded immediately after the time of the provision, by paying an amount (the debt amount) and—
(a)
the debtor does not pay to the creditor, for a period for which the debtor has the debtor obligation, interest on the debt amount at a rate equal to the prescribed rate of interest or the market rate; and
(b)
the debtor obligation is not forgiven; and
(c)
the right of the creditor to demand payment of the debt amount under the debtor obligation is not exercised or is deferred; and
(d)
the non-exercise, or the deferral, results in a transfer of value by the creditor; and
(e)
the transfer of value meets the requirements of—
(i)
section HC 14 for the transfer of value to be a distribution made by a trustee:
(ii)
section HC 27(2)(b) for the creditor to be a settlor of a trust.
When this section does not apply
(2)
This section does not apply to a situation in the application of section HC 27(6) to the situation.
Valuation
(3)
The value transferred by the creditor during a period for which the debtor obligation exists is the amount calculated for the debt amount, treated as a loan, using the formula—
benchmark interest – interest paid.
Definition of items in formula
(4)
In the formula,—
(a)
benchmark interest is the amount of interest that would have accrued on the debt amount that is unpaid during the period if the interest had been calculated on the daily balance of the loan at a rate that is equal to whichever the debtor chooses of the prescribed rate of interest and the market rate:
(b)
interest paid is the total of—
(i)
the amount of interest that accrues on the debt amount during the period:
(ii)
the amount that would have accrued as interest on the debt amount during the period if the amount had not been included in a taxable distribution to the debtor:
(iii)
for a period that includes the date on which the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 receives the Royal assent (the transition date), the amount that is benchmark interest for the part of the period that precedes the transition date.
Defined in this Act: distribution, interest, prescribed rate of interest, settlor, transfer of value, trustee
Section HC 31B: inserted, on 23 March 2020, by section 143 of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
Rate and payment of income tax
HC 32 Liability of trustee as agent
When this section applies
(1)
This section applies in an income year when a beneficiary of a trust derives an amount of beneficiary income or a taxable distribution.
Exclusion
(2)
Subsection (1) does not apply to a person who derives an amount from a community trust.
Agency
(3)
In their capacity as agent, the trustee must satisfy the income tax liability of the beneficiary for their beneficiary income and taxable distributions derived.
Relationship to other provisions
(4)
Section HD 4(b) (Treatment of principals) overrides this section.
Defined in this Act: agent, amount, beneficiary income, community trust, income tax liability, income year, taxable distribution, trustee
Compare: 2004 No 35 ss HH 3(2), HK 3(1A)
Section HC 32(2): amended (with effect on 1 April 2008), on 6 October 2009, by section 265(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
HC 33 Choosing to satisfy income tax liability of trustee
Election to satisfy tax liability
(1)
A person who is a trustee, settlor, or beneficiary of a trust as described in subsection (2) may choose to satisfy the income tax liability of the trustee of the trust.
Trustee treated as making election
(1B)
A trustee is treated as making an election under subsection (1), if—
(a)
for the period beginning at the start of the income year in which a settlement is first made on the trust and ending before the date on which the trust ceases to be a complying trust as described in paragraph (b), the trust is a complying trust under section HC 10(1)(a); and
(b)
the trust ceases to meet the requirement in section HC 10(1)(a)(i) in an income year (the non-complying year); and
(c)
the trustee meets the tax obligations relating to the income tax liability referred to in subsection (2), for the non-complying year and notifies the Commissioner that the trust is a complying trust for the non-complying year,—
(i)
for a trustee that is required to file a return of income for the non-complying year, in the return of income and by the due date for the return of income:
(ii)
for a trustee that is not required to file a return of income for the non-complying year, by the due date for a return, by a resident foreign trustee, required by section 59D of the Tax Administration Act 1994 for the non-complying year.
Status of person making election and settlor
(1C)
From when an election by a person under subsection (1) applies under subsection (3), the tax obligations of the trustee of the trust arising from the trust are determined on the basis that—
(a)
the trustee is a New Zealand resident; and
(b)
the trust has a settlor who is a New Zealand resident.
Liability of person making election
(2)
The person making the election—
(a)
must satisfy the tax obligations of the trustee relating to the income tax liability of the trustee; and
(b)
is not required to satisfy the income tax liability of the beneficiary that the trustee must satisfy as agent under section HC 32.
Application of election
(3)
The election under subsection (1) applies—
(a)
for an election to which section HC 30 applies, on and after the date on which the election is made; or
(b)
for an election to which section HC 30 does not apply and that does not meet the requirements of subsection (1B), on and after whichever date (the effective date) the person making the election chooses of—
(i)
the date of the election (the electing date):
(ii)
the beginning of the income year (the electing year) that includes the electing date:
(iii)
the beginning of an income year that is 4 years or less before the beginning of the electing year; or
(c)
for an election to which section HC 30 does not apply and that meets the requirements of subsection (1B), on and after the beginning of the non-complying year referred to in subsection (1B)(b).
Period of election under subsection (1B)
(3B)
An election meeting the requirements of subsection (1B) is effective until the beginning of an income year for which the trustee does not—
(a)
meet the tax obligations of the trustee relating to the income tax liability of the trustee for the income year:
(b)
notify the Commissioner that the trust is a complying trust for the income year in the way that would be required by subsection (1B)(c) for a non-complying year.
Time of providing election
(4)
If the trustee of a trust is required to file a return of income for an income year, a person making an election under subsection (1) must notify the Commissioner of the election and provide to the Commissioner the information required by section 113F of the Tax Administration Act 1994 within the time allowed for filing a return of income for the income year. If section HC 30 applies, they must give notification by the election expiry date.
Effect on distributions
(5)
For a trust (the distributing trust) and an election for which the tax treatment of the trust is not given by section HC 30(3),—
(a)
a distribution made before the beginning of the electing year has the taxation consequences that it would have in the absence of the election:
(b)
a distribution made after the beginning of the electing year from an amount derived by the trustee before the effective date is treated as being a distribution by a trust having the status, of foreign trust or non-complying trust or complying trust, that the distributing trust has when the amount is derived:
(c)
a distribution made after the beginning of the electing year from an amount derived on or after the effective date is treated as being made by the trustee as trustee of—
(i)
a complying trust, if the requirements of section HC 10(1)(ab) are met for the trustee income derived on or after the effective date:
(ii)
a non-complying trust, if subparagraph (i) does not apply:
(d)
for the purposes of paragraphs (b) and (c), the amount derived before the effective date by the trustee in an income year that includes, but does not begin with, the effective date is—
(i)
the amount derived before the effective date in the income year, if the person making the election does not choose to rely on subparagraph (ii); or
(ii)
a proportion of the amount derived in the income year equal to the proportion of the days in the income year that are before the effective date.
No liability for penalties from increased assessments in some circumstances
(6)
When a person makes an election for a trust under section HC 33(1) with an effective date given by subsection (3)(b)(iii) and the election results in an increase in the assessed income tax liability of the trustee, or in the amount of resident withholding tax payable by the trustee, for an income year before the electing year, the person and the trustee are not liable for a penalty under Part 9 of the Tax Administration Act 1994 arising from the increase if the Commissioner accepts that the trustee’s tax position for each income year beginning on or after the effective date and before the electing year is none of—
(a)
an unacceptable tax position under section 141B of the Tax Administration Act 1994:
(b)
an abusive tax position under section 141D of that Act:
(c)
a tax position that causes the trustee to be liable to pay a shortfall penalty for evasion or a similar act under section 141E of that Act.
Defined in this Act: agent, Commissioner, complying trust, distribution, election expiry date, foreign trust, income, income tax, income tax liability, income year, New Zealand resident, non-complying trust, notify, pay, return of income, settlor, tax position, trustee
Compare: 2004 No 35 s HH 4(7)
Section HC 33(1): amended, on 29 March 2018 (with effect on 1 April 2008 and applying for the 2008–09 and later income years), by section 116(1) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
Section HC 33(1): amended (with effect on 1 April 2008 and applying for the 2008–09 and later income years), on 24 February 2016, by section 188(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section HC 33(1B) heading: inserted (with effect on 1 April 2008 and applying for the 2008–09 and later income years), on 24 February 2016, by section 188(2) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section HC 33(1B): inserted (with effect on 1 April 2008 and applying for the 2008–09 and later income years), on 24 February 2016, by section 188(2) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section HC 33(1B): amended, on 23 March 2020, by section 144(1) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
Section HC 33(1B)(b): replaced, on 23 March 2020, by section 144(2) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
Section HC 33(1B)(c): replaced, on 23 March 2020, by section 144(2) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
Section HC 33(1C) heading: inserted, on 23 March 2020, by section 144(3) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
Section HC 33(1C): inserted, on 23 March 2020, by section 144(3) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
Section HC 33(2): replaced (with effect on 1 April 2008 and applying for the 2008–09 and later income years), on 24 February 2016, by section 188(3) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section HC 33(2)(a): replaced, on 23 March 2020, by section 144(4) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
Section HC 33(3): replaced (with effect on 1 April 2008 and applying for the 2008–09 and later income years), on 24 February 2016, by section 188(4) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section HC 33(3)(a): replaced, on 23 March 2020, by section 144(5) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
Section HC 33(3)(b): replaced, on 23 March 2020, by section 144(5) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
Section HC 33(3)(c): inserted, on 23 March 2020, by section 144(5) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
Section HC 33(3B) heading: inserted, on 23 March 2020, by section 144(6) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
Section HC 33(3B): inserted, on 23 March 2020, by section 144(6) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
Section HC 33(4): amended, on 23 March 2020, by section 144(7) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
Section HC 33(5) heading: inserted, on 23 March 2020, by section 144(8) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
Section HC 33(5): inserted, on 23 March 2020, by section 144(8) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
Section HC 33(5)(b): amended (with effect on 23 March 2020), on 30 March 2021, by section 90(1)(a) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
Section HC 33(5)(b): amended (with effect on 23 March 2020), on 30 March 2021, by section 90(1)(b) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
Section HC 33(5)(c): amended (with effect on 23 March 2020), on 30 March 2021, by section 90(2) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
Section HC 33(5)(d)(ii): amended (with effect on 23 March 2020), on 30 March 2021, by section 90(3) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
Section HC 33(6) heading: inserted, on 23 March 2020, by section 144(8) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
Section HC 33(6): inserted, on 23 March 2020, by section 144(8) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
Section HC 33 list of defined terms complying trust: inserted (with effect on 1 April 2008), on 24 February 2016, by section 188(5) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section HC 33 list of defined terms distribution: inserted (with effect on 1 April 2008), on 24 February 2016, by section 188(5) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section HC 33 list of defined terms foreign trust: inserted, on 23 March 2020, by section 144(9) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
Section HC 33 list of defined terms income: inserted, on 23 March 2020, by section 144(9) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
Section HC 33 list of defined terms New Zealand resident: inserted (with effect on 1 April 2008), on 24 February 2016, by section 188(5) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section HC 33 list of defined terms non-complying trust: inserted, on 23 March 2020, by section 144(9) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
Section HC 33 list of defined terms tax position: inserted, on 23 March 2020, by section 144(9) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
HC 34 Taxable distributions from non-complying trusts
Rate of tax
(1)
Income tax is imposed on a taxable distribution derived by a person in an income year from a non-complying trust under section BF 1(b) (Other obligations) at the basic rate set out in schedule 1, part A, clause 4 (Basic tax rates: income tax, ESCT, RSCT, RWT, and attributed fringe benefits).
Due date
(2)
The income tax is payable on the person’s payment date for terminal tax under section RA 13 (Payment dates for terminal tax) for the corresponding tax year.
Defined in this Act: income tax, income year, non-complying trust, pay, taxable distribution, terminal tax
Compare: 2004 No 35 s HH 3(4)
Section HC 34(1): amended, on 1 April 2008, by section 562 of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
HC 35 Beneficiary income of minors
When this section applies
(1)
This section applies when a person who is a minor derives an amount of beneficiary income from a trust in an income year. Subsection (4) and sections HC 36 and HC 37 override this subsection.
Treatment of amount derived
(2)
The amount is—
(a)
excluded income of the minor under section CX 58 (Amounts derived by minors from trusts):
(b)
treated as trustee income for the purposes of determining the rate of tax that applies, who pays the relevant tax, and who provides the return of income.
Meaning of minor
(3)
Exclusions
(4)
This section does not apply—
(a)
if the total amount of beneficiary income that the minor derives from the trust in the income year is $1,000 or less; or
(b)
to beneficiary income derived—
(i)
from a trust settled in the way described in section HC 36:
(ii)
from a testamentary trust described in section HC 37:
(iii)
from a Maori authority:
(iv)
directly from a group investment fund:
(v)
by a person for whom a child disability allowance is paid under the Social Security Act 2018.
Relationship with other provisions
(5)
This section overrides sections HC 5, HC 18 to HC 20, HC 22, HC 23, and HC 32.
Defined in this Act: amount, beneficiary income, excluded income, group investment fund, income year, Maori authority, minor, pay, resident in New Zealand, return of income, settlement, trustee, trustee income
Compare: 2004 No 35 ss HH 3A–HH 3C, HH 3E, HH 3F(2), (2A)
Section HC 35(4)(a): amended (with effect on 1 April 2008), on 6 October 2009, by section 266(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section HC 35(4)(b)(v): amended, on 26 November 2018, by section 459 of the Social Security Act 2018 (2018 No 32).
HC 36 Trusts and minor beneficiary rule
Trusts excluded from application of minor beneficiary rule
(1)
Section HC 35(2) does not apply to an amount of beneficiary income derived by a minor if all settlements on the trust meet the requirements of section HC 37(1) or were made by—
(a)
a person who is neither a relative or a guardian of the minor, nor a person associated with a relative or a guardian; or
(b)
a person who is a relative, guardian, or a person associated with a relative or guardian, if—
(i)
the settlor is acting as agent of the minor and has received the property from a person other than a relative, guardian, or their associate:
(ii)
the settlor is required by a court order to pay damages or compensation to the minor:
(iii)
the minor is a protected person, as defined in section 8 of the Family Violence Act 2018, in relation to a protection order, and the settlement, whether made jointly with another person or not, is made before the protection order is made or during the time the order is in force.
When some settlements do not meet requirements
(2)
Subsection (3) applies when more than 1 settlement is made on a trust, and 1 or more but not all settlements meet the requirements of subsection (1) or section HC 37(1).
Small additional settlements permitted
(3)
Section HC 35(2) does not apply to an amount of beneficiary income derived by a minor if the only settlements that do not meet the requirements are made through—
(a)
the disposal for less than market value of property whose total value is no more than $5,000 at the end of the trust’s income year, valuing each settlement at the date of settlement; or
(b)
providing financial assistance for less than market value in the form of a loan whose total value is no more than $1,000 on any day in the trust’s income year.
Exclusion if significant services provided to trust
(4)
Subsection (3) does not apply if services are provided to the trust by a relative, guardian, or associated person, unless those services are incidental to the operation of the trust. Examples of incidental services are bookkeeping, accounting, or trustee services.
Some definitions
(5)
In this section,—
associated person or person associated does not include a person associated only under sections YB 4 and YB 5 (which relate to relatives who are treated as associated persons)
guardian has the meaning set out in section 15 of the Care of Children Act 2004, and persons are connected by guardianship if 1 is the guardian of the other, but guardian does not include a guardian appointed under—
(a)
section 110(1)(a) to (d) of the Oranga Tamariki Act 1989; or
(b)
section 31 of the Care of Children Act 2004; or
(c)
section 53 of the Public Trust Office Act 1957 by a court order; or
(d)
section 7(4) of the Adoption Act 1955
relative means a person referred to in paragraph (a) of the definition of relative in section YA 1 (Definitions) extended to include being in a marriage, civil union, or de facto relationship with a person connected to the other through guardianship.
Defined in this Act: agent, amount, associated person, beneficiary income, financial assistance, guardian, income year, loan, minor, pay, relative, settlement, settlor
Compare: 2004 No 35 ss HH 3C(1)(a)–(d), (2), (3), HH 3D, HH 3F(1), (2A)–(4)
Section HC 36(1): amended, on 18 March 2019, by section 213 of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
Section HC 36(1)(b)(iii): amended, on 1 July 2019, by section 259(1) of the Family Violence Act 2018 (2018 No 46).
Section HC 36(5) associated person or person associated: substituted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 267(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section HC 36(5) financial assistance: repealed, on 23 March 2020, by section 145 of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
Section HC 36(5) guardian paragraph (a): amended, on 14 July 2017, by section 149 of the Children, Young Persons, and Their Families (Oranga Tamariki) Legislation Act 2017 (2017 No 31).
Section HC 36(5) relative: amended, on 1 April 2023, by section 79 of the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Act 2023 (2023 No 5).
Section HC 36(5) relative: amended, on 1 April 2010 (applying for the 2010–11 and later income years), by section 267(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
HC 37 Testamentary trusts and minor beneficiary rule
Testamentary trusts not subject to minor beneficiary rule
(1)
Section HC 35(2) does not apply to an amount of beneficiary income derived by a minor if all the settlements on the trust meet the requirements of section HC 36(1) or were made under a will, codicil, intestacy, or court variation and—
(a)
the minor is alive within 12 months of the date of the settlor’s death; or
(b)
the minor has a brother, sister, half-brother, or half-sister alive within 12 months of the date of the settlor’s death.
Small additional settlements permitted
(2)
Section HC 36(3) may apply to extend the application of this exemption.
Defined in this Act: amount, beneficiary income, minor, settlement, settlor
Compare: 2004 No 35 s HH 3C(1)(e)
Section HC 37(1): amended, on 18 March 2019, by section 214 of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
Subpart HD—Agents
Contents
Introductory provisions
HD 1 What this subpart does
When this subpart applies
(1)
This subpart sets out the circumstances in which a person is treated for the purposes of this Act and the Tax Administration Act 1994 as an agent of another person in relation to the tax obligations of that other person.
Provisions relating to agents
(2)
The following provisions in other subparts of this Act set up certain agency relationships for income tax purposes, or provide certain tax consequences and requirements of an agency relationship:
(a)
section EY 49(5) (Non-resident life insurer becoming resident):
(b)
sections FM 34(2) (Nominated companies):
(c)
sections FN 6(3) (Nominated companies):
(d)
section HA 8 (Shareholders’ personal liability):
(e)
section HC 29(3) (Settlors’ liability to income tax):
(f)
section HC 32 (Liability of trustee as agent):
(g)
section LB 2 (Tax credits for provisional tax payments):
(h)
section RA 9 (Treatment of amounts withheld as received):
(i)
sections RE 4, RE 5, and RE 7 to RE 9 (which relate to requirements for agents or trustees to pay RWT):
(j)
section RE 22 (When payment treated as non-resident passive income):
(k)
section RF 4 (Non-resident passive income received by agents and others):
(l)
section YA 1 (Definitions), the definition of offered or entered into in New Zealand.
Defined in this Act: agent, income tax, offered or entered into in New Zealand, tax
Compare: 2004 No 35 s HK 1(1)
HD 2 Joint liability of principal and agent for tax obligations
A principal and an agent are jointly and severally liable for the tax obligations relating to the agency, and the Commissioner may issue an assessment for the same tax to both an agent and their principal. The liability of 1 remains despite an assessment of the other.
Defined in this Act: agent, assessment, Commissioner, tax
HD 3 Agents’ duties and liabilities
When this section applies
(1)
This section applies for the purposes of sections HD 8 to HD 27 in relation to all income derived by a principal through an agent.
Assessments, returns, and payment of tax
(2)
The agent must—
(a)
make the assessments that their principal is required to make; and
(b)
provide all returns required of their principal under the Tax Administration Act 1994; and
(c)
satisfy their principal’s income tax liability.
Assessments, returns, and payments of tax by agents for Lloyd’s of London
(2B)
An agent described in section HD 17B(2) (Lloyd’s of London: agents for life insurance)—
(a)
is not subject to subsection (2) for income derived under section CR 3B (Lloyd’s of London: income from life insurance premiums); and
(b)
must meet the obligations described in section HR 13(3)(a) and (b) (Lloyd’s of London: life insurance) but only to the extent described in section HD 17B(3).
Joint and several liability
(3)
If 2 or more persons are liable as agents in relation to the same tax, the liability is joint and several.
Agent as separate person
(4)
The agent is treated in that capacity as a separate person, and may claim in relation to the agency income only those tax credits or exemptions to which the principal is entitled.
Defined in this Act: agent, assessment, income, income tax liability, return of income, tax, tax credit
Compare: 2004 No 35 ss HK 1, HK 3(3), HK 7(1)
Section HD 3(1): amended, on 21 February 2017, by section 81(1) of the Taxation (Business Tax, Exchange of Information, and Remedial Matters) Act 2017 (2017 No 3).
Section HD 3(2B) heading: inserted, on 29 March 2018 (with effect on 1 April 2017 and applying in relation to a life insurance premium that is derived on or after that date by Lloyd’s of London), by section 117(1) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
Section HD 3(2B): inserted, on 29 March 2018 (with effect on 1 April 2017 and applying in relation to a life insurance premium that is derived on or after that date by Lloyd’s of London), by section 117(1) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
Section HD 3 list of defined terms business: repealed, on 21 February 2017, by section 81(2) of the Taxation (Business Tax, Exchange of Information, and Remedial Matters) Act 2017 (2017 No 3).
Section HD 3 list of defined terms New Zealand: repealed, on 21 February 2017, by section 81(2) of the Taxation (Business Tax, Exchange of Information, and Remedial Matters) Act 2017 (2017 No 3).
HD 4 Treatment of principals
Despite section HD 3,—
(a)
a principal remains liable for their tax obligations, and is not released from them merely through the existence of the agency; and
(b)
if the Commissioner agrees, the principal and the agent may decide that the principal is to undertake the duties set out in section HD 3(2).
Defined in this Act: agent, Commissioner, tax
Compare: 2004 No 35 s HK 3(1), (1A)
HD 5 Matters between principals and agents
Assessment as authority
(1)
The Commissioner’s assessment is, as between principal and agent, sufficient authority for the payment of tax by the agent.
Recovering payment
(2)
On paying tax, an agent is entitled to be reimbursed by the principal, and may—
(a)
recover the amount from the principal; or
(b)
subtract the amount from money held by the agent that belongs or is payable to the principal.
Retaining funds
(3)
For the purposes of paying tax in relation to which an agent is or may become liable, the agent may retain from money that belongs or is payable to the principal an amount that is reasonably sufficient to pay the tax. This subsection applies at a time in an income year in which the tax is due or in a later income year.
Hardship
(4)
The Commissioner may set a new due date for an agent to pay a tax liability if—
(a)
the agent—
(i)
is unable to pay the tax liability out of money that the agent holds that belongs to the principal; and
(ii)
has not paid away an amount after being assessed in relation to the agency; and
(b)
the enforcement of payment would cause hardship to the agent.
Defined in this Act: agent, amount, assessment, Commissioner, income year, pay, tax
HD 6 When relationship effectively that of principal and agent
If a person who is carrying on business in New Zealand is sufficiently under the control of another person in business, whether in New Zealand or elsewhere, so that the relationship between them is effectively that of principal and agent, the Commissioner may treat the first business as the principal’s business carried on by the agent on behalf of the principal.
Defined in this Act: agent, business, Commissioner, New Zealand
Compare: 2004 No 35 s HK 8
Section HD 6 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).
HD 7 Rate and amount of tax
The rate of tax used to calculate an agent’s income tax liability is determined by reference to the taxable income of the principal. The amount of income tax payable is the amount determined by the amount of agency income as a proportion of the taxable income of the principal.
Defined in this Act: agent, amount, income tax, income tax liability, pay, taxable income
Compare: 2004 No 35 s HK 2
Particular cases
HD 8 Circumstances giving rise to agency
For the purposes of this Act and the Tax Administration Act 1994, a person is treated as an agent in relation to the income of another person to the extent described in the circumstances set out in sections HD 9 to HD 15.
HD 9 Guardians
A person (person A) is treated as an agent of another person (person B) if, as guardian, manager, or otherwise, person A receives, controls, or disposes of income that person B derives while under a legal disability.
Defined in this Act: agent, income
Compare: 2004 No 35 s HK 9
HD 10 Mortgagees in possession
A person (person A) is treated as an agent of another person (person B) if, as mortgagee in possession of land or other property, person A derives income from the land or property on behalf or for the benefit of person B as mortgagor.
Defined in this Act: agent, income, land
Compare: 2004 No 35 s HK 10
HD 11 Nominated companies
Consolidated groups
(1)
A nominated company is treated under section FM 34(2) (Nominated companies) as the agent of a consolidated group, and of each company that is at the time a member of that group.
Imputation groups
(2)
A nominated company is treated under section FN 6(3) (Nominated companies) as the agent of an imputation group, and of each company that is at the time a member of that group.
Defined in this Act: agent, company, consolidated group, imputation group, nominated company
HD 12 Trusts
Beneficiary income and taxable distributions
(1)
If a beneficiary of a trust, other than a beneficiary of a community trust, derives an amount of beneficiary income or taxable distribution in a tax year, the trustee of the trust is treated under section HC 32 (Liability of trustee as agent) as the agent of the beneficiary.
Settlors
(2)
If a trustee of a trust, other than a charitable trust, derives trustee income in a tax year, and a settlor of the trust is resident in New Zealand in the tax year, the settlor is treated under section HC 29 (Settlors’ liability to income tax) as the agent of the trustee for income tax payable by the trustee (but not for income tax that the trustee is liable for as agent).
Defined in this Act: agent, amount, beneficiary income, charitable trust, community trust, income tax, pay, resident in New Zealand, settlor, tax year, taxable distribution, trustee, trustee income
HD 13 Unit trusts
A trustee of a unit trust is treated as an agent of the unit trust in relation to income derived by the unit trust.
Defined in this Act: agent, income, trustee, unit trust
Compare: 2004 No 35 s HE 1
HD 13B AIM companies
When this section applies
(1)
This section applies when a company—
(a)
uses the AIM provisional tax method; and
(b)
makes a provision that relates to expenditure on employment income for a shareholder-employee of the company; and
(c)
makes a payment of tax for the shareholder-employee.
Agency
(2)
The company is treated as agent for the shareholder-employee for the purposes of the definition of residual income tax.
Relationship with subject matter
(3)
Section HD 2 does not apply to the agency, unless the agency does not arise only under this section.
Defined in this Act: company, employment income, pay, shareholder-employee, tax
Section HD 13B: inserted, on 1 April 2018, by section 118 of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
HD 14 Companies issuing debentures
Agency
(1)
A company is treated as an agent of a person if—
(a)
the company has issued a debenture; and
(b)
the person, as a debenture holder, derives income from the debenture.
Excluded debentures
(2)
Subsection (1) does not apply to a debenture if—
(a)
it is a profit-related debenture to which section FA 2 (Recharacterisation of certain debentures) applies or a stapled debt security to which section FA 2B (Stapled debt securities) applies; or
(b)
it is issued to a New Zealand resident, and the company provides the Commissioner with a certified list containing particulars of the debentures, the name and details of each person to whom a debenture has been issued, and details of the interest payments before an assessment is made in a tax year of the debenture holder.
Liability of persons named
(3)
A person named as a debenture holder in the list referred to in subsection (2)(b) is liable for income tax on income derived from the debenture. Subsection (4) overrides this subsection.
Continuing liability until notification
(4)
Despite section BB 2 (Main obligations), if a debenture holder disposes of a debenture, they remain liable for income tax unless they notify the Commissioner of the disposal before an assessment is made in a tax year that takes into account the income derived from the debentures. On notification, the subsequent holder is liable in relation to the debentures, and the liability of the transferor is ended.
Recovery of tax paid
(5)
If a person who formerly held a debenture pays income tax on taxable income that takes into account income derived by a subsequent holder, the income tax is treated as paid on behalf of the subsequent holder to the extent of the liability of the subsequent holder, and the person may recover that amount from them.
Matters not taken into account
(6)
For the purposes of subsection (1), it does not matter whether the debenture is charged on the company’s property, nor whether a debenture holder is an absentee.
Defined in this Act: absentee, agent, assessment, Commissioner, company, debenture, debenture holder, income, income tax, interest, New Zealand resident, notify, pay, profit-related debenture, stapled debt security, tax, tax year, taxable income
Compare: 2004 No 35 ss HK 12, HK 13
Section HD 14(2)(a): substituted (with effect on 1 April 2008), on 6 October 2009, by section 268(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section HD 14(2)(a): 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 125(1) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section HD 14 list of defined terms stapled debt security: inserted (with effect on 1 April 2008), on 6 October 2009, by section 268(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
HD 15 Asset stripping of companies
When this section applies
(1)
This section applies when—
(a)
an arrangement has been entered into in relation to a company; and
(b)
an effect of the arrangement is that the company cannot meet a tax liability (the tax obligation) whether existing at the time of the arrangement or arising after that time, for—
(i)
income tax:
(ii)
a civil penalty, as defined in section 3(1) of the Tax Administration Act 1994:
(iii)
an amount payable under Part 7 of that Act; and
(c)
it is reasonable to conclude that—
(i)
a purpose of the arrangement is to have the effect described in paragraph (b); and
(ii)
if a director of the company at the time of the arrangement made reasonable inquiries, they could have anticipated at the time that the income tax liability would, or would likely, be required to be met.
When this section does not apply
(2)
This section does not apply to an arrangement if—
(a)
the Commissioner is a party to the arrangement:
(b)
the tax obligation is no more than an amount of income tax that arises as a direct result of the performance of the arrangement, and that obligation has been met:
(c)
at the time of the arrangement, the company was under statutory management under the Banking (Prudential Supervision) Act 1989 or the Corporations (Investigation and Management) Act 1989.
Director’s liability
(3)
All persons who are directors of the company at the time the arrangement is entered into are treated as agents of the company in relation to the tax obligation, and the liability is joint and several. But a director has no liability if—
(a)
they do not derive a benefit from the arrangement, and at the first reasonable opportunity after becoming aware of the arrangement, or the aspects of the arrangement that cause this section to apply to it, they record formally their dissent in relation to the arrangement with the company and with the Commissioner; or
(b)
they were not at the relevant time involved in the executive management of the company and had no knowledge of the arrangement, or the aspects of the arrangement that cause this section to apply to it.
Shareholder’s liability
(4)
A person who is a controlling shareholder or an interested shareholder at the time of the arrangement is treated as an agent of the company in relation to the tax obligation other than penalties and interest but, despite section HD 3(2), the liability is limited to the greater of—
(a)
the market value of the person’s direct and indirect shareholding in the company at the time of the arrangement; and
(b)
the value of the benefit that the person derives from the arrangement.
Shareholder’s liability for penalties and interest
(5)
A person who is a controlling shareholder or an interested shareholder at the time of the arrangement is treated as an agent of the company in relation to penalties and interest in proportion to their liability for the tax obligation under subsection (4).
Company liquidations
(6)
In order to give effect to this section, if a company has been liquidated, the Commissioner may at any time after the liquidation make an assessment of a company for an income tax liability of the company as if it had not been liquidated. The time bar applies, but this subsection overrides other provisions in this Act and the Tax Administration Act 1994.
Agents for purposes of notification or objection procedures
(7)
In making an assessment under subsection (6), the Commissioner must nominate 1 or more persons as having the tax obligation set out in the assessment. The nominated person or persons are treated as agents of the company in relation to any notification or objection procedure concerning the assessment.
When liability does not arise
(8)
No liability arises under this section for a tax year in relation to which—
(a)
a company has provided returns within the time allowed by section 37 of the Tax Administration Act 1994 for providing returns for the tax year in which the company is liquidated; and
(b)
the Commissioner has not issued a notice of assessment of the company for the tax year before the end of 4 years following the end of the tax year in which the company is liquidated.
Meaning of company in voting interest or market value interest tests
(8B)
When applying sections YC 2 to YC 6 (which relate to voting and market value interests) for the purposes of the definitions of controlling shareholder and interested shareholder in subsection (9), the reference to company in sections YC 2 to YC 6 includes a company that is acting in the capacity of trustee.
Some definitions
(9)
In this section,—
company includes a company that is acting in the capacity of trustee
controlling shareholder, for a company, means—
(a)
a person whose voting interest or market value interest in the company at the time of the arrangement, together with any interests of an associated person, is 50% or more; and
(b)
if the person or associated person is a company, the voting interest or market value interest of the person or associated person is calculated as if they were not a company and as if sections YC 4 (Look-through rule for corporate shareholders) and YC 6 did not apply
director means,—
(a)
a person who occupies the position of director, whether or not the position has that title:
(b)
for an entity that is treated as a company under this Act, a person who acts in the same or similar way as a director would if the entity were a company incorporated in New Zealand under the Companies Act 1993
interested shareholder means a person who, at the time the arrangement is entered into, has a voting interest or market value interest in the company, calculated in either case if the person is a company as if the person were not a company, and because of the size of the benefit that the person derives from the arrangement, it is reasonable to conclude that the person is a party to the arrangement
penalties and interest means a civil penalty or amount payable under Part 7 of the Tax Administration Act 1994 that is part of the tax obligation.
Defined in this Act: agent, amount, arrangement, assessment, associated person, Commissioner, company, controlling shareholder, director, income tax, income tax liability, interested shareholder, liquidation, market value, market value interest, New Zealand, notice, notify, penalties and interest, return of income, tax, tax year, time bar, trustee, voting interest
Compare: 2004 No 35 s HK 11
Section HD 15(2)(c): amended, on 1 July 2022, by section 300(1) of the Reserve Bank of New Zealand Act 2021 (2021 No 31).
Section HD 15(8B) heading: inserted, on 29 March 2018, by section 119(1) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
Section HD 15(8B): inserted, on 29 March 2018, by section 119(1) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
Section HD 15(9) company: inserted, on 29 March 2018, by section 119(2) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
Section HD 15(9) controlling shareholder paragraph (b): amended, on 29 March 2018, by section 119(3) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
Section HD 15 list of defined terms trustee: inserted, on 29 March 2018, by section 119(4) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
HD 16 Non-resident general insurers
When this section applies
(1)
This section applies when an insurer derives income under section CR 3 (Income of non-resident general insurer) to determine who is liable to provide a return of income and pay income tax on the income.
Insurer
(2)
To the extent to which the insurer provides the return and pays the income tax, no other person described in this section is liable to do so.
Person acting on insurer’s behalf
(3)
To the extent to which a person on behalf of the insurer, including a broker or other agent who pays a premium on behalf of another person, provides the return and pays the income tax, no agent described in any of subsections (4) to (6) is liable to do so.
Agent paying premium or providing funds
(4)
The person liable in the first place as an agent is—
(a)
a person, including a broker or agent, who pays the premium to the insurer or to some other person not carrying on a business in New Zealand through a fixed establishment in New Zealand; or
(b)
a person described in subsection (7)(b).
Person paying premium
(5)
The person liable in the second place as agent is a person who pays the premium, whether or not through a broker or agent.
Insured person
(6)
The person liable in the third place as agent is the insured person.
Bank or building society
(7)
If a premium is paid by a registered bank, as defined in section 2 of the Banking (Prudential Supervision) Act 1989, or a building society on behalf of a person to the insurer or to some other person not carrying on a business in New Zealand through a fixed establishment in New Zealand,—
(a)
the bank or building society is not an agent of the insurer; and
(b)
the person who provides the bank or building society with the funds from which the premium is paid is an agent of the insurer.
Defined in this Act: agent, building society, business, fixed establishment, income, income tax, insured person, insurer, New Zealand, pay, premium, registered bank, return of income
Compare: 2004 No 35 s FC 16
Section HD 16(7): amended, on 1 July 2022, by section 300(1) of the Reserve Bank of New Zealand Act 2021 (2021 No 31).
HD 17 Agent paying premiums to residents of Switzerland
When this section applies
(1)
This section applies when—
(a)
an insurer derives income under section CR 3 (Income of non-resident general insurer); and
(b)
an agent of the insurer under section HD 16 pays the premium to an insurer or to some other person not carrying on a business in New Zealand through a fixed establishment in New Zealand; and
(c)
the insurer or other person is treated as being resident in Switzerland for the purposes of a double tax agreement between the government of New Zealand and the government of Switzerland.
Disclosure
(2)
The agent must disclose details of the payment of the premium to the Commissioner in the manner, if any, required by the Commissioner.
Defined in this Act: agent, business, Commissioner, double tax agreement, fixed establishment, income, insurer, New Zealand, pay, premium
Compare: 2004 No 35 s FC 17
HD 17B Lloyd’s of London: agents for life insurance
When this section applies
(1)
This section applies when Lloyd’s of London derives income from the payment of a premium under section CR 3B (Lloyd’s of London: income from life insurance premiums).
Agents paying premium or providing funds
(2)
The person treated as agent for Lloyd’s of London is—
(a)
a person, including a broker or agent, who pays the premium to Lloyd’s of London; or
(b)
a person described in subsection (4)(b).
Liability of agents
(3)
The person liable as agent is only liable to calculate the taxable income, provide the return and pay the income tax in relation to the premium the person pays to Lloyd’s of London and not in relation to all the premium income of Lloyd’s of London for the tax year.
Banks or non-bank deposit takers
(4)
If a premium is paid by a registered bank, or a licensed non-bank deposit taker, on behalf of a person to Lloyd’s of London or to some other person, acting on behalf of Lloyd’s of London, not carrying on a business in New Zealand through a fixed establishment in New Zealand,—
(a)
the bank or licensed non-bank deposit taker is not an agent of Lloyd’s of London; and
(b)
the person who provides the bank or licensed non-bank deposit taker with the funds from which the premium is paid is an agent of Lloyd’s of London.
Defined in this Act: agent, business, deduction, fixed establishment, general permission, income, income tax, licensed non-bank deposit taker, life insurance policy, Lloyd’s of London, New Zealand, pay, premium, registered bank, return of income, tax year, taxable income
Section HD 17B: inserted, on 29 March 2018 (with effect on 1 April 2017 and applying in relation to a life insurance premium that is derived on or after that date by Lloyd’s of London), by section 120(1) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
Absentees
HD 18 Agency in relation to absentees generally
What sections HD 19 to HD 25 do
(1)
Sections HD 19 to HD 25 apply for the purposes of this Act to treat a person as an agent in relation to the income of an absentee when certain conditions are met and to the extent set out in the circumstances described in those sections. The person must meet the tax obligations set out in section HD 3 in relation to the income to which the agency applies.
Meaning of absentee
(2)
In this subpart, absentee means—
(a)
a natural person who is for the time being out of New Zealand:
(b)
a foreign company, unless it has a fixed and permanent place of business in New Zealand at which it carries on business in its own name:
(c)
a foreign company when the Commissioner declares that it is an absentee for the purposes of this Act by giving notice to the company, or its agent or representative in New Zealand.
Defined in this Act: absentee, agent, business, Commissioner, company, foreign company, income, New Zealand, notice, tax
HD 19 Persons receiving absentees’ income
A person is treated as an agent if they receive, control, or dispose of income derived by a principal who is an absentee.
Defined in this Act: absentee, agent, income
Compare: 2004 No 35 s HK 20
Section HD 19 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).
HD 20 Persons carrying on business for absentees
A person is treated as an agent if they carry on in New Zealand a business for an absentee, whether or not the income is received by the agent.
Defined in this Act: absentee, agent, business, income, New Zealand
Section HD 20: substituted, on 1 April 2008, by section 18(1) of the Taxation (Limited Partnerships) Act 2008 (2008 No 2).
HD 20B General partners and partners carrying on with or managing business involving absentees
Who this section applies to
(1)
This section applies to a person who—
(a)
in New Zealand carries on a business in a partnership that is not a limited partnership:
(b)
is a general partner of a limited partnership that carries on a business in New Zealand ignoring section HG 2 (Partnerships are transparent).
Person treated as agent
(2)
If the person carries on the business with an absentee or, as a general partner, is responsible for the management of a limited partnership in which a limited partner is an absentee, the person is treated as the agent of the relevant absentee in relation to the absentee’s partnership share of the partnership’s income under section HG 2.
Defined in this Act: absentee, agent, business, general partner, income, limited partner, limited partnership, New Zealand, partnership, partnership share
Section HD 20B: inserted, on 1 April 2008, by section 18(1) of the Taxation (Limited Partnerships) Act 2008 (2008 No 2).
Section HD 20B(1) heading: inserted (with effect on 1 April 2008), on 29 August 2011 (applying for the 2008–09 and later income years), by section 140(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section HD 20B(2) heading: inserted (with effect on 1 April 2008), on 29 August 2011 (applying for the 2008–09 and later income years), by section 140(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
HD 21 Companies
Paying dividends
(1)
A company incorporated in New Zealand is an agent of an absentee to whom it pays or credits dividends as a shareholder, or as a holder of a debenture to which section FA 2 (Recharacterisation of certain debentures) applies.
Relationship with NRWT rules
(2)
Section RF 2(3) and (4) (Non-resident passive income) overrides this section.
Defined in this Act: absentee, agent, company, debenture, debenture holder, dividend, New Zealand, NRWT rules, pay, shareholder
Compare: 2004 No 35 s HK 21
HD 22 Banking companies
Receiving deposit in course of business activities
(1)
A person, including a banking or other company, or a local authority or public authority, is treated as an agent if in the course of their business activities, they receive or hold money as a deposit and pay interest to an absentee on the money deposited by the absentee.
Threshold
(2)
This section applies only if the interest paid on the deposit is more than $100.
Relationship with NRWT rules
(3)
Section RF 2(3) and (4) (Non-resident passive income) overrides this section.
Defined in this Act: absentee, agent, banking company, business, company, interest, local authority, NRWT rules, pay, public authority
Compare: 2004 No 35 s HK 23
HD 23 Trustees of group investment funds
A person is treated as an agent if they are a trustee of a group investment fund and an absentee is an investor to whom a dividend is paid.
Defined in this Act: absentee, agent, dividend, group investment fund, pay, trustee
Compare: 2004 No 35 s HK 22
HD 24 Shipping businesses
A person is treated as an agent if they are the master of a ship owned by or under charter to an absentee who carries on a business carrying goods or passengers.
Defined in this Act: absentee, agent, business
Compare: 2004 No 35 s HK 18(1)
HD 25 Persons remitting amounts outside New Zealand
Absentee landlords, mortgagors, or creditors
(1)
A person is treated as an agent if they are a tenant, mortgagor, or other person who remits an amount from New Zealand to an absentee who is their landlord, mortgagee, or creditor, when the amount is income derived by the absentee. But this subsection applies only after the Commissioner has notified the person that they are accountable as the absentee’s agent.
When fund outside New Zealand
(2)
If the amount referred to in subsection (1) is paid by or on account of a person resident in New Zealand from a fund outside New Zealand, it is treated as an amount to which this section applies.
Defined in this Act: absentee, agent, amount, Commissioner, income, New Zealand, notify, pay, resident in New Zealand
Compare: 2004 No 35 s HK 19
Non-residents
HD 26 Agency in relation to non-residents generally
What sections HD 27 and HD 28 do
(1)
Sections HD 27 and HD 28 apply for the purposes of this Act to treat a person as an agent in relation to the income of a non-resident taxpayer when certain conditions are met. The person must meet the tax obligations set out in section HD 3 in relation to the income to which the agency applies.
Meaning of non-resident taxpayer
(2)
In sections HD 27 and HD 28, a non-resident taxpayer means a person who—
(a)
is liable for income tax on employment income derived in New Zealand; and
(b)
has no fixed and permanent place to live in New Zealand.
Defined in this Act: agent, employment income, income, income tax, New Zealand, non-resident, non-resident taxpayer, tax
Compare: 2004 No 35 s HK 24(1), (4)
HD 27 Employers
Employment of non-resident persons
(1)
An employer who employs a non-resident person with an income tax liability is treated as an agent in relation to the employment income derived in New Zealand by the non-resident person. If the person does not meet their income tax liability, the employer must withhold the amount of income tax payable from their employment income and pay it to the Commissioner on the person’s behalf.
Employment by non-resident traders
(2)
A non-resident trader who employs a person in New Zealand is treated as an agent in relation to the person’s employment income. If the trader has an agent in New Zealand, the agent must meet the trader’s obligations under section HD 3.
Defined in this Act: agent, amount, Commissioner, employer, employment income, income tax, income tax liability, New Zealand, non-resident, non-resident trader, pay
HD 28 Government pensions and payments under superannuation schemes
If a non-resident person who has an income tax liability derives a pension or annuity from the government of New Zealand or under an unregistered superannuation scheme established in New Zealand, the income tax payable must be withheld from 1 or more instalments of the pension or annuity and paid to the Commissioner on the person’s behalf.
Defined in this Act: Commissioner, income tax, income tax liability, New Zealand, non-resident, pay, superannuation scheme
Compare: 2004 No 35 s HK 24(3)
HD 29 Persons acquiring goods from overseas
Who this section applies to
(1)
This section applies, in relation to an acquisition of goods, to—
(a)
a person in New Zealand (person A); and
(b)
person A’s principal who is resident in a country or territory outside New Zealand, and not resident in New Zealand (person B).
Treatment of persons acquiring goods
(2)
If person A is instrumental in arranging the purchase or other acquisition of goods from person B, and the goods are either in New Zealand or are to be imported into New Zealand under the contract of purchase, person A and person B and the income are treated as follows:
(a)
person B is treated as carrying on a business in New Zealand; and
(b)
person A is treated as person B’s agent in relation to the income derived from the business; and
(c)
the income from the business is treated as having a source in New Zealand.
Exemption
(3)
Person A is not liable as agent for the payment of income tax if the Commissioner is satisfied that in corresponding circumstances in a country or territory outside New Zealand, person B, if resident in New Zealand, would not be liable for income tax in that country or territory.
Defined in this Act: agent, business, Commissioner, income, income tax, New Zealand, pay, resident in New Zealand, source in New Zealand
Compare: 2004 No 35 s HK 26
Section HD 29 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 HD 29(1): amended (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on 24 February 2016, by section 242(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section HD 29(2) heading: amended (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on 24 February 2016, by section 242(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section HD 29(2): amended (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on 24 February 2016, by section 242(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section HD 29(2)(c): amended, on 21 December 2010, by section 80(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section HD 29 list of defined terms derived from New Zealand: repealed, on 21 December 2010, by section 80(2)(a) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section HD 29 list of defined terms source in New Zealand: inserted, on 21 December 2010, by section 80(2)(b) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
HD 30 Members of wholly-owned large multinational group
A member of a wholly-owned large multinational group who is a New Zealand resident or has a permanent establishment in New Zealand is treated as an agent of a member of the large multinational group (the principal member) who is a non-resident in relation to unpaid tax of the principal member if—
(a)
the principal member fails to pay the unpaid tax; and
(b)
the Commissioner notifies the member that the member has the obligations of an agent for the principal member and the unpaid tax.
Defined in this Act: agent, large multinational group, New Zealand resident, permanent establishment, tax
Section HD 30: inserted, on 27 June 2018, by section 43 of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
Subpart HE—Mutual associations
Contents
HE 1 Income and deductions of mutual associations
Income and allocation
(1)
The treatment of amounts derived by mutual associations and from mutual associations is dealt with in—
(a)
section CB 33 (Amounts derived by mutual associations); and
(b)
section CB 34 (Amounts derived by members from mutual associations).
Deductions and allocation
(2)
The treatment of association rebates that a mutual association pays to a member is dealt with in section DV 19 (Association rebates).
Defined in this Act: amount, association, association rebate, member
HE 2 Classes of mutual transaction
When mutual transactions arise
(1)
In this subpart, and sections CB 33, CB 34, and DV 19 (which relate to income and deductions relating to mutual transactions), a mutual transaction arises when an association—
(a)
enters into a transaction with members of the association, or a transaction with members of the association and other persons; and
(b)
the association takes the transaction into account in an income year in determining its net income or net loss under section BC 4 (Net income and net loss).
Types of transaction
(2)
For the purposes of subsection (1), a transaction between an association and its member includes 1 or more of the following:
(a)
the borrowing by the association of money from 1 or more members, to the extent to which the money is applied as a loan to a member:
(b)
the lending by the association of money to 1 or more members:
(c)
for an association that is a statutory producer board other than a body that derives only exempt income—
(i)
a levy paid by 1 or more members:
(ii)
a produce transaction.
Defined in this Act: association, exempt income, income year, levy, loan, member, mutual transaction, net income, net loss, pay, produce transactions, statutory producer board
Compare: 2004 No 35 s HF 1(8)
HE 3 Association rebates
Meaning
(1)
In this subpart, and in sections CB 34 and DV 19 (which relate to income and deductions relating to mutual transactions), an association rebate means a payment by an association to a member that is made—
(a)
through a distribution of profits of the association; and
(b)
not later than 6 months after the end of the accounting year of the association in relation to which the payment is made.
Exclusion
(2)
An association rebate does not include—
(a)
a cash distribution in relation to which the association has made an election under section OB 73(1) or OB 78(1) (which relate to imputation credits of statutory producer boards or co-operative companies); or
(b)
a distribution described in section CD 26 (Capital distributions on liquidation or emigration) or CD 33 (Payments corresponding to notional distributions of producer boards and co-operative companies).
Defined in this Act: accounting year, association, association rebate, member, pay
Compare: 2004 No 35 s HF 1(9) “rebate”
Section HE 3(1)(a): amended, on 18 March 2019, by section 215 of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
HE 4 Apportionment when transactions with members and non-members
When this section applies
(1)
This section applies when an association takes into account transactions with both members and non-members.
Apportioning expenditure or loss
(2)
In determining its net income or net loss for an income year under section BC 4 (Net income and net loss), the association must apportion the expenditure or loss that it incurs in the income year between those transactions with members, and those with persons who are not members.
Defined in this Act: association, income year, loss, member, net income, net loss
Compare: 2004 No 35 s HF 1(4)
HE 5 Association rebates paid by shares or credit
When this section applies
(1)
This section applies when an association that enters into mutual transactions with members pays an association rebate to 1 or more members through—
(a)
issuing fully or partly paid-up shares in the association; or
(b)
providing credit for all or part of an amount unpaid on shares in the association.
Not bonus issue
(2)
The amount, or the relevant part of it, is not treated as a bonus issue.
Defined in this Act: amount, association, association rebate, bonus issue, member, mutual transaction, pay, share
Compare: 2004 No 35 s HF 1(7)
Subpart HF—Maori authorities
Contents
Introductory provisions
HF 1 Maori authorities and the Maori authority rules
Who is a Maori authority?
(1)
A Maori authority is a person eligible under section HF 2 who has made an election under section HF 11.
Maori authority rules
(2)
The Maori authority rules means the following:
(a)
this subpart:
(b)
sections GB 42 and GB 43 (which relate to Maori authority credit arrangements to obtain a tax advantage):
(c)
sections LA 4, LA 6, LO 1, LO 4, and LO 5 (which relate to Maori authority credits):
(d)
subpart OK (Maori authority credit accounts (MACA)):
(e)
section RM 22 to RM 27 (which relate to limits on refunds of tax in relation to Maori authorities):
(f)
schedule 1, part A, clause 6 (Basic tax rates: income tax, ESCT, RSCT, RWT, and attributed fringe benefits):
Defined in this Act: Maori authority, Maori authority rules
Compare: 2004 No 35 s OB 1 “Maori authority”
, “Maori authority rules”
Section HF 1(2)(f): amended, on 1 April 2008, by section 562 of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section HF 1(2)(g): amended, on 1 April 2020, by section 121 of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
HF 2 Who is eligible to be a Maori authority?
What this section does
(1)
This section sets out the persons eligible to choose under section HF 11 to become a Maori authority.
Companies
(2)
The following are eligible to make an election:
(a)
a company established by an order made under Te Ture Whenua Maori Act 1993 (the Maori Land Act 1993):
(b)
a company that owns land that is subject to Te Ture Whenua Maori Act 1993 (the Maori Land Act 1993):
(c)
a company that is—
(i)
established by a mandated iwi organisation to be an asset-holding company, as contemplated by section 12(1)(d) of the Maori Fisheries Act 2004:
(ii)
recognised by Te Ohu Kai Moana Trustee Limited as a mandated iwi organisation under section 13(1) of the Maori Fisheries Act 2004:
(d)
a company that,—
(i)
on behalf of Maori claimants, receives and manages assets that are transferred by the Crown as part of the settlement of a claim under the Treaty of Waitangi; and
(ii)
is contemplated by the deed of settlement of the claim as performing the functions described in subparagraph (i).
Trusts
(3)
The following are eligible to make an election:
(a)
the trustees of a trust established by an order made under Te Ture Whenua Maori Act 1993 (the Maori Land Act 1993):
(b)
the trustees of a trust who own land that is subject to Te Ture Whenua Maori Act 1993 (the Maori Land Act 1993):
(c)
the trustees of a trust that is recognised by Te Ohu Kai Moana Trustee Limited as a mandated iwi organisation under section 13(1) of the Maori Fisheries Act 2004:
(d)
the trustees of trusts that are established by Te Ohu Kai Moana Trustee Limited as a mandated iwi organisation under sections 79 and 92 of the Maori Fisheries Act 2004:
(e)
the trustees of a trust who,—
(i)
on behalf of Maori claimants, receive and manage assets that are transferred by the Crown as part of the settlement of a claim under the Treaty of Waitangi; and
(ii)
are contemplated by the deed of settlement of the claim as performing the functions described in subparagraph (i).
Maori Trustee
(4)
The Maori Trustee in the Maori Trustee’s capacity as an agent for an owner of land that is subject to Te Ture Whenua Maori Act 1993 (the Maori Land Act 1993) is eligible to make an election.
Maori Trust Board
(5)
A Maori Trust Board, as defined in section 2 of the Maori Trust Boards Act 1955, is eligible to make an election.
Crown Forestry Rental Trust
(6)
The Crown Forestry Rental Trust, established by deed in accordance with section 34 of the Crown Forest Assets Act 1989, is eligible to make an election.
Te Ohu Kai Moana Trustee Limited
(7)
Te Ohu Kai Moana Trustee Limited, established under section 33 of the Maori Fisheries Act 2004, is eligible to make an election.
Aotearoa Fisheries Limited
(8)
Aotearoa Fisheries Limited, established under section 60 of the Maori Fisheries Act 2004, is eligible to make an election.
Defined in this Act: agent, company, Maori authority, trustee
Compare: 2004 No 35 s HI 2
HF 3 Applying provisions to Maori authorities
Relationship with provisions generally
(1)
A provision in the Maori authority rules overrides any other provision in this Act that may apply to a Maori authority unless a provision specifically provides otherwise.
Relationship with company rules
(2)
A Maori authority must not—
(a)
amalgamate with a company that is not a Maori authority; or
(b)
be part of a consolidated group that includes a company that is not a Maori authority; or
(c)
be a co-operative company if a shareholder is not a Maori authority.
Treatment of tax losses
(3)
Under section IA 6 (Restrictions on companies grouping tax losses) and subpart IC (Grouping tax losses),—
(a)
a Maori authority may subtract from its net income some or all of a tax loss component or loss balance only of another Maori authority:
(b)
a Maori authority may use some or all of its tax loss component or loss balance in relation to the net income only of another person who is a Maori authority.
Defined in this Act: amalgamation, company, consolidated group, co-operative company, loss balance, Maori authority, Maori authority rules, net income, shareholder, tax loss component
Compare: 2004 No 35 s HI 1
Maori authority distributions
HF 4 What constitutes a Maori authority distribution?
Transfer of value
(1)
A transfer of value from a Maori authority to a person is a Maori authority distribution if the cause of the transfer is the membership of the person in the Maori authority.
Distributions
(2)
A Maori authority distribution includes an amount advanced to a member by a Maori authority, to the extent to which the advance is not a genuine investment by the authority entered into but in effect a distribution of an amount that falls within sections BD 1(1) and CA 1(2) (which relate to amounts that are income).
Taxable bonus issues
(3)
A taxable bonus issue made by a Maori authority to a member is a taxable Maori authority distribution.
Exclusion: services
(4)
A Maori authority distribution does not include the provision of services to a person by a Maori authority.
Distributions with credits attached
(5)
A Maori authority distribution includes the amount of a Maori authority credit attached to it.
Dividends
(6)
A Maori authority distribution that, but for this subsection, would be a dividend for a member, is treated as not being a dividend except for the purposes of section CW 10 (Dividend within New Zealand wholly-owned group).
Value of distribution by reference to market values
(7)
For the purposes of this section, if the transfer of value is—
(a)
the disposal of property to a member without consideration, or for a consideration that is less than the market value of the property, the value of the Maori authority distribution is the amount by which the market value of the property is more than the consideration; and
(b)
the acquisition of property from a member for a consideration that is more than the market value of the property, the value of the Maori authority distribution is the amount by which the market value is less than the consideration.
Defined in this Act: amount, dividend, Maori authority, Maori authority credit, member, taxable bonus issue, taxable Maori authority distribution, transfer of value
Compare: 2004 No 35 ss HI 4(1), (2), HI 5(4), HI 7
HF 5 Notional distributions of co-operative companies
A Maori authority that is a co-operative company may make a notional distribution to a member under section OB 79 (Cooperative companies attaching imputation credits to notional distributions) as if a Maori authority credit were an imputation credit.
Defined in this Act: co-operative company, imputation credit, Maori authority, Maori authority credit, member
Compare: 2004 No 35 s HI 4(3)
HF 6 Tax treatment of Maori authority distributions
A Maori authority distribution to a member is—
(a)
income of the member under section CV 11 (Maori authorities), if the amount is—
(i)
a taxable Maori authority distribution; or
(ii)
a notional distribution:
(b)
exempt income of the member under section CW 55 (Maori authority distributions), if paragraph (a) does not apply.
Defined in this Act: amount, exempt income, income, Maori authority, member, taxable Maori authority distribution
Compare: 2004 No 35 s HI 5(1)
HF 7 Taxable Maori authority distributions
A Maori authority distribution is a taxable Maori authority distribution if—
(a)
the source is income of the Maori authority that is—
(i)
derived by the Maori authority in the 2004–05 income year or a later income year; and
(ii)
not exempt income of the Maori authority; and
(b)
it is not a cash distribution made to a member in relation to a notional distribution for which the Maori authority has made an election under section OB 82 (When and how co-operative company makes election).
Defined in this Act: exempt income, income, income year, Maori authority, member, taxable Maori authority distribution
Compare: 2004 No 35 s HI 5(2), (3)
Section HF 7: replaced (with effect on 1 April 2008), on 30 March 2022, by section 115 of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
HF 8 Proportional allocation
If a Maori authority distribution consists of a taxable Maori authority distribution and another amount, the Maori authority must allocate an equal proportion of each type of distribution to every member to whom the distribution is made.
Defined in this Act: amount, Maori authority, member, taxable Maori authority distribution
Compare: 2004 No 35 s HI 6
Changing status
Table H1
Consequences of change in entity status for purposes of Maori authority rules
| Row | Entity | Changing to | Consequences | |
| 1 | Company | Maori authority | The company stops being an ICA company, and the rules relating to the ending of ICA company status apply | |
| Retained earnings, accumulated profits, and capital reserves are treated as an amount from which a distribution that is not a taxable Maori authority distribution may be made | ||||
| 2 | Trust | Maori authority | Trustee income is treated as an amount from which a distribution that is not a taxable Maori authority distribution may be made | |
| 3 | Maori authority | Company that is not a Maori authority | The Maori authority may transfer a credit balance in the Maori authority credit account to the company’s imputation credit account, and section OK 18 applies to a debit balance in the Maori authority credit account | |
| Taxable income derived by the Maori authority in the 2003–04 or an earlier tax year is available subscribed capital | ||||
| 4 | Maori authority | Trust that is not a Maori authority | Taxable income of the Maori Authority in the 2003–04 or an earlier tax year is treated as trustee income | |
| Row | Entity | Changing to | Reverting to | Consequences |
| 5 | Maori authority | Company that is not a Maori authority | Maori authority | Market value calculations are required under section HF 10. The company must apply row 1 |
| 6 | Maori authority | Trust that is not a Maori authority | Maori authority | Market value calculations are required under section HF 10. The company must apply row 2 |
|
How to use this table Read columns from left to right according to the row that fits the situation. | ||||
HF 9 Treatment of companies and trusts that choose to apply this subpart
Company becoming Maori authority
(1)
If a company becomes a Maori authority in a tax year, the company must apply table H1, row 1.
Trust becoming Maori authority
(2)
If a trust becomes a Maori authority in a tax year, the trustee must apply table H1, row 2.
Maori authority becoming company
(3)
If a Maori authority is a company that stops being a Maori authority in a tax year, it must apply table H1, row 3.
Maori authority becoming trust
(4)
If a Maori authority is a trust that stops being a Maori authority in a tax year, the trustee must apply table H1, row 4.
Defined in this Act: company, Maori authority, tax year, trustee
Compare: 2004 No 35 s HI 8
HF 10 Market value calculations
When this section applies
(1)
This section applies to property of a company or a trust when the company or the trustees of the trust, having stopped being a Maori authority, reverts to being a Maori authority.
Treatment
(2)
The company or the trustees, as applicable, are treated as—
(a)
disposing of the company’s property, or the trust’s property, immediately before becoming a Maori authority for a consideration that is the market value of the property on the date of disposal; and
(b)
acquiring the property of the Maori authority for a consideration that is the market value of the property on the date of disposal referred to in paragraph (a).
Market value for both
(3)
In subsection (2), the market value of the property is the market value for both the company, or the trustees, as applicable, and the Maori authority.
Depreciation
(4)
Despite sections EE 55 to EE 60, and EZ 22 (which relate to depreciation), the cost to a Maori authority of property to which this section applies is the lesser of—
(a)
the market value of the property on the date it was acquired; and
(b)
the original cost of the property to the company or the trust.
Defined in this Act: company, Maori authority, trustee
Compare: 2004 No 35 s HI 9
HF 11 Choosing to become Maori authority
Notice
(1)
A person who is eligible under section HF 2 may choose to become a Maori authority by notifying the Commissioner.
Acceptance notified
(2)
Having received a notice under subsection (1), the Commissioner must notify the person of the acceptance of the election. The Commissioner must provide an acceptance date in the notice.
When election takes effect
(3)
The election takes effect on—
(a)
the first day of the income year in which the person’s notice is given; or
(b)
the first day of the next income year, if the person nominates that date in the notice; or
(c)
the day on which the person does not comply with the person’s rules contained in the register of charities under the Charities Act 2005, if the person nominates that date in the notice.
When election no longer effective
(4)
An election under this section stops having effect if the person—
(a)
notifies the Commissioner that the election is cancelled, and the election no longer has effect from the date set out in the notice:
(b)
stops being a Maori authority.
Defined in this Act: Commissioner, income year, Maori authority, notice, notify
Compare: 2004 No 35 s HI 3
Section HF 11(3): replaced, on 30 June 2014, by section 126 of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Subpart HG—Joint venturers, partners, and partnerships
Subpart HG: inserted, on 1 April 2008, by section 19(1) of the Taxation (Limited Partnerships) Act 2008 (2008 No 2).
Contents
Joint venturers
Heading: inserted, on 1 April 2008, by section 19(1) of the Taxation (Limited Partnerships) Act 2008 (2008 No 2).
HG 1 Joint venturers
When this section applies
(1)
This section applies when 2 or more people derive income jointly or have deductions jointly, and they are not partners in the same partnership.
Separate shares
(2)
Each person must calculate their net income for a tax year taking into account their share of the joint income and deductions.
Exclusion
(3)
This section does not apply to the income derived by and the deductions of an airport operator from activities that are activities undertaken as an airport operator.
Defined in this Act: airport operator, deduction, income, net income, partner, partnership, tax year
Section HG 1: inserted, on 1 April 2008, by section 19(1) of the Taxation (Limited Partnerships) Act 2008 (2008 No 2).
Partners and partnerships
Heading: inserted, on 1 April 2008, by section 19(1) of the Taxation (Limited Partnerships) Act 2008 (2008 No 2).
HG 2 Partnerships are transparent
Look-through in accordance with share
(1)
For the purposes of a partner’s liabilities and obligations under this Act in their capacity of partner of a partnership, unless the context requires otherwise,—
(a)
the partner is treated as carrying on an activity carried on by the partnership, and having a status, intention, and purpose of the partnership, and the partnership is treated as not carrying on the activity or having the status, intention, or purpose:
(b)
the partner is treated as holding property that a partnership holds, in proportion to the partner’s partnership share, and the partnership is treated as not holding the property:
(c)
the partner is treated as being party to an arrangement to which the partnership is a party, in proportion to the partner’s partnership share, and the partnership is treated as not being a party to the arrangement:
(d)
the partner is treated as doing a thing and being entitled to a thing that the partnership does or is entitled to, in proportion to the partner’s partnership share, and the partnership is treated as not doing the thing or being entitled to the thing.
No streaming
(2)
Despite subsection (1), for a partner in their capacity of partner of a partnership, the amount of income, tax credit, rebate, gain, expenditure, or loss that they have from a particular source, or of a particular nature, is calculated by multiplying the total income, tax credit, rebate, gain, expenditure, or loss of the partners of the partnership from the particular source or of the particular nature by the partner’s partnership share in the partnership’s income.
Expenditure or loss previously incurred
(3)
A partner of a partnership may be treated as incurring an expenditure or loss which the partnership incurs ignoring this section, despite the partner not being a partner at the time the expenditure or loss is incurred. This subsection does not allow 2 deductions for 1 expenditure or loss.
Excluded amounts
(4)
Subsection (2) does not apply to the following amounts:
(a)
expenditure or loss that relates to a person entering a partnership by acquiring partner’s interests disposed of by another partner, to the extent to which sections HG 5 to HG 10 do not apply to the partner’s interests:
(b)
supplementary dividends, to the extent to which subpart LP (Tax credits for supplementary dividends) applies:
(c)
[Repealed](d)
imputation credits, to the extent to which section LE 6 (Partners in partnerships) applies.
(e)
[Repealed]Defined in this Act: arrangement, imputation credit, income, partner, partnership, partnership share, supplementary dividend, tax credit
Section HG 2: inserted, on 1 April 2008, by section 19(1) of the Taxation (Limited Partnerships) Act 2008 (2008 No 2).
Section HG 2(4)(c): repealed (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 76(1) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section HG 2(4)(d): amended, on 1 April 2017, by section 133(1) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section HG 2(4)(e): repealed, on 1 April 2017, by section 133(2) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section HG 2 list of defined terms CTR additional dividend: 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 HG 2 list of defined terms FDP credit: repealed, on 1 April 2017, by section 133(3) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section HG 2 list of defined terms rebate: repealed (with effect on 23 November 2010), on 17 July 2013, by section 61 of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
HG 3 General provisions relating to disposals
Relationship between disposal upon dissolution and disposal safe harbours
(1)
Section HG 4 overrides sections HG 5 to HG 10.
Election out of disposal safe harbours for small partnerships
(2)
Sections HG 5 to HG 9 do not apply for the partners of a small partnership if the entering partner, the exiting partner, and the partnership, furnish returns of income that ignore the sections.
Election in for specified livestock disposed of to entering partner
(3)
Section HG 10 applies for an entering partner if the entering partner furnishes a return of income that applies the section.
Defined in this Act: entering partner, partner, partnership, return of income, small partnership
Section HG 3: inserted, on 1 April 2008, by section 19(1) of the Taxation (Limited Partnerships) Act 2008 (2008 No 2).
Section HG 3(2): amended (with effect on 1 April 2008), on 6 October 2009, by section 269(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section HG 3(3) heading: substituted (with effect on 1 April 2008), on 6 October 2009, by section 269(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section HG 3(3): substituted (with effect on 1 April 2008), on 6 October 2009, by section 269(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section HG 3 list of defined terms entering partner: inserted (with effect on 1 April 2008), on 17 July 2013, by section 62 of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Section HG 3 list of defined terms exiting partner: 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 HG 3 list of defined terms partner: inserted (with effect on 1 April 2008), on 17 July 2013, by section 62 of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Section HG 3 list of defined terms partnership: inserted (with effect on 1 April 2008), on 17 July 2013, by section 62 of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Section HG 3 list of defined terms return of income: inserted (with effect on 1 April 2008), on 17 July 2013, by section 62 of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Section HG 3 list of defined terms small partnership: inserted (with effect on 1 April 2008), on 17 July 2013, by section 62 of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
HG 4 Disposal upon final dissolution
When this section applies
(1)
This section applies when a partnership is finally dissolved by agreement of the partners, court order, or otherwise, and the partnership’s business ignoring section HG 2 will not continue to be carried on in partnership.
Disposal and re-acquisition
(2)
A partner of the partnership is treated as disposing of all of their partner’s interests in the partnership, immediately before the dissolution, to a single third party for a payment equal to the interests’ market value. The partner is treated as re-acquiring all of their partner’s interests immediately after the dissolution, from the third party for a payment equal to the interests’ market value.
Receipt upon dissolution
(3)
Anything received by a partner in relation to the final dissolution of the partnership is ignored.
Exclusion: actual disposal to third party
(4)
This section does not apply to the extent to which a partner of the partnership disposes of their partner’s interests in the partnership to persons who are not associated with them. For the purposes of testing association, the partners’ partnership capacity is ignored.
Exclusion: partnerships of persons in marriage, civil union, or de facto relationships
(5)
This section does not apply if—
(a)
immediately before the dissolution, there are only 2 partners of the partnership and they are married to each other, in a civil union together, or in a de facto relationship together; and
(b)
the dissolution is caused by death of a partner, or the dissolution relates to the settlement of relationship property; and
(c)
on dissolution, all partner’s interests of 1 person are transferred, ignoring any intervening transfer to an executor or administrator, to the other person; and
(d)
the transfers of those partner’s interests are subject to provisions in subpart FB or FC (which relate to transfers of relationship property and gifts), and those provisions treat the transfers as disposals for amounts that are not the interests’ market values.
Relationship with subject matter
(6)
This section overrides sections HG 5 to HG 10.
Market value of debt owed
(7)
In this section, in relation to a limited partnership, the market value of a partner’s interest in a financial arrangement as debtor must take into account the amount of any adjustment for credit impairment.
Defined in this Act: amount, associated person, dispose, financial arrangement, partner, partner’s interests, partnership, settlement of relationship property
Section HG 4: substituted (with effect on 1 April 2008), on 6 October 2009, by section 270(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section HG 4(7) heading: inserted, on 29 March 2018 (with effect on 1 April 2011 and applying for income years beginning on or after that date), by section 122(1) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
Section HG 4(7): inserted, on 29 March 2018 (with effect on 1 April 2011 and applying for income years beginning on or after that date), by section 122(1) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
Section HG 4 list of defined terms financial arrangement: inserted, on 29 March 2018 (with effect on 1 April 2011), by section 122(2) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
HG 5 Disposal of partner’s interests
When this section applies
(1)
This section applies when a person disposes of some or all of their partner’s interests (the current interests) in a partnership, if the amount calculated using the following formula is less than zero:
disposal payment + previous payments
− (gross tax value − liabilities) − $50,000.
Definition of items in formula
(2)
In the formula,—
(a)
disposal payment is the total amount of consideration paid or payable to the exiting partner for the current interests:
(b)
previous payments is the total amount of consideration paid or payable to the exiting partner for other disposals of some or all of their partner’s interests (the other interests) that have occurred in the year before the disposal of the current interests:
(c)
gross tax value is the total of—
(i)
the value under this Act of the current interests and other interests at the time the relevant interest is disposed of, to the extent to which the interests are revenue account property or depreciable property, or financial arrangments:
(ii)
the market value of the current interests and other interests at the time the relevant interest is disposed of, to the extent to which the interests are not revenue account property or depreciable property or financial arrangements:
(d)
liabilities is the amount of liabilities under generally accepted accounting practice at the time the relevant interest is disposed of, calculated by reference to the exiting partner’s partnership share for the relevant interest.
Exiting partner: excluded payment
(3)
The disposal payment described in subsection (2)(a) is excluded income of the exiting partner.
Exiting partner: no deduction
(4)
The exiting partner is denied any deduction in relation to the current interests for the income year in which the disposal of the interests occurs and later income years to the extent to which the entering partner is allowed a deduction because of subsection (6).
Entering partner: no deduction
(5)
An entering partner is denied any deduction for the disposal payment described in subsection (2)(a).
Entering partner: stepping in
(6)
For the purposes of calculating the income and deductions of an entering partner for the part of the income year after the disposal of the interests occurs and later income years (the post-disposal periods), the entering partner is treated for the post-disposal periods as if they had originally acquired and held the current interests, not the exiting partner. However, this subsection does not apply to a deduction carried forward under section HG 12.
Exclusion by election
(7)
This section does not apply for the partners of a small partnership if section HG 3(2) applies.
Relationship with section HG 4
(8)
Section HG 4 overrides this section.
Defined in this Act: deduction, depreciable property, dispose, entering partner, excluded income, exiting partner, financial arrangement, income tax liability, partner, partner’s interests, partnership, partnership share, return of income, revenue account property, year
Section HG 5: inserted, on 1 April 2008, by section 19(1) of the Taxation (Limited Partnerships) Act 2008 (2008 No 2).
Section HG 5(1): amended, on 30 March 2017, by section 134(1) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section HG 5(2)(c): substituted (with effect on 1 April 2008), on 6 October 2009, by section 271(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section HG 5(7): amended (with effect on 1 April 2008), on 6 October 2009, by section 271(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section HG 5 list of defined terms depreciable property: inserted (with effect on 1 April 2008), on 6 October 2009, by section 271(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section HG 5 list of defined terms exiting partner: inserted, on 30 March 2017, by section 134(2) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section HG 5 list of defined terms financial arrangement: inserted (with effect on 1 April 2008), on 6 October 2009, by section 271(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section HG 5 list of defined terms revenue account property: inserted (with effect on 1 April 2008), on 6 October 2009, by section 271(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
HG 6 Disposal of trading stock
When this section applies
(1)
This section applies when a person disposes of some or all of their partner’s interests in a partnership, to the extent to which those interests include trading stock that is not livestock, and, for the income year of disposal, the total turnover of the partnership, ignoring section HG 2, is $3,000,000 or less.
Exiting partner: excluded payment
(2)
The amount of consideration paid or payable to the exiting partner for the trading stock is excluded income of the exiting partner.
Exiting partner: no deduction
(3)
The exiting partner is denied any deduction in relation to the trading stock for the income year in which the disposal of the trading stock occurs and later income years, to the extent to which the entering partner is allowed a deduction because of subsection (5).
Entering partner: no deduction
(4)
The entering partner is denied any deduction for the amount of consideration paid or payable to the exiting partner for the trading stock.
Entering partner: stepping in
(5)
For the purposes of calculating the income tax liability of an entering partner, the entering partner is treated as if they had acquired and held the trading stock, not the exiting partner.
Exclusion by election
(6)
This section does not apply for the partners of a small partnership if section HG 3(2) applies.
Relationship with section HG 4
(7)
Section HG 4 overrides this section.
Defined in this Act: deduction, dispose, entering partner, excluded income, exiting partner, income tax liability, partner, partner’s interests, partnership, small partnership, trading stock, turnover
Section HG 6: inserted, on 1 April 2008, by section 19(1) of the Taxation (Limited Partnerships) Act 2008 (2008 No 2).
Section HG 6(1): amended, on 30 March 2017, by section 135(1) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section HG 6(6): amended (with effect on 1 April 2008), on 6 October 2009, by section 272(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section HG 6 list of defined terms exiting partner: inserted, on 30 March 2017, by section 135(2) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
HG 7 Disposal of depreciable property
When this section applies
(1)
This section applies when a person disposes of some or all of their partner’s interests in a partnership, to the extent to which those interests include an item of depreciable property that is not depreciable intangible property, and the total cost of the item when it was first acquired by the partners of the partnership is $200,000 or less.
Exiting partner: excluded payment
(2)
The amount of consideration paid or payable to the exiting partner for the depreciable property is excluded income of the exiting partner.
Exiting partner: no deduction
(3)
The exiting partner is denied any deduction in relation to the depreciable property for the income year in which the disposal of the depreciable property occurs and later income years, to the extent to which the entering partner is allowed a deduction because of subsection (5).
Entering partner: no deduction
(4)
The entering partner is denied any deduction for the amount of consideration paid or payable to the exiting partner for the depreciable property.
Entering partner: stepping in
(5)
For the purposes of calculating the income tax liability of an entering partner for the part of the income year after the disposal of the depreciable property occurs and later income years (the post-disposal periods), the entering partner is treated for the post-disposal periods as if they had originally acquired and held the depreciable property, not the exiting partner.
Exclusion by election
(6)
This section does not apply for the partners of a small partnership if section HG 3(2) applies.
Relationship with section HG 4
(7)
Section HG 4 overrides this section.
Defined in this Act: deduction, depreciable intangible property, depreciable property, dispose, entering partner, excluded income, exiting partner, income tax liability, partner, partner’s interests, partnership, small partnership
Section HG 7: inserted, on 1 April 2008, by section 19(1) of the Taxation (Limited Partnerships) Act 2008 (2008 No 2).
Section HG 7(1): amended, on 30 March 2017, by section 136(1) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section HG 7(6): amended (with effect on 1 April 2008), on 6 October 2009, by section 273(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section HG 7 list of defined terms exiting partner: inserted, on 30 March 2017, by section 136(2) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
HG 8 Disposal of financial arrangements and certain excepted financial arrangements
When this section applies
(1)
This section applies when a person disposes of some or all of their partner’s interests in a partnership, to the extent to which those interests include a financial arrangement or an excepted financial arrangement described in section EW 5(10) (What is an excepted financial arrangement?) and, ignoring section HG 2—
(a)
the purpose for which the financial arrangement or excepted financial arrangement was entered into was necessary and incidental to the business of the partnership; and
(b)
the partnership does not derive income from a business of holding financial arrangements.
Exiting partner: excluded payment
(2)
The amount of consideration paid or payable to the exiting partner for the relevant financial arrangement or excepted financial arrangement is excluded income of the exiting partner. The exiting partner is, for the relevant financial arrangement, a party that is not required to calculate a base price adjustment, despite section EW 29 (When calculation of base price adjustment required).
Exiting partner: no deduction
(3)
The exiting partner is denied any deduction in relation to the relevant financial arrangement or excepted financial arrangement for the income year in which the disposal of the financial arrangement or excepted financial arrangement occurs and later income years.
Entering partner: no deduction
(4)
The entering partner is denied any deduction for the amount of consideration paid or payable to the exiting partner for the relevant financial arrangement or excepted financial arrangement.
Entering partner: stepping in
(5)
For the purposes of calculating the income tax liability of an entering partner for the part of the income year after the disposal of the relevant financial arrangement or excepted financial arrangement occurs and later income years (the post-disposal periods), the entering partner is treated for the post-disposal periods as if they had acquired and held the financial arrangement or excepted financial arrangement, not the exiting partner.
Exclusion by election
(6)
This section does not apply for the partners of a small partnership if section HG 3(2) applies.
Relationship with section HG 4
(7)
Section HG 4 overrides this section.
Defined in this Act: deduction, disposal, entering partner, excepted financial arrangement, excluded income, exiting partner, financial arrangement, income tax liability, partner, partner’s interests, partnership, small partnership
Section HG 8: inserted, on 1 April 2008, by section 19(1) of the Taxation (Limited Partnerships) Act 2008 (2008 No 2).
Section HG 8(1): amended, on 30 March 2017, by section 137(1) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section HG 8(6): amended (with effect on 1 April 2008), on 6 October 2009, by section 274(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section HG 8 list of defined terms exiting partner: inserted, on 30 March 2017, by section 137(2) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
HG 9 Disposal of short-term agreements for sale and purchase
When this section applies
(1)
This section applies when a person disposes of some or all of their partner’s interests in a partnership, to the extent to which those interests include a short-term agreement for sale and purchase.
Exiting partner: excluded payment
(2)
The amount of consideration paid or payable to the exiting partner for the short-term agreement for sale and purchase is excluded income of the exiting partner.
Exiting partner: no deduction
(3)
The exiting partner is denied any deduction in relation to the short-term agreement for sale and purchase, to the extent to which the entering partner is allowed a deduction because of subsection (5).
Entering partner: no deduction
(4)
The entering partner is denied any deduction for the amount of consideration paid or payable to the exiting partner for the short-term agreement for sale and purchase.
Entering partner: stepping in
(5)
For the purposes of calculating the income tax liability of an entering partner for the part of the income year after the disposal of the short-term agreement for sale and purchase occurs and later income years (the post-disposal periods), the entering partner is treated for the post-disposal periods as if they had originally acquired and held the short-term agreement for sale and purchase, not the exiting partner.
Exclusion by election
(6)
This section does not apply for the partners of a small partnership if section HG 3(2) applies.
Relationship with section HG 4
(7)
Section HG 4 overrides this section.
Defined in this Act: deduction, dispose, entering partner, excluded income, exiting partner, income tax liability, partner, partner’s interests, partnership, short-term agreement for sale and purchase, small partnership
Section HG 9: inserted, on 1 April 2008, by section 19(1) of the Taxation (Limited Partnerships) Act 2008 (2008 No 2).
Section HG 9 heading: amended (with effect on 1 April 2008), on 6 October 2009, by section 275(1)(a) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section HG 9(1): amended, on 30 March 2017, by section 138(1) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section HG 9(1): amended (with effect on 1 April 2008), on 6 October 2009, by section 275(1)(b) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section HG 9(2): amended (with effect on 1 April 2008), on 6 October 2009, by section 275(1)(c) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section HG 9(3): amended (with effect on 1 April 2008), on 6 October 2009, by section 275(1)(d) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section HG 9(4): amended (with effect on 1 April 2008), on 6 October 2009, by section 275(1)(e) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section HG 9(5): amended (with effect on 1 April 2008), on 6 October 2009, by section 275(1)(f) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section HG 9(6): amended (with effect on 1 April 2008), on 6 October 2009, by section 275(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section HG 9 list of defined terms disposal: repealed, on 30 March 2017, by section 138(2)(a) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section HG 9 list of defined terms dispose: inserted, on 30 March 2017, by section 138(2)(b) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section HG 9 list of defined terms exiting partner: inserted, on 30 March 2017, by section 138(2)(b) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section HG 9 list of defined terms short-term agreement for sale and purchase: inserted (with effect on 1 April 2008), on 6 October 2009, by section 275(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section HG 9 list of defined terms short-term agreement for the sale and purchase of property or services: repealed (with effect on 1 April 2008), on 6 October 2009, by section 275(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
HG 10 Disposal of livestock
When this section applies
(1)
This section applies when a person (the exiting partner) disposes of some or all of their partner’s interests to an entering partner and section HG 3(3) applies, to the extent to which those interests include specified livestock and that specified livestock includes female breeding livestock and, for the income year, the partners use—
(a)
the national standard cost scheme for specified livestock, described in section EC 22 (National standard cost scheme); or
(b)
the cost price method for specified livestock, described in section EC 25 (Cost price, replacement price, or market value).
Entering partner’s cost base
(2)
Section EC 26B (Entering partners’ cost base) may apply to the entering partner for the purposes of determining the value of the specified livestock at the end of an income year for the purposes of section EC 2 (Valuation of livestock).
Defined in this Act: amount, cost price, dispose, entering partner, income year, national standard cost scheme, partner, partner’s interest, specified livestock
Section HG 10: substituted (with effect on 1 April 2009), on 6 October 2009, by section 276(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section HG 10(1): amended (with effect on 1 April 2009), on 24 February 2016, by section 189(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section HG 10 list of defined terms entering partner: inserted (with effect on 1 April 2009), on 24 February 2016, by section 189(2) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
HG 11 Limitation on deductions by partners in limited partnerships
When this section applies
(1)
This section applies for a limited partnership and an income year when, but for this section, a deduction by virtue of section HG 2 or HG 12 is allowed to—
(a)
a limited partner of the limited partnership:
(b)
a general partner of the partnership who—
(i)
was a limited partner of the limited partnership within 60 days of the last day of the income year; and
(ii)
is or will be a limited partner of the limited partnership within 60 days after the last day of the income year.
No deduction
(2)
The partner is denied the deduction for an income year to the extent of the lesser of—
(a)
the greater of zero and the amount calculated by subtracting, from their limited partnership deduction for the income year, the amount (the partner’s basis) calculated using the formula in subsection (3) on the last day of the income year; and
(b)
the greater of zero and the amount calculated by subtracting, from their limited partnership deduction for the income year, the amount of assessable income that they have by virtue of section HG 2 for the limited partnership and the income year.
Partner’s basis
(3)
For the purposes of subsection (2), the amount that is the partner’s basis is calculated using the following formula:
investments − distributions + income − deductions − disallowed amount.
Definition of items in formula
(4)
The items in the formula are defined in subsections (5) to (9).
Investments
(5)
Investments is the total of—
(a)
the market value of capital contributions made by the partner to the limited partnership at the time the relevant contribution is contributed or agreed to be contributed by them:
(b)
the amount paid by the partner for the assignment of capital contributions to them:
(c)
the secured amounts.
Distributions
(6)
Distributions is the total of—
(a)
the market value of distributions to the partner from the limited partnership:
(b)
the amount paid to the partner for the assignment of capital contributions by them.
Income
(7)
Income is the total of—
(a)
income that the partner has by virtue of section HG 2 in the income year and previous income years:
(ab)
if the partner has FIF income or a FIF loss, an amount under subsection (7B):
(b)
capital gain amounts under section CD 44(7)(a) (Available capital distribution amount) that the partner would have by virtue of section HG 2 in the income year and previous income years, if the partner were treated as a company for the purposes of section CD 44(7)(a), unless the gain is accounted for under paragraph (a):
(c)
assessable income that the partner has in previous income years from goods and services they contributed to the limited partnership, if the income is not accounted for under subsection (5) or paragraph (a) or (b) of this subsection.
Formula
(7B)
The amount described in subsection (7)(ab) is given by the following formula, but if the calculation returns a negative number, the amount is zero:
dividend − FIF amount.
Definition of items in formula
(7C)
In the formula,—
(a)
dividend is the amount that would be the partner’s share of the dividend paid by a FIF to the limited partnership, if section CD 36(1) (Foreign investment fund income) were ignored:
(b)
FIF amount is—
(i)
zero, if subparagraph (ii) does not apply:
(ii)
the amount that is the person’s FIF income, for the relevant income year and FIF, if the person has such an amount.
Deductions
(8)
Deductions is the total of—
(a)
expenditure or loss in previous income years, to the extent to which the expenditure or loss is incurred by virtue of section HG 2 in the partner deriving income by virtue of section HG 2, excluding any deductions denied in those previous years under this section:
(b)
capital loss amounts under section CD 44(9) that the partner would have by virtue of section HG 2 in the income year and previous income years, if the partner is treated as a company for the purposes of section CD 44(9), unless the loss is accounted for under paragraph (a):
(c)
deductions that the partner is allowed in previous income year in relation to assessable income described in subsection (7)(c), if the deduction is not accounted for under paragraph (a) or (b) or subsection (6).
Disallowed amounts
(9)
Disallowed amount is the amount of investments, as defined in subsection (5), made by the partner within 60 days of the last day of the income year, if those investments are or will be distributed or reduced within 60 days after the last day of the income year.
Exclusion
(10)
This section does not deny a partner a deduction that is equal to or less than the amount of net income that the exiting partner has for the amount paid or payable to the exiting partner for the disposal of their partner’s interests, ignoring other transactions.
Relationship with subject matter
(11)
This section is modified by sections HZ 3, HZ 4, and HZ 4B (which relate to transitions to limited partnerships).
Some definitions
(12)
In this section,—
capital contribution includes—
(a)
a capital contribution for the purposes of the Limited Partnerships Act 2008:
(b)
amounts that the limited partnership is debtor for in relation to the partner, including a loan to the limited partnership and a credit balance in a current account
guarantor means—
(a)
a partner, if—
(i)
the partner secures the relevant debt by guarantee or indemnity:
(ii)
the partner’s associate secures the relevant debt by guarantee or indemnity:
(b)
a person who is not described in paragraph (a)(i) and (ii) but who secures the relevant debt by guarantee or indemnity, if the partner or a partner’s associate also secures the relevant debt as described in paragraph (a)(i) or (ii)
limited partnership deduction means, for the partner and the income year, the amount of any deductions that the partner would be allowed if the partner is treated as having no income or deductions other than those that arise by virtue of sections HG 2 and HG 12
partner’s associate means, for a partner, a person who is not a partner of the relevant limited partnership, and who is—
(a)
a relative of the partner, but excluding a person under section YA 1 (Definitions), definition of relative, paragraph (v):
(b)
a company in the same wholly-owned group as the partner
recourse property means property to which a creditor has recourse, to enforce a guarantee or indemnity for the relevant debt, if the guarantee or indemnity expressly provides recourse to only that property
secured amounts means, for the partner, the lesser of the following applicable amounts—
(a)
the amount of the limited partnership’s debt ignoring section HG 2 (the secured debt) for which the partner is a guarantor, divided by the total number of guarantors for the secured debt:
(b)
the market value of the recourse property for the secured debt to the extent of the interest that the partner and the partner’s associates have in it, net of higher-ranking calls whether actual, future, or contingent, divided by the total number of guarantors described in the definition of guarantor, paragraph (a), who have an interest in the recourse property or have a partner’s associate with an interest in the recourse property.
Defined in this Act: amount, assessable income, capital contribution, deduction, dividends, entering partner, exiting partner, FIF, FIF income, FIF loss, guarantor, income, income year, limited partnership, limited partnership deduction, loan, net income, net loss, partner, partner’s associate, partnership, recourse property, secured amounts
Section HG 11: inserted, on 1 April 2008, by section 19(1) of the Taxation (Limited Partnerships) Act 2008 (2008 No 2).
Section HG 11(2): replaced (with effect on 1 April 2008), on 18 March 2019, by section 216(1) (and see section 216(3) for application) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
Section HG 11(7)(a): replaced (with effect on 1 April 2008), on 2 November 2012, by section 85(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section HG 11(7)(ab): inserted (with effect on 1 April 2008), on 2 November 2012, by section 85(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section HG 11(7B) heading: inserted (with effect on 1 April 2008), on 2 November 2012, by section 85(2) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section HG 11(7B): inserted (with effect on 1 April 2008), on 2 November 2012, by section 85(2) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section HG 11(7C) heading: inserted (with effect on 1 April 2008), on 2 November 2012, by section 85(2) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section HG 11(7C): inserted (with effect on 1 April 2008), on 2 November 2012, by section 85(2) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section HG 11(8)(b): amended (with effect on 1 April 2008), on 6 October 2009, by section 277 of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section HG 11(8)(c): amended, on 30 March 2017, by section 139(1) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section HG 11(10): amended, on 30 March 2017, by section 139(2) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section HG 11(11): amended, on 1 April 2011 (applying for income years beginning on or after 1 April 2011), by section 81(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section HG 11(12) capital contribution: replaced (with effect on 1 April 2008), on 2 November 2012, by section 85(3) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section HG 11(12) guarantor: inserted (with effect on 1 April 2012), on 2 November 2012, by section 85(4) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section HG 11(12) partner’s associate paragraph (a): amended (with effect on 1 April 2012), on 2 November 2012, by section 85(5) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section HG 11(12) resource property: inserted (with effect on 1 April 2012), on 2 November 2012, by section 85(6) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section HG 11(12) secured amounts: replaced (with effect on 1 April 2012), on 2 November 2012, by section 85(6) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section HG 11 list of defined terms assessable income: inserted (with effect on 1 April 2008), on 18 March 2019, by section 216(2) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
Section HG 11 list of defined terms exiting partner: inserted, on 30 March 2017, by section 139(3) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section HG 11 list of defined terms FIF loss: inserted (with effect on 1 April 2008), on 2 November 2012, by section 85(7) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section HG 11 list of defined terms guarantor: inserted (with effect on 1 April 2012), on 2 November 2012, by section 85(8) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section HG 11 list of defined terms limited partnership: inserted (with effect on 1 April 2008), on 18 March 2019, by section 216(2) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
Section HG 11 list of defined terms loan: inserted (with effect on 1 April 2008), on 2 November 2012, by section 85(9) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section HG 11 list of defined terms recourse property: inserted (with effect on 1 April 2012), on 2 November 2012, by section 85(8) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section HG 11 list of defined terms secured amounts: inserted (with effect on 1 April 2012), on 2 November 2012, by section 85(8) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
HG 12 Limitation on deductions by partners in limited partnerships: carry-forward
When this section applies
(1)
This section applies when, for an income year, a partner is denied a deduction under section HG 11.
Carry-forward
(2)
The partner is allowed a deduction, for an amount for which the partner is denied a deduction under section HG 11, for the income year (the later income year) after the one for which it is denied under section HG 11, unless—
(a)
the limited partnership ceases to be a limited partnership in the later year:
(b)
the partner ceases to be a partner in the later year
Carry-forward: resumption
(2B)
If a person would have been allowed a deduction but for the application of subsection (2)(b) for the later year, they are allowed a deduction for the amount for the first income year after the later year in which they resume being a partner in the limited partnership.
Relationship with subject matter
(3)
The deduction allowed under this section is subject to section HG 11, to the extent to which that section applies to the deduction and the relevant partner.
Defined in this Act: amount, deduction, income year, limited partner
Section HG 12: inserted, on 1 April 2008, by section 19(1) of the Taxation (Limited Partnerships) Act 2008 (2008 No 2).
Section HG 12(2): amended (with effect on 1 April 2008), on 21 December 2010, by section 82(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section HG 12(2B) heading: inserted (with effect on 1 April 2008), on 21 December 2010, by section 82(2) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section HG 12(2B): inserted (with effect on 1 April 2008), on 21 December 2010, by section 82(2) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Subpart HL—Portfolio investment entities
[Repealed]Subpart HL: repealed, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Contents
Introductory provisions[Repealed]
Heading: repealed, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
HL 1 Intended effect on portfolio tax rate entities and investors
[Repealed]Section HL 1: repealed, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
HL 2 Scheme of subpart
[Repealed]Section HL 2: repealed, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Eligibility requirements: portfolio investment entities and foreign investment vehicles[Repealed]
Heading: repealed, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
HL 3 Eligibility requirements for entities
[Repealed]Section HL 3: repealed, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
HL 4 Effect of failure to meet eligibility requirements for entities
[Repealed]Section HL 4: repealed, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
HL 5 Foreign investment vehicles
[Repealed]Section HL 5: repealed, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
HL 5B Meaning of investor and portfolio investor class
[Repealed]Section HL 5B: repealed, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
HL 5C Income interest requirement
[Repealed]Section HL 5C: repealed, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
HL 6 Investor membership requirement
[Repealed]Section HL 6: repealed, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
HL 7 Investor return adjustment requirement: portfolio tax rate entity
[Repealed]Section HL 7: repealed, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
HL 8 Imputation credit distribution requirement: portfolio listed company
[Repealed]Section HL 8: repealed, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
HL 9 Investor interest size requirement
[Repealed]Section HL 9: repealed, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
HL 10 Further eligibility requirements relating to investments
[Repealed]Section HL 10: repealed, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Becoming and ceasing to be portfolio investment entity[Repealed]
Heading: repealed, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
HL 11 Election to become portfolio investment entity and cancellation of election
[Repealed]Section HL 11: repealed, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
HL 12 Unlisted company choosing to become portfolio listed company
[Repealed]Section HL 12: repealed, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
HL 13 Becoming portfolio investment entity
[Repealed]Section HL 13: repealed, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
HL 14 Tax consequences from transition
[Repealed]Section HL 14: repealed, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
HL 15 Ceasing to be portfolio investment entity
[Repealed]Section HL 15: repealed, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Periods relevant to calculation of portfolio entity tax liability[Repealed]
Heading: repealed, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
HL 16 Portfolio allocation period and portfolio calculation period
[Repealed]Section HL 16: repealed, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Allocation of income in some cases[Repealed]
Heading: repealed, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
HL 17 Treatment of income from interest when entitlement conditional or lacking
[Repealed]Section HL 17: repealed, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
HL 18 Certain new investors treated as part of existing portfolio investor class
[Repealed]Section HL 18: repealed, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Calculating portfolio entity tax liability[Repealed]
Heading: repealed, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
HL 19 Portfolio class net income and portfolio class net loss for portfolio allocation period
[Repealed]Section HL 19: repealed, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
HL 19B Treatment of certain provisions made by portfolio tax rate entity
[Repealed]Section HL 19B: repealed, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
HL 20 Portfolio class taxable income and portfolio class taxable loss for portfolio allocation period
[Repealed]Section HL 20: repealed, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
HL 21 Portfolio entity tax liability and tax credits of portfolio tax rate entity for period
[Repealed]Section HL 21: repealed, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section HL 21: amended (with effect on 1 April 2008), on 2 November 2012 (applying for the 2008–09 and later income years), by section 86(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section HL 21: amended (with effect on 1 April 2008), on 2 November 2012, by section 86(2) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Payment by portfolio tax rate entity of tax for tax year[Repealed]
Heading: repealed, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
HL 22 Payments of tax by portfolio tax rate entity making no election
[Repealed]Section HL 22: repealed, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
HL 23 Payments of tax by portfolio tax rate entity choosing to pay provisional tax
[Repealed]Section HL 23: repealed, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
HL 24 Payments of tax by portfolio tax rate entity choosing to make payments when investor leaves
[Repealed]Section HL 24: repealed, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
HL 25 Optional payments of tax by portfolio tax rate entities
[Repealed]Section HL 25: repealed, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Results for investors[Repealed]
Heading: repealed, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
HL 26 Portfolio investor allocated income and portfolio investor allocated loss
[Repealed]Section HL 26: repealed, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
HL 27 Treatment of portfolio investor allocated loss for zero-rated portfolio investors and investors with portfolio investor exit period
[Repealed]Section HL 27: repealed, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Tax credits for entity[Repealed]
Heading: repealed, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
HL 28 Treatment of portfolio investor allocated loss for other investors
[Repealed]Section HL 28: repealed, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
HL 29 Credits received by portfolio tax rate entity or portfolio investor proxy
[Repealed]Section HL 29: repealed, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Treatment of losses for entity[Repealed]
Heading: repealed, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
HL 30 Portfolio entity formation loss
[Repealed]Section HL 30: repealed, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
HL 31 Portfolio class taxable income and portfolio class taxable loss for tax year
[Repealed]Section HL 31: repealed, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
HL 32 Treatment of portfolio class taxable loss and portfolio class land loss for tax year
[Repealed]Section HL 32: repealed, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Portfolio investor proxies[Repealed]
Heading: repealed, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
HL 33 Portfolio investor proxies
[Repealed]Section HL 33: repealed, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Subpart HM—Portfolio investment entities
Subpart HM: inserted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Contents
Introductory provisions
Heading: inserted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
HM 1 Outline of subpart and relationship with other Parts
Subpart HM
(1)
This subpart sets out—
(a)
the entry and exit rules for portfolio investment entities, see sections HM 7 to HM 30:
(b)
who an investor is, and what an investor class is, see sections HM 4 and HM 5:
(c)
what a multi-rate PIE must do in relation to its investors and its investments, see sections HM 31 to HM 63:
(d)
the treatment of losses by PIEs, see sections HM 64 to HM 70:
(e)
how an entity makes an election to become a PIE, and the consequences of making the election, see sections HM 71 to HM 76.
Relationship with Parts C and D
(2)
The following sections apply to portfolio investment entities:
(a)
section CB 26 (Disposal of certain shares by portfolio investment entities):
(b)
section CP 1 (Attributed income of investors in multi-rate PIEs):
(c)
section CX 55 (Proceeds from disposal of investment shares):
(d)
section CX 56 (Attributed income of certain investors in multi-rate PIEs):
(e)
section CX 56B (Distributions to investors in multi-rate PIEs):
(f)
section CX 56C (Distributions to investors by listed PIEs):
(g)
section CX 57 (Credits for investment fees):
(h)
section DB 53 (Attributed PIE losses of certain investors):
(i)
section DB 54 (No deductions for fees relating to interests in multi-rate PIEs):
(ib)
section DB 54B (Expenditure incurred by foreign investment PIEs):
(j)
sections DV 2, DV 4, and DV 5 (which relate to transfers of expenditure to a master superannuation fund that is a PIE).
Outline of provisions related to particular PIEs
(2B)
Certain PIEs either have special rules related to their activities or are affected by some particular rules. These are set out below:
(a)
for a listed PIE, see the following:
(i)
section CX 56C (Distributions to investors by listed PIEs):
(ii)
section EZ 63 (Disposal and acquisition upon entry):
(iii)
section HM 2(3), which relates to listed PIEs becoming multi-rate PIEs:
(iv)
section HM 18, which describes how an unlisted company becomes a listed PIE:
(v)
section HM 19, which relates to distributions of listed PIEs:
(vi)
section HM 21(4), for a transitional provision for investors in listed PIEs:
(vii)
section HM 28, for the consequences when a listed PIE does not meet a distributional requirement:
(viii)
sections MB 1(5) and MB 11, which relate to family scheme income:
(b)
for a life fund PIE, see the following:
(i)
section CX 55 (Proceeds from disposal of investment shares):
(ii)
section DR 1(2) (Policyholder base allowable deduction of life insurer):
(iii)
section EY 1(2) (What this subpart does):
(iv)
section EY 2(6) (Policyholder base):
(v)
section HM 4, which is about who can be an investor:
(vi)
section HM 10, which excludes entities other than life fund PIEs carrying on a business of life insurance:
(vii)
section HM 17, for an additional entry rule for PIEs other than life fund PIEs:
(viii)
section HM 19, for an additional entry rule for listed PIEs other than life fund PIEs:
(ix)
section HM 26, for an exit rule for entities other than life fund PIEs starting a life insurance business:
(x)
section OB 35B (ICA debit for transfer from tax pooling account for policyholder base liability):
(xi)
section OP 33B (Consolidated ICA debit for transfer from tax pooling account for policyholder base liability):
(c)
for a foreign investment PIE, see the following:
(i)
section CX 56 (Attributed income of certain investors in multi-rate PIEs):
(ii)
section CX 56B (Distributions to investors in multi-rate PIEs):
(iii)
section DB 54B (Expenditure incurred by foreign investment PIEs):
(iv)
section HM 6B, for the optional look-through treatment of income derived from other PIEs:
(v)
section HM 19B, for the particular requirements for foreign investment zero-rate PIEs:
(vi)
section HM 19C, for the particular requirements for foreign investment variable-rate PIEs:
(vii)
section HM 35C, which is about the determination of the income tax liability of a foreign investment PIE and the calculation of attributed PIE income for a notified foreign investor:
(viii)
sections HM 41(4) and HM 44(1B), for restrictions on the calculation method available to foreign investment PIEs:
(ix)
section HM 44B, for an additional calculation method for foreign investment PIEs:
(x)
section HM 47, which is about the calculation of the tax liability or tax credit of a foreign investment PIE:
(xi)
sections HM 55C to HM 55H, for the special requirements for foreign investment PIEs and their investors:
(xii)
section HM 71B, for the election mechanism for foreign investment PIEs:
(xiii)
schedule 6, tables 1 and 1B, for the prescribed tax rates for certain non-resident investors in foreign investment PIEs and the rates applying to certain sources of income attributed to investors:
(xiv)
section 28D of the Tax Administration Act 1994, for the information required from notified foreign investors.
Relationship with subpart LS
(3)
Subpart LS (Tax credits for multi-rate PIEs and investors) contains the rules relating to the amount and use of a tax credit arising under this subpart.
Defined in this Act: amount, investor, investor class, multi-rate PIE, PIE, portfolio investment entity, tax credit
Compare: 2007 No 97 ss HL 1, HL 2
Section HM 1: inserted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section HM 1(2)(i): amended, on 30 June 2014, by section 127 of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section HM 1(2)(ib): inserted, on 29 August 2011, by section 51(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section HM 1(2B) heading: inserted, on 29 August 2011, by section 51(2) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section HM 1(2B): inserted, on 29 August 2011, by section 51(2) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
HM 2 What is a portfolio investment entity?
Meaning
(1)
A portfolio investment entity (a PIE) is a company or fund that—
(a)
makes investments on behalf of 1 or more investors in the entity or in an investor class of the entity; and
(b)
meets and maintains the requirements for PIE status; and
(c)
chooses to become a PIE by notifying the Commissioner.
PIE types
(2)
An entity that chooses to become a PIE must be 1 of the following types of entity:
(a)
a multi-rate PIE:
(b)
a listed PIE:
(c)
a benefit fund PIE:
(d)
a life fund PIE:
(e)
a foreign investment PIE that is either a foreign investment zero-rate PIE or a foreign investment variable-rate PIE.
Listed PIEs becoming multi-rate PIEs
(3)
Despite subsection (2), an entity that chooses to become a listed PIE may choose to become a multi-rate PIE if it meets the requirements of the entry rules set out in sections HM 7 to HM 20.
Foreign investment PIEs
(4)
The provisions of the PIE rules as they relate to multi-rate PIEs apply in the same manner to foreign investment PIEs, unless a provision expressly states otherwise.
Defined in this Act: benefit fund PIE, Commissioner, company, foreign investment PIE, foreign investment variable-rate PIE, foreign investment zero-rate PIE, investor, investor class, life fund PIE, listed PIE, multi-rate PIE, notify, PIE, portfolio investment entity
Compare: 2007 No 97 s YA 1 “portfolio investment entity”
Section HM 2: inserted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section HM 2(2)(d): amended, on 29 August 2011 (applying for the 2012–13 and later income years for a foreign investment variable-rate PIE and a notified foreign investor in the PIE), by section 52(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section HM 2(2)(e): added, on 29 August 2011 (applying for the 2012–13 and later income years for a foreign investment variable-rate PIE and a notified foreign investor in the PIE), by section 52(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section HM 2(3): amended (with effect on 1 April 2010), on 18 March 2019, by section 217 of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
Section HM 2(4) heading: added, on 29 August 2011 (applying for the 2012–13 and later income years for a foreign investment variable-rate PIE and a notified foreign investor in the PIE), by section 52(2) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section HM 2(4): added, on 29 August 2011 (applying for the 2012–13 and later income years for a foreign investment variable-rate PIE and a notified foreign investor in the PIE), by section 52(2) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section HM 2 list of defined terms foreign investment PIE: inserted, on 29 August 2011, by section 52(3) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section HM 2 list of defined terms foreign investment variable-rate PIE: inserted, on 29 August 2011, by section 52(3) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section HM 2 list of defined terms foreign investment zero-rate PIE: inserted, on 29 August 2011, by section 52(3) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
HM 3 Foreign PIE equivalents
General definition
(1)
A foreign PIE equivalent means an entity that—
(a)
is not resident in New Zealand; and
(b)
is—
(i)
a company:
(ii)
a superannuation scheme; and
(iii)
[Repealed](c)
meets the requirements relating to investment types, income sources, and maximum shareholding in investments in sections HM 11 to HM 13; and
(d)
has investors that would qualify as an investor class under section HM 14 taking into account the limitations under sections HM 21(1) and HM 22; and
(e)
if it has investors who are resident in New Zealand, those investors meet the requirements relating to investor interests in section HM 15 taking into account the limitations under sections HM 21(2) to (4) and HM 22.
Australian managed investment trusts
(2)
A trust that is, for Australian tax purposes, a managed investment trust under the Income Tax Assessment Act 1997 (Australia) is a foreign PIE equivalent if it meets the requirement in subsection (1)(a).
Defined in this Act: company, investor, investor class, investor interest, resident in New Zealand, superannuation scheme
Compare: 2007 No 97 s HL 5(1)
Section HM 3: inserted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section HM 3(1) heading: inserted (with effect on 2 November 2012), on 2 November 2012, by section 87(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section HM 3(1)(b)(ii): amended (with effect on 29 March 2018), on 23 March 2020, by section 146 of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
Section HM 3(1)(b)(iii): repealed, on 29 March 2018, by section 123(2) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
Section HM 3(1)(e): substituted (with effect on 1 April 2010), on 21 December 2010 (applying for the 2010–11 and later income years), by section 85(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section HM 3(2) heading: inserted (with effect on 2 November 2012), on 2 November 2012, by section 87(2) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section HM 3(2): inserted (with effect on 2 November 2012), on 2 November 2012, by section 87(2) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section HM 3(2): amended (with effect on 2 November 2012), on 30 March 2017, by section 140 of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section HM 3 list of defined terms trustee: repealed, on 29 March 2018, by section 123(3) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
Section HM 3 list of defined terms unit trust: repealed, on 29 March 2018, by section 123(3) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
HM 4 Who is an investor?
Meaning of investor
(1)
An investor in a PIE or foreign PIE equivalent means—
(a)
for an entity that is a company, a shareholder in a company:
(b)
for a life fund PIE, a person whose benefits under the relevant life insurance policy are directly linked to the value of investments held in the PIE:
(c)
for an entity that is not a company or a life fund PIE, a person who is entitled to a proportion of the funds available for distribution by the entity—
(i)
under the rules of the entity or terms of the trust under which the entity is established; and
(ii)
as if the entity were a company and the person were a shareholder in the company.
Consequences of not providing tax file number
(2)
An investor in a multi-rate PIE who is required under section 28B of the Tax Administration Act 1994 to provide a tax file number to the PIE and fails to do so within the time limit set out in that section is treated as an investor whose interest has reached the exit level.
Defined in this Act: company, exit level, foreign PIE equivalent, investor, life fund PIE, life insurance policy, multi-rate PIE, PIE, share, shareholder, tax file number
Compare: 2007 No 97 s HL 5B(1)
Section HM 4: inserted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section HM 4(1) heading: inserted, on 1 April 2018, by section 124(1) (and see section 124(4) for application) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
Section HM 4(2) heading: inserted, on 1 April 2018, by section 124(2) (and see section 124(4) for application) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
Section HM 4(2): inserted, on 1 April 2018, by section 124(2) (and see section 124(4) for application) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
Section HM 4 list of defined terms exit level: inserted, on 1 April 2018, by section 124(3) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
Section HM 4 list of defined terms multi-rate PIE: inserted, on 1 April 2018, by section 124(3) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
Section HM 4 list of defined terms tax file number: inserted, on 1 April 2018, by section 124(3) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
HM 5 What is an investor class?
Meaning of investor class
(1)
An investor class of an entity means a group of 1 or more investors in the entity that meet the requirements of subsections (2) to (4).
Entitlement to distributions
(2)
Each investor in the group must have an entitlement to a distribution by the entity of proceeds from the entity’s investments that means the requirements of subsections (3) and (4) are met.
Same investments
(3)
The investments must be the same for all investors in the group.
Similar proportionate entitlement
(4)
Each investor’s interest in the investment as a proportion of the value of their entitlement must not differ from the average value for the group and the investment by 2.5% or more unless—
(a)
the investment is an arrangement under which the PIE is assured of receiving sufficient proceeds from the investments to repay each investor in the group an amount contributed to it; and
(b)
the excess in any difference between the proportion for the investor and the average value for the group arises from differences between the notified investor rates of those investors in the group.
Supplementary dividends
(5)
For the purposes of this section, the payment of a supplementary dividend that is attributed to a notified foreign investor, or would be attributed to them in the absence of section HM 44B(2), is disregarded.
Defined in this Act: arrangement, investor, investor class, notified investor rate, pay, supplementary dividend
Compare: 2007 No 97 s HL 5B(2), (3)
Section HM 5: inserted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section HM 5(4)(a): amended (with effect on 1 April 2010), on 21 December 2010 (applying for the 2010–11 and later income years), by section 86(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section HM 5(4)(b): amended (with effect on 1 April 2010), on 29 August 2011 (applying for the 2010–11 and later income years), by section 53(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section HM 5(5) heading: inserted, on 1 April 2013 (applying for the 2013–14 and later income years), by section 88(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section HM 5(5): inserted, on 1 April 2013 (applying for the 2013–14 and later income years), by section 88(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section HM 5 list of defined terms investor interest: repealed (with effect on 1 April 2010), on 21 December 2010, by section 86(2) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section HM 5 list of defined terms notified investor rate: inserted (with effect on 1 April 2010), on 29 August 2011, by section 53(2)(a) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section HM 5 list of defined terms notified tax rate: repealed (with effect on 1 April 2010), on 29 August 2011, by section 53(2)(b) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section HM 5 list of defined terms supplementary dividend: inserted, on 1 April 2013 (applying for the 2013–14 and later income years), by section 88(2) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
HM 6 Intended effects for multi-rate PIEs and investors
Intended effects for entity
(1)
The intended effects for an entity that is using funds supplied by investors to make investments of certain types and that meets the requirements for multi-rate PIE status are that—
(a)
in relation to proceeds of the investments that are attributed to investors who are natural persons or certain trustees, the PIE has a tax liability—
(i)
calculated using a tax rate for each investor; and
(ii)
resembling the total tax liability the group of investors would have if the investors were to make the investments separately:
(ab)
in relation to proceeds of the investments that are attributable to notified foreign investors in a foreign investment PIE, the PIE has a tax liability—
(i)
calculated using a tax rate that is appropriate having regard to the income source and investment type; and
(ii)
resembling the tax liability of the investor if they were to make the investment directly:
(b)
the PIE has no tax liability on proceeds of the investments that are attributed to other investors:
(c)
the PIE allocates to each investor amounts resembling the amounts that the investor would receive, after allowing for the tax paid by the PIE if making the investment separately.
Intended effects for investors
(2)
The intended effects for an investor in the multi-rate PIE are that—
(a)
the investor has no tax liability on income arising from proceeds for which the PIE has a tax liability, unless—
(i)
the PIE has applied a rate that is lower than the investor’s prescribed investor rate:
(ii)
the investor has been treated by a foreign investment PIE as a notified foreign investor for a period in which they do not in fact meet the requirements of section HM 55D for notified foreign investor status:
(b)
the investor is liable for tax on any assessable income arising from proceeds for which the PIE has no tax liability:
(c)
the investor receives on the investment in the PIE an economic return that the investor would receive after payment of tax liabilities if personally making investments similar to those made by the PIE in which they have an investor interest:
(d)
despite paragraphs (a) and (b), an adjustment may be made to the schedular income tax liability of an investor who derives PIE schedular income.
Defined in this Act: amount, assessable income, foreign investment PIE, investor, investor interest, multi-rate PIE, notified foreign investor, pay, PIE, PIE schedular income, schedular income tax liability, tax, trustee
Compare: 2007 No 97 s HL 1(2)(a)
Section HM 6: inserted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section HM 6(1)(a): amended (with effect on 1 April 2010), on 29 August 2011 (applying for the 2010–11 and later income years), by section 54(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section HM 6(1)(ab): inserted, on 29 August 2011 (applying for the 2012–13 and later income years for a foreign investment variable-rate PIE and a notified foreign investor in the PIE), by section 54(2) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section HM 6(2)(a): substituted, on 29 August 2011 (applying for the 2012–13 and later income years for a foreign investment variable-rate PIE and a notified foreign investor in the PIE), by section 54(3) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section HM 6(2)(a)(i): replaced, on 1 April 2020, by section 147(1) (and see section 147(4) for application) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
Section HM 6(2)(b): amended (with effect on 1 April 2010), on 21 December 2010 (applying for the 2010–11 and later income years), by section 87(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section HM 6(2)(d): inserted, on 1 April 2020, by section 147(2) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
Section HM 6 list of defined terms foreign investment PIE: inserted, on 29 August 2011, by section 54(4) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section HM 6 list of defined terms notified foreign investor: inserted, on 29 August 2011, by section 54(4) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section HM 6 list of defined terms PIE schedular income: inserted, on 1 April 2020, by section 147(3) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
Section HM 6 list of defined terms schedular income tax liability: inserted, on 1 April 2020, by section 147(3) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
HM 6B Optional look-through rules for certain PIEs
When this section applies
(1)
This section applies when a PIE (a retail PIE) is a zero-rated investor in another PIE (a wholesale PIE).
Look-through treatment
(2)
The retail PIE may choose to apply a look-through approach in relation to its investor interest, treating the attributed PIE income or attributed PIE loss as consisting of—
(a)
the proportion of the assessable income derived by the wholesale PIE that corresponds to the investor interest; and
(b)
the proportion of the expenditure or loss incurred by the wholesale PIE that corresponds to the investor interest.
Sufficient information held by PIE
(3)
In choosing to apply this section, the retail PIE must have sufficient information to enable it to account for the income, expenditure, or loss, and to discharge its tax obligations in relation to those amounts.
Inter-PIE transactions
(4)
In the application of subsections (1) to (3), any transaction or attribution between the wholesale PIE and retail PIE relating to the income or expenditure is ignored.
Foreign investment PIEs
(5)
When a retail PIE that is a foreign investment variable-rate PIE derives an amount allowable under section HM 55G through having an investor interest in a wholesale PIE that meets the requirements of section HM 19B(1), the retail PIE may treat the amount as a foreign-sourced amount.
Defined in this Act: amount, assessable income, attributed PIE income, attributed PIE loss, foreign investment variable-rate PIE, foreign-sourced amount, investor interest, PIE
Section HM 6B: replaced (with effect on 1 April 2012), on 2 November 2012 (applying for the 2012–13 and later income years), by section 89(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Entry rules
Heading: inserted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
HM 7 Requirements
For an entity to be a PIE, it must—
(a)
meet the requirements of the entry rules in sections HM 8 to HM 10, HM 17, HM 18, and HM 20, as applicable; and
(b)
be 1 of the types of entity referred to in section HM 2(2); and
(c)
choose under section HM 71 or HM 71B to become a PIE; and
(d)
maintain the requirements of the rules in sections HM 8 to HM 20, as applicable; and
(e)
not lose PIE status under the exit rules in sections HM 24 to HM 30.
Defined in this Act: PIE
Compare: 2007 No 97 ss HL 2(2), HL 15(1), (2)
Section HM 7: inserted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section HM 7(c): amended, on 29 August 2011, by section 56 of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Requirements
Heading: inserted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
HM 8 Residence in New Zealand
Requirements
(1)
The entity must be—
(a)
resident in New Zealand; and
(b)
not treated under a double tax agreement as not resident in New Zealand.
Foreign investment zero-rate PIEs
(2)
Section HM 19B(2) modifies this section.
Defined in this Act: double tax agreement, foreign investment zero-rate PIE, resident in New Zealand
Compare: 2007 No 97 s HL 3(10)
Section HM 8: inserted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section HM 8(1) heading: inserted, on 29 August 2011, by section 57(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section HM 8(2) heading: added, on 29 August 2011, by section 57(2) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section HM 8(2): added, on 29 August 2011, by section 57(2) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section HM 8 list of defined terms foreign investment zero-rate PIE: inserted (with effect on 29 August 2011), on 27 February 2014, by section 85 of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
HM 9 Collective schemes
The entity must be—
(a)
a company:
(b)
a superannuation scheme:
(c)
[Repealed](d)
a separate identifiable fund forming part of a life insurer that holds investments subject to life insurance policies under which benefits are directly linked to the value of the investments held in the fund:
(e)
the trustees of a group investment fund in relation to income derived by them to the extent to which the income is not treated as income derived by a company under paragraph (a).
Defined in this Act: company, life insurance policy, life insurer, superannuation scheme, trustee, unit trust
Section HM 9: inserted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section HM 9(c): repealed, on 29 March 2018, by section 125 of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
Section HM 9(d): amended (with effect on 1 April 2010), on 21 December 2010 (applying for the 2010–11 and later income years), by section 88(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section HM 9(e): added (with effect on 1 April 2010), on 21 December 2010 (applying for the 2010–11 and later income years), by section 88(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
HM 10 Exclusion: life insurance business
The entity must not carry on a business of life insurance unless it is a life fund PIE.
Defined in this Act: life fund PIE, life insurance
Compare: 2007 No 97 s HL 3(9)
Section HM 10: inserted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
HM 11 Investment types
Types
(1)
The entity’s investments, to the extent of 90% or more by value of its assets, must be—
(a)
an interest in land:
(b)
a financial arrangement:
(c)
an excepted financial arrangement:
(d)
a right or option in relation to property listed in paragraphs (a) to (c).
Foreign investment zero-rate PIEs[Repealed]
(2)
[Repealed]Foreign investment variable-rate PIEs
(3)
Section HM 19C(1) overrides subsection (1)(a) and modifies subsection (1)(d).
Defined in this Act: excepted financial arrangement, financial arrangement, foreign investment variable-rate PIE, foreign investment zero-rate PIE, land
Compare: 2007 No 97 s HL 10(1)
Section HM 11: inserted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section HM 11(1) heading: inserted, on 29 August 2011, by section 58(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section HM 11(2) heading: repealed (with effect on 29 August 2011), on 2 November 2012, pursuant to section 90(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section HM 11(2): repealed (with effect on 29 August 2011), on 2 November 2012, by section 90(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section HM 11(3) heading: added, on 29 August 2011 (applying for the 2012–13 and later income years for a foreign investment variable-rate PIE and a notified foreign investor in the PIE), by section 58(3) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section HM 11(3): added, on 29 August 2011 (applying for the 2012–13 and later income years for a foreign investment variable-rate PIE and a notified foreign investor in the PIE), by section 58(3) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section HM 11(3): amended (with effect on 29 August 2011), on 2 November 2012, by section 90(2) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section HM 11 list of defined terms foreign investment variable-rate PIE: inserted (with effect on 29 August 2011), on 27 February 2014, by section 86 of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
Section HM 11 list of defined terms foreign investment zero-rate PIE: inserted (with effect on 29 August 2011), on 27 February 2014, by section 86 of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
HM 12 Income types
Nature of income
(1)
Income derived by the entity, to the extent of 90% or more, must—
(a)
be derived from property referred to in section HM 11; and
(b)
consist of the following:
(i)
a dividend:
(ii)
a replacement payment:
(iii)
an amount of income treated under subpart EW (Financial arrangements rules) as derived by the entity:
(iv)
an amount of income derived from a lease of land, but this subparagraph does not apply if the lessee under the lease is associated with the entity receiving the amount:
(ivb)
insurance, indemnity, or compensation amounts replacing income that would be described in subparagraph (iv):
(v)
an amount derived from the disposal of property referred to in section HM 11:
(vi)
FIF income:
(vii)
attributed PIE income:
(viii)
a distribution from a superannuation fund:
(ix)
an amount of income under section CW 4 (Annuities under life insurance policies) or CX 40 (Superannuation fund deriving amount from life insurance policy):
(x)
a rebate on a management fee.
Foreign investment zero-rate PIEs
(2)
Section HM 19B(1) overrides this section.
Foreign investment variable-rate PIEs
(3)
Section HM 19C(2) overrides subsection (1)(a) and (b)(v).
Defined in this Act: amount, associated person, attributed PIE income, dividend, FIF income, income, foreign investment variable-rate PIE, foreign investment zero-rate PIE, land, lessee, replacement payment, superannuation fund
Compare: 2007 No 97 s HL 10(2)
Section HM 12: inserted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section HM 12 heading: amended (with effect on 1 April 2010), on 29 August 2011 (applying for the 2010–11 and later income years), by section 59(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section HM 12(1) heading: inserted, on 29 August 2011, by section 59(3) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section HM 12(1)(b)(ivb): inserted, on 18 March 2019, by section 218 of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
Section HM 12(1)(b)(viii): amended (with effect on 1 April 2010), on 29 August 2011 (applying for the 2010–11 and later income years), by section 59(2) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section HM 12(1)(b)(ix): added (with effect on 1 April 2010), on 29 August 2011 (applying for the 2010–11 and later income years), by section 59(2) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section HM 12(1)(b)(ix): amended (with effect on 1 April 2012), on 17 July 2013, by section 63 of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Section HM 12(1)(b)(x): inserted (with effect on 1 April 2012), on 17 July 2013, by section 63 of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Section HM 12(2) heading: added, on 29 August 2011, by section 59(4) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section HM 12(2): added, on 29 August 2011, by section 59(4) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section HM 12(2): amended (with effect on 29 August 2011), on 2 November 2012, by section 91 of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section HM 12(3) heading: added, on 29 August 2011 (applying for the 2012–13 and later income years for a foreign investment variable-rate PIE and a notified foreign investor in the PIE), by section 59(5) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section HM 12(3): added, on 29 August 2011 (applying for the 2012–13 and later income years for a foreign investment variable-rate PIE and a notified foreign investor in the PIE), by section 59(5) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section HM 12 list of defined terms foreign investment variable-rate PIE: inserted (with effect on 29 August 2011), on 27 February 2014, by section 87 of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
Section HM 12 list of defined terms foreign investment zero-rate PIE: inserted (with effect on 29 August 2011), on 27 February 2014, by section 87 of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
HM 13 Maximum shareholdings in investments
When this section applies
(1)
This section applies when an entity has an investment consisting of shares in a company other than shares in—
(a)
a PIE, or an entity that qualifies for PIE status:
(b)
a foreign PIE equivalent:
(c)
a land investment company.
Voting and market interests: companies other than unit trusts
(2)
The investment must not carry voting interests or market value interests of more than 20%. This subsection does not apply to a unit trust. Subsection (5) overrides this subsection.
Investments in unit trusts
(3)
For an investment in a unit trust, the investment must have a market value no more than 20% of the market value of all interests in the unit trust. Subsection (5) overrides this subsection.
Class requirements
(4)
For each investment and each investor class of the entity, the percentage thresholds set out in subsections (2) and (3) apply to the investment by the class in the same way as they apply to the investment by the entity. Subsection (5) overrides this subsection.
Exception for limited non-complying investments
(5)
Despite subsections (2) to (4), the 20% cap in those subsections can be exceeded if the total market value of all investments where the cap is exceeded is not more than 10% of the market value of the total investments of the entity or investor class.
Certain investments of foreign investment PIEs
(6)
Despite the exclusion in subsection (1)(a) and (c), if a foreign investment variable-rate PIE has an investment in a land investment company resident in New Zealand or in an entity that qualifies for PIE status, the investment must—
(a)
carry voting interests in the company or entity, as applicable, of no more than 20%; or
(b)
have a market value of no more than 20% of all interests in the entity, if the entity is a unit trust.
Exceeding threshold
(7)
Section HM 55H(4) and (5) apply in the case of a breach of subsection (6).
Defined in this Act: company, foreign investment PIE, foreign investment variable-rate PIE, foreign PIE equivalent, investor class, land investment company, market value, market value interest, PIE, resident in New Zealand, share, unit trust, voting interest
Compare: 2007 No 97 s HL 10(3)–(5)
Section HM 13: inserted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section HM 13(2) heading: replaced, on 29 March 2018, by section 126(1) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
Section HM 13(2): replaced, on 29 March 2018, by section 126(1) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
Section HM 13(6) heading: added, on 29 August 2011 (applying for the 2012–13 and later income years for a foreign investment variable-rate PIE and a notified foreign investor in the PIE), by section 60(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section HM 13(6): added, on 29 August 2011 (applying for the 2012–13 and later income years for a foreign investment variable-rate PIE and a notified foreign investor in the PIE), by section 60(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section HM 13(7) heading: added, on 29 August 2011 (applying for the 2012–13 and later income years for a foreign investment variable-rate PIE and a notified foreign investor in the PIE), by section 60(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section HM 13(7): added, on 29 August 2011 (applying for the 2012–13 and later income years for a foreign investment variable-rate PIE and a notified foreign investor in the PIE), by section 60(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section HM 13 list of defined terms foreign investment PIE: inserted, on 29 August 2011, by section 60(2) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section HM 13 list of defined terms foreign investment variable-rate PIE: inserted (with effect on 29 August 2011), on 27 February 2014, by section 88 of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
Section HM 13 list of defined terms market value interest: inserted, on 29 March 2018, by section 126(2) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
Section HM 13 list of defined terms resident in New Zealand: inserted, on 29 August 2011, by section 60(2) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
HM 14 Minimum number of investors
Requirement for entities other than listed companies
(1)
If the entity is not a listed PIE, each investor class must include 20 or more persons.
Requirements for listed PIEs
(2)
For listed PIEs, if the entity is a company listed on a recognised exchange in New Zealand, it must have only 1 investor class of which each investor is a member. Each investor interest must be a share traded on the exchange. This subsection applies equally to an unlisted PIE that meets the requirements of section HM 18.
Exceptions
(3)
Sections HM 21(1) and HM 22 override subsection (1).
Defined in this Act: company, investor, investor class, investor interest, listed company, listed PIE, New Zealand, recognised exchange, share
Compare: 2007 No 97 s HL 6(1A), (1), (2), (4)
Section HM 14: inserted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section HM 14(1): amended, on 2 November 2012, by section 92 of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section HM 14(2) heading: substituted, on 29 August 2011, by section 61(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section HM 14(2): amended, on 29 August 2011, by section 61(2) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section HM 14(3): amended, on 1 April 2010 (applying for the 2010–11 and later income years), by section 46(1) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
HM 15 Maximum investor interests
Requirement for investors’ interests
(1)
An investor in an investor class must not hold more than 20% of the total investor interests in the class.
Exceptions
(2)
Sections HM 21(2) to (4) and HM 22 override this section.
Defined in this Act: investor, investor class, investor interest
Compare: 2007 No 97 s HL 9(1), (6)
Section HM 15: inserted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section HM 15 heading: amended (with effect on 1 April 2010), on 21 December 2010, by section 89(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section HM 15(1): amended (with effect on 1 April 2010), on 21 December 2010, by section 89(2) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section HM 15(2): amended, on 1 April 2010 (applying for the 2010–11 and later income years), by section 47(1) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
Section HM 15 list of defined terms investor interest: inserted (with effect on 1 April 2010), on 21 December 2010, by section 89(3) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
HM 16 Associates combined
For the purposes of sections HM 14 and HM 15, if a person is associated with an investor, the person and the investor are treated as 1 person, but only if both the person and the investor hold an investor interest of 5% or more. Section HM 21(5) overrides this section.
Defined in this Act: associated person, investor, investor interest
Compare: 2007 No 97 s HL 9(6)
Section HM 16: inserted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
HM 17 Same rights to all investment proceeds
What this section does
(1)
This section is an additional entry rule for a PIE that is not a life fund PIE.
Same rights in relation to proceeds of investments
(2)
All investor interests in the entity that give rights in relation to proceeds from a portfolio investment must give the same rights in relation to all types of proceeds from the investment.
Exclusions
(3)
This section does not apply if—
(a)
the proceeds are category B income:
(b)
for a single investor class, the only income that the class derives is income under section CC 3 (Financial arrangements).
Supplementary dividends
(4)
For the purposes of this section, the payment of a supplementary dividend that is attributed to a notified foreign investor, or would be attributed to them in the absence of section HM 44B(2), is disregarded.
Defined in this Act: category B income, income, investor class, investor interest, life fund PIE, notified foreign investor, PIE, portfolio investment, supplementary dividend
Compare: 2007 No 97 s HL 5C
Section HM 17: inserted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section HM 17(3) heading: replaced, on 2 November 2012, by section 93(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section HM 17(3): replaced, on 2 November 2012, by section 93(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section HM 17(4) heading: inserted, on 1 April 2013 (applying for the 2013–14 and later income years), by section 93(2) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section HM 17(4): inserted, on 1 April 2013 (applying for the 2013–14 and later income years), by section 93(2) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section HM 17 list of defined terms income: inserted, on 2 November 2012, by section 93(3) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section HM 17 list of defined terms investor class: inserted, on 2 November 2012, by section 93(3) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section HM 17 list of defined terms notified foreign investor: inserted, on 2 November 2012, by section 93(3) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section HM 17 list of defined terms supplementary dividend: inserted, on 2 November 2012, by section 93(3) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
HM 18 Requirements for listed PIEs: unlisted companies
Choosing to become listed PIE
(1)
A company that is not listed on a recognised exchange in New Zealand may choose under section HM 71 to become a listed PIE if it—
(a)
has 100 shareholders or more; and
(b)
has resolved to become a company listed on a recognised exchange in New Zealand if it were to obtain the required consents; and
(c)
has applied to the Securities Commission or the FMA for an exemption to disclose in a product disclosure statement its intention to become a listed company; and
(d)
satisfies the Commissioner that the company would apply to become a listed company if it were to obtain the required consents.
Two-year period
(2)
If the company is not listed within 2 years of the election, it loses PIE status from the last day of that period.
Extension of period for listing
(3)
Despite subsection (2), a company does not lose PIE status at the end of the 2-year period if—
(a)
the company has met the requirements of subsection (1)(b) and (c) before 2 July 2009; and
(b)
a period of 4 years from the date on which the election takes effect has not expired.
Further extension granted by Commissioner
(4)
Despite subsections (2) and (3), the Commissioner may grant a further extension of time if it is reasonable in the circumstances.
Defined in this Act: apply, Commissioner, company, listed company, listed PIE, New Zealand, PIE, recognised exchange, shareholder
Compare: 2007 No 97 s HL 12
Section HM 18: inserted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section HM 18(1)(c): amended, on 1 December 2014, by section 150 of the Financial Markets (Repeals and Amendments) Act 2013 (2013 No 70).
Section HM 18(1)(c): amended, on 1 May 2011, by section 82 of the Financial Markets Authority Act 2011 (2011 No 5).
Section HM 18(3) heading: added, on 1 April 2010 (applying for the 2010–11 and later income years), by section 48(1) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
Section HM 18(3): added, on 1 April 2010 (applying for the 2010–11 and later income years), by section 48(1) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
Section HM 18(4) heading: added, on 1 April 2010 (applying for the 2010–11 and later income years), by section 48(1) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
Section HM 18(4): added, on 1 April 2010 (applying for the 2010–11 and later income years), by section 48(1) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
Section HM 18 list of defined terms apply: inserted, on 2 June 2016, by section 74 of the Taxation (Transformation: First Phase Simplification and Other Measures) Act 2016 (2016 No 27).
HM 19 Requirements for listed PIEs: fully crediting distributions
What this section does
(1)
This section is an additional rule for an entity that is a listed PIE other than a life fund PIE.
Fully crediting distributions
(2)
When a listed PIE distributes an amount to an investor in an investor class, the distribution must be fully credited as described in section CD 43(26) (Available subscribed capital (ASC) amount) to the extent permitted by the imputation credits that the directors of the company determine are available.
Relationship with section CX 56C
(3)
For the treatment of imputation credits when a shareholder chooses to include the distribution as income in their return of income, see section CX 56C(2) (Distributions to investors by listed PIEs).
Defined in this Act: amount, company, director, imputation credit, income, investor, investor class, life fund PIE, listed PIE, return of income, shareholder
Compare: 2007 No 97 s HL 8
Section HM 19: inserted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section HM 19(2): amended, on 1 April 2017, by section 141(1) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section HM 19 list of defined terms FDP credit: repealed, on 1 April 2017, by section 141(2) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
HM 19B Modified rules for foreign investment zero-rate PIEs
Income
(1)
Despite section HM 12, the income derived by a foreign investment zero-rate PIE must consist of no amount other than—
(a)
a foreign-sourced amount:
(b)
an amount allowable under section HM 55G, as measured under section HM 55H.
Residence
(2)
A foreign investment zero-rate PIE is resident in New Zealand for the purposes of section HM 8 if it—
(a)
is a unit trust; and
(b)
has a trustee who is resident in New Zealand.
Defined in this Act: amount, foreign investment zero-rate PIE, foreign-sourced amount, income, resident in New Zealand, trustee, unit trust
Section HM 19B: inserted, on 29 August 2011, by section 62 of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section HM 19B(2)(a): amended, on 1 December 2014, by section 150 of the Financial Markets (Repeals and Amendments) Act 2013 (2013 No 70).
HM 19C Modified rules for foreign investment variable-rate PIEs
Investment types
(1)
Despite section HM 11(1)(a) and (b), no investment of a foreign investment variable-rate PIE may include an interest in land in New Zealand or a right or option in relation to land in New Zealand.
Income sources
(2)
Despite section HM 12(1)(a) and (b)(iv) and (v), the income derived by a foreign investment variable-rate PIE must not include an amount derived from—
(a)
an interest in land in New Zealand:
(b)
the disposal of an interest in land in New Zealand.
Defined in this Act: amount, foreign investment variable-rate PIE, interest, land, New Zealand
Section HM 19C: inserted, on 29 August 2011 (applying for the 2012–13 and later income years for a foreign investment variable-rate PIE and a notified foreign investor in the PIE), by section 63(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section HM 19C(1): amended (with effect on 29 August 2011), on 17 July 2013, by section 64 of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Section HM 19C(1): amended (with effect on 1 April 2012), on 2 November 2012 (applying for the 2012–13 and later income years), by section 94(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section HM 19C(2): amended (with effect on 1 April 2012), on 2 November 2012 (applying for the 2012–13 and later income years), by section 94(2) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
HM 20 Re-entering as PIE: 5-year rule
If an entity loses PIE status through the application of sections HM 24 to HM 29, it cannot choose to become a PIE again until 5 years have passed from the date of loss of status to the date on which a new election takes effect.
Defined in this Act: PIE
Compare: 2007 No 97 s HL 3(11)
Section HM 20: inserted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Exceptions
Heading: inserted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
HM 21 Exceptions for certain investors
Investor classes
(1)
The rule for a minimum number of investors in section HM 14(1) does not apply if—
(a)
an investor class of the entity includes at least 1 investor listed in schedule 29, part A (Portfolio investment entities: listed investors):
(b)
the only income that the investor derives is exempt income under section CW 41 or CW 42 (which relate to charities).
Certain investors
(2)
The rule for maximum investor interests in section HM 15(1) does not apply if the investor is—
(a)
listed in schedule 29, part A or B:
(b)
a person whose only income is exempt income under section CW 41 or CW 42.
Certain investors in listed PIEs[Repealed]
(3)
[Repealed]Transitional provision for investors in listed PIEs
(4)
Section HM 15 does not apply in the case of an investor in a listed PIE, other than an investor listed in schedule 29, parts A and B, that holds more than 20% but less than 40% of the total interests in the investor class and held more than 20% and less than 40% of the total interests at all times from 17 May 2006 to the relevant time.
Not combined associates
(5)
Section HM 16 does not apply if either the associated person or the investor is an investor listed in schedule 29, parts A and B.
Defined in this Act: associated person, exempt income, income, investor, investor class, listed PIE, PIE
Compare: 2007 No 97 ss HL 6(4), HL 9
Section HM 21: inserted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section HM 21(1): substituted, on 29 August 2011, by section 64(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section HM 21(2) heading: amended (with effect on 1 April 2010), on 21 December 2010 (applying for the 2010–11 and later income years), by section 90(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section HM 21(2): substituted, on 29 August 2011, by section 64(2) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section HM 21(3) heading: repealed (with effect on 1 April 2010), on 21 December 2010 (applying for the 2010–11 and later income years), pursuant to section 90(3) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section HM 21(3): repealed (with effect on 1 April 2010), on 21 December 2010 (applying for the 2010–11 and later income years), by section 90(3) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section HM 21 list of defined terms exempt income: inserted, on 29 August 2011, by section 64(3) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section HM 21 list of defined terms income: inserted, on 29 August 2011, by section 64(3) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
HM 22 Exceptions for certain funds
Public unit trust
(1)
Sections HM 14(1) and HM 15 do not apply to an investor class of an entity if, treating the class as a unit trust, it would meet the requirements of 1 or more of paragraphs (a) and (c) to (e) of the definition of public unit trust.
Certain superannuation funds
(2)
Sections HM 14(1) and HM 15 do not apply in the case of an investor class of an entity that is a fund, trust, or class listed in schedule 29, part B (Portfolio investment entities: listed investors).
Defined in this Act: investor class, PIE, public unit trust, unit trust
Compare: 2007 No 97 ss HL 6(3), HL 9(2)
Section HM 22: inserted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section HM 22(1): amended (with effect on 1 April 2010), on 21 December 2010 (applying for the 2010–11 and later income years), by section 91(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
HM 23 Exceptions for foreign PIE equivalents
Investor classes and investors’ interests
(1)
If an investor in a PIE is a foreign PIE equivalent,—
(a)
the requirement for investor classes under section HM 14(1) is treated as met:
(b)
no limitation on investor interests under section HM 15 applies in the case of that investor.
Shareholding in investments
(2)
If a PIE holds an investment in a foreign PIE equivalent, no maximum limit on shareholding in investments under section HM 13 applies to that investment.
Defined in this Act: foreign PIE equivalent, investor, investor class, investor interest, PIE
Compare: 2004 No 35 ss HL 9(4), HL 10(4)
Section HM 23: inserted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section HM 23(1)(b): amended (with effect on 1 April 2010), on 21 December 2010, by section 92 of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Exit rules
Heading: inserted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
HM 24 Immediate loss of PIE status
An entity loses PIE status immediately if it does not meet—
(a)
the residence requirements of section HM 8:
(b)
the requirements of section HM 9 about the nature of the entity:
(c)
the requirements of section HM 17 concerning rights to investment proceeds.
Defined in this Act: PIE
Section HM 24: replaced, on 2 November 2012, by section 95 of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
HM 25 When entity no longer meets investment or investor requirements
Effect
(1)
An entity loses PIE status if,—
(a)
on the last day of a quarter (the first quarter),—
(i)
the entity no longer meets a requirement of sections HM 11 to HM 13; or
(ii)
an investor class of the entity no longer meets a requirement of sections HM 13 to HM 15; and
(b)
the failure to meet the requirements—
(i)
is significant and is within the control of the entity:
(ii)
is not remedied by the last day of the next quarter (the second quarter).
Date of loss of status
(2)
The date of loss of PIE status is—
(a)
when subsection (1)(b)(i) applies, the first day of the second quarter:
(b)
when subsection (1)(b)(i) does not apply, the first day of the third quarter.
Transitional quarters disregarded
(3)
Subsection (1) does not apply if—
(a)
the start of the first quarter would be within 6 months plus 1 day of the date on which the entity becomes a PIE, or the investor class is formed; or
(b)
the first quarter ends within 3 months before an announcement by the entity to its investors that it, or the relevant investor class, is winding up within 12 months of the announcement.
Defined in this Act: investor class, PIE, quarter
Compare: 2007 No 97 s HL 4(2)
Section HM 25: inserted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section HM 25(2)(a): amended (with effect on 1 April 2010), on 29 August 2011 (applying for the 2010–11 and later income years), by section 65(1)(a) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section HM 25(2)(b): amended (with effect on 1 April 2010), on 29 August 2011 (applying for the 2010–11 and later income years), by section 65(1)(b) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section HM 25(3)(b): amended (with effect on 1 April 2010), on 7 September 2010 (applying for the 2010–11 and later income years), by section 67(1) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
HM 26 Starting life insurance business
An entity that is not a life fund PIE loses PIE status immediately if it starts to carry on the business of life insurance.
Defined in this Act: business, life fund PIE, life insurance, PIE
Compare: 2004 No 35 s HL 4(1)
Section HM 26: inserted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
HM 27 When multi-rate PIE no longer meets investor interest adjustment requirements
A multi-rate PIE loses PIE status immediately if it fails to meet a requirement of section HM 48.
Defined in this Act: investor interest, multi-rate PIE, PIE
Compare: 2004 No 35 s HL 4(1)
Section HM 27: inserted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
HM 28 When listed PIE no longer meets requirements
Loss of PIE status
(1)
A listed PIE loses PIE status immediately if—
(a)
it fails to meet the requirements of section HM 19:
(b)
it does not make an election under section HM 29 to cancel PIE status and ceases to be listed by a recognised exchange:
(c)
it makes an election under section HM 29 to cancel PIE status and, after the entity ceases to be listed by a recognised exchange, a period of 2 years from the delisting, or a longer period allowed by the Commissioner under subsection (2), expires:
(d)
when the entity is not listed by a recognised exchange, the number of shareholders in the entity is less than 100.
Commissioner may grant extension of time
(2)
The Commissioner may grant an extension of the 2-year period referred to in subsection (1)(c) if the extension is reasonable in the circumstances.
Defined in this Act: listed PIE, PIE, recognised exchange, shareholder
Section HM 28: replaced, on 18 March 2019, by section 219 of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
HM 29 Choosing to cancel status
An entity loses PIE status if it chooses to cancel PIE status by notifying the Commissioner under section 31B of the Tax Administration Act 1994. Section HM 72(3) applies to determine the date the election takes effect.
Defined in this Act: Commissioner, notify, PIE
Section HM 29: inserted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
HM 30 When foreign PIE equivalent no longer meets requirements
Commencing New Zealand residence
Continued failure
(1)
A foreign PIE equivalent loses its status immediately if—
(a)
it becomes resident in New Zealand:
(b)
it is treated under a double tax agreement as resident in New Zealand.
(2)
A foreign PIE equivalent loses its status if it no longer meets the requirements set out in section HM 3(1)(b) to (e) at the end of 2 consecutive quarters. The loss of status takes effect from the first day of the third quarter.
Defined in this Act: double tax agreement, foreign PIE equivalent, quarter, resident in New Zealand
Compare: 2007 No 97 s HL 5(2)
Section HM 30: inserted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section HM 30(1): replaced, on 2 November 2012, by section 96(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section HM 30(2): amended, on 29 March 2018, by section 127 of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
Section HM 30 list of defined terms double tax agreement: inserted, on 2 November 2012, by section 96(2) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Rules for multi-rate PIEs
Heading: inserted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Introductory provisions
Heading: inserted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
HM 31 Rules for multi-rate PIEs
Rules
(1)
A multi-rate PIE must—
(a)
attribute income arising from the proceeds of an investment to an investor, and pay tax on the income based on the investor’s tax rates, see sections HM 34 to HM 40:
(b)
calculate and pay its tax liability, choosing certain periods to do this, see sections HM 41 to HM 47:
(c)
adjust investor interests of investors in the entity or distributions from the entity to reflect an amount of tax paid, see section HM 48:
(d)
use tax credits received to satisfy the entity’s tax liability, in some cases providing any surplus credits to certain investors by making an adjustment described in paragraph (c), see sections HM 49 to HM 55.
Foreign investment PIEs
(1B)
For the provisions relating to the treatment of notified foreign investors in foreign investment PIEs, see sections HM 2(4), HM 33, HM 35C, HM 44B, HM 47(2B), (4), and (6), HM 51, HM 53, HM 55C to HM 55H, HM 60, HM 61(2), HM 64(4), and HM 65(5).
Further provisions related to payment options, tax rates, and exit periods
(2)
For the provisions relating to the options available to a multi-rate PIE for calculating and paying its tax liability, prescribed and notified investor rates for investors, and exit levels and periods, see sections HM 56 to HM 63.
Further provisions relating to use of losses
(3)
For the provisions relating to the use of losses by multi-rate PIEs, see sections HM 64 to HM 70.
Defined in this Act: exit level, exit period, foreign investment PIE, investor, investor interest, multi-rate PIE, notified foreign investor, notified investor rate, pay, prescribed investor rate, tax, tax credit
Section HM 31: inserted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section HM 31(1)(a): amended, on 29 August 2011, by section 66(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section HM 31(1)(c): amended (with effect on 1 April 2010), on 21 December 2010, by section 93 of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section HM 31(1B) heading: inserted, on 29 August 2011, by section 66(2) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section HM 31(1B): inserted, on 29 August 2011, by section 66(2) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section HM 31 list of defined terms foreign investment PIE: inserted, on 29 August 2011, by section 66(3) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section HM 31 list of defined terms notified foreign investor: inserted, on 29 August 2011, by section 66(3) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
HM 32 Rules for and treatment of investors in multi-rate PIEs
Tax rates
(1)
An investor in a multi-rate PIE must notify the PIE of a tax rate applying to their investment income or have a default rate apply, see sections HM 56 to HM 61.
Attributed income
(2)
An amount of income attributed by a multi-rate PIE to an investor in the PIE is—
(a)
income of the investor under section CP 1 (Attributed income of investors in multi-rate PIEs):
(b)
for certain investors, excluded income of the investor under section CX 56 (Attributed income of certain investors in multi-rate PIEs).
Notified foreign investors
(3)
An investor in a foreign investment PIE who notifies the PIE under section HM 55D(2) of their wish to become a notified foreign investor is treated as having notified the PIE of a tax rate under subsection (1).
Defined in this Act: amount, excluded income, foreign investment PIE, income, investor, multi-rate PIE, notified foreign investor, notify
Section HM 32: inserted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section HM 32(3) heading: added, on 29 August 2011, by section 67(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section HM 32(3): replaced (with effect on 29 August 2011), on 2 November 2012, by section 97 of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section HM 32 list of defined terms foreign investment PIE: inserted, on 29 August 2011, by section 67(2) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section HM 32 list of defined terms notified foreign investor: inserted, on 29 August 2011, by section 67(2) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
HM 33 Proxies for PIE investors
Proxies
(1)
An entity may become a proxy for an investor in a multi-rate PIE for an attribution period if the entity—
(a)
holds an investor interest for the investor; and
(b)
notifies the PIE that it holds the interest as proxy.
Role
(2)
The proxy must perform the duties set out in subsection (3) in relation to amounts attributed to them for the period as holder of the interest as if—
(a)
the proxy were a multi-rate PIE; and
(b)
the investor interest were an interest of the investor in the income of the proxy; and
(bb)
for a foreign investment PIE and a notified foreign investor, the investor were a notified foreign investor in the proxy; and
(c)
the amounts attributed and distributions received by the proxy were amounts of the proxy to which the investor is entitled as holder of the interest.
Duties
(3)
The proxy’s duties are to—
(a)
attribute amounts to the investor for the period; and
(b)
distribute amounts and credits to the investor for the period; and
(c)
pay income tax on the investment income for the period; and
(d)
adjust the investor interest of the investor or distributions to the investor under section HM 48; and
(db)
for a foreign investment PIE, collect information required from the notified foreign investors and act generally on behalf of the PIE in relation to its notified foreign investors; and
(e)
provide returns as required under section 57B of the Tax Administration Act 1994 to the Commissioner and any other information required by the Commissioner; and
(f)
provide the investor with a notice under section 31C of that Act; and
(g)
provide the PIE with information about the investor and investor interest that may be relevant to any eligibility requirements of the PIE.
Defined in this Act: amount, attribution period, Commissioner, foreign investment PIE, income, income tax, investor, investor interest, multi-rate PIE, notice, notified foreign investor, notify, PIE
Section HM 33: inserted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section HM 33(2)(bb): inserted, on 29 August 2011 (applying for the 2012–13 and later income years for a foreign investment variable-rate PIE and a notified foreign investor in the PIE), by section 68(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section HM 33(3)(db): inserted, on 29 August 2011 (applying for the 2012–13 and later income years for a foreign investment variable-rate PIE and a notified foreign investor in the PIE), by section 68(2) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section HM 33 list of defined terms foreign investment PIE: inserted, on 29 August 2011, by section 68(3) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section HM 33 list of defined terms notice: inserted, on 2 June 2016, by section 74 of the Taxation (Transformation: First Phase Simplification and Other Measures) Act 2016 (2016 No 27).
Section HM 33 list of defined terms notified foreign investor: inserted, on 29 August 2011, by section 68(3) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Attributing income to investors
Heading: inserted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
HM 34 Attribution periods
A multi-rate PIE must use 1 of the following periods for attributing an amount for a tax year or an income year, as applicable, to an investor and an investor class:
(a)
for an entity that uses the quarterly calculation option under section HM 43, but chooses the attribution period by notifying the Commissioner before the start of the tax year or on choosing to become a PIE, a day, a month, or a quarter; or
(b)
for an entity that chooses under section HM 44 to pay provisional tax and chooses the attribution period by notifying the Commissioner before the start of the income year or on choosing to become a PIE, a day, a month, a quarter, or an income year; or
(c)
for an entity that does not make a choice under paragraphs (a) and (b), a day.
Defined in this Act: amount, attribution period, Commissioner, income year, investor, investor class, multi-rate PIE, notify, PIE, provisional tax, tax year
Compare: 2007 No 97 s HL 16(2)
Section HM 34: inserted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section HM 34: amended (with effect on 1 April 2010), on 2 November 2012 (applying for the 2010–11 and later income years), by section 98(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section HM 34(b): amended (with effect on 1 April 2010), on 2 November 2012 (applying for the 2010–11 and later income years), by section 98(2) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section HM 34 list of defined terms income year: inserted (with effect on 1 April 2010), on 2 November 2012, by section 98(3) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section HM 34 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).
HM 35 Determining net amounts and taxable amounts
What this section applies to
(1)
This section applies for the purposes of a calculation under section HM 36(2).
Net amounts
(2)
The net amount for an investor class of a multi-rate PIE for an attribution period is calculated using the formula—
assessable income − deductions.
Definition of items in formula
(3)
In the formula in subsection (2),—
(a)
assessable income is the total amount of the PIE’s assessable income attributed to the class for the attribution period in the manner referred to in subsection (8), including any tax credits received for the income but not including the amount of any supplementary dividends:
(b)
deductions is the total amount of the PIE’s expenditure or loss for which the PIE is allowed a deduction that is—
(i)
incurred by the PIE in deriving the assessable income referred to in paragraph (a); and
(ii)
attributed to the class for the attribution period.
Net income or net loss
(4)
If the result of the formula is positive, the amount is net income of the class for the period. If the result of the formula is negative, the amount is a net loss of the class for the period.
Taxable amounts
(5)
The taxable amount for an investor class of a multi-rate PIE for an attribution period is calculated using the formula—
net income − net loss − other loss used.
Definition of items in formula
(6)
In the formula in subsection (5),—
(a)
net income is the amount of the PIE’s net income referred to in subsection (4):
(b)
net loss is the amount of the PIE’s net loss referred to in subsection (4):
(c)
other loss used is the lesser of the following amounts:
(i)
the total amount for the class of formation loss that is attributable for the attribution period under sections HM 66 to HM 70 and any amount of land loss under section HM 65 that has not been used for an earlier period:
(ii)
the total amount of net income referred to in paragraph (a).
Taxable income or tax loss
(7)
If the result of the formula is positive, the amount is taxable income of the class for the period. If the result of the formula is negative, the amount is a tax loss of the class for the period.
Use of valuations or financial statements
(8)
Income and deductions of the multi-rate PIE are allocated to investors and investor classes for attribution periods as—
(a)
reflected in the PIE’s valuation of investor interests, if the PIE makes these valuations and paragraph (c) does not apply to the income and deductions:
(b)
shown in the PIE’s financial statements, if the PIE does not makes the valuations referred to in paragraph (a) and paragraph (c) does not apply to the income and deductions:
(c)
given by Determination G27: Swaps, Method C, if the income and deductions arise from a financial arrangement that meets the requirements for the method and the multi-rate PIE, before becoming a party to the financial arrangement, chooses to use the method for the income and deductions from such financial arrangements and does not revoke the choice.
Defined in this Act: amount, assessable income, attribution period, deduction, formation loss, income, investor class, investor interest, land loss, multi-rate PIE, net income, net loss, PIE, tax loss, taxable income
Compare: 2007 No 97 ss EG 3, HL 19, HL 20
Section HM 35: inserted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section HM 35(3)(a): substituted (with effect on 1 April 2010), on 21 December 2010 (applying for the 2010–11 and later income years), by section 94(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section HM 35(3)(a): amended, on 1 April 2013 (applying for the 2013–14 and later income years), by section 99(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section HM 35(8)(a): amended, on 1 April 2023, by section 80(1) (and see section 80(4) for application) of the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Act 2023 (2023 No 5).
Section HM 35(8)(a): amended (with effect on 1 April 2010), on 21 December 2010 (applying for the 2010–11 and later income years), by section 94(2) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section HM 35(8)(b): amended, on 1 April 2023, by section 80(2) (and see section 80(4) for application) of the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Act 2023 (2023 No 5).
Section HM 35(8)(c): inserted, on 1 April 2023, by section 80(3) (and see section 80(4) for application) of the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Act 2023 (2023 No 5).
HM 35B Treatment of certain provisions made by multi-rate PIEs
When this section applies
(1)
This section applies for the purposes of section HM 35 when—
(a)
a multi-rate PIE—
(i)
is likely to have future income:
(ii)
makes a provision for future expenditure or loss; and
(b)
the amount—
(i)
is reflected in the PIE’s valuation of investor interests; or
(ii)
if subparagraph (i) does not apply, is shown in its financial statements.
Future amounts
(2)
For the purposes of determining a net amount under section HM 35(2) for an attribution period, a multi-rate PIE may take account of an amount of future income or future expenditure or loss that is—
(a)
for future income, an amount that, when derived, would be assessable income under section HM 35(3)(a):
(b)
for future expenditure or loss,—
(i)
an expense likely to be incurred by the PIE in the tax year in which the attribution period falls, or within 93 days after the end of the tax year; and
(ii)
an amount that, when incurred, would be a deduction under section HM 35(3)(b).
Reasonable estimation
(3)
For the purposes of subsection (2), the PIE must make a reasonable estimate of the amount and must be able to demonstrate, if required, the reasonableness of the estimation by—
(a)
explaining why and when the income is likely to be derived or the expense is likely to be incurred, as applicable; and
(b)
providing the calculation method and actual calculations used to determine the amount, with details showing why the method is appropriate.
Credit impairment provisions
(4)
A multi-rate PIE may take account of a credit impairment provision under this section but only if the provision is counted as a credit impairment provision under IFRS 9. However, the time limit set out in subsection (2)(b)(i) does not apply in relation to a credit impairment provision.
Defined in this Act: amount, attribution period, deduction, IFRS 9, income, investor interest, multi-rate PIE, tax year
Section HM 35B: inserted (with effect on 1 April 2010), on 21 December 2010, by section 95(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section HM 35B(1)(b)(i): amended (with effect on 1 April 2010), on 2 November 2012, by section 100 of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section HM 35B(4): amended, on 26 June 2019, by section 80 of the Taxation (Annual Rates for 2019–20, GST Offshore Supplier Registration, and Remedial Matters) Act 2019 (2019 No 33).
Section HM 35B list of defined terms IFRS 9: inserted, on 26 June 2019, by section 80 of the Taxation (Annual Rates for 2019–20, GST Offshore Supplier Registration, and Remedial Matters) Act 2019 (2019 No 33).
Section HM 35B list of defined terms NZIAS 39: repealed, on 26 June 2019, by section 80 of the Taxation (Annual Rates for 2019–20, GST Offshore Supplier Registration, and Remedial Matters) Act 2019 (2019 No 33).
HM 35C Determining amounts for notified foreign investors
When this section applies
(1)
This section applies for the purposes of sections HM 35 to HM 47 when a foreign investment PIE determines its income tax liability and calculates an amount of attributed PIE income for a notified foreign investor in the PIE.
Single class of investors
(2)
For the purposes of the calculations, the PIE must treat its notified foreign investors as a single notional investor class.
Taxable amounts
(3)
In section HM 35(5), in relation to an investor class that is made up of notified foreign investors, the taxable amount for an attribution period is equal to the assessable income of the PIE for the period for each particular income source and investment type of income of the class.
Attributed amounts
(4)
For the purposes of section HM 36, in the calculation of an amount attributed to a notified foreign investor,—
(a)
the item loss in the formula in subsection (2) is treated as zero:
(b)
the item expenses in the formula in subsection (2) is treated as zero:
(c)
the item credits for fees in the formula in subsection (2) is treated as zero:
(d)
if the result given by the formula is negative, the result is treated as zero.
Treatment of certain transitional residents
(5)
For the purposes of this section, a transitional resident who has chosen under section HM 55D(9) to use the specified prescribed investor rate is treated as if they were a notified foreign investor.
When subsection (7) applies
(6)
Subsection (7) applies for the purposes of section HM 35 for a notified foreign investor (a qualifying investor) in a foreign investment PIE who meets the requirements of section LP 2(1)(a) (Tax credits for supplementary dividends). It overrides subsections (2) and (3), and for the purposes of the calculation of amounts attributed to them, the qualifying investors are treated as a separate class.
Assessable income and supplementary dividends
(7)
For the purposes of section HM 35(3)(a), the assessable income of the PIE is the total amount of the PIE’s assessable income attributed to the class of qualifying investors for the attribution period, including any supplementary dividends to which the qualifying investors are entitled.
Defined in this Act: amount, assessable income, attributed PIE income, attribution period, foreign investment PIE, income tax liability, investor class, notified foreign investor, prescribed investor rate, transitional resident
Section HM 35C: inserted, on 29 August 2011 (applying for the 2012–13 and later income years for a foreign investment variable-rate PIE and a notified foreign investor in the PIE), by section 69(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section HM 35C(5) heading: inserted, on 1 April 2013 (applying for the 2013–14 and later income years), by section 101(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section HM 35C(5): inserted, on 1 April 2013 (applying for the 2013–14 and later income years), by section 101(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section HM 35C(6) heading: inserted, on 1 April 2013 (applying for the 2013–14 and later income years), by section 101(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section HM 35C(6): inserted, on 1 April 2013 (applying for the 2013–14 and later income years), by section 101(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section HM 35C(7) heading: inserted, on 1 April 2013 (applying for the 2013–14 and later income years), by section 101(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section HM 35C(7): inserted, on 1 April 2013 (applying for the 2013–14 and later income years), by section 101(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section HM 35C list of defined terms prescribed investor rate: inserted, on 1 April 2013, by section 101(2) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section HM 35C list of defined terms taxable amount: 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 HM 35C list of defined terms transitional resident: inserted, on 1 April 2013, by section 101(2) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
HM 36 Calculating amounts attributed to investors
Calculating amount
(1)
The amount of attributed PIE income or attributed PIE loss for an income year for an investor in a multi-rate PIE is the total of the amounts calculated using the formula in subsection (2) for—
(a)
each attribution period in the income year; and
(b)
each day in the attribution period; and
(c)
each investor class to which the investor belongs on the day.
Formula
(2)
The formula is—
percentage × (income − loss) ÷ days in period − (expenses − credits for fees).
Definition of items in formula
(3)
In the formula,—
(a)
percentage is the percentage of the investor’s entitlement for the day to a distribution by the PIE to the investor class for the period:
(b)
income is the amount of taxable income determined under section HM 35(5) and (7) for the period:
(c)
loss is the amount of tax loss determined under section HM 35(5) and (7) for the period:
(d)
days in period is the number of days in the period:
(e)
expenses is the total amount for the day in the period of—
(i)
fees for management or administration services paid from or charged to the account of the investor as a member of the investor class when the services are ongoing for the investor class:
(ii)
expenditure of the investor as a member of the investor class and transferred under subpart DV (Expenditure specific to certain entities) to the PIE:
(f)
credits for fees is the amount of the credit for the fee paid or credited by the PIE to the account of the investor as a member of the investor class on the day in the period.
Treatment of attributed loss for PIEs paying provisional tax
(4)
Despite subsection (3), an investor in a multi-rate PIE that chooses under section HM 44 to pay provisional tax has no attributed PIE loss.
When derived or incurred
(5)
The investor is treated as deriving the attributed PIE income or incurring the attributed PIE loss in the income year of the investor in which the end of the PIE’s income year falls.
Defined in this Act: amount, attributed PIE income, attributed PIE loss, attribution period, income, income year, investor, investor class, multi-rate PIE, pay, PIE, provisional tax, tax loss, taxable income
Compare: 2007 No 97 s HL 26
Section HM 36: inserted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section HM 36(1): amended, on 29 August 2011, by section 70(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section HM 36(3)(a): replaced (with effect on 1 April 2010 and applying for the 2010–11 and later income years), on 27 February 2014, by section 89(1) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
Section HM 36(3)(e)(i): substituted, on 29 August 2011, by section 70(2) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section HM 36 list of defined terms pay: inserted, on 29 August 2011, by section 70(3) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
HM 36B Calculating PIE schedular income adjustments for natural person investors
When this section applies
(1)
This section applies for the purposes of calculating the income tax liability under section BC 7 (Income tax liability of person with schedular income) of a natural person who is resident in New Zealand and is an investor in a multi-rate PIE to determine whether an adjustment must be made to the person’s income tax liability for a tax year for an amount of PIE schedular income.
When this section does not apply
(1B)
Despite subsection (1), this section does not apply to a natural person who derives PIE schedular income in the form of beneficiary income from a trust that is not a PIE.
Making PIE schedular tax adjustments
(2)
An adjustment must be made to the person’s income tax liability for the tax year for a tax credit or tax liability of the person that arises under section HM 47 when—
(a)
the person’s prescribed investor rate for the tax year has not been applied to some or all of the person’s PIE schedular income for the tax year; and
(b)
the Commissioner has information described in subsection (3) that relates to the person and is available for the tax year.
What must be taken into account in making adjustments
(3)
The PIE schedular tax adjustment must take into account—
(a)
an amount of a tax credit used by the PIE to satisfy the person’s income tax liability for the tax year:
(b)
another attributed tax credit that the person has for the tax year, including an unused tax credit under section HM 52 or HM 54, or a tax credit under section LS 4 (Tax credits for certain exiting investors):
(c)
an amount that has not been taken into account by the PIE in the calculation for the tax year, whether it is an amount of an adjustment for a tax credit for the person for the tax year or another identified adjustment for the person under sections HM 51 to HM 55 and subpart LS (Tax credits for multi-rate PIEs and investors), as applicable:
(d)
whether—
(i)
the person has an attributed PIE loss in relation to which the person’s prescribed investor rate for the tax year has not been applied:
(ii)
an adjustment has been made for the tax year under section HM 48 to the person’s investor interest, or a distribution paid to them, or a payment required from them:
(iii)
the PIE has a tax credit for the tax year under section LS 1 (Tax credits for multi-rate PIEs) in relation to the amount of loss attributed to the investor:
(iv)
a rate under section HM 60(6) applies for the investor for the tax year:
(v)
the person holds their investment in the PIE jointly with another person:
(e)
any other circumstance of which the Commissioner is aware that affects the application of the person’s prescribed investor rate to their attributed PIE income for the tax year.
Adjustment items counted only once
(3B)
For the purposes of this section, if a component of an item described in subsection (3) is a component of 1 or more other adjustment items, the value of the component is counted only once.
Positive adjustment
(4)
If the adjustment is positive, the amount of the adjustment is included in the investor’s schedular income tax liability for the tax year under section BC 7(5).
Negative adjustment
(5)
If the adjustment is negative,—
(a)
the amount of the adjustment is first applied to reduce the terminal tax payable by the person for the tax year:
(b)
any amount of adjustment remaining is refundable under sections RB 4, RM 2 to RM 8, and RM 10 (which relate to refunds and their use), as applicable:
(c)
the investor’s schedular income tax liability for the tax year under section BC 7(5) is zero.
Meaning of PIE schedular income
(6)
For the purposes of this section, and sections CX 56, DB 53, and LA 6, PIE schedular income—
(a)
means an amount of attributed PIE income that a natural person who is resident in New Zealand and is an investor in a multi-rate PIE derives under section CP 1 (Attributed income of investors in multi-rate PIEs) to which the prescribed rates of tax set out in schedule 6, clause 1 (Prescribed rates: PIE investments and retirement scheme contributions) apply; and
(b)
includes an amount of attributed PIE loss of the person under section DB 53 (Attributed PIE losses of certain investors).
Defined in this Act: amount, attributed PIE income, attributed PIE loss, Commissioner, income tax liability, investor, investor interest, multi-rate PIE, natural person, pay, PIE schedular income, prescribed investor rate, schedular income tax liability, tax credit, tax year, terminal tax
Section HM 36B: inserted, on 1 April 2020, by section 148(1) (and see section 148(2) for application) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
Section HM 36B(1) heading: replaced (with effect on 1 April 2020), on 30 March 2021, by section 91(1) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
Section HM 36B(1): replaced (with effect on 1 April 2020), on 30 March 2021, by section 91(1) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
Section HM 36B(1B) heading: inserted (with effect on 1 April 2020), on 30 March 2021, by section 91(1) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
Section HM 36B(1B): inserted (with effect on 1 April 2020), on 30 March 2021, by section 91(1) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
Section HM 36B(2) heading: replaced (with effect on 1 April 2020), on 30 March 2021, by section 91(1) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
Section HM 36B(2): replaced (with effect on 1 April 2020), on 30 March 2021, by section 91(1) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
Section HM 36B(3) heading: replaced (with effect on 1 April 2020), on 30 March 2021, by section 91(1) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
Section HM 36B(3): replaced (with effect on 1 April 2020), on 30 March 2021, by section 91(1) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
Section HM 36B(3B) heading: inserted (with effect on 1 April 2020), on 30 March 2021, by section 91(1) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
Section HM 36B(3B): inserted (with effect on 1 April 2020), on 30 March 2021, by section 91(1) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
Section HM 36B(4): amended (with effect on 1 April 2020), on 30 March 2021, by section 91(2) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
Section HM 36B(5): amended (with effect on 1 April 2020), on 30 March 2021, by section 91(3) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
Section HM 36B(6): replaced (with effect on 1 April 2020), on 30 March 2021, by section 91(4) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
Section HM 36B list of defined terms attributed PIE loss: inserted (with effect on 1 April 2020), on 30 March 2021, by section 91(5)(b) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
Section HM 36B list of defined terms Commissioner: inserted (with effect on 1 April 2020), on 30 March 2021, by section 91(5)(b) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
Section HM 36B list of defined terms investor interest: inserted (with effect on 1 April 2020), on 30 March 2021, by section 91(5)(b) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
Section HM 36B list of defined terms pay: inserted (with effect on 1 April 2020), on 30 March 2021, by section 91(5)(b) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
Section HM 36B list of defined terms residual income tax: repealed (with effect on 1 April 2020), on 30 March 2021, by section 91(5)(a) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
HM 37 When income cannot be attributed
When this section applies
(1)
This section applies when a multi-rate PIE has income or property in which no investor has an interest, or income or property in which no person has a conditional entitlement under section HM 38.
Sole investor
(2)
The PIE is treated for the purposes of sections HM 35 and HM 36 (which relate to the calculation of amounts attributable to investors) as the sole investor in an investor class having an interest in the income or property.
Exception for foreign investment PIE
(3)
In the application, under subsection (2), of section HM 36 to a foreign investment PIE, the item deductions in the formula in section HM 35(2) for the investor class consisting of the PIE is treated as being the amount calculated using the formula—
(other than notified interests ÷ total interests) × unadjusted item.
Definition of items in formula
(4)
In the formula,—
(a)
other than notified interests is the value of investor interests in the PIE held at the end of the attribution period by investors other than notified foreign investors:
(b)
total interests is the total value of investor interests in the PIE at the end of the attribution period:
(c)
unadjusted item is the value of the item deductions that would be calculated for the investor class in the absence of subsection (3).
Defined in this Act: income, investor, investor class, multi-rate PIE
Compare: 2007 No 97 s HL 17(1)
Section HM 37: inserted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section HM 37(2): replaced (with effect on 1 April 2012), on 17 July 2013, by section 65(1) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Section HM 37(3) heading: inserted (with effect on 1 April 2012), on 17 July 2013, by section 65(2) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Section HM 37(3): inserted (with effect on 1 April 2012), on 17 July 2013, by section 65(2) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Section HM 37(4) heading: inserted (with effect on 1 April 2012), on 17 July 2013, by section 65(2) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Section HM 37(4): inserted (with effect on 1 April 2012), on 17 July 2013, by section 65(2) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Section HM 37 list of defined terms investor interest: repealed, on 1 April 2011, by section 68(2) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
HM 38 When superannuation fund investor has conditional entitlement
When this section applies
(1)
This section applies for the purposes of section HM 37 in relation to an attribution period when a person has a conditional entitlement to an investor interest in a multi-rate PIE that is a superannuation fund that meets the requirements of subsection (4) in income or property of the PIE.
Attribution
(2)
The investor interest is treated as held by the person for the attribution period.
When conditional entitlement exists
(3)
A person is treated as having a conditional entitlement to an investor interest if—
(a)
the investor interest is acquired by or for the person’s employer; and
(b)
the person and the employer have agreed that the person will have an unconditional entitlement to the interest at the end of a vesting period that—
(i)
starts on the date when a contribution to the fund is made; and
(ii)
ends on the date when the employee becomes unconditionally entitled to the investor interest to which the contribution relates; and
(bb)
the vesting period is within 5 years of its end as described in paragraph (b)(ii); and
(c)
the agreement exists before the attribution period; and
(d)
the vesting period ends after the attribution period.
Modifications to certain vesting periods
(4)
For the purposes of subsection (3)(b),—
(a)
for a PIE that exists on 17 May 2006, a vesting period longer than 5 years is allowed but the vesting period must not be longer than the longest vesting period allowed by the PIE at that date for an interest created on that date:
(b)
for a PIE that does not exist on 17 May 2006, but the investor interest has been transferred to it by a superannuation scheme in existence on that date without significant change to the interest, a vesting period of any length is allowed.
Defined in this Act: attribution period, employer, income, investor interest, multi-rate PIE, PIE, superannuation fund, superannuation scheme
Compare: 2007 No 97 s HL 17(2)
Section HM 38: inserted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section HM 38(3)(a): amended (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on 24 February 2016, by section 242(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section HM 38(3)(b): replaced, on 1 April 2012 (applying for the 2012–13 and later income years), by section 71(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section HM 38(3)(bb): inserted, on 1 April 2012 (applying for the 2012–13 and later income years), by section 71(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
HM 39 New investors in existing investor classes
When this section applies
(1)
This section applies when a person is a new investor in an existing investor class of a multi-rate PIE but, at the time of investing, the PIE holds insufficient investments for the person to qualify as an investor in the class.
Person treated as investor
(2)
The PIE may treat the person as an investor in the class if the PIE acquires sufficient investments as described in section HM 11 as soon after the investor’s acquisition of the interests as is practicable.
Defined in this Act: investor, investor class, multi-rate PIE, PIE
Compare: 2007 No 97 s HL 18
Section HM 39: inserted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
HM 40 Deductions for attributed PIE losses for zero-rated and exiting investors equal to amount attributed
The deduction an investor referred to in section DB 53(1) is allowed is equal to the amount attributed for the income year or exit period.
Defined in this Act: amount, exit period, income year
Section HM 40: replaced (with effect on 1 April 2020), on 31 March 2023, by section 81 of the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Act 2023 (2023 No 5).
Calculating and paying tax liability
Heading: inserted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
HM 41 Options for calculation and payment of tax
Available options
(1)
The options available to a multi-rate PIE for calculating and paying its income tax liability are—
(a)
the payment of tax calculated under the exit calculation option, see section HM 42; or
(b)
the payment of tax calculated under the quarterly calculation option, see section HM 43; or
(c)
the payment of provisional tax and terminal tax calculated on an income-year basis, see section HM 44.
Default option
(2)
The PIE must use the default option under subsection (1)(b) unless it chooses an option under subsection (1)(a) or (c) by notifying the Commissioner.
Income tax liability
(3)
The income tax liability of the PIE for the tax year is equal to the total amount calculated under the relevant method for periods in the tax year or, in the case of the provisional tax calculation option under section HM 44, for the PIE’s income year corresponding to the tax year.
Foreign investment PIEs
(4)
Despite subsection (1)(c), a multi-rate PIE that chooses under section HM 71B to become a foreign investment PIE must not use the provisional tax calculation option in section HM 44 to calculate its income tax liability.
Defined in this Act: amount, Commissioner, income tax liability, income year, multi-rate PIE, notify, pay, PIE, provisional tax, tax year, terminal tax
Compare: 2007 No 97 ss HL 16(3), HL 22–HL 24
Section HM 41: inserted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section HM 41(4) heading: added, on 29 August 2011 (applying for the 2012–13 and later income years for a foreign investment variable-rate PIE and a notified foreign investor in the PIE), by section 72(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section HM 41(4): added, on 29 August 2011 (applying for the 2012–13 and later income years for a foreign investment variable-rate PIE and a notified foreign investor in the PIE), by section 72(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
HM 42 Exit calculation option
When this section applies
(1)
This section applies when a multi-rate PIE chooses for a tax year to calculate its income tax liability for exiting investors and remaining investors. The PIE must notify the Commissioner under section 31B of the Tax Administration Act 1994 of the calculation option and of the applicable attribution period.
Calculation for exiting investors
(2)
For an investor whose interest has reached the exit level during the tax year, the PIE must calculate its income tax liability under section HM 47 for the investor and the relevant exit period. The exit level and exit periods are determined under sections HM 62 and HM 63.
Calculations for investors for non-exit periods
(3)
For investors and periods in the income year other than exit periods, the PIE must calculate its income tax liability under section HM 47 for the relevant period.
Payment to Commissioner
(4)
The PIE must pay to the Commissioner—
(a)
the amount of income tax liability for an exiting investor for the exit period—
(i)
within 1 month after the end of the month of withdrawal; or
(ii)
if the month of withdrawal is November, by the following 15 January; and
(b)
the rest of the PIE’s income tax liability for the tax year within 1 month after the end of the tax year for remaining investors in the PIE at the end of the tax year, after allowing for any payment under paragraph (a) or any voluntary payment under section HM 45.
Provisional tax rules
(5)
The PIE is not required to pay provisional tax under subpart RC (Provisional tax) for the tax year.
Defined in this Act: amount, attribution period, Commissioner, exit level, exit period, income tax liability, income year, investor, multi-rate PIE, notify, pay, PIE, provisional tax, tax year
Compare: 2007 No 97 s HL 24(1)–(4)
Section HM 42: inserted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section HM 42(1): replaced, on 29 March 2018 (with effect on 1 April 2010), by section 128(1) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
Section HM 42 list of defined terms attribution period: inserted, on 29 March 2018 (with effect on 1 April 2010), by section 128(2) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
Section HM 42 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).
HM 42B Part-year tax calculations for PIEs under the exit calculation option for the 2010–11 tax year
When this section applies
(1)
This section applies to a PIE for the 2010–11 tax year if section HM 42 applies to the PIE for that year and the PIE chooses to apply this section by filing a return under section 57B(5) or (7) of the Tax Administration Act 1994 in accordance with this section.
Part-year tax calculations: description
(2)
For calculating their income tax liability for the 2010–11 tax year, the PIE treats references to an income year or a tax year as if they are references to 2 separate tax years and corresponding income years within that tax year, divided by 1 October 2010 (for example: an amount of income attributed to a date before 1 October 2010 is included in the first part-year and taxed using the notified investor rate advised before 1 October 2010. A notified investor rate advised on or after 1 October 2010 is applied only to the amount of income attributed to the second part-year).
Part-year tax calculations: effect
(3)
The part-year calculations may give rise to income and deductions for the income year and they do create part-year tax return obligations, except that the requirement for returns under section 57B(7)(a) of the Tax Administration Act 1994 and for notice in relation to investors or proxies under section 31C(4) of that Act can be met by sending returns or notices on a full-year or part-year basis. The 2 part-year calculations create 2 income tax liabilities for 2 part-years.
Foreign tax credits: special rule
(4)
Despite subsections (2) and (3), tax credits under subpart LJ (Tax credits for foreign income tax) may be used in accordance with section HM 51 in either part-year, if they are attributable to the first part-year.
Defined in this Act: deduction, income, income tax liability, income year, notice, notified investor rate, PIE, tax credit, tax year
Section HM 42B: inserted, on 1 October 2010, by section 69 of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
Section HM 42B 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).
HM 43 Quarterly calculation option
Quarterly calculation
(1)
A multi-rate PIE that does not choose to calculate and pay its income tax liability under the exit calculation or provisional tax calculation options, must calculate its tax liability for each quarter of the tax year using the formula set out in section HM 47. The PIE must notify the Commissioner under section 31B of the Tax Administration Act 1994 of the calculation option and of the applicable attribution period.
Quarterly payment
(2)
The PIE must pay to the Commissioner the amount of its income tax liability for the quarter within 1 month of the end of the quarter.
Exiting investors: zero-rated
(3)
If the investor interest of an investor in the PIE has reached the exit level, they are treated under section HM 61 as zero-rated for the exit period which includes a grace period of 5 working days after the end of the quarter. This subsection does not apply if the PIE voluntarily chooses to pay an amount under section HM 45.
Exiting investors: remaining value to Commissioner
(4)
If the investor interest of an investor at the end of an exit period is more than zero, the PIE must pay an amount equal to the value of the interest to the Commissioner at the same time as the payment referred to in subsection (2).
Provisional tax rules
(5)
The PIE is not required to pay provisional tax under subpart RC (Provisional tax) for the tax year.
Defined in this Act: amount, attribution period, Commissioner, exit level, exit period, income tax liability, investor interest, multi-rate PIE, notice, pay, PIE, provisional tax, quarter, tax year, working day
Compare: 2007 No 97 s HL 22
Section HM 43: inserted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section HM 43(1): replaced, on 29 March 2018 (with effect on 1 April 2010), by section 129(1) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
Section HM 43(3): amended, on 2 November 2012, by section 102(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section HM 43(3): amended (with effect on 1 April 2010), on 21 December 2010 (applying for the 2010–11 and later income years), by section 97(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section HM 43(4): amended (with effect on 1 April 2010), on 21 December 2010 (applying for the 2010–11 and later income years), by section 97(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section HM 43 list of defined terms attribution period: inserted, on 29 March 2018 (with effect on 1 April 2010), by section 129(2) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
Section HM 43 list of defined terms zero-rated investor: repealed, on 2 November 2012, by section 102(2) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
HM 44 Provisional tax calculation option
When this section applies
(1)
This section applies when a multi-rate PIE chooses to calculate its income tax liability on an income year basis and pay provisional tax by notifying the Commissioner before the start of the income year or when choosing to become a PIE. The PIE must notify the Commissioner under section 31B of the Tax Administration Act 1994 of the calculation option and of the applicable attribution period.
When this section does not apply
(1B)
Despite subsection (1), a multi-rate PIE that chooses under section HM 71B to become a foreign investment PIE must not apply this section to calculate and pay its income tax liability.
Application of subparts RB and RC
(2)
The PIE must calculate its tax liability for the income year corresponding to the tax year under section HM 47 and pay provisional tax for the tax year as required by subpart RC (Provisional tax) and terminal tax for the tax year as required by subpart RB (Terminal tax).
Treatment of losses
(3)
If the calculation of the liability results in a negative amount, the loss must be carried forward to a later tax year, and section HM 64 does not apply.
Defined in this Act: attribution period, Commissioner, foreign investment PIE, income tax liability, income year, multi-rate PIE, notify, pay, PIE, provisional tax, tax year
Compare: 2007 No 97 s HL 23(1), (2)
Section HM 44: inserted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section HM 44(1): replaced, on 29 March 2018 (with effect on 1 April 2010), by section 130(1) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
Section HM 44(1B) heading: inserted, on 29 August 2011, by section 73(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section HM 44(1B): inserted, on 29 August 2011, by section 73(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section HM 44 list of defined terms attribution period: inserted, on 29 March 2018 (with effect on 1 April 2010), by section 130(2) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
Section HM 44 list of defined terms Commissioner: inserted, on 29 March 2018 (with effect on 1 April 2010), by section 130(2) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
Section HM 44 list of defined terms foreign investment PIE: inserted, on 29 August 2011, by section 73(2) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
HM 44B NRWT calculation option
When this section applies
(1)
This section applies when—
(a)
a foreign investment PIE—
(i)
derives a dividend that is not fully imputed from a company resident in New Zealand; and
(ii)
pays an amount that represents some or all of the amount of the dividend to a notified foreign investor in the PIE by the date on which the PIE is required to pay its income tax liability under section HM 42 or HM 43, as applicable; and
(b)
the PIE chooses to calculate and pay the tax liability in relation to the amount under subpart RF (Withholding tax on non-resident passive income).
When this section also applies: supplementary dividends
(1B)
This section also applies when—
(a)
a foreign investment PIE—
(i)
derives a dividend with imputation credits attached from a company resident in New Zealand together with a related supplementary dividend; and
(ii)
has, as an investor, a notified foreign investor who meets the requirements of section LP 2(1)(a) (Tax credits for supplementary dividends); and
(iii)
pays the investor an amount that represents the total amount of the dividend and supplementary dividend that would be attributed to the investor in the absence of subsection (2); and
(iv)
pays the amount by the date on which the PIE is required to pay its income tax liability under section HM 42 or HM 43, as applicable; and
(b)
the PIE chooses to calculate and pay the tax liability in relation to the amount under subpart RF.
Excluding amount from calculation
(2)
In determining the net amount for notified foreign investors under sections HM 35 and HM 36, to the extent to which the amount represents either an unimputed portion of the dividend, or a dividend together with a related supplementary dividend, as applicable, the amount is not included in—
(a)
the item assessable income in section HM 35(3):
(b)
the item income in section HM 36(3).
Non-resident passive income
(3)
The NRWT rules apply to the amount paid to the extent to which the amount represents either an unimputed portion of the dividend, or a dividend together with a related supplementary dividend, as applicable.
Relationship with section CX 56B
(4)
Despite section CX 56B (Distributions to investors in multi-rate PIEs), the amount is not excluded income of the notified foreign investor.
Relationship with section HM 35(8)
(5)
When a foreign investment PIE derives a dividend and related supplementary dividend as described in subsection (1B), the allocation rule set out in section HM 35(8) does not apply. The dividend and related supplementary dividend are treated as having been allocated on the date on which ownership of the shares determines a legal entitlement to the dividend.
Defined in this Act: amount, company, dividend, excluded income, foreign investment PIE, imputation credit, income tax liability, multi-rate PIE, non-resident passive income, notified foreign investor, NRWT rules, pay, resident in New Zealand, supplementary dividend
Section HM 44B: inserted, on 29 August 2011 (applying for the 2012–13 and later income years for a foreign investment variable-rate PIE and a notified foreign investor in the PIE), by section 74(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section HM 44B(1B) heading: inserted, on 1 April 2013 (applying for the 2013–14 and later income years), by section 103(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section HM 44B(1B): inserted, on 1 April 2013 (applying for the 2013–14 and later income years), by section 103(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section HM 44B(2): amended, on 1 April 2013 (applying for the 2013–14 and later income years), by section 103(2) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section HM 44B(3): amended, on 1 April 2013 (applying for the 2013–14 and later income years), by section 103(3) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section HM 44B(5) heading: inserted, on 1 April 2013 (applying for the 2013–14 and later income years), by section 103(4) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section HM 44B(5): inserted, on 1 April 2013 (applying for the 2013–14 and later income years), by section 103(4) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section HM 44B list of defined terms supplementary dividend: inserted, on 1 April 2013, by section 103(5) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
HM 45 Voluntary payments
When this section applies
(1)
This section applies when a multi-rate PIE pays an amount of tax under section HM 42 or HM 43.
Voluntary payment
(2)
The PIE may pay an amount of income tax to the Commissioner that represents an amount of its tax liability for the investor as a member of an investor class for the tax year.
Time of payment
(3)
The payment must be made—
(a)
within 1 month after, as applicable,—
(i)
for calculation and payment of tax under the quarterly calculation option, the end of the quarter; or
(ii)
for the calculation and payment of tax under the exit calculation option, the month in which the tax liability for the investor referred to in subsection (2) is calculated; or
(b)
if the month is November, by the following 15 January.
Defined in this Act: amount, Commissioner, income tax, investor, investor class, investor interest, multi-rate PIE, pay, PIE, quarter, tax year
Compare: 2007 No 97 s HL 25
Section HM 45: inserted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section HM 45(1): amended, on 29 August 2011, by section 75(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section HM 45(3)(a)(ii): amended, on 29 August 2011, by section 75(2) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section HM 45 list of defined terms tax year: added, on 29 August 2011, by section 75(3) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
HM 46 Calculation process
To calculate its tax liability, a multi-rate PIE must—
(a)
determine the net amount for each investor class of the PIE:
(b)
determine the taxable amount for each investor class of the PIE:
(c)
calculate its tax liability for each investor in an investor class for each day of an attribution period.
Defined in this Act: amount, attribution period, investor, investor class, multi-rate PIE, PIE
Compare: 2007 No 97 ss HL 19, HL 20
Section HM 46: inserted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
HM 47 Calculation of tax liability or tax credit of multi-rate PIEs
What this section does
(1)
This section quantifies the amount of the tax liability or tax credit of a multi-rate PIE for a calculation period.
Calculating amount
(2)
The amount of the PIE’s tax liability or tax credit is the sum of the amounts calculated using the formula in subsection (3) for—
(a)
each investor class in which the investor has an investor interest:
(b)
each investor in an investor class:
(c)
each attribution period in the calculation period:
(d)
each day in an attribution period.
Notified foreign investors
(2B)
For the purposes of subsection (2), for a notified foreign investor in a foreign investment PIE, the amount of the PIE’s tax liability for each investor is the sum of the amounts calculated using the formula in subsection (3) for the amount attributed to the investor for each particular income source and investment type.
Formula
(3)
The formula is—
rate × amount.
Definition of items in formula
(4)
In the formula,—
(a)
rate is—
(i)
the tax rate under section HM 58 or HM 60, as applicable, that relates to the investor for each day for the period; or
(ib)
the tax rates applying under schedule 6, table 1B (Prescribed rates: PIE investments and retirement scheme contributions) for an amount attributed to a notified foreign investor in relation to each income source and investment type; or
(ii)
28%, if the PIE is treated as the sole investor under section HM 37:
(b)
amount is the amount calculated under sections HM 36(1) and (2) and HM 37, as applicable, for the investor.
Result of formula: tax liability or tax credit
(5)
If the result of the formula in subsection (3) is positive, the amount is the PIE’s tax liability for the calculation period. If the result is negative, the amount is a tax credit of the PIE under section LS 1 (Tax credits for multi-rate PIEs), see section HM 55. However, a tax credit does not arise under section LS 1 for a multi-rate PIE that chooses to use the provisional tax calculation option.
Negative result and foreign investment PIEs
(6)
If the result of the formula in subsection (3) is negative and the multi-rate PIE has chosen under section HM 71B to become a foreign investment PIE, no tax credit arises in relation to an amount attributed to an investor in the PIE who is, at the time of attribution, a notified foreign investor.
Defined in this Act: amount, attribution period, calculation period, foreign investment PIE, investor, investor class, investor interest, multi-rate PIE, notified foreign investor, PIE, tax credit
Compare: 2007 No 97 ss EG 3, HL 21
Section HM 47: inserted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section HM 47(2)(a): amended (with effect on 1 April 2010), on 21 December 2010 (applying for the 2010–11 and later income years), by section 98(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section HM 47(2B) heading: inserted, on 29 August 2011 (applying for the 2012–13 and later income years for a foreign investment variable-rate PIE and a notified foreign investor in the PIE), by section 76(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section HM 47(2B): inserted, on 29 August 2011 (applying for the 2012–13 and later income years for a foreign investment variable-rate PIE and a notified foreign investor in the PIE), by section 76(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section HM 47(4)(a)(i): amended, on 1 October 2010, by section 6(1) of the Taxation (Budget Measures) Act 2010 (2010 No 27).
Section HM 47(4)(a)(ib): inserted, on 29 August 2011 (applying for the 2012–13 and later income years for a foreign investment variable-rate PIE and a notified foreign investor in the PIE), by section 76(2) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section HM 47(4)(a)(ii): amended, on 1 October 2010, by section 6(2) of the Taxation (Budget Measures) Act 2010 (2010 No 27).
Section HM 47(6) heading: added, on 29 August 2011 (applying for the 2012–13 and later income years for a foreign investment variable-rate PIE and a notified foreign investor in the PIE), by section 76(3) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section HM 47(6): added, on 29 August 2011 (applying for the 2012–13 and later income years for a foreign investment variable-rate PIE and a notified foreign investor in the PIE), by section 76(3) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section HM 47 list of defined terms foreign investment PIE: inserted, on 29 August 2011, by section 76(4) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section HM 47 list of defined terms notified foreign investor: inserted, on 29 August 2011, by section 76(4) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Adjusting investors’ interests
Heading: inserted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
HM 48 Adjustments to investor interests or to distributions
Adjustment
(1)
When a multi-rate PIE pays a tax liability or receives a tax credit under section LS 1 (Tax credits for multi-rate PIEs) in relation to an investor, it must make an adjustment to the investor interest of the investor to reflect the rate applying under section HM 60 or HM 61. The PIE may choose to adjust—
(a)
the investor interest of the investor in an investor class; or
(b)
the amount of a distribution paid to the investor; or
(c)
the amount of a payment required from the investor to satisfy the PIE’s tax liability.
Investor’s choice
(2)
The PIE may offer the choice made under subsection (1) to the investor.
Date of adjustment
(3)
An adjustment under subsection (1)(a) must be made—
(a)
for the quarterly calculation option, within 2 months of the end of the quarter; or
(b)
for the exit calculation option, within 2 months of the end of the tax year; or
(c)
for the provisional tax calculation option, within 3 months of the end of the income year.
Extending time limits
(4)
On application by a multi-rate PIE, the Commissioner may extend a time limit imposed under subsection (3) if it is reasonable in the circumstances.
Adjustments for errors
(5)
When a multi-rate PIE, through an error, does not calculate and pay its income tax liability in relation to its investors for a tax year correctly, the PIE may make an adjustment under subsection (1)(c) within 1 month of the discovery of the error.
Maximum adjustments
(6)
For the purposes of subsection (5),—
(a)
the adjustment may be made in the tax year in which the error is made (year 1) without any limit on the total amount of adjustments for errors:
(b)
the adjustment may be made in the tax year following that in which the error is made (year 2), but the total of all adjustments for errors made in year 2 relating to an error made in year 1 must be no more than the greater of—
(i)
$2000; or
(ii)
5% of the income tax liability of the PIE for year 1.
When adjustments treated as made
(7)
An adjustment that meets the requirements of subsections (5) and (6) is treated as made on the due date for the amount referred to in section HM 41(3) and calculated under sections HM 42 to HM 44B.
Notifying Commissioner of adjustments
(8)
Following the discovery of an error to which subsection (6)(b) applies, the PIE must notify the Commissioner of the error at the time of making the adjustment, including in their notification—
(a)
the information in schedule 6, table 1, rows 1 to 8, 10, 12, 13, 16, 21, and 22 of the Tax Administration Act 1994; and
(b)
the adjustment to the item referred to in schedule 6, table 1, row 9 of that Act.
Defined in this Act: amount, apply, income tax liability, income year, investor, investor interest, multi-rate PIE, pay, PIE, provisional tax, quarter, tax year
Compare: 2007 No 97 s HL 7
Section HM 48: inserted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section HM 48 heading: amended (with effect on 1 April 2010), on 21 December 2010 (applying for the 2010–11 and later income years), by section 99(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section HM 48(1): amended (with effect on 1 April 2010), on 21 December 2010 (applying for the 2010–11 and later income years), by section 99(2) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section HM 48(1)(a): amended (with effect on 1 April 2010), on 21 December 2010 (applying for the 2010–11 and later income years), by section 99(3) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section HM 48(5) heading: inserted, on 1 April 2020, by section 131(1) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
Section HM 48(5): inserted, on 1 April 2020, by section 131(1) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
Section HM 48(6) heading: inserted, on 1 April 2020, by section 131(1) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
Section HM 48(6): inserted, on 1 April 2020, by section 131(1) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
Section HM 48(7) heading: inserted, on 1 April 2020, by section 131(1) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
Section HM 48(7): inserted, on 1 April 2020, by section 131(1) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
Section HM 48(8) heading: inserted, on 1 April 2020, by section 131(1) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
Section HM 48(8): inserted, on 1 April 2020, by section 131(1) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
Section HM 48 list of defined terms apply: inserted, on 2 June 2016, by section 74 of the Taxation (Transformation: First Phase Simplification and Other Measures) Act 2016 (2016 No 27).
Section HM 48 list of defined terms income tax liability: inserted, on 1 April 2020, by section 131(2) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
Section HM 48 list of defined terms prescribed investor rate: repealed (with effect on 1 April 2010), on 7 December 2009, by section 126 of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
Using tax credits
Heading: inserted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
HM 49 Tax credits: when sections HM 50 to HM 55 apply
When sections apply
(1)
Sections HM 50 to HM 55 apply in relation to the tax credits of a multi-rate PIE or proxy for an investor in a multi-rate PIE that has not chosen to calculate its income tax liability under section HM 44 using the provisional tax calculation option.
Limitation
(2)
The entity must not, other than under sections HM 51 to HM 55,—
(a)
use the tax credit to reduce the liability of the entity for income tax or to obtain a refund of income tax:
(b)
attach the tax credit to a distribution or transfer the tax credit to another person.
Relationship with Part L
(3)
Sections HM 51 to HM 55 override Part L (Tax credits and other credits) other than subpart LS (Tax credits for multi-rate PIEs and investors).
Defined in this Act: income tax, income tax liability, investor, multi-rate PIE, provisional tax, tax credit
Compare: 2007 No 97 s HL 29(1), (2)
Section HM 49: inserted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
HM 50 Attributing credits to investors
When this section applies
(1)
This section applies when a multi-rate PIE has a tax credit other than a tax credit under subpart LS (Tax credits for multi-rate PIEs and investors).
Attributing amount to investor
(2)
The amount of the credit attributable to an investor in an investor class of the PIE for an attribution period is calculated using the formula in subsection (3). The amount attributed to the investor is the total of the amounts calculated for each investment of the PIE and each day in the attribution period.
Calculation of amount
(3)
The formula is—
credit × class’s percentage × investor’s percentage ÷ days in period.
Definition of items in formula
(4)
In the formula,—
(a)
credit is the amount of the credit the PIE has in relation to the investment that gives rise to the credit:
(b)
class’s percentage is the percentage of the proceeds from the investment to which the investor class is entitled, including related tax credits:
(c)
investor’s percentage is the percentage to which the investor is entitled of a distribution by the PIE to the investor class:
(d)
days in period is the number of days in the attribution period.
Supplementary dividends and foreign investment PIEs
(5)
For the purposes of this section and for a payment of a dividend and related supplementary dividend to a foreign investment PIE, the dividend is treated as if it were divided into separate dividends as follows:
(a)
a dividend of an amount that represents the part to which the notified foreign investors in the PIE who meet the requirements of section LP 2(1)(c) (Tax credits for supplementary dividends) are entitled; and
(b)
a dividend of an amount that represents the remaining part to which all investors other than those referred to in paragraph (a) are entitled.
Imputation credits: first part
(6)
The imputation credits for the dividend referred to in subsection (5)(a) are treated as attached to that part as if it were a separate dividend.
Imputation credits: second part
(7)
The imputation credits for the dividend referred to in subsection (5)(b) are treated as attached to that part as if it were a separate dividend not payable to a non-resident.
Defined in this Act: amount, attribution period, foreign investment PIE, imputation credit, investor, investor class, multi-rate PIE, notified foreign investor, pay, PIE, supplementary dividend, tax credit
Compare: 2007 No 97 ss HL 29(3)–(5), YA 1 “portfolio class fraction”
, “portfolio investor interest fraction”
Section HM 50: inserted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section HM 50(1): replaced, on 2 November 2012, by section 104(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section HM 50(5) heading: inserted, on 1 April 2013 (applying for the 2013–14 and later income years), by section 104(2) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section HM 50(5): inserted, on 1 April 2013 (applying for the 2013–14 and later income years), by section 104(2) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section HM 50(5)(a): amended (with effect on 1 April 2013 and applying for the 2013–14 and later income years), on 27 February 2014, by section 90(1) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
Section HM 50(6) heading: inserted, on 1 April 2013 (applying for the 2013–14 and later income years), by section 104(2) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section HM 50(6): inserted, on 1 April 2013 (applying for the 2013–14 and later income years), by section 104(2) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section HM 50(7) heading: inserted, on 1 April 2013 (applying for the 2013–14 and later income years), by section 104(2) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section HM 50(7): inserted, on 1 April 2013 (applying for the 2013–14 and later income years), by section 104(2) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section HM 50 list of defined terms foreign investment PIE: inserted, on 2 November 2012, by section 104(3) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section HM 50 list of defined terms notified foreign investor: inserted, on 2 November 2012, by section 104(3) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section HM 50 list of defined terms supplementary dividend: inserted, on 2 November 2012, by section 104(3) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
HM 51 Use of foreign tax credits by PIEs
When this section applies
(1)
This section applies when a multi-rate PIE has a tax credit under subpart LJ (Tax credits for foreign income tax) that is attributable in a tax year to an investor other than—
(a)
a zero-rated investor:
(b)
an exiting investor who is treated under section HM 61 as zero-rated:
(c)
a notified foreign investor in a foreign investment PIE:
(d)
a transitional resident who chooses under section HM 55D(8) to use a prescribed investor rate set out in schedule 6, table 1, row 10 (Prescribed rates: PIE investments and retirement scheme contributions).
Using tax credit to satisfy income tax liability
(2)
The multi-rate PIE may use the tax credit under section LS 1 (Tax credits for multi-rate PIEs) to satisfy its income tax liability for the tax year in relation to the investor. The amount of the credit is determined under subsection (3).
Amount
(3)
The total amount of the credits able to be used is the lesser of—
(a)
the total amount of credits attributed to the investor as a member of any investor class for the calculation period together with any amount attributed to the investor in an earlier calculation period that remains unused:
(b)
the amount of the PIE’s tax liability in relation to the investor as a member of any investor class for the calculation period or an earlier calculation period, and not met by any credit allocated to the earlier period.
Use under exit calculation option
(4)
For a multi-rate PIE that calculates its tax liability for a tax year using the exit calculation option under section HM 42, the amount may be used for calculation periods earlier or later in the tax year, and in relation to different classes for the same investor.
Use under quarterly option
(5)
For a multi-rate PIE that calculates its tax liability for a tax year using the quarterly calculation option under section HM 43, the amount may be used only for the relevant calculation period and later periods in the tax year, and in relation to different classes for the same investor.
Defined in this Act: amount, calculation period, foreign investment PIE, income tax liability, investor, investor class, multi-rate PIE, notified foreign investor, PIE, prescribed investor rate, quarter, tax credit, tax year, transitional resident, zero-rated investor
Compare: 2007 No 97 s HL 29(10)–(12)
Section HM 51: inserted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section HM 51(1)(b): amended, on 29 August 2011 (applying for the 2012–13 and later income years for a foreign investment variable-rate PIE and a notified foreign investor in the PIE), by section 77(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section HM 51(1)(c): added, on 29 August 2011 (applying for the 2012–13 and later income years for a foreign investment variable-rate PIE and a notified foreign investor in the PIE), by section 77(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section HM 51(1)(c): amended, on 2 November 2012 (applying for the 2013–14 and later income years), by section 105(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section HM 51(1)(d): inserted, on 2 November 2012 (applying for the 2013–14 and later income years), by section 105(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section HM 51 list of defined terms foreign investment PIE: inserted, on 29 August 2011, by section 77(2) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section HM 51 list of defined terms notified foreign investor: inserted, on 29 August 2011, by section 77(2) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section HM 51 list of defined terms prescribed investor rate: inserted, on 2 November 2012, by section 105(2) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section HM 51 list of defined terms transitional resident: inserted, on 2 November 2012, by section 105(2) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
HM 52 Use of foreign tax credits by zero-rated and certain exiting investors
When this section applies
(1)
This section applies when a multi-rate PIE has a tax credit under subpart LJ (Tax credits for foreign income tax) that is attributable in a tax year to an investor who is—
(a)
a zero-rated investor:
(b)
an exiting investor who is treated under section HM 61 as zero-rated.
Using tax credit to satisfy income tax liability
(2)
The investor may use the tax credit under section LS 3 or LS 4 (which relate to the use of tax credits) to satisfy their income tax liability for the tax year. The amount of the credit is determined under subsection (3) or (4).
PIE schedular tax adjustments for natural person investors
(2B)
Subsection (2) does not apply to an investor who is a natural person resident in New Zealand. In this case,—
(a)
the amount of the investor’s tax credit calculated under this section may only be used in making a PIE schedular tax adjustment under section HM 36B; and
(b)
the total amount of the tax credit that may be used is limited to the extent of the investor’s tax liability on their PIE schedular income.
Amount
(3)
The total amount of the credits able to be used is the lesser of—
(a)
the total amount of the attributed foreign tax credits for the tax year or exit period, as applicable:
(b)
the amount calculated by multiplying the attributed PIE income of the investor from the PIE for the tax year or exit period, as applicable by,—
(i)
for an exiting investor described in subsection (1)(b), the notified investor rate in relation to the investor that the PIE would have used had the period not been an exit period; or
(ii)
for a zero-rated investor, their basic tax rate set out in schedule 1 (Basic tax rates: income tax, ESCT, RSCT, RWT, and attributed fringe benefits) for the tax year.
Amount for PIEs or proxies
(4)
Despite subsection (3), the amount of the credit is the attributed amount if the investor is—
(a)
a multi-rate PIE; or
(b)
a proxy for an investor in a multi-rate PIE.
Defined in this Act: amount, attributed PIE income, attribution period, exit period, income tax liability, investor, multi-rate PIE, notified investor rate, notify, PIE, PIE schedular income, tax credit, tax year, zero-rated investor
Compare: 2007 No 97 s HL 29(7), (8)
Section HM 52: inserted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section HM 52(2B) heading: inserted (with effect on 1 April 2020), on 30 March 2021, by section 92(1) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
Section HM 52(2B): inserted (with effect on 1 April 2020), on 30 March 2021, by section 92(1) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
Section HM 52(3)(b): amended, on 1 October 2010, by section 7(1) of the Taxation (Budget Measures) Act 2010 (2010 No 27).
Section HM 52(3)(b)(i): amended, on 1 October 2010, by section 7(2) of the Taxation (Budget Measures) Act 2010 (2010 No 27).
Section HM 52 list of defined terms foreign tax: repealed, on 30 March 2017, by section 142 of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section HM 52 list of defined terms PIE schedular income: inserted (with effect on 1 April 2020), on 30 March 2021, by section 92(2) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
HM 53 Use of tax credits other than foreign tax credits by PIEs
When this section applies
(1)
This section applies when a multi-rate PIE has—
(a)
a tax credit under Part L (Tax credits and other credits) other than a tax credit under subpart LJ (Tax credits for foreign income tax); and
(b)
the credit is attributable in a tax year to an investor in an investor class other than—
(i)
a zero-rated investor:
(ii)
an exiting investor who is treated under section HM 61 as zero-rated:
(iii)
a notified foreign investor in a foreign investment PIE, in relation to a credit that is an imputation credit:
(iv)
a transitional resident who chooses under section HM 55D(8) to use a prescribed investor rate set out in schedule 6, table 1, row 10 (Prescribed rates: PIE investments and retirement scheme contributions).
Using tax credit to satisfy income tax liability
(2)
The PIE may use the tax credit under section LS 1 (Tax credits for multi-rate PIEs) to satisfy its income tax liability for the tax year in relation to the investor as a member of the class or of another investor class. A tax credit under this section is used only after the use of any credit under section HM 51.
Amount
(3)
The amount of the tax credit is the amount attributed.
Defined in this Act: amount, foreign investment PIE, income tax liability, investor, investor class, imputation credit, multi-rate PIE, notified foreign investor, prescribed investor rate, tax credit, tax year, transitional resident, zero-rated investor
Compare: 2007 No 97 s HL 29(13)
Section HM 53: inserted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section HM 53(1)(b)(ii): amended, on 29 August 2011 (applying for the 2012–13 and later income years for a foreign investment variable-rate PIE and a notified foreign investor in the PIE), by section 78(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section HM 53(1)(b)(iii): inserted, on 29 August 2011 (applying for the 2012–13 and later income years for a foreign investment variable-rate PIE and a notified foreign investor in the PIE), by section 78(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section HM 53(1)(b)(iii): amended, on 2 November 2012 (applying for the 2013–14 and later income years), by section 106(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section HM 53(1)(b)(iv): inserted, on 2 November 2012 (applying for the 2013–14 and later income years), by section 106(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section HM 53(2): amended (with effect on 1 April 2010), on 7 September 2010 (applying for the 2010–11 and later income years), by section 70(1) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
Section HM 53 list of defined terms foreign investment PIE: inserted, on 29 August 2011, by section 78(2) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section HM 53 list of defined terms imputation credit: inserted, on 29 August 2011, by section 78(2) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section HM 53 list of defined terms notified foreign investor: inserted, on 29 August 2011, by section 78(2) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section HM 53 list of defined terms prescribed investor rate: inserted, on 2 November 2012, by section 106(2) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section HM 53 list of defined terms transitional resident: inserted, on 2 November 2012, by section 106(2) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
HM 54 Use of tax credits other than foreign tax credits by investors
When this section applies
(1)
This section applies when a multi-rate PIE has a tax credit under Part L (Tax credits and other credits) other than a tax credit under subpart LJ (Tax credits for foreign income tax), that is attributable in a tax year to an investor who is—
(a)
a zero-rated investor:
(b)
an exiting investor who is treated under section HM 61 as zero-rated.
Using tax credit to satisfy income tax liability
(2)
The investor may use the tax credit under section LS 3 or LS 4 (which relate to the use of tax credits) to satisfy their income tax liability for the tax year.
Amount
(3)
The amount of the tax credit is the amount attributed.
Defined in this Act: amount, income tax liability, investor, multi-rate PIE, tax credit, tax year, zero-rated investor
Compare: 2007 No 97 s HL 29(7)(b)
Section HM 54: inserted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
HM 55 Tax credits for losses
A multi-rate PIE that has a negative amount arising under section HM 47(5) and has not chosen to calculate its tax liability using the provisional tax calculation option under section HM 44 has a tax credit for a tax year under section LS 1 (Tax credits for multi-rate PIEs).
Defined in this Act: amount, multi-rate PIE, provisional tax, tax credit, tax year
Compare: 2007 No 97 s HL 28
Section HM 55: inserted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Special rules for foreign investment PIEs
Heading: inserted, on 29 August 2011 (applying for the 2012–13 and later income years for a foreign investment variable-rate PIE and a notified foreign investor in the PIE), by section 79(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
HM 55C Modified source rules
Business in New Zealand
(1)
Despite section YD 4(2) (Classes of income treated as having New Zealand source), income attributed to a notified foreign investor by a foreign investment PIE is not treated as having a source in New Zealand merely because the business of the PIE is carried on in New Zealand.
Contracts made or performed in New Zealand
(2)
Despite section YD 4(3), income attributed to a notified foreign investor by a foreign investment PIE is not treated as having a source in New Zealand merely because the income is derived from a contract made or performed in New Zealand but only to the extent to which the income relates to the PIE’s investments outside New Zealand.
Defined in this Act: business, foreign investment PIE, income, New Zealand, notified foreign investor
Section HM 55C: inserted, on 29 August 2011 (applying for the 2012–13 and later income years for a foreign investment variable-rate PIE and a notified foreign investor in the PIE), by section 79(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
HM 55D Requirements for investors in foreign investment PIEs
What this section does
(1)
This section applies to determine the treatment of a non-resident person who is an investor in a multi-rate PIE that chooses under section HM 71B to become a foreign investment PIE. This section overrides section HM 32(1).
Notification
(2)
If the person meets the requirements of subsections (3) and (4), they may notify the PIE that they wish to be treated as a notified foreign investor.
Status requirements
(3)
The person must not be—
(a)
resident in New Zealand; or
(b)
a CFC; or
(c)
a FIF for which the item income interest in section EX 50(4) (Attributable FIF income method), for a person who is a New Zealand resident and the FIF, is 10% or more; or
(d)
a non-resident trustee of a trust that is not a foreign trust.
Information requirements
(4)
The person must provide the PIE with the information set out in section 28D(1) of the Tax Administration Act 1994.
Non-residents’ rates
(5)
If the person does not meet the requirements of subsections (3) and (4), the PIE must treat them as a non-resident person to whom schedule 6, table 1, row 2 (Prescribed rates: PIE investments and retirement scheme contributions) applies.
PIE relying on notification
(6)
Despite subsection (5), the PIE may rely on the notification given by a person and treat them as a notified foreign investor in the following circumstances:
(a)
the person notifies the PIE that they wish to be treated as a notified foreign investor, but they have misrepresented their eligibility for notified foreign investor status:
(b)
the person is a notified foreign investor but becomes resident in New Zealand and does not advise the PIE of the change in status:
(c)
the person has notified the PIE that they are a notified foreign investor but do not in fact meet the requirements for that status.
When status may be disregarded
(7)
The Commissioner may advise a PIE to disregard notification by an investor under subsection (2) if the Commissioner considers on reasonable grounds that the person does not meet or no longer meets the requirements of subsections (3) and (4). As soon as reasonably practicable after receiving the advice, the PIE must treat the investor as a non-resident person described in subsection (5).
Cancelling status
(8)
A notified foreign investor who wishes to have their notified foreign investor status cancelled, must notify the PIE. The status may be cancelled at any time.
Cancelling status of trustee after election under section HC 33
(8B)
If a trustee of a trust who meets the requirements of subsections (3) and (4) notifies the PIE that the trustee wishes to be treated as a notified foreign investor and later becomes ineligible to be a notified foreign investor because of an election under section HC 33 (Choosing to satisfy income tax liability of trustee) for the trust, the PIE must continue to calculate the tax liability or tax credit of the PIE for the income year in which the election is made and earlier income years as if the trustee continued to be a notified foreign investor until the end of the income year.
Transitional residents
(9)
Despite subsection (3)(a), a transitional resident who is an investor in a foreign investment zero-rate PIE may choose the prescribed investor rate set out in schedule 6, table 1, row 10.
Defined in this Act: CFC, Commissioner, excluded income, FIF, foreign investment PIE, foreign trust, income interest, multi-rate PIE, non-resident, notified foreign investor, notify, resident in New Zealand, transitional resident, trustee
Section HM 55D: inserted, on 29 August 2011 (applying for the 2012–13 and later income years for a foreign investment variable-rate PIE and a notified foreign investor in the PIE), by section 79(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section HM 55D(8B) heading: inserted, on 23 March 2020, by section 149 of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
Section HM 55D(8B): inserted, on 23 March 2020, by section 149 of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
HM 55E Changes in status of investors in foreign investment PIEs
When this section applies
(1)
This section applies when—
(a)
a person who is a notified foreign investor in a foreign investment PIE—
(i)
becomes resident in New Zealand in a tax year; or
(ii)
cancels their notified foreign investor status in a tax year under section HM 55D(8):
(b)
a person who is an investor in a foreign investment PIE and who is resident in New Zealand becomes non-resident in a tax year and chooses under section HM 55D(2) to have notified foreign investor status.
Time for changing treatment
(2)
The PIE must change the treatment of the person as soon as reasonably practicable. But, at the latest, the change must be made from the start of the following tax year.
Defined in this Act: foreign investment PIE, non-resident, notified foreign investor, resident in New Zealand, tax year
Section HM 55E: inserted, on 29 August 2011 (applying for the 2012–13 and later income years for a foreign investment variable-rate PIE and a notified foreign investor in the PIE), by section 79(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
HM 55F Treatment of income attributed to notified foreign investors
What this section does
(1)
This section applies for a foreign investment PIE for the purposes of the calculations that must be made under sections HM 36 and HM 47 in relation to the income attributed to a notified foreign investor in the PIE or the income tax liability of the PIE.
Foreign investment zero-rate PIEs
(2)
A foreign investment zero-rate PIE must apply a prescribed investor rate of 0% under schedule 6, table 1, row 9 (Prescribed rates: PIE investments and retirement scheme contributions) to all amounts attributed to the investor.
Foreign investment variable-rate PIEs
(3)
A foreign investment variable-rate PIE must, for all amounts attributed to the investor,—
(a)
identify the income source of each amount; and
(b)
identify the investment type of each amount that is not a foreign-sourced amount; and
(c)
apply the relevant prescribed investor rate set out in schedule 6, table 1B to the amount.
Defined in this Act: amount, foreign investment PIE, foreign investment variable rate PIE, foreign investment zero-rate PIE, income, income tax liability, notified foreign investor, prescribed investor rate
Section HM 55F: inserted, on 29 August 2011 (applying for the 2012–13 and later income years for a foreign investment variable-rate PIE and a notified foreign investor in the PIE), by section 79(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
HM 55FB Notified foreign investors and tax credits for supplementary dividends
When this section applies
(1)
This section applies when—
(a)
a foreign investment PIE has an investment consisting of shares in a company resident in New Zealand; and
(b)
a notified foreign investor in the PIE is a non-resident who meets the requirements of section LP 2(1)(c) (Tax credits for supplementary dividends); and
(c)
the company has declared a dividend to be paid on a later date.
Notification by PIE
(2)
The PIE must notify the company of the investors referred to in subsection (1)(b) who have an investor interest in the PIE on the date on which ownership of the shares determines a legal entitlement to the dividend. The PIE must provide the information before the date of payment of the dividend.
Sufficient information
(3)
The information provided by the PIE about the investor must be sufficient to enable the calculation and payment of a supplementary dividend to the PIE in relation to the investor.
Calculation and payment of supplementary dividend
(4)
The company must use the information provided by the PIE in calculating and paying the supplementary dividend.
Defined in this Act: company, dividend, foreign investment PIE, investor interest, non-resident, notified foreign investor, pay, resident in New Zealand, share, supplementary dividend
Section HM 55FB: inserted, on 1 April 2013 (applying for the 2013–14 and later income years), by section 107(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section HM 55FB(1)(b): amended (with effect on 1 April 2013 and applying for the 2013–14 and later income years), on 27 February 2014, by section 91(1) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
HM 55G Allowable amounts and thresholds for income with New Zealand source
For the purposes of sections HM 19B and HM 55H, and schedule 6 (Prescribed rates: PIE investments and retirement scheme contributions) and for a foreign investment zero-rate PIE, the allowable amounts of income that have a source in New Zealand and the thresholds applying to the amounts are—
(a)
interest income from financial arrangements with no term or a term of 90 days or less, for which the total value of the financial arrangements must not be more than 5% of the total value of the PIE’s investments, determined without reference to an amount described in paragraph (c):
(b)
a dividend paid by a company resident in New Zealand, if the total value of all the shares held by the PIE in companies resident in New Zealand is not more than 1% of the total value of the PIE’s investments:
(c)
income from a derivative instrument or other non-interest bearing financial arrangement that is related to the PIE’s foreign investments:
(d)
attributed PIE income from a foreign investment zero-rate PIE or a PIE that meets the requirements of section HM 19B(1).
Defined in this Act: amount, attributed PIE income, company, dividend, financial arrangement, foreign investment zero-rate PIE, foreign-sourced amount, income, interest, multi-rate PIE, New Zealand, resident in New Zealand
Section HM 55G: inserted, on 29 August 2011 (applying for the 2012–13 and later income years for a foreign investment variable-rate PIE and a notified foreign investor in the PIE), by section 79(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
HM 55H Treatment when certain requirements for foreign investment PIEs not met
Income sources
(1)
A foreign investment zero-rate PIE that derives an amount of income other than a foreign-sourced amount or an amount allowable under section HM 55G is treated from the date on which the income is derived as a foreign investment variable-rate PIE.
When thresholds exceeded: PIE applying zero rates
(2)
Subsection (3) applies for an income year and a foreign investment zero-rate PIE when—
(a)
on the last day of a quarter (the first quarter), a threshold set out in section HM 55G(a) and (b) for allowable amounts of income is exceeded; and
(b)
the failure is not remedied by the last day of the next quarter (the second quarter).
Variable rates
(3)
The PIE is treated from the first day of the third quarter as a foreign investment variable-rate PIE, and must apply to each amount of income the variable investor rates under schedule 6, table 1B for all income sources and investment types.
When requirements not met: PIE applying variable rates
(4)
Subsection (5) applies for an income year and a foreign investment variable-rate PIE when—
(a)
on the last day of the first quarter, the PIE does not meet the requirements of—
(i)
(ii)
(iii)
(b)
the failure is not remedied by the last day of the second quarter.
Multi-rate PIE
(5)
The PIE is treated from the first day of the third quarter as a multi-rate PIE that is not a foreign investment PIE.
Transitional rule
(6)
For the purposes of subsections (1) and (3), if a breach occurs and is not remedied before 1 April 2012, the PIE is treated as a multi-rate PIE that is not a foreign investment PIE.
Defined in this Act: amount, foreign investment PIE, foreign investment variable rate PIE, foreign investment zero-rate PIE, income, income year, multi-rate PIE, quarter
Section HM 55H: inserted, on 29 August 2011 (applying for the 2012–13 and later income years for a foreign investment variable-rate PIE and a notified foreign investor in the PIE), by section 79(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Prescribed and notified rates for investors in multi-rate PIEs
Heading: inserted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
HM 56 Prescribed investor rates: schedular rates
Rates set out in schedule
(1)
The prescribed investor rate of an investor in a multi-rate PIE is determined under schedule 6, tables 1 and 1B (Prescribed rates: PIE investments and retirement scheme contributions).
When amount not included in taxable income[Repealed]
(2)
[Repealed]Increased assessment of trustee arising from election
(3)
In the determination of a trustee’s prescribed investor rate under subsection (1), the amount of the trustee’s assessed taxable income for an income year is treated as not including the amount of an increase in the assessed taxable income that results from an election under section HC 33 (Choosing to satisfy income tax liability of trustee), if the election is made after the beginning of the income year and has an effective date that is or precedes the beginning of the income year.
Defined in this Act: amount, investor, multi-rate PIE, notified investor rate, prescribed investor rate, taxable income
Section HM 56: substituted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 49(1) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
Section HM 56(1) heading: inserted (with effect on 1 April 2010), on 29 August 2011 (applying for the 2010–11 and later income years), by section 80(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section HM 56(1): amended, on 29 August 2011, by section 80(2) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section HM 56(2) heading: repealed, on 1 April 2022, pursuant to section 93 of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
Section HM 56(2): repealed, on 1 April 2022, by section 93 of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
Section HM 56(3) heading: inserted, on 1 April 2020, by section 150 of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
Section HM 56(3): inserted, on 1 April 2020, by section 150 of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
Section HM 56 list of defined terms amount: inserted (with effect on 1 April 2010), on 29 August 2011 (applying for the 2010–11 and later income years), by section 80(4) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section HM 56 list of defined terms notified investor rate: inserted (with effect on 1 April 2010), on 29 August 2011 (applying for the 2010–11 and later income years), by section 80(4) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section HM 56 list of defined terms taxable income: added (with effect on 1 April 2010), on 29 August 2011 (applying for the 2010–11 and later income years), by section 80(4) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
HM 57 Prescribed investor rates for certain investors: 0%
An investor (a zero-rated investor) in a multi-rate PIE has a prescribed investor rate of 0% if they are resident in New Zealand and are—
(a)
a company:
(b)
an organisation or trust with income that is exempt income under section CW 41 or CW 42 (which relate to charities):
(c)
a proxy acting under section HM 33:
(d)
[Repealed](e)
a PIE or superannuation fund, other than a trustee who chooses a rate under schedule 6, table 1, row 3 or 5 (Prescribed rates: PIE investments and retirement scheme contributions):
(f)
a person who derives income as a trustee and does not choose a rate under schedule 6, table 1, row 3, 5, or 7.
Defined in this Act: company, exempt income, investor, multi-rate PIE, PIE, prescribed investor rate, resident in New Zealand, superannuation fund, trustee
Section HM 57: substituted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 49(1) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
Section HM 57(d): repealed, on 2 November 2012, by section 108 of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
HM 57B Prescribed investor rates for new residents
When this section applies
(1)
This section applies for the purposes of determining a person’s prescribed investor rate under schedule 6, table 1 (Prescribed rates: investments and retirement scheme contributions) when the person becomes a New Zealand resident.
Determining rate
(2)
Despite section BD 1(5)(c) (Income, exempt income, excluded income, non-residents’ foreign-sourced income, and assessable income), the person must include the total amount of their non-residents’ foreign-sourced income in their assessable income.
Choosing not to apply this section
(3)
The person may choose not to apply this section for either the income year in which they become a New Zealand resident or the following income year (the resident years) or for both resident years, if they reasonably expect that their taxable income in the relevant resident year will be significantly lower than their total income from all sources for the income year before the first resident year.
Relationship with section CW 27
(4)
Section CW 27 (Certain income derived by transitional resident) is ignored for the purposes of this section.
Defined in this Act: amount, assessable income, income, income year, New Zealand resident, non-residents’ foreign-sourced income, prescribed investor rate, taxable income
Section HM 57B: inserted, on 1 April 2012 (applying for the 2012–13 and later income years), by section 81(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
HM 58 Transition of rate for certain investors
When this section applies
(1)
This section applies to a multi-rate PIE in relation to a person who is an investor in the PIE, and the person has, on 30 September 2010, a notified investor rate of 12.5%, 19.5%, 21%, or 30%.
Rate applying on and after 1 October 2010
(2)
On and after 1 October 2010, the person’s notified investor rate is—
(a)
10.5%, if it was 12.5% on 30 September 2010:
(b)
17.5%, if it was 19.5% or 21% on 30 September 2010:
(c)
28%, if it was 30% on 30 September 2010.
Exception: new notified rate
(3)
Subsection (2) does not apply if the person advises the PIE of a different notified investor rate.
Defined in this Act: multi-rate PIE, notified investor rate, notify
Section HM 58: substituted, on 1 October 2010, by section 8 of the Taxation (Budget Measures) Act 2010 (2010 No 27).
Section HM 58(1): amended, on 1 October 2010, by section 71(1) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
Section HM 58(2)(b): amended, on 1 October 2010, by section 71(2) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
HM 59 Prescribed investor rates for certain investors: 0%
[Repealed]Section HM 59: repealed, on 1 April 2010 (applying for the 2010–11 and later income years), by section 49(1) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
HM 60 Notified investor rates
Notifying PIE
(1)
Despite sections HM 56 to HM 58, an investor other than a notified foreign investor who has provided their tax file number to a multi-rate PIE may notify the PIE of the investor rate to be applied for a period (the notified investor rate). Section 28B of the Tax Administration Act 1994 sets out the requirements for the notice.
Time of notification
(2)
The investor must give notice before the end of the relevant period.
Application of rate
(3)
For an investor for an income year, a multi-rate PIE must apply the most recent notified investor rate to every day in the calculation period beginning with—
(a)
the later of—
(i)
the day after the day on which the multi-rate PIE receives the notice:
(ii)
the first day of the calculation period for which the notified investor rate is supplied; or
(b)
the first day of the calculation period in which the multi-rate PIE receives the notice.
Exception
(3B)
Subsection (3) does not apply if the PIE has made a voluntary payment of tax under section HM 45 that is intended to satisfy its income tax liability for a period in relation to the investor unless the rate last notified applies to the voluntary payment.
Exception for 2010–11 income year
(3C)
For the 2010–11 income year, a multi-rate PIE,—
(a)
for a day before 1 October 2010, may apply a notified investor rate corresponding to the most recent notified investor rate, ignoring the Taxation (Budget Measures) Act 2010:
(b)
for a day on or after 1 October 2010, must apply the most recent notified investor rate on or after 1 October 2010.
Consistent application of rates
(3D)
In applying notified investor rates, a multi-rate PIE must use the same approach under subsections (3) and (3C) for all investors for an income year.
When chosen rate lower than rate in sections HM 56 to HM 58
(4)
If an investor other than an investor who is a natural person advises a notified investor rate that is lower than their prescribed investor rate that would apply under sections HM 56 to HM 58, income attributed to them by the PIE is not excluded income of the investor under section CX 56 (Attributed income of certain investors in multi-rate PIEs).
When rate disregarded[Repealed]
(5)
[Repealed]When no rate notified
(6)
If an investor does not advise a multi-rate PIE of their notified investor rate, and the Commissioner has not provided a rate for the investor under section HM 60B, the rate applying for a period is 28%.
Defined in this Act: Commissioner, excluded income, income, investor, multi-rate PIE, natural person, notice, notified foreign investor, notified investor rate, notify, pay, PIE, prescribed investor rate, tax file number
Compare: 2007 No 97 s YA 1 “portfolio investor rate”
, “prescribed investor rate”
Section HM 60: inserted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section HM 60 heading: substituted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 50(1) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
Section HM 60(1): amended, on 29 August 2011, by section 82(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section HM 60(1): amended, on 1 April 2010 (applying for the 2010–11 and later income years), by section 50(2)(a) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
Section HM 60(1): amended, on 1 April 2010 (applying for the 2010–11 and later income years), by section 50(2)(b) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
Section HM 60(3) heading: substituted, on 1 October 2010, by section 9(1) of the Taxation (Budget Measures) Act 2010 (2010 No 27).
Section HM 60(3): replaced (with effect on 1 October 2010 and applying for the 2010–11 and later income years), on 17 July 2013, by section 66(1) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Section HM 60(3B) heading: inserted, on 1 October 2010, by section 72(2) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
Section HM 60(3B): inserted, on 1 October 2010, by section 72(2) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
Section HM 60(3B): amended (with effect on 1 October 2010 and applying for the 2010–11 and later income years), on 17 July 2013, by section 66(2) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Section HM 60(3C) heading: inserted (with effect on 1 October 2010 and applying for the 2010–11 and later income years), on 17 July 2013, by section 66(3) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Section HM 60(3C): inserted (with effect on 1 October 2010 and applying for the 2010–11 and later income years), on 17 July 2013, by section 66(3) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Section HM 60(3D) heading: inserted (with effect on 1 October 2010 and applying for the 2010–11 and later income years), on 17 July 2013, by section 66(3) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Section HM 60(3D): inserted (with effect on 1 October 2010 and applying for the 2010–11 and later income years), on 17 July 2013, by section 66(3) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Section HM 60(4) heading: amended, on 1 April 2010 (applying for the 2010–11 and later income years), by section 50(3)(a) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
Section HM 60(4): amended, on 1 April 2020, by section 151(1) (and see section 151(5) for application) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
Section HM 60(4): amended (with effect on 1 April 2010), on 7 September 2010 (applying for the 2010–11 and later income years), by section 72(3) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
Section HM 60(4): amended, on 1 April 2010 (applying for the 2010–11 and later income years), by section 50(3)(b) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
Section HM 60(4): amended, on 1 April 2010 (applying for the 2010–11 and later income years), by section 50(3)(c) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
Section HM 60(5) heading: repealed, on 1 April 2020, pursuant to section 151(2) (and see section 151(5) for application) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
Section HM 60(5): repealed, on 1 April 2020, by section 151(2) (and see section 151(5) for application) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
Section HM 60(6): amended, on 1 April 2020, by section 151(3) (and see section 151(5) for application) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
Section HM 60(6): amended, on 1 October 2010, by section 9(2) of the Taxation (Budget Measures) Act 2010 (2010 No 27).
Section HM 60(6): amended, on 1 April 2010 (applying for the 2010–11 and later income years), by section 50(5) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
Section HM 60 list of defined terms natural person: inserted, on 1 April 2020, by section 151(4) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
Section HM 60 list of defined terms notice: inserted, on 2 June 2016, by section 74 of the Taxation (Transformation: First Phase Simplification and Other Measures) Act 2016 (2016 No 27).
Section HM 60 list of defined terms notified foreign investor: inserted, on 29 August 2011, by section 82(2) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
HM 60B Investor rates provided by Commissioner
Rates provided by Commissioner
(1)
Despite section HM 60, the Commissioner may, in relation to an investor in a multi-rate PIE, provide a tax rate for the PIE to apply to the investor’s attributed PIE income for a calculation period if—
(a)
the Commissioner—
(i)
considers that the investor’s notified investor rate is inconsistent with the investor’s prescribed investor rate; and
(ii)
holds information about the investor that is sufficient to enable the Commissioner to determine the appropriate rate for the investor:
(b)
the investor does not have a notified investor rate.
Application of rate
(2)
For the purposes of section HM 60(3), as soon as reasonably practicable after having been notified of the rate provided by the Commissioner, the PIE must apply the rate provided by the Commissioner as if it were the most recent notified investor rate.
Subsequent notification of rate by investor
(3)
Despite subsection (2), if the Commissioner provides a tax rate for an investor to the PIE under subsection (1), and the investor subsequently notifies the PIE under section HM 60(1) of a different investor rate, the PIE must apply the rate notified by the investor.
Defined in this Act: attributed PIE income, Commissioner, investor, multi-rate PIE, notified investor rate, prescribed investor rate
Section HM 60B: inserted, on 1 April 2020, by section 152 of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
HM 61 Certain exiting investors zero-rated
When tax rate zero
(1)
Despite section HM 60, the tax rate applying to an investor for a quarter is 0% if—
(a)
the investor interest of the investor in a multi-rate PIE reaches the exit level or the investor has an exit period in a quarter in which they are attributed income from the PIE; and
(b)
the PIE calculates and pays tax using the quarterly calculation option under section HM 43; and
(c)
the PIE does not choose to make voluntary payments under section HM 45.
Notified foreign investors
(2)
This section does not apply if the exiting investor is a notified foreign investor in a foreign investment PIE.
Defined in this Act: foreign investment PIE, income, investor, multi-rate PIE, notified foreign investor, pay, PIE, quarter
Compare: 2007 No 97 s YA 1 “portfolio investor rate”
, “prescribed investor rate”
Section HM 61: inserted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section HM 61: amended, on 1 April 2010 (applying for the 2010–11 and later income years), by section 51(1) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
Section HM 61(1) heading: inserted, on 29 August 2011, by section 83(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section HM 61(1)(a): amended (with effect on 1 April 2010), on 21 December 2010 (applying for the 2010–11 and later income years), by section 100(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section HM 61(2) heading: added, on 29 August 2011 (applying for the 2012–13 and later income years for a foreign investment variable-rate PIE and a notified foreign investor in the PIE), by section 83(2) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section HM 61(2): added, on 29 August 2011 (applying for the 2012–13 and later income years for a foreign investment variable-rate PIE and a notified foreign investor in the PIE), by section 83(2) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section HM 61 list of defined terms foreign investment PIE: inserted, on 29 August 2011, by section 83(3) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section HM 61 list of defined terms notified foreign investor: inserted, on 29 August 2011, by section 83(3) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section HM 61 list of defined terms quarter: inserted (with effect on 1 April 2008), on 7 December 2009, by section 126 of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
Exit levels and periods
HM 62 Exit levels for investors
When tax liability and investor interests equal
(1)
An investor in a multi-rate PIE is treated as reaching the exit level when the PIE’s tax liability for the investor is equal to, or more than, the value of the investor interest of the investor in the PIE at the end of the exit period (the exit level).
Consequences of not providing tax file number
(2)
An investor in a multi-rate PIE is treated as reaching the exit level when they fail to provide a tax file number to the PIE by the date set out in section 28B of the Tax Administration Act 1994.
Treatment of investors when tax file numbers not provided
(3)
The account of an investor to whom subsection (2) applies is treated as closed on the date referred to in that subsection. The PIE must pay the amount that is the balance of the investor’s investment to the investor, and calculate and pay tax for the exiting investor for the exit period using the exit calculation option under section HM 42.
Defined in this Act: amount, exit level, investor, investor interest, multi-rate PIE, PIE, tax file number
Section HM 62: inserted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section HM 62(1) heading: inserted, on 1 April 2018, by section 132(1) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
Section HM 62(1): amended (with effect on 1 April 2010) on 21 December 2010 (applying for the 2010–11 and later income years), by section 101(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section HM 62(2) heading: inserted, on 1 April 2018, by section 132(2) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
Section HM 62(2): inserted, on 1 April 2018, by section 132(2) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
Section HM 62(3) heading: inserted, on 1 April 2018, by section 132(2) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
Section HM 62(3): inserted, on 1 April 2018, by section 132(2) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
Section HM 62 list of defined terms amount: inserted, on 1 April 2018, by section 132(3) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
Section HM 62 list of defined terms tax file number: inserted, on 1 April 2018, by section 132(3) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
HM 63 Exit periods
When this section applies
(1)
This section applies when an investor in a multi-rate PIE reaches the exit level during a tax year.
Exit period: exit calculation
(2)
For a PIE that calculates its tax liability using the exit calculation option under section HM 42, the investor’s exit period—
(a)
begins with the day that is the later of the start of the tax year and the day on which the investor last became an investor; and
(b)
ends on the day in the tax year when the exit level is reached.
Exit period: quarterly calculation
(3)
For a PIE that calculates its tax liability using the quarterly calculation option under section HM 43, the investor’s exit period is the quarter in which the exit level is reached plus a grace period of 5 working days after the end of the quarter.
Voluntary payments of tax
(4)
Subsection (3) does not apply if the PIE voluntarily pays tax under section HM 45.
Defined in this Act: exit level, investor, multi-rate PIE, pay, PIE, quarter, tax year, working day
Compare: 2007 No 97 s YA 1 “portfolio investor exit period”
Section HM 63: inserted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Treatment of losses by PIEs
Heading: inserted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Losses of certain multi-rate PIEs
Heading: inserted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
HM 64 Use of investor classes’ losses
When this section applies
(1)
This section applies when an investor class of a PIE that calculates and pays tax using the exit calculation or quarterly calculation options under section HM 42 and HM 43 has a tax loss under section HM 35(7) for a calculation period. But this section does not apply to a land loss as defined in section HM 65(3).
Amount not carried forward
(2)
The amount is not included in a loss balance carried forward under Part I (Losses) to a later calculation period.
Tax credits
(3)
To the extent to which the amount relates to an investor other than a zero-rated investor or an investor treated under section HM 61 as zero-rated, the PIE has a tax credit under section LS 1 (Tax credits for multi-rate PIEs). The amount of the credit is calculated under section HM 47(5).
Foreign investment PIEs
(4)
For a notified foreign investor in a foreign investment PIE, the amount is disregarded.
Defined in this Act: amount, calculation period, foreign investment PIE, investor class, land loss, loss balance, notified foreign investor, pay, PIE, tax credit, zero-rated investor
Compare: 2007 No 97 s HL 32(1)
Section HM 64: inserted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section HM 64(3): amended, on 2 November 2012, by section 109(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section HM 64(4) heading: added, on 29 August 2011, by section 84(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section HM 64(4): replaced, on 2 November 2012, by section 109(2) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section HM 64 list of defined terms foreign investment PIE: inserted, on 29 August 2011, by section 84(2) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section HM 64 list of defined terms notified foreign investor: inserted, on 29 August 2011, by section 84(2) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
HM 65 Use of land losses of investor classes
When this section applies
(1)
This section applies when an investor class of a multi-rate PIE that calculates and pays tax using the exit calculation option or the quarterly calculation option under section HM 42 or HM 43 has a land loss for a calculation period.
Amount carried forward
(2)
The amount of land loss may be included in a loss balance carried forward under Part I (Losses) to a later calculation period and used under section HM 35(5) to reduce an amount of taxable income from the class.
Meaning of land loss
(3)
For the purposes of this section, a land loss means a tax loss under section HM 35(7) of an investor class of a PIE for a calculation period if, at the end of the period, the class has, through the investor interests of the members of the class, an entitlement to the distribution of the proceeds of the PIE’s investments that—
(a)
are an investment of the type listed in subsection (4); and
(b)
have a value that is more than 50% of the market value of all the PIE’s investments in which the class has the entitlement.
Investment types
(4)
For the purposes of subsection (3)(a), the investment must be—
(a)
an investment in land:
(b)
an investment in a land investment company that is resident in New Zealand:
(c)
an investment in a non-resident land investment company in which the investor class has a voting interest of more than 20%.
Foreign investment PIEs
(5)
For a notified foreign investor in a foreign investment PIE, the amount of land loss is disregarded.
Defined in this Act: amount, calculation period, foreign investment PIE, investor class, investor interest, land, land investment company, land loss, loss balance, market value, multi-rate PIE, non-resident, notified foreign investor, pay, PIE, quarter, resident in New Zealand, share, tax loss, taxable income, voting interest
Compare: 2007 No 97 s HL 32(2), (3)
Section HM 65: inserted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section HM 65(3)(a): substituted (with effect on 1 April 2010), on 7 September 2010 (applying for the 2010–11 and later income years), by section 73(1) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
Section HM 65(4) heading: added (with effect on 1 April 2010), on 7 September 2010 (applying for the 2010–11 and later income years), by section 73(2) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
Section HM 65(4): added (with effect on 1 April 2010), on 7 September 2010 (applying for the 2010–11 and later income years), by section 73(2) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
Section HM 65(5) heading: added, on 29 August 2011, by section 85(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section HM 65(5): replaced, on 2 November 2012, by section 110 of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section HM 65 list of defined terms foreign investment PIE: inserted, on 29 August 2011, by section 85(2) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section HM 65 list of defined terms non-resident: inserted (with effect on 1 April 2010), on 7 September 2010, by section 73(3) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
Section HM 65 list of defined terms notified foreign investor: inserted, on 29 August 2011, by section 85(2) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section HM 65 list of defined terms resident in New Zealand: inserted (with effect on 1 April 2010), on 7 September 2010, by section 73(3) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
Section HM 65 list of defined terms voting interest: added (with effect on 1 April 2010), on 7 September 2010, by section 73(3) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
Formation losses
Heading: inserted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
HM 66 Formation losses carried forward to tax year
What this section applies to
(1)
This section applies to an entity that becomes a PIE, other than a multi-rate PIE that calculates and pays tax using the exit calculation or quarterly calculation option under section HM 42 or HM 43, when the entity has a formation loss.
Amount carried forward
(2)
The amount of formation loss may be included in a loss balance carried forward under Part I (Losses) to a tax year in which the entity is a PIE.
Defined in this Act: amount, formation loss, loss balance, multi-rate PIE, pay, PIE, quarter, tax, tax year
Compare: 2007 No 97 s HL 30(1), (2)
Section HM 66: inserted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
HM 67 Formation losses carried forward to first quarter
When this section applies
(1)
This section applies when an entity either becomes a multi-rate PIE or is a multi-rate PIE that has calculated and paid tax under the provisional tax calculation option under section HM 44 that—
(a)
calculates and pays tax using the exit calculation or quarterly calculation option under section HM 42 or HM 43; and
(b)
has a formation loss.
Amount carried forward
(2)
The amount of formation loss may be carried forward under Part I (Losses) to the quarter in which the entity either becomes a PIE or changes its calculation option from the provisional tax calculation option to the exit calculation or quarterly calculation option.
Defined in this Act: amount, formation loss, multi-rate PIE, pay, PIE, provisional tax, quarter
Compare: 2007 No 97 s HL 30(1)
Section HM 67: inserted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section HM 67(1): amended, on 29 March 2018, by section 133(1) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
Section HM 67(2): amended, on 29 March 2018, by section 133(2) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
Section HM 67 list of defined terms provisional tax: inserted, on 29 March 2018, by section 133(3) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
HM 68 When formation losses carried forward are less than 5% of formation investment value
If the total amount of formation loss carried forward under section HM 67 is less than 5% of the total market value of the PIE’s investments at the time it either becomes a PIE or changes its calculation option from the provisional tax calculation option to the exit calculation or quarterly calculation option, it may allocate to an attribution period the amount not already allocated, when calculating under section HM 35(5) the taxable amount of an investor class for the attribution period.
Defined in this Act: amount, attribution period, formation loss, investor class, market value, PIE, provisional tax
Compare: 2007 No 97 s HL 30(3)
Section HM 68: inserted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section HM 68: amended, on 29 March 2018, by section 134(1) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
Section HM 68 list of defined terms provisional tax: inserted, on 29 March 2018, by section 134(2) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
Section HM 68 list of defined terms taxable amount: 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).
HM 69 When formation losses carried forward are 5% or more of formation investment value: 3-year spread
What this section applies to
(1)
This section applies to spread the formation loss over the period of 3 years from the date the entity either becomes a PIE or changes its calculation option from the provisional tax calculation option to the exit calculation or quarterly calculation option when the amount of formation loss carried forward under section HM 67 is 5% or more of the total market value of the PIE’s investments at the time it becomes a PIE.
Amount
(2)
The maximum amount of formation loss that the PIE may allocate to an attribution period, when calculating under section HM 35(5) the taxable amount of an investor class for the attribution period, is the amount calculated using the formula—
initial loss × days ÷ 1095.
Definition of items in formula
(3)
In the formula,—
(a)
initial loss is the amount of formation loss:
(b)
days is the number of days in the attribution period.
Unused formation losses
(4)
For the purposes of the calculation of the amount in subsection (2), the formation loss includes any unused formation loss that was allocated to an earlier attribution period.
Treatment after 3-year period
(5)
After the end of the period of 3 years referred to in subsection (1), any residual formation loss may be allocated to an attribution period when a calculation is made under section HM 35(5) of the taxable amount for an investor class.
Defined in this Act: amount, attribution period, formation loss, investor class, market value, PIE, provisional tax, tax year
Compare: 2007 No 97 s HL 30(4), (5)
Section HM 69: inserted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section HM 69(1): amended, on 29 March 2018, by section 135(1) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
Section HM 69(5): substituted (with effect on 1 April 2010), on 7 September 2010 (applying for the 2010–11 and later income years), by section 74(1) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
Section HM 69 list of defined terms provisional tax: inserted, on 29 March 2018, by section 135(2) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
Section HM 69 list of defined terms taxable amount: 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).
HM 70 Maximum amount of formation losses allocated by multi-rate PIEs to investor classes
Maximum amount for allocation
(1)
Despite sections HM 68 and HM 69, the maximum amount of formation loss that may be allocated, when calculating under section HM 35(5) the taxable amount of an investor class for an attribution period, is calculated using the formula—
class net income − (credits ÷ rate).
Definition of items in formula
(2)
In the formula,—
(a)
class net income is the amount of the net income of the investor class for the period under section HM 35(4):
(b)
credits is the total amount attributed to the investor class for the period of—
(i)
imputation credits:
(ii)
Maori authority credits:
(iii)
RWT credits:
(iv)
[Repealed](c)
rate is the basic rate for companies set out in schedule 1, part A, clause 2 (Basic tax rates: income tax, ESCT, RSCT, RWT, and attributed fringe benefits).
Defined in this Act: amount, attribution period, company, formation loss, imputation credit, investor class, Maori authority credit, net income, RWT
Compare: 2007 No 97 s HL 30(6), (7)
Section HM 70: inserted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section HM 70(2)(b)(iv): repealed, on 1 April 2017, by section 143(1) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section HM 70 list of defined terms FDP credit: repealed, on 1 April 2017, by section 143(2) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Elections and consequences
Heading: inserted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
HM 71 Choosing to become PIE
An entity that, at the time of election, meets the requirements of the entry rules in sections HM 8 to HM 10, HM 17, HM 18, and HM 20, except to the extent to which the relevant requirement is said not to be applicable to the entity, may choose to become a PIE by notifying the Commissioner under section 31B of the Tax Administration Act 1994.
Defined in this Act: Commissioner, notify, PIE
Compare: 2007 No 97 s HL 11(1), (3)
Section HM 71: inserted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
HM 71B Choosing to become foreign investment PIE
What this section applies to
(1)
This section applies to an entity that—
(a)
is, or is eligible to become, a multi-rate PIE; and
(b)
has, or intends to have, investors who are not resident in New Zealand; and
(c)
does not calculate its income tax liability using the provisional tax calculation option in section HM 44.
Foreign investment zero-rate PIEs
(2)
The entity may choose to become a foreign investment zero-rate PIE if it meets the requirements of section HM 19B.
Foreign investment variable-rate PIEs
(3)
An entity may choose to become a foreign investment variable-rate PIE if it meets the requirements of section HM 19C.
Election to become foreign investment PIE
(4)
The entity makes the election by advising the Commissioner. If the entity is not an existing multi-rate PIE, the entity must notify the Commissioner under section 31B of the Tax Administration Act 1994.
Defined in this Act: Commissioner, foreign investment PIE, foreign investment variable-rate PIE, foreign investment zero-rate PIE, income tax liability, multi-rate PIE, notify, resident in New Zealand
Section HM 71B: inserted, on 29 August 2011 (applying for the 2012–13 and later income years for a foreign investment variable-rate PIE and a notified foreign investor in the PIE), by section 86(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
HM 72 When elections take effect
Notice of election
(1)
An election under section HM 71 or HM 71B to become a PIE or a foreign investment PIE, as applicable, takes effect on the latest of the following dates:
(a)
the date the entity is formed:
(b)
the date set out in the notice:
(c)
30 days before the Commissioner receives the notice.
When entity does not meet basic requirements
(2)
Despite subsection (1), an entity’s election to become a PIE does not take effect if, in the period ending 12 months after the date on which the election would be effective,—
(a)
the entity cancels the election:
(b)
an event or situation arises that means the entity would lose PIE status under any of sections HM 24 to HM 28 because the requirements of sections HM 11 to HM 16 were not met in each quarter of the 12-month period.
Notice of cancellation
(3)
An election under section HM 29 to cancel PIE status takes effect on the latest of the following dates:
(a)
the date the entity became a PIE:
(b)
the date set out in the notice:
(c)
the date on which the Commissioner receives the notice.
Defined in this Act: Commissioner, foreign investment PIE, notice, PIE, quarter
Compare: 2007 No 97 ss HL 11(2), (2B), (4), HL 13(1), (4), HL 15(2)
Section HM 72: inserted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section HM 72(1): amended (with effect on 29 August 2011), on 27 February 2014, by section 92 of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
Section HM 72(1): amended, on 29 August 2011, by section 87(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section HM 72(2)(b): substituted, on 1 April 2010 (applying for income years beginning on or after 1 April 2010), by section 52(1) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
Section HM 72 list of defined terms foreign investment PIE: inserted, on 29 August 2011, by section 87(2) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section HM 72 list of defined terms quarter: inserted (with effect on 1 April 2008), on 7 December 2009, by section 126 of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
HM 73 Transition: provisional tax
When this section applies
(1)
This section applies when an entity chooses to become a PIE in an income year and has an increased liability for provisional tax for the income year because of the election.
Penalties and interest
(2)
The entity is not liable to pay any penalty or interest for which it would otherwise be liable for an inaccuracy arising from the increased liability in—
(a)
an estimate of provisional tax made before the election:
(b)
a payment of provisional tax due before the end of the 2-month period that starts when the election takes effect.
Tax liability
(3)
An entity that becomes a PIE in a tax year and is liable to pay an amount of income tax because of the disposal and reacquisition referred to in section HM 75 may satisfy the tax liability by paying the Commissioner at least—
(a)
one third of the liability in the tax year; and
(b)
one half of the balance remaining after a payment under paragraph (a) in the tax year after that in which the entity became a PIE; and
(c)
the balance owing after the payments under paragraphs (a) and (b) in the second tax year after that in which the entity became a PIE.
Defined in this Act: amount, Commissioner, income tax, income year, pay, PIE, provisional tax, tax year
Compare: 2007 No 97 s HL 14
Section HM 73: inserted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
HM 74 Transition: entities with non-standard income years
When this section applies
(1)
This section applies when—
(a)
an entity with a non-standard income year chooses to become a PIE; and
(b)
the entity calculates and pays its tax liability using the exit calculation or quarterly calculation option under section HM 42 or HM 43.
Consequential changes in balance date
(2)
Section 39 of the Tax Administration Act 1994 applies as if—
(a)
the day before that on which the election takes effect were the original balance date of the entity; and
(b)
the next 31 March after the election takes effect were a new balance date approved by the Commissioner for the entity.
Defined in this Act: Commissioner, non-standard income year, pay, PIE, quarter
Compare: 2007 No 97 s HL 13(2)
Section HM 74: inserted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
HM 75 Transition: treatment of shares held in certain companies
When subsection (2) applies
(1)
Subsection (2) applies when—
(a)
an entity chooses to become a PIE; and
(b)
before the election takes effect—
(i)
the entity holds a share in relation to which the proceeds of disposal would be excluded income under section CX 55(3)(a) and (b) (Proceeds from disposal of investment shares) once the entity becomes a PIE:
(ii)
the entity is a share supplier in a returning share transfer in relation to that type of share; and
(c)
the share is in a company that is not a PIE and does not become a PIE within 6 months from the date on which the entity became a PIE.
Disposal and reacquisition
(2)
The entity is treated as—
(a)
disposing of the share to another person; and
(b)
receiving consideration of an amount that equals the market value of the share at the time; and
(c)
reacquiring the share from the other person for the same consideration.
Timing
(3)
The disposal and reacquisition is treated as occurring on the day before that on which the election takes effect.
When subsection (5) applies
(4)
Subsection (5) applies when an entity—
(a)
loses PIE status under any of sections HM 24 to HM 28 or chooses to cancel PIE status under section HM 29; and
(b)
holds a share in relation to which the proceeds of disposal would be excluded income under section CX 55(3)(a) and (b) while the entity is a PIE.
Disposal and reacquisition
(5)
The entity is treated as—
(a)
disposing of the share to another person; and
(b)
receiving consideration of an amount that equals the market value of the share at the time; and
(c)
reacquiring the share from the other person for the same consideration.
Timing
(6)
The disposal and reacquisition is treated as occurring on the day before PIE status is lost.
Defined in this Act: amount, company, exempt income, market value, PIE, returning share transfer, share, shareholder
Compare: 2007 No 97 ss HL 13(3), HL 15(3)
Section HM 75: inserted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
HM 76 Transition: FDPA companies
[Repealed]Section HM 76: repealed, on 1 April 2017, by section 144 of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Subpart HR—Other entities
Contents
Partnerships and joint ventures[Repealed]
Heading: repealed (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).
HR 1 Partnerships and joint ventures
[Repealed]Section HR 1: repealed, on 1 April 2008, by section 20(1) of the Taxation (Limited Partnerships) Act 2008 (2008 No 2).
Funds
HR 2 Group investment funds
Separate returns
(1)
The trustee of a group investment fund must provide for a tax year under section 33 of the Tax Administration Act 1994, separate returns of its category A income and its category B income.
Designated group investment fund, category B income: application of trust rules
(2)
If the trustee of a group investment fund derives an amount that is income derived from investments and funds of a designated group investment fund or category B income, the amount is treated as income derived by the trustee and the trust rules apply.
Category A income: application of company rules
(3)
If the trustee of a group investment fund derives from the investments and funds of the group investment fund an amount that is category A income, the amount is treated as income of a notional company.
Defined in this Act: amount, category A income, category B income, designated group investment fund, group investment fund, income, return of income, tax year, trust, trust rules, trustee
Compare: 2004 No 35 s HE 2(1), (1A)
HR 3 Definitions for section HR 2: group investment funds
Category A income
(1)
Category A income, for a group investment fund other than a designated group investment fund in an income year, means the amount of income derived from the investments and funds of the group investment fund that is calculated using the formula—
((last day value − designated source investments − pre-1983 investments)
÷ last day value) × income.
Definitions for items in formula
(2)
In the formula,—
(a)
last day value is the current value of all investments and funds of the group investment fund on the last day of the income year:
(b)
designated source investments is the current value of the designated source investments in the group investment fund on the last day of the income year:
(c)
pre-1983 investments is the current value of the pre-1983 investments in the group investment fund on the last day of the income year:
(d)
income is the total income derived from all investments and funds of the group investment fund in the income year.
Category B income
(3)
Category B income, for a group investment fund other than a designated group investment fund, means the income derived from investments and funds of the group investment fund that is not category A income for the income year.
Current value
(4)
Current value, for a group investment fund and a day in an income year, means the capital value, as defined by the Trustee Companies Act 1967 or the Public Trust Act 2001, of the investments and funds of the group investment fund that is—
(a)
either—
(i)
last determined before the day under section 31 of the Trustee Companies Act 1967 or section 66 of the Public Trust Act 2001; or
(ii)
determined on the day, if that day is the day on which the capital value is determined; and
(b)
for the purposes of the definition of designated source investments in subsection (7), and pre-1983 investments in subsection (8), determined as if those investments and funds comprised all the investments and funds in the group investment fund at the time.
Designated sources
(5)
Designated sources, for a group investment fund, means a trust, other than the trust under which the fund is established, whose trustee is a trustee of the group investment fund, that—
(a)
is created—
(i)
by will or codicil, or by order of court varying or modifying the provisions of a will or codicil; or
(ii)
on intestacy, including a partial intestacy, or by an order of court varying or modifying, in relation to an estate, the application of the law relating to the distribution of intestate estates; or
(iii)
by an order of court; or
(iv)
by an enactment; or
(v)
to administer funds that are compensation or other money arising from the death of, or injury to, a person; or
(vi)
to vary the terms of a will or codicil or, in relation to an estate, to vary the application of the law relating to the distribution of intestate estates, in either case for the sole purpose of effecting a settlement out of court of an application made, or proposed to be made, under the Family Protection Act 1955 or a claim, or a proposed claim, to be made under the Law Reform (Testamentary Promises) Act 1949, if the terms are mainly the same as those likely to have been ordered by the court:
(b)
is not carried on for the private benefit of an individual, and whose funds are applied entirely or mainly for benevolent, philanthropic, cultural, or public purposes in New Zealand.
Designated group investment fund
(6)
Designated group investment fund means a group investment fund whose investments and funds are invested wholly—
(a)
in authorised investments; or
(b)
in, and for the purposes of, the carrying on of a forestry business on land in New Zealand, to the extent to which the investments and funds are invested in the land that the fund owned or otherwise held on 22 June 1983 for the purposes of the forestry business.
(6A)
In subsection (6)(a), authorised investment means any of the following:
(a)
any investment authorised by the instrument (if any) creating the trust:
(b)
an investment in New Zealand Government securities or securities of any Australian government or of the Government of Fiji:
(c)
an investment in a mortgage on land in New Zealand:
(d)
an investment in securities issued under any general or special statutory authority by a local authority, public utility, harbour board, drainage board, or transport board:
(e)
an investment in a deposit with, or securities issued by, a trustee bank’s successor company:
(f)
an investment in securities issued by Kāinga Ora–Homes and Communities:
(g)
an investment in debentures issued by any dairy finance company:
(h)
an investment in a deposit with any building society or in the National Provident Fund:
(i)
an investment in securities guaranteed by the Government of New Zealand:
(j)
an investment in a deposit with any dealer in the short-term money market approved by the Reserve Bank of New Zealand as a short-term money market dealer, only if there are mortgaged to the trustee (or held by any bank on behalf of the trustee) by that dealer investments described in paragraphs (a) to (i) that have at the time of the deposit a redemption value not less than the amount deposited.
Designated source investments
(7)
Designated source investments, for a group investment fund at any time, means investments and funds from designated sources invested at the time in the group investment fund.
Pre-1983 investments
(8)
Pre-1983 investments, for a group investment fund at any time, means investments and funds that were invested in the group investment fund at 22 June 1983, other than designated source investments, as if those investments and funds had continued to be invested at the time, including—
(a)
money deposited between 15 June and 23 June 1983 with the trustee of the group investment fund for investment in the fund; and
(b)
money deposited between 22 June and 16 July 1983 with the trustee of the group investment fund for investment in the fund, which, on or before 22 June 1983, was subject to a binding commitment to deposit that money.
Defined in this Act: amount, business, category A income, category B income, Commissioner, current value, designated group investment fund, designated source investments, designated sources, group investment fund, income, income year, New Zealand, pre-1983 investments, trustee
Compare: 2004 No 35 ss HE 2(2), (3), OB 1 “category A income”
, “category B income”
, “current value”
, “designated group investment fund”
, “group investment fund”
Section HR 3(5)(b): amended (with effect on 1 April 2008 and applying for the 2008–09 and later income years), on 24 February 2016, by section 193(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section HR 3(6)(a): replaced, on 30 January 2021, by section 161 of the Trusts Act 2019 (2019 No 38).
Section HR 3(6A): inserted, on 30 January 2021, by section 161 of the Trusts Act 2019 (2019 No 38).
Section HR 3(6A)(f): amended (with effect on 30 January 2021), on 30 March 2022, by section 116 of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
HR 4 Government Superannuation Fund
The Government Superannuation Fund Authority is treated for income tax purposes as if the Government Superannuation Fund were a superannuation scheme that is a trust and the Authority the trustee of that scheme.
Defined in this Act: income tax, Government Superannuation Fund, superannuation scheme, trust, trustee
Compare: 2004 No 35 s HJ 1
HR 4B Activities relating to New Zealand Superannuation Fund and Venture Capital Fund
When this section applies
(1)
This section applies to determine for this Act the rules that determine the amounts of income derived and expenditure incurred by the Crown as owner of the New Zealand Superannuation Fund (the Fund) and the VCF.
Activities of the Crown relating to Fund or VCF
(2)
Amounts of income derived and expenditure incurred by the Crown in activities relating to the Fund or the VCF are determined as if the amounts were being derived or incurred by a company (the Fund/VCF company), other than a public authority, that was a special corporate entity wholly owned by,—
(a)
in the case of the Fund, the Minister of the Crown who was for the time being responsible for the administration of the New Zealand Superannuation and Retirement Income Act 2001, Parts 2 and 3:
(b)
in the case of the VCF, the Minister of the Crown who was for the time being responsible for the administration of the Venture Capital Fund Act 2019.
Fund investment vehicles and VCF investment vehicles
(3)
The consolidation rules, continuity provisions, and other rules relating to groups of companies apply to the Crown as owner of the Fund and of the VCF, to a Fund investment vehicle as referred to in section 59A of the New Zealand Superannuation and Retirement Income Act 2001, to a VCF investment vehicle as referred to in section 25 of the Venture Capital Fund Act 2019, and to a company in which the Guardians of New Zealand Superannuation (the Guardians) hold interests for the Crown, as if—
(a)
the Crown were the Fund/VCF company; and
(b)
interests in the Fund investment vehicle, VCF investment vehicle, or company held by the Guardians were owned by the Crown as the Fund/VCF company.
Defined in this Act: amount, company, consolidation rules, continuity provisions, group of companies, income, public authority, special corporate entity, VCF
Section HR 4B: replaced, on 23 October 2015, by section 6 of the Taxation (New Zealand Superannuation and Retirement Income) Act 2015 (2015 No 94).
Section HR 4B heading: amended, on 14 December 2019, by section 17 of the New Zealand Superannuation and Retirement Income Amendment Act 2019 (2019 No 77).
Section HR 4B(1): amended, on 14 December 2019, by section 17 of the New Zealand Superannuation and Retirement Income Amendment Act 2019 (2019 No 77).
Section HR 4B(2) heading: replaced, on 14 December 2019, by section 17 of the New Zealand Superannuation and Retirement Income Amendment Act 2019 (2019 No 77).
Section HR 4B(2): replaced, on 14 December 2019, by section 17 of the New Zealand Superannuation and Retirement Income Amendment Act 2019 (2019 No 77).
Section HR 4B(3) heading: replaced, on 14 December 2019, by section 17 of the New Zealand Superannuation and Retirement Income Amendment Act 2019 (2019 No 77).
Section HR 4B(3): replaced, on 14 December 2019, by section 17 of the New Zealand Superannuation and Retirement Income Amendment Act 2019 (2019 No 77).
Section HR 4B list of defined terms VCF: inserted, on 14 December 2019, by section 17 of the New Zealand Superannuation and Retirement Income Amendment Act 2019 (2019 No 77).
Airport operators
HR 5 Airport operators: general
When this section applies
(1)
This section and sections HR 6 and HR 7 apply to determine for this Act certain aspects of the treatment of an airport operator that is a joint venture between the Crown and a local authority.
Company
(2)
The airport operator is treated as a company.
Shares in company
(3)
Each joint venturer is treated as holding shares in the company in proportion to their share of the profits of the joint venture, as determined under the joint venture agreement (after allowing for adjustments for earlier income years).
Separate from joint ventures
(4)
The airport operator is treated as a person separate from—
(a)
the Crown; and
(b)
each airport authority; and
(c)
each other person.
Neither public nor local authority
(5)
The airport operator is treated as neither a public authority nor a local authority.
Not subject to mutual association rules
(6)
The airport operator is not treated as a mutual association for the purposes of subpart HE (Mutual associations).
Interest-bearing funding
(7)
Subsection (8) applies to the extent to which—
(a)
a joint venturer provides funds for the airport operator’s activities; and
(b)
the joint venturers expressly agree that the funds are to be provided for the airport operator’s activities; and
(c)
the funds are provided for consideration in the nature of interest payable by the airport operator.
Funding
(8)
The funds are treated as money borrowed by the airport operator and the consideration is treated as interest.
Defined in this Act: airport authority, airport operator, airport operator’s activities, association, company, interest, local authority, public authority, share
Compare: 2004 No 35 s OC 1(2)
HR 6 Airport operator’s assets
Ownership of airport assets
(1)
An airport operator is treated as owning each of its airport assets.
Time of acquisition
(2)
An airport operator is treated as having acquired an asset at the time—
(a)
it acquired it other than by way of purchase:
(b)
it agreed to use it:
(c)
it started to have the power to use it.
Cost of acquisition
(3)
An airport operator is treated as having incurred, in acquiring an asset, its market value at the time of acquisition.
Ceasing to be airport asset
(4)
If an asset ceases to be an airport asset of the airport operator, other than on sale, the airport operator is treated as having sold it, at the time, for a price equal to its market value at the time.
Disputes concerning value or timing
(5)
Subsection (6) applies if a question arises concerning—
(a)
the market value of an asset:
(b)
the cost of an airport asset:
(c)
the time at which an airport operator acquired, agreed to use, or started to have the power to use an asset.
Resolved by agreement or Commissioner
(6)
The question must be resolved by agreement between the airport operator and the Commissioner or, failing agreement, by the Commissioner.
Meaning of airport asset
(7)
In this section, for an airport operator, airport asset means—
(a)
an asset that, under the joint venture agreement and for the purposes of the airport operator’s activities, the airport authority—
(i)
acquires:
(ii)
agrees to use:
(iii)
is given the power to use:
(b)
an asset owned by a person for the purposes of a depreciation sinking fund for an airport asset:
(c)
an asset owned by a person for the purposes of a loan redemption sinking fund for a loan on which the interest payments are a charge against the joint venture income of the airport operator:
(d)
an asset acquired by the airport operator using funds that are, or by exchanging property that is, acquired in carrying on the airport operator’s activities and not allocated or distributed to the joint venturers.
Exclusion
(8)
Subsection (7)(a) does not apply to an asset that—
(a)
the airport operator has—
(i)
disposed of:
(ii)
ceased to agree to use:
(iii)
ceased to have the power to use:
(b)
the airport operator has acquired, agreed to use or acquired the power to use under a lease, unless the lease is a specified lease or a finance lease.
Defined in this Act: acquire, airport asset, airport authority, airport operator, airport operator’s activities, Commissioner, finance lease, interest, loan, specified lease
Compare: 2004 No 35 s OC 1(2)–(6)
HR 7 Meaning of airport operator’s activities
Meaning of airport operator’s activities
(1)
In sections HR 5 and HR 6, airport operator’s activities means the following activities undertaken for the purposes of the airport operator’s joint venture agreement concerning the airport, including the airport’s approaches, buildings and equipment:
(a)
its establishment:
(b)
its improvement:
(c)
its maintenance:
(d)
its operation:
(e)
its management.
Meaning of airport
(2)
In this section, airport has the meaning given in section 2 of the Airport Authorities Act 1966.
Defined in this Act: airport, airport operator, airport operator’s activities
Compare: 2004 No 35 s OC 1(6)
Transitional residents
HR 8 Transitional residents
Provisions under which transitional resident treated as non-resident
(1)
When a foreign-sourced amount is derived by a transitional resident, the following provisions apply to produce a result for income tax purposes that is the same as if the transitional resident were non-resident:
(b)
sections DN 2 and DN 6 (which relate to deductions):
(c)
(d)
sections HC 25, HC 26, and HC 30 (which relate to the trust rules):
(e)
sections MC 5, MC 10, MD 7, and MF 5 (which relate to tax credits):
(f)
sections RE 2, RE 5 and RF 12 (which relate to the RWT and NRWT rules):
(g)
section YD 1 (Residence of natural persons):
(h)
section 41 of the Tax Administration Act 1994.
Meaning of transitional resident
(2)
A person is a transitional resident if—
(a)
they are a natural person; and
(b)
they are resident in New Zealand through acquiring a permanent place of abode as described in section YD 1(2) or through the 183-day rule set out in section YD 1(3); and
(c)
for a continuous period (the non-residence period) of at least 10 years immediately before they meet the requirements of section YD 1(2) or (3) for becoming resident in New Zealand, ignoring the rule in section YD 1(4), they—
(i)
did not meet the requirements of that section:
(ii)
were not resident in New Zealand; and
(d)
they were not a transitional resident before the non-residence period; and
(e)
the period described in subsection (3) has not ended.
Period of transitional residence
(3)
The period for a person—
(a)
begins on the first day of the residence required by subsection (2)(b); and
(b)
ends on the earliest of—
(i)
the day they nominate under subsection (4):
(ii)
the day before the person stops being a New Zealand resident:
(iii)
the last day of the 48th month after the month in which the non-residence period ends.
Choosing not to be transitional resident
(4)
A person who would otherwise be a transitional resident in an income year may choose by notice to the Commissioner or by notice under subsection (5) not to be a transitional resident on and after a date nominated by the person, which may be on or after the start of the income year.
Applying for tax credits
(5)
An application under section 41 of the Tax Administration Act 1994 by a person who is eligible to be a transitional resident for a tax credit under subparts MA to MG and MZ (which relate to tax credits for families) for an income year is treated for the period of the application as—
(a)
a notice of election under subsection (4) by the person if they have not made one; and
(b)
a notice of election under subsection (4) by a spouse, civil union partner, or de facto partner of the person.
Election irrevocable
(6)
An election under subsection (4) is irrevocable.
Notice of election
(7)
A notice under subsection (4) to stop being a transitional resident must be received by the Commissioner by—
(a)
the time within which the person’s return of income must be filed under section 37 of the Tax Administration Act 1994; or
(b)
if the person, their tax agent, or their representative applies for it, a further time allowed by the Commissioner.
Defined in this Act: apply, foreign-sourced amount, New Zealand resident, non-resident, notice, representative, resident in New Zealand, tax credit, transitional resident
Compare: 2004 No 35 ss FC 22–FC 24
Section HR 8(1) heading: substituted (with effect on 1 April 2008), on 6 October 2009, by section 293(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section HR 8(1): substituted (with effect on 1 April 2008), on 6 October 2009, by section 293(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section HR 8(1)(a): amended, on 1 April 2014, by section 93 of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
Section HR 8(2) heading: replaced (with effect on 1 April 2008 and applying for the 2008–09 and later income years), on 24 February 2016, by section 194(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section HR 8(2): replaced (with effect on 1 April 2008 and applying for the 2008–09 and later income years), on 24 February 2016, by section 194(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section HR 8(3) heading: replaced (with effect on 1 April 2008 and applying for the 2008–09 and later income years), on 24 February 2016, by section 194(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section HR 8(3): replaced (with effect on 1 April 2008 and applying for the 2008–09 and later income years), on 24 February 2016, by section 194(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section HR 8(4) heading: replaced (with effect on 1 April 2008 and applying for the 2008–09 and later income years), on 24 February 2016, by section 194(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section HR 8(4): replaced (with effect on 1 April 2008 and applying for the 2008–09 and later income years), on 24 February 2016, by section 194(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section HR 8(5): amended, on 1 July 2018, by section 5 of the Families Package (Income Tax and Benefits) Act 2017 (2017 No 51).
Section HR 8(7) heading: added (with effect on 1 April 2008), on 6 October 2009, by section 293(5) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section HR 8(7): added (with effect on 1 April 2008), on 6 October 2009, by section 293(5) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section HR 8(7)(b): amended, on 18 March 2019, by section 220(1) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
Section HR 8 list of defined terms apply: inserted, on 2 June 2016, by section 74 of the Taxation (Transformation: First Phase Simplification and Other Measures) Act 2016 (2016 No 27).
Section HR 8 list of defined terms representative: inserted, on 18 March 2019, by section 220(2) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
Debt funding special purpose vehicles
Heading: added (with effect on 1 April 2008), on 6 October 2009, by section 294(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Heading: amended, on 18 March 2019, by section 221(1) (and see section 221(2) for application) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
HR 9 Debt funding special purpose vehicles are transparent if election made by originator
For the purposes of the liabilities and obligations under an Inland Revenue Act, other than under sections EW 24 to EW 25B (which relate to consistency of use of spreading methods for financial arrangements), of an originator and the relevant debt funding special purpose vehicle, if an election has been made by any of the debt funding special purpose vehicle’s originators under section HR 9BA or HZ 9 (Elections to treat existing debt funding special purpose vehicles as transparent),—
(a)
the originator is treated as carrying on an activity carried on by the debt funding special purpose vehicle, and having a status, intention, and purpose of the debt funding special purpose vehicle to the extent to which that activity, status, intention, or purpose relates to assets the originator transferred to the debt funding special purpose vehicle, and the debt funding special purpose vehicle is treated as not carrying on that activity or having that status, intention, or purpose:
(b)
the originator is treated as holding property that the debt funding special purpose vehicle holds if the originator transferred that property to the debt funding special purpose vehicle, and the debt funding special purpose vehicle is treated as not holding that property:
(c)
the originator is treated as being a party to any arrangement to which the debt funding special purpose vehicle is a party if the originator transferred that arrangement to the debt funding special purpose vehicle, or if that arrangement relates to assets the originator transferred to the debt funding special purpose vehicle, and the debt funding special purpose vehicle is treated as not being a party to that arrangement:
(d)
the originator is treated as doing a thing and being entitled to a thing that the debt funding special purpose vehicle does or is entitled to if that thing relates to assets the originator transferred to the debt funding special purpose vehicle, and the debt funding special purpose vehicle is treated as not doing that thing or being entitled to that thing.
Defined in this Act: arrangement, debt funding special purpose vehicle, Inland Revenue Acts, originator
Section HR 9: replaced, on 18 March 2019, by section 222(1) (and see section 222(2) for application) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
HR 9BA Elections to treat debt funding special purpose vehicles as transparent
How elections made
(1)
An originator makes an election referred to in section HR 9 by—
(a)
after the formation of the debt funding special purpose vehicle and before the return of income referred to in paragraph (b), notifying the Commissioner that the originator chooses to have the liabilities and obligations referred to in section HR 9 that the debt funding special purpose vehicle would have in the absence of the election; or
(b)
in the originator’s first return of income filed after the first transfer of assets by the originator to the debt funding special purpose vehicle, returning income derived and expenditure incurred by the debt funding special purpose vehicle.
Effect of election
(2)
An election under this section—
(a)
cannot be revoked; and
(b)
has effect from the date on which the originator first transferred any of their assets to the debt funding special purpose vehicle; and
(c)
remains in effect until the relevant company or trustee of a trust stops being a debt funding special purpose vehicle.
Relationship with section HZ 9
(3)
This section is overridden by section HZ 9 (Elections to treat existing debt funding special purpose vehicles as transparent).
Defined in this Act: company, debt funding special purpose vehicle, income, originator, return of income, trustee
Section HR 9BA: inserted, on 18 March 2019, by section 223(1) (and see section 223(2) for application) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
Section HR 9BA(1): replaced, on 30 March 2022, by section 117 of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
HR 9B Bankruptcy-remote property during application of section HR 9
Despite section HR 9, property that an originator holds because of the application of section HR 9 cannot be attached, charged, disposed of, or otherwise used in the payment of the originator’s tax debt, except to the extent to which—
(a)
the tax debt—
(i)
does not relate to income tax or provisional tax; and
(ii)
would have been the relevant debt funding special purpose vehicle’s tax debt in the absence of section HR 9:
(b)
the property could have been attached, charged, disposed of, or otherwise used in payment of the tax debt in the absence of section HR 9.
Defined in this Act: debt funding special purpose vehicle, dispose, income tax, originator, pay, provisional tax, tax
Section HR 9B: replaced, on 18 March 2019, by section 224(1) (and see section 224(2) for application) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
HR 10 What happens when vehicle stops being transparent debt funding special purpose vehicle?
Property transferred and parties reconstituted
(1)
When a company or a trustee of a trust (the vehicle) stops being a debt funding special purpose vehicle for any reason, other than on unwind, and an election has been made under section HR 9BA or HZ 9 (Elections to treat existing debt funding special purpose vehicles as transparent) that relates to the debt funding special purpose vehicle, the following apply:
(a)
the relevant originator is treated as disposing of its property (the property) that has been subject to section HR 9(b) in relation to the vehicle immediately before the vehicle stops being a debt funding special purpose vehicle:
(b)
the vehicle is treated as acquiring the property immediately after the vehicle stops being a debt funding special purpose vehicle:
(c)
the relevant originator is treated as not being a party to an arrangement (the arrangement) that the originator was treated as being a party to under section HR 9(c) in relation to the vehicle immediately before the vehicle stops being a debt funding special purpose vehicle:
(d)
the vehicle is treated as being a party to the arrangement immediately after the vehicle stops being a debt funding special purpose vehicle.
Property transferred: market value
(2)
The disposition of property in subsection (1)(a) and the acquisition of property in subsection (1)(b) are treated as occurring with a single third party for payments equal to the property’s market value.
Arrangements assumed: market value
(3)
At the time of the relevant originator becoming not a party to an arrangement, and the vehicle becoming a party to the arrangement, under subsection (1)(c) or (d),—
(a)
if the arrangement is a liability of the originator,—
(i)
the vehicle is treated as receiving consideration equal to the market value of the liability, expressed as a positive amount, from a single third party:
(ii)
the originator is treated as paying consideration equal to the market value of the liability, expressed as a positive amount, to a single third party; or
(b)
if the arrangement is an asset of the originator,—
(i)
the originator is treated as receiving consideration equal to the market value of the asset from a single third party:
(ii)
the vehicle is treated as paying consideration equal to the market value of the asset to a single third party.
Definition
(4)
In this section, unwind means a process, ignoring section HR 9, by which—
(a)
guarantees, securities, and debts, as applicable, described in the definition of debt funding special purpose vehicle, paragraph (d), are cancelled; and
(b)
interests described in the definition of debt funding special purpose vehicle, paragraph (b) are transferred to the relevant originator; and
(c)
the vehicle is terminated, by liquidation or otherwise.
Relationship with section HZ 10
(5)
This section overrides section HZ 10 (What happens when election is made under section HZ 9?).
Defined in this Act: amount, arrangement, company, consideration, debt funding special purpose vehicle, dispose, liquidation, market value, originator, pay, trustee, unwind
Section HR 10: replaced, on 18 March 2019, by section 225(1) (and see section 225(2) for application) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
Non-exempt charities: cessation of tax-exempt status
Heading: inserted (with effect on 14 April 2014), on 30 June 2014, by section 128 of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
HR 11 Non-exempt charities: initial tax base
When this section applies
(1)
This section applies on and after the day that a person ceases to meet the requirements to derive exempt income under section CW 41 or CW 42 (which relate to charities) (the date of cessation).
Establishing cost of property
(2)
For the purposes of this Act, for the person, the cost of premises, plant, equipment, and trading stock is the value that would be used at the date of cessation under this Act if section CW 41 or CW 42 never applied.
Consideration for financial arrangements
(3)
For the purposes of this Act, the consideration for a financial arrangement of the person is the value calculated using the following formula:
consideration paid to person + expenditure
− consideration paid by person − income.
Definition of items in formula
(4)
In the formula,—
(a)
consideration paid to person is the consideration that is paid to the person before the date of cessation:
(b)
expenditure is the expenditure that would have been incurred under the financial arrangements rules before the date of cessation:
(c)
consideration paid by person is the consideration that is paid by the person before the date of cessation:
(d)
income is the income that would have been derived under the financial arrangements rules before the date of cessation.
Prepayments
(5)
For the purposes of this Act, the person is treated as having the unexpired portion of expenditure under section EA 3 (Prepayments) and the unpaid amount under section EA 4 (Deferred payment of employment income) that the person would have had if section CW 41 or CW 42 never applied. The unexpired portion is available for deduction under sections DB 50 and DB 51 (which relate to deductions) in the income year that contains the date of cessation.
Information
(6)
For the purpose of applying this section, the person may use information from their annual returns contained on the register of charitable entities under the Charities Act 2005, if they have no other information that is more readily available.
Defined in this Act: charitable purposes, consideration, financial arrangement, financial arrangements rules, income, tax charity, trading stock
Section HR 11: inserted (with effect on 14 April 2014), on 30 June 2014, by section 128 of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
HR 12 Non-exempt charities: treatment of tax-exempt accumulations
Who this section applies to
(1)
This section applies to—
(a)
a person who—
(i)
is registered on the register of charitable entities under the Charities Act 2005 for a period; and
(ii)
derives exempt income under section CW 41 or CW 42 (which relate to charities) in the same period; and
(iii)
is deregistered as a charitable entity on the end date:
(b)
[Repealed]When this section does not apply
(2)
This section does not apply if—
(a)
the person is re-registered on the register of charitable entities within 1 year of the end date:
(b)
the person’s end date arises because they are a company and shares in them are disposed of, and the disposal is for market value consideration:
(c)
the person would, but for this paragraph, have $10,000 or less income under this section on their end date.
Treatment of income
(3)
The person has an amount of income derived on the day that is 1 year after the end date that is equal to the current market value, on the end date, of assets that the person has on the end date less the current market value, on the end date, of liabilities that the person has on the end date, but ignoring:
(a)
assets that are disposed of or transferred within 1 year of the end date, together with any rights and obligations, to another person—
(i)
for charitable purposes:
(ii)
in accordance with the person’s rules set out in the register of charitable entities immediately before the person’s removal from the register:
(b)
assets received from the Crown—
(i)
to settle a Treaty of Waitangi claim:
(ii)
in accordance with the Maori Fisheries Act 2004:
(c)
assets that are not money and are gifted or bequeathed to the person when they met the requirements to derive exempt income under section CW 41 or CW 42:
(d)
assets that are land set apart in a Maori reservation for the purposes of a marae or meeting place under Part 17 of Te Ture Whenua Maori Act 1993:
(e)
assets that are shares in companies, if this section applies to the companies and their end dates are the same as the person’s end date.
Person’s rules[Repealed]
(4)
[Repealed]Negative amounts
(5)
For the purposes of the calculation in subsection (3), if the amount is negative, it is treated as zero.
References to assets and liabilities
(6)
In this section, references to assets and liabilities, as applicable,—
(a)
mean the assets and liabilities owned, controlled, or held, wholly or in part, immediately before the end date; and
(b)
include—
(i)
all assets of any kind; and
(ii)
all liabilities, including debts, charges, duties, contracts, or other obligations, whether present, future, actual, contingent, payable, or to be observed or performed in New Zealand or elsewhere.
Definitions
(7)
In this section,—
end date means, for a person, the day of final decision
current market value means—
(a)
for an asset or liability for which section HR 11 gives a value for the purposes of this Act, that value:
(b)
for an asset or liability for which section HR 11 does not give a value for the purposes of this Act,—
(i)
the market value of the asset or liability; but
(ii)
if the person uses the Public Benefit Entity International Not-for-Profit Accounting Standard 17 (the standard), the fair value of the asset or liability under the standard.
Defined in this Act: amount, asset, charitable purpose, current market value, day of final decision, end date, exempt income, income, liabilities, New Zealand, real property, share, year
Section HR 12: replaced, on 29 March 2018 (with effect on 6 April 2016), by section 137 of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
Section HR 12(1)(a): amended, on 1 April 2019, by section 226(1) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
Section HR 12(1)(b): repealed, on 1 April 2019, by section 226(2) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
Section HR 12(2) heading: replaced, on 1 April 2019, by section 226(3) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
Section HR 12(2): replaced, on 1 April 2019, by section 226(3) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
Section HR 12(3): amended, on 1 April 2019, by section 226(4) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
Section HR 12(3)(a)(ii): replaced, on 1 April 2019, by section 226(5) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
Section HR 12(3)(c): amended, on 1 April 2019, by section 226(6) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
Section HR 12(3)(d): inserted (with effect on 14 April 2014), on 18 March 2019, by section 226(7) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
Section HR 12(3)(d): amended, on 1 April 2023, by section 82 of the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Act 2023 (2023 No 5).
Section HR 12(3)(e): inserted, on 1 April 2019, by section 226(8) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
Section HR 12(4) heading: repealed, on 1 April 2019, pursuant to section 226(9) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
Section HR 12(4): repealed, on 1 April 2019, by section 226(9) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
Section HR 12(7) heading: replaced, on 1 April 2019, by section 226(10) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
Section HR 12(7): replaced, on 1 April 2019, by section 226(10) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
Section HR 12 list of defined terms current market value: inserted, on 1 April 2019, by section 226(11) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
Lloyd’s of London: life insurance
Heading: inserted, on 29 March 2018 (with effect on 1 April 2017 applying in relation to a life insurance premium that is derived on or after that date by Lloyd’s of London), by section 138(1) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
HR 13 Lloyd’s of London: life insurance
What this section applies to
(1)
This section applies for the purposes of the obligations imposed by section BB 2 (Main obligations) on underwriters of Lloyd’s of London who derive income (premium income) under section CR 3B (Lloyd’s of London: income from life insurance premiums) in an income year in relation to that income.
Lloyd’s of London single person
(2)
All underwriters of Lloyd’s of London who derive premium income in the income year are treated as if they were a notional single person, and are jointly and severally liable for meeting the obligations of the notional single person for the income year.
Taxable income and return of income
(3)
Subject to section HD 17B (Lloyd’s of London: agents for life insurance), the underwriters of Lloyd’s of London must—
(a)
calculate the taxable income that relates to the premium income for the notional single person described in subsection (2) for the corresponding tax year; and
(b)
for that tax year, provide a joint return of income and satisfy the income tax liability that relates to the premium income for the notional single person.
Underwriters of Lloyd’s of London
(4)
In this section, underwriters of Lloyd’s of London has the same meaning as Lloyd’s of London.
Defined in this Act: income, income tax liability, income year, Lloyd’s of London, New Zealand, return of income, tax year, taxable income
Section HR 13: inserted, on 29 March 2018 (with effect on 1 April 2017 and applying in relation to a life insurance premium that is derived on or after that date by Lloyd’s of London), by section 138(1) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
Subpart HZ—Terminating provisions
Contents
HZ 1 Distributions from trusts of pre-1989 tax reserves
When this section applies
(1)
This section applies if, and to the extent to which, a distribution is received from a trust that is not a unit trust, a group investment fund, or a superannuation scheme, when the distribution—
(a)
consists of an amount of income or a capital gain derived by the trustee in the 1987–88 or earlier tax year; and
(b)
is not also beneficiary income to which an entitlement exists in the tax year.
Treatment of distribution
(2)
The distribution is not income, and the provisions of this Act and the Tax Administration Act 1994 that correspond to the provisions of the Income Tax Act 1976, the Income Tax Act 1994, the Income Tax Act 2004, and the Income Tax Amendment Act (No 5) 1988 specified in the proviso to section 9 of the Act last referred to, do not apply.
Defined in this Act: beneficiary income, distribution, group investment fund, income, superannuation scheme, tax year, trustee, trustee income, unit trust
Compare: 2004 No 35 s HZ 1
HZ 2 Trusts that may become complying trusts
When this section applies
(1)
This section applies in relation to a settlement made on a trust on or before 17 December 1987, whether or not further settlements have been made on the trust after that date, when a settlor, trustee, or beneficiary of the trust chose under section 228(7) of the Income Tax Act 1976 on or before 31 May 1989 to pay income tax on trustee income derived in the 1988–89 tax year and later tax years.
Trustee income derived in earlier tax years
(2)
Trustee income having a source outside New Zealand, or having a source in New Zealand only as non-resident passive income in relation to which the income tax obligations have been satisfied, in the 1987–88 tax year and earlier tax years when no trustee was resident in New Zealand is treated as liable to income tax, other than only as non-resident passive income.
Trustee’s obligations
(3)
The trustee’s obligations in relation to their income tax liability on the trustee income are treated as having been satisfied.
Defined in this Act: complying trust, income tax, income tax liability, New Zealand, non-resident passive income, pay, resident in New Zealand, settlement, source in New Zealand, settlor, tax year, trustee, trustee income
Compare: 2004 No 35 s HZ 2
Section HZ 2(2): amended, on 21 December 2010, by section 103(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section HZ 2 list of defined terms derived from New Zealand: repealed, on 21 December 2010, by section 103(2)(a) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section HZ 2 list of defined terms source in New Zealand: inserted, on 21 December 2010, by section 103(2)(b) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
HZ 3 Special partnerships: transition into limited partnerships and limited partnerships deduction rules
When this section applies
(1)
This section applies when a special partnership under Part 2 of the Partnership Act 1908—
(a)
is in existence on 1 April 2008; and
(b)
is terminated and a limited partnership registered under the Limited Partnerships Act 2008 (the new limited partnership) succeeds to that special partnership.
No disposal: same partnership
(2)
No partners’ interests are disposed of merely because of the termination and succession described in subsection (1)(b). The partners of the special partnership are treated as the same partners of the new limited partnership.
Initial basis
(3)
For the purposes of applying sections HG 11 and HG 12 (which relate to limited partnerships deduction rules) to the partners of the new limited partnership, all of the partners must choose one of the 2 following methods for calculating their partner’s basis under section HG 11(3):
(a)
they may choose to use the market value or the accounting book value of the amounts described in section HG 11(3), as at the day the calculation is first performed, namely the last day of the first income year in which they are subject to sections HG 11 and HG 12; or
(b)
they may choose to apply section HG 11(3) as if the special partnership had always been a limited partnership and all relevant rules relating to limited partnerships had always existed (applying those rules with any necessary modifications).
Initial basis not less than zero
(4)
If the application of sections HG 11 and HG 12, as modified by this section, calculates a partner’s basis as less than zero, then the partner’s basis is treated as being zero.
Defined in this Act: dispose, limited partnership, partner, partner’s interests, partnership
Section HZ 3: added, on 1 April 2008, by section 21(1) of the Taxation (Limited Partnerships) Act 2008 (2008 No 2).
Section HZ 3 list of defined terms disposal: 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 HZ 3 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).
HZ 4 Overseas limited partnerships: transition into limited partnerships deduction rules
When this section applies
(1)
This section applies when a limited partnership described in paragraphs (a) and (b) of the definition of limited partnership (the overseas limited partnership) existed before 1 April 2008, and a partner of that partnership (a relevant partner) is a member of the partnership on 1 April 2008 and is subject to sections HG 11 and HG 12 (which relate to limited partnerships deduction rules) on or after 1 April 2008.
Initial basis
(2)
For the purposes of applying sections HG 11 and HG 12 to the relevant partners of the overseas limited partnership, all relevant partners must choose one of the 2 following methods for calculating their partner’s basis under section HG 11:
(a)
they may choose to use the market value or the accounting book value of the amounts described in section HG 11, as at the day the calculation is first performed, namely the last day of the first income year in which they are subject to sections HG 11 and HG 12; or
(b)
they may choose to apply section HG 11 as if the overseas limited partnership had always been a limited partnership and all relevant rules relating to limited partnerships had always existed (applying those rules with any necessary modifications).
Initial basis not less than zero
(3)
If the application of sections HG 11 and HG 12, as modified by this section, calculates a partner’s basis as less than zero, then the partner’s basis is treated as being zero.
Defined in this Act: limited partnership, partner, partnership
Section HZ 4: added, on 1 April 2008, by section 21(1) of the Taxation (Limited Partnerships) Act 2008 (2008 No 2).
HZ 4B Qualifying companies: transition into partnership
When this section applies
(1)
This section applies when a QCP transitional process is carried out for a qualifying company or companies for the first or second income year that starts on or after 1 April 2011, whichever is relevant (the transitional income year).
QCP transitional process: retrospective rule
(2)
From the first day of the transitional income year to the first day of existence for the partnership that effectively replaces the qualifying company or companies under a QCP transitional process, the partnership is treated as existing and having the assets and liabilities of the qualifying company or companies, and associated rights and obligations, for that period. On and after the first day of the transitional year, the existence of the qualifying company or companies is ignored for the purposes of the Inland Revenue Acts except to the extent necessary to give effect to this section.
Taxation continuity
(3)
The moving to the partnership of the assets, liabilities, and associated rights and obligations, under a QCP transitional process is treated for the purposes of the Inland Revenue Acts as a unique form of transference for such assets, liabilities, rights, and obligations, with the following effects:
(a)
the moving to the partnership of the assets, liabilities, and associated legal rights and obligations, is treated as not being a transfer of such assets, liabilities, rights, and obligations:
(b)
the qualifying company or companies has, before the first day of the transitional income year, the relevant tax situation in relation to the assets and liabilities, and associated rights and obligations (the historical tax situations):
(c)
the partnership is treated as stepping into the place of the qualifying company or companies, and as having, on and after the first day of the transitional income year,—
(i)
the qualifying company’s or companies’ historical tax situations; and
(ii)
the tax situation in relation to the assets and liabilities, and associated rights and obligations, that it would have if it had always had the historical tax situations:
(d)
the qualifying company has no tax situation in relation to the assets and liabilities, and associated rights and obligations, on and after the first day of the transitional income year:
(e)
all memorandum account balances and other tax accounting amounts for the qualifying company before the first day of the transitional income year are ignored and have no effect on and after that day (for example, the qualifying company has no effective ASC on and after the first day of the transitional income year).
Transparency
(4)
Subsections (2) and (3) are applied immediately before section HG 2 (Partnerships are transparent) applies.
Initial basis
(5)
For the purposes of applying sections HG 11 and HG 12 (which relate to limited partnership deduction rules) to the partners of a limited partnership described in subsection (2) for the transitional income year and later years, all of the partners must choose 1 of the 2 following methods for calculating their partner’s basis under section HG 11(3):
(a)
for calculating amounts under section HG 11(5)(a) for shares that were held at the end of the income year (the last year) before the transitional income year, they may choose to use the market value or the accounting book value of those shares as at the end of the last year. Calculations under section HG 11(7)(b) and (8)(b) are changed to account for the valuation under this paragraph; or
(b)
they may choose to apply section HG 11(3) as if the qualifying company had always been a limited partnership and all relevant rules relating to limited partnerships had always existed, applying those rules with any necessary modifications.
Initial basis not less than zero
(6)
If the application of sections HG 11 and HG 12, as modified by this section, calculates a partner’s basis as less than zero, then the partner’s basis is treated as being zero.
Meaning of QCP transitional process
(7)
QCP transitional process means a process, for which all outcomes are achieved in an income year (the transitional income year), by which a company or companies that are all qualifying companies at the end of the income year before the transitional income year transform into a partnership. The process must have the following outcomes:
(a)
the Commissioner receives a notice from the qualifying company or companies before the day that is 6 months after the start of the transitional income year, stating an intention to revoke the company’s or companies’ qualifying company status and to complete the QCP transitional process relating to the partnership for the transitional income year; and
(b)
the partners, or in the case of a limited partnership, the partners other than a company that is a general partner, are the same persons who, at the end of the income year before the transitional income year, were the shareholders of the qualifying company or companies, ignoring any person who dies in the transitional year; and
(c)
all assets and liabilities, and associated rights and obligations, of the qualifying companies are moved to the partnership, excluding those that are inappropriate for a partnership; and
(d)
each partner must have the same net position in the partnership as to relevant assets and liabilities, and associated rights and obligations, as would arise on the winding up of the qualifying company or companies at the end of the income year before the transitional income year, treating any person who dies in the transitional year as still being a partner.
Defined in this Act: ASC, Commissioner, company, income year, Inland Revenue Acts, limited partnership, memorandum account, notice, partner, partnership, QCP transitional process, qualifying company, tax situation, transfer
Section HZ 4B: inserted, on 1 April 2011 (applying for income years beginning on or after 1 April 2011), by section 104(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section HZ 4B(3)(b): amended, on 24 February 2016, by section 195(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section HZ 4B(3)(b): amended, on 24 February 2016, by section 195(2) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section HZ 4B(3)(c)(i): amended, on 24 February 2016, by section 195(3) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section HZ 4B(3)(c)(ii): amended, on 24 February 2016, by section 195(4) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section HZ 4B(3)(c)(ii): amended, on 24 February 2016, by section 195(5) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section HZ 4B(3)(d): amended, on 24 February 2016, by section 195(6) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section HZ 4B(5): amended (with effect on 1 April 2011), on 2 November 2012, by section 111(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section HZ 4B(5)(a): replaced (with effect on 1 April 2011), on 2 November 2012, by section 111(2) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section HZ 4B list of defined terms notice: inserted, on 2 June 2016, by section 74 of the Taxation (Transformation: First Phase Simplification and Other Measures) Act 2016 (2016 No 27).
Section HZ 4B list of defined terms tax position: repealed, on 24 February 2016, by section 243 of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section HZ 4B list of defined terms tax situation: 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).
HZ 4C Qualifying companies: transition into look-through companies
When this section applies
(1)
This section applies when a qualifying company first becomes a look-through company for the first or second income year, whichever is relevant, that starts on or after 1 April 2011 (the transitional year).
Initial basis
(2)
For the purposes of applying sections HB 11 and HB 12 (which relate to look-through company deduction rules) to a person with an effective look-through interest for the look-through company for the transitional income year and later years, all of the persons who hold owner’s interests must choose 1 of the 2 following methods for calculating their basis under section HB 11(3):
(a)
for calculating amounts under section HB 11(5)(a) for shares that were held at the end of the income year (the last year) before the transitional income year, they may choose to use the market value or the accounting book value of those shares as at the end of the last year. Calculations under section HB 11(7)(b) and (8)(b) are changed to account for the valuation under this paragraph; or
(b)
they may choose to apply section HB 11(3) as if the qualifying company had always been a look-through company and all relevant rules relating to look-through companies had always existed, applying those rules with any necessary modifications.
Initial basis not less than zero
(3)
If the application of sections HB 11 and HB 12, as modified by this section, calculates an owner’s basis as less than zero, then the owner’s basis is treated as being zero.
Continuity of elections and methods
(4)
The look-through company steps into the place of the qualifying company in relation to Inland Revenue Act elections and methods relating to the qualifying company.
Effect of elections and methods
(5)
After subsection (4) applies, section HB 1 (Look-through companies are transparent) applies, so that the elections and methods are those of an owner of an effective look-through interest for the look-through company.
Defined in this Act: effective look-through interest, income year, Inland Revenue Acts, look-through company, owner’s interests, qualifying company
Section HZ 4C: inserted, on 1 April 2011 (applying for income years beginning on or after 1 April 2011), by section 104(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section HZ 4C(2): amended (with effect on 1 April 2011), on 2 November 2012, by section 112(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section HZ 4C(2)(a): replaced (with effect on 1 April 2011), on 2 November 2012, by section 112(2) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section HZ 4C(4) heading: added (with effect on 1 April 2011), on 29 August 2011 (applying for income years beginning on or after 1 April 2011), by section 89(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section HZ 4C(4): added (with effect on 1 April 2011), on 29 August 2011 (applying for income years beginning on or after 1 April 2011), by section 89(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section HZ 4C(5) heading: added (with effect on 1 April 2011), on 29 August 2011 (applying for income years beginning on or after 1 April 2011), by section 89(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section HZ 4C(5): added (with effect on 1 April 2011), on 29 August 2011 (applying for income years beginning on or after 1 April 2011), by section 89(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section HZ 4C list of defined terms Inland Revenue Acts: inserted (with effect on 1 April 2011), on 29 August 2011 (applying for income years beginning on or after 1 April 2011), by section 89(2) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
HZ 4D Qualifying companies: transition into sole traderships
When this section applies
(1)
This section applies when a QCST transitional process is carried out for a qualifying company for the first or second income year, whichever is relevant, that starts on or after 1 April 2011 (the transitional income year).
QCST transitional process: retrospective rule
(2)
From the first day of the transitional income year to the first day of existence for the sole tradership that effectively replaces the qualifying company under a QCST transitional process, the sole tradership is treated as existing and having the assets and liabilities of the qualifying company, and associated rights and obligations, for that period. On and after the first day of the transitional year, the existence of the qualifying company is ignored for the purposes of the Inland Revenue Acts except to the extent necessary to give effect to this section.
Taxation continuity
(3)
The moving to the sole tradership of the assets, liabilities, and associated rights and obligations, under a QCST transitional process is treated for the purposes of the Inland Revenue Acts as a unique form of transference for such assets, liabilities, rights, and obligations, with the following effects:
(a)
the moving to the sole tradership of the assets, liabilities, and associated rights and obligations, is treated as not being a transfer of such assets, liabilities, rights, and obligations:
(b)
the qualifying company has, before the first day of the transitional income year, the tax situation in relation to the assets and liabilities, and associated rights and obligations (the historical tax situation):
(c)
the sole tradership is treated as stepping into the place of the qualifying company, and as having, on and after the first day of the transitional income year,—
(i)
the qualifying company’s historical tax situation; and
(ii)
the tax situation in relation to the assets and liabilities, and associated rights and obligations, that it would have if it had always had the historical tax situation:
(d)
the qualifying company has no tax situation in relation to the assets and liabilities, and associated rights and obligations, on and after the first day of the transitional income year:
(e)
all memorandum account balances and other tax accounting amounts for the qualifying company before the first day of the transitional income year are ignored and have no effect on and after that day (for example, the qualifying company has no effective ASC on and after the first day of the transitional income year).
Meaning of QCST transitional process
(4)
QCST transitional process means a process, for which all outcomes are achieved in an income year (the transitional income year), by which a company that is a qualifying company at the end of the income year before the transitional income year is transformed into a sole tradership. The process must have the following outcomes:
(a)
the Commissioner receives a notice from the qualifying company before the day that is 6 months after the start of the transitional income year, stating an intention to revoke the company’s qualifying company status and to complete the QCST transitional process relating to the sole tradership for the transitional income year; and
(b)
the sole tradership is the same natural person who, at the end of the income year before the transitional income year, is the sole shareholder of the qualifying company; and
(c)
all assets and liabilities, and associated rights and obligations, of the qualifying company are moved to the sole tradership, excluding those that are inappropriate for a sole tradership.
Defined in this Act: ASC, Commissioner, company, income year, Inland Revenue Acts, memorandum account, notice, QCST transitional process, qualifying company, tax situation, transfer
Section HZ 4D: inserted, on 1 April 2011 (applying for income years beginning on or after 1 April 2011), by section 104(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section HZ 4D(3)(b): amended, on 24 February 2016, by section 196(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section HZ 4D(3)(b): amended, on 24 February 2016, by section 196(2) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section HZ 4D(3)(c)(i): amended, on 24 February 2016, by section 196(3) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section HZ 4D(3)(c)(ii): amended, on 24 February 2016, by section 196(4) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section HZ 4D(3)(d): amended, on 24 February 2016, by section 196(5) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section HZ 4D list of defined terms tax position: repealed, on 24 February 2016, by section 243 of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section HZ 4D list of defined terms tax situation: 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).
HZ 4E Transition out of LTC regime for Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017
When this section applies
(1)
This section applies when an entity that is a look-through company (an LTC) at the end of the 2016–17 or 2017–18 income years ceases to be an LTC (the cessation)—
(a)
on the first day of application for an amendment to LTC-related provisions, in section 288 of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017; and
(b)
because of an amendment to LTC-related provisions, in section 288 of that Act.
Exemption
(2)
Section HB 4(6) (General provisions relating to disposals) does not apply to the cessation.
Company steps into place
(3)
An entity that ceases to be an LTC is treated as having, as a company, the tax position it has, ignoring section HB 1(4) (Look-through companies are transparent), immediately before it ceases, and the owners are treated as not having that tax position.
Defined in this Act: company, income year, look-through company, tax position
Section HZ 4E: inserted, on 1 April 2017, by section 145 of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section HZ 4E(1): replaced, on 29 March 2018 (with effect on 1 April 2017), by section 139 of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
HZ 5 Transitional provisions for PIE rules
Intention of new law
(1)
The PIE rules are the provisions of the Income Tax Act 2007 relating to portfolio investment entities in rewritten form, and are intended to have the same effect as the relevant corresponding provisions of the Income Tax Act 2007. Subsection (3) overrides this subsection.
Using old law as interpretation guide
(2)
Unless subsection (3) applies, in circumstances where the meaning of a PIE rule (the new law) is unclear or gives rise to absurdity—
(a)
the wording of the provisions of the Income Tax Act 2007 relating to portfolio investment entities that correspond to and are replaced by the PIE rules (the old law) must be used to determine the correct meaning of the new law; and
(b)
it can be assumed that a corresponding old law provision exists for each new law provision.
Limits to subsections (1) and (2)
(3)
Subsections (1) and (2) do not apply in the case of—
(a)
a PIE rule that repeals an old law and replaces it with a new law:
(b)
a PIE rule that is amended after the commencement of section 292(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009, with effect from the date on which the amendment comes into force.
Defined in this Act: PIE rules, portfolio investment entity
Section HZ 5: inserted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 295(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section HZ 5(3)(b): amended (with effect on 1 April 2010), on 7 September 2010 (applying for the 2010–11 and later income years), by section 80(1) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
HZ 6 Saving of binding rules relating to portfolio investment entities
When, and extent to which, this section applies
(1)
This section applies when, and to the extent to which,—
(a)
before the commencement of this Act,—
(i)
an applicant has applied for a private ruling, a product ruling, or a status ruling, on an arrangement that is entered into, or that the applicant seriously contemplates will be entered into, before the commencement of this Act:
(ii)
a public ruling is issued; and
(b)
the binding ruling is about a provision of the Income Tax Act 2007 relating to portfolio investment entities (the old law) that corresponds to and is replaced by the PIE rules; and
(c)
the PIE rules corresponding to the old law (the new law) come into force on 1 April 2010; and
(d)
the binding ruling—
(i)
continues to exist at the commencement of this Act:
(ii)
is made after the commencement of this Act in relation to an old law before 1 April 2010:
(iii)
is made in relation to an old law provision of the Income Tax Act 2004 to which section ZA 4 (Saving of binding rulings) of the Income Tax Act 2007 applies, that continues to exist at the commencement of this Act; and
(e)
in the absence of this section, the commencement of this Act would mean that the binding ruling would cease to apply because of section 91G of the Tax Administration Act 1994.
Ruling about new law
(2)
The binding ruling is treated as if it were made about the new law, so that the effect of the ruling at the commencement of this Act is the same as its effect before the commencement.
No confirmation rulings
(3)
To the extent to which a binding ruling continued by subsection (2) exists and applies to an arrangement, or to a person and an arrangement, the Commissioner must not make a binding ruling on how—
(a)
the new law applies to the arrangement or to the person and the arrangement; or
(b)
this subsection applies to the arrangement or to the person and the arrangement.
Defined in this Act: apply, arrangement, binding ruling, Commissioner, PIE rules, portfolio investment entity
Section HZ 6: inserted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 295(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section HZ 6 list of defined terms apply: inserted, on 2 June 2016, by section 74 of the Taxation (Transformation: First Phase Simplification and Other Measures) Act 2016 (2016 No 27).
HZ 7 Saving of binding rulings relating to settlements on trusts
When, and extent to which, this section applies
(1)
This section applies when, and to the extent to which,—
(a)
before the commencement of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009—
(i)
an applicant has applied for a binding ruling on an arrangement that is entered into, or that the applicant seriously contemplates will be entered into, before the commencement of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009:
(ii)
a binding ruling is issued; and
(b)
the binding ruling is about a provision of the Income Tax Act 2004 on the question of whether an amount is a settlement on a trust; and
(c)
the binding ruling—
(i)
is made before or after the commencement of this Act and continues to exist at the commencement of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009; and
(ii)
is made in relation to a provision of the Income Tax Act 2004 to which section ZA 4 (Saving of binding rulings) of this Act would have applied but for the intended change listed in schedule 51 (Identified changes in legislation) for section HC 27(2) (Who is a settlor?); and
(d)
in the absence of this section, the commencement of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 would mean that the binding ruling would cease to apply because of section 91G of the Tax Administration Act 1994.
Ruling about new law
(2)
The binding ruling continues to exist despite the intended change referred to in subsection (1)(c)(ii) from the commencement of this Act to the date on which the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 receives the Royal assent.
No confirmation rulings
(3)
To the extent to which a binding ruling continued by subsection (2) exists and applies to an arrangement, or to a person and an arrangement, the Commissioner must not make a binding ruling in the period that starts on the date of the commencement of this Act and ends on the date on which the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 receives the Royal assent on how—
(a)
the new law applies to the arrangement or to the person and the arrangement; or
(b)
this subsection applies to the arrangement or to the person and the arrangement.
Defined in this Act: apply, arrangement, binding ruling, Commissioner, settlement
Section HZ 7: added (with effect on 1 April 2008), on 7 December 2009, by section 53 of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
Section HZ 7 list of defined terms apply: inserted, on 2 June 2016, by section 74 of the Taxation (Transformation: First Phase Simplification and Other Measures) Act 2016 (2016 No 27).
HZ 8 Retrospective transitional provision for market valuation under section HB 4
When this section applies
(1)
This section applies for the 2017–18 income year if section HB 4 (General provisions relating to disposals) has applied for a person before the start of the 2017–18 income year.
Income
(2)
The person has an amount of income for the 2017–18 income year calculated using the formula—
retrospective amount – current amount.
Definition of items in formula
(3)
In the formula,—
(a)
retrospective amount is the amount of income, for the person’s owner’s interest in financial arrangements as debtor, that would result from the application of section HB 4 for income years before the 2017–18 income year, treating that section as amended, for the purposes of this definition, as provided by section 130 of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 for those income years:
(b)
current amount is the amount of income, for the person’s owner’s interest in financial arrangements as debtor from the application of section HB 4, for income years before the 2017–18 income year.
Section HZ 8: inserted, on 1 April 2017, by section 146 of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
HZ 9 Elections to treat existing debt funding special purpose vehicles as transparent
When this section applies
(1)
This section applies when an originator transferred any of their assets to a debt funding special purpose vehicle before the date on which the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 receives the Royal assent.
How elections made
(2)
An originator makes an election referred to in section HR 9 (Debt funding special purpose vehicles are transparent if election made by originator) by returning income derived and expenditure incurred by the debt funding special purpose vehicle in their return of income for an income year starting on or after the date on which the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 receives the Royal assent.
Effect of election
(3)
An election under this section—
(a)
cannot be revoked; and
(b)
has effect from the start of the income year for which the election is made; and
(c)
remains in effect until the relevant company or trustee of a trust stops being a debt funding special purpose vehicle.
Relationship with section HR 9BA
(4)
This section overrides section HR 9BA (Elections to treat debt funding special purpose vehicles as transparent).
Defined in this Act: company, debt funding special purpose vehicle, income, income year, originator, return of income, trustee
Section HZ 9: inserted, on 18 March 2019, by section 227(1) (and see section 227(2) for application) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
HZ 10 What happens when election is made under section HZ 9?
When this section applies
(1)
This section applies when—
(a)
an originator makes an election under section HZ 9 that relates to a debt funding special purpose vehicle; and
(b)
immediately before the election is made, the debt funding special purpose vehicle holds a financial arrangement or an excepted financial arrangement that was transferred to the debt funding special purpose vehicle by 1 of its originators.
Originator: stepping in
(2)
For the purposes of calculating the income tax liability of the debt funding special purpose vehicle and its originators for the income year in which the election is made and later income years (the post-disposal periods),—
(a)
the relevant originator is treated for the post-disposal periods as if they had acquired and held the financial arrangement or excepted financial arrangement, not the debt funding special purpose vehicle:
(b)
the relevant originator is treated for the post-disposal periods as if they had paid any consideration originally paid by the debt funding special purpose vehicle for or under the financial arrangement or excepted financial arrangement, and the debt funding special purpose vehicle is treated as not having paid that consideration:
(c)
the relevant originator is treated for the post-disposal periods as if they had received any consideration originally received by the debt funding special purpose vehicle for or under the financial arrangement or excepted financial arrangement, and the debt funding special purpose vehicle is treated as not having received that consideration:
(d)
the debt funding special purpose vehicle is, for the financial arrangement, a party that is not required to calculate a base price adjustment, despite section EW 29 (When calculation of base price adjustment required).
Relationship with section HR 10
(3)
Section HR 10 (What happens when vehicle stops being transparent debt funding special purpose vehicle?) overrides this section.
Defined in this Act: debt funding special purpose vehicle, excepted financial arrangement, financial arrangement, income tax liability, income year, originator
Section HZ 10: inserted, on 18 March 2019, by section 227(1) (and see section 227(2) for application) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
HZ 11 Protection from non-compliance: Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020
Non-compliance with an enactment related to securities is ignored if the non-compliance—
(a)
results from the enactment of sections 83, 103(1) and (3), and 148 of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020; and
(b)
relates to a product disclosure statement, or to information lodged on the relevant disclosure register, under the Financial Markets Conduct Act 2013; and
(c)
concerns a multi-rate PIE that is not a KiwiSaver scheme; and
(d)
comes to an end before 31 January 2021.
Defined in this Act: KiwiSaver scheme, multi-rate PIE, superannuation scheme
Section HZ 11: inserted, on 23 March 2020, by section 153 of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
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