Due to the size of this legislation, it can only be viewed in parts. This will affect CTRL+F searches, which will only search the part you are currently viewing. You can use the content search on the top right of the page to search content across the whole Act.
Income Tax Act 2007
Income Tax Act 2007
Checking for alerts... Loading...
Income Tax Act 2007
Part G Avoidance and non-market transactions
Subpart GA—Avoidance: general
Contents
GA 1 Commissioner’s power to adjust
When this section applies
(1)
This section applies if an arrangement is void under section BG 1 (Tax avoidance).
Commissioner’s general power
(2)
The Commissioner may adjust the taxable income of a person affected by the arrangement in a way the Commissioner thinks appropriate, in order to counteract a tax advantage obtained by the person from or under the arrangement.
Commissioner’s specific power over tax credits
(3)
The Commissioner may—
(a)
disallow some or all of a tax credit of a person affected by the arrangement; or
(b)
allow another person to benefit from some or all of the tax credit.
Commissioner’s identification of hypothetical situation
(4)
When applying subsections (2) and (3), the Commissioner may have regard to 1 or more of the amounts listed in subsection (5) which, in the Commissioner’s opinion, had the arrangement not occurred, the person—
(a)
would have had; or
(b)
would in all likelihood have had; or
(c)
might be expected to have had.
Reconstructed amounts
(5)
The amounts referred to in subsection (4) are—
(a)
an amount of income of the person:
(b)
an amount of deduction of the person:
(c)
an amount of tax loss of the person:
(d)
an amount of tax credit of the person.
No double counting
(6)
When applying subsection (2), if the Commissioner includes an amount of income or deduction in calculating the taxable income of the person, it must not be included in calculating the taxable income of another person.
Meaning of tax credit
(7)
In this section, tax credit means a reduction in the tax a person must pay because of—
(a)
a credit allowed for a payment by the person of an amount of tax or of another item; or
(b)
another type of benefit.
Defined in this Act: amount, arrangement, Commissioner, deduction, tax, tax credit, tax loss, taxable income
Compare: 2004 No 35 s GB 1(1)–(2C)
GA 2 Commissioner’s power to adjust: fringe benefit tax
When this section applies
(1)
This section applies if—
(a)
an arrangement is void under section BG 1 (Tax avoidance); and
(b)
the arrangement involves altering the incidence of fringe benefit tax (FBT).
Commissioner’s power in relation to excluded income
(2)
The Commissioner may adjust the excluded income under section CX 3 (Excluded income) of a person affected by the arrangement in a way the Commissioner thinks appropriate, in order to counteract a tax advantage obtained by the person from or under the arrangement.
Commissioner’s identification of hypothetical situation
(3)
When applying subsection (2), the Commissioner may have regard to 1 or more of the amounts listed in subsection (4) which, in the Commissioner’s opinion, had the arrangement not occurred, the person—
(a)
would have had; or
(b)
would in all likelihood have had; or
(c)
might be expected to have had.
Reconstructed amounts
(4)
The amounts referred to in subsection (3) are—
(a)
an amount of excluded income of the person:
(b)
an amount of excluded income of the person, if the person had been allowed the benefit of an amount of excluded income derived by another person as a result of the arrangement.
No double counting
(5)
If the Commissioner includes an amount of excluded income in calculating the taxable income of the person, it must not be included in calculating the taxable income of another person.
Defined in this Act: amount, arrangement, Commissioner, excluded income, FBT, fringe benefit tax, taxable income
Compare: 2004 No 35 s GC 17B
Subpart GB—Avoidance: specific
Contents
Arrangements involving dividend stripping
GB 1 Arrangements involving dividend stripping
When this section applies
(1)
This section applies when—
(a)
a person disposes of shares in a company in an income year; and
(b)
the disposal is part of a tax avoidance arrangement; and
(c)
some or all of the consideration that the person derives from the disposal is in substitution for a dividend in an income year.
When amount substitutes for dividend
(2)
An amount derived by the person is in substitution for a dividend if it is equivalent to or substitutes for a dividend that, but for the arrangement, the person—
(a)
would have derived; or
(b)
would in all likelihood have derived; or
(c)
might be expected to have derived.
Substitute treated as dividend
(3)
The amount derived in substitution for a dividend is treated as a dividend derived by the person in the income year in which the disposal occurs.
Defined in this Act: arrangement, company, dispose, dividend, income year, tax avoidance arrangement
Compare: 2004 No 35 s GB 1(3)
Arrangements involving transfer pricing
GB 2 Arrangements involving transfer pricing
When this section applies
(1)
This section applies in relation to a person if an arrangement has a purpose or effect of defeating the intent and application of—
(a)
section GC 7 (Excess amount payable by person):
(b)
section GC 8 (Insufficient amount receivable by person):
(c)
section GC 9 (Compensating arrangement: person paying less than arm’s length amount):
(d)
section GC 10 (Compensating arrangement: person receiving more than arm’s length amount).
Possible examples
(2)
Without limiting the generality of subsection (1), the following collateral arrangements may result in that purpose or effect:
(a)
a collateral arrangement with an associated person who is a non-resident:
(b)
a market-sharing arrangement:
(c)
an arrangement not to enter a market:
(d)
a back-to-back supply arrangement:
(e)
an income-sharing arrangement.
Application of sections GC 7 to GC 10
(3)
Section GC 7, GC 8, GC 9, or GC 10, as applicable, applies to require the substitution of an arm’s length amount of consideration, despite section GC 6(2) and (3) (Purpose and application of rules and nature of arrangements).
Defined in this Act: arrangement, associated person, non-resident
Compare: 2004 No 35 s GC 1
Section GB 2(3): amended, on 1 July 2018, by section 37 of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
Arrangements involving tax losses
GB 3 Arrangements for carrying forward loss balances: companies’ ownership
When this section applies
(1)
This section applies when—
(a)
a share in a company (the loss company) or another company has been subject to an arrangement, including an arrangement directly or indirectly altering rights attached to the shares; and
(b)
the arrangement allows the loss company to meet the requirements of section IA 5(2) and (3) (Restrictions on companies’ loss balances carried forward: continuity of ownership); and
(c)
a purpose of the arrangement is to defeat the intent and application of sections IA 5 and IP 3 (Ownership continuity breach: tax loss components of companies carried forward).
Company treated as not meeting requirements
(2)
The loss company is treated as not meeting the requirements of section IA 5(2) and (3) in relation to the share.
Defined in this Act: arrangement, company, loss balance, share
Compare: 2004 No 35 s GC 2
Section GB 3 heading: replaced (with effect on 1 April 2020), on 30 March 2021, by section 75(1) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
Section GB 3(1)(b): amended (with effect on 1 April 2020), on 30 March 2021, by section 75(2) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
Section GB 3(1)(c): amended (with effect on 1 April 2020), on 30 March 2022, by section 111 of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
Section GB 3(2): amended (with effect on 1 April 2020), on 30 March 2021, by section 75(3) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
GB 3BA Arrangements for carrying forward loss balances: companies’ business activities
When this section applies
(1)
This section applies when—
(a)
a share in a company (the loss company) or another company has been subject to an arrangement, including an arrangement—
(i)
directly or indirectly altering rights attached to the shares:
(ii)
to change the nature of business activities carried on by the loss company; and
(b)
the arrangement is entered into within the 2 years immediately preceding a breach of the requirements for continuity of ownership of section IA 5 (Restrictions on companies’ loss balances carried forward: continuity of ownership) that, if they had been met, would have enabled a tax loss component of the loss company to be carried forward to a tax year in a loss balance; and
(c)
the arrangement allows the loss company to meet the requirements of section IB 3(2) (When tax loss components of companies carried forward despite ownership continuity breach) for the carrying forward of the tax loss component to the tax year; and
(d)
a purpose of the arrangement is to defeat the intent and application of section IB 3.
Company treated as not meeting requirements
(2)
The loss company is treated as not meeting the requirements of section IB 3(2) in relation to the tax loss component.
Defined in this Act: arrangement, business, company, loss balance, share, tax loss component, tax year
Section GB 3BA: inserted (with effect on 1 April 2020), on 30 March 2021, by section 76(1) (and see section 76(2) for application) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
GB 3BAB Arrangements to inject income into companies carrying forward loss balances
When this section applies
(1)
This section applies when—
(a)
a person (person A) enters into an arrangement with another person (person B); and
(b)
person A and person B are associated persons at the time they enter into the arrangement; and
(c)
an effect of the arrangement is that a company derives an amount of assessable income for an income year that, but for the arrangement, a person other than the company—
(i)
would have derived; or
(ii)
would in all likelihood have derived; or
(iii)
might be expected to have derived; and
(d)
tax loss components of the company are carried forward under section IB 3(2) (When tax loss components of companies carried forward despite ownership continuity breach) to the tax year corresponding to the income year; and
(e)
the arrangement has tax avoidance as its sole or main purpose.
Treatment of injected income
(2)
The amount is schedular income of the company for the tax year corresponding to the income year.
Defined in this Act: amount, arrangement, assessable income, associated person, company, income year, schedular income, tax avoidance, tax loss component, tax year
Section GB 3BAB: inserted (with effect on 1 April 2020), on 30 March 2021, by section 76(1) (and see section 76(2) for application) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
GB 3BAC Arrangements to shift expenditure from companies carrying forward loss balances
When this section applies
(1)
This section applies when—
(a)
tax loss components of a company are carried forward under section IB 3(2) (When tax loss components of companies carried forward despite ownership continuity breach) to a tax year; and
(b)
a person (person A) enters into an arrangement with another person (person B); and
(c)
person A and person B are associated persons at the time they enter into the arrangement; and
(d)
an effect of the arrangement is that, in the absence of this section, a person other than the company is allowed a deduction for an amount of expenditure or loss the person incurs that, but for the arrangement, the company—
(i)
would have incurred in the income year corresponding to the tax year; or
(ii)
would in all likelihood have incurred in the income year corresponding to the tax year; or
(iii)
might be expected to have incurred in the income year corresponding to the tax year; and
(e)
the arrangement has tax avoidance as its sole or main purpose.
Treatment of company
(2)
The company is treated as having incurred the amount of expenditure or loss—
(a)
in the course of carrying on a business for the purpose of deriving assessable income; and
(b)
in the income year corresponding to the tax year.
Treatment of other person
(3)
The person referred to in subsection (1)(d) that is not the company is treated as not having incurred the amount of expenditure or loss.
Defined in this Act: amount, arrangement, assessable income, associated person, business, company, deduction, income year, loss, tax avoidance, tax loss component, tax year
Section GB 3BAC: inserted (with effect on 1 April 2020), on 30 March 2021, by section 76(1) (and see section 76(2) for application) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
GB 3B Arrangements for carrying back net losses: companies
When this section applies
(1)
This section applies when—
(a)
a share in a company (the loss company) or another company has been subject to an arrangement, including an arrangement directly or indirectly altering rights attached to the shares; and
(b)
the arrangement allows the loss company to meet the requirements of section IZ 8 (Election to use net loss for 2019–20 or 2020–21 year as tax loss in preceding year); and
(c)
a purpose of the arrangement is to defeat the intent and application of section IZ 8.
Company treated as not meeting requirements
(2)
The loss company is treated as not meeting the requirements of section IZ 8 in relation to the shares.
Defined in this Act: arrangement, company, share
Section GB 3B: inserted (with effect on 15 April 2020), on 30 April 2020, by section 7 of the COVID-19 Response (Taxation and Other Regulatory Urgent Measures) Act 2020 (2020 No 10).
GB 4 Arrangements for grouping tax losses: companies
When this section applies
(1)
This section applies when—
(a)
a share in a company (the offset company) or another company has been subject to an arrangement, including an arrangement directly or indirectly altering rights attached to the shares; and
(b)
the arrangement allows the offset company to meet the requirements of subparts IC and IP, and sections IZ 7 and IZ 8 (which relate to the use of tax losses by group companies), as applicable; and
(c)
a purpose of the arrangement is to defeat the intent and application of those provisions.
Company treated as not meeting requirements
(2)
The offset company is treated as not meeting the requirements of subparts IC and IP and section IZ 7 or IZ 8, as applicable, in relation to the share.
Defined in this Act: arrangement, company, share, tax loss
Compare: 2004 No 35 s GC 4
Section GB 4(1)(b): amended (with effect on 15 April 2020), on 30 April 2020, by section 8(1) of the COVID-19 Response (Taxation and Other Regulatory Urgent Measures) Act 2020 (2020 No 10).
Section GB 4(2): amended (with effect on 15 April 2020), on 30 April 2020, by section 8(2) of the COVID-19 Response (Taxation and Other Regulatory Urgent Measures) Act 2020 (2020 No 10).
Arrangements to defeat continuity provisions
GB 5 Arrangements involving trust beneficiaries
When this section applies
(1)
This section applies when—
(a)
a share in a company or option over a share in a company is held by a trustee; and
(b)
a change occurs in the beneficiaries of the trust; and
(c)
a purpose or effect of the change is to defeat the intent and application of a continuity provision.
Trustee treated as disposing of share or option
(2)
The trustee is treated as having disposed of the share or option to an unrelated person at the time of the change in beneficiaries, and as having reacquired it immediately afterwards.
Limited application of subsection (2)
(3)
Subsection (2) applies only for the purposes of the application of the rules in sections YC 2 (Voting interests) and YC 3 (Market value interests) in the case of the continuity provisions.
Defined in this Act: company, continuity provisions, dispose, option, share, trustee
Compare: 2004 No 35 s GC 3
Arrangements involving qualifying companies
GB 6 Arrangements involving qualifying companies
When this section applies
(1)
This section applies when—
(a)
a share in a company has been subject to an arrangement at a time; and
(b)
the arrangement allows the company or another company (the relevant company) to be a qualifying company at the time; and
(c)
a purpose of the arrangement is to defeat the intent and application of subpart HA (Qualifying companies (QC)).
Company treated as not qualifying company
(2)
The relevant company is treated as not being a qualifying company at that time.
Defined in this Act: arrangement, company, qualifying company, share
Compare: 2004 No 35 s GC 5
Section GB 6(1)(c): amended, on 17 July 2013, by section 172 of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Arrangements involving controlled foreign companies
GB 7 Arrangements involving CFC control interests
When this section applies
(1)
This section applies when—
(a)
2 or more persons who are New Zealand residents enter into an arrangement; and
(b)
under the arrangement, a control interest in a foreign company is held by another person; and
(c)
a purpose of the arrangement is to prevent the foreign company being a controlled foreign company (CFC).
Interest treated as held by residents
(2)
The control interest is treated as being held by the New Zealand residents in equal proportions, for the purposes of determining whether the company is a CFC.
Defined in this Act: arrangement, CFC, control interest, foreign company, New Zealand resident
Compare: 2004 No 35 s GC 7
GB 8 Arrangements involving attributed repatriation from CFCs
[Repealed]Section GB 8: repealed, on 24 February 2016, by section 179 of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
GB 9 Temporary disposals of direct control or income interests
When this section applies
(1)
This section applies when,—
(a)
before the end of a quarter, a person (the disposer), directly or indirectly disposes of a direct control interest or direct income interest in a foreign company (the disposal); and
(b)
the disposal is not to a New Zealand resident who, immediately after the disposal, has an income interest of 10% or more in the foreign company from which attributed CFC income is derived; and
(c)
within 183 days after the disposal, the disposer directly or indirectly acquires a direct control interest or direct income interest in the foreign company (the reacquisition); and
(d)
the disposal has the effect of reducing attributed CFC income of—
(i)
the disposer; or
(ii)
an associated person of the disposer; or
(iii)
if the disposer is a CFC, a person holding an income interest in the disposer; and
(e)
the disposal and reacquisition are part of an arrangement that has an effect of defeating the intent and application of the international tax rules.
Treatment of disposal
(2)
The disposal is treated as not having occurred, when the person’s control interest or income interest in the foreign company at the end of the quarter is calculated, to the extent to which the reacquisition reverses the disposal.
Defined in this Act: arrangement, associated person, attributed CFC income, CFC, control interest, direct control interest, direct income interest, foreign company, income interest, international tax rules, quarter
Compare: 2004 No 35 s GC 9(1), (4), (7)
Section GB 9(1)(b): amended, on 24 February 2016, by section 180(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section GB 9(1)(d): amended, on 24 February 2016, by section 180(2) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section GB 9 list of defined terms attributed repatriation: repealed, on 24 February 2016, by section 180(3) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
GB 10 Temporary acquisitions of direct control or income interests
When this section applies
(1)
This section applies when,—
(a)
before the end of a quarter, a person (the acquirer), directly or indirectly acquires a direct control interest or direct income interest in a foreign company (the acquisition); and
(b)
the acquisition is not from a New Zealand resident who, immediately before the acquisition, has an income interest of 10% or more in the foreign company from which an attributed CFC loss is incurred; and
(c)
within 183 days after the acquisition, the acquirer directly or indirectly disposes of a direct control interest or direct income interest in the foreign company (the disposal); and
(d)
the acquisition has the effect of increasing an attributed CFC loss of—
(i)
the acquirer; or
(ii)
an associated person of the acquirer; or
(iii)
if the acquirer is a CFC, a person holding an income interest in the acquirer; and
(e)
the acquisition and disposal are part of an arrangement that has an effect of defeating the intent and application of the international tax rules.
Treatment of acquisition
(2)
The acquisition is treated as not having occurred, when the person’s control interest or income interest in the foreign company at the end of the quarter is calculated, to the extent to which the disposal reverses the acquisition.
Defined in this Act: arrangement, associated person, attributed CFC loss, CFC, control interest, direct control interest, direct income interest, foreign company, income interest, international tax rules, quarter
Compare: 2004 No 35 s GC 9(1), (4), (7)
GB 11 Temporary increases in totals for control interest categories
When this section applies
(1)
This section applies when,—
(a)
before the end of a quarter, an increase occurs in the total of direct control interests in a foreign company in any of the control interest categories (the total increase); and
(b)
the total increase results in a person (the interest holder) having a reduced income interest or control interest in a foreign company (the interest reduction); and
(c)
within 365 days after the total increase, a reduction occurs in the total for the control interest category (the total reduction); and
(d)
the interest reduction has the effect of reducing attributed CFC income of—
(i)
the interest holder; or
(ii)
an associated person of the interest holder; or
(iii)
if the interest holder is a CFC, another person holding an income interest in the interest holder; and
(e)
the total increase and total reduction are part of an arrangement that has an effect of defeating the intent and application of the international tax rules.
Treatment of interest reduction
(2)
The interest reduction is treated as not having occurred, when the interest holder’s control interest or income interest in the foreign company at the end of the quarter is calculated, to the extent to which the total reduction reverses the interest reduction.
Defined in this Act: arrangement, associated person, attributed CFC income, CFC, control interest, control interest category, direct control interest, foreign company, income interest, international tax rules, quarter
Compare: 2004 No 35 s GC 9(2), (7)
Section GB 11(1)(d): amended, on 24 February 2016, by section 181(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section GB 11 list of defined terms attributed repatriation: repealed, on 24 February 2016, by section 181(2) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
GB 12 Temporary reductions in totals for control interest categories
When this section applies
(1)
This section applies when,—
(a)
before the end of a quarter, a reduction in the total of direct control interests in a foreign company occurs in a control interest category (the total reduction); and
(b)
the total reduction results in a person (the interest holder) having an increased income interest or control interest in a foreign company (the interest increase); and
(c)
within 365 days after the total reduction, an increase occurs in the total for the control interest category (the total increase); and
(d)
the interest increase has the effect of increasing an attributed CFC loss of—
(i)
the interest holder; or
(ii)
an associated person of the interest holder; or
(iii)
another person holding an income interest in the interest holder, if the interest holder is a CFC; and
(e)
the total reduction and total increase are part of an arrangement which has an effect of defeating the intent and application of the international tax rules.
Treatment of interest increase
(2)
The interest increase is treated as not having occurred, when the interest holder’s control interest or income interest in the foreign company at the end of the quarter is calculated, to the extent to which the total increase reverses the interest increase.
Defined in this Act: arrangement, associated person, attributed CFC loss, CFC, control interest, control interest category, direct control interest, foreign company, income interest, international tax rules, quarter
Compare: 2004 No 35 s GC 9(2), (7)
GB 13 When combination of changes reduces income
When this section applies
(1)
This section applies when—
(a)
before the end of a quarter, either—
(i)
a person directly or indirectly disposes of a direct control interest or direct income interest in a foreign company (the disposal); or
(ii)
an increase occurs in the total of direct control interests in a foreign company in any of the control interest categories (the total increase); and
(b)
in the case of the disposal, the disposal is not to a New Zealand resident who, immediately after the disposal, has an income interest of 10% or more in the foreign company from which they derive attributed CFC income; and
(c)
in the case of the disposal, within 365 days after the disposal, a reduction occurs in the total of direct control interests in the foreign company in any of the control interest categories (the total reduction); and
(d)
in the case of the total increase, within 365 days after the total increase, a person directly or indirectly acquires a direct control interest or direct income interest in the foreign company (the reacquisition); and
(e)
the disposal or total increase has the effect of reducing attributed CFC income of—
(i)
the person (the interest holder); or
(ii)
an associated person of the interest holder; or
(iii)
if the interest holder is a CFC, a person holding an income interest in the interest holder; and
(f)
the disposal and total reduction or total increase and reacquisition are part of an arrangement that has an effect of defeating the intent and application of the international tax rules.
Treatment of disposal or total increase
(2)
The disposal or total increase is treated as not having occurred, when the interest holder’s control interest or income interest in the foreign company at the end of the quarter is calculated, to the extent to which the total reduction or reacquisition has the effect of reversing the effect of the disposal or total increase on the level of the interest holder’s control interest or income interest.
Defined in this Act: arrangement, associated person, attributed CFC income, CFC, control interest, control interest category, direct control interest, direct income interest, foreign company, income interest, international tax rules, quarter
Compare: 2004 No 35 s GC 9(3), (4), (7)
Section GB 13(1)(b): amended, on 24 February 2016, by section 182(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section GB 13(1)(e): amended, on 24 February 2016, by section 182(2) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section GB 13 list of defined terms attributed repatriation: repealed, on 24 February 2016, by section 182(3) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
GB 14 When combination of changes increases loss
When this section applies
(1)
This section applies when,—
(a)
before the end of a quarter, either—
(i)
a person directly or indirectly acquires a direct control interest or direct income interest in a foreign company (the acquisition); or
(ii)
a decrease occurs in the total of direct control interests in a foreign company in any of the control interest categories (the total decrease); and
(b)
in the case of the acquisition, the acquisition is not from a New Zealand resident who, immediately before the acquisition, has an income interest of 10% or more in the foreign company from which they have an attributed CFC loss; and
(c)
in the case of the acquisition, within 365 days after the acquisition, an increase occurs in the total of direct control interests in the foreign company in any of the control interest categories (the total increase); and
(d)
in the case of the total reduction, within 365 days after the total reduction, a person directly or indirectly disposes of a direct control interest or direct income interest in the foreign company (the disposal); and
(e)
the acquisition or total reduction has the effect of reducing an attributed CFC loss of—
(i)
the person (the interest holder); or
(ii)
an associated person of the interest holder; or
(iii)
if the interest holder is a CFC, a person holding an income interest in the interest holder; and
(f)
the acquisition and total increase or total reduction and disposal are part of an arrangement that has an effect of defeating the intent and application of the international tax rules.
Treatment of acquisition or total reduction
(2)
The acquisition or total reduction is treated as not having occurred, when the interest holder’s control interest or income interest in the foreign company at the end of the quarter is calculated, to the extent to which the total increase or disposal has the effect of reversing the effect of the acquisition or total reduction on the level of the interest holder’s control interest or income interest.
Defined in this Act: arrangement, associated person, attributed CFC loss, CFC, control interest, control interest category, direct control interest, direct income interest, foreign company, income interest, international tax rules, quarter
Compare: 2004 No 35 s GC 9(3), (4), (7)
GB 15 CFC income or loss: arrangements related to quarterly measurement
When this section applies
(1)
This section applies when—
(a)
an income interest in a CFC is transferred by a person to an associated person; and
(b)
the associated persons make an arrangement for making or not making an election under section EX 26(3) (Use of quarterly measurement); and
(c)
the arrangement has an effect of defeating the intent and application of the international tax rules.
Treatment of election
(2)
The Commissioner may treat the election as having been made or not made, as applicable, to the extent appropriate to prevent the effect of the arrangement.
Defined in this Act: arrangement, associated person, CFC, Commissioner, income interest, international tax rules
Compare: 2004 No 35 s GC 10
GB 15BA CFC income or loss: arrangements for inclusion of CFC in test group
When this section applies
(1)
This section applies when—
(a)
for a person and 2 or more accounting periods, a CFC is not a non-attributing active CFC unless the person chooses to test the CFC together with other CFCs as a group (the test group) under—
(i)
section EX 21D (Non-attributing active CFC: default test); or
(ii)
section EX 21E (Non-attributing active CFC: test based on accounting standard); and
(b)
the person enters into an arrangement to—
(i)
choose to include the CFC in the test group for 1 of the accounting periods; and
(ii)
not choose to include the CFC in the test group for another of the accounting periods; and
(c)
the effect of the arrangement in the absence of this section would be that the person had less net attributable CFC income when the CFC was in the test group and greater net attributable CFC losses when the CFC was not in the test group.
Treatment of election
(2)
The Commissioner may treat an election as having been made or not made, as appropriate to prevent the arrangement having the effect referred to in subsection (1)(c).
Defined in this Act: accounting period, arrangement, CFC, Commissioner, net attributable CFC income, net attributable CFC loss, non-attributing active CFC
Section GB 15BA: inserted, on 1 April 2016 (applying for the 2016–17 and later income years), by section 183(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
GB 15B Supplies affecting default test for non-attributing active CFC
When this section applies
(1)
This section applies when a CFC makes a supply—
(a)
to a person who would not meet the requirements of section EX 21D(1)(a) to (c) (Non-attributing active CFC: default test) for the person to be a member of a test group, under that section, with the CFC; and
(b)
with the purpose of increasing the amount given by the denominator in the formula in section EX 21D(4) for the CFC.
Income from supply included in gross adjustment
(2)
The income from the supply is included in the item gross adjustments in section EX 21D(9)(d).
Defined in this Act: CFC
Section GB 15B: inserted (with effect on 30 June 2009), on 6 October 2009, by section 237(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
GB 15C Arrangements related to accounting test for non-attributing active CFC
When this section applies
(1)
This section applies when a person (the party) enters an arrangement having a purpose, that is more than incidental, of enabling a CFC to meet the requirements of section EX 21E (Non-attributing active CFC: test based on accounting standard) when the CFC would not meet the requirements of section EX 21D (Non-attributing active CFC: default test) to be a non-attributing active CFC.
CFC not non-attributing active CFC
(2)
The CFC is not a non-attributing active CFC.
Person not non-attributing active CFC if type of financial arrangement involved
(3)
A party who is a CFC associated with the CFC is not a non-attributing active CFC if—
(a)
the arrangement involves a financial arrangement producing a foreign exchange loss for the CFC; and
(b)
the foreign exchange loss decreases for the CFC the amount of the numerator in the formula in section EX 21E(5).
Defined in this Act: arrangement, associated, CFC, financial arrangement, loss, non-attributing active CFC
Section GB 15C: inserted (with effect on 30 June 2009), on 6 October 2009, by section 237(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Arrangements involving foreign investment funds
GB 16 FIF income or loss: arrangements for measurement day concessions
When this section applies
(1)
This section applies when—
(a)
an attributing interest in a foreign investment fund (FIF) is transferred by a person to an associated person; and
(b)
the associated persons make an arrangement for making or not making—
(i)
an election under section EX 26(3) (Use of quarterly measurement); or
(ii)
[Repealed](iii)
a combination of those elections; and
(c)
the arrangement has an effect of defeating the intent and application of the international tax rules.
Treatment of election
(2)
The Commissioner may treat an election as having been made or not made, as applicable, to the extent appropriate to prevent the effect of the arrangement.
Defined in this Act: arrangement, associated person, attributing interest, FIF, Commissioner, international tax rules
Compare: 2004 No 35 s GC 10
Section GB 16(1)(b)(ii): repealed (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 69(1) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Arrangements involving film rights
GB 17 Excessive amounts for film rights or production expenditure
When this section applies
(1)
This section applies when—
(a)
a person (the buyer) is allowed a deduction under—
(i)
section DS 1 (Acquiring film rights) for expenditure incurred in acquiring a film right; or
(ii)
section DS 2 (Film production expenditure) for expenditure incurred in acquiring goods or services in relation to a film; and
(b)
the Commissioner considers that the buyer and the person from whom the film right, goods, or services were acquired (the seller) were not dealing with each other at arm’s length; and
(c)
the amount of expenditure incurred by the buyer is more than the market value of the film right, goods, or services at the time they were acquired.
Deduction reduced to market value
(2)
The deduction is reduced to an amount equal to the market value.
Application to shares in film rights
(3)
If the buyer acquires only a share in a film right, this section applies only to the part of the total market value of the film right that is attributable to that share.
Defined in this Act: Commissioner, deduction, film production expenditure, film right
Compare: 2004 No 35 ss GC 11A, GD 12
Section GB 17(1)(b): 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).
GB 18 Arrangements to acquire film rights or incur production expenditure
When this section applies
(1)
This section applies if the Commissioner considers that 2 persons have made arrangements so that any of the following sections applies more favourably in relation to a person in an income year than would have applied without the arrangements:
(a)
section DS 1 (Acquiring film rights):
(b)
section DS 2 (Film production expenditure):
(c)
section EJ 4 (Expenditure incurred in acquiring film rights in feature films):
(d)
section EJ 5 (Expenditure incurred in acquiring film rights in films other than feature films):
(e)
section EJ 7 (Film production expenditure for New Zealand films):
(f)
section EJ 8 (Film production expenditure for films other than New Zealand films).
Deduction reduced
(2)
The deduction allowed to the person under section DS 1 or DS 2 is reduced to the amount that the Commissioner considers would have been allowed had the arrangements not occurred.
Allocation
(3)
The deduction allocated under section EJ 4, EJ 5, EJ 7, or EJ 8 is allocated to the income year to which the Commissioner considers it would have been allocated had the arrangements not occurred.
Defined in this Act: arrangement, Commissioner, deduction, film production expenditure, film right, income year
GB 19 When film production expenditure payments delayed or contingent
When this section applies
(1)
This section applies when—
(a)
a person (the payer) is liable to pay any of the costs of goods or services applied in producing a film:
(b)
either—
(i)
the payment of the costs is deferred under an agreement between the provider of the goods or services and another person, and the period of deferral is excessive; or
(ii)
the payment is contingent.
Costs incurred when paid
(2)
For the purposes of sections DS 2, EJ 7, and EJ 8 (which relate to film production expenditure), the payer is treated as incurring the costs at the time of payment.
Defined in this Act: film, film production expenditure
Compare: 2004 No 35 s GD 12A
Arrangements involving petroleum and mineral mining
Heading: replaced, on 1 April 2014, by section 77 of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
GB 20 Arrangements involving petroleum and mineral mining
When this section applies
(1)
This section applies when—
(a)
an arrangement includes—
(i)
the disposal of a petroleum mining asset or a mineral mining asset (the mining asset); or
(ii)
the incurring of petroleum exploration expenditure or 1 or more of the classes of mineral mining expenditure referred to in section DU 8 (Classes of mineral mining expenditure) (the mining expenditure); or
(iii)
a farm-out arrangement; and
(b)
the arrangement has a purpose or effect of tax avoidance.
Applying section GA 1
(2)
The Commissioner may apply section GA 1 (Commissioner’s power to adjust) to adjust the taxable income of a person affected by the arrangement so as to counteract a tax advantage obtained by the person.
Examples
(3)
Without limiting the generality of subsection (1), arrangements having the effect of tax avoidance include the arrangements described in subsections (4) to (8).
Person acquiring asset relieved or compensated
(4)
An arrangement has the effect of tax avoidance if it involves the disposal of a mining asset and it is probable that, at the time the arrangement is entered into, the person acquiring the mining asset—
(a)
will, through a related arrangement, not have to suffer some or all of the expenditure of acquiring the mining asset; or
(b)
will be effectively compensated in some way for some or all of the expenditure.
Person incurring expenditure relieved or compensated
(5)
An arrangement has the effect of tax avoidance if it involves the incurring of mining expenditure and it is probable that, at the time the arrangement is entered into, the person who is to incur the mining expenditure—
(a)
will, through a related arrangement, not have to suffer some or all of the mining expenditure; or
(b)
will be effectively compensated in some way for some or all of the mining expenditure.
Farm-in party relieved or compensated
(6)
An arrangement has the effect of tax avoidance if it involves a farm-out arrangement and it is probable that, at the time the arrangement is entered into,—
(a)
the farm-in party will, through a related arrangement, not have to suffer some or all of the farm-in expenditure attributable to the proportionate interest acquired by the farm-in party under the farm-out arrangement; or
(b)
the farm-in party or an associated person will be effectively compensated in some way for some or all of the farm-in expenditure.
Disposal of asset to associated person for over-value
(7)
An arrangement has the effect of tax avoidance if it involves a petroleum miner or mineral miner disposing of a mining asset to an associated person for a purpose of ensuring that the associated person has a greater deduction than would have been allowed if the asset had been disposed of for its market value.
Farm-out arrangement with associate person for over-value
(8)
An arrangement has the effect of tax avoidance if it involves a petroleum miner or a mineral miner entering into a farm-out arrangement with an associated person for the purpose of ensuring that the associated person has a greater deduction than would have been allowed if the farm-out arrangement had been entered into on substantially the same terms as those on which it would have been entered into with a person who is not associated.
Miners operating offshore
(9)
This section applies, with the necessary modifications, to a petroleum miner or a mineral miner who undertakes mining operations or that are—
(a)
outside New Zealand and undertaken through a branch or CFC; and
(b)
substantially the same as the mining activities governed by this Act.
Treatment of partners
(10)
For the purposes of this section, a partner is treated as having a share or interest in a petroleum permit, exploration permit, prospecting permit, or mining permit, as applicable, or other property of a partnership to the extent of their income interest in the partnership.
Disposal of part of asset
(11)
For the purposes of this section, references to the disposal of an asset apply equally to the disposal of part of an asset.
Defined in this Act: arrangement, associated person, CFC, deduction, dispose, farm-in expenditure, farm-out arrangement, mineral miner, mineral mining asset, mining permit, New Zealand, petroleum exploration expenditure, petroleum mining asset, petroleum permit, tax avoidance, taxable income
Section GB 20: replaced, on 1 April 2014 (applying for the 2014–15 and later income years), by section 78(1) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
Section GB 20(1)(a)(ii): amended (with effect on 1 April 2014), on 30 March 2021, by section 77 of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
Arrangements involving financial arrangements
GB 21 Dealing that defeats intention of financial arrangements rules
When this section applies
(1)
This section applies if the Commissioner considers that the parties to a financial arrangement were dealing with each other in a way that defeats the intention of the financial arrangements rules at the time the financial arrangement was—
(a)
entered into or otherwise acquired; or
(b)
varied; or
(c)
disposed of.
Alteration of consideration
(2)
The Commissioner may treat the relevant transaction as having occurred for the consideration that parties dealing at arm’s length would have agreed on.
Defined in this Act: Commissioner, financial arrangement, financial arrangements rules
Compare: 2004 No 35 s GD 11
Arrangements involving trust beneficiary income
GB 22 Arrangements involving trust beneficiary income
When this section applies
(1)
This section applies when—
(a)
an arrangement involves a trustee transferring property, or providing services or other benefits, to a person other than a beneficiary of the trust; and
(b)
the arrangement has the effect of defeating the intent and application of sections HC 17 to HC 23 (which relate to the income of beneficiaries) in relation to the beneficiary; and
(c)
the trust is not a Maori authority.
Application of sections HC 17 to HC 23
(2)
The beneficiary is treated, for the purposes of sections HC 17 to HC 23, as receiving the property or enjoying the services or benefits.
Defined in this Act: arrangement, Maori authority, trustee
Compare: 2004 No 35 s GC 14
Excessive remuneration
GB 23 Excessive remuneration to relatives
When this section applies: first case
(1)
This section applies when—
(a)
a person carries on a business or undertaking; and
(b)
the person employs or engages a relative or, in a case in which the person is a company but not a close company, a relative of a director or shareholder of the company, to perform services for the business or undertaking; and
(c)
the Commissioner considers that the income payable to the relative for the services is excessive; and
(d)
the exemption in section GB 24 does not apply.
When this section applies: second case
(2)
This section also applies when—
(a)
a person carries on a business in partnership or has an effective look-through interest for a look-through company; and
(b)
the partnership or look-through company employs or engages a relative of the person or, in a case in which the person is a company, a relative of a director or shareholder in the company, to perform services for the business; and
(c)
the Commissioner considers that the income payable to the relative for the services is excessive; and
(d)
the exemption in section GB 24 does not apply.
When this section applies: third case
(3)
This section also applies when—
(a)
a person carries on a business in partnership; and
(b)
another partner in the partnership is—
(i)
a relative of the person; or
(ii)
if the person is a company, a relative of a director or shareholder in the company; or
(iii)
a company in which a relative of the person is a director or shareholder; and
(c)
the Commissioner considers that the other partner’s share of partnership profit or losses is excessive; and
(d)
the exemption in section GB 24 does not apply.
Allocation of income or losses
(4)
For the purposes of this Act, the Commissioner may allocate the income or losses of the business or undertaking among the parties to the contract or partnership as the Commissioner considers reasonable, without taking into account an amount provided to the relative or other partner.
Treatment of amount allocated
(5)
An amount the Commissioner allocates to 1 person is treated as not belonging to another person.
Matters for Commissioner’s consideration
(6)
The Commissioner may take into account each of the following matters when applying this section:
(a)
the nature and extent of the services rendered by the relative:
(b)
the value of the contributions made by the respective partners, by way of services, capital, or otherwise:
(c)
any other relevant matters.
Treatment of amount allocated back to company
(7)
If an amount provided by a company to a relative of a director or shareholder for services is allocated to the company under subsection (4), it is treated as a dividend paid by the company and derived by the relative.
Defined in this Act: close company, company, director, dividend, effective look-through interest, income, look-through company, relative, shareholder
Compare: 2004 No 35 s GD 3(1), (2)
Section GB 23(2)(a): amended, on 1 April 2011 (applying for income years beginning on or after 1 April 2011), by section 67(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section GB 23(2)(b): amended, on 1 April 2011 (applying for income years beginning on or after 1 April 2011), by section 67(2) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section GB 23 list of defined terms effective look-through interest: inserted, on 1 April 2011, by section 67(3) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section GB 23 list of defined terms look-through company: inserted, on 1 April 2011, by section 67(3) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
GB 24 Exemption for genuine contracts
When section GB 23 does not apply
(1)
Section GB 23 does not apply if the relevant contract of employment, engagement, or partnership is a genuine contract.
When contracts genuine
(2)
A contract is treated as a genuine contract if—
(a)
the contract is in writing; and
(b)
the contract is signed by all the parties to it; and
(c)
in the case of a contract of employment or engagement, each person employed or engaged under the contract is 20 years or older on the date of signing the contract; and
(d)
in the case of a contract of partnership, each partner is 20 years or older on the date of signing the contract; and
(e)
the contract is binding for at least 3 years, except for the reasons set out in sections 69, 70, 72, and 73 of the Partnership Law Act 2019; and
(f)
in the case of a contract of employment or engagement, each person employed or engaged has real control over their income under the contract; and
(g)
in the case of a contract of partnership, each partner has—
(i)
real control over their share of profits under the contract; and
(ii)
real liability for their share of losses under the contract; and
(h)
no part of the income or share of profits derived by the relative, or company of which the relative is a shareholder or director, is either a disposition without fully adequate consideration in money or money’s worth passing to the person making the disposition or a disposition that any part of does not have fully adequate consideration in money or money’s worth passing to the person making the disposition.
Defined in this Act: director, income, loss, shareholder, year
Compare: 2004 No 35 s GD 3(4), (5)
Section GB 24(2)(e): amended, on 21 April 2020, by section 86 of the Partnership Law Act 2019 (2019 No 53).
Section GB 24(2)(h): replaced (with effect on 1 October 2011), on 17 July 2013, by section 58 of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
GB 25 Close company remuneration to shareholders, directors, or relatives
When this section applies
(1)
This section applies when—
(a)
a close company provides remuneration for services to a person (the service provider) who is—
(i)
a shareholder or director of the company; or
(ii)
a relative of a shareholder or director of the company; and
(b)
the Commissioner considers that the amount provided is excessive; and
(c)
the exemption in subsection (3) does not apply.
Excess treated as dividend
(2)
For the purposes of this Act, the excess is treated as a dividend paid by the company and derived by the service provider.
Exemption: residents working full-time
(3)
This section does not apply when—
(a)
the service provider is an adult employed substantially full-time in the business of the company; and
(b)
the service provider participates in the management or administration of the company; and
(c)
the amount provided to the service provider was not influenced by their relationship with a shareholder or director; and
(d)
the service provider is a New Zealand resident.
Defined in this Act: close company, Commissioner, company, director, dividend, New Zealand resident, shareholder
Compare: 2004 No 35 s GD 5
Section GB 25(3)(b): amended (with effect on 1 April 2008), on 7 September 2010 (applying for the 2008–09 and later income years), by section 53(1) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
GB 25B Excessive effective look-through interests
When this section applies
(1)
This section applies to the extent to which, for an income year,—
(a)
a person (an owner) has an effective look-through interest for a look-through company (the LTC); and
(b)
for the LTC, 2 or more owners are relatives, 1 of whom is under 20 years old (the relevant relative); and
(c)
the Commissioner considers that the income arising from the application of section HB 1 (Look-through companies are transparent) for the relevant relative is excessive.
Reallocation of effective look-through interests
(2)
Despite section HB 1, the effective look-through interests for the person are the interests that the Commissioner considers reasonable for the income year or part of the income year, as applicable, without taking into account an amount provided to the relevant relative.
Matters for Commissioner’s consideration
(3)
The Commissioner may take into account each of the following matters when applying this section:
(a)
the nature and extent of services rendered by the relevant relative:
(b)
the value of the contributions made by the respective owners, by way of services, capital, or otherwise:
(c)
any other relevant matters.
Defined in this Act: effective look-through interest, income year, look-through company, relative
Section GB 25B: inserted, on 1 April 2011 (applying for income years beginning on or after 1 April 2011), by section 68(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Arrangements involving repatriation of commercial bills
GB 26 Arrangements involving repatriation of commercial bills
When this section applies
(1)
This section applies when—
(a)
a commercial bill has been issued by—
(i)
a New Zealand resident who does not use the money lent in a business carried on through a fixed establishment outside New Zealand; or
(ii)
a non-resident who uses the money lent in a business carried on through a fixed establishment in New Zealand; and
(b)
a non-resident who holds the bill transfers it to another person (the New Zealand transferee); and
(c)
the non-resident did not become a party to the bill for the purpose of carrying on a business through a fixed establishment in New Zealand; and
(d)
the New Zealand transferee is either—
(i)
a New Zealand resident; or
(ii)
a non-resident who becomes a party to the commercial bill for the purpose of carrying on a business through a fixed establishment in New Zealand; and
(e)
the transfer of the bill has the purpose of avoiding non-resident withholding tax (NRWT) or the approved issuer levy.
Income
(2)
If the New Zealand transferee redeems the commercial bill, the redemption payment is income of the New Zealand transferee.
New Zealand transferee treated as redeeming bill
(3)
For the purposes of this section, the New Zealand transferee is treated as redeeming the bill on the scheduled redemption date even if it is not redeemed.
Defined in this Act: approved issuer, commercial bill, fixed establishment, income, money lent, New Zealand resident, non-resident, NRWT, redemption payment
Compare: 2004 No 35 s GC 14A
Attribution rule for income from personal services
GB 27 Attribution rule for income from personal services
Application of section GB 29
(1)
An amount of income in an income year of a person (the associated entity) is attributed to another person (the working person) under section GB 29 for the working person’s corresponding tax year if,—
(a)
during the income year, a third person (the buyer) acquires services from the associated entity, and the services are personally performed by the working person; and
(b)
the working person is associated with the associated entity; and
(c)
the threshold test in subsection (2) is met; and
(d)
none of the exemptions in subsection (3) applies.
Threshold for application of attribution rule
(2)
The attribution occurs only if—
(a)
80% or more of the associated entity’s total income from personal services during the income year is derived from the supply of services to the buyer, a person associated with the buyer, or a combination of them; and
(b)
80% or more of the associated entity’s income from personal services during the income year is derived through services personally performed by the working person, a relative of the working person, or a combination of them; and
(c)
the working person’s net income for the income year, assuming section GB 29 applies in relation to the associated entity and working person, is more than $70,000; and
(d)
substantial business assets are not a necessary part of the business structure that is used to derive the total income referred to in paragraph (a).
Exemptions
(3)
The attribution does not occur—
(a)
if both the associated entity and the working person are non-residents at all times during the associated entity’s income year:
(b)
if the associated entity is a natural person and is neither a partner of a partnership nor a trustee of a trust:
(c)
to the extent to which the services personally performed by the working person are essential support for a product supplied by the associated entity:
(d)
if the total amount to be attributed to the working person, for the associated entity and the income year, is less than $5,000, unless—
(i)
the application of this paragraph would prevent income being attributed to the working person for the income year in relation to another associated entity:
(ii)
the associated entity is a CFC and a person who holds an attributing interest in the CFC files, after the date (the Royal assent date) on which the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 receives the Royal assent, a return of income in which the amount of income attributed to the working person is determined under this section:
(e)
if the associated entity is a CFC and—
(i)
the amount gives rise to attributed CFC income under section CQ 2(2B) (When attributed CFC income arises) or attributed CFC loss under section DN 2(2) (When attributed CFC loss arises) for a person who holds an attributing interest in the CFC; and
(ii)
the person who holds the attributing interest in the CFC files, after the Royal assent date, a return of income in which the amount attributed to the working person is determined under section EX 20B (Attributable CFC amount).
Treatment of certain dividends
(4)
If a company that is required to attribute an amount to the working person under this section and section GB 29 pays a dividend, sections HA 14 to HA 19 (which relate to qualifying companies) are treated as applying to the company and the dividend if—
(a)
the dividend is paid—
(i)
no earlier than the end of 6 months after the end of the income year referred to in subsection (1); and
(ii)
from income that has been attributed to the working person under this section and section GB 29; and
(b)
the company,—
(i)
for each tax year that corresponds to an income year in which it derived income from which it pays the dividend, has no net income other than income attributed under this section and section GB 29, ignoring interest income that is incidental to the company’s business; and
(ii)
is not a qualifying company; and
(iii)
chooses to have the dividend treated as if it were paid by a qualifying company; and
(iv)
keeps sufficient records to enable the Commissioner to verify the matters referred to in paragraph (a).
Cancellation of notional imputation credits
(5)
For the purposes of subsection (4), to the extent to which the dividend paid by the company would have had an imputation credit attached that arose under section OB 16 (ICA attribution for personal services) in the absence of the election made under subsection (4)(b)(iii), the credit is treated as cancelled immediately before it would have been attached under sections HA 14 to HA 19 (which relate to dividends paid by qualifying companies).
Defined in this Act: amount, associated person, attributable CFC amount, attributed CFC income, attributed CFC loss, business, CFC, Commissioner, company, dividend, imputation credit, income, income year, net income, non-resident, pay, qualifying company, relative, tax year, trustee
Compare: 2004 No 35 ss GC 14B, GC 14E, GC 14EB
Section GB 27(1)(a): amended (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on 24 February 2016, by section 242(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section GB 27(2)(a): amended (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on 24 February 2016, by section 242(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section GB 27(2)(c): amended (with effect on 1 April 2008), on 6 October 2009, by section 238(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section GB 27(3)(d): replaced, on 24 February 2016, by section 184 of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section GB 27(3)(e): replaced, on 24 February 2016, by section 184 of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section GB 27(4) heading: added, on 1 April 2008, by section 407(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section GB 27(4): replaced (with effect on 1 April 2008), on 23 March 2020, by section 127(1) (and see section 127(4) for application) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
Section GB 27(5) heading: added (with effect on 1 April 2008), on 7 December 2009, by section 41(1) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
Section GB 27(5): added (with effect on 1 April 2008), on 7 December 2009, by section 41(1) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
Section GB 27(5): amended (with effect on 1 April 2008), on 23 March 2020, by section 127(2) (and see section 127(4) for application) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
Section GB 27 list of defined terms amount: inserted, on 1 April 2008, by section 407(2) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section GB 27 list of defined terms attributable CFC amount: inserted (with effect on 30 June 2009), on 6 October 2009, by section 238(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section GB 27 list of defined terms attributed CFC income: inserted (with effect on 30 June 2009), on 6 October 2009, by section 238(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section GB 27 list of defined terms attributed CFC loss: inserted (with effect on 30 June 2009), on 6 October 2009, by section 238(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section GB 27 list of defined terms business: inserted, on 1 April 2008, by section 407(2) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section GB 27 list of defined terms CFC: inserted (with effect on 30 June 2009), on 6 October 2009, by section 238(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section GB 27 list of defined terms Commissioner: inserted (with effect on 1 April 2008), on 23 March 2020, by section 127(3) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
Section GB 27 list of defined terms company: inserted, on 1 April 2008, by section 407(2) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section GB 27 list of defined terms dividend: inserted, on 1 April 2008, by section 407(2) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section GB 27 list of defined terms imputation credit: 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 GB 27 list of defined terms pay: 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 GB 27 list of defined terms qualifying company: inserted, on 1 April 2008, by section 407(2) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section GB 27 compare note: amended, on 1 April 2008, by section 407(3) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
GB 28 Interpretation of terms used in section GB 27
When this section applies
(1)
This section applies for the purposes of section GB 27.
Associated persons
(2)
A person is treated as being associated with another person if they are associated at the time the services are personally performed by the working person.
Non-associated buyers
(3)
For the purposes of section GB 27(2)(a), a buyer is not treated as being associated with another buyer if either—
(a)
both buyers are public authorities; or
(b)
the working person cannot be reasonably expected to know that a particular buyer is associated with another buyer, other than by making a specific enquiry.
Relatives
(4)
For the purposes of section GB 27(2)(b), a person is a relative of the working person only if the person is a relative at the beginning of the relevant income year of the working person.
Fringe benefits included
(5)
For the purposes of section GB 27(2)(c), the working person’s annual gross income includes the taxable value of a fringe benefit, as determined under sections RD 25 to RD 63 (which relate to fringe benefit tax), provided or granted by a person associated with the working person.
Meaning of substantial business assets
(6)
Substantial business assets means depreciable property that—
(a)
at the end of the associated entity’s corresponding income year, has a total cost of more than either—
(i)
$75,000; or
(ii)
25% of the associated entity’s total income from services for the income year; and
(b)
is not for private use.
Assets subject to finance lease, hire purchase agreement, or specified lease
(7)
For the purposes of subsection (6)(a), the cost of depreciable property includes—
(a)
the consideration provided to the lessee in the case of property subject to a finance lease or a hire purchase agreement, including expenditure or loss incurred by the lessee in preparing and installing the finance lease asset for use, unless the lessee is allowed a deduction for the expenditure or loss, other than a deduction for an amount of depreciation loss:
(b)
the cost price, in the case of property subject to a specified lease.
Private use of assets
(8)
Subsection (6)(b) does not apply to depreciable property if 20% or less of the property’s use is for private use.
Calculation of private proportion of use
(9)
For the purposes of subsection (8), the percentage of a property’s use for private purposes for an income year is calculated according to—
(a)
the proportion that the number of days for which fringe benefit tax is payable by the associated entity in relation to the property bears to the total number of days in the income year in which the property is owned by or is subject to a finance lease, hire purchase agreement, or specified lease, involving the associated entity, if the property is subject to the FBT rules:
(b)
the proportion that the expenditure incurred in relation to the property, for which a deduction is denied to the associated entity, bears to all expenditure incurred by the associated entity in relation to the property in the income year, if the property is not subject to the FBT rules.
Defined in this Act: annual gross income, associated person, consideration, cost price, deduction, depreciable property, FBT rules, finance lease, fringe benefit, fringe benefit tax, hire purchase agreement, income, income year, public authority, relative, specified lease, substantial business assets
Compare: 2004 No 35 s GC 14C
Section GB 28(2): substituted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 239(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section GB 28(6)(a)(ii): amended, on 1 April 2023, by section 73 of the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Act 2023 (2023 No 5).
Section GB 28 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 GB 28 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 GB 28 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).
GB 29 Attribution rule: calculation
Amount attributed
(1)
A working person is treated as deriving income in an income year equal to the least of the following amounts:
(a)
the associated entity’s net income for the corresponding tax year, calculated as if their only income were derived from personal services:
(b)
the associated entity’s net income for the corresponding tax year:
(c)
if and to the extent to which the associated entity is a company or a trust that has a loss balance to be carried forward under section IA 4 (Using loss balances carried forward to tax year) arising from a business or a trading activity of supplying personal services, the associated entity’s net income for the corresponding tax year after subtracting the loss balance carried forward from an earlier corresponding tax year.
Associated entity’s net income calculated before attribution
(1B)
For the purposes of calculating the associated entity’s net income for the corresponding tax year in the application of subsection (1), section DC 8 (Attribution of personal services) is ignored.
Calculation for trustee or partnership
(2)
For the purposes of calculating the associated entity’s net income for the corresponding tax year in the application of subsection (1),—
(a)
if the associated entity is a trustee of a trust, the trustees are treated as not having made a distribution of beneficiary income out of the year’s income:
(b)
if the associated entity is a partnership, the associated entity is treated as a taxpayer and section HG 2 (Partnerships are transparent) does not apply:
(c)
if the associated entity is a look-through company, the associated entity is treated as a taxpayer and section HB 1 (Look-through companies are transparent) does not apply.
Salary paid or fringe benefits treated as deductions
(3)
For the purposes of calculating the associated entity’s net income for the corresponding tax year in the application of subsection (1),—
(a)
the associated entity is allowed a deduction for employment income paid to the working person during the income year:
(b)
the associated entity is allowed a deduction for the taxable value of a fringe benefit provided or granted by the associated entity to the working person during the income year, and for the fringe benefit tax payable on the fringe benefit.
Reduction of attributable income for distributions
(4)
For the purposes of calculating the associated entity’s net income for the corresponding tax year in the application of subsection (1), the amount of net income of the associated entity for the corresponding tax year is reduced by—
(a)
in the case of a trustee of a trust, the amount of beneficiary income derived by the working person from the trust in the income year:
(b)
in the case of a partnership, the share of profits allocated by the partnership to the working person:
(c)
in the case of a company, a dividend paid—
(i)
by the associated entity to the working person during the income year or before the end of 6 months after the end of the income year; and
(ii)
from income derived in the income year.
Attribution reduced by market value of administrative services
(5)
If the associated entity is a partnership that receives administrative services from another person related to their income from personal services and has not paid for the administrative services, the amount to be attributed to the working person is reduced by the market value of the administrative services provided by the other person.
Reduction of beneficiary income when rule results in trust having tax loss
(6)
If the associated entity is a trustee and the amount attributable would cause the associated entity to have a tax loss for the corresponding tax year, for the purposes of this Act,—
(a)
beneficiary income from the trust for the income year must be reduced to the extent to which the associated entity’s taxable income for the corresponding tax year is zero; and
(b)
the reduction in beneficiary income must be divided among the beneficiaries other than the working person—
(i)
according to proportions determined by the trust’s trustees:
(ii)
if the trustees do not make the determination, according to the proportion that each beneficiary’s beneficiary income bears to the total beneficiary income from the trust for the income year.
Attribution to more than 1 working person
(7)
If the amount attributable is to be attributed to more than 1 working person, the share attributed to each working person must reflect the respective value of the services personally performed by each working person.
Defined in this Act: beneficiary income, company, deduction, dividend, fringe benefit, fringe benefit tax, income, income year, look-through company, net income, taxpayer, tax loss, tax year, trustee
Compare: 2004 No 35 s GC 14D
Section GB 29(1)(c): amended (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on 24 February 2016, by section 242(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section GB 29(1B) heading: inserted (with effect on 1 April 2008), on 23 March 2020, by section 128(1) (and see section 128(2) for application) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
Section GB 29(1B): inserted (with effect on 1 April 2008), on 23 March 2020, by section 128(1) (and see section 128(2) for application) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
Section GB 29(2)(b): amended, on 1 April 2011 (applying for income years beginning on or after 1 April 2011), by section 69(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section GB 29(2)(b): amended, on 1 April 2008, by section 16(1) of the Taxation (Limited Partnerships) Act 2008 (2008 No 2).
Section GB 29(2)(c): added, on 1 April 2011 (applying for income years beginning on or after 1 April 2011), by section 69(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section GB 29 list of defined terms look-through company: inserted, on 1 April 2011, by section 69(2) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Arrangements involving restrictive covenants
GB 30 Arrangements to avoid taxation of restrictive covenant payments
When this section applies
(1)
This section applies if a person enters into an arrangement that has an effect of avoiding section CE 9 (Restrictive covenants).
Treatment as restrictive covenant payment
(2)
The Commissioner may treat—
(a)
an amount provided under the arrangement as an amount to which section CE 9(2) applies; and
(b)
a person affected by the arrangement as the person who gave the undertaking referred to in section CE 9(1).
Example
(3)
An example of an arrangement that may be subject to this section is an arrangement that involves a collateral arrangement to dispose of property.
Defined in this Act: arrangement, Commissioner
Compare: 2004 No 35 s GC 14F
Arrangements involving fringe benefit tax
GB 31 FBT arrangements: general
When this section applies
(1)
This section applies when—
(a)
2 or more persons enter into an arrangement; and
(b)
a purpose or effect of the arrangement is to defeat the intent and application of any of the FBT rules; and
(c)
the purpose or effect is not merely incidental.
FBT rules treated as applying
(2)
For the purposes of the FBT rules, the Commissioner may treat—
(a)
a party to the arrangement (the provider) as the employer of a person (the recipient) of whom the Commissioner notifies the provider:
(b)
the recipient as the employee of the provider:
(c)
a benefit as being provided by the provider to the recipient through the employment of the recipient.
Actual or likely benefit
(3)
The Commissioner may apply subsection (2)(c) only in the case of a benefit that,—
(a)
is in fact provided by the provider to the recipient; or
(b)
had the arrangement not occurred, the recipient—
(i)
would have obtained; or
(ii)
would in all likelihood have obtained; or
(iii)
might be expected to have obtained.
Arrangements to reduce motor vehicle costs
(4)
Schedule 5, clause 4(c) (Fringe benefit values for motor vehicles) may apply to treat the cost of a motor vehicle as equal to its market value.
Defined in this Act: arrangement, Commissioner, employee, employer, employment, FBT rules, notify
Compare: 2004 No 35 ss GC 16(b), GC 17
Section GB 31 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).
GB 32 Benefits provided to employee’s associates
When this section applies
(1)
This section applies when—
(a)
a benefit is provided to a person who is associated with an employee of an employer; and
(b)
the benefit would be a fringe benefit if provided to the employee; and
(c)
the benefit is provided either by the employer or by another person under an arrangement with the employer for providing the benefit; and
(d)
the exemptions in subsections (2) and (2B) do not apply.
Exemption for shareholder-employees and corporate associates
(2)
Subsection (3) does not apply when—
(a)
the benefit is provided by an employer that is a company; and
(b)
the employee is a shareholder in the company; and
(c)
the person associated with the employee is a company; and
(d)
the benefit is not provided under an arrangement that has a purpose of providing the benefit either—
(i)
in place of employment income; or
(ii)
free from fringe benefit tax.
Exemption for LTCs and partnerships
(2B)
Subsection (3) does not apply when—
(a)
the benefit is provided by an employer that is—
(i)
a look-through company (an LTC):
(ii)
a partnership or limited partnership; and
(b)
the person associated with the employee, described in subsection (1)(a), is—
(i)
an owner of the relevant LTC:
(ii)
a partner of the relevant partnership or limited partnership.
Benefit treated as provided to employee
(3)
For the purposes of the FBT rules, the benefit is treated as provided by the employer to the employee.
Application of section CX 18
(4)
Section CX 18 (Benefits provided to associates of both employees and shareholders) applies to determine when a benefit provided to an associate of both an employee and a shareholder is treated as a fringe benefit and not a dividend.
Defined in this Act: arrangement, associated person, company, dividend, employee, employer, employment income, FBT rules, fringe benefit, fringe benefit tax, limited partnership, LTC, partner, partnership
Compare: 2004 No 35 s GC 15(1)–(3)
Section GB 32(1)(d): amended, on 2 November 2012, by section 74(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section GB 32(2B) heading: inserted, on 2 November 2012, by section 74(2) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section GB 32(2B): inserted, on 2 November 2012, by section 74(2) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section GB 32(2B)(a)(i): replaced (with effect on 2 November 2012), on 27 February 2014, by section 79 of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
Section GB 32 list of defined terms limited partnership: inserted, on 2 November 2012, by section 74(3) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section GB 32 list of defined terms LTC: inserted, on 2 November 2012, by section 74(3) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section GB 32 list of defined terms partner: inserted, on 2 November 2012, by section 74(3) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section GB 32 list of defined terms partnership: inserted, on 2 November 2012, by section 74(3) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Arrangements involving depreciation loss
GB 33 Arrangements involving depreciation loss
When this section applies
(1)
This section applies when—
(a)
an asset of a person has been subject to an arrangement; and
(b)
the arrangement allows the person or another person to have a deduction for an amount of depreciation loss; and
(c)
a purpose of the arrangement is to defeat the intent and application of this Act.
No deduction
(2)
The relevant person is denied the deduction.
Defined in this Act: arrangement, Commissioner, deduction, depreciation loss
Compare: 2004 No 35 s GC 6
Arrangements involving imputation rules
GB 34 ICA arrangements for carrying amounts forward
When this section applies
(1)
This section applies when—
(a)
a share in an imputation credit account (ICA) company or another company has been subject to an arrangement, including an arrangement directly or indirectly altering rights attached to the share; and
(b)
the arrangement allows the ICA company to meet the requirements of section OA 8(2), (7), and (8) (Shareholder continuity requirements for memorandum accounts); and
(c)
a purpose of the arrangement is to defeat the intent and application of section OA 8(2), (7), and (8).
Company treated as not meeting requirements
(2)
The ICA company is treated as not meeting the requirements in relation to the share.
Defined in this Act: arrangement, company, imputation credit account, share
Compare: 2004 No 35 s GC 21
Section GB 34(1)(b): amended (with effect on 1 April 2008 and applying for the 2008–09 and later income years), on 30 June 2014, by section 119(1)(a) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section GB 34(1)(c): amended (with effect on 1 April 2008 and applying for the 2008–09 and later income years), on 30 June 2014, by section 119(1)(b) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
GB 35 Imputation arrangements to obtain tax advantage
When section GB 36 applies
(1)
Section GB 36 applies if an arrangement to obtain a tax advantage arises as described in either subsection (2) or (3).
Share disposal or issue arrangements
(2)
An arrangement is an arrangement to obtain a tax advantage if—
(a)
the arrangement is for the disposal or issue of shares; and
(b)
a party to the arrangement might reasonably have expected that a dividend would be paid in relation to the shares with an imputation credit attached; and
(c)
a party might reasonably have expected that a party will, or will not, be able to obtain a tax advantage from the credit; and
(d)
a purpose of the arrangement is that a party will obtain a tax advantage; and
(e)
the purpose is not a merely incidental one.
Dividend or credit streaming arrangements
(3)
An arrangement is an arrangement to obtain a tax advantage if—
(a)
the arrangement relates to 1 or more distributions by a company, including bonus issues, during 1 or more tax years; and
(b)
under the arrangement, the company streams—
(i)
the payment of dividends; or
(ii)
the attachment of imputation credits; and
(c)
the streaming will give a higher credit value to a person who will obtain a tax advantage from the higher credit value than to a person who will not or may reasonably be expected to obtain a lesser benefit.
Meaning of higher credit value
(4)
For the purposes of subsection (3)(c), a dividend has a higher credit value than another dividend if 1 or both of the following applies:
(a)
the dividend has an attached imputation credit and the other dividend does not:
(b)
the imputation ratio of the dividend is higher than that of the other dividend.
Defined in this Act: arrangement, dividend, higher credit value, imputation credit, imputation ratio, share, tax advantage
Compare: 2004 No 35 s GC 22(1), (2)
Section GB 35(2)(b): amended, on 1 April 2017, by section 119(1) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section GB 35(3)(b): replaced, on 1 April 2017, by section 119(2) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section GB 35(4): replaced, on 1 April 2017, by section 119(3) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section GB 35 list of defined terms combined imputation and FDP ratio: repealed, on 1 April 2017, by section 119(4) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section GB 35 list of defined terms FDP credit: repealed, on 1 April 2017, by section 119(4) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section GB 35 list of defined terms FDP ratio: repealed, on 1 April 2017, by section 119(4) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
GB 36 Reconstruction of imputation arrangements to obtain tax advantage
Reconstruction of either type of arrangement
(1)
In the case of a share disposal or issue arrangement described in section GB 35(2), or a streaming arrangement described in section GB 35(3), if the Commissioner decides this subsection should apply, the following paragraphs apply:
(a)
a person who would get a tax credit advantage from the arrangement is denied it:
(b)
a company that would get an account advantage from the arrangement has a debit to its imputation credit account in the tax year in which the arrangement began.
Reconstruction of streaming arrangement
(2)
In the case of a streaming arrangement described in section GB 35(3) in which the company is the only party, or if the Commissioner decides this subsection should apply, the company has a debit to its imputation credit account in the tax year in which the arrangement began. Subsection (1) does not apply to the extent to which this subsection applies to the arrangement.
Amount of adjustment
(3)
The amount of the credit or refund denied under subsection (1)(a) and the debit arising under subsection (1)(b) or (2) is in each case the amount of the imputation credit that the Commissioner determines is subject to the arrangement.
Commissioner’s powers of determination
(4)
The Commissioner may make determinations for the purposes of this section under section 90AF of the Tax Administration Act 1994.
Some definitions
(5)
In this section and section 90AF of the Tax Administration Act 1994,—
account advantage means a credit arising to an imputation credit account under sections OB 4 to OB 29 (which relate to credits arising to imputation credit accounts)
tax credit advantage means a tax credit allowed under section LE 1 (Tax credits for imputation credits).
Defined in this Act: account advantage, arrangement, Commissioner, company, imputation credit, imputation credit account, notice, tax credit advantage, tax year
Compare: 2004 No 35 s GC 22(4), (5), (9)
Section GB 36(1)(b): amended, on 1 April 2017, by section 120(1) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section GB 36(2): amended, on 1 April 2017, by section 120(2) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section GB 36(3): amended, on 1 April 2017, by section 120(3) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section GB 36(5): replaced, on 1 April 2017, by section 120(4) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section GB 36 list of defined terms FDP account: repealed, on 1 April 2017, by section 120(5) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section GB 36 list of defined terms FDP credit: repealed, on 1 April 2017, by section 120(5) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
GB 37 Arrangements for payment of dividend by other companies
When this section applies
(1)
This section applies when—
(a)
an arrangement is entered into in relation to a company (the first company) and a shareholder in the first company; and
(b)
the arrangement has a purpose of allowing a dividend to be paid by another company to any of the following parties (the payee):
(i)
the shareholder:
(ii)
if the shareholder is a trustee in relation to the shareholding, a beneficiary of the trust:
(iii)
an associated person of the shareholder:
(iv)
an associated person of a beneficiary of the trust.
Direct or indirect payments
(2)
The arrangement may include—
(a)
the payee acquiring shares in the other company:
(b)
a form of indirect payment of a dividend from the other company.
Dividend treated as paid by first company
(3)
For the purposes of the imputation rules, the dividend is treated as if it were paid by the first company.
No imputation credit
(4)
Any imputation credit attached to the dividend paid by the other company—
(a)
is not included in the amount of the dividend derived by the payee; and
(b)
is not treated as an imputation credit for the purposes of section LE 1 (Tax credits for imputation credits); and
(c)
is a debit under section OB 30 (ICA payment of dividend) of the first company.
Defined in this Act: arrangement, associated person, company, dividend, imputation credit, imputation credit account, share, shareholder, trustee
Compare: 2004 No 35 s GC 23
GB 38 When sections GB 35 to GB 37 apply to consolidated groups
Tax advantage arrangements
(1)
Sections GB 35 and GB 36 apply, with the necessary modifications, in a case that involves accounts of a consolidated group as if—
(a)
the consolidated group were a single company; and
(b)
references to provisions of this Act were references to the equivalent provisions applicable to the equivalent accounts.
Arrangement for dividend from another company
(2)
If a company is treated by section GB 37(3) as having paid a dividend, and is at the time of payment a member of a consolidated group, section GB 37 applies as if the reference to section OB 30 (ICA payment of dividend) were a reference to section OP 28 (Consolidated ICA payment of dividend).
Defined in this Act: company, consolidated group, dividend
Compare: 2004 No 35 s GC 24
Arrangements involving foreign dividends
GB 39 FDP arrangements: general
[Repealed]Section GB 39: repealed (with effect on 30 June 2009), on 6 October 2009, by section 240(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
GB 40 BETA arrangements for carrying amounts forward
[Repealed]Section GB 40: repealed, on 1 July 2012 (applying for income years beginning on or after that date), by section 70(1) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
GB 41 FDPA arrangements for carrying amounts forward
[Repealed]Section GB 41: repealed, on 1 April 2017, by section 121 of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Arrangements involving Maori authority credits
GB 42 Maori authority credit arrangements to obtain tax advantage
When section GB 43 applies
(1)
Section GB 43 applies if an arrangement to obtain a tax advantage arises as described in either subsection (2) or (3).
Arrangements for share disposal or issue
(2)
An arrangement is an arrangement to obtain a tax advantage if—
(a)
the arrangement is for the disposal or issue of a share in a Maori authority that is a company; and
(b)
a party to the arrangement might reasonably have expected that a taxable Maori authority distribution would be paid in relation to the share with a Maori authority credit attached; and
(c)
a party might reasonably have expected that a party will or will not be able to obtain a tax advantage from the credit; and
(d)
a purpose of the arrangement is that a party will obtain a tax advantage; and
(e)
the purpose is not a merely incidental one.
Distribution or credit streaming arrangements
(3)
An arrangement is an arrangement to obtain a tax advantage if—
(a)
the arrangement is in relation to 1 or more taxable Maori authority distributions by a Maori authority during 1 or more tax years; and
(b)
under the arrangement, the Maori authority streams—
(i)
the distributions; or
(ii)
the attachment of Maori authority credits; and
(c)
the streaming will give a higher credit value to a member who will obtain a tax advantage from the higher credit value than to a member who will not or may reasonably be expected to obtain a lesser benefit.
Meaning of higher credit value
(4)
A taxable Maori authority distribution has a higher credit value than another distribution if either of the following applies:
(a)
the distribution has a Maori authority credit and the other distribution does not:
(b)
the Maori authority credit ratio under section OK 19(2) (Maori authority credits attached to distributions) of the distribution is higher than that of the other distribution.
Defined in this Act: arrangement, Maori authority, Maori authority credit, member, share, tax advantage, taxable Maori authority distribution
Compare: 2004 No 35 s GC 27A(1)–(3)
GB 43 Reconstruction of Maori authority credit arrangements to obtain tax advantage
Reconstruction of either type of arrangement
(1)
In the case of an arrangement for a share disposal or issue as described in section GB 42(2) or a streaming arrangement as described in section GB 42(3), if the Commissioner decides this subsection should apply, the following paragraphs apply:
(a)
a member who would get a tax credit advantage from the arrangement is denied it:
(b)
a Maori authority that would get both a tax credit advantage and an account advantage from the arrangement has a debit to its Maori authority credit account in the tax year in which the arrangement began.
Reconstruction of streaming arrangement
(2)
In the case of a streaming arrangement as described in section GB 42(3) in which the Maori authority is the only party, or if the Commissioner decides this subsection should apply, the Maori authority has a debit to its Maori authority credit account in the tax year in which the arrangement began. Subsection (1) does not apply to the extent to which this subsection applies to the arrangement.
Amount of adjustment
(3)
The amount of the credit denied under subsection (1)(a) and the debit arising under subsection (1)(b) or (2) is in each case the amount of the Maori authority credit that the Commissioner determines is subject to the arrangement.
Commissioner’s powers of determination
(4)
The Commissioner may make determinations for the purposes of this section under section 90AG of the Tax Administration Act 1994.
Some definitions
(5)
In this section and section 90AG of the Tax Administration Act 1994,—
account advantage means a credit arising to a Maori authority credit account under sections OK 2 to OK 9 (which relate to credits arising to Maori authority credit accounts)
tax credit advantage means a tax credit allowed under section LO 1 (Tax credits for Maori authority credits).
Defined in this Act: account advantage, arrangement, Commissioner, Maori authority, Maori authority credit, Maori authority credit account, member, notice, tax credit advantage, tax year
Compare: 2004 No 35 s GC 27A(5), (6), (10)
Arrangements involving tax credits for families
Heading: substituted, on 1 April 2008, by section 408(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
GB 44 Arrangements involving tax credits for families
When this section applies
(1)
This section applies if both of the following paragraphs are met:
(a)
a person enters into an arrangement:
(b)
a purpose of the arrangement is that subparts MA to MG and MZ (which relate to tax credits for families) has a more favourable effect than would otherwise have occurred.
Credit reduced
(2)
A tax credit under subparts MA to MG and MZ is reduced to the amount that the Commissioner considers would have arisen had the arrangement not occurred.
Defined in this Act: arrangement, Commissioner
Compare: 2004 No 35 s GC 28
Section GB 44 heading: amended, on 1 April 2008, by section 408(2) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section GB 44(1)(a): replaced, on 27 February 2014, by section 80(1) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
Section GB 44(1)(b): amended, on 1 July 2018, by section 4(1) of the Families Package (Income Tax and Benefits) Act 2017 (2017 No 51).
Section GB 44(1)(b): amended, on 27 February 2014, by section 80(2) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
Section GB 44(2): amended, on 1 July 2018, by section 4(2) of the Families Package (Income Tax and Benefits) Act 2017 (2017 No 51).
Section GB 44(2): amended, on 27 February 2014, by section 80(3) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
Arrangements involving money not at risk
GB 45 Arrangements involving money not at risk
Application of section GB 46
(1)
Section GB 46 can apply to an arrangement when—
(a)
a person sells or issues, or promotes the selling or issuing of, the arrangement, whether or not for remuneration; and
(b)
a person (the participant) who is a party to the arrangement or affected by it, considered together with their affected associates, has for an assessment period a total amount of deductions from the arrangement that is more than their total amount of assessable income from the arrangement, having regard to the rules in subsection (2); and
(c)
as part of or for the purposes of the arrangement, the participant or an affected associate borrows a limited-recourse amount under a limited-recourse loan; and
(d)
on the relevant balance date, the total of the limited-recourse amounts of the limited-recourse loans of the participant and affected associates is more than half of the total cost of their arrangement property on the relevant balance date; and
(e)
on the relevant balance date, the total cost of their arrangement property is more than 142.85% of the total cost of the part of the property that is acceptable property.
Certain deductions or income disregarded
(2)
For the purposes of subsection (1)(b), the following amounts are disregarded:
(a)
a deduction under section GB 46:
(b)
[Repealed](c)
an amount of income under section GB 46.
Some definitions
(3)
In this section,—
acceptable property is—
(a)
land:
(b)
buildings:
(c)
plant:
(d)
machinery:
(e)
shares in a listed company that in total represent a direct voting interest of 10% or less in the listed company:
(f)
a share and an option that are acquired or created with an intention that the share or option will produce income that is employment income of a participant under section CE 1(1)(d) (Amounts derived in connection with employment):
(g)
a share in a foreign company, if the proceeds of a disposal of the share would not be assessable income of the holder other than under the FIF rules
arrangement property means property held as part of the arrangement by the participant and affected associates
assessment period is any of—
(a)
the earliest income year (the first income year) in which an interest in the arrangement was acquired by the participant or an affected associate of the participant:
(b)
the first income year and the next income year:
(c)
the first income year and the next 2 income years
relevant balance date means the balance date, or the latest balance date, of the participant and affected associates that ends the assessment period.
Defined in this Act: acceptable property, affected associate, arrangement, arrangement property, assessable income, assessment period, deduction, direct voting interest, dispose, employment income, FIF rules, foreign company, income, income year, limited-recourse amount, limited-recourse loan, relevant balance date, share, shareholder, tax loss component
Compare: 2004 No 35 s GC 29(1)
Section GB 45(2)(b): repealed, on 17 July 2013, by section 172 of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Section GB 45(3) acceptable property: amended (with effect on 1 April 2008), on 6 October 2009, by section 241 of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section GB 45 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).
GB 46 Deferral of surplus deductions from arrangements
When this section applies
(1)
This section applies when—
(a)
an arrangement of the type described in section GB 45 is made; and
(b)
a person (the participant) is a party to the arrangement or affected by it; and
(c)
[Repealed](d)
the participant has, for an income year, a total amount of deductions from the arrangement that is more than their total amount of assessable income from the arrangement, having regard to the rules in subsection (6); and
(e)
the participant considered together with their affected associates has for the income year a total amount of deductions from the arrangement that is more than their total amount of assessable income from the arrangement, having regard to the rules in subsection (6); and
(f)
on the balance date, or the latest balance date, of the participant and affected associates for the income year, the arrangement involves a limited-recourse loan in relation to which the participant or an affected associate of the participant is a borrower.
Income for participant
(2)
The participant is treated as deriving in the income year an amount of assessable income calculated using the formula—
(participant’s excess deductions ÷ total individual excess deductions)
× total ineligible amount.
Definition of items in formula
(3)
In the formula,—
(a)
participant’s excess deductions is the amount of excess deductions of the participant for the income year described in subsection (1)(d):
(b)
total individual excess deductions is the amount, for the income year, by which the total deductions from the arrangement are more than the total assessable income from the arrangement, having regard to the rules in subsection (6), for the group that consists of—
(i)
the participant; and
(ii)
each affected associate of the participant who has, for the income year, a total amount of deductions from the arrangement that is more than their total assessable income from the arrangement, having regard to the rules in subsection (6):
(c)
total ineligible amount is the lesser of—
(i)
the total individual excess deductions for the group and the income year as described in subsection (1)(e); and
(ii)
the total limited-recourse amount that, on the balance date or the latest balance date of the participant and the affected associates, the participant and the affected associates have an undischarged obligation to repay as part of or for the purposes of the arrangement.
Matching deduction in following year
(4)
A participant who has an amount of assessable income for an income year under subsection (2) has a deduction of an equal amount for the following income year.
Obligation to repay limited-recourse amount not discharged
(5)
For the purposes of subsections (1) and (3)(c)(ii), an obligation to repay a limited recourse amount is not discharged by a transaction to the extent to which the transaction—
(a)
involves, as part of the arrangement, the use of—
(i)
a put or call option that is not a contract for the sale for future delivery of goods at market value:
(ii)
a contract of insurance or guarantee; and
(b)
does not give rise to assessable income for the person who is the borrower of the limited-recourse amount under the limited-recourse loan.
Some deductions included, some income excluded
(6)
For the purposes of subsections (1)(d) and (e) and (3)(b),—
(a)
a deduction of a person includes—
(i)
a deduction under subsection (4); and
(ii)
[Repealed](b)
income of a person excludes an amount of income arising under subsection (2).
Defined in this Act: arrangement, assessable income, associated person, deduction, income year, limited-recourse amount, limited-recourse loan, tax loss
Compare: 2004 No 35 s GC 31
Section GB 46(1)(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 GB 46(1)(e): amended, on 17 July 2013, by section 172 of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Section GB 46(3)(b)(ii): amended, on 17 July 2013, by section 172 of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Section GB 46(6)(a)(ii): repealed, on 17 July 2013, by section 172 of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Section GB 46 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).
GB 47 Calculation rules for sections GB 45 and GB 46
Consolidation of assessable income and deductions, and cost of property
(1)
The deductions and assessable income from an arrangement for each person in a group of persons, and the cost of property that is held by each person in the group as part of the arrangement, are calculated on a basis of consolidation for the elimination of intra-group balances in accordance with generally accepted accounting practice.
Calculation of assessable income and deductions, and cost of property
(2)
The deductions and assessable income from an arrangement for each person in a group of persons, and the cost of property that is held by each person in the group as part of the arrangement, are calculated using the proportionate method in accordance with generally accepted accounting practice for partnerships, if the group is any of—
(a)
persons who are a partnership and the partners in a partnership:
(b)
a joint venture and the partners in the joint venture.
(c)
[Repealed]Defined in this Act: arrangement, assessable income, deduction, generally accepted accounting practice, shareholder
Compare: 2004 No 35 s GC 29(2), (3)
Section GB 47(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 GB 47 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).
GB 48 Defined terms for sections GB 45 and GB 46
Affected associate
(1)
For an arrangement, a person is an affected associate of another person if each person is a party to the arrangement or is affected by the arrangement, and—
(a)
[Repealed](b)
the persons are associated persons.
Limited-recourse amount
(2)
A limited-recourse amount, for a limited-recourse loan, means the total for the limited-recourse loan of the amounts for which the obligations of a borrower are affected in a way that is described in subsection (3)(c).
Limited-recourse loan
(3)
A limited recourse loan means a financial arrangement that meets each of the following requirements:
(a)
it is not an excepted financial arrangement:
(b)
it involves the provision of money by a person (the lender) to another person (the borrower):
(c)
it has 1 or more of the following effects, or an effect which is substantially similar:
(i)
relieving the borrower from the obligation to repay all or some of the money, whether the relief is contingent or not:
(ii)
requiring the borrower to make no repayment for a period of 10 or more years from the date on which the loan is made, other than repayments for the purpose of defeating the intent and application of section GB 46:
(iii)
providing that the repayment of the money is in substance secured solely against assets that are employed in the arrangement:
(d)
if the lender is not an associated person of the borrower, the lender provides the money on terms that are not arm’s length and the lender is either—
(i)
not a person who regularly provides money to persons on arm’s length terms under arrangements that do not meet the requirements of paragraphs (a) to (c); or
(ii)
a person who is neither a New Zealand resident nor carrying on business in New Zealand through a fixed establishment in New Zealand:
(e)
if the lender is an associated person of the borrower, the lender obtains the money under an arrangement that meets the requirements of paragraphs (a) to (c).
Defined in this Act: affected associate, arrangement, associated person, excepted financial arrangement, financial arrangement, fixed establishment, limited-recourse amount, limited-recourse loan, listed company, money, resident in New Zealand
Compare: 2004 No 35 s GC 30
Section GB 48(1)(a): repealed, on 17 July 2013, by section 172 of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Section GB 48(1)(b): substituted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 242(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section GB 48(3)(d): amended, on 1 April 2010 (applying for the 2010–11 and later income years), by section 242(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section GB 48(3)(e): amended, on 1 April 2010 (applying for the 2010–11 and later income years), by section 242(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section GB 48 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 GB 48 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 GB 48 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 GB 48 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).
Arrangements involving returning share transfers
GB 49 Arrangements involving returning share transfers
When this section applies
(1)
This section applies when—
(a)
a person enters into an arrangement; and
(b)
an effect of the arrangement means that a requirement of the definition of returning share transfer is not met; and
(c)
the effect of the arrangement is to defeat the intent and application of this Act.
Arrangement treated as returning share transfer
(2)
The Commissioner may treat—
(a)
the arrangement as a returning share transfer; and
(b)
a person affected by the arrangement as a share user or a share supplier, under the returning share transfer.
Defined in this Act: arrangement, Commissioner, returning share transfer, share supplier, share user
Compare: 2004 No 35 s GC 14G
Arrangements involving employee share schemes
Heading: inserted, on 29 September 2018, by section 109 of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
GB 49B Employee share schemes
When this section applies
(1)
This section applies when a person enters into an arrangement and the purpose or effect of the arrangement is to defeat the intent and application of the definition of employee share scheme or the definition of share scheme taxing date in relation to an employee share scheme.
Reconstruction
(2)
The Commissioner may classify the arrangement or set a share scheme taxing date as the Commissioner considers appropriate to counteract a tax advantage obtained by the person from or under the agreement.
Defined in this Act: arrangement, Commissioner, employee share scheme, share, share scheme taxing date
Section GB 49B: inserted, on 29 September 2018, by section 109 of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
Arrangements involving partners and owners
Heading: added, on 1 April 2008, by section 17(1) of the Taxation (Limited Partnerships) Act 2008 (2008 No 2).
Heading: amended, on 1 April 2017, by section 122(1) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
GB 50 Arrangements involving partners and owners
When this section applies
(1)
This section applies when—
(a)
a partner of a partnership or an owner of a look-through company enters into an arrangement; and
(b)
the arrangement involves an amount of consideration (the arrangement amount of consideration) that is not a market value amount of consideration; and
(c)
the arrangement has a purpose or effect of defeating the intent and application of subparts HB and HG (which relate to joint venturers, partners, partnerships, and look-through companies).
Market value amount substituted
(2)
A market value amount of consideration is substituted for the arrangement amount of consideration.
Defined in this Act: amount, arrangement, look-through company, partner, partnership
Section GB 50: added, on 1 April 2008, by section 17(1) of the Taxation (Limited Partnerships) Act 2008 (2008 No 2).
Section GB 50 heading: amended, on 1 April 2017, by section 122(2) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section GB 50(1)(a): replaced, on 1 April 2017, by section 122(3) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section GB 50(1)(c): amended, on 1 April 2017, by section 122(4) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section GB 50 list of defined terms look-through company: inserted, on 1 April 2017, by section 122(5) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Arrangements involving interest apportionment rules
Heading: inserted, on 1 April 2015, by section 120 of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
GB 51 Proportionality between amount of debt and ownership interests
When this section applies
(1)
This section applies when—
(a)
a person has ownership interests in a company or a trustee who is a linked trustee for the person under section FE 4 (Some definitions) has ownership interests in the company; and
(b)
an arrangement affects the relationship between the level of an ownership interest in the company relating to the person and the company’s debt relating to the person; and
(c)
the arrangement has an effect of defeating the intent and application of subpart FE (Interest apportionment on thin capitalisation).
Arrangement disregarded
(2)
The effect of the arrangement on the proportionality between the level of an ownership interest in the company relating to the person and the company’s debt relating to the person is disregarded for the purposes of subpart FE.
Defined in this Act: company, ownership interest
Section GB 51: inserted, on 1 April 2015, by section 120 of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
GB 51B Increases or decreases in value
When this section applies
(1)
This section applies when there is an increase or decrease in a value that affects, or would affect, the result of a calculation (the affected calculation) under subpart FE (Interest apportionment on thin capitalisation) and the increase or decrease is—
(a)
caused by an action or omission that has, or would have, a purpose or effect of defeating the intent and application of subpart FE:
(b)
produced by an arrangement that has an effect of defeating the intent and application of subpart FE.
Increase or decrease excluded from calculation
(2)
The effect on the affected calculation of the increase or decrease in the value is disregarded for the purposes of subpart FE.
Defined in this Act: arrangement, income year
Section GB 51B: inserted, on 1 July 2018, by section 38(1) (and see section 38(2) for application) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
Arrangements involving residential land
Heading: inserted (with effect on 1 October 2015), on 16 November 2015, by section 18 of the Taxation (Bright-line Test for Residential Land) Act 2015 (2015 No 111).
GB 52 Arrangements involving residential land: companies’ shares
When this section applies
(1)
This section applies when—
(a)
a company owns residential land directly or indirectly for which the relevant date in section CB 6A(1)(a) or (b), or CZ 39(2)(a) or (b) (which relate to the bright-line test for residential land) is within 10 years or 5 years, as applicable, of a disposal of shares that paragraph (c) of this section applies to (company residential land); and
(b)
residential land owned directly or indirectly by the company makes up 50% or more, by market value, of the assets of the company; and
(c)
50% or more of the shares in the company, by market value, are disposed of within a 12-month period, with a purpose or effect of defeating the intent and application of section CB 6A or CZ 39 (Disposal within 5 years: bright-line test for residential land: acquisition on or after 29 March 2018).
Disposal at cost, reacquisition at market
(2)
The company is treated as disposing of the relevant shareholder portion of company residential land to the relevant shareholder for an amount of consideration equal to the total cost to the company of the portion, and the shareholder is treated as acquiring the portion for that total cost and then disposing of it, back to the company, for an amount of consideration equal to the market value of the portion. The company is treated as reacquiring the portion for the market value.
A definition
(3)
In this section, shareholder portion means the proportion that the market value of the shares disposed of by a shareholder bears to the total market value of the shares in the company.
Defined in this Act: company, dispose, residential land, share, shareholder
Section GB 52: inserted (with effect on 1 October 2015), on 16 November 2015, by section 18 of the Taxation (Bright-line Test for Residential Land) Act 2015 (2015 No 111).
Section GB 52(1)(a): amended (with effect on 27 March 2021), on 30 March 2021, by section 78(1)(a) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
Section GB 52(1)(a): amended (with effect on 27 March 2021), on 30 March 2021, by section 78(1)(b) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
Section GB 52(1)(a): amended, on 29 March 2018 (with effect on 1 October 2015 and applying to a person’s disposal of residential land if the date that the person first acquires an estate or interest in the residential land is on or after 29 March 2018), by section 110(1) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
Section GB 52(1)(c): amended (with effect on 27 March 2021), on 30 March 2021, by section 78(2) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
GB 53 Arrangements involving residential land: trusts
When this section applies
(1)
This section applies when—
(a)
the trustees of a trust own residential land directly or indirectly (trust residential land); and
(b)
trust residential land makes up 50% or more, by market value, of the assets of the trust; and
(c)
the trust’s trust deed changes, a decision-maker under the trust deed changes, or an arrangement under the trust changes, with a purpose or effect of defeating the intent and application of section CB 6A or CZ 39 (which relate to the bright-line test for residential land).
Market value disposal
(2)
The trustees are treated as disposing of the trust residential land affected by a change described in subsection (1)(c) for an amount of consideration equal to the market value of the land at the time of the change.
Defined in this Act: amount, arrangement, dispose, land, residential land, trustee
Section GB 53: inserted (with effect on 1 October 2015), on 16 November 2015, by section 18 of the Taxation (Bright-line Test for Residential Land) Act 2015 (2015 No 111).
Section GB 53(1)(c): amended (with effect on 27 March 2021), on 30 March 2021, by section 79 of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
Interest incurred in relation to certain land
Heading: inserted (with effect on 27 March 2021), on 30 March 2022, by section 112 of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
GB 53B Interposed residential property percentage: increases or decreases in value
When this section applies
(1)
This section applies when there is an increase or decrease in value that affects, or would affect the result of a calculation of a person’s interposed residential property percentage, defined in section DH 6 (Interposed residential property percentage), and the increase or decrease is—
(a)
caused by an action or omission that has, or would have the purpose or effect of defeating the intent and application of subpart DH (Interest incurred in relation to certain land):
(b)
produced by an arrangement that has a purpose or effect of defeating the intent and application of subpart DH.
Effect of increase or decrease
(2)
The effect of the increase or decrease in value on the calculation of a person’s interposed residential property percentage is ignored.
Defined in this Act: arrangement, interposed residential property percentage
Section GB 53B: inserted (with effect on 27 March 2021), on 30 March 2022, by section 112 of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
GB 53C On-lending at lower rate
When this section applies
(1)
This section applies when, under an arrangement, a person borrows money and on-lends it to an associated person at a lower rate than that at which the person borrowed it, if—
(a)
the associated person, or a person associated with the associated person, owns disallowed residential property; and
(b)
the arrangement has a purpose or effect, not being a merely incidental purpose or effect, of defeating the intent and application of subpart DH (Interest incurred in relation to certain land).
Lower rate used
(2)
The amount of interest incurred by the person for the purposes of Part D is limited to and calculated using the lower rate. The higher rate is ignored.
Defined in this Act: arrangement, associated person, disallowed residential property, interest, money
Section GB 53C: inserted (with effect on 27 March 2021), on 30 March 2022, by section 112 of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
Arrangements involving establishments and non-resident businesses
Heading: inserted, on 1 July 2018, by section 39(1) (and see section 39(2) for application) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
GB 54 Arrangements involving establishments
When this section applies
(1)
This section applies when—
(a)
a non-resident makes, under an arrangement, a supply, as defined in section 5 of the Goods and Services Tax Act 1985, (the facilitated supply) that is of goods or services to—
(i)
a person in New Zealand (the recipient); or
(ii)
a person in New Zealand (the intermediary), who makes under the arrangement a supply of the goods or services to another person in New Zealand (the recipient) whose existence is known to the facilitator referred to in paragraph (b), at the time of the facilitated supply; and
(b)
a person (the facilitator), who is not an intermediary for the facilitated supply, carries out in New Zealand under the arrangement an activity for the purpose of bringing about the supply by the intermediary to the recipient or the facilitated supply to the recipient; and
(c)
the facilitator—
(i)
is associated with the non-resident or is an employee of the non-resident:
(ii)
derives 80% or more of the facilitator’s assessable income in the income year of the activity, and in the previous income year, from services provided to the non-resident or to persons associated with the non-resident; and
(d)
the activity is more than preparatory for or auxiliary to the facilitated supply; and
(e)
income of the non-resident from the facilitated supply is not within the scope of a double tax agreement that—
(i)
incorporates article 12(1) of the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting:
(ii)
includes a provision having a scope equal to or greater than the scope of the article referred to in subparagraph (i) and enters into force after 7 June 2017; and
(f)
section YD 4B(3) (Meaning of permanent establishment) does not determine whether the non-resident has a permanent establishment in New Zealand; and
(g)
income of the non-resident from the supply is not attributable, other than under this section, to a permanent establishment in New Zealand of the non-resident; and
(h)
the arrangement has a purpose or effect of affecting the imposition on the non-resident of income tax or ancillary tax, or of income tax or ancillary tax and the income tax of a country or territory other than New Zealand, by directly or indirectly—
(i)
altering the incidence of income tax or ancillary tax:
(ii)
relieving a person from liability to pay income tax or ancillary tax or from a potential or prospective liability to future income tax or ancillary tax:
(iii)
avoiding, postponing, or reducing a liability to income tax or ancillary tax or a potential or prospective liability to future income tax or ancillary tax; and
(i)
the purpose or effect is more than merely incidental; and
(j)
the non-resident, or a group of persons that include the non-resident, is a large multinational group.
Activities attributed to permanent establishment
(2)
The non-resident is treated as having a permanent establishment in New Zealand—
(a)
through which the non-resident makes the facilitated supply in the course of a business carried on in New Zealand; and
(b)
to which activities of the facilitator referred to in subsection (1)(b) are attributed.
Defined in this Act: arrangement, assessable income, associated, business, double tax agreement, goods, income, income tax, large multinational group, New Zealand, non-resident, permanent establishment, services
Section GB 54: inserted, on 1 July 2018, by section 39(1) (and see section 39(2) for application) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
Section GB 54(1)(b): amended (with effect on 1 July 2018), on 18 March 2019, by section 204(1) (and see section 204(4) for application) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
Section GB 54(1)(h): amended (with effect on 1 July 2018), on 18 March 2019, by section 204(2)(a) (and see section 204(5) for application) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
Section GB 54(1)(h)(i): amended (with effect on 1 July 2018), on 18 March 2019, by section 204(2)(b) (and see section 204(5) for application) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
Section GB 54(1)(h)(ii): amended (with effect on 1 July 2018), on 18 March 2019, by section 204(2)(c) (and see section 204(5) for application) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
Section GB 54(1)(h)(iii): amended (with effect on 1 July 2018), on 18 March 2019, by section 204(2)(d) (and see section 204(5) for application) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
Section GB 54(1)(i): amended (with effect on 1 July 2018), on 18 March 2019, by section 204(3) (and see section 204(4) for application) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
Arrangements involving tax credits for charitable or other public benefit gifts
Heading: inserted, on 1 April 2019, by section 205 of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
GB 55 Arrangements involving tax credits for charitable or other public benefit gifts
When this section applies
(1)
This section applies when—
(a)
a person enters into an arrangement; and
(b)
the arrangement has a purpose or effect of defeating the intent and application of section LD 1 (Tax credits for charitable or other public benefit gifts).
Credit reduced
(2)
A tax credit under section LD 1 is reduced to the amount that the Commissioner considers would have arisen had the arrangement not occurred.
Defined in this Act: amount, arrangement, Commissioner, tax credit
Section GB 55: inserted, on 1 April 2019, by section 205 of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
Arrangements involving research and development tax credits
Heading: inserted, on 1 April 2019, by section 7 (and see section 3 for application) of the Taxation (Research and Development Tax Credits) Act 2019 (2019 No 15).
GB 56 Arrangements involving research and development tax credits
When this section applies
(1)
This section applies when an arrangement has a purpose or effect, not being a merely incidental purpose or effect, of defeating the intent and application of subpart LY (Research and development tax credits).
Credit reduced
(2)
A person’s entitlement to a research and development tax credit is reduced to the amount that the Commissioner thinks appropriate, whether or not the person is a party to the arrangement.
Defined in this Act: arrangement, eligible research and development expenditure, goods, research and development tax credit, services
Subpart GC—Market value substituted
Contents
Disposals of trading stock or similar property
GC 1 Disposals of trading stock at below market value
When this section applies
(1)
This section applies when a person disposes of trading stock for—
(a)
no consideration:
(b)
an amount that is less than the market value of the trading stock at the time of disposal.
Market value consideration
(2)
The person is treated as deriving an amount equal to the market value of the trading stock at the time of disposal.
Market value expenditure
(3)
If the person disposes of the trading stock to another person, an amount equal to the market value of the trading stock at the time of disposal is treated as expenditure incurred by the other person in acquiring the trading stock.
Shares in trading stock
(4)
In this section, trading stock includes an interest in trading stock.
Exclusions
(5)
This section does not apply to a disposal of trading stock—
(a)
under a relationship agreement:
(b)
by the person to another person who is not associated with them, for use by the other person in a farming, agricultural, or fishing business that is affected by a self-assessed adverse event:
(c)
under a share-lending arrangement, by a share user to a share supplier or by a share supplier to a share user.
Defined in this Act: amount, associated person, business, relationship agreement, self-assessed adverse event, share, share-lending arrangement, share supplier, share user, trading stock
Compare: 2004 No 35 s GD 1(1), (3), (4)
Section GC 1(4)(c): amended (with effect on 26 September 2008), on 6 October 2009, by section 243(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section GC 1(4)(d): added (with effect on 26 September 2008), on 6 October 2009, by section 243(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section GC 1 list of defined terms emissions unit: inserted (with effect on 26 September 2008), on 6 October 2009, by section 243(2)(b) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section GC 1 list of defined terms qualifying event: repealed (with effect on 26 September 2008), on 6 October 2009, by section 243(2)(a) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section GC 1 list of defined terms surrender: inserted (with effect on 26 September 2008), on 6 October 2009, by section 243(2)(b) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section GC 1: substituted (with effect on 1 April 2008), on 7 September 2010, by section 54(1) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
GC 2 Disposals of timber rights or standing timber
When section GC 1 applies
(1)
Section GC 1 applies to each of the following disposals as if it were a disposal of trading stock—
(a)
a grant of a right to take timber, other than in favour of the grantor:
(b)
a disposal of standing timber as part of the disposal of the land on which it stands, other than a disposal subject to a right in favour of the seller to take timber.
Exclusion
(2)
Subsection (1) does not apply to a disposal of land with standing timber if the disposal is within 1 of the exclusions in section CB 25(2) (Disposal of land with standing timber).
Limitation
(3)
Section GC 1(4) does not apply if the disposal is of land with standing timber subject to a right to take timber.
Defined in this Act: timber, trading stock
Compare: 2004 No 35 s GD 1(2), (3A)
Section GC 2(3): amended (with effect on 1 April 2008), on 7 September 2010 (applying for the 2008–09 and later income years), by section 55(1) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
GC 3 Disposals by life insurers
Section GC 1 applies to a life insurer that disposes of any property, other than a financial arrangement, in the course of their business of life insurance, as if the property were trading stock.
Defined in this Act: financial arrangement, life insurance, life insurer, property, trading stock
Compare: 2004 No 35 s GD 7
GC 3B Disposals of emissions units
When section GC 1 applies
(1)
Section GC 1 applies to a disposal of an emissions unit as if the emissions unit were trading stock.
Exclusions
(2)
Section GC 1 does not apply to a disposal of an emissions unit if the disposal is—
(a)
the surrender of the unit under the Climate Change Response Act 2002:
(b)
the transfer of the unit to the Crown under a permanent forestry scheme:
(c)
the transfer of a forest land emissions unit—
(i)
from the person (the transferor) who receives the unit from the Crown; and
(ii)
to a person (the transferee) as a party to a forestry rights agreement as defined in the Forestry Rights Registration Act 1983; and
(iii)
as required by a provision of the forestry rights agreement relating to the allocation of income or emissions units between the transferor and the transferee:
(d)
the cancellation of the unit.
Defined in this Act: dispose, emissions unit, trading stock
Section GC 3B: inserted (with effect on 26 September 2008), on 7 September 2010 (applying for the 2008–09 and later income years), by section 56(1) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
Section GC 3B(2)(b): amended, on 23 June 2020, by section 279 of the Climate Change Response (Emissions Trading Reform) Amendment Act 2020 (2020 No 22).
Section GC 3B(2)(c)(iii): amended (with effect on 1 January 2009), on 30 March 2022, by section 113(1) (and see section 113(3) for application) of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
Section GC 3B(2)(d): inserted (with effect on 1 January 2009), on 30 March 2022, by section 113(2) (and see section 113(3) for application) of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
Section GC 3B 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 GC 3B 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).
GC 4 Disposals and acquisitions of FIF attributing interests
When subsection (2) applies
(1)
Subsection (2) applies if—
(a)
a person disposes of an attributing interest in a foreign investment fund (FIF); and
(b)
they calculate their FIF income or loss from the interest for the period ending with the disposal using the comparative value method, deemed rate of return method, the fair dividend rate method, or the cost method; and
(c)
the consideration, if any, for the disposal is below the market value of the interest at the time.
Disposal treated as at market value
(2)
The person is treated as having disposed of the interest for an amount equal to its market value at the time.
When subsection (4) applies
(3)
Subsection (4) applies if—
(a)
a person acquires an attributing interest in a FIF; and
(b)
they calculate their FIF income or loss from the interest for the period after the acquisition using the comparative value method, deemed rate of return method, the fair dividend rate method, or the cost method; and
(c)
the consideration, if any, for the acquisition is not equal to the market value of the interest at the time.
Acquisition treated as at market value
(4)
The person is treated as having acquired the interest for an amount equal to its market value at the time.
Defined in this Act: attributing interest, comparative value method, cost method, deemed rate of return method, fair dividend rate method, FIF, FIF income, FIF loss
Compare: 2004 No 35 s GD 14
GC 4B Disposals of ETS units at below market value
[Repealed]Section GC 4B: repealed (with effect on 26 September 2008), on 6 October 2009, by section 244 of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Leases
GC 5 Leases for inadequate rent
When this section applies
(1)
This section applies in relation to leases of real and personal property if and to the extent to which—
(a)
a property is leased; and
(b)
the lease is 1 of the types referred to in subsection (2); and
(c)
the lessee uses the property in deriving income; and
(d)
no rent is payable, or the Commissioner considers that the rent is less than adequate.
When this section does not apply
(1B)
This section does not apply when the property is an asset to which subpart DG (Expenditure related to use of certain assets) applies.
Types of leases
(2)
The following types of leases are subject to this section:
(a)
a lease by a company:
(b)
a lease by a person to a relative or a related company:
(c)
a lease by 2 or more persons to a relative or a related company of any of those persons:
(d)
a lease by a partnership to a relative of a partner or a related company of the partnership.
Lease treated as having adequate rent
(3)
The lessee is treated as paying, and the lessor is treated as deriving as income, an adequate rent determined by the Commissioner.
Timing
(4)
The adequate rent is treated as—
(a)
paid on the rent payment dates set out in the lease, if any; and
(b)
paid on a daily basis on each day of the lease term, if there are no rent payment dates; and
(c)
income derived by the lessor on the date on which it is treated as being paid; and
(d)
accruing on a daily basis.
Some definitions
(5)
In this section,—
lease means a tenancy of any duration, including a sublease or bailment
related company means a company that is associated with—
(a)
in the case of a single lessor, the lessor, 1 or more relatives of the lessor, or a combination of them:
(b)
in the case of multiple lessors, including a partnership, any of the lessors, 1 or more relatives of any of the lessors, or a combination of them
rent includes a premium or other consideration for the lease.
Defined in this Act: asset, Commissioner, company, income, lease, related company, relative, rent
Compare: 2004 No 35 s GD 10
Section GC 5(1): amended (with effect on 1 April 2008), on 29 August 2011 (applying for the 2008–09 and later income years), by section 48(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section GC 5(1B) heading: inserted (with effect on 1 April 2013 and applying for the 2013–14 and later income years for an item of property referred to in section DG 3(2)(a)(i), and for the 2014–15 and later income years for an item of property referred to in section DG 3(2)(a)(ii) and (iii)), on 17 July 2013, by section 59(1) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Section GC 5(1B): inserted (with effect on 1 April 2013 and applying for the 2013–14 and later income years for an item of property referred to in section DG 3(2)(a)(i), and for the 2014–15 and later income years for an item of property referred to in section DG 3(2)(a)(ii) and (iii)), on 17 July 2013, by section 59(1) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Section GC 5(5) related company: amended, on 1 April 2010 (applying for the 2010–11 and later income years), by section 245(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section GC 5 list of defined terms asset: inserted (with effect on 1 April 2013), on 17 July 2013, by section 59(2) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Transfer pricing arrangements
GC 6 Purpose and application of rules and nature of arrangements
Purpose of rules
(1)
The purpose of this section and sections GC 7 to GC 14 is to substitute an arm’s length consideration in the calculation of a person’s net income if the person’s net income is reduced by the conditions of a cross-border arrangement—
(a)
with an associated person or with a party to a financial arrangement that is a cross-border related borrowing of the person under subsection (3B); and
(b)
for the acquisition or supply of goods, services, or anything else, or that includes a financial arrangement that is a cross-border related borrowing.
Rules apply consistently with OECD transfer pricing guidelines
(1B)
This section and sections GC 7 to GC 14 apply consistently with the OECD transfer pricing guidelines.
What is a transfer pricing arrangement?
(2)
An arrangement is a transfer pricing arrangement if—
(a)
the arrangement involves the supply and acquisition of goods, services, money, other intangible property, or anything else; and
(b)
the arrangement—
(i)
is between a supplier and acquirer who are associated persons or are a company and a person who is a member of a non-resident owning body that has an ownership interest in the company of 50% or more:
(ii)
includes a financial arrangement that is a cross-border related borrowing; and
(c)
the arrangement is a cross-border arrangement under subsection (3).
When arrangement is cross-border arrangement
(3)
An arrangement is a cross-border arrangement if the requirements of any of the following paragraphs is met:
(a)
the supplier and acquirer are a New Zealand resident and non-resident, unless the requirements of both of the following subparagraphs are met:
(i)
the non-resident enters into the arrangement for the purposes of a business carried on by the non-resident in New Zealand through a fixed establishment in New Zealand:
(ii)
the New Zealand resident has not entered into the arrangement for the purposes of a business carried on by the New Zealand resident outside New Zealand:
(b)
the supplier and acquirer are 2 New Zealand residents and either or both enter into the arrangement for the purposes of a business carried on by the person outside New Zealand:
(c)
the supplier and acquirer are 2 non-residents, unless each enters into the arrangement for the purposes of a business carried on by the person in New Zealand through a fixed establishment in New Zealand.
When financial arrangement is cross-border related borrowing
(3B)
A financial arrangement is a cross-border related borrowing under this subsection if, under the financial arrangement,—
(a)
a non-resident person (the lender) provides funds to another person (the borrower) when—
(i)
the lender and borrower are associated persons:
(ii)
a person or group of persons has a total ownership interest, determined under sections FE 38 to FE 41 (which give the measurement of ownership interests in companies), of 50% or more in each of the lender and borrower:
(iii)
the funding is provided through an indirect associated funding arrangement described in subsection (3C):
(iv)
the lender is a member of a non-resident owning body, or of a group of non-residents who act in concert and are each described in section FE 2(1)(a) to (db) (When this subpart applies), and the members of the non-resident owning body or of the group have a total ownership interest, determined under sections FE 38 to FE 41, of 50% or more in the borrower; and
(b)
expenditure arises for the borrower for which the borrower is allowed a deduction.
When indirect associated funding arrangement exists
(3C)
An indirect associated funding arrangement exists under this subsection when,—
(a)
under an arrangement, a non-resident person (the indirect lender) provides funds or pays money, directly or indirectly, to another person (the direct lender) who provides funds to a third person (the borrower)—
(i)
in order for the funds to be provided to the borrower, or to reimburse the direct lender or compensate them, for providing the funds to the borrower; and
(ii)
with the purpose or effect that this section and sections GC 6 to GC 14 and GC 16 to GC 19 do not apply to the arrangement; and
(b)
the indirect lender is associated with the borrower, or a person or group of persons has a total ownership interest, determined under sections FE 38 to FE 41, of 50% or more in each of the indirect lender and borrower; and
(c)
the direct lender is not associated with the borrower and is not described in subsection (3B)(a)(iv).
Application of sections to cross-border related borrowing
(3D)
If a transfer pricing arrangement includes a financial arrangement that is a cross-border related borrowing, sections GC 7 to GC 14 are applied to the transfer pricing arrangement as if the adjustments required by sections GC 15 to GC 19 had been made to the credit rating of the borrower and the conditions of the financial arrangement.
Certain preference shares excluded from calculation of ownership interest
(3E)
In calculating the ownership interests in a lender or borrower (the issuer) for the purposes of subsection (3B), a preference share is not included in the calculation if the preference share—
(a)
is held by a person (the creditor) who is not associated with the issuer; and
(b)
was issued to the creditor with the intention of satisfying or replacing debt provided by the creditor to the issuer in the ordinary course of business.
Application of sections
(4)
Section GC 7, GC 8, GC 9, or GC 10 can apply to an arrangement under section GB 2 (Arrangements involving transfer pricing).
Defined in this Act: acquisition, arrangement, associated person, cross-border related borrowing, fixed establishment, financial arrangement, net income, New Zealand, New Zealand resident, non-resident, non-resident owning body , OECD transfer pricing guidelines, ownership interest, supply, transfer pricing arrangement
Compare: 2004 No 35 s GD 13(1), (2)
Section GC 6 heading: amended, on 1 July 2018, by section 40(1) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
Section GC 6(1): replaced, on 1 July 2018, by section 40(2) (and see section 40(7) for application) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
Section GC 6(1B) heading: inserted, on 1 July 2018, by section 40(3) (and see section 40(7) for application) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
Section GC 6(1B): inserted, on 1 July 2018, by section 40(3) (and see section 40(7) for application) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
Section GC 6(2)(b): replaced, on 1 July 2018, by section 40(4) (and see section 40(7) for application) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
Section GC 6(3B) heading: inserted, on 1 July 2018, by section 40(5) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
Section GC 6(3B): inserted, on 1 July 2018, by section 40(5) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
Section GC 6(3C) heading: inserted, on 1 July 2018, by section 40(5) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
Section GC 6(3C): inserted, on 1 July 2018, by section 40(5) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
Section GC 6(3D) heading: inserted, on 1 July 2018, by section 40(5) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
Section GC 6(3D): inserted, on 1 July 2018, by section 40(5) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
Section GC 6(3E) heading: inserted, on 1 July 2018, by section 40(5) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
Section GC 6(3E): inserted, on 1 July 2018, by section 40(5) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
Section GC 6 list of defined terms cross-border related borrowing: inserted, on 1 July 2018, by section 40(6) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
Section GC 6 list of defined terms financial arrangement: inserted, on 1 July 2018, by section 40(6) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
Section GC 6 list of defined terms non-resident owning body: inserted, on 1 July 2018, by section 40(6) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
Section GC 6 list of defined terms OECD transfer pricing guidelines: inserted, on 1 July 2018, by section 40(6) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
Section GC 6 list of defined terms ownership interest: inserted, on 1 July 2018, by section 40(6) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
GC 7 Excess amount payable by person
If the amount of consideration payable by a person (the taxpayer) under a transfer pricing arrangement is more than an arm’s length amount, an amount equal to the arm’s length amount is treated as the amount payable by the taxpayer for the purposes of the calculation of their income tax liability for a tax year.
Defined in this Act: amount, arrangement, income tax liability, tax year, taxpayer, transfer pricing arrangement
Compare: 2004 No 35 s GD 13(3)
GC 8 Insufficient amount receivable by person
Amount receivable
(1)
If the amount of consideration receivable by a person (the taxpayer) under a transfer pricing arrangement is less than an arm’s length amount, an amount equal to the arm’s length amount is treated as the amount receivable by the taxpayer for each of the following purposes:
(a)
the calculation of their income tax liability for a tax year:
(b)
[Repealed](c)
the determination of the obligation of another person to withhold under Part R (General collection rules) from the amount.
Non-resident’s exemption: deduction to payer
(2)
This section does not apply when—
(a)
the taxpayer is neither resident in New Zealand nor entering into the transfer pricing arrangement for the purposes of a business carried on in New Zealand through a fixed establishment in New Zealand; and
(b)
the increase under subsection (1) in the amount receivable by the taxpayer—
(i)
produces an increase in the amount that is a deduction of the other party, or would be a deduction of the other party in the absence of sections FH 5, FH 8, and FH 9 (which deny deductions arising from some mismatch situations); or
(ii)
if the transfer pricing arrangement is an interest-free loan, would produce an increase in the income of the borrower under subpart FE (Interest apportionment on thin capitalisation) or an increase in the amount that would be a deduction of the borrower in the absence of subpart FH (Hybrid and branch mismatches of deductions and income from multi-jurisdictional arrangements); and
(c)
the amount receivable is interest, royalties, or an insurance premium to which section YD 8 (Apportionment of premiums derived by non-resident general insurers) applies.
Non-resident’s exemption: fixed-rate share dividend
(3)
This section does not apply if both of the following requirements are met:
(a)
the taxpayer is neither resident in New Zealand nor entering into the arrangement for the purposes of a business carried on in New Zealand through a fixed establishment in New Zealand:
(b)
the amount is a dividend receivable on a fixed-rate share.
Defined in this Act: amount, arrangement, deduction, dividend, fixed establishment, fixed-rate share, income tax liability, interest, resident in New Zealand, royalty, tax year, taxpayer, transfer pricing arrangement
Compare: 2004 No 35 s GD 13(4), (5)
Section GC 8(1)(b): repealed (with effect on 30 June 2009), on 6 October 2009, by section 246(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section GC 8(2)(a): amended (with effect on 1 July 2018), on 30 March 2021, by section 80(1) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
Section GC 8(2)(b): replaced (with effect on 1 July 2018), on 30 March 2021, by section 80(2) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
GC 9 Compensating arrangement: person paying less than arm’s length amount
When this section applies
(1)
This section applies when—
(a)
a person (the taxpayer) is a party to a transfer pricing arrangement with another person; and
(b)
an adjustment is made for an income year under either—
(i)
section GC 7 to an amount payable by the taxpayer under the transfer pricing arrangement; or
(ii)
section GC 8 to an amount receivable by the taxpayer under the transfer pricing arrangement; and
(c)
an amount of consideration payable by the taxpayer in the same income year, or in the preceding or next income year, for an acquisition (the compensating acquisition arrangement) from the same person is less than an arm’s length amount; and
(d)
either—
(i)
the transfer pricing arrangement involves goods, services, money, other intangible property, or anything else of the same type as that acquired in the compensating acquisition arrangement; or
(ii)
the amount of consideration actually payable or receivable in the transfer pricing arrangement is set having regard to the amount of consideration payable under the compensating acquisition arrangement.
Paying arm’s length amount
(2)
For the purposes of calculating the taxpayer’s income tax liability, the amount paid by them in the compensating acquisition arrangement is treated for the corresponding tax year as an amount equal to the arm’s length amount determined under section GC 13.
Defined in this Act: acquisition, amount, arrangement, income tax liability, tax year, transfer pricing arrangement
Compare: 2004 No 35 s GD 13(10)
GC 10 Compensating arrangement: person receiving more than arm’s length amount
When this section applies
(1)
This section applies when—
(a)
a person (the taxpayer) is a party to a transfer pricing arrangement with another person; and
(b)
an adjustment is made for a tax year under either—
(i)
section GC 7 to an amount payable by the taxpayer under the transfer pricing arrangement; or
(ii)
section GC 8 to an amount receivable by the taxpayer under the transfer pricing arrangement; and
(c)
an amount of consideration receivable by the taxpayer in the same tax year, or the preceding or next tax year, for a supply (the compensating supply arrangement) to the same person is more than an arm’s length amount; and
(d)
either—
(i)
the transfer pricing arrangement involves goods, services, money, other intangible property, or anything else of the same type as that acquired in the compensating supply arrangement; or
(ii)
the amount of consideration actually payable or receivable in the transfer pricing arrangement is set having regard to the amount of consideration receivable under the compensating supply arrangement.
Receiving arm’s length amount
(2)
The amount received by the taxpayer in the compensating supply arrangement is treated as being an amount equal to the arm’s length amount determined under section GC 13, for each of the following purposes:
(a)
the calculation of their income tax liability for a tax year:
(b)
[Repealed](c)
the determination of the obligation of another person to withhold under Part R (General collection rules) from the amount.
Defined in this Act: amount, arrangement, income tax liability, supply, tax year, transfer pricing arrangement
Compare: 2004 No 35 s GD 13(10)
Section GC 10(1)(b)(ii): amended (with effect on 1 April 2008), on 23 March 2020, by section 129(1) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
Section GC 10(1)(c): amended (with effect on 1 April 2008), on 23 March 2020, by section 129(2) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
Section GC 10(2)(b): repealed (with effect on 30 June 2009), on 6 October 2009, by section 247(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
GC 11 Applications for matching treatment
When this section applies
(1)
This section applies when—
(a)
an arm’s length amount of consideration is substituted under section GC 7 or GC 8 in relation to a transfer pricing arrangement entered into by a person (the taxpayer); and
(b)
the other party to the arrangement or, if the other party is a controlled foreign company (CFC), a person with an income interest in the CFC, applies to the Commissioner within 6 months after an assessment is made for the taxpayer which reflects the substitution; and
(c)
the Commissioner considers it is fair and reasonable to apply subsection (2), having regard to an adjustment made under a double tax agreement or any other matter; and
(d)
the Commissioner has notified the other party.
Substitution applying for other party
(2)
The substitution applies for the purposes of the application of this Act to the other party—
(a)
excluding the determination of the extent to which the other party has derived or been paid a dividend; and
(b)
including, when the other party is a CFC, the calculation of net attributable CFC income or net attributable CFC loss in relation to the other party, and the resultant calculation of the attributed CFC income or an attributed CFC loss or attributed CFC net loss of a person.
Defined in this Act: amount, apply, arrangement, assessment, attributed CFC income, attributed CFC loss, attributed CFC net loss, CFC, Commissioner, dividend, double tax agreement, income interest, net attributable CFC income, net attributable CFC loss, notify, taxpayer, transfer pricing arrangement
Compare: 2004 No 35 s GD 13(11)
Section GC 11 heading: amended, on 2 June 2016, by section 47(1) of the Taxation (Transformation: First Phase Simplification and Other Measures) Act 2016 (2016 No 27).
Section GC 11(1)(b): amended, on 2 June 2016, by section 47(2) of the Taxation (Transformation: First Phase Simplification and Other Measures) Act 2016 (2016 No 27).
Section GC 11(2)(b): substituted (with effect on 30 June 2009), on 6 October 2009, by section 248(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section GC 11 list of defined terms apply: inserted, on 2 June 2016, by section 47(3) of the Taxation (Transformation: First Phase Simplification and Other Measures) Act 2016 (2016 No 27).
Section GC 11 list of defined terms branch equivalent income: repealed (with effect on 30 June 2009), on 6 October 2009, by section 248(2)(a) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section GC 11 list of defined terms branch equivalent loss: repealed (with effect on 30 June 2009), on 6 October 2009, by section 248(2)(a) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section GC 11 list of defined terms net attributable CFC income: inserted (with effect on 30 June 2009), on 6 October 2009, by section 248(2)(b) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section GC 11 list of defined terms net attributable CFC loss: inserted (with effect on 30 June 2009), on 6 October 2009, by section 248(2)(b) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section GC 11 list of defined terms notify: inserted, on 2 June 2016, by section 47(3) of the Taxation (Transformation: First Phase Simplification and Other Measures) Act 2016 (2016 No 27).
GC 12 Effect on person’s withholding obligations
An adjustment under any of sections GC 7 to GC 10 has no effect on an obligation of the taxpayer to withhold under Part R (General collection rules) in relation to the amount other than to the extent to which section GC 11(2) applies.
Defined in this Act: amount
Section GC 12: substituted (with effect on 30 June 2009), on 6 October 2009, by section 249(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
GC 13 Calculation of arm’s length amounts
Determining arm’s length amounts
(1)
An arm’s length amount of consideration for a supply and acquisition under a transfer pricing arrangement must be determined by—
(a)
identifying, as required by subsections (1B) and (1C), a transaction reproducing the supply and acquisition (the identified transaction) or the absence of such a transaction; and
(b)
identifying the conditions (the arm’s length conditions) that independent parties after real and independent bargaining might be expected to agree upon for the identified transaction; and
(c)
applying whichever 1 or a combination of the methods listed in subsection (2) produces the most reliable measure of the arm’s length amount of consideration (the arm’s length amount) that independent parties after real and independent bargaining would have agreed upon as the price for the identified transaction as part of the arm’s length conditions.
Determination of identified transaction
(1B)
A transaction reproducing a supply and acquisition under a transfer pricing arrangement is determined by—
(a)
accurately delineating the transfer pricing arrangement using the approach given in the OECD transfer pricing guidelines, chapter I, section D.1; and
(b)
identifying a transaction of supply and acquisition under the transfer pricing arrangement as delineated under paragraph (a).
No transaction or differing transaction
(1C)
If the requirements of the OECD transfer pricing guidelines, paragraph 1.142, are met, the approach described in the OECD transfer pricing guidelines, chapter I, section D.2 must be used to treat a transfer pricing arrangement involving a supply and acquisition as instead involving—
(a)
no supply and acquisition; or
(b)
an identified transaction that differs from the supply and acquisition under the accurately delineated transfer pricing arrangement.
Available methods for calculating arm’s length amount
(2)
The arm’s length amount of consideration for a supply and acquisition under a transfer pricing arrangement is zero, if there is no supply and acquisition under subsection (1C)(a), or is the amount calculated for the identified transaction under arm’s length conditions by performing a comparability analysis as required by the OECD transfer pricing guidelines, chapter III, using any 1 or a combination of—
(a)
the comparable uncontrolled price method:
(b)
the resale price method:
(c)
the cost plus method:
(d)
the transactional profit split method:
(e)
the transactional net margin method.
Criteria for choice and application of method
(3)
The choice and application of a method or methods must be made having regard to each of the following factors:
(a)
the degree of comparability between the transactions used for comparison and the transactions of the taxpayer under the transfer pricing arrangement:
(b)
the completeness and accuracy of the data relied on:
(c)
the reliability of all assumptions:
(d)
the sensitivity of a result to possible deficiencies in the data and assumptions.
Initial determination by the taxpayer[Repealed]
(4)
[Repealed]Commissioner’s determination[Repealed]
(5)
[Repealed]Amendment of assessment
(6)
Despite the time bar, the Commissioner may amend an assessment for a tax year (the assessed year) in order to give effect to this section and to sections GC 6 to GC 12 and GC 14 to GC 19 at any time in the period of 7 tax years after the tax year (the return year) in which a return of income is made for the assessed year if, at any time in the period of 4 tax years after the return year, the Commissioner notifies the taxpayer that a tax audit or investigation has commenced and this subsection applies.
Defined in this Act: amount, arm’s length amount, assessment, associated person, Commissioner, OECD transfer pricing guidelines, return of income, tax year, time bar, transfer pricing arrangement
Compare: 2004 No 35 s GD 13(6)–(9)
Section GC 13(1) heading: replaced, on 1 July 2018, by section 41(1) (and see section 41(7) for application) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
Section GC 13(1): replaced, on 1 July 2018, by section 41(1) (and see section 41(7) for application) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
Section GC 13(1B) heading: inserted, on 1 July 2018, by section 41(1) (and see section 41(7) for application) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
Section GC 13(1B): inserted, on 1 July 2018, by section 41(1) (and see section 41(7) for application) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
Section GC 13(1C) heading: inserted, on 1 July 2018, by section 41(1) (and see section 41(7) for application) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
Section GC 13(1C): inserted, on 1 July 2018, by section 41(1) (and see section 41(7) for application) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
Section GC 13(1C): amended (with effect on 20 January 2022), on 31 March 2023, by section 74 of the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Act 2023 (2023 No 5).
Section GC 13(2) heading: replaced, on 1 July 2018, by section 41(2) (and see section 41(7) for application) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
Section GC 13(2): replaced, on 1 July 2018, by section 41(2) (and see section 41(7) for application) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
Section GC 13(3)(a): replaced, on 1 July 2018, by section 41(3) (and see section 41(7) for application) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
Section GC 13(4) heading: repealed, on 1 July 2018, pursuant to section 41(4) (and see section 41(7) for application) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
Section GC 13(4): repealed, on 1 July 2018, by section 41(4) (and see section 41(7) for application) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
Section GC 13(5) heading: repealed, on 1 July 2018, pursuant to section 41(4) (and see section 41(7) for application) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
Section GC 13(5): repealed, on 1 July 2018, by section 41(4) (and see section 41(7) for application) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
Section GC 13(6) heading: inserted, on 1 July 2018, by section 41(5) (and see section 41(7) for application) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
Section GC 13(6): inserted, on 1 July 2018, by section 41(5) (and see section 41(7) for application) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
Section GC 13 list of defined terms arm’s length amount: inserted, on 1 July 2018, by section 41(6) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
Section GC 13 list of defined terms assessment: inserted, on 1 July 2018, by section 41(6) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
Section GC 13 list of defined terms associated person: inserted, on 1 July 2018, by section 41(6) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
Section GC 13 list of defined terms OECD transfer pricing guidelines: inserted, on 1 July 2018, by section 41(6) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
Section GC 13 list of defined terms return of income: inserted, on 1 July 2018, by section 41(6) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
Section GC 13 list of defined terms tax year: inserted, on 1 July 2018, by section 41(6) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
Section GC 13 list of defined terms time bar: inserted, on 1 July 2018, by section 41(6) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
Section GC 13 list of defined terms transfer pricing arrangement: inserted, on 1 July 2018, by section 41(6) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
GC 14 Definitions for sections GC 6 to GC 13
acquisition—
(a)
includes obtaining the availability of anything; but
(b)
does not include the mere receipt or retention by a company of consideration for the issue of a share, unless the share is a fixed-rate share
amount includes zero
supply—
(a)
includes making anything available; but
(b)
does not include the mere payment, and subsequent continuing making available, by a person to a company of consideration for the issue of a share, unless the share is a fixed-rate share.
Defined in this Act: acquisition, amount, company, fixed-rate share, share, supply
Compare: 2004 No 35 s GD 13(13)
Cross-border related borrowing
Heading: inserted, on 1 July 2018, by section 42(1) (and see section 42(2) for application) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
GC 15 Aspects of loan adjusted for application of sections
Adjustment of aspects of loan
(1)
If a transfer pricing arrangement includes a financial arrangement that is a cross-border related borrowing under which a non-resident (the lender) provides funds to a person (the borrower), sections GC 7 to GC 14 are applied to the transfer pricing arrangement as if—
(a)
the borrower had the credit rating required by—
(i)
section GC 16, if the borrower is not an insuring or lending person under subsection (2):
(ii)
section GC 17, if the borrower is an insuring or lending person under subsection (2); and
(b)
conditions of the cross-border related borrowing were disregarded, as required by section GC 18.
Insuring or lending person
(2)
A borrower is an insuring or lending person under this subsection if the borrower is—
(a)
a member of the New Zealand banking group of a registered bank for the purposes of subpart FE (Interest apportionment on thin capitalisation):
(b)
a licensed insurer under the Insurance (Prudential Supervision) Act 2010 or an associated person under that Act of a licensed insurer:
(c)
a non-bank deposit taker under the Non-bank Deposit Takers Act 2013 or an associated person or related person under that Act of a non-bank deposit taker:
(d)
a member of a group of persons that has a main business activity of providing funds to persons who are not associated persons of the members of the group:
(e)
a person that—
(i)
is a member of a group of persons (the business group) that has a main business activity other than the main business activity of a group of persons referred to in paragraphs (a) to (d); and
(ii)
has a main business activity of providing funds to persons who are not associated persons of the members of the business group.
Defined in this Act: associated person, cross-border related borrowing, financial arrangement, non-resident, transfer pricing arrangement
Section GC 15: inserted, on 1 July 2018, by section 42(1) (and see section 42(2) for application) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
GC 16 Credit rating of borrower: other than insuring or lending person
Adjustment of long-term issuer credit rating
(1)
For the purposes of sections GC 7 to GC 14, a borrower that is not referred to as an insuring or lending person in section GC 15(2) has a long-term issuer credit rating for a loan given by this section.
Borrowers with default credit rating
(2)
A borrower has for a loan the default credit rating given by subsection (8) if, on the most recent calculation date given for the loan by subsection (6), the borrower—
(a)
does not elect to use a credit rating given by 1 of subsections (9) to (11) for the loan, in the first return of income that includes the loan; and
(b)
is not required to use a credit rating given by subsection (9) or (10).
Borrowers with restricted credit rating
(3)
A borrower has the restricted credit rating given by subsection (9) if the borrower, or a non-resident that controls the borrower and has no other business activity, is controlled by a group of persons (a co-ordinated group) that is a non-resident owning body or is a group of persons that act in concert and are each described in section FE 2(1)(a) to (db) (When this subpart applies) and—
(a)
on the most recent calculation date given for the loan by subsection (6) (the latest calculation date), the co-ordinated group does not include a person who has an ownership interest in the borrower, determined under sections FE 38 to FE 41 (which give the measurement of ownership interests in companies), of 50% or more; and
(b)
the borrower has debt under cross-border related borrowings including the loan, of $10 million or more; and
(c)
the borrower’s New Zealand group under subpart FE (Interest apportionment on thin capitalisation) has a debt percentage under section FE 12(3) (Calculation of debt percentages) of 40% or more or has a debt percentage equal to zero, or, for each lender on the latest calculation date,—
(i)
there is no ultimate owner having an ownership interest in the lender, determined under sections FE 38 to FE 41, of 50% or more that is resident in the same country or territory as the lender; and
(ii)
under the tax law of the country or territory in which the lender is resident, income from the borrower’s cross-border related borrowings is, and would be for a company having the usual tax status of a company, subject to taxation at a rate of less than 15%; and
(d)
the borrower does not elect to use the optional credit rating given by subsection (11) for the loan, in the first return of income that includes the loan.
Borrowers with group credit rating
(4)
A borrower has the group credit rating given by subsection (10) if the borrower is not controlled by a co-ordinated group referred to in subsection (3) or, on the most recent calculation date given for the loan by subsection (6) (the latest calculation date), is controlled by a co-ordinated group that includes a person who has an ownership interest in the borrower, determined under sections FE 38 to FE 41, of 50% or more, and—
(a)
the borrower has debt under cross-border related borrowings including the loan, of $10 million or more; and
(b)
the borrower’s New Zealand group under subpart FE has a debt percentage under section FE 12(3) that is 40% or more, or has a debt percentage equal to zero, and the borrower does not show that the debt percentage is less than 110% of the debt percentage of the borrower’s worldwide group under subpart FE, or, for each lender on the latest calculation date,—
(i)
there is no ultimate owner having an ownership interest in the lender, determined under sections FE 38 to FE 41, of 50% or more that is resident in the same country or territory as the lender; and
(ii)
under the tax law of the country or territory in which the lender is resident, income from the borrower’s cross-border related borrowings is, and would be for a company having the usual tax status of a company, subject to taxation at a rate of less than 15%; and
(c)
the borrower does not elect to use the optional credit rating given by subsection (11), for the loan, in the first return of income that includes the loan.
Borrowers with optional credit rating for some loans
(5)
A borrower has for a loan the optional credit rating given by subsection (11) if the borrower chooses to use the rate given by that subsection in the first return of income that includes the loan and uses the rate for an amount of related-party debt that is less than or equal to 4 times the total value of the long-term senior debt, that is not related-party debt, for which the borrower or a member of the borrower’s New Zealand group has the credit rating.
Calculation dates for loan
(6)
A calculation date under subsections (2) to (4) for a borrower for a loan is a date—
(a)
that is the day before the first income year of the borrower beginning on or after 1 July 2018, if the borrower enters the loan before that income year and does not use an earlier date under paragraph (d):
(b)
that is the day on which the borrower enters the loan, if that day is on or after the beginning of the first income year of the borrower beginning on or after 1 July 2018:
(c)
on or after the beginning of the first income year of the borrower beginning on or after 1 July 2018, on which the loan is renewed, extended, or renegotiated:
(d)
that is the last day before 1 July 2018 on which the loan is entered, renewed, extended, or renegotiated, if the borrower treats the date as a calculation date in the return of income provided for the first income year beginning on or after 1 July 2018.
Approximate calculation if calculation date not balance date
(7)
If a calculation date under subsection (6) is not a measurement date under section FE 8 (Measurement dates) for which the borrower measures the amounts of total group debt and total group assets, and follows a measurement date for which the borrower has made such measurements, the debt percentage may be calculated by making appropriate adjustments to the debt percentage calculated for the most recent measurement date.
Default credit rating
(8)
The credit rating of a borrower under this subsection is the credit rating that the borrower has for long-term senior unsecured debt or, if the borrower does not have such a credit rating, the credit rating for long-term senior unsecured debt that the borrower would have under section GC 13 in the absence of this section and section GC 15.
Restricted credit rating
(9)
The credit rating of a borrower under this subsection is the higher of—
(a)
BBB−, or an equivalent rating, given for the borrower by a rating agency approved by the Reserve Bank of New Zealand under section 86 of the Non-bank Deposit Takers Act 2013:
(b)
the credit rating that the borrower would have if the borrower’s New Zealand group under subpart FE had a debt percentage equal to the lesser of 40% and the debt percentage of the New Zealand group.
Group credit rating
(10)
The credit rating of a borrower under this subsection is the higher of—
(a)
the credit rating, for debt that is long-term senior unsecured debt and not related-party debt or between associated non-residents, of the member, of the borrower’s worldwide group under subpart FE, that has the most such debt, reduced by,—
(i)
if the member has a credit rating lower than BBB+, the division (the notch) that is the smallest division within the credit rating category or is the division between credit rating categories:
(ii)
if the member has a credit rating of BBB+ or higher, 2 notches:
(ab)
if no member of the borrower’s worldwide group under subpart FE has long-term senior unsecured debt, the credit rating of the member of the borrower’s worldwide group with the highest credit rating, which may be determined without considering the credit ratings of members that are reasonably considered to be unlikely to have the highest credit rating, reduced by,—
(i)
if the member has a credit rating lower than BBB+, 1 notch:
(ii)
if the member has a credit rating of BBB+ or higher, 2 notches:
(b)
the credit rating for long-term senior unsecured debt that the borrower would have under section GC 13 in the absence of this section and section GC 15.
Optional credit rating
(11)
The credit rating of a borrower under this subsection is—
(a)
the credit rating of the borrower, or a member of the borrower’s New Zealand group, for existing long-term senior debt that is not related-party debt, if the borrower or member has such a credit rating; or
(b)
the credit rating corresponding to the rate of interest incurred by the borrower, or a member of the borrower’s New Zealand group, for existing long-term senior debt that is not related-party debt.
Defined in this Act: cross-border related borrowing, financial arrangement, generally accepted accounting practice, loan, net loss, non-resident owning body, ownership interest, quarter, related-party debt, return of income, ultimate owner
Section GC 16: inserted, on 1 July 2018, by section 42(1) (and see section 42(2) for application) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
Section GC 16(3)(c): amended (with effect on 1 July 2018), on 30 March 2021, by section 81(1) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
Section GC 16(4)(b): amended (with effect on 1 July 2018), on 30 March 2021, by section 81(2) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
Section GC 16(5): amended (with effect on 1 July 2018), on 23 March 2020, by section 130(1) (and see section 130(2) for application) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
Section GC 16(10)(a): amended (with effect on 1 July 2018), on 18 March 2019, by section 206(1) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
Section GC 16(10)(ab): replaced (with effect on 1 July 2018), on 30 March 2021, by section 81(3) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
Section GC 16(11)(a): amended (with effect on 1 July 2018), on 18 March 2019, by section 206(3)(a) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
Section GC 16(11)(b): amended (with effect on 1 July 2018), on 18 March 2019, by section 206(3)(b) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
GC 17 Credit rating of borrower: insuring or lending person
For the purposes of sections GC 7 to GC 14, a borrower that is referred to as an insuring or lending person in section GC 15(2) has a credit rating for a cross-border related borrowing that is equal to—
(a)
the credit rating for long-term senior unsecured debt of the member of the borrower’s worldwide group, under subpart FE (Interest apportionment on thin capitalisation), having the greatest long-term senior unsecured debt that is not related-party debt or between associated non-residents, if the borrower has debt under cross-border related borrowings including the loan of $10 million or more on the most recent calculation date given for the loan by section GC 16(4); or
(ab)
if no member of the borrower’s worldwide group under subpart FE has long-term senior unsecured debt, the credit rating of the member of the borrower’s worldwide group with the highest credit rating, which may be determined without considering the credit ratings of members that are reasonably considered to be unlikely to have the highest credit rating; or
(b)
the credit rating for long-term senior unsecured debt that the borrower would have under section GC 13 in the absence of this section and section GC 15, if the borrower has debt under cross-border related borrowings including the loan of less than $10 million on the most recent calculation date; or
(c)
the optional credit rating given for the borrower by section GC 16(11), if the borrower chooses to use the rate given by that subsection and uses the rate for an amount of related-party debt that is less than or equal to 4 times the total value of the long-term senior debt, that is not related-party debt, for which the borrower or a member of the borrower’s New Zealand group has the credit rating.
Defined in this Act: cross-border related borrowing, loan
Section GC 17: inserted, on 1 July 2018, by section 42(1) (and see section 42(2) for application) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
Section GC 17(a): amended (with effect on 1 July 2018), on 18 March 2019, by section 207(1) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
Section GC 17(ab): inserted (with effect on 1 July 2018), on 18 March 2019, by section 207(2) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
Section GC 17(c): amended (with effect on 1 July 2018), on 18 March 2019, by section 207(3) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
GC 18 Loan features disregarded by rules for transfer pricing arrangements
When this section applies
(1)
This section applies when sections GC 7 to GC 14 are applied to a borrower and a transfer pricing arrangement including a financial arrangement (the loan) that is a cross-border related borrowing, as referred to in section GC 15(1).
General rule
(2)
A feature of the loan is disregarded, or adjusted as required by this section, for the purposes of applying sections GC 7 to GC 14 if—
(a)
the borrower has debt under cross-border related borrowings, including the loan, of $10 million or more on the most recent calculation date given for the loan by section GC 16(4); and
(b)
the feature may increase the rate of interest payable by the borrower under the loan and—
(i)
is referred to in subsection (3); and
(ii)
is not included in an exception under subsections (9) and (10).
Loan features disregarded or adjusted if no exception
(3)
A feature of a financial arrangement that is a cross-border related borrowing may be disregarded or adjusted under this section if the feature—
(a)
allows the reduction of a liability for interest or principal by a provision of value other than payment of an amount of money:
(b)
allows a liability to pay interest to be deferred for a period of more than 12 months:
(c)
provides for a change in the rate of interest payable that is contingent on an event within the control of the borrower or the lender:
(d)
excludes the exercise of a lender’s usual rights to enforce the payment of interest or repayment of principal:
(e)
provides that a liability to pay interest or repay principal is contingent on an event within the control of the borrower or the lender:
(f)
provides that the term of the loan from when the financial arrangement is entered is more than 5 years:
(g)
provides that the borrower’s obligations under the loan are subordinate to other financial arrangements of the borrower.
Term of loan
(4)
A term of more than 5 years for a cross-border related borrowing (the borrowing) may be adjusted under subsection (8) if—
(a)
the borrower is referred to as an insuring or lending person in section GC 15(2)(a), (b), or (c), or is associated with such a person, and the exception in subsection (10) does not apply:
(b)
the borrower is not referred to as an insuring or lending person in section GC 15(2)(a), (b), or (c), and is not associated with such a person and, for the borrowing, either or both—
(i)
the term of the borrowing is more than the period that is the weighted average of the terms of the financial arrangements included in the total group debt of the borrower’s worldwide group under subpart FE (Interest apportionment on thin capitalisation):
(ii)
the amount of the borrower’s cross-border related borrowing, including the borrowing, is more than the amount that is 4 times the total value of the financial arrangements included in the total group debt of the borrower’s worldwide group under subpart FE.
Quantities affecting adjustment to term
(5)
Whether an adjustment is required under subsection (8), and the amount of a required adjustment, is found for the date (the calculation date) on which the loan is entered or renewed or extended using—
(a)
the figure (the threshold term) calculated using the formula in subsection (6) for financial arrangements having a term of more than 5 years—
(i)
included in the total group debt of the borrower’s worldwide group under subpart FE; or
(ii)
between members of the borrower’s New Zealand group under subpart FE and persons other than associated persons excluding cross-border related borrowing:
(b)
the value of the financial arrangements used in calculating the threshold term, expressed as a fraction (the threshold fraction) of—
(i)
the total group debt of the borrower’s worldwide group, if the threshold term is calculated under paragraph (a)(i); or
(ii)
the total value of loans to members of the borrower’s New Zealand group by persons other than associated persons excluding cross-border related borrowing, if the threshold term is calculated under paragraph (a)(ii).
Threshold term
(6)
The threshold term for the purposes of subsection (5)(a) is the total of amounts, each of which is calculated using the formula—
term × term debt ÷ long-term debt.
Definition of items in formula
(7)
In the formula,—
(a)
term is the period of the loan term, calculated from the most recent date on which each loan is entered or renewed or extended:
(b)
term debt is the total value on the calculation date of the principal amounts of loans with the loan term:
(c)
long-term debt is—
(i)
the total group debt having a term of more than 5 years of the borrower’s worldwide group, if the threshold term is calculated for financial arrangements described in subsection (5)(a)(i); or
(ii)
the total value of loans having a term of more than 5 years to members of the borrower’s New Zealand group by persons other than associated persons excluding cross-border related borrowing, if the threshold term is calculated for financial arrangements described in subsection (5)(a)(ii).
Term of loan: adjustment
(8)
The term of a loan is adjusted to equal—
(a)
the threshold term under subsection (5)(a), if—
(i)
the term of the loan exceeds the threshold term; and
(ii)
the total value of loans that are cross-border related borrowing or are to members of the borrower’s New Zealand group by associated persons, and having a term of more than 5 years, expressed as a proportion of the total value of loans that are cross-border related borrowing or are to members of the borrower’s New Zealand group by associated persons, does not exceed the threshold fraction under subsection (5)(b); or
(b)
5 years, if when the loan is included, the total value of loans that are cross-border related borrowing or are to members of the borrower’s New Zealand group by associated persons, and having a term of more than 5 years,—
(i)
expressed as a proportion of the total value of loans that are cross-border related borrowing or are to members of the borrower’s New Zealand group by associated persons, exceeds the threshold fraction under subsection (5)(b):
(ii)
is more than 4 times the total value of financial arrangements with the feature that are included in total group debt of the borrower’s worldwide group, when the threshold fraction is determined under subsection (5)(b)(i):
(iii)
is more than 4 times the total value of financial arrangements with the feature that are included in the debt that is financial arrangements between members of the borrower’s New Zealand group and persons other than associated persons excluding cross-border related borrowing, when the threshold fraction is determined under subsection (5)(b)(ii).
Exceptions for features reflecting other borrowing
(9)
For a borrower that is not referred to as an insuring or lending person in section GC 15(2)(a), (b), or (c) and a feature of a financial arrangement other than the term of a loan, the feature is not disregarded or adjusted if—
(a)
the feature corresponds to a feature of financial arrangements with a total value that is a fraction (the feature fraction) of the total value of financial arrangements—
(i)
included in the total group debt of the borrower’s worldwide group under subpart FE; or
(ii)
between members of the borrower’s New Zealand group under subpart FE and persons other than associated persons excluding cross-border related borrowing; and
(b)
the feature is included in financial arrangements, between members of the borrower’s New Zealand group under subpart FE and associated persons or that are cross-border related borrowing, having a total value when the loan is included that,—
(i)
as a fraction of the total value of financial arrangements between the members of the borrower’s New Zealand group and associated persons, is less than or equal to the feature fraction; and
(ii)
if the feature fraction is determined under paragraph (a)(i), is less than or equal to 4 times the total value of financial arrangements with the feature that are included in total group debt of the borrower’s worldwide group; and
(iii)
if the feature fraction is determined under paragraph (a)(ii), is less than or equal to 4 times the total value of financial arrangements with the feature that are included in the debt that is financial arrangements between members of the borrower’s New Zealand group and persons other than associated persons excluding cross-border related borrowing.
Exceptions for borrowing required for some insuring or lending persons
(10)
For a borrower that is referred to as an insuring or lending person in section GC 15(2)(a), (b), or (c) or is associated with such a person, a feature of a financial arrangement is not disregarded or adjusted if,—
(a)
for a borrower referred to in section GC 15(2)(a), the feature reflects a requirement, applicable when the financial arrangement is entered, for an arrangement to be recognised by the Reserve Bank of New Zealand as regulatory capital for a member of the New Zealand banking group of a registered bank:
(b)
for a borrower who is associated with a person (the banking associate) referred to in section GC 15(2)(a),—
(i)
the financial arrangement (the funding arrangement) is entered for the purpose of providing funds for a financial arrangement or excepted financial arrangement (the funded arrangement), to be entered by the banking associate to satisfy regulatory capital requirements; and
(ii)
the features of the funding arrangement reflect the features of the funded arrangement; and
(iii)
the feature reflects a feature of the funded arrangement that meets the requirements of paragraph (a):
(c)
for a borrower referred to in section GC 15(2)(b), the feature reflects solvency capital requirements that relate to features of loans and are imposed, when the financial arrangement is entered, on a licensed insurer as a condition of licence under the Insurance (Prudential Supervision) Act 2010:
(d)
for a borrower who is associated with a person (the insuring associate) referred to in section GC 15(2)(b),—
(i)
the financial arrangement (the funding arrangement) is entered for the purpose of providing funds for a financial arrangement (the funded arrangement), to be entered by the insuring associate to satisfy solvency capital requirements; and
(ii)
the features of the funding arrangement reflect the features of the funded arrangement; and
(iii)
the feature reflects a feature of the funded arrangement that meets the requirements of paragraph (c):
(e)
for a borrower referred to in section GC 15(2)(c), the feature reflects minimum capital ratio requirements that relate to features of loans and are imposed, when the financial arrangement is entered, on a non-bank deposit taker by the non-bank deposit taker’s trust deed and regulations 8 and 10 of the Deposit Takers (Credit Ratings, Capital Ratios, and Related Party Exposures) Regulations 2010:
(f)
for a borrower who is associated with a person (the deposit taker associate) referred to in section GC 15(2)(c),—
(i)
the financial arrangement (the funding arrangement) is entered for the purpose of providing funds for a financial arrangement (the funded arrangement), to be entered by the deposit taker associate to satisfy minimum capital ratio requirements; and
(ii)
the features of the funding arrangement reflect the features of the funded arrangement; and
(iii)
the feature reflects a feature of the funded arrangement that meets the requirements of paragraph (e).
Defined in this Act: associated, associated person, cross-border related borrowing, financial arrangement, interest, loan, New Zealand banking group, payment, transfer pricing arrangement
Section GC 18: inserted, on 1 July 2018, by section 42(1) (and see section 42(2) for application) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
Section GC 18(4): replaced (with effect on 1 July 2018), on 30 March 2021, by section 82(1) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
Section GC 18(4)(b)(ii): amended (with effect on 1 July 2018), on 30 March 2022, by section 114 of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
Section GC 18(5)(a)(i): amended (with effect on 1 July 2018), on 30 March 2021, by section 82(2) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
Section GC 18(5)(a)(ii): amended (with effect on 1 July 2018), on 30 March 2021, by section 82(3) (and see section 82(15) for application) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
Section GC 18(5)(b)(ii): amended (with effect on 1 July 2018), on 30 March 2021, by section 82(4) (and see section 82(15) for application) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
Section GC 18(7)(c)(ii): amended (with effect on 1 July 2018), on 30 March 2021, by section 82(5) (and see section 82(15) for application) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
Section GC 18(8)(a)(ii): amended (with effect on 1 July 2018), on 30 March 2021, by section 82(6) (and see section 82(15) for application) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
Section GC 18(8)(a)(ii): amended (with effect on 1 July 2018), on 30 March 2021, by section 82(7) (and see section 82(15) for application) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
Section GC 18(8)(b): amended (with effect on 1 July 2018), on 30 March 2021, by section 82(8) (and see section 82(15) for application) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
Section GC 18(8)(b): amended (with effect on 1 July 2018), on 30 March 2021, by section 82(9) (and see section 82(15) for application) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
Section GC 18(8)(b)(i): amended (with effect on 1 July 2018), on 30 March 2021, by section 82(10) (and see section 82(15) for application) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
Section GC 18(8)(b)(iii): amended (with effect on 1 July 2018), on 30 March 2021, by section 82(11) (and see section 82(15) for application) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
Section GC 18(9)(a)(ii): amended (with effect on 1 July 2018), on 30 March 2021, by section 82(12) (and see section 82(15) for application) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
Section GC 18(9)(b): amended (with effect on 1 July 2018), on 30 March 2021, by section 82(13) (and see section 82(15) for application) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
Section GC 18(9)(b)(iii): amended (with effect on 1 July 2018), on 30 March 2021, by section 82(14) (and see section 82(15) for application) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
GC 19 Sections GC 15 to GC 18 and financial arrangements entered before application period
If a person enters a financial arrangement before the first income year of the person beginning on or after 1 July 2018, this subpart applies to the person and the financial arrangement for the income years beginning on or after 1 July 2018 as if the aspects of the financial arrangement were adjusted by sections GC 15 to GC 18 as at the date that is the last day before 1 July 2018 on which the loan is entered, renewed, extended, or renegotiated.
Defined in this Act: financial arrangement, income year, loan, return of income
Section GC 19: inserted, on 1 July 2018, by section 42(1) (and see section 42(2) for application) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
Purchase price allocation
Heading: inserted, on 1 July 2021, by section 83(1) (and see section 83(2) for application) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
GC 20 Effect of purchase price allocation agreement
When this section applies
(1)
This section applies when—
(a)
for consideration, a person (person A) disposes (the disposal), to another person (person B), items of property (the purchased property) that, for person A or for person B, fall into 2 or more of the following classes (the classes of purchased property)—
(i)
trading stock, other than timber or a right to take timber:
(ii)
timber or a right to take timber:
(iii)
depreciable property, other than buildings:
(iv)
buildings that are depreciable property:
(v)
financial arrangements:
(vi)
purchased property for which the disposal does not give rise to assessable income for person A or deductions for person B; and
(b)
person A and person B have agreed, and recorded in a document, amounts of the total consideration allocated to any of the classes of purchased property before the earlier of—
(i)
the day person A files a return of income in relation to their tax position for the purchased property:
(ii)
the day person B files a return of income in relation to their tax position for the purchased property.
Agreed amount enforced, at market
(2)
A class of purchased property—
(a)
is treated as disposed of and acquired for the relevant allocated amount; or
(b)
may be treated by the Commissioner as disposed of and acquired for an amount that reflects the relative market value of the class of purchased property, proportional to the other classes of purchased property, if the Commissioner considers the allocated amount does not reflect that value.
Exception: low value depreciable property
(3)
Subsection (2)(b) does not apply to an item of purchased property that is an item of depreciable property, if—
(a)
the original cost of the item for person A is less than $10,000; and
(b)
the total allocated amount for the item and for any identical property is less than $1 million; and
(c)
the allocated amount for the item is—
(i)
no greater than its original cost for person A; and
(ii)
no less than its tax book value as described in section GC 21(13)(c).
Defined in this Act: adjusted tax value, Commissioner, deduction, depreciable property, depreciation loss, dispose, financial arrangement, income, return of income, revenue account property, tax position, trading stock
Section GC 20: inserted, on 1 July 2021, by section 83(1) (and see section 83(2) for application) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
GC 21 Purchase price allocation required: no agreement
When this section applies
(1)
This section applies when—
(a)
for consideration, a person (person A) disposes (the disposal), to another person (person B), items of property (the purchased property) that, for person A or for person B, fall into 2 or more of the following classes (the classes of purchased property) and the relevant person uses different income tax treatments for 2 or more of the classes of purchased property:
(i)
trading stock, other than timber or a right to take timber:
(ii)
timber or a right to take timber:
(iii)
depreciable property, other than buildings:
(iv)
buildings that are depreciable property:
(v)
financial arrangements:
(vi)
purchased property for which the disposal does not give rise to assessable income for person A or deductions for person B; and
(b)
person A and person B have not agreed, and have not recorded in a document, amounts of the total consideration allocated to any of the classes of purchased property before the earlier of—
(i)
the day person A files a return of income in relation to their tax position for the purchased property:
(ii)
the day person B files a return of income in relation to their tax position for the purchased property.
When this section does not apply
(2)
This section does not apply if—
(a)
the total consideration for the purchased property in the disposal is less than $1 million; or
(b)
the only purchased property in the disposal is residential land together with its chattels, and the total consideration for them is less than $7.5 million.
Allocated amount: person A
(3)
If subsection (1)(a) applies for person A, person A may notify both the Commissioner and person B of the amounts (the allocated amounts) allocated by person A to the classes of purchased property within 3 months of the change in ownership of the purchased property. An allocated amount must reflect the greater of—
(a)
the relative market value of the relevant class of purchased property proportional to the other classes of purchased property; and
(b)
person A’s tax book value for the relevant class of property described in subsection (1)(a)(i) to (v).
Allocated amount: person A: excess allocation
(4)
If the total amounts that would be allocated by subsection (3) exceed the consideration payable for all of the classes of purchased property, then the excess is applied—
(a)
first, to reduce any amount allocated to the class of property described in subsection (1)(a)(vi):
(b)
second, to reduce, pro rata, any amounts allocated to the classes of property described in subsection (1)(a)(i) to (v).
Allocated amount: person B
(5)
If person A does not notify person B as provided for in subsection (3), person B may notify the Commissioner and person A of the amounts (the allocated amounts) allocated by person B to the classes of purchased property within 6 months of the change in ownership of the purchased property. An allocated amount must reflect the relative market value of the relevant class of purchased property proportional to the other classes of purchased property.
Non-compliance
(6)
If person A and person B do not notify the relevant people in accordance with subsection (3) or (5), the Commissioner may allocate, to the relevant classes of purchased property (the allocated amounts),—
(a)
the amounts allocated by person A to the classes of purchased property:
(b)
the amounts allocated by person B to the classes of purchased property:
(c)
amounts that reflect the relative market value of the relevant class of purchased property, proportional to the other classes of purchased property.
Allocated amounts enforced, at market
(7)
A class of purchased property is treated as disposed of and acquired for the relevant allocated amount provided by subsections (3) to (6).
No deduction until allocation
(8)
Person B’s deductions in relation to consideration for purchased property are not allocated to an income year, and are not included in person B’s annual total deductions for any tax year, except to the extent provided by this section.
Allocation when allocation notice timely
(9)
Person B’s deductions in relation to consideration for purchased property are allocated to income years in accordance with section BD 4 (Allocation of deductions to particular income years), if allocation notification occurs in the income year that the purchased property is disposed of (the purchase year) or if the deductions are not pre-allocation deductions.
Allocation when allocation notice not timely
(10)
If subsections (1)(a) and (5) apply to person B and if allocation notification occurs in an income year after the purchase year, then pre-allocation deductions are allocated to the earliest year (the allocation year) for which person B’s return of income is not filed or due at the time of allocation notification. The allocation year may correspond to the purchase year, but the allocation year must not be earlier than the purchase year. Example: the purchase year for purchased property is 2025–26. 2027–28 is the income year that allocation notification occurs. At the time of allocation notification, person B’s return of income for 2026–27 is not filed or due. Consequently, pre-allocation deductions are allocated to the 2026–27 income year.
Exception: low value depreciable property
(11)
Subsection (6)(c) does not apply to an item of purchased property that is an item of depreciable property, if—
(a)
the original cost of the item for person A is less than $10,000; and
(b)
the total allocated amount for the item and for any identical property is less than $1 million; and
(c)
the allocated amount for the item is—
(i)
no greater than its original cost for person A; and
(ii)
no less than its tax book value.
Relationship with subject matter
(12)
This section overrides a provision of this Act that expressly requires the use of the market value for purchased property, to the extent to which subsection (7) treats the relevant class of purchased property as disposed of and acquired for an amount that is provided by this section.
Definitions
(13)
In this section and section GC 20,—
(a)
allocation notification means the earliest of the following:
(i)
the time when person B’s notification of person B’s allocation is provided to the Commissioner in the form prescribed by the Commissioner:
(ii)
the time when the Commissioner’s notification of the Commissioner’s allocation under subsection (6) is provided to person B:
(b)
pre-allocation deduction means person B’s deductions in relation to consideration for purchased property that, ignoring this section, would be allocated to an income year before the income year that allocation notification occurs:
(c)
tax book value, for a class of property, means the total amount that person A uses or would use, for purchased property in the class of property, in calculating person A’s tax position for their income year in which the change in ownership of the purchased property occurs. The tax book value is adjusted, part-year, for a change in ownership that occurs part-year. Example: the tax book value of a financial arrangement is the consideration that would give an amount of income or expenditure under section EW 31 (Base price adjustment formula) equal to the income or expenditure that person A would have for the purchased property in the year of disposal for the period before the change in ownership of the purchased property (the part-year period) using the relevant spreading method for the purchased property for the part-year period, pro rata.
Defined in this Act: adjusted tax value, Commissioner, deduction, diminished value, depreciable property, depreciation loss, dispose, financial arrangement, income, residential land, return of income, revenue account property, tax position, trading stock
Section GC 21: inserted, on 1 July 2021, by section 83(1) (and see section 83(2) for application) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
Subpart GZ—Terminating provisions
Contents
GZ 1 Limitation on section GB 20: petroleum and mineral mining arrangements
Section GB 20 (Arrangements involving petroleum and mineral mining) does not apply to an arrangement if—
(a)
the petroleum mining asset was disposed of before 1 July 1992:
(b)
the petroleum exploration expenditure was incurred before 1 July 1992:
(c)
the farm-out arrangement was entered into before 16 December 1991.
Defined in this Act: arrangement, dispose, farm-out arrangement, petroleum exploration expenditure, petroleum mining asset
Compare: 2004 No 35 s GD 12(1)
Section GZ 1 heading: amended, on 1 April 2014, by section 81(1) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
Section GZ 1: amended, on 1 April 2014, by section 81(2) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
Section GZ 1 list of defined terms petroleum exploration expenditure: inserted, on 24 February 2016, by section 243 of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section GZ 1 list of defined terms petroleum mining expenditure: 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).
GZ 2 Arrangements involving cancellation of conduit tax relief credits
[Repealed]Section GZ 2: repealed (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 72(1) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section GZ 2(1)(b): replaced (with effect on 1 July 2009 and applying for income years beginning on or after that date), on 7 May 2012, by section 71(1) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section GZ 2 list of defined terms CTR group member: inserted (with effect on 1 July 2009), on 7 May 2012, by section 71(2) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section GZ 2 list of defined terms resident in New Zealand: inserted (with effect on 1 July 2009), on 7 May 2012, by section 71(2) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
GZ 3 Donations of trading stock for relief of Canterbury earthquakes
Section GC 1 (Disposals of trading stock at below market value) does not apply to the disposal of trading stock by a person to a person who is not an associated person—
(a)
for the purpose of relief from the adverse effects of a Canterbury earthquake, as defined in section 4 of the Canterbury Earthquake Recovery Act 2011; and
(b)
in the period beginning on 4 September 2010 and ending on 31 March 2012.
Defined in this Act: associated person, trading stock
Section GZ 3: added (with effect on 4 September 2010), on 24 May 2011, by section 5 of the Taxation (Canterbury Earthquake Measures) Act 2011 (2011 No 24).
GZ 4 Disposals of trading stock to donee organisations or public authorities
Section GC 1 (Disposals of trading stock at below market value) does not apply to a disposal of trading stock by a person—
(a)
to a donee organisation or a public authority; and
(b)
in—
(i)
the period that begins on 17 March 2020 and ends on 31 March 2024; or
(ii)
a period specified by an Order in Council made under section 225ABA of the Tax Administration Act 1994.
Defined in this Act: donee organisation, public authority, trading stock
Section GZ 4: inserted (with effect on 17 March 2020), on 30 March 2021, by section 84 of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
Section GZ 4(b)(i): amended, on 31 March 2023, by clause 4 of the Tax Administration (Extension of Period of Relief for Certain Disposals of Trading Stock) Order 2023 (SL 2023/16).
Section GZ 4(b)(i): amended, on 16 March 2022, by clause 3 of the Tax Administration (Extension of Period of Relief for Certain Disposals of Trading Stock) Order 2022 (SL 2022/55).
GZ 5 Disposals of trading stock to non-associates
When this section applies
(1)
This section applies when a person (person A) disposes of trading stock—
(a)
to another person (person B) that—
(i)
is not associated with person A; and
(ii)
is not a donee organisation or a public authority; and
(b)
in—
(i)
the period that begins on 17 March 2020 and ends on 31 March 2024; or
(ii)
a period specified by an Order in Council made under section 225ABA of the Tax Administration Act 1994.
Exclusion from section GC 1
(2)
Section GC 1 (Disposals of trading stock at below market value) does not apply to the disposal.
When subsection (4) applies
(3)
Subsection (4) applies if—
(a)
person A does not have a business purpose for the disposal; and
(b)
the disposal is for no consideration, or an amount that is less than,—
(i)
for trading stock held by person A at the beginning of the income year of person A in which the disposal occurs, the value of the trading stock under section EB 3 (Valuation of trading stock) at the end of the previous income year; or
(ii)
otherwise, the cost of the trading stock to person A.
Income
(4)
Person A is treated as deriving, in the income year of person A in which the disposal occurs, an amount calculated using the formula in subsection (5).
Formula
(5)
The formula is—
value – consideration received.
Definition of items in formula
(6)
In the formula,—
(a)
value is,—
(i)
for trading stock held by person A at the beginning of the income year of person A in which the disposal occurs, the value of the trading stock under section EB 3 at the end of the previous income year; or
(ii)
otherwise, the cost of the trading stock to person A:
(b)
consideration received is the amount of consideration paid or payable to person A in relation to the disposal.
Defined in this Act: amount, associated, donee organisation, income year, pay, public authority, trading stock
Section GZ 5: inserted (with effect on 17 March 2020), on 30 March 2021, by section 84 of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
Section GZ 5(1)(b)(i): amended, on 31 March 2023, by clause 5 of the Tax Administration (Extension of Period of Relief for Certain Disposals of Trading Stock) Order 2023 (SL 2023/16).
Section GZ 5(1)(b)(i): amended, on 16 March 2022, by clause 3 of the Tax Administration (Extension of Period of Relief for Certain Disposals of Trading Stock) Order 2022 (SL 2022/55).
"Related Legislation
"Related Legislation
"Related Legislation
Versions
Income Tax Act 2007
RSS feed link copied, you can now paste this link into your feed reader.