Source document: https://docs-lawep.s3.us-east-2.amazonaws.com/1698835926466.pdf (New Zealand)
Reprint as at 5 January 2010 Income Tax Act 2007 Public Act Date of assent 2007 No 97 1 November 2007 Contents A 1 A 2 Title Commencement Part A Purpose and interpretation Interpretation AA 1 Purpose of Act AA 2 AA 3 Deﬁnitions AA 4 Crown bound BA 1 Purpose Part B Core provisions Subpart BA—Purpose Page 112 113 113 113 114 114 115 Note Changes authorised by section 17C of the Acts and Regulations Publication Act 1989 have been made in this eprint.
A general outline of these changes is set out in the notes at the end of this eprint, together with other explanatory material about this eprint.
This Act is administered by the Inland Revenue Department 1 Income Tax Act 2007 Reprinted as at 5 January 2010 Subpart BB—Income tax and resulting obligations Imposition of income tax BB 1 BB 2 Main obligations BB 3 Overriding effect of certain matters Subpart BC—Calculating and satisfying income tax liabilities BC 1 Non-ﬁling and ﬁling taxpayers BC 2 Annual gross income BC 3 Annual total deduction BC 4 Net income and net loss BC 5 Taxable income BC 6 BC 7 BC 8 Income tax liability of ﬁling taxpayer Income tax liability of person with schedular income Satisfaction of income tax liability Subpart BD—Income, deductions, and timing BD 1 Income, exempt income, excluded income, nonresidents’ foreign-sourced income, and assessable income BD 2 Deductions BD 3 Allocation of income to particular income years BD 4 Allocation of deductions to particular income years Subpart BE—Withholding liabilities BE 1 Withholding liabilities Subpart BF—Other obligations BF 1 Other obligations Subpart BG—Avoidance BG 1 Tax avoidance Subpart BH—Double tax agreements BH 1 Double tax agreements Part C Income Subpart CA—General rules CA 1 Amounts that are income CA 2 Amounts that are exempt income or excluded income 116 116 117 120 120 120 121 121 122 123 123 125 126 126 127 128 130 131 131 133 133 2 Reprinted as at 5 January 2010 Income Tax Act 2007 Subpart CB—Income from business or trade-like activities Business generally CB 1 Amounts derived from business CB 2 Amounts received on disposal of business assets that include trading stock
 CB 3 Proﬁt-making undertaking or scheme Schemes for proﬁt Personal property Personal property acquired for purpose of disposal CB 4 CB 5 Business of dealing in personal property Land CB 6 Disposal: land acquired for purpose or with intention of disposal CB 7 Disposal: land acquired for purposes of business relating to land CB 8 Disposal: land used for landﬁll, if notice of election CB 9 Disposal within 10 years: land dealing business CB 10 Disposal within 10 years: land development or subdivision business CB
 11 Disposal within 10 years of improvement: building business CB 12 Disposal: schemes for development or division begun within 10 years CB 13 Disposal: amount from major development or division and not already in income CB 14 Disposal: amount from land affected by change and not already in income CB 15 Transactions between associated persons Exclusions for residential land CB 16 Residential exclusion from sections CB 6 to CB 11 CB 17 Residential exclusion from sections CB 12 and CB 13 CB 18 Residential exclusion from section CB 14 Exclusions for business premises CB 19 Business exclusion from sections CB 6 to CB 11 CB 20 Business exclusion from sections CB 12 and CB 13 CB 21 Farm land exclusion from sections CB 12 and CB 13 Exclusions for farm land 134 134 135 135 136 136 137 137 138 139 140 140 141 142 143 144 145 145 146 146 147 3 Income Tax Act 2007 Reprinted as at 5 January 2010 CB 22 Farm land exclusion from section CB 14 Exclusion for investment land CB 23 Investment exclusion from sections CB 12 and CB 13 CB 23B Land partially sold or sold with other land CB 24 Disposal of timber or right to take timber CB 25 Disposal of land with standing timber Timber Investments CB 26 Certain disposals by portfolio investment entities Farming, forestry, or ﬁshing CB 27 Income equalisation schemes CB 27B Entering partners’ livestock income [Repealed] CB 28 Environmental restoration accounts Environmental restoration Minerals CB 29 Disposal of minerals CB 30 Sale of patent
 applications or patent rights Intellectual property Transfer of business CB 31 Sale of business: transferred employment income obligations CB 32 Property obtained by theft Stolen property Mutual associations CB 33 Amounts derived by mutual associations CB 34 Amounts derived by members from mutual associations CB 35 Amounts of income for partners Partners and partnerships Emissions units under Climate Change Response Act 2002 CB 36 Disposal of emissions units 148 148 149 149 150 150 151 152 152 154 154 154 155
 155 156 157 157 4 Reprinted as at 5 January 2010 Income Tax Act 2007 Subpart CC—Income from holding property (excluding equity) Land use CC 1 Land CC 2 Non-compliance with covenant for repair Financial instruments Financial arrangements Payments of interest CC 3 CC 4 CC 5 Annuities CC 6 CC 7 Consideration other than in money CC 8 Use of money interest payable by Commissioner CC 8B Certain commercial bills: non-resident holders Prizes received under Building Societies Act 1965 CC 9 Royalties CC 10 Films Royalties Finance leases CC 11 Lessee acquiring lease asset on expiry of term of lease CC 12 Lessor acquiring lease asset on expiry of term of lease Hire purchase agreements CC 13 Amounts paid in income years after hire purchase agreement ends Subpart CD—Income from equity Income CD 1 Dividend CD 2 Distribution excluded from being dividend What is a dividend?
CD 3 Meaning of dividend CD 4 Transfers of value generally CD 5 What is a transfer of value?

CD 6 When is a transfer caused by a shareholding relationship?
CD 7 Bonus issues in lieu of dividend CD 8 Elections to make bonus issue into dividend CD 9 CD 10 Bonus issue by foreign unit trust instead of money or Interests in money or property of foreign unit trust property CD 11 Avoidance arrangements 159 160 160 161 161 161 162 163 163 164 165 166 166 167 167 168 168 168 168 169 171 171 172 172 172 5 Income Tax Act 2007 Reprinted as at 5 January 2010 CD 12 Superannuation schemes entering trust rules CD 13 Notional distributions of producer boards and co-operative companies CD 14 Notional distributions of emigrating companies CD 15 Tax credits linked to dividends CD 16 Certain dividends not increased by tax credits CD 17 Credit transfer notice CD 18 Dividend reduced if foreign tax paid on company’s income CD 19 Foreign tax credits and refunds linked to dividends CD 20 Beneﬁts of shareholder-employees or directors CD 21 Attributed repatriations from controlled foreign companies [Repealed] What is not a dividend?
CD 22 Returns of capital: off-market share cancellations CD 23 Ordering rule and slice rule CD 24 Returns of capital: on-market share cancellations CD 25 Treasury stock acquisitions CD 26 Capital distributions on liquidation or emigration CD 27 Property made available intra-group CD 28 Transfers of certain excepted ﬁnancial arrangements within wholly-owned groups CD 29 Non-taxable bonus issues CD 30 Transfer by unit trust of legal interest after beneﬁcial interest vests CD 31 Flat-owning companies CD 32 Employee beneﬁts CD 33 Payments corresponding to notional distributions of producer boards and co-operative companies CD 34 Distribution to member of co-operative company based on member’s transactions CD 35 Resident’s restricted amalgamations CD 36 Foreign investment fund income CD 37 Maori authority distributions Calculation rules CD 38 General calculation rule for transfers of value CD 39 Calculation of amount of dividend when property made available CD 40 Adjustment if dividend recovered by company CD 41 Adjustment if amount repaid later CD 42 Adjustment if additional consideration paid Reprinted as at 5 January 2010 Income Tax Act 2007 CD 43 Available subscribed capital (ASC) amount CD 44 Available capital distribution amount Attributed repatriation calculation rules [Repealed] CD 45 When does a person have attributed repatriation from a controlled foreign company?
[Repealed] CD 46 New Zealand repatriation amount [Repealed] CD 47 New Zealand property amount [Repealed] CD 48 Cost of tangible property [Repealed] CD 49 Cost of associated party equity [Repealed] CD 50 Outstanding balances of ﬁnancial arrangements [Repealed] CD 51 Property transfers between associated persons [Repealed] CD 52 Unrepatriated income balance [Repealed] Prevention of double taxation CD 53 Prevention of double taxation of share cancellation dividends CD 54 Replacement payments Returning share transfers Subpart CE—Employee or contractor income Employment income CE 1 Amounts derived in connection with employment CE 2 Value and timing of beneﬁts under share purchase agreements CE 3 Restrictions on disposal of shares under share purchase agreements CE 4 Adjustments to value of beneﬁts under share purchase agreements Deﬁnitions CE 5 Meaning of expenditure on account of an employee CE 6 Meaning of share: when share acquired CE 7 Meaning of share purchase agreement CE 8 Attributed income from personal services Attributed income Restrictive covenants and exit inducement payments CE 9 Restrictive covenants CE 10 Exit inducements 204 211 217 217 217 217 217 217 218 218 218 220 220 221 223 224 224 226 227 227 227 229 7 Income Tax Act 2007 Reprinted as at 5 January 2010 Income protection insurance CE 11 Proceeds from claims under policies of income protection 229 insurance Tax credits CE 12 Tax credits for personal service rehabilitation payments 230 Subpart CF—Income from living allowances, compensation, and
 government grants CF 1 Beneﬁts, pensions, compensation, and government grants CF 2 Remission of speciﬁed suspensory loans Subpart CG—Recoveries CG 1 Amount of depreciation recovery income CG 2 Remitted amounts CG 3 Bad debt repayment CG 4 Recovered expenditure or loss CG 5 Recoveries or receipts by employers from superannuation schemes CG 6 Receipts from insurance, indemnity, or compensation for trading stock CG 7 Recoveries after deduction of payments under lease Subpart CH—Adjustments Matching rules:
 revenue account property, prepayments, and deferred payments CH 1 Adjustment for closing values of trading stock, livestock, and excepted ﬁnancial arrangements CH 2 Adjustment for prepayments CH 3 Adjustment for deferred payment of employment income Change to accounting practice CH 4 Adjustment for change to accounting practice Goods and services tax (GST) CH 5 Adjustment for GST Finance leases CH 6 Adjustments for certain ﬁnance and operating leases Avoidance and non-market transactions CH 7 Adjustment for avoidance arrangements CH 8 Market value substituted 230 233 233 233 234 234 235 236 236 237 238 238 239 239 240 240 241 8 Reprinted as at 5 January 2010 Income Tax Act 2007 Interest apportionment on thin capitalisation Interest apportionment: excess debt entity CH 9 CH 10 Interest apportionment: reporting bank Subpart CO—Income from voluntary activities CO 1 Income from voluntary activities Subpart CP—Income from portfolio investment entities CP 1 Portfolio investor allocated income Subpart CQ—Attributed income from foreign equity Attributed controlled foreign company income CQ 1 Attributed controlled foreign company income CQ 2 When attributed CFC income arises CQ 3 Calculation of attributed CFC income Foreign investment fund income CQ 4 Foreign investment fund income CQ 5 When FIF income arises CQ 6 Calculation of FIF income CQ 7 Treatment of attributing interests subject to returning share transfer [Repealed] Subpart CR—Income from insurance Income of life
 insurer CR 1 CR 2 Amount of income of life insurer CR 3 CR 4 Income of non-resident general insurer Income for general insurance outstanding claims reserve Subpart CS—Superannuation funds CS 1 Withdrawals Withdrawals Exclusions CS 2 CS 3 CS 4 CS 5 CS 6 CS 7 CS 8 Exclusions of withdrawals of various kinds Exclusion of withdrawal on grounds of hardship Exclusion of withdrawal to settle division of relationship property Exclusion of withdrawal paid as annuity or pension Exclusion of withdrawal on partial
 retirement Exclusion of withdrawal when member ends employment Exclusion of withdrawal when member ends employment: lock-in rule 241 241 242 242 242 243 245 246 246 250 250 250 251 252 253 254 256 259 260 260 261 262 266 9 Income Tax Act 2007 Reprinted as at 5 January 2010 CS 9 Exclusion of withdrawal from deﬁned beneﬁt fund when member ends employment CS 10 When member treated as not ending employment CS 10B Exclusion of permitted withdrawals from KiwiSaver schemes and complying superannuation funds 267 267 268 Transfers to or from superannuation funds and superannuation schemes CS 11 Transfer by superannuation fund to another superannuation 268 fund CS 12 Transfer from superannuation scheme to superannuation fund CS 13 Investment by superannuation fund in another superannuation fund Treatment of amounts when superannuation fund becomes superannuation scheme or vice versa CS 14 Superannuation fund becomes superannuation scheme CS 15 Superannuation fund becomes foreign superannuation scheme CS 16 Superannuation scheme becomes superannuation fund Treatment of distributions when superannuation fund wound up CS 17 Superannuation fund wound up Treatment of loans to members CS 18 Value of loan treated as fund income Subpart CT—Income from petroleum mining CT 1 Disposal of exploratory material or petroleum mining asset CT 2 Damage to assets CT 3 Exploratory well used for commercial production Partnership interests and disposal of part of asset CT 4 Petroleum mining
 operations outside New Zealand CT 5 Deﬁnitions CT 6 Meaning of petroleum miner CT 6B Meaning of petroleum mining operations CT 7 Meaning of petroleum mining asset 269 269 270 270 271 271 271 272 272 272 273 274 274 275 276 10 Reprinted as at 5 January 2010 Income Tax Act 2007 Subpart CU—Income from mineral mining Introductory provision CU 1 Mining company’s 2 kinds of income Income from mining CU 2 Mining company that processes or manufactures CU 3 Disposal of assets CU 4 Compensation for lost, destroyed, or
 damaged assets CU 5 Compensation and scrap payment: income from mining CU 6 Compensation and scrap payment: use to replace or repair asset CU 7 Compensation and scrap payment: not income from mining CU 8 Compensation and scrap payment: more than expenditure CU 9 Previous deduction for income appropriated CU 10 Mining asset used to derive income other than income from mining CU 11 Meaning of asset for sections CU 3 to CU 10 CU 12 Application of sections to resident mining operators CU 13 Application of sections to non-resident mining operators CU 14 Recovery of reinvestment proﬁt on disposal of mining shares CU 15 Recovery of reinvestment proﬁt not used for mining purposes CU 16 Recovery of reinvestment proﬁt on repayment of loans CU 17 Repayment by mining company of amount written off CU 18 Amount treated as repayment for purposes of section CU 17: excess CU 19 Amount treated as repayment for purposes of section CU 17: net income CU 20 Mining company or mining holding company liquidated Deﬁnitions CU 21 Meaning of income from mining CU 22 Meaning of mining company CU 23 Meaning of mining development expenditure CU 24 Meaning of mining exploration expenditure CU 25 Meaning of mining operations CU 26 Meaning of mining venture CU 27 Meaning of resident mining operator CU 28 Meaning of speciﬁed mineral CU 29 Other deﬁnitions Income Tax Act 2007
297 297 298 299 300 301 11 Income Tax Act 2007 Reprinted as at 5 January 2010 Subpart CV—Income speciﬁc to certain entities CV 1 Group companies CV 2 Consolidated groups: income of company in group CV 3 Consolidated groups: arrangement for disposal of shares CV 4 Amalgamated companies: amount derived after amalgamation CV 5 Statutory producer boards CV 6 Crown Research Institutes CV 7 Australian wine producer rebate CV 8 Regulations: Australian wine producer rebate CV 9 Supplementary dividend holding companies CV 10 Foreign dividend payment account
 companies or conduit tax relief companies [Repealed] CV 11 Maori authorities CV 12 Trustees: amounts received after person’s death CV 13 Amounts derived from trusts CV 14 Distributions from community trusts CV 15 Amounts derived from trusts while person absent from New Zealand CV 16 Non-resident shippers CV 17 Non-resident ﬁlm renters 304 304 304 305 305 305 306 306 307 307 307 308 308 308 309 309 310 Subpart CW—Exempt income Income from business or trade-like activities CW 1 Forestry companies established by the Crown, Maori 310 owners, and holding companies buying land with standing timber from founders CW 2 Forestry encouragement agreements CW 3 Forestry companies and Maori investment companies CW 3B Pre-1990 forest land units: emissions trading scheme [Repealed] Income from holding property (excluding equity) CW 4 Annuities under life insurance policies CW 5 Payments of interest: post-war credits CW 6 Payments of interest: farm mortgages CW 7 Foreign-sourced interest CW 8 Money lent to government of New Zealand Income from equity CW 9 Dividend derived from foreign company CW 10 Dividend within New Zealand wholly-owned group 311 312 312 312 313 313 314 314 315 316 12 Reprinted as at 5 January 2010 Income Tax Act 2007 CW 11 Dividend of conduit tax relief holding company CW 12 Proceeds of share disposal by qualifying foreign equity investor CW 13 Proceeds from share or option acquired under venture investment agreement CW 14 Dividends derived by qualifying
 companies CW 15 Dividends paid by qualifying companies Employee or contractor income CW 16 Income of Governor-General CW 17 Expenditure on account, and reimbursement, of employees CW 17B Relocation payments CW 17C Payments for overtime meals and certain other allowances CW 18 Allowance for additional transport costs CW 19 Amounts derived during short-term visits CW 20 Amounts derived by visiting entertainers including sportspersons CW 21 Amounts derived by visiting crew of pleasure craft CW 22 Amounts derived
 by overseas experts and trainees in New Zealand by government arrangement CW 23 Income for military or police service in operational area CW 24 Deferred military pay for active service CW 25 Value of board for religious society members CW 26 Jurors’ and witnesses’ fees Certain income of transitional resident CW 27 Certain income derived by transitional resident Income from living allowances, compensation, and government grants CW 28 Pensions CW 29 Reinvested amounts from foreign superannuation schemes in Australia CW 30 Annuities from Crown Bank Accounts CW 31 Services for members of Parliament CW 32 Maintenance payments CW 33 Allowances and beneﬁts CW 34 Compensation payments CW 35 Personal service rehabilitation payments CW 36 Scholarships and bursaries CW 37 Film production grants [Repealed] Income Tax Act 2007 Reprinted as at 5 January 2010 Income of certain entities CW 38 Public authorities CW 39 Local authorities CW 40 Local and regional promotion bodies CW 41 Charities: non-business income CW 42 Charities: business income CW 43 Charitable bequests CW 44 Friendly societies CW 45 Funeral trusts CW 46 Bodies promoting amateur games and sports CW 47 TAB and racing clubs CW 48 Income from conducting gaming-machine gambling CW 49 Bodies promoting scientiﬁc or industrial research CW 50 Veterinary services bodies CW 51 Herd improvement bodies CW 52
 Community trusts CW 53 Distributions from complying trusts CW 54 Foreign-sourced amounts derived by trustees CW 55 Maori authority distributions CW 55BA Tertiary education institutions CW 55B Amounts of exempt income for partners Partners and partnerships Income from certain activities CW 56 Non-resident aircraft operators CW 57 Non-resident company involved in exploration and development activities CW 58 Disposal of companies’ own shares CW 59 New Zealand companies operating in Niue CW 59B Income of and
 distributions by certain international funds CW 60 Stake money CW 61 Providing standard-cost household service CW 62 Interest paid under the KiwiSaver Act 2006 CW 62B Voluntary activities CW 63 Avoidance arrangements CW 64 Exemption under other Acts Subpart CX—Excluded income Goods and services tax CX 1 Goods and services tax Reprinted as at 5 January 2010 Income Tax Act 2007 Fringe beneﬁts Introductory provisions CX 2 Meaning of fringe beneﬁt CX 3 Excluded income CX 4 Relationship with assessable income CX 5 Relationship with exempt income Fringe beneﬁts CX 6 Private use of motor vehicle CX 7 Employer or associated person treated as having right to use vehicle under arrangement CX 8 Private use of motor vehicle: use by more than 1 employee CX 9 Subsidised transport CX 10 Employment-related loans CX 11 Employment-related loans: loans by life insurers CX 12 Services for members of Parliament CX 13 Contributions to superannuation schemes CX 14 Contributions to sickness, accident, or death beneﬁt funds CX 15 Contributions to funeral trusts CX 16 Contributions to life or health insurance CX 17 Beneﬁts provided to employees who are shareholders or investors CX 18 Beneﬁts provided to associates of both employees and shareholders Exclusions and limitations CX 19 Beneﬁts provided instead of allowances CX 20 Beneﬁts to enable performance of
 duties CX 21 Business tools CX 22 Beneﬁts to non-executive directors CX 23 Beneﬁts provided on premises CX 24 Beneﬁts related to health or safety CX 25 Beneﬁts provided by charitable organisations CX 26 Non-liable payments CX 27 Assistance with tax returns CX 28 Accommodation CX 29 Entertainment CX 30 Distinctive work clothing CX 31 Contributions to income protection insurance CX 32 Services provided to superannuation fund CX 33 Goods provided at discount by third parties 367 368 368 368 369 370 371 371 371
third parties Income Tax Act 2007 Reprinted as at 5 January 2010 Deﬁnitions CX 34 Meaning of emergency call CX 35 Meaning of employee share loan CX 36 Meaning of private use CX 37 Meaning of unclassiﬁed beneﬁt CX 38 Meaning of work-related vehicle Insurance CX 39 Life insurers and fully reinsured persons CX 40 Superannuation fund deriving amount from life insurance policy CX 41 Resident insurance underwriters Petroleum mining CX 42 Disposal of ownership interests in controlled petroleum mining entities CX 43 Farm-out arrangements for petroleum mining Mineral mining CX 44 Disposal of mining shares CX 45 Disposal of mining shares acquired with reinvestment proﬁt CX 46 Repayment of loans made from reinvestment proﬁt Government grants CX 47 Government grants to businesses CX 48 Amounts remitted as condition of new start grant CX 48B Issue of post-1989 forest land units [Repealed] Government funding of ﬁlm and television 385 386 387 387 387 388 389 389 390 390 390 391 393 393 394 397 CX 48C Government funding additional to government screen 397 production payments Research and development CX 48D Tax credits for expenditure on research and development 398 Superannuation and savings CX 49 Employer’s superannuation contributions CX 50 Tax credits for KiwiSaver and complying superannuation funds CX 50B Contributions to retirement savings schemes Farming, forestry, or ﬁshing CX 51 Income
 equalisation schemes 398 398 398 399 16 Reprinted as at 5 January 2010 Income Tax Act 2007 Emissions units under Climate Change Response Act 2002 CX 51B Disposal of pre-1990 forest land emissions units Environmental restoration CX 52 Refund from environmental restoration account Inﬂation-indexed instruments CX 53 Credits for inﬂation-indexed instruments Share-lending arrangements CX 54 Share-lending collateral under share-lending arrangements Portfolio investment income CX 55 Proceeds from certain disposals by
 portfolio investment entities or New Zealand Superannuation Fund CX 56 Portfolio investor allocated income and distributions of income by portfolio investment entities CX 57 Credits for certain fees by portfolio tax rate entities Minors’ beneﬁciary income CX 58 Amounts derived by minors from trusts CX 59 Taxable distributions from non-complying trusts Transactions between companies in consolidated groups CX 60 Intra-group transactions Avoidance arrangements CX 61 Avoidance arrangements CX 62 Amounts of excluded income for partners Partners and partnerships Subpart CZ—Terminating provisions Share purchase agreement income before 19 July 1968 CZ 1 CZ 2 Mining company’s 1970–71 tax year CZ 3 Exchange variations on 8 August 1975 CZ 4 Mineral mining: company making loan before 1 April 1979 CZ 5 Exempt interest: overseas money lent to government or local or public authority before 29 July 1983 CZ 6 Commercial bills before 31 July 1986 400 400 400 401 401 403 405 405 405 406 406 406 407 407 408 410 410 411 17 Income Tax Act 2007 Reprinted as at 5 January 2010 CZ 7 CZ 8 Primary producer co-operative companies: 1987–88 income year Farm-out arrangements for petroleum mining before 16 December 1991 CZ 9 Available capital distribution amount: 1965 and 411 413 413 1985–1992 CZ 10 Transitional relief for calculation of attributed repatriation 414 dividends: 2 July 1992 CZ 11 Recovery of deductions for software acquired before 1 April 1993 CZ 12 General insurance with risk
 period straddling 1 July 1993 CZ 13 Treatment of units and interests in unit trusts and group investment funds on issue as at 1 April 1996 CZ 14 Treatment of superannuation fund interests in group investment funds on 1 April 1999 CZ 15 Accident insurance contracts before 1 July 2000 CZ 16 Interest payable to exiting company: 2001 CZ 17 Dividend of exiting company: 2001 CZ 18 Beneﬁt provider approved within 6 months of 25 November 2003 CZ 19 Community trust receipts in 2004–05 or 2005–06 tax year CZ 20 Disposal
 of personal property lease asset under speciﬁed lease CZ 21 Superannuation fund loans made to members before 1 April 1989 CZ 22 Geothermal wells between 31 March 2003 and 17 May 2006 Part D Deductions Subpart DA—General rules DA 1 General permission DA 2 General limitations DA 3 Effect of speciﬁc rules on general rules DA 4 Treatment of amount of depreciation loss Subpart DB—Speciﬁc rules for expenditure types Taxes DB 1 Taxes, other than GST, and penalties DB 2 Goods and services tax DB 3 Determining tax liabilities DB 4 Chatham Islands dues 18 415 415 416 417 417 418 418 418 419 420 420 421 422 423 424 425 425 426 427 429 Reprinted as at 5 January 2010 Income Tax Act 2007 Financing costs DB 5 Transaction costs: borrowing money for use as capital DB 6 DB 7 DB 8 Interest: not capital expenditure Interest: most companies need no nexus with income Interest: money borrowed to acquire shares in group companies Interest incurred on money borrowed to acquire shares in qualifying companies DB 9 DB 10 Interest or expenditure connected to proﬁt-related or substituting debentures 429 430 430 432 433 434 DB 10B Interest or expenditure connected to stapled debt security 435 Financial arrangements adjustments DB 11 Negative base price adjustment DB 12 Base price adjustment under old ﬁnancial arrangements rules DB 13 Repayment of debt sold at discount to associate of debtor DB 14 Security payment DB 15 Sureties Share-lending arrangements DB 16 Share-lending collateral under
 share-lending arrangements DB 17 Replacement payments and imputation credits under share-lending arrangements Premises or land costs DB 18 Transaction costs: leases DB 19 Expenses of failed or withdrawn application for resource consent DB 20 Destruction of temporary building DB 21 Amounts paid for non-compliance with covenant for repair DB 22 Amounts paid for non-compliance and change in use Revenue account property DB 23 Cost of revenue account property DB 24 Share losses DB 25 Cancellation of shares held as
 revenue account property DB 26 Amount from proﬁt-making undertaking or scheme and not already in income DB 27 Amount from major development or division and not already in income 435 436 436 436 437 438 438 439 439 440 440 441 442 443 444 445 445 19 Income Tax Act 2007 Reprinted as at 5 January 2010 DB 28 Amount from land affected by change and not already in income DB 29 Apportionment when land acquired with other property DB 30 Cost of non-speciﬁed mineral Bad debts DB 31 Bad debts DB 32 Bad debts owed to estates Research and development DB 33 Scientiﬁc research DB 34 Research or development DB 35 Some deﬁnitions DB 36 Patent expenses DB 37 Expenses of failed or withdrawn patent application DB 38 Patent rights: devising patented inventions DB 39 Patent rights acquired before 1 April 1993 DB 40 Patent applications or patent rights acquired on or after 1 April 1993 Marketing DB 41 Charitable or other public beneﬁt gifts by company Theft and bribery DB 42 Property misappropriated by employees or service providers DB 43 Making good loss from misappropriation by partners DB 44 Restitution of stolen property DB 45 Bribes paid to public ofﬁcials Pollution control 446 447 447 448 450 451 452 455 456 456 457 458 458 459 460 461 462 463 DB 46 Avoiding, remedying, or mitigating effects of discharge 464 of contaminant Repayments DB 47 Payments for remitted amounts DB 48 Restrictive covenant breached 466 467 Matching rules: revenue account property, prepayments, and
 deferred payments DB 49 Adjustment for opening values of trading stock, livestock, 468 and excepted ﬁnancial arrangements DB 50 Adjustment for prepayments DB 51 Adjustment for deferred payment of employment income 469 469 20 Reprinted as at 5 January 2010 Income Tax Act 2007 Adjustments for leases that become ﬁnance leases DB 51B Adjustments for leases that become ﬁnance leases Change to accounting practice DB 52 Adjustment for change to accounting practice Investment income DB 53 Portfolio investment entities:
 zero-rated portfolio investors and allocated losses DB 54 Portfolio investment entities: treatment of certain fees charged Exempt income 470 471 471 472 DB 55 Expenditure incurred in deriving exempt dividend 473 Use of motor vehicle under certain arrangements DB 56 Expenditure incurred in operating motor vehicle under 474 agreement or arrangement affected by section CX 7 Payments to spouses, civil union partners, or de facto partners DB 57 Payments to spouses, civil union partners, or de facto 474 partners other than for services Avoidance and non-market transactions DB 58 Adjustment for avoidance arrangements DB 59 Market value substituted Emissions units and liabilities under Climate Change Response Act 2002 DB 60 Acquisition of emissions units DB 60B Liabilities for emissions DB 61 Surrender of pre-1990 forest land units for post-1989 forest land emissions DB 62 Deduction for legal expenses Legal expenses Subpart DC—Employee or contractor expenditure DC 1 Lump sum payments on retirement DC 2 Pension payments to former employees DC 3 Pension payments to former partners DC 4 Payments to working partners 475 476 476 477 477 478 478 479 481 482 21 Income Tax Act 2007 Reprinted as at 5 January 2010 DC 5 Payments to spouses, civil union partners, or de facto partners: services DC 6 Contributions to employees’ beneﬁt funds DC 7 Contributions to employees’ superannuation schemes DC 8 Attribution of personal services DC 9 Restrictive covenants or exit inducements DC 10 Sale
 of business: transferred employment income obligations DC 11 Transfers of employment income obligations to associates DC 12 Loans to employees under share purchase schemes DC 13 Criteria for approval of share purchase schemes: before period of restriction ends DC 14 Criteria for approval of share purchase schemes: when period of restriction ends DC 15 Some deﬁnitions Subpart DD—Entertainment expenditure DD 1 Entertainment expenditure generally DD 2 Limitation rule DD 3 When limitation rule does not apply
 DD 4 Employment-related activities DD 5 Promoting businesses, goods, or services DD 6 Entertainment as business or for charitable purpose DD 7 Entertainment outside New Zealand DD 8 Entertainment that is income or fringe beneﬁt DD 9 Relationship with fringe beneﬁt tax rules DD 10 Interpretation: reimbursement and apportionment DD 11 Some deﬁnitions Subpart DE—Motor vehicle expenditure Introductory provisions DE 1 What this subpart does DE 2 Deductions for business use DE 3 Methods for calculating proportion of business use DE 4 Default method for calculating proportion of business use DE 5 Actual records Actual records Logbook DE 6 Using logbook for test period DE 7 Logbook requirements DE 8 Logbook term Reprinted as at 5 January 2010 Income Tax Act 2007 Inadequate logbook DE 9 DE 10 Variance during logbook term DE 11 Replacement vehicles DE 12 Mileage rate method Mileage rates Subpart DF—Government grants, funding, and compensation DF 1 Government grants to businesses DF 2 Repayment of grant-related suspensory loans DF 3 Identifying expenditure for purposes of sections DF 1 and DF 2 Payments for social rehabilitation DF 4 DF 5 Government funding additional to government screen production payments Subpart DN—Attributed losses from foreign equity Attributed controlled foreign company (CFC) loss DN 1 Attributed controlled foreign company loss DN 2
 When attributed CFC loss arises DN 3 Calculation of attributed CFC loss DN 4 Ring-fencing cap on deduction Foreign investment fund (FIF) loss DN 5 Foreign investment fund loss DN 6 When FIF loss arises DN 7 Calculation of FIF loss DN 8 Ring-fencing cap on deduction: branch equivalent method Subpart DO—Farming and aquacultural business expenditure Farming DO 1 Enhancements to land, except trees DO 2 Erosion and shelter plantings DO 3 Trees on farms DO 4 DO 5 Expenditure on land: planting of listed
 horticultural plants DO 6 Expenditure on land: horticultural replacement planting DO 7 Accounting for expenditure on listed horticultural plants Improvements to farm land under sections DO 5 and DO 6 DO 8 Meaning of planting and plot DO 9 Meaning of replaced area fraction 507 508 508 508 509 511 512 512 513 514 514 517 517 518 518 522 522 523 524 524 525 527 529 531 532 532 23 Income Tax Act 2007 Reprinted as at 5 January 2010 DO 10 Farming or horticulture expenditure of lessor or sublessor DO 11 Improvement destroyed or made useless DO 11B Entering partners’ livestock deduction [Repealed] Aquaculture DO 12 Improvements to aquacultural business DO 13 Improvement destroyed or made useless Subpart DP—Forestry expenditure Plant or machinery Improvements to forestry land Improvement destroyed or made useless Forestry encouragement agreement: deductions Forestry encouragement agreement: no deduction DP 1 Expenditure of forestry business DP 2 DP 3 DP 4 DP 5 DP 6 DP 7 Land contouring: no deduction DP 8 Forestry business on land bought from the Crown, Maori owners, or holding company: no deduction 533 534 534 535 536 537 538 539 541 541 542 543 543 DP 9 Cost of acquiring timber: forestry business on land bought 544 from the Crown, Maori owners, or holding company DP 10 Cost of acquiring timber or right to take timber: other cases DP 11 Cost of timber Subpart DQ—Income equalisation schemes and environmental restoration accounts schemes DQ 1 Main income equalisation
 scheme DQ 2 Adverse event income equalisation scheme DQ 3 Thinning operations income equalisation scheme DQ 4 Environmental restoration accounts scheme Subpart DR—Life insurance business expenditure DR 1 Mortality proﬁt formula: negative result DR 2 Disposal of property DR 3 Speciﬁc deductions denied to life insurers and fully reinsured persons Subpart DS—Film industry expenditure Film production expenditure DS 1 Acquiring ﬁlm rights DS 2 DS 2B Expenditure when ﬁlm or ﬁlm right intended for disposal DS 3
 Clawback of deductions for ﬁlm reimbursement schemes DS 4 Meaning of ﬁlm reimbursement scheme 545 546 547 548 548 549 549 550 551 552 553 555 556 557 24 Reprinted as at 5 January 2010 Income Tax Act 2007 Subpart DT—Petroleum mining expenditure Petroleum exploration expenditure DT 1A Ring-fenced allocations DT 1 DT 2 Arrangement for petroleum exploration expenditure and Petroleum exploration expenditure sale of property DT 3 Acquisition of privileges and permits DT 4 Acquisition of exploratory material Petroleum development expenditure Petroleum development expenditure DT 5 DT 6 Expenditure on petroleum mining assets DT 7 Exploratory well expenditure DT 8 Acquisition of certain petroleum mining assets DT 9 Disposal of petroleum mining asset to associate DT 10 Disposal of petroleum mining asset outside association DT 11 Association ending Other expenditure DT 12 Damage to assets DT 13 Disposal of ownership interests in controlled petroleum mining entities DT 14 Farm-out arrangements DT 15 Persons associated with petroleum miner DT 16 Removal or restoration operations General provisions DT 17 Attribution of expenditure DT 18 Replacement permits DT 19 Partnership interests and disposal of part of asset DT 20 Petroleum mining operations outside New Zealand Subpart DU—Mineral mining expenditure DU 1 Mining exploration expenditure and mining development expenditure DU 2 Mining exploration expenditure or mining development expenditure on acquisition of asset Income
 appropriated to expenditure DU 3 Replacing or repairing asset DU 4 DU 5 Non-mining asset used to derive income from mining DU 6 Depreciation DU 7 Limit on deduction DU 8 Meaning of asset for sections DU 1 to DU Income Tax Act 2007 Reprinted as at 5 January 2010 DU 9 Application of sections to resident mining operators DU 10 Application of sections to non-resident mining operators DU 11
 Disposal of mining shares by company DU 12 Amount written off by holding company Subpart DV—Expenditure speciﬁc to certain entities Superannuation funds DV 1 Publicising superannuation funds DV 2 Transfer of expenditure to master fund DV 3 Formula for calculating maximum deduction DV 4 Carry forward of expenditure DV 4B Carry forward of expenditure by member funds investing in portfolio investment entities Other entities Investment funds: transfer of expenditure to master funds DV 5 DV 6 Formula for calculating maximum deduction DV 7 Carry forward of expenditure DV 8 Non-proﬁt organisations DV 9 Trusts DV 10 Building societies DV 11 Distribution to member of co-operative company, excluded from being dividend DV 12 Maori authorities: donations DV 13 Group companies DV 14 Amalgamated company: expenditure on improvements for farming, horticultural, aquacultural, and forestry businesses DV 15 Amalgamated companies: property passing on resident’s restricted amalgamation DV 16 Consolidated groups: intra-group transactions DV 17 Consolidated groups: expenditure or loss incurred by group companies DV 18 Statutory producer boards and co-operative companies DV 19 Association rebates DV 20 Partners Partners and partnerships Subpart DW—Expenditure speciﬁc to certain industries DW 1 Airport operators DW 2 Bloodstock racing DW 3 Non-resident general insurers, shippers, and ﬁlm renters 26 581 582 583 583 585 586 588 589 591 592 595 596 596 597 597 598 599 599 600 601 602 602 603
 604 605 606 606 607 Reprinted as at 5 January 2010 Income Tax Act 2007 DW 4 Deduction for general insurance outstanding claims 608 reserve Subpart DX—Other expenditure DX 1 Testamentary annuities DX 2 Tax credits: conduit ﬁnancing arrangements [Repealed] DX 3 Tax credits: supplementary dividend holding companies Subpart DZ—Terminating provisions DZ 1 Commercial bills before 31 July 1986 DZ 2 Life insurers acquiring property before 1 April 1988 Petroleum mining: development expenditure from 1 DZ 3 October
 1990 to 15 December 1991 DZ 4 Expenditure on abandoned exploratory well before 16 DZ 5 DZ 6 DZ 7 December 1991 Farm-out arrangements for petroleum mining before 16 December 1991 Partnership interests and disposal of part of asset before 16 December 1991 Petroleum mining operations outside New Zealand before 16 December 1991 DZ 8 Buying patent rights before 1 April 1993 DZ 9 Premium paid on land leased before 1 April 1993 DZ 10 General insurance with risk period straddling 1 July 1993 DZ 11 Film reimbursement scheme on or before 30 June 2001 DZ 12 Mineral mining: 1954–2005 DZ 13 Enhancements to land unamortised at end of 2004–05 year DZ 14 Deductions under speciﬁed leases DZ 15 Patent applications before 1 April 2005 DZ 16 Geothermal wells between 31 March 2003 and 17 May 2006 DZ 17 Expenditure on improvements to aquacultural business before 1995–96 income year DZ 18 Expenditure on improvements to forestry land before 1995–96 income year Part E Timing and quantifying rules Subpart EA—Matching rules: revenue account property, prepayments, and deferred payments EA 1 Trading stock, livestock, and excepted ﬁnancial arrangements 609 610 611 611 611 613 614 615 617 617 617 618 618 619 621 623 623 624 625 626 626 627 27 Income Tax Act 2007 Reprinted as at 5 January 2010 EA 2 Other revenue account property EA 3 EA 4 Deferred payment of employment income Prepayments Subpart EB—Valuation of trading stock (including dealer’s livestock) Introductory provisions EB 1 When this
 subpart applies EB 2 Meaning of trading stock EB 3 Valuation of trading stock EB 4 Trading stock valuation methods EB 5 Transfers of trading stock within wholly-owned groups Standard valuation EB 6 Cost EB 7 Cost allocation: cost-ﬂow method EB 8 Cost allocation: budgeted method or standard cost method EB 9 Discounted selling price EB 10 Replacement price EB 11 Market selling value EB 12 Valuing closing stock consistently Low-turnover valuation EB 13 Low-turnover valuation EB 14 Low-turnover valuation methods EB
 15 Cost for low-turnover traders EB 16 Cost allocation: cost-ﬂow method for low-turnover traders EB 17 Costs: manufactured or produced stock of low-turnover traders EB 18 Costs: other stock of low-turnover traders EB 19 Discounted selling price for low-turnover traders EB 20 Replacement price for low-turnover traders EB 21 Market selling value for low-turnover traders EB 22 Valuing closing stock consistently for low-turnover traders EB 23 Valuing closing stock under $10,000 Low value trading stock Disposal of business assets 628 629 631 633 634 635 636 636 637 639 639 640 641 642 643 643 644 644 645 645 646 646 647 648 648 649 EB 24 Apportionment on disposal of business assets that include 650 trading stock 28 Reprinted as at 5 January 2010 Income Tax Act 2007 Subpart EC—Valuation of livestock Introductory provisions EC 1 Application of this subpart EC 2 Valuation of livestock EC 3 Livestock valuation methods EC 4 Transfers of livestock within wholly-owned groups EC 5 Transfer of livestock because of self-assessed adverse event Valuation of speciﬁed livestock EC 6 Application of sections EC 7 to EC 27 EC 7 Valuation methods EC 8 Restrictions on use of herd scheme EC 9 Restrictions on use of national standard cost scheme EC 10 Restrictions on use of cost price method EC 11 Restrictions on making of elections EC 12 Interests in livestock EC 13 Changes in partnership interests Herd scheme EC 14 Herd scheme EC 15 Determining national average market values EC 16
 Valuation under herd scheme EC 17 Herd value ratio EC 18 Inaccurate herd value ratio EC 19 Chatham Islands adjustment to herd value EC 20 Herd livestock disposed of before values determined EC 21 Herd livestock on death before values determined National standard cost scheme EC 22 National standard cost scheme EC 23 Determining national standard costs EC 24 Methods for determining costs using national standard cost scheme Other methods EC 25 Cost price, replacement price, or market value EC 26 Bailee’s
 treatment of livestock Partnerships: cost price and national standard cost scheme EC 26B Entering partners’ cost base 651 651 652 652 653 654 654 655 655 657 658 660 661 661 662 662 663 664 665 665 666 666 667 667 668 668 670 29 Income Tax Act 2007 Reprinted as at 5 January 2010 EC 27 Some deﬁnitions Deﬁnitions Valuation of non-speciﬁed livestock EC 28 Application of sections EC 29 to EC 31 EC 29 Determining standard values EC 30 Closing value methods EC 31 Enhanced production Valuation of high-priced livestock EC 32 Application of sections EC 33 to EC 37 EC 33 Determining depreciation percentages EC 34 General rule EC 35 Livestock reaching national average market value and livestock no longer used for breeding EC 36 Immature livestock and recently bought livestock EC 37 Bailment Valuation of bloodstock EC 38 Application of sections EC 39 to EC 48 EC 39 First income year in breeding business EC 40 Later income years in breeding business EC 41 Reduction: bloodstock not previously used for breeding in New Zealand other than as shuttle stallions EC 42 Reduction: bloodstock previously used for breeding in New Zealand EC 43 Accident, birth deformity, or infertility EC 44 Other bloodstock EC 45 Residual value of bloodstock EC 46 Use of bloodstock for racing EC 47 Change of use of bloodstock in course of business EC 48 Replacement breeding stock Subpart ED—Valuation of excepted ﬁnancial arrangements ED 1 Valuation of excepted ﬁnancial arrangements ED 1B Valuation of
 emissions units issued for zero price ED 2 Transfers of certain excepted ﬁnancial arrangements within wholly-owned groups Subpart EE—Depreciation Introductory provision EE 1 What this subpart does 30 671 672 672 672 673 673 674 674 676 677 677 678 678 679 679 681 682 682 682 682 683 684 686 690 692 693 Reprinted as at 5 January 2010 Income Tax Act 2007 Meaning of own EE 2 Nature of ownership of item EE 3 Ownership of goods subject to reservation of title EE 4 Ownership of lessee’s improvements: lessee EE 5
 Ownership of lessee’s improvements: other person Meaning of depreciable property EE 6 What is depreciable property?
EE 7 What is not depreciable property?
EE 8 Election that property not be depreciable How amounts of depreciation loss and depreciation recovery income are calculated EE 9 Description of elements of calculation EE 10 Calculation rule: item temporarily not available EE 11 Calculation rule: income year in which item disposed of EE 12 Depreciation methods Methods Amount of depreciation loss under diminishing value method or straight-line method EE 13 Application of sections EE 14 to EE 19 EE 14 Diminishing value or straight-line method: calculating amount of depreciation loss EE 15 Amount of adjusted tax value EE 16 Amount resulting from standard calculation EE 17 Amount resulting from petroleum-related depreciable property calculation EE 18 Cost: change from diminishing value to straight-line method EE 19 Cost: ﬁxed life intangible property Amount of depreciation loss under pool method EE 20 Application of sections EE 21 to EE 24 EE 21 Pool method: calculating amount of depreciation loss EE 22 Cases affecting pool EE 23 Combined pools EE 24 Property ceasing to qualify for pool EE 25 Depreciation loss for plant variety rights application granted in 2005–06 or later income year 695 695 696 697 698 698 699 701 702 702 703 705 705 705 706 707 708 708 709 709 711 713 713 713 31 Income Tax Act 2007 Depreciation rates Reprinted as at 5 January 2010 EE 26 Setting of economic depreciation rate EE 27 Economic rate for certain depreciable property EE 28 Economic rate for buildings EE 29 Economic rate for certain aircraft and motor vehicles EE 30 Economic rate
 for plant, equipment, or building, with 714 715 717 718 718 high residual value EE 31 Annual rate for item acquired in person’s 1995–96 or later 720 income year EE 32 Election in relation to certain depreciable property acquired on or after 1 April 2005 EE 33 Annual rate for ﬁxed life intangible property EE 34 Annual rate for patent granted in 2005–06 or later income year EE 35 Special rate or provisional rate EE 36 Using economic rate or provisional rate instead of special rate Improvements, items of low
 value, or items no longer used EE 37 Improvements EE 38 Items of low value EE 39 Items no longer used 721 722 722 724 724 725 727 729 Transfers of depreciable property: associated persons and certain amalgamations EE 40 Transfer of depreciable property on or after 24 September 730 1997 EE 41 Transfer of depreciable property on certain amalgamations 733 on or after 14 May 2002 EE 42 Transfer of radiocommunications licence right on or after 735 24 September 1997 EE 43 Transfer of depreciable intangible property on or after 1 735 July 1997 Disposals and similar events EE 44 Application of sections EE 48 to EE 52 EE 45 Consideration for purposes of section EE 44 EE 46 Items for purposes of section EE 44 EE 47 Events for purposes of section EE 44 EE 48 Effect of disposal or event EE 49 Amount of depreciation recovery income when item partly used for business 736 736 739 739 741 742 32 Reprinted as at 5 January 2010 Income Tax Act 2007 EE 50 Amount of depreciation loss when item partly used to produce income EE 51 Amount of depreciation recovery income when lost or stolen items recovered EE 52 Amount of depreciation recovery income when compensation received EE 53 Unused geothermal well brought into use EE 54 Cost: GST Interpretation provisions Adjusted tax value EE 55 Meaning of adjusted tax value EE 56 Formula EE 57 Base value in section EE 56 when none of sections EE 58, EE 59, and EZ 22(1) applies EE 58 Base value in section EE 56 when no previous deduction EE 59 Base
 value in section EE 56 when property is petroleum-related depreciable property EE 60 Total deductions in section EE 56 Deﬁnitions EE 61 Meaning of annual rate EE 62 Meaning of depreciable intangible property EE 63 Meaning of estimated useful life EE 64 Meaning of excluded depreciable property EE 65 Meaning of maximum pooling value EE 66 Meaning of poolable property EE 67 Other deﬁnitions Subpart EF—Taxes and levies Fringe beneﬁt tax EF 1 EF 2 Employer’s superannuation contribution tax EF 3 Accident
 compensation levies and premiums EF 4 Use of money interest payable by Commissioner EF 5 Use of money interest payable by person EF 6 Different tax years Subpart EG—Recognition of accounting treatment EG 1 Election to use balance date used in foreign country EG 2 Adjustment for changes to accounting practice EG 3 Allocation of income, deductions, and tax credits by portfolio tax rate entity 743 746 747 748 748 749 749 750 751 752 753 755 756 757 757 758 759 759 762 762 762 764 765 766 767 770 771 33 Income Tax Act 2007 Reprinted as at 5 January 2010 Subpart EH—Income equalisation schemes Introductory provisions EH 1 EH 2 Income equalisation schemes Income Equalisation Reserve Account Main income equalisation scheme Application EH 3 Persons to whom main income equalisation scheme applies Deposits and accounts EH 4 Main deposit EH 5 Main income equalisation account Interest 772 773 773 774 775 EH 6 Interest on deposits in main income equalisation account 776 Deduction EH 7 Deduction of deposit Refunds: automatic Income does not include excess deposit EH 8 Refund of excess deposit EH 9 EH 10 Refund at end of 5 years EH 11 Income when refund given at end of 5 years Refunds: on application 777 777 778 778 778 EH 12 Application for refund by person, trustee of estate, Ofﬁcial 778 Assignee, or liquidator EH 13 Refund on request EH 14 Income when refund given on request EH 15 Refund for development or recovery EH 16 Income when refund given for development or recovery EH 17
 Refund on retirement EH 18 Income when refund given on retirement, and election to allocate amount to earlier year EH 19 Refund on death EH 20 Income when refund given on death EH 21 Income when refund given on death, and election to allocate amount to earlier year EH 22 Income when refund given on death, and election to allocate amount to later year or years EH 23 Refund on bankruptcy 779 779 780 781 782 782 783 783 784 784 786 34 Reprinted as at 5 January 2010 Income Tax Act 2007 EH 24 Income when
 refund given on bankruptcy EH 25 Refund on liquidation EH 26 Income when refund given on liquidation Refunds: general provisions EH 27 Amendment of assessment EH 28 Minimum refund EH 29 Deposits from which refunds come Tax credit EH 30 When person entitled to tax credit EH 31 Kind and amount of refund that entitles person to tax credit EH 32 Kind of person entitled to tax credit EH 33 Amount of tax credit Deﬁnitions EH 34 Meaning of income from forestry EH 35 Meaning of main maximum deposit EH 36 Other deﬁnitions 786 786 787 787 787 788 788 788 789 789 790 790 792 Adverse event income equalisation scheme Application EH 37 Persons to whom adverse event income equalisation 793 scheme applies Deposits and accounts EH 38 Adverse event deposit EH 39 Adverse event income equalisation account 794 794 EH 40 Interest on deposits in adverse event income equalisation 795 Interest account Deduction EH 41 Deduction of deposit Refunds: automatic EH 42 Refund of excess deposit EH 43 Income does not include excess deposit Refunds: on application 796 796 797 EH 44 Application for refund by person, trustee of estate, Ofﬁcial 797 Assignee, or liquidator 35 Income Tax Act 2007 Reprinted as at 5 January 2010 EH 45 Refund on request EH 46 Income when refund given on request EH 47 Refund on retirement EH 48 Income when refund given on retirement, and election to allocate amount to earlier year EH 49 Refund on death EH 50 Income when refund given on death EH 51 Income when refund given on
 death, and election to allocate amount to earlier year EH 52 Income when refund given on death, and election to allocate amount to later year or years EH 53 Refund on bankruptcy EH 54 Income when refund given on bankruptcy EH 55 Refund on liquidation EH 56 Income when refund given on liquidation Refunds: general provisions EH 57 Amendment of assessment EH 58 Minimum refund EH 59 Deposits from which refunds come EH 60 Transfer of deposit Transfers Deﬁnitions EH 61 Meaning of adverse event maximum deposit EH 62
 Other deﬁnitions Thinning operations income equalisation scheme Application 798 798 798 799 799 800 800 801 802 802 803 803 803 803 804 804 805 806 EH 63 Persons to whom thinning operations income equalisation 807 scheme applies Deposits and accounts EH 64 Thinning operations deposit EH 65 Thinning operations income equalisation account EH 66 Interest on deposits in thinning operations income equalisation account Interest EH 67 Deduction of deposit Deductions 808 809 810 811 36 Reprinted as at 5 January 2010 Income Tax Act 2007 Refunds: automatic EH 68 Refund of excess deposit EH 69 Income does not include excess deposit Refunds: on application EH 70 Application for refund by person or liquidator EH 71 Refund on request EH 72 Income when refund given on request EH 73 Refund for development or recovery EH 74 Income when refund given for development or recovery EH 75 Refund on liquidation EH 76 Income when refund given on liquidation Refunds: general provisions, and tax credits 811 812 812 812 813 813 814 815 815 EH 77 Sections of main income equalisation scheme that apply 816 to thinning operations income equalisation scheme Deﬁnitions EH 78 Meaning of thinning operations maximum deposit EH 79 Other deﬁnitions Subpart EI—Spreading of speciﬁc income Farming and forestry EI 1 Spreading backward of income from timber Inﬂation-indexed instruments EI 2 Interest from inﬂation-indexed instruments Intellectual property EI 3 EI 4 Assigning or granting copyright Spreading
 income from patent rights Land EI 5 EI 6 EI 7 EI 8 Amount paid to lessor for non-compliance with covenant for repair Amount paid for non-compliance: when lessor ceases to own land Leases: income derived in anticipation Disposal of land to the Crown Shareholder-employees EI 9 Matching rule for employment income of shareholder-employee 816 816 818 818 819 821 821 822 823 823 824 37 Income Tax Act 2007 Reprinted as at 5 January 2010 Subpart EJ—Spreading of speciﬁc expenditure Farming and forestry Spreading
 backward of deductions for costs of timber Spreading forward of deductions for repairs to ﬁshing boats Spreading forward of fertiliser expenditure Films Expenditure incurred in acquiring ﬁlm rights in feature ﬁlms Expenditure incurred in acquiring ﬁlm rights in ﬁlms other than feature ﬁlms Certiﬁcation of New Zealand ﬁlms Film production expenditure for New Zealand ﬁlms having no government screen production payment Film production expenditure for other ﬁlms having no government screen production payment Avoidance arrangements EJ 1 EJ 2 EJ 3 EJ 4 EJ 5 EJ 6 EJ 7 EJ 8 EJ 9 Leases EJ 10 Personal property lease payments EJ 11 Amount paid by lessee for non-compliance with covenant for repair Petroleum mining EJ 12 Petroleum development expenditure: default allocation rule EJ 12B Petroleum development expenditure: reserve depletion method EJ 13 Relinquishing petroleum mining permit EJ 13B Dry well drilled EJ 13C Well not producing EJ 14 Spreading deduction backwards EJ 15 Disposal of petroleum mining asset EJ 16 Disposal of petroleum mining asset to associate EJ 17 Partnership interests and disposal of part of asset EJ 18 Petroleum mining operations outside New Zealand Deﬁnitions EJ 19 Meaning of offshore development [Repealed] EJ 20 Meaning of petroleum mining development 825 825 827 829 830 831 832 833 835 835 836 837 837 839 840 840 841 841 842 843 843 843 843 38 Reprinted as at 5 January 2010 Income Tax Act 2007 Superannuation contributions EJ 21 Contributions to
 employees’ superannuation schemes 844 Research, development, and resulting market development EJ 22 Deductions for market development: product of research, 845 development EJ 23 Allocation of deductions for research, development, and 845 resulting market development Subpart EK—Environmental restoration accounts EK 1 Environmental Restoration Funds Account EK 2 Persons who may make payment to environmental restoration account Payments to environmental restoration account EK 3 EK 4 Environmental restoration account
 EK 5 Details to be provided with payment to environmental restoration account Interest on payments to environmental restoration account EK 6 EK 7 Deduction for payment EK 8 Deduction for transfer EK 9 Refund of payment if excess, lacking details EK 10 Certain refunds not income EK 11 Application for refund EK 12 Refund if request or excess balance EK 13 Income when refund given on request EK 14 Application for transfer EK 15 Transfer on request EK 16 Transfer on death, bankruptcy, or liquidation EK 17 Minimum refund or transfer EK 18 Payments from which refunds come EK 19 Environmental restoration account of amalgamating company EK 20 Environmental restoration account of consolidated group company EK 21 Notices in electronic format EK 22 Meaning of maximum payment EK 23 Other deﬁnitions Subpart EW—Financial arrangements rules Introductory provisions EW 1 What this subpart does 847 847 848 849 850 851 851 852 853 854 854 855 857 857 857 858 859 860 860 861 861 862 863 864 39 Income Tax Act 2007 Reprinted as at 5 January 2010 EW 2 Relationship of ﬁnancial arrangements rules with other 865 provisions Meaning of ﬁnancial arrangement and excepted ﬁnancial arrangement EW 3 What is a ﬁnancial arrangement?
EW 4 What is not a ﬁnancial arrangement?

EW 5 What is an excepted ﬁnancial arrangement?
EW 6 Relationship between ﬁnancial arrangements and excepted ﬁnancial arrangements EW 7 Change from private or domestic purpose EW 8 Election to treat certain excepted ﬁnancial arrangements as ﬁnancial arrangements Application of ﬁnancial arrangements rules EW 9 Persons to whom ﬁnancial arrangements rules apply EW 10 Financial arrangements to which ﬁnancial arrangements rules apply EW 11 What ﬁnancial arrangements rules do not apply to Calculation and allocation of income and expenditure over ﬁnancial arrangement’s term EW 12 When use of spreading method required EW 13 When use of spreading method not required EW 14 What spreading methods do EW 15 What is included when spreading methods used EW 15B Applying IFRSs to ﬁnancial arrangements EW 15C Preparing and reporting methods EW 15D IFRS ﬁnancial reporting method EW 15E Determination alternatives EW 15F Expected value method EW 15G Modiﬁed fair value method EW 15H Mandatory use of some determinations EW 15I Mandatory use of yield to maturity method for some arrangements EW 16 Yield to maturity method or alternative EW 17 Straight-line method EW 18 Market valuation method EW 19 Choice among some spreading methods EW 20 Determination method or alternative EW 21 Financial reporting method EW 22 Default method EW 23 Failure to use method for ﬁnancial reporting purposes Reprinted as at 5 January 2010 Income Tax Act 2007 EW 24 Consistency of use of
 spreading method EW 25 Consistency of use of straight-line method and market valuation method EW 25B Consistency of use of IFRS method EW 26 Change of spreading method EW 27 Spreading method adjustment formula Calculation and allocation of income and expenditure when rights and obligations under ﬁnancial arrangement cease EW 28 How base price adjustment calculated EW 29 When calculation of base price adjustment required EW 30 When calculation of base price adjustment not required EW 31 Base price adjustment
 formula 899 900 901 902 905 906 906 909 910 Consideration Consideration when ﬁnancial arrangement involves property or services EW 32 Consideration for agreement for sale and purchase of 912 property or services, hire purchase agreement, speciﬁed option, or ﬁnance lease EW 33 Consideration for hire purchase agreement or ﬁnance lease EW 34 Consideration in foreign currency EW 35 Value relevant for non-ﬁnancial arrangements rule Consideration treated as paid to person EW 36 Consideration when person exits from rules: accrued entitlement EW 37 Consideration when person enters rules: accrued obligation EW 38 Consideration when disposal for no, or inadequate, consideration EW 39 Consideration affected by unfavourable factors Consideration treated as paid by person EW 40 Consideration when person exits from rules: accrued obligation EW 41 Consideration when person enters rules: accrued entitlement EW 42 Consideration when acquisition for no, or inadequate, consideration 913 914 915 915 916 917 918 919 920 921 41 Income Tax Act 2007 Reprinted as at 5 January 2010 EW 43 Consideration when debt sold at discount to associate of debtor EW 44 Consideration when debt forgiven for natural love and affection EW 45 Consideration when debtor released from obligation EW 46 Consideration when debtor released as condition of new start grant EW 46B Consideration when party changes from fair value method Consideration when legal defeasance has occurred EW 47 Legal defeasance Consideration
 when anti-avoidance provision applies EW 48 Anti-avoidance provisions Income and deduction provisions speciﬁcally related to ﬁnancial arrangements EW 49 Income and deduction when debt sold at discount to associate of debtor EW 50 Income when debt forgiven to trustee EW 51 Deduction for security payment Treatment of original share acquired under ﬁnancial arrangement EW 52 Share supplier under share-lending arrangement EW 53 Adjustment required One kind of avoidance Application of ﬁnancial arrangements rules to
 cash basis persons EW 54 Meaning of cash basis person EW 55 Effect of being cash basis person EW 56 Natural person [Repealed] EW 57 Thresholds EW 58 Financial arrangements, income, and expenditure relevant to criteria EW 59 Exclusion by Commissioner EW 60 Trustee of deceased’s estate EW 61 Election to use spreading method EW 62 When and how calculation of cash basis adjustment required EW 63 Cash basis adjustment formula 42 921 922 923 924 926 926 927 927 928 930 931 931 933 934 934 934 937 938 939 940 940 942 Reprinted as at 5 January 2010 Income Tax Act 2007 Subpart EX—Controlled foreign company and foreign investment fund rules Controlled foreign company (CFC) rules When is a company a controlled foreign company?
EX 1 Meaning of controlled foreign company Calculation of person’s control interest Four categories for calculating control interests EX 2 EX 3 Control interest: total of direct, indirect, and associated person interests EX 4 Limits to requirement to include associated person interests EX 5 Direct control interests EX 6 Direct control interests include options and similar rights EX 7 Indirect control interests Calculation of person’s income interest Income interests: total of direct and indirect interests EX 8 EX 9 Direct income interests EX 10 Indirect income interests EX 11 Options and similar rights in certain cases EX 12 Reduction of total income interests EX 13 Income interests of partners [Repealed] Ten percent threshold and variations in income interest level EX 14 Attribution: 10% threshold EX 15 Associates and 10% threshold EX 16 Income interests for certain purposes EX 17 Income interest if variations within period Calculation of attributed CFC income or loss EX 18A Scheme for ﬁnding person’s attributed CFC income or loss EX 18 Formula for calculating attributed CFC income or loss EX 19 Taxable distribution from non-complying trust EX 20 Reduction in attributed CFC loss Attributable CFC amount and net attributable CFC income or loss EX 20B Attributable CFC amount EX 20C Net attributable CFC income or loss EX 20D Adjustment of fraction for excessively debt funded CFC 943 945 945 946 947 948 949 950 951 952 953 954 954 955 955 955 956 957 958 959 960 961 970 973 43 Income Tax Act 2007 Reprinted as at 5
 January 2010 EX 20E Relative debt-asset ratio for CFC 976 Calculation of branch equivalent income or loss [Repealed] EX 21 Attributable CFC amount and net attributable CFC income 978 or loss: calculation rules Non-attributing active CFCs EX 21B Non-attributing active CFCs Tests for non-attributing active CFCs EX 21C Applicable accounting standards for section EX 21E EX 21D Non-attributing active CFC: default test EX 21E Non-attributing active CFC: test based on accounting standard Non-attributing Australian CFCs EX 22 Non-attributing Australian CFCs EX 23 Tax concession grey list CFCs [Repealed] Change of residence of companies EX 24 Companies moving to or from New Zealand Change of CFC’s balance date EX 25 Change of CFC’s balance date Ownership measurement concession EX 26 Use of quarterly measurement Anti-avoidance rule: stapled stock EX 27 Anti-avoidance rule: stapled stock Foreign investment fund (FIF) rules What is a foreign investment fund?
EX 28 Meaning of FIF Attributing interests in FIFs EX 29 Attributing interests in FIFs EX 30 Direct income interests in FIFs EX 31 Exemption for ASX-listed Australian companies EX 32 Exemption for Australian unit trusts with adequate turnover or distributions EX 33 Exemption for Australian regulated superannuation savings 44 989 990 994 997 1005 1006 1006 1007 1008 1009 1010 1010 1011 1012 1014 1017 Reprinted as at 5 January 2010 Income Tax Act 2007 EX 34 CFC rules exemption EX 35 Exemption for 10% or greater interest in grey list 1017 1017 company EX 36 Venture capital company emigrating to grey list country: 1018 10-year exemption EX 37 Grey list company owning New Zealand venture capital 1019 company: 10-year exemption EX 37B Share in grey list company acquired under venture 1020 investment agreement EX 38 Exemption for employee share purchase scheme of grey 1021 list company EX 39 Terminating exemption for grey list company with numerous New Zealand shareholders EX 40 Foreign exchange control exemption EX 41 Income interest of non-resident or transitional resident EX 42 New resident’s accrued superannuation entitlement exemption EX 43 Non-resident’s pension or annuity exemption Calculation of FIF income or loss EX 44 Six calculation methods EX 45 Exclusion of amounts of death beneﬁt EX 46 Limits on choice of calculation methods EX 47 Method required for certain non-ordinary shares EX 48 Default calculation method EX 49 Accounting proﬁts method EX 50 Branch equivalent method EX 51 Comparative value method EX
 52 Fair dividend rate method: usual method EX 53 Fair dividend rate method for unit-valuing funds and others by choice 1022 1023 1023 1024 1026 1027 1028 1028 1036 1036 1037 1039 1042 1044 1049 EX 54 Fair dividend rate method and cost method: when periods 1055 affected by share reorganisations EX 55 Deemed rate of return method EX 56 Cost method EX 57 Conversion of foreign currency amounts: most methods EX 58 Additional FIF income or loss if CFC owns FIF 1057 1060 1065 1066 Relationship with other
 provisions in Act EX 59 Codes: comparative value method, deemed rate of return 1068 method, fair dividend rate method, and cost method EX 60 Top-up FIF income: deemed rate of return method EX 61 Top-up FIF income: 1 April 1993 uplift interests 1070 1071 45 Income Tax Act 2007 Reprinted as at 5 January 2010 Changing calculation method EX 62 Limits on changes of method EX 63 Consequences of changes in method Cases of entry into and exit from FIF rules EX 64 Migration of persons holding FIF interests EX 65 Changes in application of FIF exemptions EX 66 Entities emigrating from New Zealand EX 66B Entities ceasing to be FIFs EX 67 FIF rules ﬁrst applying to interest on or after 1 April 2007 Measurement of cost EX 68 Measurement of cost Change of FIF’s balance date EX 69 Change of FIF’s balance date Market value rules EX 70 Market value of life policy and superannuation entitlements EX 71 Non-market transactions in FIF interests Commissioner’s default assessment power EX 72 Commissioner’s default assessment power Subpart EY—Life insurance rules Introductory provisions EY 1 What this subpart does EY 2 Matters to which this subpart relates EY 3 Meaning of actuarial reserves EY 4 Actuarial reserves: calculation EY 5 Actuarial reserves: actuary’s declaration EY 6 Actuarial reserves: powers of Commissioner EY 7 Meaning of claim EY 8 Meaning of life insurance EY 9 Meaning of life insurance policy EY 10 Meaning of life insurer EY 11 Superannuation schemes providing life
 insurance EY 12 Meaning of life reinsurance EY 13 Meaning of life reinsurance policy EY 14 Life insurance and life reinsurance: how sections relate 1072 1076 1079 1080 1083 1084 1085 1087 1089 1090 1091 1091 1092 1093 1093 1094 1095 1096 1096 1097 1099 1099 1100 1103 1105 1105 46 Reprinted as at 5 January 2010 Income Tax Act 2007 Premium loading EY 15 How premium loading is calculated EY 16 Premium loading: when life insurers providing life 1106 1106 insurance at start of income year EY 17 Premium loading: when
 life insurers not providing life 1107 insurance at start of income year EY 18 Premium loading formulas EY 19 Premium loading formulas: when life insurers not providing life insurance at start of income year EY 20 Premium loading formulas: option when more than 1 1107 1108 1109 life insured EY 21 Premium loading formula (life): when annuity payable 1110 on death EY 22 Premium loading formulas: when annuity payable on 1110 survival to date or age speciﬁed in policy EY 23 Premium loading formula (life): when partial reinsurance 1111 exists EY 24 Premium loading formulas: individual result may never 1111 be negative Mortality proﬁt EY 25 How mortality proﬁt is calculated EY 26 Mortality proﬁt: when life insurers providing life insurance at start of income year EY 27 Mortality proﬁt: when life insurers not providing life insurance at start of income year EY 28 Mortality proﬁt formula EY 29 Mortality proﬁt formula: when life insurers not providing 1112 1112 1113 1113 1115 life insurance at start of income year EY 30 Mortality proﬁt formula: option when more than 1 life 1115 insured EY 31 Mortality proﬁt formula: when annuity payable on death EY 32 Mortality proﬁt formula: when partial reinsurance exists EY 33 Mortality proﬁt formula: individual result may be negative only in some cases EY 34 Mortality proﬁt formula: negative result Discontinuance proﬁt EY 35 How discontinuance proﬁt is calculated EY 36 Discontinuance proﬁt for income year EY 37 Discontinuance proﬁt
 formula (existing policies) EY 38 Discontinuance proﬁt formula (new policies) 1116 1117 1117 1118 1118 1119 1119 1120 47 Income Tax Act 2007 Reprinted as at 5 January 2010 EY 39 Discontinuance proﬁt formula (existing policies): when 1121 partial reinsurance exists EY 40 Discontinuance proﬁt formula (new policies): when partial reinsurance exists EY 41 Discontinuance proﬁt formulas: individual result may never be negative Policyholder income EY 42 How policyholder income is calculated EY 43 Policyholder income
 formula EY 43B Policyholder income formula: FDR adjustment EY 43C Policyholder income formula: PILF adjustment EY 44 Policyholder income formula: when partial reinsurance exists EY 45 Policyholder income formula: when life insurance business transferred Disposal of property EY 46 Income from disposal of property EY 47 Deductions for disposal of property Non-resident life insurers 1121 1122 1122 1122 1124 1126 1128 1129 1130 1131 EY 48 Non-resident life insurers with life insurance policies in 1131 New Zealand EY 49 Non-resident life insurer becoming resident 1132 Subpart EZ—Terminating provisions Life insurance Life insurers acquiring property before 1 April 1988 EZ 1 EZ 2 Deductions for disposal of property: 1982–83 and 1133 1135 1989–90 income years Petroleum mining EZ 3 Petroleum development expenditure from 1 October 1990 to 15 December 1991 1136 Livestock EZ 4 Valuation of livestock bailed or leased as at 2 September 1136 1992 EZ 5 Reduction: bloodstock not previously used for breeding 1138 in New Zealand: pre-1 August 2006 EZ 6 Reduction: broodmare previously used for breeding in 1140 New Zealand: pre-1 August 2006 48 Reprinted as at 5 January 2010 Income Tax Act 2007 EZ 7 Buying patent rights before 1 April 1993 Patent rights Leases of land EZ 8 Premium paid on land leased before 1 April 1993 Depreciation EZ 9 Pool method for items accounted for by globo method for 1992–93 income year 1141 1142 1142 EZ 10 Pool items accounted for by globo method for 1992–93
 1143 income year EZ 11 Amounts of depreciation recovery income and depreciation loss for part business use up to 2004–05 income year EZ 12 Amount of depreciation loss for item acquired from associated person on or before 23 September 1997 EZ 13 Annual rate for item acquired on or after 1 April 1993 and before end of person’s 1994–95 income year EZ 14 Pre-1993 depreciation rate EZ 15 Annual rate for excluded depreciable property: 1992–93 tax year EZ 16 Amount of depreciation loss for plant or machinery
 additional to section EZ 15 amount EZ 17 Additional amount of depreciation loss: between 16 December 1991 and 1 April 1994 EZ 18 Section EZ 17 amount of depreciation loss when items transferred between companies in wholly-owned group before 1 April 1993 1143 1144 1145 1146 1147 1149 1150 1151 EZ 19 Section EZ 17 amount of depreciation loss when person 1152 previously exempt from tax acquires item EZ 20 Adjusted tax value for software acquired before 1 April 1152 1993 EZ 21 Sections EE 45 and EE 47: permanent removal: 1153 allowance before 1 April 1995 EZ 22 Base value and total deductions in section EE 56: before 1 1154 April 1995 EZ 23 Economic rate for plant or equipment acquired before 1 April 2005 and buildings acquired before 19 May 2005 Deﬁnitions EZ 24 Meaning of new asset EZ 25 Meaning of New Zealand-new asset EZ 26 Meaning of qualifying capital value 1155 1156 1158 1159 49 Income Tax Act 2007 Reprinted as at 5 January 2010 EZ 27 Meaning of qualifying improvement EZ 28 Meaning of qualifying asset 1160 1161 Accident insurance EZ 29 Private insurers under Accident Insurance Act 1998 EZ 30 Base premium for 1998–99 premium year under Accident 1162 1163 Insurance Act 1998 Controlled foreign company and foreign investment fund rules EZ 31 Disclosure restrictions on grey list CFCs before 2011–12 [Repealed] EZ 32 Terminating exemption for grey list FIF investing in Australasian listed equities EZ 32B Transitional rule for IFRS reporting [Repealed] 1164 1164 1165 Old
 ﬁnancial arrangements rules EZ 33 Application of old ﬁnancial arrangements rules EZ 34 Election to apply ﬁnancial arrangements rules in subpart 1166 1166 EW EZ 35 Accruals in relation to income and expenditure in respect 1166 of ﬁnancial arrangements EZ 36 Excepted ﬁnancial arrangement that is part of ﬁnancial 1173 arrangement EZ 37 Cash basis holder EZ 38 Income and expenditure where ﬁnancial arrangement redeemed or disposed of EZ 39 Forgiveness of debt EZ 40 Accrued income written off EZ 41 Sale of debt
 to associate of debtor EZ 42 Post facto adjustment EZ 43 Variable principal debt instruments EZ 44 Relationship with rest of Act EZ 45 Application of old ﬁnancial arrangements rules EZ 46 Election to treat short term trade credit as ﬁnancial arrangement EZ 47 Election to continue to treat certain excepted ﬁnancial arrangements as ﬁnancial arrangements EZ 48 Deﬁnitions EZ 49 Determination of core acquisition price where consideration for property denominated in foreign currency EZ 50 Rules for non-market transactions 1174 1178 1184 1185 1186 1187 1189 1189 1190 1191 1192 1192 1206 1207 50 Reprinted as at 5 January 2010 Income Tax Act 2007 EZ 51 Transitional adjustment when changing to ﬁnancial arrangements rules EZ 52 References to new rules include old rules EZ 52B Consistency of use of IFRS method: Determination G3 change allowed Part F Recharacterisation of certain transactions Subpart FA—Recharacterisation of certain commercial arrangements Introductory provision FA 1 What this subpart does Debentures and shares FA 2 Recharacterisation of certain debentures FA 2B Stapled debt securities FA 3 Recharacterisation of certain dividends: recovery of cost of shares held on revenue account FA 4 Recharacterisation of shareholder’s base: company repurchasing share Leases 1208 1210 1211 1212 1212 1215 1217 1217 FA 5 Assets acquired and disposed of after deduction of 1219 payments under lease Finance leases FA 6 Recharacterisation of amounts derived under ﬁnance leases FA
 7 Determining amount of loan FA 8 Deductibility of expenditure under ﬁnance lease FA 9 Treatment when lease ends: lessee acquiring asset FA 10 Treatment when lease ends: lessor acquiring asset FA 11 Adjustments for leases that become ﬁnance leases FA 11B Adjustments for certain operating leases 1220 1221 1221 1222 1223 1224 1225 FA 12 Recharacterisation of amounts derived under hire purchase 1227 Hire purchase agreements agreements FA 13 Agreements recharacterised as sale with ﬁnance provided FA 14
 Deductibility of expenditure or loss under hire purchase agreement FA 15 Treatment when agreement ends: seller acquiring property 1227 1228 1228 51 Income Tax Act 2007 Reprinted as at 5 January 2010 FA 16 Treatment when agreement ends: when seller is cash basis 1230 person FA 17 Treatment when agreement ends: when buyer is cash basis person FA 18 Treatment of amounts paid in income years after agreement ends Subpart FB—Transfers of relationship property FB 1 What this subpart does FB 2 FB 3 Personal property Land acquired for certain purposes or under certain conditions Land under scheme for major development or division Timber or right to take timber Land with standing timber Patent applications and patent rights Financial arrangements rules FB 4 FB 5 Disposal of land FB 6 FB 7 FB 8 FB 9 FB 10 Continuity provisions: shares and options FB 11 Pension payments to former employees FB 12 Pension payments to former partners FB 13 Trading stock FB 14 Speciﬁed livestock FB 15 Speciﬁed livestock valued under herd scheme FB 16 Non-speciﬁed livestock FB 17 High-priced livestock FB 18 Bloodstock FB 19 Leased assets FB 20 Mining assets FB 21 Depreciable property Subpart FC—Distribution, transmission, and gifts of property Introductory provisions FC 1 What this subpart does FC 2 Transfer at market value Exceptions for property transferred on death of person Property transferred to spouse, civil union partner, or de facto partner Property transferred to charities or to close relatives and
 others Land transferred to close relatives FC 3 FC 4 FC Reprinted as at 5 January 2010 Income Tax Act 2007 FC 6 FC 7 FC 8 Forestry assets transferred to close relatives Transfer of prepaid property Transfer of certain ﬁnancial arrangements Subpart FE—Interest apportionment on thin capitalisation Introductory provisions FE 1 What this subpart does FE 2 When this
 subpart applies FE 3 FE 4 Interest apportionment for individuals Some deﬁnitions Interest apportionment rules Thresholds for application of interest apportionment rules FE 5 FE 6 Apportionment of interest by excess debt entity FE 7 Apportionment of interest by reporting bank FE 8 Measurement dates Elections FE 9 FE 10 Currency FE 11 Temporary increases or decreases in value Calculations 1251 1252 1252 1253 1254 1256 1257 1258 1260 1263 1264 1265 1265 1266 FE 12 Calculation of debt percentages FE 13 Financial arrangements entered into with persons outside 1267 1269 group Debt percentage of New Zealand group FE 14 Consolidation of debts and assets FE 15 Total group debt FE 16 Total group assets Debt percentage of worldwide group FE 17 Consolidation of debts and assets FE 18 Measurement of debts and assets of worldwide group New Zealand banking group FE 19 Banking group’s equity threshold FE 20 Financial value and regulatory value FE 21 Banking group’s New Zealand net equity FE 22 Notional offshore investment FE 23 Banking group’s funding debt FE 24 Regulations 1270 1272 1274 1276 1276 1278 1279 1279 1285 1286 1287 53 Income Tax Act 2007 Reprinted as at 5 January 2010 Determining membership of groups New Zealand group FE 25 New Zealand group for excess debt entity that is a company FE 26 Identifying New Zealand parent FE 27 Establishing companies under parent’s control FE 28 Identifying members of New Zealand group FE 29 Combining New Zealand groups owned by natural
 persons and trustees 1288 1289 1292 1294 1295 FE 30 Ownership interests in companies outside New Zealand 1296 group Worldwide group FE 31 Worldwide group for corporate excess debt entity if not 1297 excess debt outbound company FE 31B Worldwide group for excess debt outbound companies FE 31C CFCs in worldwide group for natural persons or trustees described in section FE 2(1)(g) FE 32 Joint venture parties New Zealand banking group FE 33 New Zealand banking group FE 34 Identifying ultimate parent FE 35 Persons
 who may be excluded from banking groups FE 36 Identifying members of New Zealand banking group FE 37 Reporting bank for New Zealand banking group Measuring ownership interests in companies FE 38 Measuring ownership interests in companies FE 39 Direct ownership interests FE 40 Tiered ownership interests FE 41 Treatment of associated persons’ interests Subpart FF—Interest apportionment for conduit investment [Repealed] Introductory provisions [Repealed] FF 1 What this subpart does [Repealed] FF 2 When interest apportionment rule applies [Repealed] FF 3 Steps required to determine treatment of excessive interest expenditure [Repealed] 1299 1300 1300 1301 1302 1302 1303 1305 1306 1306 1307 1307 1308 1308 1308 54 Reprinted as at 5 January 2010 Income Tax Act 2007 Interest apportionment rule [Repealed] FF 4 Threshold for application of interest apportionment rule [Repealed] 1309 FF 5 Determination of excess amount of interest expenditure 1309 FF 6 FF 7 FF 8 FF 9 of group [Repealed] Conduit tax relief [Repealed] Surplus to foreign dividends [Repealed] Membership and debt percentages of foreign groups [Repealed] Identifying members of foreign groups [Repealed] Calculating debt percentage of New Zealand foreign groups [Repealed] FF 10 Calculating debt percentage of consolidated foreign groups [Repealed] FF 11 Changes in foreign group membership [Repealed] Subpart FL—Emigration of resident companies FL 1 What this subpart does FL 2 Treatment of emigrating companies and
 their shareholders Subpart FM—Consolidated groups of companies Introductory provisions FM 1 What this subpart applies to FM 2 Consolidation rules FM 3 Liability of consolidated groups and group companies FM 4 Limiting joint and several liability of group companies FM 5 Liability when company leaves consolidated group FM 6 Some general rules for treatment of consolidated groups Calculating taxable income for consolidated group returns Accounting generally FM 7 Treatment of amounts derived or expenditure
 incurred FM 8 Transactions between group companies: income FM 9 Amounts that are company’s income FM 10 Expenditure: intra-group transactions FM 11 Expenditure: nexus with income derivation FM 12 Expenditure when deduction would be denied to consolidated group FM 13 Capital expenditure FM 14 Part-year ﬁnancial statements 1309 1309 1310 1310 1310 1310 1310 1311 1312 1312 1313 1314 1315 1316 1318 1318 1319 1319 1320 1321 1321 1322 55 Income Tax Act 2007 Reprinted as at 5 January 2010 Accounting for particular property FM 15 Amortising property and revenue account property FM 16 Land or business: certain farming or forestry expenditure FM 17 Trading stock FM 18 Financial arrangements: transfer from company A to 1323 1325 1325 1326 company B FM 19 Financial arrangements: transfer for fair and reasonable 1327 consideration FM 20 Financial arrangements: transfer at market value FM 21 Property transfers when companies leave consolidated groups FM 22 Arrangements to avoid consolidation rules FM 23 Arrangements for disposal of shares Treatment of foreign dividends [Repealed] FM 24 General treatment of foreign dividends [Repealed] FM 25 Reduction in payments for foreign dividends [Repealed] FM 26 Using tax losses to pay FDP [Repealed] FM 27 Refunds of FDP FM 28 Refund when consolidated group has loss FM 29 Treatment of credit balance in consolidated group’s FDP account 1328 1328 1329 1329 1331 1331 1331 1331 1332 1333 FM 30 Application of certain provisions to consolidated
 groups 1334 Membership of consolidated groups Eligibility and restrictions FM 31 Eligibility rules FM 32 Restriction on membership of consolidated groups FM 33 When membership is reduced FM 34 Nominated companies Nominated companies Forming, joining, or leaving consolidated groups FM 35 Forming consolidated group FM 36 Joining existing consolidated group FM 37 Leaving consolidated group 1336 1337 1338 1338 1339 1340 1340 When membership starts and stops FM 38 Notice requirements on forming or joining
 consolidated 1340 group FM 39 Choosing to leave consolidated group 1342 56 Reprinted as at 5 January 2010 Income Tax Act 2007 FM 40 Losing eligibility or entitlement to be part of consolidated 1343 group FM 41 No nominated company FM 42 When company liquidated Subpart FN—Imputation groups of companies FN 1 When this subpart applies FN 2 Imputation rules FN 3 Liabilities of companies in imputation group FN 4 Eligibility rules FN 5 FN 6 Nominated companies FN 7 FN 8 Trans-Tasman imputation groups and resident imputation Imputation groups with reduced numbers Forming imputation groups subgroups Joining existing imputation group FN 9 FN 10 When membership of imputation group ends FN 11 Company choosing to leave imputation group FN 12 Company no longer eligible or entitled to membership FN 13 Imputation group with no nominated company FN 14 Effect of liquidation of company Subpart FO—Amalgamation of companies Introductory provisions FO 1 What this subpart does FO 2 Amalgamation rules FO 3 Resident’s restricted amalgamations FO 4 Rights and obligations of amalgamated companies FO 5 Amalgamations and remitted liabilities Treatment of shares, income, expenditure, and bad debts FO 6 Cancellation of shares FO 7 FO 8 Bad debts and expenditure or loss on resident’s restricted Income derived after amalgamation amalgamation FO 9 Unexpired portion of prepaid expenditure Property passing to amalgamated company on amalgamation FO 10 When property passes on resident’s restricted
 amalgamation FO 11 When property passes on amalgamation other than resident’s restricted amalgamation 1344 1344 1345 1345 1345 1346 1347 1348 1349 1349 1350 1351 1351 1352 1353 1353 1353 1353 1354 1355 1356 1356 1356 1357 1357 1358 1359 57 Income Tax Act 2007 Reprinted as at 5 January 2010 FO 12 Financial arrangements: resident’s restricted amalgamation, companies in wholly-owned group FO 13 Financial arrangements: resident’s restricted amalgamation, calculation method unchanged FO 14 Financial arrangements:
 resident’s restricted amalgamation, other cases FO 15 Financial arrangements: amalgamation other than resident’s restricted amalgamation FO 16 Amortising property FO 17 Land Treatment of ﬁnancial arrangements between amalgamating companies 1360 1361 1362 1362 1363 1364 FO 18 When amalgamating companies are parties to ﬁnancial 1365 arrangement FO 19 Calculation of outstanding accrued balance: consideration 1366 for discharge FO 20 Calculation of outstanding accrued balance: amounts 1367 remitted Subpart FZ—Terminating provisions Debentures FZ 1 Treatment of interest payable under debentures issued before certain date Leases Effect of speciﬁed lease on lessor and lessee Income of lessor under speciﬁed lease FZ 2 FZ 3 FZ 4 Deductions under speciﬁed leases FZ 5 Commercial bills Relationship property Estate property FZ 6 Transitional valuation rule for estate property Part G Avoidance and non-market transactions Subpart GA—Avoidance: general 1368 1369 1372 1373 1373 1374 GA 1 Commissioner’s power to adjust GA 2 Commissioner’s power to adjust: fringe beneﬁt tax 1375 1376 58 Reprinted as at 5 January 2010 Income Tax Act 2007 Subpart GB—Avoidance: speciﬁc Arrangements involving dividend stripping GB 1 Arrangements involving dividend stripping Arrangements involving transfer pricing GB 2 Arrangements involving transfer pricing Arrangements involving tax losses GB 3 Arrangements for carrying forward loss balances: companies GB 4 Arrangements for grouping tax losses:
 companies Arrangements to defeat continuity provisions GB 5 Arrangements involving trust beneﬁciaries Arrangements involving qualifying companies GB 6 Arrangements involving qualifying companies Arrangements involving controlled foreign companies GB 7 Arrangements involving CFC control interests GB 8 Arrangements involving attributed repatriation from CFCs GB 9 Temporary disposals of direct control or income interests GB 10 Temporary acquisitions of direct control or income interests GB 11 Temporary increases in
 totals for control interest categories GB 12 Temporary reductions in totals for control interest categories GB 13 When combination of changes reduces income GB 14 When combination of changes increases loss GB 15 CFC income or loss: arrangements related to quarterly measurement 1377 1378 1378 1379 1380 1380 1381 1381 1382 1383 1384 1385 1386 1387 1388 GB 15B Supplies affecting default test for non-attributing active 1388 CFC GB 15C Arrangements related to accounting test for 1389 non-attributing active CFC Arrangements involving foreign investment funds GB 16 FIF income or loss: arrangements for measurement day 1390 concessions 59 Income Tax Act 2007 Reprinted as at 5 January 2010 Arrangements involving ﬁlm rights GB 17 Excessive amounts for ﬁlm rights or production 1390 expenditure GB 18 Arrangements to acquire ﬁlm rights or incur production 1391 expenditure GB 19 When ﬁlm production expenditure payments delayed or 1392 contingent Arrangements involving petroleum mining GB 20 Arrangements involving petroleum mining 1392 Arrangements involving ﬁnancial arrangements GB 21 Dealing that defeats intention of ﬁnancial arrangements 1395 rules Arrangements involving trust beneﬁciary income GB 22 Arrangements involving trust beneﬁciary income Excessive remuneration GB 23 Excessive remuneration to relatives GB 24 Exemption for genuine contracts GB 25 Close company remuneration to shareholders, directors, or relatives 1395 1396 1397 1398 Arrangements involving repatriation
 of commercial bills GB 26 Arrangements involving repatriation of commercial bills 1399 Attribution rule for income from personal services GB 27 Attribution rule for income from personal services GB 28 Interpretation of terms used in section GB 27 GB 29 Attribution rule: calculation 1400 1404 1406 Arrangements involving restrictive covenants GB 30 Arrangements to avoid taxation of restrictive covenant 1408 payments Arrangements involving fringe beneﬁt tax GB 31 FBT arrangements: general GB 32 Beneﬁts
 provided to employee’s associates Arrangements involving depreciation loss GB 33 Arrangements involving depreciation loss 1409 1410 1411 60 Reprinted as at 5 January 2010 Income Tax Act 2007 Arrangements involving imputation rules GB 34 ICA arrangements for carrying amounts forward GB 35 Imputation arrangements to obtain tax advantage GB 36 Reconstruction of imputation arrangements to obtain tax advantage GB 37 Arrangements for payment of dividend by other companies GB 38 When sections GB 35 to GB 37 apply to consolidated groups Arrangements involving foreign dividends GB 39 FDP arrangements: general [Repealed] GB 40 BETA arrangements for carrying amounts forward GB 41 FDPA arrangements for carrying amounts forward 1411 1412 1413 1415 1416 1416 1416 1417 Arrangements involving Maori authority credits GB 42 Maori authority credit arrangements to obtain tax 1418 advantage GB 43 Reconstruction of Maori authority credit arrangements to 1419 obtain tax advantage Arrangements involving tax credits for families GB 44 Arrangements involving tax credits for families Arrangements involving money not at risk GB 45 Arrangements involving money not at risk GB 46 Deferral of surplus deductions from arrangements GB 47 Calculation rules for sections GB 45 and GB 46 GB 48 Deﬁned terms for sections GB 45 and GB 46 Arrangements involving returning share transfers GB 49 Arrangements involving returning share transfers Arrangements involving partners GB 50 Arrangements involving
 partners Subpart GC—Market value substituted Disposals of trading stock or similar property GC 1 Disposals of trading stock at below market value GC 2 Disposals of timber rights or standing timber GC 3 Disposals by life insurers GC 4 Disposals and acquisitions of FIF attributing interests GC 4B Disposals of ETS units at below market value [Repealed] 1420 1421 1422 1425 1425 1427 1428 1428 1429 1430 1430 1431 61 Income Tax Act 2007 Reprinted as at 5 January 2010 GC 5 Leases for inadequate rent Leases Transfer
 pricing arrangements GC 6 Purpose of rules and nature of arrangements GC 7 Excess amount payable by person GC 8 GC 9 Compensating arrangement: person paying less than Insufﬁcient amount receivable by person arm’s length amount 1431 1432 1434 1434 1435 GC 10 Compensating arrangement: person receiving more than 1436 arm’s length amount GC 11 Requests for matching treatment GC 12 Effect on person’s withholding obligations GC 13 Calculation of arm’s length amounts GC 14 Deﬁnitions for sections GC 6 to GC 13 Subpart GZ—Terminating provisions GZ 1 Limitation on section GB 20: petroleum mining arrangements 1437 1438 1439 1440 1440 GZ 2 Arrangements involving cancellation of conduit tax relief 1441 credits Part H Taxation of certain entities Subpart HA—Qualifying companies (QC) and loss-attributing qualifying companies (LAQC) Introductory provisions HA 1 What this subpart does HA 2 Meaning of qualifying company HA 3 Meaning of loss-attributing qualifying company HA 4 Conditions applying Qualifying company status HA 5 Elections to become qualifying company HA 6 Corporate requirements HA 7 Shareholding requirements HA 8 Shareholders’ personal liability HA 8B No CFC income interests or FIF direct income interests of 10% or more HA 9 Limit on foreign non-dividend income HA 10 Nature of LAQC shares HA 11 When requirements no longer met 1441 1442 1443 1443 1443 1444 1445 1446 1447 1447 1448 1448 62 Reprinted as at 5 January 2010 Income Tax Act 2007 HA 12 Avoidance arrangements
 Treatment of proﬁts, dividends, and tax losses HA 13 Qualifying companies’ distributions HA 14 Dividends paid by qualifying companies HA 15 Fully imputed distributions HA 16 Dividends paid by qualifying companies to trustee shareholders HA 17 Dividends derived by qualifying companies HA 18 Treatment of dividends when qualifying company status ends HA 19 Credit accounts and dividend statements HA 20 Attribution of tax losses HA 21 Loss balances not carried forward HA 22 Group companies using tax losses HA
 23 Treatment of tax losses on amalgamation Special tax matters for loss-attributing qualifying companies HA 24 Treatment of tax losses other than certain foreign losses HA 25 Treatment of certain foreign losses HA 26 Attribution when balance dates differ HA 27 Attribution when loss results in reduction in value of shares Elections: qualifying companies HA 28 Elections by trustee shareholders HA 29 Elections by majority shareholders HA 30 When elections take effect HA 31 Revocation of directors’ elections HA 32 Revocation of shareholders’ elections: by notice HA 33 Revocation of shareholders’ elections: by event HA 34 Period of grace following death of shareholder HA 35 Period of grace following revocation of election HA 36 Period of grace following revocation of joint election HA 37 Period of grace for new shareholder Elections: loss-attributing qualifying companies HA 38 Elections by directors and shareholders required HA 39 Revocation of elections Qualifying company election tax HA 40 Liability for qualifying company election tax Income Tax Act 2007 Reprinted as at 5 January 2010 HA 41 Calculating qualifying company election tax HA 42 Paying qualifying company election tax Effective interests in qualifying companies HA 43 Meaning of effective interest HA 44 Measuring effective interests Subpart HC—Trusts
 Introductory provisions HC 1 What this subpart does HC 2 Obligations of joint trustees for calculating income and providing returns HC 3 Multiple settlements HC 4 Corpus of trust Trust income HC 5 Amounts derived by trustees HC 6 Beneﬁciary income HC 7 Trustee income HC 8 Amounts received after person’s death Classiﬁcation of trusts HC 9 Classifying trusts HC 10 Complying trusts HC 11 Foreign trusts HC 12 Non-complying trusts HC 13 Charitable trusts Distributions from trusts HC 14 Distributions from trusts HC 15
 Taxable distributions from non-complying and foreign trusts 1469 1471 1472 1472 1474 1475 1476 1476 1477 1477 1479 1479 1480 1480 1481 1482 1482 1482 1483 HC 16 Ordering rule for distributions from non-complying and 1485 foreign trusts Tax treatment of amounts that beneﬁciaries derive from trusts HC 17 Amounts derived as beneﬁciary income HC 18 Taxable distributions from foreign trusts HC 19 Taxable distributions from non-complying trusts HC 20 Distributions from complying trusts HC 21 Distributions from community trusts 1487 1488 1488 1488 1488 64 Reprinted as at 5 January 2010 Income Tax Act 2007 HC 22 Use of tax losses to reduce taxable distributions from non-complying trusts HC 23 Temporary absences of beneﬁciaries Tax treatment of trustee income HC 24 Trustees’ obligations HC 25 Foreign-sourced amounts: non-resident trustees HC 26 Foreign-sourced amounts: resident trustees Settlors and their liabilities HC 27 Who is a settlor?
HC 28 Activities treated as those of settlor HC 29 Settlors’ liability to income tax Treatment of transition situations 1489 1490 1491 1492 1493 1494 1496 1497 HC 30 Treatment of foreign trusts when settlor becomes resident 1499 Valuation of property, trading stock, and ﬁnancial arrangements HC 31 When existing trusts come into tax base Rate and payment of income tax HC 32 Liability of trustee as agent HC 33 Choosing to satisfy income tax liability of trustee HC 34 Taxable distributions from non-complying trusts HC 35 Beneﬁciary income of minors HC 36 Trusts and minor beneﬁciary rule HC 37 Testamentary trusts and minor beneﬁciary rule Subpart HD—Agents Introductory provisions Joint liability of principal and agent for tax obligations HD 1 What this subpart does HD 2 HD 3 Agents’ duties and liabilities HD 4 Treatment of principals HD 5 Matters between principals and agents HD 6 When relationship effectively that of principal and agent HD 7 Rate and amount of tax Particular cases HD 8 Circumstances giving rise to agency HD 9 Guardians HD 10 Mortgagees in possession HD 11 Nominated companies 1500 1502 1503 1503 1504 1505 1507 1508 1508 1509 1509 1510 1511 1511 1511 1511 1512 1512 65 Income Tax Act 2007 Reprinted as at 5 January 2010 HD 12 Trusts HD 13 Unit trusts HD 14 Companies issuing debentures HD 15 Asset stripping of companies HD 16 Non-resident general insurers HD 17 Agent paying premiums to residents of Switzerland Absentees HD 18 Agency in relation to absentees generally HD 19 Persons receiving absentees’
 income HD 20 Persons carrying on business for absentees HD 20B General partners and partners carrying on with or managing business involving absentees HD 21 Companies HD 22 Banking companies HD 23 Trustees of group investment funds HD 24 Shipping businesses HD 25 Persons remitting amounts outside New Zealand Non-residents HD 26 Agency in relation to non-residents generally HD 27 Employers HD 28 Government pensions and payments under superannuation schemes HD 29 Persons buying goods from overseas Subpart HE—Mutual associations Income and deductions of mutual associations HE 1 HE 2 Classes of mutual transaction HE 3 Association rebates HE 4 Apportionment when transactions with members and non-members HE 5 Association rebates paid by shares or credit Subpart HF—Maori authorities Introductory provisions HF 1 Maori authorities and the Maori authority rules HF 2 Who is eligible to be a Maori authority?
HF 3 Applying provisions to Maori authorities Maori authority distributions HF 4 What constitutes a Maori authority distribution?
HF 5 Notional distributions of co-operative companies Reprinted as at 5 January 2010 Income Tax Act 2007 HF 6 Tax treatment of Maori authority distributions HF 7 Taxable Maori authority distributions HF 8 Proportional allocation 1532 1532 1533 HF 9 Treatment of companies and trusts that choose to apply 1535 Changing status this subpart HF 10 Market value calculations HF 11 Choosing to become Maori authority Subpart HG—Joint venturers, partners, and partnerships Joint venturers HG 1 Joint venturers Partners and partnerships HG 2 Partnerships are transparent HG 3 General provisions relating to disposals HG 4 Disposal upon ﬁnal dissolution HG 5 Disposal of partner’s interests HG 6 Disposal of trading stock HG 7 Disposal of depreciable property HG 8 Disposal of ﬁnancial arrangements and certain excepted ﬁnancial arrangements HG 9 Disposal of short-term agreements for sale and purchase HG 10 Disposal of livestock HG 11 Limitation on deductions by partners in limited partnerships HG 12 Limitation on deductions by partners in limited partnerships: carry-forward Subpart HL—Portfolio investment entities Introductory provisions 1536 1536 1537 1538 1539 1540 1541 1544 1545 1546 1547 1549 1550 1553 HL 1 HL 2 Intended effect on portfolio tax rate entities and investors Scheme of subpart 1554 1555 Eligibility requirements: portfolio investment entities and foreign investment
 vehicles HL 3 Eligibility requirements for entities HL 4 Effect of failure to meet eligibility requirements for entities Foreign investment vehicles HL 5 HL 5B Meaning of investor and portfolio investor class HL 5C Income interest requirement 1559 1561 1563 1563 1565 67 Income Tax Act 2007 Reprinted as at 5 January 2010 HL 6 HL 7 HL 8 Investor membership requirement Investor return adjustment requirement: portfolio tax rate entity Imputation credit distribution requirement: portfolio listed company Investor
 interest size requirement HL 9 HL 10 Further eligibility requirements relating to investments 1566 1569 1571 1571 1575 Becoming and ceasing to be portfolio investment entity HL 11 Election to become portfolio investment entity and 1578 cancellation of election HL 12 Unlisted company choosing to become portfolio listed 1579 company HL 13 Becoming portfolio investment entity HL 14 Tax consequences from transition HL 15 Ceasing to be portfolio investment entity 1580 1582 1583 Periods relevant to calculation of portfolio entity tax liability HL 16 Portfolio allocation period and portfolio calculation 1584 period Allocation of income in some cases HL 17 Treatment of income from interest when entitlement 1586 conditional or lacking HL 18 Certain new investors treated as part of existing portfolio 1587 investor class Calculating portfolio entity tax liability HL 19 Portfolio class net income and portfolio class net loss for 1588 portfolio allocation period HL 20 Portfolio class taxable income and portfolio class taxable 1589 loss for portfolio allocation period HL 21 Portfolio entity tax liability and tax credits of portfolio tax 1590 rate entity for period Payment by portfolio tax rate entity of tax for tax year HL 22 Payments of tax by portfolio tax rate entity making no 1592 election HL 23 Payments of tax by portfolio tax rate entity choosing to 1593 pay provisional tax HL 24 Payments of tax by portfolio tax rate entity choosing to 1594 make payments when investor
 leaves 68 Reprinted as at 5 January 2010 Income Tax Act 2007 HL 25 Optional payments of tax by portfolio tax rate entities 1596 Results for investors HL 26 Portfolio investor allocated income and portfolio investor 1597 allocated loss HL 27 Treatment of portfolio investor allocated loss for 1599 zero-rated portfolio investors and investors with portfolio investor exit period Tax credits for entity HL 28 Treatment of portfolio investor allocated loss for other 1600 investors HL 29 Credits received by portfolio
 tax rate entity or portfolio 1600 investor proxy Treatment of losses for entity HL 30 Portfolio entity formation loss HL 31 Portfolio class taxable income and portfolio class taxable loss for tax year HL 32 Treatment of portfolio class taxable loss and portfolio class land loss for tax year HL 33 Portfolio investor proxies Portfolio investor proxies Subpart HR—Other entities Partnerships and joint ventures HR 1 Partnerships and joint ventures [Repealed] Funds HR 2 Group investment funds HR 3 Deﬁnitions for section HR 2: group investment funds HR 4 Government Superannuation Fund Airport operators HR 5 Airport operators: general HR 6 Airport operator’s assets HR 7 Meaning of airport operator’s activities Transitional residents HR 8 Transitional residents RMBS special purpose vehicles HR 9 RMBS special purpose vehicles are transparent 1605 1607 1608 1609 1611 1611 1612 1615 1615 1616 1618 1618 1621 69 Income Tax Act 2007 Reprinted as at 5 January 2010 HR 10 What happens when vehicle stops being RMBS special 1622 purpose vehicle?
Subpart HZ—Terminating provisions HZ 1 Distributions from trusts of pre-1989 tax reserves HZ 2 Trusts that may become complying trusts HZ 3 Special partnerships: transition into limited partnerships and limited partnerships deduction rules HZ 4 Overseas limited partnerships: transition into limited partnerships deduction rules Saving of binding rulings relating to settlements on trusts HZ 7 Part I Treatment of tax losses Subpart IA—General rules for tax losses Tax losses IA 1 What this subpart does IA 2 IA 3 Using tax losses in tax year IA 4 Using loss balances carried forward to tax year IA 5 IA 6 IA 7 IA 8 IA 9 Ordering rules IA 10 Amended assessments Restrictions on companies’ loss balances carried forward Restrictions on companies grouping tax losses Restrictions relating to ring-fenced tax losses Restrictions relating to schedular income Subpart IC—Grouping tax losses Introductory provisions IC 1 IC 2 IC 3 IC 4 Company A making tax loss available to company B Threshold levels for grouping tax losses in tax year Common ownership: group of companies Common ownership: wholly-owned groups of companies Requirements and methods Company B using company A’s tax loss IC 5 Common ownership for period IC 6 Residence of company A IC 7 Limitations on amounts used IC 8 IC 9 Date for payment and notice to Commissioner IC 10 When companies have different balance dates IC 11 Reduction of amounts used by companies IC 12 Bad debts or decline in value of shares 70 1623 1624 1625 1626 1626 1628 1628 1632 1633 1633 1635 1635
 1638 1639 1639 1640 1641 1641 1643 1643 1645 1645 1646 1647 1647 1648 1649 Reprinted as at 5 January 2010 Income Tax Act 2007 IC 13 Variation of requirements for development companies in 1650 Niue Subpart ID—Use of tax losses by consolidated groups ID 1 ID 2 ID 3 ID 4 ID 5 Treatment of tax losses by consolidated groups Pre-consolidation losses: general treatment Pre-consolidation losses: use by group companies Pre-consolidation losses on entry: part-year rule Pre-consolidation losses on exit: part-year rule
 Subpart IE—Treatment of tax losses on amalgamation of companies IE 1 When this subpart applies IE 2 IE 3 IE 4 Treatment of tax losses by amalgamating company Treatment of tax losses by amalgamated company Group companies’ treatment of tax losses on amalgamation Applying the continuity provisions when companies amalgamate IE 5 Subpart IP—Meeting requirements for part-years Introductory provisions IP 1 When this subpart applies IP 2 Group companies’ common span Tax loss components carried forward IP 3 Continuity breach: tax loss components of companies carried forward Grouping part-year tax losses 1651 1651 1652 1653 1655 1655 1656 1657 1658 1658 1659 1660 1660 IP 4 IP 5 Breach in income year in which tax loss component arises Breach in tax year in which loss balance is grouped 1662 1663 Statements and notices IP 6 IP 7 Financial statements required Notices required 1663 1664 Subpart IQ—Attributed controlled foreign company net losses and foreign investment fund net losses IQ 1 General treatment IQ 1B Losses carried forward to tax year IQ 2 IQ 2B Attributed CFC net loss from tax year before ﬁrst affected Ring-fencing cap on attributed CFC net losses 1665 1666 1666 1668 year 71 Income Tax Act 2007 Reprinted as at 5 January 2010 Ring-fencing cap on FIF net losses IQ 3 IQ 4 Group companies using attributed CFC net losses IQ 5 Group companies using FIF net losses IQ 6 IQ 7 When group membership lacking in loss period IQ 8 When group membership lacking in tax year of
 use IQ 9 When attributed CFC net loss becomes FIF net loss Pre-consolidation losses: general treatment Subpart IS—Mining companies’ and petroleum miners’ tax losses General treatment of mining companies’ net losses Treatment of net losses resulting from certain expenditure Holding companies’ tax losses Adjustments in certain circumstances Petroleum miners’ tax losses IS 1 IS 2 IS 3 IS 4 IS 5 IS 6 When company stops being mining company Subpart IT—Life insurers’ net losses IT 1 Life insurers’ policyholder net
 losses Subpart IV—Treatment of certain supplementary dividends IV 1 Supplementary dividend holding companies Subpart IW—Use of tax losses to pay shortfall penalties IW 1 Shortfall penalties Subpart IZ—Terminating provisions IZ 1 IZ 2 IZ 3 IZ 4 IZ 5 IZ 6 IZ 7 Use of speciﬁed activity net losses Petroleum mining companies: treatment of payments from shareholders Petroleum mining companies: use of loss balances Tax losses for tax years before 1977–78 tax year Companies’ tax losses for tax years before 1991–92 tax year Companies’ tax losses for 1990–91 and 1991–92 tax years Grouping tax losses for tax years before 1981–82 and between 1981–82 and 1991–92 Part L Tax credits and other credits Subpart LA—General rules for tax credits LA 1 What this Part does 72 1674 1675 1677 1678 1679 1681 1682 1682 1683 1685 1686 1687 1688 1688 1690 1691 1692 1697 1698 1700 1700 1701 1702 1703 Reprinted as at 5 January 2010 Income Tax Act 2007 Satisfaction of income tax liability LA 2 LA 3 When total tax credit less than or equal to income tax liability LA 4 When total tax credit more than income tax liability LA 5 Treatment of remaining credits LA 6 Remaining refundable credits: PAYE, RWT, and certain other items 1703 1704 1704 1705 1705 LA 7 Remaining refundable credits: tax credits under social 1707 policy schemes LA 8 Remaining refundable credits: non-resident withholding 1707 tax LA 9 Use of tax credits LA 10 Meaning of tax credit Subpart LB—Tax credits for payments, deductions,
 and family payments LB 1 Tax credits for PAYE income payments LB 2 Tax credits for provisional tax payments LB 3 Tax credits for resident withholding tax LB 4 Tax credits for families LB 5 Tax credits for non-resident withholding tax LB 6 Tax credits for RSCT LB 7 Tax credits related to personal service rehabilitation payments: providers LB 8 Tax credits related to personal service rehabilitation payments: payers Subpart LC—Tax credits for natural persons Tax credits for persons on low incomes [Repealed]
 1708 1708 1708 1709 1710 1710 1712 1712 1713 1714 LC 1 When net income under low income amount [Repealed] LC 2 When net income in low income abatement 1716 1716 range [Repealed] LC 3 Child’s income Tax credits for children Tax credits for transitional circumstances LC 4 Tax credits for transitional circumstances LC 5 Meaning of engaged in full-time work Tax credits for housekeeping LC 6 Tax credits for housekeeping 1716 1717 1719 1721 73 Income Tax Act 2007 Reprinted as at 5 January 2010 LC 7 Meaning of housekeeper Some deﬁnitions LC 8 LC 9 Tax credits for absentees Tax credits for absentees Adjustments to certain tax credits LC 10 Adjustment for change in return date LC 11 Adjustment when person is non-resident for part of tax year LC 12 Assessment when person is non-resident Tax credits for independent earners LC 13 Tax credits for independent earners Subpart LD—Tax credits for charitable or other public beneﬁt gifts LD 1 Tax credits for charitable or other public beneﬁt gifts LD 2 Exclusions LD 3 Meaning of charitable or other public beneﬁt gift Subpart LE—Tax credits for imputation credits Partners in partnerships Trustees for minor beneﬁciaries Tax credits for imputation credits LE 1 LE 2 Use of remaining credits by companies and trustees LE 3 Use of remaining credits by others LE 4 LE 5 Beneﬁciaries of trusts LE 6 LE 7 Credit transfer notices LE 7B Credit of RSCT for imputation credit LE 8 Application of imputation ratio LE 9 Application of combined
 imputation and FDP ratio LE 10 When income tax unpaid LE 11 Evidential requirements Subpart LF—Tax credits for foreign dividend payment (FDP) credits Tax credits for FDP credits Trustees for minor beneﬁciaries Beneﬁciaries of trusts Partners in partnerships Credit transfer notices LF 1 LF 2 LF 3 LF 4 LF 5 LF 6 Application of FDP ratio LF 7 Application of combined imputation and FDP ratio 74 1722 1723 1724 1725 1725 1726 1727 1729 1730 1730 1731 1733 1734 1735 1735 1736 1737 1737 1738 1738 1739 1740 1740 1741
 1741 1742 1743 1743 1744 Reprinted as at 5 January 2010 Income Tax Act 2007 LF 8 Credits for persons who are non-resident or who receive exempt income LF 9 When income tax unpaid LF 10 Evidential requirements Subpart LH—Tax credits for expenditure on research and development LH 1 Who this subpart applies to [Repealed] LH 2 Tax credits relating to expenditure on research and development [Repealed] LH 3 Requirements [Repealed] LH 4 Calculation of amount of credit [Repealed] LH 5 Adjustments to eligible expenditure [Repealed] LH 6 Research and development activities outside New Zealand [Repealed] LH 7 Research and development activities and related terms LH 8 Orders in Council [Repealed] LH 9 LH 10 Internal software development: no associated internal Internal software development: general [Repealed] software developer [Repealed] LH 11 Internal software development: associated internal software developer with same income year [Repealed] LH 12 Internal software development: associated internal software developer with different income year [Repealed] LH 13 Internal software development: limit [Repealed] LH 14 Treatment of depreciation loss for certain depreciable property [Repealed] LH 14B Recovery of overpaid tax credit LH 15 Listed research providers [Repealed] LH 16 Industry research co-operatives [Repealed] LH 17 Some deﬁnitions Subpart LJ—Tax credits for foreign income tax Tax credits for foreign income tax LJ 1 What this subpart does LJ 2 LJ 3 Meaning of
 foreign income tax LJ 4 Meaning of segment of foreign-sourced income LJ 5 LJ 6 LJ 7 LJ 8 Calculation of New Zealand tax Taxable distributions and NRWT rules Repaid foreign tax: effect on income tax liability Repaid foreign tax: effect on FDP liability Income Tax Act 2007 Reprinted as at 5 January 2010 Subpart LK—Tax credits relating to attributed controlled foreign
 company income Amounts of credits LK 1 Tax credits relating to attributed CFC income LK 2 Calculation of amount of credit LK 3 Currency conversion Use of credits in later tax years LK 4 Use of remaining credits LK 5 Companies’ credits carried forward LK 5B Credits from tax year before ﬁrst affected year LK 6 Use of credits by group companies Treatment of taxable distributions LK 7 Taxable distributions and NRWT rules Consolidated companies LK 8 Tax credits of consolidated companies LK 9 Use of company’s credits carried forward LK 10 When group membership lacking in tax year in which credit arises 1764 1768 1769 1769 1769 1770 1773 1775 1776 1776 1777 LK 11 When group membership lacking in tax year in which 1778 credit used Amalgamations of companies LK 12 Treatment of credits when companies amalgamate LK 13 Use of credits by amalgamated company LK 14 Use by amalgamated company of credits carried forward LK 15 Use of amalgamating company’s credits Subpart LL—Underlying foreign tax credits (UFTC) [Repealed] LL 1 What this subpart does [Repealed] LL 2 LL 3 Meaning of grey list dividend [Repealed] LL 4 LL 5 Meaning of foreign dividend company net Tax credits for underlying foreign tax [Repealed] Tracking accounts [Repealed] earnings [Repealed] Foreign dividend company lower tier UFTCs [Repealed] LL 6 LL 7 Conduit ﬁnancing arrangements [Repealed] LL 8 Currency conversion [Repealed] LL 9 Some deﬁnitions [Repealed] 1779 1779 1780 1781 1781 1781 1781 1782 1782 1782 1782
 1782 1782 76 Reprinted as at 5 January 2010 Income Tax Act 2007 Subpart LO—Tax credits for Maori authority credits LO 1 Tax credits for Maori authority credits LO 2 Beneﬁciaries of trusts LO 2B Credit of RSCT for Maori authority credit LO 3 Application of Maori authority distribution ratio LO 4 When income tax unpaid LO 5 Evidential requirements Subpart LP—Tax credits for supplementary dividends Introductory provision LP 1 What this subpart does Use of credits Tax credits for supplementary dividends LP 2
 LP 3 Use of remaining credits LP 4 LP 5 Application of benchmark dividend rules and imputation Continuity rules for carrying credits forward 1783 1783 1784 1784 1785 1786 1786 1786 1788 1789 1790 credit ratio LP 6 Deriving supplementary dividend and breach of terms of 1791 trust Supplementary dividend holding companies LP 7 Requirements for supplementary dividend holding companies Relationship with exempt income rules Relationship with RWT rules LP 8 LP 9 LP 10 Limitation on deductions Subpart LQ—Tax credits of conduit tax relief companies LQ 1 Tax credits of CTR companies [Repealed] LQ 2 Limitation on amount of credit [Repealed] LQ 3 Determining percentage of non-resident shareholders [Repealed] LQ 4 Date for determining percentage of non-resident shareholders [Repealed] LQ 5 CTR additional dividends Subpart LR—Tax credits for policyholder income LR 1 Tax credits for policyholder income 1791 1792 1793 1793 1795 1795 1795 1795 1795 1796 77 Income Tax Act 2007 Reprinted as at 5 January 2010 Subpart LS—Tax credits for portfolio tax rate entities and investors LS 1 LS 2 LS 3 LS 4 Tax credits for portfolio tax rate entities relating to certain investors Tax credits for certain investors in portfolio tax rate entities Tax credits for certain zero-rated portfolio investors Tax credits for certain investors in portfolio investor exit period Subpart LZ—Terminating provisions Underlying foreign tax credits LZ 1 Low tax jurisdiction companies Credits for certain non-resident
 investment companies Interest derived from development investments LZ 2 Certain development projects LZ 3 LZ 4 Dividends derived from development investments LZ 5 Some deﬁnitions Credits for interest on home vendor mortgages Interest on home vendor mortgages LZ 6 LZ 7 Maximum amount of credit under section LZ 6 LZ 8 Meaning of home vendor mortgage Credits for savings in special home ownership accounts Savings in special home ownership accounts LZ 9 LZ 10 Maximum amount for 1 special home ownership account
 for 1 tax year LZ 11 Maximum amount for all special home ownership accounts for all tax years LZ 12 Meaning of increase in savings Part M Tax credits paid in cash Subpart MA—General provisions MA 1 What this Part does MA 2 Relationship with core provisions MA 3 Excluded income MA 4 Calculation of amounts of credit producing negative amounts MA 5 Advice from outside agencies MA 6 Avoidance arrangements 78 1797 1798 1798 1799 1799 1800 1801 1802 1802 1803 1803 1804 1805 1805 1805 1806 1806 1807 1807 1807 1807 1808 Reprinted as at 5 January 2010 Income Tax Act 2007 MA 7 Meaning of full-time earner for family scheme MA 8 Some deﬁnitions for family scheme Subpart MB—Adjustment of net income for family scheme MB 1 Adjustments for calculation of family scheme income MB 2 Adjustment for period that is less or more than 1 year MB 3 When person carries on 1 or more businesses MB 4 Family scheme income of major shareholders in close companies MB 5 Treatment of distributions from superannuation schemes MB 6 Treatment of distributions from retirement savings schemes Subpart MC—Entitlements under family scheme MC 1 What this subpart does MC 2 Who qualiﬁes for entitlements under family scheme?
MC 3 First requirement: person’s age MC 4 Second requirement: principal care MC 5 Third requirement: residence MC 6 When person does not qualify MC 7 When spouse or partner entitled under family scheme MC 8 Continuing requirements MC 9 Credits for person aged 18 MC 10 Principal caregiver MC 11 Relationship periods and entitlement periods Subpart MD—Abating WFF tax credits Calculating amount of credit MD 1 Abating WFF tax credit MD 2 Calculating net contributions to credits MD 3 Calculation of family tax credit Family tax credit In-work tax credit MD 4 Entitlement to in-work tax credit MD 5 First requirement: person’s age MD 6 Second requirement: principal care MD 7 Third requirement: residence MD 8 Fourth requirement: person not receiving beneﬁt MD 9 Fifth requirement: full-time earner MD 10 Calculation of in-work tax credit Income Tax Act 2007 Parental tax credit Reprinted as at 5 January 2010 MD 11 Entitlement to parental tax credit MD 12 Calculation of parental tax credit Credit abatement MD 13 Calculation of family credit abatement MD 14 Person receiving protected family tax credit MD 15 Family scheme income for purposes of section MD 14 MD 16 Calculation of parental tax credit abatement Subpart ME—Minimum family tax credit ME 1 Minimum family tax credit ME 2 Meaning of employment for this subpart ME 3 Meaning of net family scheme income Subpart MF—Payment of
 credits MF 1 Application for payment of tax credit by instalment MF 2 When person not entitled to payment by instalment MF 3 Calculating amount of interim WFF tax credit MF 4 Requirements for calculating instalment of tax credit MF 4B Calculation of instalments: 1 April 2008 to 30 September 2008 1843 1845 1845 1847 1848 1849 1849 1851 1852 1854 1854 1855 1856 1857 MF 4C Calculation of instalments: 1 October 2008 to 31 March 1860 2009 MF 5 Recovery of overpaid tax credit MF 6 Overpayment or underpayment of tax
 credit MF 7 Orders in Council Subpart MK—Tax credits for KiwiSaver schemes and complying superannuation funds MK 1 Tax credits for superannuation contributions Tax credits for fund providers MK 2 Eligibility requirements MK 3 Payment of tax credits MK 4 Amount of tax credit MK 5 Crown contributions for members MK 6 Credit given by fund providers MK 7 Amounts paid in excess MK 8 Treatment of tax credits on permanent emigration Tax credits for employers [Repealed] MK 9 Eligibility requirements [Repealed] 80 1863 1864 1865 1867 1868 1870 1871 1872 1872 1873 1873 1874 Reprinted as at 5 January 2010 Income Tax Act 2007 MK 10 Amount of credit [Repealed] MK 11 When tax credits arise [Repealed] MK 12 Using tax credits [Repealed] MK 13 When short payment and unpaid compulsory employer contributions found after tax credit used [Repealed] MK 14 Employees opting out [Repealed] MK 15 Groups of persons MK 16 Private domestic workers Subpart ML—Tax credits for redundancy payments ML 1 What this subpart does ML 2 Tax credit for redundancy payments ML 3 Payment by Commissioner Subpart MZ—Terminating provisions MZ 1 Entitlement to child tax credit MZ 2 Calculation of child tax credit MZ 3 Exclusions from determination of family scheme income Part O Memorandum accounts Subpart OA—General provisions Introductory provisions OA 1 What this Part does OA 2 Memorandum accounts OA 3 General rules for maintaining memorandum accounts OA 4 Certain credits and debits arising only in group
 accounts OA 5 Credits OA 6 Debits Credits and debits Opening balances OA 7 Opening balances of memorandum accounts Shareholder continuity requirements 1874 1874 1874 1875 1875 1875 1875 1876 1877 1877 1878 1878 1879 1880 1880 1881 1882 1882 1884 1886 OA 8 Shareholder continuity requirements for memorandum 1888 accounts 81 Income Tax Act 2007 Reprinted as at 5 January 2010 Treatment of credits and debits on resident’s restricted amalgamation General provision OA 9 General treatment of credits and debits on
 resident’s 1890 restricted amalgamation When companies amalgamate OA 10 When credits or debits due to amalgamating company but 1892 not recorded OA 11 FDP account on resident’s restricted amalgamation OA 12 CTR account on resident’s restricted amalgamation [Repealed] OA 13 Policyholder credit account on resident’s restricted 1893 1894 1894 amalgamation Amalgamation of companies in consolidated groups OA 14 Continuity of shareholding when group companies 1895 amalgamate OA 15 When credits or debits due to consolidated group but not 1896 recorded OA 16 When FDP account ends on resident’s restricted amalgamation OA 17 When policyholder credit account ends on resident’s restricted amalgamation OA 18 Calculation of maximum permitted ratios Maximum permitted ratios Subpart OB—Imputation credit accounts (ICA) Introductory provisions OB 1 General rules for companies with imputation credit accounts OB 2 Australian companies with imputation credit accounts OB 3 Imputation credit accounts Imputation credits ICA payment of tax ICA deposit in tax pooling account ICA transfer from tax pooling account ICA payment of further income tax OB 4 OB 5 OB 6 OB 7 OB 7B ICA payment of qualifying company election tax OB 7C ICA expenditure on research and development ICA resident withholding tax withheld OB 8 82 1897 1898 1899 1900 1902 1904 1905 1906 1907 1907 1908 1908 1909 Reprinted as at 5 January 2010 Income Tax Act 2007 ICA dividend derived with imputation credit OB 9 OB 9B ICA
 company allocated imputation credit with income from PTRE OB 10 ICA dividend derived with FDP credit OB 11 ICA payment of FDP [Repealed] OB 12 ICA transfer from FDP account OB 13 ICA transfer of debit balance on leaving wholly-owned group OB 14 ICA payment of tax on leaving wholly-owned group OB 15 ICA payment of tax on joining wholly-owned group OB 16 ICA attribution for personal services OB 17 ICA transfer from policyholder credit account OB 18 ICA transfer from ASC account OB 19 ICA transfer to master fund OB
 20 ICA distribution with Maori authority credit OB 21 ICA balance of Maori authority credit account OB 22 ICA replacement payment to company under share-lending arrangement OB 23 ICA credit transfer to company OB 24 ICA credit on resident’s restricted amalgamation OB 25 ICA reversal of tax advantage arrangement OB 26 ICA elimination of double debit OB 27 ICA non-resident withholding tax withheld OB 28 ICA payment of amount of tax for schedular payment OB 29 ICA payment of schedular income tax Imputation debits OB 30 ICA payment of dividend OB 31 ICA allocation of provisional tax OB 32 ICA refund of income tax OB 33 ICA amount applied to pay other taxes OB 34 ICA refund from tax pooling account OB 35 ICA transfer within tax pooling account OB 36 ICA refund of FDP OB 37 ICA refund of tax credit OB 38 ICA overpayment of FDP OB 39 ICA transfer for net foreign attributed income [Repealed] OB 40 ICA attribution for personal services OB 41 ICA debit for loss of shareholder continuity OB 42 ICA on-market cancellation OB 43 ICA breach of imputation ratio OB 44 ICA debit on leaving wholly-owned group OB 45 ICA redemption debit Income Tax Act 2007 Reprinted as at 5 January 2010 OB 46 ICA transfer from member fund OB 47 ICA transfer to policyholder credit account OB 48 ICA credit
 balance when Maori authority credit account starts OB 49 ICA replacement payment by company under share-lending arrangement OB 50 ICA returning share transfer OB 51 ICA credit transfer by company OB 52 ICA imputation credit of consolidated imputation group OB 53 ICA debit on resident’s restricted amalgamation OB 54 ICA tax advantage arrangement OB 55 ICA retrospective imputation credit OB 56 ICA ﬁnal balance OB 57 ICA refund of NRWT OB 58 ICA refund of amount of tax for schedular payment OB 59 ICA refund of
 schedular income tax Imputation credits attached to dividends OB 60 Imputation credits attached to dividends OB 61 ICA benchmark dividend rules OB 62 Retrospective attachment of imputation credits OB 63 Australian dividends OB 64 Replacement payments Further income tax OB 65 Further income tax for ICA closing debit balance OB 66 Further income tax when company stops being ICA company OB 67 Reduction of further income tax OB 68 Income tax paid satisfying liability for further income tax OB 69 Further income tax paid satisfying liability for income tax OB 70 Application of other provisions Imputation additional tax 1937 1938 1940 1940 1941 1941 1942 1942 1944 1944 1945 1945 1945 1946 1946 1948 1949 1951 1952 1953 1953 1954 1955 1956 1957 OB 71 Imputation additional tax on leaving wholly-owned group OB 72 Imputation additional tax on joining wholly-owned group 1958 1960 Distributions of statutory producer boards and co-operative companies OB 73 Statutory producer boards attaching imputation credits 1962 to cash distributions OB 74 Statutory producer boards attaching imputation credits to 1964 notional distributions 84 Reprinted as at 5 January 2010 Income Tax Act 2007 OB 75 Statutory producer boards’ notional distributions that are 1966 dividends OB 76 Statutory producer boards attaching FDP credits OB 77 When and how statutory producer board makes election OB 78 Co-operative companies attaching imputation credits to 1967 1968 1968 cash distributions OB 79
 Co-operative companies attaching imputation credits to 1970 notional distributions OB 80 Co-operative companies’ notional distributions that are 1971 dividends OB 81 Co-operative companies attaching FDP credits OB 82 When and how co-operative company makes election 1972 1973 Tables of credits and debits in memorandum accounts Subpart OC—Foreign dividend payment accounts (FDPA) Introductory provisions OC 1 General rules for companies with FDP accounts OC 2 FDP accounts OC 3 Choosing to become FDPA company OC 4 When
 company chooses to stop being FDPA company OC 5 When company emigrates FDP credits OC 6 FDPA payment of FDP [Repealed] OC 7 FDPA dividend derived with FDP credit OC 8 FDPA payment of FDP for transfer from CTR account [Repealed] 1982 1983 1983 1984 1984 1985 1985 1985 OC 9 FDPA transfer for net foreign attributed income [Repealed] OC 10 FDPA payment of FDP for conduit debit 1986 1986 balance [Repealed] OC 11 FDPA credit transfer to company OC 12 FDPA reversal of tax advantage arrangement FDP debits OC 13 FDPA payment of dividend OC 14 FDPA refund of FDP OC 15 FDPA overpayment of FDP OC 16 FDPA refund of tax credit OC 17 FDPA credit transfer by company OC 18 FDPA transfer to imputation credit account OC 19 FDPA transfer to CTR account OC 20 FDPA transfer to policyholder credit account 1986 1986 1987 1987 1988 1988 1989 1989 1991 1992 85 Income Tax Act 2007 Reprinted as at 5 January 2010 OC 21 FDPA transfer to group account OC 22 FDPA breach of FDP ratio OC 23 FDPA breach of FDP ratio by PCA company OC 24 FDPA debit for loss of shareholder continuity OC 25 FDPA tax advantage arrangement OC 26 FDPA ﬁnal balance FDP credits attached to dividends OC 27 FDP credits attached to dividends OC 28 FDPA benchmark dividend rules OC 29 FDP credits and imputation credits attached to dividends Further income tax OC 30 Payment of further income tax for closing debit balance OC 31 Payment of further income tax when company no longer New Zealand resident OC 32 Reduction of further
 income tax OC 33 Income tax paid satisfying liability for further income tax OC 34 Further income tax paid satisfying liability for income tax Some deﬁnitions OC 35 Meaning of FDP reference period OC 36 Meaning of maximum deﬁcit debit OC 37 Meaning of policyholder FDP ratio OC 38 Meaning of reduced deﬁcit debit OC 39 Meaning of shareholder FDP ratio Table O3: FDP credits Table O4: FDP debits Subpart OD—Conduit tax relief accounts (CTRA) Introductory provisions OD 1 General rules for companies with CTR
 accounts OD 2 CTR accounts OD 3 Choosing to become CTR company OD 4 When company stops being CTR company CTR credits OD 5 CTRA tax credit for conduit tax relief [Repealed] OD 6 CTRA transfer from FDP account OD 7 CTRA dividend derived with CTR credit OD 8 CTRA reduction of FDP [Repealed] OD 9 CTRA reversal of tax advantage arrangement 1994 1994 1995 1997 1997 1998 1998 1999 2000 2002 2003 2005 2005 2006 2007 2007 2008 2009 2010 2013 2014 2015 2016 2017 2017 2017 2018 2018 86 Reprinted as at 5 January 2010 Income Tax Act 2007 CTR debits OD 10 CTRA payment of dividend OD 11 CTRA transfer to FDP account [Repealed] OD 12 CTRA transfer to group account OD 13 CTRA adjustment for conduit tax relief OD 14 CTRA break in shareholding chain for group company OD 15 CTRA break in shareholding chain for company OD 16 CTRA increase in resident shareholding OD 17 CTRA breach of CTR ratio OD 18 CTRA tax advantage arrangement OD 19 CTRA ﬁnal balance CTR credits attached to dividends OD 20 CTR credits attached to dividends OD 21 CTRA benchmark dividend rules OD 22 CTR credits and imputation credits attached to dividends Payment of FDP and refunds OD 23 FDP payable for CTR debits [Repealed] OD 24 FDP payable on resident’s restricted amalgamation [Repealed] OD 25 Refunds on transfers to CTR account Table O5: conduit tax relief credits Table O6: conduit tax relief debits Subpart OE—Branch equivalent tax accounts (BETA) Introductory provision 2018 2019 2019 2019 2020 2021 2022 2024 2025 2026
 2026 2027 2028 2030 2030 2030 OE 1 General rules for companies and other persons with 2033 branch equivalent tax accounts Companies with branch equivalent tax accounts Introductory provisions OE 2 Branch equivalent tax accounts of companies OE 3 Choosing to become BETA company OE 4 When company stops being BETA company OE 5 Treatment of attributed CFC income and FIF income in this subpart Branch equivalent tax credits OE 6 BETA payment of income tax on foreign income OE 7 BETA payment of income tax OE 8
 BETA unused amount of debit balance 2033 2035 2035 2036 2036 2037 2040 87 Income Tax Act 2007 Reprinted as at 5 January 2010 OE 9 BETA refund of FDP OE 10 BETA credit for loss of shareholder continuity OE 11 BETA ﬁnal balance Branch equivalent tax debits [Repealed] OE 12 BETA payment of FDP [Repealed] OE 13 BETA reduction in FDP [Repealed] OE 14 BETA refund of income tax [Repealed] OE 15 BETA debit for loss of shareholder continuity [Repealed] OE 16 BETA ﬁnal balance [Repealed] Debit if credit balance at beginning of ﬁrst affected income year 2041 2041 2042 2043 2043 2043 2043 2044 OE 16B Company with credit balance at beginning of ﬁrst 2044 affected income year Persons with branch equivalent tax accounts Introductory provisions OE 17 Person choosing to become BETA person OE 18 When person stops being BETA person 2044 2045 Branch equivalent tax credits OE 19 BETA person’s payment of income tax on foreign income 2045 Branch equivalent tax debits OE 20 BETA person’s payment of income tax OE 21 BETA person’s refund of income tax OE 22 BETA person’s ﬁnal balance 2046 2047 2048 Table O7 branch equivalent tax credits Table O8 branch equivalent tax debits [Repealed] Table O9 person’s equivalent tax credits Table O10 person’s equivalent tax debits Subpart OF—Available subscribed capital accounts (ASCA) Introductory provisions OF 1 General rules for companies with ASC accounts OF 2 ASC accounts OF 3 Choosing to become ASC account company 2050 2050 2051 88 Reprinted as at 5
 January 2010 Income Tax Act 2007 OF 4 ASCA redemption credit ASC credits ASC debits OF 5 ASCA transfer to imputation credit account 2051 2052 Table O11 ASC credits Table O12 ASC debits Subpart OJ—Policyholder credit accounts (PCA) Introductory provision OJ 1 General rules for companies and other persons with 2054 policyholder credit accounts Companies with policyholder credit accounts Introductory provision OJ 2 Policyholder credit accounts of companies Policyholder credits of PCA company OJ 3 OJ 4 OJ 5 OJ 6
 OJ 7 PCA transfer from imputation credit account PCA transfer from FDP account PCA transfer of life insurance business PCA credit for maximum deﬁcit in FDP account PCA credit for reduced deﬁcit in FDP account Policyholder debits of PCA company PCA payment of tax relating to policyholder base PCA transfer to imputation credit account OJ 8 OJ 9 OJ 10 PCA transfer to group account OJ 11 PCA company’s transfer of life insurance business Persons with policyholder credit accounts Introductory provisions OJ 12 Choosing to become PCA person OJ 13 Choosing to stop being PCA person 2055 2056 2057 2057 2058 2058 2059 2060 2061 2062 2063 2063 Policyholder credits of PCA person OJ 14 PCA person’s equivalent credit OJ 15 PCA person’s credit for transfer of life insurance business 2064 2065 Policyholder debits of PCA person OJ 16 PCA person’s payment of tax relating to policyholder base OJ 17 PCA person’s equivalent debit 2066 2067 89 Income Tax Act 2007 Reprinted as at 5 January 2010 OJ 18 PCA person’s debit for transfer of life insurance business 2068 Table O13 policy holder credits Table O14 policyholder debits Table O15 person’s policyholder credits Table O16 person’s policyholder debits Subpart OK—Maori authority credit accounts (MACA) Introductory provision OK 1 General rules for Maori authorities with Maori authority 2072 credit accounts Maori authority credits OK 2 MACA payment of tax OK 3 MACA payment of tax to other Maori authorities OK 4 MACA payment of further income tax
 OK 4B MACA expenditure on research and development OK 5 MACA distribution with Maori authority credit OK 6 MACA dividend derived with imputation credit OK 7 MACA dividend derived with FDP credit OK 8 MACA resident withholding tax withheld OK 9 MACA reversal of tax advantage arrangement Maori authority debits OK 10 MACA distribution OK 11 MACA allocation of provisional tax OK 12 MACA refund of income tax OK 13 MACA payment of other taxes OK 14 MACA refund of FDP OK 14B MACA refund of tax credit OK 15 MACA
 debit for loss of shareholder continuity OK 16 MACA breach of Maori authority credit ratio OK 17 MACA tax advantage arrangement OK 18 MACA ﬁnal balance Maori authority credits attached to distributions OK 19 Maori authority credits attached to distributions OK 20 MACA benchmark distribution rules Further income tax 2073 2073 2074 2074 2075 2075 2076 2076 2076 2077 2077 2078 2079 2080 2081 2082 2082 2083 2084 2084 2085 OK 21 Further income tax for closing debit balance OK 22 Further income tax paid when Maori authority no longer 2086 2087 Maori authority 90 Reprinted as at 5 January 2010 Income Tax Act 2007 OK 23 Further income tax paid satisfying liability for income tax OK 24 Income tax paid satisfying liability for further income tax 2088 2088 Table O17 Maori authority credits Table O18 Maori authority debits Subpart OP—Memorandum accounts of consolidated groups Introductory provisions OP 1 Memorandum accounts of consolidated groups OP 2 When credits and debits arise only in group accounts 2091 2092 Consolidated groups and imputation credit accounts Introductory provisions OP 3 Changes in consolidated imputation groups OP 4 Resident imputation subgroups OP 5 When credits and debits arise only in consolidated imputation group accounts Provisions applying to consolidated imputation groups OP 6 Imputation credits of consolidated imputation groups OP 7 Consolidated ICA payment of tax OP 8 Consolidated ICA deposit in tax pooling account OP 9 Consolidated ICA transfer
 from tax pooling account OP 10 Consolidated ICA allocation from company with overpaid provisional tax OP 11 Consolidated ICA payment of further income tax OP 11B Consolidated ICA expenditure on research and development OP 12 Consolidated ICA dividend derived with imputation credit OP 13 Consolidated ICA dividend derived with FDP credit OP 14 Consolidated ICA payment of FDP [Repealed] OP 15 Consolidated ICA replacement payment to company under share-lending arrangement OP 16 Consolidated ICA credit
 transfer to company OP 17 Consolidated ICA resident withholding tax withheld OP 18 Consolidated ICA transfer from group company’s FDP account OP 19 Consolidated ICA transfer from group’s FDP account OP 20 Consolidated ICA transfer from group company’s policyholder credit account OP 21 Consolidated ICA transfer from group’s policyholder credit account 2093 2094 2094 2096 2099 2100 2101 2101 2102 2102 2103 2103 2104 2104 2104 2105 2105 2106 2106 2107 91 Income Tax Act 2007 Reprinted as at 5 January 2010 OP 22 Consolidated ICA group company’s credit OP 23 Consolidated ICA elimination of double debit OP 24 Consolidated ICA reversal of tax advantage arrangement OP 25 Consolidated ICA non-resident withholding tax withheld OP 26 Consolidated ICA payment of amount of tax for schedular payment OP 27 Consolidated ICA payment of schedular income tax Imputation debits of consolidated imputation groups OP 28 Consolidated ICA payment of dividend OP 29 Consolidated ICA allocation of provisional tax OP 30 Consolidated ICA refund of income tax OP 31 Consolidated ICA amount applied to pay other taxes OP 32 Consolidated ICA refund from tax pooling account OP 33 Consolidated ICA transfer to tax pooling account OP 34 Consolidated ICA refund of FDP OP 35 Consolidated ICA refund of tax credit OP 36 Consolidated ICA overpayment of FDP OP 37 Consolidated ICA group company’s debit OP 38 Consolidated ICA transfer for net foreign attributed income [Repealed] OP 39 Consolidated ICA replacement
 payment by company under share-lending arrangement OP 40 Consolidated ICA returning share transfer OP 41 Consolidated ICA credit transfer by company OP 42 Consolidated ICA debit for loss of shareholder continuity OP 43 Consolidated ICA breach of imputation ratio OP 44 Consolidated ICA transfer to policyholder credit account OP 45 Consolidated ICA redemption debit OP 46 Consolidated ICA tax advantage arrangement OP 47 Consolidated ICA ﬁnal balance OP 48 Consolidated ICA refund of NRWT OP 49 Consolidated ICA
 refund of amount of tax for schedular payment OP 50 Consolidated ICA refund of schedular income tax Reprinted as at 5 January 2010 Income Tax Act 2007 Table O19 imputation credits of consolidated imputation groups Table O20 imputation debits of consolidated imputation groups Consolidated groups and FDP accounts Introductory provisions OP 51 FDP accounts of consolidated FDP groups OP 52 Choosing to stop being consolidated FDP group OP 53 When group company emigrates OP 54 When credits and debits arise only in consolidated FDP group accounts OP 55 Provisions applying to consolidated FDP groups FDP credits of consolidated FDP groups OP 56 Consolidated FDPA payment of FDP [Repealed] OP 57 Consolidated FDPA payment of further FDP [Repealed] OP 58 Consolidated FDPA dividend derived with FDP credit OP 59 Consolidated FDPA group company’s credit OP 60 Consolidated FDPA credit transfer to company OP 61 Consolidated FDPA transfer from group’s CTR account [Repealed] OP 62 Consolidated FDPA transfer for net foreign attributed income [Repealed] 2136 2136 2137 2138 2138 2139 2139 2139 2140 2141 2141 2141 OP 63 Consolidated FDPA reversal of tax advantage arrangement 2142 FDP debits of consolidated FDP groups OP 64 Consolidated FDPA payment of dividend OP 65 Consolidated FDPA credit transfer by company OP 66 Consolidated FDPA refund of FDP
 OP 67 Consolidated FDPA overpayment of FDP OP 68 Consolidated FDPA refund of tax credit OP 69 Consolidated FDPA transfer to imputation credit account OP 70 Consolidated FDPA transfer to group’s CTR account OP 71 Consolidated FDPA group company’s debit OP 72 Consolidated FDPA breach of FDP ratio OP 73 Consolidated FDPA debit for loss of shareholder continuity OP 74 Consolidated FDPA transfer to policyholder credit account OP 75 Consolidated FDPA breach of FDP ratio by PCA company OP 76 Consolidated FDPA tax
 advantage arrangement OP 77 Consolidated FDPA ﬁnal balance 2142 2143 2143 2144 2145 2145 2146 2146 2147 2148 2148 2149 2149 2150 93 Income Tax Act 2007 Reprinted as at 5 January 2010 Table O21 : credits of consolidated FDP groups Table O22 : FDP debits of consolidated FDP groups Consolidated groups and CTR credits Introductory provisions OP 78 CTR accounts of consolidated groups OP 79 When credits and debits arise only in CTR group accounts OP 80 Provisions applying to consolidated groups with CTR 2153 2154 2155 accounts CTR credits of consolidated groups OP 81 Consolidated CTRA tax credit for conduit tax relief [Repealed] OP 82 Consolidated CTRA reduction of FDP [Repealed] OP 83 Consolidated CTRA dividend derived with CTR credit OP 84 Consolidated CTRA group company’s credit OP 85 Consolidated CTRA transfer from group’s FDP account OP 86 Consolidated CTRA reversal of tax advantage arrangement CTR debits of consolidated groups OP 87 Consolidated CTRA payment of dividend OP 88 Consolidated CTRA transfer to group’s FDP account [Repealed] OP 89 Consolidated CTRA adjustment for conduit tax relief OP 90 Consolidated CTRA group company’s debit OP 91 Consolidated CTRA increase in resident shareholding OP 92 Consolidated CTRA breach of CTR ratio OP 93 Consolidated CTRA tax advantage arrangement OP 94 Consolidated CTRA ﬁnal balance Consolidated groups’ FDP payments and refunds OP 95 FDP payable for credits and debits in group’s CTR account [Repealed] OP 96 Refund on
 transfer from group’s FDP account 2155 2155 2156 2156 2157 2158 2159 2159 2160 2160 2161 2162 2163 2163 2164 2164 94 Reprinted as at 5 January 2010 Income Tax Act 2007 Table O23 : conduit tax relief credits of consolidated groups Table O24 : conduit tax relief debits of consolidated groups Consolidated groups and branch equivalent tax accounts Introductory provisions OP 97 Branch equivalent tax accounts of consolidated BETA 2166 groups OP 98 Choosing to stop being consolidated BETA group OP 99 When credits and
 debits arise only in branch equivalent 2167 2167 tax group accounts [Repealed] Branch equivalent tax credits of consolidated BETA groups OP 100 Consolidated BETA payment of income tax on foreign 2168 income OP 101 Consolidated BETA payment of income tax OP 102 Consolidated BETA remaining debit balances OP 103 Consolidated BETA refund of FDP OP 104 Consolidated BETA credit for loss of shareholder continuity Branch equivalent tax debits of consolidated BETA groups [Repealed] OP 105 Consolidated BETA payment of FDP [Repealed] OP 106 Consolidated BETA reduction of FDP [Repealed] OP 107 Consolidated BETA refund of income tax [Repealed] OP 108 Consolidated BETA debit for loss of shareholder continuity [Repealed] Debit if credit balance at beginning of ﬁrst affected income year 2169 2171 2172 2173 2174 2174 2174 2175 OP 108B Consolidated BETA group with credit balance at 2175 beginning of ﬁrst affected income year 95 Income Tax Act 2007 Reprinted as at 5 January 2010 Table O25 : branch equivalent tax credits of consolidated BETA groups Table O26 : branch equivalent tax debits of consolidated BETA groups [Repealed] Consolidated groups and policyholder credit accounts Introductory provision OP 109 Policyholder credit accounts of consolidated groups 2176 Policyholder credits of consolidated groups OP 110 Consolidated PCA transfer from imputation credit account OP 111 Consolidated PCA transfer from FDP account OP 112 Consolidated PCA group company’s credit OP 113 Consolidated
 PCA maximum deﬁcit debit in FDP account 2176 2177 2177 2178 OP 114 Consolidated PCA reduced deﬁcit debit in FDP account 2179 Policyholder debits of consolidated groups OP 115 Consolidated PCA payment of tax relating to policyholder 2180 base OP 116 Consolidated PCA transfer to imputation credit account 2180 Subpart OZ—Terminating provisions OZ 1 No imputation credit for pre-imputation tax paid OZ 2 No imputation debit for pre-imputation refund OZ 3 Overpaid income tax or foreign dividend payment for 2184
 2184 2184 pre-imputation income year OZ 4 Terminating modiﬁcations to debits for loss of shareholder 2185 continuity OZ 5 ASCA lost excess available subscribed capital OZ 6 ASCA redemption of unused investments OZ 7 Memorandum accounts in transitional period OZ 8 Attaching imputation credits and FDP credits: maximum permitted ratio OZ 9 Benchmark dividends: ratio change OZ 10 Modifying ratios for imputation credits and FDP credits OZ 11 Tax credits for imputation credits and FDP credits OZ 12 Tax credits for non-resident investors OZ 13 Fully credited dividends: modifying actual ratio OZ 14 Dividends from qualifying companies 2185 2187 2188 2188 2189 2190 2190 2192 2193 2193 96 Reprinted as at 5 January 2010 Income Tax Act 2007 OZ 15 Attaching imputation credits and notional distributions: 2194 modifying amounts OZ 16 BETA reductions OZ 17 CTRA reductions Part R General collection rules Subpart RA—General withholding and payment obligations Introductory provisions RA 1 What this Part does RA 2 Amounts treated as income tax Payment and withholding obligations RA 3 Terminal tax obligations RA 4 Provisional tax obligations RA 5 Tax obligations for employment-related taxes RA 6 Withholding and payment obligations for passive income RA 6B Withholding and payment obligations for retirement scheme contributions RA 7 Payment of tax by public authorities RA 8 Liability of persons receiving payments or beneﬁts RA 9 Treatment of amounts withheld as received RA 10 When
 obligations not met RA 11 Adjustment to correct errors: certain underpayments RA 12 Adjustment to correct errors: certain excess amounts Payment dates RA 13 Payment dates for terminal tax RA 14 Payment dates for provisional tax RA 15 Payment dates for interim and other tax payments RA 16 Payment date when taxable activity ends RA 17 Payment date when RWT exemption certiﬁcate expires RA 18 Payment date for emigrating companies Refunds 2195 2195 2196 2197 2197 2198 2198 2199 2200 2200 2200 2200 2201 2202 2203 2205
 2206 2206 2209 2210 2210 RA 19 Refunds of excess amounts or when amounts mistakenly 2210 paid RA 20 Amalgamation of companies Amalgamations 2211 97 Income Tax Act 2007 Reprinted as at 5 January 2010 Regulations RA 21 Regulations 2212 Application of other provisions RA 22 Limits on application of other provisions for purposes of 2214 PAYE rules RA 23 Application of other provisions for purposes of ESCT 2214 rules and NRWT rules RA 24 Application of other provisions for purposes of RSCT 2215 rules Subpart RB—Terminal tax RB 1 RB 2 Payment of terminal tax Income tax liability for non-ﬁling taxpayers for non-resident passive income Schedular income tax liability for ﬁling taxpayers for non-resident passive income RB 4 Using refunds to satisfy tax liabilities RB 3 Subpart RC—Provisional tax Introductory provisions Provisional tax rules and their application RC 1 What this subpart does RC 2 RC 3 Who is required to pay provisional tax?
RC 4 Choosing to pay provisional tax Calculating provisional tax liability Standard method RC 5 Methods for calculating provisional tax liability RC 6 RC 7 Estimation method RC 8 GST ratio method Instalments of provisional tax Provisional tax payable in instalments RC 9 RC 10 Calculating amount of instalment under standard and estimation methods RC 11 Calculating amount of instalment using GST ratio RC 12 Voluntary payments RC 13 Paying 2 instalments for tax year RC 14 Paying 1 instalment for tax year Requirements for using GST ratio RC 15 Choosing to use GST ratio 98 2216 2216 2216 2217 2217 2218 2218 2219 2220 2221 2223 2224 2227 2230 2234 2235 2235 2236 2237 Reprinted as at 5 January 2010 Income Tax Act 2007 RC 16 Who may use GST ratio?
RC 17 When GST ratio must not be used RC 18 Changing calculation method RC 19 Disposal of assets Transitional years RC 20 Calculating residual income tax in transitional years RC 21 Paying provisional tax in transitional years RC 22 Calculating instalments in transitional years: standard method 2237 2239 2240 2242 2243 2244 2246 RC 23 Calculating instalments in transitional years: estimation 2247 method RC 24 Calculating instalments in transitional years: GST ratio 2248 method RC 25 Consequences of change in balance date 2249 When persons start or stop paying GST, or change taxable periods RC 26 Registering for GST or cancelling registration RC 27 Payment of provisional tax instalments when GST cycle 2250 2251 changed Treatment of groups of companies and amalgamated companies RC 28 Provisional tax rules and consolidated groups RC 29 Residual income tax of consolidated groups RC 30 Consolidated groups using estimation method RC 31 Consolidated groups using GST ratio method RC 32 Wholly-owned groups of companies RC 33 Amalgamated companies: calculating residual income tax 2253 2253 2254 2255 2256 2257 Attribution rule for income from personal services RC 34 Attribution rule for income from personal services 2258 RC 35 Further income tax credited to provisional tax liability 2260 Credits Disaster relief [Repealed] RC 36 Persons affected by adverse events [Repealed] Early-payment discounts RC 37 Availability of early-payment discounts RC 38 Crediting income tax with early-payment discount 2261 2261 2262 99 Income
 Tax Act 2007 Reprinted as at 5 January 2010 RC 39 Credit treated as payment of income tax RC 40 Some deﬁnitions Subpart RD—Employment-related taxes Introductory provision RD 1 What this subpart does PAYE rules and PAYE income payments Introductory provisions RD 2 PAYE rules and their application RD 3 PAYE income payments RD 4 Payment of amounts of tax to Commissioner Types of PAYE income payments RD 5 Salary or wages RD 6 Certain beneﬁts and payments RD 7 Extra pay RD 8 Schedular payments Calculating amounts
 of tax RD 9 Maximum amount RD 10 Amounts of tax for PAYE income payments RD 11 Reduction in certain circumstances Adjustments for certain PAYE income payments RD 12 Multiple payments of salary or wages RD 13 Advance payments of salary or wages RD 14 Changes to tax rates for salary or wages RD 15 Payments of salary or wages in pay periods RD 16 Payments to private domestic workers RD 17 Payment of extra pay with other PAYE income payments RD 18 Schedular payments without notiﬁcation RD 19 Schedular payments to non-resident entertainers RD 20 Schedular payments to subcontractors Paying amounts of tax RD 21 When amounts of tax not withheld or payment insufﬁcient RD 22 Returns for amounts of tax paid to Commissioner RD 23 Bonds given by employers of certain non-resident employees RD 24 Exemption certiﬁcates for non-resident contractors 2263 2263 2263 2264 2265 2266 2267 2270 2271 2272 2274 2274 2275 2276 2277 2278 2279 2280 2280 2282 2283 2284 2284 2285 2288 2289 100 Reprinted as at 5 January 2010 Income Tax Act 2007 Fringe beneﬁt tax (FBT) rules and fringe beneﬁts Introductory provisions RD 25 FBT rules and their application RD 26 Liability for FBT Value of fringe beneﬁts RD 27 Determining fringe beneﬁt values RD 28 Private use of motor vehicle: calculation methods RD 29 Private use of motor vehicle: formulas RD 30 Private use of motor vehicle: 24-hour period RD 31 Motor vehicle test period RD 32 Replacement motor vehicles RD 33 Subsidised transport RD 34
 Employment-related loans: value using prescribed interest rates 2290 2291 2291 2292 2293 2295 2296 2297 2298 2298 RD 35 Employment-related loans: value using market interest 2299 rates RD 36 Repayment of employment-related loans RD 37 Contributions to superannuation schemes RD 38 Contributions to funds, trusts, and insurance premiums RD 39 Beneﬁts provided by charitable organisations RD 40 Goods RD 41 Services RD 42 Goods at staff discount RD 43 Goods on special with staff discount RD 44 Goods sold by group companies
 RD 45 Unclassiﬁed beneﬁts RD 46 Adjustments for unclassiﬁed beneﬁts on amalgamation Attributing fringe beneﬁts to employees RD 47 Attribution of certain fringe beneﬁts RD 48 When attributed beneﬁts provided to more than 1 employee RD 49 Application of thresholds to attributed beneﬁts RD 50 Employer’s liability for attributed beneﬁts RD 51 Calculation of all-inclusive pay RD 52 Calculation for certain employees when information lacking RD 53 Pooling non-attributed beneﬁts Taxable value of fringe beneﬁts RD 54 Value of and payments towards fringe beneﬁts 2301 2302 2302 2303 2304 2305 2306 2307 2308 2308 2310 2312 2313 2313 2314 2315 2317 2318 2319 101 Income Tax Act 2007 Reprinted as at 5 January 2010 RD 55 Private use of motor vehicle: taxable value in cases of 2320 part ownership RD 56 Private use of motor vehicle: when schedular value not 2320 used RD 57 Private use of motor vehicle: when schedular value used 2322 Options for payment of FBT RD 58 Single rate option RD 59 Alternate rate option RD 60 Close company option RD 61 Small business option RD 62 Changes in payment periods RD 63 When employer stops employing staff Employer’s superannuation contribution tax (ESCT) rules and employer’s superannuation contributions Introductory provisions RD 64 ESCT rules and their application RD 65 Employer’s superannuation cash contributions RD 66 Complying fund rules Calculating amounts of tax 2322 2323 2324 2326 2327 2329 2329 2330 2334 RD 67 Calculating amounts of tax for
 employer’s superannuation 2334 cash contributions RD 68 Choosing to have amount treated as salary or wages RD 69 Choosing different rates for employer’s superannuation cash contributions RD 70 Calculating amounts of tax on failure to withhold RD 71 Amounts of tax treated as paid to and received by superannuation funds 2335 2336 2336 2337 Tax on certain withdrawals from superannuation funds RD 72 Recovery of tax paid by superannuation funds 2338 Subpart RE—Withholding tax on resident passive income (RWT)
 Introductory provisions RE 1 RWT rules and their application RE 2 Resident passive income Withholding obligations RE 3 Obligation to withhold RWT RE 4 Persons who have withholding obligations 102 2339 2339 2343 2344 Reprinted as at 5 January 2010 Income Tax Act 2007 RE 5 No withholding obligation in certain circumstances RE 6 When obligation to withhold unreasonable RE 7 When resident passive income paid to trustees RE 8 When resident passive income paid to nominees RE 9 Agents’ or trustees’ obligations in relation to certain dividends RE 10 Special rule relating to payments of interest RE 10B Amounts withheld from distributions to holders of FIF attributing interests RE 11 Notiﬁcation by companies Calculating amounts of tax RE 12 Interest RE 13 Dividends other than non-cash dividends RE 14 Non-cash dividends other than bonus issues in lieu RE 15 Bonus issues in lieu RE 16 Taxable Maori authority distributions RE 17 Replacement payments under share-lending arrangements RE 18 Payments made by RWT proxies RE 19 Choosing higher rates Paying amounts of tax RE 20 Paying RWT RE 21 Basis for payment of RWT RE 22 When payment treated as non-resident passive income RE 23 When amount of tax treated as FDP credit RE 24 When amount of tax treated as Maori authority credit RE 25 When amount of tax treated as imputation credit RE 26 Payment by proxy RWT exemption certiﬁcates RE 27 RWT exemption certiﬁcates RE 28 When certiﬁcates expire RE 29 Establishing whether person holds certiﬁcate RE
 30 When unincorporated bodies hold certiﬁcates Subpart RF—Withholding tax on non-resident passive income (NRWT) Introductory provisions RF 1 NRWT rules and their application RF 2 Non-resident passive income Income Tax Act 2007 Reprinted as at 5 January 2010 RF 3 Obligation to withhold amounts of tax for non-resident 2371 Withholding obligations passive income
 RF 4 Non-resident passive income received by agents and others RF 5 When amounts of tax already withheld RF 6 When amounts of tax not withheld or partly withheld Calculating amounts of tax RF 7 General rate for NRWT RF 8 Certain dividends RF 9 When dividends fully imputed or fully credited RF 10 Non-cash dividends RF 11 Dividends paid to companies under control of non-residents RF 12 Interest paid by approved issuers or transitional residents RF 12B Interest derived jointly with residents RF 12C Amount derived from non-resident life insurer becoming resident Paying amounts of tax RF 13 Basis for payment of amounts of tax for non-resident passive income RF 14 Treatment of FDP credits RF 15 Commissioner’s power to vary amounts of tax RF 16 Relationship with RSCT rules Subpart RG—Payments for foreign dividends (FDP) [Repealed] Introductory provisions [Repealed] RG 1 FDP rules and their application [Repealed] RG 2 Foreign dividends [Repealed] Obligation to make payments [Repealed] RG 3 Obligation to pay FDP [Repealed] Calculation of payments [Repealed] RG 4 Calculating amount of FDP [Repealed] 2372 2372 2372 2373 2374 2374 2376 2378 2379 2380 2381 2382 2382 2382 2383 2384 2384 2384 2385 104 Reprinted as at 5 January 2010 Income Tax Act 2007 Adjustments to payments [Repealed] RG 5 Credit balance in branch equivalent tax account [Repealed] RG 6 Using loss balances [Repealed] RG 7 Reduction of payments for conduit tax relief [Repealed] 2385 2385 2386 Subpart RH—Withholding
 tax on retirement scheme contributions RH 1 RSCT rules and their application RH 2 Retirement scheme contributions RH 3 Retirement savings schemes RH 4 Retirement scheme contributors Calculating amounts of tax RH 5 Calculating amounts of tax for retirement scheme contribution RH 6 Calculating amounts of tax on failure to withhold Subpart RM—Refunds Introductory provision RM 1 What this subpart does Refunds for overpaid amounts RM 2 Refunds for overpaid tax RM 3 Refunds for overpaid FDP RM 4 Overpayment on
 amended assessment RM 5 Overpayment on income statements RM 6 Refunds after 4-year period ends RM 7 Refunds to PAYE intermediaries RM 8 Overpaid RWT or NRWT RM 9 Calculations for attributed and non-attributed fringe beneﬁts Use of refunds RM 10 Using refund to satisfy tax liability RM 11 Using GST refund to pay instalment of provisional tax RM 12 Reduction in provisional tax liability Limits on refunds and transfers ICA companies RM 13 Limits on refunds for ICA companies RM 14 Limits on refunds when company stops being ICA company 2386 2387 2388 2389 2389 2390 2390 2391 2391 2392 2392 2393 2394 2394 2397 2397 2398 2399 2400 2401 105 Income Tax Act 2007 Reprinted as at 5 January 2010 RM 15 Changes in credit balances RM 16 Treatment of amounts not refunded RM 17 Treatment of further income tax paid Companies receiving foreign dividends RM 18 Limits on refunds related to foreign dividends RM 19 Treatment of ﬁnancial arrangements RM 20 Treatment of amounts not refunded RM 21 Refunds when loss balances used to reduce net income Maori authorities RM 22 Limits on refunds for Maori authorities RM 23 Limits on refunds when Maori authority stops being Maori authority RM 24 Increase in credit balances RM 25 Treatment of amounts not refunded RM 26 Treatment of further income tax paid RM 27 Application when no credits arise Persons with policyholder credit accounts RM 28 Limits on refunds for PCA persons RM 29 Limits on refunds when person no longer PCA person RM 30 Changes
 in credit balances RM 31 Treatment of amounts not refunded Qualifying companies 2401 2402 2403 2403 2404 2404 2405 2407 2408 2409 2409 2409 2410 2410 2411 2411 2411 RM 32 Application of sections RM 13 to RM 17 to qualifying 2412 companies Certain unit trusts and group investment funds RM 33 Limits on refunds for certain unit trusts and group 2412 investment funds Subpart RP—Intermediaries Introductory provision RP 1 What this subpart does PAYE intermediaries Obligations and treatment of PAYE intermediaries
 PAYE intermediaries RP 2 RP 3 Requirements for listed PAYE intermediaries RP 4 RP 5 Payment of subsidies to certain PAYE intermediaries Subsidy claims 2413 2414 2414 2415 2416 106 Reprinted as at 5 January 2010 Income Tax Act 2007 RP 6 Operation of PAYE intermediaries’ trust accounts 2417 Employers’ responsibilities RP 7 General responsibilities of employers Information required from employers RP 8 RP 9 Authorised transfers from accounts RP 10 When transfers from accounts not authorised RP 11 Employer’s superannuation cash contributions RP 12 When payments made directly to employees PAYE intermediaries’ responsibilities RP 13 General responsibilities of PAYE intermediaries RP 14 Collection, payment, and information requirements RP 15 When employers have authorised transfers from accounts RP 16 Obligations for employer’s superannuation contributions Tax pooling intermediaries RP 17 Tax pooling intermediaries RP 17B Tax pooling accounts and their use RP 18 Deposits in tax pooling accounts RP 19 Transfers from tax pooling accounts RP 20 Refusals to transfer amounts RP 21 Refunds from tax pooling accounts 2418 2419 2420 2420 2420 2421 2422 2422 2423 2423 2424 2424 2425 2427 2429 2429 Subpart RZ—Terminating provisions Provisional tax RZ 1 Certain elections to become person with provisional tax 2430 liability RZ 2 Amount of provisional tax based on 1997–98 or earlier 2430 tax year RZ 3 Standard method: 2008–09 and 2009–10 income years RZ 4 GST ratio method: 2008–09 and
 2009–10 income years RZ 5 Calculating amounts under standard method: 2008–09 2431 2432 2432 and 2009–10 income years RZ 5B Standard method: new personal tax rate persons from 1 2434 October 2008 to end 2009–10 income year RZ 5C GST ratio method: new personal tax rate persons from 1 2435 October 2008 to end 2009–10 income year RZ 6 Limits on refunds: transitional dates Refunds 2437 107 Income Tax Act 2007 Withdrawal income Reprinted as at 5 January 2010 Payment and rate of withdrawal tax RZ 7 Withdrawal
 income RZ 8 RZ 9 Relief in certain cases RZ 10 Recovery of amounts payable to Commissioner RZ 11 Refunds for life insurers Part Y Deﬁnitions and related matters Subpart YA—General deﬁnitions YA 1 Deﬁnitions YA 2 Meaning of income tax varied YA 3 Treatment of qualifying company election tax, FBT, FDP penalty tax, imputation penalty tax, and withdrawal tax [Repealed] Table Y1 Associated person rules Subpart YB—Associated persons and nominees Associated persons YB 1 What this subpart does YB 2 Two companies with common control YB 3 Two companies with common control: 1988 version provisions YB 4 Company and associate’s associate: 1988 version provisions YB 5 Company and non-corporate 25% interest holder YB 6 Company and relative of 25% interest holder: 1973 version provisions 2438 2439 2439 2440 2440 2440 2654 2655 2657 2658 2659 2660 2661 2662 YB 7 Company and non-corporate 50% interest holder: 1988 2663 version provisions YB 8 Company and non-corporate 50% interest holder: 1990 2664 version provisions YB 9 Relatives: persons with blood or adoption relationships YB 10 Relatives: person and their spouse or partner YB 11 Relatives: person with blood relationship to spouse or partner of other person YB 12 Trusts: person and trustee for their relative YB 13 Trusts: person and trustee for person YB 14 Trusts: trusts with common settlor YB 15 Trusts: trustee and settlor: 1988 version provisions YB 16 Partnerships: partnership and partner YB 17 Partnerships: partnership and
 associate of partner 2664 2665 2666 2666 2667 2668 2669 2670 2671 108 Reprinted as at 5 January 2010 Income Tax Act 2007 YB 18 Persons habitually acting together: 1988 version provisions YB 19 Person and controlled non-proﬁt organisation: 1990 version provisions YB 20 Some deﬁnitions YB 21 Transparency of nominees Nominees Subpart YC—Measurement of company control and ownership Control YC 1 Meaning of control Voting and market value interests YC 2 Voting interests YC 3 Market value interests YC 4 Look-through
 rule for corporate shareholders YC 5 Treatment of special corporate entities YC 6 Disregarding certain securities Voting and market value interests: modiﬁcations for continuity provisions YC 7 When sections YC 8 to YC 19 apply YC 8 Death of share or option holder YC 9 Shares or options held by trustees YC 10 Shareholders holding less than 10% direct interests YC 11 No look-through rule for companies in certain cases YC 12 Public unit trusts YC 13 Corporate spin-outs YC 14 Disregarding concessionary rules YC 15 Directors’ knowledge of failure to meet requirements of continuity provision YC 16 Disregarding market value changes YC 17 Demutualisation of insurers YC 18 Reverse takeovers YC 18B Corporate reorganisations not affecting economic ownership YC 19 Legislative conversion of foreign company of proprietors YC 20 Credit account continuity provisions: excluded ﬁxed rate securities 2672 2673 2674 2676 2676 2677 2677 2678 2679 2680 2681 2681 2682 2683 2683 2684 2685 2688 2688 2689 2690 2693 2695 2697 2698 109 Income Tax Act 2007 Reprinted as at 5 January 2010 Subpart YD—Residence and source in New Zealand Residence YD 1 Residence of natural persons YD 2 Residence of companies YD 3 Country of residence of foreign companies Source YD 4 Classes of income treated as having New Zealand source YD 5 Apportionment of income derived partly in New Zealand YD 6 Apportionment of income from sea transport YD 7 Apportionment of ﬁlm rental income YD 8 Apportionment of premiums
 derived by non-resident general insurers Conduit tax relief companies: special residence rules YD 9 Residence of CTR company shareholders YD 10 Meaning of CTR holding company YD 11 Meaning of CTR group member Subpart YE—References to balance dates and years YE 1 References to balance dates and years Subpart YF—Currency conversion YF 1 General rules for currency conversion Subpart YZ—Terminating provisions YZ 1 YZ 2 Source rule for interest Saving of effect of section 394L(4A) of Income Tax Act 1976 Part Z
 Repeals, amendments, and savings ZA 1 Repeals ZA 2 Consequential amendments to other enactments ZA 3 Transitional provisions ZA 4 ZA 5 ZA 6 Comparative tables of old and new provisions Saving of binding rulings Saving of accrual determinations Schedule 1 Basic tax rates: income tax, ESCT, RSCT, RWT, and attributed fringe beneﬁts 2699 2701 2701 2702 2706 2707 2708 2709 2711 2712 2713 2714 2716 2717 2717 2718 2718 2718 2719 2720 2721 2722 110 Reprinted as at 5 January 2010 Income Tax Act 2007 Schedule 2 Basic tax rates for PAYE income payments Schedule 3 Payment of provisional tax and terminal tax Schedule 4 Rates of tax for schedular payments Schedule 5 Fringe beneﬁt values for motor vehicles Schedule 10 Straight-line equivalents of diminishing value rates of depreciation Schedule 11 New banded rates of depreciation Schedule 12 Old banded rates of depreciation Schedule 13 Depreciable land improvements Schedule 14 Depreciable intangible property Schedule 17 Types and classes of livestock Schedule 18 Categories of livestock for which national standard costs to be declared Schedule 19 Expenditure in avoiding, remedying, or mitigating detrimental effects of discharge of contaminant Schedule 20 Expenditure on farming, horticultural, aquacultural, and forestry improvements Schedule 21 Expenditure and activities related to research and development [Repealed] Schedule 24 International tax rules: grey list countries 2733 2737 2741 2750 2755 2761 2762 2763 2764 2765 2769
 2771 2773 2780 2781 111 s A 1 Income Tax Act 2007 Reprinted as at 5 January 2010 Schedule 25 Foreign investment funds Schedule 26 Low tax jurisdictions or territories Schedule 27 Countries and types of income with unrecognised tax Schedule 28 Requirements for complying fund rules Schedule 31 Annualised equivalent amount for Part M Schedule 32 Recipients of charitable or other public beneﬁt gifts Schedule 36 State enterprises Schedule 37 Statutory producer boards Schedule 48 Enactments repealed Schedule 49
 Enactments amended Schedule 50 Amendments to Tax Administration Act 1994 Schedule 51 Identiﬁed changes in legislation Schedule 52 Comparative tables of old and rewritten provisions 2782 2783 2789 2790 2792 2799 2802 2803 2803 2804 2847 2956 2963 The Parliament of New Zealand enacts as follows: A 1 Title This Act is the Income Tax Act 2007.
Compare: 2004 No 35 s A 1 112 Reprinted as at 5 January 2010 Income Tax Act 2007 Part A s AA 2 A 2 Commencement 1 April 2008 This Act comes into force on 1 April 2008.

(1) Charitable entities (1B) Despite subsection (1), sections CW 41(2) and CW 42(1)(b) come into force on 1 July 2008.

(2) Act effective for 2008–09 income year and later However, except when the context requires otherwise, this Act applies only with respect to the tax on income derived in the 2008–09 income year and later income years.
Deﬁned in this Act: income year, tax Compare: 2004 No 35 s A 2 Section A 2(1B) heading: inserted, on 1 April 2008, by section 307 of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section A 2(1B): inserted, on 1 April 2008, by section 307 of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Part A Purpose and interpretation AA 1 Purpose of Act The main purpose of this Act are— (a) (b) (c) to deﬁne, and impose tax on, net income: to impose obligations concerning tax: to set out rules for calculating tax and for satisfying the obligations imposed.
Deﬁned in this Act: net income, tax Compare: 2004 No 35 s AA 1 AA 2 Interpretation (1) Aids to interpretation Diagrams, ﬂowcharts, readers’ notes, and the lists of deﬁned terms following sections are included in this Act only as inter- pretational aids.

If there is conﬂict between an interpretational aid and a provision of this Act, the provision prevails.
113 Part A s AA 3 Income Tax Act 2007 Reprinted as at 5 January 2010 (2) Deﬁned terms If a deﬁned term is used in a section and is not included in the list of deﬁned terms following the section, the term is never- theless used in the section as deﬁned.
Compare: 1994 No 164 s AA 2 AA 3 Deﬁnitions (1) (2) Role of Part Y Deﬁnitions of terms that apply generally for the purposes of this Act, and general provisions on the interpretation and con- struction of this Act, appear in Part Y (Deﬁnitions and related matters).

Role of Interpretation Act The Interpretation Act 1999 also contains deﬁnitions of terms, including in particular the term person, and other provisions that apply to the interpretation and construction of this Act.
Compare: 2004 No 35 s AA 3(2) AA 4 Crown bound This Act binds the Crown.
114 Reprinted as at 5 January 2010 Income Tax Act 2007 Part B s BA 1 Part B Core provisions Flowchart B1—Outline of Part Subpart BA—Purpose BA 1 Purpose The purposes of this Part are— (a) to impose income tax, provisional tax, withholding li- abilities, and other tax obligations concerning taxes: to set out procedures to be followed for calculating tax and satisfying the obligations imposed under this Act: to provide a basis for applying the other Parts: (b) (c) 115 Part B s BB 1 Income Tax Act 2007 Reprinted as at 5 January 2010 (d) generally to set up the scheme of the Act and the main links between its Parts.
Deﬁned in this Act: income tax, provisional tax, tax Compare: 2004 No 35 s BA 1 Subpart BB—Income tax and resulting obligations BB 1 Imposition of income tax Income tax is imposed on taxable income, at the rate or rates of tax ﬁxed by an annual taxing Act, and is payable to the Crown under this Act and the Tax Administration Act 1994.
Deﬁned in this Act: annual taxing Act, income tax, pay, tax, taxable income Compare: 2004 No 35 s BB 1 BB 2 Main obligations Income tax liability A person’s income tax liability for a tax year must be calcu- lated, and satisﬁed by the person, under subpart BC (Calculat- ing and satisfying income tax liabilities).

Non-ﬁling taxpayer Despite subsection (1), a non-ﬁling taxpayer is not required to ﬁle a return of income.
Provisional tax A person liable to pay provisional tax must pay provisional tax for a tax year under the provisional tax rules.

Withholding liabilities A person who has a withholding liability must satisfy it under subpart BE (Withholding liabilities).

Other obligations A person who has an obligation in relation to another ancillary tax under subpart BF (Other obligations) must satisfy it under that subpart.
Deﬁned in this Act: ancillary tax, income tax liability, non-ﬁling taxpayer, pay, provisional tax rules, provisional tax, return of income, tax year Compare: 2004 No 35 s BB 2 (1) (2) (3) (4) (5) 116 Reprinted as at 5 January 2010 Income Tax Act 2007 Part B s BB 3 BB 3 Overriding effect of certain matters (1) (2) Tax avoidance arrangements: subpart BG Under Part G (Avoidance and non-market transactions), the Commissioner may counteract a tax advantage from a tax avoidance arrangement.
Double tax agreements: subpart BH Under subpart BH (Double tax agreements) a double tax agreement has effect in relation to— (a) (b) (c) income tax; or any other tax imposed by this Act; or the exchange of information that relates to a tax, as de- ﬁned in paragraphs (a)(i) to (v) of the deﬁnition of tax in section 3 of the Tax Administration Act 1994.
Deﬁned in this Act: Commissioner, double tax agreement, income tax, tax, tax avoidance arrangement Compare: 2004 No 35 s BB 3 Subpart BC—Calculating and satisfying income tax liabilities 117 Part B s BB 3 Income Tax Act 2007 Reprinted as at 5 January 2010 Flowchart B2—Calculating and satisfying income tax liabilities 118 Reprinted as at 5 January 2010 Income Tax Act 2007 Part B s BB 3 119 Part B s BC 1 Income Tax Act 2007 Reprinted as at 5 January 2010 Flowchart B2: amended (with effect on 1 April 2008), on 7 December 2009, by section 4 of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
BC 1 Non-ﬁling and ﬁling taxpayers (1) (2) (3) Non-ﬁling taxpayer The income tax liability of a non-ﬁling taxpayer for a tax year is the total tax withheld from amounts of income included in the taxpayer’s annual gross income for the year.

Filing taxpayer The income tax liability of a ﬁling taxpayer for a tax year is calculated under sections BC 2 to BC 6.

Filing taxpayer with schedular income If a ﬁling taxpayer has schedular income, their income tax li- ability calculation is modiﬁed by section BC 7.
Deﬁned in this Act: amount, annual gross income, ﬁling taxpayer, income, in- come tax liability, non-ﬁling taxpayer, schedular income, tax, tax year Compare: 2004 No 35 s BC 1 BC 2 Annual gross income A person’s annual gross income for a tax year is the total of their assessable income that is allocated to the corresponding income year.
Deﬁned in this Act: annual gross income, assessable income, corresponding income year, tax year Compare: 2004 No 35 s BC 2 BC 3 Annual total deduction A person’s annual total deduction for a tax year is the total of their deductions that are allocated to the corresponding income year.
Deﬁned in this Act: annual total deduction, corresponding income year, deduc- tion, tax year Compare: 2004 No 35 s BC 3 120 Reprinted as at 5 January 2010 Income Tax Act 2007 Part B s BC 5 BC 4 Net income and net loss (1) (2) (3) (4) Income more than deductions If, for a tax year, a person’s annual gross income is more than their annual total deduction, the difference is their net income for the year.
Income equal to deductions If, for a tax year, a person’s annual gross income equals their annual total deduction, their net income for the year is zero.

Deductions more than income If, for a tax year, a person’s annual total deduction is more than their annual gross income, the difference is their net loss for the year, and their net income for the year is zero.
Treatment of net loss A person’s net loss for a tax year is included under Part I (Treatment of tax losses) in their tax loss for the tax year that may, under Part I, be— (a) subtracted from their net income for a future tax year: (b) made available to another person to subtract from that other person’s net income for that or a future tax year: used in certain other ways.
(c) Deﬁned in this Act: annual gross income, annual total deduction, net income, net loss, tax loss, tax year Compare: 2004 No 35 s BC 4 BC 5 Taxable income A person’s taxable income for a tax year is determined by subtracting any available tax loss that the person has from their net income under Part I (Treatment of tax losses).
Deﬁned in this Act: available tax loss, net income, tax loss, taxable income, tax year Compare: 2004 No 35 s BC 5 121 Part B s BC 6 Income Tax Act 2007 Reprinted as at 5 January 2010 BC 6 Income tax liability of ﬁling taxpayer Flowchart B3—Calculating income tax liability Calculation of amount The income tax liability of a ﬁling taxpayer for a tax year is the amount calculated by multiplying their taxable income for the tax year by the basic tax rate.
The income tax liability of a ﬁling taxpayer with schedular income is determined under section BC 7.

(1) 122 Reprinted as at 5 January 2010 Income Tax Act 2007 Part B s BC 8 (2) When liability zero or negative If the income tax liability calculated under subsection (1) is zero or negative, the ﬁling taxpayer’s income tax liability for the tax year is zero.
Deﬁned in this Act: amount, basic tax rate, ﬁling taxpayer, income tax liability, schedular income, tax year, taxable income Compare: 2004 No 35 s BC 6 BC 7 Income tax liability of person with schedular income (1) (2) (3) Modiﬁed income tax liability The income tax liability for a tax year of a person who has schedular income for the year is the total of— (a) their schedular income tax liability for the year calcu- lated under subsection (2) or (3); and the amount that would be their income tax liability for the year if they had no schedular income.
(b) Schedular income tax liability If a person has 1 kind of schedular income for a tax year, their schedular income tax liability for the year is the amount that would be the income tax liability for the year if their only in- come for the year were that schedular income.

Multiple schedular income If a person has more than 1 kind of schedular income for a tax year, their schedular income tax liability for the year is the total of the amounts calculated for each kind of schedular income.
Deﬁned in this Act: amount, income, income tax liability, schedular income, schedular income tax liability, tax year Compare: 2004 No 35 s BC 7 BC 8 Satisfaction of income tax liability 123 Part B s BC 8 Income Tax Act 2007 Reprinted as at 5 January 2010 Flowchart B4—Satisfying income tax liability 124 Reprinted as at 5 January 2010 Income Tax Act 2007 Part B s BD 1 (1) (2) (3) (4) Use of tax credits Credits for tax paid, tax withheld, or other circumstances, cal- culated under Parts L (Tax credits and other credits) and M (Tax credits paid in cash), satisfy a person’s income tax liabil- ity for a tax year as far as the credits extend.
Ordering rule The order in which the person uses their credits is set out in section LA 4 (When total tax credit more than income tax li- ability).

Terminal tax If the person’s income tax liability is more than the total of their credits, the difference is the person’s terminal tax.

The person must pay the terminal tax to complete the satisfaction of their income tax liability.
Remaining credits The treatment of any credits remaining after the person’s in- come tax liability is satisﬁed is dealt with in section LA 5 (Treatment of remaining credits).
Deﬁned in this Act: income tax liability, pay, tax, tax credit, tax year, terminal tax Compare: 2004 No 35 s BC 9 Subpart BD—Income, deductions, and timing BD 1 Income, exempt income, excluded income, nonresidents’ foreign-sourced income, and assessable income (1) (2) (3) Amounts of income An amount is income of a person if it is their income under a provision in Part C (Income).
Exempt income An amount of income of a person is exempt income if it is their exempt income under a provision in subpart CW (Exempt income) or CZ (Terminating provisions).

Excluded income An amount of income of a person is excluded income if— (a) it is their excluded income under a provision in subpart CX (Excluded income) or CZ; and 125 Part B s BD 2 Income Tax Act 2007 Reprinted as at 5 January 2010 (4) (5) (b) it is not their non-residents’ foreign-sourced income.
Non-residents’ foreign-sourced income An amount of income of a person is non-residents’ foreign- sourced income if— (a) (b) (c) the amount is a foreign-sourced amount; and the person is a non-resident when it is derived; and the amount is not income of a trustee to which sec- tion HC 25(2) (Foreign-sourced amounts: non-resident trustees) applies.
Assessable income An amount of income of a person is assessable income in the calculation of their annual gross income if it is not income of any of the following kinds: their exempt income: (a) their excluded income: (b) their non-residents’ foreign-sourced income.
(c) Deﬁned in this Act: amount, annual gross income, assessable income, excluded income, exempt income, foreign-sourced amount, income, non-resident, non- residents’ foreign-sourced income Compare: 2004 No 35 s BD 1 BD 2 Deductions An amount is a deduction of a person if they are allowed a deduction for the amount under Part D (Deductions).
Deﬁned in this Act: amount, deduction Compare: 2004 No 35 s BD 2 BD 3 Allocation of income to particular income years (1) (2) Application Every amount of income must be allocated to an income year under this section.

General rule An amount of income is allocated to the income year in which the amount is derived, unless a provision in any of Parts C or E to I provides for allocation on another basis.
Interpretation of derive (3) When the time of derivation of an amount of income is being determined, regard must be had to case law, which— 126 Reprinted as at 5 January 2010 Income Tax Act 2007 Part B s BD 4 (a) (b) requires some people to recognise income on an accrual basis; and requires other people to recognise income on a cash basis; and (c) more generally, deﬁnes the concept of derivation.
Income credited in account Despite subsection (3), income that has not previously been derived by a person is treated as being derived when it is cred- ited in their account or, in some other way, dealt with in their interest or on their behalf.

Role of Part E Part E (Timing and quantifying rules) contains a number of provisions that— (a) speciﬁcally modify the allocation of income or have the effect of modifying the allocation of income; or allocate income as part of the process of quantifying it.
(b) Single allocation An amount of income may be allocated only once.

Deﬁned in this Act: amount, income, income year Compare: 2004 No 35 s BD 3 (4) (5) (6) BD 4 Allocation of deductions to particular income years (1) (2) Application Every deduction must be allocated to an income year under this section.
General rule A deduction for an amount of expenditure or loss is allocated to the income year in which the expenditure or loss is incurred, unless a provision in any of Parts D to I provides for allocation on another basis.
Interpretation of incur (3) When the time of incurrence of an amount of expenditure or loss is being determined, regard must be had to case law, which— (a) requires some people to recognise expenditure or loss on an accrual basis; and 127 Part B s BE 1 Income Tax Act 2007 Reprinted as at 5 January 2010 (b) requires other people to recognise expenditure or loss on a cash basis; and (c) more generally, deﬁnes the concept of incurrence.
(4) (5) Role of Part E Part E (Timing and quantifying rules) contains a number of provisions that— (a) speciﬁcally modify the allocation of deductions or have the effect of modifying the allocation of deductions; or allocate deductions as part of the process of quantifying them.

(b) Allocation If an expenditure or loss gives rise to more than 1 deduction, the deductions are allocated to income years to the extent that their total is no more than the amount of the expenditure or loss.
Deﬁned in this Act: amount, deduction, income year, loss Compare: 2004 No 35 s BD 4 Subpart BE—Withholding liabilities BE 1 Withholding liabilities PAYE income payments A person who makes a PAYE income payment must withhold an amount from the payment under the PAYE rules.

Resident passive income A person who makes a payment of resident passive income must withhold an amount from the payment under the RWT rules.
Non-resident passive income A person who makes a payment of non-resident passive in- come must withhold an amount from the payment under the NRWT rules.

Fringe beneﬁts A person who provides a fringe beneﬁt to another person must pay fringe beneﬁt tax under the FBT rules.

Employer’s superannuation cash contributions A person who makes an employer’s superannuation cash con- tribution must pay ESCT under the ESCT rules.
(1) (2) (3) (4) (5) 128 Reprinted as at 5 January 2010 Income Tax Act 2007 Part B s BE 1 Retirement scheme contributions (5B) A person who makes a retirement scheme contribution to a retirement savings scheme must pay RSCT under the RSCT rules.
(6) FDP [Repealed] [Repealed] amount, dividend, employer’s superannuation cash Deﬁned in this Act: contribution, ESCT, ESCT rules, FBT rules, fringe beneﬁt, fringe beneﬁt tax, non-resident passive income, NRWT rules, pay, PAYE income payment, PAYE rules, resident passive income, retirement savings scheme, retirement scheme contribution, , RSCT, RSCT rules, RWT rules, superannuation fund Compare: 2004 No 35 s BE 1 Section BE 1(1) heading: substituted (with effect on 1 April 2008), on 6 October 2009, by section 5(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section BE 1(1): substituted (with effect on 1 April 2008), on 6 October 2009, by section 5(1) of the Taxation (International Taxation, Life Insurance, and Re- medial Matters) Act 2009 (2009 No 34).

Section BE 1(5) heading: substituted (with effect on 1 April 2008), on 6 October 2009, by section 5(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section BE 1(5): substituted (with effect on 1 April 2008), on 6 October 2009, by section 5(2) of the Taxation (International Taxation, Life Insurance, and Re- medial Matters) Act 2009 (2009 No 34).

Section BE 1(5B) heading: inserted, on 1 April 2008, by section 308(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section BE 1(5B): inserted, on 1 April 2008, by section 308(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section BE 1(6) heading: repealed (with effect on 30 June 2009), on 6 Octo- ber 2009, pursuant to section 5(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section BE 1(6): repealed (with effect on 30 June 2009), on 6 October 2009, by section 5(3) of the Taxation (International Taxation, Life Insurance, and Re- medial Matters) Act 2009 (2009 No 34).
Section BE 1 list of deﬁned terms employer’s superannuation cash contri- bution: inserted (with effect on 1 April 2008), on 6 October 2009, by section 5(5)(b) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section BE 1 list of deﬁned terms employer’s superannuation contribution: repealed (with effect on 1 April 2008), on 6 October 2009, by section 5(5)(a) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
129 Part B s BF 1 Income Tax Act 2007 Reprinted as at 5 January 2010 Section BE 1 list of deﬁned terms FDP: repealed (with effect on 30 June 2009), on 6 October 2009, by section 5(6) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section BE 1 list of deﬁned terms FDP rules: repealed (with effect on 30 June 2009), on 6 October 2009, by section 5(6) of the Taxation (International Taxa- tion, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section BE 1 list of deﬁned terms PAYE income payment: inserted (with ef- fect on 1 April 2008), on 6 October 2009, by section 5(5)(b) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section BE 1 list of deﬁned terms PAYE payment: repealed (with effect on 1 April 2008), on 6 October 2009, by section 5(5)(a) of the Taxation (Inter- national Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section BE 1 list of deﬁned terms retirement savings scheme: inserted, on 1 April 2008, by section 308(2) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section BE 1 list of deﬁned terms retirement scheme contribution: inserted, on 1 April 2008, by section 308(2) of the Taxation (Business Taxation and Re- medial Matters) Act 2007 (2007 No 109).
Section BE 1 list of deﬁned terms RSCT: inserted, on 1 April 2008, by section 308(2) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section BE 1 list of deﬁned terms RSCT rules: inserted, on 1 April 2008, by section 308(2) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Subpart BF—Other obligations BF 1 Other obligations (c) (b) A person must pay the following types of income or ancillary tax under the relevant Part: (a) qualifying company election tax under Part H (Taxation of certain entities): income tax on taxable distributions from non-comply- ing trusts under Part H: further income tax under Part O (Memorandum ac- counts): [Repealed] (d) withdrawal tax under Part R (General collection rules).
(e) Deﬁned in this Act: ancillary tax, further income tax, income tax, non-comply- ing trust, pay, qualifying company election tax, taxable distribution, withdrawal tax Compare: 2004 No 35 s BF 1 130 Reprinted as at 5 January 2010 Income Tax Act 2007 Part B s BH 1 Section BF 1(d): repealed (with effect on 30 June 2009), on 6 October 2009, by section 6(1) of the Taxation (International Taxation, Life Insurance, and Re- medial Matters) Act 2009 (2009 No 34).
Section BF 1 list of deﬁned terms further FDP: repealed (with effect on 30 June 2009), on 6 October 2009, by section 6(2) of the Taxation (International Taxa- tion, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Subpart BG—Avoidance BG 1 Tax avoidance (1) (2) Avoidance arrangement void A tax avoidance arrangement is void as against the Commis- sioner for income tax purposes.
Reconstruction Under Part G (Avoidance and non-market transactions), the Commissioner may counteract a tax advantage that a person has obtained from or under a tax avoidance arrangement.
Deﬁned in this Act: Commissioner, income tax, tax avoidance arrangement Compare: 2004 No 35 s BG 1 Subpart BH—Double tax agreements BH 1 Double tax agreements (1) Meaning Double tax agreement means an agreement that— (a) (b) (c) has been negotiated for 1 or more of the purposes set out in subsection (2); and has been agreed between— (i) the government of any territory outside New Zealand and the government of New Zealand; or the Taipei Economic and Cultural Ofﬁce in New Zealand and the New Zealand Commerce and Industry Ofﬁce; and (ii) has entered into force as a result of a declaration by the Governor-General by Order in Council under subsec- tion (3).
(2) Purposes The following are the purposes for which a double tax agree- ment may be negotiated: (a) to provide relief from double taxation: 131 Part B s BH 1 Income Tax Act 2007 Reprinted as at 5 January 2010 (b) (c) (d) (e) (f) (g) (h) to provide relief from tax: to tax the income derived by non-residents from any source in New Zealand: to determine the income to be attributed to non-resi- dents or their agencies, branches, or establishments in New Zealand: to determine the income to be attributed to New Zealand residents who have special relationships with non-resi- dents: to prevent ﬁscal evasion: to facilitate the exchange of information: to assist in recovering unpaid tax.
Entry into force An agreement to which subsection (1)(a) and (b) apply enters into force on the date speciﬁed by the Governor-General by Order in Council.
Overriding effect Despite anything in this Act, except subsection (5), or in any other Inland Revenue Act or the Ofﬁcial Information Act 1982 or the Privacy Act 1993, a double tax agreement has effect in relation to— (a) (b) (c) income tax: any other tax imposed by this Act: the exchange of information that relates to a tax, as de- ﬁned in paragraphs (a)(i) to (v) of the deﬁnition of tax in section 3 of the Tax Administration Act 1994.
Agreement for recovery of tax An agreement that provides for the recovery of unpaid tax is subject to Part 10A of the Tax Administration Act 1994.

Reference to proﬁts A reference in a double tax agreement to the proﬁts of an ac- tivity or business is to be read, if possible, as a reference to the amount that would be a person’s net income if that activity or business were their only activity or business.
(3) (4) (5) (6) 132 Reprinted as at 5 January 2010 Income Tax Act 2007 Part C s CA 2 (7) Reference to unrelated persons A reference in a double tax agreement to 2 persons being un- related is to be read, if possible, as a reference to 2 persons being not associated.
Deﬁned in this Act: associated, business, double tax agreement, income, in- come tax, Inland Revenue Acts, net income, New Zealand, New Zealand resi- dent, non-resident, pay, source in New Zealand, tax Compare: 2004 No 35 s BH 1 Section BH 1(7) heading: added, on 8 December 2009, by section 5 of the Tax- ation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
Section BH 1(7): added, on 8 December 2009, by section 5 of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).

Section BH 1 list of deﬁned terms associated: inserted, on 8 December 2009, by section 126 of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
Part C Income Subpart CA—General rules CA 1 Amounts that are income (1) (2) Amounts speciﬁcally identiﬁed An amount is income of a person if it is their income under a provision in this Part.

Ordinary meaning An amount is also income of a person if it is their income under ordinary concepts.
Deﬁned in this Act: amount, income Compare: 2004 No 35 s CA 1 CA 2 Amounts that are exempt income or excluded income (1) (2) What this section does This section identiﬁes the subparts in this Act that deal with exempt income and excluded income.

Exempt income An amount of income of a person is exempt income if it is their exempt income under a provision in subpart CW (Exempt income) or CZ (Terminating provisions).
133 Part C s CB 1 Income Tax Act 2007 Reprinted as at 5 January 2010 (3) Excluded income An amount of income of a person is excluded income if— (a) it is their excluded income under a provision in subpart CX (Excluded income) or CZ; and it is not their non-residents’ foreign-sourced income.
(b) Deﬁned in this Act: amount, excluded income, exempt income, non-residents’ foreign-sourced income Compare: 2004 No 35 s CA 2 Subpart CB—Income from business or trade-like activities Business generally CB 1 Amounts derived from business (1) (2) Income An amount that a person derives from a business is income of the person.

Exclusion Subsection (1) does not apply to an amount that is of a capital nature.
Deﬁned in this Act: amount, business, income Compare: 2004 No 35 s CB 1 CB 2 Amounts received on disposal of business assets that include trading stock When this section applies This section applies in an income year when— (a) a person (person A) who owns or carries on a business disposes of some or all of the assets of the business to another person (person B); and the disposal is made outside the ordinary course of the business, or to put an end to the business or a part of it; and the assets consist of or include trading stock of the busi- ness, or a share or interest in trading stock.
(b) (c) Assessable income of person A An amount that person A receives from the disposal of the trading stock is taken into account in determining their income (1) (2) 134 Reprinted as at 5 January 2010 Income Tax Act 2007 Part C s CB 4 (3) (4) (5) for the income year.

The amount is derived at the time of disposal referred to in subsection (1).
Price of acquisition by person B In the calculation of the taxable income of person B for the in- come year or a later income year, person B is treated as acquir- ing the trading stock for the amount of the disposal referred to in subsection (2).
Disposal In this section, a disposal— (a) (b) includes the passing of property by an exchange, gift, distribution under a will or on intestacy; and does not include a disposal under any of sections FC 3 to FC 8 (which relate to distributions after death) that is not at market value.

Relationship with section CB 1 This section overrides section CB 1.
Deﬁned in this Act: amount, assessable income, business, dispose, distribution, income year, market value, property, taxable income, trading stock Compare: 2004 No 35 s FB 3 CB 3 Proﬁt-making undertaking or scheme Schemes for proﬁt An amount that a person derives from carrying on or carrying out an undertaking or scheme entered into or devised for the purpose of making a proﬁt is income of the person.
Deﬁned in this Act: amount, income Compare: 2004 No 35 s CB 2 Personal property CB 4 Personal property acquired for purpose of disposal An amount that a person derives from disposing of personal property is income of the person if they acquired the property for the purpose of disposing of it.
Deﬁned in this Act: amount, income, personal property Compare: 2004 No 35 s CB 3 135 Part C s CB 5 Income Tax Act 2007 Reprinted as at 5 January 2010 CB 5 Business of dealing in personal property An amount that a person derives from disposing of personal property is income of the person if their business is to deal in property of that kind.
Deﬁned in this Act: amount, business, income, personal property Compare: 2004 No 35 s CB 4 Land CB 6 Disposal: land acquired for purpose or with intention of disposal Income An amount that a person derives from disposing of land is income of the person if they acquired the land— (a) for 1 or more purposes that included the purpose of dis- posing of it: with 1 or more intentions that included the intention of disposing of it.
(b) Exclusions Subsection (1) is overridden by the exclusions for residential land in section CB 16 and for business premises in section CB 19.

Land partially sold or sold with other land This section and sections CB 7 to CB 23 apply whether the land disposed of— (a) is part only of the land to which the relevant section applies: is the whole of the land to which the relevant section applies: is the whole of the land to which the relevant section applies, together with other land.
Deﬁned in this Act: amount, business, dispose, income, land Compare: 2004 No 35 ss CB 5, OB 1 land paragraph (a)(i) (b) (c) (1) (2) (3) 136 Reprinted as at 5 January 2010 Income Tax Act 2007 Part C s CB 8 CB 7 Disposal: land acquired for purposes of business relating to land (1) Income An amount that a person (person A) derives from disposing of land is income of person A if— (a) (b) (c) both the following apply: (i) (ii) at the time person A acquired the land they, or an associated person, carried on a business of dealing in land; and person A acquired the land for the purpose of the business; or both the following apply: (i) at the time person A acquired the land they, or an associated person, carried on a business of developing land or dividing land into lots; and person A acquired the land for the purpose of the business; or all the following apply: (i) (ii) at the time person A acquired the land they, or an associated person, carried on a business of erecting buildings; and person A acquired the land for the purpose of the business; and before or after acquiring the land person A, or the associated person, made improvements to it.
(ii) (iii) (2) Exclusions Subsection (1) is overridden by the exclusions for residential land in section CB 16 and for business premises in section CB 19.
Deﬁned in this Act: amount, associated person, business, dispose, improve- ments, income, land Compare: 2004 No 35 s CB 6 CB 8 Disposal: land used for landﬁll, if notice of election An amount that a person derives from disposing of land is income of the person if— (a) the person uses the land as a landﬁll before disposing of the land; and 137 Part C s CB 9 Income Tax Act 2007 Reprinted as at 5 January 2010 (b) (c) (d) at the time of disposal, the land is not being used as a landﬁll; and the person acquiring the land is not an associated person under subpart YB (Associated persons and nominees) to the extent to which those rules apply for the purposes of the whole of this Act, excluding the 1973, 1988, and 1990 version provisions; and the person gives written notice to the Commissioner of an election that the land be subject to this section by the day that is the later of the following: (i) the day that is 12 months after the day on which the person acquires the land: 24 June 2006; and (f) (e) (ii) the person makes an election under paragraph (d) for all land that the person acquires and uses as a landﬁll; and any person associated with the person makes an elec- tion under paragraph (d) for all land that the associated person acquires and uses as a landﬁll.
Deﬁned in this Act: associated person, Commissioner, dispose Compare: 2004 No 35 s CB 6B CB 9 Disposal within 10 years: land dealing business Income An amount that a person derives from disposing of land is income of the person if— (a) they dispose of the land within 10 years of acquiring it; and at the time they acquired the land, they carried on a business of dealing in land, whether or not the land was acquired for the purpose of the business.
(b) Income: associated person in business of dealing in land An amount that a person (person A) derives from disposing of land within 10 years of acquiring it is income of person A if a person (person B) associated with them at the time the land was acquired carried on a business of dealing in land, whether or not— (a) (b) person A carried on a business of dealing in land; or the land was acquired for the purpose of person B’s business.
(1) (2) 138 Reprinted as at 5 January 2010 Income Tax Act 2007 Part C s CB 10 (3) Exclusions Subsections (1) and (2) are overridden by the exclusions for residential land in section CB 16 and for business premises in section CB 19.
Deﬁned in this Act: amount, associated person, business, dispose, income, land, year Compare: 2004 No 35 s CB 7 CB 10 Disposal within 10 years: land development or subdivision business (1) (2) (3) Income An amount that a person derives from disposing of land is income of the person if— (a) they dispose of the land within 10 years of acquiring it; and at the time they acquired the land, they carried on a business of developing land or dividing land into lots, whether or not the land was acquired for the purpose of the business.
(b) Income: associated person in business of developing or subdividing land An amount that a person (person A) derives from disposing of land within 10 years of acquiring it is income of person A if a person (person B) associated with them at the time the land was acquired carried on a business of developing land or dividing land into lots, whether or not— (a) person A carried on a business of developing land or dividing land into lots: the land was acquired for the purpose of person B’s business.
(b) Exclusions Subsections (1) and (2) are overridden by the exclusions for residential land in section CB 16 and for business premises in section CB 19.
Deﬁned in this Act: amount, associated person, business, dispose, income, land, year Compare: 2004 No 35 s CB 8 139 Part C s CB 11 Income Tax Act 2007 Reprinted as at 5 January 2010 CB 11 Disposal within 10 years of improvement: building business (1) (2) (3) Income An amount that a person derives from disposing of land is income of the person if— (a) they dispose of the land within 10 years of completing improvements to it; and at the time they began the improvements, they carried on a business of erecting buildings, whether or not the land was acquired for the purpose of the business.
(b) Income: associated person in business of erecting buildings An amount that a person (person A) derives from disposing of land within 10 years of completing improvements on it is income of person A if another person (person B) associated with person A at the time the improvements were begun car- ried on a business of erecting buildings, whether or not— (a) (b) person A carried on a business of erecting buildings; or the land was acquired for the purpose of person B’s business.
Exclusions Subsections (1) and (2) are overridden by the exclusions for residential land in section CB 16 and for business premises in section CB 19.
Deﬁned in this Act: amount, associated person, business, dispose, improve- ments, income, land, year Compare: 2004 No 35 s CB 9 CB 12 Disposal: schemes for development or division begun within 10 years Income An amount that a person derives from disposing of land is income of the person if the amount is derived in the following circumstances: (a) an undertaking or scheme, which is not necessarily in the nature of a business, is carried on; and the undertaking or scheme involves the development of the land or the division of the land into lots; and (b) (1) 140 Reprinted as at 5 January 2010 Income Tax Act 2007 Part C s CB 13 (c) (d) (e) the person, or another person for them, carries on devel- opment or division work on or relating to the land; and the development or division work is not minor; and the undertaking or scheme was begun within 10 years of the date on which the person acquired the land.
Exclusions Subsection (1) is overridden by the exclusions for residential land in section CB 17, for business premises in section CB 20, for farm land in section CB 21, and for investment land in section CB 23.
Deﬁned in this Act: amount, business, dispose, income, land, year Compare: 2004 No 35 s CB 10 (2) CB 13 Disposal: amount from major development or division and not already in income (1) Income An amount that a person derives from disposing of land is income of the person if— (a) the amount is not income under any of sections CB 6 to CB 12 and CB 14; and the amount is derived in the following circumstances: (i) (b) (ii) (iii) (iv) an undertaking or scheme, which is not necessar- ily in the nature of a business, is carried on; and the undertaking or scheme involves the develop- ment of the land or the division of the land into lots; and the person, or another person for them, carries on development or division work on or relating to the land; and the development or division work involves sig- niﬁcant expenditure on channelling, contouring, drainage, earthworks, kerbing, levelling, road- ing, or any other amenity, service, or work cus- tomarily undertaken or provided in major pro- jects involving the development of land for com- mercial, industrial, or residential purposes.
141 Part C s CB 14 Income Tax Act 2007 Reprinted as at 5 January 2010 (2) (3) Exclusions Subsection (1) is overridden by the exclusions for residential land in section CB 17, for business premises in section CB 20, for farm land in section CB 21, and for investment land in section CB 23.

Relationship with section DB 27 Section DB 27 (Amount from major development or division and not already in income) deals with a deduction for the value of the land.
Deﬁned in this Act: amount, business, deduction, dispose, income, land Compare: 2004 No 35 s CB 11 Section CB 13(2) heading: substituted, on 1 April 2008, by section 309 of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section CB 13(2): substituted, on 1 April 2008, by section 309 of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
CB 14 Disposal: amount from land affected by change and not already in income (b) (c) (d) Income An amount that a person derives from disposing of land is income of the person if— (a) the amount is not income under any of sections CB 6 to CB 12; and the person disposed of the land within 10 years of ac- quiring it; and the total amount that they derive from its disposal is more than the cost of the land; and at least 20% of the excess arises from a factor, or more than 1 factor, that— (i) (ii) (iii) relates to the land; and is described in subsection (2); and occurs after the person acquired the land, for the factors described in subsection (2)(c), (e), (g), and (i).
Factors for purposes of subsection (1)(d) The factors referred to in subsection (1)(d) are— (a) the rules of an operative district plan under the Resource Management Act 1991: the likelihood of the imposition of rules: (b) (1) (2) 142 Reprinted as at 5 January 2010 Income Tax Act 2007 Part C s CB 15 (c) (d) (e) (f) (g) (h) (i) (j) (k) (l) a change to the rules: the likelihood of a change to the rules: a consent granted under the Resource Management Act 1991: the likelihood of a consent being granted: a decision of the Environment Court made under the Resource Management Act 1991: the likelihood of a decision being made: the removal of a condition, covenant, designation, her- itage order, obligation, prohibition, or restriction under the Resource Management Act 1991: the likelihood of the removal of a condition, covenant, designation, heritage order, obligation, prohibition, or restriction: an occurrence of a similar nature to any of the occur- rences described in any of paragraphs (a) to (j): the likelihood of an occurrence of a similar nature to any of the occurrences described in any of paragraphs (a) to (j).
(3) Exclusions Subsection (1) is overridden by the exclusions for residential property in section CB 18 and for farm land in section CB 22.
Deﬁned in this Act: amount, dispose, income, land, year Compare: 2004 No 35 s CB 12 CB 15 Transactions between associated persons (1) Income An amount that a person (the transferee) derives from dis- posing of land is income of the transferee under whichever is applicable of sections CB 6 to CB 14 if— (a) the land has been transferred to the transferee from an- other person (the transferor); and the transferor and the transferee are associated persons at the time of the transfer; and the amount derived is more than the cost of the land to the transferee; and the amount derived would have been income of the transferor under any of sections CB 6 to CB 14 if the transferor had retained and disposed of the land.
(b) (c) (d) 143 Part C s CB 16 Income Tax Act 2007 Reprinted as at 5 January 2010 (2) Date on which some transferees acquire land For the purposes of sections CB 7 to CB 12 and CB 14, if the transferor and transferee are associated persons at the time of the transfer, the transferee is treated as having acquired the land on the date on which the transferor acquired it.
Deﬁned in this Act: amount, associated person, dispose, income, land Compare: 2004 No 35 s CB 13 Exclusions for residential land CB 16 Residential exclusion from sections CB 6 to CB 11 Exclusion Sections CB 6 to CB 11 do not apply if— (a) the person— (i) (ii) acquired the land with a dwellinghouse on it; or acquired the land and erected a dwellinghouse on it; and (b) the dwellinghouse was occupied mainly as a residence by— (i) the person and any member of their family living with them; or if the person is a trustee, 1 or more beneﬁciaries of the trust.
(ii) What exclusion applies to The exclusion applies to the land that has the dwellinghouse on it.

It also applies to land related to the land that has the dwellinghouse on it if the total area of the related land is— (a) (b) more than 4,500 square metres, if the larger area is re- quired for the reasonable occupation and enjoyment of the dwellinghouse.
4,500 square metres or less; or Who exclusion does not apply to The exclusion does not apply to a person who has engaged in a regular pattern of acquiring and disposing, or erecting and disposing, of dwellinghouses.
Deﬁned in this Act: dispose, land, trustee Compare: 2004 No 35 s CB 14 (1) (2) (3) 144 Reprinted as at 5 January 2010 Income Tax Act 2007 Part C s CB 18 CB 17 Residential exclusion from sections CB 12 and CB 13 (1) (2) Exclusion: developing or dividing land for residential use Sections CB 12 and CB 13 do not apply if— (a) the work involved in the undertaking or scheme is to create or effect a development, division, or improve- ment; and the development, division, or improvement is for use in, and for the purposes of, the residing on the land of the person or any member of their family living with them.
(b) Exclusion: dividing residential land Sections CB 12 and CB 13 do not apply if— (a) the land is a lot that came out of a larger area of land that the person divided into 2 or more lots; and the larger area of land— (i) was 4,500 square metres or less immediately be- fore it was divided; and (b) (ii) was occupied by the person mainly as residential land for themselves and a member of their family living with them.
Deﬁned in this Act: land Compare: 2004 No 35 s CB 15 Section CB 17(1): amended, on 1 April 2008, by section 310 of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

CB 18 Residential exclusion from section CB 14 (1) (2) Exclusion Section CB 14 does not apply if— (a) the person acquired the land and used it or intended to use it for residential purposes; and they disposed of the land to another person who ac- quired it for residential purposes.
(b) Purpose of acquisition for purposes of subsection (1)(b) For the purposes of subsection (1)(b), the purpose of the ac- quisition by the other person is ascertained from the circum- stances of the disposal and other relevant matters.
Meaning of residential purposes In this section, residential purposes— (3) 145 Part C s CB 19 Income Tax Act 2007 Reprinted as at 5 January 2010 (a) means a purpose that the person has of using the land or intending to use the land mainly as a residence for them- selves and members of their family living with them; and includes the purpose of erecting a dwellinghouse on the land to be occupied as such a residence.
(b) Deﬁned in this Act: dispose, land, residential purposes Compare: 2004 No 35 s CB 16 Exclusions for business premises CB 19 Business exclusion from sections CB 6 to CB 11 (1) (2) (3) Exclusion Sections CB 6 to CB 11 do not apply to a disposal of land if— (a) (b) the land is the premises of a business; and the person acquired and occupied, or erected and occu- pied, the premises mainly to carry on a substantial busi- ness from them.
Who exclusion does not apply to The exclusion does not apply to a person who has engaged in a regular pattern of acquiring and disposing, or erecting and disposing, of premises for businesses.

Meaning of land In this section, land includes land that— (a) (b) is reserved, with the premises, for the use of the busi- ness; and is of an area no greater than that required for the reason- able occupation of the premises and the carrying on of the business.
Deﬁned in this Act: business, dispose, land Compare: 2004 No 35 s CB 17 CB 20 Business exclusion from sections CB 12 and CB 13 Sections CB 12 and CB 13 do does not apply if— (a) the work involved in the undertaking or scheme is to create or effect a development, division, or improve- ment; and 146 Reprinted as at 5 January 2010 Income Tax Act 2007 Part C s CB 21 (b) (c) the development, division, or improvement is for use in, and for the purposes of, the carrying on of a business by the person on the land; and the business does not consist of the undertaking or scheme.
Deﬁned in this Act: business, land Compare: 2004 No 35 s CB 18 Section CB 20: amended, on 1 April 2008, by section 311(2) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section CB 20 heading: amended, on 1 April 2008, by section 311(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Exclusions for farm land CB 21 Farm land exclusion from sections CB 12 and CB 13 (1) (2) Exclusion Sections CB 12 and CB 13 do not apply if— (a) the land is a lot resulting from the division of a larger area of land into 2 or more lots; and immediately before the land was divided, the larger area of land was occupied or used by the person, their spouse, civil union partner or de facto partner, or both of them, mainly for the purposes of a farming or agri- cultural business carried on by either or both of them; and the area and nature of the land disposed of mean that it is then capable of being worked as an economic unit as a farming or agricultural business; and the land was disposed of mainly for the purpose of using it in a farming or agricultural business.
(b) (c) (d) Circumstances for purposes of subsection (1)(d) The circumstances of the disposal of the land are relevant to the decision on whether the land was disposed of mainly for the purpose of using it in a farming or agricultural business.
The circumstances include— (a) (b) (c) (d) the consideration for the disposal of the land: current prices paid for land in that area: the terms of the disposal: a zoning or other classiﬁcation relating to the land: 147 Part C s CB 22 Income Tax Act 2007 Reprinted as at 5 January 2010 (e) the proximity of the land to any other land being used or developed for uses other than farming or agricultural uses.
Deﬁned in this Act: business, dispose, land, pay Compare: 2004 No 35 s CB 19 CB 22 Farm land exclusion from section CB 14 (1) (2) Exclusion Section CB 14 does not apply if— (a) the person (person A) acquired the land, and they, their spouse, civil union partner or de facto partner, or both of them used or intended to use the land mainly for the purposes of a farming or agricultural business carried on by them, their spouse, civil union partner, or de facto partner, or both of them; and they disposed of the land to another person (person B) mainly for the purposes of the continuing use of the land in a farming or agricultural business.
(b) Purposes of acquisition for purposes of subsection (1)(b) For the purposes of subsection (1)(b), person B’s purposes in acquiring the land are ascertained from circumstances of the disposal arising after person A acquired the land and other relevant matters, not including the factors described in CB 14(1).
Deﬁned in this Act: business, dispose, land Compare: 2004 No 35 s CB 20 Exclusion for investment land CB 23 Investment exclusion from sections CB 12 and CB 13 Sections CB 12 and CB 13 do does not apply if— (a) the work involved in the undertaking or scheme is to create or effect a development, division, or improve- ment; and the development, division, or improvement is for use in, and for the purposes of, the person’s deriving from (b) 148 Reprinted as at 5 January 2010 Income Tax Act 2007 Part C s CB 24 the land income of the kind described in section CC 1 (Land).
Deﬁned in this Act: income, land Compare: 2004 No 35 s CB 21 Section CB 23: amended, on 1 April 2008, by section 312(2) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section CB 23 heading: amended, on 1 April 2008, by section 312(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
CB 23B Land partially sold or sold with other land Sections CB 6 to CB 23 apply to an amount derived from the disposal of land if the land is— (a) (b) part of the land to which the relevant section applies: the whole of the land to which the relevant section ap- plies: disposed of together with other land.
(c) Deﬁned in this Act: amount, dispose, land Compare: 2004 No 35 s CB 5A Section CB 23B: inserted, on 1 April 2008, by section 313 of the Taxation (Busi- ness Taxation and Remedial Matters) Act 2007 (2007 No 109).

CB 24 Disposal of timber or right to take timber Timber (1) (2) (3) Income An amount is income of a person if they derive it from— (a) (b) disposing of timber; or disposing of a right to take timber.
Whether or not person owns land Subsection (1) applies whether or not the person owns the land on which the timber is situated.

Disposal for below market value Section GC 2 (Disposals of timber rights or standing timber) may apply to treat a person as deriving an amount on the grant of a right to take timber or disposal of standing timber.
Deﬁned in this Act: amount, dispose, income, own, right to take timber, stand- ing timber Compare: 2004 No 35 s CB 22 149 Part C s CB 25 Income Tax Act 2007 Reprinted as at 5 January 2010 CB 25 Disposal of land with standing timber (1) (2) When this section applies This section applies when a person disposes of land with stand- ing timber on it.
Exclusions This section does not apply when the standing timber is of 1 of the following kinds: (a) trees that are ornamental or incidental, as evidenced by a certiﬁcate given under section 44C of the Tax Administration Act 1994; or trees in a crop subject to a forestry right, as deﬁned in section 2 of the Forestry Rights Registration Act 1983, registered under the Land Transfer Act 1952; or trees subject to a right to take a beneﬁt (in the form of a proﬁt a prendre) granted before 1 January 1984.
(b) (c) (3) Income The amount that the person derives from disposing of the standing timber is income of the person.
Deﬁned in this Act: amount, dispose, income, standing timber Compare: 2004 No 35 s CB 23 CB 26 Certain disposals by portfolio investment entities Investments When this section applies This section applies when— (a) (b) (c) a portfolio investment entity or the New Zealand Super- annuation Fund (the entity) disposes of a share in a company; and section CX 55 (Proceeds from certain disposals by port- folio investment entities or New Zealand Superannu- ation Fund) applies to the income from the disposal; and a dividend from the share is— (i) (ii) declared before the disposal; and paid to a holder of the share who, after the dis- posal, becomes entitled to the dividend.
(1) 150 Reprinted as at 5 January 2010 Income Tax Act 2007 Part C s CB 27 (2) (3) (4) Income The entity is treated as deriving an amount calculated using the formula— (declaration shares − distribution shares) × distribution.
Deﬁnition of items in formula In the formula,— (a) (b) (c) declaration shares is the number of shares held by the entity when the dividend is declared: distribution shares is the number of shares for which the entity derives a dividend: distribution is,— (i) for a share issued by a company that has an im- putation credit account, the amount of the divi- dend that is not fully imputed as described in sec- tion RF 9(2) (When dividends fully imputed or fully credited); or otherwise, the amount of the dividend.
(ii) Positive result The amount calculated using the formula must be more than zero.

Deﬁned in this Act: amount, company, dividend, imputation credit account, income, portfolio investment entity, share Compare: 2004 No 35 s CB 4B Section CB 26: substituted, on 1 April 2008, by section 314 of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Farming, forestry, or ﬁshing CB 27 Income equalisation schemes Income derived by a person, as timed and quantiﬁed under any of the following provisions, is income of the person: (a) sections EH 11, EH 14, EH 16, EH 18, EH 20 to EH 22, EH 24, and EH 26 (which relate to the main income equalisation scheme): sections EH 46, EH 48, EH 50 to EH 52, EH 54, and EH 56 (which relate to the adverse event income equal- isation scheme): (b) 151 Part C s CB 27B Income Tax Act 2007 Reprinted as at 5 January 2010 (c) sections EH 72, EH 74, and EH 76 (which relate to the thinning operations income equalisation scheme).
Deﬁned in this Act: adverse event income equalisation scheme, income, main income equalisation scheme, person, thinning operations income equalisation scheme Compare: 2004 No 35 s CB 24 CB 27B Entering partners’ livestock income [Repealed] Section CB 27B: repealed (with effect on 1 April 2009), on 6 October 2009, by section 9(1) of the Taxation (International Taxation, Life Insurance, and Re- medial Matters) Act 2009 (2009 No 34).
Section CB 27B: inserted, on 1 April 2008, by section 4(1) of the Taxation (Limited Partnerships) Act 2008 (2008 No 2).
Environmental restoration CB 28 Environmental restoration accounts Income from refund A person who receives a refund for a tax year under section EK 12 (Refund if request or excess balance) derives for the person’s corresponding income year an amount of income cal- culated using the formula— Income from transfer from environmental restoration account If there is a transfer from a person’s environmental restoration account under section EK 15, EK 16, or EK 19 (which relate to environmental restoration accounts), the person derives for the corresponding income year an amount of income calculated using the formula— Deﬁnitions of items in formulas The items in the formulas are deﬁned in subsections (4) to (6).
Refund Refund is the amount of the refund.

(1) (2) (3) (4) 152 Reprinted as at 5 January 2010 Income Tax Act 2007 Part C s CB 28 (5) (6) (7) (8) Tax rate Tax rate is the highest rate of income tax on taxable income that— (a) is set out in schedule 1 (Basic tax rates: income tax, ESCT, RSCT, RWT, and attributed fringe beneﬁts); and would apply to the person for the tax year if the person had sufﬁcient taxable income.
(b) Transfer Transfer is the amount in the environmental restoration ac- count that is transferred.
Income arising from renewal of resource consent A person who incurs expenditure of a type listed in schedule 19, part A, clauses 2 to 5 (Expenditure in avoiding, remedying, or mitigating detrimental effects of discharge of contaminant) and not in schedule 19, part C derives income under subsection (8) if— (a) the deduction under section DB 46 (Avoiding, rem- edying, or mitigating effects of discharge of contamin- ant) for the expenditure is determined by the period for which a resource consent is granted; and the period of the grant of the resource consent is ex- tended by more than 50% in a later income year or a new resource consent is granted for a period that is more than 50% of the total period of the resource consent.
(b) Amount of income The person derives for the income year in which the period of the resource consent is extended, or the new resource consent is granted, an amount of income equal to the greater of zero and the difference between— (a) the total deduction under section DB 46 for the person for the period from the grant of the resource consent to the beginning of the income year: the total deduction for the expenditure that the person would have had under section DB 46 for the period re- ferred to in paragraph (a), if the period of the resource consent at the time of the grant had been 35 years.
Deﬁned in this Act: corresponding income year, environmental restoration ac- count, income, income tax, resource consent, taxable income, tax year Compare: 2004 No 35 s CB 24B (b) 153 Part C s CB 29 Income Tax Act 2007 Reprinted as at 5 January 2010 Section CB 28(5)(a): amended, on 1 April 2008, by section 562 of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
CB 29 Disposal of minerals Minerals (1) (2) Income An amount that a person derives from disposing of minerals taken from land is income of the person.

Whether or not person owns land Subsection (1) applies whether or not the person owns the land from which the minerals are taken.
Deﬁned in this Act: amount, dispose, income, mineral, own Compare: 2004 No 35 s CB 25 Intellectual property CB 30 Sale of patent applications or patent rights If a person derives an amount from the sale of a patent appli- cation with a complete speciﬁcation or from the sale of patent rights, the amount is income of the person.
Deﬁned in this Act: amount, income, patent rights Compare: 2004 No 35 s CB 26 Transfer of business CB 31 Sale of business: transferred employment income obligations (1) When this section applies This section applies when section DC 10 (Sale of business: transferred employment income obligations) applies and the reduction in the consideration is more than the amount the buyer actually pays for the transferred obligation.

Income The excess is income of the buyer.


(2) 154 Reprinted as at 5 January 2010 Income Tax Act 2007 Part C s CB 33 (3) Timing of income The income is allocated to the income year in which the reduc- tion of the transferred provision is required to be recognised by the buyer under generally accepted accounting practice.
Deﬁned in this Act: amount, generally accepted accounting practice, income, income year, pay Compare: 2004 No 35 s CB 27 CB 32 Property obtained by theft Stolen property (1) (2) (3) Income If a person obtains possession or control of property without claim of right, an amount equal to the market value of the property is income of the person.

Timing of income The income is allocated to the income year in which the person obtains possession or control of the property.
Whether or not constructive trust Subsection (1) applies whether or not the person holds the property as a trustee under a constructive trust.
Deﬁned in this Act: amount, claim of right, income, income year, possession, property, trustee Compare: 2004 No 35 s CB 28 Mutual associations CB 33 Amounts derived by mutual associations (1) When this section applies This section applies when an association enters into a trans- action of a kind described in section HE 2 (Classes of mutual transaction) with— (a) (b) 1 or more members; or 1 or more members along with 1 or more persons who are not members of the association.
(2) Income If the association derives from the transaction an amount that would be income under ordinary concepts but for the mutual 155 Part C s CB 34 Income Tax Act 2007 Reprinted as at 5 January 2010 character of the transaction, the amount is income of the asso- ciation.
Deﬁned in this Act: amount, association, income, income year, member Compare: 2004 No 35 s HF 1(1) CB 34 Amounts derived by members from mutual associations When this section applies This section applies when an association, in relation to a mu- tual transaction, pays an association rebate to a member in an income year in circumstances where a payment for the trans- action would be taken into account in determining the taxable income of the member.
Income The amount of the association rebate is income of the member in the income year but only to the extent of the amount of the association’s deduction under section DV 19 (Association rebates).

Statutory producer boards: timing of payment If a statutory producer board pays an association rebate to a member that is a mutual association, the association is treated as deriving the amount in the income year in which the producer board chooses under section DV 19(7) to have the amount as the deduction.
When amount paid For the purposes of this section, an amount is treated as hav- ing been paid to a person when it is credited in account or dealt with in some way in their interest or on their behalf.

Subsec- tion (3) overrides this subsection.
Relationship with dividend rules An association rebate— (a) is not a dividend to the extent to which it is a payment of the kind described in subsection (2) and is no more than the amount of the deduction the association is allowed under section DV 19; and for an association that is not a company, and to the ex- tent to which it is more than the amount of the deduc- (b) (1) (2) (3) (4) (5) 156 Reprinted as at 5 January 2010 Income Tax Act 2007 Part C s CB 36 tion the association is allowed under section DV 19, is income of the member.
Deﬁned in this Act: amount, association, association rebate, deduction, divi- dend, income, income year, member, pay, statutory producer board Compare: 2004 No 35 s HF 1(3)(c), (5), (6) Partners and partnerships Heading: added, on 1 April 2008, by section 5(1) of the Taxation (Limited Partnerships) Act 2008 (2008 No 2).
CB 35 Amounts of income for partners A person who is a partner has an amount of income to the ex- tent to which an amount of income results from the application of subpart HG (Joint venturers, partners, and partnerships) to them and their partnership.

Deﬁned in this Act: amount, income, partner, partnership Section CB 35: added, on 1 April 2008, by section 5(1) of the Taxation (Limited Partnerships) Act 2008 (2008 No 2).
Emissions units under Climate Change Response Act 2002 Heading: substituted (with effect on 1 January 2009), on 6 October 2009, by section 10 of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Heading: added, on 26 September 2008, by section 68 of the Climate Change Response (Emissions Trading) Amendment Act 2008 (2008 No 85).
CB 36 Disposal of emissions units (1) (2) (3) When this section applies This section applies when a person disposes of an emissions unit.

Income The amount that the person derives on the disposal is income.
Surrender of unit: deemed sale at given value If the disposal is by surrender under the Climate Change Re- sponse Act 2002, the person is treated as having sold the unit, at the time of the surrender, to an unrelated person for an amount equal to— 157 Part C s CB 36 Income Tax Act 2007 Reprinted as at 5 January 2010 (a) (b) (c) (d) (e) (f) the unit’s cost, if none of paragraphs (b) to (f) applies; or the unit’s value under section ED 1(7B) (Valuation of excepted ﬁnancial arrangements), if that subsection ap- plies and none of paragraphs (c) to (f) apply; or zero, if subsection (4) applies; or zero, if subsection (5) applies; or the unit’s market value, if subsection (6) applies; or the unit’s market value, if subsection (7) applies.
Surrender of unit: emissions relating to post-1989 forest land The person is treated as selling the unit for an amount of zero if the person surrenders the emissions unit for emissions in relation to post-1989 forest land.
Surrender of unit: deforestation of some pre-1990 forest land The person is treated as selling the unit for an amount of zero if— (a) the person surrenders the emissions unit in relation to the deforestation of pre-1990 forest land; and the person would derive income, other than exempt in- come or excluded income, from a disposal of the land without timber at the time of the surrender.
(b) Surrender of post-1989 forest land unit: emissions not relating to post-1989 forest land The person is treated as selling a post-1989 forest land emis- sions unit for an amount equal to the unit’s market value if the person surrenders the emissions unit other than for emissions in relation to post-1989 forest land.
Surrender of unit: free unit other than forest land unit The person is treated as selling a unit that is not a forest land unit for an amount equal to the unit’s market value if— (a) the person surrenders the unit before the period of the emissions to which the unit relates; and the unit was transferred to the person under Part 4, sub- part 2 of the Climate Change Response Act 2002 at a price of zero.
(b) Converted unit treated as sold If a person converts a New Zealand emissions unit, other than a forest land emissions unit, into a Kyoto unit as deﬁned in sec- (4) (5) (6) (7) (8) 158 Reprinted as at 5 January 2010 Income Tax Act 2007 Part C s CC 1 tion 4(1) of the Climate Change Response Act 2002, the per- son is treated as having sold the converted unit for an amount equal to— (a) the unit’s value under section ED 1(7B), if that subsec- tion applies; or the unit’s cost, otherwise.
(b) (9) Excluded income: post-1989 forest land emissions unit Section CX 51B (Disposal of pre-1990 forest land emissions units) applies to the disposal to another person of a pre-1990 forest land emissions unit.

Deﬁned in this Act: amount, employee, employer, exempt income, overtime, pay Section CB 36: substituted (with effect on 1 January 2009), on 6 October 2009, by section 10 of the Taxation (International Taxation, Life Insurance, and Re- medial Matters) Act 2009 (2009 No 34).
Section CB 36: added, on 26 September 2008, by section 68 of the Climate Change Response (Emissions Trading) Amendment Act 2008 (2008 No 85).

Subpart CC—Income from holding property (excluding equity) Land use CC 1 Land (1) (2) Income An amount described in subsection (2) is income of the owner of land if they derive the amount from— (a) (b) a lease, licence, or easement affecting the land; or the grant of a right to take the proﬁts of the land.
Amounts The amounts are— rent: (a) a ﬁne: (b) a premium: (c) a payment for the goodwill of a business: (d) a payment for the beneﬁt of a statutory licence: (e) a payment for the beneﬁt of a statutory privilege: (f) other revenues.

(g) 159 Part C s CC 2 Income Tax Act 2007 Reprinted as at 5 January 2010 (3) Relationship with section GC 5 The treatment of leases of property to related parties for less than an adequate rent is dealt with in section GC 5 (Leases for inadequate rent).
Deﬁned in this Act: amount, business, income, lease, own, pay Compare: 2004 No 35 s CC 1 CC 2 Non-compliance with covenant for repair (1) (2) (3) (4) When this section applies This section applies when a person who is a lessor of land derives an amount for non-compliance by the lessee with an obligation under a lease of the land— to maintain the land; or (a) to make repairs to improvements on the land.

(b) Income The amount is income of the lessor.


Timing of income The income is allocated to the income year in which the lessor receives the amount.

Relationship with sections EI 5 and EI 6 Subsection (3) is overridden by sections EI 5 (Amount paid to lessor for non-compliance with covenant for repair) and EI 6 (Amount paid for non-compliance: when lessor ceases to own land).
Deﬁned in this Act: amount, income, income year, lease, repairs Compare: 2004 No 35 s CC 2 Financial instruments CC 3 Financial arrangements Income: party to ﬁnancial arrangement If a person who is a party to a ﬁnancial arrangement is treated as deriving an amount of income under the ﬁnancial arrange- ment under subpart EW (Financial arrangements rules), the amount is income of the person.
(1) 160 Reprinted as at 5 January 2010 Income Tax Act 2007 Part C s CC 6 (2) Income: trustee Income derived by a trustee in the circumstances described in section EW 50 (Income when debt forgiven to trustee) is income of the trustee.

Deﬁned in this Act: amount, ﬁnancial arrangement, income, trustee Compare: 2004 No 35 s CC 3 CC 4 Payments of interest (1) (2) Income Interest derived by a person is income of the person.
Apportionment Interest due but unpaid on the date on which a person disposes of a security is apportioned between the person disposing of the security and the person acquiring it.

Deﬁned in this Act: income, interest, pay Compare: 2004 No 35 s CC 4 CC 5 Annuities (1) (2) (3) Income An annuity derived by a person is income of the person.
Apportionment Income under an annuity due but unpaid on the date on which a person disposes of the annuity is apportioned between the person disposing of the annuity and the person acquiring it.

Relationship with sections CW 4 and CW 30 This section is overridden by sections CW 4 (Annuities under life insurance policies) and CW 30 (Annuities from Crown Bank Accounts).
Deﬁned in this Act: income, pay Compare: 2004 No 35 s CC 5 CC 6 Prizes received under Building Societies Act 1965 (1) Income A prize received by a person under section 31A of the Building Societies Act 1965 is income of the person, whether they take it as cash or as an advance.
161 Part C s CC 7 Income Tax Act 2007 Reprinted as at 5 January 2010 (2) Timing of income The income is allocated as follows: (a) (b) a cash prize is allocated to the day on which the bonus ballot giving rise to the prize is held; and an advance is allocated to the day on which the advance is made or, if the advance is made in a series of ad- vances, to the ﬁrst day on which an advance is made.
Deﬁned in this Act: income Compare: 2004 No 35 s CC 6 CC 7 Consideration other than in money When this section applies This section applies when— (a) (b) (c) is not interest; and a lender provides money to a borrower for use in a busi- ness that the borrower carries on in New Zealand; and the borrower provides to the lender, as some or all of the consideration, a tangible or intangible beneﬁt that— (i) (ii) may or may not be relief from an obligation; and (iii) may or may not be convertible into money; and the borrowing is a commercial transaction under which the borrower would have been liable to pay interest at the current commercial rate, given the nature and term of the loan, if the borrower had not provided the beneﬁt, whether or not the contract between the borrower and the lender provides for the payment of interest if the beneﬁt is not provided.
Income The amount described in subsection (3) is income of the lender.

Amount of income The amount is the interest that the borrower would have been liable to pay if the lender had lent the money to the borrower in consideration of the payment of interest at the current com- mercial rate, given the nature and term of the loan, reduced by the amount of any interest that the borrower pays.
Deﬁned in this Act: amount, business, income, interest, New Zealand, pay Compare: 2004 No 35 s CC 7 (1) (2) (3) 162 Reprinted as at 5 January 2010 Income Tax Act 2007 Part C s CC 8B CC 8 Use of money interest payable by Commissioner (1) (2) (3) Income Interest payable by the Commissioner to a person under Part 7 of the Tax Administration Act 1994 is income of the person.

Timing of income Interest to which this section applies is allocated under section EF 4 (Use of money interest payable by Commissioner).
Relationship with ﬁnancial arrangements rules Interest to which this section applies is disregarded for the pur- poses of the ﬁnancial arrangements rules.
Deﬁned in this Act: Commissioner, ﬁnancial arrangements rules, income, in- terest, pay Compare: 2004 No 35 s CC 8 CC 8B Certain commercial bills: non-resident holders (1) (2) (3) When this section applies This section applies when a non-resident holder of a commer- cial bill who is required to calculate and allocate income and expenditure under neither the ﬁnancial arrangements rules nor the old ﬁnancial arrangements rules because of the application of section EW 9(2) to (4) or EZ 45(e) (which relate to the ap- plication of the rules)— (a) disposes of the commercial bill other than by redemp- tion; or redeems a commercial bill whose issuer is an associated person of the non-resident.
(b) Income: disposal The value of the commercial bill on the day the non-resident holder disposes of it is income of the person.

Income: redemption The amount that the non-resident holder receives on redemp- tion is income of the person.
Deﬁned in this Act: amount, commercial bill, ﬁnancial arrangements rules, in- come, non-resident, old ﬁnancial arrangements rules Compare: 2004 No 35 s CZ 8 Section CC 8B: inserted (with effect on 1 April 2008), on 6 October 2009, by section 11(1) of the Taxation (International Taxation, Life Insurance, and Re- medial Matters) Act 2009 (2009 No 34).

163 Part C s CC 9 Income Tax Act 2007 Reprinted as at 5 January 2010 CC 9 Royalties Royalties Income A royalty derived by a person is income of the person.
Meaning of royalty Royalty includes a payment of any kind derived as consider- ation for— (a) the use of, or right to use, a copyright, patent, plant variety rights, trademark, design or model, plan, secret formula or process, or other similar property or right: the use of, or right to use, a mine or quarry: the extraction, removal, or other exploitation of stand- ing timber or a natural resource: the right to extract, remove, or otherwise exploit stand- ing timber or a natural resource: the use of, or right to use, a ﬁlm, a videotape, or a tape in connection with radio broadcasting: the supply of scientiﬁc, technical, industrial, or com- mercial knowledge or information: the total or partial forbearance of the use of, or the grant of a right to use, property or a right referred to in any of paragraphs (a) to (e): the supply of assistance that enables the application or use of anything in any of paragraphs (a) to (f): the total or partial forbearance of the supply of know- ledge or information or assistance referred to in para- graph (f) or (h).
(b) (c) (d) (e) (f) (g) (h) (i) Relevance of description of payment For the purposes of subsection (2), none of the following is relevant: (a) (b) (c) how the payment is described or computed: whether the payment is periodical or otherwise: whether the payment is an instalment of the purchase price of real property: whether the payment is an instalment of the purchase price of personal property.
(d) Deﬁned in this Act: income, natural resource, pay, royalty, standing timber Compare: 2004 No 35 s CC 9 (1) (2) (3) 164 Reprinted as at 5 January 2010 Income Tax Act 2007 Part C s CC 10 Section CC 9 list of deﬁned terms natural resource: inserted (with effect on 1 April 2008), on 7 December 2009, by section 126 of the Taxation (Conse- quential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
CC 10 Films (1) (2) (3) When this section applies This section applies when a person has a right or interest of any of the kinds described in subsection (2) in or to— (a) (b) (c) (d) a ﬁlm; or a print of the ﬁlm; or publicity material for the ﬁlm; or any other tangible asset relating to the ﬁlm.
Right or interest The right or interest is a right or interest, including a future or contingent right or interest, of any of the following kinds: (a) (b) (c) (d) (e) (f) copyright in the ﬁlm: a licence relating to the copyright: an equitable right in the copyright: an equitable right in a licence relating to the copyright: any other right existing in or attaching to the ﬁlm: a right to income, or a share of income, from the rental, sale, use, or other exploitation of the ﬁlm.
Income The following amounts are income of the person: (a) an amount received or receivable by the person for— (i) the use of, or the right to use, the ﬁlm or a right or interest in a right in the ﬁlm: the granting of a licence for a future right in the ﬁlm: the disposal of some or all of a right or interest in a right in the ﬁlm: the assignment of a right or an interest in a right: the assignment of a right to derive income from the use of a right or interest; and (ii) (iii) (iv) (v) (b) an amount derived by the person from the rental, sale, use, or other exploitation of the ﬁlm.
165 Part C s CC 11 Income Tax Act 2007 Reprinted as at 5 January 2010 (4) Relationship with sections CV 17 and YD 7 This section is overridden by sections CV 17 and YD 7 (which relate to ﬁlm rental income).
Deﬁned in this Act: amount, ﬁlm, income Compare: 2004 No 35 s CC 10 Finance leases CC 11 Lessee acquiring lease asset on expiry of term of lease (1) (2) When this section applies This section applies for the purposes of section FA 9 (Treat- ment when lease ends: lessee acquiring asset), when, after the term of a ﬁnance lease, a lessee acquires the personal property lease asset and then disposes of it.
Income of lessee If the lessee disposes of the lease asset for an amount that is more than the consideration paid for it, the difference is in- come of the lessee in the income year in which they dispose of the asset.
Deﬁned in this Act: consideration, ﬁnance lease, income, lessee, pay, personal property lease asset, tax year Compare: 2004 No 35 s FC 8E CC 12 Lessor acquiring lease asset on expiry of term of lease When this section applies This section applies for the purposes of section FA 10(3) (Treatment when lease ends: lessor acquiring asset), when, after the term of a ﬁnance lease,— (a) a lessor under the lease sells, assigns, or leases the per- sonal property lease asset to another person under an- other ﬁnance lease; and the consideration is more than the amount determined under section FA 10(2).
(b) Income of lessor To the extent to which the difference between the amount de- termined under section FA 10(2) and the consideration is not paid by the lessor to the lessee under the original ﬁnance lease, (1) (2) 166 Reprinted as at 5 January 2010 Income Tax Act 2007 Part C s CD 1 the amount is income of the lessor in the income year in which the original lease term ends.
Deﬁned in this Act: consideration, ﬁnance lease, income, lessee, lessor, pay, personal property lease asset, tax year Compare: 2004 No 35 s FC 8D(2) Hire purchase agreements CC 13 Amounts paid in income years after hire purchase agreement ends (1) (2) (3) When this section applies This section applies for the purposes of section FA 18 (Treat- ment of amounts paid in income years after agreement ends), when an amount that is liable to be paid under a hire purchase agreement is paid in an income year that is later than the in- come year in which the agreement ends.
Income of seller An amount that the buyer is liable to pay under the terms of the agreement is income of the seller in the income year in which they receive it.

Income of buyer An amount paid by the seller to the buyer under section FA 18(3)(b) is income of the buyer in the income year in which the amount is paid.
Deﬁned in this Act: amount, hire purchase agreement, income, income year, pay Compare: 2004 No 35 s FC 10(5)(d)-(f) Subpart CD—Income from equity Income CD 1 Dividend A dividend derived by a person is income of the person.
Deﬁned in this Act: dividend, income Compare: 2004 No 35 s CD 1 167 Part C s CD 2 Income Tax Act 2007 Reprinted as at 5 January 2010 CD 2 Distribution excluded from being dividend A distribution, derived by a member of a co-operative com- pany, that is excluded by section CD 34 from being a dividend is income of the member.

Deﬁned in this Act: co-operative company, dividend, income Compare: 2004 No 35 s CD 1B What is a dividend?

CD 3 Meaning of dividend Sections CD 4 to CD 21 deﬁne what is a dividend.
Deﬁned in this Act: dividend Compare: 2004 No 35 s CD 2 CD 4 Transfers of value generally (1) (2) Transfers of value from company A transfer of value from a company to a person is a dividend if— (a) the cause of the transfer is a shareholding in the com- pany, as described in section CD 6; and none of the exclusions in sections CD 22 to CD 37 ap- plies to the transfer.

(b) Calculation rules Sections CD 38 to CD 42 apply for the purposes of calculating the amount of the dividend.
Deﬁned in this Act: company, dividend, transfer of value Compare: 2004 No 35 s CD 3 CD 5 What is a transfer of value?

General test A transfer of value from a company to a person occurs when— (a) the company provides money or money’s worth to the person; and if the person provides any money or money’s worth to the company under the same arrangement, the market value of what the company provides is more than the market value of what the person provides.
(b) (1) 168 Reprinted as at 5 January 2010 Income Tax Act 2007 Part C s CD 6 (2) Release of debt A company provides money’s worth to a person if the person is released from an obligation to pay money to the company, either by agreement or by operation of law.

When shares are cancelled (2B) The market value of any transfer from the shareholder to the company on the cancellation of a share of the shareholder’s rights as a shareholder is zero.
(3) (4) Provision of services for less than market value Despite subsection (1), a transfer of value does not occur to the extent to which the money’s worth provided by the company is only the provision of services.

Limit to subsection (3) Subsection (3) does not apply to the provision of services by a company that is a close company, if the provision is the beneﬁt of expenditure of the company.
Deﬁned in this Act: arrangement, close company, company, market value, pay, services, share, shareholder, transfer of value Compare: 2004 No 35 s CD 4 Section CD 5(2B) heading: inserted (with effect on 1 April 2008), on 6 October 2009, by section 12(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section CD 5(2B): inserted (with effect on 1 April 2008), on 6 October 2009, by section 12(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section CD 5 list of deﬁned terms market value: inserted (with effect on 1 April 2008), on 6 October 2009, by section 12(2) of the Taxation (International Tax- ation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section CD 5 list of deﬁned terms share: inserted (with effect on 1 April 2008), on 6 October 2009, by section 12(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section CD 5 list of deﬁned terms shareholder: inserted (with effect on 1 April 2008), on 6 October 2009, by section 12(2) of the Taxation (International Tax- ation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

CD 6 When is a transfer caused by a shareholding relationship?
(1) General test A transfer of value from a company to a person (the recipient) is caused by a shareholding in the company if— the recipient at any relevant time— (a) (i) holds shares in the company; or 169 Part C s CD 6 Income Tax Act 2007 Reprinted as at 5 January 2010 (ii) (iii) is associated with a shareholder; or is the trustee of a trust, and a beneﬁciary of the trust is either a shareholder or the spouse, civil union partner, or de facto partner of a share- holder; and (b) the company makes the transfer because of that share- holding of the relevant shareholder.
Indication that test met One indication that a transfer is caused by a shareholding is if the terms of the arrangement that results in the transfer are different from the terms on which the company would enter into a similar arrangement if no shareholding were involved.
Deductible distributions of producer boards Despite subsection (1), a transfer of value by a statutory pro- ducer board to a member is not caused by a shareholding if— (a) (b) the transfer is a cash distribution; and the distribution is a deduction under subpart HE (Mu- tual associations) or any other provision of this Act; and the board does not choose to treat the distribution as a dividend under section OB 73 (Statutory producer boards attaching imputation credits to cash distribu- tions).
(c) Deductible distributions of co-operative companies Despite subsection (1), a transfer of value by a co-operative company to a shareholder is not caused by a shareholding if— (a) (b) the transfer is a cash distribution; and the distribution is a deduction under subpart HE or any other provision of this Act; and the company does not choose to treat the distribution as a dividend under section OB 82 (When and how co-op- erative company makes election).
(c) Relationship with section DV 18 and subpart HE For the purposes of subsections (3)(b) and (4)(b), subpart HE is not overridden by section DV 18 (Statutory producer boards and co-operative companies).
Deﬁned in this Act: arrangement, associated person, company, co-operative company, deduction, share, shareholder, statutory producer board, transfer of value, trustee Compare: 2004 No 35 s CD 5 (2) (3) (4) (5) 170 Reprinted as at 5 January 2010 Income Tax Act 2007 Part C s CD 8 CD 7 Bonus issues in lieu of dividend (1) (2) Bonus issues in lieu A bonus issue in lieu is a dividend.
Amount of dividend The amount of the dividend is the money or money’s worth offered as an alternative, minus any resident withholding tax (RWT) payable in relation to the dividend.
Deﬁned in this Act: amount, bonus issue in lieu, dividend, pay, RWT Compare: 2004 No 35 s CD 6 CD 8 Elections to make bonus issue into dividend (1) (2) (3) Treating bonus issues as dividends A bonus issue that is not a bonus issue in lieu is a dividend if— (a) the bonus issue— (i) (ii) is issued fully paid from reserves of the company: if a dividend, would not be exempt income under section CW 10 (Dividend within New Zealand wholly-owned group) or CW 11 (Dividend of conduit tax relief holding company); and the company chooses under this section to treat the bonus issue as a dividend.
(b) (b) Form of election A company chooses to treat a bonus issue as a dividend by— resolving, when it makes the bonus issue, that it is a (a) dividend; and resolving, when it makes the bonus issue, the amount to be treated as a dividend, which must be more than zero; and giving notice to the Commissioner under section 63 of the Tax Administration Act 1994 of the election and the amount.

(c) Amount of dividend The amount of the dividend is the amount chosen by the com- pany.
Deﬁned in this Act: amount, bonus issue, bonus issue in lieu, Commissioner, company, dividend, notice, pay Compare: 2004 No 35 s CD 7 171 Part C s CD 9 Income Tax Act 2007 Reprinted as at 5 January 2010 CD 9 Interests in money or property of foreign unit trust (1) (2) Interest absolutely vested in unit holder If a beneﬁcial interest in money or property of a unit trust that is a foreign company vests absolutely in a unit holder, the money or property is a dividend for the unit holder.
Amount of dividend The amount of the dividend is the value of the money or prop- erty.
Deﬁned in this Act: dividend, foreign company, unit holder, unit trust Compare: 2004 No 35 s CD 7B CD 10 Bonus issue by foreign unit trust instead of money or property (1) (2) Interest absolutely vested in unit holder A bonus issue made to a unit holder by a unit trust that is a foreign company is a dividend for the unit holder if the issue is made under an arrangement or decision that the unit trust will make the bonus issue instead of causing a beneﬁcial interest in money or property of the unit trust to vest absolutely in the unit holder.
Amount of dividend The amount of the dividend is the value of the money or prop- erty in which a beneﬁcial interest would have vested in the unit holder if the bonus issue had not been made.
Deﬁned in this Act: bonus issue, dividend, foreign company, unit holder, unit trust Compare: 2004 No 35 s CD 7C CD 11 Avoidance arrangements An amount treated as a dividend under any of the following sections is a dividend: (a) section GB 1 (Arrangements involving dividend strip- ping): section GB 23(7) (Excessive remuneration to rela- tives): (b) 172 Reprinted as at 5 January 2010 Income Tax Act 2007 Part C s CD 13 (c) section GB 25 (Close company remuneration to share- holders, directors, or relatives).
Deﬁned in this Act: amount, close company, director, dividend, relative, share- holder Compare: 2004 No 35 ss GB 1(3), GD 3(1), (2), GD 5 CD 12 Superannuation schemes entering trust rules (1) (2) When this section applies This section applies when a superannuation scheme that is treated as a company because it is a unit trust becomes a super- annuation fund.

Treatment as liquidated The company is treated as liquidated immediately before the date on which the scheme becomes a superannuation fund.
Deﬁned in this Act: company, liquidation, superannuation fund, superannuation scheme Compare: 2004 No 35 s HH 1(9) CD 13 Notional distributions of producer boards and co-operative companies (1) (2) (3) Notional distributions of producer boards A notional distribution of a statutory producer board is a divi- dend if the board determines to attach an imputation credit to the notional distribution under section OB 74 (Statutory pro- ducer boards attaching imputation credits to notional distribu- tions).
Calculation: section OB 75 The amount of the dividend is calculated under section OB 75 (Statutory producer boards’ notional distributions that are dividends).

Notional distributions of co-operative companies A notional distribution of a co-operative company is a divi- dend if the company determines to attach an imputation credit to the notional distribution under section OB 79 (Co-opera- tive companies attaching imputation credits to notional distri- butions).
173 Part C s CD 14 Income Tax Act 2007 Reprinted as at 5 January 2010 (4) (5) Calculation: section OB 80 The amount of the dividend is calculated under section OB 80 (Co-operative companies’ notional distributions that are divi- dends).

Corresponding payments not dividends Section CD 33 means that a payment that corresponds to a notional distribution may not be a dividend.
Deﬁned in this Act: amount, co-operative company, dividend, imputation credit, pay, statutory producer board Compare: 2004 No 35 s CD 8 CD 14 Notional distributions of emigrating companies (1) (2) Dividend A notional distribution of an emigrating company under sec- tion FL 2 (Treatment of emigrating companies and their share- holders) is a dividend for a shareholder of the company.
Amount of dividend The amount of the dividend is determined by a shareholder’s entitlement in the circumstances set out in section FL 2.

Deﬁned in this Act: amount, dividend, emigrating company, shareholder Compare: 2004 No 35 s FCB 2(b) CD 15 Tax credits linked to dividends Imputation and FDP credits The amount of a dividend is increased by— (a) (b) an imputation credit attached to the dividend: a foreign dividend payment (FDP) credit attached to the dividend.
Relationship with sections CD 16 and CD 17 Subsection (1) is overridden by sections CD 16 and CD 17.

When subsection (1) does not apply Subsection (1) does not apply in— (a) Part L (Tax credits and other credits), except for subpart LP (Tax credits for supplementary dividends); or Part M (Tax credits paid in cash); or Part O (Memorandum accounts); or Part R (General collection rules).
(b) (c) (d) (1) (2) (3) 174 Reprinted as at 5 January 2010 Income Tax Act 2007 Part C s CD 16 (4) Arrangement for dividend from another company Section GB 37 (Arrangements for payment of dividend by other companies) may apply to treat an imputation credit as not being included in the amount of a dividend.
Deﬁned in this Act: amount, arrangement, dividend, FDP credit, imputation credit, income, tax Compare: 2004 No 35 s CD 9 CD 16 Certain dividends not increased by tax credits (1) (2) (3) (4) When this section applies This section applies when a unit trust manager, in the ordinary course of their management activities for a unit trust,— (a) acquires units from unit holders under the terms on which the units were offered to potential unit holders; and derives a dividend from the redemption or other cancel- lation of units in the unit trust.
(b) Credit not included For the purposes of Parts B, C, E, and F, the dividend derived does not include an amount of imputation credit attached to it to the extent to which the dividend (exclusive of the imputation credit) recovers the price paid by the unit trust manager to acquire the units.

Relationship with section FA 3 To the extent to which subsection (2) applies, section FA 3 (Recharacterisation of certain dividends: recovery of cost of shares held on revenue account) does not apply.
Some deﬁnitions In this section,— imputation credit includes an FDP credit unit trust manager includes— (a) (b) a person nominated by the unit trust manager; or a trustee or a manager of a group investment fund that derives category A income; or 175 Part C s CD 17 Income Tax Act 2007 Reprinted as at 5 January 2010 (c) a person nominated by the trustee or the manager of the group investment fund.
Deﬁned in this Act: amount, cancellation, dividend, FDP credit, imputation credit, pay, tax, unit trust, unit trust manager Compare: 2004 No 35 s CD 10 CD 17 Credit transfer notice (1) (2) (3) (4) When this section applies This section applies when a share user under a share-lending arrangement— (a) derives a dividend for the original share, with an imput- ation credit attached; and issues a credit transfer notice for the dividend.
(b) Credit not included The dividend derived by the share user does not include the amount of the imputation credit.

Income The amount of the imputation credit is income derived by the share supplier when the credit transfer notice is issued.

Meaning of imputation credit In this section, imputation credit includes an FDP credit.
Deﬁned in this Act: amount, credit transfer notice, dividend, FDP credit, im- putation credit, original share, share-lending arrangement, share supplier, share user Compare: 2004 No 35 s CD 10B CD 18 Dividend reduced if foreign tax paid on company’s income When this section applies This section applies when a person— (a) (b) derives a dividend from a company that is a foreign company; and has a liability under the laws of a country or territory outside New Zealand for income tax on income of the company corresponding to the liability that the person would have under the laws of New Zealand for income tax on income of the company if the company were a partnership in which the person were a partner; and (1) 176 Reprinted as at 5 January 2010 Income Tax Act 2007 Part C s CD 19 (2) (3) (c) (d) pays the income tax; and provides to the Commissioner upon request, in the time allowed by the Commissioner, sufﬁcient information to satisfy the Commissioner as to the amount of income tax paid.
Amount of dividend reduced The amount of the dividend is reduced by the greater of zero and the amount calculated using the formula— total tax paid − earlier reductions.
Deﬁnition of items in formula In the formula,— (a) (b) total tax paid is the total amount of income tax on income of the company that the person has paid in the country by the time that the person derives the dividend: earlier reductions is the total amount of reductions under this section that, by the time that the person de- rives the dividend, have affected other dividends de- rived by the person from the company.
Deﬁned in this Act: Commissioner, company, dividend, foreign company, in- come, income tax, New Zealand, pay Compare: 2004 No 35 s CD 10C CD 19 Foreign tax credits and refunds linked to dividends (1) Foreign tax credits If a double tax agreement gives a person a tax credit in a for- eign country when they derive a dividend from that country, the amount of the dividend is increased by the tax credit.
Foreign tax refunds (2) When a person who has derived a dividend from outside New Zealand also derives a refund of income tax of a foreign coun- try, the refund is treated as a dividend if— (a) the company paying the dividend was entitled to deduct the tax from the dividend; and the person was not personally liable to pay the tax.
(b) Deﬁned in this Act: amount, company, dividend, double tax agreement, income tax, New Zealand, pay, tax Compare: 2004 No 35 s CD 11 177 Part C s CD 20 Income Tax Act 2007 Reprinted as at 5 January 2010 CD 20 Beneﬁts of shareholder-employees or directors (1) (2) (3) (4) Unclassiﬁed fringe beneﬁts A non-cash beneﬁt provided by a company to an employee is a dividend if— (a) (b) (c) the beneﬁt is an unclassiﬁed beneﬁt; and the employee is a shareholder in the company; and the company chooses, under section CX 17(2) (Bene- ﬁts provided to employees who are shareholders or in- vestors), to treat the beneﬁt as a dividend.
Non-executive directors’ non-cash beneﬁts A non-cash beneﬁt provided by a company to a non-executive director of the company is a dividend if the director is a share- holder in the company, even if the beneﬁt is provided solely because the director is a non-executive director.
Other shareholder-employee beneﬁts In any other case of a non-cash beneﬁt provided by a company to a person who is both an employee and a shareholder, the beneﬁt is not a dividend if— (a) the application of section CX 17(2) means it is a fringe beneﬁt; and section CD 32 accordingly excludes it from being a dividend.
(b) Meaning of non-executive director In this section, non-executive director means a person whose only services to the company as an employee are the formal occupation of the role of director and compliance with the as- sociated statutory obligations.
Deﬁned in this Act: company, director, dividend, employee, fringe beneﬁt, non- executive director, shareholder, unclassiﬁed beneﬁt Compare: 2004 No 35 s CD 12 CD 21 Attributed repatriations from controlled foreign companies [Repealed] Section CD 21: repealed (with effect on 30 June 2009), on 6 October 2009, by section 14(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
178 Reprinted as at 5 January 2010 Income Tax Act 2007 Part C s CD 22 What is not a dividend?

CD 22 Returns of capital: off-market share cancellations (1) (2) (3) (4) When this section applies This section applies when a company pays an amount to a shareholder because of the off-market cancellation of a share in the company, other than on liquidation of the company.
Ordering rule The amount is not a dividend to the extent to which it is less than or equal to the available subscribed capital per share cal- culated under the ordering rule, if— (a) (b) 1 of the bright line tests in subsection (3) is met; and the company is not an unlisted trust that has chosen the slice rule for the share under subsection (4); and the anti-avoidance rule in subsection (6) does not apply.
(c) Bright line tests The bright line tests referred to in subsection (2)(a) are as fol- lows: (a) the cancellation is part of a pro rata cancellation that re- sults in a ﬁfteen percent capital reduction for the com- pany: the cancellation is part of a pro rata cancellation that re- sults in a ten percent capital reduction for the company and the Commissioner has given a notice under subsec- tion (8): the cancellation is not part of a pro rata cancellation and results in the shareholder suffering a ﬁfteen percent interest reduction: the company is an unlisted trust and the cancellation is not part of a pro rata cancellation: the share is a non-participating redeemable share.
(b) (c) (d) (e) Unlisted trusts choosing slice rule If the company is an unlisted trust, it may issue a share on terms that the ordering rule does not apply and that instead the slice rule applies to the cancellation.

If this happens, the amount paid is not a dividend to the extent to which it is less than or equal to the available subscribed capital per share calculated under the slice rule (but still subject to the anti-avoidance rule in subsection (6)).
179 Part C s CD 22 Income Tax Act 2007 Reprinted as at 5 January 2010 Calculation concessions for foreign unlisted widely-held trusts If a company is an unlisted widely-held trust not resident in New Zealand and a shareholder cannot obtain sufﬁcient infor- mation to calculate the available subscribed capital per share under the ordering rule,— (a) the share is treated as if it were issued under subsection (4) on terms that the slice rule applies; and the available subscribed capital under the slice rule is— the amount paid for the issue of the share, if sub- (i) paragraph (ii) does not apply; or the value of the money or property in which a beneﬁcial interest would have vested in the share- holder had the share not been issued, if the share is a taxable bonus issue under paragraph (d) of the deﬁnition of the term.
(ii) (b) Overriding anti-avoidance rule Neither subsection (2) nor (4) excludes an amount paid by a company on cancellation of a share from being a dividend if any part of the payment is in lieu of the payment of a dividend.
Factors relevant in applying anti-avoidance rule For the purposes of applying subsection (6), the following fac- tors must be considered: (a) the nature and amount of dividends paid by the com- pany before or after the cancellation; and the issue of shares in the company after the cancellation; and the expressed purpose or purposes of the cancellation; and any other relevant factor.
(b) (c) (d) Commissioner notifying view If no part of a payment on cancellation of a share is in lieu of the payment of a dividend, the Commissioner may give notice to the company that subsection (6) does not apply to the can- cellation.
Some deﬁnitions In this section,— (5) (6) (7) (8) (9) 180 Reprinted as at 5 January 2010 Income Tax Act 2007 Part C s CD 22 counted associate means— (a) (b) a person associated with the shareholder other than merely by virtue of being a relative; or a spouse, civil union partner or de facto partner, or minor child of the shareholder, or a trustee of a trust under which a spouse, civil union partner or de facto partner, or minor child of the shareholder is a beneﬁ- ciary ﬁfteen percent capital reduction means the circumstance in which the total amount paid by the company on account of the cancellation (or on account of any other pro rata cancellation of participating shares in the company occurring at the same time) is at least 15% of the market value of all participating shares in the company at the time the company ﬁrst gave notice to shareholders of the cancellation ﬁfteen percent interest reduction means the circumstance in which, immediately after and as a result of the cancellation (together with any other cancellation of participating shares in the company occurring at the same time),— (a) the total direct voting interests in the company of the shareholder and any counted associates is 85% or less of their total direct voting interests in the company im- mediately before the cancellation; and if at the time of the cancellation a market value circum- stance exists, the total direct market value interests in the company of the shareholder and any counted asso- ciates is 85% or less of their total direct market value interests immediately before the cancellation (b) non-participating redeemable share means a share that meets the following conditions (a) the share is issued, under the company’s constitution or establishing legislation, on terms that involve the share being required or allowed to be redeemed or repaid be- fore the company is liquidated; and the share is— (i) a redeemable share under section 68 of the Companies Act 1993 or an equivalent provision of foreign law; or (b) 181 Part C s CD 22 Income
 Tax Act 2007 Reprinted as at 5 January 2010 (ii) (iii) (iv) issued under 1 of New Zealand’s Acts relating to co-operative companies; or subject to section FA 2 (Recharacterisation of certain debentures) and FZ 1 (Treatment of inter- est payable under debentures issued before cer- tain date) or section FA 2B(2) (Stapled debt se- curities); or a unit in a unit trust that is not a widely-held trust; and the share is either a ﬁxed-rate share or a share for which the amount payable on cancellation is no more than the available subscribed capital per share calculated under the slice rule; and the shareholder does not have shareholder deci- sion-making rights in relation to the share except— (i) (ii) a protective right; or if the company is subject to 1 of New Zealand’s Acts relating to co-operative companies (c) (d) (b) participating share means a share that is not a non-participat- ing redeemable share protective right means a shareholder decision-making right that— (a) arises only if the shareholder’s position may be altered to the shareholder’s detriment or if the company de- faults on its obligations under the terms of the share; and is granted to the shareholder only to assist the share- holder to prevent the alteration or to remedy the default; and when the share is issued is not expected to arise (c) ten percent capital reduction means the circumstance in which the total amount paid by the company on account of the cancellation, or paid on account of any other
 pro rata cancellation of participating shares in the company occurring at the same time, is at least 10% of the market value of all participating shares in the company at the time the company ﬁrst gave notice to shareholders of the cancellation 182 Reprinted as at 5 January 2010 Income Tax Act 2007 Part C s CD 23 unlisted trust means a unit trust or group investment fund, the units or interests in which are not quoted on the ofﬁcial list of a recognised exchange.
Deﬁned in this Act: amount, associated person, available subscribed capital, cancellation, Commissioner, company, co-operative company, counted asso- ciate, direct market value interest, direct voting interest, dividend, ﬁfteen per- cent capital reduction, ﬁfteen percent interest reduction, ﬁxed-rate share, group investment fund, liquidation, market value circumstance, New Zealand, non- participating redeemable share, notice, off-market cancellation, ordering rule, participating share, pay, pro rata cancellation, protective right, recognised ex- change, relative, resident in New Zealand, share, shareholder, shareholder deci- sion-making right, slice rule, taxable bonus issue, ten percent capital reduction, trustee, unit trust, unlisted trust, unlisted widely-held trust, widely-held trust Compare: 2004 No 35 s CD 14 Section CD 22(9) non-participating redeemable share paragraph (b)(iii): amended (with effect on 1 April 2008), on 6 October 2009, by section 15(1)(b) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
CD 23 Ordering rule and slice rule (1) (2) Ordering rule Under the ordering rule, the available subscribed capital per share is calculated for a share using the formula— Deﬁnition of items in formula In the formula in subsection (1),— (a) available subscribed capital of class is the available subscribed capital, of all shares of the same class as the share, at the relevant time for the calculation: shares being cancelled of class is the number of shares of the same class as the share, including the share, being cancelled at the time.
(b) (3) Slice rule Under the slice rule, the available subscribed capital per share is calculated for a share using the formula— Deﬁnition of items in formula In the formula in subsection (3),— (4) 183 Part C s CD 24 Income Tax Act 2007 Reprinted as at 5 January 2010 (5) (a) (b) available subscribed capital of class is the available subscribed capital, of all shares of the same class as the share, at the relevant time for the calculation: shares of class is the number of shares of the same class as the share, including the share, on issue at the time.
Amount when foreign company information inadequate Despite subsections (2) to (4), the available subscribed capital per share calculated under the ordering rule is zero if— the company is not resident in New Zealand; and (a) the relevant shareholder cannot obtain sufﬁcient infor- (b) mation to calculate the actual available subscribed cap- ital per share using the relevant rule.
Deﬁned in this Act: available subscribed capital, cancellation, foreign com- pany, ordering rule, resident in New Zealand, share, shareholder, shares of the same class, slice rule Compare: 2004 No 35 s CD 15 CD 24 Returns of capital: on-market share cancellations Companies acquiring own shares An amount paid by a company in acquiring any of its shares in an on-market cancellation is not a dividend.
When excess amount relevant Despite subsection (1), any excess of the amount paid over the available subscribed capital per share calculated under the ordering rule— (a) is treated as a dividend and not a return of capital when applying— (i) (ii) (iii) section CD 29: section CD 43(2)(c): section GA 1(4) (Commissioner’s power to ad- just); and (b) gives rise to an imputation credit account debit under section OB 42 (ICA on-market cancellation).
Deﬁned in this Act: amount, available subscribed capital, company, dividend, imputation credit account, on-market cancellation, ordering rule, pay, share Compare: 2004 No 35 s CD 16 (1) (2) 184 Reprinted as at 5 January 2010 Income Tax Act 2007 Part C s CD 25 CD 25 Treasury stock acquisitions (1) (2) Treasury stock generally An amount paid by a company in acquiring any of its shares is not a dividend if— (a) the acquisition is treated as not resulting in the can- cellation of the share, under section 67A(1) of the Companies Act 1993 or section 24 of the Co-operative Companies Act 1996 (each of which relates to treasury stock); and the acquisition is not part of a pro rata cancellation or something that is in substance a pro rata cancellation.
(b) Reversion to on-market cancellation treatment Subsections (4) to (6) apply in the case of an acquisition of a share to which subsection (1) or section CD 17(1) of the In- come Tax Act 2004 or section CF 3(1)(d) or (da) of the Income Tax Act 1994 applies if,— (a) before the ﬁrst anniversary of the acquisition, the com- pany cancels the share; or at the ﬁrst anniversary, the company has failed to trans- fer a share of the same class in an arm’s length transfer, except if the company is established under New Zealand co-operative company legislation; or after the ﬁrst anniversary, the company, which is estab- lished under New Zealand co-operative company legis- lation, cancels the share.
(b) (c) Requirement for arm’s length transfers (3) When subsection (2)(b) is applied,— (a) (b) a transfer is arm’s length only if it is— (i) (ii) to a person not associated with the company; or in a transaction that occurs on a recognised ex- change, through a broker or some other agent in- dependent of the company, and that is not pre- ceded by any arrangement between the transferee and the company for the transfer; and each arm’s length transfer of a share is taken into ac- count only in relation to a single share acquisition to which subsection (1) has applied.
185 Part C s CD 25 Income Tax Act 2007 Reprinted as at 5 January 2010 Reduction of available subscribed capital If subsection (2) applies, then, with effect from the cancella- tion or the ﬁrst anniversary, depending on which ﬁrst causes subsection (2) to apply, the available subscribed capital of the class of the share is reduced by the lesser of— (a) the amount paid to the shareholder on the acquisition; and the available subscribed capital per share calculated under the ordering rule and, in the case of the ﬁrst anniversary, calculated as if the share and any other shares to which this subsection applies on that date were cancelled on that date.
(b) Imputation credit account debit If subsection (2) applies, then, with effect from the date of the acquisition by the company, section OB 42 (ICA on-mar- ket cancellation) applies as if the original acquisition were an on-market cancellation but item “ASC per share excess” of the formula in section OB 42 were equal to only the excess of the amount received by the shareholder over the reduction described in subsection (4).
Relief from imputation penalty tax No imputation penalty tax is imposed under section 140B of the Tax Administration Act 1994 (nor any late payment penalty imposed under that Act in relation to the imputation penalty tax) if it would not have arisen had subsection (5) applied only with effect from the date of cancellation or ﬁrst anniversary, depending on which ﬁrst causes subsection (2) to apply.
Deﬁned in this Act: agent, amount, arrangement, associated person, available subscribed capital, cancellation, company, co-operative company, dividend, imputation credit account, imputation penalty tax, New Zealand, on-market cancellation, ordering rule, pay, pro rata cancellation, recognised exchange, share, shareholder Compare: 2004 No 35 s CD 17 Section CD 25(4): substituted (with effect on 1 April 2008), on 6 October 2009, by section 16(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
(4) (5) (6) 186 Reprinted as at 5 January 2010 Income Tax Act 2007 Part C s CD 27 CD 26 Capital distributions on liquidation or emigration (1) (2) (3) (4) When this section applies This section applies when a shareholder— (a) (b) is paid an amount in relation to a share on the liquidation of the company: is treated under section FL 2 (Treatment of emigrat- ing companies and their shareholders) as being paid an amount in relation to a share in the company.
Return of subscribed capital or capital gains The amount paid is a dividend only to the extent to which it is more than— (a) the available subscribed capital per share calculated under the ordering rule; and the available capital distribution amount calculated under section CD 44.

(b) Statutory producer board capital levies If the company is a statutory producer board, the amount is not a dividend to the extent to which it is a return of a levy charged speciﬁcally for capital development.
Non-deductible capital An amount that is not a dividend as a result of subsection (3) is nevertheless treated as a return of capital for the purposes of the capital limitation.
Deﬁned in this Act: amount, available capital distribution amount, available subscribed capital, capital limitation, company, dividend, emigrating company, levy, liquidation, ordering rule, pay, share, shareholder, statutory producer board Compare: 2004 No 35 s CD 18 CD 27 Property made available intra-group (1) When this section applies This section applies when— (a) a transfer of value is made by a company (the ﬁrst com- pany) to another company (the associated company); and in the absence of this section, the transfer would be a dividend under section CD 6(1)(a)(ii), because the as- sociated company is associated with a shareholder in (b) 187 Part C s CD 27 Income Tax Act 2007 Reprinted as at 5 January 2010 the ﬁrst company, or under CD 6(1)(a)(iii), because the associated company is the trustee of a trust of which a shareholder in the ﬁrst company, or a shareholder’s spouse, civil union partner, or de facto partner, is a bene- ﬁciary.
Intra-group property arrangements worth $10,000 or less The transfer of value is not a dividend if— (a) the transfer consists of making property available for less than market value; and the transfer is not a loan; and in the income year of the ﬁrst company in which the transfer occurs, the total amount of transfers of value by the ﬁrst company to the associated company that would be dividends for the year in the absence of this section, is $10,000 or less.
(b) (c) Downward transfers of value The transfer of value is also not a dividend if— (a) either— (i) (ii) the ﬁrst company has a voting interest in the as- sociated company; or the ﬁrst company is associated with a company (the parent company) that has a voting interest in the associated company and that could have received the transfer of value without the transfer being assessable income or non-resident passive income; and (b) (c) the associated company does not have a voting interest in the ﬁrst company; and no person, other than the parent company, has both— (i) a voting interest or, if there is a market value cir- cumstance in relation to either the ﬁrst company or the associated company, a market value inter- est in the ﬁrst company; and a voting interest or, if there is a market value cir- cumstance in relation to either the ﬁrst company or the associated company, a market value inter- est in the associated company, of more than 10%.
(ii) (2) (3) 188 Reprinted as at 5 January 2010 Income Tax Act 2007 Part C s CD 27 (4) (5) (6) Relationship with section FA 3 Subsection (3) does not apply to a transfer of value that is sub- ject to section FA 3 (Recharacterisation of certain dividends: recovery of cost of shares held on revenue account).
Rules for identifying voting interests For the purposes of subsection (3)(a) and (b),— (a) for the purposes of determining if a company has a vot- ing interest in another company, the look-through rule in section YC 4 (Look-through rule for corporate share- holders) does not apply to treat the initial company’s voting interest as held by its shareholders or anyone else; and a zero voting interest is not a voting interest.
Rules for identifying voting and market value interests For the purposes of subsection (3)(c),— (a) for the purposes of determining the extent to which a person, other than the parent company, has a voting in- terest or market value interest in the ﬁrst company or the associated company, the look-through rule in sec- tion YC 4 does not apply to treat the person’s voting interest or market value interest as held by the person’s shareholders or anyone else unless the person treated as holder is the parent company; and for the purposes of determining the extent to which a person, other than the parent company, has a voting interest or market value interest of more than 10% in the associated company, the look-through rule in sec- tion YC 4 does not apply to treat a voting interest or market value interest of the ﬁrst company or the parent company in the associated company as held by their re- spective shareholders or anyone else; and a zero voting interest is not a voting interest and a zero market value interest is not a market value interest.
(b) (b) (c) Deﬁned in this Act: amount, assessable income, associated person, company, dividend, income year, loan, market value circumstance, market value interest, non-resident passive income, shareholder, tax year, transfer of value, trustee, voting interest Compare: 2004 No 35 s CD 19 189 Part C s CD 28 Income Tax Act 2007 Reprinted as at 5 January 2010 Section CD 27(3)(a)(ii): substituted (with effect on 30 June 2009), on 6 October 2009, by section 17(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section CD 27 list of deﬁned terms FDP: repealed (with effect on 30 June 2009), on 6 October 2009, by section 17(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
CD 28 Transfers of certain excepted ﬁnancial arrangements within wholly-owned groups When section ED 2 (Transfers of certain excepted ﬁnancial ar- rangements within wholly-owned groups) applies to a transfer of an excepted ﬁnancial arrangement within a wholly-owned group of companies, the transfer does not give rise to a divi- dend.
Deﬁned in this Act: dividend, excepted ﬁnancial arrangement, wholly-owned group of companies Compare: 2004 No 35 s CD 20 CD 29 Non-taxable bonus issues A non-taxable bonus issue is not a dividend.
Deﬁned in this Act: dividend, non-taxable bonus issue Compare: 2004 No 35 s CD 21 CD 30 Transfer by unit trust of legal interest after beneﬁcial interest vests If money or property of a unit trust is a dividend under section CD 9 for a unit holder, a transfer to the unit holder of the legal interest in the money or property is not a dividend.
Deﬁned in this Act: dividend, unit holder, unit trust Compare: 2004 No 35 s CD 21B CD 31 Flat-owning companies Occupation rights If a ﬂat-owning company makes residential property available to a person, that is not a dividend.
Meaning of ﬂat-owning company In this section, ﬂat-owning company means a company— (1) (2) 190 Reprinted as at 5 January 2010 Income Tax Act 2007 Part C s CD 33 (a) (b) whose constitution provides that every registered share- holder is entitled to the use of a speciﬁc residential prop- erty in New Zealand owned by the company; and whose only signiﬁcant assets are residential properties available for use by speciﬁc shareholders and funds re- served for meeting the company’s costs.
Deﬁned in this Act: company, dividend, ﬂat-owning company, New Zealand, shareholder Compare: 2004 No 35 s CD 22 CD 32 Employee beneﬁts (1) (2) FBT rules A fringe beneﬁt subject to fringe beneﬁt tax is not a dividend.

Board An amount that is employment income under section CE 1(1)(c) (Amounts derived in connection with employment) is not a dividend.
Deﬁned in this Act: amount, dividend, employment income, FBT rules, fringe beneﬁt, fringe beneﬁt tax Compare: 2004 No 35 s CD 23 Section CD 32(2): amended (with effect on 1 April 2008), on 6 October 2009, by section 18 of the Taxation (International Taxation, Life Insurance, and Re- medial Matters) Act 2009 (2009 No 34).
CD 33 Payments corresponding to notional distributions of producer boards and co-operative companies (1) Statutory producer board payments An amount paid by a statutory producer board to a person in relation to an income year is not a dividend if— (a) the person was a member of the board at some time during the income year; and unless the Commissioner allows otherwise, the amount is calculated on the basis of the member’s share of— (i) the total produce transactions of members with the board during the income year; or the total levies payable by members to the board for the income year; and (ii) (b) (c) the amount corresponds to a notional distribution amount treated as a dividend under section CD 13(1).
191 Part C s CD 34 Income Tax Act 2007 Reprinted as at 5 January 2010 (2) (3) Co-operative company payments An amount paid by a co-operative company to a person in relation to an income year is not a dividend if— (a) the person was a shareholder of the company at some time during the income year; and the amount is calculated on the basis of the share- holder’s share of the total produce transactions of shareholders with the company during the income year; and the amount corresponds to a notional distribution amount treated as a dividend under section CD 13(3).
(b) (c) Non-deductible capital An amount that is not a dividend as a result of this section is nevertheless treated as a return of capital for the purposes of the capital limitation.
Deﬁned in this Act: amount, capital limitation, Commissioner, co-operative company, dividend, income year, levy, member, pay, produce transactions, pro- ducer board, shareholder, statutory producer board Compare: 2004 No 35 s CD 24 CD 34 Distribution to member of co-operative company based on member’s transactions Election by co-operative company that distribution not be dividend A co-operative company may choose that an amount of a dis- tribution (the trading distribution) to a member of the co-op- erative company is not a dividend if— (a) the trading distribution is made by the co-operative company, or by a company (the subsidiary company) in which the co-operative company owns voting inter- ests equal to 100%; and the requirements of subsection (2) are met.
(b) Further requirements for election A co-operative company may make an election under subsec- tion (1) if— (a) the co-operative company is resident in New Zealand for the period to which the trading distribution relates; and (1) (2) 192 Reprinted as at 5 January 2010 Income Tax Act 2007 Part C s CD 34 (b) (c) (d) (e) is resident in New Zealand: has a ﬁxed establishment in New Zealand; and the company making the distribution is resident in New Zealand for the period to which the trading distribution relates; and the co-operative company believes on reasonable grounds that the member at the time of the distribu- tion— (i) (ii) the value of the trading distribution is determined by the value for the period of transactions between the member and the co-operative company or subsidiary company that meet the requirements of subsection (3); and the number of shares in the co-operative company held by the member determines the value of the transactions with the co-operative company or subsidiary company that the member has a right to enter.
(3) (4) (5) Transactions must involve trading stock A transaction must— (a) be the sale and purchase of trading stock of the vendor that is not intangible property; and not be subject to section CB 2 (Amounts received on disposal of business assets that include trading stock).
(b) Amount excluded from being dividend The amount of a trading distribution that is excluded under subsection (1) from being a dividend for a member is the lesser of the following: (a) (b) the amount of the trading distribution: the amount of the trading distribution relating to shares in the co-operative company that the member acquires for the purpose of obtaining the right to enter transac- tions with the co-operative company or subsidiary com- pany.
Form of election The co-operative company makes an election under subsection (1) for an income year containing the period to which a trading distribution relates by giving the Commissioner notice of the election when providing the company’s return of income for the tax year to which the income year corresponds.
193 Part C s CD 35 Income Tax Act 2007 Reprinted as at 5 January 2010 (6) Period of election The election applies for distributions in the income year re- ferred to in subsection (5) and for distributions in later income years.
Deﬁned in this Act: company, co-operative company, income year, resident in New Zealand, shareholder, tax year, trading stock Compare: 2004 No 35 s CD 24B Section CD 34 list of deﬁned terms foreign-sourced amount: repealed (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).
CD 35 Resident’s restricted amalgamations An amount derived by an amalgamated company on a resi- dent’s restricted amalgamation from an amalgamating com- pany that ends its existence on the amalgamation is not a divi- dend if it arises from— (a) the amalgamated company acquiring property of the amalgamating company; or the amalgamated company being relieved of an obliga- tion owed to the amalgamating company.
(b) Deﬁned in this Act: amalgamated company, amalgamating company, amal- gamation, amount, dividend, resident’s restricted amalgamation Compare: 2004 No 35 s CD 25 CD 36 Foreign investment fund income Amount not dividend An amount paid by a company to a person is not a dividend if,— (a) at the time the person derives the amount, the person’s interest in the company is an attributing interest, or would have been if the company had not been liqui- dated; and the person calculates their foreign investment fund (FIF) income or loss in relation to the interest and the period in which the amount is paid under— the comparative value method: (i) the deemed rate of return method: (ii) the cost method: (iii) the fair dividend rate method.
(iv) (b) (1) 194 Reprinted as at 5 January 2010 Income Tax Act 2007 Part C s CD 36 (2) (3) (c) [Repealed] Exclusion for interests in grey list companies Subsection (1)(b)(iv) does not apply if— the FIF is a grey list company; and (a) the person holds a direct income interest of 10% or more (b) in the FIF at the beginning of the income year in which the period falls.
Application of rule for certain managed funds Subsection (2) does not apply if— (a) the person is a portfolio investment entity, an entity eli- gible to be a portfolio investment entity, or a life insur- ance company; and the FIF is a foreign investment vehicle.
(b) Deﬁned in this Act: amount, attributing interest, company, comparative value method, cost method, deemed rate of return method, direct income interest, divi- dend, fair dividend rate method, FIF income, foreign investment fund, foreign investment vehicle, grey list company, income year, life insurance, liquidation, loss, pay, portfolio investment entity Compare: 2004 No 35 s CD 26 Section CD 36(1) heading: inserted (with effect on 1 April 2008), on 6 October 2009, by section 19(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section CD 36(b): substituted, on 1 April 2008, by section 315(1) of the Taxa- tion (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section CD 36(1)(b)(iv): amended (with effect on 1 April 2008), on 6 October 2009, by section 19(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section CD 36(1)(c): repealed (with effect on 1 April 2008), on 6 October 2009, by section 19(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section CD 36(c): added, on 1 April 2008, by section 315(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section CD 36(2) heading: added (with effect on 1 April 2008), on 6 October 2009, by section 19(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section CD 36(2): added (with effect on 1 April 2008), on 6 October 2009, by section 19(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section CD 36(3) heading: added (with effect on 1 April 2008), on 6 October 2009, by section 19(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section CD 36(3): added (with effect on 1 April 2008), on 6 October 2009, by section 19(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
195 Part C s CD 37 Income Tax Act 2007 Reprinted as at 5 January 2010 Section CD 36 list of deﬁned terms direct income interest: inserted (with ef- fect on 1 April 2008), on 6 October 2009, by section 19(5) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section CD 36 list of deﬁned terms foreign investment vehicle: inserted (with effect on 1 April 2008), on 6 October 2009, by section 19(5) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section CD 36 list of deﬁned terms grey list company: inserted, on 1 April 2008, by section 315(2) of the Taxation (Business Taxation and Remedial Mat- ters) Act 2007 (2007 No 109).
Section CD 36 list of deﬁned terms income year: inserted, on 1 April 2008, by section 315(2) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section CD 36 list of deﬁned terms life insurance: inserted (with effect on 1 April 2008), on 6 October 2009, by section 19(5) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section CD 36 list of deﬁned terms portfolio investment entity: added (with effect on 1 April 2008), on 6 October 2009, by section 19(5) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

CD 37 Maori authority distributions A Maori authority distribution is not a dividend except for the purposes of section CW 10 (Dividend within New Zealand wholly-owned group).
Deﬁned in this Act: dividend, Maori authority, wholly-owned group Compare: 2004 No 35 s HI 4(2) CD 38 General calculation rule for transfers of value Calculation rules Difference in value The amount of a dividend that is a transfer of value from a company to a person is calculated using the formula— value from company − value from person.
Deﬁnition of items in formula In the formula,— (a) value from company is the market value of the money or money’s worth that the company provides to the per- son: value from person— (b) (1) (2) 196 Reprinted as at 5 January 2010 Income Tax Act 2007 Part C s CD 39 (i) (ii) is the market value of the money or money’s worth, if any, that the person provides to the com- pany as consideration for the transfer; and excludes any amount that is attributable merely to the holding or giving up of rights as a share- holder in the company.
(3) Relationship with sections CD 39 to CD 42 This section is overridden by sections CD 39 to CD 42.

Deﬁned in this Act: amount, company, dividend, shareholder, transfer of value Compare: 2004 No 35 s CD 27 CD 39 Calculation of amount of dividend when property made available (1) (2) (3) (4) How this section applies This section applies to determine the amount of a dividend that arises under section CD 3 because a company makes property available to a person.
Amounts calculated quarterly The amount of the dividend is calculated for each quarter dur- ing which the property is made available.

Date when amounts treated as paid The amount of the dividend calculated for a quarter is treated as being paid by the company to the person and as being de- rived by the person 6 months after the end of the company’s in- come year.
However, if the company gives notice to the share- holder on an earlier date of the amount of the dividend for that quarter, the amount is treated as being paid and derived on that earlier date instead.
Using FBT rules Unless the property made available is a loan, the amount of the dividend for each quarter is the value of the fringe beneﬁt for that quarter calculated under the fringe beneﬁt tax (FBT) rules as if— (a) making the property available were the provision of a fringe beneﬁt by the company to an employee in relation to employment, despite anything in sections CX 6 to CX 38 (which relate to fringe beneﬁts); and 197 Part C s CD 39 Income Tax Act 2007 Reprinted as at 5 January 2010 (b) the company were not to choose to pay fringe beneﬁt tax on an income year basis under section RD 60 (Close company option).
Using difference from benchmark rate If the property made available is a loan, the amount of the divi- dend for each quarter is the excess, if any, of interest, calcu- lated for the quarter on the basis of the daily balance of the loan and the benchmark rate speciﬁed in subsections (6) to (8), over the actual amount of interest accruing on the loan in the quarter.
However, the company may choose instead to calcu- late the dividend as the excess of the benchmark interest rate amount over the amount of income accruing to the company in the quarter calculated under the yield to maturity method.
Benchmark rate: fringe beneﬁt tax rate for certain loans For the purposes of subsection (5), the benchmark rate of in- terest is the prescribed rate of interest if— (a) all amounts payable to the company for the loan are expressed in New Zealand dollars; and either the borrower is not a company or, if the borrower is another company, the company making the loan no- tiﬁes the Commissioner that this subsection is to apply to the loan and the quarter.
(b) Setting benchmark rate For the purposes of subsection (5), the benchmark rate is the rate set by the Commissioner if— (a) all amounts payable to the company in relation to the loan are payable in a single currency other than New Zealand dollars; and the Commissioner has set a benchmark rate for that cur- rency and the quarter; and either the borrower is not a company or, if the borrower is another company, the company making the loan no- tiﬁes the Commissioner that this subsection is to apply to the loan and the quarter.
(b) (c) Default benchmark rate For the purposes of subsection (5), if neither subsection (6) nor (7) applies, the benchmark rate of interest is a market rate (5) (6) (7) (8) 198 Reprinted as at 5 January 2010 Income Tax Act 2007 Part C s CD 39 determined at the end of the quarter for a loan made on the same terms between persons at arm’s length.
(9) Daily loan balance: certain repayments backdated For the purposes of subsection (5), in determining the daily balance of a loan during a tax year, an amount repaid during the tax year is treated as having been applied in repayment of the loan at the start of the company’s tax year or, if later, the day the loan was made, if— (a) the amount is repaid by applying any salary, wages, ex- tra pay, dividends, or interest payable by the company to the borrower; and the amount payable by the company is income of the borrower in the tax year or an earlier tax year; and the amount payable by the company is payable without any amount of tax being withheld and paid under the PAYE rules, the RWT rules, or the NRWT rules.
(b) (c) Daily loan balance: company nominating amount (10) Subject to subsection (9), for the purposes of subsection (5), the daily balance of the loan for a tax year is treated as being equal to the notional balance chosen under subsection (11) by the company making the loan if— (a) (b) (c) the borrower is a company; and the loan is a variable principal debt instrument; and the company making the loan notiﬁes the Commis- sioner that this subsection applies for the loan and the tax year; and the amount of the dividend calculated as a result for the loan, the borrower, and the tax year is no more than 30% greater or less than the amount that would be calculated if this section did not apply.
(d) Notional balance options (11) The notional balance referred to in subsection (10) is whichever of the following is chosen by the company making the loan and notiﬁed to the Commissioner: (a) the average of the outstanding balances of the loan at the end of each month in the company’s tax year: the average of— (b) 199 Part C s CD 39 Income Tax Act 2007 Reprinted as at 5 January 2010 (i) (ii) the outstanding balance of the loan at the start of the tax year or the ﬁrst time during the tax year at which the loan exists, whichever is later; and the outstanding balance of the loan at the end of the tax year or the last time during the tax year at which the loan exists, whichever is earlier.
Notice generally by tax returns (12) Reference in this section to a company notifying the Commis- sioner is a reference to— (a) (b) a notice given to the Commissioner with the company’s return of income for the relevant tax year; or if no return is required, a notice given by the date on which a return would be required to be ﬁled for the tax year if a return had been required.
Attributed repatriation dividends (13) No amount of dividend arises under section CD 4 as a result of any difference between the interest, if any, payable by a person to a CFC in an accounting period of the CFC under a loan and the benchmark rate of interest speciﬁed in any of subsections (6) to (8) if— (a) the outstanding balance of the loan at the end of the ac- counting period is taken into account under sections CD 46 to CD 52 in calculating the New Zealand repatriation amount of the CFC for the accounting period; and as a result, the person derives a dividend under section CD 21.
(b) When loan disregarded Subsection (13) does not apply to the extent to which the loan is a loan to which— (a) section CD 50(11) applies, meaning that the loan is disregarded for the accounting period; or section CZ 10(4) (Transitional relief for calculation of attributed repatriation dividends: 2 July 1992) applies, meaning that the loan is effectively disregarded for the accounting period.
(b) Deﬁned in this Act: accounting period, amount, amount of tax, attributed re- patriation, CFC, Commissioner, company, dividend, employee, extra pay, FBT rules, fringe beneﬁt, fringe beneﬁt tax, income, income year, interest, loan, New Zealand, New Zealand repatriation amount, notice, notify, NRWT rules, pay, (14) 200 Reprinted as at 5 January 2010 Income Tax Act 2007 Part C s CD 40 PAYE rules, prescribed rate of interest, quarter, return of income, RWT rules, shareholder, tax year, variable principal debt instrument Compare: 2004 No 35 s CD 28 CD 40 Adjustment if dividend recovered by company (1) (2) (3) (4) (5) When dividends recovered If a company recovers a dividend from a shareholder under section 56 of the Companies Act 1993 or an equivalent provi- sion of foreign law, this section applies to the extent necessary to ensure that— (a) the recovered dividend and any attached imputation credit or FDP credit are disregarded for the purposes of this Act; and the resulting refunds are made.
(b) Amendment of assessments Section 113B of the Tax Administration Act 1994 requires the Commissioner to amend assessments if given notice of the recovery.

Refunds If the Commissioner is given notice of the recovery, the Com- missioner must refund any relevant— (a) income tax, FDP, or FDP penalty tax of the shareholder; and non-resident withholding tax (NRWT) or resident with- holding tax (RWT) of the company.
(b) Relationship with subpart RM The refund is made despite sections RM 2 to RM 6 (which relate to refunds of excess tax) and RM 18 to RM 21 (which relate to limits on refunds), but subject to the other provisions of this Act.
Adjustments to accounts A credit or debit (as applicable) arises as at the date of recov- ery, and must be recorded in— (a) (b) the imputation credit account of the company; or if the shareholder is an imputation credit account (ICA) company or foreign dividend payment account (FDPA) 201 Part C s CD 41 Income Tax Act 2007 Reprinted as at 5 January 2010 company, the imputation credit account or FDP account of the shareholder.
Deﬁned in this Act: assessment, Commissioner, company, dividend, FDP, FDP account, FDP credit, FDP penalty tax, FDPA company, ICA company, imput- ation credit, imputation credit account, income tax, notice, NRWT, RWT, share- holder Compare: 2004 No 35 s CD 29 CD 41 Adjustment if amount repaid later When released debt repaid If the release by a company of a shareholder’s obligation to pay money to the company has been treated as a dividend and the released amount is later repaid to the company, this section applies to the extent necessary to ensure that— (a) the dividend is disregarded for the purposes of this Act; and the resulting refunds are made.
(b) When close company expenditure repaid If any expenditure of a close company that shareholders in the company believed on reasonable grounds was only for the beneﬁt of the company is nevertheless a dividend and the ex- penditure is later repaid to the company, this section applies to the extent necessary to ensure that— (a) the dividend is disregarded for the purposes of this Act; and the resulting refunds are made.
(b) Amendment of assessments Section 113B of the Tax Administration Act 1994 requires the Commissioner to amend assessments if given notice of the repayment.

Refunds If the Commissioner is given notice of the repayment, the Commissioner must refund any relevant tax of the shareholder.

Relationship with sections RM 2 to RM 6 The refund is made despite sections RM 2 to RM 6 (which relate to refunds of excess tax), but subject to the other provi- sions of this Act.
(1) (2) (3) (4) (5) 202 Reprinted as at 5 January 2010 Income Tax Act 2007 Part C s CD 42 (6) Repayment of pre-1992 loans Subsection (1) also applies to the repayment of an amount treated as a dividend under section 4(1)(b) of the Income Tax Act 1976 (as it applied before 1 April 1992 to give the Com- missioner a discretion to treat loans as dividends), as if the amount repaid were a released amount that is repaid.
Deﬁned in this Act: amount, assessment, close company, Commissioner, com- pany, dividend, notice, pay, shareholder, tax Compare: 2004 No 35 s CD 30 CD 42 Adjustment if additional consideration paid (1) (2) (3) (4) Differences from market value If a dividend from a company arises because of a difference between the market value of property provided by or to the company and the consideration paid for it, the dividend is dis- regarded for the purposes of this Act if the conditions in sub- sections (2) to (4) are met.
Market value The consideration paid must have been an amount that the company considered was the market value, having taken rea- sonable steps at the time of the transaction to ascertain a mar- ket value.

Difference paid The recipient of the dividend must have later paid to the com- pany— (a) sufﬁcient additional consideration to reﬂect the actual market value of the property at the time of the transac- tion; or a refund of any excess consideration paid by the com- pany.
(b) Accounts adjusted Any necessary adjustments must have been made to the ac- counts of the company and the recipient for the additional con- sideration or refund.
Deﬁned in this Act: amount, company, dividend, pay Compare: 2004 No 35 s CD 31 203 Part C s CD 43 Income Tax Act 2007 Reprinted as at 5 January 2010 CD 43 Available subscribed capital (ASC) amount Formula for calculating amount of available subscribed capital For a share (the share) in a company at any relevant time (the calculation time), the amount of available subscribed cap- ital is calculated using the formula— 1 July 1994 balance + subscriptions – returns.
(1) (2) Deﬁnition of items in formula In the formula in subsection (1),— 1 July 1994 balance is,— (a) (i) (b) (c) if the company existed before 1 July 1994, the amount calculated under subsection (3); and in any other case, zero: (ii) subscriptions, subject to subsections (6) to (21), is the total amount of consideration that the company re- ceived, after 30 June 1994 and before the calculation time, for the issue of shares of the same class (the class) as the share: returns, subject to subsections (22) and (23), is the total amount of consideration that the company paid, after 30 June 1994 and before the calculation time, on the cancellation of shares in the relevant class and that was not a dividend because of section CD 22 or CD 24 or a corresponding provision of an earlier Act.
1 July 1994 balance The 1 July 1994 balance is calculated using the formula— (3) Deﬁnition of items in formula In the formula in subsection (3),— (a) (b) paid-up capital, subject to subsection (5) relating to bonus issues, is the total amount of capital paid up be- fore 1 July 1994 for shares in the class: premiums is the total amount of qualifying share pre- mium paid to the company before 1 July 1994 for shares in the class, but not including amounts applied before 1 July 1994 in paying up capital: (4) 204 Reprinted as at 5 January 2010 Income Tax Act 2007 Part C s CD 43 (5) (6) (7) (c) (d) all shares issued is the number of shares in the class ever issued at the end of 30 June 1994: 30 June 1994 shares is the number of shares in the class on issue at the end of 30 June 1994.
1 July 1994 balance: bonus issues after 30 September 1988 The capital amount included in calculating the 1 July 1994 amount does not include an amount paid up by way of a bonus issue made after 30 September 1988, unless— (a) (b) the bonus issue was a taxable bonus issue; or the amount was paid up by application of an amount of qualifying share premium.
Subscriptions amount: taxable bonus issues and debt capitalisations The subscriptions amount includes,— (a) in the case of a bonus issue in lieu, the amount offered as an alternative to the bonus issue; and in the case of a taxable bonus issue that is not a bonus issue in lieu, the amount of the dividend arising from the taxable bonus issue; and in the case of shares issued on conversion of, or as con- sideration for the release of, a debt claim against the company, the amount of debt converted or released.
(b) (c) (b) Subscriptions amount: non-taxable and exempt bonus issues The subscriptions amount does not include— (a) an amount for a bonus issue if neither subsection (6)(a) nor (b) applies; or an amount for a taxable bonus issue made to a share- holder to whom the bonus issue was exempt income under section CW 9 (Dividend derived by company from overseas) or CW 10 (Dividend within New Zealand wholly-owned group), or under a correspond- ing repealed provision, except to the extent to which the taxable bonus issue is fully credited.
(8) Subscriptions amount: reinvested exempt dividends The subscriptions amount does not include— (a) an amount received by the company that is mainly at- tributable, directly or indirectly, to the company paying a dividend to a shareholder,— 205 Part C s CD 43 Income Tax Act 2007 Reprinted as at 5 January 2010 (i) (ii) (iii) if the dividend was exempt income of the share- holder under section CW 9 or CW 10, or a cor- responding provision of an earlier Act; and if the shareholder was not required to withhold and pay an amount of FDP from the dividend by section RG 3 (Obligation to pay FDP); and to the extent to which the dividend is not fully credited; or an amount received by the company if the amount is mainly attributable, directly or indirectly, to the pay- ment by the company of a dividend to a controlled for- eign company at a time when the company is also a con- trolled foreign company, regardless of whether either company is a grey list company or non-attributing Aus- tralian CFC.
(b) Subscriptions amount: share-for-share exchanges Subsection (10) applies if— (a) the company receives an amount, directly or indirectly, for the issue of shares in the class that is in the form of shares in another company; and immediately after the issue there are 1 or more per- sons whose common voting interests (or common mar- ket value interests), as measured in section IC 3(3) and (4) (Common ownership: group of companies), in the company and the other company total 10% or greater; and the receipt is not on an amalgamation.
(b) (c) Subscriptions amount: no uplift for share-for-share exchanges If subsection (9) applies, the subscriptions amount does not include the amount received to the extent to which it is more than the total available subscribed capital per share, calculated under the slice rule and calculated after deducting any ineli- gible capital amount described in subsections (13) and (14) of the shares in the other company at the date on which the amount is received.
(9) (10) 206 Reprinted as at 5 January 2010 Income Tax Act 2007 Part C s CD 43 (11) (12) Subscriptions amount: company share capital reorganisation Subsection (12) applies if a company receives an amount for the issue of shares in the class in the form of— (a) a shareholder giving up rights of membership in the company; or a shareholder giving up rights of membership in a com- pany associated with the company or that is in substance the same company.
(b) Subscriptions amount: no uplift for share capital reorganisation If subsection (11) applies, the subscriptions amount does not include the amount received to the extent to which it is more than the total available subscribed capital per share of the rights given up at the date they are given up, calculated— (a) (b) under the slice rule; and after deducting any ineligible capital amount described in subsections (13) and (14); and as if the rights given up were shares, if they are not shares.
(c) Subscriptions amount: when ineligible capital arises (13) For the purposes of subsections (10) and (12), an ineligible capital amount arises if— (a) a company (the acquiring company) issues shares in consideration for acquiring, directly or indirectly, shares in another company (the acquired company); and the acquired company has issued shares in anticipation of the shares being acquired by the acquiring company; and those shares issued in anticipation are not a fully cred- ited taxable bonus issue; and the acquiring company pays an amount in consideration for acquiring the shares in the acquired company in add- ition to issuing shares in the acquiring company.
(b) (c) (d) Subscriptions amount: amount of ineligible capital (14) The ineligible capital amount is the lesser of— (a) the total of the available subscribed capital per share calculated under the slice rule of the shares in the ac- 207 Part C s CD 43 Income Tax Act 2007 Reprinted as at 5 January 2010 quired company that is attributable to the shares issued in anticipation, except to the extent to which the shares issued in anticipation are a fully credited taxable bonus issue; and the total additional amount paid by the acquiring com- pany referred to in subsection (13)(d).
(b) Subscriptions amount: amalgamated company (15) The subscriptions amount for a company that is an amalga- mated company resulting from an amalgamation— (a) includes an amount, as if it were consideration received at the time of the amalgamation for the issue of the amalgamated company’s shares, equal to the available subscribed capital, at the time of the amalgamation, of all shares in the amalgamating companies that are— of an equivalent class to the class; and (i) not held directly or indirectly by an amalgamat- (ii) ing company; and (iii) not shares in the amalgamated company: does not include any other amount for the agreement of shareholders of an amalgamating company to the amal- gamation and the resulting property acquisitions by the amalgamated company.
(b) (16) (17) Subscriptions amount: emigrating company If a company has been treated under section FL 2 (Treatment of emigrating companies and their shareholders) as paying a distribution to shareholders, the subscriptions amount includes the amount of the distribution that is a dividend.

Subscriptions amount: Maori authority If the company is a Maori authority, the subscriptions amount includes the taxable income derived by the Maori authority in the 2003–04 tax year or an earlier tax year.
Subscriptions amount: no double counting (18) The subscriptions amount does not include amounts included in calculating the 1 July 1994 balance.
Subscriptions amount: treasury stock sales excluded (19) The subscriptions amount does not include the amount of con- sideration received by a company for disposing of a share if the disposal is taken into account under section CD 25 to de- 208 Reprinted as at 5 January 2010 Income Tax Act 2007 Part C s CD 43 termine that the amount paid by the company on a previous share acquisition is not subject to section CD 25(4) to (6).
Subscriptions amount: superannuation fund’s interest in GIF (20) The subscriptions amount of a company that is a group invest- ment fund includes the value of the interest of a superannu- ation fund in the group investment fund at the end of 31 March 1999.
(21) (22) 1 July 1994 and subscriptions amount: foreign currency conversions If an amount of consideration that a company receives for the issue of shares is payable in a foreign currency, the amount paid is treated, for the purposes of this section, as if it were converted into New Zealand currency at the calculation time.
Returns amount: on-market cancellations by associate If the acquisition of a share by an associate of the company is within the meaning of an acquisition under paragraph (d) of the deﬁnition of on-market cancellation, it is treated in the same way for the purposes of calculating the returns amount.
Returns amount: recovered amounts (23) The returns amount does not include any amount recovered by the company before the calculation time under section 56 of the Companies Act 1993 or an equivalent provision of foreign law.
(24) (25) Returns amount: shares cancelled on amalgamation If shares in an amalgamated company held by an amalgam- ating company are cancelled on the amalgamation, the returns amount included in calculating the available subscribed capital amount of a share in the amalgamated company that is of the same class as the cancelled shares is increased by the amount calculated using the formula— cancelled shares × asc per share.
Deﬁnition of items in formula In the formula in subsection (24),— (a) (b) cancelled shares is the number of cancelled shares: asc per share is the available subscribed capital per share calculated under the slice rule of each cancelled share immediately before the amalgamation.
209 Part C s CD 43 Income Tax Act 2007 Reprinted as at 5 January 2010 (26) Meaning of fully credited In this section, the part of a dividend that is fully credited is the part that is calculated using the formula— Deﬁnition of items in formula In the formula in subsection (26),— (a) (b) (c) dividend excluding credits is the dividend excluding any attached imputation credit or FDP credit: actual ratio is the total of the imputation ratio and FDP ratio of the dividend (section OZ 13 (Fully credited dividends: modifying actual ratio) may apply to modify this paragraph): maximum ratio is the maximum imputation ratio spe- ciﬁed in section OA 18 (Calculation of maximum per- mitted ratios).
Meaning of qualifying share premium In this section, qualifying share premium means an amount of premium paid to a company for the issue of a share by the company if— (a) the amount was credited to a share premium account in the company’s books; and the issue of shares was not in consideration for the ac- quisition, directly or indirectly, of shares in another company.
(b) Deﬁned in this Act: amalgamated company, amalgamating company, amal- gamation, amount, associated person, available subscribed capital, bonus issue, bonus issue in lieu, cancellation, common market value interest, common vot- ing interest, company, consideration, controlled foreign company, dividend, ex- empt income, FDP, FDP credit, FDP ratio, fully credited, grey list company, group investment fund, imputation credit, imputation ratio, Maori authority, New Zealand, non-attributing Australian CFC, on-market cancellation, pay, qualifying share premium, share, shareholder, shares of the same class, slice rule, superannuation fund, tax year, taxable bonus issue, taxable income Compare: 2004 No 35 s CD 32 Section CD 43(8)(b): substituted (with effect on 30 June 2009), on 6 October 2009, by section 20(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section CD 43(27)(b): amended, on 1 April 2008, by section 316 of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

(27) (28) 210 Reprinted as at 5 January 2010 Income Tax Act 2007 Part C s CD 44 inserted (with effect on Section CD 43 list of deﬁned terms consideration: 1 April 2008), on 6 October 2009, by section 20(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section CD 43 list of deﬁned terms non-attributing Australian CFC: inserted (with effect on 30 June 2009), on 6 October 2009, by section 20(2) of the Tax- ation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
CD 44 Available capital distribution amount Formula for calculating amount of available capital distribution For a share (the share) on the liquidation of the company, the available capital distribution amount is calculated using the formula— (1) (2) Deﬁnition of items in formula In the formula,— (a) (b) (c) (d) (e) (f) receipt is the amount received by the shareholder on the liquidation for the share: asc per share is the available subscribed capital per share calculated under the ordering rule for the share at the time of the liquidation: capital gains is the total of the capital gain amounts available for distribution to shareholders in the com- pany on the liquidation, but excluding any gain occur- ring when the company distributes property to a share- holder on the liquidation: capital property distributed is the total market value of capital property of the company distributed to share- holders on the liquidation: cost is the total cost to the company of the capital prop- erty included in the capital property distributed item: capital losses is the total of capital loss amounts of the company arising in the 1992–93 tax year or a later tax year, but excluding any loss occurring when the com- 211 Part C s CD 44 Income Tax Act 2007 Reprinted as at 5 January 2010 (g) (h) pany distributes property to shareholders on the liquid- ation: total receipts is the total of all amounts received by shareholders on the liquidation: total asc is the total of the available subscribed capital of all shares in the company at the time of the liquid- ation.
Positive amounts Despite subsection (1), the available capital distribution amount per share is zero if either multiplier in the formula is negative.

the available capital distribution When foreign company information inadequate Despite subsection (1), amount is zero if— (a) (b) the company is not resident in New Zealand; and the shareholder cannot obtain sufﬁcient information to calculate the actual available capital distribution amount.
Capital gain amount: bonus issued capital gains A capital gain amount is treated as still being available for distribution to the extent to which— (a) it has been applied to pay up a bonus issue made after 30 September 1988; and the bonus issue is a non-taxable bonus issue; and the bonus issued share is still on issue at the time of the company’s liquidation.

This subsection is overridden by subsection (6).


(b) (c) Capital gain amount: capital gains after 31 March 1988 and before 1992–93 A capital gain amount, derived after 31 March 1988 and before the 1992–93 tax year, is not available for distribution to the ex- tent to which a capital loss amount has arisen for the company in the tax year in which the capital gain amount was derived or in a later tax year before the 1992–93 tax year.
Capital loss amounts are offset against capital gain amounts in the chrono- logical order in which each arose and, to the extent offset, are then disregarded for the purposes of this subsection.
(3) (4) (5) (6) 212 Reprinted as at 5 January 2010 Income Tax Act 2007 Part C s CD 44 (7) Capital gain amount: when capital gain amounts arise For the purposes of this section, a company derives a capital gain amount if,— (a) after 31 March 1988, it disposes of capital property for an amount of consideration that is more than the cost of the property to the company, including a disposal that the company is treated as making under section DB 26 (Amount from proﬁt-making undertaking or scheme and not already in income) or DB 27 (Amount from major development or division and not already in in- come); the capital gain amount is the excess; or after 31 March 1988, it receives a capital gain, including a gift, and no part is income of the company; the capital gain amount is the amount of the capital gain; or an amount is derived by the company from another company on liquidation of the other company that is ex- cluded from being a dividend as a result of section CD 26(2)(b) and this section; or an amount is derived by the company that is attributable to a revaluation of livestock in the 1992–93 tax year or a later tax year under section 86D of the Income Tax Act 1976 or section EC 16 (Valuation under herd scheme) or EC 20 (Herd livestock disposed of before values de- termined); or the amount is described in section CZ 9(1) (Available capital distribution amount: 1965 and 1985–1992).
(b) (c) (d) (e) (8) Capital gain amount: amalgamated company inheriting gain An amalgamated company is treated as deriving a capital gain amount at the time of the amalgamation equal to a capital gain amount of an amalgamating company to the extent to which— the amalgamating company ends its existence on the (a) amalgamation; and the amalgamating company’s capital gain amount was available for distribution at the time and was not dis- tributed to anyone other than the amalgamated com- pany.
(b) (9) Capital losses amount: when capital losses arise For the purposes of this section, a company incurs a capital loss if it disposes of capital property for an amount of consideration 213 Part C s CD 44 Income Tax Act 2007 Reprinted as at 5 January 2010 less than the cost of the property to the company.

The capital loss amount is the deﬁcit.


(10) Capital losses amount: company existing before 1 April 1988 In the case of a company that existed before 1 April 1988, the capital losses amount cannot be more than the total of — (a) the amount of the capital gains item in the formula in subsection (1) to the extent derived after 31 March 1988; and the amount of the capital property distributed item, minus the amount of the cost item, in the formula.
(b) Related person transactions (11) No capital gain amount is derived or capital loss amount is incurred by a company after 31 March 1988 on disposing of property under an arrangement with a related person.

This subsection is overridden by subsections (7)(c) and (12).

(12) Close companies liquidations Subsection (11) does not apply if— (a) (b) (c) the company is a close company; and the related person is not a company; and the disposal is on the liquidation of the company.
Reinvested exempt dividends (13) When a capital gain amount, a capital loss amount, or the cost of capital property is determined, the cost of any shares sub- scribed for by the company in another company does not in- clude any consideration for the subscribed shares that is ex- cluded from the available subscribed capital of the other com- pany under section CD 43(7)(b) or (8).
Amounts written up (14) When a capital gain amount, a capital loss amount, or the cost of capital property is determined, the cost of the relevant cap- ital property is increased to the extent to which— (a) the value of the property is written up in the company’s books; and because it was attributed to the write-up,— (i) an amount paid before 11 June 1965 is treated as described in section CZ 9(2)(a); or an issue of a share before 1 April 1988 is treated as described in section CZ 9(2)(b).
(b) (ii) 214 Reprinted as at 5 January 2010 Income Tax Act 2007 Part C s CD 44 (15) Meaning of related person In subsections (11) and (12), related person means a person related to a company (the ﬁrst company) because 1 of the following applies to the person and the company: (a) (b) (c) (d) (e) (f) (g) (h) the person owns, can control, directly or indirectly, or has the right to acquire 20% or more of the ﬁrst com- pany’s ordinary shares; or the person owns, can control, directly or indirectly, or has the right to acquire 20% or more of the voting rights of shareholders in the ﬁrst company; or the person is a company and the ﬁrst company owns, can control, directly or indirectly, or has the right to acquire 20% or more of the ordinary shares in the person; or the person is a company and the ﬁrst company owns, can control, directly or indirectly, or has the right to acquire 20% or more of the voting rights of shareholders in the company; or the person is a company and 20% or more of the shares or voting rights in the person are owned or controlled by persons that also own, control, or have the right to acquire 20% or more of the shares or voting rights in the ﬁrst company; or the person is a partner or co-venturer of the ﬁrst com- pany; or the person is the trustee of a trust and the ﬁrst company, or a person who is a related person of the ﬁrst company under this subsection, beneﬁts or can beneﬁt under the trust, directly or indirectly; or the person is a partnership and 1 or more persons, that are related persons of the ﬁrst company under this sub- section, are entitled to 50% or more of the partnership’s assets or proﬁts or are able to control the partnership.
Look-through relatives and nominees (16) For the purposes of subsection (15), a person is treated as hold- ing anything held by— (a) (b) (c) their spouse, civil union partner, or de facto partner; or their child; or a child of their spouse, civil union partner, or de facto partner; or 215 Part C s CD 44 Income Tax Act 2007 Reprinted as at 5 January 2010 (d) a spouse, civil union partner, or de facto partner of their child or of a child of their spouse, civil union partner, or de facto partner.
Look-through interposed companies (17) For the purposes of subsection (15)(e), if shares or voting rights in a company are owned or controlled by another com- pany, a look-through approach must be applied.
The look- through approach requires that— (a) the shares or voting rights are treated as if owned or controlled by the shareholders in the other company; and if a shareholder in the other company is a company, that shareholder’s portion of the shares or voting rights are treated as if owned or controlled by the shareholders in the shareholder company; and the approach is applied in the same way to any chain of companies, whatever the length of the chain.
(b) (c) (18) Meaning of capital property In this section, capital property means property of the com- pany that is not revenue account property.
Deﬁned in this Act: amalgamated company, amalgamating company, amal- gamation, amount, available capital distribution amount, available subscribed capital, bonus issue, capital property, close company, company, dividend, in- come, liquidation, non-taxable bonus issue, ordering rule, pay, related person, relative, resident in New Zealand, revenue account property, share, shareholder, tax year, trustee Compare: 2004 No 35 s CD 33 Section CD 44(11): amended (with effect on 1 April 2008), on 7 December 2009, by section 6 of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
Attributed repatriation calculation rules [Repealed] Heading: repealed (with effect on 30 June 2009), on 6 October 2009, by sec- tion 22(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

216 Reprinted as at 5 January 2010 Income Tax Act 2007 Part C s CD 50 CD 45 When does a person have attributed repatriation from a controlled foreign company?
[Repealed] Section CD 45: repealed (with effect on 30 June 2009), on 6 October 2009, by section 22(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section CD 45(1)(b): amended, on 1 April 2008, by section 317 of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
CD 46 New Zealand repatriation amount [Repealed] Section CD 46: repealed (with effect on 30 June 2009), on 6 October 2009, by section 22(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

CD 47 New Zealand property amount [Repealed] Section CD 47: repealed (with effect on 30 June 2009), on 6 October 2009, by section 22(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
CD 48 Cost of tangible property [Repealed] Section CD 48: repealed (with effect on 30 June 2009), on 6 October 2009, by section 22(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

CD 49 Cost of associated party equity [Repealed] Section CD 49: repealed (with effect on 30 June 2009), on 6 October 2009, by section 22(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
CD 50 Outstanding balances of ﬁnancial arrangements [Repealed] Section CD 50: repealed (with effect on 30 June 2009), on 6 October 2009, by section 22(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
217 Part C s CD 51 Income Tax Act 2007 Reprinted as at 5 January 2010 CD 51 Property transfers between associated persons [Repealed] Section CD 51: repealed (with effect on 30 June 2009), on 6 October 2009, by section 22(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
CD 52 Unrepatriated income balance [Repealed] Section CD 52: repealed (with effect on 30 June 2009), on 6 October 2009, by section 22(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Prevention of double taxation CD 53 Prevention of double taxation of share cancellation dividends When this section applies This section applies when— (a) (b) a person derives an amount from the cancellation of a share in a company; and the amount is income of the person under 1 of the fol- lowing provisions (the other rules): (i) section CB 1 (Amounts derived from business); or (ii) section CB 3 (Proﬁt-making undertaking or (iii) (iv) (v) scheme); or section CB 4 (Personal property acquired for purpose of disposal); or section CB 5 (Business of dealing in personal property); or any other provision of this Act outside this sub- part.
Treatment of amount For the purposes of the other rules, the amount derived by the person from the company is treated as if it were reduced, but not below zero, by the amount of any dividend derived by the person in relation to the cancellation, excluding any attached imputation credit or FDP credit.
(1) (2) 218 Reprinted as at 5 January 2010 Income Tax Act 2007 Part C s CD 53 (3) (4) (5) (6) (7) Non-taxable dividends Subsection (2) does not apply to the extent to which the divi- dend is exempt income of the person under sections CW 9 to CW 11 (which relate to income from equity).
Subsection (3)(b): formula [Repealed] [Repealed] Deﬁnition of items in formula [Repealed] [Repealed] Relationship of dividend exclusions to other provisions Subject to subsection (2), the amount derived by the person from the company may be income of the person despite the fact that the amount is excluded from being a dividend by any of sections CD 22 to CD 27.
Relationship with section FA 3 This section is overridden by section FA 3 (Recharacterisation of certain dividends: recovery of cost of shares held on rev- enue account).
Deﬁned in this Act: amount, cancellation, company, dividend, exempt income, imputation credit, income, income tax, share, tax year Compare: 2004 No 35 s CD 42 Section CD 53(3) heading: substituted (with effect on 30 June 2009), on 6 Oc- tober 2009, by section 23(1) of the Taxation (International Taxation, Life Insur- ance, and Remedial Matters) Act 2009 (2009 No 34).
Section CD 53(3): substituted (with effect on 30 June 2009), on 6 October 2009, by section 23(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section CD 53(4) heading: repealed (with effect on 30 June 2009), on 6 October 2009, pursuant to section 23(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section CD 53(4): repealed (with effect on 30 June 2009), on 6 October 2009, by section 23(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section CD 53(5) heading: repealed (with effect on 30 June 2009), on 6 October 2009, pursuant to section 23(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section CD 53(5): repealed (with effect on 30 June 2009), on 6 October 2009, by section 23(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section CD 53(5)(b): amended, on 1 April 2008, by section 562 of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
219 Part C s CD 54 Income Tax Act 2007 Reprinted as at 5 January 2010 Section CD 53(5)(b): amended, on 1 April 2008, by section 318 of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section CD 53 list of deﬁned terms FDP: repealed (with effect on 30 June 2009), on 6 October 2009, by section 23(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section CD 53 list of deﬁned terms FDP credit: repealed (with effect on 30 June 2009), on 6 October 2009, by section 23(3) of the Taxation (International Tax- ation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Returning share transfers CD 54 Replacement payments The amount of a replacement payment derived by a person under a returning share transfer is income of the person when it is paid to the person.
Deﬁned in this Act: income, pay, replacement payment, returning share transfer Compare: 2004 No 35 s CD 43 Subpart CE—Employee or contractor income Employment income CE 1 Amounts derived in connection with employment Income The following amounts derived by a person in connection with their employment or service are income of the person: (a) salary or wages or an allowance, bonus, extra pay, or gratuity: expenditure on account of an employee that is expend- iture on account of the person: the market value of accommodation that the person re- ceives in connection with their employment or service other than an amount paid under section CW 17B (Re- location payments): a beneﬁt received under a share purchase agreement: directors’ fees: compensation for loss of employment or service: any other beneﬁt in money.
(b) (c) (d) (e) (f) (g) (1) 220 Reprinted as at 5 January 2010 Income Tax Act 2007 Part C s CE 2 (2) Meaning of accommodation For the purposes of this section and section CX 28 (Accom- modation), accommodation means board or lodging, or the use of a house or living premises, or the use of part of a house or living premises.
Deﬁned in this Act: accommodation, amount, expenditure on account of an employee, extra pay, income, salary or wages, share purchase agreement Compare: 2004 No 35 s CE 1 Section CE 1(1) heading: inserted (with effect on 1 April 2008), on 6 October 2009, by section 24(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section CE 1(1)(c): substituted (with effect on 1 April 2008), on 6 October 2009, by section 24(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section CE 1(2) heading: added (with effect on 1 April 2008), on 6 October 2009, by section 24(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section CE 1(2): added (with effect on 1 April 2008), on 6 October 2009, by section 24(3) of the Taxation (International Taxation, Life Insurance, and Re- medial Matters) Act 2009 (2009 No 34).

Section CE 1 list of deﬁned terms accommodation: inserted (with effect on 1 April 2008), on 6 October 2009, by section 24(4) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
CE 2 Value and timing of beneﬁts under share purchase agreements (1) (2) What this section does This section determines the value of a beneﬁt that an employee receives under a share purchase agreement and the allocation of the beneﬁt to a particular income year.

If restrictions apply to the disposal of shares received under a share purchase agree- ment, CE 3 applies.
If employees acquire shares If an employee acquires shares under a share purchase agree- ment, the value of the beneﬁt to the employee is the amount by which the value of the shares when they were acquired is more than the amount paid or payable for them.

The employee receives the beneﬁt in the income year in which they acquire the shares.
221 Part C s CE 2 Income Tax Act 2007 Reprinted as at 5 January 2010 If employees dispose of rights to non-associates If an employee disposes of their rights under a share purchase agreement to a person who is not associated with them, the value of the beneﬁt is the consideration for the disposal of the rights.

The employee receives the beneﬁt in the income year in which they dispose of the rights.
If associates acquire shares If, following 1 or more transactions between associated per- sons, an associated person acquires the shares under a share purchase agreement, the value of the beneﬁt is the difference between the value of the shares on the date of acquisition by the associated person and the amount paid or payable for them.

If the difference is negative, the value is zero.

The employee receives the beneﬁt in the income year in which the associated person acquires the shares.
If associates dispose of rights to non-associates If, following 1 or more transactions between associated per- sons, a person who is not an associated person acquires the rights under a share purchase agreement, the value of the bene- ﬁt is the consideration paid for that disposal.

The employee receives the beneﬁt in the income year in which the last asso- ciated person disposes of the rights.
If shares transferred when employees end employment or die The value of the beneﬁt is zero if a share purchase agreement provides unconditionally that, when the employee ends their employment or service or dies, the shares must be transferred to the employer or to the person from whom they were ac- quired, either without consideration or for a consideration no more than that paid by the employee.
If beneﬁts arise under approved schemes The value of the beneﬁt is zero if the beneﬁt arises under a share purchase scheme.

Disposal of rights under share purchase option For the purposes of subsection (3), a disposal of rights under a share purchase agreement includes the cancellation of a share option in return for a cash payment.
(3) (4) (5) (6) (7) (8) 222 Reprinted as at 5 January 2010 Income Tax Act 2007 Part C s CE 3 (9) Reduction of value of beneﬁt in circumstances relating to non-resident The value of a beneﬁt arising from a period of employment is reduced, from the value that the beneﬁt would have in the absence of this subsection,— (a) if, when the employee acquires the shares under the share purchase agreement or disposes of the rights under the share purchase agreement, the employee is a transitional resident; and by an amount calculated using the formula— (b) Deﬁned in this Act: amount, associated person, employee, employer, income year, non-resident, pay, share, share purchase agreement, share purchase scheme, transitional resident Compare: 2004 No 35 s CE 2 CE 3 Restrictions on disposal of shares under share purchase agreements Effect of restrictions (1) When the beneﬁt to an employee under a share purchase agree- ment is being valued, a restriction in the agreement on the dis- posal of the shares is taken into account only if the restriction is of a kind described in subsection (2) or (3).
(2) (3) First restriction The ﬁrst restriction is one that applies for a period that ends— at least 8 years after the end of the tax year in which the (a) employee receives the beneﬁt; or with the date of the employee’s death.
(b) Second restriction The second restriction is one that— (a) applies for a period that ends— (i) at least 8 years after the end of the tax year in which the employee receives the beneﬁt; or (ii) with the date of the employee’s death; and provides that an employee who ends their employment or service before the end of the period must uncondi- tionally transfer some or all of the shares to the em- (b) 223 Part C s CE 4 Income Tax Act 2007 Reprinted as at 5 January 2010 (4) ployer or to the person from whom the employee ac- quired them, either without consideration or for a con- sideration that is no more than that paid by the em- ployee.
Transfers of shares under relationship agreements If a share purchase agreement does not restrict an employee from transferring the shares under a relationship agreement, but the disposal of the shares by the person to whom the shares are transferred is restricted for a period that ends at least 8 years after the end of the tax year in which the employee would otherwise have received the beneﬁt or after the death of the employee, then the restriction is treated as applying to the em- ployee.
Deﬁned in this Act: employee, employer, pay, relationship agreement, share, share purchase agreement, tax year, year Compare: 2004 No 35 s CE 3 CE 4 Adjustments to value of beneﬁts under share purchase agreements The Commissioner may at any time adjust the previously de- termined value of a beneﬁt under a share purchase agreement if the value is reduced because— (a) a restriction on disposal exists when the employee dis- poses of the shares that was not taken into account in valuing the beneﬁt; or further consideration is required for the shares; or the shares are reacquired either without consideration or for a consideration no more than that paid by the employee.
(b) (c) Deﬁned in this Act: Commissioner, employee, pay, share, share purchase agree- ment Compare: 2004 No 35 s CE 4 CE 5 Meaning of expenditure on account of an employee Deﬁnitions Meaning Expenditure on account of an employee means a payment made by an employer relating to expenditure incurred by an employee.
(1) 224 Reprinted as at 5 January 2010 Income Tax Act 2007 Part C s CE 5 (2) (3) Inclusion Expenditure on account of an employee includes a premium that an employer pays on a life insurance policy taken out for the beneﬁt of the employee, or their spouse, civil union partner, de facto partner, or their child.

This subsection is overridden by subsection (3)(f) to (i).
(c) (b) (bb) Exclusions Expenditure on account of an employee does not include— expenditure for the beneﬁt of an employee, or a payment (a) made to reimburse an employee, under section CW 17 (Expenditure on account, and reimbursement, of em- ployees): an allowance for additional transport costs under sec- tion CW 18 (Allowance for additional transport costs): an amount paid under section CW 17B (Relocation payments) or section CW 17C (Payments for overtime meals and certain other allowances): expenses that an employee pays in connection with their employment or service to the extent to which the ex- penditure is their employer’s liability, if the employee undertakes to discharge the liability in consideration of the making of the payment by the employer: expenditure on an employment-related loan to which the fringe beneﬁt tax (FBT) rules apply: an employer’s superannuation contribution: a premium that an employer pays on a life insurance policy taken out for the beneﬁt of the employee, or their spouse, civil union partner, de facto partner, or their child, if— (i) (e) (f) (d) (ii) the premium cannot be refunded to, or converted to cash by, the employee or an associated person; and the only beneﬁts that are payable under the policy are those payable on the death of the employee, or their spouse, civil union partner, de facto part- ner, or their child, or those payable because of accident, disease, or sickness of the employee, or their spouse, civil union partner, de facto partner, or their child: 225 Part C s CE
 6 Income Tax Act 2007 Reprinted as at 5 January 2010 (g) (h) (i) (j) a premium that an employer that is a close company pays on a life insurance policy taken out for the beneﬁt of the employee, or their spouse, civil union partner, de facto partner, or their child, to the extent to which the expenditure is treated as a dividend under subpart CD (Income from equity): a premium that an employer pays on a life insurance policy taken out for the beneﬁt of the employee, or their spouse, civil union partner, de
 facto partner, or their child, if the policy is, or is included in, a superannu- ation category 1 scheme, a superannuation category 2 scheme, or a superannuation category 3 scheme: a premium that an employer pays on a life insurance policy taken out for the beneﬁt of the employee, or their spouse, civil union partner, de facto partner, or their child, if the policy is held by or for the trustees of a superannuation category 3 scheme: a premium for income protection insurance that an em- ployer is liable to pay or make a contribution towards for the beneﬁt of an employee.
Deﬁned in this Act: additional transport costs, associated person, close company, contribution, dividend, employee, employer, employer’s superannu- ation contribution, employment-related loan, expenditure on account of an employee, FBT rules, life insurance policy, pay, premium, superannuation cat- egory 1 scheme, superannuation category 2 scheme, superannuation category 3 scheme, trustee Compare: 2004 No 35 s CE 5 Section CE 5(3)(bb): inserted (with effect on 1 April 2008), on 6 October 2009, by section 25 of the Taxation (International Taxation, Life Insurance, and Re- medial Matters) Act 2009 (2009 No 34).
CE 6 Meaning of share: when share acquired Meaning In sections CE 2 to CE 4 and CE 7, share includes a convert- ible note.
Use in sections CE 2 to CE 4 and CE 7 For the purposes of sections CE 2 to CE 4 and CE 7,— (a) shares are treated as having been acquired on the date on which the right or option to buy them is exercised; and (1) (2) 226 Reprinted as at 5 January 2010 Income Tax Act 2007 Part C s CE 9 (b) if shares or rights are acquired or transferred under an agreement by a trustee for the beneﬁt of an employee to whom section CE 2 applies, the employee is treated as having acquired or transferred the shares or rights.
Deﬁned in this Act: convertible note, employee, share, trustee Compare: 2004 No 35 s CE 6 CE 7 Meaning of share purchase agreement In sections CE 1 to CE 4, share purchase agreement means an agreement to sell or issue shares in a company to an em- ployee that is entered into in connection with the employee’s employment or service, whether or not an employment rela- tionship exists when the employee receives a beneﬁt under the agreement.
Deﬁned in this Act: company, employee, share, share purchase agreement Compare: 2004 No 35 s CE 7 CE 8 Attributed income from personal services Attributed income (1) (2) (3) When this section applies This section applies when, under sections GB 27 to GB 29 (which relate to the attribution rule), a person is required to attribute an amount to another person.

Income The amount attributed is income of the person to whom it is attributed.
Timing of income The amount is allocated to the income year in which it is at- tributed.
Deﬁned in this Act: amount, income, income year Compare: 2004 No 35 s CE 8 Restrictive covenants and exit inducement payments CE 9 Restrictive covenants When this section applies This section applies when— (1) 227 Part C s CE 9 Income Tax Act 2007 Reprinted as at 5 January 2010 (a) (b) a person (person A) gives an undertaking that restricts, or is intended to restrict, their ability to perform services as an employee, ofﬁce holder, or independent contrac- tor, whether or not the undertaking is legally enforce- able; and a person, whether or not person A, derives an amount for the undertaking.
Income The amount is income of person A. Exclusion Subsection (2) does not apply if— (a) person A derives the amount because person A or an as- sociated person sells a business to another person (per- son B); and person A or the associated person and person B agree in writing that the transaction is the sale of a business; and person A derives the amount as consideration for an undertaking by person A not to provide goods or ser- vices in competition with the goods or services that per- son B provides from the business; and person A does not provide services to person B after the sale of the business, other than temporarily providing services incidental to the sale.
(b) (c) (d) Sale of all shares in company For the purposes of subsection (3),— (a) the sale of a business includes the sale of shares in a company, but only if the sale is of all the shares in the company and the company— (i) (ii) carries on a business; or directly or indirectly wholly owns another com- pany that carries on a business; and (b) in that case, the words “person B” in subsection (3)(c) and (d) mean the company that carries on the business, whether the company referred to in paragraph (a)(i) or the company referred to in paragraph (a)(ii).
(2) (3) (4) 228 Reprinted as at 5 January 2010 Income Tax Act 2007 Part C s CE 11 (5) (6) Sale of part of business For the purposes of subsection (3), the sale of a business in- cludes the sale of part of a business, if the part can be operated separately.

Avoidance arrangements Section GB 30 (Arrangements to avoid taxation of restrictive covenant payments) may apply to treat an amount as income under this section.
Deﬁned in this Act: amount, arrangement, associated person, business, com- pany, employee, income, share Compare: 2004 No 35 s CE 9 CE 10 Exit inducements An amount is income of a person if they derive it for— the loss of a vocation; or (a) the loss of a position; or (b) leaving a position; or (c) loss of status.
(d) Deﬁned in this Act: amount, income Compare: 2004 No 35 s CE 10 Income protection insurance CE 11 Proceeds from claims under policies of income protection insurance (1) (2) When this section applies This section applies when an employer is liable to pay, or con- tribute to the payment of, a premium under a policy of income protection insurance for the beneﬁt of a person who is their employee.

Income An amount that is or would be derived under the policy is income of the person.
Deﬁned in this Act: amount, employee, employer, income, pay Compare: 2004 No 35 s CE 11 229 Part C s CE 12 Income Tax Act 2007 Reprinted as at 5 January 2010 Tax credits CE 12 Tax credits for personal service rehabilitation payments (1) (2) When this section applies This section applies when a person has a tax credit in a tax year under section LB 7 (Tax credits related to personal service rehabilitation payments: providers).
Income An amount equal to the credit is income of the person in the corresponding income year.

Deﬁned in this Act: amount, corresponding income year, income, income year, personal service rehabilitation payment, tax credit, tax year Compare: 2004 No 35 s CE 12 Section CE 12: substituted, on 1 July 2008, by section 319 of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Subpart CF—Income from living allowances, compensation, and government grants CF 1 Beneﬁts, pensions, compensation, and government grants Income The following amounts are income: (a) (b) (c) (d) (e) (f) an accident compensation payment: an education grant: an income-tested beneﬁt: a living alone payment: a New Zealand superannuation payment: a parental leave payment paid under Part 7A of the Parental Leave and Employment Protection Act 1987: a pension: a veteran’s pension.
(g) (h) Some deﬁnitions In this section,— accident compensation payment means— (a) a payment under the Accident Compensation Act 1982 of earnings-related compensation that is not recovered or recoverable by, or refunded to, the chief executive of the administering department: (1) (2) 230 Reprinted as at 5 January 2010 Income Tax Act 2007 Part C s CF 1 (b) (c) (d) (e) (f) (g) (h) a payment under section 80(4) of the Accident Compen- sation Act 1982 that is not recovered or recoverable by, or refunded to, the chief executive of the administering department: a payment of any of the following kinds under the Ac- cident Rehabilitation and Compensation Insurance Act 1992, none of which is recovered or recoverable: (i) a vocational rehabilitation allowance under sec- tion 25; or compensation for loss of earnings under any of sections 38, 39, and 43; or compensation for loss of potential earning cap- acity under section 45 or 46; or (ii) (iii) (iv) weekly compensation under any of sections 58, 59, and 60; or continued compensation under section 138: (v) a payment under the Accident Insurance Act 1998 of weekly compensation that is not recovered or recover- able: a payment under a policy of personal accident or sick- ness insurance under section 188(1)(a) of the Accident Insurance Act 1998, as it was immediately before its re- peal by section 7 of the Accident Insurance Amendment Act 2000, of compensation for loss of earnings or loss of potential earning capacity as it relates to work-related personal injury: a payment
 under the Injury Prevention, Rehabilitation, and Compensation Act 2001 paid by the Corporation as deﬁned in that Act, of weekly compensation that is not recovered or recoverable under section 248 of that Act: a payment under section 81(1)(b) of the Injury Preven- tion, Rehabilitation, and Compensation Act 2001 paid by the Corporation as deﬁned in that Act, for attendant care as deﬁned in schedule 1, clause 12 of that Act: a personal service rehabilitation payment for a person under the Injury Prevention,
 Rehabilitation, and Com- pensation Act 2001 231 Part C s CF 1 Income Tax Act 2007 Reprinted as at 5 January 2010 education grant means a basic grant or an independent cir- cumstances grant under regulations made under section 303 of the Education Act 1989 pension— (a) includes a gratuitous payment made to a person in re- turn for services that the person, or their parent, child, spouse, civil union partner or de facto partner, former spouse, civil union partner or de facto partner, or de- pendant, provided to the payer when the payment would not have been made if the services had not been pro- vided; and does not include a payment made to the person because of, and within 1 year after, the death of that parent, child, spouse, civil union partner or de facto partner, former spouse, civil union partner or de facto partner, or de- pendant.
(b) Deﬁned in this Act: accident compensation payment, amount, chief executive of the administering department, education grant, income, income-tested bene- ﬁt, living alone payment, New Zealand superannuation, pay, pension, personal service rehabilitation payment, veteran’s pension, year Compare: 2004 No 35 s CF 1 Section CF 1(2)(a) accident compensation payment: amended (with effect on 1 April 2008), on 7 December 2009, by section 7 of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
Section CF 1(2)(b) accident compensation payment: amended (with effect on 1 April 2008), on 7 December 2009, by section 7 of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).

Section CF 1(2)(f) accident compensation payment: substituted (with effect on 1 April 2008), on 6 October 2009, by section 26 of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section CF 1(2)(g) accident compensation payment: substituted (with effect on 1 April 2008), on 6 October 2009, by section 26 of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section CF 1(2)(g) accident compensation payment: substituted, on 1 July 2008, by section 320(1) of the Taxation (Business Taxation and Remedial Mat- ters) Act 2007 (2007 No 109).
Section CF 1(2)(h) accident compensation payment: added (with effect on 1 April 2008), on 6 October 2009, by section 26 of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section CF 1 list of deﬁned terms personal service rehabilitation payment: inserted, on 1 July 2008, by section 320(2) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
232 Reprinted as at 5 January 2010 Income Tax Act 2007 Part C s CG 2 CF 2 Remission of speciﬁed suspensory loans (1) (2) (3) (4) When this section applies This section applies when a public authority— (a) grants a loan to a person for a business that the person carries on; and designates the loan as a speciﬁed suspensory loan.

(b) Income An amount remitted on the speciﬁed suspensory loan is in- come of the person.
Timing of income The amount is allocated in equal parts to the income year of remission and the following 2 income years.

However, the person may choose to allocate some or all of the amount in the following 2 income years to an earlier income year that is 1 of the 3 income years.
Business ceasing If the person stops carrying on the business for which the spe- ciﬁed suspensory loan was granted, an amount remitted that is allocated to a later income year is allocated to the income year in which the person stops carrying on the business.
Deﬁned in this Act: amount, business, income, income year, public authority Compare: 2004 No 35 s CF 2 Subpart CG—Recoveries CG 1 Amount of depreciation recovery income An amount of depreciation recovery income that a person has is income of the person.
Deﬁned in this Act: amount, depreciation recovery income, income Compare: 2004 No 35 s CG 1 CG 2 Remitted amounts (1) When this section applies This section applies when— (a) a person is allowed a deduction in an income year of an amount that the person is liable to pay; and the person’s liability for the amount is later remitted or cancelled, wholly or partly; and (b) 233 Part C s CG 3 Income Tax Act 2007 Reprinted as at 5 January 2010 (2) (3) (4) (c) (d) the remission or cancellation is not a dividend; and the person is not required to calculate a base price ad- justment by section EW 29 (When calculation of base price adjustment required).
Income The amount to which the remission or cancellation applies is income of the person.

Timing of income The income is allocated to the income year in which the re- mission or cancellation occurs.
(b) How remission or cancellation occurs Remission or cancellation occurs, for the purposes of this sec- tion, in 1 of the following ways: (a) a liability is remitted to the extent to which the person is discharged from it without fully adequate consideration in money or money’s worth: a liability is cancelled to the extent to which the person is released from it under the Insolvency Act 2006 or the Companies Act 1993 or the laws of a country or territory other than New Zealand: a liability is cancelled to the extent to which the person is released from it by a deed or agreement of composi- tion with the person’s creditors: a liability is cancelled to the extent to which it is irrecov- erable or unenforceable through lapse of time.
Deﬁned in this Act: amount, deduction, dividend, income, income year, New Zealand, pay Compare: 2004 No 35 s CG 2 (d) (c) CG 3 Bad debt repayment An amount received by a person for a bad debt for which the person has been allowed a deduction is income of the person.
Deﬁned in this Act: amount, deduction, income Compare: 2004 No 35 s CG 3 CG 4 Recovered expenditure or loss When this section applies This section applies when— (1) 234 Reprinted as at 5 January 2010 Income Tax Act 2007 Part C s CG 5 (a) (b) (c) a person is allowed a deduction for expenditure or loss; and the person recovers some or all of the expenditure or loss, whether through insurance, indemnity, or other- wise; and the amount recovered, to the extent of the deduction, is not income of the person under any other provision of this Act.
Income The amount recovered is, to the extent of the deduction, in- come of the person.

Timing of income The income is allocated to the income year in which the amount is recovered.
Deﬁned in this Act: amount, deduction, income year, loss Compare: 2004 No 35 s CG 4 (2) (3) CG 5 Recoveries or receipts by employers from superannuation schemes (1) When this section applies This section applies when— (a) (b) (c) an employer makes an employer’s superannuation contribution to a superannuation scheme for their em- ployee’s beneﬁt; and the employer is allowed a deduction for the contribu- tion; and the employer— (i) recovers the contribution from the superannu- ation scheme; or receives a beneﬁt in money or money’s worth from the superannuation scheme, other than an amount paid to the employer under the scheme in return for contributions made by or for the employer in a personal capacity.
(ii) (2) Income The amount recovered or received is, to the extent of the de- duction, income of the employer.

235 Part C s CG 6 Income Tax Act 2007 Reprinted as at 5 January 2010 (3) Timing of income The income is allocated to the income year in which the amount is recovered or received.
Deﬁned in this Act: amount, deduction, employee, employer, employer’s super- annuation contribution, income, income year, pay, superannuation scheme Compare: 2004 No 35 s CG 5 CG 6 Receipts from insurance, indemnity, or compensation for trading stock (1) (2) (3) When this section applies This section applies when a person receives an amount of in- surance, indemnity, or compensation for the loss or destruction of, or damage to,— trading stock: (a) anything acquired, manufactured, or produced for a pur- (b) pose ancillary to a business of manufacturing or produc- ing goods for sale or exchange.
Income The part of the insurance, indemnity, or compensation that is attributable to the asset is income if— (a) the person is allowed a deduction in an income year for the cost of the asset; and the deduction is not for an amount of depreciation loss.

(b) Timing of income The income is allocated to the income year in which the amount is received.
Deﬁned in this Act: amount, business, deduction, depreciation loss, income, income year, trading stock Compare: 2004 No 35 s CG 6 CG 7 Recoveries after deduction of payments under lease When this section applies This section applies, for the purposes of section FA 5 (Assets acquired and disposed of after deduction of payments under lease) when— (a) a person leases, rents, or hires an asset that is— plant, machinery, or other equipment; or (i) a motor vehicle; or (ii) (1) 236 Reprinted as at 5 January 2010 Income Tax Act 2007 Part C s CH 1 (b) (c) a temporary building; and (iii) they are allowed a deduction for the rental payments; and they acquire the asset and later dispose of it for an amount that is more than the amount paid to acquire the asset.
Income The amount described in subsection (3) is income of the per- son.

Consideration less payments or total deductions The amount is the lesser of the amount by which the consider- ation on disposal is more than— (a) (b) the sum of the payments made; or the total amount of the deductions referred to in subsec- tion (1)(b).

Timing of income The income is allocated to the income year of the disposal of the asset.
Deﬁned in this Act: amount, deduction, dispose, income, income year, motor vehicle, pay, temporary building Compare: 2004 No 35 s FC 5(1) (2) (3) (4) Subpart CH—Adjustments Matching rules: revenue account property, prepayments, and deferred payments CH 1 Adjustment for closing values of trading stock, livestock, and excepted ﬁnancial arrangements (1) When this section applies This section applies when a person has some or all of the fol- lowing at the end of an income year: (a) trading stock valued under subpart EB (Valuation of trading stock (including dealer’s livestock)): livestock valued under subpart EC (Valuation of live- stock): excepted ﬁnancial arrangements that are revenue ac- count property valued under subpart ED (Valuation of excepted ﬁnancial arrangements): (b) (c) 237 Part C s CH 2 Income Tax Act 2007 Reprinted as at 5 January 2010 (2) (3) (4) (d) a share supplier’s share-lending right, if the original shares that relate to the right are excepted ﬁnancial ar- rangements described in paragraph (c).
Income: closing value of trading stock The value of the trading stock, calculated under section EB 3 (Valuation of trading stock), is income of the person in the income year.

Income: closing value of livestock The value of the livestock, calculated under section EC 2 (Valuation of livestock), is income of the person in the income year.
Income: closing value of excepted ﬁnancial arrangements The value of the excepted ﬁnancial arrangements or share- lending right, calculated under section ED 1 (Valuation of ex- cepted ﬁnancial arrangements), is income of the person in the income year.
Deﬁned in this Act: excepted ﬁnancial arrangement, income, income year, ori- ginal share, revenue account property, share-lending right, share supplier, trad- ing stock Compare: 2004 No 35 s CH 1 CH 2 Adjustment for prepayments (1) (2) When this section applies This section applies when a person has, under section EA 3 (Prepayments), an unexpired amount of expenditure at the end of an income year.

Income The unexpired amount is income of the person in the income year.
Deﬁned in this Act: amount, income, income year Compare: 2004 No 35 s CH 2 CH 3 Adjustment for deferred payment of employment income When this section applies This section applies when a person has, under section EA 4 (Deferred payment of employment income), an unpaid amount of expenditure on employment income that is to be treated as income in an income year.

(1) 238 Reprinted as at 5 January 2010 Income Tax Act 2007 Part C s CH 5 (2) Income The unpaid amount is income of the person in the income year.
Deﬁned in this Act: amount, employment income, income, income year, pay Compare: 2004 No 35 s CH 3 Change to accounting practice CH 4 Adjustment for change to accounting practice (1) (2) When this section applies This section applies when a person has, under section EG 2(2)(a) or (3)(a) (Adjustment for changes to accounting prac- tice), an amount owing to them or an amount owed by them as quantiﬁed in those paragraphs.
Income An amount quantiﬁed and allocated under section EG 2(2)(a) or (3)(a) is income of the person.

Deﬁned in this Act: amount, income Compare: 2004 No 35 s CH 4 Goods and services tax (GST) CH 5 Adjustment for GST (1) (2) Income An amount calculated under sections 21F and 21G of the Goods and Services Tax Act 1985 relating to the application of goods and services is income of a person.
Exclusion This section does not apply to an amount that relates to the application of a capital asset— (a) for the principal purpose of making taxable supplies, when the asset was acquired or produced other than for the principal purpose of making taxable supplies: other than for the principal purpose of making taxable supplies, when the asset was acquired or produced for the principal purpose of making taxable supplies: other than for the purpose of deriving income.
(b) (c) 239 Part C s CH 6 Income Tax Act 2007 Reprinted as at 5 January 2010 (3) Timing of income The income is allocated to the income year in which the amount is calculated.
Deﬁned in this Act: amount, income, income year, taxable supply Compare: 2004 No 35 s CH 5 CH 6 Adjustments for certain ﬁnance and operating leases Finance leases (1) (2) (3) When this section applies This section applies when an adjustment is made under section FA 11 or FA 11B (which relate to adjustments for leases that become ﬁnance leases and certain operating leases).
Income: leases that become ﬁnance leases The amount of a positive adjustment under section FA 11 is income of the lessor or the lessee, as applicable, in the income year in which the lease becomes a ﬁnance lease.

Income: operating leases entered into before 20 June 2007 The amount of the adjustment under section FA 11B is income of the lessor in the income year after the income year in which 20 June 2007 falls.
Deﬁned in this Act: amount, ﬁnance lease, income, income year, lease, operat- ing lease Compare: 2004 No 35 ss FC 8H(6), FC 8I(6) Section CH 6: substituted, on 1 April 2008, by section 321 of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Avoidance and non-market transactions CH 7 Adjustment for avoidance arrangements An amount treated as income of a person under any of the following sections is income of the person: (a) (b) (c) section GA 1 (Commissioner’s power to adjust): section GB 23 (Excessive remuneration to relatives): section GB 26 (Arrangements involving repatriation of commercial bills): section GB 29 (Attribution rule: calculation): section GB 46 (Deferral of surplus deductions from arrangements).
(d) (e) Deﬁned in this Act: amount, arrangement, Commissioner, income, relative 240 Reprinted as at 5 January 2010 Income Tax Act 2007 Part C s CH 10 CH 8 Market value substituted (1) (2) Transfer pricing arrangements An amount treated as income of a person under section GB 7 (Arrangements involving CFC control interests) is income of the person.
Disposal at below market value A person may be treated as deriving an amount— (a) on disposal of trading stock under section GC 1 (Dis- posals of trading stock at below market value): on the lease of a property under section GC 5 (Leases for inadequate rent).
(b) Deﬁned in this Act: amount, income, lease, trading stock Interest apportionment on thin capitalisation CH 9 Interest apportionment: excess debt entity (1) (2) When this section applies This section applies when an excess debt entity is required under section FE 6 (Apportionment of interest by excess debt entity) to apportion its interest expenditure.

Income The amount calculated under section FE 6(2) is treated as in- come of the excess debt entity for the income year.
Deﬁned in this Act: amount, excess debt entity, income, income year, interest Compare: 2004 No 35 s FG 8(1) CH 10 Interest apportionment: reporting bank (1) (2) When this section applies This section applies when a reporting bank is required under section FE 7 (Apportionment of interest by reporting bank) to apportion its interest expenditure.

Income The amount calculated under section FE 7(2) is treated as in- come of the reporting bank for the income year in which the measurement period falls.
Deﬁned in this Act: amount, income, income year, interest, measurement period, reporting bank Compare: 2004 No 35 s FG 8B(1) 241 Part C s CO 1 Income Tax Act 2007 Reprinted as at 5 January 2010 Subpart CO—Income from voluntary activities Subpart CO: inserted (with effect on 1 April 2009), on 6 October 2009, by sec- tion 27(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
CO 1 Income from voluntary activities (1) (2) Income An amount derived by a person in undertaking a voluntary activity is income of the person.

Relationship with section CW 62B This section is overridden by section CW 62B (Voluntary ac- tivities).

Deﬁned in this Act: amount, income Section CO 1: inserted (with effect on 1 April 2009), on 6 October 2009, by section 27(1) of the Taxation (International Taxation, Life Insurance, and Re- medial Matters) Act 2009 (2009 No 34).
Subpart CP—Income from portfolio investment entities CP 1 Portfolio investor allocated income The amount of portfolio investor allocated income of a person who is an investor in a portfolio tax rate entity is income of the person in the income year that includes the end of the entity’s income year for which the person is allocated the income.
Deﬁned in this Act: amount, income, income year, investor, portfolio investor allocated income, portfolio tax rate entity Compare: 2004 No 35 s CP 1 Subpart CQ—Attributed income from foreign equity Attributed controlled foreign company income CQ 1 Attributed controlled foreign company income Attributed controlled foreign company (CFC) income of a per- son is income.
Deﬁned in this Act: attributed CFC income, controlled foreign company, in- come Compare: 2004 No 35 s CQ 1 242 Reprinted as at 5 January 2010 Income Tax Act 2007 Part C s CQ 2 CQ 2 When attributed CFC income arises (1) General rule A person has attributed CFC income from a foreign com- pany in an income year if— (a) the foreign company is a CFC at any time during 1 of its accounting periods, under sections EX 1 to EX 7 (which relate to the deﬁnition of a controlled foreign company); and the accounting period ends during the income year; and the person has an income interest in the foreign com- pany for the accounting period, under sections EX 8 to EX 13 (which relate to calculating a person’s income interest); and at any time in the accounting period, the person is a New Zealand resident who is not a transitional resident; and the person’s income interest is 10% or more for the part of the accounting period during which the person is a New Zealand resident who is not a transitional resident, under sections EX 14 to EX 17 (which relate to the 10% threshold); and either— (i) the CFC has net attributable CFC income for the accounting period under section EX 20C (Net attributable CFC income or loss); or the special rule in section EX 19 (Taxable dis- tribution from non-complying trust) applies be- cause the CFC gets a distribution from a non- complying trust; and (ii) [Repealed] the CFC is not a non-attributing active CFC for the ac- counting period, under section EX 21B (Non-attributing active CFCs); and the CFC is not a non-attributing Australian CFC for the accounting period, under section EX 22 (Non-attribut- ing Australian CFCs).
(b) (c) (d) (e) (f) (g) (h) (i) (2) Special rule: branch equivalent FIF with taxable distribution A person also has attributed CFC income if section EX 50(5) (Branch equivalent method) applies because— 243 Part C s CQ 2 Income Tax Act 2007 Reprinted as at 5 January 2010 (a) (b) (c) the person has an attributing interest in a foreign invest- ment fund (FIF); and the person is using the branch equivalent method to cal- culate FIF income; and the FIF receives a taxable distribution from a non-com- plying trust.
Special rule: attributed CFC amount from personal services If a person and a non-attributing active CFC or non-attributing Australian CFC meet the requirements of subsection (1)(a) to (e) and the CFC derives income from personal services that is an attributable CFC amount under section EX 20B(3)(h) (Attributable CFC amount), the person has attributed CFC income from the CFC equal to the product of— the person’s income interest in the CFC: (a) the amount by which the CFC’s income from personal (b) services exceeds the expenditure incurred by the CFC in deriving the income from personal services.
Treated as derived while person New Zealand resident Attributed CFC income of a person who has stopped being a New Zealand resident is treated as being derived while the person was a New Zealand resident.
Dividend income can arise [Repealed] [Repealed] Deﬁned in this Act: accounting period, attributable CFC amount, attributed CFC income, attributed repatriation, attributing interest, branch equivalent method, CFC, distribution, dividend, FIF, FIF income, foreign company, grey list, income, income interest, income year, net attributable CFC income, New Zealand resident, non-attributing active CFC, non-attributing Australian CFC, non-complying trust, taxable distribution, transitional resident Compare: 2004 No 35 s CQ 2 Section CQ 2(1)(f)(i): substituted (with effect on 30 June 2009), on 6 October 2009, by section 29(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section CQ 2(1)(g): repealed (with effect on 30 June 2009), on 6 October 2009, by section 29(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section CQ 2(1)(h): added (with effect on 30 June 2009), on 6 October 2009, by section 29(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
(2B) (3) (4) 244 Reprinted as at 5 January 2010 Income Tax Act 2007 Part C s CQ 3 Section CQ 2(1)(i): added (with effect on 30 June 2009), on 6 October 2009, by section 29(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section CQ 2(2B) heading: inserted (with effect on 30 June 2009), on 6 October 2009, by section 29(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section CQ 2(2B): inserted (with effect on 30 June 2009), on 6 October 2009, by section 29(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section CQ 2(4) heading: repealed (with effect on 30 June 2009), on 6 October 2009, pursuant to section 29(4) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section CQ 2(4): repealed (with effect on 30 June 2009), on 6 October 2009, by section 29(4) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section CQ 2 list of deﬁned terms attributable CFC amount: inserted (with effect on 30 June 2009), on 6 October 2009, by section 29(5)(b) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section CQ 2 list of deﬁned terms branch equivalent income: repealed (with effect on 30 June 2009), on 6 October 2009, by section 29(5)(a) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section CQ 2 list of deﬁned terms net attributable CFC income: inserted (with effect on 30 June 2009), on 6 October 2009, by section 29(5)(b) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section CQ 2 list of deﬁned terms non-attributing active CFC: inserted (with effect on 30 June 2009), on 6 October 2009, by section 29(5)(b) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section CQ 2 list of deﬁned terms non-attributing Australian CFC: inserted (with effect on 30 June 2009), on 6 October 2009, by section 29(5)(b) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
CQ 3 Calculation of attributed CFC income The amount of attributed CFC income is calculated under the rules in sections EX 18 to EX 20 (which relate to the calcula- tion of attributed CFC income or loss).

Deﬁned in this Act: amount, attributed CFC income Compare: 2004 No 35 s CQ 3 245 Part C s CQ 4 Income Tax Act 2007 Reprinted as at 5 January 2010 Foreign investment fund income CQ 4 Foreign investment fund income FIF income of a person is income.
Deﬁned in this Act: FIF income, income Compare: 2004 No 35 s CQ 4 CQ 5 When FIF income arises General rule A person has FIF income in an income year if— (a) at any time in the year, the person has— (i) rights in a foreign company, or a foreign super- annuation scheme, or an entity listed in schedule 25, part A (Foreign investment funds); or rights under a life insurance policy issued by a non-resident; and (ii) (b) (c) at that time, the rights are an attributing interest in a FIF under section EX 29 (Attributing interests in FIFs); and at that time, the rights are not exempt from being an attributing interest in a FIF under any of— (i) (ii) (iii) (iv) (v) (vi) the exemption for ASX-listed Australian com- panies in section EX 31 (Exemption for ASX- listed Australian companies): the exemption for Australian unit trusts with 25% turnover in section EX 32 (Exemption for Aus- tralian unit trusts with 25% turnover): the exemption for Australian regulated super- annuation savings in section EX 33 (Exemption for Australian regulated superannuation sav- ings): the CFC rules exemption in section EX 34 (CFC rules exemption): the exemption for a 10% or greater interest in a grey list company in section EX 35 (Exemption for 10% or greater interest in grey list company): the 10-year exemption for a venture capital com- pany emigrating to a grey list country in section EX 36 (Venture capital company emigrating to grey list country: 10-year exemption): (1) 246 Reprinted as at 5 January 2010 Income Tax Act 2007 Part C s CQ 5
 (vii) the 10-year exemption for a grey list company owning a New Zealand venture capital company in section EX 37 (Grey list company owning New Zealand venture capital company: 10-year exemption): (x) (ix) (viii) the exemption for an employee share purchase scheme of a grey list company in section EX 38 (Exemption for employee share purchase scheme of grey list company): the terminating exemption for a grey list com- pany with numerous New Zealand shareholders in section EX 39 (Terminating exemption for grey
 list company with numerous New Zealand shareholders): the terminating exemption for a grey list com- pany investing in Australasian equities in section EZ 32 (Terminating exemption for grey list FIF investing in Australasian listed equities): the foreign exchange control exemption in sec- tion EX 40 (Foreign exchange control exemp- tion): the exemption for a non-resident or transitional resident in section EX 41 (Income interest of non-resident or transitional resident): (xii) (xi) (xiii) the immigrant’s accrued superannuation en- titlement exemption in section EX 42 (New resident’s accrued superannuation entitlement exemption): the non-resident’s annuity or pension exemption in section EX 43 (Non-resident’s pension or an- nuity exemption); and (xiv) if the person is a natural person and not acting as a trustee, the total cost, calculated under section EX 68 (Measurement of cost), of attributing interests in FIFs that the person holds at any time in the year when the person is a New Zealand resident is more than $50,000; and if the person is acting as trustee of a trust that meets the requirements of subsection (5), the total cost, calculated (d) (e) 247 Part C s CQ 5 Income Tax Act 2007 Reprinted as at 5 January 2010 (f) (g) under section EX 68, of attributing interests in FIFs that the person holds at any time in the year is more than $50,000; and at any time in the year, the person is a New Zealand resident who is not a transitional resident and holds the attributing interest; and under the relevant calculation method chosen by the person, an income amount is calculated for the year under sections EX 44 to EX 56 (which relate to the cal- culation of FIF income or loss), EX 60 or EX 61 (which relate to top-up FIF income).
(1B) Treatment of transaction under section EX 63, EX 65, or EX 67 If a person is treated under section EX 63(5), EX 65, or EX 67 (which relate to changes in method or application of FIF rules) as disposing of or acquiring rights in an income year, the dis- posal or acquisition is ignored for the purposes of subsection (1)(d) and (e).
Look-through calculation methods Despite subsection (1), if the calculation method is the ac- counting proﬁts method or branch equivalent method,— (a) FIF income arises in the income year only if the relevant accounting period of the FIF ends during the year; and the tests in subsection (1)(a), (b), (c), and (f) are applied on the basis that references in subsection (1)(a), (b), (c), and (f) to any time in the year are read as references to any time in the relevant accounting period.
(b) FIF income from CFC with FIF interest FIF income also includes an additional amount that a person with an income interest of 10% or more in a CFC has in an income year under section EX 58 (Additional FIF income or loss if CFC owns FIF), whether or not the CFC is a non-at- tributing Australian CFC under section EX 22 (Non-attribut- ing Australian CFCs).
Treated as derived while person New Zealand resident FIF income of a person who has stopped being a New Zealand resident is treated as being derived while the person was a New Zealand resident.
(2) (3) (4) 248 Reprinted as at 5 January 2010 Income Tax Act 2007 Part C s CQ 5 (5) Requirements for trustees Subsection (1)(e) applies to the trustee of a trust for an income year if— (a) the trust is of the estate of a deceased person and the income year begins on or before the day that is 5 years after the person’s death: the settlor of the trust— (i) is a relative or legal guardian of a beneﬁciary of the trust, or a person associated with a relative or legal guardian of a beneﬁciary of the trust; and is required by a court order to pay damages or compensation to the beneﬁciary: (ii) the settlor of the trust— (i) (ii) is the estate of a deceased person; and is required by a court order to settle on the trust the proceeds of damages or compensation for the beneﬁciaries of the trust: (b) (c) (d) the settlor of the trust is the Accident Compensation Corporation.
Deﬁned in this Act: accounting period, accounting proﬁts method, amount, associated person, attributing interest, branch equivalent method, calculation method, CFC, FIF, FIF income, foreign company, foreign superannuation scheme, grey list, grey list company, income, income interest, income year, life insurance policy, New Zealand resident, non-attributing Australian CFC, non-resident, relative, shareholder, transitional resident, trustee, unit trust Compare: 2004 No 35 s CQ 5 Section CQ 5(1)(d): amended, on 1 April 2008, by section 322(1) of the Taxa- tion (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section CQ 5(1)(e): amended, on 1 April 2008, by section 322(1) of the Taxa- tion (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section CQ 5(1B) heading: inserted, on 1 April 2008, by section 322(2) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section CQ 5(1B): inserted, on 1 April 2008, by section 322(2) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section CQ 5(3) heading: substituted (with effect on 30 June 2009), on 6 Octo- ber 2009, by section 30(1) of the Taxation (International Taxation, Life Insur- ance, and Remedial Matters) Act 2009 (2009 No 34).

Section CQ 5(3): substituted (with effect on 30 June 2009), on 6 October 2009, by section 30(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section CQ 5 list of deﬁned terms non-attributing Australian CFC: inserted (with effect on 30 June 2009), on 6 October 2009, by section 30(2) of the Tax- 249 Part C s CQ 6 Income Tax Act 2007 Reprinted as at 5 January 2010 ation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
CQ 6 Calculation of FIF income The amount of any FIF income is calculated, using the relevant calculation method, under sections EX 44 to EX 61 (which relate to the calculation of FIF income or loss).
Deﬁned in this Act: amount, calculation method, FIF income Compare: 2004 No 35 s CQ 6 CQ 7 Treatment of attributing interests subject to returning share transfer [Repealed] Section CQ 7: repealed on 6 October 2009, by section 31 of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section CQ 7: added, on 1 April 2008, by section 323 of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Subpart CR—Income from insurance Subpart CR heading: substituted (with effect on 1 April 2008), on 6 October 2009, by section 32 of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

CR 1 Income of life insurer Income: premium loading The premium loading that a life insurer has in an income year is income of the life insurer in the income year.
Income: mortality proﬁt The mortality proﬁt that a life insurer has in an income year is income of the life insurer in the income year.

Income: discontinuance proﬁt The discontinuance proﬁt that a life insurer has in an income year is income of the life insurer in the income year.

Income: policyholder income The policyholder income that a life insurer has in an income year is income of the life insurer in the income year.
(1) (2) (3) (4) 250 Reprinted as at 5 January 2010 Income Tax Act 2007 Part C s CR 2 (5) (6) Income: disposal amount An amount that a life insurer derives from disposing of any property of their life insurance business is income of the life insurer.

Disposals at below market value Section GC 3 (Disposals by life insurers) may apply to treat a life insurer as receiving an amount on disposal of property.
Deﬁned in this Act: amount, business, discontinuance proﬁt, income, income year, life insurance, life insurer, mortality proﬁt, policyholder income, premium loading, property Compare: 2004 No 35 s CR 1 CR 2 Amount of income of life insurer (1) (2) (3) (4) (5) Premium loading The premium loading that a life insurer has in an income year is quantiﬁed under sections EY 15 to EY 24 (which relate to premium loading).
Mortality proﬁt The mortality proﬁt that a life insurer has in an income year is quantiﬁed under sections EY 25 to EY 34 (which relate to mortality proﬁt).

Discontinuance proﬁt The discontinuance proﬁt that a life insurer has in an income year is quantiﬁed under sections EY 35 to EY 41 (which relate to discontinuance proﬁt).

Policyholder income The policyholder income that a life insurer has in an income year is quantiﬁed under sections EY 42 to EY 45 (which relate to policyholder income).
Disposal of property The amount of income that a life insurer derives from dispos- ing of any property of their life insurance business is quantiﬁed under section EY 46 (Income from disposal of property).
Deﬁned in this Act: amount, business, discontinuance proﬁt, income, income year, life insurance, life insurer, mortality proﬁt, policyholder income, premium loading, property Compare: 2004 No 35 s CR 2 251 Part C s CR 3 Income Tax Act 2007 Reprinted as at 5 January 2010 CR 3 Income of non-resident general insurer What this section applies to This section applies to a premium that is treated as derived from New Zealand under section YD 8 (Apportionment of pre- miums derived by non-resident general insurers) if— (a) an insured person pays the premium to an insurer for insurance of any of the kinds described in subsection (3); and the premium meets all 3 conditions in subsection (4); and the premium is not excluded from the application of this section by section YD 8(6).
(b) (c) Amount of income Ten percent of the gross premium derived by the insurer is income of the insurer.
Kinds of insurance The kinds of insurance referred to in subsection (1)(a) are— (a) (b) general insurance: a guarantee against risk given by an insurer to an insured person if— (i) the insured person is liable to pay a premium to the insurer for the guarantee; and (ii) the insured person is associated with the insurer: a guarantee against risk given by an insurer to an insured person if— (i) (c) (ii) (iii) (iv) the insured person is liable to pay a premium to the insurer for the guarantee; and the risk arises from money lent to the insured person; and the amounts the insured person is liable to pay for the money are signiﬁcantly less than they would otherwise have been because of the guarantee; and the effect of the guarantee on the amounts payable is more than an incidental effect, or comes about as more than an incidental purpose, of the insurer’s giving the guarantee.
(1) (2) (3) 252 Reprinted as at 5 January 2010 Income Tax Act 2007 Part C s CR 4 (4) Conditions for premium The premium referred to in subsection (1)(b) is— (a) (b) (c) a premium derived by an insurer who is not resident in New Zealand when they derive it: a premium that is not attributable to a ﬁxed establish- ment of the insurer in New Zealand through which they carry on business in New Zealand: a premium to which at least 1 of the following applies: the insured person from whom the premium is (i) derived is resident in New Zealand; or the insurance contract from which the premium is derived is offered or entered into in New Zealand; or the insurance contract from which the premium is derived is entered into for the purposes of a business carried on by the insured person in New Zealand through a ﬁxed establishment in New Zealand.
(iii) (ii) Deﬁned in this Act: amount, business, derived from New Zealand, ﬁxed es- tablishment, general insurance, gross, income, insurance, insurance contract, insured person, insurer, money lent, New Zealand, non-resident, offered or en- tered into in New Zealand, pay, premium, resident in New Zealand Compare: 2004 No 35 ss FC 13, FC 14(2) CR 4 Income for general insurance outstanding claims reserve (1) What this section applies to This section applies for— (a) an insurer who–– (i) uses IFRS 4, Appendix D for general insurance contracts: is a life insurer who has general insurance con- tracts; and (ii) (b) general insurance contracts, excluding contracts having premiums to which section CR 3 (Income of non-resi- dent general insurer) applies.
(2) Formula for insurer’s OCR income For an income year (the current year), an insurer has income of the amount by which zero is less than the amount calculated using the formula— 253 Part C s CS 1 Income Tax Act 2007 Reprinted as at 5 January 2010 opening outstanding claims reserve − closing outstanding claims reserve.
(3) Deﬁnition of items in formula In the formula,— (a) opening outstanding claims reserve is— (i) (ii) the amount of the insurer’s closing outstanding claims reserve for the income year before the cur- rent year (the prior year); or the amount of the insurer’s reserve for outstand- ing claims liability, calculated at the end of the prior year, using the basis the insurer used for tax purposes in that prior year, if the current year is the ﬁrst year that this section applies to the in- surer: (b) closing outstanding claims reserve is the amount of the insurer’s outstanding claims reserve, calculated at the end of the current year.
Deﬁned in this Act: amount, general insurance contract, IFRS 4, income, in- come year, insurer, life insurer, outstanding claims reserve Section CR 4: added (with effect on 1 April 2008), on 6 October 2009, by sec- tion 34(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Subpart CS—Superannuation funds Withdrawals CS 1 Withdrawals When this section applies This section applies when a withdrawal is made from a super- annuation fund if— the fund is— (a) (i) a fund to which the member’s employer has made for the member’s beneﬁt an employer’s super- annuation cash contribution; or a fund that has received a transfer from another superannuation fund for the member; and the withdrawal is related to the member’s membership of the fund; and (ii) (b) (1) 254 Reprinted as at 5 January 2010 Income Tax Act 2007 Part C s CS 1 (c) the application of this section to the withdrawal is not excluded by any of sections CS 2 to CS 9.
(2) Income of superannuation fund from withdrawal The superannuation fund derives from the withdrawal an amount of income calculated using the formula— Deﬁnition of items in formula The items in the formula are deﬁned in subsections (4) to (6).

(3) Withdrawal (4) Withdrawal is the total of— (5) (6) (7) (8) (a) (b) the amount of money that is withdrawn from the super- annuation fund: the market value of the part of the withdrawal that is not an amount of money, on the date of the withdrawal.
Other contributions Other contributions is the part of the withdrawal that the trustee of the superannuation fund establishes is not employer- sourced superannuation savings.

Tax rate Tax rate is the basic rate of income tax set out in schedule 1, part A, clause 3 (Basic tax rates: income tax, ESCT, RSCT, RWT, and attributed fringe beneﬁts).
Reduction of income The superannuation fund may reduce the income by 25% for each income year to which both the following apply: (a) the income year is 1 of the 4 income years before the income year in which the withdrawal is made; and in the corresponding tax year, the total of the member’s taxable income and the employer’s superannuation cash contributions made for the member’s beneﬁt is less than $70,000.
(b) Timing of income The income is allocated as follows: (a) if the superannuation fund is wound up or becomes a foreign superannuation scheme, the income is allocated to the income year in which the withdrawal is made: 255 Part C s CS 2 Income Tax Act 2007 Reprinted as at 5 January 2010 (9) (b) in any other case, the income is allocated to the income year following the income year in which the withdrawal is made.
Application of Tax Administration Act 1994 Sections 32A to 32C of the Tax Administration Act 1994 apply when this section applies.
Deﬁned in this Act: amount, employer, employer-sourced superannuation savings, employer’s superannuation cash contribution, foreign superannuation scheme, income, income tax, income year, member, superannuation fund, tax year, taxable income, trustee, withdrawal Compare: 2004 No 35 s CS 1 Section CS 1(1)(a)(i): substituted (with effect on 1 April 2008), on 6 October 2009, by section 35(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section CS 1(6) Tax rate: amended, on 1 April 2008, by section 562 of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section CS 1(6) Tax rate: amended, on 1 April 2008, by section 324 of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section CS 1(7)(b): substituted (with effect on 1 April 2008), on 6 October 2009, by section 35(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section CS 1(7)(b): amended, on 1 October 2008, by section 13(1) of the Taxa- tion (Personal Tax Cuts, Annual Rates, and Remedial Matters) Act 2008 (2008 No 36).

Section CS 1 list of deﬁned terms employer’s superannuation cash contribu- tion: inserted (with effect on 1 April 2008), on 6 October 2009, by section 35(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section CS 1 list of deﬁned terms employer’s superannuation contribution: repealed (with effect on 1 April 2008), on 6 October 2009, by section 35(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

CS 2 Exclusions of withdrawals of various kinds Exclusions Withdrawal of member’s contributions Section CS 1 does not apply to a withdrawal of a member’s contributions.
Withdrawal of employer’s contributions Section CS 1 applies to a withdrawal of the employer-sourced superannuation savings for a member’s beneﬁt only if— (1) (2) 256 Reprinted as at 5 January 2010 Income Tax Act 2007 Part C s CS 2 (a) (b) the employer increases the level of the employer’s superannuation cash contributions on and after 1 April 2000, as compared with the level in the last pay period ending before 1 April 2000; and the employer does not come within any of subsection (3)(a) to (c).
(3) (4) (5) (6) Increase not treated as such An employer who increases the level of employer’s super- annuation cash contributions is treated as not doing so— (a) to the extent to which the employer increases the level by making additional employer’s superannuation cash contributions for the member’s beneﬁt to compensate for underpaying employer’s superannuation cash con- tributions for the member’s beneﬁt; or if the increase is required by a trust deed or a contract, or an amendment to a trust deed or a contract, and the requirement existed before 1 April 2000; or if the level of employer’s superannuation cash contri- butions does not change as a percentage of salary as be- tween the level on and after 1 April 2000 and the level in the last pay period ending before 1 April 2000.
(b) (c) Superannuation fund administration costs Section CS 1 does not apply to a withdrawal for fees and expenses associated with the management and marketing of the superannuation fund.
Withdrawals from KiwiSaver schemes to buy ﬁrst home [Repealed] [Repealed] Life, health, sickness, or accident insurance Section CS 1 does not apply to— (a) a withdrawal for the payment of premiums for life insur- ance, health insurance, sickness insurance, or accident insurance held by or for a member of the superannu- ation fund, whether the insurance is group insurance or individual insurance; or a withdrawal to pay an amount claimed under insurance described in paragraph (a).
(b) 257 Part C s CS 2 Income Tax Act 2007 Reprinted as at 5 January 2010 (7) (8) (9) Transfer between funds Section CS 1 does not apply to a withdrawal that takes the form of a direct transfer of an amount from a superannuation fund to another superannuation fund.

Transfer from wound-up fund Section CS 1 does not apply to a withdrawal that takes the form of a direct transfer to another superannuation fund of an amount from a superannuation fund that is wound up.
Amount in fund on certain dates Section CS 1 does not apply to a withdrawal of an amount, or earnings on it, that is in the superannuation fund— (a) on the fund’s balance date that precedes 1 April 2000, if a trustee of the fund calculates the amount in the fund on the balance date; or at the close of business on 31 March 2000, in any other case.
(b) Interpretation of subsection (9) (10) For the purposes of subsection (9),— (a) (b) the amount that is in the superannuation fund is calcu- lated according to market value: an amount in a superannuation fund includes em- ployer’s superannuation cash contributions received after the fund’s balance date that precedes 1 April 2000 or 31 March 2000, as applicable, if the contributions relate to a pay period ending on or before the fund’s balance date or 31 March 2000, as applicable.
Application of Tax Administration Act 1994 Section 32C of the Tax Administration Act 1994 applies when this section applies.
Deﬁned in this Act: amount, employer, employer-sourced superannuation savings, employer’s superannuation cash contribution, life insurance, member, member’s contribution, pay, pay period, premium, superannuation fund, trustee, withdrawal Compare: 2004 No 35 s CS 2 Section CS 2(2)(a): amended (with effect on 1 April 2008), on 6 October 2009, by section 36(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section CS 2(3): amended (with effect on 1 April 2008), on 6 October 2009, by section 36(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

(11) 258 Reprinted as at 5 January 2010 Income Tax Act 2007 Part C s CS 3 Section CS 2(3)(a): amended (with effect on 1 April 2008), on 6 October 2009, by section 36(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section CS 2(3)(c): amended (with effect on 1 April 2008), on 6 October 2009, by section 36(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section CS 2(10)(b): amended (with effect on 1 April 2008), on 6 October 2009, by section 36(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section CS 2(5) heading: repealed, on 1 April 2008, pursuant to section 325 of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section CS 2(5): repealed, on 1 April 2008, by section 325 of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section CS 2 list of deﬁned terms employer’s superannuation cash contribu- tion: inserted (with effect on 1 April 2008), on 6 October 2009, by section 36(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section CS 2 list of deﬁned terms employer’s superannuation contribution: repealed (with effect on 1 April 2008), on 6 October 2009, by section 36(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section CS 2 list of deﬁned terms KiwiSaver scheme: repealed (with effect on 1 April 2008), on 7 December 2009, by section 126 of the Taxation (Conse- quential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).

CS 3 Exclusion of withdrawal on grounds of hardship (1) (2) Signiﬁcant ﬁnancial hardship Section CS 1 does not apply to a withdrawal to the extent to which the withdrawal is necessary to alleviate signiﬁcant ﬁnancial hardship.
Meaning of signiﬁcant ﬁnancial hardship In this section, signiﬁcant ﬁnancial hardship includes sig- niﬁcant ﬁnancial difﬁculties that arise because of— (a) a member’s inability to meet minimum living expenses; or a member’s inability to carry out their usual occupation because of their temporary or permanent illness, injury, or disability; or a member’s inability to meet mortgage repayments on their principal family residence resulting in the mort- gagee seeking to enforce the mortgage on the residence; or (b) (c) 259 Part C s CS 4 Income Tax Act 2007 Reprinted as at 5 January 2010 (d) (e) (f) (g) the cost of modifying a residence to meet special needs arising from a disability of a member or a member’s dependant; or the cost of medical treatment for an illness or injury of a member or a member’s dependant; or the cost of palliative care for a member or a member’s dependant; or the cost of a funeral for a deceased member or a mem- ber’s deceased dependant.
Deﬁned in this Act: member, mortgage, signiﬁcant ﬁnancial hardship, pay, withdrawal Compare: 2004 No 35 s CS 3 CS 4 Exclusion of withdrawal to settle division of relationship property Section CS 1 does not apply to a withdrawal to the extent to which the withdrawal is necessary to settle the division of rela- tionship property under the Property (Relationships) Act 1976 upon the ending of a marriage, civil union, or de facto rela- tionship for the purpose of whichever is applicable of sections 2A(2), 2AB(2) and 2D(4) of that Act.
Deﬁned in this Act: withdrawal Compare: 2004 No 35 s CS 4 CS 5 Exclusion of withdrawal paid as annuity or pension Section CS 1 does not apply to a withdrawal if the amount withdrawn is— (a) used to buy an annuity that is payable for life or over 10 or more years; or payable as an annuity for life or over 10 or more years; or payable as a pension for life or over 10 or more years.
(b) (c) Deﬁned in this Act: amount, withdrawal, year Compare: 2004 No 35 s CS 5 260 Reprinted as at 5 January 2010 Income Tax Act 2007 Part C s CS 6 CS 6 Exclusion of withdrawal on partial retirement (1) (2) (3) Partial retirement Section CS 1 does not apply to a withdrawal made on or after the date on which a member partially retires, if, on the date the withdrawal is made,— (a) the member is employed for 30 hours per week or less; and the member has reduced their working hours because they are nearing full retirement; and the member stops contributing to the superannuation fund; and the member’s employer stops making employer’s superannuation cash contributions to the superannu- ation fund for the member’s beneﬁt; and the member gives a notice as described in subsection (2) to the trustees of the superannuation fund.
(b) (c) (d) (e) Notice The member’s notice to the trustees of the superannuation fund must— (a) state that the member does not intend to increase their hours in paid employment in the future; and state that the member’s employer understands that the member’s hours in paid employment will not increase in the future; and be signed by the employer to acknowledge that the em- ployer’s understanding is as described in paragraph (b).
(b) (c) Later withdrawals A member who makes a withdrawal after giving notice as re- quired by subsection (2) is not required to give notice for each later withdrawal if their intention has not changed.
Deﬁned in this Act: employer, employer’s superannuation cash contributions, member, notice, pay, superannuation fund, trustee, withdrawal Compare: 2004 No 35 s CS 6 Section CS 6(1)(d): amended (with effect on 1 April 2008), on 6 October 2009, by section 37(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section CS 6 list of deﬁned terms employer’s superannuation cash contribu- tions: inserted (with effect on 1 April 2008), on 6 October 2009, by section 37(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
261 Part C s CS 7 Income Tax Act 2007 Reprinted as at 5 January 2010 Section CS 6 list of deﬁned terms employer’s superannuation contributions: repealed (with effect on 1 April 2008), on 6 October 2009, by section 37(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
CS 7 Exclusion of withdrawal when member ends employment Ending employment because of injury, disability, or death Section CS 1 does not apply to a withdrawal made on or after the date on which a member ends their employment with an employer if the member ends their employment because the member is injured or disabled or dies.
Ending employment after period of employer’s superannuation cash contributions Section CS 1 does not apply to a withdrawal from a super- annuation fund of employer’s superannuation cash contribu- tions that have been made for the member by the employer, or another employer, if— (a) the member has been in employment throughout the period that— (i) starts on the 1st day of the tax year that starts 2 tax years before the start of the tax year in which the member ends their employment; and ends on the day on which the member ends their employment; and (ii) (b) (c) (d) the employer’s superannuation cash contributions are made to the superannuation fund or to a superannuation fund that has transferred, whether directly or indirectly, the funds relating to its members to the superannuation fund; and the employer’s superannuation cash contributions have not been part of a withdrawal, other than a transfer be- tween superannuation funds that is referred to in para- graph (b); and the withdrawal— (i) meets the requirements of subsections (3) and (4): (ii) meets the requirements of subsection (5): (iii) does not include employer-sourced superannu- ation savings of more than the amount found (1) (2) 262 Reprinted as at 5 January 2010 Income Tax Act 2007 Part C s CS 7 by multiplying $5,000 by the number of income years for which the employer’s superannuation cash contributions were made on behalf of the member; and (e) the withdrawal is made at the time described in subsec- tion (6).
(3) Limited increase in employer contributions between income years A withdrawal meets the requirements of this subsection if, at the time of the withdrawal, employer’s superannuation cash contributions have been made for the member by the employer, or another employer, such that— (a) the contributions relate to some or all of a period of employment that— (i) starts on the 1st day of the tax year that starts 2 tax years before the tax year in which the member ends their employment; and ends on the day on which the member ends their employment; and (ii) (b) (c) in each of the ﬁrst 2 tax years in the period referred to in paragraph (a), the contributions— (i) are in total less than 150% of the total of em- ployer’s superannuation cash contributions made for the member in the previous tax year: (ii) meet the requirements of subparagraph (i) after the application of subsection (4); and in the tax year in which the member ends their employ- ment, the contributions— (i) have an annualised value that is less than 150% of the employer’s superannuation cash contribu- tions made for the member in the previous tax year: (ii) meet the requirements of subparagraph (i) after the application of subsection (4).
(4) Increases disregarded under subsection (3)(b)(i) or (c)(i) For the purposes of subsection (3), employer’s superannuation cash contributions to a superannuation fund that are 150% or more of the employer’s superannuation cash contributions made in the previous tax year are treated as not being so— 263 Part C s CS 7 Income Tax Act 2007 Reprinted as at 5 January 2010 (a) (b) (c) (d) (e) to the extent to which the employer increases the level by making additional employer’s superannuation cash contributions for the member’s beneﬁt to compensate for underpaying employer’s superannuation cash con- tributions for the member’s beneﬁt; or if the increase occurs before 1 April 2000; or if the increase is required by a trust deed or a contract, or an amendment to a trust deed or a contract, and the requirement existed before 1 April 2000; or if the employer starts making employer’s superannu- ation cash contributions for a member’s beneﬁt under a contract, or an amendment to a contract, that was signed before 1 April 2000; or if the level of employer’s superannuation cash contri- butions does not change as a percentage of salary as be- tween the level on and after 1 April 2000 and the level in the last pay period ending before 1 April 2000.
Increases in employer contributions considered consistent by Commissioner A withdrawal meets the requirements of this subsection if, at the time of the withdrawal, employer’s superannuation cash contributions have been made for the member by the employer, or another employer, such that— (a) the contributions relate to some or all of the period that— (i) starts on the 1st day of the tax year that starts 2 tax years before the tax year in which the member ends their employment; and ends on the day on which the member ends their employment; and (ii) (b) (c) the Commissioner considers that the contributions are consistent in size and frequency with the employer’s superannuation cash contributions for other employees in comparable positions; and the Commissioner considers that the contributions are consistent in size and frequency during the period or periods to which the employer’s superannuation cash contributions for the member relate.
(5) 264 Reprinted as at 5 January 2010 Income Tax Act 2007 Part C s CS 7 (6) (7) (8) Time for purposes of subsection (2) For the purposes of subsection (2), the times are— (a) on or after the date on which a member ends their em- ployment with an employer; or shortly before the date on which the member ends their employment, in anticipation of the member’s ending their employment.
(b) Ending employment in any other case If a withdrawal is made on or after the date on which a member ends their employment with an employer and the application of section CS 1 is not excluded by subsection (1) or (2), section CS 1 applies only to the withdrawal of an amount equal to the employer-sourced superannuation savings calculated for the period starting on the ﬁrst day of the tax year that starts 2 tax years before the date on which the member ends their employment and ending on the date of withdrawal.
What is not ending employment Section CS 10 describes a case in which a member is treated as not ending their employment for the purposes of this section.
Deﬁned in this Act: amount, employer, employer’s superannuation cash con- tribution, employer-sourced superannuation savings, member, pay, pay period, superannuation fund, tax year, withdrawal Compare: 2004 No 35 s CS 7 Section CS 7(2) heading: amended (with effect on 1 April 2008), on 6 October 2009, by section 38(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section CS 7(2): amended (with effect on 1 April 2008), on 6 October 2009, by section 38(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section CS 7(2)(b): amended (with effect on 1 April 2008), on 6 October 2009, by section 38(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section CS 7(2)(c): amended (with effect on 1 April 2008), on 6 October 2009, by section 38(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section CS 7(2)(d)(iii): amended (with effect on 1 April 2008), on 6 October 2009, by section 38(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section CS 7(3): amended (with effect on 1 April 2008), on 6 October 2009, by section 38(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

265 Part C s CS 8 Income Tax Act 2007 Reprinted as at 5 January 2010 Section CS 7(3)(b)(i): amended (with effect on 1 April 2008), on 6 October 2009, by section 38(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section CS 7(3)(c)(i): amended (with effect on 1 April 2008), on 6 October 2009, by section 38(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section CS 7(4): amended (with effect on 1 April 2008), on 6 October 2009, by section 38(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section CS 7(4)(a): amended (with effect on 1 April 2008), on 6 October 2009, by section 38(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section CS 7(4)(d): amended (with effect on 1 April 2008), on 6 October 2009, by section 38(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section CS 7(4)(e): amended (with effect on 1 April 2008), on 6 October 2009, by section 38(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section CS 7(5): amended (with effect on 1 April 2008), on 6 October 2009, by section 38(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section CS 7(5)(b): amended (with effect on 1 April 2008), on 6 October 2009, by section 38(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section CS 7(5)(c): amended (with effect on 1 April 2008), on 6 October 2009, by section 38(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section CS 7 list of deﬁned terms employer’s superannuation cash contribu- tion: inserted (with effect on 1 April 2008), on 6 October 2009, by section 38(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section CS 7 list of deﬁned terms employer’s superannuation contribution: repealed (with effect on 1 April 2008), on 6 October 2009, by section 38(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
CS 8 Exclusion of withdrawal when member ends employment: lock-in rule Deferral of withdrawal Section CS 1 does not apply to a withdrawal of an amount made 2 years after the date on which a member ends their employment with an employer if, when the member ends their employment, the member defers the withdrawal for 2 years after the date of ending their employment.
(1) 266 Reprinted as at 5 January 2010 Income Tax Act 2007 Part C s CS 10 (2) What is not ending employment Section CS 10 describes a case in which a member is treated as not ending their employment for the purposes of this section.
Deﬁned in this Act: amount, employer, member, withdrawal, year Compare: 2004 No 35 s CS 8 CS 9 Exclusion of withdrawal from deﬁned beneﬁt fund when member ends employment (1) (2) Deﬁned beneﬁt fund Section CS 1 does not apply to a withdrawal made from a deﬁned beneﬁt fund— (a) on or after the date on which a member ends their em- ployment with an employer, irrespective of the mem- ber’s length of service; or shortly before the date on which a member ends their employment with an employer, in anticipation of the member’s ending their employment, irrespective of the member’s length of service.
(b) What is not ending employment Section CS 10 describes a case in which a member is treated as not ending their employment for the purposes of this section.

Deﬁned in this Act: deﬁned beneﬁt fund, employer, member, withdrawal Compare: 2004 No 35 s CS 9 CS 10 When member treated as not ending employment (1) (2) (3) When this section applies This section applies for the purposes of sections CS 7 to CS 9.
Transfer to related employer A member is treated as not ending their employment with an employer (employer A) if the member transfers from em- ployer A to another employer (employer B) and employer B is a related employer of employer A.
Related employer Employer B is a related employer of employer A if employer B— (a) (b) is treated as a separate employer from employer A; and is— (i) a branch or division of employer A; or 267 Part C s CS 10B Income Tax Act 2007 Reprinted as at 5 January 2010 (ii) associated with employer A. Deﬁned in this Act: associated person, employer, member Compare: 2004 No 35 s CS 10 CS 10B Exclusion of permitted withdrawals from KiwiSaver schemes and complying superannuation funds Section CS 1 does not apply to a permitted withdrawal from a KiwiSaver scheme or a complying superannuation fund.
Deﬁned in this Act: complying superannuation fund, KiwiSaver scheme, per- mitted withdrawal Compare: 2004 No 35 s CS 10B Section CS 10B: inserted, on 1 April 2008, by section 123 of the Taxation (Kiwi- Saver) Act 2007 (2007 No 110).
Transfers to or from superannuation funds and superannuation schemes CS 11 Transfer by superannuation fund to another superannuation fund Notiﬁcation of nature of amount transferred An amount transferred by a superannuation fund (the trans- feror fund) to another superannuation fund (the transferee fund) retains its nature in the transferee fund if— (a) (b) the transferee fund is not a deﬁned beneﬁt fund; and the trustees of the transferor fund, the member’s past employer, or the member’s present employer give no- tice to the transferee fund of the nature of the amount transferred.
No notiﬁcation of nature of amount transferred If the trustees of the transferor fund, the member’s past em- ployer, or the member’s present employer do not give notice to the transferee fund of the nature of the amount transferred, the amount transferred is treated as being, in the transferee fund, the employer-sourced superannuation savings.
Notiﬁcation of nature of amounts transferred to deﬁned beneﬁt fund Amounts to which section CS 2(1) or (8) apply that are trans- ferred by a superannuation fund to a deﬁned beneﬁt fund re- tain their nature in the deﬁned beneﬁt fund if the trustees of the (1) (2) (3) 268 Reprinted as at 5 January 2010 Income Tax Act 2007 Part C s CS 13 (4) superannuation fund give notice to the deﬁned beneﬁt fund of the nature of the amounts.
No notiﬁcation of nature of amounts transferred to deﬁned beneﬁt fund If the trustees of the superannuation fund do not give notice to the deﬁned beneﬁt fund of the nature of the amounts to which section CS 2(1) or (8) apply, section CS 1 applies to the amount transferred when it is withdrawn from the deﬁned beneﬁt fund unless the application of section CS 1 is excluded by any of sections CS 2 to CS 9.
Deﬁned in this Act: amount, deﬁned beneﬁt fund, employer, employer-sourced superannuation savings, member, notice, notify, superannuation fund, trustee Compare: 2004 No 35 s CS 11 CS 12 Transfer from superannuation scheme to superannuation fund An amount transferred directly from a superannuation scheme to a superannuation fund is treated as being, in the superannu- ation fund, the member’s contribution.
Deﬁned in this Act: amount, member’s contribution, superannuation fund, superannuation scheme Compare: 2004 No 35 s CS 12 CS 13 Investment by superannuation fund in another superannuation fund (1) Superannuation fund investing in another superannuation fund If a superannuation fund (superannuation fund A) is a mem- ber of another superannuation fund (superannuation fund B),— (a) superannuation fund A’s investment in superannuation fund B is not a transfer; and a withdrawal of an amount related to superannuation fund A’s investment in superannuation fund B is not a transfer; and a withdrawal of an amount related to superannuation fund A’s investment in superannuation fund B is not a withdrawal to which section CS 2 applies.
(b) (c) 269 Part C s CS 14 Income Tax Act 2007 Reprinted as at 5 January 2010 (2) Superannuation fund investing in superannuation scheme If a superannuation fund is a member of a superannuation scheme,— (a) the fund’s investment in the scheme is not a transfer; and a withdrawal by the fund related to the investment is not a transfer.
(b) Deﬁned in this Act: amount, member, superannuation fund, superannuation scheme, withdrawal Compare: 2004 No 35 s CS 13 Treatment of amounts when superannuation fund becomes superannuation scheme or vice versa CS 14 Superannuation fund becomes superannuation scheme (1) (2) Effect of change If a superannuation fund becomes a superannuation scheme, other than a foreign superannuation scheme,— (a) an amount in the fund at the time it becomes a super- annuation scheme retains its nature; and the following sections apply to a withdrawal from the superannuation scheme as if the scheme were a super- annuation fund: (i) sections CS 1 to CS 17 and RD 72 (Recovery of tax paid by superannuation funds); and sections 32A, 32B, and 32C of the Tax (ii) (b) Administration Act 1994.
Market value of amounts The amount in the superannuation fund at the time it becomes a superannuation scheme is calculated according to market value.
Deﬁned in this Act: amount, foreign superannuation scheme, superannuation fund, superannuation scheme, withdrawal Compare: 2004 No 35 s CS 14 CS 15 Superannuation fund becomes foreign superannuation scheme If a superannuation fund becomes a foreign superannuation scheme, every amount in the superannuation fund is treated as 270 Reprinted as at 5 January 2010 Income Tax Act 2007 Part C s CS 18 if it had been withdrawn immediately before the fund became a foreign superannuation scheme.
Deﬁned in this Act: amount, foreign superannuation scheme, superannuation fund Compare: 2004 No 35 s CS 15 CS 16 Superannuation scheme becomes superannuation fund If a superannuation scheme becomes a superannuation fund, every amount in the superannuation scheme at the time it be- comes a superannuation fund is treated as being a member’s contribution to the superannuation fund.
Deﬁned in this Act: amount, member’s contribution, superannuation fund, superannuation scheme Compare: 2004 No 35 s CS 16 Treatment of distributions when superannuation fund wound up CS 17 Superannuation fund wound up When a superannuation fund is wound up, a distribution re- lated to a member’s membership is treated as being a with- drawal.
Deﬁned in this Act: member, superannuation fund, withdrawal Compare: 2004 No 35 s CS 17 Treatment of loans to members CS 18 Value of loan treated as fund income (1) (2) When this section applies This section applies when both of the following tests are met: a superannuation fund provides a loan in an income (a) year to a member of the fund, directly or indirectly, and whether by one transaction or a series of transactions: the interest, if any, accruing on the loan is less than the prescribed rate of interest which applies for fringe beneﬁt tax purposes.
(b) Interest shortfall The fund is treated as deriving income in the income year equal to the amount, if any, by which the interest that would have accrued on the loan for the income year at the prescribed rate 271 Part C s CT 1 Income Tax Act 2007 Reprinted as at 5 January 2010 of interest is more than the actual interest, if any, that arises on the loan for the income year.
Deﬁned in this Act: fringe beneﬁt tax, income year, interest, member, pre- scribed rate of interest, superannuation fund Compare: 2004 No 35 s GD 6(1), (2) Subpart CT—Income from petroleum mining CT 1 Disposal of exploratory material or petroleum mining asset (1) (2) (3) Income: disposal of exploratory material The consideration that a petroleum miner derives from dispos- ing of exploratory material is income of the petroleum miner.
Income: disposal of petroleum mining asset The consideration that a petroleum miner derives from dis- posing of a petroleum mining asset is income of the petroleum miner.

Relationship with section CX 43 This section is overridden by section CX 43 (Farm-out ar- rangements for petroleum mining).
Deﬁned in this Act: consideration, dispose, exploratory material, income, pet- roleum miner, petroleum mining asset Compare: 2004 No 35 s CT 1 CT 2 Damage to assets The consideration that a petroleum miner derives for damage to an asset of the kind described in section CT 7(1)(b) or (c) is income of the petroleum miner.
Deﬁned in this Act: consideration, income, petroleum miner Compare: 2004 No 35 s CT 2 CT 3 Exploratory well used for commercial production When this section applies This section applies when a petroleum miner uses an explora- tory well for commercial production of petroleum, whether or not the well has been sealed and abandoned previously.
(1) 272 Reprinted as at 5 January 2010 Income Tax Act 2007 Part C s CT 4 (2) (3) (4) (5) Income An amount equal to the amount of expenditure described in subsection (3) is treated as income of the petroleum miner.
Exploratory well expenditure The expenditure is exploratory well expenditure to which all the following apply: (a) it is directly attributable to drilling or acquiring the ex- ploratory well; and the petroleum miner or a holder of a previous interest in the well is or has been allowed a deduction for it as petroleum exploration expenditure; and it is incurred in relation to the permit held currently by the petroleum miner, or a previous permit surrendered in exchange for the permit currently held under section 32(3) of the Crown Minerals Act 1991.
(b) (c) Timing of income The amount is allocated to the income year in which commer- cial production from the well starts.

Part interest If the petroleum miner has a part interest in the exploratory well when that well is ﬁrst used for commercial production, the amount of expenditure treated as income under this section must bear the same proportion to the exploratory well expend- iture speciﬁed in subsection (3) as that part interest bears to all interests in the well.
Deﬁned in this Act: amount, commercial production, deduction, exploratory well, exploratory well expenditure, income, income year, permit, petroleum, petroleum exploration expenditure, petroleum miner, seal and abandonment Compare: 2004 No 35 s CT 3 CT 4 Partnership interests and disposal of part of asset In this subpart, and in sections CX 42 (Disposal of owner- ship interests in controlled petroleum mining entities) and CX 43 (Farm-out arrangements for petroleum mining), unless the context requires otherwise,— (a) a partner is treated as having a share or interest in a pet- roleum permit or other property of a partnership to the extent of their interest in the income of the partnership: 273 Part C s CT 5 Income Tax Act 2007 Reprinted as at 5 January 2010 (b) references to the disposal of an asset apply equally to the disposal of part of an asset.
Deﬁned in this Act: income, petroleum permit Compare: 2004 No 35 s CT 4 CT 5 Petroleum mining operations outside New Zealand This subpart, and sections CX 42 (Disposal of ownership inter- ests in controlled petroleum mining entities) and CX 43 (Farm- out arrangements for petroleum mining), apply, with any ne- cessary modiﬁcations, to a petroleum miner who undertakes petroleum mining operations that are— (a) outside New Zealand and undertaken through a branch or a controlled foreign company; and substantially the same as the petroleum mining activ- ities governed by this subpart and sections CX 42 and CX 43.
(b) Deﬁned in this Act: controlled foreign company, New Zealand, petroleum miner, petroleum mining operations Compare: 2004 No 35 s CT 5 CT 6 Meaning of petroleum miner Deﬁnitions Meaning Petroleum miner, for a permit area, means a person who undertakes petroleum mining operations in the permit area.
Exclusion Petroleum miner does not include a person who undertakes petroleum mining operations for consideration that is not in the form of, or contingent on,— (a) (b) the production of petroleum from the permit area; or proﬁts from the production of petroleum from the per- mit area; or an interest or a right to an interest in the petroleum per- mit.
(c) Activities: inclusions [Repealed] [Repealed] Activities: exclusions (1) (2) (3) 274 Reprinted as at 5 January 2010 [Repealed] (4) Income Tax Act 2007 Part C s CT 6B Deﬁned in this Act: consideration, permit area, petroleum, petroleum miner, petroleum mining operations petroleum permit Compare: 2004 No 35 s CT 6 Section CT 6(1): substituted, on 1 April 2008, by section 326(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section CT 6(2): amended, on 1 April 2008, by section 326(2) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section CT 6(3) heading: repealed, on 1 April 2008, by section 326(3) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section CT 6(3): repealed, on 1 April 2008, by section 326(3) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section CT 6(4) heading: repealed, on 1 April 2008, by section 326(3) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section CT 6(4): repealed, on 1 April 2008, by section 326(3) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section CT 6 list of deﬁned terms petroleum mining operations: inserted, on 1 April 2008, by section 326(4)(a) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section CT 6 list of deﬁned terms removal or restoration operations: re- pealed, on 1 April 2008, by section 326(4)(b) of the Taxation (Business Tax- ation and Remedial Matters) Act 2007 (2007 No 109).

CT 6B Meaning of petroleum mining operations (1) (2) Meaning Petroleum mining operations means an activity included in those described in subsection (2) and not excluded by subsec- tion (3).
Activities: inclusions The activities are those carried out in connection with— (a) (b) (c) (d) prospecting or exploring for petroleum: developing a permit area for producing petroleum: producing petroleum: processing, storing, or transmitting petroleum before its dispatch to a buyer, consumer, processor, reﬁnery, or user: removal or restoration operations.
(e) (3) Activities: exclusions The activities do not include further treatment to which all the following apply: 275 Part C s CT 7 Income Tax Act 2007 Reprinted as at 5 January 2010 (a) (b) it occurs after the well stream has been separated and stabilised into crude oil, condensate, or natural gas; and it is done— (i) (ii) (iii) it is not treatment at the production facilities.
by liquefaction or compression; or for the extraction of constituent products; or for the production of derivative products; and (c) Deﬁned in this Act: permit area, petroleum, removal or restoration operations Compare: 2004 No 35 s CT 6B.

Section CT 6B: inserted, on 1 April 2008, by section 327 of the Taxation (Busi- ness Taxation and Remedial Matters) Act 2007 (2007 No 109).
CT 7 Meaning of petroleum mining asset Meaning Petroleum mining asset means— (a) (b) a petroleum permit: an asset that— (i) is acquired by a petroleum miner for the purpose of carrying on an activity described in subsection (3) in a permit area or areas; and has an estimated useful life that depends on, and is no longer than, the remaining life of the petrol- eum permit for the area or areas: (ii) (c) a share or partial interest in an asset described in para- graph (a) or (b).
Exclusion Petroleum mining asset does not include land.

Activities: inclusions The activities are those carried out in connection with— developing a permit area for producing petroleum: (a) producing petroleum: (b) processing, storing, or transmitting petroleum before its (c) dispatch to a buyer, consumer, processor, reﬁnery, or user: removal or restoration operations.
(d) Activities: exclusions The activities do not include further treatment to which all the following apply: (1) (2) (3) (4) 276 Reprinted as at 5 January 2010 (a) (b) Income Tax Act 2007 Part C s CU 2 it occurs after the well stream has been separated and stabilised into crude oil, condensate, or natural gas; and it is done— (i) (ii) (iii) it is not treatment at the production facilities.
by liquefaction or compression; or for the extraction of constituent products; or for the production of derivative products; and (c) Deﬁned in this Act: land, permit area, petroleum, petroleum miner, petroleum mining asset, petroleum permit, removal or restoration operations Compare: 2004 No 35 s CT 7 Subpart CU—Income from mineral mining Introductory provision CU 1 Mining company’s 2 kinds of income Income derived by a mining company is either income from mining or income other than income from mining.
Deﬁned in this Act: income, income from mining, mining company Compare: 2004 No 35 s CU 1 Income from mining CU 2 Mining company that processes or manufactures (1) When this section applies This section applies when— a mining company— (a) (i) (ii) obtains speciﬁed minerals from its mining oper- ations; or through a combination of its mining operations and its associated mining operations, brings spe- ciﬁed minerals to the stage at which they are ready to be processed or used in a manufactur- ing operation; and (b) (c) the company produces products by processing the spe- ciﬁed minerals or using them in a manufacturing oper- ation; and the company disposes of the products.
277 Part C s CU 2 Income Tax Act 2007 Reprinted as at 5 January 2010 Income classiﬁed For the income year in which the mining company disposes of the products, the Commissioner must classify the mining company’s income from the disposal as income from mining or income other than income from mining.

The Commissioner must classify the income by apportioning it under subsection (3) or by making a decision under subsection (4).
Apportionment In apportioning the income, the Commissioner must make an appropriate apportionment of the value of the stock of products on hand at the start and end of the income year and must take into account the matters the Commissioner considers relevant and appropriate, including— (a) the capital employed, or the expenditure or losses in- curred, in the mining operations, associated mining op- erations, and processing of the speciﬁed minerals or the use of the speciﬁed minerals in a manufacturing oper- ation: the extent of the steps involved in the mining operations, associated mining operations, and processing of the spe- ciﬁed minerals or the use of the speciﬁed minerals in a manufacturing operation.
(b) Decision In making a decision, the Commissioner must take into ac- count the amount that would have been— (a) the value received or receivable for the speciﬁed min- erals if they had been disposed of in the income year to a wholly independent person in the state in which they resulted from the mining operations or the combination of mining operations and associated mining operations; and the value of the products on hand at the end of the income year if the speciﬁed minerals from which they came had been valued for the purposes of subpart EB (Valuation of trading stock (including dealer’s livestock)) in the state in which they resulted from (b) (2) (3) (4) 278 Reprinted as at 5 January 2010 Income Tax Act 2007 Part C s CU 3 the mining operations or the combination of mining operations and associated mining operations.
Deﬁned in this Act: amount, associated mining operations, Commissioner, in- come, income from mining, income year, mining company, mining operations, speciﬁed mineral Compare: 2004 No 35 s CU 2 CU 3 Disposal of assets When this section applies This section applies when— (a) a mining company acquires an asset, including min- ing prospecting information or a mining or prospecting right, by incurring mining exploration expenditure or mining development expenditure; and the company, whether or not still a mining company, disposes of the asset.
(b) (b) (c) (d) (e) Exclusion This section does not apply when— (a) a mining company acquires an asset, including min- ing prospecting information or a mining or prospecting right, by incurring mining exploration expenditure or mining development expenditure; and the company, whether or not still a mining company, passes the ownership of the asset to another person; and the passing of ownership is not because the asset is sold to the other person; and the company does not receive, and is not entitled to receive, consideration for the passing of ownership; and the company and the other person deal with each other over the passing of ownership at arm’s length, even if they are associated persons at a time relevant to the passing of ownership.
Income The following are income from mining of the mining com- pany: (a) the consideration that the company derives from the dis- posal of the asset, unless paragraph (b) applies: in the cases described in subsections (4) to (7), the con- sideration speciﬁed in subsection (4) or (5) or (7).
(b) 279 (1) (2) (3) Part C s CU 3 Income Tax Act 2007 Reprinted as at 5 January 2010 Consideration other than in cash If some or all of the consideration for the disposal is other than in cash, and the disposal is not to an associated person, the consideration that is not in cash has the value agreed between the company and the person to whom the asset is disposed of.
If the company and the person do not agree, or if the Com- missioner considers that the value agreed is unreasonable, the consideration that is not in cash has the value that the Com- missioner decides.

Disposal to associated person If the disposal is to an associated person, the consideration for the disposal is the market value that the asset has on the date of the disposal.
When subsection (7) applies Subsection (7) applies when— (a) (b) (c) (d) the company disposes of the asset to a person acquiring it for use in carrying on their mining operations or as- sociated mining operations or a mining venture; and the company and the person give notice to the Commis- sioner that they have agreed to apply subsection (7); and the notice is given to the Commissioner within 1 of the following times: (i) the time in which the company is required to ﬁle a return of income for the income year in which it disposes of the asset: a further time allowed by the Commissioner; and (ii) the notice speciﬁes an amount that— (i) is no more than the market value that the asset has at the date of the disposal; and is not less than the amount of any part of the consideration that is in cash.
(ii) Amount speciﬁed by parties to disposal The consideration for the disposal is the amount that the com- pany and the person specify in the notice.
Deﬁned in this Act: amount, asset, associated mining operations, associated person, Commissioner, company, income year, mining company, mining devel- opment expenditure, mining exploration expenditure, mining operations, min- ing or prospecting right, mining prospecting information, mining venture, no- tice, return of income Compare: 2004 No 35 s CU 3 (4) (5) (6) (7) 280 Reprinted as at 5 January 2010 Income Tax Act 2007 Part C s CU 5 CU 4 Compensation for lost, destroyed, or damaged assets (1) (2) When sections CU 5 to CU 8 apply Sections CU 5 to CU 8 apply when— (a) (b) (c) (d) a mining company acquires an asset by incurring min- ing exploration expenditure or mining development ex- penditure; and the company is allowed a deduction for the expenditure under— (i) section DU 1 (Mining exploration expenditure and mining development expenditure); or (ii) section DZ 12(1)(a) (Mineral mining: 1954–2005); and the asset is lost, destroyed, or damaged; and the company, whether or not still a mining company,— is paid insurance, indemnity, or compensation for (i) the loss, destruction, or damage; or is entitled to receive payment for any scrap of the asset that it disposes of.
(ii) What sections CU 5 to CU 8 apply to Sections CU 5 to CU 8 apply to any asset (asset A) that a mining company acquires by incurring mining exploration ex- penditure or mining development expenditure, except for an asset (asset B) used to derive income other than income from mining to which section CU 10 is applied.

Sections CU 5 to CU 8 apply to asset B only if it is later used to derive income from mining and section DU 5 (Non-mining asset used to de- rive income from mining) is applied to it.
Deﬁned in this Act: asset, company, deduction, income, income from min- ing, mining company, mining development expenditure, mining exploration ex- penditure, pay Compare: 2004 No 35 s CU 4 CU 5 Compensation and scrap payment: income from mining Income (1) When, under section CU 4, this section applies, the total of the following amounts is income from mining of the mining company: (a) the amount of insurance, indemnity, or compensation paid; and 281 Part C s CU 6 Income Tax Act 2007 Reprinted as at 5 January 2010 (2) (3) (b) the amount, if any, payable to the company for the dis- posal of any scrap of the asset.
Timing of income The income from mining is allocated to the income year in which the insurance, indemnity, or compensation is paid.

Relationship with sections CU 6 to CU 8 This section is overridden by sections CU 6 to CU 8.
Deﬁned in this Act: amount, asset, income from mining, income year, mining company, pay Compare: 2004 No 35 s CU 5 CU 6 Compensation and scrap payment: use to replace or repair asset (1) (2) Choosing between section CU 5 and sections CU 7 and CU 8 If the mining company wants sections CU 7 and CU 8 to apply instead of section CU 5, it must comply with subsection (2).
Choosing sections CU 7 and CU 8 The company must— (a) give notice to the Commissioner that the insurance, in- demnity, or compensation will be used to replace or re- pair the asset; and give the notice within the time in which the company must ﬁle a return of income for the income year in which the loss, destruction, or damage occurred; and start the replacement or repair by the end of the second income year after the income year in which the loss, destruction, or damage occurred.
(b) (c) Deﬁned in this Act: asset, Commissioner, income year, mining company, no- tice, return of income Compare: 2004 No 35 s CU 6 CU 7 Compensation and scrap payment: not income from mining When, under sections CU 4 and CU 6, this section applies, neither of the following amounts is income from mining of the mining company: (a) the amount of insurance, indemnity, or compensation paid; or 282 Reprinted as at 5 January 2010 Income Tax Act 2007 Part C s CU 8 (b) the amount, if any, payable to the company for the dis- posal of any scrap of the asset.
Deﬁned in this Act: amount, asset, income from mining, mining company, pay Compare: 2004 No 35 s CU 7 CU 8 Compensation and scrap payment: more than expenditure (1) (2) (3) (4) When this section applies This section applies when— (a) (b) (c) the mining company complies with section CU 6(2); and the company incurs expenditure in replacing or repair- ing the asset; and the company has an excess amount because the expend- iture is less than the total of the following: (i) the amount of insurance, indemnity, or compen- sation paid; and the amount, if any, payable to the company for the disposal of any scrap of the asset.
(ii) Income The excess amount is income from mining of the company, whether or not the company is still a mining company when the excess amount is determined.

Timing of income The income from mining is allocated to the income year in which the replacement or repair of the asset is completed or is treated as completed.
When replacement or repair treated as completed The replacement or repair, even if not completed, is treated as completed— (a) on the last day of the period, if any, considered by the Commissioner to be a reasonable period in which to complete the replacement or repair; or on the day on which work on the replacement or repair stops; or on the day on which the asset is transferred from the company’s mining operations and used, wholly (b) (c) 283 Part C s CU 9 Income Tax Act 2007 Reprinted as at 5 January 2010 or mainly, to derive income other than income from mining; or on the day on which the company disposes of the asset other than for scrap; or on the day on which the company stops being a mining company.
(d) (e) Limitation on calculation of excess amount Expenditure incurred after the day on which the work is treated as completed is not taken into account to determine the exis- tence or amount of an excess amount for the purposes of sub- section (1)(c).
Deﬁned in this Act: amount, asset, Commissioner, company, income, income from mining, income year, mining company, mining operations, pay Compare: 2004 No 35 s CU 8 (5) CU 9 Previous deduction for income appropriated (1) (2) (3) Income An amount equal to the amount for which a mining company is allowed a deduction under section DU 4 (Income appropriated to expenditure) is income from mining of the mining company.
Timing of income The income is allocated to the income year following the in- come year in which the mining company is allowed the deduc- tion.

Company stops mining A mining company that stops being a mining company before the end of the income year to which the income is allocated is treated as if it were still a mining company in the income year.
Deﬁned in this Act: amount, deduction, income from mining, income year, mining company Compare: 2004 No 35 s CU 9 CU 10 Mining asset used to derive income other than income from mining When this section applies This section applies when— (1) 284 Reprinted as at 5 January 2010 Income Tax Act 2007 Part C s CU 11 (a) (b) a mining company acquires an asset by incurring min- ing exploration expenditure or mining development ex- penditure; and the company uses the asset, wholly or mainly, to derive income other than income from mining.
Income An amount equal to the market value that the asset has on the ﬁrst day of each period in which it is used, wholly or mainly, to derive income other than income from mining is income from mining of the mining company.

Timing of income The income is allocated to the income year in which each ﬁrst day falls.
Company stops mining A mining company that stops being a mining company before the end of the income year to which the income is allocated is treated as if it were still a mining company in the income year.
Deﬁned in this Act: asset, income, income from mining, income year, mining company, mining development expenditure, mining exploration expenditure Compare: 2004 No 35 s CU 10 (2) (3) (4) CU 11 Meaning of asset for sections CU 3 to CU 10 (1) Mining company’s share or interest in asset Sections CU 3 to CU 10 apply to a share or interest that a mining company has in an asset— (a) to the extent to which the mining company acquired the share or interest by incurring— (i) mining exploration expenditure or mining devel- opment expenditure; or the exploration expenditure or development expenditure referred to in section DZ 12(2)(a) (Mineral mining: 1954–2005); and (ii) (b) to the extent to which the mining company uses the share or interest for the purpose of deriving income from mining.
Partner’s share or interest in asset 285 Part C s CU 12 Income Tax Act 2007 Reprinted as at 5 January 2010 (2) (3) [Repealed] [Repealed] Replaced or repaired asset For the purposes of sections CU 3 to CU 10,— (a) an asset that a mining company acquires by incurring expenditure in replacing or repairing the asset is the same asset as the one that was lost, destroyed, or dam- aged: part of an asset that a mining company acquires by in- curring expenditure in repairing the asset is part of the asset that was damaged.
(b) Deﬁned in this Act: asset, income from mining, mining company, mining de- velopment expenditure, mining exploration expenditure Compare: 2004 No 35 s CU 11 Section CU 11(2) heading: repealed, on 1 April 2008, by section 6(1) of the Taxation (Limited Partnerships) Act 2008 (2008 No 2).

Section CU 11(2): repealed, on 1 April 2008, by section 6(1) of the Taxation (Limited Partnerships) Act 2008 (2008 No 2).
CU 12 Application of sections to resident mining operators (1) (2) Sections in this subpart applying to resident mining operators Sections CU 1 to CU 8, CU 10, and CU 11 apply, with any ne- cessary modiﬁcations, to resident mining operators as if resi- dent mining operators were mining companies.
Additional modiﬁcation of sections CU 4 and CU 11 For the purposes of subsection (1),— (a) section CU 4(1)(b)(ii) applies as described in section DZ 12(1)(b) (Mineral mining: 1954–2005); and section CU 11(1)(a)(ii) applies as described in section DZ 12(2)(b).
(b) Deﬁned in this Act: mining company, resident mining operator Compare: 2004 No 35 s CU 12 CU 13 Application of sections to non-resident mining operators Sections in this subpart applying to non-resident mining operators Sections CU 3 to CU 11 apply, with any necessary modiﬁca- tions, to non-resident mining operators as if non-resident min- ing operators were mining companies, income from mining (1) 286 Reprinted as at 5 January 2010 Income Tax Act 2007 Part C s CU 14 were income from a mining venture, mining operations were mining ventures, and associated mining operations were min- ing ventures.
(2) Additional modiﬁcation of sections CU 4 and CU 11 For the purposes of subsection (1),— (a) section CU 4(1)(b)(ii) applies as described in section DZ 12(1)(b) (Mineral mining: 1954–2005); and section CU 11(1)(a)(ii) applies as described in section DZ 12(2)(b).
(b) Deﬁned in this Act: associated mining operations, income from mining, mining company, mining operations, mining venture, non-resident mining operator Compare: 2004 No 35 s CU 13 CU 14 Recovery of reinvestment proﬁt on disposal of mining shares (1) (2) When this section applies This section applies when— (a) (b) a company derives an amount from disposing of a min- ing share, including a disposal described in section CU 20; and an amount of the company’s reinvestment proﬁt is used in calculating the deduction for the cost of the mining share under section DU 11(2)(b) (Disposal of mining shares by company).
Income The lesser of the following amounts is income of the company: the amount derived from the disposal of the mining (a) share minus the deduction for the cost of the mining share; and the amount of reinvestment proﬁt used in calculating the deduction for the cost of the mining share.

(b) (3) Timing of income The income is allocated to the income year in which the mining share is disposed of.
287 Part C s CU 15 Income Tax Act 2007 Reprinted as at 5 January 2010 (4) Relationship with sections CX 44 and CX 45 This section is overridden by sections CX 44 (Disposal of min- ing shares) and CX 45 (Disposal of mining shares acquired with reinvestment proﬁt).
Deﬁned in this Act: amount, company, deduction, income, income year, mining share, reinvestment proﬁt Compare: 2004 No 35 s CU 14 CU 15 Recovery of reinvestment proﬁt not used for mining purposes When subsections (2) and (3) apply Subsections (2) and (3) apply when some or all of a company’s reinvestment proﬁt— (a) is used for purposes other than mining purposes in the prescribed period; and will not be used for mining purposes in the prescribed period.
(b) Income The amount of reinvestment proﬁt described by subsection (1) is income of the company.

Timing of income The income is allocated to the income year in which the amount is used for purposes other than mining purposes.

When subsections (5) and (6) apply Subsections (5) and (6) apply when some or all of a company’s reinvestment proﬁt is not used for mining purposes in the pre- scribed period.

Income The reinvestment proﬁt is income of the company.
Timing of income The income is allocated to the last income year of the pre- scribed period.

(1) (2) (3) (4) (5) (6) 288 Reprinted as at 5 January 2010 Income Tax Act 2007 Part C s CU 16 (7) No longer reinvestment proﬁt The amount referred to in subsection (2) and the reinvestment proﬁt referred to in subsection (5) cease to be reinvestment proﬁt.
Deﬁned in this Act: amount, company, income, income year, mining purposes, prescribed period, reinvestment proﬁt Compare: 2004 No 35 s CU 15 CU 16 Recovery of reinvestment proﬁt on repayment of loans (1) (2) (3) (4) (5) When this section applies This section applies when— (a) a company (the lender company) makes a loan to a mining company or a mining holding company; and the loan is made wholly or partly out of the lender com- pany’s reinvestment proﬁt; and the loan is wholly or partly repaid.
(b) (c) Income The amount calculated using the formula in subsection (3) is income of the lender company.

Formula The formula is— Deﬁnition of items in formula In the formula,— (a) reinvestment proﬁt amount is the amount of the loan made out of the lender company’s reinvestment proﬁt: loan amount is the amount of the loan: repayment is the amount repaid.

(b) (c) Timing of income The income is allocated to the income year in which the re- payment is made.
289 Part C s CU 17 Income Tax Act 2007 Reprinted as at 5 January 2010 (6) Relationship with section CX 46 This section is overridden by section CX 46 (Repayment of loans made from reinvestment proﬁt).
Deﬁned in this Act: amount, company, income, income year, mining company, mining holding company, pay, reinvestment proﬁt Compare: 2004 No 35 s CU 16 CU 17 Repayment by mining company of amount written off (1) (2) (3) When this section applies This section applies when— (a) (b) a holding company of a mining company is allowed, under section DU 12 (Amount written off by holding company) or an earlier Act, a deduction for an amount it has written off a loan it made to the mining company; and the mining company— (i) repays, to the holding company or any other per- son, some or all of the amount written off; or is treated, under section CU 18 or CU 19, as hav- ing repaid to the holding company some or all of the amount written off.
(ii) Income The amount repaid, to the extent of the deduction, is income of the holding company.

Timing of income The income is allocated to the income year in which the min- ing company repays the amount or is treated as repaying the amount.
Deﬁned in this Act: amount, deduction, holding company, income, income year, loan, mining company, pay Compare: 2004 No 35 s CU 17 CU 18 Amount treated as repayment for purposes of section CU 17: excess When this section applies This section applies when,— (a) in an income year, a holding company of a mining com- pany is allowed, under section DU 12 (Amount written (1) 290 Reprinted as at 5 January 2010 Income Tax Act 2007 Part C s CU 19 off by holding company) or an earlier Act, a deduction for an amount it has written off a loan it made to the mining company; and in a later income year, the holding company disposes of shares in the mining company or an interest in shares in the mining company; and the holding company has an excess amount because the amount it derives from the disposal is more than the amount paid up in cash on the shares.
(b) (c) (2) Repayment amount For the purposes of section CU 17, the excess amount is treated as repayment by the mining company of the amount written off.
Deﬁned in this Act: amount, deduction, holding company, income year, loan, mining company, pay, share Compare: 2004 No 35 s CU 18 CU 19 Amount treated as repayment for purposes of section CU 17: net income (1) When this section applies This section applies when— (a) (b) (c) a holding company of a mining company is allowed, under section DU 12 (Amount written off by holding company) or an earlier Act, a deduction for an amount it has written off a loan it made to the mining company; and the deduction is allocated to an income year; and the mining company would have had net income in a tax year after the tax year that corresponds to the income year referred to in paragraph (b) (the later tax year) if— (i) the situation described in subsection (2) had ex- isted; and the situation described in subsection (3) had ex- isted.
(ii) (2) First situation The ﬁrst situation is that in the later tax year no person is al- lowed a deduction for the mining company’s mining explor- ation expenditure or mining development expenditure.
291 Part C s CU 19 Income Tax Act 2007 Reprinted as at 5 January 2010 Second situation The second situation is that in the later tax year the mining company disposes of an asset in circumstances to which sec- tion CU 3 or CZ 2(1)(b) (Mining company’s 1970–71 tax year) applies and the amount received or receivable for the asset is the amount determined under subsection (4) or (5).
Amount for which asset disposed of: most cases If any of section CU 3(3)(a), (4), or (5) applies to the disposal of the asset, the amount is the consideration determined under whichever one of the provisions applies.
Amount for which asset disposed of: election of section CU 3(7) If section CU 3(7) applies to the disposal of the asset, the amount is the greater of the following up to the limit of the market value that the asset has on the date of disposal: (a) the part of the amount speciﬁed in the notice under sec- tion CU 3(7) that is in cash, which may be zero; and the total amount of loans made on or before the date of disposal by all holding companies of the mining com- pany to the mining company to the extent to which the loans— (i) (b) (ii) (iii) relate to the asset, including a part not disposed of; and have been written off and allowed as a deduc- tion under section DU 12 (Amount written off by holding company) or an earlier Act; and have not been repaid, and have not been treated as repaid under this section or section CU 18 or an earlier Act, on or before the date of disposal.
Asset For the purposes of subsections (3) to (5),— (a) a reference to an asset means the part of the asset that is disposed of, which may be some of it or all of it, and a reference to an amount received or receivable for an asset means the amount for the part that is disposed of: a reference to an asset includes a reference to a share or interest in the asset: (b) (3) (4) (5) (6) 292 Reprinted as at 5 January 2010 Income Tax Act 2007 Part C s CU 20 (7) (c) (d) [Repealed] every member of any other association of persons who receive income jointly or carry on activities jointly has a share or interest in each asset of the association that is the same as the member’s interest in the totality of the assets of the association.
Amount of net income For the purposes of section CU 17, the prescribed proportion of the amount that would have been the net income of the mining company is treated as repayment by the mining company of the amount written off.

The repayment is treated as having been made on the day following the end of the income year in which the mining company would have had net income.
Deﬁned in this Act: amount, deduction, holding company, income, income year, loan, mining company, mining development expenditure, mining explor- ation expenditure, net income, notice, pay, prescribed proportion, tax year Compare: 2004 No 35 s CU 19 Section CU 19(6)(c): repealed, on 1 April 2008, by section 7(1) of the Taxation (Limited Partnerships) Act 2008 (2008 No 2).
CU 20 Mining company or mining holding company liquidated (1) (2) Treatment of shares If a mining company or a mining holding company is liqui- dated,— (a) a mining share held in the company is treated as dis- posed of to the company; and a distribution received for the share on the liquidation is treated as an amount received for the disposal.

(b) Relationship with section CU 14 Section CU 14 deals with the recovery of reinvestment proﬁt on the disposal of mining shares.
Deﬁned in this Act: amount, liquidation, mining company, mining holding company, mining share, reinvestment proﬁt Compare: 2004 No 35 s CU 20 293 Part C s CU 21 Income Tax Act 2007 Reprinted as at 5 January 2010 CU 21 Meaning of income from mining Deﬁnitions (1) (2) Meaning Income from mining means the part of the income of a min- ing company that is derived in an income year from the com- pany’s mining operations or associated mining operations in the tax year.
Resident mining operators and non-resident mining operators This deﬁnition applies to resident mining operators as if they were mining companies, and to non-resident mining operators as if they were mining companies, mining operations were mining ventures, and associated mining operations were min- ing ventures.
Deﬁned in this Act: associated mining operations, income, income from min- ing, income year, mining company, mining operations, mining venture, non- resident mining operator, resident mining operator Compare: 2004 No 35 s CU 21 CU 22 Meaning of mining company Meaning (1) Mining company means a company incorporated in New Zealand to which 1 of the following applies: (a) the company’s only source of income is the business described in subsection (2); or the company’s main source of income is the business described in subsection (2); or the company’s only activity is 1 of the activities de- scribed in subsection (3); or the company’s main activity is 1 of the activities de- scribed in subsection (3); or the company proposes that its only activity or its main activity be 1 of the activities described in subsection (3).
(b) (c) (d) (e) Business The business referred to in subsection (1)(a) and (b) is the busi- ness of mining a speciﬁed mineral in New Zealand.

Activities The activities referred to in subsection (1)(c), (d), and (e) are— (2) (3) 294 Reprinted as at 5 January 2010 Income Tax Act 2007 Part C s CU 23 (a) (b) exploring, searching, or mining for a speciﬁed mineral in New Zealand; or performing development work for exploring, searching, or mining for a speciﬁed mineral in New Zealand.
(4) Service for reward An activity described in subsection (3) does not include an activity done or to be done as a service to another person for reward unless the reward— (a) is wholly or mainly related to and dependent on the pro- duction of the speciﬁed mineral; or arises wholly or mainly through participation in proﬁts from the production of the speciﬁed mineral.
(b) Deﬁned in this Act: business, company, income, mining company, New Zealand, speciﬁed mineral Compare: 2004 No 35 s CU 22 CU 23 Meaning of mining development expenditure Meaning (1) Mining development expenditure means development ex- penditure that a mining company incurs in its mining oper- ations or associated mining operations.
Inclusions (2) Mining development expenditure includes expenditure that the company incurs— (a) on acquiring land as a site for its mining operations or associated mining operations: on preparing the site for its mining operations or asso- ciated mining operations: on restoring the site during or after its mining operations or associated mining operations: on any of the following for its mining operations or as- sociated mining operations: (i) buildings, mineshafts, platforms, tunnels, wells, or other improvements: plant or machinery, including vehicles: production equipment or facilities: storage facilities: (ii) (iii) (iv) on vessels or aircraft for use wholly or mainly in its mining operations or associated mining operations: (b) (c) (d) (e) 295 Part C s CU 23 Income Tax Act 2007 Reprinted as at 5 January 2010 (f) (g) on providing, or contributing to the cost of providing, communication equipment, fuel, light, power, or water for the site of its mining operations or associated mining operations: on buildings or facilities that— (i) are situated at, or adjacent to, the site of any of its mining operations or associated mining oper- ations; and are for use in the education, housing, or welfare of, or the supply of meals to, its employees in or connected with its mining operations or associ- ated mining operations or in the education, hous- ing, or welfare of, or the supply of meals to, the employees’ dependants: (ii) (h) on providing, or contributing to the cost of providing, communication equipment, fuel, light, power, or water for the buildings or facilities described in paragraph (g).
Exclusions (3) Mining development expenditure does not include expend- iture that the company incurs— (a) (b) on a building or facility provided for the purpose of deriving income; or on or in relation to an ofﬁce building that is not situated at, or adjacent to, the site of any of its mining operations or associated mining operations.
Resident mining operators and non-resident mining operators This deﬁnition applies to resident mining operators as if they were mining companies, and to non-resident mining operators as if they were mining companies, mining operations were mining ventures, and associated mining operations were min- ing ventures.
Deﬁned in this Act: associated mining operations, employee, income, mining company, mining development expenditure, mining operations, mining ven- ture, non-resident mining operator, resident mining operator Compare: 2004 No 35 s CU 23 (4) 296 Reprinted as at 5 January 2010 Income Tax Act 2007 Part C s CU 25 CU 24 Meaning of mining exploration expenditure (1) Meaning Mining exploration expenditure means expenditure that a mining company incurs in exploring or searching in New Zealand for a speciﬁed mineral.
Inclusions (2) Mining exploration expenditure includes expenditure that the company incurs— (a) (b) (c) (d) on acquiring mining prospecting information: on acquiring a mining or prospecting right: on geological mapping and geophysical surveys: on systematic searches for areas containing speciﬁed minerals: on searching by drilling in areas containing speciﬁed minerals: on searching for ore containing a speciﬁed mineral within or in the vicinity of an ore body by crosscuts, drilling, drives, rises, shafts, or winzes.
(e) (f) Exclusions (3) Mining exploration expenditure does not include— (4) (a) mining development expenditure: (b) expenditure on operations in the course of working a mining property.

Resident mining operators and non-resident mining operators This deﬁnition applies to resident mining operators as if they were mining companies, and to non-resident mining operators as if they were mining companies, mining operations were mining ventures, and associated mining operations were min- ing ventures.
Deﬁned in this Act: associated mining operations, mining company, mining development expenditure, mining exploration expenditure, mining operations, mining or prospecting right, mining prospecting information, mining venture, New Zealand, non-resident mining operator, resident mining operator, speciﬁed mineral Compare: 2004 No 35 s CU 24 CU 25 Meaning of mining operations Meaning (1) Mining operations means operations that— 297 Part C s CU 26 Income Tax Act 2007 Reprinted as at 5 January 2010 (a) (b) are carried on by a mining company on a mining prop- erty in New Zealand for the purpose of deriving income; and consist of— (i) exploring, searching, or mining for 1 or more speciﬁed minerals; or performing development work for exploring, searching, or mining for 1 or more speciﬁed minerals.
(ii) (2) Resident mining operators and non-resident mining operators This deﬁnition applies to resident mining operators as if they were mining companies, and to non-resident mining operators as if they were mining companies, mining operations were mining ventures, and associated mining operations were min- ing ventures.
Deﬁned in this Act: associated mining operations, income, mining company, mining operations, mining venture, New Zealand, non-resident mining oper- ator, resident mining operator, speciﬁed mineral Compare: 2004 No 35 s CU 25 CU 26 Meaning of mining venture Meaning (1) Mining venture means a venture that— (a) (b) is carried on, or is proposed to be carried on,— (i) (ii) (iii) in New Zealand; and as a business; and under an exploration permit, prospecting per- mit, or mining permit granted under the Crown Minerals Act 1991 or under an existing privilege as deﬁned in section 106 of that Act; and consists, or is proposed to consist, wholly or mainly of— (i) exploring, searching, or mining for a speciﬁed mineral in New Zealand; or performing development work for exploring, searching, or mining for a speciﬁed mineral in New Zealand.
(ii) 298 Reprinted as at 5 January 2010 Income Tax Act 2007 Part C s CU 27 (2) (3) Service for reward An activity described in subsection (1)(b) does not include an activity done or to be done as a service to another person for reward unless the reward— (a) is wholly or mainly related to and dependent on the pro- duction of the speciﬁed mineral; or arises wholly or mainly through participation in proﬁts from the production of the speciﬁed mineral.
(b) Activities not carried on jointly If 2 or more persons carry on, or propose to carry on, a joint mining venture, but 1 or more of them carries on an activity of the kind described in subsection (1)(b) outside the joint mining venture, the carrying on of the activity is not part of the joint mining venture.
Deﬁned in this Act: business, mining venture, New Zealand, speciﬁed mineral Compare: 2004 No 35 s CU 26 CU 27 Meaning of resident mining operator (1) (2) Meaning Resident mining operator means a person who— (a) (b) is resident in New Zealand; and is not a mining company or a petroleum mining com- pany; and carries on, or proposes to carry on, the activities of— (i) (c) exploring, searching, or mining for a speciﬁed mineral in New Zealand; or performing development work for exploring, searching, or mining for a speciﬁed mineral in New Zealand.
(ii) How activities carried on The person must carry on the activities described in subsection (1)(c), or propose to carry them on,— (a) (b) (c) personally and actively in the ﬁeld; and as a business; and under an exploration permit, prospecting permit, or mining permit granted under the Crown Minerals Act 1991 or under an existing privilege as deﬁned in section 106 of that Act.
299 Part C s CU 28 Income Tax Act 2007 Reprinted as at 5 January 2010 (3) Service for reward An activity described in subsection (1)(c) does not include an activity done or to be done as a service to another person for reward unless the reward— (a) is wholly or mainly related to and dependent on the pro- duction of the speciﬁed mineral; or arises wholly or mainly through participation in proﬁts from the production of the speciﬁed mineral.
(b) Deﬁned in this Act: business, mining company, New Zealand, petroleum min- ing company, resident in New Zealand, speciﬁed mineral Compare: 2004 No 35 s CU 27 CU 28 Meaning of speciﬁed mineral Meaning Speciﬁed mineral— (a) means alumina minerals (for example, bauxite, corun- dum, diaspore, and gibbsite), aluminous refractory clays containing over 30% alumina in the ﬁred state, aluminous refractory ﬁreclays containing over 30% alumina in the ﬁred state, andalusite, antimony, as- bestos, barite, bentonite (except bentonite mined in the area formerly known as Malvern County), bituminous shale, chromite, copper, diatomite, dolomite, feldspar, ﬂuorite, gold, halloysite, kaolin, kyanite, lead, magne- site, manganese, mercury, mica, molybdenite, nickel, perlite, phosphate, platinum group, pyrite, silica in lump form used only in producing silicon carbide or silicon metal or ferro silicon, silica in sand form used only in producing silicon carbide, sillimanite, silver, sodium chloride, sulphur, talc, tin, titanium, titanomag- netite, tungsten, uranium, wollastonite, zeolite, zinc, and zircon: includes a mineral that is declared to be a speciﬁed min- eral in a Gazette notice given by the Minister.
(b) Minister to consider Before giving a Gazette notice about a particular mineral, the Minister must consider whether the mineral is or is likely to be of importance— (a) in the industrial development of New Zealand: (1) (2) 300 Reprinted as at 5 January 2010 (b) Income Tax Act 2007 Part C s CU 29 as a means of reducing the quantity of industrial min- erals or industrial rock required to be imported into New Zealand: as an item of export from New Zealand.
(c) Deﬁned in this Act: mineral, Minister, New Zealand Compare: 2004 No 35 s CU 28 CU 29 Other deﬁnitions In this Act,— associated mining operations means operations that— (a) (b) are carried on in New Zealand in association with min- ing operations; and consist of the accumulation, initial treatment, and trans- port of speciﬁed minerals, up to the stage at which the minerals— (i) are in a saleable form and in a location suitable for a person to acquire them; or are ready to be processed beyond the initial treat- ment or to be used in a manufacturing operation holding company, for a mining company, means a company incorporated in New Zealand that holds shares, or for which shares are held, in the mining company initial treatment, for a speciﬁed mineral,— (a) means— (i) (ii) (ii) breaking, cleaning, crushing, grading, grinding, leaching, screening, or sizing; or a treatment that is applied before concentration or, for a speciﬁed mineral not requiring concen- tration, that would have been applied before con- centration if the speciﬁed mineral had required concentration; or concentration; and (b) (iii) does not include— (i) (ii) calcining or sintering; or the production of, or processes carried on in con- nection with the production of, alumina, or pel- lets or other agglomerated forms of iron loan, for a holding company and a mining company, means a loan by the holding company to the mining company made 301 Part C s CU 29 Income Tax Act 2007 Reprinted as at 5 January 2010 when the holding company is a holding
 company of the mining company mining holding company means a company incorporated in New Zealand that is engaged wholly or mainly in— (a) holding shares in a mining company or a petroleum mining company; or investing money in a mining company or a petroleum mining company; or (b) (c) making loans to a mining company or a petroleum min- ing company mining or prospecting right— (a) means an authority, concession, easement, lease, li- cence, option, permit, privilege, right, or title relating to exploring,
 searching, or mining for, or carrying on an operation to recover, a speciﬁed mineral; and includes a share or interest in any such authority, con- cession, easement, lease, licence, option, permit, priv- ilege, right, or title (b) mining prospecting information means geological, geophys- ical, or technical information— (a) that is about the presence, absence, extent, or volume of speciﬁed minerals in an area; or that is likely to assist in determining the presence, ab- sence, extent, or volume of speciﬁed minerals in an area (b) mining purposes means— (a) subscribing for shares in a mining company or in a min- ing holding company; or paying calls on shares in a mining company or in a min- ing holding company; or (b) (c) making loans to a mining company to enable it— (i) (ii) to ﬁnance its mining exploration expenditure or mining development expenditure; or to carry on its mining operations or associated mining operations; or (d) making, to a mining holding company, loans that are to be used— (i) to ﬁnance a mining company’s mining ex- ploration expenditure or mining development expenditure; or 302 Reprinted as at 5 January 2010 Income Tax Act 2007 Part C s CU 29 (ii) to ﬁnance a mining company’s mining operations or associated mining operations mining share means a share in a mining company or a mining holding company non-resident mining operator means a person who— (a) (b) is not resident in New Zealand; and carries on, personally and actively in the ﬁeld, a
 mining venture prescribed period means,— (a) (b) for an amount derived from a disposal of a mining share, the income year in which the disposal occurs and the next 6 income years; or for an amount repaid for a loan made to a mining com- pany or a mining holding company, the income year in which the amount is repaid and the next 6 income years prescribed proportion means the proportion that an amount (amount A) bears to another amount (amount B), when— (a) amount A is the amount owing on all loans made by a
 holding company to a mining company; and amount B is the amount owing on all loans by all hold- ing companies to the mining company reinvestment proﬁt means an amount that— (a) is excluded income of a company under any of sections CX 44 to CX 46 (which relate to mineral mining) or under a corresponding provision of an earlier Act; and has not ceased to be reinvestment proﬁt under section CU 15(7).
(b) (b) Deﬁned in this Act: amount, associated mining operations, company, excluded income, holding company, income year, initial treatment, lease, loan, mining company, mining development expenditure, mining exploration expenditure, mining holding company, mining operations, mining share, mining venture, New Zealand, pay, petroleum mining company, resident in New Zealand, share, speciﬁed mineral Compare: 2004 No 35 s CU 29 303 Part C s CV 1 Income Tax Act 2007 Reprinted as at 5 January 2010 Subpart CV—Income speciﬁc to certain entities CV 1 Group companies An amount that a company derives in an income year and that would not otherwise be income of the company is treated as its income if— (a) the company is for that income year part of a wholly- owned group of companies; and had the group of companies been a single company, the amount would have been income of that single com- pany.
(b) Deﬁned in this Act: amount, company, income, income year, wholly-owned group of companies Compare: 2004 No 35 s CV 1 CV 2 Consolidated groups: income of company in group (1) (2) When this section applies This section applies for the purposes of section FM 8 (Trans- actions between group companies: income) to an amount de- rived by a company that is part of a consolidated group, when the amount would be income of the group if the group were 1 company.
Income The amount is treated as income of the company.
Deﬁned in this Act: amount, company, consolidated group, income Compare: 2004 No 35 s HB 2(1)(e) CV 3 Consolidated groups: arrangement for disposal of shares When this section applies This section applies for the purposes of section FM 23 (Ar- rangements for disposal of shares) when shares in company A that is part of a consolidated group are disposed of by another company for consideration that is less than would have been received in an arm’s length transaction because of a reduction in the value of company A’s assets.
(1) 304 Reprinted as at 5 January 2010 Income Tax Act 2007 Part C s CV 6 (2) Income The amount that would have been received in an arm’s length transaction is treated as income derived by the other company at the time of disposal.
Deﬁned in this Act: amount, company, consolidated group, income Compare: 2004 No 35 s FD 10(8) CV 4 Amalgamated companies: amount derived after amalgamation (1) (2) When this section applies This section applies for the purposes of section FO 7 (Income derived after amalgamation) when an amount is derived by the amalgamated company after an amalgamation as a result of something that an amalgamating company did or did not do.
Income The amount is income of the amalgamated company in the income year in which it is derived if it would have been income of an amalgamating company but for the amalgamation.

Deﬁned in this Act: amalgamated company, amalgamating company, amount, income, income year Compare: 2004 No 35 s FE 4(b) CV 5 Statutory producer boards A levy received by a statutory producer board, other than a levy charged speciﬁcally for capital development, is income.
Deﬁned in this Act: income, levy, statutory producer board Compare: 2004 No 35 s OC 3(c) CV 6 Crown Research Institutes An amount that a Crown Research Institute derives is income of the institute if the amount is for the purpose of producing outputs relating to public good science and technology, as de- ﬁned in section 2 of the Foundation for Research, Science, and Technology Act 1990.
Deﬁned in this Act: amount, Crown Research Institute, income Compare: 2004 No 35 s CV 2 305 Part C s CV 7 Income Tax Act 2007 Reprinted as at 5 January 2010 CV 7 Australian wine producer rebate An amount of Australian wine producer rebate derived by a New Zealand resident wine producer is income of the wine producer.
Deﬁned in this Act: amount, Australian wine producer rebate, income, New Zealand resident Compare: 2004 No 35 s CV 3 CV 8 Regulations: Australian wine producer rebate Order in Council For the purpose of enabling the Commissioner to administer the entitlement of New Zealand resident wine producers to Australian wine producer rebates for wine produced in New Zealand, the Governor-General may by Order in Council make regulations relating to— (a) the claim by a New Zealand resident wine producer for payment of an Australian wine producer rebate for wine produced in New Zealand that is sold in Australia: the approval or veriﬁcation of the entitlement of a New Zealand resident wine producer to a payment of an Aus- tralian wine producer rebate: any matter necessary to give effect to a provision re- lating to Australian wine producer rebates in the agree- ment for the time being in force between the Govern- ment of New Zealand and the Government of Australia for the avoidance of double taxation and the prevention of ﬁscal evasion in relation to taxes on income.
(b) (c) Force and effect An Order in Council under subsection (1)— (a) has force and effect despite any provision in this Act or any other Inland Revenue Act: (b) may come into force on or after 1 July 2005: (c) may apply for Australian ﬁnancial years commencing on or after 1 July 2005.
Deﬁnitions In this section,— Australian ﬁnancial year means a year starting on and in- cluding 1 July (1) (2) (3) 306 Reprinted as at 5 January 2010 Income Tax Act 2007 Part C s CV 11 wine has the meaning given in section 31-1 of A New Tax Sys- tem (Wine Equalisation Tax) Act 1999 (Aust) and regulations made under that Act.
Deﬁned in this Act: Australian ﬁnancial year, Australian wine producer rebate, Inland Revenue Acts, New Zealand resident, pay, wine Compare: 2004 No 35 s CV 4 CV 9 Supplementary dividend holding companies (1) (2) When this section applies This section applies to a supplementary dividend holding com- pany that derives a dividend and related supplementary divi- dend in an income year when, but for section LP 8 (Rela- tionship with exempt income rules), both dividends would be exempt income under section CW 10 (Dividend within New Zealand wholly-owned group).
Income The amount calculated under section LP 8(2) is assessable in- come of the supplementary dividend holding company.
Deﬁned in this Act: amount, assessable income, dividend, exempt income, in- come year, supplementary dividend, supplementary dividend holding company Compare: 2004 No 35 s LE 3(6), (8) CV 10 Foreign dividend payment account companies or conduit tax relief companies [Repealed] Section CV 10: repealed (with effect on 30 June 2009), on 6 October 2009, by section 39(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
CV 11 Maori authorities (1) Income An amount that a member of a Maori authority derives as a distribution from the Maori authority is income of the member if the amount is— (a) a notional distribution under section HF 5 (Notional dis- tributions of co-operative companies); or a taxable Maori authority distribution under section HF 7 (Taxable Maori authority distributions).
(b) 307 Part C s CV 12 Income Tax Act 2007 Reprinted as at 5 January 2010 (2) When credits attached The amount of a taxable Maori authority distribution or no- tional distribution is increased by a credit that is attached or is treated as attached under section RE 24 (When amount of tax treated as Maori authority credit).
Deﬁned in this Act: amount, co-operative company, Maori authority, Maori authority credit, member, taxable Maori authority distribution Compare: 2004 No 35 ss HI 4(3), HI 5(2), (3), HI 7 CV 12 Trustees: amounts received after person’s death To the extent to which section HC 8 (Amounts received after person’s death) applies to an amount that a trustee of an estate of a deceased person receives in an income year, the amount is income of the trustee.
Deﬁned in this Act: amount, income, income year, trustee Compare: 2004 No 35 s HH 8 CV 13 Amounts derived from trusts An amount derived by a person is income of the person if it is— (a) beneﬁciary income to which sections HC 6 (Beneﬁciary income) and HC 17 (Amounts derived as beneﬁciary income) apply; or a settlement on trust of property of the kind described in section HC 7(3) (Trustee income); or a taxable distribution from a foreign trust to which sec- tion HC 18 (Taxable distributions from foreign trusts) applies.
(b) (c) Deﬁned in this Act: amount, beneﬁciary income, foreign trust, income, settle- ment, settlor, taxable distribution, trustee income Compare: 2004 No 35 ss HH 1(7), HH 3(1) CV 14 Distributions from community trusts To the extent to which section HC 21 (Distributions from com- munity trusts) applies to treat an amount that a community trust distributes to a person as income, the amount is income of the person.
Deﬁned in this Act: amount, community trust, distribution, income Compare: 2004 No 35 s HH 3(5A) 308 Reprinted as at 5 January 2010 Income Tax Act 2007 Part C s CV 16 CV 15 Amounts derived from trusts while person absent from New Zealand To the extent to which section HC 23 (Temporary absences of beneﬁciaries) applies to an amount of beneﬁciary income or taxable distribution, the amount is income of the person derived on the day on which the person becomes resident in New Zealand again.
Deﬁned in this Act: amount, beneﬁciary income, income, resident in New Zealand, taxable distribution Compare: 2004 No 35 s HH 3(3) CV 16 Non-resident shippers (1) (2) (3) (4) When this section applies This section applies when a ship that belongs to, or is chartered by, a non-resident person carries outside New Zealand cargo, mail, or passengers shipped or embarked in New Zealand.
Amount of income Five percent of the amount payable to the person for the carriage, whether payable inside or outside New Zealand, is treated as income of the person.

Exemption Despite subsection (2), the Commissioner may determine that some or all of an amount that would otherwise be income of a person under this section is a foreign-sourced amount.
Place of shipping In this section, cargo, mail, or passengers shipped or embarked at a port in New Zealand for carriage outside New Zealand are treated as carried outside New Zealand from that port, even though the ship may call at another port in New Zealand before ﬁnally leaving New Zealand.
Deﬁned in this Act: amount, Commissioner, exempt income, foreign-sourced amount, income, income tax, New Zealand, non-resident, pay, resident in New Zealand Compare: 2004 No 35 ss FC 18, FC 19 309 Part C s CV 17 Income Tax Act 2007 Reprinted as at 5 January 2010 CV 17 Non-resident ﬁlm renters (1) (2) (3) When this section applies This section applies when a non-resident person derives an amount from 1 or more of the following activities: (a) renting, exhibiting, or issuing a ﬁlm, or making other arrangements for its exhibition: selling or hiring ﬁlm containers, cinematographic or photographic materials, or equipment or accessories re- lating to a ﬁlm: selling or hiring advertising materials relating to a ﬁlm.
(b) (c) Income and exempt income Ten percent of the amounts derived from New Zealand by the non-resident person is income of the person.

The remainder is a foreign-sourced amount.

Insigniﬁcant proportion This section does not apply to a non-resident person if the amounts derived by them from activities are an insigniﬁcant proportion of the total amounts derived by them from any busi- ness carried on in New Zealand or elsewhere.
Deﬁned in this Act: amount, arrangement, business, derived from New Zealand, exempt income, ﬁlm, foreign-sourced amount, income, New Zealand, non-resi- dent Compare: 2004 No 35 s FC 21(1), (2), (4) Subpart CW—Exempt income Income from business or trade-like activities CW 1 Forestry companies established by the Crown, Maori owners, and holding companies buying land with standing timber from founders When this section applies This section applies when a forestry company buys land with standing timber on it from a seller who is the Crown, the Maori owners, or a holding company of the forestry company.
Land sold by Maori Trustee, trustee for Maori owners, or Maori incorporation For the purposes of subsection (1),— (1) (2) 310 Reprinted as at 5 January 2010 Income Tax Act 2007 Part C s CW 2 (a) (b) land sold to the forestry company by the Maori Trustee or by a trustee for a Maori owner is treated as if it had been sold by the beneﬁcial owners: land sold to the forestry company by a Maori incorpor- ation is treated as if it had been sold by the members of the incorporation.
Exempt income The amount described in section CB 25(3) (Disposal of land with standing timber) is exempt income of the seller.

Relationship with section DP 9 Section DP 9 (Cost of acquiring timber: forestry business on land bought from the Crown, Maori owners, or holding com- pany) deals with the cost to the forestry company of acquiring the timber.
Deﬁned in this Act: amount, exempt income, forestry company, holding com- pany, Maori incorporation, Maori owners, standing timber, trustee Compare: 2004 No 35 s CW 1 (3) (4) CW 2 Forestry encouragement agreements (1) (2) (3) (4) When this section applies This section applies when a person makes a forestry encour- agement agreement under the Forestry Encouragement Act 1962.
Exempt income: advance An amount of income advanced to the person under the agree- ment is exempt income, even if the person is later relieved from some or all of their liability to repay the principal.

Exempt income: interest The amount from which the person is relieved in the circum- stances described in subsection (4) is exempt income.
Circumstances for purposes of subsection (3) The circumstances are that— (a) the person is liable to pay interest on an advance made under the agreement; and the interest has not been paid; and the person has been denied a deduction for the interest; and (b) (c) 311 Part C s CW 3 Income Tax Act 2007 Reprinted as at 5 January 2010 (d) the person is relieved from some or all of their liability to pay the interest.
Deﬁned in this Act: amount, deduction, exempt income, income, interest, pay Compare: 2004 No 35 s CW 2 CW 3 Forestry companies and Maori investment companies (1) (2) When this section applies This section applies when a forestry company or a Maori in- vestment company issues a qualifying debenture.

Exempt income Interest derived from the qualifying debenture is exempt in- come to the extent to which it is paid by the issue of a further qualifying debenture.
Deﬁned in this Act: exempt income, forestry company, interest, Maori invest- ment company, pay, qualifying debenture Compare: 2004 No 35 s CW 3 CW 3B Pre-1990 forest land units: emissions trading scheme [Repealed] Section CW 3B: repealed (with effect on 26 September 2008), on 6 October 2009, by section 40 of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section CW 3B: inserted, on 26 September 2008, by section 69 of the Climate Change Response (Emissions Trading) Amendment Act 2008 (2008 No 85).
Income from holding property (excluding equity) CW 4 Annuities under life insurance policies When this section applies This section applies when— (a) a person is paid an annuity under a life insurance policy offered or entered into in New Zealand by a life insurer; or a person is paid an annuity under a life insurance policy offered or entered into outside New Zealand by a life insurer resident in New Zealand.

(b) Exempt income The annuity is exempt income.


(1) (2) 312 Reprinted as at 5 January 2010 Income Tax Act 2007 Part C s CW 6 (3) Excluded annuities An annuity that is excluded income of a superannuation fund under section CX 40 (Superannuation fund deriving amount from life insurance policy) is not also exempt income of the fund under this section.
Deﬁned in this Act: excluded income, exempt income, life insurance policy, life insurer, New Zealand, offered or entered into in New Zealand, pay, resident in New Zealand, superannuation fund Compare: 2004 No 35 s CW 4 CW 5 Payments of interest: post-war credits Interest derived by a person under section 2 of the Income Tax (Repayment of Post-War Credits) Act 1959 of the United Kingdom Parliament is exempt income.
Deﬁned in this Act: exempt income, interest Compare: 2004 No 35 s CW 5 CW 6 Payments of interest: farm mortgages (1) (2) Exempt income Fifty percent of the interest that a person derives from a mort- gage securing a loan made by a seller of a farm is exempt in- come, if— (a) the Rural Banking and Finance Corporation of New Zealand approves the mortgage; and the Corporation gives the Commissioner notice of the approval and each variation.
(b) Exclusions This section does not apply if the person is— (a) (b) (c) (d) (e) an absentee; or a company; or a Maori authority; or a public authority; or a trustee liable for income tax under subpart HC (Trusts) and section HZ 2 (Trusts that may become complying trusts); or an unincorporated body.
(f) (3) Relationship with sections LZ 6 to LZ 8 A person who derives interest that is exempt income under this section is not entitled to a tax credit for the interest under 313 Part C s CW 7 Income Tax Act 2007 Reprinted as at 5 January 2010 sections LZ 6 to LZ 8 (which relate to interest on home vendor mortgages).
Deﬁned in this Act: absentee, Commissioner, company, exempt income, in- come tax, interest, Maori authority, mortgage, notice, public authority, trustee Compare: 2004 No 35 s CW 6 CW 7 Foreign-sourced interest Interest that a person derives from a country or territory out- side New Zealand is exempt income if— (a) the person was not resident in New Zealand during the period for which the interest was payable; and the interest was exempt under the laws of the overseas country or territory from a tax that is substantially the same as income tax imposed under this Act.
(b) Deﬁned in this Act: exempt income, income tax, interest, New Zealand, pay, resident in New Zealand Compare: 2004 No 35 s CW 7 CW 8 Money lent to government of New Zealand What this section applies to This section applies to— (a) (b) interest derived from money lent under a binding con- tract entered into on or after 29 July 1983; and a redemption payment made on a commercial bill to which both the following apply; issue is deﬁned in sec- tion 2 of the Bills of Exchange Act 1908: (i) (ii) it was issued on or after 29 July 1983; and it was not issued under a binding contract entered into before that date.
Exempt income Interest or a redemption payment that is payable outside New Zealand is exempt income if— (a) (b) it is derived by a person who is a non-resident; and it is derived from or in relation to money lent to— the government of New Zealand; or (i) (ii) a local authority or a public authority; and in the case of money lent to a local or public authority,— (c) (1) (2) 314 Reprinted as at 5 January 2010 Income Tax Act 2007 Part C s CW 9 (i) (ii) it is lent for the purposes of a non-commercial activity carried on in New Zealand by the local or public authority; and the government of New Zealand has approved the exempt status of the interest or redemption payment.
Deﬁned in this Act: commercial bill, exempt income, interest, local authority, money lent, New Zealand, non-resident, pay, public authority, redemption pay- ment Compare: 2004 No 35 s CW 8 Income from equity CW 9 Dividend derived from foreign company (1) (2) Exempt income A dividend from a foreign company is exempt income if de- rived by a company that is resident in New Zealand.
Exclusions Subsection (1) does not apply to a dividend if the dividend is paid in relation to rights that are— (a) a direct income interest of less than 10% in a foreign company described in— (i) (ii) (iii) (iv) (v) (vi) section EX 31 (Exemption for ASX-listed Aus- tralian companies): section EX 32 (Exemption for Australian unit trusts with adequate turnover or distributions): section EX 36 (Venture capital company emigrat- ing to grey list country: 10-year exemption): section EX 37 (Grey list company owning New Zealand venture capital company: 10-year ex- emption): section EX 37B (Share in grey list company ac- quired under venture investment agreement): section EX 39 (Terminating exemption for grey list company with numerous New Zealand share- holders): (b) (c) a ﬁxed-rate foreign equity: rights to a deductible foreign equity distribution.
315 Part C s CW 10 Income Tax Act 2007 Reprinted as at 5 January 2010 (3) Non-application to dividends derived by certain PIEs This section does not apply to a dividend derived by a portfolio tax rate entity.
Deﬁned in this Act: company, dividend, deductible foreign equity distribution, exempt income, ﬁxed-rate foreign equity, portfolio tax rate entity, resident in New Zealand Section CW 9: substituted (with effect on 30 June 2009), on 6 October 2009, by section 41(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section CW 9(1): substituted (with effect on 1 April 2008), on 6 October 2009, by section 41(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section CW 9(3) heading: added (with effect on 1 April 2008), on 6 October 2009, by section 41(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section CW 9(3): added (with effect on 1 April 2008), on 6 October 2009, by section 41(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
CW 10 Dividend within New Zealand wholly-owned group (b) (c) (d) (e) (b) Exempt income A dividend is exempt income if— (a) it is derived by a company (the recipient) that is resident in New Zealand; and it is derived from a company (the payer) that is part of the same wholly-owned group of companies as the recipient at the time the dividend is derived; and the payer is not a foreign company; and the payer is not a company that can derive only exempt income; and the requirements of subsections (2) to (6) are met.
Aligned balance dates At the time the dividend is derived,— (a) the recipient and the payer have income years that end on the same date; or a difference in balance dates— (i) is necessary to avoid a material distortion in the net income of 1 of them because aspects of a single business cycle would otherwise be split between 2 income years; and is not part of a tax avoidance arrangement.
(ii) (1) (2) 316 Reprinted as at 5 January 2010 Income Tax Act 2007 Part C s CW 11 (3) (4) (5) (6) Exclusion: dividends from council-controlled organisations The dividend must not be derived by a local authority from— (a) (b) a council-controlled organisation; or a port company, subsidiary company of a port company, or energy company that would be a council-controlled organisation in the absence of section 6(4) of the Local Government Act 2002.
Exclusion: debt release dividends The dividend must not be the release of an obligation to repay an amount lent, treated as a dividend under section CD 5(2) (What is a transfer of value?).

Exclusion: certain friendly society dividends The dividend must not be derived by a friendly society from a company registered as an insurer under the Accident Insurance Act 1998 that is under the control of the society.
Exclusion: certain sickness, accident, or death beneﬁt fund dividends The dividend must not be derived by a trustee in trust for a sickness, accident, or death beneﬁt fund from a company regis- tered as an insurer under the Accident Insurance Act 1998 that is under the control of the trustee.
Deﬁned in this Act: amount, company, council-controlled organisation, deduc- tion, dividend, exempt income, foreign company, friendly society, income year, local authority, net income, New Zealand, resident in New Zealand, sickness, accident, or death beneﬁt fund, tax avoidance arrangement, trustee, wholly- owned group of companies Compare: 2004 No 35 s CW 10 CW 11 Dividend of conduit tax relief holding company (1) Exempt income: credit If a conduit tax relief (CTR) holding company derives a divi- dend with a CTR credit attached, the dividend is exempt in- come to the extent to which it is fully credited for conduit tax relief.
317 Part C s CW 12 Income Tax Act 2007 Reprinted as at 5 January 2010 (2) Exempt income: additional dividend If a CTR holding company derives a CTR additional dividend, the CTR additional dividend is exempt income.
Deﬁned in this Act: CTR additional dividend, CTR credit, CTR holding com- pany, dividend, exempt income, fully credited for conduit tax relief Compare: 2004 No 35 s CW 11 CW 12 Proceeds of share disposal by qualifying foreign equity investor Exempt income: proceeds from disposal of share in resident company An amount that a person derives from the sale or other disposal by a qualifying foreign equity investor of a share, or option to buy a share, in a company (the resident company) is exempt income if— (a) (b) the resident company is resident in New Zealand; and the share or option, or an option or convertible note relating to the share, is bought on a day that is 12 months or more before the day of the sale or other disposal; and the person who buys the share or option, or the option or convertible note relating to the share, and disposes of the share or option is a qualifying foreign equity in- vestor from the time of the purchase to the time of the disposal; and at some time in the 12-month period that starts from the time of the purchase referred to in paragraph (b), the shares of the resident company are quoted on no ofﬁcial list of a recognised exchange; and the resident company meets the requirements of either or both of subsections (2) and (3).
(c) (d) (e) Requirements relating to main activity of resident company A resident company meets the requirements of this subsection if, throughout the period referred to in subsection (1)(c), the resident company does not have as a main activity 1 or more of— (a) (b) (c) mining: (d) land development: land ownership: provision of ﬁnancial services: (1) (2) 318 Reprinted as at 5 January 2010 Income Tax Act 2007 Part C s CW 12 (e) (f) (g) (h) insurance: construction of public infrastructure assets: acquisition of public infrastructure assets: investing with a main aim of deriving, from the invest- ment, income in the form of interest, dividends, rent, or personal property lease payments that are not royalties.
(3) Requirements relating to resident company that provides capital to others A resident company that has a main activity of providing cap- ital in the form of debt or equity funding to other companies meets the requirements of this subsection if,— (a) (ii) (iv) (iii) throughout the period referred to in subsection (1)(c), each other company that is resident in New Zealand— does not have, as a main activity, an activity that (i) is referred to in subsection (2)(a) to (c) and (e) to (g); and does not have, as a main activity, an activity that is referred to in subsection (2)(d) and (h) and is not the provision of capital to other companies; and does not provide capital, directly or indirectly, to a company that is resident in New Zealand and has, as a main activity, an activity that is referred to in subsection (2)(a) to (c) and (e) to (g); and does not provide capital, directly or indirectly, to a company that is resident in New Zealand and has, as a main activity, an activity that is referred to in subsection (2)(d) and (h) and is not the provision of capital to other companies; and throughout the period referred to in subsection (1)(c), each other company that is not resident in New Zealand does not provide capital, directly or indirectly, to a company that is resident in New Zealand and has, as a main activity, an activity that is referred to in subsection (2)(a) to (h); and for each other company there is a time in the period referred to in subsection (1)(c) at which— (i) the shares of the other company are quoted on no ofﬁcial list of a recognised exchange; and 319 (b) (c) Part C s CW 12 Income Tax Act 2007 Reprinted as at 5 January 2010 (ii) the shares of the resident company are quoted on no ofﬁcial list of a recognised exchange.
Some deﬁnitions In this section,— foreign exempt entity means a person who— (a) (b) (c) (d) (e) (f) is established as a legal entity under the laws of a terri- tory that is approved for the purposes of this section by the Governor-General by an Order in Council or under the laws of a part of such a territory; and has persons (the members) who hold interests in the capital of the legal entity and who are entitled to shares of the income of the legal entity; and under the laws of the territory or part of the territory is not subject to a tax on income other than as a body that handles income of the members; and is resident in no territory that has laws that treat the legal entity as being subject to a tax on income other than as a body that handles income of the members; and does not have a member who— (i) has, when treated as holding the interests of any person who is associated with the member, an interest of 10% or more in the capital of the legal entity; and is resident in no territory that is approved for the purpose of this section by the Governor-General by an Order in Council; and (ii) does not have a member who, when treated as holding the interests of any person who is associated with the member, has an interest of 10% or more in the capital of the legal entity and who would— (i) be entitled to receive an amount derived from a disposal to which this section would apply; and receive an amount referred to in subparagraph (i) that, in the absence of this section, would have been reduced by a tax imposed by the Act on the amount or on the proceeds of the disposal in the hands of the legal entity; and in any circumstances under the laws of the ter- ritory in which the member is resident or under (ii) (iii) (4) 320 Reprinted as at 5 January 2010 Income Tax Act 2007 Part C s CW 12 the laws of part of the territory be entitled to re- ceive from the government of the territory or part of the territory a ﬁnancial beneﬁt in the form of a payment, credit, rebate, forgiveness, or other compensation for the reduction
 referred to in sub- paragraph (ii); and (g) is resident in New Zealand: does not have a holder of a direct or indirect interest in the capital of the legal entity who,— (i) (ii) when treated as holding the interests of a person associated with the resident, holds a total direct or indirect interest of 10% or more foreign exempt partnership means an unincorporated body that— (a) (b) (c) (d) (e) (f) (g) is established under the laws of a territory that is ap- proved for the purposes of this section by the Gov- ernor-General by an Order in Council or under the laws of a part of such a territory; and consists of persons (the partners); and under the laws of the territory or part of the territory is not subject to a tax on income other than as a body that handles income of the partners; and has at least 1 partner (the general partner) who is liable for all debts of the unincorporated body and who has signiﬁcant involvement in, and control of, the business activities of the unincorporated body; and has at least 1 partner (the special partner) whose li- ability for debts of the unincorporated body is limited and who has limited involvement in, and control of, the business activities of the unincorporated body; and does not have a general partner who is resident in no territory that is approved for the purposes of this section by the Governor-General by an Order in Council; and does not have a partner who— (i) has, when treated as holding the interests of any person who is
 associated with the partner, an in- terest of 10% or more in the capital of the unin- corporated body; and 321 Part C s CW 12 Income Tax Act 2007 Reprinted as at 5 January 2010 (h) (ii) is resident in no territory that is approved for the purpose of this section by the Governor-General by an Order in Council; and does not have a partner who, when treated as holding the interests of any person who is associated with the partner, has an interest of 10% or more in the capital of the unincorporated body and who— (i)
 would under the Act in the absence of this sec- tion, be subject to tax on an amount derived from a disposal to which this section would apply; and (ii) would in any circumstances under the laws of the territory in which the partner is resident or under the laws of part of the territory be entitled to receive from the government of the territory or part of the territory a ﬁnancial beneﬁt in the form of a payment, credit, rebate, forgiveness, or other compensation for a payment of the tax referred to in subparagraph (i); and (i) is resident in New Zealand: does not have a holder of a direct or indirect interest in the capital of the unincorporated body who,— (i) (ii) when treated as holding the interests of a person associated with the resident, holds a total direct or indirect interest of 10% or more foreign exempt person means a person who— (a) is resident in a territory that is approved for the purposes of this section by the Governor-General by an Order in Council; and is not a legal entity that meets the requirements of para- graphs (a) to (c) of the deﬁnition of foreign exempt en- tity; and is not part of an unincorporated body that meets the requirements of paragraphs (a) to (c) of the deﬁnition of foreign exempt partnership; and under the laws of the territory or part of the territory derives the proceeds from a disposal of shares or options that are held by the person; and is not a person who— (b) (c) (d) (e) 322 Reprinted as at 5 January 2010 Income Tax Act 2007 Part C s CW 12 (i) would under the Act in the absence of this sec- tion, be subject to tax on an amount derived from a disposal to which this section would apply; and (ii) would in any circumstances under the laws of the territory in which the person is resident or under the laws of part of the territory be entitled to receive from the government of the territory or part of the territory a ﬁnancial beneﬁt in the form of a payment, credit, rebate, forgiveness, or other compensation for a payment of
 the tax referred to in subparagraph (i); and is resident in New Zealand: does not have a holder of a direct or indirect interest in the capital of the legal entity who,— (i) (ii) when treated as holding the interests of a person associated with the resident, holds a total direct or indirect interest of 10% or more.
(f) (5) (6) Residency of territory For the purpose of this section, whether a person is resident in a territory other than New Zealand is determined— (a) under a double tax agreement that is in force between New Zealand and the territory, if there is an agreement and it provides for the residency of the person; or otherwise, under the laws of the territory.
(b) Approval and withdrawal of approval for territory The Governor-General may by Order in Council— (a) (b) approve a territory for the purpose of this section: withdraw the approval of a territory for the purpose of this section.
Deﬁned in this Act: 1990 version provisions, amount, associated, business, company, dividend, double tax agreement, exempt income, foreign exempt en- tity, foreign exempt partnership, foreign exempt person, income, insurance, in- terest, land, pay, personal property lease payment, qualifying foreign equity investor, recognised exchange, resident in New Zealand, royalty, share, tax Compare: 2004 No 35 s CW 11B Section CW 12(4): substituted (with effect on 1 April 2008), on 6 October 2009, by section 42 of the Taxation (International Taxation, Life Insurance, and Re- medial Matters) Act 2009 (2009 No 34).
Section CW 12(4) foreign exempt entity paragraph (c): substituted, on 1 April 2008, by section 328(1)(a) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

323 Part C s CW 13 Income Tax Act 2007 Reprinted as at 5 January 2010 Section CW 12(4) foreign exempt entity paragraph (f)(iii): amended, on 1 April 2008, by section 328(1)(b) of the Taxation (Business Taxation and Re- medial Matters) Act 2007 (2007 No 109).
Section CW 12(4) foreign exempt entity paragraph (f)(iii): amended, on 1 April 2008, by section 328(1)(c) of the Taxation (Business Taxation and Re- medial Matters) Act 2007 (2007 No 109).

Section CW 12(4) foreign exempt entity paragraph (g): added, on 1 April 2008, by section 328(1)(c) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section CW 12(4) foreign exempt partnership paragraph (c): substituted, on 1 April 2008, by section 328(2)(a) of the Taxation (Business Taxation and Re- medial Matters) Act 2007 (2007 No 109).

Section CW 12(4) foreign exempt partnership paragraph (h)(ii): amended, on 1 April 2008, by section 328(2)(b) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section CW 12(4) foreign exempt partnership paragraph (h)(ii): amended, on 1 April 2008, by section 328(2)(c) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section CW 12(4) foreign exempt partnership paragraph (i): added, on 1 April 2008, by section 328(2)(c) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section CW 12(4) foreign exempt person paragraph (d): substituted, on 1 April 2008, by section 328(3)(a) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section CW 12(4) foreign exempt person paragraph (e)(ii): amended, on 1 April 2008, by section 328(3)(b) of the Taxation (Business Taxation and Re- medial Matters) Act 2007 (2007 No 109).
Section CW 12(4) foreign exempt person paragraph (e)(ii): amended, on 1 April 2008, by section 328(3)(c) of the Taxation (Business Taxation and Re- medial Matters) Act 2007 (2007 No 109).

Section CW 12(4) foreign exempt person paragraph (f): added, on 1 April 2008, by section 328(3)(c) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section CW 12(5)(a): substituted, on 1 April 2008, by section 328(4) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section CW 12(5)(b): substituted, on 1 April 2008, by section 328(4) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
CW 13 Proceeds from share or option acquired under venture investment agreement Exempt income: proceeds from share or option An amount of income that a non-resident derives from the sale or other disposal of a share, or option to buy a share, in a company is exempt income if the requirements of subsections (2) to (5) are met.
(1) 324 Reprinted as at 5 January 2010 Income Tax Act 2007 Part C s CW 13 (2) (3) (4) Requirement relating to company at time of acquisition The ﬁrst requirement is that, when the non-resident ﬁrst ac- quires a share, or option to buy a share, in the company in a way that meets the requirements of subsection (3), the com- pany must have in New Zealand— (a) more than 50% in value of the company’s assets; and (b) more than 50% in number of the company’s employees.
Requirement relating to acquisition of ﬁrst share or option The second requirement is that, when the non-resident ﬁrst acquires a share or option to buy a share (the ﬁrst interest) in the company, a person (the venture capital manager) must acquire, at the same time and on the same terms,— (a) (b) the ﬁrst interest, on behalf of the non-resident; and another share or option that confers the same rights and imposes the same obligations as the ﬁrst interest— (i) on behalf of the Venture Investment Fund or a company owned by the Venture Investment Fund; and under a venture investment agreement.
(ii) land development: land ownership: Continuing requirement relating to company The third requirement is that, while the non-resident holds the share or option, the company must not have 1 or more of the following as a main activity: (a) (b) (c) mining: (d) (e) (f) (g) (h) provision of ﬁnancial services: insurance: construction of public infrastructure assets: acquisition of public infrastructure assets: investing with a main aim of deriving, from the invest- ment, income in the form of interest, dividends, rent, or personal property lease payments that are not royalties.
Requirement relating to situation at disposition of share or option The fourth requirement is that, when the non-resident disposes of the share or option,— (5) 325 Part C s CW 14 Income Tax Act 2007 Reprinted as at 5 January 2010 (a) (b) (c) the venture capital manager must have complied with the venture capital manager’s obligations under the ven- ture investment agreement; and the non-resident must have complied with the non-resi- dent’s obligations under any agreement between the non-resident and the Venture Investment Fund or a company owned by the Venture Investment Fund; and no person who is resident in New Zealand and no group of associated persons who are resident in New Zealand has a direct or indirect interest of more than 10% in the share or option.
(6) Venture investment agreement In this section, venture investment agreement means an agreement that— (a) (b) (c) is an agreement, relating to investment in companies, between parties that include— (i) (ii) a venture capital manager; and the Venture Investment Fund or a company owned by the Venture Investment Fund; and provides for investments under the agreement to be managed by the venture capital manager; and provides that an investment under the agreement must be in a company that, when the ﬁrst investment in the company under the agreement is made, has in New Zealand— (i) more than 50% in value of the company’s assets; and (ii) more than 50% in number of the company’s em- ployees.
Deﬁned in this Act: employee, income, interest, non-resident, pay, resident in New Zealand, share, venture investment agreement, Venture Investment Fund Compare: 2004 No 35 s CW 11C CW 14 Dividends derived by qualifying companies Sections CW 10 and CW 11 do not apply to treat as exempt in- come a dividend derived by a company that has been a qualify- ing company at some time before the date on which it derives 326 Reprinted as at 5 January 2010 Income Tax Act 2007 Part C s CW 16 the dividend, except to the extent to which the dividend is a dividend to which section CW 9 applies.
Deﬁned in this Act: company, dividend, exempt income, qualifying company Compare: 2004 No 35 s HG 10(a) CW 15 Dividends paid by qualifying companies (1) (2) Exempt income of shareholder To the extent to which the amount of a dividend that a quali- fying company pays to a person resident in New Zealand is more than a fully imputed distribution, the amount is exempt income of the person.
Exempt income of beneﬁciary If a dividend paid by a qualifying company to a trustee share- holder is, or becomes, beneﬁciary income of a beneﬁciary resi- dent in New Zealand, the dividend is exempt income of the beneﬁciary.
Deﬁned in this Act: beneﬁciary income, bonus issue, dividend, exempt income, fully imputed, pay, qualifying company, resident in New Zealand, shareholder, trustee Compare: 2004 No 35 s HG 13(1)(a), (1A) Section CW 15(1): substituted (with effect on 1 April 2008), on 6 October 2009, by section 43(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section CW 15 list of deﬁned terms fully imputed: inserted (with effect on 1 April 2008), on 6 October 2009, by section 43(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Employee or contractor income CW 16 Income of Governor-General The following are exempt income: (a) the salary and allowance of the Governor-General paid under section 3 of the Civil List Act 1979: the salary of a person acting as the Administrator of the Government paid under section 8 of the Civil List Act 1979.
(b) Deﬁned in this Act: exempt income, pay Compare: 2004 No 35 s CW 12 327 Part C s CW 17 Income Tax Act 2007 Reprinted as at 5 January 2010 CW 17 Expenditure on account, and reimbursement, of employees Exempt income: expenditure on account Expenditure on account of an employee incurred by an em- ployer in connection with the employee’s employment or ser- vice is exempt income of the employee to the extent to which the expenditure is expenditure for which the employee would be allowed a deduction if they incurred the expenditure and if the employment limitation did not exist.
Exempt income: reimbursement An amount that an employer pays to an employee in connec- tion with the employee’s employment or service is exempt in- come of the employee to the extent to which it reimburses the employee for expenditure for which the employee would be al- lowed a deduction if the employment limitation did not exist.
Estimated expenditure of employees For the purposes of subsection (2),— (a) the employer may make, for a relevant period, a reason- able estimate of the amount of expenditure likely to be incurred by the employee or a group of employees for which reimbursement is payable; and the amount estimated is treated as if it were the amount incurred during the period to which the estimate relates.

(b) Depreciation loss included In this section, expenditure includes an amount of depreciation loss.
Relationship with sections CW 17B and CW 17C This section does not apply to an amount referred to in section CW 17B (Relocation payments) or CW 17C (Payments for overtime meals and certain other allowances).
Deﬁned in this Act: amount, deduction, depreciation loss, employee, em- ployer, employment limitation, exempt income, expenditure on account of an employee, pay Compare: 2004 No 35 s CW 13 Section CW 17(4) heading: added (with effect on 1 April 2008), on 6 October 2009, by section 44(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
(1) (2) (3) (4) (5) 328 Reprinted as at 5 January 2010 Income Tax Act 2007 Part C s CW 17B Section CW 17(4): added (with effect on 1 April 2008), on 6 October 2009, by section 44(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section CW 17(5) heading: added (with effect on 1 April 2008), on 6 October 2009, by section 44(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section CW 17(5): added (with effect on 1 April 2008), on 6 October 2009, by section 44(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section CW 17 list of deﬁned terms depreciation loss: inserted (with effect on 1 April 2008), on 6 October 2009, by section 44(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
CW 17B Relocation payments (1) (2) (3) Exempt income An amount that an employer pays to or on behalf of an em- ployee in connection with the expenses of the employee in a work-related relocation is exempt income of the employee.

Actual expenditure The amount paid must be no more than the actual cost incurred by or on behalf of the employee on an expense that the Com- missioner lists as an eligible relocation expense in a determin- ation made under subsection (6).
Time limit Subsection (1) applies only to expenditure incurred to the end of the tax year following that in which the relocation occurs.

For the purposes of this subsection, a temporary move that has not been treated as a work-related relocation under this section is ignored.
Meaning of work-related relocation (4) Work-related relocation means a relocation of the place (b) where an employee lives that is required— (a) because the employee’s workplace is not within reason- able daily travelling distance of their residence; and as a result of the employee— (i) taking up new employment with a new employer; or taking up new duties at a new location with their existing employer; or (ii) 329 Part C s CW 17C Income Tax Act 2007 Reprinted as at 5 January 2010 (5) (6) (iii) continuing in their current position but at a new location.
Exemption from distance test The requirement in subsection (4)(a) for a person’s workplace to be beyond reasonable travelling distance of their residence does not apply to a person whose accommodation forms an integral part of their work.

Determinations The Commissioner may issue a determination for the purposes of this section under section 91AAR of the Tax Administration Act 1994 to provide a list of eligible relocation expenses, and may extend or modify the list from time to time as required.
The Commissioner must give at least 30 days’ notice of the implementation date of any alteration.

Deﬁned in this Act: amount, Commissioner, employee, employer, exempt in- come, tax year, work-related relocation Section CW 17B: inserted (with effect on 1 April 2008), on 6 October 2009, by section 45 of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
CW 17C Payments for overtime meals and certain other allowances Exempt income: overtime meals An amount that an employer pays to or on behalf of an em- ployee for a meal for the employee when the employee is working overtime is exempt income of the employee.
Exempt income: certain sustenance allowances An amount that an employer pays to an employee as a suste- nance allowance for the employee for a day is exempt income of the employee if— (a) the employee works a minimum of 7 hours on the day; and their employment requires them— (i) (b) to work outdoors and away from their employ- ment base for most of the day; and to undertake a long period of physical activity in travelling through a neighbourhood or district on foot or by bicycle; and (ii) (1) (2) 330 Reprinted as at 5 January 2010 Income Tax Act 2007 Part C s CW 17C (c) (d) it is not practicable for the employer to provide sufﬁ- cient sustenance on the day for the period when the em- ployee is working outdoors; and the allowance recognises— (i) the arduous physical nature of the employee’s work as described in paragraph (b); and that the employer would normally provide tea, coffee, water, or similar refreshments at the em- ployment base in the course of their business.
(ii) (3) (4) (5) (6) Eligibility requirements: overtime meals Subsection (1) applies only if— (a) (b) the employee has worked at least 2 hours’ overtime on the day of the meal; and either— (i) the employee’s employment agreement provides for pay for overtime hours worked; or the employer has an established policy or practice of paying for overtime meals.
(ii) Eligibility requirements: sustenance allowances Subsection (2) applies only if the employer has an established policy or practice of paying a sustenance allowance.
Actual cost or reasonable estimate The amount paid must be— (a) the actual cost to the employee, and for an overtime meal referred to in subsection (1), with documentation required for amounts over $20 per meal; or a reasonable estimate of the expenditure likely to be incurred by the employee or a group of employees for whom an amount is payable.
(b) Meaning of overtime For the purposes of this section, overtime, for a person and a day, means time worked for an employer on the day beyond the person’s ordinary hours of work as set out in their employment agreement.

Deﬁned in this Act: amount, employee, employer, exempt income, overtime, pay Section CW 17C: inserted (with effect on 1 April 2008), on 6 October 2009, by section 45 of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
331 Part C s CW 18 Income Tax Act 2007 Reprinted as at 5 January 2010 CW 18 Allowance for additional transport costs Exempt income An allowance that an employee receives from an employer to reimburse the employee’s additional transport costs is exempt income to the extent to which the employee incurs the costs in connection with their employment and for the employer’s beneﬁt or convenience.
Estimated expenditure of employees For the purposes of subsection (1),— (a) the employer may make, for a relevant period, a reason- able estimate of the amount of expenditure likely to be incurred by the employee or a group of employees for which reimbursement is payable; and the amount estimated is treated as if it were the amount incurred during the period to which the estimate relates.
(b) (b) Meaning of additional transport costs In this section, additional transport costs means the costs to an employee of travelling between their home and place of work that are more than would ordinarily be expected.
The costs must be attributable to 1 or more of the following factors: the day or time of day when the work duties are per- (a) formed: the need to transport any goods or material for use or disposal in the course of the employee’s work: the requirement to fulﬁl a statutory obligation: a temporary change in the employee’s place of work while in the same employment: any other condition of the employee’s work: the absence of an adequate public passenger transport service that operates ﬁxed routes and a regular timetable for the employee’s place of work.
(c) (d) (e) (f) Quantifying additional transport costs Additional transport costs are quantiﬁed as follows: (a) when the additional transport costs are attributed to a factor described in any of subsection (3)(a) to (e), the amount by which the costs are more than the employee’s ordinarily expected travel costs without reference to that factor: (1) (2) (3) (4) 332 Reprinted as at 5 January 2010 Income Tax Act 2007 Part C s CW 19 (b) (c) when the additional transport costs are attributed to the factor described in subsection (3)(f), the amount by which the costs are more than $5 for each day on which the employee attends work: except in special circumstances, the costs of travelling any distance over 70 kilometres in 1 day are not taken into account in calculating additional transport costs.
Deﬁned in this Act: additional transport costs, amount, employee, employer, exempt income, pay Compare: 2004 No 35 s CW 14 CW 19 Amounts derived during short-term visits (1) (2) (3) Exempt income Income that a non-resident person derives in a tax year from performing personal or professional services in New Zealand during a visit is exempt income if— (a) the visit is for 92 or fewer days, counting the days of arrival and departure as a whole day each; and the total number of days on which the person is present in New Zealand in the tax year is 92 or fewer; and the services are performed for or on behalf of a person who is not resident in New Zealand; and the amount derived from the personal or professional services is chargeable in the country or territory in which the person is resident with a tax that is substan- tially the same as income tax imposed under this Act.
(b) (c) (d) Exclusion This section does not apply to the income of a public enter- tainer.

Meaning of public entertainer In this section, public entertainer includes— (a) circus performers, dancers, lecturers, motion picture television artists, musicians, artists, and theatre artists; and athletes, boxers, wrestlers, and other professional sportspersons.
radio artists, singers, (b) Deﬁned in this Act: amount, exempt income, income, income tax, New Zealand, non-resident, public entertainer, resident in New Zealand, tax year Compare: 2004 No 35 s CW 15 333 Part C s CW 20 Income Tax Act 2007 Reprinted as at 5 January 2010 CW 20 Amounts derived by visiting entertainers including sportspersons Exempt income: cultural activities Income that a non-resident entertainer derives from carrying out their activity or performance in New Zealand during a visit is exempt income if— (a) the activity or performance occurs under a cultural pro- gramme of the New Zealand government or an overseas government; or the activity or performance occurs under a cultural pro- gramme wholly or partly sponsored by the New Zealand government or an overseas government; or the activity or performance occurs as part of a pro- gramme of an overseas foundation, trust, or other or- ganisation that— (i) exists wholly or partly to promote cultural activ- ity; and is not carried on for the private pecuniary proﬁt of any member, proprietor, or shareholder.
(ii) (b) (c) Exempt income: sporting activities Income that a non-resident entertainer derives from carrying out an activity or performance that relates to a game or sport in New Zealand during a visit is exempt income if the partici- pants are the ofﬁcial representatives of a body that administers the game or sport in an overseas country.
Exempt income: employer of non-resident entertainer If income derived from an activity or performance of a non- resident entertainer would be exempt income under this sec- tion if derived by the non-resident entertainer, that amount is exempt income if derived by a person who— (a) provides the services of the non-resident entertainer during the visit to New Zealand; and is 1 of the following: (i) (ii) the entertainer’s employer; or a company of which the entertainer is an ofﬁcer; or a ﬁrm of which the entertainer is a principal.
(iii) (b) (1) (2) (3) 334 Reprinted as at 5 January 2010 Income Tax Act 2007 Part C s CW 21 (4) Meaning of non-resident entertainer In this section, non-resident entertainer means a non-resi- dent person, as deﬁned in subpart YD (Residence and source in New Zealand), who carries out an activity or performance in connection with— (a) a solo or group performance by actors, comperes, dancers, entertainers, musicians, singers, or other artists, whether for cultural, educational, entertainment, religious, or other purposes; or lectures, speeches, or talks for any purpose; or (b) a sporting event or sporting competition of any nature.
(c) Deﬁned in this Act: amount, company, employer, exempt income, income, New Zealand, non-resident, non-resident entertainer Compare: 2004 No 35 s CW 16 CW 21 Amounts derived by visiting crew of pleasure craft (1) (2) Exempt income Income that a non-resident crew member derives from per- forming services in New Zealand relating to a pleasure craft while it is in New Zealand is exempt income if— (a) the services are performed for a person who is not resi- dent in New Zealand; and the pleasure craft is the subject of a security given under section 116 of the Customs and Excise Act 1996; and the pleasure craft is not owned, wholly or partly or di- rectly or indirectly, by— (i) (ii) a resident of New Zealand; or a controlled foreign company.
(b) (c) Some deﬁnitions In this section,— non-resident crew member means a person who— is a crew member of a pleasure craft; and (a) is a non-resident, a matter determined without applying (b) section YD 1(3) (Residence of natural persons); and is not present in New Zealand on more than 365 days in any 2-year period that starts on or after 28 May 2002; and is not Immigration Act 1987 in New Zealand unlawfully under the (d) (c) 335 Part C s CW 22 Income Tax Act 2007 Reprinted as at 5 January 2010 pleasure craft is deﬁned in section 2 of the Maritime Transport Act 1994.
Deﬁned in this Act: amount, controlled foreign company, exempt income, in- come, New Zealand, non-resident, non-resident crew member, pleasure craft, resident in New Zealand, year Compare: 2004 No 35 s CW 17 CW 22 Amounts derived by overseas experts and trainees in New Zealand by government arrangement Exempt income: personal services Income that a non-resident person derives from performing personal services, including professional services, in New Zealand during a visit is exempt income if— (a) the services are performed for or on behalf of a non- resident employer; and the purpose of the visit is all or any of the following: (i) providing professional or expert advice or assist- ance: teaching or lecturing: (ii) (iii) making investigations: (iv) receiving education, training, or experience; and the visit occurs under an arrangement for assistance en- tered into by the government of New Zealand.
(b) (c) Exempt income: maintenance or bursaries An amount of income that a non-resident person derives from a payment of maintenance or of an allowance, or from a bursary or scholarship, provided for or paid to the person during or in relation to their presence in New Zealand during a visit, is exempt income if— (a) the purpose of the visit is all or any of the following: (i) providing professional or expert advice or assist- ance: (ii) teaching or lecturing: (iii) making investigations: (iv) receiving education, training, or experience; and the visit occurs under an arrangement for assistance en- tered into by the government of New Zealand.
(b) Some deﬁnitions In this section,— (1) (2) (3) 336 Reprinted as at 5 January 2010 Income Tax Act 2007 Part C s CW 22 arrangement for assistance entered into by the government of New Zealand means an arrangement entered into by the government of New Zealand— in relation to or under— (a) (i) (ii) the Commonwealth Education Scheme; or a programme of the United Nations, or any specialised agency of the United Nations, for cultural, economic, educational, expert, profes- sional, or technical assistance; or (c) (b) (ii) for the purpose of providing education, training, or experience for ofﬁcers of the Samoan, Cook Islands, Niuean, or Tokelauan public services, or for persons resident in Samoa, the Cook Islands, Niue, or Tokelau; or with the government of any other country or with any international organisation, if it is an arrangement that— is for the purpose of providing cultural, eco- (i) nomic, educational, expert, professional, or technical assistance, or administrative or other training, or the means or facilities for making investigations, whether upon a bilateral, co-op- erative, multilateral, mutual, or unilateral basis; and is in principle similar to any arrangement to which paragraph (a) or (b) applies international organisation means an organisation whose members are sovereign powers, whether countries of the Commonwealth or foreign sovereign powers, or the govern- ments of those countries or powers non-resident person means a person who would not be resi- dent in New Zealand if they were not present in New Zealand under an arrangement for assistance entered into by the gov- ernment of New Zealand.
The residence of the person is deter- mined without applying section YD 1(3) (Residence of natural persons).
Deﬁned in this Act: amount, arrangement, arrangement for assistance entered into by the government of New Zealand, Commonwealth, employer, exempt income, income, international organisation, New Zealand, non-resident person, pay, resident in New Zealand Compare: 2004 No 35 s CW 18 337 Part C s CW 23 Income Tax Act 2007 Reprinted as at 5 January 2010 CW 23 Income for military or police service in operational area When this section applies This section applies when a member of the New Zealand De- fence Force or the police (the member) derives income for serving in an operational area.
Exempt income The following are exempt income of the member: (a) (b) an operational allowance: an amount that the ministerial committee decides under subsection (3) is exempt income.
Ministerial committee A ministerial committee that includes the Prime Minister, the Minister of Defence, the Minister of Police, the Minister of Finance, and the Minister of Foreign Affairs may, for the pur- poses of subsection (2)(b), decide that an amount of income derived by a member for being in an operational area is ex- empt income.
Some deﬁnitions In this section,— operational allowance, for a member, means the amount of an allowance payable by the Government of New Zealand that— is paid directly and solely to the member for being in an (a) operational area; and is not— (i) (ii) a regular force gratuity: a bonus or bounty for re-engagement in a regular force (b) operational area means an area— (a) to which the Minister of Defence has ordered the de- ployment of New Zealand Defence Force members for a speciﬁc mission authorised by the Government; and that the Chief of Defence Force delineates for that mis- sion.
(b) Deﬁned in this Act: amount, exempt income, income, New Zealand, operational allowance, operational area Compare: 2004 No 35 s CW 19 (1) (2) (3) (4) 338 Reprinted as at 5 January 2010 Income Tax Act 2007 Part C s CW 26 CW 24 Deferred military pay for active service (1) (2) Exempt income Deferred military pay that is granted or paid under the Defence Act 1990 to a person for service in the New Zealand armed forces in an active service area is exempt income.
Some deﬁnitions In this section,— active service area means an area outside New Zealand that is designated as an active service area by the Minister of De- fence, with the agreement of the Minister of Finance deferred military pay means pay declared to be deferred by the Minister of Defence, with the agreement of the Minister of Finance.
Deﬁned in this Act: active service area, deferred military pay, exempt income, New Zealand, pay Compare: 2004 No 35 s CW 20 CW 25 Value of board for religious society members The value of personal board and lodging and other basic per- sonal necessities received by a member of a religious society or order is exempt income if— (a) the member’s sole occupation is service in a religious society or order; and it is in the nature of the service that members are not paid for their work and do not receive a reward for it, other than those necessities.
(b) Deﬁned in this Act: exempt income, pay Compare: 2004 No 35 s CW 21 CW 26 Jurors’ and witnesses’ fees Fees paid by the Crown to jurors and to witnesses, other than expert witnesses, are exempt income.
Deﬁned in this Act: exempt income, pay Compare: 2004 No 35 s CW 22 339 Part C s CW 27 Income Tax Act 2007 Reprinted as at 5 January 2010 Certain income of transitional resident CW 27 Certain income derived by transitional resident Income derived by a person who is a transitional resident is exempt income if the income is a foreign-sourced amount that is none of the following: (a) employment income of a type described in section CE 1 (Amounts derived in connection with employment) in connection with employment or service performed while the person is a transitional resident: income from a supply of services.
(b) Deﬁned in this Act: employment income, exempt income, foreign-sourced amount, income, transitional resident Compare: 2004 No 35 s CW 22B Income from living allowances, compensation, and government grants CW 28 Pensions Exempt income The following are exempt income: (a) a pension or allowance under the War Pensions Act 1954, other than a veteran’s pension: a pension or allowance of any other kind granted in New Zealand or overseas by any government relating to any war or to disability attributable to or aggravated by ser- vice in the armed forces or the police: a payment of portable New Zealand superannuation: a payment of portable veteran’s pension: an overseas pension.
(b) (c) (d) (e) Meaning of overseas pension In this section, overseas pension means— (a) an overseas pension, to the extent of sums subtracted under section 70 of the Social Security Act 1964, by the department currently responsible for administering that Act, from— (i) a monetary beneﬁt paid under Part 1 of the Act; or a monetary beneﬁt, other than New Zealand superannuation or a veteran’s pension, paid under (ii) (1) (2) 340 Reprinted as at 5 January 2010 Income Tax Act 2007 Part C s CW 30 (b) the Social Welfare (Transitional Provisions) Act 1990: an overseas pension to the extent to which it is sub- ject to an arrangement under section 70(3) of the Social Security Act 1964 but not to the extent of the equiva- lent amount of New Zealand superannuation, veteran’s pension, or income-tested beneﬁt paid under section 70(3)(b) of that Act.
Deﬁned in this Act: amount, exempt income, income-tested beneﬁt, New Zealand superannuation, overseas pension, pay, portable New Zealand super- annuation, portable veteran’s pension, veteran’s pension Compare: 2004 No 35 s CW 23 CW 29 Reinvested amounts from foreign superannuation schemes in Australia An amount of income derived in an income year by a natural person as a withdrawal from a foreign superannuation scheme is exempt income if,— (a) in the income year, the person invests the amount in another foreign superannuation scheme; and each foreign superannuation scheme is constituted in Australia and is— (i) (ii) an Australian approved deposit fund: an Australian exempt public sector superannu- ation scheme: an Australian regulated superannuation fund: an Australian retirement savings account.
(iii) (iv) (b) Deﬁned in this Act: amount, Australian approved deposit fund, Australian ex- empt public sector superannuation scheme, Australian regulated superannuation fund, Australian retirement savings account, exempt income, foreign super- annuation scheme, income, income year Compare: 2004 No 35 s CW 23B CW 30 Annuities from Crown Bank Accounts An annuity is exempt income if— (a) it is granted by the Executive Council of New Zealand; and it is paid from the Crown Bank Account; and (b) 341 Part C s CW 31 Income Tax Act 2007 Reprinted as at 5 January 2010 it is not designated as being subject to tax.
(c) Deﬁned in this Act: exempt income, New Zealand, pay, tax Compare: 2004 No 35 s CW 24 CW 31 Services for members of Parliament Travel, accommodation, attendance, and communication ser- vices, as deﬁned in section 20A(7) of the Civil List Act 1979, are exempt income if they— (a) are— (i) (ii) are provided to— (i) (b) referred to in section 20A of that Act: paid under section 25 of that Act; and a person to whom any of section 25(1)(b) to (e) of that Act applies: a member of the family of a person described in subparagraph (i).
(ii) Deﬁned in this Act: exempt income, pay Compare: 2004 No 35 s CW 25 CW 32 Maintenance payments The following are exempt income: (a) child support or spousal maintenance under the Child Support Act 1991: a payment in the nature of maintenance out of money belonging to a person’s spouse, civil union partner or de facto partner, or former spouse, former civil union partner, or former de facto partner.
Deﬁned in this Act: exempt income, pay Compare: 2004 No 35 s CW 26 CW 33 Allowances and beneﬁts Exempt income The following are exempt income: (a) a monetary beneﬁt under the Social Security Act 1964, except an income-tested beneﬁt: a payment under Part 5 or 13 of the Accident Insurance Act 1998, or under Part 11 of the Injury Prevention, Rehabilitation, and Compensation Act 2001, of any of the following kinds: (b) (b) (1) 342 Reprinted as at 5 January 2010 (i) Income Tax Act 2007 Part C s CW 34 a payment to an insured person for treatment or rehabilitation: an independence allowance: a funeral grant: a survivor’s grant: a childcare payment: (ii) (iii) (iv) (v) a participation allowance under regulations made under the Social Security Act 1964: a disabled workshop payment: an amount derived by a trustee of a trust created for the beneﬁt of persons harmed by thalidomide, or a distribu- tion to a beneﬁciary from the trust: an amount derived by a trustee of the New Zealand Agent Orange Trust that represents the settlement fund and income attributable to the fund, or a distribution to a beneﬁciary from the trust.
(c) (d) (e) (f) (2) Meaning of disabled workshop payment In this section, disabled workshop payment means a pay- ment to a disabled person for undertaking therapeutic activities in a sheltered workshop, as deﬁned in the Disabled Persons Employment Promotion Act 1960, or in a similar workshop, if the average amount paid in a tax year is $50 or less per week.
Deﬁned in this Act: amount, disabled workshop payment, exempt income, in- come, income-tested beneﬁt, pay, tax year, trustee Compare: 2004 No 35 s CW 27 CW 34 Compensation payments (1) Exempt income An amount of income from the following payments is exempt income: (a) (b) (c) a payment relating to incapacity for work: a payment under the Workers Compensation Act 1956: a payment under the Criminal Injuries Compensation Act 1963: a distribution from funds approved by the Minister in charge of War Pensions to ex-prisoners of war held in German concentration camps in World War 2: (d) 343 Part C s CW 34 Income Tax Act 2007 Reprinted as at 5 January 2010 (e) (f) (g) a payment under the laws of a State of the Federal Re- public of Germany or the Republic of Austria to the vic- tims of National Socialist persecution: payments under schedule 1 of the Crown Forest Assets Act 1989 (except clause 3(b)): payments of compensation, solatium payments, or pay- ments to lessors for the purchase of leases under the Maori Reserved Land Amendment Act 1997 (but not interest paid under section 23 of the Act).
Some deﬁnitions In this section,— accident insurance contract is deﬁned in section 13 of the Accident Insurance Act 1998 payment relating to incapacity for work means a payment of 1 of the following kinds made to a person because they are, or another person is, incapacitated for work (a) a payment by a friendly society, but not a payment re- ferred to in paragraph (d) or (e) of the deﬁnition of acci- dent compensation payment in section CF 1(2) (Bene- ﬁts, pensions, compensation, and government grants): a payment from a sickness, accident, or death beneﬁt fund to which the person was a contributor when the period of incapacity began, but not a payment referred to in paragraph (d) or (e) of the deﬁnition of accident compensation payment in section CF 1(2): a payment under a policy of personal sickness or acci- dent insurance, or an accident insurance contract, but neither a payment referred to in paragraph (d) or (e) or (f) of the deﬁnition of accident compensation pay- ment in section CF 1(2) nor a payment calculated ac- cording to loss of earnings or proﬁts.
(b) (c) Deﬁned in this Act: accident insurance contract, exempt income, friendly so- ciety, interest, lease, pay, payment relating to incapacity for work, sickness, accident, or death beneﬁt fund Compare: 2004 No 35 s CW 28 (2) 344 Reprinted as at 5 January 2010 Income Tax Act 2007 Part C s CW 38 CW 35 Personal service rehabilitation payments An amount paid to a person for an income year as a personal service rehabilitation payment is exempt income of the person if— (a) they are paid the amount under the Injury Prevention, Rehabilitation, and Compensation Act 2001; and they pay an amount to another person for providing them in the income year a key aspect of social rehabili- tation referred to in the deﬁnition of personal service rehabilitation payment; and the amount paid is equal to or more than the amount of personal service rehabilitation payment for the income year after taking into account any amount of tax with- held.
(b) (c) Deﬁned in this Act: amount, amount of tax, exempt income, income year, pay, personal service rehabilitation payment Compare: 2004 No 35 s CW 28B Section CW 35: substituted, on 1 July 2008, by section 329 of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
CW 36 Scholarships and bursaries A basic grant or an independent circumstances grant under regulations made under section 303 of the Education Act 1989 is not exempt income, but any other scholarship or bursary for attendance at an educational institution is exempt income.
Deﬁned in this Act: exempt income Compare: 2004 No 35 s CW 29 CW 37 Film production grants [Repealed] Section CW 37: repealed (with effect on 1 October 2009), on 6 October 2009, by section 46(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Income of certain entities CW 38 Public authorities (1) Exempt income An amount of income derived from sinking funds relating to the debt of a public authority is exempt income.
345 Part C s CW 39 Income Tax Act 2007 Reprinted as at 5 January 2010 (2) (3) (4) (5) (6) Exempt income Any other amount of income derived by a public authority is exempt income.

Exclusion: amounts received in trust Subsection (2) does not apply to an amount of income that a public authority derives as a trustee.

Exclusion: superannuation schemes Subsection (2) does not apply to a public authority to the ex- tent to which it is a superannuation scheme.
Exclusion: certain public authorities Subsection (2) does not apply to an amount of income derived by the following public authorities: (a) (b) (c) Public Trust: State enterprises: Crown Research Institutes.

Meaning of public authority In this section, public authority includes the Reserve Bank of New Zealand.
Deﬁned in this Act: amount, Crown Research Institute, exempt income, in- come, public authority, State enterprise, superannuation scheme, trustee Compare: 2004 No 35 s CW 31 CW 39 Local authorities Exempt income An amount of income derived from sinking funds relating to the debt of a local authority is exempt income.

Exempt income Any other amount of income derived by a local authority is exempt income.
Exclusion: amounts received in trust Subsection (2) does not apply to an amount of income that a local authority derives as a trustee.
Exclusion: certain amounts from commercial undertakings Subsection (2) does not apply to an amount of income that— (a) (b) (c) is derived by a local authority; and is not rates; and is derived from— (1) (2) (3) (4) 346 Reprinted as at 5 January 2010 Income Tax Act 2007 Part C s CW 40 (i) (ii) a council-controlled organisation, other than a council-controlled organisation operating a hos- pital as a charitable activity on behalf of the local authority; or an organisation that is a port company, a sub- sidiary of a port company, or an energy company and that would be a council-controlled organisa- tion in the absence of section 6(4) of the Local Government Act 2002.
(5) Exclusion: local authority as port operator Subsection (2) does not apply to an amount of income de- rived by a local authority in its capacity as a port operator from a port-related commercial undertaking.

Port operator and port-related commercial undertaking are deﬁned in sec- tion 38(4) of the Port Companies Act 1988.
Deﬁned in this Act: amount, council-controlled organisation, exempt income, income, local authority, trustee Compare: 2004 No 35 s CW 32 Section CW 39(4)(c)(i): substituted, on 1 April 2008, by section 330 of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
CW 40 Local and regional promotion bodies (1) Exempt income: beautiﬁcation societies An amount of income derived by an association or society is exempt income if— (a) the association or society is established mainly to— (i) advertise, beautify, or develop a city or other dis- trict so as to attract population, tourists, trade, or visitors: create, develop, or increase amenities for the gen- eral public in a city or other district; and none of the funds of the association or society is used, or is or may become available to be used, for any other purpose that is not a charitable purpose.
(ii) (b) (2) Exclusion: council-controlled organisation Subsection (1) does not apply to an amount of income de- rived— (a) by a council-controlled organisation: 347 Part C s CW 41 Income Tax Act 2007 Reprinted as at 5 January 2010 (3) (b) by a local authority from a council-controlled organisa- tion.

Exempt income: trustees of Cornwall Park An amount of income that the trustees of Cornwall Park, Auck- land, derive from the property of the trust is exempt income.
Deﬁned in this Act: amount, charitable purpose, council-controlled organisa- tion, exempt income, income, local authority, trustee Compare: 2004 No 35 s CW 33 Section CW 40 list of deﬁned terms associated person: repealed (with effect on 1 April 2008), on 6 October 2009, by section 47 of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
CW 41 Charities: non-business income Exempt income The following are exempt income: (a) (b) an amount of income derived by a trustee in trust for charitable purposes: an amount of income derived by a society or institution established and maintained exclusively for charitable purposes and not carried on for the private pecuniary proﬁt of any individual.
Exclusion: trustees, society, or institution not registered This section does not apply to an amount of income if, at the time that the amount of income is derived, the trustee or trustees of the trust, the society, or the institution is not, or are not, a tax charity.

Exclusion: business income This section does not apply to an amount of income derived from a business carried on by, or for, or for the beneﬁt of a trust, society, or institution of a kind referred to in subsection (1).
Exclusion: council-controlled organisation income This section does not apply to an amount of income derived by— (a) a council-controlled organisation, other than a council- controlled organisation operating a hospital as a charit- able activity: (1) (2) (3) (4) 348 Reprinted as at 5 January 2010 Income Tax Act 2007 Part C s CW 41 (b) a local authority from a council-controlled organisation, other than from a council-controlled organisation oper- ating a hospital as a charitable activity on behalf of the local authority.
(5) Deﬁnition In this section and sections CW 42 and CW 43, tax charity means,— (a) a trustee or trustees of a trust, a society, or an institution, registered as a charitable entity under the Charities Act 2005: a trustee or trustee of a trust, a society, or an institution (the entity), that–– (i) has started, before 1 July 2008, to take reasonable steps in the process of preparing an application for registering the entity as a charitable entity under the Charities Act 2005; and intends to complete the process of preparing an application described in subparagraph (i); and has not been notiﬁed by the Commissioner that the entity is not a tax charity: (ii) (iii) (b) (c) a trustee or trustee of a trust, a society, or an institution, that is or are non-resident and carrying out its or their charitable purposes outside New Zealand, and which is approved as a tax charity by the Commissioner in circumstances where registration as a charitable entity under the Charities Act 2005 is unavailable.
Deﬁned in this Act: amount, business, charitable purpose, council-controlled organisation, exempt income, income, local authority, tax charity, trustee Compare: 2004 No 35 s CW 34 Section CW 41(2): amended, on 1 July 2008, by section 20(1) of the Taxation (Personal Tax Cuts, Annual Rates, and Remedial Matters) Act 2008 (2008 No 36).

Section CW 41(4): substituted, on 1 April 2008, by section 331 of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section CW 41(5) heading: added, on 1 July 2008, by section 20(2) of the Taxation (Personal Tax Cuts, Annual Rates, and Remedial Matters) Act 2008 (2008 No 36).

Section CW 41(5): added, on 1 July 2008, by section 20(2) of the Taxation (Personal Tax Cuts, Annual Rates, and Remedial Matters) Act 2008 (2008 No 36).
349 Part C s CW 42 Income Tax Act 2007 Reprinted as at 5 January 2010 Section CW 41 list of deﬁned terms registered as a charitable entity: repealed, on 1 July 2008, by section 20(3) of the Taxation (Personal Tax Cuts, Annual Rates, and Remedial Matters) Act 2008 (2008 No 36).

Section CW 41 list of deﬁned terms tax charity: inserted, on 1 July 2008, by section 20(3) of the Taxation (Personal Tax Cuts, Annual Rates, and Remedial Matters) Act 2008 (2008 No 36).
CW 42 Charities: business income Exempt income Income derived directly or indirectly from a business carried on by, or for, or for the beneﬁt of a trust, society, or institution of a kind referred to in section CW 41(1) is exempt income if— (a) the trust, society, or institution carries out its charitable purposes in New Zealand; and the trustee or trustees of the trust, the society, or the in- stitution is or are, at the time that the income is derived, a tax charity; and no person with some control over the business is able to direct or divert, to their own beneﬁt or advantage, an amount derived from the business.
Subsections (3) to (8) expand on this subsection.

(b) (c) Exclusion This section does not apply to an amount of income derived by— (a) a council-controlled organisation, other than a council- controlled organisation operating a hospital as a charit- able activity: a local authority from a council-controlled organisation, other than from a council-controlled organisation oper- ating a hospital as a charitable activity on behalf of the local authority.
(b) Carrying on a business: trustee For the purposes of subsection (1), a trustee is treated as carry- ing on a business if— (a) the trustee derives rents, ﬁnes, premiums, or other rev- enues from an asset of the trust; and the asset was disposed of to the trust by a person of a kind described in subsection (5)(b); (b) (1) (2) (3) 350 Reprinted as at 5 January 2010 (c) Income Tax Act 2007 Part C s CW 42 and either— (i) the person retains or reserves an interest in the asset; or the asset will revert to the person.
(ii) (4) (5) Charitable purposes in New Zealand and overseas For the purposes of subsection (1)(a), if the charitable pur- poses of the trust, society, or institution are not limited to New Zealand, income derived from the business in a tax year is ap- portioned reasonably between those purposes in New Zealand and those outside New Zealand.

Only the part apportioned to the New Zealand purposes is exempt income.
Control over business For the purposes of subsection (1)(c) for an income year, a person is treated as having some control over the business, and as being able to direct or divert amounts from the business to their own beneﬁt or advantage if, in the tax year,— (a) they are, in any way, whether directly or indirectly, able to determine, or materially inﬂuence the determination of,— (i) the nature or extent of a relevant beneﬁt or ad- vantage; or the circumstances in which a relevant beneﬁt or advantage is, or is to be, given or received; and (ii) (b) their ability to determine or inﬂuence the beneﬁt or ad- vantage arises because they are— (i) (ii) (iii) (iv) a settlor or trustee of the trust by which the busi- ness is carried on; or a shareholder or director of the company by which the business is carried on; or a settlor or trustee of a trust that is a shareholder of the company by which the business is carried on; or a person associated with a settlor, trustee, share- holder, or director referred to in any of subpara- graphs (i) to (iii).
351 Part C s CW 42 Income Tax Act 2007 Reprinted as at 5 January 2010 (6) (7) Control: settlor asset disposed of to trust For the purposes of subsection (5), a person is treated as a settlor of a trust, and as gaining a beneﬁt or advantage in the carrying on of a business of the trust, if— (a) they have disposed of an asset to the trust, and the asset is used by the trust in the carrying on of the business; and they retain or reserve an interest in the asset, or the asset will revert to them.
(b) No control For the purposes of subsection (1)(c), a person is not treated as having some control over the business merely because— (a) they provide professional services to the trust or com- pany by which the business is carried on; and their ability to determine, or materially inﬂuence the de- termination of, the nature or extent of a relevent beneﬁt or advantage arises because they— (i) (b) provide the services in the course of and as part of carrying on, as a business, a professional public practice; or are a statutory trustee company; or are Public Trust; or are the Maori Trustee.
(ii) (iii) (iv) (8) Beneﬁt or advantage For the purposes of subsection (1)(c), a beneﬁt or advantage to a person— (a) may or may not be something that is convertible into (b) money: unless excluded under paragraph (d), includes deriving an amount that would be income of the person under 1 or more of the following provisions: (i) (ii) section CA 1(2) (Amounts that are income): sections CB 1 to CB 23 (which relate to income from business or trade-like activities): section CB 32 (Property obtained by theft): sections CC 1 (Land), CC 3 to CC 8 (which relate to income from ﬁnancial instruments), and CC 9 (Royalties): section CD 1 (Dividend): (iii) (iv) (v) 352 Reprinted as at 5 January 2010 Income Tax Act 2007 Part C s CW 42 (9) (vi) (vii) (viii) (ix) sections CE 1 (Amounts derived in connection with employment) and CE 8 (Attributed income from personal services): section CF 1 (Beneﬁts, pensions, compensation, and government grants): section CG 3 (Bad debt repayment): sections CQ 1 (Attributed controlled foreign company income) and CQ 4 (Foreign investment fund income): includes retaining or reserving an interest in an asset in the case described in subsection (3), if the person has disposed of the asset to the trust or the asset will revert to them: does not include earning interest on money lent, if the interest is payable at no more than the current commer- cial rate, given the nature and term of the loan.
(c) (d) Non-exempt business income If an amount derived from the carrying on of a business by or for a trust is not exempt income because of a failure to comply with subsection (1)(c), the amount is trustee income.
Deﬁned in this Act: amount, associated person, business, charitable purpose, company, council-controlled organisation, director, exempt income, income, income year, interest, local authority, money lent, New Zealand, pay, share- holder, statutory trustee company, tax charity, trustee, trustee income Compare: 2004 No 35 s CW 35 Section CW 42(1)(b): amended, on 1 July 2008, by section 21(1) of the Taxation (Personal Tax Cuts, Annual Rates, and Remedial Matters) Act 2008 (2008 No 36).
Section CW 42(2): substituted, on 1 April 2008, by section 332 of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section CW 42(5): amended (with effect on 1 April 2008), on 6 October 2009, by section 48 of the Taxation (International Taxation, Life Insurance, and Re- medial Matters) Act 2009 (2009 No 34).
Section CW 42(7): amended (with effect on 1 April 2008), on 6 October 2009, by section 48 of the Taxation (International Taxation, Life Insurance, and Re- medial Matters) Act 2009 (2009 No 34).

Section CW 42(8): amended (with effect on 1 April 2008), on 6 October 2009, by section 48 of the Taxation (International Taxation, Life Insurance, and Re- medial Matters) Act 2009 (2009 No 34).
Section CW 42(9): amended (with effect on 1 April 2008), on 6 October 2009, by section 48 of the Taxation (International Taxation, Life Insurance, and Re- medial Matters) Act 2009 (2009 No 34).

353 Part C s CW 43 Income Tax Act 2007 Reprinted as at 5 January 2010 Section CW 42 list of deﬁned terms tax charity: inserted, on 1 July 2008, by section 21(2) of the Taxation (Personal Tax Cuts, Annual Rates, and Remedial Matters) Act 2008 (2008 No 36).
CW 43 Charitable bequests Exempt income An amount of income derived by a deceased’s executor or ad- ministrator is exempt income to the extent to which the re- quirements of subsections (2) and (3) are met, having regard to all relevant matters including— (a) the terms of the deceased’s will, including the rights of annuitants, legatees, and other beneﬁciaries; and the nature and extent of the debts and liabilities of, and other charges against, the estate and their likely effect on the income and assets available for distribution to the beneﬁciaries; and the shares and prospective shares of the beneﬁciaries in the income and assets of the estate.
(b) (c) Gift to charity The ﬁrst requirement is that the amount arises from or is at- tributable to assets of the estate that have been left to a trust, society, or institution of a kind referred to in section CW 41(1).

Exempt in hands of charity The second requirement is that the amount, if derived by the trust, society, or institution or by a business carried on by, or for, or for the beneﬁt of it, would be exempt income under section CW 41 or CW 42.
Timing of registration as charitable entity An amount of income derived by a deceased’s executor or ad- ministrator that is derived during the period beginning on the deceased’s date of death and ending at the end of the income year that follows the income year in which the deceased died is not prevented from being exempt income under this section merely because the trustee or trustees of the trust, the society, or the institution is not, or are not, a tax charity.
Requirements of sections CW 41 and CW 42 disregarded For the purposes of subsection (4), until the end of the income year that follows the income year in which the deceased died, (1) (2) (3) (4) (5) 354 Reprinted as at 5 January 2010 Income Tax Act 2007 Part C s CW 44 (6) the requirements of sections CW 41 and CW 42 for the trustee or trustees of the trust, the society, or the institution to be a tax charity must be disregarded when applying those sections for the purposes of this section.
Amounts derived after end of certain period This section does not apply to an amount of income derived after the end of the income year that follows the income year in which the deceased died if, at the time that the amount of income is derived, the trustee or trustees of the trust, the soci- ety, or the institution is not, or are not, a tax charity.
Deﬁned in this Act: amount, business, distribution, exempt income, income, New Zealand, tax charity Compare: 2004 No 35 s CW 36 Section CW 43(4): amended, on 1 July 2008, by section 22(1) of the Taxation (Personal Tax Cuts, Annual Rates, and Remedial Matters) Act 2008 (2008 No 36).

Section CW 43(5): amended, on 1 July 2008, by section 22(2) of the Taxation (Personal Tax Cuts, Annual Rates, and Remedial Matters) Act 2008 (2008 No 36).
Section CW 43(6): amended, on 1 July 2008, by section 22(3) of the Taxation (Personal Tax Cuts, Annual Rates, and Remedial Matters) Act 2008 (2008 No 36).

Section CW 43 list of deﬁned terms registered as a charitable entity: repealed, on 1 July 2008, by section 22(4) of the Taxation (Personal Tax Cuts, Annual Rates, and Remedial Matters) Act 2008 (2008 No 36).
Section CW 43 list of deﬁned terms tax charity: inserted, on 1 July 2008, by section 22(4) of the Taxation (Personal Tax Cuts, Annual Rates, and Remedial Matters) Act 2008 (2008 No 36).

CW 44 Friendly societies An amount of income derived by a friendly society is exempt income, except to the extent to which the amount is derived from— (a) a business carried on beyond the membership of the friendly society; or a company registered as an insurer under the Accident Insurance Act 1998.
(b) Deﬁned in this Act: amount, business, company, exempt income, friendly so- ciety, income Compare: 2004 No 35 s CW 37 355 Part C s CW 45 Income Tax Act 2007 Reprinted as at 5 January 2010 CW 45 Funeral trusts Interest or a dividend derived by a trustee in trust for a fund is exempt income if, when the interest or dividend is derived by the trustee,— (a) (iii) the sole purpose of the fund is the payment of the ex- penses associated with the funerals of— employees of an employer: (i) spouses, civil union partners, de facto partners, (ii) and dependants of employees of the employer: surviving spouses, civil union partners, de facto partners, and surviving dependants of deceased employees of the employer; and the employer has at least 10 employees; and all persons eligible for beneﬁts from the fund are eli- gible equally for beneﬁts from the fund; and no contributions to the fund are made by a person who is not the employer or an employee of the employer; and the fund is approved by the Commissioner.
(e) Deﬁned in this Act: Commissioner, dividend, employee, employer, exempt in- come, interest, pay, trustee Compare: 2004 No 35 s CW 38 (b) (c) (d) CW 46 Bodies promoting amateur games and sports An amount of income derived by a club, society, or association is exempt income if— (a) the club, society, or association is established mainly to promote an amateur game or sport; and the game or sport is conducted for the recreation or en- tertainment of the general public; and no part of the funds of the club, society, or association is used or is available to be used for the private pecuniary proﬁt of a member, proprietor, shareholder, or associate of any of them.
(b) (c) Deﬁned in this Act: amount, associated person, exempt income, income Compare: 2004 No 35 s CW 39 356 Reprinted as at 5 January 2010 Income Tax Act 2007 Part C s CW 49 CW 47 TAB and racing clubs (1) (2) Exempt income: racing organisations An amount of income derived by any of the following bodies is exempt income: (a) (b) (c) (d) the New Zealand Racing Board: New Zealand Thoroughbred Racing: Harness Racing New Zealand: the New Zealand Greyhound Racing Association (In- corporated).
Exempt income: racing clubs An amount of income derived by a racing club, as deﬁned in section 5 of the Racing Act 2003, is exempt income, if none of the club’s funds is used or is available to be used for the private pecuniary proﬁt of a member of the club or an associate of a member.
Deﬁned in this Act: amount, associated person, exempt income, income Compare: 2004 No 35 s CW 40 CW 48 Income from conducting gaming-machine gambling An amount of income derived by a person that is gross gam- bling proceeds from gaming-machine gambling is exempt in- come if— (a) the person is authorised to conduct the gaming-machine gambling under the Gambling Act 2003 by a gam- ing-machine operator’s licence and a gaming-machine venue licence; and the person complies with the Gambling Act 2003 in ap- plying and distributing the net gambling proceeds from the gaming-machine gambling.
(b) Deﬁned in this Act: exempt income, gaming-machine gambling, gaming-ma- chine operator’s licence, gaming-machine venue licence, gross gambling pro- ceeds, net gambling proceeds Compare: 2004 No 35 s CW 40B CW 49 Bodies promoting scientiﬁc or industrial research (1) Exempt income An amount of income derived by a society or association es- tablished mainly to promote or encourage scientiﬁc or indus- trial research is exempt income if— 357 Part C s CW 50 Income Tax Act 2007 Reprinted as at 5 January 2010 (a) (b) the society or association is approved by the Royal So- ciety of New Zealand; and none of its funds is used or available to be used for the private pecuniary proﬁt of a member, proprietor, share- holder, or associate of any of them.
(2) Exclusion This section does not apply to a Crown Research Institute.
Deﬁned in this Act: amount, associated person, Crown Research Institute, ex- empt income, income Compare: 2004 No 35 s CW 41 CW 50 Veterinary services bodies (1) (2) Exempt income: veterinary clubs An amount of income derived by a veterinary association, club, or society is exempt income if— (a) the association, club, or society was established mainly to promote efﬁcient veterinary services in New Zealand; and none of its funds is used or available to be used for the private pecuniary proﬁt of a member, proprietor, share- holder, or associate of any of them.
(b) Exempt income: Veterinary Council An amount of income derived by the Veterinary Council of New Zealand is exempt income.
Deﬁned in this Act: amount, associated person, exempt income, income, New Zealand Compare: 2004 No 35 s CW 42 CW 51 Herd improvement bodies An amount of income derived by a herd improvement associ- ation or society is exempt income if— (a) the association or society was established mainly to pro- mote the improvement of the standard of dairy cattle in New Zealand; and 358 Reprinted as at 5 January 2010 Income Tax Act 2007 Part C s CW 55BA (b) none of its funds is used or available to be used for the private pecuniary proﬁt of a member, proprietor, share- holder, or associate of any of them.
Deﬁned in this Act: amount, associated person, exempt income, income, New Zealand Compare: 2004 No 35 s CW 43 CW 52 Community trusts An amount of income derived by the trustee of a community trust is exempt income.
Deﬁned in this Act: amount, community trust, exempt income, income, trustee Compare: 2004 No 35 s CW 44 CW 53 Distributions from complying trusts To the extent to which section HC 20 (Distributions from com- plying trusts) applies to an amount that a person derives as a beneﬁciary of a trust, the amount is exempt income.
Deﬁned in this Act: amount, complying trust, distribution, exempt income Compare: 2004 No 35 s HH 3(5) CW 54 Foreign-sourced amounts derived by trustees resident To the extent to which section HC 26 (Foreign-sourced trustees) applies to a foreign-sourced amounts: amount that a trustee who is resident in New Zealand derives in an income year, the amount is exempt income.
Deﬁned in this Act: exempt income, foreign-sourced amount, income year, non- resident, resident in New Zealand, trustee Compare: 2004 No 35 s HH 4(3B) CW 55 Maori authority distributions A distribution from a Maori authority to a member, to the ex- tent to which it is not income under section CV 11 (Maori au- thorities) is exempt income.
Deﬁned in this Act: exempt income, income, Maori authority, member Compare: 2004 No 35 s HI 5(1) CW 55BA Tertiary education institutions An amount of income derived by a tertiary education institu- tion that is established under Part 14 of the Education Act 1989 359 Part C s CW 55B Income Tax Act 2007 Reprinted as at 5 January 2010 and is not carried on for the private pecuniary proﬁt of any in- dividual is exempt income.
Deﬁned in this Act: exempt income, income Section CW 55BA: inserted, on 1 July 2008, by section 23 of the Taxation (Per- sonal Tax Cuts, Annual Rates, and Remedial Matters) Act 2008 (2008 No 36).

Partners and partnerships Heading: inserted, on 1 April 2008, by section 8(1) of the Taxation (Limited Partnerships) Act 2008 (2008 No 2).
CW 55B Amounts of exempt income for partners A person who is a partner has an amount of exempt income to the extent to which an amount of exempt income results from the application of subpart HG (Joint venturers, partners, and partnerships) to them and their partnership.

Deﬁned in this Act: amount, exempt income, partner, partnership Section CW 55B: inserted, on 1 April 2008, by section 8(1) of the Taxation (Limited Partnerships) Act 2008 (2008 No 2).
Income from certain activities CW 56 Non-resident aircraft operators (1) Exempt income An amount of income derived by a non-resident aircraft oper- ator from air transport from New Zealand is exempt income to the extent to which the Commissioner determines that an aircraft operator resident in New Zealand is, in circumstances corresponding to the circumstances of the non-resident aircraft operator, exempt from, or not liable to, income tax imposed by the laws of the country or territory in which the non-resident aircraft operator is resident.
(2) Determination A determination by the Commissioner for the purposes of sub- section (1) may relate to a class of non-resident aircraft oper- ators or a class of resident aircraft operators.
Some deﬁnitions In this section,— (3) 360 Reprinted as at 5 January 2010 Income Tax Act 2007 Part C s CW 57 air transport from New Zealand— (a) means the carriage outside New Zealand by an aircraft of cargo, mail, or passengers emplaned or embarked on the aircraft at an airport in New Zealand; and if the aircraft calls at another airport in New Zealand before leaving New Zealand on the ﬂight for which the emplaning or embarking occurred, includes that New Zealand portion of the ﬂight (b) non-resident aircraft operator means a person who— (a) is engaged in the business of operating an aircraft for air transport from an airport; and is resident in a country or territory outside New Zealand and is not resident in New Zealand.
(b) Deﬁned in this Act: air transport from New Zealand, amount, business, Com- missioner, exempt income, income, income tax, New Zealand, non-resident air- craft operator, resident in New Zealand Compare: 2004 No 35 s CW 45 CW 57 Non-resident company involved in exploration and development activities (1) (2) Exempt income An amount of income derived by a non-resident company from exploration and development activities in an offshore permit area is exempt income if it is derived in the period that— (a) starts on the beginning of the 2005–06 income year for the non-resident company; and ends on 31 December 2009.
(b) Some deﬁnitions In this section,— exploration and development activities means the follow- ing activities undertaken for the purposes of identifying and developing exploitable petroleum deposits or occurrences in an offshore permit area operating a ship to provide seismic survey readings: (a) (b) drilling an exploratory well or other well offshore permit area means an area of land that is— (a) (b) in New Zealand; and on the seaward side of the mean high-water mark; and 361 Part C s CW 58 Income Tax Act 2007 Reprinted as at 5 January 2010 a permit area or part of a permit area.
(c) Deﬁned in this Act: amount, exempt income, exploration and development ac- tivities, exploratory well, New Zealand, non-resident company, offshore permit area, permit area Compare: 2004 No 35 s CW 45B CW 58 Disposal of companies’ own shares An amount of income derived by a company from disposing of shares in the company is exempt income if— (a) (b) the company acquired the shares; and the acquisition was treated under section 67A(1) of the Companies Act 1993 as not resulting in the cancellation of the shares.
Deﬁned in this Act: amount, cancellation, company, exempt income, income, share Compare: 2004 No 35 s CW 46 CW 59 New Zealand companies operating in Niue Exempt income: income wholly or mainly from Niue An amount of income derived by a company incorporated in New Zealand that derives its income wholly or mainly from Niue is exempt income.
Exclusion Subsection (1) does not apply if the company, if it were a foreign company, would at any time during the income year in which the amount is derived be a controlled foreign company.
Exempt income: dividends A dividend derived from a company incorporated in New Zealand that derives its income wholly or mainly from Niue is exempt income, unless the dividend is derived by— (a) (b) a person who is resident in New Zealand; or a company that is a controlled foreign company at any time during the income year in which the amount is derived; or a trustee of a trust of which a settlor or beneﬁciary is resident in New Zealand during the income year in which the amount is derived.
(c) (1) (2) (3) 362 Reprinted as at 5 January 2010 Income Tax Act 2007 Part C s CW 59 (4) (5) (6) (7) Exempt income: Niue development projects An amount of income derived by a company incorporated in New Zealand from a business or enterprise that the company carries on in Niue is exempt income if— (a) the business or enterprise is declared by an Order in Council made under subsection (7) to be a development project for the purposes of this section; and the company’s income is derived wholly or mainly from that business or enterprise; and the amount is derived from sources in Niue; and the amount is derived while the Order in Council is in force.
(b) (c) (d) Exclusions Subsections (1), (3), and (4) do not apply to— (a) an amount of income derived from sources in New Zealand; or a dividend, to the extent to which it constitutes distribu- tion of an amount derived by the company from sources in New Zealand.

(b) Attributed CFC income and FIF income This section does not restrict the application of section CQ 1 (Attributed controlled foreign company income), or CQ 4 (Foreign investment fund income), or the FIF rules.
For the purposes of the FIF rules, a company that derives its income wholly or mainly from Niue and has exempt income under subsection (1) is treated as a foreign company.
Order in Council declaring Niue development project The Governor-General may make an Order in Council declar- ing a business or enterprise to be a development project for the purposes of this section if satisﬁed that the business or enter- prise— (a) has been or will be entered upon wholly or mainly for the purpose of developing Niue; or is or will be important in the development of Niue.
(b) Deﬁned in this Act: amount, attributed CFC income, business, company, con- trolled foreign company, dividend, exempt income, FIF, FIF rules, foreign com- pany, income, income year, resident in New Zealand, settlor, source in New Zealand, trustee Compare: 2004 No 35 s CW 47 363 Part C s CW 59B Income Tax Act 2007 Reprinted as at 5 January 2010 CW 59B Income of and distributions by certain international funds (1) (2) Trustees An amount derived by a person is exempt income of the person if they are— (a) (b) the trustee of the Niue International Trust Fund: the trustee of the Tokelau International Trust Fund.
Distributions An amount derived by a person is exempt income of the person if the income is a distribution by— (a) (b) Deﬁned in this Act: amount, distribution, exempt income, income, Niue Inter- national Trust Fund, Tokelau International Trust Fund, trustee Compare: 2004 No 35 ss CW 49C, CW 49D the trustee of the Niue International Trust Fund: the trustee of the Tokelau International Trust Fund.
Section CW 59B: inserted, on 1 April 2008, by section 333 of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

CW 60 Stake money Stake or prize money for a dog race, horse race, or trotting race is exempt income if— (a) it is paid by a club that is licensed to use the totalisator under the Racing Act 2003; or the race is held outside New Zealand.
(b) Deﬁned in this Act: exempt income, New Zealand, pay Compare: 2004 No 35 s CW 48 CW 61 Providing standard-cost household service Exempt income under determination An amount of income derived in an income year by a natural person from providing a standard-cost household service is exempt income if the amount is exempt income under a determination made under section 91AA(2)(a) of the Tax Administration Act 1994.
When amount treated as expenditure If subsection (1) does not apply, and the amount of standard- cost household service is less than the amount of income of the person, the person is treated, under a determination made (1) (2) 364 Reprinted as at 5 January 2010 Income Tax Act 2007 Part C s CW 62B (3) under section 91AA of that Act, as incurring an amount of expenditure in providing the services.
Allocation For the purposes of subsection (2), the allocation of the amount of the expenditure occurs under section BD 4 (Allocation of deductions to particular income years).

Deﬁned in this Act: amount, deduction, exempt income, income, income tax liability, income year, standard-cost household service Compare: 2004 No 35 s CW 49 CW 62 Interest paid under the KiwiSaver Act 2006 Interest paid by the Commissioner under section 84 of the KiwiSaver Act 2006 is exempt income.
Deﬁned in this Act: Commissioner, exempt income, interest Compare: 2004 No 35 s CW 49B CW 62B Voluntary activities Exempt income (1) When a volunteer, in undertaking a voluntary activity, derives an amount that is a reimbursement payment to cover actual expenses incurred by them, the amount is exempt income of the volunteer.
(2) (3) (4) Estimated expenditure For the purposes of subsection (1)— (a) a person may make a reasonable estimate of the amount of expenditure likely to be incurred by the volunteer for which reimbursement is payable; and the amount estimated is treated as if it were the amount incurred.
(b) Payments partly reimbursement and partly honorarium If the person paying the amount to the volunteer makes a pay- ment to them that is only partly a reimbursement of expenses, the person must identify the portion of the amount that is the reimbursement, and treat the remainder as an honorarium, be- ing a schedular payment to which the PAYE rules apply.

Who is a volunteer?
Who is a volunteer?

For the purposes of this section, a volunteer means a person who freely undertakes an activity in New Zealand— 365 Part C s CW 63 Income Tax Act 2007 Reprinted as at 5 January 2010 (a) (b) (c) chosen either by themselves or by a group of which they are a member; and that provides a beneﬁt to a community or another per- son; and for which there is no purpose or intention of private pecuniary proﬁt for the person.
(5) (6) (7) Honoraria For the purposes of this section, and schedule 4, part B (Rates of tax for schedular payments), an honorarium means an amount that a person receives for providing services that— (a) is paid at a rate that is less than the market rate for pro- viding the services; and is an amount for which, in the normal course, no pay- ment is ﬁxed for the services provided.
(b) Nature of reimbursement payment For the purposes of this section, it does not matter whether— an amount of a reimbursement payment is paid in 1 sum (a) or not: the amount is paid during an income year or at the end of an income year.

(b) Relationship with section RD 8(3) A determination made by the Commissioner under sec- tion RD 8(3) (Schedular payments) may apply to modify an amount of expenditure under this section.
Deﬁned in this Act: amount, exempt income, honorarium, income year, New Zealand, pay, PAYE rules, schedular payment, volunteer Section CW 62B: inserted (with effect on 1 April 2009), on 6 October 2009, by section 50(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
CW 63 Avoidance arrangements An amount is exempt income if it is treated as exempt income under— (a) (b) Deﬁned in this Act: amount, exempt income Compare: 2004 No 35 ss GB 1(1)–(2C), GD 3(1), (2) section GA 1 (Commissioner’s power to adjust): section GB 23 (Excessive remuneration to relatives).

366 Reprinted as at 5 January 2010 Income Tax Act 2007 Part C s CX 2 CW 64 Exemption under other Acts An amount of income expressly exempted from income tax by any other Act is exempt income.
Deﬁned in this Act: amount, exempt income, income, income tax Compare: 2004 No 35 s CW 50 Subpart CX—Excluded income Goods and services tax CX 1 Goods and services tax The following are excluded income of a registered person: output tax on goods and services they supply: (a) goods and services tax (GST) payable to them by the (b) Commissioner.
Deﬁned in this Act: Commissioner, excluded income, goods, GST, GST payable, output tax, pay, registered person, services Compare: 2004 No 35 s CX 1 Fringe beneﬁts Introductory provisions CX 2 Meaning of fringe beneﬁt (1) (2) Meaning A fringe beneﬁt is a beneﬁt that— (a) is provided by an employer to an employee in connec- tion with their employment; and either— (i) arises in a way described in any of sections CX 6, CX 9, CX 10, or CX 12 to CX 16; or is an unclassiﬁed beneﬁt; and (ii) is not a beneﬁt excluded from being a fringe beneﬁt by any provision of this subpart.
(b) (c) Arrangement to provide beneﬁt A beneﬁt that is provided to an employee through an arrange- ment made between their employer and another person for the beneﬁt to be provided is treated as having been provided by the employer.

367 Part C s CX 3 Income Tax Act 2007 Reprinted as at 5 January 2010 (3) (4) (5) Past, present, or future employment It is not necessary to the existence of a fringe beneﬁt that an employment relationship exists when the employee receives the beneﬁt.
Relationship with subpart RD Sections RD 25 to RD 63 (which relate to fringe beneﬁt tax) deal with the calculation of the taxable value of fringe beneﬁts.

Arrangements A beneﬁt may be treated as being provided by an employer to an employee under— (a) (b) section GB 31 (FBT arrangements: general): section GB 32 (Beneﬁts provided to employee’s asso- ciates).
Deﬁned in this Act: arrangement, associated person, employee, employer, em- ployment, fringe beneﬁt, unclassiﬁed beneﬁt Compare: 2004 No 35 s CX 2 CX 3 Excluded income A fringe beneﬁt is excluded income of the employee.
Deﬁned in this Act: employee, excluded income, fringe beneﬁt Compare: 2004 No 35 s CX 3 CX 4 Relationship with assessable income To the extent to which a beneﬁt that an employer provides to an employee in connection with their employment is assessable income, the beneﬁt is not a fringe beneﬁt.
Deﬁned in this Act: assessable income, employee, employer, employment, fringe beneﬁt Compare: 2004 No 35 s CX 4 CX 5 Relationship with exempt income Exempt income not fringe beneﬁt To the extent to which a beneﬁt that an employer provides to an employee in connection with their employment is exempt income, the beneﬁt is not a fringe beneﬁt.
Exclusions Subsection (1) does not apply to— (1) (2) 368 Reprinted as at 5 January 2010 Income Tax Act 2007 Part C s CX 6 (a) (b) a payment of a premium on a life insurance policy that is excluded from being expenditure on account of an employee under section CE 5(3)(f) to (i) (Meaning of expenditure on account of an employee): an allowance that is exempt income under section CW 17 (Expenditure on account, and reimbursement, of em- ployees) to the extent to which it is made to enable the employee to provide a beneﬁt to another person.
Exempt cash payment not fringe beneﬁt To the extent to which a beneﬁt that an employer provides to an employee in connection with their employment would have been exempt income if it had been paid in cash, the beneﬁt is not a fringe beneﬁt.

Exclusion Subsection (3) does not apply to interest, dividends, or an allowance under subsection (2)(b).
Deﬁned in this Act: dividend, employee, employer, employment, exempt in- come, expenditure on account of an employee, fringe beneﬁt, interest, life in- surance policy, pay, premium Compare: 2004 No 35 s CX 5 (3) (4) CX 6 Private use of motor vehicle Fringe beneﬁts (1) When fringe beneﬁt arises A fringe beneﬁt arises when— (a) (b) a motor vehicle is made available to an employee for their private use; and the person who makes the vehicle available to the em- ployee— (i) (ii) (iii) owns the vehicle: leases or rents the vehicle: has a right to use the vehicle under an agreement or arrangement with the employee or a person associated with the employee.
(2) Exclusion: work-related vehicles Subsection (1) does not apply when the vehicle is a work- related vehicle.

369 Part C s CX 7 Income Tax Act 2007 Reprinted as at 5 January 2010 (3) (4) (5) Exclusion: emergency calls Subsection (1) does not apply when the vehicle is used for an emergency call.
Exclusion: absences from home Subsection (1) does not apply when the employee is absent from home, with the vehicle, for a period of at least 24 hours continuously, if the employee is required, in the performance of their duties, to use a vehicle and regularly to be absent from home.
Use on part of day For the purposes of subsections (3) and (4), the whole of the day on which a motor vehicle is used as described in the ap- plicable subsection is treated as a day on which the vehicle is not available for private use.
Deﬁned in this Act: emergency call, employee, fringe beneﬁt, lease, motor ve- hicle, private use, work-related vehicle Compare: 2004 No 35 s CX 6 CX 7 Employer or associated person treated as having right to use vehicle under arrangement When this section applies This section applies for the application of the fringe beneﬁt tax (FBT) rules to an agreement or arrangement— (a) between an employer, or a person associated with the employer, and an employee, or a person associated with the employee; and transferring to the employer or person associated with the employer a right to use a motor vehicle under terms agreed between the parties.
(b) Person treated as having right to use vehicle The employer or associated person is treated as having a right to use the motor vehicle for a period during which the em- ployee— (a) (b) Deﬁned in this Act: employee, employer, FBT rules, fringe beneﬁt tax, lease, motor vehicle Compare: 2004 No 35 s CX 6B uses the vehicle privately: has a right to use the vehicle privately.
(1) (2) 370 Reprinted as at 5 January 2010 Income Tax Act 2007 Part C s CX 10 CX 8 Private use of motor vehicle: use by more than 1 employee If, on any day, a motor vehicle is made available by an em- ployer for the private use of more than 1 employee, this avail- ability is treated as a single instance.

The taxable value of the fringe beneﬁt is reduced by the total amount of any contribu- tions paid by an employee or employees.
Deﬁned in this Act: amount, contribution, employee, employer, fringe beneﬁt, motor vehicle, pay, private use Compare: 2004 No 35 s CX 7 CX 9 Subsidised transport A fringe beneﬁt arises when an employer provides subsidised transport to an employee.

Deﬁned in this Act: employee, employer, fringe beneﬁt, subsidised transport Compare: 2004 No 35 s CX 8 CX 10 Employment-related loans (1) (2) When fringe beneﬁt arises A fringe beneﬁt arises when an employer provides a loan to an employee.
Exclusions Subsection (1) does not apply to a loan made— (a) (b) (c) as an employee share loan: under a share purchase scheme: by a superannuation fund to the extent to which the value of the loan constitutes income of the fund under section CS 18 (Value of loan treated as fund income): as an advance of salary and wages, if,— (i) (d) in the period for which the employer is required to forward a return to the Commissioner under sections RD 25 to RD 63 (which relate to fringe beneﬁt tax), the total outstanding of such ad- vances to the employee is no more than $2,000; and the contract of employment does not require the employer to make the advance.
(ii) 371 Part C s CX 11 Income Tax Act 2007 Reprinted as at 5 January 2010 (3) Loan owing The employer provides a fringe beneﬁt in a tax year in which the loan is owing.

The circumstances in which a loan is owing include a case in which, under the arrangement for the loan, an amount is payable in the future, or would be payable in the future if a particular event happened, and the employee or an associated person is or would be liable to pay the amount.
Deﬁned in this Act: amount, arrangement, associated person, employee, em- ployee share loan, employer, employment-related loan, fringe beneﬁt, income, pay, share purchase scheme, superannuation fund, tax year Compare: 2004 No 35 s CX 9 CX 11 Employment-related loans: loans by life insurers When fringe beneﬁt treated as arising A life insurer provides a beneﬁt that is treated as an employ- ment-related loan if— (a) the life insurer makes a loan to a person who holds a life insurance policy (person A) or to a person associated with person A; and the life insurance policy is offered or entered into in New Zealand; and either— (i) the loan is made because of the capacity or status of person A as a policyholder; or the interest charged on the loan depends on the capacity or status of person A as a policyholder.
(ii) (b) (c) Life insurer as employer For the purposes of the FBT rules, the life insurer is treated as an employer and person A or the person associated with them is treated as an employee.
Meaning of life insurer In this section, life insurer— (a) means a person who is the insurer under the life insur- (b) ance policy: includes— (i) a person associated with the life insurer: (1) (2) (3) 372 Reprinted as at 5 January 2010 Income Tax Act 2007 Part C s CX 13 (ii) a person with whom the life insurer has entered into an arrangement relating to the making of the loan.
Deﬁned in this Act: arrangement, associated person, employee, employer, em- ployment-related loan, FBT rules, fringe beneﬁt, interest, life insurance policy, life insurer, offered or entered into in New Zealand Compare: 2004 No 35 s CX 10 CX 12 Services for members of Parliament A fringe beneﬁt arises when travel, accommodation, attend- ance, and communications services are exempt income under section CW 31 (Services for members of Parliament).
Deﬁned in this Act: exempt income, fringe beneﬁt Compare: 2004 No 35 s CX 11 CX 13 Contributions to superannuation schemes (1) (2) When fringe beneﬁt arises A fringe beneﬁt arises when an employer contributes to a superannuation scheme for the beneﬁt of an employee.

Exclusion This section does not apply if the contribution is an employer’s superannuation cash contribution.
Deﬁned in this Act: contribution, employee, employer, employer’s superannu- ation cash contribution, fringe beneﬁt, superannuation scheme Compare: 2004 No 35 s CX 12 Section CX 13(2): substituted (with effect on 1 April 2008), on 6 October 2009, by section 52(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section CX 13 list of deﬁned terms employer’s superannuation cash con- tribution: inserted (with effect on 1 April 2008), on 6 October 2009, by sec- tion 52(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section CX 13 list of deﬁned terms employer’s superannuation contribution: repealed (with effect on 1 April 2008), on 6 October 2009, by section 52(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
373 Part C s CX 14 Income Tax Act 2007 Reprinted as at 5 January 2010 CX 14 Contributions to sickness, accident, or death beneﬁt funds A fringe beneﬁt arises when an employer makes a contribution for the beneﬁt of an employee to a sickness, accident, or death beneﬁt fund.
Deﬁned in this Act: contribution, employee, employer, fringe beneﬁt, sickness, accident, or death beneﬁt fund Compare: 2004 No 35 s CX 13 CX 15 Contributions to funeral trusts A fringe beneﬁt arises when an employer makes a contribution to a fund in the circumstances described in section CW 45 (Funeral trusts).
Deﬁned in this Act: contribution, employer, fringe beneﬁt Compare: 2004 No 35 s CX 14 CX 16 Contributions to life or health insurance When fringe beneﬁt arises A fringe beneﬁt arises when an employer pays a speciﬁed in- surance premium or makes a contribution to the insurance fund of a friendly society for the beneﬁt of an employee.

Exclusion This section does not apply to a premium or contribution de- scribed in section CZ 15 (Accident insurance contracts before 1 July 2000).
Meaning of speciﬁed insurance premium In this section, speciﬁed insurance premium means a pre- mium paid for the beneﬁt of an employee, their spouse, civil union partner or de facto partner, or their child on a policy de- scribed in any of subsections (4) to (6).
Life insurance The ﬁrst kind of policy referred to in subsection (3) is a policy of insurance on the life of the employee or their spouse, civil union partner or de facto partner, or on their joint lives, or on the life of their child, to which all the following apply: (a) for policies other than whole of life policies, the min- imum term is— (i) 10 years; or (1) (2) (3) (4) 374 Reprinted as at 5 January 2010 Income Tax Act 2007 Part C s CX 16 (b) (c) (ii) 5 years, for a policy whose maturity date is no earlier than the date on which a life assured reaches 60 years of age; and the only beneﬁts payable earlier than 10 years from the start of the policy or its maturity date, whichever is ear- lier, are— (i) (ii) beneﬁts payable for the death of a life assured; or additional beneﬁts payable for an accident to a life assured or disease or sickness of a life as- sured; and the policy— (i) provides for a payment on the death of a life as- sured of a beneﬁt that is not a return of premiums, is substantially capital, and is not materially less than the total beneﬁt payable under the policy otherwise than for death; or is a policy on the life of a person who, because of ill health or physical disability, is unable to effect a policy of the kind described in subparagraph (i) at ordinary rates; or is a deferred life assurance policy on the life of a child.
(ii) (iii) (5) Life insurance: pension beneﬁt The second kind of policy referred to in subsection (3) is a policy described in subsection (4), or that would be described if it met the requirements of subsection (4)(c)(i), and under which the only beneﬁts payable are for a life assured and by way of— (a) a pension starting on or after the date on which the life assured reaches 60 years of age and continuing for the life of the employee, their spouse, civil union partner or de facto partner, or their child; or on the death of the life assured,— (i) the return of the part of the premiums paid for the assurance to secure the payment of a pension de- pendent on the life of the employee, their spouse, civil union partner or de facto partner, or their child; and (b) 375 Part C s CX 17 Income Tax Act 2007 Reprinted as at 5 January 2010 (6) (ii) the payment of the part of each bonus declared on the policy attributable to the part of the premiums described in subparagraph (i).
Health insurance The third kind of policy referred to in subsection (3) is a policy of insurance under which the beneﬁts are payable only for— an accident, whether fatal or not, to the employee, their (a) spouse, civil union partner or de facto partner, or their child; or disease or sickness of the employee, their spouse, civil union partner or de facto partner, or their child.
Deﬁned in this Act: contribution, employee, employer, friendly society, fringe beneﬁt, life insurance, pay, speciﬁed insurance premium, year Compare: 2004 No 35 s CX 15 (b) CX 17 Beneﬁts provided to employees who are shareholders or investors Beneﬁt provided in connection with employment If a company or a trustee of a group investment fund provides a non-cash beneﬁt to an employee who holds shares in the company or who is an investor in the fund, the beneﬁt is treated as having been provided in connection with the employment.
The shares or investment may be held in the employee’s own right or beneﬁcially.

Whether fringe beneﬁt or dividend A company or a trustee of a group investment fund that has provided a non-cash beneﬁt to an employee who holds shares in the company or who is an investor in the fund may choose to treat the beneﬁt as a fringe beneﬁt or a dividend.

If the company or trustee does not make an election, the beneﬁt is treated as a fringe beneﬁt.
If the company or trustee chooses to treat the beneﬁt as a dividend, the FBT rules do not apply.

Exclusion Neither subsection (1) nor subsection (2) applies to a non-cash beneﬁt provided by a company to a non-executive director of the company.
Non-cash beneﬁts Subsection (2) applies to non-cash beneﬁts that would,— (1) (2) (3) (4) 376 Reprinted as at 5 January 2010 Income Tax Act 2007 Part C s CX 18 (5) (a) (b) in the absence of section CD 32 (Employee beneﬁts), be dividends under section CD 4 (Transfers of value generally) if provided to a person in their capacity as a shareholder: in the absence of section CX 4, be unclassiﬁed beneﬁts if provided to a person in their capacity as an employee.
Notice of election The company or trustee must give notice to the Commissioner of the election referred to in subsection (2) in the time allowed for ﬁling a fringe beneﬁt tax return for the period in which the beneﬁt was provided.
Deﬁned in this Act: Commissioner, company, dividend, employee, employ- ment, FBT rules, fringe beneﬁt, fringe beneﬁt tax, group investment fund, in- vestor, non-executive director, notice, return, share, shareholder, trustee, un- classiﬁed beneﬁt Compare: 2004 No 35 s CX 16 CX 18 Beneﬁts provided to associates of both employees and shareholders (1) When this section applies This section applies when— (a) a beneﬁt provided to an associated person of an em- ployee would be treated as a fringe beneﬁt under section GB 32 (Beneﬁts provided to employee’s associates) in the absence of section CX 4; and the employer is a company; and the associated person is also associated with a share- holder in the company; and the associated person is not a company; and the associated person is not a shareholder in the com- pany; and the beneﬁt would be a dividend if provided to the share- holder.
(b) (c) (d) (e) (f) (2) FBT rules apply, not dividend rules The beneﬁt is subject to the FBT rules and is treated as not being a dividend.
Deﬁned in this Act: associated person, company, dividend, employee, em- ployer, FBT rules, fringe beneﬁt, shareholder Compare: 2004 No 35 s GC 15(3), (4) 377 Part C s CX 19 Income Tax Act 2007 Reprinted as at 5 January 2010 Exclusions and limitations CX 19 Beneﬁts provided instead of allowances When not fringe beneﬁt A beneﬁt that an employer provides to an employee in con- nection with their employment is not a fringe beneﬁt to the extent to which it removes the need that would otherwise exist for the employer to pay the employee an allowance of 1 of the following kinds: (a) an allowance that, if it had been paid,— (i) would have been exempt income under section CW 17 (Expenditure on account, and reimburse- ment, of employees); and (b) (ii) would have been paid for reasons other than to enable the employee to provide a beneﬁt to an- other person; or an allowance that reimburses the employee for transport costs that— (i) would have been incurred both in connection with their employment and for the beneﬁt of the employer in travelling between home and work; and (ii) would have been attributable to any 1 or more of the factors set out in section CW 18(3) (Allow- ance for additional transport costs); or an amount that, if it had been paid, would have been exempt income under section CW 17B (Re- location payments).
(c) Temporary change in workplace A beneﬁt that an employer provides to an employee is not a fringe beneﬁt if it— (a) is in substitution for an allowance described in subsec- tion (1)(b); and is brought about because the employee has a temporary change in their place of work while in the same employ- ment; and reimburses the employee for transport costs that would have been incurred relating to travel by 1 or more of the employee’s spouse, civil union partner, or de facto (b) (c) (1) (2) 378 Reprinted as at 5 January 2010 Income Tax Act 2007 Part C s CX 21 (d) partner, and relatives for the purpose of visiting the em- ployee in the temporary place of work; and has a value that is no more than the amount that would be provided under the allowance described in subsec- tion (1)(b).
Deﬁned in this Act: employee, employer, employment, exempt income, fringe beneﬁt, pay, relative Compare: 2004 No 35 s CX 17 Section CX 19(1)(b)(ii): amended (with effect on 1 April 2008), on 6 October 2009, by section 53 of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section CX 19(1)(c): added (with effect on 1 April 2008), on 6 October 2009, by section 53 of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
CX 20 Beneﬁts to enable performance of duties The taxable value of a beneﬁt that an employer provides to an employee by way of subsidised transport, or in the form of expenditure that an employer incurs on accommodation or transport provided to an employee, is zero if the expenditure— relates to travel by the employee in order for them to (a) perform their employment duties; and does not relate to the providing or taking of leave or a vacation; and is not increased as a result of the beneﬁt.
(c) Deﬁned in this Act: employee, employer, subsidised transport Compare: 2004 No 35 s CX 18 (b) CX 21 Business tools (1) When use of business tool not fringe beneﬁt The private use of a business tool that an employer provides to an employee, and the availability for private use of such a business tool, is not a fringe beneﬁt if— (a) the business tool is provided mainly for business use; and the cost of the business tool to the employer, including the amount of any deduction for the cost of the business tool that the employer may make under section 20(3) of the Goods and Services Tax Act 1985, is no more than $5,000.
(b) 379 Part C s CX 22 Income Tax Act 2007 Reprinted as at 5 January 2010 (2) Use away from employer’s premises For the purposes of subsection (1), a business tool that is not taken to and used on the employer’s premises may neverthe- less be provided mainly for business use if the employee per- forms a signiﬁcant part of the employee’s employment duties away from the premises.
Deﬁned in this Act: business tool, business use, employee, employer, fringe beneﬁt Compare: 2004 No 35 s CX 18B CX 22 Beneﬁts to non-executive directors A transfer of value to a non-executive director that is a divi- dend under section CD 20(2) (Beneﬁts of shareholder-employ- ees or directors) is not a fringe beneﬁt if it is made solely be- cause of their capacity as a non-executive director.
Deﬁned in this Act: dividend, fringe beneﬁt, non-executive director, transfer of value Compare: 2004 No 35 s CX 19 CX 23 Beneﬁts provided on premises When not fringe beneﬁt A beneﬁt, other than free, discounted, or subsidised travel, ac- commodation, or clothing, is not a fringe beneﬁt if the beneﬁt is— (a) provided to the employee by the employer of the em- ployee and received or used by the employee on the premises of— (i) (ii) the employer: a company that is part of the same group of com- panies as the employer: (b) provided to the employee by a company that is part of the same group of companies as the employer of the employee and received or used by the employee on the premises of— (i) (ii) the employer: the company that provides the beneﬁt.
Premises of person In this section, the premises of a person— (a) include premises that the person owns or leases: (1) (2) 380 Reprinted as at 5 January 2010 Income Tax Act 2007 Part C s CX 25 (b) (c) include premises, other than those referred to in para- graph (a), on which an employee of the person is re- quired to perform duties for the person: do not include premises occupied by an employee of the person for residential purposes.
Deﬁned in this Act: company, employee, employer, fringe beneﬁt, group of companies, lease Compare: 2004 No 35 s CX 20 CX 24 Beneﬁts related to health or safety A beneﬁt that an employer provides to an employee is not a fringe beneﬁt to the extent to which it— (a) (b) is related to the employee’s health or safety; and is aimed at hazard management in the workplace as con- templated in the Health and Safety in Employment Act 1992; and would be excluded by section CX 23 from being a fringe beneﬁt if provided on the employer’s premises.
Deﬁned in this Act: employee, employer, employment, fringe beneﬁt Compare: 2004 No 35 s CX 20B (c) CX 25 Beneﬁts provided by charitable organisations (1) (2) When not fringe beneﬁt A charitable organisation that provides a beneﬁt to an em- ployee does not provide a fringe beneﬁt except to the extent to which— (a) the employee receives the beneﬁt mainly in connection with their employment; and the employment consists of the carrying on by the or- ganisation of a business whose activity is outside its benevolent, charitable, cultural, or philanthropic pur- poses.
(b) When employer provides charge facilities Subsection (1) does not apply, and the beneﬁt provided is a fringe beneﬁt, if a charitable organisation provides a beneﬁt to an employee by way of short-term charge facilities and the value of the beneﬁt from the short-term charge facilities for the employee in a tax year is more than 5% of the employee’s salary or wages for the tax year.
381 Part C s CX 26 Income Tax Act 2007 Reprinted as at 5 January 2010 (3) Meaning of short-term charge facilities For the purposes of the FBT rules, a short-term charge facil- ity means an arrangement that— (a) enables an employee of a charitable organisation to ob- tain goods or services that have no connection with the organisation or its operations by buying or hiring the goods or services or charging the cost of the goods or services to an account; and places the liability for some or all of the payment for the goods or services on the organisation; and is not a fringe beneﬁt under section CX 10.
(c) Deﬁned in this Act: business, charitable organisation, employee, employment, fringe beneﬁt, pay, short-term charge facility Compare: 2004 No 35 s CX 21 (b) CX 26 Non-liable payments A beneﬁt received by an employee is not a fringe beneﬁt to the extent to which it is received in a quarter or in an income year in which they derive 1 or more pay-as-you-earn (PAYE) income payments, all of which are not liable for income tax.
Deﬁned in this Act: employee, fringe beneﬁt, income tax, income year, PAYE income payment, quarter Compare: 2004 No 35 s CX 22 CX 27 Assistance with tax returns An employer’s assistance with the preparation of an em- ployee’s income statement or return of income is not a fringe beneﬁt when the expenditure incurred in providing the assist- ance is expenditure for which the employee would have been allowed a deduction, if it had been incurred by the employee, under section DB 3 (Determining tax liabilities).
Deﬁned in this Act: deduction, employee, employer, fringe beneﬁt, income statement, return of income Compare: 2004 No 35 s CX 23 382 Reprinted as at 5 January 2010 Income Tax Act 2007 Part C s CX 30 CX 28 Accommodation The value of accommodation that an employer provides to an employee in connection with the employment or services is not a fringe beneﬁt.
Deﬁned in this Act: accommodation, employee, employer, employment, fringe beneﬁt Section CX 28: substituted (with effect on 1 April 2008), on 6 October 2009, by section 54(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

CX 29 Entertainment (1) (2) When not fringe beneﬁt A beneﬁt in a form of entertainment described in section DD 2 (Limitation rule) that an employer provides to an employee is not a fringe beneﬁt.
This subsection is overridden by sub- section (2).
When is fringe beneﬁt A beneﬁt in a form of entertainment described in section DD 2 that an employer provides to an employee is a fringe beneﬁt if— (a) the employee does not receive or use it in the course of employment; and the employee does not receive or use it as a necessary consequence of their employment duties; and either— (i) the employee may choose when to receive or use the beneﬁt; or the entertainment is of a kind described in section DD 7 (Entertainment outside New Zealand).
(ii) (b) (c) Deﬁned in this Act: employee, employer, employment, fringe beneﬁt Compare: 2004 No 35 s CX 25 CX 30 Distinctive work clothing (1) When not fringe beneﬁt Distinctive work clothing that an employer provides to an em- ployee is not a fringe beneﬁt, whether provided by sale or otherwise.
383 Part C s CX 31 Income Tax Act 2007 Reprinted as at 5 January 2010 (2) Meaning of distinctive work clothing In this section, distinctive work clothing means clothing, in- cluding a single item of clothing, that— (a) is worn by an employee as, or as part of, a uniform that can be identiﬁed with the employer— (i) through the permanent and prominent display of a name, logo, or other identiﬁcation that the em- ployer regularly uses in carrying on their activity or undertaking; or because the colour scheme, pattern, or style is readily associated with the employer; and is worn in the course, or as an incident, of employment; and is not clothing that employees would normally wear for private purposes.
(ii) (b) (c) Deﬁned in this Act: distinctive work clothing, employee, employer, employ- ment, fringe beneﬁt Compare: 2004 No 35 s CX 26 CX 31 Contributions to income protection insurance An employer who satisﬁes a liability to pay, or contribute to the payment of, a premium for income protection insurance for the beneﬁt of an employee does not provide a fringe beneﬁt to the employee if a payment of the insurance to the employee would be assessable income of the employee.
Deﬁned in this Act: contribution, employee, employer, fringe beneﬁt, pay Compare: 2004 No 35 s CX 26B CX 32 Services provided to superannuation fund A fringe beneﬁt does not arise if services are provided to a superannuation fund to the extent to which the superannuation fund would have been allowed a deduction for the expenditure incurred in providing the services if the expenditure had been incurred by the superannuation fund.
Deﬁned in this Act: deduction, fringe beneﬁt, superannuation fund Compare: 2004 No 35 s CX 27 384 Reprinted as at 5 January 2010 Income Tax Act 2007 Part C s CX 34 CX 33 Goods provided at discount by third parties (1) (2) When this section applies This section applies when an employer and a person who is not associated with the employer have an arrangement through which goods are provided by the person at a discount.
When not fringe beneﬁt A discount provided by the person to an employee in a group of employees is not a fringe beneﬁt if— (a) the person offers a discount to a group of persons that— negotiates the discount on an arm’s-length basis; (i) and does not include the group of employees; and is comparable in number to the group of employ- ees; and (ii) (iii) (b) the discount offered to the group of employees is the same or less than the discount offered to the group de- scribed in paragraph (a).
Deﬁned in this Act: arrangement, associated person, employee, employer, fringe beneﬁt Compare: 2004 No 35 s CX 27B CX 34 Meaning of emergency call Deﬁnitions Emergency call means a visit that an employee is required to make, to which all the following apply (a) the employee makes the visit from their home in the course of their employment; and the purpose of the visit is to provide— (i) (b) essential services relating to the operation of the plant or machinery of the employer, or of their client or customer; or essential services relating to the maintenance of services provided by a local authority or a public authority; or essential services relating to the carrying on of a business for the supply of energy or fuel to the public; or (ii) (iii) 385 Part C s CX 35 Income Tax Act 2007 Reprinted as at 5 January 2010 (iv) emergency services relating to the health or safety of any person; and (c) (d) the employer, their client or customer, or a member of the public requests the services; and except when paragraph (b)(iv) applies, the services are required to be performed between the hours of 6.00 pm and 6.00 am on days other than a Saturday, Sunday, or statutory public holiday, and at any time on other days.
Deﬁned in this Act: business, emergency call, employee, employer, employ- ment, local authority, public authority Compare: 2004 No 35 s CX 28 CX 35 Meaning of employee share loan Meaning (1) Employee share loan means a loan made to an employee if— the loan is made for the sole purpose of enabling the (a) employee to acquire, under a scheme of acquisition,— shares, rights, or options in the company that is (i) their employer: shares, rights, or options in a company that is associated with their employer; and (ii) (b) (c) (d) (e) the employee uses the loan only for the purpose of the acquisition; and the employee beneﬁcially owns the shares, rights, or options throughout the term of the loan; and the employee must immediately repay the loan in full if they stop being the beneﬁcial owner of any of the shares, rights, or options; and the company issuing the shares, rights, or options must maintain a dividend-paying policy throughout the term of the loan.
Exclusions This section does not apply— (a) (b) to shares, rights, or options in a qualifying company: to a loan made under a share purchase scheme: (2) 386 Reprinted as at 5 January 2010 Income Tax Act 2007 Part C s CX 38 (c) to an employer and an employee who are associated persons.
Deﬁned in this Act: associated person, company, dividend, employee, em- ployee share loan, employer, pay, qualifying company, share Compare: 2004 No 35 s CX 29 CX 36 Meaning of private use Private use, for a motor vehicle, includes— (a) the employee’s use of the vehicle for travel between home and work; and any other travel that confers a private beneﬁt on the employee.
(b) Deﬁned in this Act: employee, motor vehicle, private use Compare: 2004 No 35 s CX 30 CX 37 Meaning of unclassiﬁed beneﬁt Unclassiﬁed beneﬁt means a fringe beneﬁt that arises if an employer provides an employee with a beneﬁt in connection with their employment that is— (a) not a beneﬁt referred to in any of sections CX 6 to CX 16; and not a beneﬁt excluded under this subpart.
(b) Deﬁned in this Act: employee, employer, employment, fringe beneﬁt, unclas- siﬁed beneﬁt Compare: 2004 No 35 s CX 31 CX 38 Meaning of work-related vehicle Meaning (1) Work-related vehicle, for an employer, means a motor ve- hicle that prominently and permanently displays on its exte- rior,— (a) if the employer owns the vehicle, the form of identiﬁ- cation that the employer regularly uses in carrying on their undertaking or activity; or if the employer rents the vehicle, the form of identiﬁca- tion— (b) 387 Part C s CX 39 Income Tax Act 2007 Reprinted as at 5 January 2010 (2) (3) (i) (ii) that the employer regularly uses in carrying on their undertaking or activity; or that the person from whom it is rented regularly uses in carrying on their undertaking or activity.
Exclusion: car Subsection (1) does not apply to a car.

Exclusion: private use A motor vehicle is not a work-related vehicle on any day on which the vehicle is available for the employee’s private use, except for private use that is— (a) travel to and from their home that is necessary in, and a condition of, their employment; or other travel in the course of their employment during which the travel arises incidentally to the business use.
Deﬁned in this Act: business use, car, employee, employer, employment, motor vehicle, work-related vehicle Compare: 2004 No 35 s CX 32 (b) CX 39 Life insurers and fully reinsured persons Insurance Persons to whom this section applies The amounts described in subsection (2) are excluded income of— (a) (b) a life insurer: a person who is carrying on a business of providing life insurance but who is treated as not carrying on a business of providing life insurance because they have full reinsurance.
Excluded income The amounts are— (a) a premium derived by the life insurer or the person under a life insurance policy; or a claim receivable by the life insurer or the person under a life reinsurance policy.
(b) Deﬁned in this Act: amount, business, claim, excluded income, full reinsur- ance, life insurance, life insurance policy, life insurer, life reinsurance policy, premium Compare: 2004 No 35 s CX 33 (1) (2) 388 Reprinted as at 5 January 2010 Income Tax Act 2007 Part C s CX 41 CX 40 Superannuation fund deriving amount from life insurance policy (1) (2) When this section applies This section applies when a superannuation fund invests funds in a life insurance policy offered or entered into in New Zealand.
Excluded income An amount that the superannuation fund derives from the pol- icy is excluded income.
Deﬁned in this Act: amount, excluded income, life insurance policy, offered or entered into in New Zealand, superannuation fund Compare: 2004 No 35 s CX 34 CX 41 Resident insurance underwriters (1) (2) When this section applies This section applies when a natural person or an unincorpor- ated body of natural persons— (a) (b) is resident in New Zealand; and carries on a business of providing general insurance or guarantees against loss, damage, or risk; and as part of the business, is liable under an insurance con- tract, whether or not named in it, to pay, or to con- tribute towards the payment of, some or all of an amount claimable by the person insured under the contract.
(c) Excluded income Income that the natural person or persons derive from carrying on the business outside New Zealand is excluded income to the extent to which it is income not referred to in any of section YD 4(7) or (10) to (12) (Classes of income treated as having New Zealand source).
Deﬁned in this Act: amount, business, excluded income, general insurance, income, insurance contract, New Zealand, pay, resident in New Zealand Compare: 2004 No 35 s CX 35 389 Part C s CX 42 Income Tax Act 2007 Reprinted as at 5 January 2010 Petroleum mining CX 42 Disposal of ownership interests in controlled petroleum mining entities (1) (2) Excluded income The consideration that a person derives from disposing of shares or trust interests in a controlled petroleum mining entity is excluded income of the person.
Application of Tax Administration Act 1994 Section 65 of the Tax Administration Act 1994 applies when this section applies.

Deﬁned in this Act: consideration, controlled petroleum mining entity, dispose, excluded income, share Compare: 2004 No 35 s CX 36 CX 43 Farm-out arrangements for petroleum mining Farm-in expenditure under a farm-out arrangement is ex- cluded income of a petroleum miner who is the farm-out party in the farm-out arrangement.
Deﬁned in this Act: excluded income, farm-in expenditure, farm-out arrange- ment, farm-out party, petroleum miner Compare: 2004 No 35 s CX 37 CX 44 Disposal of mining shares Mineral mining When subsection (2) applies Subsection (2) applies when— (a) (b) (c) (d) a mining company derives an amount from disposing of a mining share; and the disposal is to a person other than a mining company or a mining holding company; and the company has an excess amount because the amount derived from disposing of the share is more than the cost of the share calculated under section DU 11(2) (Dis- posal of mining shares by company); and the excess amount would, in the absence of this section, be income of the company under any of sections CB 1 to CB 5 (which relate to income from business or trade-like activities).
(1) 390 Reprinted as at 5 January 2010 Income Tax Act 2007 Part C s CX 45 (2) (3) (4) Excluded income The excess amount is excluded income of the company to the extent to which it is, or is to be, used for mining purposes in the prescribed period.
When subsection (4) applies Subsection (4) applies when— (a) (b) (c) (d) a mining company (the seller) derives an amount from disposing of a mining share; and the disposal is to a mining company or to a mining hold- ing company (the buyer); and the seller has an excess amount because the amount de- rived from disposing of the share is more than the cost of the share calculated under section DU 11(2); and the excess amount would, in the absence of this section, be income of the seller under any of sections CB 1 to CB 5.
Excluded income The excess amount is excluded income of the seller to the ex- tent to which it consists of mining shares issued to it in the buyer.
Deﬁned in this Act: amount, excluded income, income, mining company, min- ing holding company, mining purposes, mining share, prescribed period Compare: 2004 No 35 s CX 38 CX 45 Disposal of mining shares acquired with reinvestment proﬁt (1) When subsection (2) applies Subsection (2) applies when— (a) (b) (c) a company derives an amount from disposing of a min- ing share; and an amount of the reinvestment proﬁt of the company is used in calculating the deduction for the cost of the min- ing share under section DU 11(2) (Disposal of mining shares by company); and some or all of the amount derived from the disposal would, in the absence of this section, be income of the company under section CU 14 (Recovery of reinvest- ment proﬁt on disposal of mining shares).
391 Part C s CX 45 Income Tax Act 2007 Reprinted as at 5 January 2010 Excluded income The amount that would be income is excluded income of the company to the extent to which it is, or is to be, used for mining purposes in the prescribed period.
When subsection (4) applies Subsection (4) applies when— (a) a company (the seller) derives an amount from dispos- ing of a mining share; and the disposal is to a mining company or to a mining hold- ing company (the buyer); and an amount of the reinvestment proﬁt of the seller is used in calculating the deduction for the cost of the mining share under section DU 11(2); and some or all of the amount derived from the disposal would, in the absence of this section, be income of the seller under section CU 14.
Excluded income The amount that would be income is excluded income of the seller to the extent to which it consists of mining shares issued to it in the buyer.
When subsection (6) applies Subsection (6) applies when— (a) a company derives an amount from disposing of a min- ing share; and the disposal is of the kind described in section CU 20 (Mining company or mining holding company liqui- dated); and an amount of the reinvestment proﬁt of the company is used in calculating the deduction for the cost of the mining share under section DU 11(2); and some or all of the amount derived from the disposal would, in the absence of this section, be income of the company under section CU 14.
(b) (c) (d) (b) (c) (d) (2) (3) (4) (5) 392 Reprinted as at 5 January 2010 Income Tax Act 2007 Part C s CX 47 (6) Excluded income The amount that would be income is excluded income of the company to the extent to which it consists of mining shares.
Deﬁned in this Act: amount, company, deduction, excluded income, income, mining company, mining holding company, mining purposes, mining share, prescribed period, reinvestment proﬁt Compare: 2004 No 35 s CX 39 CX 46 Repayment of loans made from reinvestment proﬁt (1) (2) When this section applies This section applies when an amount would, in the absence of this section, be income of a company under section CU 16 (Recovery of reinvestment proﬁt on repayment of loans).
Excluded income The amount is excluded income of the company to the extent to which it is, or is to be, used for mining purposes in the prescribed period.
Deﬁned in this Act: amount, company, excluded income, income, mining pur- poses, prescribed period Compare: 2004 No 35 s CX 40 Government grants CX 47 Government grants to businesses (1) When this section applies This section applies when— (a) (b) (c) (d) is in the nature of a grant or subsidy; or is a grant-related suspensory loan; and a local authority or a public authority makes a payment to a person for a business that the person carries on; and the payment— (i) (ii) the payment is not in the nature of an advance or loan; and the payment is made to the person in relation to— (i) expenditure that they incur and for which they would be allowed a deduction in the absence of section DF 1 (Government grants to businesses): 393 Part C s CX 48 Income Tax Act 2007 Reprinted as at 5 January 2010 (2) (3) (ii) expenditure that they incur in acquiring, con- structing, installing, or extending an asset for which they have an amount of depreciation loss.
Excluded income The payment is excluded income of the person.

Exclusions This section does not apply to a grant made under the Agri- culture Recovery Programme for the Lower North Island and Eastern Bay of Plenty, to the extent to which the grant relates to expenditure— (a) (b) incurred by the recipient before the grant; and for which the recipient would be allowed a deduction in the absence of section DF 1.
Deﬁned in this Act: amount, business, deduction, depreciation loss, excluded income, grant-related suspensory loan, local authority, pay, public authority Compare: 2004 No 35 s CX 41 Section CX 47(1)(d)(i): substituted (with effect on 1 April 2008), on 6 October 2009, by section 56(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section CX 47(3) heading: substituted (with effect on 1 October 2009), on 6 Oc- tober 2009, by section 56(2) of the Taxation (International Taxation, Life Insur- ance, and Remedial Matters) Act 2009 (2009 No 34).

Section CX 47(3): substituted (with effect on 1 October 2009), on 6 October 2009, by section 56(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section CX 47 list of deﬁned terms large budget screen production grant: repealed (with effect on 1 October 2009), on 6 October 2009, by section 52(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
CX 48 Amounts remitted as condition of new start grant When this section applies This section applies when in an income year of a person— (a) the person carries on a business of— (i) (ii) (iii) (iv) (v) (vi) animal husbandry: poultry-keeping: beekeeping: breeding horses other than bloodstock: horticulture: cropping; and (1) 394 Reprinted as at 5 January 2010 Income Tax Act 2007 Part C s CX 48 (b) (c) (d) (e) (ii) the person is paid a new start grant for the business for an event that is declared to be an emergency event; and the person in carrying on the business— (i) incurs a liability for expenditure or loss before the declaration of the emergency event; and before the date that is 3 months after the end of the period for which the declaration applies, takes the liability into account in calculating the person’s taxable income for an income year; and the liability referred to in paragraph (c)(i) is forgiven or otherwise remitted— (i) as a prerequisite for the payment of the new start grant; and before the date that is 18 months after the end of the period for which the declaration applies; and the amount of the remitted liability is income of the person under section CG 2 (Remitted amounts).
(ii) Excluded income The remitted liability is excluded income of the person to the extent to which it is the greater of zero and the amount calcu- lated using the formula— remitted amount − current loss − loss balance − other loss.
Deﬁnition of items in formula In the formula,— (a) (b) (c) (d) remitted amount is the amount of the remitted liabil- ity: current loss is the net loss that the person would have for the income year in which the liability is remitted in the absence of this section: loss balance is the loss balance that is available to the person for offset against net income for the income year in which the liability is remitted: other loss is a loss that— (i) is incurred by a person associated with the person who receives the new start grant; and (2) (3) (ii) meets the requirements of subsection (4).
Loss incurred by associated person from business or land The loss referred to in subsection (3)(d)— (4) 395 Part C s CX 48 Income Tax Act 2007 Reprinted as at 5 January 2010 (a) (b) (c) (d) is incurred by a person who— (i) carries on or has carried on the business for which the new start grant is paid or owns or has owned an estate in fee simple or leasehold estate in land used in the business; and in the opinion of the Commissioner, is under a substantial degree of control by the person; and in the opinion of the Commissioner, has a sub- stantial identity of interests with the person; and (ii) (iii) the business referred to in paragraph (a)(i): land that is used in the business; and is incurred from— (i) (ii) is, for the income year in which the liability is remit- ted,— (i) a tax loss component of the associated person: a loss balance for the associated person; and (ii) is included in the calculation in subsection (3) to the extent determined by the Commissioner, having regard to the interests of the associated person that are separate from those of the person.
Notice to associated person The Commissioner must give to the associated person notice of a determination under subsection (4)(d).
Deﬁned in this Act: business, capital limitation, deduction, diminished value, emergency event, general limitation, general permission, income, income year, new start grant, notice, pay Compare: 2004 No 35 s CX 41B Section CX 48(1): substituted, on 6 October 2009, by section 57(1) of the Tax- ation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section CX 48 list of deﬁned terms emergency event: inserted, on 6 October 2009, by section 57(2)(b) of the Taxation (International Taxation, Life Insur- ance, and Remedial Matters) Act 2009 (2009 No 34).

Section CX 48 list of deﬁned terms qualifying event: repealed, on 6 October 2009, by section 57(2)(a) of the Taxation (International Taxation, Life Insur- ance, and Remedial Matters) Act 2009 (2009 No 34).
(5) 396 Reprinted as at 5 January 2010 Income Tax Act 2007 Part C s CX 48C CX 48B Issue of post-1989 forest land units [Repealed] Section CX 48B: repealed (with effect on 26 September 2008), on 6 October 2009, by section 58 of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section CX 48B: inserted, on 26 September 2008, by section 70 of the Climate Change Response (Emissions Trading) Amendment Act 2008 (2008 No 85).
Government funding of ﬁlm and television Heading: inserted (with effect on 1 October 2009), on 6 October 2009, by sec- tion 59 of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
CX 48C Government funding additional to government screen production payments (1) When this section applies This section applies when a public authority makes a payment to a person for a project if— (a) the payment is not in the nature of a grant or subsidy; and the payment is not a grant-related suspensory loan; and the person receives a government screen production payment for the project in addition to the payment.

(b) (c) (2) Excluded income The payment is excluded income of the person.
Deﬁned in this Act: excluded income, government screen production payment, grant-related suspensory loan, pay, public authority Section CX 48C: inserted (with effect on 1 October 2009), on 6 October 2009, by section 59 of the Taxation (International Taxation, Life Insurance, and Re- medial Matters) Act 2009 (2009 No 34).
Research and development Heading: inserted (with effect on 1 April 2008), on 6 October 2009, by sec- tion 60(1) of the Taxation (International Taxation, Life Insurance, and Remed- ial Matters) Act 2009 (2009 No 34).

397 Part C s CX 48D Income Tax Act 2007 Reprinted as at 5 January 2010 CX 48D Tax credits for expenditure on research and development The amount of a tax credit that a person has under subpart LH (Tax credits for expenditure on research and development) is excluded income of the person.
Deﬁned in this Act: amount, excluded income, tax credit Section CX 48D: inserted (with effect on 1 April 2008), on 6 October 2009, by section 60(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Superannuation and savings CX 49 Employer’s superannuation contributions An employer’s superannuation contribution is excluded in- come of— (a) the employee for whose beneﬁt the contribution is pro- vided; and the trustees of the superannuation scheme to whom the contribution is made.
(b) Deﬁned in this Act: employee, employer’s superannuation contribution, ex- cluded income, superannuation scheme, trustee Compare: 2004 No 35 s CX 42 CX 50 Tax credits for KiwiSaver and complying superannuation funds An amount paid as a tax credit under subpart MK (Tax credits for KiwiSaver schemes and complying superannuation funds) is excluded income of the person deriving the amount.
Deﬁned in this Act: amount, Commissioner, excluded income, pay, tax credit Compare: 2004 No 35 s CP 1 CX 50B Contributions to retirement savings schemes Excluded income A retirement scheme contribution is excluded income of a per- son if they are— (a) the person for whose beneﬁt the contribution is made to the extent to which the contribution is an amount of— (i) (ii) money: an imputation credit or a Maori authority credit that is used to meet the liability of the retirement (1) 398 Reprinted as at 5 January 2010 Income Tax Act 2007 Part C s CX 51 scheme contributor for RSCT on the contribu- tion: (b) the retirement savings scheme.
(2) Exclusions Subsection (1)(a) does not apply if the person for whose bene- ﬁt the contribution is made— (a) is non-resident, and the contribution is non-resident pas- sive income: supplies to the retirement scheme contributor or the retirement savings scheme, a tax rate applying to the amount of tax withheld that is less than the retirement scheme prescribed rate for the person: includes the amount of the contribution in a return of income for the income year in which the contribution is made.
(b) (c) Deﬁned in this Act: excluded income, income year, non-resident, non-resident passive income, retirement savings scheme, retirement scheme contribution, re- tirement scheme contributor, retirement scheme prescribed rate, return of in- come Compare: 2004 No 35 s CX 42B Section CX 50B: inserted, on 1 April 2008, by section 334 of the Taxation (Busi- ness Taxation and Remedial Matters) Act 2007 (2007 No 109).
Farming, forestry, or ﬁshing CX 51 Income equalisation schemes A refund under section EH 8 (Refund of excess deposit), EH 42 (Refund of excess deposit), or EH 68 (Refund of excess deposit) is excluded income.
Deﬁned in this Act: excluded income Compare: 2004 No 35 s CX 43 Emissions units under Climate Change Response Act 2002 Heading: inserted (with effect on 26 September 2008), on 6 October 2009, by section 61 of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
399 Part C s CX 51B Income Tax Act 2007 Reprinted as at 5 January 2010 CX 51B Disposal of pre-1990 forest land emissions units (1) (2) Who this section applies to This section applies to a person who disposes of a pre-1990 forest land emissions unit other than by surrender.
Excluded income: disposal An amount of income that the person derives from the disposal is excluded income if, at the time of the disposal, the person would not derive income, other than exempt income or ex- cluded income, from a disposal without timber of the pre-1990 forest land to which the emissions unit relates.
Deﬁned in this Act: amount, emissions unit, excluded income, income, pre- 1990 forest land, pre-1990 forest land emissions unit, surrender Section CX 51B: inserted (with effect on 26 September 2008), on 6 October 2009, by section 61 of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Environmental restoration CX 52 Refund from environmental restoration account A refund to a person under section EK 9 (Refund of payment if excess, lacking details) is excluded income of the person.
Deﬁned in this Act: excluded income Compare: 2004 No 35 s CX 43B Inﬂation-indexed instruments CX 53 Credits for inﬂation-indexed instruments When this section applies This section applies when— (a) an amount payable to a person who is a lender for money lent is determined by a ﬁxed relationship to 1 or more indices of general price inﬂation in New Zealand; and an amount on account of an increase in the amount payable is credited to the lender’s account by the bor- rower; and the credit represents a recovery of a decrease, previ- ously debited in account, in the amount payable over a previous period.
(b) (c) (1) 400 Reprinted as at 5 January 2010 Income Tax Act 2007 Part C s CX 55 (2) Excluded income The credit is excluded income of the lender.

Deﬁned in this Act: amount, excluded income, money lent, New Zealand, pay Compare: 2004 No 35 s CX 44 Share-lending arrangements CX 54 Share-lending collateral under share-lending arrangements An amount of share-lending collateral derived by a person under a share-lending arrangement is excluded income of the person.
Deﬁned in this Act: amount, excluded income, share-lending arrangement, share-lending collateral Compare: 2004 No 35 s CX 44B Portfolio investment income CX 55 Proceeds from certain disposals by portfolio investment entities or New Zealand Superannuation Fund (1) What this section applies to This section applies to an amount of income derived by an entity referred to in subsection (1B) from the disposal of a share, other than a non-participating redeemable share, issued by a company— (a) resident in New Zealand and not treated under a double tax agreement as not resident in New Zealand; or resident in Australia and— (i) (b) not treated as resident in a country other than Australia under an agreement between Australia and the other country that would be a double tax agreement if negotiated between New Zealand and the other country; and included in an index that is an approved index under the ASX Market Rules, made under Chap- ter 7 of the Corporations Act 2001 (Aust); and required under the Income Tax Assessment Act 1997 (Aust) and Income Tax Assessment Act 1936 (Aust) to maintain a franking account.
(ii) (iii) 401 Part C s CX 55 Income Tax Act 2007 Reprinted as at 5 January 2010 Entities (1B) The entities referred to in subsection (1) are— a portfolio investment entity: the New Zealand Superannuation Fund: a life insurer in relation to that part of the life insurer that is a portfolio investment-linked life fund.

(a) (b) (c) When this section does not apply (1C) This section does not apply if the entity is assured, under an arrangement with another person, of having a gain on the dis- posal.
Excluded income The amount is excluded income of the portfolio investment entity or the New Zealand Superannuation Fund or life insurer, as applicable.
Deﬁned in this Act: amount, arrangement, company, double tax agreement, excluded income, income, non-participating redeemable share, portfolio invest- ment entity, portfolio investment-linked life fund, resident in Australia, resident in New Zealand, share Compare: 2004 No 35 s CX 44C Section CX 55(1) heading: substituted, on 1 April 2008, by section 335(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section CX 55(1): substituted, on 1 April 2008, by section 335(1) of the Taxa- tion (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section CX 55(1)(b): substituted (with effect on 1 April 2008), on 6 October 2009, by section 62 of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section CX 55(1B) heading: inserted, on 1 April 2008, by section 335(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section CX 55(1B): inserted, on 1 April 2008, by section 335(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section CX 55(1C) heading: inserted, on 1 April 2008, by section 335(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section CX 55(1C): inserted, on 1 April 2008, by section 335(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section CX 55(2): amended, on 1 April 2008, by section 335(2) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section CX 55 list of deﬁned terms portfolio investment-linked life fund: in- serted, on 1 April 2008, by section 335(3) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
(2) 402 Reprinted as at 5 January 2010 Income Tax Act 2007 Part C s CX 56 CX 56 Portfolio investor allocated income and distributions of income by portfolio investment entities (1) Portfolio investor allocated income Portfolio investor allocated income derived under section CP 1 (Portfolio investor allocated income) in a portfolio calculation period in an income year by an investor in a portfolio tax rate entity is excluded income of the investor if— (a) (b) (c) the prescribed investor rate for the investor and the port- folio calculation period is more than zero; and the prescribed investor rate for the investor and the port- folio calculation period is not more than the portfolio investor rate for the investor and the portfolio calcula- tion period when the entity calculates in relation to the portfolio investor allocated income— (i) (ii) the portfolio entity tax liability of the entity; or the amount of a payment under section HL 25 (Optional payments of tax by portfolio tax rate entities) that the entity intends to be a ﬁnal pay- ment of the portfolio entity tax liability of the en- tity in relation to the portfolio investor allocated income; and for a portfolio tax rate entity making payments of tax under section HL 22 (Payments of tax by portfolio tax rate entity making no election), the portfolio investor allocated income is not allocated to a portfolio alloca- tion period that includes part of a portfolio investor exit period for the investor.
(2) (3) Distribution by portfolio tax rate entities An amount of income derived by an investor as a distribution or dividend of a portfolio tax rate entity is excluded income of the investor.
Distribution by portfolio investment entity that is not portfolio tax rate entity An amount of income derived in an income year by an investor as a distribution or dividend of a portfolio listed company is— excluded income of the investor, if the investor is a New (a) Zealand resident who— (i) is a natural person or a trustee; and 403 Part C s CX 56 Income Tax Act 2007 Reprinted as at 5 January 2010 (ii) does not include the amount as income in a return of income for the income year: (b) excluded income of the investor, if paragraph (a) does not apply, to the extent to which the amount of the dis- tribution is more than the total of the following: (i) the amount of the distribution that is fully im- puted as described in section RF 9(2) (When divi- dends fully imputed or fully credited): the amount of the distribution that is fully cred- ited for FDP as described in section RF 9(4).
(ii) When trustees choose 19.5% portfolio investor rate Subsection (1) does not apply in relation to portfolio investor allocated income derived by a trustee who has chosen a port- folio investor rate of 19.5%.
Deﬁned in this Act: amount, distribution, dividend excluded income, income, income year, investor, New Zealand resident, portfolio investment entity, port- folio investor allocated income, portfolio listed company, portfolio rate port- folio tax rate entity, prescribed investment rate, return of income, zero-rated investor Compare: 2004 No 35 s CX 44D Section CX 56(1) heading: substituted, on 1 April 2008, by section 336(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section CX 56(1): substituted, on 1 April 2008, by section 336(1) of the Taxa- tion (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section CX 56(2): amended, on 1 April 2008, by section 336(2) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section CX 56(3): amended, on 1 April 2008, by section 336(3) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section CX 56(3)(a)(i): substituted, on 1 April 2008, by section 336(4) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section CX 56(4) heading: added (with effect on 1 April 2009), on 6 October 2009, by section 64 of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section CX 56(4): added (with effect on 1 April 2009), on 6 October 2009, by section 64 of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section CX 56 list of deﬁned terms dividend: substituted, on 1 April 2008, by section 336(5) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
(4) 404 Reprinted as at 5 January 2010 Income Tax Act 2007 Part C s CX 59 CX 57 Credits for certain fees by portfolio tax rate entities (1) (2) When this section applies This section applies when a credit for fees is allocated to an investor as a member of a portfolio investor class by a portfolio tax rate entity and the credit is included in the calculation of the entity’s portfolio entity tax liability under section HL 21 (Portfolio entity tax liability and tax credits of portfolio tax rate entity for period) for the investor, the portfolio investor class, and a portfolio calculation period.
Excluded income The amount is excluded income of the investor.

Deﬁned in this Act: amount, excluded income, investor, portfolio calculation period, portfolio entity tax liability, portfolio investor class, portfolio tax rate entity Compare: 2004 No 35 s CX 44E Minors’ beneﬁciary income CX 58 Amounts derived by minors from trusts To the extent to which section HC 35 (Beneﬁciary income of minors) applies to an amount of beneﬁciary income, the amount is excluded income of the minor.
Deﬁned in this Act: amount, beneﬁciary income, excluded income, minor Compare: 2004 No 35 ss HH 3A–3F CX 59 Taxable distributions from non-complying trusts An amount that a person derives in an income year as a taxable distribution from a non-complying trust under section HC 19 (Taxable distributions from non-complying trusts) is excluded income of the person.
Deﬁned in this Act: amount, exempt income, income year, non-complying trust, taxable distribution Compare: 2004 No 35 s HH 3(4) 405 Part C s CX 60 Income Tax Act 2007 Reprinted as at 5 January 2010 Transactions between companies in consolidated groups CX 60 Intra-group transactions (1) (2) When this section applies This section applies for the purposes of section FM 8 (Trans- actions between group companies: income) when a company that is part of a consolidated group derives an amount from a transaction or arrangement with another company that is part of the same group and the amount would not be income if the group were 1 company.
Excluded income The amount is excluded income of the company.

Deﬁned in this Act: amount, company, consolidated group, excluded income, income Compare: 2004 No 35 s HB 2(1)(a) Avoidance arrangements CX 61 Avoidance arrangements An amount is excluded income if it is treated as excluded in- come under— (a) (b) Deﬁned in this Act: amount, excluded income Compare: 2004 No 35 ss GB 1(1)–(2C), GD 3(1), (2) section GA 1 (Commissioner’s power to adjust): section GB 23 (Excessive remuneration to relatives).
Partners and partnerships Heading: added, on 1 April 2008, by section 9(1) of the Taxation (Limited Partnerships) Act 2008 (2008 No 2).

CX 62 Amounts of excluded income for partners A person who is a partner has an amount of excluded income to the extent to which an amount of excluded income results from the application of subpart HG (Joint venturers, partners, and partnerships) to them and their partnership.
Deﬁned in this Act: amount, excluded income, partner, partnership Section CX 62: added, on 1 April 2008, by section 9(1) of the Taxation (Limited Partnerships) Act 2008 (2008 No 2).

406 Reprinted as at 5 January 2010 Income Tax Act 2007 Part C s CZ 2 Subpart CZ—Terminating provisions CZ 1 Share purchase agreement income before 19 July 1968 In sections CE 1 to CE 4 (which relate to employment income), share purchase agreement does not include any agreement entered into before 19 July 1968.
Deﬁned in this Act: share purchase agreement Compare: 2004 No 35 s CZ 1 CZ 2 Mining company’s 1970–71 tax year (1) (2) When this section applies This section applies when— (a) section 152 or 153 of the Land and Income Tax Act 1954 (as in force before the commencement of section 153F of the Act) applied to a mining company for the 1970–71 tax year; and the company acquires an asset by incurring the explor- ation expenditure or development expenditure referred to in section 27(3)(a) of the Land and Income Tax Amendment Act 1971.
Application of subpart CU The provisions of subpart CU (Income from mineral mining) apply, with any necessary modiﬁcations, as follows: (a) section CU 3 (Disposal of assets) applies to the com- pany as if every reference in the section to an asset in- cluded a reference to an asset of the kind described in subsection (1)(b) that the company disposes of in the 1971–72 tax year or a later tax year: section CU 3 applies to a person who acquires an as- set of the kind described in subsection (1)(b) from the company as if every reference in the section to an asset included a reference to such an asset that the person ac- quires in the 1971–72 tax year or a later tax year: section CU 10 (Mining asset used to derive income other than income from mining) applies to the company as if every reference in the section to an asset included a reference to an asset of the kind described in subsec- tion (1)(b) that the company uses, wholly or mainly, to (b) (b) (c) 407 Part C s CZ 3 Income Tax Act 2007 Reprinted as at 5 January 2010 (3) derive income other than income from mining in the 1971–72 tax year or a later tax year.
Resident and non-resident mining operators This section applies, with any necessary modiﬁcations, to an asset of the kind referred to in paragraph (i) of item “a” of the formula in section 31(3) of the Land and Income Tax Amend- ment Act (No 2) 1972 that a resident mining operator acquires or that a non-resident mining operator acquires.
Deﬁned in this Act: income, income from mining, mining company, non-resi- dent mining operator, resident mining operator, tax year Compare: 2004 No 35 s CZ 2 CZ 3 Exchange variations on 8 August 1975 When this section applies This section applies when— (a) a person carrying on a business in New Zealand— (i) receives a loan in 2 or more instalments for the purposes of the business; or (ii) makes a loan in 2 or more instalments in the course of carrying on the business; and (b) (c) an exchange variation arises in relation to the whole or partial repayment of the loan; and the person derives an amount or incurs a loss through the exchange variation.
Income or deduction The amount derived is income of the person and the loss in- curred is a deduction that they are allowed.

Instalments and repayments For the purposes of this section, unless the terms of the loan expressly provide otherwise,— (a) (b) each instalment is treated as a separate loan; and repayments are applied so that the separate loans are repaid in the order in which they were received.
Exclusion This section does not apply to a ﬁnancial arrangement to which the ﬁnancial arrangements rules apply.
Some deﬁnitions In this section,— (1) (2) (3) (4) (5) 408 Reprinted as at 5 January 2010 Income Tax Act 2007 Part C s CZ 3 exchange variation, for the repayment of some or all of the loan, excluding interest, means a variation by virtue of a ﬂuc- tuation in the value of the currency or currencies of 1 or more countries other than New Zealand in relation to New Zealand currency, that occurs between— (a) the amount of the repayment expressed in New Zealand currency at the time at which the repayment was made; and the amount expressed in New Zealand currency that would have been required to make that repayment on or at the later of 8 August 1975 and the time at which the loan was ﬁrst made (b) loan means,— (a) for money lent, to a person, on or after 1 January 1974 and on or before 22 January 1985, money that— (i) was lent with the consent of the Minister under the Capital Issues (Overseas) Regulations 1965 or the Overseas Investment Regulations 1974 or with the consent of the Reserve Bank under the Exchange Control Regulations 1978, as applic- able; and (b) (c) (ii) was lent in a currency other than New Zealand currency; and (iii) was expressed to be repayable in a currency other than New Zealand currency: for money lent, by a person, on or after 1 January 1974 and on or before 22 January 1985, money that— (i) was lent with the consent of the Reserve Bank under the Exchange Control Regulations 1978 if required; and (ii) was expressed to be repayable in a currency other than New Zealand currency: for money lent,
 to a person, on or after 23 January 1985, money that— (i) is lent in a currency other than New Zealand cur- rency; and is expressed to be repayable in a currency other than New Zealand currency: (ii) 409 Part C s CZ 4 Income Tax Act 2007 Reprinted as at 5 January 2010 (d) in relation to money lent, by a person, on or after 23 January 1985, money that is expressed to be repayable in a currency other than New Zealand currency.
Deﬁned in this Act: amount, business, deduction, exchange variation, ﬁnan- cial arrangement, ﬁnancial arrangements rules, income, loan, money lent, New Zealand, pay Compare: 2004 No 35 s CZ 3 CZ 4 Mineral mining: company making loan before 1 April 1979 (1) (2) When this section applies This section applies when sections CU 17 to CU 19 (which re- late to the repayment by a mining company of an amount writ- ten off) would have applied to a loan by a company to another company made on or before 31 March 1979 if the Income Tax Amendment Act 1979 had not been enacted.
Application of sections CU 17 to CU 19 The sections apply, as far as applicable, to such a loan as if section 45 of the Income Tax Amendment Act 1979 were the only provision of it that had been enacted.
Deﬁned in this Act: company, mineral Compare: 2004 No 35 s CZ 4 CZ 5 Exempt interest: overseas money lent to government or local or public authority before 29 July 1983 Exempt income Amounts that a non-resident derives are exempt income if they are derived from— (a) stock or debentures issued before 29 July 1983 by the government of New Zealand or by a local authority or a public authority, the interest on which is payable out of New Zealand; or loans entered into before 29 July 1983, the interest on which was to be exempt from income tax in New Zealand under an agreement or arrangement made with the government of New Zealand.
(b) (1) 410 Reprinted as at 5 January 2010 Income Tax Act 2007 Part C s CZ 7 (2) Application posted or received before 29 July 1983 For the purposes of subsection (1)(b), a loan entered into on or after 29 July 1983 is treated as having been entered into before that date if an exemption of a kind referred to in that provision was authorised as a result of an application received by or posted to the government of New Zealand before 29 July 1983.
Deﬁned in this Act: amount, arrangement, debenture, exempt income, income tax, interest, local authority, money lent, New Zealand, non-resident, pay, pub- lic authority Compare: 2004 No 35 s CZ 5 CZ 6 Commercial bills before 31 July 1986 (1) (2) Income: redemption The amount that a person receives on the redemption of a com- mercial bill owned by the person is income of the person.

Income: disposal The value of a commercial bill on the day its owner disposes of it is income of the owner.
This subsection does not apply if the disposal is a transfer under a relationship agreement.
Deﬁned in this Act: amount, commercial bill, income, relationship agreement Compare: 2004 No 35 s CZ 6 CZ 7 Primary producer co-operative companies: 1987–88 income year (1) Income: sale of asset If a primary producer co-operative company disposes of an asset for which the company was allowed a deduction under section 200 of the Income Tax Act 1976 for the 1987–88 in- come year or an earlier income year, the company is treated as deriving income in the income year of disposal of an amount equal to the lesser of— (a) the total of all deductions relating to the asset that were allowed under section 200; and the amount that the company derived from the disposal of the asset.
(b) 411 Part C s CZ 7 Income Tax Act 2007 Reprinted as at 5 January 2010 Income: payments to shareholders If a primary producer co-operative company has been allowed a deduction under section 200 for the 1987–88 income year or an earlier income year, and a payment has been made to a shareholder of the company either on the surrender of any of their shares or on the liquidation of the company, part of the payment is treated as income of the shareholder.
The part that is income is determined under subsection (3).

Amounts attributable to deductions The part of the payment that is treated as income is only such part as— (a) is more than the available subscribed capital per share calculated under the slice rule of the shares surrendered or held on liquidation by the shareholder; and is attributable to an increase in the value of the com- pany’s assets that was caused by the company applying or appropriating a deduction allowed under section 200.
(b) Some deﬁnitions In this section,— primary producer co-operative company means a company that, at the end of the 1987–88 income year,— (a) was a primary producer co-operative company, as de- ﬁned in section 200(1) and (9); and (b) could qualify for a deduction under section 200(4) section 200 means section 200 of the Income Tax Act 1976 as it was in force before it was repealed by section 41(1) of the Income Tax Amendment Act (No 5) 1988 (which, in general, allowed primary producer co-operative companies to claim a deduction for proﬁts that were reinvested in certain deﬁned primary produce activities and assets).
Deﬁned in this Act: amount, available subscribed capital, income, income year, liquidation, pay, primary producer co-operative company, section 200, share, shareholder, slice rule Compare: 2004 No 35 s CZ 7 (2) (3) (4) 412 Reprinted as at 5 January 2010 Income Tax Act 2007 Part C s CZ 9 CZ 8 Farm-out arrangements for petroleum mining before 16 December 1991 (1) (2) Excluded income Excess expenditure under a farm-out arrangement entered into before 16 December 1991 is excluded income of the transferor.
Some deﬁnitions In subsection (1), excess expenditure, farm-out arrange- ment, and transferor have the same meanings as in section 214D of the Income Tax Act 1976 immediately before its re- peal by section 15 of the Income Tax Amendment Act (No 5) 1992.
Deﬁned in this Act: excess expenditure, excluded income, farm-out arrange- ment, transferor Compare: 2004 No 35 s CZ 8 CZ 9 Available capital distribution amount: 1965 and 1985–1992 (1) Section CD 44(7)(e) For the purposes of section CD 44(7)(e) (Available capital dis- tribution amount), a company derives a capital gain amount if— (a) before 1 April 1988, a net proﬁt or gain was derived by the company to which section 4(5) of the Income Tax Act 1976, and not section 4(5A) of the Income Tax Act 1976, applied immediately before those provisions were repealed by section 31(1) of the Income Tax Amend- ment Act (No 5) 1988; or an amount is derived by the company that is attributable to— (i) (b) (ii) (iii) a deduction allowed in the 1985–86 or 1986–87 tax year for livestock under section 86E of the Income Tax Act 1976; or a revaluation of livestock in any of the 1986–87 to 1991–92 tax years under section 86A of the Income Tax Act 1976; or a deduction allowed in the 1988–89 tax year for the revaluation of trading stock of wine, brandy, and whisky under section 87A of the Income Tax Act 1976.
413 Part C s CZ 10 Income Tax Act 2007 Reprinted as at 5 January 2010 (2) Section CD 44(14)(b) For the purposes of section CD 44(14)(b),— (a) the amount has been excluded by section 4(3) of the Land and Income Tax Act 1954 from treatment as a dividend; or the issue has been excluded by section 3(3) of the In- come Tax Act 1976 from treatment as a bonus issue.
Deﬁned in this Act: amount, bonus issue, company, dividend, trading stock Compare: 2004 No 35 s CZ 9 (b) CZ 10 Transitional relief for calculation of attributed repatriation dividends: 2 July 1992 Loans made by CFC to intermediary before 2 July 1992 Subsection (2) applies for the purposes of calculating at- tributed repatriation from a controlled foreign company (CFC) to the extent to which— (a) the CFC made a loan before 8.00 pm New Zealand standard time on 2 July 1992; and the loan enabled another person (the intermediary) to make a loan to a New Zealand resident associated with the CFC; and the loan is not a loan that is an arrangement subject to section GB 8 (Arrangements involving attributed repat- riation from CFCs); and the New Zealand resident associated person repays the intermediary and the intermediary repays the CFC; and the CFC uses the proceeds to make a loan directly to the New Zealand resident associated person.
(b) (c) (d) (e) Loan to associate: treated as existing for whole accounting period The loan to the New Zealand resident associated person is treated as if it were in existence at the start of the account- ing period of the CFC in which it is in fact made.
Property acquired under contract binding before 2 July 1992 Subsection (4) applies for the purposes of calculating at- tributed repatriation from a CFC if the CFC— (a) acquires any property (including an amount accruing on a ﬁnancial arrangement) under a binding contract (1) (2) (3) 414 Reprinted as at 5 January 2010 Income Tax Act 2007 Part C s CZ 12 entered into before 8.00 pm New Zealand standard time on 2 July 1992; and the acquisition is not as a result of any voluntary action taken by the CFC after that time.
(b) Acquired property: treated as existing for whole accounting period The property is treated as if it were held by the CFC at the start of the accounting period of the CFC in which it is in fact acquired.
Deﬁned in this Act: accounting period, arrangement, associated person, at- tributed repatriation, CFC, controlled foreign company, ﬁnancial arrangement, New Zealand, New Zealand resident, pay Compare: 2004 No 35 s CZ 10 (4) CZ 11 Recovery of deductions for software acquired before 1 April 1993 (1) (2) (3) What this section applies to This section applies to any of the following items for the ac- quisition of which a person was allowed a deduction before 1 April 1993: (a) (b) (c) the copyright in software: the right to use the copyright in software: the right to use software.
Income An amount derived from the disposal of the item is income.

Relationship with sections EE 44 to EE 52 and EZ 20 Sections EE 44 to EE 52 (which relate to disposals and similar events) apply to the item.

Section EZ 20 (Adjusted tax value for software acquired before 1 April 1993) deals with the ad- justed tax value of the item.
Deﬁned in this Act: adjusted tax value, amount, income Compare: 2004 No 35 s CZ 11 CZ 12 General insurance with risk period straddling 1 July 1993 When this section applies This section applies when— (1) 415 Part C s CZ 13 Income Tax Act 2007 Reprinted as at 5 January 2010 (a) (b) (c) a company carries on a business of providing general insurance or guarantees against loss, damage, or risk, immediately before and on 1 July 1993; and the company holds a reinsurance contract for the general insurance that covers a period of risk starting before 1 July 1993 and ending after 1 July 1993; and the company pays the premiums under the contract out- side New Zealand.
Income An amount derived by the company from a claim under the reinsurance contract is income of the company if the event giving rise to the claim occurs on or after 1 July 1993.

Timing The income is allocated to the income year in which the event giving rise to the claim occurs.
Deﬁned in this Act: amount, business, company, general insurance, income, income year, New Zealand, pay, reinsurance contract Compare: 2004 No 35 s CZ 12 (2) (3) CZ 13 Treatment of units and interests in unit trusts and group investment funds on issue as at 1 April 1996 Units and interests in unit trusts and group investment funds All units in a unit trust and interests in a group investment fund on issue on 1 April 1996 are treated, on and from that date, as not having been issued on terms that their redemption would be subject to the slice rule.
Election made for units or interests All units or interests to which subsection (1) applies and for which an election has been made relying on paragraph (c) of the deﬁnition of the term shares of the same class in section YA 1 (Deﬁnitions) are treated on and from 1 April 1996 as if the election made in reliance upon paragraph (c) had never been made.
Exclusion This section does not apply to a unit or interest if the manager or trustee of the unit trust or group investment fund so chooses, by giving notice to the Commissioner before 1 April 1996, in which case the relevant unit or interest is treated, on and from 1 (1) (2) (3) 416 Reprinted as at 5 January 2010 Income Tax Act 2007 Part C s CZ 15 April 1996, as having been issued on terms that its redemption would be subject to the slice rule.
Deﬁned in this Act: Commissioner, group investment fund, notice, shares of the same class, slice rule, trustee, unit trust Compare: 2004 No 35 s CZ 13 CZ 14 Treatment of superannuation fund interests in group investment funds on 1 April 1999 (1) (2) (3) When this section applies This section applies when a superannuation fund has an inter- est in a group investment fund on 1 April 1999.
Exclusions from dividends Section CD 22(4) (Returns of capital: off-market share can- cellations) does not apply to the interest.

Trustee’s election If a trustee of a group investment fund chose on or before 31 March 1999 to treat a superannuation fund interest in a group investment fund as subject to section CD 22(4),— (a) (b) subsection (2) does not apply to the interest: section CD 22(2) applies to the interest on and after 1 April 1999.
Deﬁned in this Act: dividend, group investment fund, interest, superannuation fund, trustee Compare: 2004 No 35 s CZ 14 CZ 15 Accident insurance contracts before 1 July 2000 A premium or contribution referred to in section CX 16(2) (Contributions to life or health insurance) is— (a) a premium or contribution paid for an accident insur- ance contract, as deﬁned in section 13 of the Accident Insurance Act 1998, that was in force before 1 July 2000; or a premium or contribution paid for a contract to which section 188(1)(a) of that Act applied, to the extent to which it related to cover and entitlements for work-re- lated personal injury, that was in force before 1 July 2000.
(b) Deﬁned in this Act: contribution, pay Compare: 2004 No 35 s CZ 15 417 Part C s CZ 16 Income Tax Act 2007 Reprinted as at 5 January 2010 CZ 16 Interest payable to exiting company: 2001 Interest payable under schedule 4, clause 12 of the Dairy In- dustry Restructuring Act 2001 to an exiting company, as de- ﬁned in section 5 of the Act, as a result of a buy-out of the company’s interests in the New Zealand Dairy Board is ex- empt income.
Deﬁned in this Act: exempt income, interest, pay Compare: 2004 No 35 s CZ 16 CZ 17 Dividend of exiting company: 2001 If an exiting company, as deﬁned in section 5 of the Dairy Industry Restructuring Act 2001, derives a dividend as a re- sult of a buy-out of the company’s interests in the New Zealand Dairy Board under schedule 4 of the Act, the dividend is ex- empt income.
Deﬁned in this Act: dividend, exempt income Compare: 2004 No 35 s CZ 17 CZ 18 Beneﬁt provider approved within 6 months of 25 November 2003 When this section applies This section applies when a person (the provider)— (a) an incorporated body; or a trustee; and is— (i) (ii) provides accident insurance, health insurance, life in- surance, or other health and welfare beneﬁts to natural persons (the recipients); and either— (i) was approved as a sickness, accident, or death beneﬁt fund by the Commissioner on or before 24 November 2003; or administers a fund that was approved as a sick- ness, accident, or death beneﬁt fund by the Com- missioner on or before 24 November 2003; and has been approved by the Commissioner as an organ- isation that the Commissioner considers operates on the principles of mutuality for recipients— (ii) (b) (c) (d) (1) 418 Reprinted as at 5 January 2010 Income Tax Act 2007 Part C s CZ 19 (i) (ii) within the 6 months starting on 25 November 2003; or in a further period allowed by the Commissioner, if the provider satisﬁes the Commissioner that the provider was not aware of the requirement for the Commissioner’s approval in sufﬁcient time to obtain the approval under subparagraph (i).
(2) Exempt income An amount derived by a provider is exempt income if— (a) the amount is not derived from a business carried on by the provider beyond the circle of the recipients; and each of the recipients is— (i) (b) a beneﬁciary of the trust for which the provider is the trustee: a member of the provider: a member of an organisation that directly or in- directly controls the provider: a relative of a person described in any of subpara- graphs (i) to (iii).
(ii) (iii) (iv) Deﬁned in this Act: amount, business, Commissioner, exempt income, life in- surance, relative, sickness, accident, or death beneﬁt fund, trustee Compare: 2004 No 35 s CZ 18 CZ 19 Community trust receipts in 2004–05 or 2005–06 tax year An amount of income derived by a trustee or company is ex- empt income if— (a) the amount would be exempt income under section CW 41 (Charities: non-business income) or CW 42 (Char- ities: business income) but for the trustee or company making a dividend, distribution, or settlement to a com- munity trust in the 2004–05 or 2005–06 tax year on the winding up of the trust or company; and either— (i) the corpus of the trust was provided by the com- munity trust; or (b) 419 Part C s CZ 20 Income Tax Act 2007 Reprinted as at 5 January 2010 (ii) the company is wholly owned by the community trust.
Deﬁned in this Act: amount, community trust, company, corpus, dividend, ex- empt income, income, tax year, trustee Compare: 2004 No 35 s CZ 19 CZ 20 Disposal of personal property lease asset under speciﬁed lease (1) (2) (3) (4) When this section applies This section applies for the purposes of section FZ 2 (Effect of speciﬁed lease on lessor and lessee) when a personal prop- erty lease asset that is leased under a speciﬁed lease is sold, assigned or leased on or after the term of the lease.
Income of lessor: when lease ends before term The amount of the excess described in section FZ 2(5)(c) is treated as income derived by the lessor in the income year in which the lease is terminated.

Income of lessor: when lease ends The amount of the excess described in section FZ 2(7) is treated as income derived by the lessor in the income year in which the term of the lease ends.
Income of lessee The amount of the excess described in section FZ 2(8) is in- come of the lessee in the income year in which the asset is disposed of.
Deﬁned in this Act: amount, income year, lessee, lessor, personal property lease asset, speciﬁed lease, term of the lease Compare: 2004 No 35 s FC 6(7), (8) CZ 21 Superannuation fund loans made to members before 1 April 1989 When this section applies This section applies for the purposes of section CS 18 (Value of loan treated as fund income) in the case of a loan made by a superannuation fund to a member if— (a) (b) it was made before 1 April 1989; and the rate of interest payable on the loan cannot be re- viewed.
(1) 420 Reprinted as at 5 January 2010 Income Tax Act 2007 Part C s CZ 22 (2) Prescribed rate of interest varied The prescribed rate of interest is treated as being— (a) the non-concessionary rate of interest for the tax year in which the loan agreement was signed or, if not in writing, agreed to by all parties, in the case of a loan made before 1 April 1985: the prescribed rate of interest for the quarter in which the loan agreement was signed or, if not in writing, agreed to by all parties, in any other case.
(b) Deﬁned in this Act: interest, member, non-concessionary rate of interest, pay, prescribed rate of interest, quarter, superannuation fund, tax year Compare: 2004 No 35 s GD 6(3) CZ 22 Geothermal wells between 31 March 2003 and 17 May 2006 When this section applies This section applies to a person’s geothermal well when— (a) the well is— (i) both started and completed between 31 March 2003 and 17 May 2006: acquired between 31 March 2003 and 17 May 2006; and (ii) (ii) (b) the person— (i) uses the well, or has the well available for use, after the end of the well’s geothermal energy proving period in deriving income or carrying on a business for the purpose of deriving income: disposes of the well.
Income: using well For a person to whom subsection (1)(b)(i) applies, the person has, for the ﬁrst income year in which this section applies, an amount of income equal to the total amount of deductions that the person is allowed for the well under section DZ 7 of the Income Tax Act 1994, section DZ 15 of the Income Tax Act 2004, and section DZ 16 (Geothermal wells between 31 March 2003 and 17 May 2006) for all income years.
421 (1) (2) Part D s DA 1 Income Tax Act 2007 Reprinted as at 5 January 2010 (3) Income: disposing of well For a person to whom subsection (1)(b)(ii) applies, the person has, for the ﬁrst income year in which this section applies, an amount of income equal to the lesser of— (a) (b) the amount derived from disposing of the well; and the total amount of deductions that the person is allowed for the well under section DZ 7 of the Income Tax Act 1994, section DZ 15 of the Income Tax Act 2004, and section DZ 16 for all income years.
Deﬁned in this Act: amount, business, deduction, dispose, geothermal energy proving period, geothermal well, income, income year Compare: 2004 No 35 s CZ 20 Part D Deductions Subpart DA—General rules DA 1 General permission (1) Nexus with income A person is allowed a deduction for an amount of expenditure or loss, including an amount of depreciation loss, to the extent to which the expenditure or loss is— incurred by them in deriving— (a) (i) (ii) (iii) their assessable income; or their excluded income; or a combination of their assessable income and ex- cluded income; or (b) incurred by them in the course of carrying on a business for the purpose of deriving— (i) (ii) (iii) their assessable income; or their excluded income; or a combination of their assessable income and ex- cluded income.
General permission Subsection (1) is called the general permission.

(2) 422 Reprinted as at 5 January 2010 Income Tax Act 2007 Part D s DA 2 (3) Avoidance arrangements Section GB 33 (Arrangements involving depreciation loss) may apply to override the general permission in relation to an amount of depreciation loss.
Deﬁned in this Act: amount, assessable income, business, deduction, depreci- ation loss, excluded income, general permission, loss Compare: 2004 No 35 s DA 1 DA 2 General limitations (1) (2) (3) (4) (5) (6) Capital limitation A person is denied a deduction for an amount of expenditure or loss to the extent to which it is of a capital nature.

This rule is called the capital limitation.


Private limitation A person is denied a deduction for an amount of expenditure or loss to the extent to which it is of a private or domestic nature.

This rule is called the private limitation.

Exempt income limitation A person is denied a deduction for an amount of expenditure or loss to the extent to which it is incurred in deriving exempt income.

This rule is called the exempt income limitation.


Employment limitation A person is denied a deduction for an amount of expenditure or loss to the extent to which it is incurred in deriving income from employment.

This rule is called the employment limi- tation.


Withholding tax limitation A person is denied a deduction for an amount of expenditure or loss to the extent to which it is incurred in deriving non- resident passive income of the kind referred to in section RF 2(3) (Non-resident passive income).

This rule is called the withholding tax limitation.
Non-residents’ foreign-sourced income limitation A person is denied a deduction for an amount of expenditure or loss to the extent to which it is incurred in deriving non- residents’ foreign-sourced income.

This rule is called the non- residents’ foreign-sourced income limitation.

423 Part D s DA 3 Income Tax Act 2007 Reprinted as at 5 January 2010 (7) Relationship of general limitations to general permission Each of the general limitations in this section overrides the general permission.
Deﬁned in this Act: amount, capital limitation, deduction, employment limi- tation, exempt income, exempt income limitation, general limitation, general permission, income from employment, loss, non-residents’ foreign-sourced income, non-residents’ foreign-sourced income limitation, private limitation, withholding tax limitation Compare: 2004 No 35 s DA 2 DA 3 Effect of speciﬁc rules on general rules Supplements to general permission A provision in any of subparts DB to DZ may supplement the general permission.
In that case, a person to whom the provi- sion applies does not have to satisfy the general permission to be allowed a deduction.

Express reference needed to supplement A provision in any of subparts DB to DZ takes effect to sup- plement the general permission only if it expressly states that it supplements the general permission.
Relationship of general limitations to supplements to general permission Each of the general limitations overrides a supplement to the general permission in any of subparts DB to DZ, unless the provision creating the supplement expressly states otherwise.

Relationship between other speciﬁc provisions and general permission or general limitations A provision in any of subparts DB to DZ may override any 1 or more of the general permission and the general limitations.
Express reference needed to override A provision in any of subparts DB to DZ takes effect to over- ride the general permission or a general limitation only if it expressly states that— (a) it overrides the general permission or the relevant limi- tation; or the general permission or the relevant limitation does not apply.
(b) (1) (2) (3) (4) (5) 424 Reprinted as at 5 January 2010 Income Tax Act 2007 Part D s DB 1 (6) Part E No provision in Part E (Timing and quantifying rules) supple- ments the general permission or overrides the general permis- sion or a general limitation.
Deﬁned in this Act: deduction, general limitation, general permission, supple- ment Compare: 2004 No 35 s DA 3 DA 4 Treatment of amount of depreciation loss The capital limitation does not apply to an amount of depre- ciation loss merely because the item of property is itself of a capital nature.
Deﬁned in this Act: amount, capital limitation, depreciation loss Compare: 2004 No 35 s DA 4 Subpart DB—Speciﬁc rules for expenditure types Taxes DB 1 Taxes, other than GST, and penalties (1) No deduction A person is denied a deduction for the following: (a) (b) income tax: a tax imposed in a country or territory outside New Zealand that is substantially the same as income tax: ancillary tax, unless listed in subsection (2): a civil penalty under Part 9 of the Tax Administration Act 1994: a tax, a penalty, or interest on unpaid tax that is— (i) (c) (d) (e) payable under the laws of a country or territory outside New Zealand; and substantially the same as a civil penalty as de- ﬁned in section 3(1) of the Tax Administration Act 1994, or a criminal penalty under Part 9 of the Act, or interest imposed under Part 7 of the Act.
(ii) (2) Some ancillary tax excluded Subsection (1) does not apply to— pay-as-you-earn (PAYE): (a) 425 Part D s DB 2 Income Tax Act 2007 Reprinted as at 5 January 2010 (b) (c) (d) (e) fringe beneﬁt tax (FBT): employer’s superannuation contribution tax (ESCT): resident withholding tax (RWT): non-resident withholding tax (NRWT).

(3) Link with subpart DA This section overrides the general permission.
Deﬁned in this Act: ancillary tax, deduction, ESCT, FBT, general permission, income tax, New Zealand, NRWT, pay, PAYE, RWT, tax Compare: 2004 No 35 s DB 1 DB 2 Goods and services tax No deduction A registered person is denied a deduction for the following: (a) (b) input tax on a supply of goods or services to them: goods and services tax (GST) payable by them to the Commissioner.
Deduction A registered person is allowed a deduction for output tax on a supply of goods or services that section 21 or 21I(1) to (3) of the Goods and Services Tax Act 1985 treats them as making, but only to the extent to which— (a) they are allowed a deduction for expenditure that they incur in acquiring or producing the goods or services; or they are allowed a deduction for an amount of depreci- ation loss for the goods or services.
(b) Exclusion Subsection (2) does not apply to an amount that relates to the application of a capital asset— (a) for the principal purpose of making taxable supplies, when the asset was acquired or produced other than for the principal purpose of making taxable supplies; or other than for the principal purpose of making taxable supplies, when the asset was acquired or produced for the principal purpose of making taxable supplies; or other than for the purpose of deriving income.
(b) (c) (1) (2) (3) 426 Reprinted as at 5 January 2010 Income Tax Act 2007 Part D s DB 3 (4) (5) Depreciable property The provisions that apply when an amount of depreciation loss is quantiﬁed by reference to the cost of an item of depreciable property to a person are in section EE 54 (Cost: GST).
Link with subpart DA The link between this section and subpart DA (General rules) is as follows: (a) (b) subsection (1) overrides the general permission: subsection (2) supplements the general permission; the general limitations still apply.
Deﬁned in this Act: amount, Commissioner, deduction, depreciable property, depreciation loss, general limitation, general permission, goods, GST, GST payable, income, input tax, output tax, pay, registered person, services, sup- plement, taxable supply Compare: 2004 No 35 s DB 2 Section DB 2(2): amended (with effect on 1 April 2008), on 7 December 2009, by section 10 of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
DB 3 Determining tax liabilities (1) Deduction A person is allowed a deduction for expenditure that they incur in connection with the following matters: (a) calculating or determining their income tax liability for a tax year: calculating or determining the GST payable by them in a taxable period: preparing, instituting, or presenting an objection or challenge to, or an appeal following, a determination or assessment made under this Act or an earlier Act, the Tax Administration Act 1994, or the Goods and Services Tax Act 1985: (b) (c) (d) making a contribution towards the expenditure incurred by another person if— (i) (ii) the other person is allowed a deduction for that expenditure; and the expenditure relates to a matter affecting the determination of the ﬁrst person’s liability for in- come tax or GST; and 427 Part D s DB 3 Income Tax Act 2007 Reprinted as at 5 January 2010 (iii) the ﬁrst person has objected to, challenged, or appealed against an assessment or determination made in relation to the matter under this Act or an earlier Act, the Tax Administration Act 1994, or the Goods and Services Tax Act 1985.
Exclusions This section does not apply to expenditure that a person incurs in connection with the following matters: (a) a matter arising from a return of income or a return under the Goods and Services Tax Act 1985 that was fraudulent or wilfully misleading: an offence under any of the Inland Revenue Acts: a shortfall penalty assessed under this Act or an earlier Act, the Tax Administration Act 1994, or the Goods and Services Tax Act 1985 (but not an assessment that is later cancelled): an objection, challenge, or appeal that is inconsequen- tial or frivolous: a matter arising under the Goods and Services Tax Act 1985 to the extent to which it relates to a taxable activity that does not constitute a business for the purposes of this Act.
(b) (c) (d) (e) Taxable activity In this section, taxable activity is deﬁned in section 6 of the Goods and Services Tax Act 1985.

Link with subpart DA This section supplements the general permission and overrides the capital limitation, the private limitation, and the employ- ment limitation.

The other general limitations still apply.
Deﬁned in this Act: amount, assessment, business, capital limitation, deduc- tion, employment limitation, general limitation, general permission, GST, GST payable, income tax liability, Inland Revenue Acts, pay, private limitation, re- turn of income, supplement, tax year, taxable activity, taxable period Compare: 2004 No 35 s DB 3 Section DB 3(4): substituted (with effect on 1 April 2008), on 6 October 2009, by section 68(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section DB 3(4) list of deﬁned terms capital limitation: inserted (with effect on 1 April 2008), on 6 October 2009, by section 68(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
(2) (3) (4) 428 Reprinted as at 5 January 2010 Income Tax Act 2007 Part D s DB 5 DB 4 Chatham Islands dues (1) (2) (3) (4) Deduction A person is allowed a deduction for expenditure incurred on dues levied under the Chatham Islands Council Act 1995 that relate to goods that the person uses in connection with carrying on a business.

Timing of deduction The deduction is allocated to the income year in which the dues are paid.
Exclusion of expenditure: other deductions Expenditure to which subsection (1) applies must not be taken into account in calculating the cost of the goods for the purpose of a deduction relating to the goods under any other provision of this Act.
Link with subpart DA The link between this section and subpart DA (General rules) is as follows: (a) subsection (1) supplements the general permission and overrides the capital limitation; the other general limi- tations still apply: subsection (3) overrides the general permission.
(b) Deﬁned in this Act: business, capital limitation, deduction, general permission, general limitation, income year, pay, supplement Compare: 2004 No 35 s DB 4 Financing costs DB 5 Transaction costs: borrowing money for use as capital (1) (2) Deduction A person is allowed a deduction for expenditure incurred in borrowing money that is used as capital in deriving their in- come.

Link with subpart DA This section overrides the capital limitation.
The general per- mission must still be satisﬁed and the other general limitations still apply.

Deﬁned in this Act: capital limitation, deduction, general limitation, general permission, income Compare: 2004 No 35 s DB 5 429 Part D s DB 6 Income Tax Act 2007 Reprinted as at 5 January 2010 DB 6 Interest: not capital expenditure (1) (2) (3) (4) Deduction A person is allowed a deduction for interest incurred.
Exclusion Subsection (1) does not apply to interest for which a person is denied a deduction under section DB 1.

Conduit ﬁnancing arrangements [Repealed] [Repealed] Link with subpart DA This section overrides the capital limitation.

The general per- mission must still be satisﬁed and the other general limitations still apply.
Deﬁned in this Act: capital limitation, deduction, general limitation, general permission, interest Compare: 2004 No 35 s DB 6 Section DB 6(3) heading: repealed (with effect on 30 June 2009), on 6 October 2009, pursuant to section 69(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section DB 6(3): repealed (with effect on 30 June 2009), on 6 October 2009, by section 69(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

DB 7 Interest: most companies need no nexus with income Deduction A company is allowed a deduction for interest incurred.

Exclusion: qualifying company Subsection (1) does not apply to a qualifying company.
Exclusion: exempt income If a company (company A) derives exempt income or another company (company B) that is part of the same wholly-owned group of companies derives exempt income, subsection (1) applies to company A only if all the exempt income is 1 or more of the following: (a) (b) dividends; or income exempted under section CW 58 (Disposal of companies’ own shares); or (1) (2) (3) 430 Reprinted as at 5 January 2010 Income Tax Act 2007 Part D s DB 7 (4) (5) (6) (7) (8) (c) income exempted under section CW 60 (Stake money) and ancillary to the company’s business of breeding.
Exclusion: non-resident company If a company is a non-resident company, subsection (1) applies only to the extent to which the company incurs interest in the course of carrying on a business through a ﬁxed establishment in New Zealand.

Exclusion: interest related to tax Subsection (1) does not apply to interest for which a person is denied a deduction under section DB 1.
Consolidated groups Section FM 12 (Expenditure when deduction would be denied to consolidated group) may apply to allow a deduction under this section to a company that is part of a consolidated group.

Conduit ﬁnancing arrangements [Repealed] [Repealed] Link with subpart DA This section supplements the general permission and overrides the capital limitation, the exempt income limitation, and the withholding tax limitation.

The other general limitations still apply.
Deﬁned in this Act: business, capital limitation, company, consolidated group, deduction, dividend, exempt income, exempt income limitation, ﬁxed establish- ment, general limitation, general permission, income, interest, New Zealand, non-resident company, qualifying company, supplement, wholly-owned group of companies, withholding tax limitation Compare: 2004 No 35 s DB 7 Section DB 7(7) heading: repealed (with effect on 30 June 2009), on 6 October 2009, pursuant to section 70(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section DB 7(7): repealed (with effect on 30 June 2009), on 6 October 2009, by section 70(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
431 Part D s DB 8 Income Tax Act 2007 Reprinted as at 5 January 2010 DB 8 Interest: money borrowed to acquire shares in group companies Deduction: borrowing to acquire group company shares A company is allowed a deduction for interest incurred on money borrowed to acquire shares in another company that is part of the same group of companies.
Exclusion: group not in existence at year end Subsection (1) does not apply if the 2 companies are not part of the same group of companies at the end of the tax year that corresponds to the income year in which the deduction is allowed.

Deduction: interest after resident’s restricted amalgamation A company is allowed a deduction for interest incurred on money borrowed to acquire shares in another company that has ended its existence on a resident’s restricted amalgamation.
Exclusion: group not in existence immediately before resident’s restricted amalgamation Subsection (3) does not apply if the 2 companies were not part of the same group of companies immediately before the resident’s restricted amalgamation.

Application from income year of resident’s restricted amalgamation Subsection (3) applies in the income year in which the resident’s restricted amalgamation occurs and in later income years.
Consolidated groups Section FM 12 (Expenditure when deduction would be denied to consolidated group) may apply to allow a deduction under this section to a company that is part of a consolidated group.
Conduit ﬁnancing arrangements [Repealed] [Repealed] Link with subpart DA This section supplements the general permission and overrides the capital limitation, the exempt income limitation, and the (1) (2) (3) (4) (5) (6) (7) (8) 432 Reprinted as at 5 January 2010 Income Tax Act 2007 Part D s DB 9 withholding tax limitation.

The other general limitations still apply.
Deﬁned in this Act: company, consolidated group, deduction, exempt income limitation, general limitation, general permission, group of companies, income year, interest, resident’s restricted amalgamation, share, supplement, withhold- ing tax limitation Compare: 2004 No 35 s DB 8 Section DB 8(7) heading: repealed (with effect on 30 June 2009), on 6 October 2009, pursuant to section 71(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section DB 8(7): repealed (with effect on 30 June 2009), on 6 October 2009, by section 71(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
DB 9 Interest incurred on money borrowed to acquire shares in qualifying companies (1) (2) (3) (4) Deduction for interest incurred The deduction that a shareholder in a qualifying company has for interest in an income year is reduced by the amount of non- cash dividends, other than taxable bonus issues, derived by them or an associated person from the company in the income year.
Exempt income In determining the amount of the deduction that the share- holder has for the interest, section CW 15(1) (Dividends paid by qualifying companies) does not apply to treat as exempt in- come a distribution from the qualifying company to the share- holder, and the distribution is excluded from the deﬁnition of dividend.
Associated persons If the associated person referred to in subsection (1) is associ- ated with more than 1 shareholder in the company, the amount of non-cash dividends is apportioned among the associated shareholders according to their effective interests in the com- pany in the income year.
Allocation of dividend If section CD 39 (Calculation of amount of dividend when property made available) applies to a dividend derived by a shareholder of a qualifying company, the dividend is treated 433 Part D s DB 10 Income Tax Act 2007 Reprinted as at 5 January 2010 (5) as having been paid and derived at the end of the quarter in which the amount is calculated.

the general permission; and the exempt income limitation.
Link with subpart DA This section overrides— (a) (b) Deﬁned in this Act: amount, associated person, bonus issue, deduction, divi- dend, effective interest, exempt income, exempt income limitation, general per- mission, income year, interest, non-cash dividend, pay, qualifying company, share, shareholder, taxable bonus issue Compare: 2004 No 35 s HG 9(3)–(5) DB 10 Interest or expenditure connected to proﬁt-related or substituting debentures When this section applies This section applies for the purposes of section FA 2 (Rechar- acterisation of certain debentures).
No deduction A company issuing either a proﬁt-related debenture or a sub- stituting debenture is denied a deduction for— interest payable under the debenture; or (a) expenditure or loss incurred in connection with the (b) debenture; or expenditure or loss incurred in borrowing the money secured by or owing under the debenture.

(c) Relationship with sections DB 5 to DB 8 This section overrides sections DB 5 to DB 8.

Link with subpart DA This section overrides the general permission.
Deﬁned in this Act: debenture, deduction, general permission, interest, pay, proﬁt-related debenture, substituting debenture Compare: 2004 No 35 ss FC 1(1), FC 2(2) (1) (2) (3) (4) 434 Reprinted as at 5 January 2010 Income Tax Act 2007 Part D s DB 11 DB 10B Interest or expenditure connected to stapled debt security (1) (2) (3) No deduction A company that issues a stapled debt security is denied, while section FA 2B(2) (Stapled debt securities) applies to the secur- ity, a deduction for— (a) (b) interest payable under the security: expenditure or loss incurred in connection with the se- curity: expenditure or loss incurred in borrowing the money secured by or owing under the security.
(c) Relationship with sections DB 5 to DB 8 This section overrides sections DB 5 to DB 8.

Link with subpart DA This section overrides the general permission.

Deﬁned in this Act: deduction, general permission, interest, pay, stapled debt security Section DB 10B: inserted (with effect on 1 April 2008), on 6 October 2009, by section 72 of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Financial arrangements adjustments DB 11 Negative base price adjustment (1) (2) Deduction A person who has a negative base price adjustment under section EW 31(4) (Base price adjustment formula) is allowed a deduction for the expenditure to the extent to which it arises from assessable income, under section CC 3 (Financial arrangements), derived by the person under the ﬁnancial arrangement in earlier income years.
Link with subpart DA This section supplements the general permission and overrides all the general limitations.
Deﬁned in this Act: assessable income, deduction, ﬁnancial arrangement, gen- eral limitation, general permission, income year, supplement Compare: 2004 No 35 s DB 9 435 Part D s DB 12 Income Tax Act 2007 Reprinted as at 5 January 2010 DB 12 Base price adjustment under old ﬁnancial arrangements rules (1) (2) Deduction A person is allowed a deduction for an amount that is a deduc- tion under section EZ 37(6) (Cash basis holder) or EZ 38(3) or (4) (Income and expenditure where ﬁnancial arrangement redeemed or disposed of).
Link with subpart DA This section supplements the general permission and overrides all the general limitations.

Deﬁned in this Act: amount, deduction, general limitation, general permission, supplement Compare: 2004 No 35 s DB 9B DB 13 Repayment of debt sold at discount to associate of debtor Deduction (1) When section EW 49(5)(b) (Income and deduction when debt sold at discount to associate of debtor) applies, the debtor is allowed a deduction for the amount quantiﬁed in that subsec- tion.
(2) Link with subpart DA This section supplements the general permission and overrides all the general limitations.

Deﬁned in this Act: amount, associated person, deduction, general limitation, general permission, supplement Compare: 2004 No 35 s DB 10 DB 14 Security payment When subsection (2) applies Subsection (2) applies when— (a) (b) a person receives a security payment for a loss; and no other provision of this Act allows the person a de- duction for the loss.
Deduction: loss The person is allowed a deduction for the loss quantiﬁed in section EW 51(2) (Deduction for security payment).

(1) (2) 436 Reprinted as at 5 January 2010 Income Tax Act 2007 Part D s DB 15 (3) (4) (5) When subsection (4) applies Subsection (4) applies when— (a) a person receives a security payment for a share loss as described in section DB 24; and the requirements of section DB 24 are met; and no other provision of this Act allows the person a de- duction for the loss.
(b) (c) Deduction: share loss The person is allowed a deduction for the share loss quantiﬁed in section EW 51(4).

Link with subpart DA This section supplements the general permission and overrides all the general limitations.

Deﬁned in this Act: deduction, general limitation, general permission, loss, pay, security payment, supplement Compare: 2004 No 35 s DB 11 DB 15 Sureties (1) (2) When this section applies This section applies when a surety incurs expenditure or loss under a security arrangement.
No deduction (with exceptions) Neither the surety nor a person with whom the surety was an associated person over the security arrangement’s term is al- lowed a deduction for the expenditure or loss to the extent to which the expenditure or loss is due to— (a) the actions of the surety or a person with whom the surety was an associated person over the arrangement’s term; or the occurrence of an event, if the occurrence could have been inﬂuenced by the surety or a person with whom the surety was an associated person over the arrangement’s term; or the non-occurrence of an event, if the non-occurrence could have been inﬂuenced by the surety or a person with whom the surety was an associated person over the arrangement’s term.
(b) (c) 437 Part D s DB 16 Income Tax Act 2007 Reprinted as at 5 January 2010 (3) Link with subpart DA This section overrides the general permission.
Deﬁned in this Act: associated person, deduction, general permission, loss, se- curity arrangement Compare: 2004 No 35 s DB 12 Share-lending arrangements DB 16 Share-lending collateral under share-lending arrangements (1) (2) No deduction A person is denied a deduction for the amount of expenditure incurred as share-lending collateral under a share-lending ar- rangement.
Link with subpart DA and other subject matter This section overrides— (a) (b) Deﬁned in this Act: amount, deduction, general permission, share-lending ar- rangement, share-lending collateral Compare: 2004 No 35 s DB 12B the general permission: sections DB 23 to DB 26.
DB 17 Replacement payments and imputation credits under share-lending arrangements A person is allowed a deduction for— (a) (b) the amount of expenditure incurred as a replacement payment under a share-lending arrangement: the amount of imputation credit attached under sec- tions OB 64 (Replacement payments) and RE 25 (When amount of tax treated as imputation credit) to the re- placement payment.
Deﬁned in this Act: amount, deduction, imputation credit, pay, portfolio invest- ment-linked life fund replacement payment, share-lending arrangement Compare: 2004 No 35 s DB 12C Section DB 17 list of deﬁned terms portfolio investment-linked life fund: in- serted, on 1 April 2008, by section 337(2) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
438 Reprinted as at 5 January 2010 Income Tax Act 2007 Part D s DB 19 Premises or land costs DB 18 Transaction costs: leases (1) (2) Deduction A person is allowed a deduction for expenditure that they incur for the preparation and registration, or the renewal, of a lease of property.

Link with subpart DA This section overrides the capital limitation.

The general per- mission must still be satisﬁed and the other general limitations still apply.
Deﬁned in this Act: capital limitation, deduction, general limitation, general permission, lease Compare: 2004 No 35 s DB 13 DB 19 Expenses of failed or withdrawn application for resource consent (1) (2) (3) Deduction A person who applies for the grant of a resource consent under the Resource Management Act 1991 and is refused the grant or withdraws the application is allowed a deduction for expend- iture— (a) (b) that the person incurs in relation to the application; and that would have been part of the cost of depreciable property, or otherwise a deduction, if the application had been granted; and for which the person is not allowed a deduction under another provision.
(c) Timing of deduction The deduction is allocated to the income year in which the grant is refused or the application is withdrawn.

Link with subpart DA This section overrides the capital limitation.

The general per- mission and other general limitations still apply.
Deﬁned in this Act: accounting year, capital limitation, deduction, general limi- tation, general permission, income year Compare: 2004 No 35 s DB 13B 439 Part D s DB 20 Income Tax Act 2007 Reprinted as at 5 January 2010 DB 20 Destruction of temporary building (1) (2) Deduction A person is allowed a deduction for a loss that they incur through the destruction of a temporary building.

Link with subpart DA This section supplements the general permission and overrides the capital limitation.
The other general limitations still apply.
Deﬁned in this Act: capital limitation, deduction, general limitation, general permission, loss, supplement, temporary building Compare: 2004 No 35 s DB 14 DB 21 Amounts paid for non-compliance with covenant for repair When this section applies This section applies when— (a) (b) (c) (d) (e) a person who is a lessee of land uses it to derive income; and the lease contains a covenant requiring the lessee to maintain the land or to make repairs to improvements on the land; and the lessee does not comply with the covenant; and the lessee is, consequently, liable to pay an amount to the lessor; and either— (i) the lessee, during the term of the lease or after it ends, pays the amount to the lessor; or the lessor recovers the amount from the lessee during the term of the lease or after it ends.
(ii) Deduction The lessee is allowed a deduction for the amount paid to the extent to which it relates to maintenance or repairs and to the extent to which the lessee would have been allowed a deduc- tion for the expenditure had the lessee incurred it during the term of the lease.

Timing of deduction The deduction is allocated to the income year in which the lessee pays the amount or the lessor recovers the amount.
(1) (2) (3) 440 Reprinted as at 5 January 2010 Income Tax Act 2007 Part D s DB 22 (4) (5) Relationship with section EJ 11 This section is overridden by section EJ 11 (Amount paid by lessee for non-compliance with covenant for repair).

Link with subpart DA This section supplements the general permission and overrides the capital limitation.

The other general limitations still apply.
Deﬁned in this Act: capital limitation, deduction, general limitation, general permission, income, income year, lease, pay, repairs, supplement, term of the lease Compare: 2004 No 35 s DB 15 DB 22 Amounts paid for non-compliance and change in use (1) When this section applies This section applies when— (a) (b) a person who is a lessor receives an amount for non- compliance with a covenant for repair that is assess- able income under section CC 2 (Non-compliance with covenant for repair); and in the income year in which the lessor receives the amount or in any of the following 4 income years,— (i) the lessor does not use the land to which the amount relates to derive assessable income, but continues to own the land; and the lessor incurs expenditure in maintaining the land or in making repairs to improvements on the land, including painting and general mainten- ance; and the lessor would have been allowed a deduction if the land had been used for the purpose of deriving assessable income; and in the absence of section DB 46, no other provi- sion of this Act would allow the lessor a deduc- tion for the expenditure.
(ii) (iii) (iv) (2) (3) Deduction The lessor is allowed a deduction for the expenditure.
Amount of deduction The amount of the deduction is the lesser of— the amount of the expenditure; and (a) 441 Part D s DB 23 Income Tax Act 2007 Reprinted as at 5 January 2010 (b) the part of the amount that is assessable income derived by the lessor in the income year in which the expend- iture is incurred through the operation of— (i) (ii) section CC 2; or section EI 5 (Amount paid to lessor for non- compliance with covenant for repair); or section EI 6 (Amount paid for non-compliance: when lessor ceases to own land).
(iii) (4) Link with subpart DA This section supplements the general permission.

The general limitations still apply.

Deﬁned in this Act: amount, assessable income, deduction, general limitation, general permission, income year, own, supplement Compare: 2004 No 35 s DB 16 Revenue account property DB 23 Cost of revenue account property Deduction A person is allowed a deduction for expenditure that they incur as the cost of revenue account property.
Portfolio investment entities Despite subsection (1), a person is denied a deduction for ex- penditure incurred as the cost of revenue account property if— the person is a portfolio investment entity or a life in- (a) surer in relation to that part of the life insurer that is a portfolio investment-linked life fund; and section CX 55 (Proceeds from certain disposals by port- folio investment entities or New Zealand Superannu- ation Fund) applies to income derived by the person from the disposal of the revenue account property.
(b) Link with subpart DA Subsection (1) overrides the capital limitation but the general permission must still be satisﬁed.

Subsection (2) overrides the general permission.

The other general limitations still apply.


Deﬁned in this Act: capital limitation, deduction, general limitation, general permission, revenue account property Compare: 2004 No 35 s DB 17 (1) (2) (3) 442 Reprinted as at 5 January 2010 Income Tax Act 2007 Part D s DB 24 Section DB 23(2)(a): substituted, on 1 April 2008, by section 337(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section DB 23 list of deﬁned terms portfolio investment entity: repealed (with effect on 1 April 2008), on 6 October 2009, by section 73(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
DB 24 Share losses (1) When this section applies This section applies when— (a) (b) (c) (d) (e) (f) (g) a company (company A) acquires a share in another company (company B); and the share declines in value; and because of the decline in value, company A incurs a loss (the share loss), whether on a disposal of the share or a valuation of it under subpart ED (Valuation of excepted ﬁnancial arrangements) or in any other way; and company B— (i) (ii) itself uses the amount subscribed for the share; or uses it to fund directly or indirectly another com- pany (company C); and company B or company C has a tax loss, in the calcu- lation of which the amount used is taken into account; and company A, or a company that is part of the same group of companies as company A at any time in the income year in which company B or company C has the tax loss, offsets an amount for the tax loss under section IC 1 (Company A making tax loss available to company B); and the offset is in a tax year before the tax year that corres- ponds to the income year in which company A incurs the share loss.
(2) No deduction (with exception) Company A is denied a deduction for the share loss, except to the extent to which the share loss, as adjusted under subsec- tion (3), is more than the amount offset under section IC 1, as adjusted under subsection (4).
443 Part D s DB 25 Income Tax Act 2007 Reprinted as at 5 January 2010 Other denied deductions added (3) When subsection (2) applies, the share loss is adjusted by adding every loss to which all the following apply: (a) company A incurs it as a result of the share’s decline in value or the decline in value of another share if the use of the amount subscribed for the other share is taken into account in calculating the tax loss; and company A incurs it in an income year before the in- come year referred to in subsection (1)(g); and company A has been denied a deduction for it by the operation of subsection (2).
(b) (c) (4) (5) Other offsets added The amount offset under section IC 1 includes every amount that company A, or a company that is part of the same group of companies as company A at any time in the income year in which company A has the tax loss, has offset for the tax loss under that section in a tax year before the tax year that corres- ponds to the income year in which the share loss is incurred.

Link with subpart DA This section overrides the general permission.
Deﬁned in this Act: amount, company, deduction, general permission, group of companies, income year, loss, share, tax loss, tax year Compare: 2004 No 35 s DB 18 DB 25 Cancellation of shares held as revenue account property When this section applies This section applies for the purposes of section FA 4(3)(b) (Recharacterisation of shareholder’s base: company repur- chasing share).
No deduction A shareholder is denied a deduction for the amount added to the cost of their remaining shares of the same class as that of the share cancelled, unless the share is trading stock of the shareholder.

(1) (2) 444 Reprinted as at 5 January 2010 Income Tax Act 2007 Part D s DB 27 (3) Link with subpart DA This section overrides the general permission.
Deﬁned in this Act: deduction, general permission, interest, proﬁt-related debenture, substituting debenture Compare: 2004 No 35 s FC 4(f)(iv) DB 26 Amount from proﬁt-making undertaking or scheme and not already in income (1) (2) (3) (4) When this section applies This section applies when a person derives income under sec- tion CB 3 (Proﬁt-making undertaking or scheme) that is not their income under any other provision of this Act.
Deduction The person is allowed a deduction for the value of the property, as determined under subsection (3).

Determining amount of deduction For the purpose of determining the amount of the deduction, the person is treated as— (a) having disposed of the property to an unrelated third party immediately before the start of the undertaking or scheme; and having reacquired the property immediately after the start of the undertaking or scheme at the market value of the property at the time.
(b) Link with subpart DA This section supplements the general permission.

The general limitations still apply.


Deﬁned in this Act: amount, deduction, general limitation, general permission, income, supplement Compare: 2004 No 35 s DB 19 DB 27 Amount from major development or division and not already in income (1) When this section applies This section applies when a person derives income under sec- tion CB 13 (Disposal: amount from major development or div- ision and not already in income) that is not their income under any other provision of this Act.
445 Part D s DB 28 Income Tax Act 2007 Reprinted as at 5 January 2010 (2) (3) (4) Deduction The person is allowed a deduction for the value of the land, as determined under subsection (3).
Determining amount of deduction For the purpose of determining the amount of the deduction, the person is treated as— (a) having disposed of the land to an unrelated third party immediately before the start of the undertaking or scheme; and having reacquired it immediately after the start of the undertaking or scheme at the market value of the land at the time.

(b) Link with subpart DA This section supplements the general permission.

The general limitations still apply.


Deﬁned in this Act: amount, deduction, general limitation, general permission, income, land, supplement Compare: 2004 No 35 s DB 20 DB 28 Amount from land affected by change and not already in income When this section applies This section applies when a person derives income under sec- tion CB 14 (Disposal: amount from land affected by change and not already in income) that is not their income under any other provision of this Act.
Deduction The person is allowed— (a) a deduction allowed under any other provision of this Act; and a deduction to the extent described in subsection (3).

(b) Calculation of deduction The maximum amount of the deduction is the greater of $1,000 and an amount calculated using the formula in subsection (4).

However, the amount must not be more than the proﬁt obtained from the disposal of the land.
Formula The formula is— (1) (2) (3) (4) 446 Reprinted as at 5 January 2010 Income Tax Act 2007 Part D s DB 30 percentage of proﬁt × years.
(5) (6) (7) Deﬁnition of items in formula In the formula,— (a) (b) percentage of proﬁt is 10% of the proﬁt on the disposal of the land: years is the number, up to and including 10, of con- secutive years between the date on which the person ac- quired the land and the date on which they disposed of it, with the ﬁrst year starting on the date on which the person acquired the land.

Meaning of proﬁt In this section, proﬁt means the excess of the amount derived over the cost of the land.
Link with subpart DA This section supplements the general permission.

The general limitations still apply.


Deﬁned in this Act: amount, deduction, general limitation, general permission, income, land, proﬁt, supplement, year Compare: 2004 No 35 s DB 21 DB 29 Apportionment when land acquired with other property If a person derives income under sections CB 6 to CB 14 (which relate to the disposal of land) from the disposal of land, and the land is acquired together with other property, the cost of acquisition must be apportioned between the land and the other property.
Deﬁned in this Act: income, land, property Compare: 2004 No 35 s FB 4A DB 30 Cost of non-speciﬁed mineral (1) When this section applies This section applies when— (a) an amount of cost of a mineral is treated by a person under generally accepted accounting practice as a cost of the mineral for the person and reported accordingly for ﬁnancial reporting purposes; and the mineral is not a speciﬁed mineral; and (b) 447 Part D s DB 31 Income Tax Act 2007 Reprinted as at 5 January 2010 (c) (d) no other provision of this Act allows the person a de- duction for the amount; and an amount derived by the person from disposing of the mineral would be income of the person under section CB 29 (Disposal of minerals).
Deduction The person is allowed a deduction for the amount.

Timing of deduction: trading stock If the amount is a cost of trading stock, the deduction is allo- cated to the income year in which the mineral ﬁrst becomes trading stock of the person.

Timing of deduction: not trading stock If the amount is not a cost of trading stock, the deduction is allocated by section EA 2 (Other revenue account property).
Link with subpart DA This section supplements the general permission and overrides the capital limitation.

The other general limitations still apply.
Deﬁned in this Act: amount, capital limitation, deduction, dispose, general limi- tation, general permission, generally accepted accounting practice, income, in- come year, mineral, speciﬁed mineral, trading stock Compare: 2004 No 35 s DB 22 (2) (3) (4) (5) DB 31 Bad debts Bad debts No deduction (with exception) A person is denied a deduction in an income year for a bad debt, except to the extent to which— (a) (b) the debt is written off as bad in the income year; and in the case of the bad debts described in subsections (2) to (5), the requirements of the relevant subsection are met.
Deduction: ﬁnancial arrangement debt: amount of income A person who derives assessable income from a ﬁnancial ar- rangement to which the ﬁnancial arrangements rules apply is allowed a deduction for an amount owing under the ﬁnancial arrangement, but only to the extent to which— (a) the amount is a bad debt and the requirement of subsec- tion (1)(a) is met; and (1) (2) 448 Reprinted as at 5 January 2010 Income Tax Act 2007 Part D s DB 31 (b) (c) the amount is attributable to the income; and subsection (5) does not limit the deduction.
(3) (4) (5) Deduction: ﬁnancial arrangement debt: dealers in arrangements A person is allowed a deduction for an amount owing under a ﬁnancial arrangement to which the ﬁnancial arrangements rules apply, but only to the extent to which— (a) the amount is a bad debt and the requirement of subsec- tion (1)(a) is met; and the person carries on a business for the purpose of deriv- ing assessable income that includes dealing in or hold- ing ﬁnancial arrangements that are the same as, or sim- ilar to, the ﬁnancial arrangement; and the person is not associated with the person owing the amount written off; and subsection (5) does not limit the deduction.
(b) (c) (d) Deduction: ﬁnancial arrangement debt: dealers in property or services sold A person is allowed a deduction for an amount owing under a ﬁnancial arrangement to which the ﬁnancial arrangements rules apply, but only to the extent to which— (a) the amount is a bad debt and the requirement of subsec- tion (1)(a) is met; and the ﬁnancial arrangement is an agreement for the sale and purchase of property or services; and the person carries on a business of dealing in the prop- erty or services that are the subject of the agreement; and the person carries on the business for the purpose of deriving assessable income; and subsection (5) does not limit the deduction.
(b) (c) (d) (e) Deduction: bad debt representing loss already offset A person is allowed a deduction for a bad debt only to the extent to which it is more than the total of the amounts offset under section IC 1 (Company A making tax loss available to company B) that are described in paragraphs (e) and (f) if— (a) the person writing off the amount of debt is a company (company A); and 449 Part D s DB 32 Income Tax Act 2007 Reprinted as at 5 January 2010 (b) (c) (d) (e) (f) the debt is owed to it by another company (company B); and company B— (i) (ii) itself uses the amount giving rise to the debt; or uses it to fund directly or indirectly another com- pany (company C) that uses the amount; and company B or company C has a tax loss, in the calcu- lation of which the amount used is taken into account; and company A, or a company that is part of the same group of companies as company A at any time in the income year in which company B or company C has the tax loss, offsets an amount for the tax loss under section IC 1; and the offset is in a tax year before the tax year that corres- ponds to the income year in which company A writes off the amount of debt, but not before the 1993–94 tax year.
(6) Link with subpart DA The link between this section and subpart DA (General rules) is as follows: (a) (b) subsection (1) overrides the general permission; and for subsections (2) to (5),— (i) they supplement the general permission, to the extent to which they allow a deduction that is denied under the general permission; and they override the general permission, to the ex- tent to which they deny a deduction that is al- lowed under the general permission; and the other general limitations still apply.
(ii) (iii) Deﬁned in this Act: agreement for the sale and purchase of property or services, amount, assessable income, associated person, business, company, deduction, ﬁnancial arrangement, ﬁnancial arrangements rules, general limitation, general permission, group of companies, income year, supplement, tax loss, tax year Compare: 2004 No 35 s DB 23 DB 32 Bad debts owed to estates When this section applies This section applies when— (1) 450 Reprinted as at 5 January 2010 Income Tax Act 2007 Part D s DB 33 (a) (b) a debt owing to a person at the date of their death is, in an income year,— (i) (ii) assessable income of the person; or assessable income of the trustee of their estate; and the trustee writes off some or all of the debt as bad be- cause it is not recoverable.
(2) Deduction The following persons, in the following order, are allowed a deduction for the amount of the debt written off: (a) ﬁrst, the trustee, to the extent of assessable income de- rived as trustee income in the income year; and second, any beneﬁciary who has a vested interest in the capital of the estate, to the extent of assessable income derived in the income year by or in trust for the beneﬁ- ciary, and to the extent to which the amount is charge- able against the capital of the beneﬁciary; and third, the trustee or a beneﬁciary denied a deduction for the balance in the income year; each is allowed a deduction, as described in paragraph (a) or (b), in the next tax year, and so on.
(b) (c) (3) Link with subpart DA This section supplements the general permission.

The general limitations still apply.


Deﬁned in this Act: amount, assessable income, deduction, general limitation, general permission, income year, supplement, trustee, trustee income Compare: 2004 No 35 s DB 24 Research and development DB 33 Scientiﬁc research (1) (2) Deduction: scientiﬁc research A person is allowed a deduction for expenditure they incur in connection with scientiﬁc research that they carry on for the purpose of deriving their assessable income.
Exclusion Subsection (1) does not apply to expenditure that the person incurs on an asset that— (a) is not created from the scientiﬁc research; and 451 Part D s DB 34 Income Tax Act 2007 Reprinted as at 5 January 2010 (b) is an asset for which they have an amount of depreci- ation loss for which— (i) (ii) they are allowed a deduction; or they would have been allowed a deduction but for the Commissioner’s considering that incomplete and unsatisfactory accounts were kept by or for them.
(3) Link with subpart DA This section supplements the general permission and overrides the capital limitation.

The other general limitations still apply.

Deﬁned in this Act: amount, assessable income, capital limitation, Commis- sioner, deduction, depreciation loss, general limitation, general permission, supplement Compare: 2004 No 35 s DB 25 DB 34 Research or development Deduction A person is allowed a deduction for expenditure they incur on research or development.
This subsection applies only to a person described in any of subsections (2) to (5) and does not apply to the expenditure described in subsection (6).
Person recognising expenditure as expense Subsection (1) applies to a person who recognises the expend- iture as an expense for ﬁnancial reporting purposes— (a) under paragraph 5.1 or 5.2 of the old reporting standard or because paragraph 5.4 of that standard applies; or under paragraph 68(a) of the new reporting standard applying, for the purposes of that paragraph, para- graphs 54 to 67 of that standard.
(b) Person not recognising expenditure as asset [Repealed] [Repealed] Person recognising expenditure otherwise Subsection (1) also applies to a person who— (a) recognises the expenditure as an expense for ﬁnancial reporting purposes because it is an amount written off as an immaterial amount for ﬁnancial reporting purposes; and (1) (2) (3) (4) 452 Reprinted as at 5 January 2010 (b) Income Tax Act 2007 Part D s DB 34 would be required, if the expenditure were material, to recognise it for ﬁnancial reporting purposes— (i) under paragraph 5.1 or 5.2 of the old reporting standard or because paragraph 5.4 of that stand- ard applies; or under paragraph 68(a) of the new reporting stand- ard applying, for the purposes of that paragraph, paragraphs 54 to 67 of that standard.
(ii) (5) (6) Person with minor expenditure Subsection (1) also applies to a person who— (a) incurs expenditure of $10,000 or less, in total, on re- search and development in an income year; and has written off the expenditure as an immaterial amount for ﬁnancial reporting purposes; and has recognised the expenditure as an expense for ﬁnan- cial reporting purposes.
(b) (c) Exclusion Subsection (1) does not apply to expenditure that the person incurs on property to which all the following apply: (a) the property is used in carrying out research or devel- opment; and it is not created from the research or development; and it is 1 of the following kinds: (i) (b) (c) (ii) (iii) (iv) (v) property for which the person is allowed a deduc- tion for an amount of depreciation loss; or property the cost of which is allowed as a deduc- tion by way of amortisation under a provision of this Act outside subpart EE (Depreciation); or land; or intangible property, other than depreciable intan- gible property; or property that its owner chooses, under section EE 8 (Election that property not be depreciable) to treat as not depreciable.
(7) Choice for allocation of deduction A person who is allowed a deduction under this section for expenditure that is not interest may choose to allocate all or part of the deduction— 453 Part D s DB 34 Income Tax Act 2007 Reprinted as at 5 January 2010 (a) (b) to an income year after the income year in which the person incurs the expenditure; and in the way required by section EJ 23 (Allocation of de- ductions for research, development, and resulting mar- ket development).
Section need not be applied A person may return income and expenditure in their return of income on the basis that this section does not apply to expend- iture incurred on research or development in the income year to which the return relates.
Relationship with section EA 2 If expenditure to which this section applies is incurred in de- vising an invention that is patented, the expenditure is not treated as part of the cost of revenue account property for the purposes of section EA 2 (Other revenue account property).

(8) (9) Link with subpart DA (10) This section overrides the capital limitation.

The general per- mission must still be satisﬁed and the other general limitations still apply.
Deﬁned in this Act: amount, capital limitation, deduction, depreciable intan- gible property, depreciation loss, development, general limitation, general per- mission, income, income year, new reporting standard, old reporting standard, research, return of income, revenue account property Compare: 2004 No 35 s DB 26 Section DB 34(2): substituted (with effect on 1 April 2008), on 7 December 2009, by section 11(1) of the Taxation (Consequential Rate Alignment and Re- medial Matters) Act 2009 (2009 No 63).
Section DB 34(2): amended, on 1 April 2008, by section 338(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section DB 34(3) heading: repealed, on 1 April 2008, pursuant to section 338(2) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section DB 34(3): repealed, on 1 April 2008, by section 338(2) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section DB 34(4)(a): amended, on 1 April 2008, by section 338(3) of the Tax- ation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section DB 34(4)(b): substituted (with effect on 1 April 2008), on 7 December 2009, by section 11(2) of the Taxation (Consequential Rate Alignment and Re- medial Matters) Act 2009 (2009 No 63).

Section DB 34(4)(b): substituted, on 1 April 2008, by section 338(4) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
454 Reprinted as at 5 January 2010 Income Tax Act 2007 Part D s DB 35 Section DB 34(5)(b): substituted, on 1 April 2008, by section 338(5) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section DB 34 list of deﬁned terms new reporting standard: 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 DB 34 list of deﬁned terms old reporting standard: 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 DB 34 list of deﬁned terms reporting standard: repealed (with effect on 1 April 2008), on 7 December 2009, by section 126 of the Taxation (Conse- quential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
DB 35 Some deﬁnitions (1) (2) Deﬁnitions In this section, and in section DB 34,— development is deﬁned in paragraph 8 of the reporting stand- ard new reporting standard means the New Zealand Equivalent to International Accounting Standard 38, approved by the Ac- counting Standards Review Board, and as amended from time to time or an equivalent standard issued in its place old reporting standard means Financial Reporting Standard No 13 1995 (Accounting for Research and Development Ac- tivities) being the standard approved under the Financial Re- porting Act 1993, or an equivalent standard issued in its place, that applies in the tax year in which the expenditure is incurred research is deﬁned in paragraph 8 of the reporting standard.
Meaning of research or development: modiﬁcation by Order in Council The Governor-General may make an Order in Council speci- fying— (a) a kind of expenditure that is not expenditure on research or development for the purposes of section DB 34: an activity that is neither research nor development for the purposes of section DB 34: the date from which the expenditure or the activity is excluded from being research or development.
Deﬁned in this Act: development, income year, new reporting standard, old reporting standard, research Compare: 2004 No 35 s DB 27 (b) (c) 455 Part D s DB 36 Income Tax Act 2007 Reprinted as at 5 January 2010 Section DB 35(1): substituted, on 1 April 2008, by section 339 of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section DB 35(1) new reporting standard: inserted (with effect on 1 April 2008), on 7 December 2009, by section 12 of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).

Section DB 35(1) old reporting standard: inserted (with effect on 1 April 2008), on 7 December 2009, by section 12 of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
Section DB 35(1) reporting standard: repealed (with effect on 1 April 2008), on 7 December 2009, by section 12 of the Taxation (Consequential Rate Align- ment and Remedial Matters) Act 2009 (2009 No 63).

Section DB 35(1) list of deﬁned terms new reporting standard: 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 DB 35(1) list of deﬁned terms old reporting standard: 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 DB 35(1) list of deﬁned terms reporting standard: repealed (with ef- fect 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).
DB 36 Patent expenses (1) (2) Deduction A person is allowed a deduction for expenditure that they incur in connection with the grant, maintenance, or extension of a patent if they— (a) (b) acquired the patent before 23 September 1997; and use the patent in deriving income in the income year in which they incur the expenditure.

Link with subpart DA This section overrides the capital limitation.

The general per- mission must still be satisﬁed and the other general limitations still apply.
Deﬁned in this Act: capital limitation, deduction, general limitation, general permission, income, income year Compare: 2004 No 35 s DB 28 DB 37 Expenses of failed or withdrawn patent application Deduction A person who applies for the grant of a patent and is refused the grant or withdraws the application is allowed a deduction for expenditure— (1) 456 Reprinted as at 5 January 2010 Income Tax Act 2007 Part D s DB 38 (a) (b) (c) that the person incurs in relation to the application; and that would have been part of the cost of ﬁxed life intan- gible property if the application had been granted; and for which the person is not allowed a deduction under another provision.
Timing of deduction The deduction is allocated to the income year in which the grant is refused or the application is withdrawn.

Link with subpart DA This section overrides the capital limitation.

The general per- mission and other general limitations still apply.
Deﬁned in this Act: capital limitation, deduction, ﬁxed life intangible property, general limitation, general permission, income year Compare: 2004 No 35 s DB 28B (2) (3) DB 38 Patent rights: devising patented inventions (1) When this section applies This section applies when a person incurs expenditure in de- vising an invention for which a patent has been granted.

The section applies whether the person devised the invention alone or in conjunction with another person.
Deduction: expenditure before 1 April 1993 (2) When the person uses the patent in deriving income in an in- come year, they are allowed a deduction for expenditure in- curred before 1 April 1993, but not if a deduction has been allowed for the expenditure under any other provision of this Act or an earlier Act.
(3) (4) Deduction: devising invention If the person sells all the patent rights relating to the invention, they are allowed a deduction for the expenditure that they have incurred, whenever it is incurred, in connection with devising the invention to the extent to which a deduction has not already been allowed under subsection (2).
Deduction: devising invention: proportion of expenditure If the person sells some of the patent rights relating to the in- vention, they are allowed a deduction for part of the expend- iture described in subsection (3).

The part is calculated by 457 Part D s DB 39 Income Tax Act 2007 Reprinted as at 5 January 2010 (5) dividing the amount derived from the sale by the market value of the whole of the patent rights on the date of the sale.

Link with subpart DA This section overrides the capital limitation.
The general per- mission must still be satisﬁed and the other general limitations still apply.

Deﬁned in this Act: amount, capital limitation, deduction, general limitation, general permission, income, income year, patent right Compare: 2004 No 35 s DB 29 DB 39 Patent rights acquired before 1 April 1993 (1) (2) (3) (4) When this section applies This section applies when a person sells patent rights that they acquired before 1 April 1993.
Deduction The person is allowed a deduction on the sale of the patent rights.

Amount of deduction The amount is calculated using the formula— Link with subpart DA This section overrides the capital limitation.

The general per- mission must still be satisﬁed and the other general limitations still apply.
Deﬁned in this Act: amount, capital limitation, general limitation, general per- mission, patent right Compare: 2004 No 35 s DB 30 DB 40 Patent applications or patent rights acquired on or after 1 April 1993 When this section applies This section applies when a person sells a patent application with a complete speciﬁcation or patent rights that they ac- quired on or after 1 April 1993.
(1) 458 Reprinted as at 5 January 2010 Income Tax Act 2007 Part D s DB 41 (2) (3) (4) (5) Deduction The person is allowed a deduction on the sale of the patent application with a complete speciﬁcation or patent rights.

Amount of deduction The amount is calculated using the formula— total cost − total amounts of depreciation loss.
Deﬁnition of items in formula In the formula,— (a) total cost is the total cost to the person of the patent ap- plication with a complete speciﬁcation or of the patent rights, excluding any expenditure for which the per- son has been allowed a deduction under section DZ 15 (Patent applications before 1 April 2005): total amounts of depreciation loss is the total of the amounts of depreciation loss, for which the person is allowed a deduction, for the patent application with a complete speciﬁcation or for the patent rights and the patent application relating to the patent rights.
(b) Link with subpart DA This section overrides the capital limitation.

The general per- mission must still be satisﬁed and the other general limitations still apply.
Deﬁned in this Act: amount, capital limitation, deduction, depreciation loss, general limitation, general permission, patent right Compare: 2004 No 35 s DB 31 DB 41 Charitable or other public beneﬁt gifts by company Marketing (1) (2) Who this section applies to [Repealed] [Repealed] Deduction A company is allowed a deduction for a charitable or other public beneﬁt gift that it makes to a society, institution, associ- ation, organisation, trust, or fund of any of the kinds described in section LD 3(2) (Meaning of charitable or other public bene- 459 Part D s DB 42 Income Tax Act 2007 Reprinted as at 5 January 2010 (3) (4) ﬁt gift) or set out in schedule 32 (Recipients of charitable or other public beneﬁt gifts).
Amount of deduction The deduction for the total of all gifts made in an income year is limited to the amount that would be the company’s net in- come in the corresponding tax year in the absence of this sec- tion.

Link with subpart DA This section supplements the general permission.

The general limitations still apply.


Deﬁned in this Act: amount, charitable or other public beneﬁt gift, close com- pany, company, deduction, general limitation, general permission, income year, net income, recognised exchange, share, supplement, tax year Compare: 2004 No 35 s DB 32 Section DB 41(1) heading: repealed, on 1 April 2008, pursuant to section 340(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section DB 41(1): repealed, on 1 April 2008, by section 340(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section DB 41(2): amended, on 1 April 2008, by section 340(2)(a) of the Tax- ation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section DB 41(2): amended, on 1 April 2008, by section 340(2)(b) of the Tax- ation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section DB 41(3): amended, on 1 April 2008, by section 340(3) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Theft and bribery DB 42 Property misappropriated by employees or service providers When this section applies This section applies when— (a) (b) a person carries on a business; and an employee of the business, or a person who provides services to the business, misappropriates property; and no other provision of this Act allows the person who carries on the business a deduction for the loss resulting from the misappropriation.
(c) Exclusions This section does not apply when— (1) (2) 460 Reprinted as at 5 January 2010 Income Tax Act 2007 Part D s DB 43 (a) (b) (c) the person who misappropriates the property is a rela- tive of the person who carries on the business; or the business is carried on by a company, and— (i) the company and the person who misappropriates the property are associated persons; or the company and a relative of the person who misappropriates the property are associated per- sons; or (ii) the person who carries on the business is a trustee of a trust, and the person who misappropriates the property either created the trust, settled property on the trust, or is a beneﬁciary of the trust.
(3) (4) (5) Deduction The person is allowed a deduction for the loss that they incur in the course of the business as a result of the misappropriation of the property.

Timing of deduction The deduction is allocated to the income year in which the loss is ascertained, or in 1 or more earlier years if, in the circum- stances, the Commissioner considers it would be fair.

Link with subpart DA This section supplements the general permission and overrides the capital limitation.
The other general limitations still apply.
Deﬁned in this Act: associated person, business, capital limitation, Commis- sioner, company, deduction, employee, general limitation, general permission, income year, relative, supplement, trustee Compare: 2004 No 35 s DB 33 DB 43 Making good loss from misappropriation by partners (1) When this section applies This section applies when a person carrying on a business in partnership pays an amount to make good a loss that arises from a partner, other than the person or the person’s spouse, civil union partner, or de facto partner, misappropriating prop- erty that— (a) belongs to another person who is neither a partner in the partnership nor the spouse, civil union partner, or de facto partner of a partner; and 461 Part D s DB 44 Income Tax Act 2007 Reprinted as at 5 January 2010 (2) (3) (4) (b) is received in the course of the business either by the partnership or 1 or more of its partners.
Deduction The person is allowed a deduction for the amount if the person is under a legal liability to make good the loss.

Timing of deduction The deduction is allocated to the income year in which the amount is paid.

Link with subpart DA This section supplements the general permission and overrides the capital limitation.

The other general limitations still apply.


Deﬁned in this Act: amount, business, capital limitation, deduction, general limitation, general permission, income year, pay, supplement Compare: 2004 No 35 s DB 34 DB 44 Restitution of stolen property Deduction A person who derives income under section CB 32 (Property obtained by theft) is allowed a deduction for the amount of res- titution that they make to a person who is beneﬁcially entitled to property to which section CB 32 applies.
Timing of deduction The deduction is allocated to the income year in which the person makes restitution.

Meaning of restitution In this section, restitution includes restitution made to a per- son claiming through the person beneﬁcially entitled to the property.

Link with subpart DA This section supplements the general permission and overrides the capital limitation and the private limitation.

The other gen- eral limitations still apply.
Deﬁned in this Act: amount, capital limitation, deduction, general limitation, general permission, income, income year, private limitation, property, restitu- tion, supplement Compare: 2004 No 35 s DB 35 (1) (2) (3) (4) 462 Reprinted as at 5 January 2010 Income Tax Act 2007 Part D s DB 45 DB 45 Bribes paid to public ofﬁcials (1) (2) (3) (4) When this section applies This section applies when— (a) (b) a person (person A) corruptly gives a bribe to another person; and person A gives the bribe intending to inﬂuence a public ofﬁcial to act, or to fail to act, in their ofﬁcial capacity in order to— (i) (ii) obtain or retain business for person A; or obtain an improper advantage for person A in the conduct of business; and (c) the ofﬁcial either has or does not have the authority to act or to fail to act.
No deduction Person A is denied a deduction for the amount of the bribe.
Exclusions This section does not apply if— (a) person A gives the bribe outside New Zealand and, at the time, the bribe is not an offence under the laws of the foreign country where the principal ofﬁce of the per- son, organisation, or other body that employs the for- eign public ofﬁcial or for whom the ofﬁcial provides services is situated: the bribe is given wholly or mainly to ensure or expe- dite the performance by a foreign public ofﬁcial of a routine government action when the value of the bene- ﬁt is small.
(b) Some deﬁnitions In this section,— beneﬁt, foreign country, and foreign public ofﬁcial are de- ﬁned in section 105C of the Crimes Act 1961 bribe is deﬁned in section 99 of the Crimes Act 1961 public ofﬁcial means— (a) (b) a member of Parliament or a Minister of the Crown; and a judicial ofﬁcer, a law enforcement ofﬁcer, or an of- ﬁcial, as those terms are deﬁned in section 99 of the Crimes Act 1961; and a foreign public ofﬁcial (c) 463 Part D s DB 46 Income Tax Act 2007 Reprinted as at 5 January 2010 (5) routine government action is deﬁned in section 105C of the Crimes Act 1961.
Link with subpart DA This section overrides the general permission.
Deﬁned in this Act: amount, beneﬁt, bribe, business, deduction, foreign coun- try, foreign public ofﬁcial, general permission, New Zealand, pay, public ofﬁ- cial, routine government action Compare: 2004 No 35 s DB 36 Pollution control DB 46 Avoiding, remedying, or mitigating effects of discharge of contaminant When this section applies This section applies when a person— (a) (b) carries on a business in New Zealand; and the person incurs, in the business or in ending the oper- ations of the business, expenditure that is— (i) of a kind listed in schedule 19, part B (Expend- iture in avoiding, remedying, or mitigating detri- mental effects of discharge of contaminant) and not in schedule 19, part C; and not incurred in relation to revenue account prop- erty other than land that is subject to section CB 8 (Disposal: land used for landﬁll, if notice of election); and (ii) (c) no other provision allows a deduction for the expend- iture.
Amount and timing of deduction The person is allowed for an income year a deduction for the expenditure of,— (a) if paragraphs (b) and (c) do not apply, an amount that is calculated using the formula— (b) rate × value: if the operations of the business for which the expend- iture was incurred come to an end in the income year, the diminished value or adjusted tax value of the ex- penditure for the income year: (1) (2) 464 (3) (4) (5) Reprinted as at 5 January 2010 (c) Income Tax Act 2007 Part D s DB 46 if an improvement on which the expenditure was in- curred is destroyed, or is rendered useless for the pur- poses for which the expenditure was incurred, and para- graph (b) does not apply, the diminished value or ad- justed tax value of the expenditure for the income year.
Deﬁnition of items in formula The items in the formula in subsection (2)(a) are deﬁned in subsections (4) and (6).
Rate Rate is— (a) (b) (c) 100%, if the expenditure is of a kind listed in schedule 19, part A, item 1, or part B and neither paragraph (b) nor (c) applies: the appropriate rate under subsection (5) if— (i) the expenditure is of a kind listed in schedule 19, part A, items 2 to 5; and paragraph (c) does not apply: (ii) the rate for the kind of expenditure, the income year, the valuation method adopted under subsection (6), and the person, determined by the Commissioner under section 91AAN of the Tax Administration Act 1994, if such a rate is determined.
Banded straight-line rate or corresponding diminishing value rate The rate for expenditure if the requirements of subsection (4)(b) are met is— (a) the straight-line rate set out in schedule 12, column 2 (Old banded rates of depreciation) that is nearest to the rate calculated for the expenditure using the formula in subsection (7), if the person chooses to use the straight- line method: the diminishing value rate set out in schedule 12, col- umn 1 that corresponds to the straight-line rate under paragraph (a), if the person chooses to use the dimin- ishing value method.
(b) Value Value is— (6) 465 Part D s DB 47 Income Tax Act 2007 Reprinted as at 5 January 2010 (a) (b) the adjusted tax value of the expenditure, if the person chooses to use the straight-line method: the diminished value of the expenditure for the income year, if the person chooses to use the diminishing value method.
Formula for rate for expenditure with assumed life The formula for the straight-line rate for a kind of expenditure to which subsection (4)(b) applies is— Deﬁnition of item in formula In the formula in subsection (7), assumed life for expenditure and an income year is,— (a) for expenditure associated with a business activity that does not require a resource consent, 35: for expenditure associated with a business activity that requires a resource consent, the lesser of 35 and the number of the years in the period of the resource consent that include or follow the time at which the expenditure is incurred.
(b) Link with subpart DA This section overrides the capital limitation.

The general per- mission must still be satisﬁed and the other general limitations still apply.
Deﬁned in this Act: amount, business, capital limitation, deduction, diminished value, general limitation, general permission, income year, New Zealand Compare: 2004 No 35 s DB 37 (7) (8) (9) DB 47 Payments for remitted amounts Repayments When this section applies This section applies when— (a) a person is allowed a deduction in an income year of an amount that the person is liable to pay; and the person’s liability for the amount is later remitted or cancelled, wholly or partly; and the remission or cancellation is not a dividend; and (b) (c) (1) 466 Reprinted as at 5 January 2010 Income Tax Act 2007 Part D s DB 48 (d) (e) (f) the person is not required to calculate a base price ad- justment by section EW 29 (When calculation of base price adjustment required); and the amount to which the remission or cancellation ap- plies is assessable income of the person under section CG 2 (Remitted amounts); and the person makes a payment for the amount to which the remission or cancellation applies.
Amount, and timing, of deduction The person is allowed a deduction for the amount of the pay- ment in the income year in which it is made.

Link with subpart DA This section supplements the general permission.

The general limitations still apply.
Deﬁned in this Act: amount, assessable income, deduction, dividend, general limitation, general permission, income year, pay, supplement Compare: 2004 No 35 s DB 38 (2) (3) DB 48 Restrictive covenant breached (1) (2) (3) When this section applies This section applies when an employee (person A) makes a payment to another person (person B) in the following cir- cumstances: (a) person A derives assessable income under section CE 9 (Restrictive covenants); and person A breaches a term of the undertaking they gave to person B; and person A is, consequently, required to make the pay- ment to person B.
(b) (c) Deduction Person A is allowed a deduction for the payment.

Amount of deduction The amount of the deduction is the lesser of the following: (a) the assessable income that person A derives under sec- tion CE 9; and the payment that person A makes to person B, exclud- ing interest, punitive damages, exemplary damages, and person B’s legal costs and other expenses.
(b) 467 Part D s DB 49 Income Tax Act 2007 Reprinted as at 5 January 2010 (4) (5) Timing of deduction The deduction is allocated to the income year in which person A makes the payment to person B.

Link with subpart DA This section supplements the general permission and overrides the employment limitation.

The other general limitations still apply.
Deﬁned in this Act: amount, assessable income, deduction, employee, employ- ment limitation, general limitation, general permission, income year, interest, pay, supplement Compare: 2004 No 35 s DB 39 Matching rules: revenue account property, prepayments, and deferred payments DB 49 Adjustment for opening values of trading stock, livestock, and excepted ﬁnancial arrangements When this section applies This section applies when a person has some or all of the fol- lowing at the start of an income year: (a) trading stock valued under subpart EB (Valuation of trading stock (including dealer’s livestock)): livestock valued under subpart EC (Valuation of live- stock): excepted ﬁnancial arrangements that are revenue ac- count property valued under subpart ED (Valuation of excepted ﬁnancial arrangements): a share supplier’s share-lending right, if the original shares that relate to the right are excepted ﬁnancial ar- rangements described in paragraph (c).
(b) (c) (d) Deduction: opening value of trading stock The person is allowed a deduction in the income year for the value that the trading stock had at the end of the previous in- come year, as calculated under section EB 3 (Valuation of trad- ing stock).

Deduction: opening value of livestock The person is allowed a deduction in the income year for the value that the livestock had at the end of the previous income year, as calculated under section EC 2 (Valuation of livestock).
(1) (2) (3) 468 Reprinted as at 5 January 2010 Income Tax Act 2007 Part D s DB 51 (4) (5) Deduction: opening value of excepted ﬁnancial arrangements The person is allowed a deduction in the income year for the value that the excepted ﬁnancial arrangements or share-lend- ing right had at the end of the previous income year, as cal- culated under section ED 1 (Valuation of excepted ﬁnancial arrangements).

Link with subpart DA This section supplements the general permission.
The general limitations still apply.

Deﬁned in this Act: deduction, excepted ﬁnancial arrangement, general limita- tion, general permission, income year, original share, revenue account property, share-lending right, share supplier, supplement, trading stock Compare: 2004 No 35 s DB 40 DB 50 Adjustment for prepayments (1) (2) (3) When this section applies This section applies when a person has, under section EA 3 (Prepayments), an unexpired amount of expenditure at the end of an income year.
Deduction The person is allowed a deduction for the unexpired amount for the following income year.

Link with subpart DA This section supplements the general permission.

The gen- eral limitations still apply, but not to the extent to which any relevant general limitation was overridden by a provision that initially allowed a deduction for the expenditure, whether in this Act or an earlier Act.
Deﬁned in this Act: amount, deduction, general limitation, general permission, income year, supplement Compare: 2004 No 35 s DB 41 DB 51 Adjustment for deferred payment of employment income (1) When this section applies This section applies when a person has, under section EA 4 (Deferred payment of employment income), an unpaid amount of expenditure on employment income in an income year for 469 Part D s DB 51B Income Tax Act 2007 Reprinted as at 5 January 2010 (2) (3) which the person is to be allowed a deduction in the following income year.
Deduction The person is allowed a deduction for the unpaid amount for the following income year.

Link with subpart DA This section supplements the general permission.

The gen- eral limitations still apply, but not to the extent to which any relevant general limitation was overridden by a provision that initially allowed a deduction for the expenditure, whether in this Act or an earlier Act.
Deﬁned in this Act: amount, deduction, employment income, general limita- tion, general permission, income year, pay, supplement Compare: 2004 No 35 s DB 42 Adjustments for leases that become ﬁnance leases Heading: inserted, on 1 April 2008, by section 341 of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
DB 51B Adjustments for leases that become ﬁnance leases When this section applies This section applies when an adjustment made under section FA 11 (Adjustments for leases that become ﬁnance leases) is negative.

Deduction The amount of the adjustment is a deduction of the lessor or the lessee, as applicable, in the income year in which the lease becomes a ﬁnance lease.

Link with subpart DA This section supplements the general permission.

The general limitations still apply.


Deﬁned in this Act: deduction, ﬁnance lease, general limitation, general per- mission, income year, lease Compare: 2004 No 35 s FC 8H(7) Section DB 51B: inserted, on 1 April 2008, by section 341 of the Taxation (Busi- ness Taxation and Remedial Matters) Act 2007 (2007 No 109).
(1) (2) (3) 470 Reprinted as at 5 January 2010 Income Tax Act 2007 Part D s DB 53 Change to accounting practice DB 52 Adjustment for change to accounting practice (1) (2) (3) When this section applies This section applies when a person has, under section EG 2(2) or (3) (Adjustment for changes to accounting practice), an amount owed by them or an amount owing to them as quanti- ﬁed in those subsections.
Amount, and timing, of deduction The person is allowed a deduction of the amount as quantiﬁed and allocated under section EG 2.

Link with subpart DA This section supplements the general permission.

The general limitations still apply.
Deﬁned in this Act: amount, deduction, general limitation, general permission, supplement Compare: 2004 No 35 s DB 43 Investment income DB 53 Portfolio investment entities: zero-rated portfolio investors and allocated losses (1) When this section applies This section applies in relation to an investor in a portfolio investor class of a portfolio tax rate entity when— (a) either— (i) (ii) the entity pays tax under section HL 22 (Pay- ments of tax by portfolio tax rate entity making no election) and the investor exits from the entity during a portfolio calculation period; or the investor is a zero-rated portfolio investor for the period; and (b) the period includes a portfolio allocation period for which the investor is allocated an amount of portfolio investor allocated loss under subpart HL (Portfolio investment entities).
(2) Deduction The investor is allowed a deduction for the income year for the amount of portfolio investor allocated loss if— 471 Part D s DB 54 Income Tax Act 2007 Reprinted as at 5 January 2010 (3) (a) (b) the portfolio tax rate entity pays tax under section HL 22 and the investor’s income year includes the end of the portfolio tax rate entity’s income year: the portfolio tax rate entity pays tax under section HL 24 (Payments of tax by portfolio tax rate entity choosing to make payments when investor leaves) and the investor’s income year includes the end of the tax year in which the portfolio calculation period occurs.
Link with subpart DA This section supplements the general permission.

The general limitations still apply.
Deﬁned in this Act: deduction, general limitation, general permission, income year, investor, pay, portfolio allocation period, portfolio calculation period, portfolio investor allocated loss, portfolio investor class, portfolio tax rate en- tity, tax, tax year, zero-rated portfolio investor Compare: 2004 No 35 s DB 43B Section DB 53(1): substituted (with effect on 1 April 2008), on 6 October 2009, by section 76(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section DB 53(2)(a): amended, on 1 April 2008, by section 342(1) of the Tax- ation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section DB 53(2)(a): amended, on 1 April 2008, by section 342(2) of the Tax- ation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section DB 53 compare note: amended, on 1 April 2008, by section 342(3) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
DB 54 Portfolio investment entities: treatment of certain fees charged When this section applies This section applies when— (a) (b) an investor in a portfolio investment class of a portfolio tax rate entity incurs fees in relation to the investor’s portfolio investor interest; and the amount of the fees is included in the calculation of the entity’s portfolio entity tax liability under section HL 21 (Portfolio entity tax liability and tax credits of portfolio tax rate entity for period) for the investor, the portfolio investment class, and a portfolio calculation period.
(1) 472 Reprinted as at 5 January 2010 Income Tax Act 2007 Part D s DB 55 (2) (3) No deduction The investor is denied a deduction for the amount of the fees.

Link with subpart DA This section overrides the general permission.
Deﬁned in this Act: amount, deduction, general permission, investor, pay, port- folio calculation period, portfolio investor class, portfolio investor interest, port- folio tax rate entity Compare: 2004 No 35 s DB 43C DB 55 Expenditure incurred in deriving exempt dividend Exempt income (1) (2) (3) Deduction A company that derives a dividend that is exempt income of the company under section CW 9 (Dividend derived from for- eign company) is allowed a deduction of the amount of the ex- penditure incurred by the company in deriving the dividend.
Deﬁnition of items in formula [Repealed] [Repealed] Link with subpart DA This section overrides the exempt income limitation.

The gen- eral permission must still be satisﬁed and the other general limitations still apply.
Deﬁned in this Act: company, deduction, dividend, exempt income, exempt income limitation, general limitation, general permission, non-resident, share- holder Compare: 2004 No 35 s DB 44 Section DB 55(1) heading: substituted (with effect on 30 June 2009), on 6 Oc- tober 2009, by section 79(1) of the Taxation (International Taxation, Life Insur- ance, and Remedial Matters) Act 2009 (2009 No 34).
Section DB 55(1): substituted (with effect on 30 June 2009), on 6 October 2009, by section 79(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section DB 55(2) heading: repealed (with effect on 30 June 2009), on 6 October 2009, pursuant to section 79(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section DB 55(2): repealed (with effect on 30 June 2009), on 6 October 2009, by section 79(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section DB 55 list of deﬁned terms CTR company: repealed (with effect on 30 June 2009), on 6 October 2009, by section 79(2) of the Taxation 473 Part D s DB 56 Income Tax Act 2007 Reprinted as at 5 January 2010 (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Use of motor vehicle under certain arrangements DB 56 Expenditure incurred in operating motor vehicle under agreement or arrangement affected by section CX 7 (1) (2) Deduction A party to an agreement or arrangement referred to in section CX 7 (Employer or associated person treated as having right to use vehicle under arrangement) is allowed a deduction for expenditure or an amount of depreciation loss incurred in op- erating a motor vehicle during a period for which an employer or associated person is treated under that section as having a right to use the vehicle.
Link with subpart DA This section overrides the private limitation and exempt in- come limitation.

The general permission must still be satisﬁed and the other general limitations still apply.
Deﬁned in this Act: amount, arrangement, deduction, depreciation loss, exempt income limitation, general limitation, general permission, lease, motor vehicle Compare: 2004 No 35 s DB 45 Payments to spouses, civil union partners, or de facto partners DB 57 Payments to spouses, civil union partners, or de facto partners other than for services No deduction without approval A person is denied a deduction for a payment to their spouse, civil union partner, or de facto partner for something other than services, without the Commissioner’s approval.
Commissioner’s approval The Commissioner may approve the deduction only if— (a) the Commissioner considers that the payment is gen- uine; and the payment is incurred by the person exclusively in deriving their assessable income; and the approval is granted before the deduction is claimed.

(b) (c) (1) (2) 474 Reprinted as at 5 January 2010 Income Tax Act 2007 Part D s DB 58 (3) Link with subpart DA This section overrides the general permission.
Deﬁned in this Act: assessable income, Commissioner, deduction, general per- mission, pay Compare: 2004 No 35 s GD 4 Avoidance and non-market transactions DB 58 Adjustment for avoidance arrangements (1) (2) (3) Deduction denied An amount is not a deduction of a person if the deduction is denied under— (a) (b) section GA 1 (Commissioner’s power to adjust): section GB 17 (Excessive amounts for ﬁlm rights or production expenditure): section GB 18 (Arrangements to acquire ﬁlm rights or incur production expenditure): section GB 23 (Excessive remuneration to relatives): section GB 25 (Close company remuneration to share- holders, directors, or relatives).
(c) (d) (e) Deduction An amount treated as a deduction of a person under any of the following sections is a deduction of the person: (a) (b) (c) (d) section GA 1: section GB 23: section GB 29 (Attribution rule: calculation): section GB 46 (Deferral of surplus deductions from arrangements).

Link with subpart DA Subsection (1) overrides, and subsection (2) supplements, the general permission.

The general limitations still apply.
Deﬁned in this Act: amount, arrangement, close company, Commissioner, de- duction, depreciation loss, director, ﬁlm production expenditure, ﬁlm rights, general limitation, general permission, relative, shareholder Compare: 2004 No 35 ss GB 1(1)–(2C), GC 11A, GC 31, GD 3(1), (2), GD 5, GD 12, GD 12A 475 Part D s DB 59 Income Tax Act 2007 Reprinted as at 5 January 2010 DB 59 Market value substituted (1) (2) (3) Transfer pricing arrangements A person may be denied a deduction under section GC 7 (Ex- cess amount payable by person).
Acquisition for below market value A person may be treated as providing an amount— (a) for acquisition of trading stock, under section GC 1 (Disposals of trading stock at below market value): for lease of a property, under section GC 5 (Leases for inadequate rent).

(b) Link with subpart DA Subsection (1) overrides, and subsection (2) supplements, the general permission.

The general limitations still apply.


Deﬁned in this Act: deduction, general limitations, general permission, lease, trading stock Compare: 2004 No 35 ss GD 7, GD 10 Emissions units and liabilities under Climate Change Response Act 2002 Heading: substituted (with effect on 1 January 2009), on 6 October 2009, by section 80 of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Heading: added, on 26 September 2008, by section 71 of the Climate Change Response (Emissions Trading) Amendment Act 2008 (2008 No 85).

DB 60 Acquisition of emissions units When this section applies This section applies when a person is transferred an emis- sions unit under section 64, or Part 4 subpart 2, of the Climate Change Response Act 2002 for a price of zero.

No deduction The person is denied a deduction for an amount of expenditure or loss incurred as consideration for the emissions unit.
Link with subpart DA Subsection (2) overrides the general permission.

Deﬁned in this Act: amount, emissions unit, general permission, loss Section DB 60: substituted (with effect on 1 January 2009), on 6 October 2009, by section 80 of the Taxation (International Taxation, Life Insurance, and Re- medial Matters) Act 2009 (2009 No 34).
(1) (2) (3) 476 Reprinted as at 5 January 2010 Income Tax Act 2007 Part D s DB 61 Section DB 60: added, on 26 September 2008, by section 71 of the Climate Change Response (Emissions Trading) Amendment Act 2008 (2008 No 85).

DB 60B Liabilities for emissions (1) (2) (3) When this section applies This section applies when a person incurs a liability under the Climate Change Response Act 2002 for emissions relating to post-1989 forest land or pre-1990 forest land.
No deduction The person is denied a deduction for the liability.

Link with subpart DA Subsection (2) overrides the general permission.

Deﬁned in this Act: amount, deduction, general permission, post-1989 forest land, pre-1990 forest land Section DB 60B: inserted (with effect on 1 April 2008), on 6 October 2009, by section 81(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
DB 61 Surrender of pre-1990 forest land units for post-1989 forest land emissions (1) (2) When this section applies This section applies when a person surrenders a pre-1990 for- est land unit under the Climate Change Response Act 2002 to meet a liability to surrender units in relation to post-1989 for- est land.
Treated as disposal and reacquisition The person is treated as having disposed of the pre-1990 forest land unit to an unrelated person and as having then reacquired it, in each case, immediately before the surrender and for an amount equal to the unit’s market value at the time.

Deﬁned in this Act: amount, post-1989 forest land, pre-1990 forest land unit, surrender Section DB 61: added, on 26 September 2008, by section 71 of the Climate Change Response (Emissions Trading) Amendment Act 2008 (2008 No 85).
Legal expenses Heading: added, on 1 April 2009, by section 4 of the Taxation (Business Tax Measures) Act 2009 (2009 No 5).

477 Part D s DB 62 Income Tax Act 2007 Reprinted as at 5 January 2010 DB 62 Deduction for legal expenses (1) (2) (3) (4) When this section applies This section applies to a person when their total legal expenses for an income year is equal to or less than $10,000.

Deduction The person is allowed a deduction for the legal expenses.
Deﬁnition For the purposes of this section, legal expenses means fees for legal services (as deﬁned in the Lawyers and Conveyancers Act 2006) provided by a person who holds a practising certiﬁ- cate issued by the New Zealand Law Society or an Australian equivalent.

Link with subpart DA This section overrides the capital limitation.

The general per- mission must still be satisﬁed and the other general limitations still apply.
Deﬁned in this Act: amount, capital limitation, deduction, general limitation, general permission, income year, legal expenses Section DB 62: added, on 1 April 2009, by section 4 of the Taxation (Business Tax Measures) Act 2009 (2009 No 5).

Subpart DC—Employee or contractor expenditure DC 1 Lump sum payments on retirement Deduction A person who carries on a business is allowed a deduction for a lump sum paid as a bonus, gratuity, or retiring allowance to an employee on retirement.
Inclusions For the purposes of subsection (1), a lump sum paid on retire- ment includes a lump sum paid to— (a) an employee when they end their employment or ser- vice through redundancy, loss of ofﬁce, or similar cir- cumstances: a former employee when they are unable to be reem- ployed in seasonal work in circumstances that would be (b) (1) (2) 478 Reprinted as at 5 January 2010 Income Tax Act 2007 Part D s DC 2 (3) (4) (5) considered the loss of employment or service through redundancy if they resulted in ending the seasonal work.
Exclusion This section does not apply to the extent to which the person has accepted a liability, as described in section DC 10(1)(c), to pay an amount of employment income.

Timing of deduction The deduction is allocated to the income year in which the lump sum is paid.

Link with subpart DA This section supplements the general permission and overrides the capital limitation.

The other general limitations still apply.
Deﬁned in this Act: amount, business, capital limitation, deduction, employee, employment income, general limitation, general permission, income year, pay, supplement Compare: 2004 No 35 s DC 1 DC 2 Pension payments to former employees (1) When subsection (2) applies Subsection (2) applies when— (a) (b) (c) (d) a person, other than a close company, carries on a busi- ness; and a former employee has retired from their employment in the business or their employment has ended through redundancy or similar circumstances; and they are paid a pension in consideration of their past services in the business; and they or their spouse, civil union partner, or de facto part- ner has a right to receive the pension under a deed for a ﬁxed period or for life or, in the case of the spouse, civil union partner, or de facto partner, until the spouse, civil union partner, or de facto partner enters a new marriage, civil union, or de facto relationship.
(2) Deduction: not close company The person is allowed a deduction for a reasonable amount paid as the pension to the former employee or their surviving spouse, civil union partner, or de facto partner.
479 Part D s DC 2 Income Tax Act 2007 Reprinted as at 5 January 2010 When subsection (4) applies Subsection (4) applies when— (a) (b) (c) (d) (e) (f) a close company carries on a business; and a former employee of the company is or has been a shareholder in it or has a relative who is or has been a shareholder in it; and the former employee’s employment in the company was genuine; and they have retired from the employment or their employ- ment has ended through redundancy or similar circum- stances; and they are paid a pension in consideration of their past services in the business; and they or their spouse, civil union partner, or de facto part- ner has a right to receive the pension under a deed for a ﬁxed period or for life or, in the case of the spouse, civil union partner, or de facto partner, until the spouse, civil union partner, or de facto partner enters a new marriage, civil union, or de facto relationship.
Deduction: close company The close company is allowed a deduction for the amount paid as the pension to the former employee or their surviving spouse, civil union partner, or de facto partner.

Amount of deduction under subsection (4) The amount of the deduction allowed under subsection (4) is the amount that the company would have paid if the former employee or their relative were not, or had not been, a share- holder in the company.
Timing of deductions A deduction under this section is allocated to the income year in which the amount is paid.

Relationship with section FB 11 Section FB 11 (Pension payments to former employees) ex- pands on this section.

(3) (4) (5) (6) (7) 480 Reprinted as at 5 January 2010 Income Tax Act 2007 Part D s DC 3 (8) Link with subpart DA This section supplements the general permission and overrides the capital limitation.

The other general limitations still apply.


Deﬁned in this Act: amount, business, capital limitation, close company, de- duction, employee, general limitation, general permission, income year, pay, relative, shareholder, supplement Compare: 2004 No 35 s DC 2 DC 3 Pension payments to former partners (1) (2) (3) When this section applies This section applies when— (a) (b) a person is a partner in a partnership; or a person who was a partner in a partnership is in busi- ness on their own account.
Exclusion This section does not apply to a partnership or a business that is engaged wholly or mainly in investing money or in hold- ing, or dealing in, shares, securities, investments, or estates or interests in land.
Deduction The person is allowed a deduction for their share of an amount, to the extent to which the amount is reasonable, paid as a pen- sion to a former partner, or to the spouse, civil union partner, or de facto partner of a deceased former partner, if— (a) the partnership in which the former partner was a part- ner (the old partnership) carried on the same business as that now carried on either by the partnership that is paying the pension or by the person in business who is paying the pension; and the former partner retired from the old partnership or their employment ended through retirement; and the former partner or their spouse, civil union partner, or de facto partner has a right to receive the pension under a deed for a ﬁxed period or for life or, in the case of the spouse, civil union partner, or de facto partner, until the spouse, civil union partner, or de facto partner enters a new marriage, civil union, or de facto relationship; and the pension is paid for the former partner’s services in the old partnership.
(b) (c) (d) 481 Part D s DC 4 Income Tax Act 2007 Reprinted as at 5 January 2010 (4) Link with subpart DA This section supplements the general permission and overrides the capital limitation.

The other general limitations still apply.
Deﬁned in this Act: amount, business, capital limitation, deduction, estate, gen- eral limitation, general permission, interest, land, pay, share, supplement Compare: 2004 No 35 s DC 3 DC 4 Payments to working partners Deduction A person who is a partner in a partnership is allowed a de- duction for their share of a payment made under a contract of service to a partner who personally and actively performs du- ties that— (a) are required to be performed in carrying on the business of the partnership; and are performed by the partner during the currency of the contract of service.
(b) Exclusion This section does not apply to a partnership that is engaged wholly or mainly in investing money or in holding, or deal- ing in, shares, securities, investments, or estates or interests in land.

Amount of deduction The amount of the deduction is limited to the amount of the payment authorised by the contract of service and any bonus, whether or not the payment of a bonus is authorised by the contract.
Relationship with section GB 23 This section is overridden by section GB 23 (Excessive remu- neration to relatives).
Meaning of contract of service In this section, contract of service, for a partner and a part- nership, means an agreement that— (a) speciﬁes the terms and conditions of the services to be performed by the partner; and speciﬁes the amount payable to the partner for the per- formance of the services; and is entered into by all the partners in the partnership; and (b) (c) (1) (2) (3) (4) (5) 482 Reprinted as at 5 January 2010 Income Tax Act 2007 Part D s DC 6 (d) is in writing.
(6) Link with subpart DA This section supplements the general permission.

The general limitations still apply.


Deﬁned in this Act: amount, business, contract of service, deduction, estate, general limitation, general permission, interest, land, pay, share, supplement Compare: 2004 No 35 s DC 4 DC 5 Payments to spouses, civil union partners, or de facto partners: services (1) (2) (3) (4) No deduction without approval A person is denied a deduction for a payment to their spouse, civil union partner, or de facto partner for services without the Commissioner’s approval.
When Commissioner can give consent The Commissioner may approve the deduction only if— (a) the Commissioner considers that the payment is for ser- vices rendered; and the services are not domestic services or otherwise ser- vices connected with the home; and the payment is incurred by the person exclusively in deriving their assessable income; and the approval is granted before the deduction is claimed.
(b) (c) (d) Relationship with section GB 23 This section is overridden by section GB 23 (Excessive remu- neration to relatives).

Link with subpart DA This section overrides the general permission.
Deﬁned in this Act: assessable income, Commissioner, deduction, general per- mission, pay Compare: 2004 No 35 s GD 4 DC 6 Contributions to employees’ beneﬁt funds (1) Deduction An employer is allowed a deduction for an amount that they pay to, or set aside as, a fund to provide individual personal beneﬁts to their employees if— (a) the fund is not a superannuation scheme; and 483 Part D s DC 7 Income Tax Act 2007 Reprinted as at 5 January 2010 (2) (b) the employees’ rights to receive beneﬁts from the fund are fully secured.
Link with subpart DA This section supplements the general permission and overrides the capital limitation.

The other general limitations still apply.


Deﬁned in this Act: amount, capital limitation, deduction, employee, employer, general limitation, general permission, pay, superannuation scheme, supple- ment Compare: 2004 No 35 s DC 5 DC 7 Contributions to employees’ superannuation schemes (1) Deduction An employer is allowed a deduction for a superannuation con- tribution to an employees’ superannuation scheme.
Exclusion [Repealed] (1B) [Repealed] Timing of deduction The deduction is allocated to the income year in which the employer makes the contribution.

Relationship with section EJ 21 Subsection (2) is overridden by section EJ 21 (Contributions to employees’ superannuation schemes).

Link with subpart DA This section overrides the capital limitation.

The general per- mission must still be satisﬁed and the other general limitations still apply.
Deﬁned in this Act: capital limitation, deduction, employee, employer, gen- eral limitation, general permission, income year, superannuation contribution, superannuation scheme, tax credit Compare: 2004 No 35 s DC 6 Section DC 7(1): amended (with effect on 1 April 2008), on 6 October 2009, by section 82(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section DC 7(1B) heading: repealed, on 1 April 2009, pursuant to section 52 of the Taxation (Urgent Measures and Annual Rates) Act 2008 (2008 No 105).

Section DC 7(1B): repealed, on 1 April 2009, by section 52 of the Taxation (Urgent Measures and Annual Rates) Act 2008 (2008 No 105).
(2) (3) (4) 484 Reprinted as at 5 January 2010 Income Tax Act 2007 Part D s DC 9 Section DC 7(1B): amended (with effect on 1 April 2008), on 6 October 2009, by section 82(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section DC 7 list of deﬁned terms superannuation contribution: inserted (with effect on 1 April 2008), on 6 October 2009, by section 82(3) of the Tax- ation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section DC 7 list of deﬁned terms tax credit: inserted, on 1 April 2008, by section 124(2) of the Taxation (KiwiSaver) Act 2007 (2007 No 110).
DC 8 Attribution of personal services (1) (2) (3) (4) When this section applies This section applies when, under sections GB 27 to GB 29 (which relate to the attribution rule for income from personal services), an amount of income of a person (the associated entity) is attributed to another person (the working person).

Deduction The associated entity is allowed a deduction for the amount attributed.
Timing of deduction The deduction is allocated to the income year in which the amount is attributed to the working person.

Link with subpart DA This section supplements the general permission and overrides all the general limitations.
Deﬁned in this Act: amount, deduction, general limitation, general permission, income year, supplement Compare: 2004 No 35 s DC 7 DC 9 Restrictive covenants or exit inducements (1) (2) Deduction A person is allowed a deduction for expenditure that they incur that is income of another person under section CE 9 (Restrict- ive covenants) or CE 10 (Exit inducements).
Exclusion This section does not apply if— (a) (b) the other person performs services for the person; and expenditure that the person would have incurred for the services, if the other person had not derived an amount 485 Part D s DC 10 Income Tax Act 2007 Reprinted as at 5 January 2010 (3) that is income under section CE 9 or CE 10, would have been of a capital nature.

Link with subpart DA This section overrides the capital limitation.
The general per- mission must still be satisﬁed and the other general limitations still apply.
Deﬁned in this Act: amount, capital limitation, general limitation, general per- mission, income Compare: 2004 No 35 s DC 8 DC 10 Sale of business: transferred employment income obligations When this section applies This section applies when— (a) (b) (c) a person (the seller) sells a business, or a part of a busi- ness, to another person (the buyer); and an employee of the seller working in the business, or the part of the business, becomes an employee of the buyer under the sale arrangements; and the seller and the buyer agree in writing, under the sale arrangements, that the buyer assumes the obligation to pay an amount of employment income to the employee.
Deduction: parties not associated If the seller and the buyer are not associated persons at the time of the sale,— (a) the seller is allowed a deduction, in the income year of the sale, for the provision made by the seller for any part of the amount that remains contingent on the employee continuing in employment or any similar factor; and the seller is treated under section EA 4(4) (Deferred payment of employment income) as having paid the amount of the provision at the time of sale.
(b) Deduction: parties associated If the seller and the buyer are associated persons at the time of the sale,— (a) the buyer is allowed a deduction for the provision made by the seller for the amount of employment income if the seller would have been allowed a deduction for the (1) (2) (3) 486 Reprinted as at 5 January 2010 Income Tax Act 2007 Part D s DC 11 (4) (5) (b) amount if the business, or the part of the business, had not been sold; and subsection (2) does not apply, and section EA 4(5) will mean that the seller cannot get a deduction for the amount.
Deduction: excess The buyer is allowed a deduction for any part of the amount of employment income that the buyer pays that is more than the provision made by the seller for the amount.
Link with subpart DA The link between this section and subpart DA (General rules) is as follows: (a) subsection (2)(a) supplements the general permission; the general limitations still apply: subsections (3)(a) and (4) override the capital limita- tion; the general permission must still be satisﬁed and the other general limitations still apply.
(b) Deﬁned in this Act: amount, arrangement, associated person, business, capital limitation, deduction, employee, employment income, general limitation, gen- eral permission, income year, pay, supplement, time of the sale Compare: 2004 No 35 s DC 9 DC 11 Transfers of employment income obligations to associates (1) When this section applies This section applies when— (a) (b) (c) (d) an employee of a person (person A) becomes an em- ployee of another person (person B); and person A and person B are associated persons at the time; and person B assumes person A’s obligation to pay an amount of employment income to the employee; and the employee’s becoming an employee of person B does not result from the sale by person A of a business, or a part of a business, to person B.
(2) Deduction Person B is allowed a deduction for the amount of employment income if person A would have been allowed a deduction for the amount if the transfer had not occurred.

487 Part D s DC 12 Income Tax Act 2007 Reprinted as at 5 January 2010 (3) Link with subpart DA This section overrides the capital limitation.

The general per- mission must still be satisﬁed and the other general limitations still apply.
Deﬁned in this Act: amount, associated person, business, capital limitation, deduction, employee, employment income, general limitation, general permis- sion, pay Compare: 2004 No 35 s DC 10 DC 12 Loans to employees under share purchase schemes Deduction An employing company that provides ﬁnancial assistance to an employee by way of an interest-free loan under a share pur- chase scheme is allowed a deduction for providing the assist- ance, under the following conditions: (a) the scheme must have the Commissioner’s approval, which must be given if the scheme meets all the criteria set out in sections DC 13 and DC 14; and the deduction is allowed only for the 5 years after the date of the loan.
(b) Amount, and timing, of deduction The amount of the deduction in each income year is equal to the interest that would have been payable by the employing company for the income year if the amount of the loan had been borrowed by the company at an interest rate of 10% an- nually with interest calculated with monthly rests, and as if re- payments by the employee under the scheme were repayments of the notional loan by the company.
Shares issued by another group company Subsection (4) applies when— (a) (b) (c) an employing company is a member of a group of com- panies; and an employee of the employing company acquires under a share purchase scheme a share issued by another com- pany (the issuing company) in the group; and ﬁnancial assistance is provided to the employee by way of an interest-free loan under the share purchase scheme; and (1) (2) (3) 488 Reprinted as at 5 January 2010 Income Tax Act 2007 Part D s DC 13 (4) (5) (d) the scheme has the Commissioner’s approval, which must be given if the scheme meets all the criteria set out in sections DC 13 and DC 14.
Deduction for issuing company The issuing company is entitled to the deduction that the em- ploying company would have been allowed under subsections (1) and (2) had the employing company provided the loan.

The employing company is not allowed a deduction for the loan under those subsections.

Link with subpart DA This section supplements the general permission and overrides the capital limitation.

The other general limitations still apply.
Deﬁned in this Act: amount, capital limitation, Commissioner, company, de- duction, employee, employing company, general limitation, general permis- sion, group of companies, income year, interest, pay, share, share purchase scheme, supplement, year Compare: 2004 No 35 s DC 11 DC 13 Criteria for approval of share purchase schemes: before period of restriction ends (1) (2) (3) What this section does This section sets out the criteria, relating to the provisions of a share purchase scheme on the period of restriction, that the Commissioner applies in determining whether or not to ap- prove the scheme.
Purchase of shares The scheme must provide for— (a) (b) the shares to be available for no more than their market value at the date of purchase or subscription; and the amount that an employee spends on buying shares under the scheme or any similar scheme to be $2,340 or less in a 3 year period.
Eligibility The scheme must provide for— (a) employees to be eligible to participate equally in the scheme, that is,— 489 Part D s DC 13 Income Tax Act 2007 Reprinted as at 5 January 2010 (i) (ii) every full-time permanent employee on an equal basis with every other full-time permanent em- ployee; and if the scheme applies to part-time employees and seasonal employees, every part-time employee on an equal basis with every other part-time em- ployee and every seasonal employee on an equal basis with every other seasonal employee; and (b) any minimum period of employment or service before employees are eligible to participate,— (i) for full-time employees, to be no more than 3 years’ full-time work; and for other employees, an accumulated period that is the equivalent of 3 years’ full-time work.
(ii) Loans to employees The scheme must provide for— (a) a loan to an employee to buy shares to be free of interest and other charges; and any minimum amount of loan to be $624 or less; and employees to be able to repay the loan by regular equal instalments at intervals of 1 month or less over a period of between 3 years and 5 years from the date of the loan; and employees to be able to choose to repay some or all of the loan before the due date for repayment.
Shares held on trust The scheme must provide for— (a) the trustee of the scheme to hold the shares in trust for the employee; and the trustee to pay any dividends directly to the em- ployee; and the dividends to be treated as having been derived by the employee; and the trustee to be prohibited from applying the amount of any dividend to the repayment of a sum owing to the company or to the trustee; and the employee to be prohibited from charging or dispos- ing of their rights or interests in the shares.
(b) (c) (d) (b) (c) (d) (e) (4) (5) 490 Reprinted as at 5 January 2010 Income Tax Act 2007 Part D s DC 14 (6) (7) Hardship The scheme must provide for a trustee who is satisﬁed that the employee’s continued participation in the scheme has resulted or would result in serious hardship,— (a) with the employee’s agreement, to vary the terms of the repayment of a loan under the scheme; or with the employee’s agreement, to allow the employee to withdraw from the scheme as if they had ended their employment in the circumstances described in section DC 14(4).
(b) Withdrawal from scheme The scheme must provide for— (a) (b) an employee to be able to withdraw from the scheme on giving 3 months’ notice to the trustee; and the employee to be treated for the purposes of the scheme as if they ended their employment with the company on the date the notice takes effect, with the effect that section DC 14(4) and (5) then apply.
Deﬁned in this Act: amount, Commissioner, company, dividend, employee, interest, notice, pay, period of restriction, share, share purchase scheme, trustee, year Compare: 2004 No 35 s DC 12 Section DC 13(5)(d): substituted (with effect on 1 April 2008), on 6 October 2009, by section 83(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
DC 14 Criteria for approval of share purchase schemes: when period of restriction ends (1) (2) What this section does This section sets out the criteria, relating to the provisions of a share purchase scheme on the period when the period of re- striction ends, that the Commissioner applies in determining whether or not to approve the scheme.
General rule The scheme must provide for— (a) the trustee— (i) to transfer the shares to the employee if the em- ployee is still employed by the company; or 491 Part D s DC 15 Income Tax Act 2007 Reprinted as at 5 January 2010 (ii) at the option of the employee, to buy the shares at their market value on the date of purchase; or the trustee to apply subsection (3) or (4), if either ap- plies, in priority to paragraph (a).
(b) (3) (4) (5) Death, accident, sickness, redundancy, or retirement at normal retiring age If the period of restriction ends because the employee ends their employment through death, accident, sickness, redun- dancy, or retirement at normal retiring age, the scheme must provide for— (a) the trustee to transfer the shares to the legal representa- tive of the employee’s estate or to the former employee; or at the option of the legal representative or former em- ployee, the trustee to buy the shares at their market value on the date of purchase, subject to the repayment of any outstanding loan under the scheme for the shares.
(b) Employment ends for other reason If the period of restriction ends because the employee ends their employment for any reason other than a reason described in subsection (3), the scheme must provide for the trustee to buy the shares at their market value on the date on which the employee ends their employment, subject to the repayment of any outstanding loan under the scheme for the shares.
Purchase price when trustee buys shares If the trustee buys the shares when the period of restriction ends, the scheme must provide for the purchase price to be no more than the price paid for the shares by the employee.
Deﬁned in this Act: Commissioner, company, employee, normal retiring age, pay, period of restriction, share, share purchase scheme, trustee Compare: 2004 No 35 s DC 13 Section DC 14(4): amended (with effect on 1 April 2008), on 7 December 2009, by section 13 of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
DC 15 Some deﬁnitions Deﬁnitions In this section, and in sections DC 12 to DC 14,— (1) 492 Reprinted as at 5 January 2010 Income Tax Act 2007 Part D s DC 15 employee— (a) means a person employed by a company: (b) does not include— (i) (ii) (iii) a director of the company; or a person who, with any associated person, holds 10% or more of the issued capital of the com- pany; or a company, a local authority, a public authority, or an unincorporated body of persons employing company, for an employee, means the company that employs the employee normal retiring age means,— (a) for an employee other than one to whom paragraph (b) applies, no less than 60 years of age: for a female employee who is entitled under a contract of employment entered into before 1 April 1978 with the employing company to retire before 60 years of age, no less than 55 years of age: for any employee, an age that is earlier than the age referred to in paragraph (a) or (b) and that the Com- missioner considers reasonable given the nature of the employment or the general terms of employment in the business or occupation of the employee (b) (c) share, for a company whose shares are made available under a share purchase scheme, means a fully paid ordinary share that ranks equally with, and has the same designation as, an existing ordinary voting share in the company trustee means a person or group of persons appointed to ad- minister a share purchase scheme of an employing company, and to hold shares under that scheme on trust for an employee during the period of restriction.
Meaning of period of restriction In this section, and in sections DC 13 and DC 14,— (a) period of restriction is deﬁned in subsections (3) and (4); and for the purposes of this deﬁnition, if an employing com- pany is part of a group of companies, and an employee (b) (2) 493 Part D s DD 1 Income Tax Act 2007 Reprinted as at 5 January 2010 is transferred to another company in the group, the em- ployee is treated as continuing in their employment.
(3) (4) Shorter of 2 periods Period of restriction means the shorter of— (a) a period of 3 years starting on the date the employee buys or subscribes for the shares, or the period of re- payment of a loan made to them under the scheme for this purpose, whichever is longer; and a period starting on the date the employee buys or sub- scribes for the shares and ending on the date the em- ployee ends their employment with the employing com- pany.

(b) This subsection is overridden by subsection (4).
Different period If the employee buys or subscribes for the shares at market value, and the rules of the scheme provide a period of restric- tion, that period applies, but it must be no shorter than the period of repayment of a loan made under the scheme for the purpose, and must be no longer than the period described in subsection (3) that would apply in the absence of this subsec- tion.
Deﬁned in this Act: associated person, company, director, employee, employ- ing company, group of companies, group of persons, local authority, normal retiring age, pay, period of restriction, public authority, share, share purchase scheme, trustee, year Compare: 2004 No 35 s DC 14 Subpart DD—Entertainment expenditure DD 1 Entertainment expenditure generally When this subpart applies This subpart applies when, in deriving income, a person incurs expenditure on entertainment that provides both a private and a business beneﬁt.
No deduction (with exception) The person is denied a deduction for expenditure that they incur on the forms of entertainment set out in section DD 2, except for 50% of the amount that they would have been al- lowed in the absence of this subsection.

(1) (2) 494 Reprinted as at 5 January 2010 Income Tax Act 2007 Part D s DD 2 (3) (4) Meaning of limitation rule Limitation rule means the rule described in subsection (2).

Link with subpart DA This section overrides the general permission.
Deﬁned in this Act: amount, business, deduction, general permission, income, limitation rule Compare: 2004 No 35 s DD 1 DD 2 Limitation rule (1) (2) (3) (4) What rule applies to The expenditure to which the limitation rule applies is expend- iture on the forms of entertainment described in subsections (2) to (6).
Corporate boxes The limitation rule— (a) applies to deductions for expenditure on corporate boxes, corporate marquees or tents, or other exclusive areas, whether temporary or permanent, at— (i) (ii) cultural, sporting, or other recreational events: activities taking place off the person’s business premises; and (b) (c) applies to the cost of tickets or other rights of entry to the areas; and applies to the cost of food and drink incidental to this form of entertainment.
Holiday accommodation The limitation rule— (a) applies to deductions for expenditure on accommoda- tion in a holiday home, time-share apartment, or similar leisure venue; and does not apply to accommodation that is merely inci- dental to business activities or employment duties; and applies to the cost of food and drink incidental to this form of entertainment.
(b) (c) Pleasure craft The limitation rule— (a) applies to deductions for expenditure on yachts or other pleasure craft; and 495 Part D s DD 2 Income Tax Act 2007 Reprinted as at 5 January 2010 (b) applies to the cost of food and drink incidental to this form of entertainment.

Entertainment off premises The limitation rule applies to deductions for expenditure on food and drink that a person provides off their business premises.
Entertainment on premises The limitation rule applies to deductions for expenditure on food and drink that a person provides, other than light refresh- ments such as a morning tea and whether or not guests are present,— (a) on their business premises at a celebration meal, party, reception, or other similar social function: in an area of the premises that at the time is reserved for senior employees to use and is not open to all the person’s employees working in the premises.
(b) Meaning of expenditure Expenditure includes,— (a) in subsections (2) to (4),— (i) (ii) an amount of depreciation loss; and expenditure or loss on running costs and main- tenance and similar matters; and a deduction for a lease premium under section DZ 9 (Premium paid on land leased before 1 April 1993); and (iii) (b) in subsections (2) to (6), any incidental expenditure on matters such as hireage of crockery, glassware, or uten- sils, waiting staff, and music or other entertainment pro- vided in association with the speciﬁed kind of entertain- ment.
Deﬁned in this Act: amount, business, business premises, deduction, depreci- ation loss, expenditure, limitation rule, pay Compare: 2004 No 35 s DD 2 (5) (6) (7) 496 Reprinted as at 5 January 2010 Income Tax Act 2007 Part D s DD 4 DD 3 When limitation rule does not apply The limitation rule is either restricted in its application or does not apply to deductions for the expenditure described in sec- tions DD 4 to DD 8.
Deﬁned in this Act: deduction, limitation rule Compare: 2004 No 35 s DD 3 DD 4 Employment-related activities (1) (2) (3) Business travel expenditure The limitation rule does not apply to a deduction for expend- iture on food or drink consumed by a person while travelling in the course of business or for their employment duties.
How- ever, the limitation rule applies if— (a) the travel is mainly for the purpose of enjoying enter- tainment; or the food or drink is consumed at a meal or function involving an existing or potential business contact as a guest; or the food or drink is consumed at a celebration meal, party, reception, or other similar social function.
(b) (c) Conference expenditure The limitation rule does not apply to a deduction for expend- iture on light refreshments at a conference or educational course or similar event, nor to food or drink consumed at such an event lasting for at least 4 consecutive hours, excluding meal times.

However, the limitation rule applies if the event is mainly for the purpose of entertainment.
Relocation expenses, employees’ meals, and sustenance allowances The limitation rule does not apply to a deduction for expend- iture on— (a) an amount that is exempt income of an employee under sections CW 17B and CW 17C (which relate to reloca- tion expenses, expenditure on overtime meals, and sus- tenance allowances): a light meal consumed as part of the employee’s em- ployment duties in an area of the person’s business premises that at the time is reserved for senior employ- (b) 497 Part D s DD 5 Income Tax Act 2007 Reprinted as at 5 January 2010 ees and their guests to use and is not open to all the person’s employees working in the premises.
Deﬁned in this Act: amount, business, business contacts, business premises, deduction, employee, exempt income, limitation rule Compare: 2004 No 35 s DD 4 Section DD 4(3) heading: substituted (with effect on 1 April 2008), on 6 Octo- ber 2009, by section 84(1) of the Taxation (International Taxation, Life Insur- ance, and Remedial Matters) Act 2009 (2009 No 34).
Section DD 4(3)(a): substituted (with effect on 1 April 2008), on 6 October 2009, by section 84(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section DD 4 list of deﬁned terms amount: inserted (with effect on 1 April 2008), on 6 October 2009, by section 84(3) of the Taxation (International Tax- ation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
DD 5 Promoting businesses, goods, or services Sponsored promotions The limitation rule does not apply to a deduction for expend- iture on entertainment if— (a) the entertainment is sponsored mainly to advertise or promote a person’s business, goods, or services to the public; and none of the following has a greater opportunity to enjoy the entertainment than the public generally: (i) (b) existing business contacts of the person or the person whose business, goods, or services are being advertised or promoted: employees of the person or the person whose business, goods, or services are being advertised or promoted: anyone associated with the person or the person whose business, goods, or services are being ad- vertised or promoted.
(ii) (iii) Incidental costs of promotion The limitation rule does not apply to a deduction for expend- iture on entertainment that is merely an incidental part of— (a) a trade display mainly held to advertise or promote a business, goods, or services: a function open to the public and mainly held to adver- tise or promote a business, goods, or services.
(b) (1) (2) 498 Reprinted as at 5 January 2010 Income Tax Act 2007 Part D s DD 8 (3) (4) Samples The limitation rule does not apply to a deduction for expend- iture on samples that a person provides for promotion or ad- vertising purposes to anyone who is not an employee of or associated with the person.
Entertainment for review The limitation rule does not apply to a deduction for expend- iture on entertainment that a person provides to a person who is reviewing the entertainment for a book, magazine, paper, or other medium of communication.
Deﬁned in this Act: associated person, business, business contacts, deduction, employee, limitation rule Compare: 2004 No 35 s DD 5 DD 6 Entertainment as business or for charitable purpose (1) (2) Entertainment as business The limitation rule does not apply to a deduction for expend- iture on entertainment that a person provides for market value or in an arm’s length transaction in the ordinary course of their business, if that business is to provide 1 or more of the forms of entertainment referred to in section DD 2.
Entertainment for charitable purposes The limitation rule does not apply to a deduction for expend- iture on entertainment that a person provides to members of the public for charitable purposes.

Deﬁned in this Act: business, charitable purpose, deduction, limitation rule Compare: 2004 No 35 s DD 6 DD 7 Entertainment outside New Zealand The limitation rule does not apply to a deduction for expend- iture on entertainment that is enjoyed or consumed outside New Zealand.
Deﬁned in this Act: deduction, limitation rule, New Zealand Compare: 2004 No 35 s DD 7 DD 8 Entertainment that is income or fringe beneﬁt The limitation rule does not apply to a deduction for expend- iture on entertainment that is— 499 Part D s DD 9 Income Tax Act 2007 Reprinted as at 5 January 2010 income of the person who consumes it; or (a) a fringe beneﬁt to which fringe beneﬁt tax applies.
(b) Deﬁned in this Act: deduction, fringe beneﬁt, fringe beneﬁt tax, income, limi- tation rule Compare: 2004 No 35 s DD 8 DD 9 Relationship with fringe beneﬁt tax rules Sections DD 2 to DD 8 override the fringe beneﬁt tax (FBT) rules.
However, the FBT rules, as applied by section CX 29 (Entertainment), override sections DD 2 to DD 8 if an em- ployee of the person providing the beneﬁt— (a) may choose when to receive or use the beneﬁt: (b) does not receive or use the beneﬁt in the course of their employment duties.
Deﬁned in this Act: employee, FBT rules Compare: 2004 No 35 s DD 9 DD 10 Interpretation: reimbursement and apportionment In sections DD 2 to DD 8,— (a) a person is treated as having incurred expenditure on entertainment described in section DD 2 if they pay an allowance for, or reimburse an employee’s expenditure on, the entertainment, and the allowance or reimburse- ment is exempt income under sections CW 17, CW 17B, and CW 17C (which relate to expenditure and reim- bursement of employees): if a person incurs expenditure that relates only partly to the entertainment, the expenditure must be apportioned appropriately.
(b) Deﬁned in this Act: employee, exempt income, pay Compare: 2004 No 35 s DD 10 Section DD 10(a): amended (with effect on 1 April 2008), on 6 October 2009, by section 85 of the Taxation (International Taxation, Life Insurance, and Re- medial Matters) Act 2009 (2009 No 34).
DD 11 Some deﬁnitions In this subpart,— business includes any recurring income-earning activity 500 Reprinted as at 5 January 2010 Income Tax Act 2007 Part D s DE 1 business contacts— (a) includes, for a person,— (i) (ii) their clients, customers, shareholders, other ﬁ- nanciers, and suppliers: the clients, customers, shareholders, other ﬁ- nanciers, and suppliers of an associated person: if the person is in partnership, does not include other partners in the partnership (b) business premises— (a) means the normal business premises or a temporary (b) workplace of the person (or an associate): does not include premises or a workplace established mainly for the purpose of enjoying entertainment.
Deﬁned in this Act: associated person, business, business contacts, business premises, shareholder Compare: 2004 No 35 s DD 11 Subpart DE—Motor vehicle expenditure Introductory provisions DE 1 What this subpart does (1) (2) Apportions motor vehicle expenditure This subpart sets out the rules for determining the proportion of business use of a motor vehicle to its total use when a person uses a motor vehicle partly for business purposes and partly for other purposes.
Exclusions This subpart does not apply— (a) (b) to a company: to a person whose only income is income from employ- ment: to a motor vehicle that is used only— (i) (ii) for the purpose of deriving income; or for a purpose that constitutes a fringe beneﬁt.
(c) Deﬁned in this Act: business use, company, fringe beneﬁt, income, income from employment, motor vehicle Compare: 2004 No 35 s DE 1 501 Part D s DE 2 Income Tax Act 2007 Reprinted as at 5 January 2010 DE 2 Deductions for business use Deduction A person is allowed a deduction for— (a) expenditure that they incur for the business use of a motor vehicle: an amount of depreciation loss for the business use of a motor vehicle.
(b) Amount, and timing, of deduction: expenditure The amount of the deduction allowed in an income year for the expenditure for the business use of the vehicle is calculated using the formula— expenditure × business proportion.

Deﬁnition of item in formula In the formula in subsection (2), business proportion is the proportion of business use of the motor vehicle for the income year, expressed as a decimal, calculated under sections DE 3 to DE 12.
Amount, and timing, of deduction: depreciation loss The amount of the deduction allowed in an income year for the amount of depreciation loss for the business use of the vehicle is calculated— (a) using the formula in subsection (5), except in a case to which paragraph (b) or (c) applies; or using the formula in subsection (8) if that subsection applies to the amount of depreciation loss; or using the formula in subsection (11) if that subsection applies to the amount of depreciation loss.
(b) (c) Calculation of deduction: depreciation loss generally The formula referred to in subsection (4)(a) is— standard calculation × business proportion.
Deﬁnition of items in formula In the formula in subsection (5),— (a) standard calculation is the amount resulting from a calculation made for the motor vehicle under section EE 16 (Amount resulting from standard calculation): (1) (2) (3) (4) (5) (6) 502 Reprinted as at 5 January 2010 Income Tax Act 2007 Part D s DE 2 (b) business proportion is the proportion of business use of the motor vehicle for the income year (expressed as a decimal) calculated under sections DE 3 to DE 12.
(7) When subsection (8) applies Subsection (8) applies when— (a) the amount of depreciation loss results from a calcula- tion made for the motor vehicle under section EE 48(2) (Effect of disposal or event); and the person’s amount of depreciation loss for the motor vehicle was, at a time when the person owned it, calcu- lated under subsection (5).
(b) Calculation of deduction: depreciation loss on disposal The formula referred to in subsection (4)(b) is— (8) (9) (10) (b) (c) (d) (b) Deﬁnition of items in formula In the formula in subsection (8),— (a) disposal depreciation loss is the amount resulting from a calculation made for the vehicle under section EE 48(2): all deductions is all amounts of depreciation loss re- lating to the vehicle for which the person has been al- lowed a deduction in each of the income years in which the person has owned the vehicle: base value has the applicable one of the meanings in sections EE 57 to EE 60 (which relate to base value): adjusted tax value is the vehicle’s adjusted tax value on the date on which the disposal or event occurs.
When subsection (11) applies Subsection (11) applies when— (a) the amount of depreciation loss results from a calcula- tion made for the motor vehicle under section EE 48(2); and the motor vehicle starts to have a business use in the same income year as that in which the amount of depre- ciation loss arose.
503 Part D s DE 3 Income Tax Act 2007 Reprinted as at 5 January 2010 Calculation of deduction: depreciation loss on disposal after business use (11) The formula referred to in subsection (4)(c) is— disposal depreciation loss × business proportion.
(12) Deﬁnition of items in formula In the formula in subsection (11),— (a) disposal depreciation loss is the amount resulting from a calculation made for the vehicle under section EE 48(2): business proportion is the proportion of business use of the vehicle for the income year calculated under sec- tions DE 3 to DE 12, expressed as a decimal.

(b) Link with subpart DA (13) This section supplements the general permission and overrides the private limitation.

The other general limitations still apply.
Deﬁned in this Act: adjusted tax value, amount, business use, deduction, depre- ciation loss, general limitation, general permission, income year, motor vehicle, own, private limitation, supplement Compare: 2004 No 35 s DE 2 DE 3 Methods for calculating proportion of business use The 3 methods that may be used to calculate the proportion of business use of a motor vehicle are— actual records, seesection DE 5: (a) (b) a logbook, seesections DE 6 to DE 11: (c) mileage rates, seesection DE 12.
Deﬁned in this Act: business use, motor vehicle Compare: 2004 No 35 s DE 3 DE 4 Default method for calculating proportion of business use When this section applies This section applies when— (a) a person has not maintained actual records to show the proportion of business use of a motor vehicle; or a period is not a term to which a proportion of business use of a motor vehicle established by a logbook applies; or a person cannot use the mileage rate method.
(b) (c) (1) 504 Reprinted as at 5 January 2010 Income Tax Act 2007 Part D s DE 7 (2) Amount of deduction The deduction under section DE 2 for expenditure or loss in- curred is limited to the lesser of— (a) (b) Deﬁned in this Act: amount, business use, deduction, motor vehicle Compare: 2004 No 35 s DE 4 the proportion of actual business use of the vehicle; and 25% of the total use of the vehicle.
DE 5 Actual records Actual records To determine the proportion of business use of a motor ve- hicle, a person may use actual records showing the reasons for and the distance of journeys by a motor vehicle for business purposes.

However, when the period covered falls within a logbook term, actual records may be used only if the person and the Commissioner agree.
Deﬁned in this Act: business use, Commissioner, logbook term, motor vehicle Compare: 2004 No 35 s DE 5 DE 6 Using logbook for test period Logbook A person may keep a logbook for a test period for the purpose of establishing the proportion of the business use of a motor vehicle for an income year, or part of an income year, that falls within a logbook term.
If a person uses a logbook as a method of establishing the proportion of business use, they must also record the total distance travelled in each income year, or part of an income year, that falls within a logbook term.
Deﬁned in this Act: business use, income year, logbook term, motor vehicle Compare: 2004 No 35 s DE 6 DE 7 Logbook requirements Test period (1) When a logbook is used to establish the proportion of business use of a motor vehicle, a person must select a start date, and keep the logbook for at least 90 consecutive days at a time that represents, or is likely to represent, the average proportion of 505 Part D s DE 8 Income Tax Act 2007 Reprinted as at 5 January 2010 travel by the vehicle for business purposes during the logbook term.
(2) Record of reasons for, and distance of, journeys The logbook must record— (a) (b) the start and end of the 90 day test period; and the vehicle’s odometer readings at the start and end of the test period; and the distance of each business journey; and the date of each business journey; and the reason for each business journey; and any other detail that the Commissioner may require.
(c) (d) (e) (f) Deﬁned in this Act: business, business use, Commissioner, logbook term, motor vehicle Compare: 2004 No 35 s DE 7 DE 8 Logbook term Meaning of logbook term A logbook term is a period to which the proportion of business use of a motor vehicle established by the logbook applies.

The term lasts up to 3 years and starts and ends as described in subsections (2) and (3).
Start of term A logbook term starts on the date that is the latest of the fol- lowing days: (a) the ﬁrst day of the income year in which a person starts to keep a logbook: the day that a person acquires the motor vehicle, unless the vehicle is a replacement vehicle, which is dealt with in section DE 11: the day immediately after the last day of the previous logbook term: a day that a person speciﬁes.
(b) (c) (d) End of term The logbook term ends on the date that is the earliest of the following days: (a) the day that a person disposes of the motor vehicle with- out replacing it: (1) (2) (3) 506 Reprinted as at 5 January 2010 (b) (c) Income Tax Act 2007 Part D s DE 9 the day that is 3 years after the ﬁrst day of the income year in which the logbook term started: a day that the Commissioner speciﬁes under section DE 9: a day that a person speciﬁes.
(d) Deﬁned in this Act: business use, Commissioner, income year, logbook term, motor vehicle, year Compare: 2004 No 35 s DE 8 DE 9 Inadequate logbook (1) (2) (3) Non-representative logbook proportion If the Commissioner considers that the proportion of business use recorded in a logbook does not, or does no longer, repre- sent the average use of a motor vehicle for business purposes during an income year that falls within a logbook term, the Commissioner may,— (a) within the logbook term, direct a person to keep a fur- ther logbook and specify another 90 day period in the logbook term for keeping the logbook; or treat a person as not having kept a logbook that applies to the logbook term.
(b) Further logbook If the Commissioner directs a person to keep a further logbook, and the proportion of business use calculated under that log- book is less by at least 20% than the proportion under the ﬁrst logbook, the Commissioner may ﬁnd that the ﬁrst logbook— represented the average use of the motor vehicle for (a) business purposes for only part of the logbook term; or did not represent that use at all.
(b) Partly representative logbook If subsection (2)(a) applies, the Commissioner may determine a date on which the application of the ﬁrst logbook ended, and the further logbook applies to a new logbook term that starts on the day after that date.

507 Part D s DE 10 Income Tax Act 2007 Reprinted as at 5 January 2010 (4) Non-representative logbook If subsection (2)(b) applies, the Commissioner may direct that the further logbook applies for the logbook term to which the ﬁrst logbook applied.
Deﬁned in this Act: business use, Commissioner, income year, logbook term, motor vehicle Compare: 2004 No 35 s DE 9 DE 10 Variance during logbook term If, in any month during a logbook term, the proportion of busi- ness use in that month is less by at least 20% than the propor- tion established by the logbook, and the proportion of business use recorded in the logbook no longer represents the average use of the motor vehicle for business purposes, the logbook term must end on the last day of that month.
Deﬁned in this Act: business use, logbook term, motor vehicle Compare: 2004 No 35 s DE 10 DE 11 Replacement vehicles For the purpose of establishing the proportion of business use of a motor vehicle, a replacement vehicle is treated in the same way as the vehicle it replaces if— (a) the logbook is likely to be representative of the average travel for business purposes for the remainder of the logbook term; and from the date of replacement, a person keeps a record of the total distance travelled by the replacement vehicle for each income year, or part of an income year, of the remaining logbook term.
(b) Deﬁned in this Act: business use, income year, logbook term, motor vehicle Compare: 2004 No 35 s DE 11 DE 12 Mileage rate method Mileage rates Using mileage rates If a person’s business travel is 5,000 kilometres or less in an income year, they may use the mileage rate method to calculate (1) 508 Reprinted as at 5 January 2010 Income Tax Act 2007 Part D s DF 1 (2) (3) the expenditure or loss on a motor vehicle that represents the proportion of business use of the vehicle.
Amount of deduction Under the mileage rate method, the person must keep details of the business use of the motor vehicle and calculate the mileage travelled for business purposes for the income year.

The amount of the deduction under this method is found by multiplying the mileage rate by the distance that reﬂects the proportion of business use of the vehicle for the income year.

Setting mileage rates For the purposes of this section, the Commissioner must from time to time set and publish a mileage rate.
Deﬁned in this Act: amount, business, business use, Commissioner, deduction, income year, motor vehicle Compare: 2004 No 35 s DE 12 Subpart DF—Government grants, funding, and compensation Subpart DF heading: amended (with effect on 1 October 2009), on 6 October 2009, by section 86 of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
DF 1 Government grants to businesses (1) When subsection (2) applies Subsection (2) applies when— (a) a payment is granted by a local authority or a public authority to a person for a business carried on by the person; and the payment is in the nature of a grant or subsidy, or is a grant-related suspensory loan, but is not otherwise a payment in the nature of an advance or loan; and the payment is made to the person for expenditure that they incur, other than in a way described in subsection (3); and the person would be allowed a deduction for the ex- penditure in the absence of this section; and the payment is excluded income under section CX 47 (Government grants to businesses).
(b) (c) (d) (e) 509 Part D s DF 1 Income Tax Act 2007 Reprinted as at 5 January 2010 No deduction (with exception) The person is denied, to the extent of the amount of the pay- ment, the deduction that they would have been allowed in the absence of this section.
When subsection (4) applies Subsection (4) applies when— (a) a payment is granted by a local authority or a public authority to a person for a business carried on by the person; and the payment is in the nature of a grant or subsidy, or is a grant-related suspensory loan, but is not otherwise a payment in the nature of an advance or loan; and the payment is made to the person for expenditure that they incur in acquiring, constructing, installing, or ex- tending an item of depreciable property; and the person owns the item; and the person is allowed a deduction for an amount of de- preciation loss for the item.
(b) (c) (d) (e) Amount of depreciation loss For the purpose of quantifying the amount of depreciation loss, the amount of the expenditure is reduced by the amount of the payment.

Amendment of assessment Despite the time bar, the Commissioner may amend an assess- ment at any time in order to give effect to this section.

Exclusion [Repealed] [Repealed] Link with subpart DA This section overrides the general permission.
Deﬁned in this Act: amount, assessment, business, Commissioner, deduction, depreciable property, depreciation loss, general permission, grant-related sus- pensory loan, local authority, pay, public authority, time bar Compare: 2004 No 35 s DF 1 Section DF 1(6) heading: repealed (with effect on 1 October 2009), on 6 Octo- ber 2009, pursuant to section 87(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
(2) (3) (4) (5) (6) (7) 510 Reprinted as at 5 January 2010 Income Tax Act 2007 Part D s DF 2 Section DF 1(6): repealed (with effect on 1 October 2009), on 6 October 2009, by section 87(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section DF 1 list of deﬁned terms large budget screen production grant: re- pealed (with effect on 1 October 2009), on 6 October 2009, by section 87(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
DF 2 Repayment of grant-related suspensory loans (1) (2) (3) (4) Deduction A person is allowed a deduction for the amount of a repayment that they are required to make of some or all of a grant-related suspensory loan to the extent to which the amount relates to a payment to which section DF 1(2) applies.

Timing of deduction The deduction is allocated to the income year in which repay- ment is ﬁrst required.
Amount of depreciation loss If a person is required to repay some or all of a grant-related suspensory loan, then, to the extent to which section DF 1(3) and (4) apply to the loan,— (a) the person is allowed a deduction for an amount of de- preciation loss for the item; and the amount of depreciation loss is the total of the amounts of depreciation loss for the item for which the person would have been allowed a deduction if section DF 1(3) and (4) had not applied.
(b) Quantifying amount of depreciation loss For the purpose of quantifying the amount of depreciation loss for the item in the income year and in later income years, the following matters must be taken into account: (a) (b) the amount of the deduction under subsection (3); and the total of the amounts of depreciation loss for the item for which the person has been allowed a deduction; and the person’s expenditure on acquiring, constructing, in- stalling, or extending the item.
(c) 511 Part D s DF 3 Income Tax Act 2007 Reprinted as at 5 January 2010 (5) Link with subpart DA This section supplements the general permission and overrides the capital limitation for the amount described in subsection (1).

The other general limitations still apply.
Deﬁned in this Act: amount, capital limitation, deduction, depreciation loss, general limitation, general permission, grant-related suspensory loan, income year, pay, supplement Compare: 2004 No 35 s DF 2 DF 3 Identifying expenditure for purposes of sections DF 1 and DF 2 For the purposes of sections DF 1 and DF 2, a statement by a person making a grant-related suspensory loan as to the ex- penditure that relates to the loan or to the repayment of the loan provides conclusive evidence on the questions.
Deﬁned in this Act: grant-related suspensory loan, pay Compare: 2004 No 35 s DF 3 DF 4 Payments for social rehabilitation When this section applies This section applies when a person is paid under the Injury Prevention, Rehabilitation, and Compensation Act 2001 a per- sonal service rehabilitation payment for an income year and the amount is assessable income of the person.

Deduction The person is allowed a deduction for an amount calculated using the formula— amount paid 1 – tax rate.
Deﬁnitions of items in formula In the formula,— (a) amount paid is the amount paid by the person for a key aspect of social rehabilitation provided to them for the income year, to the extent to which the amount is less than the amount of personal service rehabilitation payment paid to them for the income year after taking into account any amount of tax withheld: (1) (2) (3) 512 Reprinted as at 5 January 2010 Income Tax Act 2007 Part D s DF 5 (4) (b) tax rate is the rate of tax applying to the personal ser- vice rehabilitation payment under schedule 4, part I, clause 1 (Rates of tax for schedular payments).
Link with subpart DA This section supplements the general permission and overrides the capital limitation and private limitation for the amount de- scribed in subsection (2).

The other general limitations still apply.


Deﬁned in this Act: amount, amount of tax, assessable income, capital limita- tion, general limitation, general permission, income year, pay, personal service rehabilitation payment, private limitation, tax Compare: 2004 No 35 s DF 4 Section DF 4: substituted, on 1 July 2008, by section 343 of the Taxation (Busi- ness Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section DF 4(3)(b): amended (with effect on 1 July 2008), on 6 October 2009, by section 88 of the Taxation (International Taxation, Life Insurance, and Re- medial Matters) Act 2009 (2009 No 34).
DF 5 Government funding additional to government screen production payments (1) When this section applies This section applies when a public authority makes a payment (the funding payment) to a person for expenditure incurred in a project if— (a) the funding payment is not in the nature of a grant or subsidy; and the funding payment is not a grant-related suspensory loan; and the person receives a government screen production payment for the project in addition to the funding payment; and the person would be allowed a deduction for the ex- penditure in the absence of this section; and the payment is excluded income under section CX 48C (Government funding additional to government screen production payments).
(b) (c) (d) (e) (2) No deduction for expenditure The person is denied, to the extent of the amount of the fund- ing payment, the deduction for the expenditure that would be allowed in the absence of this section.
513 Part D s DN 1 Income Tax Act 2007 Reprinted as at 5 January 2010 (3) (4) Deduction for payments to public authority The person is allowed a deduction for the amount of a pay- ment (the return payment) made to the public authority to the extent to which the return payment is required by the ar- rangement under which the funding payment is made.
Links with subpart DA In this section— (a) (b) subsection (2) overrides the general permission; and subsection (3) supplements the general permission and overrides the capital limitation; the other general limi- tations still apply.
Deﬁned in this Act: capital limitation, deduction, excluded income, general limitation, general permission, government screen production payment, grant- related suspensory loan, pay, public authority Section DF 5: added (with effect on 1 October 2009), on 6 October 2009, by section 89 of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Subpart DN—Attributed losses from foreign equity Attributed controlled foreign company (CFC) loss DN 1 Attributed controlled foreign company loss (1) (2) Deduction A person is allowed a deduction for an attributed controlled foreign company (CFC) loss, subject to the jurisdictional ring- fencing rule in section DN 4.

Link with subpart DA This section supplements the general permission and overrides the capital limitation.

The other general limitations still apply.
Deﬁned in this Act: attributed CFC loss, capital limitation, deduction, general limitation, general permission, supplement Compare: 2004 No 35 s DN 1 DN 2 When attributed CFC loss arises General rule A person has an attributed CFC loss from a foreign company in an income year if— (1) 514 Reprinted as at 5 January 2010 Income Tax Act 2007 Part D s DN 2 (a) (b) (c) (d) (e) (f) (g) (h) (i) the foreign company is a CFC at any time during 1 of its accounting periods, under sections EX 1 to EX 7 (which relate to the deﬁnition of a controlled foreign company); and the accounting period ends during the income year; and the person has an income interest in the foreign com- pany for the accounting period, under sections EX 8 to EX 13 (which relate to calculating a person’s income interest); and at any time in the accounting period, the person is a New Zealand resident who is not a transitional resident; and the person’s income interest is 10% or more for the ac- counting period, under sections EX 14 to EX 17 (which relate to the 10% threshold); and the CFC has a net attributable CFC loss for the account- ing period under section EX 20C (Net attributable CFC income or loss); and [Repealed] the CFC is not a non-attributing active CFC for the ac- counting period, under section EX 21B (Non-attributing active CFCs); and the CFC is not a non-attributing Australian CFC for the accounting period, under section EX 22 (Non-attribut- ing Australian CFCs).
(2) Special rule: Attributable CFC amount from personal services If a person and a non-attributing active CFC or non-attributing Australian CFC meet the requirements of subsection (1)(a) to (e) and the CFC derives income from personal services that is an attributable CFC amount under section EX 20B(3)(h) (Attributable CFC amount), the person has attributed CFC loss from the CFC equal to the product of— (a) (b) the person’s income interest in the CFC: the amount by which the CFC’s expenditure incurred in deriving the income from personal services exceeds the income from personal services.
Deﬁned in this Act: accounting period, attributable CFC amount, attributed CFC loss, CFC, foreign company, grey list, income interest, income year, net 515 Part D s DN 2 Income Tax Act 2007 Reprinted as at 5 January 2010 attributable CFC loss, New Zealand resident, non-attributing active CFC, non- attributing Australian CFC, transitional resident Compare: 2004 No 35 s DN 2 Section DN 2(1) heading: inserted (with effect on 30 June 2009), on 6 October 2009, by section 90(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section DN 2(1)(f): substituted (with effect on 30 June 2009), on 6 October 2009, by section 90(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section DN 2(1)(g): repealed (with effect on 30 June 2009), on 6 October 2009, by section 90(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section DN 2(1)(h): added (with effect on 30 June 2009), on 6 October 2009, by section 90(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section DN 2(1)(i): added (with effect on 30 June 2009), on 6 October 2009, by section 90(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section DN 2(2) heading: added (with effect on 30 June 2009), on 6 October 2009, by section 90(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section DN 2(2): added (with effect on 30 June 2009), on 6 October 2009, by section 90(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section DN 2 list of deﬁned terms attributable CFC amount: inserted (with effect on 30 June 2009), on 6 October 2009, by section 90(4)(b) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section DN 2 list of deﬁned terms branch equivalent loss: repealed (with ef- fect on 30 June 2009), on 6 October 2009, by section 90(4)(a) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section DN 2 list of deﬁned terms net attributable CFC loss: inserted (with effect on 30 June 2009), on 6 October 2009, by section 90(4)(b) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section DN 2 list of deﬁned terms non-attributing active CFC: inserted (with effect on 30 June 2009), on 6 October 2009, by section 90(4)(b) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section DN 2 list of deﬁned terms non-attributing Australian CFC: inserted (with effect on 30 June 2009), on 6 October 2009, by section 90(4)(b) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

516 Reprinted as at 5 January 2010 Income Tax Act 2007 Part D s DN 4 DN 3 Calculation of attributed CFC loss The amount of an attributed CFC loss is calculated under sec- tions EX 18 to EX 20 (which relate to the calculation of at- tributed CFC income or loss).
Deﬁned in this Act: amount, attributed CFC loss Compare: 2004 No 35 s DN 3 DN 4 Ring-fencing cap on deduction (1) Amount of deduction The deduction that a person is allowed for an attributed CFC loss from a CFC in an income year is no more than the total of— (a) any attributed CFC income of the person for the income year from another CFC that is resident in the same coun- try as the ﬁrst CFC for the relevant accounting period; and any foreign investment fund (FIF) income of the person for the income year calculated under the branch equiva- lent method from a FIF that is resident in the same coun- try.
(b) Income only once (2) When subsection (1) is applied to an attributed CFC loss, an amount of attributed CFC income or FIF income may be used only to the extent to which the income is not used when— (a) subsection (1) is applied to another attributed CFC loss; or section DN 8 is applied to a FIF loss.
(b) (3) Relationship with subpart IQ Any excess not able to be deducted because of subsection (1) is an attributed CFC net loss able to be used under sections IQ 2, IQ 4, and IQ 9 (which relate to the use of attributed CFC net losses).
Deﬁned in this Act: accounting period, amount, attributed CFC income, at- tributed CFC loss, attributed CFC net loss, branch equivalent method, CFC, deduction, FIF, FIF income, FIF loss, income year Compare: 2004 No 35 s DN 4 517 Part D s DN 5 Income Tax Act 2007 Reprinted as at 5 January 2010 Foreign investment fund (FIF) loss DN 5 Foreign investment fund loss (1) (2) (3) Deduction A person is allowed a deduction for a FIF loss.
Ring-fencing rule for loss calculated under branch equivalent method The deduction for a FIF loss calculated under the branch equivalent method is subject to the jurisdictional ring-fencing rule in section DN 8.

Link with subpart DA This section supplements the general permission and overrides the capital limitation.

The other general limitations still apply.
Deﬁned in this Act: branch equivalent method, calculation method, capital limi- tation, deduction, FIF loss, general limitation, general permission, supplement Compare: 2004 No 35 s DN 5 DN 6 When FIF loss arises General rule A person has a FIF loss in an income year if,— at any time in the year, the person has— (a) (i) rights in a foreign company, or a foreign super- annuation scheme, or an entity listed in schedule 25, part A (Foreign investment funds); or rights under a life insurance policy issued by a non-resident; and (ii) (b) (c) at that time, the rights are an attributing interest in a FIF under section EX 29 (Attributing interests in FIFs); and at that time, the rights are not exempt from being an attributing interest in a FIF under any of— (i) the exemption for ASX-listed Australian com- panies in section EX 31 (Exemption for ASX- listed Australian companies): the exemption for Australian unit trusts with 25% turnover in section EX 32 (Exemption for Aus- tralian unit trusts with 25% turnover): the exemption for Australian regulated super- annuation savings in section EX 33 (Exemption (ii) (iii) (1) 518 Reprinted as at 5 January 2010 Income Tax Act 2007 Part D s DN 6 (iv) (v) (vi) (vii) for Australian regulated superannuation sav- ings): the CFC regime exemption in section EX 34 (CFC rules exemption): the exemption for a 10% or greater interest in a grey list company in section EX 35 (Exemption for 10% or greater interest in grey list company): the 10-year exemption for a venture capital com- pany
 emigrating to a grey list country in section EX 36 (Venture capital company emigrating to grey list country: 10-year exemption): the 10-year exemption for a grey list company owning a New Zealand venture capital company in section EX 37 (Grey list company owning New Zealand venture capital company: 10-year exemption): (ix) (viii) the exemption for an employee share purchase scheme of a grey list company in section EX 38 (Exemption for employee share purchase scheme of grey list company): the terminating
 exemption for a grey list com- pany with numerous New Zealand shareholders in section EX 39 (Terminating exemption for grey list company with numerous New Zealand shareholders): the terminating exemption for a grey list com- pany investing in Australasian equities in section EZ 32 (Terminating exemption for grey list FIF investing in Australasian listed equities): the foreign exchange control exemption in sec- tion EX 40 (Foreign exchange control exemp- tion): the exemption for a non-resident or transitional resident, in section EX 41 (Income interest of non-resident or transitional resident): (xii) (xi) (x) (xiii) the immigrant’s accrued superannuation en- titlement exemption in section EX 42 (New resident’s accrued superannuation entitlement exemption): 519 Part D s DN 6 Income Tax Act 2007 Reprinted as at 5 January 2010 (d) (e) (f) (g) (xiv) the annuity or pension exemption in section EX 43 (Non-resident’s pension or annuity exemp- tion); and if the person is a natural person and not acting as a trustee, the total cost, calculated under section EX 68 (Measurement of cost), of attributing interests in FIFs that the person holds at any time in the year when the person is a New Zealand resident is more than $50,000: if the person is acting as trustee of a trust that meets the requirements of subsection (4), the total cost, calculated under section EX 68, of attributing interests in FIFs that the person holds at any time in the year is more than $50,000; and at any
 time in the year, the person is a New Zealand resident who is not a transitional resident and holds the attributing interest; and under the relevant calculation method chosen by the person, a loss amount is calculated for the income year or relevant accounting period under sections EX 44 to EX 56 (which relate to the calculation of FIF income or loss), EX 60 or EX 61 (which relate to top-up FIF in- come).
Treatment of transaction under section EX 63, EX 65, or EX 67 If a person is treated under section EX 63(5), EX 65 or EX 67 (which relate to changes in method or application of FIF rules) as disposing of or acquiring rights in an income year, the dis- posal or acquisition is ignored for the purposes of subsection (1)(d) and (e).
Look-through calculation methods Despite subsection (1), if the calculation method is the ac- counting proﬁts method or branch equivalent method,— (a) FIF loss arises in the income year only if the relevant accounting period of the FIF ends during the year; and the tests in subsection (1)(a), (b), (c), and (f) are applied on the basis that references in subsection (1)(a), (b), (c), and (f) to any time in the income year are read as references to any time in the relevant accounting period.
(b) (1B) (2) 520 Reprinted as at 5 January 2010 Income Tax Act 2007 Part D s DN 6 (3) (4) FIF loss from CFC with FIF interest FIF loss also includes an amount of additional FIF loss that a person with an income interest of 10% or more in a CFC has in an income year under section EX 58 (Additional FIF income or loss if CFC owns FIF), whether or not the CFC is a non-attributing Australian CFC under section EX 22 (Non- attributing Australian CFCs).
Requirements for trustees Subsection (1)(e) applies to the trustee of a trust for an income year if— (a) the trust is of the estate of a deceased person and the income year begins on or before the day that is 5 years after the person’s death: the settlor of the trust— (i) is a relative or legal guardian of a beneﬁciary of the trust, or a person associated with a relative or legal guardian of a beneﬁciary of the trust; and is required by a court order to pay damages or compensation to the beneﬁciary: (ii) the settlor of the trust— (i) (ii) is the estate of a deceased person; and is required by a court order to settle on the trust the proceeds of damages or compensation for the beneﬁciaries of the trust: (b) (c) (d) the settlor of the trust is the Accident Compensation Corporation.
Deﬁned in this Act: accounting period, accounting proﬁts method, amount, at- tributing interest, branch equivalent method, calculation method, CFC, FIF, FIF loss, foreign company, foreign superannuation scheme, grey list, grey list com- pany, income interest, income year, life insurance policy, New Zealand resident, non-attributing Australian CFC, non-resident, relative, share, shareholder, tran- sitional resident, trustee, unit trust Compare: 2004 No 35 s DN 6 Section DN 6(1)(d): amended, on 1 April 2008, by section 344(1) of the Taxa- tion (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section DN 6(1)(e): amended, on 1 April 2008, by section 344(2) of the Taxa- tion (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section DN 6(1B) heading: inserted, on 1 April 2008, by section 344(3) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section DN 6(1B): inserted, on 1 April 2008, by section 344(3) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
521 Part D s DN 7 Income Tax Act 2007 Reprinted as at 5 January 2010 Section DB 6(3) heading: substituted (with effect on 30 June 2009), on 6 Octo- ber 2009, by section 91(1) of the Taxation (International Taxation, Life Insur- ance, and Remedial Matters) Act 2009 (2009 No 34).

Section DB 6(3): substituted (with effect on 30 June 2009), on 6 October 2009, by section 91(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section DB 6 list of deﬁned terms non-attributing Australian CFC: inserted (with effect on 30 June 2009), on 6 October 2009, by section 91(2) of the Tax- ation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

DN 7 Calculation of FIF loss The amount of a FIF loss is calculated, using the relevant cal- culation method, under sections EX 44 to EX 61 (which relate to the calculation of FIF income or loss).
Deﬁned in this Act: amount, calculation method, FIF loss Compare: 2004 No 35 s DN 7 DN 8 Ring-fencing cap on deduction: branch equivalent method (1) Amount of deduction If a person has a FIF loss that is calculated under the branch equivalent method, the deduction the person is allowed for the loss in an income year is no more than the total of— (a) any attributed CFC income of the person for the income year from a CFC that is resident in the same country as the FIF for the relevant accounting period of the CFC; and any FIF income of the person for the income year that is calculated under the branch equivalent method from another FIF resident in the same country.
(b) Income only once (2) When subsection (1) is applied to a FIF loss, an amount of attributed CFC income or FIF income may be used only to the extent to which the income is not used when applying— (a) (b) subsection (1) to another FIF loss; or section DN 4 to an attributed CFC loss.
522 Reprinted as at 5 January 2010 Income Tax Act 2007 Part D s DO 1 (3) Relationship with section IQ 3 Any excess not able to be deducted because of subsection (1) is a FIF net loss able to be used under section IQ 3 (Ring-fencing cap on FIF net losses).
Deﬁned in this Act: accounting period, amount, attributed CFC income, at- tributed CFC loss, branch equivalent method, CFC, deduction, FIF, FIF income, FIF loss, FIF net loss, income year Compare: 2004 No 35 s DN 9 Subpart DO—Farming and aquacultural business expenditure Farming DO 1 Enhancements to land, except trees (1) Deduction A person is allowed a deduction for expenditure that they incur on the following in carrying on a farming or agricultural busi- ness on land in New Zealand: (a) (b) (c) (d) (e) (f) (g) the destruction of weeds or plants detrimental to the land: the destruction of animal pests detrimental to the land: the repair of ﬂood or erosion damage to the land: the destruction of scrub, stumps, or undergrowth on the land: the clearing or removing from the land of scrub, stumps, or undergrowth: the construction on the land of fences for farming or agricultural purposes, including buying wire or wire netting for the purpose of making new or existing fences rabbit-proof: the regrassing and fertilising of all kinds of pasture, if the expenditure is not incurred in the course of a signiﬁ- cant capital activity.
523 Part D s DO 2 Income Tax Act 2007 Reprinted as at 5 January 2010 (2) Link with subpart DA This section overrides the capital limitation.

The general per- mission must still be satisﬁed and the other general limitations still apply.
Deﬁned in this Act: business, capital limitation, deduction, general limitation, general permission, New Zealand, signiﬁcant capital activity Compare: 2004 No 35 s DO 1 DO 2 Erosion and shelter plantings (1) (2) (3) When this section applies This section applies when a person carries on a farming or agricultural business on land in New Zealand, whether or not the business is the principal business carried on on the land.
Deduction The person is allowed a deduction for expenditure that they incur in planting or maintaining trees, whether or not on the land, for the purpose of— (a) (b) preventing or combating erosion of the land; or providing shelter to the land.

Link with subpart DA This section overrides the capital limitation.

The general per- mission must still be satisﬁed and the other general limitations still apply.
Deﬁned in this Act: business, capital limitation, deduction, general limitation, general permission, New Zealand Compare: 2004 No 35 s DO 2 DO 3 Trees on farms When this section applies This section applies when— (a) (b) (c) a person carries on, on land in New Zealand, a farming or agricultural business that is the principal business carried on on the land; and they plant or maintain trees on the land; and the trees are not— (i) trees for which the person is allowed a deduction under section DO 2; or trees planted mainly to produce fruit; or (ii) (1) 524 (2) (3) (1) (2) Reprinted as at 5 January 2010 Income Tax Act 2007 Part D s DO 4 (iii) trees planted under a forestry encouragement agreement under the Forestry Encouragement Act 1962.
Deduction The person is allowed the following deductions: (a) in an income year in which the person incurs expend- iture on planting trees on the land, they are allowed a deduction of the lesser of $7,500 and the expenditure that they incur; and in an income year in which the person incurs expend- iture on maintaining trees on the land, they are allowed a deduction of the lesser of $7,500 and the expenditure that they incur.

(b) Link with subpart DA This section overrides the capital limitation.
The general per- mission must still be satisﬁed and the other general limitations still apply.
Deﬁned in this Act: business, capital limitation, deduction, general limitation, general permission, income year, New Zealand Compare: 2004 No 35 s DO 3 DO 4 Improvements to farm land When this section applies This section applies when— (a) a person carries on a farming or agricultural business on land in New Zealand; and an improvement described in schedule 20, part A (Ex- penditure on farming, horticultural, aquacultural, and forestry improvements) has been made to the land; and the expenditure on the improvement is not expenditure to which sections DO 5 to DO 7 apply.
(b) (c) Deduction: expenditure: owner of land A person who owns the land is allowed a deduction for ex- penditure to which all the following apply: (a) (b) (c) it is incurred on making the improvement; and it is incurred by the person or by another person; and it is not incurred on anything described in any of sec- tions DO 1 to DO 3; and 525 Part D s DO 4 Income Tax Act 2007 Reprinted as at 5 January 2010 (d) (e) (f) it is incurred in the 1995–96 income year or in a later income year, not including the income year in which the person disposes of the land, the income year being the income year of the person who owns the land; and it is incurred in developing the land; and it is of beneﬁt to the business in the income year in which the person is allowed the deduction.
(3) (4) (5) Deduction: expenditure: non-owner of land A person who does not own the land is allowed a deduction for expenditure to which all the following apply: (a) (b) (c) it is incurred on making the improvement; and it is incurred by the person; and it is not incurred on anything described in any of sec- tions DO 1 to DO 3; and it is incurred in the 1995–96 income year or in a later income year, not including the income year in which the person ceases to carry on the business on the land; and it is incurred in developing the land; and it is of beneﬁt to the business in the income year in which the person is allowed the deduction.
(d) (e) (f) Amount, and timing, of deduction The amount of the deduction is calculated using the formula— schedule 20 percentage × diminished value.

Deﬁnition of items in formula In the formula,— (a) schedule 20 percentage is the percentage set out op- posite the description of the improvement in schedule 20, part A: diminished value is the diminished value of the im- provement.
(b) Amount, and timing, for non-listed horticultural plants (6) When non-listed horticultural plants described in schedule 20, part A, clause 9 have ceased to exist, or to be used in deriving income, on or after 16 December 1991,— subsection (4) does not apply; and (a) 526 Reprinted as at 5 January 2010 Income Tax Act 2007 Part D s DO 5 (b) (c) the amount of the deduction is the diminished value of the non-listed horticultural plants at the time they ceased to exist or to be used in deriving income; and the deduction is allocated to the income year in which the non-listed horticultural plants ceased to exist or to be used in deriving income.
Link with subpart DA This section overrides the capital limitation.

The general per- mission must still be satisﬁed and the other general limitations still apply.

Amendment of schedule 20 by Order in Council The Governor-General may by Order in Council make regula- tions amending schedule 20 to vary the categories of improve- ments and percentages of diminished value of those improve- ments allowed as a deduction.
Deﬁned in this Act: amount, business, capital limitation, deduction, dimin- ished value, general limitation, general permission, income, income year, New Zealand, non-listed horticultural plant, own Compare: 2004 No 35 s DO 4 (7) (8) DO 5 Expenditure on land: planting of listed horticultural plants (1) (2) (3) When this section applies This section applies when— (a) a person carries on a farming or agricultural business, including a horticultural business, on land in New Zealand; and the land has been developed by the planting of listed horticultural plants on the land.
(b) Deduction and timing For an income year in which the planting beneﬁts the busi- ness and for which subsection (3) does not apply, the person is allowed a deduction relating to expenditure incurred by the person, or by another person, in developing the land.
Income year in which no deduction The person is denied a deduction under subsection (2) for an income year in which— 527 Part D s DO 5 Income Tax Act 2007 Reprinted as at 5 January 2010 (a) (b) if the person owns the land, the person disposes of the land: if the person does not own the land, the person ceases carrying on the business on the land.
Amount of deduction other than under subsections (6) and (7) For expenditure to which subsections (6) and (7) do not apply for the income year, the amount of the deduction under sub- section (2) is calculated using the formula— 1.2 × rate × diminished value.
Deﬁnition of items in formula In the formula,— (a) rate is the percentage rate determined for the kind of listed horticultural plant by the Commissioner under section 91AAB of the Tax Administration Act 1994: diminished value is the diminished value of the ex- penditure.
(b) Deduction: expenditure on replaced plant if no deduction under section DO 6 If a listed horticultural plant in a planting of the person ceases in an income year to exist or to be used in deriving assessable income and the person has no deduction under section DO 6 for the income year for the expenditure incurred in replacing the listed horticultural plant,— (a) (b) the person is allowed a deduction: the amount of the deduction is the diminished value of the expenditure on the listed horticultural plant at the time that the listed horticultural plant ceases to exist or to be used in deriving assessable income: the deduction is allocated to the income year in which the listed horticultural plant ceases to exist or to be used in deriving income.
(c) Treatment of expenditure on replaced plant if deduction under section DO 6 If a listed horticultural plant in a planting of the person ceases in an income year to exist or to be used in deriving assessable income and the person is allowed a deduction under section DO 6 for the income year for all or some of the expenditure incurred in replacing the listed horticultural plant,— (4) (5) (6) (7) 528 Reprinted as at 5 January 2010 Income Tax Act 2007 Part D s DO 6 (a) (b) (c) the person is not allowed a deduction under this section; and the person may add the diminished value, immediately before the replacement, of the expenditure on the listed horticultural plant to the diminished values, at the end of the income year, of the expenditure on listed horti- cultural plants that are in the planting at the end of the income year; and the person may choose the method of making the add- ition by applying the method in a return of income for the income year.
(8) Link with subpart DA This section overrides the general permission and the capital limitation.

The other general limitations still apply.
Deﬁned in this Act: assessable income, business, capital limitation, deduction, diminished value, general limitation, general permission, income year, listed horticultural plant, planting, return of income Compare: 2004 No 35 s DO 4B DO 6 Expenditure on land: horticultural replacement planting (1) (2) When this section applies This section applies to a person who carries on a horticultural business on land in New Zealand and who, in an income year (the current income year)— (a) plants, or causes to be planted, on the land a listed horti- cultural plant as a replacement plant: regrafts, or causes to be regrafted, a listed horticultural plant on the land as a replacement plant.
(b) Deduction The person is allowed a deduction of an amount set out in 1 of subsections (3) and (5) if, in the current income year,— (a) the person incurs expenditure in replacing a listed horti- cultural plant; and the replacement plant beneﬁts the business; and the person does not dispose of the land on which the listed horticultural plant is cultivated; and the person chooses that this section apply to the expend- iture by making a return of income for the current in- come year on that basis.
(b) (c) (d) 529 Part D s DO 6 Income Tax Act 2007 Reprinted as at 5 January 2010 (3) (4) (5) Amount of deduction if no deduction in 1 or both of 2 preceding income years If the person is denied a deduction under this section for 1 or both of the 2 income years preceding the current income year, the amount of the deduction under subsection (2) is calculated using the formula— Deﬁnition of items in formula In the formula in subsection (3),— (a) replacement expenditure is the amount of the expend- iture incurred by the person in replacing the listed horti- cultural plant: fraction is the greater of 7.5% and the replaced area fraction for the planting for the current income year.
(b) Amount of deduction if deduction in both of 2 preceding income years If the person has been allowed a deduction under this section for a planting for both of the 2 income years preceding the current income year, the amount of the deduction under sub- section (2) is the lesser of— (a) the amount that is calculated using the formula in sub- section (6): the amount that is calculated using the formula in sub- section (8).
(b) Formula for ﬁrst amount The ﬁrst amount is calculated using the formula— (6) Deﬁnition of items in formula In the formula in subsection (6),— (a) replacement expenditure is the amount of the expend- iture incurred by the person: fraction is the greater of 7.5% and the replaced area fraction for the planting for the current income year.
(b) Formula for second amount The second amount is calculated using the formula— (7) (8) 530 Reprinted as at 5 January 2010 Income Tax Act 2007 Part D s DO 7 (9) Deﬁnition of items in formula In the formula in subsection (8),— (a) replacement expenditure is the amount of the expend- iture incurred by the person: earlier fraction is the lesser of 7.5% and the replaced area fraction for the planting for the earlier of the 2 income years preceding the current income year: later fraction is the lesser of 7.5% and the replaced area fraction for the planting for the later of the 2 income years preceding the current income year: replaced area fraction is the replaced area fraction for the planting for the current income year.
(b) (c) (d) Timing of deduction (10) The deduction is allocated to the current income year.

Link with subpart DA (11) This section overrides the general permission and the capital limitation.

The other general limitations still apply.
Deﬁned in this Act: assessable income, business, capital limitation, deduction, diminished value, general limitation, general permission, income year, listed horticultural plant, planting, replaced area fraction, replacement plant, return of income Compare: 2004 No 35 s DO 4C DO 7 Accounting for expenditure on listed horticultural plants under sections DO 5 and DO 6 (1) Separate accounting for additional listed horticultural plants if deduction under section DO 6 A person to whom section DO 5 applies must, for an income year and for later income years for which subsection (2) does not apply, account separately under sections DO 5 and DO 6 for listed horticultural plants if— (a) the person has had a deduction under section DO 6 for 1 or both of the 2 income years preceding the income year; and the person acquires the listed horticultural plants in the income year; and (b) 531 Part D s DO 8 Income Tax Act 2007 Reprinted as at 5 January 2010 (2) (c) (d) the listed horticultural plants beneﬁt the business of the person in the income year; and the listed horticultural plants are not replacement plants.
Combined accounting for listed horticultural plants if no deduction under section DO 6 Despite subsection (1), a person may account under sections DO 5 and DO 6 for listed horticultural plants as 1 planting for an income year and later income years if the person has had no deduction under section DO 6 for both of the 2 income years preceding the income year.
Deﬁned in this Act: deduction, income year, listed horticultural plant, planting, replacement plant Compare: 2004 No 35 s DO 4D DO 8 Meaning of planting and plot In this section and sections DO 5 to DO 7,— planting for a person and an income year means 1 or more listed horticultural plants— (a) that are involved in the business of the person during the income year; and for which the person must account under sections DO 5 and DO 6, for the income year, separately from any other listed horticultural plants that are involved in the business of the person (b) plot means the land occupied by the listed horticultural plants in a planting.
Deﬁned in this Act: income year, listed horticultural plant, planting Compare: 2004 No 35 s DO 4E DO 9 Meaning of replaced area fraction Meaning In section DO 6, replaced area fraction, for a planting and an income year, means the amount calculated using the for- mula— Deﬁnition of items in formula In the formula in subsection (1),— (1) (2) 532 Reprinted as at 5 January 2010 Income Tax Act 2007 Part D s DO 10 (a) (b) replacement area is the area, at the end of the income year, of the part of the plot on which listed horticultural plants in the planting are planted or regrafted during the income year as replacement plants: plot area is the total area, at the end of the income year, of the plot.
Deﬁned in this Act: income year, listed horticultural plant, planting, plot, re- placement plant Compare: 2004 No 35 s DO 4E DO 10 Farming or horticulture expenditure of lessor or sublessor (1) (2) When this section applies This section applies when a person— (a) (b) (c) is the owner of an estate in fee simple or of a leasehold estate in land in New Zealand; and grants a lease or a sublease of the land to a person who carries on a farming or agricultural business on the land; and in the term of the lease or sublease,— (i) incurs expenditure relating to the land for which they are allowed a deduction under any of section DO 1, DO 2, DO 4, DO 5, or DO 6; or is allowed a deduction under section DO 4(2), DO 5(2), or DO 6 for expenditure incurred by another person relating to the land.
(ii) Relationship with sections DO 1, DO 2, DO 4, DO 5, and DO 6 Sections DO 1, DO 2, DO 4, DO 5, and DO 6, whichever is applicable to the person, applies as if the person were person- ally carrying on a farming or agricultural business on the land at the time they incur the expenditure or are allowed the de- duction.
Deﬁned in this Act: business, deduction, estate, lease, leasehold estate, New Zealand, own, term of the lease Compare: 2004 No 35 s DO 5 533 Part D s DO 11 Income Tax Act 2007 Reprinted as at 5 January 2010 DO 11 Improvement destroyed or made useless (1) When this section applies This section applies when, in an income year of a person,— (a) the person owns land, or operates a business on land, to which an improvement described in schedule 20 (Ex- penditure on farming, horticultural, aquacultural, and forestry improvements) has been made for the purposes of the business; and the improvement is destroyed or irreparably damaged and made useless for the purpose of deriving income; and the person would be entitled for the income year to a de- duction under section DO 4 or DO 5 for expenditure on the improvement if the improvement had not been de- stroyed or irreparably damaged and made useless; and the damage occurs in an income year that corresponds to the 2005–06 tax year or a later tax year; and the damage is caused other than as a result of the action or failure to act of the person, an agent of the person, or an associated person.
(b) (c) (d) (e) (2) (3) Deduction: diminished value of expenditure The person is allowed a deduction of the amount of the di- minished value, for the income year, of the expenditure on the improvement.

Link with subpart DA This section overrides the general permission and the capital limitation.

The other general limitations still apply.


Deﬁned in this Act: business, capital limitation, deduction, diminished value, general limitation, general permission, income, income year, tax year Compare: 2004 No 35 s DO 5B DO 11B Entering partners’ livestock deduction [Repealed] Section DO 11B: repealed (with effect on 1 April 2009), on 6 October 2009, by section 92(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section DO 11B: inserted, on 1 April 2008, by section 11(1) of the Taxation (Limited Partnerships) Act 2008 (2008 No 2).
534 Reprinted as at 5 January 2010 Income Tax Act 2007 Part D s DO 12 DO 12 Improvements to aquacultural business Aquaculture (1) (2) (3) When this section applies This section applies when— (a) (b) (c) a person carries on an aquacultural business in New Zealand; and the aquacultural business is— (i) ﬁsh farming under a licence issued under the Freshwater Fish Farming Regulations 1983; or rock oyster farming; or scallop farming; or sea-cage salmon farming; and (ii) mussel farming; or (iii) (iv) (v) an improvement described in any of schedule 20, parts B to F (Expenditure on farming, horticultural, aquacul- tural, and forestry improvements) is made for the pur- poses of the business.
Deduction: expenditure: owner of improvement A person who owns the improvement is allowed a deduction for expenditure to which all the following apply: (a) (b) (c) it is incurred on making the improvement; and it is incurred by the person or by another person; and it is incurred in the 1995–96 income year or in a later income year, not including the income year in which the person ceases to carry on the business, the income year being the income year of the person who owns the improvement; and it is incurred in developing the business; and it is of beneﬁt to the business in the income year in which the person is allowed the deduction.
(d) (e) Deduction: expenditure: non-owner of improvement A person who does not own the improvement is allowed a deduction for expenditure to which all the following apply: it is incurred on making the improvement; and (a) it is incurred by the person; and (b) it is incurred in the 1995–96 income year or in a later (c) income year, not including the income year in which the person ceases to carry on the business; and 535 Part D s DO 13 Income Tax Act 2007 Reprinted as at 5 January 2010 (4) (5) (6) (d) (e) it is incurred in developing the business; and it is of beneﬁt to the business in the income year in which the person is allowed the deduction.
Amount, and timing, of deduction The amount of the deduction is calculated using the formula— schedule 20 percentage × diminished value.

Deﬁnition of items in formula In the formula,— (a) schedule 20 percentage is the percentage set out op- posite the description of the improvement in any of schedule 20, parts B to F: diminished value is the diminished value of the im- provement.

(b) Link with subpart DA This section overrides the capital limitation.
The general per- mission must still be satisﬁed and the other general limitations still apply.
Deﬁned in this Act: amount, business, capital limitation, deduction, diminished value, general limitation, general permission, income year, New Zealand Compare: 2004 No 35 s DO 6 DO 13 Improvement destroyed or made useless When this section applies This section applies when, in an income year of a person,— (a) the person carries on an aquacultural business in New Zealand— (i) that meets the requirements of section DO 12(1)(b); and for the purposes of which an improvement de- scribed in schedule 20 (Expenditure on farming, horticultural, aquacultural, and forestry improve- ments) has been made; and (ii) (b) (c) the improvement is destroyed or irreparably damaged and made useless for the purpose of deriving income; and the person would be entitled for the income year to a de- duction under section DO 12 for expenditure on the im- (1) 536 Reprinted as at 5 January 2010 Income Tax Act 2007 Part D s DP 1 (d) (e) provement if the improvement had not been destroyed or irreparably damaged and made useless; and the damage occurs in an income year that corresponds to the 2005–06 tax year or a later tax year; and the damage is caused other than as a result of the action or failure to act of the person, an agent of the person, or an associated person.
Deduction: diminished value of expenditure The person is allowed a deduction of the amount of the di- minished value, for the income year, of the expenditure on the improvement.

Link with subpart DA This section overrides the general permission and the capital limitation.

The other general limitations still apply.
Deﬁned in this Act: business, capital limitation, deduction, diminished value, general limitation, general permission, income, income year, tax year Compare: 2004 No 35 s DO 7 (2) (3) Subpart DP—Forestry expenditure DP 1 Expenditure of forestry business (1) Deduction A person carrying on a forestry business on land in New Zealand is allowed a deduction for expenditure that they incur on— (a) (b) (c) (d) (e) (f) administrative overheads, rates, rent, insurance pre- miums, or other expenses of the same kinds: interest on money borrowed for the purposes of the business and employed as capital in the business: planting or maintaining trees on the land: applying fertiliser after the planting of the trees: disease control, pest control, or weed control (excluding releasing): repair or maintenance of plant, machinery, or equipment used by the person mainly in— (i) (ii) planting or maintaining trees on the land; or preparing or otherwise developing the land for the person’s forestry operations: 537 Part D s DP 2 Income Tax Act 2007 Reprinted as at 5 January 2010 (g) (h) repair or maintenance of land improvements, other than trees, effected on the land and used by the person mainly in the business: the construction to or on the land of access tracks that are— (i) constructed for a speciﬁc operational purpose; and used for no longer than 12 months after construc- tion: (ii) (2) (3) (i) the cost of standing timber that is lost or destroyed.
Timing of deduction Although timber is revenue account property, a deduction for expenditure described in subsection (1) is not allocated under section EA 2(2) (Other revenue account property) but under section BD 4(2) (Allocation of deductions to particular income years).

Link with subpart DA This section overrides the capital limitation.

The general per- mission must still be satisﬁed and the other general limitations still apply.
Deﬁned in this Act: business, capital limitation, deduction, forestry business, general limitation, general permission, interest, New Zealand, revenue account property, standing timber, timber Compare: 2004 No 35 s DP 1 Section DP 1 list of deﬁned terms forestry business: inserted (with effect on 1 April 2008), on 7 December 2009, by section 126 of the Taxation (Conse- quential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
DP 2 Plant or machinery When this section applies: ﬁrst case This section applies when— (a) (b) (c) a person incurs expenditure on acquiring, on or after 1 April 1975, plant or machinery; and the person ﬁrst uses the plant or machinery on or after 1 April 1975; and the person uses the plant or machinery mainly in devel- oping land in New Zealand for use in a forestry business to be carried on by them on the land.
(1) 538 Reprinted as at 5 January 2010 Income Tax Act 2007 Part D s DP 3 (2) (3) (4) When this section applies: second case This section also applies when— (a) a person carrying on a forestry business on land in New Zealand incurs expenditure on acquiring, on or after 1 April 1975, plant or machinery; and the person ﬁrst uses the plant or machinery on or after 1 April 1975; and the person uses the plant or machinery mainly in plant- ing or maintaining trees on the land.
(b) (c) Deduction The person is allowed a deduction for an amount of depreci- ation loss for the plant or machinery.

Link with subpart DA This section overrides the capital limitation.

The general per- mission must still be satisﬁed and the other general limitations still apply.
Deﬁned in this Act: acquire, amount, business, capital limitation, deduction, de- preciation loss, forestry business, general limitation, general permission, New Zealand Compare: 2004 No 35 s DP 2 Section DP 2 list of deﬁned terms forestry business: inserted (with effect on 1 April 2008), on 7 December 2009, by section 126 of the Taxation (Conse- quential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
DP 3 Improvements to forestry land (1) (2) When this section applies This section applies when— (a) (b) a person carries on a forestry business on land in New Zealand; and an improvement described in schedule 20, part G (Ex- penditure on farming, horticultural, aquacultural, and forestry improvements) has been made to the land.
Deduction: expenditure: owner of land A person who owns the land is allowed a deduction for ex- penditure to which all the following apply: (a) (b) (c) it is incurred on making the improvement; and it is incurred by the person or by another person; and it is incurred in the 1995–96 income year or in a later income year, not including the income year in which 539 Part D s DP 3 Income Tax Act 2007 Reprinted as at 5 January 2010 the person disposes of the land, the income year being the income year of the person who owns the land; and it is incurred in developing the land; and it is of beneﬁt to the business in the income year in which the person is allowed the deduction.
(d) (e) Deduction: expenditure: non-owner of land A person who does not own the land is allowed a deduction for expenditure to which all the following apply: (a) (b) (c) it is incurred on making the improvement; and it is incurred by the person; and it is incurred in the 1995–96 income year or in a later income year, not including the income year in which the person ceases to carry on the business on the land; and it is incurred in developing the land; and it is of beneﬁt to the business in the income year in which the person is allowed the deduction.
(d) (e) Amount, and timing, of deduction The amount of the deduction is calculated using the formula— schedule 20 percentage × diminished value.

Deﬁnition of items in formula In the formula,— (a) schedule 20 percentage is the percentage set out op- posite the description of the improvement in schedule 20, part G: diminished value is the diminished value of the im- provement.

(b) Link with subpart DA This section overrides the capital limitation.
The general per- mission must still be satisﬁed and the other general limitations still apply.
Deﬁned in this Act: amount, business, capital limitation, deduction, diminished value, forestry business, general limitation, general permission, income year, New Zealand, own Compare: 2004 No 35 s DP 3 Section DP 3 list of deﬁned terms forestry business: inserted (with effect on 1 April 2008), on 7 December 2009, by section 126 of the Taxation (Conse- quential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
(3) (4) (5) (6) 540 Reprinted as at 5 January 2010 Income Tax Act 2007 Part D s DP 5 DP 4 Improvement destroyed or made useless (1) (2) (3) When this section applies This section applies when, in an income year of a person,— (a) the person operates a forestry business on land, to which there has been made an improvement; and the improvement is destroyed or irreparably damaged and made useless for the purpose of deriving income— that corresponds to the (i) in an income year 2005–06 tax year or a later tax year; and other than as a result of the action or failure to act of the person, an agent of the person, or an associated person; and (ii) the person would be entitled for the income year to a de- duction under section DP 3 for expenditure on the im- provement if the improvement had not been destroyed or made useless.
(b) (c) Deduction: diminished value of expenditure The person is allowed a deduction of the amount of the di- minished value, for the income year, of the expenditure on the improvement.

Link with subpart DA This section overrides the general permission and the capital limitation.

The other general limitations still apply.


Deﬁned in this Act: business, capital limitation, deduction, diminished value, forestry business, general limitation, general permission, income, income year, tax year Compare: 2004 No 35 s DP 3B Section DP 4 list of deﬁned terms forestry business: inserted (with effect on 1 April 2008), on 7 December 2009, by section 126 of the Taxation (Conse- quential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
DP 5 Forestry encouragement agreement: deductions (1) (2) When this section applies This section applies when a person makes a forestry encour- agement agreement under the Forestry Encouragement Act 1962.
Deduction: forestry expenditure under agreement The person is allowed a deduction for expenditure that they incur if all the following apply to the expenditure: 541 Part D s DP 6 Income Tax Act 2007 Reprinted as at 5 January 2010 (a) (b) (c) it is expenditure incurred in planting or maintaining trees under the agreement; and it is not expenditure for which an advance has been or is to be made under the agreement; and it is not expenditure represented in a payment made to the person under the Forestry Encouragement Grants Regulations 1983 and incurred in— (i) (ii) meeting administrative overheads, rates, rent, in- surance premiums, or other expenses of the same kinds; or paying interest on money borrowed for the pur- pose of developing the trees and employed as capital in developing the trees.
planting or maintaining trees; or (iii) (3) (4) Deduction: advance The person is allowed a deduction for expenditure that they incur in— (a) making a payment of interest for an advance made under the agreement: (b) making a payment reducing the principal of an advance made under the agreement.

Link with subpart DA This section overrides the capital limitation.

The general per- mission must still be satisﬁed and the other general limitations still apply.
Deﬁned in this Act: capital limitation, deduction, general limitation, general permission, interest, pay Compare: 2004 No 35 s DP 4 DP 6 Forestry encouragement agreement: no deduction No deduction A person who has made a forestry encouragement agreement under the Forestry Encouragement Act 1962 is denied a de- duction for an amount equal to the amount from which they are relieved in the following circumstances: (a) an advance is made to the person under the agreement; and the advance is exempt income of the person under sec- tion CW 2 (Forestry encouragement agreements); and (b) (1) 542 Reprinted as at 5 January 2010 Income Tax Act 2007 Part D s DP 8 (c) the person is later relieved from some or all of their liability to repay the principal.
(2) Link with subpart DA This section overrides the general permission.

Deﬁned in this Act: amount, deduction, exempt income, general permission, pay Compare: 2004 No 35 s DP 5 DP 7 Land contouring: no deduction (1) (2) No deduction A person who derives income under section CB 24 (Disposal of timber or right to take timber) or CB 25 (Disposal of land with standing timber) is denied a deduction for expenditure that they incur on land contouring in the course of deriving the income.
Link with subpart DA This section overrides the general permission.
Deﬁned in this Act: deduction, general permission, income Compare: 2004 No 35 s DP 6 DP 8 Forestry business on land bought from the Crown, Maori owners, or holding company: no deduction (1) (2) No deduction: forestry company A forestry company is denied a deduction for interest to which both the following apply: (a) it is paid by the company under a qualifying debenture issued by the company; and it is exempt income of the person deriving it, under sec- tion CW 3 (Forestry companies and Maori investment companies).
(b) No deduction: Maori investment company A Maori investment company is denied a deduction for interest to which both the following apply: (a) it is paid by the company under a qualifying debenture issued by the company; and it is exempt income of the person deriving it, under sec- tion CW 3.
(b) 543 Part D s DP 9 Income Tax Act 2007 Reprinted as at 5 January 2010 (3) (4) Relationship with sections FA 2 and FA 2B Section FA 2 (Recharacterisation of certain debentures), as it applies to substituting debentures, and section FA 2B (Stapled debt securities) do not apply to a qualifying debenture.

Link with subpart DA This section overrides the general permission.
Deﬁned in this Act: business, deduction, exempt income, forestry business, forestry company, general permission, holding company, interest, Maori invest- ment company, Maori owners, pay, qualifying debenture, substituting deben- ture Compare: 2004 No 35 s DP 7 Section DP 8(3) heading: amended (with effect on 1 April 2008), on 6 October 2009, by section 93(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section DP 8(3): amended (with effect on 1 April 2008), on 6 October 2009, by section 93(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section DP 8 list of deﬁned terms forestry business: inserted (with effect on 1 April 2008), on 7 December 2009, by section 126 of the Taxation (Conse- quential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
DP 9 Cost of acquiring timber: forestry business on land bought from the Crown, Maori owners, or holding company When this section applies This section applies when a forestry company buys land with standing timber on it from a seller who is the Crown, the Maori owners, or a holding company of the forestry company.
Sellers of Maori land For the purposes of subsection (1),— (a) land sold to the forestry company by the Maori Trustee or by a trustee for a Maori owner is treated as if it had been sold by the beneﬁcial owners: land sold to the forestry company by a Maori incorpor- ation is treated as if it had been sold by the members of the incorporation.
(b) Cost of acquiring timber The cost to the forestry company of acquiring the timber is the lesser of— (1) (2) (3) 544 Reprinted as at 5 January 2010 Income Tax Act 2007 Part D s DP 10 (a) (b) the cost of the timber to the seller at the date of the sale; and the amount described in section CB 25(3) (Disposal of land with standing timber).
Deﬁned in this Act: business, forestry business, forestry company, holding company, Maori incorporation, Maori owners, standing timber, trustee Compare: 2004 No 35 s DP 8 Section DP 9 list of deﬁned terms forestry business: inserted (with effect on 1 April 2008), on 7 December 2009, by section 126 of the Taxation (Conse- quential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
DP 10 Cost of acquiring timber or right to take timber: other cases (1) (2) Acquiring land with standing timber For a person acquiring land with standing timber on it in a dis- posal to which section CB 25 (Disposal of land with standing timber) applies, the cost of acquiring the timber is the amount that is, under CB 25, income of the person disposing of the land.
Recharacterisation or avoidance For a person acquiring timber or a right to take timber in a disposal or distribution to which section EB 24, FB 6, FB 7, GC 1, or GC 2 (which relate to the disposal of trading stock) applies, the cost of acquiring the timber or the cost of acquiring a right to take timber is the amount treated as— (a) the price paid or realised under section EB 24 (Ap- portionment on disposal of business assets that include trading stock); or the consideration under sections FB 6 and FB 7 (which relate to the disposal of timber under a relationship agreement); or the price realised under section GC 1 (Disposals of trad- ing stock at below market value); or the price realised under section GC 2 (Disposals of tim- ber rights or standing timber).
(b) (c) (d) Transfers between associated persons Subsections (4) and (5) apply if— (3) 545 Part D s DP 11 Income Tax Act 2007 Reprinted as at 5 January 2010 (4) (5) (a) (b) a person (the transferor) disposes of timber, a right to take timber, or standing timber, to an associated person (the transferee); and as a result, the transferor has an amount of income under section CB 24 or CB 25 (which relate to income from timber).
Limit on deduction for transferor The deduction that the transferor is allowed for the cost of the timber, right to take timber, or standing timber must not be more than the amount of the income.
Transferee’s deduction The deduction that the transferee is allowed for the cost of ac- quiring the timber is calculated on the basis that the transferee acquired the timber for the total of— (a) (b) the cost to the transferee of acquiring the timber; and the amount, if any, for which the transferor is denied a deduction under subsection (4).
Deﬁned in this Act: amount, associated person, dispose, income, pay, right to take timber, standing timber, timber Compare: 2004 No 35 ss DP 9, GD 15 Section DP 10(5): amended (with effect on 1 April 2008), on 7 December 2009, by section 14(1) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
DP 11 Cost of timber When this section applies This section applies when a person— (a) derives an amount on the disposal of timber and the amount is income of the person under section CB 24 (Disposal of timber or right to take timber) or CB 25 (Disposal of land with standing timber); and has incurred expenditure in relation to the timber that is a cost of timber.

(b) Deduction The person is allowed a deduction for the amount that is a cost of timber.
Timing of deduction The deduction is allocated— (1) (2) (3) 546 Reprinted as at 5 January 2010 Income Tax Act 2007 Part D s DQ 1 (a) (b) for timber harvested from the land before the time of disposal, to the income year in which the timber ﬁrst becomes trading stock of the person; or otherwise, by section EA 2 (Other revenue account property).
(4) (5) Meaning of timber In this section, timber includes— (a) (b) the creation or grant of a right to take timber: the grant of a licence or an easement in relation to tim- ber: the creation of a forestry right as deﬁned in section 2 of the Forestry Rights Registration Act 1983, other than a right in favour of the proprietor in relation to establish- ing, maintaining, and harvesting timber.

(c) Link with subpart DA This section supplements the general permission and overrides the capital limitation.
The other general limitations still apply.

Deﬁned in this Act: amount, capital limitation, cost of timber, deduction, dis- pose, general permission, income year, timber, trading stock Section DP 11: substituted (with effect on 1 April 2008), on 7 December 2009, by section 15(1) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
Subpart DQ—Income equalisation schemes and environmental restoration accounts schemes DQ 1 Main income equalisation scheme (1) (2) Deduction A person who has made a deposit for a tax year is allowed a deduction of the amount quantiﬁed in section EH 7(2) (Deduc- tion of deposit).

Timing of deduction The deduction is allocated to the income year corresponding to the tax year described in section EH 7(3).
547 Part D s DQ 2 Income Tax Act 2007 Reprinted as at 5 January 2010 (3) Link with subpart DA This section supplements the general permission and overrides the capital limitation.

The other general limitations still apply.


Deﬁned in this Act: amount, capital limitation, deduction, deposit, general limi- tation, general permission, income year, main income equalisation scheme, per- son, supplement, tax year Compare: 2004 No 35 s DQ 1 DQ 2 Adverse event income equalisation scheme (1) (2) (3) Deduction A person who has made a deposit for a tax year is allowed a deduction of the amount quantiﬁed in section EH 41(2) (De- duction of deposit).
Timing of deduction The deduction is allocated to the income year corresponding to the tax year described in section EH 41(3).

Link with subpart DA This section supplements the general permission and overrides the capital limitation.

The other general limitations still apply.


Deﬁned in this Act: adverse event income equalisation scheme, amount, capital limitation, deduction, deposit, general limitation, general permission, income year, person, supplement, tax year Compare: 2004 No 35 s DQ 2 DQ 3 Thinning operations income equalisation scheme Deduction A person who has made a deposit for a tax year is allowed a deduction of the amount quantiﬁed in section EH 67(2) (De- duction of deposit).
Timing of deduction The deduction is allocated to the income year corresponding to the tax year described in section EH 67(3).

Link with subpart DA This section supplements the general permission and overrides the capital limitation.

The other general limitations still apply.
Deﬁned in this Act: amount, capital limitation, deduction, deposit, general limi- tation, general permission, income year, person, supplement, tax year, thinning operations income equalisation scheme Compare: 2004 No 35 s DQ 3 (1) (2) (3) 548 Reprinted as at 5 January 2010 Income Tax Act 2007 Part D s DR 1 DQ 4 Environmental restoration accounts scheme (1) (2) (3) (4) (5) Deduction for payment A person is allowed a deduction of the amount set out in sec- tion EK 7 (Deduction for payment) if the person has made a payment for an income year to the Commissioner under sec- tion EK 2 (Persons who may make payment to environmental restoration account) and the amount is not refunded under sec- tion EK 9 (Refund of payment if excess, lacking details).
Timing of deduction The deduction under subsection (1) is allocated to the income year referred to in section EK 7.
Deduction for transfer A person is allowed a deduction for an income year of the amount set out in section EK 8 (Deduction for transfer) if in an income year the person receives— (a) a transfer under section EK 15 (Transfer on request) that is treated under section EK 15(3) as being a payment by the person: a transfer under section EK 16(3)(b) (Transfer on death, bankruptcy, or liquidation): a transfer under section EK 19 (Environmental restora- tion account of amalgamating company).
(b) (c) Timing of deduction A deduction under subsection (3) is allocated to the income year referred to in section EK 8.

Link with subpart DA This section supplements the general permission and overrides the capital limitation.

The other general limitations still apply.
Deﬁned in this Act: capital limitation, deduction, general limitation, general permission, income year, pay, supplement Compare: 2004 No 35 s DQ 4 Subpart DR—Life insurance business expenditure DR 1 Mortality proﬁt formula: negative result When this section applies This section applies when— (1) 549 Part D s DR 2 Income Tax Act 2007 Reprinted as at 5 January 2010 (a) (b) a life insurer follows the steps in section EY 26(2) (Mor- tality proﬁt: when life insurers providing life insurance at start of income year) or EY 27(2) (Mortality proﬁt: when life insurers not providing life insurance at start of income year) for an income year and gets a negative result; and the negative result is not treated as zero because 1 of the exceptions in section EY 33(2) to (4) (Mortality proﬁt formula: individual result may be negative only in some cases) applies.
Deduction The life insurer is allowed a deduction of the amount quan- tiﬁed in section EY 34(2) (Mortality proﬁt formula: negative result).

Timing of deduction The deduction is allocated to the income year described in sec- tion EY 34(3).

Link with subpart DA This section supplements the general permission.

The general limitations still apply.


Deﬁned in this Act: amount, deduction, general limitation, general permission, income year, life insurer, mortality proﬁt formula, supplement Compare: 2004 No 35 s DR 1 (2) (3) (4) DR 2 Disposal of property When this section applies This section applies when a life insurer disposes of any prop- erty of their life insurance business.
Exclusions This section does not apply when the property is— (a) a share to which section DB 24 (Share losses) applies; or a ﬁnancial arrangement; or property for whose cost the life insurer has already been allowed a deduction, other than for an amount of depre- ciation loss.

(b) (c) (1) (2) 550 Reprinted as at 5 January 2010 Income Tax Act 2007 Part D s DR 3 (3) (4) (5) Deduction The life insurer is allowed a deduction of the amount quanti- ﬁed in section EY 47(2) (Deductions for disposal of property).
Timing of deduction The deduction is allocated to the income year described in sec- tion EY 47(3).

Link with subpart DA This section supplements the general permission and overrides the capital limitation.

The other general limitations still apply.
Deﬁned in this Act: amount, business, capital limitation, deduction, depreci- ation loss, ﬁnancial arrangement, general limitation, general permission, in- come year, life insurance, life insurer, property, share, supplement Compare: 2004 No 35 s DR 2 DR 3 Speciﬁc deductions denied to life insurers and fully reinsured persons (1) (2) (3) No deduction A life insurer is denied a deduction for— (a) a claim payable by the life insurer under a life insurance policy; or expenditure or loss incurred by the life insurer in deriv- ing policyholder income; or a bonus or other discretionary amount added to the ac- tuarial reserves; or a premium payable by the life insurer under a life rein- surance policy.
(b) (c) (d) Inclusion This section applies to a person who is carrying on a business of providing life insurance but who is treated as not carrying on a business of providing life insurance because they have full reinsurance.

Link with subpart DA This section overrides the general permission.
Deﬁned in this Act: actuarial reserves, amount, business, claim, deduction, full reinsurance, general permission, life insurance, life insurance policy, life in- surer, life reinsurance policy, loss, pay, policyholder income, premium Compare: 2004 No 35 s DR 3 551 Part D s DS 1 Income Tax Act 2007 Reprinted as at 5 January 2010 Subpart DS—Film industry expenditure DS 1 Acquiring ﬁlm rights Deduction A person is allowed a deduction for expenditure that they incur in acquiring a ﬁlm right, if the ﬁlm is completed, whether it is completed before, at the time, or after the ﬁlm right is acquired.
Exclusion This section does not apply to expenditure that a person incurs in acquiring a ﬁlm right if— (a) the person operates a television station, a television net- work, or a cable television system, and the ﬁlm right is acquired mainly to enable the ﬁlm to be broadcast in New Zealand; or the ﬁlm is intended to be shown as an advertisement; or the expenditure is ﬁlm production expenditure; or section DS 2B applies to the expenditure.
(b) (c) (d) Timing of deduction The deduction is allocated under section EJ 4 (Expenditure incurred in acquiring ﬁlm rights in feature ﬁlms) or EJ 5 (Ex- penditure incurred in acquiring ﬁlm rights in ﬁlms other than feature ﬁlms).

No other deduction No other deduction for expenditure incurred in acquiring a ﬁlm right is allowed under a provision of this Act other than section DS 2B.
Avoidance arrangements The amount of the deduction may be reduced under— (a) section GB 17 (Excessive amounts for ﬁlm rights or production expenditure): section GB 18 (Arrangements to acquire ﬁlm rights or incur production expenditure).

(b) (1) (2) (3) (4) (5) 552 Reprinted as at 5 January 2010 Income Tax Act 2007 Part D s DS 2 (6) Link with subpart DA This section overrides the capital limitation.

The general per- mission must still be satisﬁed and the other general limitations still apply.
Deﬁned in this Act: arrangement, capital limitation, completed, deduction, ﬁlm, ﬁlm production expenditure, ﬁlm right, general limitation, general permission, New Zealand Compare: 2004 No 35 s DS 1 Section DS 1(2): substituted (with effect on 1 April 2008), on 7 December 2009, by section 16(1) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
Section DS 1(2) ﬁrst paragraph (c): amended, on 1 April 2008, by section 345(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section DS 1(2) second paragraph (c): added, on 1 April 2008, by section 345(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section DS 1(4): amended, on 1 April 2008, by section 345(2) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
DS 2 Film production expenditure (1) (2) Deduction A person is allowed a deduction for ﬁlm production expend- iture if— (a) (b) the ﬁlm is completed; and the person has a ﬁlm right in it— before it is completed: (i) at the time it is completed: (ii) after it is completed.
(iii) Inclusions For the purposes of subsection (1),— (a) if a person (person A) reimburses another person (per- son B) for ﬁlm production expenditure that person B incurs, and does it before the ﬁlm is completed, the re- imbursement is treated as ﬁlm production expenditure incurred by person A; and if a person (person A) reimburses another person (per- son B) for expenditure on interest incurred by person B in producing the ﬁlm, person A may treat the reim- bursement as ﬁlm production expenditure incurred by person A.
(b) 553 Part D s DS 2 Income Tax Act 2007 Reprinted as at 5 January 2010 Exclusion This section does not apply to ﬁlm production expenditure if the ﬁlm— (a) is produced mainly for broadcast in New Zealand by a person who operates a television station, a television network, or a cable television system: is intended to be shown as an advertisement: section DS 2B applies to the ﬁlm production expend- iture.
(b) (c) Timing of deduction The deduction is allocated under— (a) section EJ 4 or EJ 5 (which relate to expenditure in- curred in acquiring ﬁlm rights) if the ﬁlm is one for which a government screen production payment is made; or section EJ 7 or EJ 8 (which relate to ﬁlm production ex- penditure) if the ﬁlm is not one for which a government screen production payment is made.
(b) No other deduction No other deduction for ﬁlm production expenditure is allowed under a provision of this Act other than section DS 2B.

Avoidance arrangements The amount of the deduction may be reduced or the timing of the deduction may be delayed under— (a) section GB 17 (Excessive amounts for ﬁlm rights or production expenditure): section GB 18 (Arrangements to acquire ﬁlm rights or incur production expenditure): section GB 19 (When ﬁlm production expenditure pay- ments delayed or contingent).
(b) (c) Link with subpart DA The link between this section and subpart DA (General rules) is as follows: (a) (b) (c) it overrides the capital limitation; and the other general limitations still apply; and either— (i) the general permission must be satisﬁed; or (3) (4) (5) (6) (7) 554 Reprinted as at 5 January 2010 Income Tax Act 2007 Part D s DS 2B (ii) a provision that supplements the general permis- sion must be satisﬁed.
Deﬁned in this Act: arrangement, capital limitation, completed, deduction, ﬁlm, ﬁlm production expenditure, ﬁlm right, general limitation, general permission, government screen production payment, New Zealand, pay, supplement Compare: 2004 No 35 s DS 2 Section DS 2(3) heading: substituted, on 1 April 2008, by section 346(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section DS 2(3): substituted, on 1 April 2008, by section 346(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section DS 2(4) heading: substituted, on 1 January 2010, by section 95(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section DS 2(4): substituted, on 1 January 2010, by section 95(1) of the Tax- ation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section DS 2(5): amended, on 1 April 2008, by section 346(2) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section DS 2 list of deﬁned terms government screen production payment: inserted, on 1 January 2010, by section 95(2)(b) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section DS 2 list of deﬁned terms large budget screen production grant: re- pealed, on 1 January 2010, by section 95(2)(a) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
DS 2B Expenditure when ﬁlm or ﬁlm right intended for disposal (1) (2) When this section applies This section applies when— (a) a person incurs ﬁlm production expenditure or expend- iture in acquiring a ﬁlm right; and at the time of incurring the expenditure, the person in- tends to dispose of the ﬁlm or ﬁlm right.

(b) Deduction The person is allowed a deduction for the amount of the ex- penditure allocated under section EA 2 (Other revenue account property).
555 Part D s DS 3 Income Tax Act 2007 Reprinted as at 5 January 2010 (3) Link with subpart DA This section overrides the capital limitation.

The general per- mission must still be satisﬁed and the other general limitations still apply.
Deﬁned in this Act: amount, capital limitation, deduction, ﬁlm, ﬁlm production expenditure, ﬁlm right, general limitation, general permission Compare: 2004 No 35 s DS 2B Section DB 2B: inserted, on 1 April 2008, by section 347 of the Taxation (Busi- ness Taxation and Remedial Matters) Act 2007 (2007 No 109).
DS 3 Clawback of deductions for ﬁlm reimbursement schemes Reduction of deductions A person who disposes of property under a ﬁlm reimbursement scheme must use the formula in subsection (3) to reduce— (a) the total deductions that they have been allowed for the disposal under the scheme under section DS 1 or DS 2; or the total deductions that they would be allowed for the disposal under the scheme under section DS 1 or DS 2 in the absence of this section.
(b) Order of reduction Deductions must be reduced in the same order as they have been allowed or would be allowed.

Formula The total deductions must be reduced to an amount equal to the greater of zero and the amount calculated using the formula— total deductions − total consideration.
Deﬁnition of items in formula In the formula,— (a) total deductions is the total amount of deductions that— (i) the person has been allowed under section DS 1 or DS 2; or the person would be allowed under section DS 1 or DS 2 in the absence of this section: (ii) (b) total consideration is the total amount of consideration for the disposal of the property that the person derives and that is not ﬁlm income.
(1) (2) (3) (4) 556 Reprinted as at 5 January 2010 Income Tax Act 2007 Part D s DS 4 (5) (6) (7) Application of Tax Administration Act 1994 Section 44A of the Tax Administration Act 1994 applies to a person to whom this section applies.

Amendment of assessment Despite the time bar, the Commissioner may amend an assess- ment at any time in order to give effect to this section.
Exclusion This section does not apply to a deduction for expenditure ex- cluded under section DZ 11 (Film reimbursement scheme on or before 30 June 2001).

Deﬁned in this Act: amount, assessment, Commissioner, deduction, ﬁlm in- come, ﬁlm reimbursement scheme, time bar Compare: 2004 No 35 s DS 3 DS 4 Meaning of ﬁlm reimbursement scheme Meaning (1) (2) (3) Film reimbursement scheme means an arrangement to which subsections (2) to (4) apply.
Deduction allowed The ﬁrst requirement for a ﬁlm reimbursement scheme is that it is a scheme under which a person may incur expenditure for which they are allowed a deduction under— (a) section DS 1 or DS 2, or would be allowed a deduction in the absence of section DS 3: subpart DA (General rules), if the expenditure is for— (i) (ii) a ﬁlm right: a right to an amount that is dependent on or cal- culated by reference to income from the rental, sale, use, or other exploitation of a ﬁlm.
(b) Disposal of property The second requirement for a ﬁlm reimbursement scheme is that 1 of the following applies: (a) it enables the person or an associated person to dispose of property; or it gives a right to the person or an associated person to dispose of property; or (b) 557 Part D s DS 4 Income Tax Act 2007 Reprinted as at 5 January 2010 (c) it gives a right, the right creates an obligation for the person or an associated person, and the person or the associated person may meet the obligation by disposing of property.
Consideration not ﬁlm income The third requirement for a ﬁlm reimbursement scheme is that it is a scheme under which some or all of the consideration for the property would not be ﬁlm income.
Associated persons For the purposes of subsection (3), a shareholder in a loss-at- tributing qualifying company and the company are associated persons, in addition to the associated persons described in the provisions of subpart YB (Associated persons and nominees) that apply for the purposes of the whole Act (excluding the 1973, 1988, and 1990 version provisions) or in the 1988 ver- sion provisions.
Deﬁned in this Act: 1973 version provisions, 1988 version provisions, 1990 version provisions, amount, arrangement, associated person, deduction, ﬁlm income, ﬁlm reimbursement scheme, ﬁlm right, income, loss-attributing quali- fying company, shareholder Compare: 2004 No 35 s DS 4 Section DS 4(5): substituted (with effect on 1 April 2008), on 6 October 2009, by section 96(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section DS 4 list of deﬁned terms 1973 version provisions: inserted (with ef- fect on 1 April 2008), on 6 October 2009, by section 96(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section DS 4 list of deﬁned terms 1988 version provisions: inserted (with ef- fect on 1 April 2008), on 6 October 2009, by section 96(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section DS 4 list of deﬁned terms 1990 version provisions: inserted (with ef- fect on 1 April 2008), on 6 October 2009, by section 96(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
(4) (5) 558 Reprinted as at 5 January 2010 Income Tax Act 2007 Part D s DT 1A Subpart DT—Petroleum mining expenditure Petroleum exploration expenditure DT 1A Ring-fenced allocations (1) (2) (3) (4) When this section applies This section applies to an amount of a person’s deductions for expenditure and loss for an income year to the extent to which it is— (a) (b) (c) petroleum exploration expenditure: petroleum development expenditure: residual expenditure.
Basis for allocation of deductions If, but for this subsection, an amount that relates to petroleum mining operations undertaken outside New Zealand would be allocated to an income year (the current year), including an amount carried forward and allocated to the current year, the amount that is allocated to the current year is no more than the amount of the person’s income derived for the current year from all petroleum mining operations undertaken outside New Zealand.
Excess allocations: carried forward and re-instated next year Any excess not allocated to the current year because of sub- section (2) is carried forward and treated as— (a) relating to petroleum mining operations undertaken out- side New Zealand for the next income year; and allocated to that next income year.
(b) Restriction on reinstating excess allocations Despite subsection (3), the excess is not allocated to the next income year, and no deduction is allowed or allocated to any income year for the excess, if sections IA 5 and IP 3 (which re- late to the carrying forward of tax losses for companies) would not have allowed the excess to be carried forward to that next income year in a loss balance, treating the excess as a tax loss component arising on the last day of the current year.
Deﬁned in this Act: deduction, income year, loss balance, New Zealand, petrol- eum development expenditure, petroleum exploration expenditure, petroleum mining operation, residual expenditure, tax loss component 559 Part D s DT 1 Income Tax Act 2007 Reprinted as at 5 January 2010 Section DT 1A: inserted (with effect on 1 April 2008), on 6 October 2009, by section 97(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
DT 1 Petroleum exploration expenditure (1) (2) (3) Deduction A person is allowed a deduction for petroleum exploration ex- penditure incurred by them.

Relationship with section DT 2 This section is overridden by section DT 2.

Link with subpart DA This section supplements the general permission and overrides the capital limitation.

The other general limitations still apply.
Deﬁned in this Act: capital limitation, deduction, general limitation, general permission, petroleum exploration expenditure, supplement Compare: 2004 No 35 s DT 1 DT 2 Arrangement for petroleum exploration expenditure and sale of property (b) What this section applies to This section applies to a person and an arrangement if— (a) the person may incur expenditure under the arrange- ment and would be allowed a deduction for the expend- iture under section DT 1; and the person or a person associated with them under the provisions of subpart YB (Associated persons and nom- inees) that apply for the purposes of the whole Act (ex- cluding the 1973, 1988, and 1990 version provisions) or the 1988 version provisions may dispose of property— (i) (ii) under the arrangement; or under a right given by the arrangement to the person or the associated person; or in meeting an obligation of the person or the as- sociated person arising from a right given by the arrangement; and (iii) (c) the property is not— (i) (ii) exploratory material; or a petroleum permit; or (1) 560 Reprinted as at 5 January 2010 Income Tax Act 2007 Part D s DT 2 (2) (3) (4) (iii) material or a permit that relates to petroleum min- ing operations undertaken outside New Zealand, and that material or permit are substantially the same as those described in subparagraphs (i) or (ii), with necessary modiﬁcations made to this subpart and the Crown Minerals Act 1991.
Amount of deduction The person is allowed a deduction in an income year for the expenditure described in subsection (1)(a) but only to the ex- tent of an amount equal to the greater of zero and the amount calculated using the formula— expenditure − (consideration − lesser amount).
Exclusion If consideration for the property is derived in an income year, the person’s deductions in earlier income years for the ex- penditure described in subsection (1)(a) are reduced so that the total of those deductions is equal to the greater of zero and the amount calculated using the formula— previous expenditure − consideration.
Deﬁnition of items in formulas In the formulas in subsections (2) and (3),— (a) expenditure is the amount of expenditure for which the person would be allowed a deduction in the income year under section DT 1(1): consideration is the total consideration for the property that is derived before or during the income year: lesser amount is the lesser of— (i) (ii) the amount of consideration; and the amount of expenditure for which a person would be allowed a deduction in earlier income years under section DT 1(1): previous expenditure is the amount of expenditure for which a person would be allowed a deduction in earlier income years under section DT 1(1).
(b) (c) (d) Order of reduction (5) When an adjustment under subsection (3) is being made, de- ductions are treated as denied in the same order in time as they would have been allowed under section DT 1(1).

561 Part D s DT 3 Income Tax Act 2007 Reprinted as at 5 January 2010 (6) (7) (8) (9) Application of Tax Administration Act 1994 Section 44A of the Tax Administration Act 1994 applies to a person to whom this section applies.
Amendment of assessment Despite the time bar, the Commissioner may amend an assess- ment at any time in order to give effect to this section.

Relationship with section DT 1 This section overrides section DT 1.

Link with subpart DA This section supplements the general permission and overrides the capital limitation.

The other general limitations still apply.
Deﬁned in this Act: 1973 version provisions, 1988 version provisions, 1990 version provisions, amount, arrangement, assessment, associated person, Com- missioner, consideration, deduction, dispose, exploration permit, exploratory material, income year, petroleum, petroleum exploration expenditure, prospect- ing permit, supplement, time bar Compare: 2004 No 35 s DT 2 Section DT 2(1)(b): amended (with effect on 1 April 2008), on 6 October 2009, by section 98(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section DT 2(1)(c)(ii): substituted (with effect on 1 April 2008), on 6 October 2009, by section 98(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section DT 2(1)(c)(iii): substituted (with effect on 1 April 2008), on 6 October 2009, by section 98(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section DT 2 list of deﬁned terms 1973 version provisions: inserted (with ef- fect on 1 April 2008), on 6 October 2009, by section 98(4) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section DT 2 list of deﬁned terms 1988 version provisions: inserted (with ef- fect on 1 April 2008), on 6 October 2009, by section 98(4) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section DT 2 list of deﬁned terms 1990 version provisions: inserted (with ef- fect on 1 April 2008), on 6 October 2009, by section 98(4) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
DT 3 Acquisition of privileges and permits The consideration that a person pays to acquire an existing privilege, a prospecting permit for petroleum, or an explor- ation permit for petroleum from a petroleum miner is treated 562 Reprinted as at 5 January 2010 Income Tax Act 2007 Part D s DT 5 as petroleum exploration expenditure incurred in the income year in which the petroleum miner disposes of the privilege or permit to the person.
Deﬁned in this Act: consideration, dispose, existing privilege, exploration per- mit, income year, pay, petroleum exploration expenditure, petroleum miner, prospecting permit Compare: 2004 No 35 s DT 3 DT 4 Acquisition of exploratory material The consideration that a person pays to acquire exploratory material from a petroleum miner is treated as petroleum ex- ploration expenditure incurred in the income year in which the petroleum miner disposes of the material to the person.
Deﬁned in this Act: consideration, dispose, exploratory material, income year, pay, petroleum exploration expenditure, petroleum miner Compare: 2004 No 35 s DT 4 Petroleum development expenditure DT 5 Petroleum development expenditure (1) (2) (3) Deduction A petroleum miner is allowed a deduction for petroleum de- velopment expenditure incurred by them.
Timing of deduction For an income year, an amount of the deduction is allocated to that year, as provided by— (a) section EJ 12 (Petroleum development expenditure: de- fault allocation rule); or section EJ 12B (Petroleum development expenditure: reserve depletion method).

(b) Relationship with section DZ 3 This section is overridden by section DZ 3 (Petroleum mining: development expenditure from 1 October 1990 to 15 Decem- ber 1991).
563 Part D s DT 6 Income Tax Act 2007 Reprinted as at 5 January 2010 (4) Link with subpart DA This section supplements the general permission and overrides the capital limitation.

The other general limitations still apply.


Deﬁned in this Act: capital limitation, deduction, general limitation, general permission, petroleum development expenditure, petroleum miner, supplement Compare: 2004 No 35 s DT 5 Section DT 5(1) heading: substituted (with effect on 1 April 2008), on 6 October 2009, by section 99(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section DT 5(1): substituted (with effect on 1 April 2008), on 6 October 2009, by section 99(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section DT 5(2) heading: substituted (with effect on 1 April 2008), on 6 October 2009, by section 99(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section DT 5(2): substituted (with effect on 1 April 2008), on 6 October 2009, by section 99(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
DT 6 Expenditure on petroleum mining assets (b) Expenditure that a person incurs in buying a petroleum mining asset is treated as petroleum development expenditure if, at the time the asset is bought,— (a) petroleum is produced in commercial quantities on a continuing basis under a petroleum permit that is the one being bought; or petroleum is produced in commercial quantities on a continuing basis under a petroleum permit that applies to the permit area in which an asset of the kind described in section CT 7(1)(b) or (c) (Meaning of petroleum min- ing asset) is to be used; or an application for a petroleum mining permit for the permit area has been made by a person entitled under section 32(3) of the Crown Minerals Act 1991.
Deﬁned in this Act: permit area, petroleum, petroleum development expend- iture, petroleum mining asset, petroleum permit Compare: 2004 No 35 s DT 6 (c) DT 7 Exploratory well expenditure When this section applies This section applies when— (1) 564 Reprinted as at 5 January 2010 Income Tax Act 2007 Part D s DT 9 (a) (b) (c) a petroleum miner incurs exploratory well expenditure; and the miner then uses the exploratory well for the com- mercial production of petroleum; and the exploratory well expenditure is then treated, under section CT 3 (Exploratory well used for commercial production), as income of the miner.
Treatment of expenditure An amount equal to the amount that is treated as income is treated as petroleum development expenditure incurred by the petroleum miner in the income year in which commercial pro- duction from the well starts.
Deﬁned in this Act: amount, commercial production, exploratory well expend- iture, income, income year, petroleum, petroleum development expenditure, petroleum miner Compare: 2004 No 35 s DT 7 (2) DT 8 Acquisition of certain petroleum mining assets The consideration that a person pays to acquire a petroleum mining asset, other than an existing privilege, a prospecting permit for petroleum, or an exploration permit for petroleum, from a petroleum miner is treated as petroleum development expenditure incurred in the income year in which the petrol- eum miner disposes of the petroleum mining asset to the per- son.
Deﬁned in this Act: consideration, dispose, existing privilege, exploration per- mit, income year, pay, petroleum, petroleum development expenditure, petrol- eum miner, petroleum mining asset, prospecting permit Compare: 2004 No 35 s DT 8 DT 9 Disposal of petroleum mining asset to associate (1) When this section applies This section applies when— (a) a petroleum miner disposes of a petroleum mining asset to— (i) (ii) (iii) a person associated with the miner; or a person who holds the asset for the miner; or a person who holds the asset for a person associ- ated with the miner; and 565 Part D s DT 10 Income Tax Act 2007 Reprinted as at 5 January 2010 (b) section EJ 16(2) (Disposal of petroleum mining asset to associate) prevents the miner from taking the full amount of a deduction allocated under section EJ 12 or EJ 12B (which relate to petroleum development ex- penditure) to the income year in which the miner dis- poses of the asset.
(2) (3) No deduction The miner is denied a deduction for— (a) (b) the amount that section EJ 16(2) prevents the miner from taking; and the amount of the deduction allocated under section EJ 12 or EJ 12B to the income years after the income year in which the miner disposes of the asset.

Link with subpart DA This section overrides the general permission.
Deﬁned in this Act: amount, associated person, deduction, dispose, general permission, income year, petroleum miner, petroleum mining asset Compare: 2004 No 35 s DT 9 Section DT 9(1)(b): amended (with effect on 1 April 2008), on 6 October 2009, by section 100(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section DT 9(2)(b): substituted (with effect on 1 April 2008), on 6 October 2009, by section 100(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
DT 10 Disposal of petroleum mining asset outside association When this section applies This section applies when— (a) a petroleum miner disposes of a petroleum mining asset to a person described in subsection (2) (person A); and person A disposes of the asset to a person described in subsection (3) (person B).
(b) Person A For the purposes of subsection (1)(a), the persons are— (a) (b) (c) an associated person of the miner; or a person who holds the asset for the miner; or a person who holds the asset for an associated person of the miner.
(1) (2) 566 Reprinted as at 5 January 2010 Income Tax Act 2007 Part D s DT 11 (3) (4) (5) (6) (7) Person B For the purposes of subsection (1)(b), the persons are— a person not associated with the miner; or (a) a person who does not hold the asset for the miner; or (b) a person who does not hold the asset for a person asso- (c) ciated with the miner.

Deduction Person A is allowed a deduction.


Amount of deduction The amount of the deduction is the amount for which the pet- roleum miner is denied a deduction under section DT 9.

Timing of deduction The deduction is allocated to the income year in which person A disposes of the asset.

Link with subpart DA This section supplements the general permission and overrides the capital limitation.

The other general limitations still apply.
Deﬁned in this Act: amount, associated person, capital limitation, deduction, dispose, general limitation, general permission, income year, petroleum miner, petroleum mining asset, supplement Compare: 2004 No 35 s DT 10 DT 11 Association ending (1) When this section applies This section applies when— (a) a petroleum miner disposes of a petroleum mining asset to a person (person A) who is— (i) (ii) an associated person of the miner; or a person who holds the asset for an associated person of the miner; or a person who holds the asset for the miner; and (iii) while person A holds the asset,— (i) the association between the miner and the asso- ciated person ends; or the association between the miner and the person who holds the asset for the miner ends.
(ii) (b) 567 Part D s DT 12 Income Tax Act 2007 Reprinted as at 5 January 2010 (2) (3) (4) (5) (6) Exclusion This section does not apply when the petroleum miner and the other party to the association end their association— (a) for the purpose of the miner being allowed a deduction under this section; or for various purposes, 1 of which is, as a more than merely incidental purpose, the miner being allowed a deduction under this section.

(b) Deduction The petroleum miner is allowed a deduction.
Amount of deduction The amount of the deduction is the amount for which the pet- roleum miner is denied a deduction under section DT 9.

Timing of deduction The deduction is allocated to the income year in which the association ends.

Link with subpart DA This section supplements the general permission and overrides the capital limitation.

The other general limitations still apply.


Deﬁned in this Act: amount, associated person, capital limitation, deduction, dispose, general limitation, general permission, income year, petroleum miner, petroleum mining asset, supplement Compare: 2004 No 35 s DT 11 DT 12 Damage to assets Other expenditure Deduction A petroleum miner is allowed a deduction for the cost of re- pairing a damaged asset of the kind described in section CT 7(1)(b) or (c) (Meaning of petroleum mining asset).
Link with subpart DA This section supplements the general permission and overrides the capital limitation.

The other general limitations still apply.


Deﬁned in this Act: capital limitation, deduction, general limitation, general permission, petroleum miner, supplement Compare: 2004 No 35 s DT 12 (1) (2) 568 Reprinted as at 5 January 2010 Income Tax Act 2007 Part D s DT 14 DT 13 Disposal of ownership interests in controlled petroleum mining entities (1) (2) (3) No deduction A person who disposes of shares or trust interests in a con- trolled petroleum mining entity is denied a deduction for their cost.
Application of Tax Administration Act 1994 Section 65 of the Tax Administration Act 1994 applies when this section applies.

Link with subpart DA This section overrides the general permission.
Deﬁned in this Act: controlled petroleum mining entity, deduction, dispose, share Compare: 2004 No 35 s DT 13 DT 14 Farm-out arrangements (1) (2) (3) (4) When this section applies This section applies when a farm-in party under a farm-out ar- rangement incurs farm-in expenditure that, if it were incurred by the farm-out party, would be petroleum development ex- penditure, exploratory well expenditure, or prospecting ex- penditure.
Treatment of farm-in expenditure The farm-in expenditure is treated as if it were petroleum development expenditure, exploratory well expenditure, or prospecting expenditure, as applicable.

Deduction The farm-in party is allowed a deduction for the farm-in ex- penditure that is incurred under the farm-out arrangement on or after 16 December 1991.
Relationship with section DZ 5 Farm-in expenditure that is incurred before 16 December 1991 is dealt with in section DZ 5 (Farm-out arrangements for pet- roleum mining before 16 December 1991).

569 Part D s DT 15 Income Tax Act 2007 Reprinted as at 5 January 2010 (5) Link with subpart DA This section supplements the general permission and overrides the capital limitation.

The other general limitations still apply.
Deﬁned in this Act: capital limitation, deduction, exploratory well expenditure, farm-in expenditure, farm-in party, farm-out arrangement, general limitation, general permission, petroleum development expenditure, prospecting expend- iture, supplement Compare: 2004 No 35 s DT 14 DT 15 Persons associated with petroleum miner When this section applies This section applies to a person associated with a petroleum miner when— (a) the petroleum miner has some or all of an existing priv- ilege; and the associated person— (i) undertakes petroleum mining operations in the licence area of the existing privilege; and does so under an arrangement for reward; and (ii) (iii) when doing so is not a petroleum miner in rela- tion to the petroleum mining operations.
(b) Deduction The associated person is allowed a deduction for expenditure or loss that they incur in the petroleum mining operations de- scribed in subsection (1).

Amount of deduction The amount of the deduction is limited to the extent of the amount of income that they derive from the petroleum mining operations.

Link with subpart DA This section overrides the general permission.
Deﬁned in this Act: amount, arrangement, associated person, deduction, exist- ing privilege, general permission, income, petroleum miner, petroleum mining operations Compare: 2004 No 35 s DT 15 (1) (2) (3) (4) 570 Reprinted as at 5 January 2010 Income Tax Act 2007 Part D s DT 17 DT 16 Removal or restoration operations (1) (2) (3) (4) Deduction A petroleum miner is allowed a deduction for expenditure that they incur on removal or restoration operations.
Timing of deduction The deduction is allocated to the income year in which the expenditure is incurred.

Relationship with section EA 2 This section overrides section EA 2 (Other revenue account property).

Link with subpart DA This section supplements the general permission and overrides the capital limitation.

The other general limitations still apply.


Deﬁned in this Act: capital limitation, deduction, general limitation, general permission, income year, petroleum miner, removal or restoration operations, supplement Compare: 2004 No 35 s DT 16 General provisions DT 17 Attribution of expenditure (1) (2) (3) Petroleum mining permit A deduction for expenditure incurred to acquire a petroleum permit is attributable to the permit area of the petroleum per- mit.
Other assets A deduction for expenditure incurred to acquire an asset of the kind described in section CT 7(1)(b) or (c) (Meaning of petroleum mining asset) is attributable to— (a) (b) the asset; and the permit area to which the asset relates.

Relationship with this subpart and sections GB 20 and IS 5 This section applies for the purposes of this subpart, sections GB 20 (Arrangements involving petroleum mining) and IS 5 (Petroleum miners’ tax losses), and section 91 of the Tax Administration Act 1994.
Deﬁned in this Act: permit area, petroleum permit Compare: 2004 No 35 s DT 17 571 Part D s DT 18 Income Tax Act 2007 Reprinted as at 5 January 2010 DT 18 Replacement permits In this subpart, a reference to a petroleum permit includes a reference to a replacement permit.

All expenditure incurred, deductions allowed, and petroleum mining assets that are at- tributable to the petroleum permit are attributable to the re- placement permit.
Deﬁned in this Act: deduction, petroleum mining asset, petroleum permit, re- placement permit Compare: 2004 No 35 s DT 18 DT 19 Partnership interests and disposal of part of asset In this subpart, unless the context requires otherwise,— (a) a partner is treated as having a share or interest in a pet- roleum permit or other property of a partnership to the extent of their interest in the income of the partnership: references to the disposal of an asset apply equally to the disposal of part of an asset.
Deﬁned in this Act: dispose, income, petroleum permit Compare: 2004 No 35 s DT 19 (b) DT 20 Petroleum mining operations outside New Zealand This subpart applies, with any necessary modiﬁcations, to a petroleum miner undertaking petroleum mining operations that are— (a) outside New Zealand and undertaken through a branch or a controlled foreign company; and substantially the same as the petroleum mining activ- ities governed by this subpart.
(b) Deﬁned in this Act: controlled foreign company, New Zealand, petroleum miner, petroleum mining operations Compare: 2004 No 35 s DT 20 Subpart DU—Mineral mining expenditure DU 1 Mining exploration expenditure and mining development expenditure Deduction A mining company is allowed a deduction for mining explor- ation expenditure and mining development expenditure that it incurs.
(1) 572 Reprinted as at 5 January 2010 Income Tax Act 2007 Part D s DU 2 (2) (3) (4) Amount of deduction The amount of the deduction is the amount determined under section DU 2.

Mining expenditure The amount of the expenditure for which the company is al- lowed a deduction must be taken into account in the mining expenditure item of the formula in section DU 7(5).

Link with subpart DA This section supplements the general permission and overrides the capital limitation.
The other general limitations still apply.
Deﬁned in this Act: amount, capital limitation, deduction, general limitation, general permission, mining company, mining development expenditure, mining exploration expenditure, supplement Compare: 2004 No 35 s DU 1 DU 2 Mining exploration expenditure or mining development expenditure on acquisition of asset (1) (2) What this section does This section applies when a mining company acquires an as- set by incurring mining exploration expenditure or mining de- velopment expenditure.
It describes the consideration that the mining company is treated as giving for the asset and the con- sideration that the person who disposes of the asset to the min- ing company is treated as receiving for it.
Consideration in various cases The consideration is,— (a) in a case other than a case described in any of subsec- tions (3) to (6), the consideration that the company in- curs for the acquisition of the asset: in the case described in subsection (3), the consideration speciﬁed in the subsection for the acquisition of the as- set: in the case described in subsection (4), the consideration speciﬁed in the subsection for the acquisition of the as- set: in the case described in subsection (5), the consideration speciﬁed in subsection (6) for the acquisition of the as- set.
(b) (c) (d) 573 Part D s DU 2 Income Tax Act 2007 Reprinted as at 5 January 2010 Consideration other than in cash If some or all of the consideration for the acquisition is other than in cash, and the acquisition is not from an associated per- son, the consideration that is not in cash has the value agreed between the mining company and the person from whom the asset is acquired.
If the mining company and the person do not agree, or if the Commissioner considers that the value agreed is unreasonable, the consideration that is not in cash has the value that the Commissioner decides.

Acquisition from associated person If the acquisition is from an associated person, the consider- ation for the acquisition is the market value that the asset has on the date of the acquisition.
Amount speciﬁed by parties to acquisition Subsection (6) applies when— (a) (b) (c) (d) the mining company acquires the asset for use in carry- ing on their mining operations or associated mining op- erations; and the mining company and the person from whom the as- set is acquired give notice to the Commissioner that they have agreed to apply subsection (6); and the notice is given to the Commissioner within 1 of the following times: (i) the time in which the mining company is required to ﬁle a return of income for the income year in which it acquires the asset; or a longer time allowed by the Commissioner; and (ii) the notice speciﬁes an amount that— (i) is no more than the market value that the asset has at the date of the acquisition; and is no less than the amount of any part of the con- sideration that is in cash.
(ii) Amount speciﬁed in notice The consideration for the acquisition is the amount that the mining company and the person specify in the notice.
Deﬁned in this Act: amount, associated mining operations, associated person, Commissioner, income year, mining company, mining development expend- (3) (4) (5) (6) 574 Reprinted as at 5 January 2010 Income Tax Act 2007 Part D s DU 3 iture, mining exploration expenditure, mining operations, notice, return of in- come Compare: 2004 No 35 s DU 2 Section DU 2(2)(a): amended (with effect on 1 April 2008), on 7 December 2009, by section 17(1) of the Taxation (Consequential Rate Alignment and Re- medial Matters) Act 2009 (2009 No 63).
DU 3 Replacing or repairing asset (1) (2) (3) (4) (5) When subsections (2) to (4) apply Subsections (2) to (4) apply when— (a) (b) (c) a mining company complies with section CU 6(2) (Compensation and scrap payment: use to replace or repair asset); and the company incurs expenditure in replacing or repair- ing the asset; and the company has an excess amount because the expend- iture is more than the total of— (i) the amount of insurance, indemnity, or compen- sation paid; and the amount, if any, payable to the company for the disposal of any scrap of the asset.
(ii) Deduction The company is allowed a deduction for the excess.

Mining expenditure The excess amount must be taken into account in the mining expenditure item of the formula in section DU 7(5).

No other deduction No other deduction for expenditure incurred in the circum- stances described in subsection (1) is allowed under any other provision of this Act.
When subsections (7) and (8) apply Subsections (7) and (8) apply when— (a) (b) a mining company complies with section CU 6(2); and the Commissioner considers a period to be a reasonable period within which to complete the replacement or re- pair; and the company incurs expenditure in replacing or repair- ing the asset after the last day of the period; and (c) 575 Part D s DU 4 Income Tax Act 2007 Reprinted as at 5 January 2010 (d) the company has an excess amount because the expend- iture is more than the total of the following: the amount of compensation paid; and (i) the amount, if any, payable to the company for (ii) the disposal of any scrap of the asset.
Deduction The company is allowed a deduction for the excess.

Limitation on calculation of excess amount The expenditure incurred after the last day of the period must not be taken into account to determine the existence or amount of an excess amount for the purposes of subsection (1)(c).

Mining expenditure The expenditure incurred after the last day of the period must be taken into account in the mining expenditure item of the formula in section DU 7(5).
Link with subpart DA This section supplements the general permission and overrides the capital limitation.

The other general limitations still apply.
Deﬁned in this Act: amount, capital limitation, Commissioner, deduction, gen- eral limitation, general permission, mining company, pay, supplement Compare: 2004 No 35 s DU 3 (6) (7) (8) (9) DU 4 Income appropriated to expenditure When this section applies This section applies when— (a) a mining company appropriates an amount of income to mining exploration expenditure or mining development expenditure; and the company makes the appropriation within 2 months after the end of an income year or in a longer time al- lowed by the Commissioner; and the amount that the company appropriates is no more than its net income in the income year, calculated as if this section did not exist.
(b) (c) Deduction The company is allowed a deduction for the part of the amount to which both the following apply: (1) (2) 576 Reprinted as at 5 January 2010 Income Tax Act 2007 Part D s DU 5 (a) (b) it is not spent in the income year to which the appropri- ation relates; and it will be, or is likely to be, used as mining exploration expenditure or mining development expenditure before the end of the second income year following the income year to which the appropriation relates.
Timing of deduction The deduction for the part of the amount is allocated to the income year to which the appropriation relates.

Mining expenditure The part of the amount to which subsection (2)(a) and (b) apply must be taken into account in the mining expenditure item of the formula in section DU 7(5).

Link with subpart DA This section supplements the general permission and overrides the capital limitation.

The other general limitations still apply.
Deﬁned in this Act: amount, capital limitation, Commissioner, deduction, gen- eral limitation, general permission, income, income year, mining company, mining development expenditure, mining exploration expenditure, net income, supplement Compare: 2004 No 35 s DU 4 (3) (4) (5) DU 5 Non-mining asset used to derive income from mining (1) (2) When this section applies This section applies when— (a) a mining company starts to use, or starts again to use, an asset to derive income from mining; and immediately before that, the company used the asset to derive income other than income from mining.
(b) Adjustment The Commissioner may make an adjustment to any deduction of the mining company for the asset for the income year, as between the part of the income year in which the company used the asset to derive income from mining and the part of the income year in which the company did not use the asset to derive income from mining.
577 Part D s DU 6 Income Tax Act 2007 Reprinted as at 5 January 2010 (3) Commissioner to consider The adjustment must be of a kind that the Commissioner con- siders equitable, having regard to— (a) any deduction for an amount of depreciation loss that the company has been allowed; and any other deduction that the company has been allowed for the cost of the asset; and any other matters that the Commissioner considers rele- vant.
(b) (c) Deﬁned in this Act: amount, Commissioner, deduction, depreciation loss, in- come, income from mining, income year, mining company Compare: 2004 No 35 s DU 5 DU 6 Depreciation When this section applies: ﬁrst case This section applies when— (a) a mining company acquires an asset by incurring— (i) mining exploration expenditure or mining devel- opment expenditure; or the exploration expenditure or development expenditure referred to in section DZ 12(2)(a) (Mineral mining: 1954–2005); and (ii) (b) (c) the company is allowed a deduction for the expenditure; and the company uses the asset, wholly or mainly, to derive income from mining.
When this section applies: second case This section also applies when— (a) a mining company complies with section CU 6(2) (Compensation and scrap payment: use to replace or repair asset); and the company incurs expenditure in replacing or repair- ing the asset; and the company is allowed a deduction for the expenditure; and the company uses the asset, wholly or mainly, to derive income from mining.
(b) (c) (d) (1) (2) 578 Reprinted as at 5 January 2010 Income Tax Act 2007 Part D s DU 7 (3) (4) (5) No deduction (with exception) The company is denied a deduction for an amount of depre- ciation loss for the asset from the time when it uses the asset wholly or mainly to derive income from mining until the time, if any, when it uses the asset wholly or mainly to derive in- come other than income from mining.
Amount of depreciation loss The asset has the value described in section CU 10(2) (Mining asset used to derive income other than income from mining) for the purpose of calculating the amount of depreciation loss that the company has for its use of the asset wholly or mainly to derive income other than income from mining.

Link with subpart DA Subsections (1) to (3) override the general permission.
Deﬁned in this Act: acquire, amount, deduction, depreciation loss, general per- mission, income, income from mining, mining company, mining development expenditure, mining exploration expenditure, pay Compare: 2004 No 35 s DU 6 DU 7 Limit on deduction Limit (1) When a mining company has a mining outgoing excess, there is a limit on the deduction that it is allowed in the income year for the amount taken into account in the mining expenditure item of the formula in subsection (5).
(2) (3) Amount of deduction The limit is the lesser of— (a) (b) two-thirds of the mining outgoing excess; and the greater of zero and the amount calculated using the formula— non-mining income − non-mining expenditure.
Deﬁnition of items in formula In the formula in subsection (2),— (a) non-mining income is the income other than income from mining of the mining company allocated to the income year: non-mining expenditure is all the expenditure or loss that the mining company incurs in the income year re- (b) 579 Part D s DU 8 Income Tax Act 2007 Reprinted as at 5 January 2010 lating to deriving non-mining income and for which it is allowed a deduction that is allocated to the income year.
Meaning of mining outgoing excess (4) Mining outgoing excess means the greater of zero and the amount that a mining company calculates for an income year using the formula— mining expenditure − income from mining.
(5) Deﬁnition of items in formula In the formula in subsection (4),— (a) mining expenditure is an amount consisting of— (i) all the expenditure or loss that the mining com- pany incurs in the income year relating to deriv- ing income from mining and for which it would be allowed a deduction that would be allocated to the income year; and any part of an amount described in section DU 4(4): (ii) (b) income from mining is the income from mining of the mining company allocated to the income year.
Deﬁned in this Act: amount, deduction, income, income from mining, income year, mining company, mining outgoing excess Compare: 2004 No 35 s DU 7 DU 8 Meaning of asset for sections DU 1 to DU 7 Mining company’s share or interest in asset Sections DU 1 to DU 7 apply to a share or interest that a mining company has in an asset— (a) to the extent to which the mining company acquired the share or interest by incurring— (i) mining exploration expenditure or mining devel- opment expenditure: the exploration expenditure or development expenditure referred to in section DZ 12(2)(a) (Mineral mining: 1954–2005); and (ii) (b) to the extent to which the mining company uses the share or interest for the purpose of deriving income from mining.
(1) 580 Reprinted as at 5 January 2010 Income Tax Act 2007 Part D s DU 9 (2) (3) Partner’s share or interest in asset [Repealed] [Repealed] Replaced or repaired asset For the purposes of sections DU 1 to DU 7,— (a) an asset that a mining company acquires by incurring expenditure in replacing or repairing the asset is the same asset as the one that was lost, destroyed, or dam- aged; and part of an asset that a mining company acquires by in- curring expenditure in repairing the asset is part of the asset that was damaged.
(b) Deﬁned in this Act: asset, income from mining, mining company, mining de- velopment expenditure, mining exploration expenditure Compare: 2004 No 35 s DU 8 Section DU 8(2) heading: repealed, on 1 April 2008, pursuant to section 12(1) of the Taxation (Limited Partnerships) Act 2008 (2008 No 2).

Section DU 8(2): repealed, on 1 April 2008, by section 12(1) of the Taxation (Limited Partnerships) Act 2008 (2008 No 2).
DU 9 Application of sections to resident mining operators (1) (2) Sections of this subpart applying to resident mining operators Sections DU 1 to DU 3, and DU 5 to DU 7 apply, with any ne- cessary modiﬁcations, to resident mining operators as if resi- dent mining operators were mining companies.

Additional modiﬁcation of section DU 6 For the purposes of subsection (1), section DU 6(1)(a)(ii) ap- plies as described in section DZ 12(2)(b) (Mineral mining: 1954–2005).
Application of section DU 7 (3) When a resident mining operator has a mining outgoing ex- cess, the total of deductions that it is allowed in the income year for expenditure or loss taken into account in the mining expenditure item of the formula in section DU 7(5) is no more than the lesser of— (a) (b) the total amount of the expenditure and loss; and the prescribed amount for the income year.
581 Part D s DU 10 Income Tax Act 2007 Reprinted as at 5 January 2010 (4) (5) Meaning of prescribed amount Prescribed amount means 50% of the amount by which the income that the resident mining operator derives in an income year, other than from its mining operations or associated min- ing operations, is more than the total of the expenditure and losses, for which it is allowed deductions, that it incurs in the income year in deriving the income.
Relationship with sections IA 2 to IA 5 and IS 2 Expenditure or loss of a resident mining operator for which it would be allowed a deduction in an income year in the absence of subsection (3) is a tax loss component of the operator in the income year for the purposes of sections IA 2 to IA 5 and IS 2 (which relate to the use of tax losses).
Deﬁned in this Act: amount, associated mining operations, deduction, income, income year, loss, mining company, mining operations, mining outgoing ex- cess, prescribed amount, resident mining operator, tax loss component Compare: 2004 No 35 s DU 9 DU 10 Application of sections to non-resident mining operators Sections of this subpart and subpart IS applying to non-resident mining operators Sections DU 1 to DU 6 and IS 1, IS 3, and IS 4 (which relate to the use of tax losses by mining companies) apply, with any necessary modiﬁcations, to non-resident mining operators as if non-resident mining operators were mining companies, in- come from mining were income from a mining venture, min- ing operations were mining ventures, and associated mining operations were mining ventures.
Application of section DU 1 Section DU 1 applies with the additional modiﬁcation that subsection (2) is omitted.

Application of section DU 3 Section DU 3 applies with the additional modiﬁcation that subsections (3) and (6) are omitted.

Application of section DU 4 Section DU 4 applies with the additional modiﬁcation that subsection (4) is omitted.
(1) (2) (3) (4) 582 Reprinted as at 5 January 2010 Income Tax Act 2007 Part D s DU 12 (5) Additional modiﬁcation of section DU 6 For the purposes of subsection (1), section DU 6(1)(a)(ii) ap- plies as described in section DZ 12(2)(b) (Mineral mining: 1954–2005).
Deﬁned in this Act: associated mining operations, income, income from min- ing, mining company, mining operations, mining venture, non-resident mining operator Compare: 2004 No 35 s DU 10 DU 11 Disposal of mining shares by company Deduction (1) When a company disposes of a mining share, the company is allowed a deduction for the cost of the share to it.
(2) (3) Amount of deduction The cost of the share to the company is the difference between the following 2 sums: (a) the total of— (i) (ii) the consideration that the company gave to ac- quire the share; and any capital the company contributed later for the share: the total of— (i) any reinvestment proﬁt of the company included in the consideration that the company gave; and any reinvestment proﬁt of the company included in the capital that the company contributed.
(ii) (b) Link with subpart DA This section overrides the capital limitation.

The general per- mission must still be satisﬁed and the other general limitations still apply.
Deﬁned in this Act: capital limitation, company, deduction, general limitation, general permission, mining share, reinvestment proﬁt Compare: 2004 No 35 s DU 11 DU 12 Amount written off by holding company (1) Deduction A holding company of a mining company is allowed a deduc- tion for an amount written off a loan it made to the mining company.
583 Part D s DU 12 Income Tax Act 2007 Reprinted as at 5 January 2010 Exclusions The following are not included within the words “an amount written off a loan it made to the mining company” in subsec- tion (1): (a) an amount of interest that the holding company writes off; or an amount of a loan to the extent to which a mining holding company makes the loan from its reinvestment proﬁt; or an amount of a loan made on or after 1 October 1978 to the extent to which the loan— (i) is made to obtain an unfair advantage for tax pur- poses; and is excessive, having regard to previous loans made by the holding company and any other circumstances.
(ii) (b) (c) (b) Amount of deduction The deduction is no more than the lesser of— (a) 50% of the amount that, in the absence of this section, would be the net income of the holding company in the income year in which the amount is written off; and the prescribed proportion of the total amount of mining exploration expenditure and mining development ex- penditure incurred by the mining company before the end of the income year in which the amount referred to in subsection (1) is written off, reduced by the total amount of deductions the holding company is allowed under this section in all income years before the income year in which that amount is written off.
Timing of deduction The deduction for the amount written off is allocated to the income year in which the amount is written off.

Reduction of amount The amount calculated under subsection (3) is reduced in the circumstances described in section DZ 12(4) (Mineral mining: 1954–2005).

(2) (3) (4) (5) 584 Reprinted as at 5 January 2010 Income Tax Act 2007 Part D s DV 1 (6) Link with subpart DA This section supplements the general permission and overrides the capital limitation.
The other general limitations still apply.
Deﬁned in this Act: amount, capital limitation, deduction, general limitation, general permission, holding company, income year, interest, loan, mining com- pany, mining development expenditure, mining exploration expenditure, net in- come, prescribed proportion, reinvestment proﬁt, supplement, tax Compare: 2004 No 35 s DU 12 Section DU 12(3)(a): amended (with effect on 1 April 2008), on 6 October 2009, by section 101(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section DU 12(3)(b): substituted (with effect on 1 April 2008), on 6 October 2009, by section 101(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Subpart DV—Expenditure speciﬁc to certain entities Superannuation funds DV 1 Publicising superannuation funds (1) (2) (3) When this section applies This section applies when a superannuation fund incurs ex- penditure to which all the following apply: (a) it is incurred in developing, marketing, selling, promot- ing, or advertising the fund; and it is not incurred in acquiring a building, equipment, land, machinery, or plant; and it is assessable income of the recipient.
(b) (c) Deduction The superannuation fund is allowed a deduction for the ex- penditure.

Link with subpart DA This section supplements the general permission and overrides the capital limitation and the exempt income limitation.

The other general limitations still apply.
Deﬁned in this Act: assessable income, capital limitation, deduction, exempt income limitation, general limitation, general permission, superannuation fund, supplement Compare: 2004 No 35 s DV 1 585 Part D s DV 2 Income Tax Act 2007 Reprinted as at 5 January 2010 DV 2 Transfer of expenditure to master fund (1) (2) (3) (4) When this section applies This section applies when— (a) a superannuation fund (the member superannuation fund) invests some or all of its funds in another super- annuation fund (the master superannuation fund); and while the member superannuation fund has funds in- vested in the master superannuation fund, the member superannuation fund incurs expenditure of a kind de- scribed in subsection (2).
(b) Expenditure on publicising or managing The expenditure is expenditure to which all the following apply: (a) it is incurred— (i) in developing, marketing, selling, promoting, or advertising the fund; or in managing the fund; and (ii) it is not incurred in acquiring a building, equipment, land, machinery, or plant; and it is assessable income of the recipient.
(b) (c) When expenditure becomes master superannuation fund’s The member superannuation fund may choose to treat some or all of the expenditure as expenditure incurred by the master superannuation fund in deriving assessable income.
How election made The member superannuation fund makes the election by giving notice to the Commissioner within 1 of the following times: (a) the time in which its return of income must be ﬁled under section 37 of the Tax Administration Act 1994; or a longer time allowed by the Commissioner.

(b) Effect of election (5) When the member superannuation fund makes an election, subsections (6) to (9) apply to the part or the whole, as chosen, of the expenditure.
586 Reprinted as at 5 January 2010 Income Tax Act 2007 Part D s DV 2 (6) (7) (8) When expenditure incurred The expenditure is treated as being incurred by the master superannuation fund as follows: (a) for a master fund that is a portfolio tax rate entity, in the income year in which the expenditure is transferred by the member superannuation fund; or for other master funds, in the same income year as that in which it was incurred by the member superannuation fund.
(b) Deduction allowed to master superannuation fund The master superannuation fund is allowed a deduction for the expenditure.

The amount of the deduction is limited by subsection (8).

Amount of deduction The formula in section DV 3 is used to calculate the maximum deduction that the master superannuation fund is allowed for expenditure of the member superannuation fund treated as be- ing incurred by the master superannuation fund.
Amount of deduction when master fund is portfolio tax rate entity (8B) Despite subsection (8), a master superannuation fund that is a portfolio tax rate entity is allowed a deduction for expenditure transferred to it by a member superannuation fund.

However, the maximum amount transferred must be no more than the member fund’s share of the entity’s taxable income for the income year in which the amount is transferred, any excess being treated as not transferred.
(9) Deducted expenditure not incurred by member superannuation fund The expenditure for which the master superannuation fund is allowed a deduction is treated as not being incurred by the member superannuation fund.
Link with subpart DA (10) The link between this section and subpart DA (General rules) is as follows: (a) for subsection (7),— (i) it supplements the general permission: 587 Part D s DV 3 Income Tax Act 2007 Reprinted as at 5 January 2010 (ii) it overrides the capital limitation and the exempt income limitation: the other general limitations still apply: (iii) subsection (9) overrides the general permission.
(b) Deﬁned in this Act: amount, assessable income, capital limitation, Commis- sioner, deduction, exempt income limitation, general limitation, general per- mission, income year, notice, portfolio investor interest, portfolio tax rate en- tity, return of income, superannuation fund, supplement Compare: 2004 No 35 s DV 2 Section DV 2(6): substituted (with effect on 1 April 2008), on 6 October 2009, by section 102(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section DV 2(8B) heading: inserted (with effect on 1 April 2008), on 6 October 2009, by section 102(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section DV 2(8B): inserted (with effect on 1 April 2008), on 6 October 2009, by section 102(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section DV 2 list of deﬁned terms portfolio investor interest: inserted (with effect on 1 April 2008), on 6 October 2009, by section 102(5) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section DV 2 list of deﬁned terms portfolio tax rate entity: inserted (with effect on 1 April 2008), on 6 October 2009, by section 102(5) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
DV 3 Formula for calculating maximum deduction Formula The formula referred to in section DV 2(8) is— taxable income − non-resident passive income.

Deﬁnition of items in formula The items in the formula are deﬁned in subsections (3) and (4).

Taxable income Taxable income is the amount that would be the master super- annuation fund’s taxable income in the tax year in which the expenditure is incurred in the absence of sections DV 2 to DV 4.
Non-resident passive income Non-resident passive income is the total of any amounts of non-resident passive income of any of the kinds to which sec- tion RF 2(5) (Non-resident passive income) applies derived by (1) (2) (3) (4) 588 Reprinted as at 5 January 2010 Income Tax Act 2007 Part D s DV 4 the master superannuation fund in the corresponding income year in which the expenditure is incurred.
Deﬁned in this Act: amount, corresponding income year, deduction, non-resi- dent passive income, superannuation fund, tax year, taxable income Compare: 2004 No 35 s DV 3 DV 4 Carry forward of expenditure (1) When this section applies This section applies when— (a) the expenditure treated as being incurred by the master superannuation fund, under section DV 2(3), is more than the maximum amount for which it is allowed a deduction, as calculated under DV 3, so there is surplus expenditure; and the member superannuation fund chooses to deal with the surplus expenditure under this section, rather than deducting it itself; and the member superannuation fund has funds invested in the master superannuation fund at the time referred to in section DV 2(1)(b) and while its election under section DV 2(3) continues and while it deals with the surplus expenditure under this section.
(b) (c) What this section does not apply to (1B) This section does not apply to a transfer of expenditure to a master superannuation fund that is a portfolio tax rate entity.

(2) (3) KiwiSaver schemes For the avoidance of doubt, section 144 of the KiwiSaver Act 2006 applies to a registered superannuation scheme that con- verts to a KiwiSaver scheme for the purpose of determining if subsection (1)(c) applies.
Surplus carried forward The member superannuation fund carries the surplus expend- iture forward to the next income year and takes the following steps: (a) it gets the combined expenditure by adding the surplus expenditure to the expenditure, if any, incurred by it in the income year that it chooses to treat as being incurred by the master superannuation fund: 589 Part D s DV 4 Income Tax Act 2007 Reprinted as at 5 January 2010 (b) (c) (d) it calculates the maximum deduction for the income year, using the formula in section DV 3: if the combined expenditure is the same as or less than the maximum deduction, it— (i) treats the surplus expenditure as expenditure in- curred by the master superannuation fund in de- riving assessable income in the income year; and applies subsections (5) to (8): (ii) if the combined expenditure is more than the maximum deduction, it— (i) carries forward the new surplus expenditure to the next income year; and applies subsection (4).
(ii) Surplus dealt with until gone The member superannuation fund repeats the steps in subsec- tion (3) for the following income years until all surplus ex- penditure is deducted.

Deduction allowed to master superannuation fund Expenditure treated under subsection (3)(c)(i) as incurred by the master superannuation fund in deriving income is allowed as a deduction in the income year in which it is so treated.

The amount of the deduction is limited by subsection (6).
Amount of deduction The maximum amount of a deduction under subsection (5) is the maximum deduction for the income year, calculated using the formula in section DV 3.

Deducted expenditure not incurred by member superannuation fund Expenditure for which the master superannuation fund is al- lowed a deduction is treated as not being incurred by the mem- ber superannuation fund.
Sequential deductions Expenditure for which the master superannuation fund is al- lowed a deduction must be deducted in sequence according to the income year in which the member superannuation fund in- curred it.
(4) (5) (6) (7) (8) 590 Reprinted as at 5 January 2010 Income Tax Act 2007 Part D s DV 4B (9) Link with subpart DA The link between this section and subpart DA (General rules) is as follows: (a) subsection (5) supplements the general permission and overrides the capital limitation; the other general limi- tations still apply: subsection (7) overrides the general permission.
(b) Deﬁned in this Act: amount, assessable income, capital limitation, deduction, income year, KiwiSaver general scheme, portfolio tax rate entity, superannuation fund, superannuation scheme, supplement Compare: 2004 No 35 s DV 4 limitation, general permission, income, Section DV 4(1B) heading: inserted (with effect on 1 April 2008), on 6 October 2009, by section 103(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section DV 4(1B): inserted (with effect on 1 April 2008), on 6 October 2009, by section 103(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section DV 4 list of deﬁned terms portfolio tax rate entity: inserted (with effect on 1 April 2008), on 6 October 2009, by section 103(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
DV 4B Carry forward of expenditure by member funds investing in portfolio investment entities (1) When this section applies This section applies when— (a) (b) a master fund that is a portfolio tax rate entity has a deduction under section DV 2(8B) for an income year for expenditure transferred to it by a member fund; and the amount of the expenditure that meets the tests set out in section DV 2(2) is more than the amount transferred for the income year, so there is surplus expenditure for the member fund.
(2) Member fund carrying expenditure forward The member fund may carry forward the surplus expenditure for transfer under section DV 2(8B) in a later income year.

591 Part D s DV 5 Income Tax Act 2007 Reprinted as at 5 January 2010 (3) Expenditure as loss balance If the member fund carries forward surplus expenditure in an income year, the member fund may treat some or all of the expenditure as a loss balance for the corresponding tax year.
Deﬁned in this Act: amount, deduction, income year, loss balance, master fund, portfolio tax rate entity, tax year Section DV 4B: inserted (with effect on 1 April 2008), on 6 October 2009, by section 104(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
DV 5 Investment funds: transfer of expenditure to master funds Other entities When this section applies This section applies when— (a) (b) (c) a group investment fund that derives category A in- come, a public unit trust, or a superannuation fund (the member fund) invests some or all of its funds in a mas- ter fund; and while the member fund has funds invested in the mas- ter fund, the member fund incurs expenditure of a kind described in subsection (2); and the member fund has some or all of its funds invested in the master fund throughout the period starting at the time at which the member fund incurs the expenditure and ending with the close of the last day of the income year in which the expenditure is deducted by the master fund under this section.
Expenditure described The expenditure is expenditure for which the member fund is allowed a deduction,— (a) including expenditure on a ﬁnancial arrangement that is denominated in New Zealand dollars and for which ex- penditure is allocated using the yield to maturity method set out in subpart EW (Financial arrangements rules); and not including— (i) expenditure on any other ﬁnancial arrangement; or expenditure on revenue account property.
(ii) (b) (1) (2) 592 Reprinted as at 5 January 2010 Income Tax Act 2007 Part D s DV 5 (3) (4) (5) (6) (7) (b) When expenditure becomes master fund’s The expenditure incurred by the member fund may be trans- ferred to the master fund, subject to the following conditions: the member fund and the master fund must agree to the (a) transfer of the expenditure; and the member fund may transfer expenditure only to the extent to which it has a tax loss in the corresponding tax year, with the tax loss calculated as if this section did not exist; and a member fund that is a group investment fund that de- rives category A income may transfer only expenditure that relates to the category A income.
(c) Income year in which investment stops In an income year in which the member fund stops investing in the master fund,— (a) neither the master fund nor the member fund is allowed a deduction for expenditure that would otherwise be transferable; and the member fund must treat the expenditure as a loss balance.

(b) When expenditure incurred The expenditure referred to in subsection (3) is treated as being incurred by the master fund in the income year in which it is transferred by the member fund.
Deduction allowed to master fund The master fund is allowed a deduction for the expenditure, subject to the following conditions: (a) a master fund that is a group investment fund that de- rives category A income may deduct expenditure only from its category A income; and the amount of the deduction is limited by subsection (7).
(b) Amount of deduction The formula in section DV 6 is used to calculate the maximum deduction that the master fund is allowed for expenditure of the member fund treated as being incurred by the master fund.

593 Part D s DV 5 Income Tax Act 2007 Reprinted as at 5 January 2010 Amount of deduction when master fund is portfolio tax rate entity (7B) Despite subsection (7), a master fund that is a portfolio tax rate entity is allowed a deduction for expenditure transferred to it by a member fund.
However, the maximum amount trans- ferred must be no more than the member fund’s share of the en- tity’s taxable income for the income year in which the amount is transferred, any excess being treated as not transferred.
(8) (9) Additional transfer If, after the date on which the master fund has ﬁled its return of income, the master fund is able to deduct more than the amount actually deducted, the Commissioner may allow the member fund to transfer expenditure to the extent of the difference after the return of income has been ﬁled.

Deducted expenditure not incurred by member fund The expenditure for which the master fund is allowed a deduc- tion is treated as not being incurred by the member fund.
Link with subpart DA (10) The link between this section and subpart DA (General rules) is as follows: (a) subsection (6) supplements the general permission and overrides the capital limitation; the other general limi- tations still apply: subsection (9) overrides the general permission.
(b) Deﬁned in this Act: amount, capital limitation, category A income, Commis- sioner, deduction, ﬁnancial arrangement, general limitation, general permis- sion, group investment fund, income year, loss balance, master fund, portfolio investor interest, portfolio tax rate entity, public unit trust, return of income, revenue account property, superannuation fund, supplement, tax loss, tax year Compare: 2004 No 35 s DV 5 Section DV 5(7B) heading: inserted (with effect on 1 April 2008), on 6 October 2009, by section 105(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section DV 5(7B): inserted (with effect on 1 April 2008), on 6 October 2009, by section 105(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section DV 5 list of deﬁned terms portfolio investor interest: inserted (with effect on 1 April 2008), on 6 October 2009, by section 105(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
594 Reprinted as at 5 January 2010 Income Tax Act 2007 Part D s DV 6 inserted (with Section DV 5 list of deﬁned terms portfolio tax rate entity: effect on 1 April 2008), on 6 October 2009, by section 105(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
DV 6 Formula for calculating maximum deduction (1) (2) (3) (4) (5) Formula used to calculate maximum deduction The formula referred to in section DV 5(7) is— taxable income − non-resident passive income.

Deﬁnition of items in formula The items in the formula are deﬁned in subsections (3) and (4).

Taxable income Taxable income is the amount that would be the master fund’s taxable income in the tax year in which the expenditure is transferred in the absence of sections DV 5 to DV 7.
Non-resident passive income Non-resident passive income is the total of any amounts of non-resident passive income of any of the kinds to which sec- tion RF 2(5) (Non-resident passive income) applies derived by the master fund in the corresponding income year in which the expenditure is incurred.

Portfolio tax rate entities This section does not apply to an amount of expenditure trans- ferred to a master fund that is a portfolio tax rate entity.
Deﬁned in this Act: amount, corresponding income year, deduction, master fund, non-resident passive income, portfolio tax rate entity, taxable income Compare: 2004 No 35 s DV 6 Section DV 6(5) heading: added (with effect on 1 April 2008), on 6 October 2009, by section 106(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section DV 6(5): added (with effect on 1 April 2008), on 6 October 2009, by section 106(1) of the Taxation (International Taxation, Life Insurance, and Re- medial Matters) Act 2009 (2009 No 34).

Section DV 6 list of deﬁned terms portfolio tax rate entity: inserted (with effect on 1 April 2008), on 6 October 2009, by section 106(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
595 Part D s DV 7 Income Tax Act 2007 Reprinted as at 5 January 2010 DV 7 Carry forward of expenditure (1) When this section applies This section applies when a member superannuation fund in- curs expenditure that is more than— (a) the member fund and master fund agree can be trans- ferred; or the maximum amount that can be transferred.

(b) Member fund carrying expenditure forward (1B) The member fund may carry forward the expenditure for trans- fer in a later income year.
(2) Expenditure as loss balance If the member fund carries forward expenditure in an income year, the member fund may treat some or all of the expenditure as a loss balance for the corresponding tax year.

Deﬁned in this Act: income year, loss balance, master fund, tax year Compare: 2004 No 35 s DV 7 Section DV 7(1) heading: substituted (with effect on 1 April 2008), on 6 Oc- tober 2009, by 107(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section DV 7(1): substituted (with effect on 1 April 2008), on 6 October 2009, by 107(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section DV 7(1B) heading: inserted (with effect on 1 April 2008), on 6 October 2009, by 107(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section DV 7(1B): inserted (with effect on 1 April 2008), on 6 October 2009, by 107(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
DV 8 Non-proﬁt organisations When this section applies This section applies when an incorporated or unincorporated organisation— (a) does not have the purpose of making a proﬁt for a pro- prietor, member, or shareholder; and has a constitution that prohibits a distribution of prop- erty in any form to a member, proprietor, or shareholder.
(b) Amount of deduction The organisation is allowed a deduction for the lesser of— (a) $1,000; and (1) (2) 596 Reprinted as at 5 January 2010 Income Tax Act 2007 Part D s DV 10 (3) (b) the amount that would be the organisation’s net income in the absence of this section.

Link with subpart DA This section supplements the general permission.

The general limitations still apply.


Deﬁned in this Act: amount, deduction, general limitation, general permission, net income, shareholder, supplement Compare: 2004 No 35 s DV 8 DV 9 Trusts (1) (2) (3) No deduction A person who derives beneﬁciary income is denied a deduc- tion for expenditure or loss that a trustee incurs in deriving the income.
Trustee income For the purpose of determining the deductions that a trustee is allowed in an income year, beneﬁciary income of beneﬁciaries of the trust in the income year is treated as trustee income.

Link with subpart DA The link between this section and subpart DA (General rules) is as follows: (a) (b) subsection (1) overrides the general permission: subsection (2) supplements the general permission; the general limitations still apply.
Deﬁned in this Act: beneﬁciary income, deduction, general limitation, general permission, income year, supplement, trustee, trustee income Compare: 2004 No 35 s DV 9 DV 10 Building societies (1) Deduction A building society is allowed a deduction for— (a) expenditure incurred on money borrowed by way of withdrawable shares: interest and other ﬁnancial charges incurred in provid- ing money that is used to provide an interest-free loan to a person who holds a terminating share: an amount incurred in purchasing a balloted loan right from a person who holds a terminating share.
(b) (c) 597 Part D s DV 11 Income Tax Act 2007 Reprinted as at 5 January 2010 (2) (3) (4) Timing of deduction The deduction for the amount referred to in subsection (1)(c) is allocated to the income year in which the amount is paid.
Meaning of balloted loan right In this section, balloted loan right means a right arising from a ballot that— (a) (b) (c) is held by or for a building society; and is of terminating shares; and is held for the purpose of ﬁnding out which of the hold- ers of the shares are entitled to receive an interest-free loan relating to their shares.

Link with subpart DA This section overrides the capital limitation.

The general per- mission must still be satisﬁed and other general limitations still apply.
Deﬁned in this Act: amount, balloted loan right, building society, capital limi- tation, deduction, general limitation, general permission, income year, pay, ter- minating share, withdrawable share Compare: 2004 No 35 s DV 10 DV 11 Distribution to member of co-operative company, excluded from being dividend Deduction A co-operative company, or a company owned by a co-opera- tive company, is allowed a deduction for a distribution made for an income year to a member of the co-operative company if an amount of the distribution is excluded by section CD 34 (Distribution to member of co-operative company based on member’s transactions) from being a dividend.
Amount of deduction The amount of the deduction is the amount of the distribution that is excluded by section CD 34 from being a dividend.

Timing of deduction The deduction is allocated to the income year for which the distribution is made.

(1) (2) (3) 598 Reprinted as at 5 January 2010 Income Tax Act 2007 Part D s DV 13 (4) Link with subpart DA This section supplements the general permission.

The general limitations still apply.
Deﬁned in this Act: company, co-operative company, deduction, general per- mission, general limitation, income year, shareholder Compare: 2004 No 35 s DV 10B DV 12 Maori authorities: donations (1) (2) (3) Deduction A Maori authority is allowed a deduction for— (a) a donation that it makes to a Maori association, as de- ﬁned in the Maori Community Development Act 1962, for the purposes of the Act: a charitable or other public beneﬁt gift that it makes to a society, institution, association, organisation, trust, or fund to which section LD 3(2) (Meaning of charitable or other public beneﬁt gift) or schedule 32 (Recipients of charitable or other public beneﬁt gifts) applies.
(b) Amount of deduction The deduction for the total of all donations and gifts made in an income year is limited to of the amount that would be the Maori authority’s net income in the corresponding tax year in the absence of this section.

Link with subpart DA This section supplements the general permission and overrides the capital limitation.

The other general limitations still apply.


Deﬁned in this Act: amount, capital limitation, charitable or other public bene- ﬁt gift, deduction, general limitation, general permission, income year, Maori authority, net income, supplement, tax year Compare: 2004 No 35 s DV 11 Section DV 12(1)(b): amended, on 1 April 2008, by section 348(1) of the Tax- ation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section DV 12(2): amended, on 1 April 2008, by section 348(2) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
DV 13 Group companies When this section applies This section applies when,— (1) 599 Part D s DV 14 Income Tax Act 2007 Reprinted as at 5 January 2010 (a) (b) (c) in an income year, a company (company A) that is part of a wholly-owned group of companies derives income under section CV 1 (Group companies); and no other provision of this Act allows company A a de- duction for the expenditure it incurs in deriving the in- come; and if the wholly-owned group of companies were a single company, the single company would be allowed a de- duction for the expenditure that company A incurs in deriving the income.
Amount, and timing, of deduction Company A is allowed a deduction for the expenditure in the income year in which the income is derived.

Link with subpart DA This section supplements the general permission and overrides the exempt income limitation.

The other general limitations still apply.
Deﬁned in this Act: company, deduction, exempt income limitation, gen- supplement, eral wholly-owned group of companies Compare: 2004 No 35 s DV 12 limitation, general permission, income year, income, (2) (3) DV 14 Amalgamated company: expenditure on improvements for farming, horticultural, aquacultural, and forestry businesses (1) When this section applies This section applies when— (a) (b) (c) an amalgamating company ends its existence on a resi- dent’s restricted amalgamation; and the amalgamated company acquires land or a business from the amalgamating company; and the amalgamating company would have been allowed a deduction under any of section DO 4, DO 5, DO 6, DO 12, or DP 3 (which relate to improvements and expend- iture on land) for the land or business if the amalgam- ation had not occurred.
Deduction (2) While the amalgamated company holds the land or carries on the business, it is allowed the deduction that the amalgamating 600 Reprinted as at 5 January 2010 Income Tax Act 2007 Part D s DV 15 (3) company would have been allowed under section DO 4, DO 5, DO 6, DO 12, or DP 3.

Link with subpart DA This section supplements the general permission.

The general limitations still apply.


Deﬁned in this Act: amalgamated company, amalgamating company, business, deduction, general limitation, general permission, resident’s restricted amal- gamation, supplement Compare: 2004 No 35 s DV 13 DV 15 Amalgamated companies: property passing on resident’s restricted amalgamation (1) (2) (3) (4) When this section applies This section results from sections FO 8 and FO 10 (which re- late to resident’s restricted amalgamations).
Deduction for bad debts or expenditure or loss On a resident’s restricted amalgamation, an amalgamated company is allowed a deduction for an amount written off as bad, or an amount of expenditure or loss, including an amount of depreciation loss, incurred as a result of something that the amalgamating company did or did not do in the circumstances set out in section FO 8.
Depreciation loss for property transferred On a resident’s restricted amalgamation, an amalgamating company is allowed a deduction for an amount of depreciation loss for property transferred to the amalgamated company for the period described in section FO 10(7).

Link with subpart DA This section supplements the general permission.

The general limitations still apply.
Deﬁned in this Act: amalgamated company, amalgamating company, amount, deduction, depreciation loss, general permission, resident’s restricted amalgam- ation Compare: 2004 No 35 ss FE 3, FE 6A 601 Part D s DV 16 Income Tax Act 2007 Reprinted as at 5 January 2010 DV 16 Consolidated groups: intra-group transactions (1) (2) (3) (4) When this section applies This section applies in relation to a consolidated group of com- panies for the purposes of section FM 10 (Expenditure: in- tra-group transactions).
No deduction (with exception) A company that is a part of a consolidated group of companies is denied a deduction for expenditure or loss incurred through a payment or disposal to, or transaction or arrangement with, another group company, and a deduction would not be allowed for the expenditure or loss if the group were 1 company, except to the extent to which the expenditure or loss arises— (a) (b) from the company’s acquisition of trading stock; or under sections FM 15 to FM 23 (which relate to ac- counting for particular property).
Other expenditure or loss A company that is part of a consolidated group is— (a) allowed a deduction for expenditure or loss or an amount of depreciation loss: denied a deduction for expenditure or loss or amount of depreciation loss except to the extent to which the ex- penditure or loss is interest on money that the company has borrowed outside the consolidated group.

(b) Link with subpart DA This section overrides the general permission.
Deﬁned in this Act: amount, arrangement, company, consolidated group, de- duction, depreciation loss, general permission, interest, pay Compare: 2004 No 35 s HB 2(1)(b), (d) DV 17 Consolidated groups: expenditure or loss incurred by group companies When this section applies This section results from sections FM 11 and FM 12 (which relate to expenditure or loss incurred by group companies).
Deduction allowed: nexus with income derivation To the extent set out in section FM 11, if the consolidated group would be allowed a deduction for an item of expend- iture or loss as 1 company because of a nexus between the (1) (2) 602 Reprinted as at 5 January 2010 Income Tax Act 2007 Part D s DV 18 (3) (4) expenditure and the income or carrying on of a business by another group company, a company that is part of the consoli- dated group is allowed a deduction.
No deduction except for interest on money borrowed To the extent set out in section FM 12, if the consolidated group would be denied a deduction for an item of expenditure or loss as 1 company, a company that is part of the consolidated group is denied a deduction, except for an amount of expend- iture or loss that is interest on money borrowed by the com- pany from a group company in the circumstances described in that section.
Link with subpart DA Subsection (2) supplements the general permission, and the general limitations still apply.

Subsection (3) overrides the general permission.
Deﬁned in this Act: amount, arrangement, company, consolidated group, de- duction, depreciation loss, general permission, loss, pay Compare: 2004 No 35 s HB 2(1)(c) DV 18 Statutory producer boards and co-operative companies (1) (2) (3) When this section applies This section applies for the purposes of sections OB 73 and OB 78 (which relate to imputation credits attached to cash distribu- tions by statutory producer boards and co-operative compan- ies) when a producer board or co-operative company chooses to treat a distribution as a dividend.
No deduction The producer board or co-operative company making the dis- tribution is denied a deduction for the amount of the distribu- tion.

Link with subpart DA This section overrides the general permission.
Deﬁned in this Act: amount, co-operative company, deduction, general permis- sion, imputation credit, statutory producer board Compare: 2004 No 35 ss ME 30(2), ME 35(2) 603 Part D s DV 19 Income Tax Act 2007 Reprinted as at 5 January 2010 DV 19 Association rebates When this section applies This section applies when an association,— (a) enters into a mutual transaction from which it derives income to which section CB 33 (Amounts derived by mutual associations) applies; and in relation to the transactions, pays association rebates to its members.
(b) Deduction The association is allowed a deduction for the lesser of— the amount described in subsection (4); or (a) the amount calculated using the formula in subsection (b) (5).

Allocation The deduction is allowed in the income year in which the as- sociation derives the income referred to in section CB 33.
Amount paid The amount referred to in subsection (2)(a) is the total amount that the association pays as association rebates to members for those mutual transactions that arise in the income year and which the association takes into account in determining its net income or net loss.

In the calculation of the total amount, it is irrelevant that the amount paid may be limited or reduced because a member of the association has a share or interest in the capital of the association.
Amount under formula The amount is calculated using the formula— assessable income − (deductions + amount distributed).
Deﬁnition of items in formula In the formula,— (a) assessable income is the total amount of the asso- ciation’s assessable income attributable to the mutual transactions: deductions are the total deductions that the association is allowed, other than under this section, that are at- tributable to the assessable income: (b) (1) (2) (3) (4) (5) (6) 604 Reprinted as at 5 January 2010 (c) Income Tax Act 2007 Part D s DV 20 amount distributed is the total amount that the associ- ation distributes to members in the income year through a cash distribution for which a determination is made under section OB 82(1)(a) (When and how co-opera- tive company makes election).
Statutory producer boards’ deductions (7) When an association is a statutory producer board that pays an association rebate to a member— (a) (b) the amount allowed as a deduction is the amount re- ferred to in subsection (4): the board may choose whether the rebate is a deduction in the income year in which the amount is paid, or in the income year in which the mutual transaction giving rise to the amount is made.
(8) Link with subpart DA This section supplements the general permission and overrides the capital limitation.

The other general limitations still apply.


Deﬁned in this Act: amount, assessable income, association, association rebate, capital limitation, deduction, general permission, imputation credit, income, in- come year, member, mutual transaction, net income, net loss, pay, share, statu- tory producer board Compare: 2004 No 35 s HF 1(2), (3)(a), (b), (4) Partners and partnerships Heading: inserted, on 1 April 2008, by section 10(1) of the Taxation (Limited Partnerships) Act 2008 (2008 No 2).
DV 20 Partners A person who is a partner is allowed a deduction for expend- iture or loss to the extent to which the deduction results from the application of subpart HG (Joint venturers, partners, and partnerships) to them and their partnership.

Deﬁned in this Act: amount, deduction, partner, partnership Section DV 20: (Limited Partnerships) Act 2008 (2008 No 2).
inserted, on 1 April 2008, by section 10(1) of the Taxation 605 Part D s DW 1 Income Tax Act 2007 Reprinted as at 5 January 2010 Subpart DW—Expenditure speciﬁc to certain industries DW 1 Airport operators (1) (2) (3) No deduction (with exception) An airport operator is denied a deduction for expenditure or loss to the extent to which the expenditure or loss is, in terms of the joint venture agreement that relates to the airport operator, a charge against any part of the joint income of the parties to the agreement that has been allocated or distributed to any party.
Meaning of expenditure In subsection (1), expenditure includes a provision that is treated as expenditure or loss in the nature of interest under sections HR 5 and HR 6 (which relate to airport operators).

Link with subpart DA This section overrides the general permission.
Deﬁned in this Act: airport operator, deduction, expenditure, general permis- sion, income, joint venture agreement Compare: 2004 No 35 s DW 1 DW 2 Bloodstock racing No deduction A person is denied a deduction for expenditure or loss that they incur— (a) (b) on the racing of bloodstock; or in relation to the racing of bloodstock.
No deduction (with exception) A person is denied a deduction for expenditure or loss that they incur in preparing bloodstock for racing, except, ﬁrst, when— the person is in the business of breeding bloodstock; and (a) they incur the expenditure or loss in preparing for sale (b) bloodstock that they are preparing for racing; and they do not race the bloodstock on which they incur the expenditure or loss.
(c) (1) (2) 606 Reprinted as at 5 January 2010 Income Tax Act 2007 Part D s DW 3 (3) (4) No deduction (with exception) A person is denied a deduction for expenditure or loss that they incur in preparing bloodstock for racing, except, second, when— (a) the person incurs the expenditure or loss in preparing the bloodstock for racing; and they receive consideration for preparing the bloodstock for racing; and the consideration is income of the person.
(b) (c) Link with subpart DA This section overrides the general permission.

Deﬁned in this Act: bloodstock, business, deduction, general permission, in- come, loss Compare: 2004 No 35 s DW 2 DW 3 Non-resident general insurers, shippers, and ﬁlm renters (1) (2) (3) (4) No deduction A person listed in subsection (2) is denied a deduction for ex- penditure incurred in deriving the income described in the rele- vant section.
Persons The persons referred to in subsection (1) are— (a) (b) (c) a non-resident person who derives income under section CR 3 (Income of non-resident general insurer): a non-resident person who derives income under sec- tion CV 16 (Non-resident shippers) for cargo, mail, or passengers shipped outside New Zealand: a non-resident person who derives income under section CV 17 (Non-resident ﬁlm renters) from the activities described in that section.
Non-resident shipper’s expenditure on depreciation The non-resident person referred to in subsection (2)(b) has no amount of depreciation loss in relation to that income.

Link with subpart DA This section overrides the general permission.
Deﬁned in this Act: amount, deduction, depreciation loss, ﬁlm, general permis- sion, income, insurer, New Zealand, non-resident Compare: 2004 No 35 ss FC 15, FC 20, FC 21(3), (5) 607 Part D s DW 4 Income Tax Act 2007 Reprinted as at 5 January 2010 DW 4 Deduction for general insurance outstanding claims reserve When this section applies This section applies for— (a) an insurer who–– (i) uses IFRS 4, Appendix D for general insurance contracts: is a life insurer who has general insurance con- tracts; and (ii) (b) general insurance contracts, excluding contracts having premiums to which section CR 3 (Income of non-resi- dent general insurer) applies.
No deduction on account of claims For an insurer’s general insurance contracts, the insurer is de- nied a deduction relating to the insurer’s outstanding claims li- ability or for a claim’s expenditure or loss, except as provided by this section.
Formula for insurer’s OCR deduction For an income year (the current year), an insurer is allowed a deduction for the amount by which zero is greater than the amount calculated using the formula— opening outstanding claims reserve − closing outstanding claims reserve.
Deﬁnition of items in formula In the formula,— (a) opening outstanding claims reserve is— (i) (ii) the amount of the insurer’s closing outstanding claims reserve for the income year before the cur- rent year (the prior year); or the amount of the insurer’s reserve for outstand- ing claims liability, calculated at the end of the prior year, using the basis the insurer used for tax purposes in that prior year, if the current year is the ﬁrst year that this section applies to the in- surer: (1) (2) (3) (4) 608 Reprinted as at 5 January 2010 Income Tax Act 2007 Part D s DX 1 (5) (6) (b) closing outstanding claims reserve is the amount of the insurer’s outstanding claims reserve, calculated at the end of the current year.
Deduction for payments of current claims The insurer is allowed a deduction for the amount of expend- iture or loss of a claim paid to an insured under a general in- surance contract for the income year.

Link with subpart DA This section supplements the general permission.

The general limitations still apply.


Deﬁned in this Act: amount, deduction, general insurance contract, general limitation, general permission, IFRS 4, income year, insurer, life insurer, out- standing claims reserve Section DW 4: added (with effect on 1 April 2008), on 6 October 2009, by section 109(1) of the Taxation (International Taxation, Life Insurance, and Re- medial Matters) Act 2009 (2009 No 34).
Subpart DX—Other expenditure DX 1 Testamentary annuities (1) When this section applies This section applies when— (a) property is subject to the payment of an annuity— because of a provision in a will; or (i) because of a court order under the Family (ii) Protection Act 1955; or because of a deed of family arrangement; and (iii) the property, or property substituted for it, is transferred to a beneﬁciary; and the property transferred, or property that the beneﬁciary substitutes for it, is charged with the payment of the annuity or part of the annuity.
(b) (c) (2) Deduction The owner of the property, or the substituted property, is al- lowed a deduction for an amount that they pay on account of the annuity.
Exclusion The owner is denied a deduction— (3) 609 Part D s DX 2 Income Tax Act 2007 Reprinted as at 5 January 2010 (a) (b) if the owner is not a beneﬁciary but a person who has bought the property subject to the condition that they assume the liability for the annuity, or a part of it: to the extent to which the annuity is payable under a court order or under a deed of family arrangement and represents consideration for the purchase of the prop- erty, or the substituted property, by the owner.
Amount of deduction The deduction is limited in an income year to the amount that would be the net income of the owner for the corresponding tax year if the owner’s only income in the income year were from the property, or the substituted property.
Meaning of beneﬁciary In this section, beneﬁciary— (a) means— (i) a person to whom a testator has left the property in their will; or a person to whom the testator has given a right to buy the property in their will; and (ii) (b) includes a person who is entitled to the property under— (i) an order of a court under the Family Protection Act 1955; or a deed of family arrangement.

(ii) Link with subpart DA This section supplements the general permission and overrides the private limitation.
The other general limitations still apply.
Deﬁned in this Act: amount, arrangement, beneﬁciary, deduction, general limi- tation, general permission, income, income year, net income, pay, private limi- tation, supplement, tax year Compare: 2004 No 35 s DX 1 (4) (5) (6) DX 2 Tax credits: conduit ﬁnancing arrangements [Repealed] Section DX 2: repealed (with effect on 30 June 2009), on 6 October 2009, by section 110(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
610 Reprinted as at 5 January 2010 Income Tax Act 2007 Part D s DZ 2 DX 3 Tax credits: supplementary dividend holding companies (1) (2) When this section applies This section applies when a supplementary dividend holding company derives a supplementary dividend in relation to which its annual total deduction is allocated as described in section LP 10 (Limitation on deductions).
Limited deduction Despite section BD 4 (Allocation of deductions to particular income years), the company is allowed a deduction for the expenditure for an income year only to the extent set out in section LP 10(1).
Deﬁned in this Act: annual total deduction, deduction, income year, supple- mentary dividend holding company Compare: 2004 No 35 ss LE 3(10), LE 4 Subpart DZ—Terminating provisions DZ 1 Commercial bills before 31 July 1986 (1) (2) (3) Deduction A person is allowed a deduction if they acquire a commer- cial bill from another person, other than under a relationship agreement, and derive income under section CZ 6 (Commer- cial bills before 31 July 1986) on the redemption or disposal of the commercial bill.
Amount of deduction The amount of the deduction is the value of the commercial bill on the date on which the person acquired it.

Link with subpart DA This section supplements the general permission.

The general limitations still apply.
Deﬁned in this Act: amount, commercial bill, deduction, general limitation, general permission, income, relationship agreement, supplement Compare: 2004 No 35 s DZ 1 DZ 2 Life insurers acquiring property before 1 April 1988 When this section applies This section applies when— (1) 611 Part D s DZ 2 Income Tax Act 2007 Reprinted as at 5 January 2010 (a) (b) (c) (d) (e) a life insurer started carrying on the business of pro- viding life insurance on or before the last day of the 1988–89 income year; and on the last day of the 1987–88 income year the life in- surer’s Life Insurance Fund covered some or all of the following matters: (i) (ii) superannuation policies; and pre-1983 mortgage repayment insurance poli- cies; and annuities that had been granted; and (iii) the life insurer, as part of the business, acquired property before 1 April 1988; and the life insurer, as part of the business, disposes of the property; and either— (i) the life insurer has not already been allowed a de- duction for the property, whether under section DR 2 (Disposal of property) or any other provi- sion; or the life insurer has been allowed a deduction for the property, but only for an amount of depreci- ation loss or because of the application of the old ﬁnancial arrangements rules or the ﬁnancial ar- rangements rules; and (ii) (f) section DR 2 does not apply to the disposal.
Deduction The life insurer is allowed a deduction for the amount quanti- ﬁed in section EZ 1 (Life insurers acquiring property before 1 April 1988).
Meaning of superannuation policy Superannuation policy means a life insurance policy— (a) that— (i) is vested in a superannuation fund that was or was treated as being a superannuation category 1 scheme on or before 17 December 1987, not in- cluding a scheme that was classiﬁed by the Gov- ernment Actuary as a personal pension super- (2) (3) 612 Reprinted as at 5 January 2010 Income Tax Act 2007 Part D s DZ 3 annuation scheme and that admitted new mem- bers after 17 December 1987; or (ii) was effected for the purposes of any such super- annuation fund; or (iii) was accepted by any such superannuation fund for the purposes of the fund; and (b) that has not ceased to be a policy for the purposes of the superannuation fund.
Link with subpart DA This section overrides the capital limitation.

The general per- mission must still be satisﬁed and the other general limitations still apply.
Deﬁned in this Act: amount, business, capital limitation, deduction, depreci- ation loss, ﬁnancial arrangements rules, general limitation, general permission, income year, life insurance, Life Insurance Fund, life insurance policy, life in- surer, old ﬁnancial arrangements rules, pay, property, superannuation category 1 scheme, superannuation fund, superannuation policy, superannuation scheme Compare: 2004 No 35 s DZ 2 (4) DZ 3 Petroleum mining: development expenditure from 1 October 1990 to 15 December 1991 (1) (2) (3) Deduction A petroleum miner is allowed a deduction for petroleum min- ing development expenditure incurred by them on or after 1 October 1990 and before or on 15 December 1991.
This sub- section is overridden by subsection (2).

Relationship with section DZ 4 The petroleum miner is denied a deduction for petroleum min- ing development expenditure as described in subsection (1) if it has been deducted under— section DZ 4; or (a) sections 214D to 214M of the Income Tax Act 1976 as (b) they were immediately before their repeal by section 15 of the Income Tax Amendment Act (No 5) 1992.
Timing of deduction The deduction is allocated under section EZ 3 (Petroleum de- velopment expenditure from 1 October 1990 to 15 December 1991).

613 Part D s DZ 4 Income Tax Act 2007 Reprinted as at 5 January 2010 (4) (5) Meaning of petroleum mining development expenditure In this section, petroleum mining development expenditure has the same meaning as in section 214D of the Income Tax Act 1976 immediately before its repeal by section 15 of the Income Tax Amendment Act (No 5) 1992.
Link with subpart DA This section supplements the general permission.

The general limitations still apply.
Deﬁned in this Act: deduction, general limitation, general permission, petrol- eum miner, petroleum mining development expenditure, supplement Compare: 2004 No 35 s DZ 3 DZ 4 Expenditure on abandoned exploratory well before 16 December 1991 (1) (2) Deduction A petroleum miner is allowed a deduction for expenditure that they incur before 16 December 1991 in drilling, testing, com- pleting, and abandoning an exploratory well if— (a) the miner seals and abandons the well before commer- cial production from the well starts; and the expenditure has not been deducted in any earlier income year.
(b) Sealing and abandoning well To seal and abandon an exploratory well, a petroleum miner must make a declaration under the Oaths and Declarations Act 1957 that they do not intend— (a) to use the exploratory well in petroleum mining oper- ations; or to apply for an existing privilege over the area contain- ing the exploratory well.

(b) (3) Timing of deduction The deduction is allocated to the income year in which the well is sealed and abandoned.
614 Reprinted as at 5 January 2010 Income Tax Act 2007 Part D s DZ 5 (4) Link with subpart DA This section overrides the capital limitation.

The general per- mission must still be satisﬁed and the other general limitations still apply.
Deﬁned in this Act: capital limitation, commercial production, deduction, exist- ing privilege, exploratory well, general limitation, general permission, income year, petroleum miner, petroleum mining operations, seal and abandonment Compare: 2004 No 35 s DZ 4 DZ 5 Farm-out arrangements for petroleum mining before 16 December 1991 (1) (2) (3) Deduction: excess expenditure incurred before 16 December 1991 A transferee under a farm-out arrangement is allowed a deduc- tion of excess expenditure incurred before 16 December 1991 in a farm-out arrangement entered into before 16 December 1991, and for which a deduction has not been allowed in any earlier income year.
The deduction is allowed under section DT 1 (Petroleum exploration expenditure) or DT 5 (Petroleum development expenditure).
Deduction: excess expenditure incurred on or after 16 December 1991 A transferee under a farm-out arrangement is allowed a deduc- tion of excess expenditure incurred on or after 16 December 1991 in a farm-out arrangement entered into before 16 Decem- ber 1991 if the expenditure has the character of exploratory well expenditure, petroleum exploration expenditure, or pet- roleum development expenditure.
The deduction is allowed under section DT 1 or DT 5 to DT 7 (which relate to petrol- eum development expenditure) and quantiﬁed and allocated under whichever of sections EJ 12 to EJ 16 (which relate to petroleum mining) applies.

Reduction of deductions A transferor under a farm-out arrangement entered into before 16 December 1991 must reduce, but is denied as a deduction, the deductions described in subsection (4) by the amount de- termined under subsection (5).
615 Part D s DZ 5 Income Tax Act 2007 Reprinted as at 5 January 2010 Deductions to which subsection (3) applies The deductions to which subsection (3) applies are deductions for expenditure incurred before, on, or after 16 December 1991 that— (a) are not deductions of a kind referred to in subsection (5)(a) to (c); and are attributable to— (i) (b) the petroleum permit to which the farm-out ar- rangement relates; and a licence-speciﬁc asset or permit-speciﬁc asset held for conducting petroleum mining operations under the petroleum permit.
(ii) Amount of reduction The amount of the reduction under subsection (4), in an in- come year, is the same amount as would have been deter- mined under section 214I(2) and (3) of the Income Tax Act 1976 immediately before its repeal by section 15 of the In- come Tax Amendment Act (No 5) 1992, as if references in section 214I(2) and (3) to deferred deductions were references to any deductions, deferred or not, attributable to the relevant permit or asset, except deductions for— residual expenditure; and (a) expenditure incurred on or before the date on which the (b) application for an existing privilege or prospecting per- mit for petroleum was submitted for the relevant licence area; and expenditure that is neither petroleum exploration ex- penditure nor petroleum development expenditure.
(c) Some deﬁnitions In subsections (2) to (5), excess expenditure, farm-out arrangement, licence-speciﬁc assets, permit-speciﬁc asset, transferee, and transferor have the same meanings as in section 214D of the Income Tax Act 1976 immediately before its repeal by section 15 of the Income Tax Amendment Act (No 5) 1992.

(4) (5) (6) 616 Reprinted as at 5 January 2010 Income Tax Act 2007 Part D s DZ 8 (7) Link with subpart DA This section supplements the general permission and overrides the capital limitation.
The other general limitations still apply.
Deﬁned in this Act: amount, capital limitation, deduction, excess expenditure, existing privilege, exploratory well expenditure, farm-out arrangement, general limitation, general permission, income year, licence-speciﬁc assets, permit-spe- ciﬁc asset, petroleum, petroleum development expenditure, petroleum explor- ation expenditure, petroleum mining operations, petroleum permit, prospecting permit, residual expenditure, supplement, transferee, transferor Compare: 2004 No 35 s DZ 5 DZ 6 Partnership interests and disposal of part of asset before 16 December 1991 In sections DZ 3 to DZ 5, unless the context requires other- wise,— (a) a partner is treated as having a share or interest in a petroleum permit or other property of a partnership to the extent of their income interest in the partnership: references to the disposal of an asset apply equally to the disposal of part of an asset.
Deﬁned in this Act: dispose, income, petroleum permit Compare: 2004 No 35 s DZ 6 (b) DZ 7 Petroleum mining operations outside New Zealand before 16 December 1991 Sections DZ 3 to DZ 6 apply, with any necessary modiﬁca- tions, to a petroleum miner undertaking petroleum mining op- erations that are— (a) outside New Zealand and undertaken through a branch or a controlled foreign company; and substantially the same as the petroleum mining activ- ities governed by this Act.
(b) Deﬁned in this Act: controlled foreign company, New Zealand, petroleum miner, petroleum mining operations Compare: 2004 No 35 s DZ 7 DZ 8 Buying patent rights before 1 April 1993 (1) When this section applies This section applies when a person buys patent rights before 1 April 1993 and uses them in deriving their income.
In this sec- 617 Part D s DZ 9 Income Tax Act 2007 Reprinted as at 5 January 2010 tion, if the person dies after incurring expenditure on buying the rights, references to the person include their personal rep- resentative, a trustee of their estate, and a beneﬁciary of their estate.

Deduction The person is allowed a deduction of the amount quantiﬁed in section EZ 7(2) (Buying patent rights before 1 April 1993).

Link with subpart DA This section supplements the general permission.
The general limitations still apply.

Deﬁned in this Act: amount, deduction, general limitation, general permission, income, patent rights, supplement, trustee Compare: 2004 No 35 s DZ 8 (2) (3) DZ 9 Premium paid on land leased before 1 April 1993 (1) (2) (3) When this section applies This section applies when a person (person A) leases land that they use in deriving their income and a grant or renewal of the lease occurs before 1 April 1993.
Deduction Person A is allowed a deduction of the amount quantiﬁed in section EZ 8(2) (Premium paid on land leased before 1 April 1993).

Link with subpart DA This section supplements the general permission.

The general limitations still apply.
Deﬁned in this Act: amount, deduction, general limitation, general permission, income, lease, premium, supplement Compare: 2004 No 35 s DZ 9 DZ 10 General insurance with risk period straddling 1 July 1993 When this section applies This section applies when— (a) a company carries on a business of providing general insurance or guarantees against loss, damage, or risk, immediately before and on 1 July 1993; and (1) 618 Reprinted as at 5 January 2010 Income Tax Act 2007 Part D s DZ 11 (b) (c) the company, as insurer, enters into an insurance con- tract for the general insurance in the course of carrying on the business outside New Zealand; and the contract covers a period of risk starting before 1 July 1993 and ending after 1 July 1993.
No deduction (with exception) The company is denied a deduction for an amount payable under the contract unless the event giving rise to the payment occurs on or after 1 July 1993.

Link with subpart DA This section overrides the general permission.
Deﬁned in this Act: amount, business, company, deduction, general insurance, general permission, insurance contract, New Zealand, pay Compare: 2004 No 35 s DZ 10 (2) (3) DZ 11 Film reimbursement scheme on or before 30 June 2001 (1) Film reimbursement scheme Section DS 3 (Clawback of deductions for ﬁlm reimbursement schemes) does not apply to a deduction for expenditure that relates to a ﬁlm and is incurred by a person (person A) under a ﬁlm reimbursement scheme if— (a) the scheme is entered into on or before 30 June 2001; and the ﬁlm has, under section EJ 6 (Certiﬁcation of New Zealand ﬁlms),— (i) (ii) a ﬁnal certiﬁcate that it is a New Zealand ﬁlm; or a provisional certiﬁcate, not obtained by the pro- vision of materially incorrect information to the New Zealand Film Commission, that it is a New Zealand ﬁlm; and the ﬁlm had not been completed before 7 July 1999; and before 7 July 1999,— (i) 1 or more contracts had been entered into for the supply of goods or services in New Zealand in relation to the ﬁlm; and at least $1,000,000 of expenditure had been in- curred under the contract or contracts; and on or before 1 November 1999, a person who entered into a contract referred to in paragraph (d)(i) gave no- (ii) 619 (b) (c) (d) (e) Part D s DZ 11 Income Tax Act 2007 Reprinted as at 5 January 2010 (f) (g) tice to the Commissioner that the requirements of para- graphs (c) and (d) were met; and the expenditure for which persons are allowed a deduc- tion under section DS 1 (Acquiring ﬁlm rights) or DS 2 (Film
 production expenditure) is no more than 140% of the physical cost of production of the ﬁlm; and without limiting the application of section BG 1 (Tax avoidance), on the date the ﬁlm reimbursement scheme is entered into, there is an expectation based on reason- able commercial assumptions that the income to be de- rived by person A as a result of the expenditure will be at least equal to the sum of— (i) all expenditure incurred by person A under the scheme; and a return on each amount of expenditure that is
 equivalent to the return on 5 year government stock measured on the date that the scheme is entered into; and (ii) (h) if the expenditure is incurred on depreciable intangible property of a kind listed in schedule 14 (Depreciable intangible property), the expenditure is an amount paid to person B in the circumstances described in subsection (2).
Circumstances for purposes of subsection (1)(h) For the purposes of subsection (1)(h), the circumstances are that— (a) (b) the amount paid is income of person B; or at all times in the tax year in which the payment is made, person B— (i) is resident in a country or territory speciﬁed in schedule 24, part A (International tax rules: grey list countries); and is liable to income tax in that country or territory by reason of domicile, residence, place of incorp- oration, or place of management in that country or territory; and has calculated its income that is liable to income tax in that country or territory without applying (ii) (iii) (2) 620 Reprinted as at 5 January 2010 Income Tax Act 2007 Part D s DZ 12 (3) (4) a feature of the taxation law of the country or territory speciﬁed in schedule 24, part B.
Some deﬁnitions In this section,— government stock means stock issued under Part 6 of the Public Finance Act 1989 physical cost of production means the expenditure incurred in producing a ﬁlm, whether incurred in New Zealand or else- where, other than expenditure incurred— (a) (b) in marketing or selling the ﬁlm; and on depreciable intangible property of a kind listed in schedule 14.

Link with subpart DA This section overrides the general permission.
Deﬁned in this Act: amount, Commissioner, completed, deduction, depreciable intangible property, ﬁlm, ﬁlm reimbursement scheme, general permission, gov- ernment stock, income, income tax, New Zealand, notice, pay, physical cost of production, tax year, year Compare: 2004 No 35 s DZ 11 DZ 12 Mineral mining: 1954–2005 (1) Section CU 4(1)(b)(ii) For the purposes of section CU 4(1)(b)(ii) (Compensation for lost, destroyed, or damaged assets),— (a) for a mining company, the deduction is under— (i) section 153F of the Land and Income Tax Act 1954; or section 27 of the Land and Income Tax Amend- ment Act 1971; or section 216 of the Income Tax Act 1976; or section DN 1(5) of the Income Tax Act 1994; or section DU 1(1) or (3) of the Income Tax Act 2004; and (ii) (iii) (iv) (v) (b) for a resident mining operator or a non-resident mining operator, the deduction is under— (i) section 153J of the Land and Income Tax Act 1954; or section 31 of the Land and Income Tax Amend- ment Act (No 2) 1972; or (ii) 621 Part D s DZ 12 Income Tax Act 2007 Reprinted as at 5 January 2010 (iii) (iv) (v) section 216 of the Income Tax Act 1976; or section DN 1(5) of the Income Tax Act 1994; or section DU 1(1) or (3) of the Income Tax Act 2004.
Sections CU 11(1)(a)(ii) and DU 6(1)(a)(ii) For the purposes of sections CU 11(1)(a)(ii) (Meaning of as- set for sections CU 3 to CU 10) and DU 6(1)(a)(ii) (Depreci- ation),— (a) for a mining company, the expenditure is that referred to in section 27(3)(a) of the Land and Income Tax Amend- ment Act 1971; and for a resident mining operator or a non-resident mining operator,— (i) (b) the expenditure, for section CU 11(1)(a)(ii), is that referred to in paragraph (i) of item “a” of the formula in section 31(3) of the Land and Income Tax Amendment Act (No 2) 1972; and the asset, for section DU 6(1)(a)(ii), is that re- ferred to in paragraph (i) of item “a” of the for- mula in section 31(3) of the Land and Income Tax Amendment Act (No 2) 1972.
(ii) Section DU 12 This subsection applies if section DU 12 (Amount written off by holding company) would have applied to a loan by a com- pany to another company made on or before 31 March 1979 if the Income Tax Amendment Act 1979 had not been enacted.

The section applies, as far as applicable, to such a loan as if section 45 of the Income Tax Amendment Act 1979 were the only provision of it that had been enacted.
Section DU 12(5) For the purposes of section DU 12(5), if the holding company that made the loan was a mining holding company and made the loan wholly or partly out of payments that it received and for which any person was allowed a deduction under section 159 of the Income Tax Act 1976, the part of the amount calcu- (2) (3) (4) 622 Reprinted as at 5 January 2010 Income Tax Act 2007 Part D s DZ 14 lated under section DU 12(3) that arises from those payments is reduced by one-third.
Deﬁned in this Act: company, deduction, holding company, mining company, mining holding company, non-resident mining operator, pay, resident mining operator Compare: 2004 No 35 s DZ 12 DZ 13 Enhancements to land unamortised at end of 2004–05 year (1) (2) (3) When this section applies This section applies when— (a) a person is allowed a deduction under section DO 4(1) of the Income Tax Act 1994, of an amount set out in section DO 4(3)(a) or (c) of that Act, for expenditure incurred in carrying on a farming or agricultural busi- ness on land in New Zealand; and at the end of the 2004–05 income year, part of the ex- penditure (the unamortised balance) remains to be al- lowed as a deduction in later income years.
(b) Deduction The person is allowed a deduction for the unamortised balance of expenditure in the income year in which the expenditure is of beneﬁt to the business.

Link with subpart DA This section supplements the general permission and overrides the capital limitation.

The other general limitations still apply.


Deﬁned in this Act: capital limitation, deduction, general limitation, general permission, income year, supplement Compare: 2004 No 35 s DZ 13 DZ 14 Deductions under speciﬁed leases (1) (2) When this section applies This section applies for the purposes of sections FZ 2 and FZ 4 (which relate to speciﬁed leases).
Lessor In an income year in which a lessor leases a personal property lease asset to a lessee under a speciﬁed lease, the lessor is 623 Part D s DZ 15 Income Tax Act 2007 Reprinted as at 5 January 2010 denied a deduction for an amount of depreciation loss for the asset.
(3) (4) Lessee A lessee under a speciﬁed lease is denied a deduction for ex- penditure incurred by them under the lease except to the extent to which the expenditure— (a) would be allowed as a deduction to the lessee under section BD 2 (Deductions); and is no more than the sum of the amounts calculated under section FZ 3(2)(a) (Income of lessor under speciﬁed lease) for the initial period, if any, and each instalment period that ends in the income year.
(b) Link with subpart DA This section overrides the general permission.
Deﬁned in this Act: amount, deduction, depreciation loss, general permission, income year, initial period, instalment period, lessee, lessor, personal property lease asset, speciﬁed lease Compare: 2004 No 35 ss FC 6(4), FC 8 DZ 15 Patent applications before 1 April 2005 When this section applies This section applies when— (a) a patent is granted to a person in their 2005–06 income year or a later income year; and the patent is granted in relation to a patent application owned by the person; and the patent application, with a complete speciﬁcation, was ﬁrst lodged with the Intellectual Property Ofﬁce of New Zealand or a similar ofﬁce in another jurisdiction before 1 April 2005; and a deduction for expenditure on the patent application is denied under another provision.
(b) (c) (d) Calculation of deduction The person is allowed, in the income year in which the patent is granted, a deduction for expenditure on the patent application in any income year, calculated using the formula— (1) (2) 624 Reprinted as at 5 January 2010 Income Tax Act 2007 Part D s DZ 16 (3) (4) Deﬁnition of items in formula In the formula,— (a) months of ownership is the number of whole calendar months for which the person owns the patent applica- tion: cost is the cost to the person of the patent application.
(b) Link with subpart DA This section overrides the capital limitation.

The general per- mission must still be satisﬁed and the other general limitations still apply.
Deﬁned in this Act: capital limitation, deduction, general limitation, general permission, income year Compare: 2004 No 35 s DZ 14 DZ 16 Geothermal wells between 31 March 2003 and 17 May 2006 (1) (2) (3) When this section applies This section applies to a person’s geothermal well when— (a) the well’s geothermal energy proving period ends be- tween 31 March 2003 and 17 May 2006; and the well is— (i) both started and completed between 31 March 2003 and 17 May 2006: acquired between 31 March 2003 and 17 May 2006; and (ii) (b) (c) a deduction for expenditure on the well is denied under another provision.
Deduction In the income year in which the well’s geothermal energy prov- ing period ends, the person is allowed a deduction for expend- iture incurred on the well.

Link with subpart DA This section supplements the general permission and overrides the capital limitation.

The other general limitations still apply.
Deﬁned in this Act: capital limitation, deduction, general limitation, general permission, geothermal energy proving period, geothermal well, income year, supplement Compare: 2004 No 35 s DZ 15 625 Part D s DZ 17 Income Tax Act 2007 Reprinted as at 5 January 2010 DZ 17 Expenditure on improvements to aquacultural business before 1995–96 income year (1) (2) (3) (4) When this section applies This section applies in an income year when a person incurs expenditure— (a) before the 1995–96 income year in making an improve- ment for the purposes of an aquacultural business; and for which they would be allowed under section DO 12 (Improvements to aquacultural business) a deduction in the income year if the expenditure had been incurred in the 1995–96 income year or a later income year.
(b) Deduction The person is allowed a deduction in the income year of an amount calculated using the formula— 125% × schedule percentage × diminished value.

Deﬁnition of items in formula In the formula,— (a) schedule percentage is the percentage set out opposite the description of the improvement in schedule 20, parts B to F, column 2 (Expenditure on farming, horticultural, aquacultural, and forestry improvements): diminished value is the diminished value of the im- provement.
(b) Link with subpart DA This section overrides the capital limitation.

The general per- mission must still be satisﬁed and the other general limitations still apply.
Deﬁned in this Act: amount, business, capital limitation, deduction, diminished value, general limitation, general permission, income year Compare: 2004 No 35 s DZ 16 DZ 18 Expenditure on improvements to forestry land before 1995–96 income year When this section applies This section applies in an income year when a person incurs expenditure— (a) before the 1995–96 income year in making an improve- ment on land; and (1) 626 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EA 1 (2) (3) (4) (b) for which they would be allowed under section DP 3 (Improvements to forestry land) a deduction in the in- come year if the expenditure had been incurred in the 1995–96 income year or a later income year.
Deduction The person is allowed a deduction in the income year of an amount calculated using the formula— 125% × schedule percentage × diminished value.

Deﬁnition of items in formula In the formula,— (a) schedule percentage is the percentage set out oppos- ite the description of the improvement in schedule 20, part G, column 2 (Expenditure on farming, horticul- tural, aquacultural, and forestry improvements): diminished value is the diminished value of the im- provement.
(b) Link with subpart DA This section overrides the capital limitation.

The general per- mission must still be satisﬁed and the other general limitations still apply.
Deﬁned in this Act: amount, capital limitation, deduction, diminished value, general limitation, general permission, income year, land Compare: 2004 No 35 s DZ 17 Part E Timing and quantifying rules Subpart EA—Matching rules: revenue account property, prepayments, and deferred payments EA 1 Trading stock, livestock, and excepted ﬁnancial arrangements (1) Property subject to matching rules The matching rules described in this section apply to each of the following kinds of property: (a) trading stock valued under subpart EB (Valuation of trading stock (including dealer’s livestock)): 627 Part E s EA 2 Income Tax Act 2007 Reprinted as at 5 January 2010 (b) (c) (d) livestock valued under subpart EC (Valuation of live- stock): excepted ﬁnancial arrangements that are revenue ac- count property valued under subpart ED (Valuation of excepted ﬁnancial arrangements): a share supplier’s share-lending right, if the original shares that relate to the right are excepted ﬁnancial ar- rangements described in paragraph (c).
Application of section CH 1 (2) When a person has any of those kinds of property at the end of an income year, its value is income of the person in the income year under section CH 1 (Adjustment for closing values of trading stock, livestock, and excepted ﬁnancial arrangements).
Application of section DB 49 (3) When a person has any of those kinds of property at the start of an income year, they are allowed a deduction for its value in the income year under section DB 49 (Adjustment for open- ing values of trading stock, livestock, and excepted ﬁnancial arrangements).
(4) Determination of values The values are determined under— (a) (b) (c) section EB 3 (Valuation of trading stock); and section EC 2 (Valuation of livestock); and section ED 1 (Valuation of excepted ﬁnancial arrange- ments).
Deﬁned in this Act: deduction, excepted ﬁnancial arrangement, income, income year, original share, pay, revenue account property, share-lending right, share supplier, trading stock Compare: 2004 No 35 s EA 1 EA 2 Other revenue account property When this section applies This section applies to revenue account property that is not— trading stock valued under subpart EB (Valuation of (a) trading stock (including dealer’s livestock)): livestock valued under subpart EC (Valuation of live- stock): an excepted ﬁnancial arrangement valued under subpart ED (Valuation of excepted ﬁnancial arrangements): (b) (c) (1) 628 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EA 3 (d) (e) (f) (g) a ﬁlm or a ﬁlm right to which sections EJ 4 to EJ 8 (which relate to ﬁlms) apply: a speciﬁed lease or a lease to which section EJ 10 (Per- sonal property lease payments) applies: property that arises as a result of petroleum develop- ment expenditure or petroleum exploration expenditure to which sections EJ 12 to EJ 20 (which relate to petrol- eum mining) apply: a ﬁnancial arrangement valued under subpart EW (Fi- nancial arrangements rules).
(2) Timing of deduction A deduction for the cost of revenue account property of a per- son is allocated to the earlier of— (a) the income year in which the person disposes of the property; and the income year in which the property ceases to exist.
(b) Deﬁned in this Act: deduction, excepted ﬁnancial arrangement, ﬁlm, ﬁlm right, ﬁnancial arrangement, income year, lease, pay, petroleum development expend- iture, petroleum exploration expenditure, revenue account property, speciﬁed lease, trading stock Compare: 2004 No 35 s EA 2 EA 3 Prepayments (1) (2) When this section applies This section applies when— (a) a person has been allowed a deduction for expenditure under this Act or an earlier Act; and the expenditure was not incurred on the items described in subsection (2); and some or all of the expenditure is unexpired under sub- sections (4) to (7) at the end of the person’s income year.
(b) (c) Exclusions This section does not apply to expenditure incurred on— (a) revenue account property to which section EA 2 ap- plies: trading stock valued under subpart EB (Valuation of trading stock (including dealer’s livestock)): livestock valued under subpart EC (Valuation of live- stock): (b) (c) 629 Part E s EA 3 Income Tax Act 2007 Reprinted as at 5 January 2010 (d) (e) (f) (g) (h) an excepted ﬁnancial arrangement valued under subpart ED (Valuation of excepted ﬁnancial arrangements): a ﬁlm or a ﬁlm right to which sections EJ 4 to EJ 8 (which relate to ﬁlms) apply: a speciﬁed lease or a lease to which section EJ 10 (Per- sonal property lease payments) applies: property that arises as a result of petroleum develop- ment expenditure or petroleum exploration expenditure to which sections EJ 12 to EJ 20 (which relate to petrol- eum mining) apply: a ﬁnancial arrangement valued under subpart EW (Fi- nancial arrangements rules).
Unexpired portion The unexpired portion of a person’s expenditure at the end of an income year— (a) is income of the person in the income year under section CH 2 (Adjustment for prepayments); and is an amount for which the person is allowed a deduc- tion in the following income year under section DB 50 (Adjustment for prepayments).
(b) Unexpired portion: expenditure on goods An amount of expenditure on goods is unexpired at the end of an income year if, by the end of the income year,— (a) the person has not used up the goods in deriving income; and the goods are not destroyed or rendered useless for the purpose of deriving income.

(b) Unexpired portion: expenditure on services An amount of expenditure on services is unexpired at the end of an income year if the services have not been performed by the end of the income year.
Unexpired portion: expenditure on choses in action An amount of expenditure on a chose in action is unexpired at the end of an income year if the amount relates to a period of enforceability of the chose in action falling after the income year.
(3) (4) (5) (6) 630 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EA 4 (7) (8) Allowances reimbursing employees In the case of expenditure subject to sections CW 17, CW 17B, CW 17C, and CW 18 (which relate to expenditure, reimburse- ment, and allowances of employees), this section applies on the basis that the relevant services were performed in the in- come year in which the employee’s expenditure is expected to occur.
Commissioner’s discretionary relief The Commissioner may excuse a person from complying with this section under section 91AAC of the Tax Administration Act 1994.
Deﬁned in this Act: amount, Commissioner, deduction, employee, ﬁlm, ﬁlm right, goods, income, income year, pay, revenue account property, services Compare: 2004 No 35 s EA 3 Section EA 3(7): amended (with effect on 1 April 2008), on 6 October 2009, by section 111 of the Taxation (International Taxation, Life Insurance, and Re- medial Matters) Act 2009 (2009 No 34).
EA 4 Deferred payment of employment income When this section applies This section applies when— (a) a person is allowed a deduction in an income year for an amount of expenditure on employment income; and the person has not paid the amount at the end of— (i) (ii) the 63rd day after the end of the income year; or the period described in subsection (3), for employment income paid to a shareholder-em- ployee.
Unpaid amount The unpaid amount is— (a) income of the person in the income year under section CH 3 (Adjustment for deferred payment of employment income); and an amount for which the person is allowed a deduction in the following income year under section DB 51 (Ad- justment for deferred payment of employment income).
(3) Extension of payment period for shareholder-employee For employment income paid to a shareholder-employee, the 63 day period for payment in subsection (1)(b)(i) is extended 631 (1) (2) (b) (b) Part E s EA 4 Income Tax Act 2007 Reprinted as at 5 January 2010 until the last date by which the person could ﬁle a return of income for the income year if the time for ﬁling were extended to its maximum under section 37(5) of the Tax Administration Act 1994.
Sale of business: obligations transferred to non-associates For the purposes of this section, a person (the seller) who sells a business, or a part of a business, to another person (the buyer) is treated as paying, at the time of the sale, an amount of employment income of an employee working in the busi- ness if— (a) the seller and the buyer are not associated persons at the time of the sale; and the seller has incurred the obligation to pay the amount in the course of their business, whether or not it remains a contingent obligation at the time of sale; and the employee becomes an employee of the buyer under the sale arrangements; and the seller and the buyer agree in writing, under the sale arrangements, that— (i) the buyer assumes the obligation to pay an amount of employment income to the employee; and the consideration payable by the buyer for the business, or the part of the business, reﬂects the buyer’s assumption of the seller’s provision for the obligation.
(ii) (b) (c) (d) Sale of business: obligations transferred to associates If subsection (4) would have applied but for the fact that the seller and the buyer are associated at the time of the sale,— (a) the amount of employment income is not treated as in- come of the seller in any income year following the sale, despite subsection (2)(a) and section CH 3; and the seller is denied a deduction for the amount of em- ployment income in any income year following the sale, despite subsection (2)(b) and section DB 51; and the buyer may be allowed a deduction under section transferred employment DC 10(3) (Sale of business: income obligations).
(b) (c) (4) (5) 632 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EB 1 (6) (7) No sale: obligations transferred to associates If section DC 11 (Transfers of employment income obligations to associates) applies,— (a) the amount of employment income is not treated as in- come of the transferor (person A) in any income year following the sale, despite subsection (2)(a) and CH 3; and the transferor is denied a deduction for the amount of employment income in any income year following the sale, despite subsection (2)(b) and section DB 51; and the transferee (person B) may be allowed a deduction under section DC 11.
(b) (c) Accounting treatment of transferred obligations For the purposes of this section, the buyer of a business, or a part of a business, who assumes at the time of the sale an obligation to pay an amount of employment income— (a) may account for the amount in a way that treats the relevant employee individually or treats the buyer’s em- ployees as a group; and (b) must account for the amount in the same way in each relevant income year.
Deﬁned in this Act: amount, arrangement, associated person, business, deduc- tion, employee, employment income, income, income year, pay, return of in- come, shareholder-employee, time of the sale Compare: 2004 No 35 s EA 4 Subpart EB—Valuation of trading stock (including dealer’s livestock) Introductory provisions EB 1 When this subpart applies This subpart applies when a person who owns or carries on a business has trading stock for the purpose of selling or ex- changing it in the ordinary course of the business.
Deﬁned in this Act: business, trading stock Compare: 2004 No 35 s EB 1 633 Part E s EB 2 Income Tax Act 2007 Reprinted as at 5 January 2010 EB 2 Meaning of trading stock Meaning Trading stock means property that a person who owns or car- ries on a business has for the purpose of selling or exchanging in the ordinary course of the business.
Inclusions Trading stock includes— (a) work of the following kinds that would be trading stock under subsection (1) if it were completed: (i) (ii) work in progress: partly completed work: (b) materials that the person has for use in producing trad- (c) (d) ing stock: property on which the person has incurred expenditure, when the property would, if they had it, be trading stock under subsection (1) or paragraph (a) or (b): property leased under a hire purchase agreement when the property— (i) is treated as having been acquired by the lessor under section FA 15 (Treatment when agreement ends: seller acquiring property); and is an asset of a business that the lessor carries on.
(ii) Exclusions Trading stock does not include— (a) (b) (c) land: depreciable property: a ﬁnancial arrangement to which the ﬁnancial arrange- ments rules or the old ﬁnancial arrangements rules apply: an excepted ﬁnancial arrangement that a life insurer has: an excepted ﬁnancial arrangement held by a person if section CX 55 (Proceeds from certain disposals by port- folio investment entities or New Zealand Superannu- ation Fund) applies to the income of the person from a disposal of the excepted ﬁnancial arrangement: livestock not used in a dealing business: consumable aids to be used in the process of producing trading stock: (d) (e) (f) (g) (1) (2) (3) 634 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EB 3 a spare part not held for sale or exchange: an emissions unit: a non-Kyoto greenhouse gas unit.
(h) (i) (j) Deﬁned in this Act: business, depreciable property, emissions unit, excepted ﬁnancial arrangement, ﬁnancial arrangement, hire purchase agreement, income, land, lessor, life insurer, non-Kyoto greenhouse gas unit, trading stock Compare: 2004 No 35 s EB 2 Section EB 2(3)(h): amended, on 26 September 2008, by section 72(1) of the Climate Change Response (Emissions Trading) Amendment Act 2008 (2008 No 85).
Section EB 2(3)(i): substituted (with effect on 1 January 2009), on 6 October 2009, by section 112(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section EB 2(3)(i): added, on 26 September 2008, by section 72(1) of the Cli- mate Change Response (Emissions Trading) Amendment Act 2008 (2008 No 85).
Section EB 2(3)(j): added (with effect on 1 January 2009), on 6 October 2009, by section 112(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section EB 2 list of deﬁned terms emissions unit: inserted (with effect on 1 January 2009), on 6 October 2009, by section 112(3)(b) of the Taxation (Inter- national Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EB 2 list of deﬁned terms ETS unit: repealed (with effect on 1 January 2009), on 6 October 2009, by section 112(3)(a) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section EB 2 list of deﬁned terms ETS unit: inserted, on 26 September 2008, by section 72(2) of the Climate Change Response (Emissions Trading) Amend- ment Act 2008 (2008 No 85).
Section EB 2 list of deﬁned terms non-Kyoto greenhouse gas unit: inserted (with effect on 1 January 2009), on 6 October 2009, by section 112(3)(b) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

EB 3 Valuation of trading stock (1) (2) Valuation method A person who carries on a business must determine the value of their trading stock at the end of each income year by a method that is available under this subpart for them to use.
Use of value The value determined under subsection (1) is— (a) the closing value of the trading stock for the income year for the purposes of section CH 1 (Adjustment for 635 Part E s EB 4 Income Tax Act 2007 Reprinted as at 5 January 2010 (b) closing values of trading stock, livestock, and excepted ﬁnancial arrangements); and the opening value of the trading stock for the next in- come year for the purposes of section DB 49 (Adjust- ment for opening values of trading stock, livestock, and excepted ﬁnancial arrangements).
Excepted ﬁnancial arrangements valued at cost Despite anything in this subpart, the value of any trading stock that is an excepted ﬁnancial arrangement must be determined under subpart ED (Valuation of excepted ﬁnancial arrange- ments).
Deﬁned in this Act: business, excepted ﬁnancial arrangement, income year, trading stock Compare: 2004 No 35 s EB 3 (3) EB 4 Trading stock valuation methods (1) (2) (3) Standard valuation The standard valuation methods for trading stock are— (a) (b) (c) (d) market selling value.

cost: discounted selling price: replacement price: Low-turnover valuation A person who is a low-turnover trader may value closing stock by a method described in section EB 14.
Low value trading stock In certain circumstances, a person may value closing stock under section EB 23.
Deﬁned in this Act: closing stock, cost, low-turnover trader, trading stock Compare: 2004 No 35 s EB 4 EB 5 Transfers of trading stock within wholly-owned groups When this section applies This section applies in an income year to trading stock held by a company that is part of a wholly-owned group of companies, when— (a) a group company (company A) originally acquires and holds the trading stock; and (1) 636 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EB 6 (b) (c) (d) (e) from the time it is acquired to the end of the income year, the trading stock is held within the group by a company or companies that are resident in New Zealand; and through transfers within the group, another group com- pany (company B) holds the trading stock at the end of the income year; and company A and company B remain part of the group at the end of the income year; and either— (i) the income years of company A and company B end on the same date; or they end on different dates, and the Commis- sioner has approved both dates as corresponding to the end of a business cycle and as necessary to avoid material distortion of net income that would occur if the income years ended on the same date.
(ii) (2) (3) Choice of treatment Company B may choose to value the closing stock at the cost of the trading stock to company A.

When company stops being part of group If the companies stop being part of the same wholly-owned group, company B is treated as disposing of and reacquiring the trading stock for its market value at the time.

If the mar- ket value of the trading stock cannot be determined separately from other property, its market value at the time company B acquired it is treated as its value.
Deﬁned in this Act: business, closing stock, Commissioner, company, cost, income year, market value, net income, resident in New Zealand, trading stock, wholly-owned group of companies Compare: 2004 No 35 s EB 5 Standard valuation EB 6 Cost (1) Valuation at cost A person may determine the value of their closing stock at cost.
If the person chooses this method, they must include and 637 Part E s EB 6 Income Tax Act 2007 Reprinted as at 5 January 2010 allocate costs under generally accepted accounting practice or as described in subsection (1B)(b).
Valuation at cost: agricultural produce (1B) Despite subsection (1), a person who uses NZIAS 41 for their trading stock in their ﬁnancial statements must— value their closing stock at cost; and (a) include and allocate costs so that the value of their clos- (b) ing stock is not materially different from the value of the closing stock obtained by applying NZIAS 2, ignor- ing paragraph 20 of NZIAS 2.
Whether valuation correct For the purposes of subsection (1), the person has not com- plied with generally accepted accounting practice if the value of closing stock is materially different from the value obtained by applying, to the closing stock, NZIAS 2 or an equivalent standard issued in its place.
Deﬁnition In this section, NZIAS 41 means New Zealand Equivalent to International Accounting Standard 41, approved by the Ac- counting Standards Review Board as amended from time to time, or an equivalent standard issued in its place.

Deﬁned in this Act: closing stock, cost, generally accepted accounting practice, NZIAS 2, NZIAS 41 Compare: 2004 No 35 s EB 6 Section EB 6(1): amended, on 1 April 2008, by section 349(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EB 6(1B) heading: inserted, on 1 April 2008, by section 349(2) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section EB 6(1B): inserted, on 1 April 2008, by section 349(2) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section EB 6(2): amended, on 1 April 2008, by section 349(3) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EB 6(3) heading: inserted, on 1 April 2008, by section 349(4) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section EB 6(3): inserted, on 1 April 2008, by section 349(4) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section EB 6 list of deﬁned terms NZIAS 2: inserted, on 1 April 2008, by section 349(5) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
(2) (3) 638 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EB 8 Section EB 6 list of deﬁned terms NZIAS 41: inserted, on 1 April 2008, by section 349(5) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

EB 7 Cost allocation: cost-ﬂow method (1) (2) (3) (4) (5) (6) When this section applies: ﬁrst case This section applies when a person who determines the value of their closing stock at cost has items of trading stock that are not separately identiﬁable.
Compulsory use of cost-ﬂow method The person must use 1 of the cost-ﬂow methods described in subsection (5) to identify the items of trading stock included in closing stock and to determine the cost of the items.

When this section applies: second case This section also applies when a person who determines the value of their closing stock at cost has items of trading stock that are separately identiﬁable.
Discretionary use of cost-ﬂow method The person may use 1 of the cost-ﬂow methods described in subsection (5) to determine the cost of the items of trading stock.

Cost-ﬂow methods The cost-ﬂow methods of allocating costs are— the ﬁrst-in ﬁrst-out cost method; and (a) the weighted average cost method.

(b) Consistent use A person who determines the value of their closing stock at cost must use the same cost-ﬂow method of allocating costs as they use in their ﬁnancial statements for the income year.
Deﬁned in this Act: closing stock, cost, ﬁnancial statements, income year, trad- ing stock Compare: 2004 No 35 s EB 7 EB 8 Cost allocation: budgeted method or standard cost method When this section applies This section applies when a person— (1) 639 Part E s EB 9 Income Tax Act 2007 Reprinted as at 5 January 2010 (a) (b) (c) (d) has a business of manufacturing or producing trading stock; and determines the value of their closing stock at cost; and allocates costs by— (i) (ii) is not a low-turnover trader to whom section EB 17(3) applies.
a budgeted method; or a standard cost method; and Apportionment of difference required If any difference arises between the estimated costs of pro- duction included in the ﬁnancial statements of the business for the income year and the actual costs of production, the per- son must apportion the difference between the cost of trading stock sold during the income year and the closing stock.
Deﬁned in this Act: business, closing stock, cost, ﬁnancial statements, income year, low-turnover trader, trading stock Compare: 2004 No 35 s EB 8 (2) EB 9 Discounted selling price Valuation at discounted selling price A person may determine the value of their closing stock at its discounted selling price if they use discounted selling price for their trading stock in their ﬁnancial statements.
Retailers If the person is a retailer, the discounted selling price for each department or category of goods is the total of the retail selling prices of the goods minus the normal gross proﬁt margin for the department or category of goods.

This subsection is over- ridden by subsection (4).


Normal gross proﬁt margin for purposes of subsection (2) For the purposes of subsection (2), the person must— (a) calculate the normal gross proﬁt margin for the depart- ment or category of goods under NZIAS 2 or an equiva- lent standard issued in its place; and calculate the normal gross proﬁt margin for each income year for each department or category of goods; and include all costs that sections EB 6 to EB 8 require to be included.
(b) (c) (1) (2) (3) 640 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EB 10 (4) (5) (6) (7) Retailers with turnover of $1,000,000 or less A trader who is a retailer whose turnover is $1,000,000 or less may determine the discounted selling price of all closing stock valued under this method in an income year by discounting the total of the retail selling prices of the stock by the average gross proﬁt margin for all closing stock valued under this method in the income year.
Increase in speciﬁed sum The Governor-General may make an Order in Council increas- ing the sum speciﬁed in subsection (4).

Not retailers If the person is not a retailer, the discounted selling price for each category of goods is the total market selling value of the goods minus the normal gross proﬁt margin for the category of goods.
Normal gross proﬁt margin for purposes of subsection (6) For the purposes of subsection (6), the person must— (a) calculate the normal gross proﬁt margin for each income year for each category of goods; and include all costs that sections EB 6 to EB 8 require to be included.
(b) Deﬁned in this Act: closing stock, cost, ﬁnancial statements, income year, NZIAS 2, trading stock, turnover Compare: 2004 No 35 s EB 9 Section EB 9(3)(a): amended, on 1 April 2008, by section 350(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section EB 9 list of deﬁned terms NZIAS 2: inserted, on 1 April 2008, by section 350(2) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
EB 10 Replacement price (1) (2) Valuation at replacement price A person may determine the value of their closing stock at its replacement price if they use replacement price for their trading stock in their ﬁnancial statements.
Establishing replacement price The replacement price— (a) is— 641 Part E s EB 11 Income Tax Act 2007 Reprinted as at 5 January 2010 (i) (ii) the market value of the trading stock on the last day of the income year; or if there is no such market value, the last price that the person paid during the income year to acquire equivalent trading stock; and (b) does not include an amount of input tax for the supply of the replacement trading stock to the person.
Deﬁned in this Act: closing stock, ﬁnancial statements, income year, input tax, trading stock Compare: 2004 No 35 s EB 10 EB 11 Market selling value Valuation at market selling value A person may determine the value of their closing stock at its market selling value if the market selling value is less than the cost of the stock.
Establishing market selling value The market selling value of closing stock is found by taking the amount that the person would normally expect to receive in the ordinary course of business from the sale of the trading stock and subtracting the following costs: (a) (b) the estimated costs of completion; and the expected costs of selling it.
Expected costs of selling For the purposes of subsection (2)(b), the expected costs of selling the stock are the costs that the person usually incurs for the following: (a) (b) (c) (d) transport: insurance: sales commissions: discounts to buyers.

Expected costs of selling: ﬁnancial statements For the purposes of subsection (3), if the person prepares ﬁnan- cial statements, the costs must have been taken into account in the statements in calculating net realisable value.
(1) (2) (3) (4) 642 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EB 13 (5) Substantiating market selling value If the person uses market selling value to value closing stock, they must be able to substantiate that value.

If they cannot, they must use 1 of the following to value their closing stock: cost, as described in sections EB 6 to EB 8 or EB 15 to (a) EB 18; or discounted selling price, as described in section EB 9 or EB 19; or replacement price, as described in section EB 10 or EB 20.
(b) (c) Deﬁned in this Act: amount, business, closing stock, cost, ﬁnancial statements, trading stock Compare: 2004 No 35 s EB 11 EB 12 Valuing closing stock consistently In determining the value of closing stock at cost, discounted selling price, or replacement price, a person must comply with the consistency and disclosure requirements of NZIAS 8 or an equivalent standard issued in its place.
Deﬁned in this Act: closing stock, cost, NZIAS 8 Compare: 2004 No 35 s EB 12 Section EB 12: amended, on 1 April 2008, by section 351(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section EB 12 list of deﬁned terms NZIAS 8: inserted, on 1 April 2008, by section 351(2) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Low-turnover valuation EB 13 Low-turnover valuation (1) Options A person who is a low-turnover trader may value closing stock— (a) by a standard valuation method, as described in sections EB 6 to EB 12; or by a low-turnover valuation method, as described in sections EB 14 to EB 22; or as low value trading stock, in the circumstances de- scribed in section EB 23.
(b) (c) 643 Part E s EB 14 Income Tax Act 2007 Reprinted as at 5 January 2010 (2) (3) Meaning of low-turnover trader In this subpart, low-turnover trader means a person who car- ries on a business when, in an income year, the total of the turnover of the business and the turnover of associated per- sons, as deﬁned in sections YB 2 and YB 8 (which contain deﬁnitions of associated persons), is no more than the greater of— (a) (b) $3,000,000; and the sum speciﬁed by the Governor-General by Order in Council.
Increase in speciﬁed sum The Governor-General may make an Order in Council increas- ing the sum speciﬁed in subsection (2)(a).
Deﬁned in this Act: associated person, business, closing stock, income year, low-turnover trader, turnover Compare: 2004 No 35 s EB 13 EB 14 Low-turnover valuation methods cost for low-turnover traders; and discounted selling price for low-turnover traders; and replacement price for low-turnover traders; and The low-turnover valuation methods are— (a) (b) (c) (d) market selling value for low-turnover traders.
Deﬁned in this Act: cost, low-turnover trader Compare: 2004 No 35 s EB 14 EB 15 Cost for low-turnover traders A low-turnover trader may determine the value of their closing stock at cost.
If the low-turnover trader chooses this method, they must include and allocate costs under— (a) (b) (c) (d) Deﬁned in this Act: closing stock, cost, generally accepted accounting practice, low-turnover trader Compare: 2004 No 35 s EB 15 generally accepted accounting practice; or section EB 16; or section EB 17; or section EB 18.
644 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EB 17 EB 16 Cost allocation: cost-ﬂow method for low-turnover traders Section EB 7(1) to (5) applies to a low-turnover trader.
Deﬁned in this Act: cost, low-turnover trader Compare: 2004 No 35 s EB 16 EB 17 Costs: manufactured or produced stock of low-turnover traders (1) (2) (3) When this section applies This section applies when a low-turnover trader— (a) has a business of manufacturing or producing trading stock; and determines the value of their closing stock at cost.
(b) their closing stock, Costs to be included the In determining the value of low-turnover trader must include the following costs of pro- duction: (a) (b) (c) (d) (e) (f) (g) direct and indirect material costs: direct and indirect labour costs: utilities costs: costs of repairing and maintaining factory plant: costs of rent of factory plant: amounts of depreciation loss on factory plant: costs additional to those described in paragraphs (a) to (f), if— (i) (ii) they are costs of production; and the low-turnover trader includes them in the ﬁ- nancial statements for the income year.
Apportionment of difference not required If the low-turnover trader allocates costs by a budgeted method or a standard cost method, and if any difference arises be- tween the estimated costs of production included in the ﬁnan- cial statements of the business for the income year and the ac- tual costs of production, the low-turnover trader is not required to apportion the difference between the cost of trading stock sold during the income year and the closing stock.
Deﬁned in this Act: amount, business, closing stock, cost, depreciation loss, ﬁnancial statements, income year, low-turnover trader, trading stock Compare: 2004 No 35 s EB 17 645 Part E s EB 18 Income Tax Act 2007 Reprinted as at 5 January 2010 EB 18 Costs: other stock of low-turnover traders (1) (2) When this section applies This section applies when a low-turnover trader— (a) acquires trading stock other than by manufacture or pro- duction; and determines the value of their closing stock at cost.
(b) their closing stock, Costs to be included In determining the value of low-turnover trader must include the following costs: (a) (b) the purchase price; and any direct transport and insurance costs that they incur in bringing the stock to the place and condition in which they have it.
the Deﬁned in this Act: closing stock, cost, low-turnover trader, trading stock Compare: 2004 No 35 s EB 18 EB 19 Discounted selling price for low-turnover traders Financial statements prepared A low-turnover trader who prepares ﬁnancial statements may determine the value of their closing stock at its discounted sell- ing price if they use discounted selling price for their trading stock in their ﬁnancial statements.
Financial statements not prepared A low-turnover trader who does not prepare ﬁnancial state- ments may determine the value of their closing stock at its dis- counted selling price.
Retailers with turnover of more than $1,000,000 If the low-turnover trader is a retailer whose turnover is more than $1,000,000, the discounted selling price for each depart- ment or category of goods is the total of the retail selling prices of the goods minus the normal gross proﬁt margin for the de- partment or category of goods.
Normal gross proﬁt margin for purposes of subsection (3) For the purposes of subsection (3), the low-turnover trader must— (1) (2) (3) (4) 646 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EB 20 (a) (b) (c) calculate the normal gross proﬁt margin for the depart- ment or category of goods under NZIAS 2 or an equiva- lent standard issued in its place; and calculate the normal gross proﬁt margin for each income year for each department or category of goods; and include all costs that sections EB 16 to EB 18 require to be included.
Not retailers If the low-turnover trader is not a retailer, the discounted sell- ing price for each category of goods is the total market selling value of the goods minus the normal gross proﬁt margin for the category of goods.
Normal gross proﬁt margin for purposes of subsection (5) For the purposes of subsection (5), the low-turnover trader must— (a) calculate the normal gross proﬁt margin for each income year for each category of goods; and include all costs that sections EB 16 to EB 18 require to be included.
(b) (5) (6) Deﬁned in this Act: closing stock, cost, ﬁnancial statements, income year, low- turnover trader, NZIAS 2, trading stock, turnover Compare: 2004 No 35 s EB 19 Section EB 19(4)(a): amended, on 1 April 2008, by section 352(1) of the Tax- ation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section EB 19 list of deﬁned terms NZIAS 2: amended, on 1 April 2008, by section 352(2) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
EB 20 Replacement price for low-turnover traders (1) (2) Financial statements prepared A low-turnover trader who prepares ﬁnancial statements may determine the value of their closing stock at its replacement price if they use replacement price for their trading stock in their ﬁnancial statements.

Financial statements not prepared A low-turnover trader who does not prepare ﬁnancial state- ments may determine the value of their closing stock at its re- placement price.
647 Part E s EB 21 Income Tax Act 2007 Reprinted as at 5 January 2010 (3) Establishing replacement price The replacement price is— (a) the market value of the trading stock on the last day of the income year; or the last price that the low-turnover trader paid during the income year to acquire equivalent trading stock.
(b) Deﬁned in this Act: ﬁnancial statements, income year, low-turnover trader, trading stock Compare: 2004 No 35 s EB 20 EB 21 Market selling value for low-turnover traders (1) (2) Valuation at market selling value A low-turnover trader may determine the value of their closing stock at its market selling value, whether that value is higher or lower than cost.
However, if the value is higher than cost, the trader must be consistent from 1 income year to the next in their use of market selling value to determine the value of closing stock.

Establishing market selling value Section EB 11(2) to (4) applies to a low-turnover trader.
Deﬁned in this Act: closing stock, cost, income year, low-turnover trader Compare: 2004 No 35 s EB 21 EB 22 Valuing closing stock consistently for low-turnover traders Traders complying with generally accepted accounting practice In determining the value of closing stock at cost, discounted selling price, or replacement price, a low-turnover trader who complies with generally accepted accounting practice must comply with the consistency and disclosure requirements of NZIAS 8 or an equivalent standard issued in its place.
Other traders A low-turnover trader who does not comply with generally ac- cepted accounting practice must be consistent from 1 income year to the next in— (a) their choice of valuing closing stock at cost, discounted selling price, or replacement price; and (1) (2) 648 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EB 23 (b) (c) (d) (e) their use of market selling value, if it is greater than cost; and their use of a cost-ﬂow method of allocating costs under section EB 7(1) to (5); and the extent to which they include indirect costs in the cost of trading stock that they manufacture or produce; and their method of calculating discounted selling price.
(3) (4) When changes allowed A low-turnover trader to whom subsection (2) applies may make changes in relation to the matters described in the sub- section if— (a) the change is justiﬁed by sound commercial reasons and for this purpose, the advancement, deferral, or reduction of an income tax liability is not a sound commercial reason; or the change is required by another provision in this sub- part.
(b) Records A low-turnover trader who makes a change as described in subsection (3) must keep sufﬁcient details of the change, and the reasons for the change, under section 22 of the Tax Administration Act 1994.
Deﬁned in this Act: closing stock, cost, generally accepted accounting practice, income tax liability, income year, low-turnover trader, NZIAS 8, trading stock Compare: 2004 No 35 s EB 22 Section EB 22(1): amended, on 1 April 2008, by section 353(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section EB 22 list of deﬁned terms NZIAS 8: inserted, on 1 April 2008, by section 353(2) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Low value trading stock EB 23 Valuing closing stock under $10,000 (1) When this section applies This section applies when a person, including a low-turnover trader,— (a) has a turnover of $1,300,000 or less in an income year; and 649 Part E s EB 24 Income Tax Act 2007 Reprinted as at 5 January 2010 (2) (b) reasonably estimates that the value of their closing stock for the income year is less than $10,000.
Closing value The person may use the opening value of their trading stock as the value of their closing stock for the income year.

Deﬁned in this Act: closing stock, income year, low-turnover trader, trading stock, turnover Compare: 2004 No 35 s EB 23 Section EB 23 heading: amended, on 1 April 2009, by section 5(1) of the Tax- ation (Business Tax Measures) Act 2009 (2009 No 5).

Section EB 23(1)(b): amended, on 1 April 2009, by section 5(2) of the Taxation (Business Tax Measures) Act 2009 (2009 No 5).
Disposal of business assets EB 24 Apportionment on disposal of business assets that include trading stock When this section applies This section applies when a person disposes of trading stock together with other assets of a business to another person.

This section applies also if a person disposes of an interest in trading stock together with other assets of a business or an interest in those other assets.
Apportionment The total amount received on disposal must be apportioned between the trading stock and the other assets in a way that reﬂects their respective market values.

Purchase price The amount apportioned to the trading stock under subsection (2) is treated as the price paid for it by the buyer.
Disposals of timber For the purposes of this section, a disposal of timber is treated as— (a) (b) including the creation or grant of a right to take timber: including a disposal of land with standing timber except to the extent to which the timber is any of the following: trees that are ornamental or incidental, as evi- (i) denced by a certiﬁcate given under section 44C of the Tax Administration Act 1994; or (1) (2) (3) (4) 650 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EC 2 (ii) (iii) timber subject to a forestry right, as deﬁned in section 2 of the Forestry Rights Registration Act 1983, registered under the Land Transfer Act 1952; or timber subject to a proﬁt a prendre granted before 1 January 1984.
(5) Transfers under settlement of relationship property A disposal under this section includes a transfer under a settle- ment of relationship property.
Deﬁned in this Act: amount, business, dispose, ﬁnancial arrangement, ﬁnancial arrangements rules, land, market value, registered bank, right to take timber, settlement of relationship property, timber, trading stock Compare: 2004 No 35 ss FB 4, FF 13(1) Subpart EC—Valuation of livestock Introductory provisions EC 1 Application of this subpart (1) (2) What this subpart does This subpart sets out the rules for valuing livestock not used in a dealing business.
Groups of livestock For the purposes of this subpart, livestock is divided into— (a) (b) (c) (d) Deﬁned in this Act: bloodstock, business, high-priced livestock, non-speciﬁed livestock, speciﬁed livestock Compare: 2004 No 35 s EC 1 speciﬁed livestock: non-speciﬁed livestock: high-priced livestock: bloodstock.

EC 2 Valuation of livestock (1) Valuation method A person must determine the value of their livestock at the end of each income year by a method that is available under this subpart for them to use.
Use of value The value determined under subsection (1) is— (2) 651 Part E s EC 3 Income Tax Act 2007 Reprinted as at 5 January 2010 (a) (b) the closing value of the livestock for the income year for the purposes of section CH 1 (Adjustment for clos- ing values of trading stock, livestock, and excepted ﬁ- nancial arrangements); and the opening value of the livestock for the next income year for the purposes of section DB 49 (Adjustment for opening values of trading stock, livestock, and excepted ﬁnancial arrangements).
Deﬁned in this Act: income year Compare: 2004 No 35 s EC 2 EC 3 Livestock valuation methods (1) (2) (3) (4) Speciﬁed livestock The value of speciﬁed livestock is determined under sections EC 6 to EC 27.

Non-speciﬁed livestock The value of non-speciﬁed livestock is determined under sec- tions EC 28 to EC 31.

High-priced livestock The value of high-priced livestock is determined under sec- tions EC 32 to EC 37.

Bloodstock The value of bloodstock is determined under sections EC 38 to EC 48.
Deﬁned in this Act: bloodstock, high-priced livestock, non-speciﬁed livestock, speciﬁed livestock Compare: 2004 No 35 s EC 3 EC 4 Transfers of livestock within wholly-owned groups When this section applies This section applies in an income year to livestock held by a company that is part of a wholly-owned group of companies, when— (a) a group company (company A) originally acquires and holds the livestock; and from the time it is acquired to the end of the income year, the livestock is held within the group by a company or companies that are resident in New Zealand; and (b) (1) 652 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EC 5 (c) (d) (e) through transfers within the group, another group com- pany (company B) holds the livestock at the end of the income year; and company A and company B remain part of the group at the end of the income year; and either— (i) the income years of company A and company B end on the same date; or they end on different dates, and the Commis- sioner has approved both dates as corresponding to the end of a business cycle and as necessary to avoid material distortion of net income that would occur if the income years ended on the same date.
(ii) (2) (3) Choice of treatment Company B may choose to value the livestock at the cost of the livestock to company A.

When company stops being part of group If the companies stop being part of the same wholly-owned group, company B is treated as disposing of and reacquiring the livestock for its market value at the time.

If the market value of the livestock cannot be determined separately from other property, its market value at the time company B ac- quired it is treated as its value.
Deﬁned in this Act: business, Commissioner, company, income year, net in- come, resident in New Zealand, wholly-owned group of companies Compare: 2004 No 35 s EC 5 EC 5 Transfer of livestock because of self-assessed adverse event (1) When this section applies This section applies to livestock that is donated, or supplied for consideration with a value that is less than the market value of the livestock, to a recipient— (a) for use in a farming or agricultural business that is af- fected by a self-assessed adverse event; and by a donor or supplier who is not associated with the recipient.
(b) 653 Part E s EC 6 Income Tax Act 2007 Reprinted as at 5 January 2010 (2) (3) Treatment by donor or supplier The donor or supplier must treat the livestock as having, on the day of the transfer of the livestock,— (a) (b) no value, if the livestock is donated to the recipient: the value of the consideration provided by the recipient.
Treatment by recipient The recipient must treat the livestock as having, on the day of the transfer of the livestock,— (a) (b) Deﬁned in this Act: market value, self-assessed adverse event Compare: 2004 No 35 s EC 5B no value, if the livestock is donated to the recipient: the value of the consideration provided by the recipient.

Valuation of speciﬁed livestock EC 6 Application of sections EC 7 to EC 27 Sections EC 7 to EC 27 set out the rules for valuing speciﬁed livestock.
Deﬁned in this Act: speciﬁed livestock Compare: 2004 No 35 s EC 6 EC 7 Valuation methods (1) (2) Methods The methods available for valuing speciﬁed livestock are— (a) (b) the herd scheme described in sections EC 14 to EC 21: the national standard cost scheme described in sections EC 22 to EC 24: 1 of the cost price, replacement price, or market value methods described in section EC 25: the method described in section EC 26.
(c) (d) Person chooses A person must choose which method to use, making their elec- tion by using the method chosen in their return of income for the income year.

Election continues (3) When a person chooses a valuation method, that method continues to apply in the following income years unless they choose another method that is available to them.
654 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EC 9 (4) (5) Commissioner’s determination If a person chooses a valuation method that is not available to them and they later make no effective election, the Commis- sioner must determine the method to be used.

In doing so, the Commissioner must consult the person.

Restrictions Restrictions apply to the use of valuation methods, as de- scribed in sections EC 8 to EC 10, and the making of elections, as described in section EC 11.
Deﬁned in this Act: Commissioner, cost price, herd scheme, income year, na- tional standard cost scheme, return of income, speciﬁed livestock Compare: 2004 No 35 s EC 7 EC 8 Restrictions on use of herd scheme (1) (2) Herd scheme: ﬁrst restriction on use of other method A valuation method other than the herd scheme is not avail- able to a person, in an income year, for animals of a class for which they use the herd scheme if the animals remaining to be valued under the herd scheme would be reduced to a number smaller than the number of any animals of the class that the person valued under the herd scheme at the end of the previ- ous income year.
Herd scheme: second restriction on use of other method A person who values livestock of a particular type under the herd scheme must value all male breeding stock of that type under the herd scheme in an income year if, in the income year, they also value any livestock of that type under the national standard cost scheme or under the cost price method.
Deﬁned in this Act: class, cost price, herd scheme, income year, national stand- ard cost scheme, type Compare: 2004 No 35 s EC 8 EC 9 Restrictions on use of national standard cost scheme National standard cost scheme: ﬁrst restriction on use of scheme The national standard cost scheme is not available to a person to value speciﬁed livestock in an income year if they value (1) 655 Part E s EC 9 Income Tax Act 2007 Reprinted as at 5 January 2010 any speciﬁed livestock in the income year under the cost price method.
National standard cost scheme: second restriction on use of scheme The national standard cost scheme is not available to a person to value speciﬁed livestock if, in the income year before the income year in which their election under section EC 7(2) is to apply, they have valued speciﬁed livestock under the cost price method, and have not given at least 2 income years’ notice in the way described in section EC 11 to the Commissioner of their election to value speciﬁed livestock under the national standard cost scheme.
National standard cost scheme: third restriction on use of scheme The national standard cost scheme is not available to a per- son to value a type of speciﬁed livestock in an income year if they have made speciﬁed livestock available to another person under a proﬁt-sharing arrangement and, in the income year, the other person, or another person has also made livestock of the type available under the proﬁt-sharing arrangement, values any livestock of the type under the cost price method.
National standard cost scheme: fourth restriction on use of scheme The national standard cost scheme is not available to a person to value speciﬁed livestock in an income year if— (a) they have bailed the livestock to another person under a long-term bailment not made under a proﬁt-sharing arrangement; or they have leased the livestock to another person under a long-term bailment not made under a proﬁt-sharing arrangement.
(b) National standard cost scheme: ﬁfth restriction on use of scheme The national standard cost scheme is not available to a person to value speciﬁed livestock in an income year if a determin- (2) (3) (4) (5) 656 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EC 10 ation made under section EC 24 precludes the use of the na- tional standard cost scheme for the livestock.
Deﬁned in this Act: Commissioner, cost price, income year, lease, long-term bailment, national standard cost scheme, proﬁt-sharing arrangement, speciﬁed livestock, type Compare: 2004 No 35 s EC 9 EC 10 Restrictions on use of cost price method (1) (2) (3) (4) Cost price method: ﬁrst restriction on use of method The cost price method is not available to a person to value speciﬁed livestock in an income year if the person values other speciﬁed livestock in the income year under the national stand- ard cost scheme.
Cost price method: second restriction on use of method The cost price method is not available to a person to value speciﬁed livestock if, in the income year before the income year in which their election under section EC 7(2) is to apply, they have valued speciﬁed livestock under the national stand- ard cost scheme and have not given 2 income years’ notice in the way described in section EC 11 to the Commissioner of their election to value speciﬁed livestock under the cost price method.
Cost price method: third restriction on use of method The cost price method is not available to a person to value spe- ciﬁed livestock in an income year if they have bailed or leased their speciﬁed livestock to another person, unless the livestock is bailed or leased under a proﬁt-sharing arrangement.
Cost price method: fourth restriction on use of method The cost price method is not available to a person to value speciﬁed livestock in an income year if they have bailed or leased their speciﬁed livestock to another person— (a) (b) under a long-term bailment; or under a short-term bailment made between associated persons in which the consideration paid to the bailee is not a fair market value.
(5) Cost price method: ﬁfth restriction on use of method The cost price method is not available to a person to value a type of speciﬁed livestock in an income year if they have made 657 Part E s EC 11 Income Tax Act 2007 Reprinted as at 5 January 2010 speciﬁed livestock available to another person under a proﬁt- sharing arrangement and, in the income year, the other person, or another person has also made livestock of the type available under the proﬁt-sharing arrangement, values any livestock of the type under the national standard cost scheme.
Deﬁned in this Act: associated person, Commissioner, cost price, income year, lease, long-term bailment, national standard cost scheme, proﬁt-sharing arrangement, short-term bailment, speciﬁed livestock, type Compare: 2004 No 35 s EC 10 EC 11 Restrictions on making of elections Forms of notice This section speciﬁes the 2 forms of notice that a person must give to the Commissioner and when each must be used.
When a person notiﬁes the Commissioner of an election under this section, the election is irrevocable in the ﬁrst income year in which it applies.

When notice in same year required For the elections described in this subsection, a person must give notice by the date of ﬁling their return of income for the income year in which the election is ﬁrst to apply.
The elec- tions are— (a) an election to value livestock of a particular type under the herd scheme, as described in section EC 14; and an election to adopt a herd value ratio or the Chatham Islands adjustment to the herd value ratio for livestock of any type when the income year is the ﬁrst income year in which the particular livestock is valued under the herd scheme, as described in sections EC 17 to EC 19.
(b) When 2 years’ notice required For the elections described in this subsection, a person must give notice by the date of ﬁling their return of income for an income year that is at least 2 income years before the income year in which the election is ﬁrst to apply.
The elections are— an election to stop valuing speciﬁed livestock of a par- (a) ticular type under the herd scheme, except when the per- son continues to value some livestock of that type under (1) (2) (3) 658 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EC 11 (b) (c) (d) the herd scheme or when another valuation method is available, as described in EC 14(2); and an election, after the herd scheme has been adopted, to adopt a herd value ratio or recalculated herd value ra- tio or the Chatham Islands adjustment for any livestock type, as described in sections EC 17 to EC 19; and an election to value speciﬁed livestock under the na- tional standard cost scheme when the person has, in the income year before the application of the new election, valued the same livestock under the cost price method; and an election to value speciﬁed livestock under the cost price method when the person has, in the year before the application of the new election, valued the same livestock under the national standard cost scheme.
(4) Information for notices of election A notice of election must state— (a) (b) (c) (d) the income year in which the election is ﬁrst to apply; and the type, class, or other description of the applicable livestock; and the existing and proposed methods of valuing the ap- plicable livestock; and for an election to use a herd value ratio or recalculated herd value ratio under section EC 17,— (i) (ii) the value assessed under section EC 17(4) of an average animal of each applicable class of live- stock; and the date on which the valuation of each animal was made; and the name and address of the valuer.
Deﬁned in this Act: class, Commissioner, cost price, herd scheme, herd value ratio, income year, national standard cost scheme, notice, notify, return of in- come, speciﬁed livestock, type Compare: 2004 No 35 s EC 11 (iii) 659 Part E s EC 12 Income Tax Act 2007 Reprinted as at 5 January 2010 EC 12 Interests in livestock Joint election of valuation method (1) When speciﬁed livestock is owned jointly by 2 or more per- sons, the owners must choose a valuation method.
For the election to be effective, it must be made jointly by all the owners.

Ineffective election If there is no effective election, speciﬁed livestock owned jointly is valued as follows: (a) if the owners bail or lease the livestock to another per- son during the income year, under the market value method; or if the owners enter into a proﬁt-sharing arrangement for the livestock, under the market value method; or in any other case, under the national standard cost scheme.
(b) (c) Proﬁt-sharing arrangements If the method used in an income year to calculate the value of livestock under a proﬁt-sharing arrangement is the national standard cost scheme or the cost price method, all the follow- ing are treated as the single owner of the livestock: the person who owns the livestock; and (a) the person who has the use of the livestock; and (b) any other person who has made livestock of the same (c) type available to the person referred to in paragraph (b) under a proﬁt-sharing arrangement.
Partnerships interests For the purpose of an election under this section, a person’s interest in a partnership that owns livestock is treated separ- ately from any other interest that the person has in livestock.

Separate elections are required for the person’s partnership in- terest and for their other livestock interests.

The person is not required to choose the same valuation method in both cases.
Deﬁned in this Act: cost price, income year, lease, national standard cost scheme, proﬁt-sharing arrangement, speciﬁed livestock, type Compare: 2004 No 35 s EC 12 (2) (3) (4) 660 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EC 14 EC 13 Changes in partnership interests (1) (2) When this section applies This section applies when— (a) (b) (c) a partnership owns speciﬁed livestock (the old partner- ship); and a new partnership is formed (the new partnership); and at the end of the income year in which the new partner- ship is formed, more than 50% of the property of the new partnership is owned by persons who, during that income year or in the previous income year,— (i) (ii) owned all the property of the old partnership; and derived income in either income year from speci- ﬁed livestock of the same type as that owned by the new partnership.
Valuation The value of speciﬁed livestock owned by the new partnership must be taken into account in the way the old partnership de- termines the value of livestock of the particular type at the end of the income year in which the new partnership is formed.

If the old partnership has no speciﬁed livestock of the type on hand at the end of the income year, the value is taken into ac- count as the old partnership would have determined it, had it owned speciﬁed livestock of that type.
Deﬁned in this Act: income, income year, speciﬁed livestock, type Compare: 2004 No 35 s EC 13 EC 14 Herd scheme Herd scheme (1) (2) Election to use herd scheme A person may choose to value speciﬁed livestock of any type and class under the herd scheme.

Election of other method A person who has chosen to value livestock of a particular type under the herd scheme may nevertheless value livestock of that type by another method, subject to the restrictions described in section EC 8.
661 Part E s EC 15 Income Tax Act 2007 Reprinted as at 5 January 2010 (3) Election to leave herd scheme A person who wishes to stop valuing livestock of a particular type under the herd scheme must give 2 income years’ notice to the Commissioner in the way described in section EC 11.

However, notice is not required if the person values livestock of that type by another method that is available for use in con- junction with the herd scheme.
Deﬁned in this Act: class, Commissioner, herd scheme, income year, notice, speciﬁed livestock, type Compare: 2004 No 35 s EC 14 EC 15 Determining national average market values (1) (2) Determined by Commissioner The Commissioner must determine a national average mar- ket value for an income year for each class of speciﬁed live- stock set out in schedule 17, column 2 (Types and classes of livestock).
Application to income year The value applies to the income year for which it is deter- mined, whether the income year started before, on, or after the date on which the determination is made.
Deﬁned in this Act: class, Commissioner, income year, national average market value, speciﬁed livestock Compare: 2004 No 35 s EC 15 EC 16 Valuation under herd scheme Closing value of herd livestock The closing value of herd livestock in an income year is either its herd value for the income year or, if a herd value ratio is adopted, its herd value multiplied by its herd value ratio.
Opening value of herd livestock The opening value of herd livestock in an income year is de- termined under subsection (3) if a person— (a) has valued the livestock under the herd scheme in the previous income year; and has the livestock on hand at the start of the income year; and (b) (1) (2) 662 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EC 17 (3) (c) has not chosen to value the livestock by a different method for the income year.
Determining opening value The opening value of herd livestock in an income year is either its herd value for the income year or, if the person has adopted a herd value ratio, its herd value for the income year multiplied by its herd value ratio for the previous income year.

This sub- section overrides DB 49(5) (Adjustment for opening values of trading stock, livestock, and excepted ﬁnancial arrangements).
Deﬁned in this Act: herd livestock, herd scheme, herd value, herd value ratio, income year Compare: 2004 No 35 s EC 16 EC 17 Herd value ratio (1) (2) Adoption of herd value ratio A herd value ratio is available for a person to use in deter- mining the value of speciﬁed livestock in the herd scheme.

A person may adopt a herd value ratio for herd livestock of a particular type by giving notice in the way described in sec- tion EC 11.
A person may also adopt a recalculated ratio by giving notice in the same way.

Chatham Islands livestock Herd value ratios calculated under subsection (5) do not apply to livestock on the Chatham Islands.

The Chatham Islands adjustment to the herd value ratio is dealt with in section EC 19.
When herd value ratio applies (3) When a person adopts a herd value ratio for livestock of a particular type, the ratio applies in the income year speciﬁed in the notice and in later income years until— (a) (b) (c) the income year in which it is superseded by a recalcu- lation of the ratio; or the income year in which the person stops valuing, under an election, livestock of that type under the herd scheme; or the income year following 2 consecutive income years in which the person has not valued livestock of that type under the herd scheme.
663 Part E s EC 18 Income Tax Act 2007 Reprinted as at 5 January 2010 (4) (5) Assessment of average value For the purpose of calculating a herd value ratio, a person must obtain from a recognised livestock valuer an assessment of the value of an average animal of that person in each applicable class of livestock.

The value is determined as at the 30 April that is closest to the day on which the national average market values are set.
Calculation of herd value ratio The herd value ratio for livestock of a particular type is calcu- lated by using the formula in subsection (6) and rounding the result of the calculation to the nearest of the following ﬁgures: 0.9, 1.0, 1.1, 1.2, 1.3.
Formula The formula is— (6) (7) Deﬁnition of items in formula In the formula,— (a) (b) (c) Σ is the total of the individual calculations for all ap- plicable classes of livestock type valued under the herd scheme: average value is the average value of an animal in a class as described in subsection (4): number is the number of all livestock of that class on hand at the end of the income year, including livestock that are not in the herd scheme, but not including high- priced livestock: herd value is the herd value of livestock for a class.
(d) Deﬁned in this Act: class, herd livestock, herd scheme, herd value, herd value ratio, high-priced livestock, income year, livestock on the Chatham Islands, national average market value, notice, speciﬁed livestock, type Compare: 2004 No 35 s EC 17 EC 18 Inaccurate herd value ratio The Commissioner may require a person who is using an inac- curate herd value ratio for a type of livestock in an income year to recalculate the herd value ratio.
If the recalculation differs from the existing ratio for the income year, the Commissioner 664 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EC 20 may amend the assessment of income tax for the income year and any later income year and may substitute the recalculated herd value ratio for that previously applied by the person.
Deﬁned in this Act: assessment, Commissioner, herd value ratio, income tax, income year, type Compare: 2004 No 35 s EC 18 EC 19 Chatham Islands adjustment to herd value (1) Adjustment for herd livestock on Chatham Islands A person may adopt an adjustment for herd livestock on the Chatham Islands by giving notice in the way described in sec- tion EC 11.
When adjustment applies (2) When a person adopts a Chatham Islands adjustment as a herd value ratio, it applies as a herd value ratio to a particular type of livestock on the Chatham Islands at the end of the income year speciﬁed in the notice and in later income years until— the income year in which the person stops valuing, (a) under an election, livestock of that type in the herd scheme; or the income year following 2 consecutive income years in which the person has not valued livestock of that type on the Chatham Islands under the herd scheme.
(b) (3) Setting adjustment The Commissioner must set and may vary from time to time the level of Chatham Islands adjustment to the herd value ratio that applies in an income year.
Deﬁned in this Act: Commissioner, herd livestock, herd scheme, herd value, herd value ratio, income year, livestock on the Chatham Islands, notice, type Compare: 2004 No 35 s EC 19 EC 20 Herd livestock disposed of before values determined (1) When this section applies This section applies when, in an income year, a person— stops deriving income from speciﬁed livestock; and (a) disposes of herd livestock before the 1 February that (b) precedes the determination of the national average mar- ket values for the income year; and 665 Part E s EC 21 Income Tax Act 2007 Reprinted as at 5 January 2010 (2) (c) gives notice to the Commissioner before that 1 February that they choose that this section applies to the valuation of the herd livestock.
Value of herd livestock The value of herd livestock that is disposed of is either the herd value of the livestock for the previous income year or, if the person has adopted a herd value ratio, the herd value multiplied by the herd value ratio applying in the previous income year.
Deﬁned in this Act: Commissioner, herd livestock, herd value, herd value ratio, income, income year, national average market value, notice, speciﬁed livestock Compare: 2004 No 35 s EC 20 EC 21 Herd livestock on death before values determined (1) (2) When this section applies This section applies when— (a) (b) a person dies; and herd livestock owned by the person is disposed of be- fore the 1 February that precedes the determination of the national average market values for the income year in which the person dies; and the person’s return of income to the date of death is ﬁled before the national average market values for the income year are determined.
(c) Value of herd livestock The value of herd livestock that is disposed of is either the herd value of the livestock for the previous income year or, if the person has adopted a herd value ratio, the herd value multiplied by the ratio applying in the previous income year.
Deﬁned in this Act: herd livestock, herd value, herd value ratio, income year, national average market value, return of income Compare: 2004 No 35 s EC 21 National standard cost scheme EC 22 National standard cost scheme Election to use national standard cost scheme A person may choose to value speciﬁed livestock under the national standard cost scheme, subject to the restrictions de- scribed in section EC 9.
(1) 666 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EC 24 (2) Closing value The closing value of the livestock is the cost of the livestock calculated under the determination made by the Commissioner under section EC 24.
Deﬁned in this Act: Commissioner, national standard cost scheme, speciﬁed livestock Compare: 2004 No 35 s EC 22 EC 23 Determining national standard costs (1) (2) Determination of costs The Commissioner must determine national standard costs for each category of speciﬁed livestock in schedule 18 (Categories of livestock for which national standard costs to be declared).
The determination must take into account, as applicable,— (a) the average breeding, rearing, and growing costs for animals in the category; and the average rearing and growing costs for animals in the category.

(b) Application to income year The national standard costs apply to the income year for which they are determined, whether the income year started before, on, or after the date on which the determination is made.
Deﬁned in this Act: Commissioner, income year, speciﬁed livestock Compare: 2004 No 35 s EC 23 EC 24 Methods for determining costs using national standard cost scheme (1) (2) Determination of methods for calculation of cost The Commissioner must determine the methods for calculat- ing the cost of livestock listed in schedule 18, column 2 (Cat- egories of livestock for which national standard costs to be declared).
Average cost For the purposes of subsection (1), the determination must es- tablish a process for ﬁnding an average cost to be applied to all speciﬁed livestock valued under the national standard cost scheme.
The process must take into account— 667 Part E s EC 25 Income Tax Act 2007 Reprinted as at 5 January 2010 (a) (b) (c) the number of homebred livestock that a person has on hand at any time in an income year, applying to the number the relevant national standard costs determined under section EC 23: in addition to paragraph (a), the number in each cat- egory of livestock listed in schedule 18, column 2 that a person has on hand at any time in an income year, applying to the number the relevant national standard costs determined under section EC 23: the number of livestock bought, applying to the number the purchase costs associated with the livestock.
(3) Content of determination The matters that may be included in the determination are set out in section 91AAD of the Tax Administration Act 1994.
Deﬁned in this Act: Commissioner, income year, national standard cost scheme, speciﬁed livestock Compare: 2004 No 35 s EC 24 EC 25 Cost price, replacement price, or market value Other methods (1) (2) Election A person may choose to value speciﬁed livestock under the cost price method, subject to the restrictions described in sec- tion EC 10, or under the replacement price method, or under the market value method.
Changing to cost price method If a person chooses in an income year to change to the cost price method from another valuation method, the opening value of the affected livestock is the closing value of the livestock at the end of the previous income year determined under the method used in that previous income year.
Deﬁned in this Act: cost price, income year, speciﬁed livestock Compare: 2004 No 35 s EC 25 EC 26 Bailee’s treatment of livestock When this section applies This section applies when, under a bailment, lease, or other agreement,— (1) 668 Reprinted as at 5 January 2010 (a) (b) Income Tax Act 2007 Part E s EC 26 a person (person A) has the use of speciﬁed livestock; and person A is required— (i) to return the livestock to the person who made it available; or to pay the person full compensation for it.
(ii) (2) (3) (4) Closing livestock numbers Person A is treated as owning, and must take into account at the end of an income year, the total number for all classes calculated using the formula— total livestock - bailed livestock.
Deﬁnition of items in formula In the formula,— (a) total livestock is all the livestock that person A has on hand in a class at the end of the income year, includ- ing— (i) (ii) the livestock that they own; and the livestock that they have the use of under the bailment, lease, or other agreement: (b) bailed livestock is all the livestock in a class that per- son A has been given the use of under a bailment, lease, or other agreement that remains in force at the end of the income year.
Result of applying formula If the result of applying the formula in subsection (2) is posi- tive, person A is treated as the owner of any surplus livestock.

If the result is negative, person A must adjust the total number described in subsection (2) by treating it as a negative number.
Deﬁned in this Act: class, income year, lease, pay, speciﬁed livestock Compare: 2004 No 35 s EC 26 Partnerships: cost price and national standard cost scheme Heading: inserted (with effect on 1 April 2009), on 6 October 2009, by section 114(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
669 Part E s EC 26B Income Tax Act 2007 Reprinted as at 5 January 2010 EC 26B Entering partners’ cost base When this section applies This section applies when an entering partner has acquired speciﬁed livestock that includes female breeding livestock for which section HG 10 (Disposal of livestock) applies, and the partners use the cost price method or the national standard cost scheme.
Existing cost base For the speciﬁed livestock, the entering partner is treated as having the same existing cost base that the exiting partner would have had for the purposes of the cost price method or national standard cost scheme for an income year, if they had not disposed of the interests.
Addition to cost base For the purposes of determining the value of the speciﬁed live- stock at the end of an income year for the purposes of section EC 2, the entering partner must add to the existing cost base, described in subsection (2), the amount for the income year (the current year) calculated using the following formula: livestock cost base difference × current year count allowed years.
Deﬁnition of items in formula In the formula,–– (a) (b) livestock cost base difference is the cost base that the entering partner would have for the speciﬁed livestock at the end of the income year in which the acquisition of the speciﬁed livestock occurred, ignoring subsection (2) reduced by the entering partner’s existing cost base for the speciﬁed livestock at the end of that year, described in subsection (2).
It must be a positive number: current year count,–– (i) is the allowed years reduced by the number of years between the current year and the income year in which the entering partner’s acquisition of the speciﬁed livestock occurred, ignoring years in which the partners do not use the cost price method or national standard cost scheme (for ex- ample: current year count is 1, if the allowed (1) (2) (3) (4) 670 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EC 27 years is 4, and the acquisition of the speciﬁed livestock occurred in the 2010–11 income year, and the current year is the 2013–14 income year, and the relevant method or scheme was used for all relevant income years): (ii) may equal the allowed years (for example: the current year is the same year as the income year in which the entering partner’s acquisition of the speciﬁed livestock occurred), but must not be a negative number: (c) allowed years is–– (i) 4, if the partners acquire or dispose of any part- nership interests that include any livestock after the entering partner’s acquisition of the speciﬁed livestock and before the end of the income year in which that acquisition occurred; or 5, if the partners do not acquire or dispose of any partnership interests that include any livestock after the entering partner’s acquisition of the spe- ciﬁed livestock and before the end of the income year in which that acquisition occurred.
(ii) Deﬁned in this Act: amount, cost price, dispose, income year, national standard cost scheme, partner, partner’s interest, speciﬁed livestock Section EC 26B: inserted (with effect on 1 April 2009), on 6 October 2009, by section 114(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Deﬁnitions EC 27 Some deﬁnitions In this subpart,— long-term bailment is a bailment or lease under which, at the time a person delivers livestock, the person does not expect to have the same livestock delivered back to them short-term bailment is a bailment or lease under which,— (a) at the time a person delivers livestock, the person ex- pects to have the same livestock delivered back to them; and the bailee or lessee did not provide consideration to the person for the delivery of the livestock; and (b) 671 Part E s EC 28 Income Tax Act 2007 Reprinted as at 5 January 2010 (c) the term of the bailment or lease ends on or before the end of the income year following the income year in which the arrangement is made.
Deﬁned in this Act: arrangement, income year, lease, long-term bailment, short- term bailment Compare: 2004 No 35 s EC 27 Valuation of non-speciﬁed livestock EC 28 Application of sections EC 29 to EC 31 Sections EC 29 to EC 31 set out the rules for valuing non- speciﬁed livestock.
Deﬁned in this Act: non-speciﬁed livestock Compare: 2004 No 35 s EC 28 EC 29 Determining standard values (1) (2) Determined by Commissioner The Commissioner may determine a standard value for an income year for a type or category of non-speciﬁed livestock.

Application to income year A standard value applies to the income year for which it is determined, whether the income year started before, on, or after the date on which the standard value is determined.
Deﬁned in this Act: Commissioner, income year, non-speciﬁed livestock, standard value, type Compare: 2004 No 35 s EC 29 EC 30 Closing value methods A person may choose 1 of the following methods to value non- speciﬁed livestock on hand at the end of an income year: its cost price: (a) its replacement price: (b) its market value: (c) if the Commissioner agrees, its standard value.
(d) Deﬁned in this Act: Commissioner, cost price, income year, non-speciﬁed live- stock, standard value Compare: 2004 No 35 s EC 30 672 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EC 32 EC 31 Enhanced production (1) (2) When this section applies This section applies when a person who derives income from non-speciﬁed livestock— (a) (ii) enhances production in an income year by— (i) starting, or restarting, to derive income from non- speciﬁed livestock; or bringing land into production, or substantially in- creased production, for the purpose of deriving income from non-speciﬁed livestock; or acquiring additional land for the purpose of de- riving income from non-speciﬁed livestock; and as a result, in an income year or over the following 3 income years, buys more non-speciﬁed livestock that is not replacement livestock and that is valued at its standard value.
(iii) (b) Closing value The closing value of the livestock bought is,— (a) for the income year in which the livestock was bought, its standard value plus two-thirds of the difference be- tween the cost price of the livestock and the standard value: for the following income year, its standard value plus one-third of the difference between the cost price of the livestock and the standard value: for other income years, its standard value.
(c) Deﬁned in this Act: cost price, income, income year, non-speciﬁed livestock, standard value Compare: 2004 No 35 s EC 31 (b) Valuation of high-priced livestock EC 32 Application of sections EC 33 to EC 37 (1) (2) Sections EC 33 to EC 37 Sections EC 33 to EC 37 set out the rules for valuing high- priced livestock.

Person chooses valuation method A person may choose to use either the straight-line method or the diminishing value method to value high-priced livestock.
673 Part E s EC 33 Income Tax Act 2007 Reprinted as at 5 January 2010 (3) Diminishing value method If the person chooses to use the diminishing value method, they must give notice to the Commissioner that they are using the method at the time of ﬁling their return of income for the ﬁrst income year in which the value of the high-priced live- stock is determined under EC 34.

The person cannot revoke their election to use the diminishing value method for the live- stock.
Deﬁned in this Act: Commissioner, high-priced livestock, income year, notice, return of income Compare: 2004 No 35 s EC 32 EC 33 Determining depreciation percentages (1) (2) (3) Determined by Commissioner The Commissioner must determine a depreciation percent- age for an income year for each type, class, or category of high-priced livestock.

Purpose The percentage represents the average percentage decline in the value of livestock of the type, class, or category.
Factors The Commissioner must take into account— (a) the average cost of livestock of the type, class, or cat- egory; and the estimated useful life of the livestock; and the average estimated residual market value of the live- stock.
(b) (c) Deﬁned in this Act: class, Commissioner, depreciation percentage, estimated residual market value, estimated useful life, high-priced livestock, income year, type Compare: 2004 No 35 s EC 33 EC 34 General rule Value in income year of purchase and later income years The closing value of high-priced livestock at the end of the income year in which it is bought is its cost price minus the reduction applying in the income year.
In a later income year, the value is its opening value minus the reduction applying in the income year until the value reaches or falls below the na- (1) 674 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EC 34 tional average market value for the class to which the livestock belongs.

Straight-line method (2) When a person has chosen to use the straight-line method, the reduction is calculated using the formula— cost price × depreciation percentage.
Diminishing value method (3) When a person has chosen to use the diminishing value method, the reduction is calculated as follows: (a) in the ﬁrst income year in which the election applies, the cost price multiplied by the diminishing value equiva- lent of the depreciation percentage for the income year: in later income years, the opening value of the livestock multiplied by the diminishing value equivalent of the depreciation percentage for the income year.
(b) (4) (5) Meaning of diminishing value equivalent In this section, diminishing value equivalent, for a depre- ciation percentage, means the diminishing value depreciation rate in schedule 12, column 1 (Old banded rates of depreci- ation) to which the amount in column 2 equal to the depreci- ation percentage is the straight-line equivalent.
Two qualiﬁca- tions are— (a) if no amount in column 2 is equal to the depreciation percentage, the amount closest to it is taken; and if 2 amounts in column 2 are equidistant from the de- preciation percentage, the depreciation percentage is rounded down.

(b) Exclusions This section does not apply in the cases described in sections EC 35 and EC 36.
Deﬁned in this Act: amount, class, cost price, depreciation percentage, dimin- ishing value equivalent, high-priced livestock, income year, national average market value Compare: 2004 No 35 s EC 34 675 Part E s EC 35 Income Tax Act 2007 Reprinted as at 5 January 2010 EC 35 Livestock reaching national average market value and livestock no longer used for breeding Livestock at or less than national average market value This section applies to a person’s high-priced livestock whose value at the end of an income year is equal to or less than the national average market value for the class to which the livestock belongs.
Livestock no longer used for breeding This section also applies to high-priced livestock that, in an income year, a person— (a) does not expect to use for breeding for that or any later income year; and does not intend to dispose of to any other person to use for breeding.
(b) Closing value The closing value of the high-priced livestock at the end of the income year is determined as follows: (a) when the person values any speciﬁed livestock of that type under the herd scheme for the income year, the value of the animal under the herd scheme; and when the person values all speciﬁed livestock of that type that is older than 1 year under the national stand- ard cost scheme or the cost price method, the national average market value for the income year of livestock of the class to which the animal belongs; and when the person values all speciﬁed livestock of that type that is older than 1 year under the market value method or the replacement price method, the market value or replacement price of the animal at the end of the income year.
(b) (c) Valuation in later income years In later income years, the animal that was high-priced live- stock is treated as the person’s speciﬁed livestock and is valued under the valuation method the person chooses for speciﬁed livestock of the type to which the animal belongs.
Entry into herd scheme in later income years This subsection applies if, in a later income year (year A), the person values any speciﬁed livestock of the same type as the (1) (2) (3) (4) (5) 676 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EC 37 animal under the herd scheme and, in the next year, values the animal under the herd scheme.
The animal is treated as if it were valued under the herd scheme at the end of year A. Deﬁned in this Act: class, cost price, herd scheme, high-priced livestock, in- come year, national average market value, national standard cost scheme, spe- ciﬁed livestock, type, year Compare: 2004 No 35 s EC 35 EC 36 Immature livestock and recently bought livestock (1) (2) (3) Immature livestock This section applies to high-priced livestock that is less than 1 year old at the end of the income year in which it is bought.
Recently bought livestock This section also applies to high-priced livestock that is bought within 6 months of the end of an income year and, during that time,— (a) is not used for insemination, in the case of male live- stock; and is not used for the collection of semen; and does not give birth; and does not have ova removed.

(b) (c) (d) Closing value The closing value of the high-priced livestock at the end of the income year is its cost price.
Deﬁned in this Act: cost price, high-priced livestock, income year, year Compare: 2004 No 35 s EC 36 EC 37 Bailment In section EC 26, references to speciﬁed livestock include high-priced livestock.

Deﬁned in this Act: high-priced livestock, speciﬁed livestock Compare: 2004 No 35 s EC 37 677 Part E s EC 38 Income Tax Act 2007 Reprinted as at 5 January 2010 Valuation of bloodstock EC 38 Application of sections EC 39 to EC 48 Sections EC 39 to EC 48 set out the rules for valuing blood- stock.
Deﬁned in this Act: bloodstock Compare: 2004 No 35 s EC 38 EC 39 First income year in breeding business Bloodstock to which this section applies This section applies to bloodstock that is 2 years of age or older at the end of the ﬁrst income year in which a person— (a) uses the bloodstock for breeding in their breeding busi- ness; or forms the intention of using the bloodstock for breeding in their breeding business; or buys the bloodstock, with the intention of using it for breeding in their breeding business.
(b) (c) Special group of broodmares to which this section applies This section also applies to a broodmare that is 2 years of age or older at the end of a person’s ﬁrst income year after 1 April 2001 in which the person— (a) ﬁrst uses the broodmare for breeding in their breeding business; or ﬁrst forms the intention of using the broodmare for breeding in their breeding business; or buys the broodmare, with the intention of using it for breeding in their breeding business.
(b) (c) Closing value The closing value of the bloodstock at the end of the ﬁrst in- come year is its cost price minus the reduction applying in that income year.

Determination of reduction The reduction that applies is determined under section EC 41, EC 42, EZ 5, or EZ 6 (which relate to bloodstock).
Deﬁned in this Act: bloodstock, broodmare, business, cost price, income year, year Compare: 2004 No 35 s EC 39 (1) (2) (3) (4) 678 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EC 41 EC 40 Later income years in breeding business (1) (2) (3) (4) What this section applies to This section applies to the income years that follow the ﬁrst income year described in section EC 39.

Closing value The closing value of the bloodstock is its opening value minus the reduction applying in that income year.
Closing value not previously taken into account If the person has not taken the closing value of the bloodstock into account in the previous income year, the closing value is the cost price of the bloodstock minus the reduction applying in the income year in which the person makes the calculation.

Determination of reduction The reduction that applies is determined under section EC 41, EC 42, EZ 5, or EZ 6 (which relate to bloodstock).
Deﬁned in this Act: bloodstock, cost price, income year Compare: 2004 No 35 s EC 40 EC 41 Reduction: bloodstock not previously used for breeding in New Zealand other than as shuttle stallions (1) Bloodstock to which this section applies This section applies to bloodstock that— (a) was not used for breeding in New Zealand before 16 December 1991; and before a person (person A) acquired it, was not used for breeding in New Zealand by any other person.
(b) Further bloodstock to which this section applies (1B) This section also applies to bloodstock that, before person A acquired it, was used by another person for breeding in New Zealand if— (a) the other person transferred the bloodstock to person A under a matrimonial agreement to which section FB 18 (Bloodstock) applies: the other person was a company in the same wholly- owned group as person A at the time person A acquired the bloodstock from the other person: (b) 679 Part E s EC 41 Income Tax Act 2007 Reprinted as at 5 January 2010 (c) the bloodstock is a stallion that, for each year in which the stallion was used for breeding in New Zealand be- fore being acquired by person A, was— (i) (ii) owned by a non-resident; and removed from New Zealand after the breeding season; and not subject to a reduction under this section.
(iii) (2) Stallion For the purposes of sections EC 39 and EC 40, the reduction applying to the value of a stallion is 50% of the cost price of the stallion unless person A chooses to value the stallion by the reducing value method.

Stallion valued by reducing value method (3) When person A chooses to value the stallion by the reducing value method, the reduction applying to the value of the stal- lion is 75% of its cost price in the ﬁrst income year and 75% of its opening value in each later income year.
Person A must give notice to the Commissioner of their election in their re- turn of income for the ﬁrst income year.
Broodmare when ﬁrst used on or after 1 April 2001 For the purposes of sections EC 39 and EC 40, the reduc- tion applying to the value of a broodmare to which section EC 39(2) applies is calculated using the formula— Deﬁnition of item in formula In the formula, age of broodmare is— (a) (b) 8 years of age; or the actual age in years, if the broodmare is 7 years of age or less at the end of the income year.
Relationship with section EZ 5 This section is overridden by section EZ 5 (Reduction: blood- stock not previously used for breeding in New Zealand: pre-1 August 2006).
Deﬁned in this Act: bloodstock, broodmare, Commissioner, company, cost price, income year, matrimonial agreement, New Zealand, notice, return of in- come, stallion, wholly-owned group, year Compare: 2004 No 35 s EC 41 (4) (5) (6) 680 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EC 42 Section EC 41 heading: amended, on 1 April 2008, by section 354(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EC 41(1)(b): substituted, on 1 April 2008, by section 354(2) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section EC 41(1B) heading: inserted, on 1 April 2008, by section 354(3) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section EC 41(1B): inserted, on 1 April 2008, by section 354(3) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
EC 42 Reduction: bloodstock previously used for breeding in New Zealand (1) (2) (3) (4) Stallion For the purposes of sections EC 39 and EC 40, the reduction applying to the value of a stallion to which section EC 41 does not apply is 20% of its cost price.
Broodmare when ﬁrst used on or after 1 April 2001 For the purposes of sections EC 39 and EC 40, the reduc- tion applying to the value of a broodmare to which section EC 39(2) applies and EC 41 does not apply is calculated using the formula— Deﬁnition of item in formula In the formula, age of broodmare is— (a) (b) 8 years of age; or the actual age in years, for a broodmare that is 7 years of age or less at the end of the income year.
Relationship with section EZ 6 This section is overridden by section EZ 6 (Reduction: brood- mare previously used for breeding in New Zealand: pre-1 Au- gust 2006).
Deﬁned in this Act: bloodstock, broodmare, cost price, income year, stallion, year Compare: 2004 No 35 s EC 42 681 Part E s EC 43 Income Tax Act 2007 Reprinted as at 5 January 2010 EC 43 Accident, birth deformity, or infertility (1) (2) (3) When this section applies This section applies when a person has bloodstock on hand at the end of an income year whose market value is, because of accident, birth deformity, or infertility, less than 50% of what its market value would have been if the accident, birth deformity, or infertility had not occurred.
Value The person may value the bloodstock at its market value.

Later income years If the person applies subsection (2), the closing value of the bloodstock in later income years is its market value in the ap- plicable income year.

Deﬁned in this Act: bloodstock, income year Compare: 2004 No 35 s EC 43 EC 44 Other bloodstock If sections EC 39 to EC 43 do not apply, the closing value of the bloodstock is its cost price.
Deﬁned in this Act: bloodstock, cost price Compare: 2004 No 35 s EC 44 EC 45 Residual value of bloodstock If the closing value of any bloodstock would be less than $1 in the absence of this section, the closing value is $1.
Deﬁned in this Act: bloodstock Compare: 2004 No 35 s EC 45 EC 46 Use of bloodstock for racing General treatment If in an income year a bloodstock owner uses bloodstock for racing, and they are in the business of breeding bloodstock for sale, the use of the bloodstock for racing is treated as use in the course of the business.
Bloodstock not used in business If bloodstock used in an income year for racing is not actually used in the course of a business of breeding bloodstock for (1) (2) 682 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EC 47 (3) (4) sale, the bloodstock owner may apply to the Commissioner to have the use of the bloodstock treated other than under sub- section (1).
Non-breeding bloodstock If a bloodstock owner expects that bloodstock will not be able to be used for future breeding, the use in an income year of the bloodstock for racing is not treated as use in the course of a business of breeding bloodstock for sale.

However, if the bloodstock owner uses the bloodstock in the course of their business of breeding bloodstock for sale, they may apply to the Commissioner to have the use of the bloodstock treated as use in the course of the business.
Application to Commissioner The application must be made in writing with the supporting information that the Commissioner requires within 1 month after the day on which the bloodstock is ﬁrst prepared for rac- ing by the bloodstock owner or the day on which it is ﬁrst raced by the bloodstock owner, whichever is earlier.
Deﬁned in this Act: bloodstock, business, Commissioner, income year Compare: 2004 No 35 s EC 46 EC 47 Change of use of bloodstock in course of business (1) (2) Use outside business If a bloodstock owner who is in the business of breeding blood- stock for sale starts to use bloodstock other than in the course of the business, they are treated as having disposed of the bloodstock.

The disposal is treated as having occurred at mar- ket value on the day on which they changed the use of the bloodstock.
Use in business If a bloodstock owner who is in the business of breeding blood- stock for sale has been using bloodstock for other purposes, and they start to use the bloodstock in the course of the busi- ness, the bloodstock is treated as having been bought by the bloodstock owner.

The purchase is treated as having occurred 683 Part E s EC 48 Income Tax Act 2007 Reprinted as at 5 January 2010 at market value on the day on which the bloodstock owner changed the use of the bloodstock.
Deﬁned in this Act: bloodstock, business Compare: 2004 No 35 s EC 47 EC 48 Replacement breeding stock When this section applies This section applies when— a bloodstock owner— (a) (i) (b) a bloodstock owner— (i) disposes of bloodstock (the breeding stock) that they had previously used for breeding in the course of a business of breeding bloodstock for sale; and buys replacement bloodstock (the replacement breeding stock) within the time limits set out in subsections (6) and (7); or receives a payment of insurance, indemnity, or compensation for the loss or death of, or perman- ent injury to, breeding stock that they had previ- ously used for breeding in the course of a busi- ness of breeding bloodstock for sale or that they had bought for use in the business; and buys replacement breeding stock within the time limits set out in subsections (6) and (7).
(ii) (ii) Amount determined The bloodstock owner may apply to the Commissioner to de- termine the amount that the bloodstock owner has applied in buying replacement breeding stock.

Maximum amount The amount must not be more than the net gain calculated using the formula— gross proceeds - value of breeding stock.
Deﬁnition of items in formula In the formula,— (a) gross proceeds is— (i) the amount of the proceeds of disposing of the breeding stock; or (1) (2) (3) (4) 684 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EC 48 (b) (ii) the amount paid by way of insurance, indemnity, or compensation for the breeding stock: value of breeding stock is the closing value of the breeding stock in the income year before the breeding stock was disposed of or was lost or died or was per- manently injured.
Reduction in income The bloodstock owner may reduce their income by the amount determined under subsection (2).

If they reduce their income in this way, they must also reduce the cost of the replacement breeding stock by the same amount.

Time limit Replacement breeding stock must be acquired within 6 months after the end of the income year in which the amount deter- mined under subsection (2) would otherwise be income or, if the Commissioner approves in a case or in a class of cases, a longer period.
Delay in replacing breeding stock In the case of lost, dead, or permanently injured breeding stock, the Commissioner may extend the time limit under subsection (6).

However, valid commercial reasons must exist for the delay in replacing the breeding stock and the replacement breeding stock must have been acquired before the end of the second income year following the income year in which the loss, death, or permanent injury occurred.
Application to Commissioner An application under subsection (2) must be made in writing within the relevant time limits described in subsections (6) and (7).

The application must relate only to replacement breeding stock bought before the application is made.
Deﬁned in this Act: amount, bloodstock, business, Commissioner, income, in- come year, pay Compare: 2004 No 35 s EC 48 (5) (6) (7) (8) 685 Part E s ED 1 Income Tax Act 2007 Reprinted as at 5 January 2010 Subpart ED—Valuation of excepted ﬁnancial arrangements ED 1 Valuation of excepted ﬁnancial arrangements (1) (2) (3) (4) (5) Valuation methods for excepted ﬁnancial arrangements A person who has revenue account property that is an excepted ﬁnancial arrangement must determine the value of the arrange- ment at the end of each income year at cost.
Valuation method for right to acquire share under share-lending arrangement Despite subsection (1), a share supplier’s share-lending right has the value at the end of each income year that is equal to the amount described in subsection (4).
Valuation method for share acquired by share supplier under share-lending arrangement Despite subsection (1), the original share or an identical share acquired by a share supplier from a share user under a share- lending arrangement has the value at the end of each income year that is equal to the amount described in subsection (4).
Amount For subsections (2) and (3), the amount is the value of the original share at cost, determined by applying this section to the share immediately before the share supplier’s disposal of the share under the relevant share-lending arrangement.

Cost-ﬂow methods The person must use 1 of the following cost-ﬂow methods to allocate costs: (a) (b) the ﬁrst-in ﬁrst-out cost method; or the weighted average cost method.
Certain emissions units not pooled with other types of emissions unit (5B) No emissions unit described in 1 of the following paragraphs may be pooled for the purposes of subsection (5) with an emis- sions unit described in another of the paragraphs: (a) pre-1990 forest land emissions units relating to pre- 1990 forest land, if the holder of the units would de- rive income, other than exempt income and excluded income, from a disposal of the land without timber: 686 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s ED 1 (b) (c) (d) (e) post-1989 forest land emissions units: replacement forest land emissions units: pre-1990 forest land emissions units relating to pre- 1990 forest land, if the holder of the units would de- rive no income other than exempt income and excluded income from a disposal of the land without timber: emissions units issued for no consideration— (i) (ii) to which section ED 1B applies; and that have not been assigned a cost under section ED 1B(3)(a).
Exceptions: types of emissions units pooled with other types (5C) Despite subsection (5B), emissions units described in para- graphs (a) to (c) of that subsection may be pooled for the pur- poses of subsection (5).

(6) (7) Persons complying with generally accepted accounting practice A person who complies with generally accepted accounting practice must comply with the consistency and disclosure re- quirements of NZIAS 8 or an equivalent standard issued in its place.
Other persons A person who does not comply with generally accepted ac- counting practice— (a) must be consistent from 1 income year to the next in their choice of 1 of the cost-ﬂow methods described in subsection (5); and (b) may change their cost-ﬂow method if— (i) (ii) the change is justiﬁed by sound commercial rea- sons and for this purpose, the advancement, de- ferral, or reduction of an income tax liability is not a sound commercial reason; or the change is required by another provision in this subpart; and (c) must keep sufﬁcient details of any such change, and the reasons for it, under section 22 of the Tax Administration Act 1994.
Valuation of emissions units issued for zero price (7B) Despite subsection (1),— 687 Part E s ED 1 Income Tax Act 2007 Reprinted as at 5 January 2010 (a) (b) (c) (d) an emissions unit transferred under section 64, or Part 4 subpart 2, of the Climate Change Response Act 2002 for no payment of a price has a value of zero during the period beginning with the day of the transfer and ending before the end of the income year in which the transfer occurs: a forest land emissions unit has a value of zero at the end of each income year: a replacement forest land emissions unit has a value of zero at the end of each income year: an emissions unit to which section ED 1B applies has the value at the end of each income year that is given by that section.
(8) Worthless arrangements If an excepted ﬁnancial arrangement has no present or likely future market value and has been written off as worthless, its closing value is zero.
Closing value for replacement ETS unit [Repealed] (8B) [Repealed] (b) Use of value The value determined under this section is— (a) the closing value of the excepted ﬁnancial arrangement for the purposes of section CH 1 (Adjustment for clos- ing values of trading stock, livestock, and excepted ﬁ- nancial arrangements); and the opening value of the excepted ﬁnancial arrangement for the next income year for the purposes of section DB 49 (Adjustment for opening values of trading stock, livestock, and excepted ﬁnancial arrangements).
Deﬁned in this Act: emissions unit, excepted ﬁnancial arrangement, excluded income, exempt income, forest land emissions unit, generally accepted account- ing practice, identical share, income tax liability, income year, NZIAS 8, ori- ginal share, post-1989 forest land emissions unit, pre-1990 forest land, pre-1990 forest land emissions unit, replacement forest land emissions unit, revenue ac- count property, share-lending arrangement, share-lending right, share supplier, share user Compare: 2004 No 35 s ED 1 Section ED 1(5B) heading: inserted (with effect on 1 January 2009), on 6 Oc- tober 2009, by section 115(1) of the Taxation (International Taxation, Life In- surance, and Remedial Matters) Act 2009 (2009 No 34).
(9) 688 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s ED 1 Section ED 1(5B): inserted (with effect on 1 January 2009), on 6 October 2009, by section 115(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section ED 1(5C) heading: inserted (with effect on 1 January 2009), on 6 Oc- tober 2009, by section 115(1) of the Taxation (International Taxation, Life In- surance, and Remedial Matters) Act 2009 (2009 No 34).
Section ED 1(5C): inserted (with effect on 1 January 2009), on 6 October 2009, by section 115(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section ED 1(6): amended, on 1 April 2008, by section 355(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section ED 1(7B) heading: inserted (with effect on 1 January 2009), on 6 Oc- tober 2009, by section 115(2) of the Taxation (International Taxation, Life In- surance, and Remedial Matters) Act 2009 (2009 No 34).

Section ED 1(7B): inserted (with effect on 1 January 2009), on 6 October 2009, by section 115(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section ED 1(8B) heading: repealed (with effect on 1 January 2009), on 6 Oc- tober 2009, pursuant to section 115(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section ED 1(8B): repealed (with effect on 1 January 2009), on 6 October 2009, by section 115(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section ED 1(8B) heading: inserted, on 26 September 2008, by section 73(1) of the Climate Change Response (Emissions Trading) Amendment Act 2008 (2008 No 85).

Section ED 1(8B): inserted, on 26 September 2008, by section 73(1) of the Climate Change Response (Emissions Trading) Amendment Act 2008 (2008 No 85).
Section ED 1 list of deﬁned terms emissions unit: inserted (with effect on 1 January 2009), on 6 October 2009, by section 115(4)(b) of the Taxation (Inter- national Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section ED 1 list of deﬁned terms excluded income: inserted (with effect on 1 January 2009), on 6 October 2009, by section 115(4)(b) of the Taxation (Inter- national Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section ED 1 list of deﬁned terms exempt income: inserted (with effect on 1 January 2009), on 6 October 2009, by section 115(4)(b) of the Taxation (Inter- national Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section ED 1 list of deﬁned terms forest land emissions unit: inserted (with effect on 1 January 2009), on 6 October 2009, by section 115(4)(b) of the Tax- ation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
689 Part E s ED 1B Income Tax Act 2007 Reprinted as at 5 January 2010 Section ED 1 list of deﬁned terms NZIAS 8: amended, on 1 April 2008, by section 355(2) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section ED 1 list of deﬁned terms post-1989 forest land emissions unit: in- serted (with effect on 1 January 2009), on 6 October 2009, by section 115(4)(b) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section ED 1 list of deﬁned terms pre-1990 forest land : inserted (with effect on 1 January 2009), on 6 October 2009, by section 115(4)(b) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section ED 1 list of deﬁned terms pre-1990 forest land emissions unit: in- serted (with effect on 1 January 2009), on 6 October 2009, by section 115(4)(b) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section ED 1 list of deﬁned terms replacement ETS unit: repealed (with effect on 1 January 2009), on 6 October 2009, by section 115(4)(a) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section ED 1 list of deﬁned terms replacement ETS unit: inserted, on 26 September 2008, by section 73(2) of the Climate Change Response (Emissions Trading) Amendment Act 2008 (2008 No 85).
Section ED 1 list of deﬁned terms replacement forest land emissions unit: in- serted (with effect on 1 January 2009), on 6 October 2009, by section 115(4)(b) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
ED 1B Valuation of emissions units issued for zero price What this section applies to This section applies to emissions units, held by a person at the end of an income year, that— (a) are transferred to the person under section 64, or Part 4 subpart 2, of the Climate Change Response Act 2002 for a price of zero; and are held continuously by the person to the end of the income year; and relate to a quantity (the unit-related quantity) of emis- sions, or emissions-related costs, of the person in a period (the emissions unit period) that ends in or after the income year; and are not forest land emissions units; and are not replacement forest land emissions units; and are not assigned a cost under subsection (3)(a) for an earlier income year.
(b) (c) (d) (e) (f) (1) 690 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s ED 1B (2) (3) (4) Value at end of income year The value under section ED 1(7B) of the emissions units at the end of the income year is— (a) zero, if the emissions unit period begins after the end of the income year; or the amount determined under subsection (3), if para- graph (a) does not apply and the emissions unit period ends after the end of the income year; or the market value of the emissions units at the end of the income year, if the emissions unit period ends in or at the end of the income year.
(b) (c) Value if emissions unit period ends after end of income year The value under section ED 1(7B) of the emissions units at the end of an income year referred to in subsection (2)(b) is,— (a) for the number of the emissions units given by subsec- tion (4), the market value of the emissions units at the end of the income year; or for the balance of the units, zero.
(b) Formula based on emissions The number of units referred to in subsection (3)(a) is the num- ber, treating negative numbers as equal to zero and ignoring fractions, calculated using the formula— held units – issued units × remaining quantity total quantity .

Deﬁnition of items in formula The items in the formula are deﬁned in subsections (6) to (9).
(5) Held units (6) Held units is the number of the issued units that have not been assigned a value under subsection (3)(a) for an earlier income year.

(7) Issued units Issued units is the number of emissions units transferred under section 64, or Part 4 subpart 2, of the Climate Change Response Act 2002 in relation to the unit-related quantity for the emissions unit period.
Remaining quantity Remaining quantity is— (8) 691 Part E s ED 2 Income Tax Act 2007 Reprinted as at 5 January 2010 (a) (b) if the total unit-related quantity for the person can be determined for each part of the emissions unit period included in an income year, the greater of the following amounts: (i) the part of the total expected unit-related quantity for the emissions unit period that was not emitted or incurred before the end of the income year: zero; or (ii) if paragraph (a) does not apply, the number of days in the emissions unit period after the end of the income year.
(9) Total quantity Total quantity is,— (a) if the total unit-related quantity for the person can be determined for each part of the emissions unit period included in an income year, the total unit-related quan- tity that was expected to be emitted or incurred for the emissions unit period; or if paragraph (a) does not apply, the number of days in the emissions unit period.
Deﬁned in this Act: emissions unit, income year (b) Section ED 1B: inserted (with effect on 1 January 2009), on 6 October 2009, by section 116 of the Taxation (International Taxation, Life Insurance, and Re- medial Matters) Act 2009 (2009 No 34).
ED 2 Transfers of certain excepted ﬁnancial arrangements within wholly-owned groups When this section applies This section applies when— (a) a company that is part of a wholly-owned group of com- panies (company A) transfers to another company in the same group (company B) an excepted ﬁnancial ar- rangement that is revenue account property of company A; and the transfer of the excepted ﬁnancial arrangement is not made under a share-lending arrangement; and both companies are resident in New Zealand on the date of the transfer; and (b) (c) (1) 692 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EE 1 (2) (3) (4) (d) the market value of the excepted ﬁnancial arrangement on the date of the transfer is less than its cost to company A.
Transfer at cost The consideration for the transfer is treated as being equal to the cost of the excepted ﬁnancial arrangement to company A.

Company stops being part of group If company B stops being part of the wholly-owned group, the company is treated as disposing of and reacquiring the ex- cepted ﬁnancial arrangement at its market value at the time the company stops being part of the group.
Not dividend A transfer of an excepted ﬁnancial arrangement to which this section applies does not give rise to a dividend.
Deﬁned in this Act: company, dividend, excepted ﬁnancial arrangement, resi- dent in New Zealand, revenue account property, wholly-owned group of com- panies Compare: 2004 No 35 s ED 2 Subpart EE—Depreciation Introductory provision EE 1 What this subpart does (1) (2) Quantifying amounts of depreciation loss and depreciation recovery income This subpart— (a) quantiﬁes the amount of depreciation loss for which a person is allowed a deduction if the provisions of Part D (Deductions) are met; and quantiﬁes the amount of depreciation recovery income that is income under Part C (Income).
(b) When amount of depreciation loss arises A person has an amount of depreciation loss for an item for an income year if— (a) the person owns an item of property, as described in sections EE 2 to EE 5; and the item is depreciable property, as described in sections EE 6 to EE 8; and (b) 693 Part E s EE 1 Income Tax Act 2007 Reprinted as at 5 January 2010 (c) (d) the item is used, or is available for use, by the person in the income year; and the amount of depreciation loss is calculated for the per- son, the item, and the income year under sections EE 9 to EE 11.
When amount of depreciation recovery income arises A person has an amount of depreciation recovery income for an item for an income year if— (a) the person owns an item of property, as described in sections EE 2 to EE 5; and the item is depreciable property, as described in sections EE 6 to EE 8; and the item is disposed of or an event of a kind described in section EE 38 occurs; and the amount of depreciation recovery income is calcu- lated for the person, the item, and the income year under any of sections EE 22(5), EE 38(5), EE 48(1), EE 49(2), EE 51(3), and EE 52(3).
(b) (c) (d) Amounts of loss incurred and income derived To avoid doubt,— (a) an amount of depreciation loss is treated as being in- curred in the income year for which it is calculated; and an amount of depreciation recovery income is treated as being derived in the income year for which it is calcu- lated.
(b) Allocation of deduction for depreciation loss A person who in an income year uses an item for research or development or for market development that gives rise to a deduction allocated under section EJ 22 (Deductions for mar- ket development: product of research, development), and as a result has an amount of depreciation loss for the item for the income year, may choose to allocate all or part of the deduc- tion for the depreciation loss— (a) to an income year after the income year for which the person has the depreciation loss; and in the way required by section EJ 23 (Allocation of de- ductions for research, development, and resulting mar- ket development).
(b) (3) (4) (5) 694 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EE 3 (6) Partial income-producing use Subpart DE (Motor vehicle expenditure) and section EE 50 contain rules for calculating the amount of deduction avail- able for depreciation loss in circumstances in which an item of property is only partly used or available for use in a way that satisﬁes the general permission.
Deﬁned in this Act: amount, deduction, depreciable property, depreciation loss, depreciation recovery income, development, dispose, general permission, in- come, income year, own, property, research Compare: 2004 No 35 s EE 1 EE 2 Nature of ownership of item Meaning of own (1) Kinds of ownership Own, for the ownership of depreciable property,— (a) means legal or equitable ownership; and (b) includes ownership of the kinds described in sections EE 3 to EE 51.
Shared ownership (2) When more than 1 person owns an item of depreciable prop- erty, own means the interest that the person has in the item.
Deﬁned in this Act: depreciable property, own Compare: 2004 No 35 s EE 2 EE 3 Ownership of goods subject to reservation of title (1) When this section applies This section applies when— (a) a person (the buyer) enters into an unconditional con- tract to buy an item of depreciable property; and the contract is not a hire purchase agreement and the item is not a hire purchase asset that is the subject of a hire purchase agreement; and the contract is subject to the Sale of Goods Act 1908; and title to the item does not pass until the purchase price is paid in full; and the buyer takes possession of the item before title to it passes.
(b) (c) (d) (e) 695 Part E s EE 4 Income Tax Act 2007 Reprinted as at 5 January 2010 (2) (3) Buyer treated as owner The buyer is treated as owning, and the seller is treated as not owning, the item from the later of the following times: (a) (b) the time at which the buyer enters into the contract; and the time at which the buyer takes possession of the item.
Buyer ceases to be treated as owner Subsection (2) ceases to apply when 1 of the following occurs: (a) (b) Deﬁned in this Act: depreciable property, hire purchase agreement, hire pur- chase asset, own Compare: 2004 No 35 s EE 3 title to the item passes to the buyer; or the seller repossesses the item.
EE 4 Ownership of lessee’s improvements: lessee When this section applies This section applies when— (a) a lessee of land incurs expenditure during the period during which the land is leased to the lessee in erecting a ﬁxture on the land or making an improvement to the land; and the lessor owns the ﬁxture or improvement.
(b) Ownership of ﬁxture or improvement The following apply to the ownership of the ﬁxture or im- provement: (a) in the period during which the land is leased to the lessee,— (i) (ii) (iii) the lessee is treated as owning the ﬁxture or im- provement; and the lessor is treated as not owning the ﬁxture or improvement; and a person to whom the lessor disposes of the land during the period is treated as not owning the ﬁxture or improvement; and (b) after the period during which the land is leased to the lessee,— (i) the lessor is treated as not owning the ﬁxture or improvement, unless the lessor incurs a cost re- lating to it at the end of the period; and (1) (2) 696 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EE 5 (ii) a person to whom the lessor disposes of the land during the period is treated as not owning the ﬁxture or improvement.
Deﬁned in this Act: improvement, lessee, lessor, own Compare: 2004 No 35 s EE 4 EE 5 Ownership of lessee’s improvements: other person (1) (2) (3) (b) (c) (d) (b) (c) When this section applies: ﬁrst case This section applies when— (a) a lessee of land incurs expenditure during the term of the lease in erecting a ﬁxture on the land or making an improvement to the land; and the lessee has been allowed a deduction for an amount of depreciation loss for the ﬁxture or improvement; and the lessee disposes of their interest in the lease to an- other person; and the other person pays the lessee for the ﬁxture or im- provement.
When this section applies: second case This section also applies when— (a) a lessee of land has been allowed a deduction for an amount of depreciation loss for a ﬁxture on the land, or an improvement to the land, that a previous lessee erected or made; and the lessee disposes of their interest in the lease to an- other person; and the other person pays the lessee for the ﬁxture or im- provement.
Other person treated as owner The other person is treated as owning the ﬁxture or improve- ment from the time at which they pay the lessee for it.

Deﬁned in this Act: amount, deduction, depreciation loss, dispose, improve- ment, lease, lessee, own, pay, term of the lease Compare: 2004 No 35 s EE 5 697 Part E s EE 6 Income Tax Act 2007 Reprinted as at 5 January 2010 Meaning of depreciable property EE 6 What is depreciable property?
(1) (2) (3) (4) Description Depreciable property is property that, in normal circum- stances, might reasonably be expected to decline in value while it is used or available for use— (a) (b) in deriving assessable income; or in carrying on a business for the purpose of deriving assessable income.

Subsections (2) to (4) expand on this subsection.

Property: tangible An item of tangible property is depreciable property if— (a) (b) it is described by subsection (1); and it is not described by section EE 7.
Property: intangible An item of intangible property is depreciable property if— (a) it is within the deﬁnition of depreciable intangible property; and it is described by subsection (1); and it is not described by section EE 7.
(b) (c) Property: geothermal wells For the purposes of this subpart, a person who owns a geother- mal well is, for the geothermal energy proving period, treated as acquiring the well as property that declines in value and is to be available for use in carrying on a business for the purpose of deriving assessable income.
Deﬁned in this Act: acquire, assessable income, business, depreciable in- tangible property, depreciable property, geothermal energy proving period, geothermal well, property Compare: 2004 No 35 s EE 6 EE 7 What is not depreciable property?
The following property is not depreciable property: (a) land, although buildings, ﬁxtures, and the improve- ments listed in schedule 13 (Depreciable land improve- ments) are depreciable property if they are described by section EE 6(1): trading stock: (b) 698 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EE 8 (c) (g) (d) (e) (f) livestock to which subpart EB (Valuation of trading stock (including dealer’s livestock)) applies: ﬁnancial arrangements: excepted ﬁnancial arrangements: property that will not decline in value, as far as its owner is concerned, because, when they dispose of it, they have a right to be compensated for any decline in its value: property that its owner chooses, under section EE 8, to treat as not depreciable: property that its owner chooses, under section EE 38, to deal with under that section: property for whose cost a person other than the prop- erty’s owner is allowed a deduction: property for whose cost a person is allowed a deduc- tion under a provision of this Act outside this subpart or under a provision of an earlier Act, except for an asset to which section DU 6(4) (Depreciation) applies.
Deﬁned in this Act: deduction, depreciable property, dispose, excepted ﬁnan- cial arrangement, ﬁnancial arrangement, own, property, trading stock Compare: 2004 No 35 s EE 7 (h) (j) (i) EE 8 Election that property not be depreciable (1) (2) Item acquired A person may choose that an item of property they acquire not be depreciable property even though, in the absence of the election, it would be depreciable property.
Item changing use A person may choose that an item of property they own ceases to be depreciable property if— (a) (b) the use of the item changes; and before the use changes, the person was denied a deduc- tion for an amount of depreciation loss for the item; and after the use changes, in the absence of the election, the person would have been allowed a deduction for an amount of depreciation loss for the item.
(c) (3) Retrospective election A person who has deducted none of the amounts of depreci- ation loss for which they were allowed a deduction for an item 699 Part E s EE 8 Income Tax Act 2007 Reprinted as at 5 January 2010 of property, in the income year in which they acquired it and in each later year, may retrospectively choose that the item not be depreciable property.
How elections made An election under this section is made as follows: (a) a person makes an election under subsection (1) by giv- ing the Commissioner notice of it in their return of in- come for the income year in which they acquire the item; and a person makes an election under subsection (2) by giv- ing the Commissioner notice of it in their return of income for the income year in which the item’s use changes; and a person makes an election under subsection (3) by giv- ing the Commissioner notice of it in their return of in- come for any income year after they acquire the item, including an income year after they dispose of the item.
(b) (c) Effect of election An election under this section has effect for the person for— the income year for which they make the election; and (a) all later income years until— (b) (i) the item is disposed of, although this reference to disposal does not include the disposal of an item of intangible property as part of an arrangement to replace it with an item of the same kind; or an event described in section EE 47 occurs in- volving the item.
(ii) Retrospective effect of election An election made under subsection (3) also has retrospective effect for the person for— (a) (b) the income year in which they acquire the property; and all intervening income years until the year in which they make the election.
Deﬁned in this Act: acquire, amount, Commissioner, deduction, depreciable property, depreciation loss, dispose, income year, notice, property, return of income Compare: 2004 No 35 s EE 8 (4) (5) (6) 700 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EE 9 How amounts of depreciation loss and depreciation recovery income are calculated EE 9 Description of elements of calculation (1) (2) (3) (4) (5) (6) Depreciation methods Sections EE 12 to EE 24 deal with the methods of calculating an amount of depreciation loss.
The methods are— (a) the straight-line method, which is dealt with in sections EE 13 to EE 19; and the diminishing value method, which is also dealt with in sections EE 13 to EE 19; and the pool method, which is dealt with in sections EE 20 to EE 24.

(b) (c) Depreciation rates Sections EE 26 to EE 36 deal with the rates of depreciation.
The rates are— (a) the economic rate, which is dealt with in section EE 26; and the annual rate, which is dealt with in sections EE 31, EE 33, and EE 34; and a special rate or a provisional rate, both of which are dealt with in sections EE 35 and EE 36.
(b) (c) Improvements, low value items, and items no longer used Sections EE 37 to EE 39 deal with the cases of— (a) an improvement made to an item of depreciable prop- erty; and an item of depreciable property that is of low value; and an item of depreciable property that is no longer used.

(b) (c) Transfers Sections EE 40 to EE 43 deal with the transfer of items of depreciable property in certain amalgamations and between associated persons.
Disposals and similar events Sections EE 44 to EE 52 deal with disposals of property and events that involve property and are similar to disposal.
Interpretation provisions Sections EE 54 to EE 67 deal with the following interpretation matters: 701 Part E s EE 10 Income Tax Act 2007 Reprinted as at 5 January 2010 (a) (b) (c) section EE 54 deals with the effect of goods and ser- vices tax (GST) on cost; and sections EE 55 to EE 60 deal with the meaning of ad- justed tax value; and sections EE 61 to EE 67 contain deﬁnitions.
Relationship with sections EZ 9 to EZ 28 Sections EZ 9 to EZ 28 (which relate to depreciation) deal with items acquired in periods before 24 September 1997.
Deﬁned in this Act: adjusted tax value, amount, annual rate, associated person, depreciable property, depreciation loss, depreciation method, diminishing value method, dispose, economic rate, GST, improvement, pool method, property, provisional rate, special rate, straight-line method Compare: 2004 No 35 s EE 9 (7) EE 10 Calculation rule: item temporarily not available An item of depreciable property is treated as being available for use while subject temporarily to repair or inspection, if it was used or available for use immediately before going for repair or inspection.
Deﬁned in this Act: depreciable property Compare: 2004 No 35 s EE 10 EE 11 Calculation rule: income year in which item disposed of Generally no amount of depreciation loss A person does not have an amount of depreciation loss for an item of depreciable property for the income year in which they dispose of it.
Exclusion: building or petroleum-related depreciable property A person has an amount of depreciation loss for an item of depreciable property for the income year in which they dispose of it, if it is— (a) (b) a building; or an item of petroleum-related depreciable property.

Exclusion: empty pool A person has the amount of depreciation loss calculated under section EE 22(4)(a) for an income year for a disposal to which the subsection applies.
(1) (2) (3) 702 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EE 12 (4) (5) (6) Exclusion: consideration less than adjusted tax value A person has the amount of depreciation loss calculated under section EE 48(2) for a disposal or event to which the subsec- tion applies.

Exclusion: item partly used for business A person has the amount of depreciation loss calculated under section EE 50(6) for a disposal or event to which the subsec- tion applies.
Exclusion: recent acquisition of item partly used for business A person has the amount of depreciation loss calculated under section EE 50(9) for a disposal or event to which the subsec- tion applies.
Deﬁned in this Act: adjusted tax value, amount, business, depreciable property, depreciation loss, dispose, income year, petroleum-related depreciable property Compare: 2004 No 35 s EE 11 EE 12 Depreciation methods Methods (1) (2) Meaning of depreciation method Depreciation method means— (a) a method that a person may use to calculate an amount of depreciation loss: a rate determined by the Commissioner under section 91AAF or 91AAG of the Tax Administration Act 1994: a maximum pooling value determined by the Commis- sioner under section 91AAL of that Act.
(b) (c) Methods described The depreciation methods are— (a) the diminishing value method, which— (i) may be used for any item of depreciable property except one referred to in subparagraph (ii) or (iii); and (ii) must not be used for an item of ﬁxed life intan- gible property; and (iii) must not be used for an item of property in the circumstances described in section EZ 9 (Pool method for items accounted for by globo method for 1992–93 income year): 703 Part E s EE 12 Income Tax Act 2007 Reprinted as at 5 January 2010 (b) (c) the straight-line method, which— (i) may be used for any item of depreciable property; and (ii) must be used for an item of ﬁxed life intangible property: the pool method, which— (i) may be used for any item of poolable property except one referred to in subparagraph (ii); and (ii) must not be used for an item of ﬁxed life intan- gible property; and (iii) must be used for an item of property in the cir- cumstances described in section EZ 9.
Person chooses A person chooses which of the depreciation methods they will use for each item of depreciable property they own.

How person chooses The person chooses the method by using the chosen method for the item in their return of income for the income year for which they make the election.
Diminishing value or straight-line method ﬁxed for income year If the person chooses the diminishing value method or the straight-line method, they must use the method for the item and the income year and must not change the election for the income year.
Pool method ﬁxed for income year and later income years If the person chooses the pool method, they must use the method for the item and the income year and must not change the election for— (a) (b) the income year; or a later income year in which the item is still poolable property that they own.
Deﬁned in this Act: amount, depreciable property, depreciation loss, depre- ciation method, diminishing value method, ﬁxed life intangible property, in- come year, own, pool method, poolable property, property, return of income, straight-line method Compare: 2004 No 35 s EE 12 (3) (4) (5) (6) 704 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EE 15 Amount of depreciation loss under diminishing value method or straight-line method EE 13 Application of sections EE 14 to EE 19 Sections EE 14 to EE 19 apply to the calculation of the amount of depreciation loss that a person using the diminishing value method or the straight-line method has.
Deﬁned in this Act: amount, depreciation loss, diminishing value method, straight-line method Compare: 2004 No 35 s EE 13 EE 14 Diminishing value or straight-line method: calculating amount of depreciation loss (1) (2) Most depreciable property The amount of depreciation loss that the person has for an income year for an item of depreciable property is the lesser of the amounts dealt with in sections EE 15 and EE 16.
Exclusion: petroleum-related depreciable property The amount of depreciation loss that the person has for an in- come year for an item of petroleum-related depreciable prop- erty is the lesser of the amounts dealt with in sections EE 15 and EE 17.
Deﬁned in this Act: amount, depreciable property, depreciation loss, income year, petroleum-related depreciable property Compare: 2004 No 35 s EE 14 EE 15 Amount of adjusted tax value For the purposes of the comparison of amounts required by section EE 14(1) and (2), the amount dealt with in this section is the item’s adjusted tax value at the end of the income year before the deduction of an amount of depreciation loss for the item for the income year.
Deﬁned in this Act: adjusted tax value, amount, deduction, depreciation loss, income year Compare: 2004 No 35 s EE 15 705 Part E s EE 16 Income Tax Act 2007 Reprinted as at 5 January 2010 EE 16 Amount resulting from standard calculation (1) (2) (3) (4) Amount For the purposes of the comparison of amounts required by section EE 14(1), the amount dealt with in this section is cal- culated using the formula— Deﬁnition of items in formula The items in the formula are deﬁned in subsections (3) to (5).
Annual rate Annual rate is the annual rate that, in the income year, ap- plies to the item of depreciable property under the depreciation method that the person uses for the item.

It is expressed as a decimal.
Value or cost Value or cost is,— (a) (b) when the person uses the diminishing value method, the item’s adjusted tax value at the end of the income year before the deduction of an amount of depreciation loss for the item for the income year: when the person uses the straight-line method,— (i) for a patent or plant variety rights in relation to which the person has been allowed a deduction for an amount of depreciation loss for the relevant application, the item’s adjusted tax value at the start of the month in which the person acquires it: for other items, its cost to the person excluding expenditure for which the person is allowed a deduction under a provision of this Act outside this subpart: (ii) (c) for the purposes of paragraph (b), variations to cost are in sections EE 18 and EE 19.
Months: income year of normal length or shorter (5) Months, for a person whose income year contains 365 days or fewer, or 366 days or fewer in a leap year, is the lesser of the following: 706 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EE 17 (a) (b) 12; and the number of whole or part calendar months in the in- come year in which— (i) (ii) the person owns the item; and the person uses the item or has it available for use for any purpose.
Months: income year of longer than normal length (6) Months, for a person whose income year contains more than 365 days, or more than 366 days in a leap year, is the number of whole or part months in the income year in which— (a) (b) the person owns the item; and the person uses the item or has it available for use for any purpose.

(7) Months: patent applications For the purposes of subsections (5) and (6), for a patent ap- plication, months refers to whole calendar months and whole months, as applicable.
Deﬁned in this Act: adjusted tax value, amount, annual rate, deduction, de- preciable property, depreciation loss, depreciation method, diminishing value method, income year, own, plant variety rights, straight-line method Compare: 2004 No 35 s EE 16 EE 17 Amount resulting from petroleum-related depreciable property calculation (1) (2) (3) Amount For the purposes of the comparison of amounts required by section EE 14(2), the amount dealt with in this section is cal- culated using the formula— Deﬁnition of items in formula The items in the formula are deﬁned in subsections (3) to (5).
Annual rate Annual rate is the annual rate that, in the income year, ap- plies to the item of depreciable property under the depreciation method that the person uses for the item.

It is expressed as a decimal.


707 Part E s EE 18 Income Tax Act 2007 Reprinted as at 5 January 2010 (4) (5) Value or cost Value or cost is,— (a) when the person uses the diminishing value method, the item’s adjusted tax value at the end of the income year before the deduction of an amount of depreciation loss for the item for the income year: when the person uses the straight-line method, the item’s cost to the person; a variation to cost is in section EE 18.
(b) Days Days is the number of whole or part days in the income year on which— (a) (b) the person owns the item; and the person uses the item or has it available for use for any purpose.
Deﬁned in this Act: adjusted tax value, amount, annual rate, deduction, de- preciable property, depreciation loss, depreciation method, diminishing value method, income year, own, straight-line method Compare: 2004 No 35 s EE 17 EE 18 Cost: change from diminishing value to straight-line method (1) (2) When this section applies This section applies when a person changes from the dimin- ishing value method to the straight-line method for an item of property for an income year.
How straight-line method applies For the purposes of the formulas in sections EE 16 and EE 17, the item’s cost is treated as being the item’s adjusted tax value at the end of the income year before the deduction of an amount of depreciation loss for the item for the income year.
Deﬁned in this Act: adjusted tax value, amount, deduction, depreciation loss, diminishing value method, income year, property, straight-line method Compare: 2004 No 35 s EE 18 EE 19 Cost: ﬁxed life intangible property When this section applies This section applies when— (1) 708 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EE 21 (a) (b) (c) a person owns an item of ﬁxed life intangible property; and the person incurs additional costs in an income year for the item; and the person is denied a deduction for the additional costs other than a deduction for an amount of depreciation loss.
(2) Additional costs for ﬁxed life intangible property For the purposes of the formula in section EE 16, the item’s cost at the start of the income year is treated as being the total of— (a) the item’s adjusted tax value at the start of the income year; and the additional costs the person incurs.
(b) Deﬁned in this Act: adjusted tax value, amount, deduction, depreciation loss, ﬁxed life intangible property, income year, own Compare: 2004 No 35 s EE 19 Amount of depreciation loss under pool method EE 20 Application of sections EE 21 to EE 24 Sections EE 21 to EE 24 apply to the calculation of the amount of depreciation loss that a person using the pool method has.
Deﬁned in this Act: amount, depreciation loss, pool method Compare: 2004 No 35 s EE 20 EE 21 Pool method: calculating amount of depreciation loss (1) (2) Amount of depreciation loss subtracted from pool’s value The amount of depreciation loss that a person has for an in- come year for a pool of depreciable property is— (a) (b) ﬁrst, calculated under subsection (2); and second, subtracted from the pool’s adjusted tax value at the end of the income year.
Amount The amount of depreciation loss is calculated using the for- mula— 709 Part E s EE 21 Income Tax Act 2007 Reprinted as at 5 January 2010 (3) (4) (5) (6) Deﬁnition of items in formula The items in the formula are deﬁned in subsections (4) to (8).

(b) Rate Rate is the diminishing value rate.


It is 1 of the following: (a) if the same rate applies to all items depreciated in the pool in the income year, that rate; or if different rates apply to items depreciated in the pool in the income year,— (i) the lower of the rates, if there are 2 items in the pool; or the lowest of the rates, if there are 3 or more items in the pool.
(ii) Starting adjusted tax value Starting adjusted tax value is— (a) the pool’s adjusted tax value at the start of the income year, increased as applicable by the amount referred to in section EE 22(2)(b); or zero, if the pool did not exist at the start of the income year.

(b) Ending adjusted tax value Ending adjusted tax value is the pool’s adjusted tax value at the end of the income year before the deduction of an amount of depreciation loss for the pool for the income year.
The value is, as applicable,— (a) increased by the amounts referred to in section EE 22(1) and (2)(a): decreased by the amount referred to in section EE 22(3).

(b) Months (7) Months, for a person, is the number of whole or part months in their income year, and the number may be more or less than 12.
Months: income year of longer than normal length 710 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EE 22 (8) [Repealed] [Repealed] Deﬁned in this Act: adjusted tax value, amount, deduction, depreciable prop- erty, depreciation loss, diminishing value rate, income year, own, pool Compare: 2004 No 35 s EE 21 Section EE 21(5) heading: substituted (with effect on 1 April 2008), on 6 Oc- tober 2009, by section 117(1) of the Taxation (International Taxation, Life In- surance, and Remedial Matters) Act 2009 (2009 No 34).
Section EE 21(5): substituted (with effect on 1 April 2008), on 6 October 2009, by section 117(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section EE 21(6) heading: substituted (with effect on 1 April 2008), on 6 Oc- tober 2009, by section 117(1) of the Taxation (International Taxation, Life In- surance, and Remedial Matters) Act 2009 (2009 No 34).
Section EE 21(6): substituted (with effect on 1 April 2008), on 6 October 2009, by section 117(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section EE 21(7) heading: substituted (with effect on 1 April 2008), on 6 Oc- tober 2009, by section 117(1) of the Taxation (International Taxation, Life In- surance, and Remedial Matters) Act 2009 (2009 No 34).
Section EE 21(7): substituted (with effect on 1 April 2008), on 6 October 2009, by section 117(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section EE 21(8) heading: repealed (with effect on 1 April 2008), on 6 October 2009, by section 117(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EE 21(8): repealed (with effect on 1 April 2008), on 6 October 2009, by section 117(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

EE 22 Cases affecting pool (1) (2) Acquired item included If a person chooses in an income year to include in a pool an item of poolable property that they acquire in the income year, the pool’s adjusted tax value is increased by the item’s cost.
Separately depreciated item included If a person chooses in an income year to include in a pool an item of poolable property that they depreciated separately in the previous income year,— (a) the pool’s adjusted tax value is increased by the item’s adjusted tax value on the date it is included in the pool; and 711 Part E s EE 22 Income Tax Act 2007 Reprinted as at 5 January 2010 (b) the item’s adjusted tax value at the end of the previous income year is included in starting adjusted tax value in section EE 21(5).
Item disposed of If a person disposes of an item included in a pool, any con- sideration they derive from the disposal is subtracted from the adjusted tax value of the pool in which the item was included on the date of the disposal.
All items disposed of If, on the last day of an income year, the adjusted tax value of a person’s pool is positive but the person has disposed of all items that were in the pool,— (a) the amount of depreciation loss that the person has for the pool for the income year is the pool’s adjusted tax value; and on the ﬁrst day of the following income year, the pool’s adjusted tax value is zero.
(b) Negative adjusted tax value If, on the last day of an income year, the adjusted tax value of a person’s pool is negative,— (a) the amount by which the adjusted tax value is negative is an amount of depreciation recovery income of the person derived in the income year; and on the ﬁrst day of the following income year the pool’s adjusted tax value is zero.
(b) Relationship with section EZ 10 Section EZ 10 (Pool items accounted for by globo method for 1992–93 income year) limits the amount of income arising under subsection (5)(a) in the circumstances described in the section.
Deﬁned in this Act: acquire, adjusted tax value, amount, depreciation loss, de- preciation recovery income, dispose, income, income year, pool, poolable prop- erty Compare: 2004 No 35 s EE 22 (3) (4) (5) (6) 712 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EE 25 EE 23 Combined pools (1) Combining pools allowed A person using the pool method may at any time combine any number of pools to form a single pool.
Consequences (2) When a person combines pools,— (a) (b) the new pool’s adjusted tax value is the same as the sum of the adjusted tax values of the constituent pools; and the adjusted tax value of each of the constituent pools at the end of the income year in which the pools are combined is zero; and each of the constituent pools ceases to exist.
(c) Deﬁned in this Act: adjusted tax value, income year, pool, pool method Compare: 2004 No 35 s EE 23 EE 24 Property ceasing to qualify for pool If a person starts using an item of property included in a pool in such a way as to cause the item to cease to meet the require- ments of section EE 66(4), they must account for it as if, on the day they ﬁrst used it in that way,— (a) (b) Deﬁned in this Act: acquire, dispose, pool, property Compare: 2004 No 35 s EE 24 they disposed of it for its market value; and they immediately reacquired it for its market value.
EE 25 Depreciation loss for plant variety rights application granted in 2005–06 or later income year (1) When this section applies This section applies when— (a) plant variety rights are granted to a person in their 2005–06 income year or a later income year; and the rights are granted in relation to a plant variety rights application owned by the person; and a deduction for expenditure is denied under another pro- vision.
(b) (c) (2) Calculation of deduction For the income year in which the plant variety rights are granted, the person is allowed a deduction for expenditure on 713 Part E s EE 26 Income Tax Act 2007 Reprinted as at 5 January 2010 the plant variety rights application of an amount calculated using the formula— (3) Deﬁnition of items in formula In the formula,— (a) (b) (c) cost is the cost to the person of the plant variety rights application: months of ownership is the number of whole calen- dar months for which the person owns the plant variety rights application: depreciation months is the total of the number of months of ownership under paragraph (b) and the num- ber of months in the term for which the plant variety rights are granted in relation to the plant variety rights application.
Deﬁned in this Act: amount, deduction, depreciation, income year, plant variety rights Compare: 2004 No 35 s EE 24B Depreciation rates EE 26 Setting of economic depreciation rate Relevant provisions The economic depreciation rate that applies to a kind of item of depreciable property is set under— section EE 27, for items that— (a) (i) are not buildings, ﬁxed life intangible property, excluded depreciable property, or property for which an economic rate is set under section EE 29 or EE 30; and (ii) are acquired on or after 1 April 2005: section EE 28, for items that are buildings and— are acquired on or after 19 May 2005; and (i) do not have an economic depreciation rate set (ii) under section EZ 23 (Economic rate for plant or equipment acquired before 1 April 2005 and buildings acquired before 19 May 2005): (b) (1) 714 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EE 27 (c) (d) (e) section EE 29, for certain aircraft and motor vehicles acquired on or after 1 April 2005: section EE 30, for items that— (i) have an estimated residual market value greater than 13.5% of cost: (ii) would, in the absence of section EE 30, have an economic depreciation rate set under section EE 27 or EE 28: section EZ 23 for items that— (i) are not buildings, ﬁxed life intangible property, or excluded depreciable property and are ac- quired before 1 April 2005: are buildings acquired before 19 May 2005: are buildings acquired on or after 19 May 2005, as relationship property or from a company in the same wholly-owned
 group of companies, from a person who applied to the item an economic depreciation rate set under section EZ 23 or a corresponding provision.
(ii) (iii) (2) (3) No rate for ﬁxed life intangible property or excluded depreciable property An economic depreciation rate must not be set for a kind of item of depreciable property that is ﬁxed life intangible prop- erty or excluded depreciable property.

Overriding effect of election under section EE 32 Subsection (1)(a), (c), and (d) are overridden by section EE 32.
Deﬁned in this Act: depreciable property, economic rate, estimated residual market value, excluded depreciable property, ﬁxed life intangible property Compare: 2004 No 35 s EE 25 EE 27 Economic rate for certain depreciable property (1) What this section is about This section is about setting the economic depreciation rate that applies to a kind of item of depreciable property.
715 Part E s EE 27 Income Tax Act 2007 Reprinted as at 5 January 2010 (2) (3) (4) Exclusion This section does not apply to buildings, ﬁxed life intangible property, excluded depreciable property, or property for which an economic rate is set under section EE 29 or EE 30.

Rate set by Commissioner The Commissioner sets the rate from time to time by— (a) (b) following the procedure set out in this section; and issuing a determination under section 91AAF of the Tax Administration Act 1994.
(b) (c) Procedure for setting economic rate To set the diminishing value rate for a kind of item of depre- ciable property, the Commissioner— (a) obtains a ﬁgure by applying the formula in subsection (5) to items of that kind; and rounds the ﬁgure up or down to the nearest rate speciﬁed in schedule 11, column 1 (New banded rates of depre- ciation); and sets the same rate for some or all of the kinds of items of depreciable property that are similar to one another, if the Commissioner thinks it is appropriate to do so having regard to— (i) (ii) the rate calculated for each kind; and the reduction in compliance costs that is likely to be achieved.
Formula The formula is— (5) Deﬁnition of item in formula In the formula, estimated useful life is the estimated useful life of the item expressed in years.
Deﬁned in this Act: Commissioner, depreciable property, diminishing value rate, economic rate, estimated useful life, excluded depreciable property, ﬁxed life intangible property Compare: 2004 No 35 s EE 25B (6) 716 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EE 28 EE 28 Economic rate for buildings (1) (2) (3) What this section is about This section is about setting the economic depreciation rate that applies to a kind of item of depreciable property that is a building and for which an economic rate is not set under section EE 30 or EZ 23 (Economic rate for plant or equipment acquired before 1 April 2005 and buildings acquired before 19 May 2005).
Rate set by Commissioner The Commissioner sets the rate from time to time by— (a) (b) following the procedure set out in this section; and issuing a determination under section 91AAF of the Tax Administration Act 1994.
Procedure for setting economic rate To set the straight-line rate for a kind of item of depreciable property, the Commissioner— (a) gets a ﬁgure by applying the formula in subsection (4) to items of that kind; and rounds the ﬁgure up or down to the nearest rate speciﬁed in schedule 11, column 4 (New banded rates of depre- ciation); and sets the same rate for some or all of the kinds of build- ings that are similar to one another, if the Commissioner thinks it is appropriate to do so having regard to— the rate calculated for each kind; and (i) the reduction in compliance costs that is likely to (ii) be achieved.
(b) (c) Formula The formula is— (4) (5) (6) Deﬁnition of item in formula In the formula, estimated useful life is the estimated useful life of the item expressed in years.

Contracts existing at 19 May 2005 Despite subsection (1), a person who before 19 May 2005 en- ters into a binding contract for the purchase or construction of 717 Part E s EE 29 Income Tax Act 2007 Reprinted as at 5 January 2010 a building must apply to the building the economic rate for the kind of the building determined under EZ 23.
Deﬁned in this Act: Commissioner, depreciable property, diminishing value rate, economic rate, estimated useful life, excluded depreciable property, ﬁxed life intangible property Compare: 2004 No 35 s EE 25C EE 29 Economic rate for certain aircraft and motor vehicles (1) (2) (3) What this section does This section gives the economic depreciation rate for certain aircraft and motor vehicles.
Rate for certain aircraft The economic rate for an aircraft is a diminishing value rate of 10% or a straight-line rate of 7% if the aircraft— (a) (b) (c) (d) (e) is self-propelled; and has ﬁxed wings; and is not an international aircraft; and is not used for top-dressing or spraying; and is not a helicopter.
Rate for certain motor vehicles The economic rate for a motor vehicle that is designed exclu- sively or mainly to carry persons and has seats for no more than 12 persons is a diminishing value rate of 30% or a straight-line rate of 21% if the motor vehicle— is not available for hire: (a) is available for hire for a hire period of more than 1 (b) month: is a taxi: is a minibus.
(c) (d) Deﬁned in this Act: diminishing value rate, economic rate, international air- craft, minibus, straight-line rate Compare: 2004 No 35 s EE 25D EE 30 Economic rate for plant, equipment, or building, with high residual value What this section is about This section is about setting the economic depreciation rate that applies to items of a kind of depreciable property if— (1) 718 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EE 30 (2) (3) (a) (b) (c) the kind of depreciable property is not ﬁxed life in- tangible property, or excluded depreciable property, for which an economic rate cannot be set; and the estimated residual market value for the item is more than 13.5% of cost; and the items are— (i) plant or equipment acquired on or after 1 April 2005: buildings acquired on or after 19 May 2005.
(ii) Rate set by Commissioner The Commissioner sets the rate from time to time by— (a) (b) following the procedure set out in this section; and issuing a determination under section 91AAF of the Tax Administration Act 1994.
(b) (c) Procedure for setting economic rate To set the diminishing value rate for a kind of item of depre- ciable property, the Commissioner— (a) obtains a ﬁgure by applying the formula in subsection (4) to items of that kind; and rounds the ﬁgure up or down to the nearest rate speciﬁed in schedule 12, column 1 (Old banded rates of depreci- ation); and sets the same rate for some or all of the kinds of items of depreciable property that are similar to one another, if the Commissioner thinks it is appropriate to do so having regard to— (i) (ii) the rate calculated for each kind; and the reduction in compliance costs that is likely to be achieved.
Formula The formula is— (4) (5) Deﬁnition of items in formula In the formula,— (a) residual value is the greater of— 719 Part E s EE 31 Income Tax Act 2007 Reprinted as at 5 January 2010 (i) (b) estimated residual market value, which is deﬁned in section EE 67: 13.5% of cost: (ii) cost is the cost of items of the kind to which the formula is applied: estimated useful life is deﬁned in section EE 63.
(c) Deﬁned in this Act: Commissioner, depreciable property, diminishing value rate, economic rate, estimated residual market value, estimated useful life, ex- cluded depreciable property, ﬁxed life intangible property Compare: 2004 No 35 s EE 25E Section EE 30(1)(b): amended (with effect on 1 April 2008), on 6 October 2009, by section 118 of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
EE 31 Annual rate for item acquired in person’s 1995–96 or later income year What this section is about This section is about the annual rate that applies to an item of depreciable property that a person acquires, other than under section FL 2(2) (Treatment of emigrating companies and their shareholders), in their 1995–96 income year or a later income year (not including ﬁxed life intangible property or excluded depreciable property, for which rates are set in sections EE 33 and EZ 15 (Annual rate for excluded depreciable property: 1992–93 tax year)).
Rate The rate is 1 of the following: (a) (b) the item’s economic rate, special rate, or provisional rate, for an item not described in either paragraph (b) or (c): the item’s economic rate, special rate, or provisional rate, multiplied by 1.2, for an item that— (i) has not been used or held for use in New Zealand as an item of depreciable property before the date on which the person acquires it; and is not a building; and is not a used imported car; and is not an international aircraft: (ii) (iii) (iv) (1) (2) 720 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EE 32 (c) a diminishing value rate of 15% or a straight-line rate of 10%, for an international aircraft.
Deﬁned in this Act: acquire, annual rate, depreciable property, diminishing value rate, economic rate, excluded depreciable property, ﬁxed life intangible property, income year, international aircraft, New Zealand, straight-line rate Compare: 2004 No 35 s EE 26 Section EE 31(2)(a): substituted (with effect on 1 April 2008), on 6 October 2009, by section 119(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EE 31(2)(b): amended (with effect on 1 April 2008), on 6 October 2009, by section 119(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
EE 32 Election in relation to certain depreciable property acquired on or after 1 April 2005 (1) (2) (3) When this section applies This section applies when a person acquired an item of depre- ciable property that is not a building— (a) (b) on or after 1 April 2005; and before the commencement of the person’s income year corresponding to the 2006–07 tax year.
Election to use economic depreciation rate determined under section EZ 23 The person may choose to calculate the depreciation loss for the item of depreciable property for income years correspond- ing to the 2005–06 tax year and later tax years in accordance with the economic depreciation rate determined for the kind of item under section EZ 23 (Economic rate for plant or equip- ment acquired before 1 April 2005 and buildings acquired be- fore 19 May 2005).
Election to be made in return of income The person must make an election under subsection (2) in the person’s return of income for the 2005–06 tax year.
Deﬁned in this Act: depreciable property, depreciation loss, economic depreci- ation rate, income year, return of income, tax year Compare: 2004 No 35 s EE 26B 721 Part E s EE 33 Income Tax Act 2007 Reprinted as at 5 January 2010 EE 33 Annual rate for ﬁxed life intangible property (1) What this section is about This section is about the annual rate that applies to an item of ﬁxed life intangible property, not including— (a) an item of excluded depreciable property for which a rate is set in section EZ 15 (Annual rate for excluded depreciable property: 1992–93 tax year): a patent for which a rate is set in section EE 34.
(b) Rate The rate is the rate calculated using the formula— (2) (3) (4) Deﬁnition of item in formula In the formula, legal life is,— (a) if section EE 19 applies, the item’s remaining legal life from the start of the income year in which a person incurs the additional costs referred to in that section: if section EE 19 does not apply, the item’s remaining legal life from the time at which a person acquires it.
(b) How rate expressed The rate given by the formula is expressed as a decimal and rounded to 2 decimal places, with numbers at the midpoint or greater being rounded up and other numbers being rounded down.
Deﬁned in this Act: acquire, annual rate, excluded depreciable property, ﬁxed life intangible property, income year, legal life Compare: 2004 No 35 s EE 27 EE 34 Annual rate for patent granted in 2005–06 or later income year When this section applies This section applies to an item that is a patent when the patent is acquired by a person in their 2005–06 income year or a later income year.
Rate The rate is the rate calculated using the formula— (1) (2) 722 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EE 34 (3) (4) (5) (6) (7) Deﬁnition of item in formula In the formula, legal life is set out in whichever of subsections (4) to (7) applies to the patent.
Fixed life intangible property If the patent is an item of ﬁxed life intangible property to which section EE 19 applies, legal life is the patent’s remaining legal life from the start of the income year in which the person incurs the additional costs referred to in that section.
No depreciation loss for patent application If section EE 19 does not apply to the patent and the person has been denied a deduction for an amount of depreciation loss for the patent application, legal life is the patent’s remaining legal life from the time at which the person acquires the patent.
Depreciation loss for patent application If section EE 19 does not apply to the patent, and has not ap- plied to the patent application while the person has owned it, and the person has been allowed a deduction for an amount of depreciation loss for the patent application, legal life is the remaining legal life of the patent application from the start of the income year in which the person acquires the patent appli- cation.
When section EE 19 applied to patent application If section EE 19 does not apply to the patent, but has applied to the patent application while the person has owned it, and the person has been allowed a deduction for an amount of depreci- ation loss for the patent application, legal life is the remaining legal life of the patent application from the start of the income year in which the person acquires the patent.
(8) How rate expressed The rate calculated using the formula is expressed as a decimal and rounded to 2 decimal places, with numbers at the midpoint 723 Part E s EE 35 Income Tax Act 2007 Reprinted as at 5 January 2010 or greater being rounded up and other numbers being rounded down.
Deﬁned in this Act: acquire, amount, deduction, depreciation loss, income year, legal life Compare: 2004 No 35 s EE 27B EE 35 Special rate or provisional rate (1) (2) (3) (4) Rate set for item of depreciable property A special rate or a provisional rate is set for an item of depre- ciable property under sections 91AAG to 91AAJ of the Tax Administration Act 1994.

No special rate for excluded depreciable property A special rate may not be set for an item of excluded depre- ciable property.
No provisional rate for ﬁxed life intangible property or excluded depreciable property A provisional rate may not be set for an item of ﬁxed life in- tangible property or an item of excluded depreciable property.

Exception Section FA 11B(7) (Adjustments for certain operating leases) overrides this section.
Deﬁned in this Act: depreciable property, excluded depreciable property, ﬁxed life intangible property, provisional rate, special rate Compare: 2004 No 35 s EE 28 Section EE 35(4) heading: inserted, on 1 April 2008, by section 356 of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section EE 35(4): inserted, on 1 April 2008, by section 356 of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
EE 36 Using economic rate or provisional rate instead of special rate Allowed to use economic or provisional rate A person may depreciate an item to which a special rate applies by applying, instead, the economic rate applicable to the item or a provisional rate applicable to the item.

This subsection is overridden by subsection (2).
(1) 724 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EE 37 (2) (d) Not allowed to use economic or provisional rate The person must not depreciate the item by applying the eco- nomic rate or the provisional rate, if— (a) (b) (c) a special rate applies to the item; and the special rate is higher than the economic rate; and the person applies the special rate to the item for an income year; and in a later income year, the item’s market value declines at a rate equal to or greater than the special rate; and it is a reasonable conclusion from all the circumstances of the case that the person’s purpose, or 1 of the per- son’s purposes, in wanting to change from the special rate to the economic rate or the provisional rate for the later income year is to enable the person to defer the deduction that the person is allowed for the amount of depreciation loss for the item’s decline in value.
Deﬁned in this Act: amount, deduction, depreciation loss, economic rate, in- come year, provisional rate, special rate Compare: 2004 No 35 s EE 29 (e) Improvements, items of low value, or items no longer used EE 37 Improvements (1) (2) When this section applies This section applies when a person makes an improvement to an item of depreciable property.
Income year in which improvement made In the income year in which the person makes the improve- ment, the provisions of this subpart apply to the improvement, as if it were a separate item of depreciable property, in the period that— (a) starts at the start of the month in which the person ﬁrst uses the improvement or has it available for use; and ends at the end of the income year.
(b) (3) Following income years For income years following the income year in which the per- son makes the improvement,— 725 Part E s EE 37 Income Tax Act 2007 Reprinted as at 5 January 2010 (4) (5) (6) (a) (b) a person who uses the diminishing value method or the straight-line method for the item that was improved may choose to apply subsection (4) or (5): a person who uses the pool method for the item that was improved must apply subsections (6) and (7).
Improvement treated as separate item For the purposes of subsection (3)(a), a person may choose to treat the improvement as a separate item of depreciable prop- erty.

Improvement treated as part of item For the purposes of subsection (3)(a), a person may choose to treat the improvement as part of the item of depreciable property that was improved.
They must do 1 of the following for the ﬁrst income year, after the income year in which they made the improvement, in which they use the improvement or have it available for use: (a) if they use the diminishing value method for the item, add the improvement’s adjusted tax value at the start of the income year to the item’s adjusted tax value at the start of the income year: if they use the straight-line method for the item,— (i) add the improvement’s adjusted tax value at the start of the income year to the item’s adjusted tax value at the start of the income year; and add the improvement’s cost to the item’s cost.
(ii) (b) Pool method For the purposes of subsection (3)(b), a person who uses the pool method for the item that was improved must treat the improvement as a separate item of depreciable property.

If its cost is equal to or less than its maximum pooling value, they must include it in a pool in the ﬁrst income year, after the income year in which they made the improvement, in which they use the improvement or have it available for use.
Adjustment of pool’s value (7) When an improvement is included in a pool under subsection (6),— 726 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EE 38 (a) (b) the pool’s adjusted tax value is increased by the im- provement’s adjusted tax value on the date it is included in the pool; and the improvement’s adjusted tax value at the end of the previous income year is included in starting adjusted tax value in section EE 21(5).
Deﬁned in this Act: adjusted tax value, depreciable property, diminishing value method, improvement, income year, maximum pooling value, pool, pool method, straight-line method Compare: 2004 No 35 s EE 30 EE 38 Items of low value (1) When this section applies This section applies for an item of property that a person ac- quires, in an income year, when— (a) (b) (c) (d) (e) (f) the total cost for the item is equal to or less than the threshold value given for the item by subsection (2); and the person uses the item, or has the item available for use, in the income year; and the item would be depreciable property if the person did not deal with it under this section; and the item has not been and will not become part of any other property that is depreciable property; and the person is denied a deduction for the cost of the item if the person does not deal with the item under this sec- tion; and the item is one of a group of items, acquired at the same time and from the same supplier, to which the same depreciation rate would apply if they were all treated as items of depreciable property,— (i) if subparagraph (ii) does not apply, the total cost for all the items in the group is equal to or less than the threshold value given for the item by subsection (2): if the items generally constitute the person’s trad- ing stock, the total cost for all the items in the group not treated by the person solely as trading stock is equal to or less than the threshold value given for the item by subsection (2).
(ii) 727 Part E s EE 38 Income Tax Act 2007 Reprinted as at 5 January 2010 Threshold value for item The threshold value for an item is— (a) (b) $200, if the item is acquired before 19 May 2005: $500, if the item is acquired on or after 19 May 2005.

Amount of depreciation loss If the person chooses to deal with the item under this section, the amount of depreciation loss that the person has for the item for the income year is the item’s cost.
How election made The person makes the election by claiming, in their return of income for the income year for which the election is made, a deduction for the amount of depreciation loss described in subsection (3).

Amount of depreciation recovery income If the person disposes in an income year of an item for which they have been allowed a deduction on a claim under subsec- tion (3), the consideration they derive from the disposal is an amount of depreciation recovery income for the income year.
Change of use treated as disposal Subsection (7) applies when— (a) a person has been allowed a deduction on a claim under subsection (3) for an item; and at a later time, the person stops using the item, or having the item available for use, mainly in deriving assessable income or carrying on a business for the purpose of de- riving assessable income; and the use to which the item is put at the later time is not subject to fringe beneﬁt tax.
(b) (c) Disposal The person is treated as having disposed of the item for its market value at the later time.

Increase in speciﬁed sum The Governor-General may make an Order in Council increas- ing the sum speciﬁed in subsection (1)(a) and (f).
Deﬁned in this Act: acquire, amount, assessable income, business, deduction, depreciable property, depreciation loss, depreciation recovery income, dispose, fringe beneﬁt tax, income year, property, return of income, trading stock Compare: 2004 No 35 s EE 31 (2) (3) (4) (5) (6) (7) (8) 728 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EE 39 EE 39 Items no longer used (1) (2) (3) (4) When this section applies This section applies when a person in an income year has an item of depreciable property that— (a) is no longer used or, because the geothermal energy proving period has ended, becomes unavailable for use under section EE 6(4); and is not a building, unless the item meets the requirements of subsection (2); and has not been depreciated using the pool method.
(b) (c) Buildings This section applies to a building that meets the requirements of subsection (1)(a) and (c) if— (a) the building has been irreparably damaged and rendered useless for the purpose of deriving income; and the damage occurs— (i) (b) (ii) (iii) in the 2005–06 income year or a later income year: as a result of the extreme climatic conditions that occurred during the month of February 2004 in New Zealand: as a result of the storm event that occurred during the month of July 2004 in the Bay of Plenty area; and (c) the damage is caused other than as a result of the action or failure to act of the person, an agent of the person, or an associated person.
Amount of depreciation loss under this section The person has an amount of depreciation loss under this sec- tion and under no other provision of this subpart.
Circumstances The person has an amount of depreciation loss if— (a) they no longer use the item in deriving assessable in- come or carrying on a business for the purpose of de- riving assessable income; and neither they nor a person associated with them intends to use the item in deriving assessable income or carry- (b) 729 Part E s EE 40 Income Tax Act 2007 Reprinted as at 5 January 2010 (c) ing on a business for the purpose of deriving assessable income; and the costs of disposing of the item would be more than any consideration they could derive from disposing of it.
Amount The amount of depreciation loss is the item’s adjusted tax value at the start of the income year.

Adjusted tax value at end of year The item’s adjusted tax value at the end of the income year is zero.
Deﬁned in this Act: adjusted tax value, amount, assessable income, associated person, business, depreciable property, depreciation loss, dispose, geothermal energy proving period, income year, pool method Compare: 2004 No 35 s EE 32 (5) (6) Transfers of depreciable property: associated persons and certain amalgamations EE 40 Transfer of depreciable property on or after 24 September 1997 When this section applies This section applies when, on or after 24 September 1997, a person (person A) acquires, directly or indirectly, an item of property from an associated person to whom any of subsec- tions (2) to (6) applies.
The income year referred to is the income year of the associated person.

Deduction for depreciation loss allowed in year of acquisition The associated person is allowed a deduction for an amount of depreciation loss for the item for the income year in which person A acquires it, or would have been allowed the deduc- tion if section EE 11(1) had not applied.
Deduction for depreciation loss allowed in year before acquisition The associated person was allowed a deduction for an amount of depreciation loss for the income year before that in which person A acquired it.
(1) (2) (3) 730 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EE 40 (4) (5) (6) (7) When section DZ 9 applies The associated person has been allowed a deduction for the item under section DZ 9 (Premium paid on land leased before 1 April 1993)— (a) (b) for the income year in which person A acquired it; or for the income year before that in which person A ac- quired it; or would have been allowed a deduction in either income year if they had incurred a cost for the item for which they were denied any other deduction.
(c) If costs incurred for which deduction denied The associated person would have been allowed a deduction for an amount of depreciation loss for the item— (a) for the income year in which person A acquired it, if they had incurred a cost for the item for which they were denied any other deduction and if section EE 11(1) had not applied; or for the income year before that in which person A ac- quired it, if they had incurred a cost for the item for which they were denied any other deduction.
(b) When section EE 8 applies The associated person would have been a person to whom any of subsections (2) to (5) applied, if they had not made an elec- tion under section EE 8.
Cost of item to person A For the purposes of determining the amount of depreciation loss that person A has, the cost of the item to person A is treated as 1 of the following: (a) if section EE 58 applies to set a base value for the item, the lesser of— (i) (ii) the cost of the item to person A: the item’s market value when the associated per- son starts to use it, or to have it available for use, for the purpose of deriving assessable income or carrying on a business for the purpose of deriv- ing assessable income; or (b) if section EE 58 does not apply, the lesser of— the cost of the item to person A: (i) 731 Part E s EE 40 Income Tax Act 2007 Reprinted as at 5 January 2010 (ii) the cost of the item to the associated person.
(8) (9) Exclusions Subsection (7) does not apply if— (a) the item is not depreciable intangible property, and the Commissioner decides that it is appropriate to use the cost of the item to person A for the purposes of deter- mining the amount of depreciation loss that person A has for the item: the cost to person A is income of the associated person, other than under section EE 48(1): person A acquires the item on a settlement of rela- tionship property to which section FB 21 (Depreciable property) applies.
(b) (c) Rate The annual rate that person A applies to the item must be 1 of the following: (a) when person A uses the same depreciation method for the item as that used by the associated person for it, the annual rate must be no more than the annual rate that the associated person applied to it: when person A uses a depreciation method for the item that is different from the method the associated per- son used for it, the annual rate must be no more than a rate equivalent to the rate that the associated person ap- plied to it, as determined by schedule 10 (Straight-line equivalents of diminishing value rates of depreciation).
(b) (10) Fixed life intangible property Subsection (6) does not apply to an item of ﬁxed life intangible property whose rate is set in section EE 33.

Relationship with section EE 41 and subpart FC (11) This section— (a) (b) is overridden by section EE 41: does not apply to a bequest of property when subpart FC (Distribution, transmission, and gifts of property) applies to it and the property is disposed of at market value.
Deﬁned in this Act: acquire, amount, annual rate, assessable income, associated person, business, Commissioner, deduction, depreciable intangible property, 732 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EE 41 depreciation loss, depreciation method, ﬁxed life intangible property, income, income year, property, settlement of relationship property Compare: 2004 No 35 s EE 33 EE 41 Transfer of depreciable property on certain amalgamations on or after 14 May 2002 (1) (2) When this section applies This section applies when, on or after 14 May 2002, an amal- gamated company acquires, directly or indirectly, an item of property from an amalgamating company, and— (a) the amalgamated company’s acquisition of the item is part of an amalgamation that is not a resident’s restricted amalgamation; and the amalgamating company is an associated person of the amalgamated company, treating the amalgamating company as existing at the time that the amalgamated company is treated under section FO 11(1)(b) or FO 15(3) (which relate to property passing on certain amal- gamations) as having acquired the property from the amalgamating company.
(b) Cost of item to person For the purposes of determining the amount of depreciation loss that the amalgamated company has, the cost of the item to it is treated as 1 of the following: (a) if section EE 58 applies for the amalgamating company and the item, the lesser of— (i) the value given under section FO 11 or FO 15, as applicable; and the item’s market value when the amalgamating company starts to use it, or to have it available for use, for the purpose of deriving assessable income or carrying on a business for the purpose of deriving assessable income; or (ii) (b) if section EE 58 does not apply for the amalgamating company and the item, the lesser of— (i) the value given under section FO 11 or FO 15, as applicable; and the cost of the item to the amalgamating com- pany.
(ii) 733 Part E s EE 41 Income Tax Act 2007 Reprinted as at 5 January 2010 (b) (b) Exclusions Subsection (2) does not apply if— (a) the item is not depreciable intangible property, and the Commissioner decides that it is appropriate to use the cost of the item to the amalgamated company for the purposes of determining the amount of depreciation loss that it has for the item: the cost to the amalgamated company is income of the amalgamating company, other than under section EE 48(1).
Rate The annual rate that the amalgamated company applies to the item must be 1 of the following: (a) when the amalgamated company uses the same depreci- ation method for the item as that used by the amalgamat- ing company for it, the annual rate that the amalgamated company applies to it must be no more than the annual rate that the amalgamating company applied to it: when the amalgamated company uses a depreciation method for the item that is different from the method the amalgamating company used for it, the annual rate that the amalgamated company applies to it must be no more than a rate equivalent to the rate that the amalgam- ating company applied to it, as determined by schedule 10 (Straight-line equivalents of diminishing value rates of depreciation).
Fixed life intangible property Subsection (4) does not apply to an item of ﬁxed life intangible property whose rate is set in section EE 33.
Deﬁned in this Act: acquire, amalgamated company, amalgamating company, amalgamation, amount, annual rate, assessable income, business, Commis- sioner, depreciable intangible property, depreciation loss, depreciation method, ﬁxed life intangible property, income year, property, resident’s restricted amalgamation Compare: 2004 No 35 s EE 34 income, (3) (4) (5) 734 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EE 43 EE 42 Transfer of radiocommunications licence right on or after 24 September 1997 (1) (2) (3) When this section applies This section applies when, on or after 24 September 1997, the holder of management rights created under the Radiocommunications Act 1989 grants a licence right under that Act to an associated person.
Exclusion This section does not apply when the Crown acting by and through the Secretary of Commerce is named as the manager under section 11(1) of the Radiocommunications Act 1989.

Cost of licence right For the purposes of determining the amount of depreciation loss that the associated person has, the cost of the licence right to the associated person is treated as zero.
Deﬁned in this Act: amount, associated person, depreciation loss Compare: 2004 No 35 s EE 35 EE 43 Transfer of depreciable intangible property on or after 1 July 1997 (1) (2) When this section applies This section applies when, on or after 1 July 1997, a person (person A) acquires, directly or indirectly, from an associated person an item of depreciable intangible property that— (a) was not depreciable property of the associated person because it was not of a kind listed in schedule 14 (De- preciable intangible property) at the time the associated person acquired it; and was not an item for whose cost the associated person was allowed a deduction, other than a deduction for an amount of depreciation loss, under a provision of this Act outside this subpart.
(b) No amount of depreciation loss Person A does not have an amount of depreciation loss for the item.
Deﬁned in this Act: acquire, amount, associated person, deduction, depreciable intangible property, depreciable property, depreciation loss Compare: 2004 No 35 s EE 36 735 Part E s EE 44 Income Tax Act 2007 Reprinted as at 5 January 2010 Disposals and similar events EE 44 Application of sections EE 48 to EE 52 (1) (2) When sections apply Sections EE 48 to EE 52 apply when a person derives consid- eration from the disposal of an item or from an event involving an item, if— (a) the consideration is consideration of a kind described in section EE 45; and either— (i) (b) the item is an item of a kind described in section EE 46; or the event is an event of a kind described in section EE 47.
(ii) Exclusions Sections EE 48 to EE 52 do not apply when— (a) a person disposes of an item of intangible property as part of an arrangement to replace it with an item of the same kind: a person’s patent application has concluded because a patent is granted to the person in relation to the applica- tion: a person’s geothermal well becomes unavailable for use under section EE 6(4) because the geothermal energy proving period has ended.
(b) (c) Deﬁned in this Act: arrangement, consideration, dispose, geothermal energy proving period, geothermal well, property Compare: 2004 No 35 s EE 37 EE 45 Consideration for purposes of section EE 44 General rule: amount derived For the purposes of section EE 44, the consideration is the amount that the person derives, minus any amount that they incur in deriving it.
Two qualiﬁcations are— (a) if the person is a registered person, “the amount that the person derives” does not include any GST charged on a taxable supply they make: “any amount that they incur” does not include an amount for which the person is allowed a deduction, (b) (1) 736 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EE 45 (2) (3) (4) (5) (6) other than a deduction for an amount of depreciation loss, under a provision of this Act outside this subpart.
This subsection is overridden by subsections (3) to (9).

Amount derived may be zero or negative For the purposes of section EE 44, an amount that a person derives as consideration may be zero or a negative amount.

Other than market value If the person derives a consideration that is not the item’s mar- ket value, the consideration for the purposes of section EE 44 is the item’s market value.
Three qualiﬁcations are— (a) if the person makes a taxable supply, “market value” means the market value minus any GST that would be charged on the supply: this subsection does not apply to a transfer under a re- lationship agreement; and this subsection does not apply in a case described in any of subsections (5) to (10).
(b) (c) Relationship with subpart FC Subsection (3) does not apply to a disposal of property to which any of sections FC 3 and FC 4 (which relate to the dis- tribution or transmission of property) applies.

Change of use or location of use The consideration that a person derives from the event de- scribed in section EE 47(2) is the item’s market value.
Two qualiﬁcations are— (a) if the person makes a taxable supply, “market value” means the market value minus any GST that would be charged on the supply: this subsection does not apply to a transfer under a re- lationship agreement.

(b) Loss or theft The consideration that a person derives from the event de- scribed in section EE 47(3) is the amount of insurance, in- demnity, or compensation they receive for the loss or theft (amount A).
If the person is a registered person, amount A does not include the amount, if any, of GST charged on amount A to the extent to which amount A is treated as being consider- 737 Part E s EE 45 Income Tax Act 2007 Reprinted as at 5 January 2010 (7) (8) (9) ation received for a supply of services by the registered person under section 5(13) of the Goods and Services Tax Act 1985.
Unused geothermal well brought into use The consideration that a person derives from the event de- scribed in section EE 47(6) is the amount of the deduction for depreciation loss allowed under section EE 39(4).

Irreparable damage The consideration that a person derives from the event de- scribed in section EE 47(4) is the amount of insurance, indem- nity, or compensation they receive for the irreparable damage (amount A).
If the person is a registered person, amount A does not include the amount, if any, of GST charged on amount A to the extent to which amount A is treated as being consider- ation received for a supply of services by the registered person under section 5(13) of the Goods and Services Tax Act 1985.

Repossession The consideration that a person derives from the event de- scribed in section EE 47(5) is the item’s cost minus the net amount paid.
Two qualiﬁcations are— (a) if the person is a registered person, the “consideration that the person derives” does not include any GST charged on a taxable supply they make: “net amount paid” means the amount paid by the buyer to the seller for the item under the contract minus any amount refunded by the seller to the buyer.
(b) Other items (10) The consideration that a person derives from the disposal of an item along with any other item, or from the occurrence of an event involving an item that also involves other items, is the item’s market value.

Two qualiﬁcations are— (a) if the person makes a taxable supply, “market value” means the market value minus any GST that would be charged on the supply: this subsection does not apply to a transfer under a re- lationship agreement.
(b) Item leaving New Zealand permanently (11) The consideration that a person derives from the event referred to in section EE 47(10) is described in section EZ 21(1) (Sec- 738 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EE 47 tions EE 45 and EE 47: permanent removal: allowance before 1 April 1995).
Deﬁned in this Act: amount, consideration, deduction, depreciation loss, dis- pose, geothermal well, GST, GST charged, New Zealand, registered person, relationship agreement, services, taxable supply Compare: 2004 No 35 s EE 38 EE 46 Items for purposes of section EE 44 (1) (2) Items to which sections EE 48 to EE 52 apply For the purposes of section EE 44, an item of property to which sections EE 48 to EE 52 apply is an item of depreciable prop- erty that a person owns, including— (a) an item for which the person has been allowed a deduc- tion for an amount of depreciation loss they have had under section EE 33; and an item to which section CZ 11 (Recovery of deductions for software acquired before 1 April 1993) applies.
(b) Exclusions Sections EE 48 to EE 52 do not apply to— (a) (b) (c) (d) an item of property that, on the date on which the dis- posal or the event occurs, is accounted for in a pool; or an item of petroleum-related depreciable property; or an item of intangible property that is excluded depre- ciable property, other than software; or a land improvement that is excluded depreciable prop- erty of a kind for which no deduction for depreciation was allowed under section 108 of the Income Tax Act 1976.
Deﬁned in this Act: amount, deduction, depreciable property, depreciation loss, excluded depreciable property, own, petroleum-related depreciable property, pool, property Compare: 2004 No 35 s EE 39 EE 47 Events for purposes of section EE 44 (1) Events to which sections EE 48 to EE 52 apply For the purposes of section EE 44, this section describes the events to which sections EE 48 to EE 52 apply.
739 Part E s EE 47 Income Tax Act 2007 Reprinted as at 5 January 2010 Change of use or location of use The ﬁrst event is the change of use, or change of location of use, of an item of property, as a result of which a person is denied a deduction for an amount of depreciation loss for the item for the next income year.

The event is treated as occurring on the ﬁrst day of the next income year.
Loss or theft The second event is the loss or theft of an item of property, if the item is not recovered in the income year in which the loss or theft occurs.

Irreparable damage The third event is the irreparable damage of an item of prop- erty.

Repossession The fourth event is the seller’s repossession of an item of prop- erty to which section EE 3 applies because the buyer wholly or partly fails to pay the consideration.

The event is treated as occurring on the date on which the item is repossessed.
Unused geothermal well brought into use The ﬁfth event is, for a person’s geothermal well that is un- available for use under section EE 6(4) because the geother- mal energy proving period has ended, is when the person starts to— (a) use the well in deriving assessable income or carrying on a business for the purpose of deriving assessable in- come: have the well available for use in deriving assessable income or carrying on a business for the purpose of de- riving assessable income.
(b) Statutory acquisition The sixth event is the acquisition of an item of property by a person acting under statutory authority.

Cessation of ownership under section EE 4 or EE 5 The seventh event is the cessation of ownership of a ﬁxture or improvement— (a) that a lessee is treated as having under section EE 4(2); or that a person is treated as having under section EE 5(3).
(b) (2) (3) (4) (5) (6) (7) (8) 740 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EE 48 (9) Cessation of rights in intangible property The eighth event is an occurrence that has the effect that the owner of an item of intangible property is no longer able, and will never be able, to exercise the rights that constitute or are part of the item.
Item leaving New Zealand permanently (10) The ninth event is described in section EZ 21(2) (Sections EE 45 and EE 47: permanent removal: allowance before 1 April 1995).
Deﬁned in this Act: amount, assessable income, business, deduction, depreci- ation loss, geothermal energy proving period, geothermal well, improvement, income year, lessee, New Zealand, own, pay, property Compare: 2004 No 35 s EE 40 EE 48 Effect of disposal or event (1) (2) Amount of depreciation recovery income For the purposes of section EE 44, if the consideration is more than the item’s adjusted tax value on the date on which the dis- posal or the event occurs, the lesser of the following amounts is the amount of depreciation recovery income derived by the person for the income year in which the disposal or the event occurs: (a) the amount by which the consideration is more than the item’s adjusted tax value on the date on which the dis- posal or the event occurs; and the total of the amounts of depreciation loss for which the person has been allowed deductions for the item in- cluding, for an item to which section CZ 11 (Recov- ery of deductions for software acquired before 1 April 1993) applies, any deduction allowed for its acquisition.
(b) Amount of depreciation loss For the purposes of section EE 44, if the consideration is less than the item’s adjusted tax value on the date on which the disposal or the event occurs, the person has an amount of de- preciation loss, for the income year in which the disposal or the event occurs, that is the amount by which the consideration is less than the item’s adjusted tax value on that date.
When this section does not apply Subsection (2) does not apply if the item is a building unless— (3) 741 Part E s EE 49 Income Tax Act 2007 Reprinted as at 5 January 2010 (a) (b) the building has been irreparably damaged and rendered useless for the purpose of deriving income; and the damage occurs— (i) in the 2005–06 income year or a later income year: as a result of the extreme climatic conditions that occurred during the month of February 2004 in New Zealand: as a result of the storm event that occurred during the month of July 2004 in the Bay of Plenty area; and (ii) (iii) (c) the damage is caused other than as a result of the action or failure to act of the person, an agent of the person, or an associated person.
Deﬁned in this Act: acquire, adjusted tax value, amount, consideration, deduc- tion, depreciation loss, depreciation recovery income, dispose, income, income year Compare: 2004 No 35 s EE 41 EE 49 Amount of depreciation recovery income when item partly used for business (b) Item to which this section applies This section applies to an item of property that— (a) is an item to which this section applies, as described in section EE 46; and is, at any time during the period the person owns it, dealt with in— (i) (ii) subpart DE (Motor vehicle expenditure); or any applicable paragraph in section EZ 11 (Amounts of depreciation recovery income and depreciation loss for part business use up to 2004–05 income year); or section EE 50.
(iii) Depreciation recovery income If the consideration referred to in section EE 44 is less than or equal to the cost of the item to the person, the amount of depreciation recovery income that the person has is an amount calculated using the formula in subsection (3).

(1) (2) 742 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EE 50 Formula The formula is— (3) (4) (5) (6) (7) (8) Deﬁnition of items in formula The items in the formula are deﬁned in subsections (5) to (8).
All deductions All deductions is all amounts of depreciation loss for which the person has been allowed a deduction for the item in each of the income years in which the person has owned the item.

Base value Base value has the applicable one of the meanings in sections EE 57 to EE 59.

Adjusted tax value Adjusted tax value is the item’s adjusted tax value on the date on which the disposal or the event occurs.
Amount of depreciation recovery income Amount of depreciation recovery income is the amount de- scribed in section EE 48(1).
Deﬁned in this Act: adjusted tax value, amount, business, deduction, depreci- ation loss, depreciation recovery income, income year, own, property Compare: 2004 No 35 s EE 42 EE 50 Amount of depreciation loss when item partly used to produce income (1) When subsection (2) applies Subsection (2) applies when— (a) (b) a person has an amount of depreciation loss for an item of depreciable property for an income year, other than an amount arising under section EE 48(2); and at a time during the income year, the item is partly used, or partly available for use, by the person— (i) in deriving assessable income or carrying on a business for the purpose of deriving assessable income; or in a way that is subject to fringe beneﬁt tax; and (ii) 743 Part E s EE 50 Income Tax Act 2007 Reprinted as at 5 January 2010 (c) (d) at the same time, the item is partly used, or is partly available for use, by the person for a use that falls out- side both paragraph (b)(i) and (ii); and the item is not a motor vehicle to which subpart DE (Motor vehicle expenditure) applies.
Partial use: formula The deduction the person is allowed for the amount of depre- ciation loss must not be more than the amount calculated using the formula— (b) (c) (b) Deﬁnition of items in formula In the formula in subsection (2),— (a) depreciation loss is the amount of depreciation loss for the income year: qualifying use days is the number of days in the in- come year on which the person owns the item and uses it, or has it available for use, for a use that falls within subsection (1)(b)(i) or (ii): all days is the number of days in the income year on which the person owns the item and uses it or has it available for use.
Other units of measurement A unit of measurement other than days, whether relating to time, distance, or anything else, is to be used in the formula if it achieves a more appropriate apportionment.
When subsection (6) applies Subsection (6) applies when— (a) a person has an amount of depreciation loss for an item of depreciable property arising under section EE 48(2); and the item was, at any time during the period the person owned it, dealt with in— subsection (2); or (i) any applicable paragraph in section EZ 11 (ii) (Amounts of depreciation recovery income and depreciation loss for part business use up to 2004–05 income year); and (2) (3) (4) (5) 744 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EE 50 (6) (7) (8) (c) the item is not a motor vehicle to which subpart DE applies.
Deduction for depreciation loss: formula The deduction the person is allowed for the amount of depre- ciation loss is calculated using the formula— Deﬁnition of items in formula In the formula in subsection (6),— (a) disposal depreciation loss is the amount resulting from a calculation made for the item under section EE 48(2): all deductions is all amounts of depreciation loss relat- ing to the item for which the person has been allowed a deduction in each of the income years in which the per- son has owned the item: base value has whichever is applicable of the meanings in sections EE 57 to EE 59: adjusted tax value at date is the item’s adjusted tax value on the date on which the disposal or event occurs.
When subsection (9) applies Subsection (9) applies when— (a) a person has an amount of depreciation loss for an item of depreciable property for an income year arising under section EE 48(2); and in the income year in which the amount of depreciation loss arises, the person starts to use the item, or have it available for use, for the purpose of deriving assessable income or carrying on a business for the purpose of de- riving assessable income; and at a time during the income year, the item is partly used, or partly available for use, by the person— (i) in deriving assessable income or carrying on a business for the purpose of deriving assessable income; or (ii) in a way that is subject to fringe beneﬁt tax; and the item is not a motor vehicle to which subpart DE (Motor vehicle expenditure) applies.
(b) (c) (d) (b) (c) (d) 745 Part E s EE 51 Income Tax Act 2007 Reprinted as at 5 January 2010 (9) Partial use: formula The deduction the person is allowed for the amount of depre- ciation loss is calculated using the formula— (10) Deﬁnition of items in formula In the formula in subsection (9),— (a) (b) (c) disposal depreciation loss is the amount resulting from a calculation made for the item under section EE 48(2): qualifying use days is the number of days in the in- come year on which the person owns the item and uses it, or has it available for use, for a use that falls within subsection (8)(c)(i) or (ii): all days is the number of days in the income year on which the person owns the item and uses it or has it available for use for any purpose.
Other units of measurement (11) A unit of measurement other than days, whether relating to time, distance, or anything else, is to be used in the formula if it achieves a more appropriate apportionment.
Deﬁned in this Act: adjusted tax value, amount, assessable income, business, deduction, depreciable property, depreciation loss, fringe beneﬁt tax, income year, motor vehicle, property Compare: 2004 No 35 s FB 7 EE 51 Amount of depreciation recovery income when lost or stolen items recovered When this section applies This section applies when an item of property to which section EE 47(3) applies— (a) (b) (c) is recovered in a later income year; and is still owned by the person; and is still used or available for use by the person.
Person treated as acquiring item The person is treated as having acquired the item, on the date of recovery, for its adjusted tax value at the start of the income year in which it was lost or stolen.
(1) (2) 746 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EE 52 (3) (4) Person treated as deriving income: amount The person is treated as deriving an amount of depreciation recovery income equal to the amount of depreciation loss that the person has under section EE 48(2) for which they have been allowed a deduction.
Person treated as deriving income: income year The income year in which the person derives the depreciation recovery income is— (a) the income year in which the item is lost or stolen, if the person chooses that year; or the income year in which the item is recovered, in any other case.
(b) Deﬁned in this Act: adjusted tax value, amount, deduction, depreciation loss, depreciation recovery income, income year, own, property Compare: 2004 No 35 s EE 43 EE 52 Amount of depreciation recovery income when compensation received (1) (2) (3) When this section applies This section applies when a person receives insurance, indem- nity, or compensation for an item of property to which this section applies, as described in section EE 46, other than for an item that is lost, stolen, or irreparably damaged.
Compensation subtracted An amount must be subtracted from the item’s adjusted tax value.

The amount is the amount by which the insurance, in- demnity, or compensation that the person receives is more than the expenditure that the person incurs because of the event for which the person receives the insurance, indemnity, or com- pensation.
Depreciation recovery income If the item’s adjusted tax value becomes negative in an income year through the application of subsection (2), the negative amount is an amount of depreciation recovery income derived by the person in the income year.
Deﬁned in this Act: adjusted tax value, amount, depreciation recovery income, income year, property Compare: 2004 No 35 s EE 44 747 Part E s EE 53 Income Tax Act 2007 Reprinted as at 5 January 2010 EE 53 Unused geothermal well brought into use (1) (2) When this section applies This section applies to a person when an event occurs to which section EE 47(6) applies.
Person treated as acquiring well The person is treated as having acquired the geothermal well on the day on which the event occurs for the cost of the well under this subpart before the event occurs.
Deﬁned in this Act: acquire, geothermal well Compare: 2004 No 35 s EE 44B Interpretation provisions EE 54 Cost: GST When this section applies This section applies when an amount of depreciation loss or an amount of depreciation recovery income is calculated by reference to the cost of an item of depreciable property to a person.

Cost reduced: input tax The item’s cost is reduced by subtracting the amount, if any, of input tax applying to the supply of the item to the person.
This subsection is overridden by subsection (3).

Cost reduced: input tax This subsection applies to an item that was not acquired or produced for the principal purpose of making taxable supplies but is applied in an income year principally for that purpose.

The item’s cost is reduced by subtracting a proportion of the amount, if any, calculated under sections 21F and 21G, and deductible under section 20(3)(e), of the Goods and Services Tax Act 1985.
The proportion is the proportion of the amount that arises from the application of the item in the income year principally for the purpose of making taxable supplies.

Cost increased: output tax This subsection applies to an item that was acquired or pro- duced for the principal purpose of making taxable supplies but is applied in an income year other than for that purpose.
The item’s cost is increased by adding the amount, if any, of out- (1) (2) (3) (4) 748 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EE 56 put tax charged in the income year for the supply of the item because section 21 of the Goods and Services Tax Act 1985 applies to the supply.
Deﬁned in this Act: amount, depreciable property, depreciation loss, depreci- ation recovery income, GST, income year, input tax, output tax, taxable supply Compare: 2004 No 35 s EE 45 Adjusted tax value EE 55 Meaning of adjusted tax value (1) Adjusted tax value means,— (a) for an item of depreciable property, the amount calcu- lated using the formula in section EE 56: for a pool, the total adjusted tax value determined under section EE 21.
(b) (2) Exception Section FA 11B(6) (Adjustments for certain operating leases) overrides this section.

Deﬁned in this Act: adjusted tax value, amount, depreciable property, pool Compare: 2004 No 35 s EE 46 Section EE 55(1)(b): substituted (with effect on 1 April 2008), on 6 October 2009, by section 120(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EE 55(2) heading: inserted, on 1 April 2008, by section 357 of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section EE 55(2): inserted, on 1 April 2008, by section 357 of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

EE 56 Formula (1) (2) Formula The formula referred to in section EE 55 is— base value – total deductions.
Deﬁnition of items in formula In the formula,— (a) base value has the applicable meaning in sections EE 57, EE 58, EE 59, and EZ 22(1) (Base value and total deductions in EE 56: before 1 April 1995): 749 Part E s EE 57 Income Tax Act 2007 Reprinted as at 5 January 2010 total deductions is deﬁned in section EE 60.
(b) Deﬁned in this Act: deduction Compare: 2004 No 35 s EE 47 EE 57 Base value in section EE 56 when none of sections EE 58, EE 59, and EZ 22(1) applies When this section applies This section applies when none of sections EE 58, EE 59, and EZ 22(1) (Base value and total deductions in section EE 56: before 1 April 1995) applies.

Base value Base value is the cost of the item to the person.
Cost In this section, “cost” is qualiﬁed as follows: (a) expenditure is excluded from it if it is expenditure for which a person has been allowed a deduction for an amount of depreciation loss they have had under section EE 38(3) or EE 48(2) or the corresponding provision of the Income Tax Act 2004 or the Income Tax Act 1994; and expenditure is not excluded from it if it is expenditure for which a person has been allowed a deduction for an amount of depreciation loss they have had under any other provision of this subpart or the corresponding pro- vision of the Income Tax Act 2004 or the Income Tax Act 1994; and expenditure is excluded from it if it is expenditure for which a person has been allowed a deduction under any other subpart or the corresponding provision of the Income Tax Act 2004 or the Income Tax Act 1994; and expenditure— (i) is not excluded from it if it is described in section EZ 22(2)(a); and is excluded from it if it is described in section EZ 22(2)(b).
(ii) (b) (c) (d) Deﬁned in this Act: amount, deduction, depreciation loss Compare: 2004 No 35 s EE 48 (1) (2) (3) 750 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EE 58 EE 58 Base value in section EE 56 when no previous deduction (1) When this section applies This section applies when all the following apply to the item: (a) (b) it is not a building; and it is not an item of petroleum-related depreciable prop- erty; and it is not an item that the person— (i) acquired to use or have available for use in deriv- ing assessable income or carrying on a business for the purpose of deriving assessable income; and ﬁrst used for the purpose of deriving assessable income or carrying on a business for the purpose of deriving assessable income; and (ii) it has been, since the person acquired it and ﬁrst used it or had it available for use for any purpose, an item for which the person could not in any income year have been allowed a deduction for an amount of depreciation loss, whether because of the nature of the person’s use of the item or the person’s non-residence or for any other reason; and in relation to the 1992–93 income year,— (i) it was acquired by the person after the end of that income year; or it was an item described in section EZ 22(3) (Base value and total deductions in section EE 56: before 1 April 1995).
(ii) (c) (d) (e) (2) Base value Base value is the item’s market value when the person starts to use it, or to have it available for use, for the purpose of deriving assessable income or carrying on a business for the purpose of deriving assessable income.
Deﬁned in this Act: acquire, amount, assessable income, business, deduction, depreciation loss, income year, petroleum-related depreciable property Compare: 2004 No 35 s EE 49 751 Part E s EE 59 Income Tax Act 2007 Reprinted as at 5 January 2010 EE 59 Base value in section EE 56 when property is petroleum-related depreciable property When this section applies This section applies when the item is an item of petroleum-re- lated depreciable property to which both the following apply: section EZ 22(1) (Base value and total deductions in (a) section EE 56: before 1 April 1995) does not apply to it; and the person (person A) acquires it from an associated person.
(b) Base value Base value is the lesser of— (a) (b) the cost of the item to person A; and the total of the amounts described in subsections (3) and (4).
First amount for purposes of subsection (2)(b) The amount is the cost of the item to— (a) the associated person, if the associated person did not acquire the item from either person A or another person associated with person A; or whoever owned the item, whether person A or the asso- ciated person, at the start of an unbroken chain of own- ership made up of person A and 1 or more persons as- sociated with person A.
(b) Second amount for purposes of subsection (2)(b) The amount is all expenditure incurred for the item by person A and the associated person or associated persons before the date on which person A acquired the item.
Cost and expenditure In this section, “cost” and “expenditure” are qualiﬁed as fol- lows: (a) expenditure is excluded from them if it is expenditure for which a person has been allowed a deduction for an amount of depreciation loss they have had under section EE 38(3) or EE 48(2) or the corresponding provision of the Income Tax Act 2004 or the Income Tax Act 1994; and (1) (2) (3) (4) (5) 752 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EE 60 (c) (b) expenditure is not excluded from them if it is expend- iture for which a person has been allowed a deduction for an amount of depreciation loss they have had under any other provision of this subpart or the corresponding provision of the Income Tax Act 2004 or the Income Tax Act 1994; and expenditure is excluded from them if it is expenditure for which a person is allowed a deduction under any other subpart or the corresponding provision of the Income Tax Act 2004 or the Income Tax Act 1994; and expenditure is excluded from them if it is expenditure for which a person would have been allowed a deduc- tion under any other subpart if this Act had applied or the corresponding provision of the Income Tax Act 2004 or the Income Tax Act 1994 if the Act had applied.
Deﬁned in this Act: acquire, amount, associated person, deduction, depreciation loss, own, petroleum-related depreciable property Compare: 2004 No 35 s EE 50 (d) EE 60 Total deductions in section EE 56 (1) (2) Total deductions Total deductions is the total, calculated as at a particular time, of— (a) (b) (c) the amount described in subsection (2); and the amount described in subsection (3); and the amount of a deduction under section EE 25.
First amount for purposes of subsection (1) The amount is all amounts that 1 or more of the following pro- visions has required to be subtracted from the item’s adjusted tax value since the start of the 1993–94 income year: (a) (b) (c) (d) section EE 52(2): section EE 44(2) of the Income Tax Act 2004: section EG 19(5) of the Income Tax Act 1994: the provision described in section EZ 22(4) (Base value and total deductions in section EE 56: before 1 April 1995).
753 Part E s EE 60 Income Tax Act 2007 Reprinted as at 5 January 2010 (3) (4) (5) Second amount for purposes of subsection (1) The amount is all deductions for amounts of depreciation loss, calculated using the method described in subsection (4), that, in the period described in subsection (5),— (a) (ii) the person was allowed for the item and,— (i) if the item is a patent, for the patent application in relation to which the item was granted: if the item is a geothermal well that a person ac- quired under section EE 53(2), for the well before the person acquired it under that section; or the person would have been allowed if they had used the item wholly in deriving assessable income or carry- ing on a business for the purpose of deriving assessable income.
(b) Method The method is— (a) (b) the depreciation method that the person used in each relevant income year; or the diminishing value method, if the person did not make deductions for amounts of depreciation loss for the item.
Period The period ends with the end of the income year before the income year in which the particular time occurs, and starts with,— (a) (ii) for an item to which section EE 57 applies,— (i) unless subparagraph (ii) or (iii) applies, the date on which the person acquired the item; or if the item is a geothermal well that a person ac- quired under section EE 53(2), the earliest date on which the person acquired the well under sec- tion EE 55(4) or otherwise; or if the item is a patent and the person acquired the patent application in relation to which the patent was granted, the date on which the person ac- quired the patent application; or for an item to which section EE 58 applies,— (i) unless subparagraph (ii) applies, the beginning of the month in which the person started to use the (iii) (b) 754 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EE 61 item, or to have it available for use for the pur- pose of deriving assessable income or carrying on a business for the purpose of deriving assess- able income; or if the item is a patent and the person acquired the patent application in relation to which the patent was granted, the beginning of the month in which the person acquired the patent application; or (ii) (c) (d) for an item to which section EE 59 applies, the date on which person A or the relevant associated person acquired the item; or for an item to which section EZ 22(1) applies, to the item, the end of the 1992–93 income year.
Deﬁned in this Act: acquire, adjusted tax value, amount, assessable income, associated person, business, deduction, depreciation loss, depreciation method, diminishing value method, geothermal well, income year Compare: 2004 No 35 s EE 51 EE 61 Meaning of annual rate Deﬁnitions (1) (2) (3) (4) Meaning Annual rate means the annual depreciation rate applying to an item of depreciable property that a person owns.

The rate is 1 of the rates described in subsections (2) to (5).
1995–96 income year or later The rate is the rate set by section EE 31(2)(a) or (b) if both the following apply to the item: (a) the person acquires it in their 1995–96 income year or a later income year; and the item is not dealt with in any of subsections (3) to (5).

(b) 1995–96 income year or later: international aircraft The rate is the rate set by section EE 31(2)(c) if the item is an international aircraft that the person acquires in their 1995–96 income year or a later income year.
Fixed life intangible property The rate is the rate set by section EE 33 if both the following apply to the item: (a) the item is an item of ﬁxed life intangible property; and 755 Part E s EE 62 Income Tax Act 2007 Reprinted as at 5 January 2010 (5) (6) (7) (8) (b) the item is not an item of excluded depreciable property.

Patents, applications: complete speciﬁcation before 1 April 2005 The rate is the rate set by section EE 34 if the item is a patent and section EE 34 applies to the item and the person.
1994–95 income year The rate is the rate set by section EZ 13 (Annual rate for item acquired on or after 1 April 1993 and before end of person’s 1994–95 income year) if all the following apply to the item: (a) the person acquired it before the end of their 1994–95 income year; and the item is not an item of ﬁxed life intangible property; and the item is not an item of excluded depreciable property.
(b) (c) Excluded depreciable property The rate is the rate set by section EZ 15 (Annual rate for ex- cluded depreciable property: 1992–93 tax year) if the item is an item of excluded depreciable property.

Exception Section FA 11B(7) (Adjustments for certain operating leases) overrides this section.
Deﬁned in this Act: acquire, annual rate, depreciable property, excluded depre- ciable property, ﬁxed life intangible property, income year, international air- craft, own Compare: 2004 No 35 s EE 52 inserted, on 1 April 2008, by section 358 of the Section EE 61(8) heading: Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section EE 61(8): inserted, on 1 April 2008, by section 358 of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
EE 62 Meaning of depreciable intangible property Meaning Depreciable intangible property means the property listed in schedule 14 (Depreciable intangible property).

Criteria for listing in schedule 14 For property to be listed in schedule 14, the criteria are as follows: (a) it must be intangible; and (1) (2) 756 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EE 64 (b) it must have a ﬁnite useful life that can be estimated with a reasonable degree of certainty on the date of its acquisition.
Schedule 14 prevails Property that is listed in schedule 14 is depreciable intangible property even if the criteria are not met.
Deﬁned in this Act: acquire, depreciable intangible property, property Compare: 2004 No 35 s EE 53 (3) EE 63 Meaning of estimated useful life (1) (2) Meaning for item of depreciable property, except for copyright in sound recording Estimated useful life, for an item of depreciable property, other than a copyright in a sound recording, means the period over which the item might reasonably be expected to be useful in deriving assessable income or carrying on a business for the purpose of deriving assessable income, taking into account— the passage of time, likely wear and tear, exhaustion, (a) and obsolescence; and an assumption of normal and reasonable maintenance.
(b) Meaning for copyright in sound recording Estimated useful life, for a copyright in a sound recording, means the period from the time at which the copyright might reasonably be expected to be ﬁrst useful in deriving assessable income until the end of the income year in which it might rea- sonably be expected that 90% of all the income that will be derived from it has been derived.
Deﬁned in this Act: assessable income, business, depreciable property, esti- mated useful life, income year, sound recording Compare: 2004 No 35 s EE 54 EE 64 Meaning of excluded depreciable property (1) Meaning Excluded depreciable property means, for a person,— (a) depreciable property for whose purchase or construc- tion the person entered into a binding contract before 16 December 1991; or 757 Part E s EE 65 Income Tax Act 2007 Reprinted as at 5 January 2010 (b) (c) (d) (e) depreciable property that the person used or had avail- able for use for any purpose whatever within New Zealand, other than as trading stock, before 1 April 1993; or depreciable property that is an intangible item that the person used or had available for use before 1 April 1993; or depreciable property that is or has been a qualifying asset for the person; or depreciable property to the extent to which it is or has been a qualifying improvement for the person.
Exclusion Excluded depreciable property does not include property to which both the following apply: (a) (b) it existed at the end of the 1992–93 income year; and the Commissioner allowed it to be accounted for in that income year using the standard value method, the replacement value method, or the annual revaluation method.
Deﬁned in this Act: Commissioner, depreciable property, excluded depreciable property, income year, New Zealand, property, qualifying improvement, quali- fying asset, trading stock Compare: 2004 No 35 s EE 55 (2) EE 65 Meaning of maximum pooling value Meaning (1) Maximum pooling value, for an item of depreciable property, means the greater of— $2,000; and (a) the value set in a determination issued under section (b) 91AAL of the Tax Administration Act 1994 applying to the item.
Increase in speciﬁed sum The Governor-General may make an Order in Council increas- ing the sum speciﬁed in subsection (1)(a).

Deﬁned in this Act: depreciable property, maximum pooling value Compare: 2004 No 35 s EE 56 (2) 758 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EE 67 EE 66 Meaning of poolable property (1) (2) (3) (4) Meaning Poolable property, for an income year, means an item of depreciable property that a person owns to which subsections (2) to (4) apply.
Not a building The item is not a building.

Maximum pooling value or globo method The item— (a) is acquired in the income year for a cost equal to or less than its maximum pooling value; or was previously accounted for separately but has, as at the start of the income year, an adjusted tax value equal to or less than its maximum pooling value; or was accounted for at the end of the 1992–93 income year using, with the Commissioner’s permission, the globo accounting method.
Wholly used or subject to fringe beneﬁt tax The item— (a) is wholly used or available for use by the person in de- riving assessable income or carrying on a business for the purpose of deriving assessable income; or to the extent to which it is not wholly used or available for use by the person in deriving assessable income or carrying on a business for the purpose of deriving as- sessable income, is used in a way that is subject to fringe beneﬁt tax.
(b) (c) (b) Deﬁned in this Act: acquire, adjusted tax value, assessable income, business, Commissioner, depreciable property, fringe beneﬁt tax, income year, maximum pooling value, own, poolable property Compare: 2004 No 35 s EE 57 EE 67 Other deﬁnitions In this Act,— depreciation method means a method described in section EE 12 diminishing value method means the method of calculating an amount of depreciation loss for an item of depreciable prop- 759 Part E s EE 67 Income Tax Act 2007 Reprinted as at 5 January 2010 erty by subtracting, in each income year, a constant percentage of the item’s adjusted tax value from the item’s adjusted tax value diminishing value rate means the rate that a person using the diminishing value method applies to an item of depreciable property economic rate means the economic depreciation rate of an item of depreciable property, set under sections EE 27 to EE 30 estimated residual market value means, for an item of de- preciable property, its market value at the end of its estimated useful life, estimated reasonably as at the date of acquisition and based on an assumption of normal and reasonable main- tenance over its estimated useful life ﬁxed life intangible property means property that— is depreciable intangible property; and (a) has a legal life that could reasonably be expected, on the (b) date of the property’s acquisition, to be the same length as the property’s remaining estimated useful life improvement means an alteration, extension, or repair of an item of depreciable property that increases its capital value international aircraft means a jet-engined aircraft that a per- son uses in an income year mainly in regular commercial ser- vice to transport passengers between New Zealand and any other place legal life,— (a) for an item to which paragraphs (b) and (c) do not apply, means the number of years, months, and days for which an owner’s interest in an item of intangible property exists under the contract or statute that creates the owner’s interest, assuming that the
 owner exercises any rights of renewal or extension that are either essen- tially unconditional or conditional on the payment of predetermined fees: for an item that is a patent application or a patent, means the legal life under paragraph (a) that a patent would have if granted when a patent application is ﬁrst lodged: (b) 760 Reprinted as at 5 January 2010 (c) Income Tax Act 2007 Part E s EE 67 for an item that is plant variety rights, means the total of— (i) the legal life that the rights would have under paragraph (a); and the number of whole calendar months during which the person owns the plant variety rights application in relation to which the rights are granted (ii) petroleum-related depreciable property means depreciable property that is— (a) (b) (c) petroleum drilling rigs; or support vessels for offshore petroleum drilling rigs; or support vessels for offshore petroleum production plat- forms pool means items of depreciable property that a person chooses under section EE 12 to depreciate as a pool using the pool method pool method means the method of calculating an amount of depreciation loss set out in section EE 21 provisional rate means a provisional rate as described in sec- tion EE 35 special rate means a special rate as described in section EE 35 straight-line method means the method of calculating an amount of depreciation loss for an item of depreciable prop- erty by subtracting, in each income year, a constant percentage of the item’s cost, to its owner, from the item’s adjusted tax value straight-line rate means the rate that a person using the straight-line method applies to an item of depreciable prop- erty.
Deﬁned in this Act: acquire, adjusted tax value, amount, depreciable intan- gible property, depreciable property, depreciation loss, depreciation method, diminishing value method, diminishing value rate, economic rate, estimated residual market value, estimated useful life, ﬁxed life intangible property, im- provement, income year, international aircraft, legal life, New Zealand, own, pay, petroleum, petroleum-related depreciable property, plant variety rights, pool, pool method, property, provisional rate, special rate, straight-line method, straight-line rate Compare: 2004 No 35 s EE 58 761 Part E s EF 1 Income Tax Act 2007 Reprinted as at 5 January 2010 Subpart EF—Taxes and levies EF 1 Fringe beneﬁt tax Fringe beneﬁt tax for which a deduction is allowed may be deducted only in the income year in which the relevant fringe beneﬁts are provided or granted, whether or not the tax actually becomes due and payable in the income year.
Deﬁned in this Act: deduction, fringe beneﬁt tax, income year, pay Compare: 2004 No 35 s EF 1 EF 2 Employer’s superannuation contribution tax An amount of employer’s superannuation contribution tax (ESCT) for which a deduction is allowed may be deducted only in the income year in which the employer’s superannu- ation cash contributions to which the tax relates are made, whether or not the tax actually becomes due and payable in the income year.
Deﬁned in this Act: deduction, employer’s superannuation cash contribution, ESCT, income year, pay Compare: 2004 No 35 s EF 2 Section EF 2: amended (with effect on 1 April 2008), on 6 October 2009, by section 121(1) of the Taxation (International Taxation, Life Insurance, and Re- medial Matters) Act 2009 (2009 No 34).
Section EF 2 list of deﬁned terms employer’s superannuation cash contri- bution: inserted (with effect on 1 April 2008), on 6 October 2009, by section 121(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EF 2 list of deﬁned terms employer’s superannuation contribution: repealed (with effect on 1 April 2008), on 6 October 2009, by section 121(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
EF 3 Accident compensation levies and premiums Timing of deduction A deduction that an employer or self-employed person is al- lowed for an Accident Compensation Corporation (ACC) levy or premium is allocated to the income year in which it becomes due and payable, except as provided in subsection (2) or (3).
Earlier income year If a deduction for an ACC levy or premium has been allocated to an income year earlier than the income year in which the (1) (2) 762 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EF 3 (3) (4) (5) levy or premium becomes due and payable and, because of the time bar or for another reason, the Commissioner cannot lawfully amend the assessment for the income year, the deduc- tion is allocated to the income year in which it was allowed.
Balance dates between 1 October and 6 April If a person’s income year ends on a balance date falling be- tween 1 October and 6 April (both dates inclusive), an ACC levy or premium that is due on a date in schedule 3, part A, col- umn H (Payment of provisional tax and terminal tax) is treated as if it were due and payable on the relevant date in schedule 3, part A, column G for the person’s corresponding income year.
References to dates in schedule 3 For the purposes of subsection (3), references to the date in schedule 3, part A, columns G and H (which refer to months only and not days) are references to the day in the relevant month that is ﬁxed by the following: (a) the deﬁnition of instalment date in section YA 1 (Def- initions); and sections RA 3 (Terminal tax obligations), RC 1(2), and RC 20 to RC 24 (which relate to provisional tax instal- ments in transitional years).
(b) Meaning of ACC levy or premium In this section, ACC levy or premium means any of the fol- lowing levies, premiums, or penalties: the following levy or premium: (a) (i) (ii) a levy to fund the Work Account under section 168 of the Injury Prevention, Rehabilitation, and Compensation Act 2001; or an employer’s premium to fund the Employers’ Account under section 281B of the Accident In- surance Act 1998: a Residual Claims levy under— Injury Prevention, the (i) Rehabilitation, and Compensation Act 2001; or section 304 of the Accident Insurance Act 1998: section (ii) the following levy or premium: 193 of (b) (c) 763 Part E s EF 4 Income Tax Act 2007 Reprinted as at 5 January 2010 (i) (ii) a levy to fund the Work Account under sec- tion 168B or 211 of the Injury Prevention, Rehabilitation, and Compensation Act 2001; or a premium to fund the Self-Employed Work Ac- count under section 300 of the Accident Insur- ance Act 1998: (d) (e) (f) (g) (h) (i) (ii) the following levy or premium: (i) a levy to fund the Earners’ Account under section 219(1) of the Injury Prevention, Rehabilitation, and Compensation Act 2001; or a premium to fund the Earners’ Account under section 283(1) of the Accident Insurance Act 1998: the following levy: (i) an Earners’ Account Residual levy under section 219(2) of the Injury Prevention, Rehabilitation, and Compensation Act 2001; or an Earners’ Account levy under section 283(2) of the Accident Insurance Act 1998: (ii) a levy to meet the costs of the Regulator under section 236 of the
 Accident Insurance Act 1998: a contribution to the Insolvent Insurers Fund under sec- tion 246 or 247 of the Accident Insurance Act 1998: a levy or penalty payable to the Non-Compliers Fund under section 263 of the Accident Insurance Act 1998: a base premium under sections 466 to 470 of the Acci- dent Insurance Act 1998.
Deﬁned in this Act: ACC levy or premium, Commissioner, deduction, em- ployer, income year, pay, time bar Compare: 2004 No 35 s EF 3 EF 4 Use of money interest payable by Commissioner Timing of income Income that is interest payable by the Commissioner to a per- son under Part 7 of the Tax Administration Act 1994 is allo- cated to the income year in which the Commissioner pays the interest.

This subsection is overridden by subsections (2) and (3).
(1) 764 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EF 5 (2) (3) (4) Interest paid in same year as liability arises If the Commissioner pays the interest in the same tax year as that to which the original assessment relates, the income that is interest is allocated to the following income year.
Effect of amended assessment If the Commissioner amends the person’s assessment, income that is interest payable, or overpaid interest repayable, by the Commissioner as a result of the amended assessment is allo- cated to the income year following the income year in which the Commissioner issues the notice of amended assessment.
Amended assessment in same year For the purposes of subsection (3), if the Commissioner amends the person’s assessment more than once in a tax year, only the last amended assessment is taken into account.
Deﬁned in this Act: assessment, Commissioner, income, income year, interest, notice, pay, tax year Compare: 2004 No 35 s EF 4 EF 5 Use of money interest payable by person (1) (2) (3) Timing of deduction A deduction for interest payable by a person to the Commis- sioner under Part 7 of the Tax Administration Act 1994 is al- located to the income year in which the person’s original as- sessment is made.

This subsection is overridden by subsection (2).


Assessment made in same year as liability arises If the original assessment is made in the same tax year as that to which the income tax liability relates, the deduction is allo- cated to the following income year.
Effect of amended assessment If the Commissioner amends the person’s assessment, a deduc- tion for interest payable, or overpaid interest repayable, to the Commissioner as a result of the amended assessment is allo- cated to the income year following the income year in which the Commissioner issues the notice of amended assessment.

This subsection does not apply in the circumstances described in subsection (4).
765 Part E s EF 6 Income Tax Act 2007 Reprinted as at 5 January 2010 (4) Terminal amended assessment If the Commissioner amends the person’s assessment, a de- duction for interest payable, or overpaid interest repayable, to the Commissioner as a result of the amended assessment is al- located to the income year in which the Commissioner issues the notice of amended assessment, in the following circum- stances: (a) the person dies, goes into liquidation, or otherwise ceases to exist before the income year following that in which the Commissioner issues the notice of amended assessment; and the person would have been allowed a deduction for the interest payable or repayable if it had been incurred in the income year in which the Commissioner issues the notice of amended assessment; and the person’s executor or other representative asks the Commissioner.
(b) (c) (5) Amended assessment in same year if the Commissioner For the purposes of subsection (4), amends the person’s assessment more than once in a tax year, only the last amended assessment is taken into account.
Deﬁned in this Act: assessment, Commissioner, deduction, income tax liability, income year, interest, liquidation, notice, pay, tax year Compare: 2004 No 35 s EF 5 EF 6 Different tax years Sections EF 4 and EF 5 apply even though the income tax liability giving rise to the obligation to pay interest, and the period for the interest payment, may fall wholly or partly in a different tax year from that in which the obligation to pay interest arises under those sections.
Deﬁned in this Act: income tax liability, interest, pay, tax year Compare: 2004 No 35 s EF 6 766 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EG 1 Subpart EG—Recognition of accounting treatment EG 1 Election to use balance date used in foreign country (1) (2) (3) (4) When this section applies This section applies when— (a) (b) (c) (d) a person has foreign source income or foreign expend- iture that is taken into account in determining the in- come tax, not merely the withholding tax, payable by them in a foreign country or territory; and the foreign source income or foreign expenditure has been included in 1 of their income tax returns in the country or territory; and the annual income tax balance date that is relevant for them for the income tax return in the country or territory falls in a period that is an income year for them; and if the person did not make an election under this sec- tion,— (i) the foreign source income would be allocated to their previous income year; or the foreign expenditure would be a deduction al- located to the previous income year if the only income of the person were foreign source income to which this section applies.
(ii) Election to allocate If the person has not already included the foreign source in- come or foreign expenditure in their return of income for the previous tax year, they may choose to allocate the foreign source income or the foreign expenditure to the income year referred to in subsection (1)(c).

How election made The person makes the election by including the foreign source income or foreign expenditure in their return of income for the income year referred to in subsection (1)(c).
What election applies to The election applies to all the person’s foreign source income and foreign expenditure to which subsection (1) applies, ex- cept for— 767 Part E s EG 1 Income Tax Act 2007 Reprinted as at 5 January 2010 (a) (b) (c) (d) (e) income or expenditure under the ﬁnancial arrangements rules, unless the Commissioner agrees in writing; or dividends, unless the Commissioner agrees in writing and the person is not a company; or attributed controlled foreign company (CFC) income; or foreign investment fund (FIF) income or income de- rived from an attributing interest; or in the case of foreign expenditure, foreign expenditure that would be allowed as a deduction if the only income of the person were income to which paragraphs (a) to (d) apply.
Timing of income The foreign source income and foreign expenditure to which the election applies is allocated to the income year referred to in subsection (1)(c).
Election treated as continuing A person who has made an election is treated as making the same election for all later income years, unless— (a) the Commissioner agrees in writing to allow the person to revoke the election; or the person’s net income for the relevant income year would be more than $100,000 if their only income in the income year were foreign source income.
(b) Net income of more than $100,000 If subsection (6)(b) applies,— (a) foreign source income and foreign expenditure is allo- cated to the income year referred to in subsection (1)(c) only if it was derived or incurred in that year; and foreign source income and foreign expenditure to which the election would have applied if subsection (6)(b) had not existed is allocated to the previous income year; and if necessary, the previous tax year’s return is amended.
(b) (c) Factors considered In deciding whether to agree to an election applying to income or expenditure under the ﬁnancial arrangements rules or divi- dends, the Commissioner must consider— (5) (6) (7) (8) 768 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EG 1 (a) (b) (c) whether the person is likely to incur signiﬁcant compli- ance costs if the Commissioner does not agree to the election; and the risk to the revenue if the Commissioner agrees to the election; and any other factors the Commissioner considers relevant.
(9) Person ceasing to be, or becoming, resident If the person ceases to be, or becomes, resident in New Zealand, this section applies in the same way as for other persons except that— (a) it does not apply to income or expenditure that is allo- cated, other than under this section, to a period when the person is not resident in New Zealand; and if it allocates foreign source income derived or for- eign expenditure incurred while the person is resident in New Zealand to a period after the person has ceased to be resident in New Zealand,— (i) (b) the foreign source income is assessable income in the income year in which the foreign source income is allocated under this section, despite section BD 1(5)(c) (Income, exempt income, ex- cluded income, non-residents’ foreign-sourced income, and assessable income); and the foreign expenditure is allowed as a deduction in the income year to which the foreign expend- iture is allocated under this section.
(ii) (10) Some deﬁnitions In this section,— annual income tax balance date includes a date that is sub- stantially equivalent to an annual income tax balance date foreign expenditure means expenditure that is incurred in de- riving foreign source income foreign source income means income that is not derived from New Zealand and that is not exempt income.
Deﬁned in this Act: annual income tax balance date, assessable income, at- tributed CFC income, attributing interest, Commissioner, company, deduction, derived from New Zealand, dividend, exempt income, FIF income, ﬁnancial ar- rangements rules, foreign expenditure, foreign source income, income, income 769 Part E s EG 2 Income Tax Act 2007 Reprinted as at 5 January 2010 tax, income year, net income, pay, resident in New Zealand, return of income, tax year Compare: 2004 No 35 s EG 1 EG 2 Adjustment for changes to accounting practice When this section applies This section applies in an income year (the year of change) when a person changes from— (a) a cash accounting method to an accrual accounting method of calculating their income tax liability; or an accrual accounting method to a cash accounting method of calculating their income tax liability.
(b) From cash to accrual accounting method If subsection (1)(a) applies,— (a) an amount owed to the person on the last day of the income year before the year of change is income of the person in the year of change; and an amount owed by the person on the last day of the income year before the year of change is allowed as a deduction in the year of change.
From accrual to cash accounting method If subsection (1)(b) applies,— (a) an amount equal to the total of all amounts owing by the person in the year of change that have been allowed as a deduction in earlier income years is income of the person in the year of change; and an amount equal to the total of all amounts owing to the person in the year of change that have been treated as income of the person in earlier income years is allowed as a deduction in the year of change.
(b) (b) Some deﬁnitions In this section,— accrual accounting method means a method of account- ing that is regarded as accrual accounting under generally accepted accounting practice (1) (2) (3) (4) 770 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EG 3 cash accounting method means a method of accounting by which the income tax liability of a person is calculated by ref- erence to cash receipts or outgoings.
Deﬁned in this Act: accrual accounting method, amount, cash accounting method, deduction, generally accepted accounting practice, income, income tax liability, income year Compare: 2004 No 35 s EG 2 EG 3 Allocation of income, deductions, and tax credits by portfolio tax rate entity (1) (2) (3) When this section applies This section applies for the calculation of a portfolio tax rate entity’s liability for income tax for a tax year.
Allocation shown in accounts Income and deductions of the portfolio tax rate entity are allo- cated— (a) to portfolio allocation periods as— (i) reﬂected in the entity’s valuations of portfolio in- vestor interests, if the entity makes such valu- ations; or shown in the entity’s ﬁnancial statements, if sub- paragraph (i) does not apply: (ii) (b) to portfolio investor classes and investors as— (i) reﬂected in the entity’s valuations of portfolio in- vestor interests, if the entity makes such valu- ations; or shown in the entity’s ﬁnancial statements, if sub- paragraph (i) does not apply.
(ii) Tax credits A tax credit received by a portfolio tax rate entity is allocated to the portfolio allocation period under subsection (2) of the income year to which the credit relates.
Deﬁned in this Act: deduction, ﬁnancial statements, income, income tax, in- vestor, portfolio allocation period, portfolio investor class, portfolio investor interest, portfolio tax rate entity, tax credit, tax year Compare: 2004 No 35 s EG 3 Section EG 3 heading: amended, on 1 April 2008, by section 359(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EG 3(3) heading: inserted, on 1 April 2008, by section 359(2) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

771 Part E s EH 1 Income Tax Act 2007 Reprinted as at 5 January 2010 Section EG 3(3): inserted, on 1 April 2008, by section 359(2) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EG 3 list of deﬁned terms tax credit: inserted, on 1 April 2008, by section 359(3) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Subpart EH—Income equalisation schemes Introductory provisions EH 1 Income equalisation schemes Description An income equalisation scheme allows a person to reduce their net income for a tax year by making a deposit with the Com- missioner for the corresponding income year.
Three schemes The 3 income equalisation schemes are— (a) the main income equalisation scheme, described in sections EH 3 to EH 36: the adverse event income equalisation scheme, de- scribed in sections EH 37 to EH 62: the thinning operations income equalisation scheme, described in sections EH 63 to EH 79.
Meaning of terms Terms used in the 3 schemes are deﬁned as follows: (a) terms used speciﬁcally in the main income equalisation scheme are deﬁned in sections EH 34 to EH 36: terms used speciﬁcally in the adverse event income equalisation scheme are deﬁned in sections EH 61 and EH 62: terms used speciﬁcally in the thinning operations in- come equalisation scheme are deﬁned in sections EH 78 and EH 79.
Deﬁned in this Act: adverse event income equalisation scheme, Commissioner, corresponding income year, deposit, income, main income equalisation scheme, net income, person, tax year, thinning operations income equalisation scheme Compare: 2004 No 35 s EH 1 (b) (c) (b) (c) (1) (2) (3) 772 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EH 3 EH 2 Income Equalisation Reserve Account (1) (2) Account There is a Crown Bank Account called the Income Equalisa- tion Reserve Account that is operated under the Public Finance Act 1989.
Deposits paid into account Every deposit a person makes with the Commissioner under a scheme referred to in section EH 1(2)— (a) (b) must be paid into the Income Equalisation Reserve Ac- is public money; and count.
Deﬁned in this Act: Commissioner, deposit, person Compare: 2004 No 35 s EH 2 Main income equalisation scheme Application EH 3 Persons to whom main income equalisation scheme applies (1) (2) Meaning of farmer, ﬁsher, and forester for main income equalisation scheme The main income equalisation scheme applies to— (a) a farmer, which means a person carrying on a farming or agricultural business on land in New Zealand; or a ﬁsher, which means a person carrying on a ﬁshing business; or a forester, which means a person who— derives income from forestry; and (i) is not a company, a public authority, a Maori au- (ii) thority, or an unincorporated body.
(b) (c) Meaning of person for main income equalisation scheme In the main income equalisation scheme, person means a farmer, ﬁsher, or forester.
Deﬁned in this Act: business, company, farmer, ﬁsher, ﬁshing business, forester, income from forestry, main income equalisation scheme, Maori authority, New Zealand, person, public authority Compare: 2004 No 35 s EH 3 773 Part E s EH 4 Income Tax Act 2007 Reprinted as at 5 January 2010 Deposits and accounts EH 4 Main deposit Deposit for business or forestry A person may make a payment to the Commissioner for entry in their main income equalisation account for an accounting year as follows: (a) a farmer may make a payment for the farmer’s farming or agricultural business: a ﬁsher may make a payment for the ﬁsher’s ﬁshing business: a forester may make a payment for the forester’s income from forestry.
(b) (c) Upper limit of deposit A person must not make, for an accounting year, deposits that in total are more than their main maximum deposit for the tax year.

Lower limit of deposit A person must not make, for an accounting year, a deposit less than the lesser of— (a) (b) $200; and the difference between— (i) the total of the deposits the person has previously made for the accounting year; and the person’s main maximum deposit for the ac- counting year.
(ii) Time of making deposit A person makes a deposit for an accounting year by— (a) making the deposit during the accounting year; or (b) doing both the following: (i) (ii) making the deposit during the speciﬁed period for the accounting year; and at the time of making it, giving the Commissioner notice that the deposit is for the accounting year; or (c) doing both the following: (i) making the deposit within a time that is after the end of the speciﬁed period for the accounting (1) (2) (3) (4) 774 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EH 5 (5) year but that is allowed by the Commissioner in a case or class of cases; and at the time of making it, giving the Commissioner notice that the deposit is for the accounting year.
(ii) Limit on making deposit If a refund has been made to a person for an accounting year under section EH 13 or EH 15, the person may later make a deposit for that accounting year only if the Commissioner is satisﬁed, before the deposit is made, that all the refund has been used to develop or expand a farmer’s business, if the person is a farmer, or a ﬁshing business, if the person is a ﬁsher, or the means by which a forester derives income from forestry, if the person is a forester.
Deﬁned in this Act: accounting year, business, Commissioner, deposit, farmer, ﬁsher, ﬁshing business, forester, income from forestry, main deposit, main in- come equalisation account, main maximum deposit, notice, pay, person, speci- ﬁed period Compare: 2004 No 35 s EH 4 EH 5 Main income equalisation account (1) (2) (3) (4) Person’s account The Commissioner must keep a main income equalisation ac- count in the name of every person who makes a deposit with the Commissioner.
Deposits in account Every deposit a person makes with the Commissioner must be entered in the person’s main income equalisation account.

Amounts in accounts The only amounts that may be entered in a person’s main in- come equalisation account are— (a) deposits made by the person with the Commissioner; and interest paid under section EH 6.
(b) Amounts not available to others Despite section FC 2 (Transfer at market value), amounts en- tered in a person’s main income equalisation account must not, while they are in the account,— (a) be assigned or charged in any way; or 775 Part E s EH 6 Income Tax Act 2007 Reprinted as at 5 January 2010 (b) (c) (d) pass by operation of law to, or into the custody or control of, someone else, except when the person is bankrupt or has been put into liquidation; or be assets for the payment of the person’s debts or liabil- ities, except when the person is bankrupt or has been put into liquidation; or be assets for the payment of the debts or liabilities of a dead person’s estate.
Amounts available only for refunds The only payments that may be made from a person’s main income equalisation account are refunds under any of sections EH 8, EH 10, EH 13, EH 15, EH 17, EH 19, EH 23, and EH 25.
Deﬁned in this Act: amount, Commissioner, deposit, interest, liquidation, main income equalisation account, pay, person Compare: 2004 No 35 s EH 5 (5) EH 6 Interest on deposits in main income equalisation account Interest No interest payable No interest is payable on a deposit in a main income equal- isation account that is refunded within 1 year of the date of deposit.

Interest payable Interest is payable on every other deposit in a main income equalisation account.
Period Interest is computed with daily rests from the date of acknow- ledgment of the receipt of the deposit until the date the deposit is refunded.

Date to which accrues Interest on a deposit accrues until the earlier of— (a) (b) 31 March in each year; and the date the deposit is refunded.

Added to deposit Accrued interest on a deposit is added to the deposit.

(1) (2) (3) (4) (5) 776 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EH 8 (6) Rate The interest rate is 3% a year.
Deﬁned in this Act: deposit, interest, main income equalisation account, pay, year Compare: 2004 No 35 s EH 6 EH 7 Deduction of deposit Deduction (1) (2) (3) When this section applies This section applies when a person is allowed a deduction under section DQ 1 (Main income equalisation scheme).

Amount of deduction The amount of the deduction is the lesser of— (a) the total of the person’s deposits for the accounting year; and their main maximum deposit for the accounting year.
(b) Timing of deduction The person is allowed the deduction in the accounting year.

Deﬁned in this Act: accounting year, amount, corresponding income year, de- duction, deposit, main maximum deposit, person Compare: 2004 No 35 s EH 7 Refunds: automatic EH 8 Refund of excess deposit (1) (2) When this section applies This section applies when a person’s deposits for an account- ing year are more than their main maximum deposit for the accounting year.
Refund The Commissioner must refund the excess to the person as soon as practicable after the date the deposit ends.

Deﬁned in this Act: accounting year, Commissioner, date the deposit ends, deposit, main maximum deposit, person Compare: 2004 No 35 s EH 8 777 Part E s EH 9 Income Tax Act 2007 Reprinted as at 5 January 2010 EH 9 Income does not include excess deposit A refund under section EH 8 is excluded income under section CX 51 (Income equalisation schemes).
Deﬁned in this Act: excluded income Compare: 2004 No 35 s EH 9 EH 10 Refund at end of 5 years (1) (2) When this section applies This section applies when a deposit is in a person’s main in- come equalisation account at the end of 5 years after the end of the accounting year for which the deposit was made.

Refund The Commissioner must refund the deposit to the person.

Sec- tion EH 28 overrides this subsection.


Deﬁned in this Act: accounting year, Commissioner, deposit, main income equalisation account, person, year Compare: 2004 No 35 s EH 10 EH 11 Income when refund given at end of 5 years A refund under section EH 10 is income, under section CB 27 (Income equalisation schemes), derived by the person and is allocated to the income year in which the refund is given.
Deﬁned in this Act: income, income year, person Compare: 2004 No 35 s EH 11 Refunds: on application EH 12 Application for refund by person, trustee of estate, Ofﬁcial Assignee, or liquidator Who may apply The following may apply to the Commissioner for a refund of some or all of the amount in a person’s main income equalisa- tion account: (a) the person may apply under section EH 13, EH 15, or EH 17: the trustee of the person’s estate may apply under sec- tion EH 19: the Ofﬁcial Assignee having charge of the person’s es- tate may apply under section EH 23: (b) (c) (1) 778 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EH 14 (2) (d) the liquidator appointed for the person may apply under section EH 25.
Application An application for a refund must— (a) (b) (c) Deﬁned in this Act: amount, Commissioner, liquidation, main income equal- isation account, person, trustee Compare: 2004 No 35 s EH 12 be in writing; and state the grounds on which it is made; and state the amount applied for.
EH 13 Refund on request (1) (2) When this section applies This section applies when a person wants a refund of some or all of the amount in their main income equalisation account, and none of sections EH 8, EH 10, EH 15, EH 17, EH 19, EH 23, and EH 25 applies.
Refund The Commissioner must refund to the person the amount ap- plied for, to the extent to which it can be made up of 1 or more deposits that have been in the person’s main income equalisa- tion account for at least 1 year before the date the deposit ends.

Section EH 28 overrides this subsection.


Deﬁned in this Act: amount, Commissioner, date the deposit ends, deposit, main income equalisation account, person, year Compare: 2004 No 35 s EH 13 EH 14 Income when refund given on request (1) (2) Year of income A refund under section EH 13 is income, under section CB 27 (Income equalisation schemes), derived by the person and is allocated to the income year in which the Commissioner receives the application for the refund.
When year of income may be different However, subsection (3) applies instead of subsection (1) if— the Commissioner receives the application for a refund (a) in the speciﬁed period for an accounting year or, if the 779 Part E s EH 15 Income Tax Act 2007 Reprinted as at 5 January 2010 (b) Commissioner allows in a case or class of cases, within a longer period; and the person chooses in the application that the refund is to be income in the accounting year to which the speciﬁed period or the longer period relates.
Different year of income The refund is income, under section CB 27, and is allocated to the income year to which the speciﬁed period or the longer period relates.
Deﬁned in this Act: accounting year, Commissioner, income, income year, per- son, speciﬁed period Compare: 2004 No 35 s EH 14 (3) EH 15 Refund for development or recovery Refund for development: application of subsection (2) Subsection (2) applies when a person wants a refund of some or all of the amount in their main income equalisation account for either or both of the following purposes: immediately after the to enable them to undertake, (a) refund is given, planned development or maintenance work for their farming or agricultural business, ﬁshing business, or forestry operation: to enable them to buy, immediately after the refund is given, livestock for use in their farming business, other than livestock replacing livestock disposed of or lost as a result of a self-assessed adverse event.
(b) Refund If the Commissioner is satisﬁed that the person will use the refund for either or both of the purposes, the Commissioner must refund to them the amount applied for, to the extent to which it can be made up of 1 or more deposits that have been in their main income equalisation account for at least 6 months before the date the deposit ends.

Section EH 28 overrides this subsection.
Refund for recovery: application of subsection (4) Subsection (4) applies when a person wants a refund of some or all of the amount in their main income equalisation account for 1 or more of the following purposes: (1) (2) (3) 780 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EH 16 (a) (b) (c) to enable them to buy, immediately after the refund is given, livestock for use in their farming business to re- place livestock disposed of or lost as a result of a self-as- sessed adverse event: to avoid them suffering serious hardship: to do anything else that the Commissioner determines, in a case or class of cases, is a purpose for which a refund should be given.
Refund If the Commissioner is satisﬁed that the person will use the refund for 1 or more of the purposes, the Commissioner must refund to them the amount applied for, regardless of the length of time it has been in the account.

Section EH 28 overrides this subsection.
Deﬁned in this Act: amount, business, Commissioner, date the deposit ends, de- posit, ﬁshing business, main income equalisation account, person, self-assessed adverse event Compare: 2004 No 35 s EH 15 (4) EH 16 Income when refund given for development or recovery (1) (2) Year of income A refund under section EH 15 is income, under section CB 27 (Income equalisation schemes), derived by the person in the income year in which the Commissioner receives the applica- tion for the refund.
When year of income may be different However, subsection (3) applies instead of subsection (1) if— the Commissioner receives the application for a refund (a) in the speciﬁed period for an accounting year or, if the Commissioner allows in a case or class of cases, within a longer period; and the person chooses in the application that the refund is to be income in the accounting year to which the speciﬁed period or the longer period relates.
(b) 781 Part E s EH 17 Income Tax Act 2007 Reprinted as at 5 January 2010 (3) Different year of income The refund is income, under section CB 27, and is allocated to the income year to which the speciﬁed period or the longer period relates.
Deﬁned in this Act: accounting year, Commissioner, income, income year, per- son, speciﬁed period Compare: 2004 No 35 s EH 16 EH 17 Refund on retirement (1) (2) When this section applies This section applies when a farmer or a ﬁsher— (a) (b) (c) has a main income equalisation account; and is neither a company nor a trustee; and retires from the farming or agricultural business or the ﬁshing business.
Refund The Commissioner must refund to the person the amount that, on the date the deposit ends, is in their main income equalisa- tion account, regardless of the length of time it has been in the account.

EH 28 overrides this subsection.


Deﬁned in this Act: amount, business, Commissioner, company, date the de- posit ends, farmer, ﬁsher, ﬁshing business, main income equalisation account, person, trustee Compare: 2004 No 35 s EH 17 EH 18 Income when refund given on retirement, and election to allocate amount to earlier year Year of income A refund under section EH 17 is income, under section CB 27 (Income equalisation schemes), derived by the person in the income year in which they retire.
When year of income may be different However, subsection (3) applies instead of subsection (1) if— the refund includes a deposit made for an accounting (a) year earlier than the tax year in which the person retires; and the person chooses to allocate some or all of the deposit to the earlier accounting year.
(b) (1) (2) 782 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EH 20 (3) (4) Different year of income The amount allocated by the person to the earlier accounting year is income, under section CB 27, derived by them in the corresponding income year.
How election made A person makes an election under this section by giving the Commissioner notice within 1 of the following times: (a) the time within which the person is required to ﬁle a return of income for the tax year corresponding to the accounting year in which they retire: a further time allowed by the Commissioner in a case or class of cases.
(b) Deﬁned in this Act: accounting year, amount, Commissioner, corresponding income year, deposit, income, income year, notice, person, return of income, tax year Compare: 2004 No 35 s EH 18 EH 19 Refund on death (1) (2) When this section applies This section applies when a person— (a) (b) has a main income equalisation account; and dies.
Refund Despite section FC 2 (Transfer at market value), the Com- missioner must refund to the trustee of the person’s estate the amount that, on the date the deposit ends, is in the person’s main income equalisation account, regardless of the length of time it has been in the account.

Section EH 28 overrides this subsection.


Deﬁned in this Act: amount, Commissioner, date the deposit ends, main income equalisation account, person, trustee Compare: 2004 No 35 s EH 19 EH 20 Income when refund given on death (1) Year of income A refund under section EH 19 is income, under section CB 27 (Income equalisation schemes), derived by the person imme- diately before their death.
783 Part E s EH 21 Income Tax Act 2007 Reprinted as at 5 January 2010 (2) When year of income may be different However, section EH 21 or EH 22 applies instead of subsec- tion (1) if the circumstances described in section EH 21(1) or EH 22(1) apply in the person’s case.
Deﬁned in this Act: income, person Compare: 2004 No 35 s EH 20 EH 21 Income when refund given on death, and election to allocate amount to earlier year (1) (2) (3) When this section applies This section applies when— (a) a refund under section EH 19 includes a deposit made for an accounting year earlier than the accounting year in which the person dies; and the trustee of the person’s estate chooses to allocate some or all of the deposit to the earlier accounting year.
(b) Different year of income The amount allocated by the trustee to the earlier account- ing year is income, under section CB 27 (Income equalisation schemes), derived by the person in the corresponding income year.
How election made A trustee makes an election under this section by giving the Commissioner notice within 1 of the following times: (a) the time within which the trustee is required to ﬁle a return of the person’s income for the period to the date of the person’s death: a further time allowed by the Commissioner in a case or class of cases.
(b) Deﬁned in this Act: accounting year, amount, Commissioner, corresponding income year, deposit, income, notice, person, return of income, trustee Compare: 2004 No 35 s EH 21 EH 22 Income when refund given on death, and election to allocate amount to later year or years When this section applies This section applies when— (1) 784 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EH 22 (2) (3) (4) (5) (a) (b) the trustee of the person’s estate does not make an elec- tion under section EH 21; and the trustee chooses to allocate some or all of the amount that is in the person’s main income equalisation account on the date of the person’s death to an accounting year or years after that date.
Accounting year or years referred to in subsection (1)(b) The accounting year or years referred to in subsection (1)(b) must be within the earlier of— (a) (b) the 3 years after the date of the person’s death; and the 5 years after the end of the accounting year for which a deposit or a part of a deposit was made, if the amount that the trustee allocates to a later accounting year or years includes the deposit or part of it.
Allocated amount remains in account An amount allocated by the trustee to a later accounting year remains in the person’s main income equalisation account until— (a) it is refunded to the trustee in the accounting year to which it is allocated; or it is not refunded because of the application of section EH 28.
(b) Different year of income An amount allocated by the trustee to a later accounting year is income, under section CB 27 (Income equalisation schemes), derived by the person in the corresponding accounting year.
How election made A trustee makes an election under this section by a notice that— (a) speciﬁes— (i) (ii) each amount allocated to a later accounting year; and the accounting year to which each amount is al- located; and (b) is given to the Commissioner within 1 of the following times: 785 Part E s EH 23 Income Tax Act 2007 Reprinted as at 5 January 2010 (i) (ii) the time within which the trustee is required to ﬁle a return of the person’s income for the period to the date of the person’s death: a further time allowed by the Commissioner in a case or class of cases.
Deﬁned in this Act: accounting year, amount, Commissioner, corresponding income year, deposit, income, main income equalisation account, notice, per- son, return of income, trustee, year Compare: 2004 No 35 s EH 22 EH 23 Refund on bankruptcy (1) (2) When this section applies This section applies when a person— (a) (b) has a main income equalisation account; and is bankrupt.
Refund The Commissioner must refund to the Ofﬁcial Assignee hav- ing charge of the person’s estate the amount that, on the date the deposit ends, is in the person’s main income equalisation account, regardless of the length of time it has been in the ac- count.

Section EH 28 overrides this subsection.


Deﬁned in this Act: amount, Commissioner, date the deposit ends, main income equalisation account, person Compare: 2004 No 35 s EH 23 EH 24 Income when refund given on bankruptcy A refund under section EH 23 is income, under section CB 27 (Income equalisation schemes), derived by the person imme- diately before the bankruptcy starts.
Deﬁned in this Act: income, person Compare: 2004 No 35 s EH 24 EH 25 Refund on liquidation When this section applies This section applies when a person— (a) (b) has a main income equalisation account; and is put into liquidation.
(1) 786 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EH 28 (2) Refund The Commissioner must refund to the liquidator appointed for the person the amount that, on the date the deposit ends, is in the person’s main income equalisation account, regardless of the length of time it has been in the account.

Section EH 28 overrides this subsection.


Deﬁned in this Act: amount, Commissioner, date the deposit ends, liquidation, main income equalisation account, person Compare: 2004 No 35 s EH 25 EH 26 Income when refund given on liquidation A refund under section EH 25 is income, under section CB 27 (Income equalisation schemes), derived by the person imme- diately before the liquidation starts.
Deﬁned in this Act: income, liquidation, person Compare: 2004 No 35 s EH 26 Refunds: general provisions EH 27 Amendment of assessment Despite the time bar, the Commissioner may amend an assess- ment at any time in order to give effect to section EH 18 or EH 21 or EH 22.
Deﬁned in this Act: assessment, Commissioner, time bar Compare: 2004 No 35 s EH 27 EH 28 Minimum refund The Commissioner must not give a refund under any of sec- tions EH 10, EH 13, EH 15, EH 17, EH 19, EH 22(3), EH 23, and EH 25 that is less than the lesser of— (a) (b) $200; and the balance in the person’s main income equalisation account on the date the deposit ends.
Deﬁned in this Act: Commissioner, date the deposit ends, main income equal- isation account, person Compare: 2004 No 35 s EH 28 787 Part E s EH 29 Income Tax Act 2007 Reprinted as at 5 January 2010 EH 29 Deposits from which refunds come Each refund a person is given is treated as coming from the total amount of their deposits in the order in which the person made the deposits.
Deﬁned in this Act: amount, deposit, person Compare: 2004 No 35 s EH 29 EH 30 When person entitled to tax credit Tax credit A person who is given a refund is entitled to a tax credit if— the refund is of the kind and amount described in sec- (a) tion EH 31; and the person is of the kind described in section EH 32.
(b) Deﬁned in this Act: amount, person Compare: 2004 No 35 s EH 30 EH 31 Kind and amount of refund that entitles person to tax credit Kind A refund that entitles a person to a tax credit is 1 to which both the following apply: (a) the refund is given under any of sections EH 10, EH 13, EH 15, EH 17, EH 19, EH 22(3), EH 23, and EH 25; and the refund does not come from a deposit made for the accounting year in which the refund is given; if the re- fund comes in part from a deposit made for the account- ing year in which the refund is given and in part from a deposit made for some other accounting year, the refund that entitles the person to a tax credit is the part coming from the deposit for some other accounting year.
(b) Amount Once a refund qualiﬁes under subsection (1) as a refund that entitles a person to a tax credit, the amount of the refund is the lesser of the following: (a) the amount of the refund given to the person under any of sections EH 10, EH 13, EH 15, EH 17, EH 19, EH 22(3), EH 23, and EH 25; and (1) (2) 788 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EH 33 (b) the total of the amounts by which the person’s income was reduced in 1 or more earlier accounting years by subtracting the deposit or deposits or parts of deposits from which the refund comes.
Deﬁned in this Act: accounting year, amount, deposit, income, income tax, person, tax credit Compare: 2004 No 35 s EH 31 EH 32 Kind of person entitled to tax credit (b) A person in the following circumstances is entitled to a tax credit: (a) the person’s income in the accounting year in question includes a refund of the kind described in section EH 31(1) and of the amount described in section EH 31(2); and because of the refund, the person’s income tax liability for the tax year corresponding to the accounting year is increased; and the amount by which the person’s income tax liability for the corresponding tax year is increased because of the refund (the extra tax) is more than the total of the amounts by which the person’s income tax liability for an earlier tax year or years was decreased because of the subtraction of the deposit or deposits or parts of deposits from which the refund comes (the tax saving).
Deﬁned in this Act: accounting year, amount, deposit, income, income tax, income tax liability, person, tax credit, tax year Compare: 2004 No 35 s EH 32 (c) EH 33 Amount of tax credit The amount of a tax credit to which a person is entitled under section EH 30 is the amount by which the extra tax, as de- scribed in section EH 32(c), is more than the tax saving, as described in section EH 32(c).
Deﬁned in this Act: amount, income tax, tax credit Compare: 2004 No 35 s EH 33 789 Part E s EH 34 Income Tax Act 2007 Reprinted as at 5 January 2010 EH 34 Meaning of income from forestry Deﬁnitions (1) (2) (3) Income Income from forestry— (a) means income derived from either or both of the sales described in subsection (2) in the circumstances de- scribed in subsection (3): includes PFSI forestry income.

(b) Sales The sales are— (a) (b) the sale of timber: the sale of a right to cut or remove timber.
Circumstances The circumstances are— (a) the income is derived by a person who is the owner of land in New Zealand on which timber is grown, not including a person whose interest in the land is that of a licensee; and the timber the subject of the sale is standing or cut or fallen timber in its natural state grown on the land.
Deﬁned in this Act: income, income from forestry, New Zealand, own, person, PFSI forestry income, timber Compare: 2004 No 35 s EH 34 (b) Section EH 34(1): substituted (with effect on 1 April 2008), on 7 December 2009, by section 18(1) of the Taxation (Consequential Rate Alignment and Re- medial Matters) Act 2009 (2009 No 63).
Section EH 34 list of deﬁned terms PFSI forestry income: inserted (with effect on 1 April 2008), on 7 December 2009, by section 126 of the Taxation (Conse- quential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).

EH 35 Meaning of main maximum deposit Meaning (1) Main maximum deposit means the maximum deposit that this section says a person may make to their main income equalisation account for an accounting year.
Meaning of amount In subsections (3) to (5), amount means an amount calculated without applying— (2) 790 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EH 35 (a) (b) any provision allocating income derived or expenditure incurred to an income year other than the corresponding income year in which the income was in fact derived or the expenditure was in fact incurred; or any provision of any of schemes referred to in section EH 1(2).
the income equalisation (3) (4) (5) (6) (b) Maximum deposit of farmer The maximum deposit that a farmer may make is— (a) the amount determined by an Order in Council made under subsection (6); or if no order is in force, an amount equal to the net income that the farmer would have in the tax year corresponding to the accounting year if— (i) the farmer derived income only from the farming or agricultural business in the accounting year; and the farmer did not make a payment under section EH 38 for the farming or agricultural business for the accounting year.
(ii) Maximum deposit of ﬁsher The maximum deposit that a ﬁsher may make is an amount equal to the net income that the ﬁsher would have in the tax year corresponding to the accounting year if the ﬁsher derived income only from the ﬁshing business in the accounting year.
Maximum deposit of forester The maximum deposit that a forester may make is an amount equal to the net income that the forester would have in the tax year corresponding to the accounting year if the forester derived only income from forestry in the accounting year.
Order in Council relating to farmers The Governor-General may make an Order in Council declar- ing that the maximum deposit a farmer may make for an ac- counting year or for every accounting year is— (a) an amount calculated in the manner speciﬁed in the order; or an unlimited amount.
(b) Deﬁned in this Act: accounting year, amount, business, corresponding income year, deposit, farmer, ﬁsher, ﬁshing business, forester, income, main income 791 Part E s EH 36 Income Tax Act 2007 Reprinted as at 5 January 2010 equalisation account, main maximum deposit, net income, income year, pay, person, tax year Compare: 2004 No 35 s EH 35 EH 36 Other deﬁnitions In the main income equalisation scheme,— date the deposit ends means— (a) the date on which the refund is calculated, when section EH 8 applies: the date that is 5 years after the end of the accounting year for which the deposit was made, when section EH 10 applies: the date on which the Commissioner receives the ap- plication for the refund, when section EH 13 or EH 15 applies: the date of the person’s retirement, when section EH 17 applies: the date of the person’s death, when section EH 19 ap- plies: the date on which the Commissioner receives notice of the adjudication, when section EH 23 applies: the date on which the Commissioner receives notice of the liquidation, when section EH 25 applies (b) (c) (d) (e) (f) (g) deposit— (a) means a main deposit; and (b) includes, for the purposes of sections EH 6(2) to (4) and EH 10 to EH 33, interest that is added to a main deposit under section EH 6(5) ﬁshing business includes a business of— (a) ﬁsh farming under a licence issued under the Freshwater Fish Farming Regulations 1983: rock oyster farming (b) mussel farming: (c) main deposit means a payment made to the Commissioner under section EH 4(1) main
 income equalisation account, for a person, means the account that the Commissioner keeps in the person’s name under section EH 5 792 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EH 37 (b) speciﬁed period, for a person’s tax year, means the shorter of— (a) the period of 6 months after the end of the accounting year that corresponds to the tax year; and the period from the end of the accounting year that cor- responds to the tax year to the date 1 month after the date by which the person must, under section 37 of the Tax Administration Act 1994, ﬁle their return of income for the accounting year that corresponds to the tax year.
Deﬁned in this Act: accounting year, business, Commissioner, date the deposit ends, deposit, ﬁshing business, interest, liquidation, main deposit, main income equalisation account, main income equalisation scheme, pay, person, return of income, speciﬁed period, tax year, year Compare: 2004 No 35 s EH 37 Adverse event income equalisation scheme Application EH 37 Persons to whom adverse event income equalisation scheme applies (1) (2) Person described The adverse event income equalisation scheme applies to a person who, in an accounting year,— (a) carries on a farming or agricultural business on land in New Zealand; and sells livestock and does not replace it because of a self- assessed adverse event.
(b) Meaning of person for adverse event income equalisation scheme In the adverse event income equalisation scheme, person means a person described in subsection (1).
Deﬁned in this Act: accounting year, adverse event income equalisation scheme, business, New Zealand, person, self-assessed adverse event Compare: 2004 No 35 s EH 38 793 Part E s EH 38 Income Tax Act 2007 Reprinted as at 5 January 2010 Deposits and accounts EH 38 Adverse event deposit (1) (2) (3) (4) Deposit for adverse event A person may make a payment to the Commissioner for en- try in their adverse event income equalisation account for an accounting year in which, because of a self-assessed adverse event, they sell and do not replace livestock.
Upper limit of deposit A person must not make, for an accounting year, deposits that in total are more than their adverse event maximum deposit for the accounting year.

Lower limit of deposit A person must not make, for an accounting year, a deposit less than the lesser of— (a) (b) $200; and the difference between the total of all the deposits they have previously made for the accounting year and their adverse event maximum deposit for the accounting year.
Time of making deposit A person makes a deposit for an accounting year by— (a) making the deposit during the accounting year; or (b) making the deposit during the month after the end of the accounting year.
Deﬁned in this Act: accounting year, adverse event deposit, adverse event in- come equalisation account, adverse event maximum deposit, Commissioner, deposit, pay, person, self-assessed adverse event Compare: 2004 No 35 s EH 39 EH 39 Adverse event income equalisation account Person’s account The Commissioner must keep an adverse event income equal- isation account in the name of every person who makes a de- posit with the Commissioner.
Deposits in accounts Every deposit a person makes with the Commissioner must be entered in their adverse event income equalisation account.

(1) (2) 794 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EH 40 (3) (4) (5) Amounts in accounts The only amounts that may be entered in a person’s adverse event income equalisation account are— (a) deposits made by the person with the Commissioner; and interest paid under section EH 40.
(b) Amounts not available to others Amounts entered in a person’s adverse event income equalisa- tion account must not, while they are in the account,— (a) (b) be assigned or charged in any way; or pass by operation of law to, or into the custody or control of, someone else, except when the person is bankrupt or has been put into liquidation; or be assets for the payment of the person’s debts or liabil- ities, except when the person is bankrupt or has been put into liquidation; or be assets for the payment of the debts or liabilities of a dead person’s estate.
(c) (d) Amounts available only for refunds The only payments that may be made from a person’s adverse event income equalisation account are refunds under any of sections EH 42, EH 45, EH 47, EH 49, EH 53, and EH 55.
Deﬁned in this Act: adverse event income equalisation account, amount, Com- missioner, deposit, interest, liquidation, pay, person Compare: 2004 No 35 s EH 40 Interest EH 40 Interest on deposits in adverse event income equalisation account (1) (2) Interest payable Interest is payable on every deposit in an adverse event income equalisation account.

Period Interest is computed with daily rests from the date of acknow- ledgment of the receipt of the deposit until the date the deposit is refunded.
Date to which interest accrues Interest on a deposit accrues until the earlier of— (3) 795 Part E s EH 41 Income Tax Act 2007 Reprinted as at 5 January 2010 (a) (b) 31 March in each year; and the date the deposit is refunded.

(4) (5) Added to deposit Accrued interest on a deposit is added to the deposit.

Rate The interest rate is the rate set in regulations made by the Gov- ernor-General from time to time.
Deﬁned in this Act: adverse event income equalisation account, deposit, inter- est, pay, year Compare: 2004 No 35 s EH 41 EH 41 Deduction of deposit Deduction (1) (2) (3) When this section applies This section applies when a person is allowed a deduction under section DQ 2 (Adverse event income equalisation scheme).

Amount of deduction The amount of the deduction is the lesser of— (a) (b) the total of their deposits for the accounting year; and their adverse event maximum deposit for the accounting year.
Timing of deduction The person is allowed the deduction and it is allocated to the corresponding income year.

Deﬁned in this Act: accounting year, adverse event maximum deposit, amount, corresponding income year, deduction, deposit, person Compare: 2004 No 35 s EH 42 Refunds: automatic EH 42 Refund of excess deposit When this section applies This section applies when a person’s deposits for an account- ing year are more than their adverse event maximum deposit for the accounting year.
(1) 796 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EH 44 (2) Refund The Commissioner must refund the excess to the person as soon as practicable after the date the deposit ends.

Deﬁned in this Act: accounting year, adverse event maximum deposit, Com- missioner, date the deposit ends, deposit, person Compare: 2004 No 35 s EH 43 EH 43 Income does not include excess deposit A refund under section EH 42 is excluded income under sec- tion CX 51 (Income equalisation schemes).
Deﬁned in this Act: excluded income Compare: 2004 No 35 s EH 44 Refunds: on application EH 44 Application for refund by person, trustee of estate, Ofﬁcial Assignee, or liquidator (1) (2) Who may apply The following may apply to the Commissioner for a refund of some or all of the amount in a person’s adverse event income equalisation account: (a) (b) the person may apply under section EH 45 or EH 47: the trustee of the person’s estate may apply under sec- tion EH 49: the Ofﬁcial Assignee having charge of the person’s es- tate may apply under section EH 53: the liquidator appointed for the person may apply under section EH 55.
(c) (d) Application An application for a refund must— (a) (b) (c) Deﬁned in this Act: adverse event income equalisation account, amount, Com- missioner, liquidation, person, trustee Compare: 2004 No 35 s EH 45 be in writing; and state the grounds on which it is made; and state the amount applied for.
797 Part E s EH 45 Income Tax Act 2007 Reprinted as at 5 January 2010 EH 45 Refund on request (1) (2) When this section applies This section applies when a person wants a refund of some or all of the amount in the person’s adverse event income equal- isation account, and none of sections EH 47, EH 49, EH 53, and EH 55 applies.

Refund The Commissioner must refund to the person the amount ap- plied for.
Deﬁned in this Act: adverse event income equalisation account, amount, Com- missioner, person Compare: 2004 No 35 s EH 46 EH 46 Income when refund given on request A refund under section EH 45 is income, under section CB 27 (Income equalisation schemes), derived by the person in the income year in which the Commissioner receives the applica- tion for the refund.
Deﬁned in this Act: Commissioner, income, income year, person Compare: 2004 No 35 s EH 47 EH 47 Refund on retirement When this section applies This section applies when a person— (a) (b) (c) has an adverse event income equalisation account; and is neither a company nor a trustee; and retires from the farming or agricultural business.

Refund The Commissioner must refund to the person the amount that, on the date the deposit ends, is in their adverse event income equalisation account.
Deﬁned in this Act: adverse event income equalisation account, amount, busi- ness, Commissioner, company, date the deposit ends, person, trustee Compare: 2004 No 35 s EH 48 (1) (2) 798 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EH 49 EH 48 Income when refund given on retirement, and election to allocate amount to earlier year (1) (2) (3) (4) Year of income A refund under section EH 47 is income, under section CB 27 (Income equalisation schemes), derived by the person in the income year in which they retire.
When year of income may be different However, subsection (3) applies instead of subsection (1) if— the refund includes a deposit made for an accounting (a) year earlier than the tax year in which the person retires; and the person chooses to allocate some or all of the deposit to the earlier accounting year.

(b) Different year of income The amount allocated by the person to the earlier accounting year is income, under section CB 27, derived by them in the corresponding income year.
How election made A person makes an election under this section by giving the Commissioner notice within 1 of the following times: (a) the time within which the person is required to ﬁle a return of income for the tax year corresponding to the accounting year in which they retire: a further time allowed by the Commissioner in a case or class of cases.
(b) Deﬁned in this Act: accounting year, amount, Commissioner, corresponding income year, deposit, income, notice, person, return of income, tax year Compare: 2004 No 35 s EH 49 EH 49 Refund on death (1) (2) When this section applies This section applies when a person— (a) (b) has an adverse event income equalisation account; and dies.
Refund Despite section FC 2 (Transfer at market value), the Com- missioner must refund to the trustee of the person’s estate the 799 Part E s EH 50 Income Tax Act 2007 Reprinted as at 5 January 2010 amount that, on the date the deposit ends, is in the person’s adverse event income equalisation account.
Deﬁned in this Act: adverse event income equalisation account, amount, Com- missioner, date the deposit ends, person, trustee Compare: 2004 No 35 s EH 50 EH 50 Income when refund given on death (1) (2) Year of income A refund under section EH 49 is income, under section CB 27 (Income equalisation schemes), derived by the person imme- diately before their death.
When year of income may be different However, section EH 51 or EH 52 applies instead of subsec- tion (1) if the circumstances described in section EH 51(1) or EH 52(1) apply in the person’s case.
Deﬁned in this Act: income, person Compare: 2004 No 35 s EH 51 EH 51 Income when refund given on death, and election to allocate amount to earlier year When this section applies This section applies when— (a) a refund under section EH 49 includes a deposit made for an accounting year earlier than the accounting year in which the person dies; and the trustee of the person’s estate chooses to allocate some or all of the deposit to the earlier accounting year.
(b) Different year of income The amount allocated by the trustee to the earlier account- ing year is income, under section CB 27 (Income equalisation schemes), derived by the person in the corresponding income year.
How election made A trustee makes an election under this section by giving the Commissioner notice within 1 of the following times: (a) the time within which the trustee is required to ﬁle a return of the person’s income for the period to the date of the person’s death: (1) (2) (3) 800 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EH 52 (b) a further time allowed by the Commissioner in a case or class of cases.
Deﬁned in this Act: accounting year, amount, Commissioner, corresponding income year, deposit, income, notice, person, return, trustee Compare: 2004 No 35 s EH 52 EH 52 Income when refund given on death, and election to allocate amount to later year or years (1) (2) (3) (4) (5) When this section applies This section applies when— (a) (b) the trustee does not make an election under section EH 51; and the trustee chooses to allocate some or all of the amount that is in the person’s adverse event income equalisation account on the date of the person’s death to an account- ing year or years after that date.
Accounting year or years for purposes of subsection (1)(b) For the purposes of subsection (1)(b), the accounting year or years must be within the earlier of— (a) (b) the 3 years after the date of the person’s death; and the 5 years after the end of the accounting year for which a deposit or a part of a deposit was made, if the amount that the trustee allocates to a later year or years includes the deposit or part of it.
Amount allocated remains in account An amount allocated by the trustee to a later accounting year remains in the person’s adverse event income equalisation ac- count until it is refunded to the trustee in the accounting year to which it is allocated.

Different year of income An amount allocated by the trustee to a later accounting year is income, under section CB 27 (Income equalisation schemes), derived by the person in the corresponding income year.
How election made A trustee makes an election under this section by a notice that— (a) speciﬁes— 801 Part E s EH 53 Income Tax Act 2007 Reprinted as at 5 January 2010 (i) (ii) each amount allocated to a later accounting year; and the accounting year to which each amount is al- located; and (b) is given to the Commissioner within 1 of the following times: (i) the time within which the trustee is required to ﬁle a return of the person’s income for the period to the date of the person’s death: a further time allowed by the Commissioner in a case or class of cases.
(ii) Deﬁned in this Act: accounting year, adverse event income equalisation ac- count, amount, Commissioner, corresponding income year, deposit, income, notice, person, return, trustee, year Compare: 2004 No 35 s EH 53 EH 53 Refund on bankruptcy (1) (2) When this section applies This section applies when a person— (a) (b) has an adverse event income equalisation account; and is bankrupt.
Refund The Commissioner must refund to the Ofﬁcial Assignee hav- ing charge of the person’s estate the amount that, on the date the deposit ends, is in the person’s adverse event income equal- isation account.
Deﬁned in this Act: adverse event income equalisation account, amount, Com- missioner, date the deposit ends, person Compare: 2004 No 35 s EH 54 EH 54 Income when refund given on bankruptcy A refund under section EH 53 is income, under section CB 27 (Income equalisation schemes), derived by the person imme- diately before the bankruptcy starts.
Deﬁned in this Act: income, person Compare: 2004 No 35 s EH 55 802 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EH 58 EH 55 Refund on liquidation (1) (2) When this section applies This section applies when a person— (a) (b) has an adverse event income equalisation account; and is put into liquidation.

Refund The Commissioner must refund to the liquidator appointed for the person the amount that, on the date the deposit ends, is in the person’s adverse event income equalisation account.
Deﬁned in this Act: adverse event income equalisation account, amount, Com- missioner, date the deposit ends, liquidation, person Compare: 2004 No 35 s EH 56 EH 56 Income when refund given on liquidation A refund under section EH 55 is income, under section CB 27 (Income equalisation schemes), derived by the person imme- diately before the liquidation starts.
Deﬁned in this Act: income, liquidation, person Compare: 2004 No 35 s EH 57 Refunds: general provisions EH 57 Amendment of assessment Despite the time bar, the Commissioner may amend an assess- ment at any time in order to give effect to any of sections EH 48, EH 51, and EH 52.
Deﬁned in this Act: assessment, Commissioner, time bar Compare: 2004 No 35 s EH 58 EH 58 Minimum refund The Commissioner must not give a refund under any of sec- tions EH 45, EH 47, EH 49, EH 53, and EH 55 that is less than the lesser of— (a) (b) $200; and the balance in the person’s adverse event income equal- isation account on the date the deposit ends.
Deﬁned in this Act: adverse event income equalisation account, Commissioner, date the deposit ends, person Compare: 2004 No 35 s EH 59 803 Part E s EH 59 Income Tax Act 2007 Reprinted as at 5 January 2010 EH 59 Deposits from which refunds come Each refund a person is given is treated as coming from the total amount of their deposits in the order in which they made the deposits.
Deﬁned in this Act: amount, deposit, person Compare: 2004 No 35 s EH 60 EH 60 Transfer of deposit Transfers Transfer from adverse event to main income equalisation account A deposit that is in a person’s adverse event income equal- isation account on the day 1 year after the date on which the deposit was made must be transferred to their main income equalisation account as soon as practicable.
Date of deposit in main income equalisation account The date on which a transferred deposit is treated as having been deposited in the person’s main income equalisation ac- count is as follows: (a) the date on which it was transferred, for the purpose of computing interest payable under section EH 6: the date on which it was deposited in the adverse event income equalisation account, for any other purpose.
(b) No deduction A transferred deposit is not an amount for which a deduc- tion is allowed under section DQ 1 (Main income equalisation scheme).

Ceasing of deposit in adverse event income equalisation account A transferred deposit ceases to be a deposit in the person’s adverse event income equalisation account.
Deﬁned in this Act: adverse event income equalisation account, amount, de- duction, deposit, interest, main income equalisation account, pay, person, year Compare: 2004 No 35 s EH 61 (1) (2) (3) (4) 804 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EH 61 EH 61 Meaning of adverse event maximum deposit Deﬁnitions (1) (2) (3) (4) Meaning Adverse event maximum deposit means the maximum de- posit that this section says a person may make to their adverse event income equalisation account for an accounting year.
Maximum deposit The maximum deposit a person may make is an amount equal to the net income that the person would have in the tax year corresponding to the accounting year if, because of the self- assessed adverse event,— (a) the only income derived by the person in the accounting year were income from their selling the livestock; and the only amount for which the person was allowed a deduction in the accounting year were the cost of the livestock sold.
(b) Cost of livestock sold: matters excluded The cost of the livestock sold is an amount determined under subsection (4) or (5)— (a) without applying any provision allocating income de- rived or expenditure incurred to an income year other than the income year in which the income was in fact derived or the expenditure was in fact incurred; and applying sections DQ 1 (Main income equalisation scheme), EH 7 to EH 33, and FB 15 to FB 17 (which relate to livestock).
(b) Cost of livestock sold: person having livestock of class sold at end of previous accounting year This subsection applies when, at the end of the accounting year before the accounting year in which the livestock is sold, the person had livestock of the class that is sold in which the livestock would, if unsold, have been included at the end of the accounting year in which it is sold.
Under this subsec- tion, the cost of livestock sold is determined using the previ- ous accounting year’s closing value for the class of livestock in which the livestock sold would have been included.

805 Part E s EH 62 Income Tax Act 2007 Reprinted as at 5 January 2010 (5) (6) Cost of livestock sold: other cases This subsection applies when subsection (4) does not.
Under this subsection, the cost of livestock sold is calculated using the formula— Deﬁnition of items in formula In the formula,— (a) number at start is the number of livestock of the class sold that the person has at the start of the accounting year in which the livestock is sold: number bought is the number of livestock of the class sold that the person buys in the accounting year in which the livestock is sold, before the sale: price is the average purchase price of the number bought: value is the opening value of the number at the start, de- termined without applying section (2) (Valuation under herd scheme).
(b) (c) (d) Deﬁned in this Act: accounting year, adverse event income equalisation ac- count, adverse event maximum deposit, amount, corresponding income year, deduction, deposit, income, net income, person, self-assessed adverse event, tax year Compare: 2004 No 35 s EH 62 EH 62 Other deﬁnitions In the adverse event income equalisation scheme,— adverse event deposit means a payment made to the Com- missioner under section EH 38(1) adverse event income equalisation account, for a person, means the account that the Commissioner keeps in the person’s name under section EH 39 date the deposit ends means— (a) the date on which the refund is calculated, when section EH 42 applies: the date on which the Commissioner receives the appli- cations for the refund, when section EH 45 applies: the date of the person’s retirement, when section EH 47 applies: (b) (c) 806 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EH 63 (d) (e) (f) (g) the date of the person’s death, when section EH 49 ap- plies: the date on which the Commissioner receives notice of the adjudication, when section EH 53 applies: the date on which the Commissioner receives notice of the liquidation, when section EH 55 applies: the date on which the Commissioner transfers the de- posit, when section EH 60(1) applies deposit— (a) means an adverse event deposit; and (b) includes, for the purposes of sections EH 40(2) and (3) and EH 44 to EH 60, interest that is added to an adverse event deposit under section EH 40(4) (b) speciﬁed period, for a
 person’s tax year, means the shorter of— (a) the period of 6 months after the end of the accounting year that corresponds to the tax year; and the period from the end of the accounting year that cor- responds to the tax year to the date 1 month after the date by which the person must, under section 37 of the Tax Administration Act 1994, ﬁle their return of income for the accounting year that corresponds to the tax year.
Deﬁned in this Act: accounting year, adverse event deposit, adverse event in- come equalisation account, adverse event income equalisation scheme, Com- missioner, date the deposit ends, deposit, interest, liquidation, pay, person, re- turn of income, speciﬁed period, tax year Compare: 2004 No 35 s EH 64 Thinning operations income equalisation scheme Application EH 63 Persons to whom thinning operations income equalisation scheme applies (1) Person described The thinning operations income equalisation scheme applies to a company that, in an accounting year,— (a) carries on a forestry business on land in New Zealand; and 807 Part E s EH 64 Income Tax Act 2007 Reprinted as at 5 January 2010 (2) (b) derives income from carrying out thinning operations on the land.
Meaning of person for thinning operations income equalisation scheme In the thinning operations income equalisation scheme, per- son means a person described in subsection (1).
Deﬁned in this Act: accounting year, business, company, forestry business, income, New Zealand, person, thinning operations, thinning operations income equalisation scheme Compare: 2004 No 35 s EH 65 Section EH 63 list of deﬁned terms forestry business: inserted (with effect on 1 April 2008), on 7 December 2009, by section 126 of the Taxation (Conse- quential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
Deposits and accounts EH 64 Thinning operations deposit Deposit for thinning operations A person may make a payment to the Commissioner for entry in their thinning operations income equalisation account for an accounting year in which they derive income from carrying out thinning operations.

Upper limit of deposit A person must not make, for an accounting year, deposits that in total are more than their thinning operations maximum de- posit for the accounting year.
Lower limit of deposit A person must not make, for an accounting year, a deposit that is less than the lesser of— (a) (b) $200; and the difference between the total of all the deposits the person has previously made for the accounting year and their thinning operations maximum deposit for the ac- counting year.
Time of making deposit A person makes a deposit for an accounting year by— (a) making the deposit during the accounting year; or (b) doing both the following: (1) (2) (3) (4) 808 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EH 65 (i) (ii) making the deposit during the speciﬁed period for the accounting year; and at the time of making it, giving the Commissioner notice that the deposit is for the accounting year; or (c) doing both the following: (i) making the deposit within a time that is after the end of the speciﬁed period for the accounting year but that is allowed by the Commissioner in a case or class of cases; and at the time of making it, giving the Commissioner notice that the deposit is for the accounting year.
(ii) (5) Limit on making deposit If a refund has been made to a person for an accounting year under section EH 71 or EH 73, the person may later make a deposit for the accounting year only if the Commissioner is satisﬁed, before the deposit is made, that all the refund has been used to expand or develop the person’s business.
Deﬁned in this Act: accounting year, business, Commissioner, deposit, income, notice, pay, person, speciﬁed period, thinning operations, thinning operations deposit, thinning operations income equalisation account, thinning operations maximum deposit Compare: 2004 No 35 s EH 66 EH 65 Thinning operations income equalisation account (1) (2) (3) Person’s account The Commissioner must keep a thinning operations income equalisation account in the name of every person that makes a deposit with the Commissioner.
Deposits in accounts Every deposit a person makes with the Commissioner must be entered in their thinning operations income equalisation ac- count.

Amounts in accounts The only amounts that may be entered in a person’s thinning operations income equalisation account are— (a) deposits made by the person with the Commissioner; and interest paid under section EH 66.
(b) 809 Part E s EH 66 Income Tax Act 2007 Reprinted as at 5 January 2010 (4) (5) Amounts not available to others Despite section FC 2 (Transfer at market value), amounts en- tered in a person’s thinning operations income equalisation ac- count must not, while they are in the account,— (a) (b) be assigned or charged in any way; or pass by operation of law to, or into the custody or con- trol of, someone else, except when the person has been put into liquidation; or be assets for the payment of the person’s debts or liabil- ities, except when the person has been put into liquid- ation.
(c) Amounts available only for refunds The only payments that may be made from a person’s thinning operations income equalisation account are refunds under any of sections EH 68, EH 71, EH 73, and EH 75.
Deﬁned in this Act: amount, Commissioner, deposit, interest, liquidation, pay, person, thinning operations income equalisation account Compare: 2004 No 35 s EH 67 Interest EH 66 Interest on deposits in thinning operations income equalisation account No interest payable No interest is payable on a deposit in a thinning operations income equalisation account that is refunded within 1 year of the date of deposit.
Interest payable Interest is payable on every other deposit in a thinning oper- ations income equalisation account.

Period Interest is computed with daily rests from the date of acknow- ledgment of the receipt of the deposit until the date the deposit is refunded.

Date to which interest accrues Interest on a deposit accrues until the earlier of— (a) (b) 31 March in each year; and the date the deposit is refunded.
(1) (2) (3) (4) 810 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EH 68 (5) (6) Added to deposit Accrued interest on a deposit is added to the deposit.

Rate The interest rate is 3% a year.


Deﬁned in this Act: deposit, interest, pay, thinning operations income equalisa- tion account, year Compare: 2004 No 35 s EH 68 EH 67 Deduction of deposit Deductions (1) (2) (3) When this section applies This section applies when a person is allowed a deduction under section DQ 3 (Thinning operations income equalisation scheme).
Amount of deduction The amount of the deduction is the lesser of— (a) the total of the person’s deposits for the accounting year; and their thinning operations maximum deposit for the ac- counting year.

(b) Timing of deduction The person is allowed the deduction in the accounting year.
Deﬁned in this Act: accounting year, amount, deduction, deposit, person, thin- ning operations maximum deposit Compare: 2004 No 35 s EH 69 Refunds: automatic EH 68 Refund of excess deposit (1) When this section applies This section applies when a person’s deposits for an account- ing year are more than their thinning operations maximum de- posit for the accounting year.
811 Part E s EH 69 Income Tax Act 2007 Reprinted as at 5 January 2010 (2) Refund The Commissioner must refund the excess to the person as soon as practicable after the date the deposit ends.

Deﬁned in this Act: accounting year, Commissioner, date the deposit ends, deposit, person, thinning operations maximum deposit Compare: 2004 No 35 s EH 70 EH 69 Income does not include excess deposit A refund under section EH 68 is excluded income under sec- tion CX 51 (Income equalisation schemes).
Deﬁned in this Act: excluded income Compare: 2004 No 35 s EH 71 Refunds: on application EH 70 Application for refund by person or liquidator (1) (2) Who may apply The following may apply to the Commissioner for a refund of some or all of the amount in a person’s thinning operations income equalisation account: (a) (b) the person may apply under section EH 71 or EH 73: the liquidator appointed for the person may apply under section EH 75.
Application An application for a refund must— (a) (b) (c) Deﬁned in this Act: amount, Commissioner, liquidation, person, thinning op- erations income equalisation account Compare: 2004 No 35 s EH 72 be in writing; and state the grounds on which it is made; and state the amount applied for.
EH 71 Refund on request When this section applies This section applies when a person wants a refund of some or all of the amount in the person’s thinning operations income equalisation account, and neither section EH 73 nor EH 75 applies.
(1) 812 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EH 73 (2) Refund The Commissioner must refund to the person the amount ap- plied for, to the extent to which it can be made up of 1 or more deposits that have been in the person’s thinning operations in- come equalisation account for at least 1 year before the date the deposit ends.
Deﬁned in this Act: amount, Commissioner, date the deposit ends, deposit, person, thinning operations income equalisation account, year Compare: 2004 No 35 s EH 73 EH 72 Income when refund given on request (1) (2) (3) Year of income A refund under section EH 71 is income, under section CB 27 (Income equalisation schemes), derived by the person in the income year in which the Commissioner receives the applica- tion for the refund.
When year of income may be different However, subsection (3) applies instead of subsection (1) if— the Commissioner receives the application for a refund (a) in the speciﬁed period for an accounting year or, if the Commissioner allows in a case or class of cases, within a longer period; and the person chooses in the application that the refund is to be income in the accounting year to which the speciﬁed period or the longer period relates.
(b) Different year of income The refund is income under section CB 27 in the correspond- ing income year to which the speciﬁed period or the longer period relates.
Deﬁned in this Act: accounting year, Commissioner, corresponding income year, income, income year, person, speciﬁed period Compare: 2004 No 35 s EH 74 EH 73 Refund for development or recovery (1) Refund for development: application of subsection (2) Subsection (2) applies when a person wants a refund of some or all of the amount in their thinning operations income equal- isation account for the purpose of enabling them to undertake, 813 Part E s EH 74 Income Tax Act 2007 Reprinted as at 5 January 2010 (2) (3) (4) immediately after the refund is given, planned development or maintenance work for their forestry business.
Refund If the Commissioner is satisﬁed that the person will use the refund for the purpose, the Commissioner must refund to them the amount applied for, to the extent to which it can be made up of 1 or more deposits that have been in the person’s thinning operations income equalisation account for at least 6 months before the date the deposit ends.
Refund for recovery: application of subsection (4) Subsection (4) applies when a person wants a refund of some or all of the amount in their thinning operations income equal- isation account for either or both of the following purposes: (a) (b) to avoid them suffering serious hardship: to do anything else that the Commissioner determines, in a case or class of cases, is a purpose for which a refund should be given.
Refund If the Commissioner is satisﬁed that the person will use the refund for either or both of the purposes, the Commissioner must refund to them the amount applied for, regardless of the length of time it has been in the account.
Deﬁned in this Act: amount, business, Commissioner, date the deposit ends, deposit, forestry business, person, thinning operations income equalisation ac- count Compare: 2004 No 35 s EH 75 Section EH 73 list of deﬁned terms forestry business: inserted (with effect on 1 April 2008), on 7 December 2009, by section 126 of the Taxation (Conse- quential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
EH 74 Income when refund given for development or recovery Year of income A refund under section EH 73 is income, under section CB 27 (Income equalisation schemes), derived by the person in the income year in which the Commissioner receives the applica- tion for the refund.
When year of income may be different However, subsection (3) applies instead of subsection (1) if— (1) (2) 814 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EH 76 (a) (b) the Commissioner receives the application for a refund in the speciﬁed period for an accounting year or, if the Commissioner allows in a case or class of cases, within a longer period; and the person chooses in the application that the refund is to be income in the accounting year to which the speciﬁed period or the longer period relates.
Different year of income The refund is income under section CB 27 derived in the cor- responding income year to which the speciﬁed period or the longer period relates.

Deﬁned in this Act: accounting year, Commissioner, corresponding income year, income, income year, person, speciﬁed period Compare: 2004 No 35 s EH 76 (3) EH 75 Refund on liquidation (1) (2) When this section applies This section applies when a person— (a) has a thinning operations income equalisation account; and is put into liquidation.
(b) Refund The Commissioner must refund to the liquidator appointed for the person the amount that, on the date the deposit ends, is in the person’s thinning operations income equalisation account on the date, regardless of the length of time it has been in the account.
Deﬁned in this Act: amount, Commissioner, date the deposit ends, liquidation, person, thinning operations income equalisation account Compare: 2004 No 35 s EH 77 EH 76 Income when refund given on liquidation A refund under section EH 75 is income, under section CB 27 (Income equalisation schemes), derived by the person imme- diately before the liquidation starts.
Deﬁned in this Act: income, liquidation, person Compare: 2004 No 35 s EH 78 815 Part E s EH 77 Income Tax Act 2007 Reprinted as at 5 January 2010 Refunds: general provisions, and tax credits EH 77 Sections of main income equalisation scheme that apply to thinning operations income equalisation scheme Sections EH 28 to EH 33 apply, with the necessary amend- ments, to the thinning operations income equalisation scheme.
Deﬁned in this Act: main income equalisation scheme, thinning operations in- come equalisation scheme Compare: 2004 No 35 s EH 79 EH 78 Meaning of thinning operations maximum deposit Deﬁnitions (1) (2) (3) Meaning Thinning operations maximum deposit means the maxi- mum deposit that this section says a person may make to their thinning operations income equalisation account for a tax year.
Maximum deposit The maximum deposit that a person may make is an amount equal to the income derived by them during the accounting year from carrying out thinning operations on the land on which they carry on their forestry business.
Meaning of amount In subsection (2), amount means an amount calculated with- out applying— (a) any provision allocating income derived or expenditure incurred to an income year other than the income year in which the income was in fact derived or the expenditure was in fact incurred: any provision of any of schemes referred to in section EH 1(2).
the income equalisation (b) Deﬁned in this Act: accounting year, amount, business, deposit, forestry busi- ness, income, income year, person, thinning operations, thinning operations in- come equalisation account, thinning operations maximum deposit Compare: 2004 No 35 s EH 80 Section EH 78 list of deﬁned terms forestry business: inserted (with effect on 1 April 2008), on 7 December 2009, by section 126 of the Taxation (Conse- quential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
EH 79 Other deﬁnitions In the thinning operations income equalisation scheme,— 816 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EH 79 date the deposit ends means— (a) the date on which the refund is calculated, when section EH 68 applies: the date on which the Commissioner receives the ap- plication for the refund, when section EH 71 or EH 73 applies: the date on which the Commissioner receives notice of the liquidation, when section EH 75 applies (b) (c) deposit— (a) means a thinning operations deposit; and (b) includes, for the purposes of sections EH 66(2) to (4) and EH 70 to EH 77, interest that is added to a thinning operations deposit under section EH 66(5) (b) speciﬁed period, for a person’s tax year, means the shorter of— (a) the period of 6 months after the end of the accounting year that corresponds to the tax year; and the period from the end of the accounting year that cor- responds to the tax year to the date 1 month after the date by which the person must, under section 37 of the Tax Administration Act 1994, ﬁle their return of income for the accounting year that corresponds to the tax year thinning operations means operations in which some trees in an immature stand of trees are felled for the purpose of im- proving the growth and form of the remaining trees and not for the purpose of permanently breaking the canopy thinning operations deposit means a payment made to the Commissioner under section EH 64(1) thinning operations income equalisation account, for a per- son, means the account that the Commissioner keeps in the person’s name under section EH 65.
Deﬁned in this Act: Commissioner, date the deposit ends, interest, liquidation, pay, person, return of income, speciﬁed period, tax year, thinning operations, thinning operations deposit, thinning operations income equalisation account, thinning operations income equalisation scheme Compare: 2004 No 35 s EH 81 817 Part E s EI 1 Income Tax Act 2007 Reprinted as at 5 January 2010 Subpart EI—Spreading of speciﬁc income Farming and forestry EI 1 Spreading backward of income from timber (1) (2) (3) When this section applies This section applies when a person derives income under sec- tion CB 24 (Disposal of timber or right to take timber) or CB 25 (Disposal of land with standing timber).
Timing of income The person may allocate the income between the income year in which they derive it and any 1 or more of the previous 3 income years.

Application A person who wants to make an allocation under subsection (2) must apply in writing to the Commissioner no later than 1 year after the end of the income year in which they derive the income.
Deﬁned in this Act: Commissioner, income, income year, timber, year Compare: 2004 No 35 s EI 1 Inﬂation-indexed instruments EI 2 Interest from inﬂation-indexed instruments When this section applies This section applies when— (a) (b) (c) (d) an amount of money lent is outstanding at the end of the lender’s current income year; and an amount is payable to the lender for the money lent, in a future income year of the lender; and the amount payable is determined by a ﬁxed relation- ship to 1 or more indices of general price inﬂation in New Zealand; and the amount payable that has accrued at the end of the lender’s current income year differs from any amount payable that had accrued— (i) at the time the money was lent, if it was lent during the lender’s current income year; or (1) 818 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EI 3 (ii) at the end of the lender’s previous income year, if it was lent before the lender’s current income year.
(2) (3) Increase treated as credited If the difference is an increase, the increase is treated as having been credited in account and capitalised by the borrower for the beneﬁt of the lender on— (a) the day following the day on which the level of the rele- vant index at the end of the lender’s current income year becomes public knowledge; or if the level of the relevant index is not calculated for the end of the lender’s current income year, the last date before the end of the income year for which the level is calculated.
(b) This subsection is overridden by subsection (3).

Increase not treated as credited An increase is not treated as having been credited to the extent to which— (a) (b) the money lent has been repaid: an amount on account of the increase has already been paid to the lender: the increase represents a recovery of a decrease in the amount payable over an earlier income year of the lender.
(c) Deﬁned in this Act: amount, income year, interest, money lent, New Zealand, pay Compare: 2004 No 35 s EI 2 Intellectual property EI 3 Assigning or granting copyright (1) When this section applies This section applies when a person— (a) is the author of a literary, dramatic, musical, or artistic work; and (b) made the work over a period of more than 1 year; and (c) receives consideration from— (i) assigning some or all of the copyright in the work; or 819 Part E s EI 3 Income Tax Act 2007 Reprinted as at 5 January 2010 (ii) granting an interest in the copyright by licence.
Timing of income: lump sum payment If some or all of the consideration is a lump sum payment that would be income in 1 tax year, the person may allocate the income equally between the income year in which they receive it and— (a) the income year before that income year, if they made the work over a period of 2 years or less; or the 2 income years before that income year, if they made the work over a period of more than 2 years.
(b) Timing of income: other payments If some or all of the consideration is not a lump sum payment, would be income in 1 tax year, and is received by the person within 2 years after the ﬁrst publication of the work, the person may allocate the income equally between the income year in which they receive it and the previous income year.

Self-publication Subsection (3) applies to income that the person derives from being the publisher of their work.
Application The following provisions apply to an allocation for the pur- poses of subsections (2) and (3): (a) for an allocation under subsection (2), the person must apply in writing to the Commissioner no later than 6 years after the end of the income year in which they receive the payment; and for an allocation under subsection (3), the person must apply in writing to the Commissioner no later than 8 years after the ﬁrst publication of the work.
(b) Some deﬁnitions In this section,— author includes a joint author ﬁrst publication means the ﬁrst occasion on which the work or a reproduction of it is published, performed, or exhibited (2) (3) (4) (5) (6) 820 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EI 5 lump sum payment includes an advance on account of royal- ties.
Deﬁned in this Act: author, Commissioner, ﬁrst publication, income, income year, lump sum payment, pay, royalty, tax year, year Compare: 2004 No 35 s EI 3 EI 4 Spreading income from patent rights (1) (2) When this section applies This section applies when a person derives income under sec- tion CB 30 (Sale of patent applications or patent rights).

Timing of income The person may allocate the income equally between the in- come year in which they derive it and the following 2 income years.
Deﬁned in this Act: income, income year, patent right Compare: 2004 No 35 s EI 3B Land EI 5 Amount paid to lessor for non-compliance with covenant for repair (1) (2) (3) (4) When this section applies This section applies when a lessor receives an amount of in- come under section CC 2 (Non-compliance with covenant for repair).
Timing of income: if election made The lessor may choose to allocate the income between the in- come year in which they receive the amount and any 1 or more of the following 4 income years.

Timing of income: if election not made Any part of the amount that the lessor does not allocate as de- scribed in subsection (2) is allocated to the fourth income year following the income year in which they receive the amount.
Notice The following provisions apply to an allocation for the pur- poses of subsection (2): (a) the lessor must give a notice to the Commissioner that speciﬁes how the income has been allocated; and 821 Part E s EI 6 Income Tax Act 2007 Reprinted as at 5 January 2010 (b) (c) the lessor must give the notice within the time required to ﬁle a return of income for the income year to which the income is allocated or within a longer time if the Commissioner agrees; and the lessor must not revoke the election.
Relationship with sections CC 2 and EI 6 This section overrides section CC 2(2) and is overridden by section EI 6.
Deﬁned in this Act: amount, Commissioner, income, income year, notice, re- turn of income Compare: 2004 No 35 s EI 4 (5) EI 6 Amount paid for non-compliance: when lessor ceases to own land When this section applies This section applies when a lessor— (a) (b) allocates income under section EI 5 to more than 1 in- come year; and ceases to own the land to which the income relates be- fore the end of the third tax year following the tax year in which they receive the income.
Timing of income If the lessor has not allocated a part of the income, the part is allocated to the income year in which the lessor ceases to own the land.

Ownership of part of land ceasing If the lessor ceases to own part of the land to which the income relates,— (a) this section applies to the part of the land that the lessor ceases to own; and section EI 5 applies to the part of the land that the lessor continues to own.
(b) Deﬁned in this Act: amount, income, income year, own, tax year Compare: 2004 No 35 s EI 5 (1) (2) (3) 822 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EI 8 EI 7 Leases: income derived in anticipation (1) (2) (3) (4) When this section applies This section applies when a person derives, in a tax year, in- come in anticipation from ﬁnes, premiums, a payment of good- will on the grant of a lease, or in another similar way.
Timing of income The Commissioner may allocate the income between the in- come year in which the person derives it and any 5 later in- come years.
Notice The following provisions apply to an allocation for the pur- poses of subsection (2): (a) the person must give a notice to the Commissioner re- questing the Commissioner to make the allocation: the person must give the notice in the tax year follow- ing the tax year to which the income year of derivation corresponds: the Commissioner may cancel the allocation at any time.
(b) (c) Cancellation of allocation If the Commissioner cancels the allocation, the income allo- cated to the income year in which the cancellation occurs and to future income years is allocated to the income year before the income year in which the cancellation occurs.
Deﬁned in this Act: Commissioner, income, income year, lease, notice, pay, tax year Compare: 2004 No 35 s EI 6 EI 8 Disposal of land to the Crown (1) (2) When this section applies This section applies when a person derives income from dis- posing of any of their land to the Crown.

Timing of income The person may choose to allocate the income between the income year in which they derive it and any 3 later income years.
823 Part E s EI 9 Income Tax Act 2007 Reprinted as at 5 January 2010 (3) (4) (5) Timing of deduction If the person allocates income to 2 or more income years, they must allocate part of any deduction allowed for the cost of the land to the same income years.

The part must bear the same proportion to the total deduction as the allocated income bears to the total amount of income.
Application The following provisions apply to an allocation for the pur- poses of subsection (2): (a) the person, or another person for them, must make a written application to the Commissioner: the application must be made within 1 year after the end of the tax year in which the person derives the income or within a longer time if the Commissioner agrees: the person must arrange to meet all income tax liabilities relating to the income: the Commissioner may cancel the allocation at any time.
(b) (c) (d) Cancellation of allocation If the Commissioner cancels the allocation,— (a) the whole of the income or deduction, as applicable, is allocated to the income year before the income year in which the cancellation occurs: the cancellation does not affect income or a deduction that has been allocated to an earlier income year.
Deﬁned in this Act: amount, Commissioner, deduction, income, income tax liability, income year, tax year, year Compare: 2004 No 35 s EI 7 (b) Shareholder-employees EI 9 Matching rule for employment income of shareholder-employee Matching if company allowed deduction If a company is allowed a deduction for expenditure on em- ployment income that is paid or is payable to a shareholder- employee under section CE 1 (Amounts derived in connec- tion with employment), the income is allocated in the way set out in subsections (2) and (3).
(1) 824 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EJ 2 (2) (3) Allocation to deduction year unless unexpired The income is allocated to the income year to which the deduc- tion allowed to the company is allocated, except for an amount equal to any unexpired portion for the income year of the com- pany’s expenditure under section EA 4 (Deferred payment of employment income).
Allocation when no longer treated as unexpired The remaining income is allocated to the income year or years in which the corresponding amount of the company’s expend- iture on the income is no longer treated as an unexpired por- tion.
Deﬁned in this Act: amount, company, deduction, employment income, income year, pay, shareholder-employee Compare: 2004 No 35 s EI 8 Subpart EJ—Spreading of speciﬁc expenditure Farming and forestry EJ 1 Spreading backward of deductions for costs of timber (1) (2) When this section applies This section applies when a person derives income under sec- tion CB 24 (Disposal of timber or right to take timber) or CB 25 (Disposal of land with standing timber).
Timing of deduction The person must allocate every amount allowed as a deduction for a cost of timber to the income years to which the income is allocated under section EI 1 (Spreading backward of income from timber), and in the same proportions as it is allocated.
Deﬁned in this Act: amount, deduction, income, income year Compare: 2004 No 35 s EJ 1 EJ 2 Spreading forward of deductions for repairs to ﬁshing boats (1) When this section applies: generally This section applies when a person who carries on a ﬁshing business in New Zealand is allowed a deduction for expend- iture incurred in making repairs or alterations required by Part 825 Part E s EJ 2 Income Tax Act 2007 Reprinted as at 5 January 2010 10 of the Maritime Transport Act 1994 to the equipment, hull, or machinery of a ﬁshing boat used wholly for the purposes of the business.
When subsection (3) applies Subsection (3) applies when the person does not cease to carry on the business before the end of the fourth tax year following the tax year in which the expenditure is incurred.
Business not ceasing within 4 years The person may do 1 of the following to the total amount of expenditure allowed as a deduction: (a) deduct it in the income year in which the expenditure is incurred; or allocate it to any 1 of the 4 income years following the income year in which the expenditure is incurred, and deduct it in that income year; or allocate parts of it over some or all of the 4 income years following the income year in which the expenditure is incurred, and deduct each part allocated in the income year to which it is allocated; or deduct it, or any part of it that has not already been de- ducted, in the fourth income year following the income year in which the expenditure is incurred.
(b) (c) (d) When subsection (5) applies Subsection (5) applies when the person ceases to carry on the business before the end of the fourth tax year following the tax year in which the expenditure is incurred.
Business ceasing within 4 years The person may do 1 of the following to the total amount of expenditure allowed as a deduction: (a) deduct it, or any part of it that has not already been deducted, in the income year in which the person ceases to carry on the business; or allocate it, or any part of it that has not already been deducted, equally to the income year in which it is in- curred and the following income years in which the per- son continues to carry on the business.
(b) Some deﬁnitions In this section,— (2) (3) (4) (5) (6) 826 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EJ 3 ﬁshing boat— (a) means a boat registered as a ﬁshing boat under Part 4 of (b) the Fisheries Act 1983; and includes a small boat belonging to any boat that is so registered ﬁshing business means a business of catching or taking ﬁsh, including crustaceans and shellﬁsh, for the purposes of sale.
Deﬁned in this Act: amount, business, deduction, ﬁshing boat, ﬁshing business, income year, New Zealand, tax year Compare: 2004 No 35 s EJ 2 EJ 3 Spreading forward of fertiliser expenditure (1) (2) (3) (4) When this section applies This section applies when— (a) a person carries on a farming or agricultural business on land in New Zealand; and the person incurs expenditure in buying fertiliser or lime or applying fertiliser or lime to some or all of the land; and the expenditure is expenditure for which the person is allowed a deduction.
(b) (c) Timing of deduction: if election made The person may choose to allocate the expenditure by allocat- ing some or all of it, in the proportions they choose, to any 1 or more of the 4 income years following the income year in which they incur the expenditure.
Timing of deduction: if election not made The person is allowed a deduction in the fourth income year following the income year in which they incur the expenditure for any part of the expenditure— (a) for which they do not claim a deduction in the income year in which they incur the expenditure; or that they do not allocate under subsection (2).
(b) Timing of deduction: business ceasing within 4 years If the person ceases to carry on the business before the end of the fourth income year following the income year in which they incurred the expenditure, they must choose 1 of the fol- 827 Part E s EJ 3 Income Tax Act 2007 Reprinted as at 5 January 2010 lowing ways to deal with any part of the expenditure that has not so far been deducted: (a) the part is to be deducted in the income year in which the person ceases to carry on the business; or the part is to be allocated equally to the income year in which they incurred the expenditure and the following income years in which the person carried on the busi- ness.
(b) (5) Notice The following provisions apply to an allocation for the pur- poses of subsections (2) and (4): (a) for subsection (2), the person must give the Commis- sioner notice of the allocation within the time within which the person is required to ﬁle a return of income for the income year to which they allocated the expend- iture: for subsection (4), the person must give the Commis- sioner notice of the allocation within the time within which the person is required to ﬁle a return of income for the income year in which the person ceases to carry on the business: for subsection (2) or (4), the Commissioner may allow a longer time in any case or class of cases: for subsection (2), the person must not revoke the allo- cation.
(b) (c) (d) (6) Personal representative An election under subsection (4) may be made by a deceased’s personal representative.
Deﬁned in this Act: business, Commissioner, deduction, income year, New Zealand, notice, return of income Compare: 2004 No 35 s EJ 3 828 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EJ 4 Films EJ 4 Expenditure incurred in acquiring ﬁlm rights in feature ﬁlms (1) (2) (3) (4) Feature ﬁlms A deduction for expenditure that a person incurs in acquiring a ﬁlm right is allocated under this section if the ﬁlm is a feature ﬁlm and— (a) the deduction is allowed under section DS 1 (Acquiring ﬁlm rights): the deduction is allowed under section DS 2 (Film pro- duction expenditure) and the ﬁlm is one for which a government screen production payment is made.
(b) Timing of deduction: retention of ﬁlm right If the person has the ﬁlm right at the end of an income year, the deduction that is allocated to the income year is the lesser of— (a) the greater of— (i) an apportioned amount of the deduction, calcu- lated for the income year under subsection (3); and the amount of ﬁlm income derived in the income year; and (ii) (b) the remaining deduction.
Calculation of apportioned amount The apportioned amount is calculated for the income year us- ing the formula— Deﬁnition of items in formula In the formula,— (a) (b) completed months is the number of months in the in- come year, including a part of a month, for which the ﬁlm is completed: non-completed months is 24, reduced by the number of complete months in the period that— (i) starts on the ﬁrst day of the month in which the ﬁlm is completed; and 829 Part E s EJ 5 Income Tax Act 2007 Reprinted as at 5 January 2010 (5) (6) (ii) ends on the last day of the income year before the income year referred to in subsection (2): (c) deduction is the remaining deduction.
Timing of deduction: disposal of ﬁlm right If the person disposes of the ﬁlm right during an income year, and does not have a ﬁlm right in the ﬁlm at the end of the in- come year, the remaining deduction is allocated to the income year.

Meaning of remaining deduction In this section, remaining deduction means, for an income year, the amount of the deduction for expenditure incurred be- fore the end of the income year that has not been allocated to an earlier income year.
Deﬁned in this Act: amount, completed, deduction, feature ﬁlm, ﬁlm, ﬁlm in- come, ﬁlm right, government screen production payment, income year, remain- ing deduction Compare: 2004 No 35 s EJ 4 Section EJ 4(1): substituted, on 1 April 2008, by section 360 of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section EJ 4(1)(b): substituted, on 1 January 2010, by section 123(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EJ 4 list of deﬁned terms government screen production payment: inserted, on 1 January 2010, by section 123(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
EJ 5 Expenditure incurred in acquiring ﬁlm rights in ﬁlms other than feature ﬁlms Films other than feature ﬁlms A deduction for expenditure that a person incurs in acquiring a ﬁlm right is allocated under this section if the ﬁlm is not a feature ﬁlm and— (a) the deduction is allowed under section DS 1 (Acquiring ﬁlm rights): the deduction is allowed under section DS 2 (Film pro- duction expenditure) and the ﬁlm is one for which a government screen production payment is made.
(b) Timing of deduction: retention of ﬁlm right If the person has the ﬁlm right at the end of an income year,— (1) (2) 830 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EJ 6 (3) (4) (a) (b) the deduction that is allocated to the income year in which the ﬁlm right is acquired or the ﬁlm is completed, whichever is later, is— (i) (ii) 50% of the deduction; or if the ﬁlm income derived in the income year is more than 50% of the deduction, the lesser of the amount of ﬁlm income and the total amount of the deduction; and the deduction that is allocated to the next income year is the remaining deduction.
Timing of deduction: disposal of ﬁlm right If the person disposes of the ﬁlm right during an income year, and does not have a ﬁlm right in the ﬁlm at the end of the in- come year, the remaining deduction is allocated to the income year.

Meaning of remaining deduction In this section, remaining deduction means, for an income year, the amount of the deduction that has not been allocated to an earlier income year.
Deﬁned in this Act: amount, completed, deduction, feature ﬁlm, ﬁlm, ﬁlm in- come, ﬁlm right, government screen production payment, income year, remain- ing deduction Compare: 2004 No 35 s EJ 5 Section EJ 5(1): substituted, on 1 April 2008, by section 361 of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section EJ 5(1)(b): substituted, on 1 January 2010, by section 124(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EJ 5 list of deﬁned terms government screen production payment: inserted, on 1 January 2010, by section 124(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
EJ 6 Certiﬁcation of New Zealand ﬁlms (1) Certiﬁcation of New Zealand ﬁlms The New Zealand Film Commission may certify that a ﬁlm is a New Zealand ﬁlm, if the Commission is satisﬁed that the ﬁlm has, or will on completion have, a signiﬁcant New Zealand content, as determined under section 18 of the New Zealand Film Commission Act 1978.
831 Part E s EJ 7 Income Tax Act 2007 Reprinted as at 5 January 2010 (2) (3) (4) (5) (6) (7) Final and provisional certiﬁcates The certiﬁcate issued by the New Zealand Film Commission must be— (a) (b) a provisional certiﬁcate, if the ﬁlm is not completed: a ﬁnal certiﬁcate, if the ﬁlm is completed.
Applications for certiﬁcation of New Zealand ﬁlms An application to the New Zealand Film Commission for a cer- tiﬁcate that a ﬁlm is a New Zealand ﬁlm must be in writing and must provide the information that the Commission requires.

Notice of certiﬁcate to Commissioner The New Zealand Film Commission must send a copy of the provisional certiﬁcate or the ﬁnal certiﬁcate to the Commis- sioner immediately after issuing it.
Revocation of certiﬁcate The New Zealand Film Commission may revoke a provisional certiﬁcate or a ﬁnal certiﬁcate if the Commission is satisﬁed that the certiﬁcate should not remain in force, whether because an incorrect statement was made in the provision of informa- tion for the purpose of obtaining a certiﬁcate or for any other reason.

Effect of revocation A revoked certiﬁcate is void from the time the certiﬁcate was issued.
Notice of revocation to Commissioner The New Zealand Film Commission must give notice to the Commissioner immediately after revoking a provisional cer- tiﬁcate or a ﬁnal certiﬁcate.
Deﬁned in this Act: Commissioner, completed, ﬁlm, New Zealand, notice Compare: 2004 No 35 s EJ 6 EJ 7 Film production expenditure for New Zealand ﬁlms having no government screen production payment New Zealand ﬁlms A deduction under section DS 2 (Film production expenditure) for ﬁlm production expenditure is allocated under this section if— (1) 832 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EJ 8 (2) (3) (a) (b) the ﬁlm is not one for which a government screen pro- duction payment is made; and the ﬁlm has a ﬁnal certiﬁcate under section EJ 6.
Timing of deduction: up to completion of ﬁlm A deduction for ﬁlm production expenditure incurred in or be- fore the income year in which the ﬁlm is completed is allocated to the income year in which the ﬁlm is completed.

Timing of deduction: after completion of ﬁlm A deduction for ﬁlm production expenditure incurred after the ﬁlm is completed is allocated to the income year in which it is incurred.
Deﬁned in this Act: completed, deduction, ﬁlm, ﬁlm production expenditure, government screen production payment, income year, New Zealand Compare: 2004 No 35 s EJ 7 Section EJ 7 heading: amended, on 1 January 2010, by section 125(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section EJ 7 heading: amended, on 1 April 2008, by section 362(1) of the Tax- ation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EJ 7(1): substituted, on 1 April 2008, by section 362(2) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section EJ 7(1)(a): substituted, on 1 January 2010, by section 125(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EJ 7 list of deﬁned terms government screen production payment: inserted, on 1 January 2010, by section 125(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
EJ 8 Film production expenditure for other ﬁlms having no government screen production payment (1) Films other than New Zealand ﬁlms A deduction under section DS 2 (Film production expenditure) for ﬁlm production expenditure is allocated under this section if— (a) the ﬁlm is not one for which a government screen pro- duction payment is made; and the ﬁlm does not have a ﬁnal certiﬁcate under section EJ 6.
(b) 833 Part E s EJ 8 Income Tax Act 2007 Reprinted as at 5 January 2010 Timing of deduction: up to completion of ﬁlm If the person has a ﬁlm right at the end of the income year in which the ﬁlm is completed, the deduction for ﬁlm production expenditure incurred in or before the income year is allocated as follows: (a) to the income year in which the ﬁlm is completed,— (i) (ii) 50% of the deduction; or if the ﬁlm income derived in the income year is more than 50% of the deduction, the lesser of the amount of ﬁlm income and the total amount of the deduction; and (b) to the next income year, the remaining deduction.
Timing of deduction: after completion of ﬁlm If the person has a ﬁlm right in an income year after the ﬁlm is completed, a deduction for ﬁlm production expenditure in- curred after the ﬁlm is completed is allocated to the income year in which it is incurred.
Timing of deduction: disposal of ﬁlm right If the person disposes of a ﬁlm right in the income year in which the ﬁlm is completed, and does not have a ﬁlm right in the ﬁlm at the end of the income year, the remaining deduction is allocated to the income year.

Meaning of remaining deduction In this section, remaining deduction means, for an income year, the amount of the deduction for ﬁlm production expend- iture that has not been allocated to an earlier income year.
Deﬁned in this Act: amount, completed, deduction, ﬁlm, ﬁlm income, ﬁlm pro- duction expenditure, ﬁlm right, government screen production payment, income year, New Zealand, remaining deduction Compare: 2004 No 35 s EJ 8 Section EJ 8 heading: substituted, on 1 April 2008, by section 363(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EJ 8 heading: amended, on 1 January 2010, by section 126(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section EJ 8(1): substituted, on 1 April 2008, by section 363(2) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section EJ 8(1)(a): substituted, on 1 January 2010, by section 126(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
(2) (3) (4) (5) 834 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EJ 10 Section EJ 8 list of deﬁned terms government screen production payment: inserted, on 1 January 2010, by section 126(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
EJ 9 Avoidance arrangements The allocation of a deduction under any of sections EJ 4, EJ 5, EJ 7, and EJ 8 may be subject to adjustment under— (a) section GB 18 (Arrangements to acquire ﬁlm rights or incur production expenditure): section GB 19 (When ﬁlm production expenditure pay- ments delayed or contingent).
(b) Deﬁned in this Act: deduction, ﬁlm production expenditure, ﬁlm right, pay Compare: 2004 No 35 ss GC 11B, GD 12A, GD 12B EJ 10 Personal property lease payments Leases (1) (2) (3) (4) What this section applies to This section applies to a lease that— (a) (b) (c) is of a personal property lease asset; and is not a ﬁnance lease; and is not a speciﬁed lease.

Payments Personal property lease payments are treated as being paid for the term of the lease.
Formula The expenditure that the lessee incurs is allocated to income years using the formula— Deﬁnition of items in formula In the formula,— (a) part of term is the part of the term of the lease that falls within the income year: term of the lease has the meaning given in section YA 1 (Deﬁnitions): (b) 835 Part E s EJ 11 Income Tax Act 2007 Reprinted as at 5 January 2010 (c) total of payments is the total amount of the personal property lease payments.
Deﬁned in this Act: ﬁnance lease, income year, lease, lessee, pay, personal property lease asset, personal property lease payment, speciﬁed lease, term of the lease Compare: 2004 No 35 s EJ 9 EJ 11 Amount paid by lessee for non-compliance with covenant for repair When this section applies This section applies when a lessee of land is allowed a deduc- tion under section DB 21 (Amounts paid for non-compliance with covenant for repair).
Timing of deduction The lessee may choose to allocate some or all of the amount of the deduction to any 1 or more of the 3 income years before the income year in which the amount is paid or recovered.

The lessee may make an allocation only to an income year in which they used the land for deriving income.
Effect of allocation If the lessee makes an allocation,— (a) they are denied a deduction for the allocated amount in the income year in which the amount of the deduction is paid or recovered; and they are allowed a deduction for the allocated amount in the income year to which it is allocated.
(b) Notice The following provisions apply to an allocation for the pur- poses of subsection (2): (a) the lessee makes the election by giving a notice to the Commissioner that speciﬁes how the amount of the de- duction has been allocated; and the lessee must give the notice within the time required to ﬁle a return of income for the tax year in which the amount was paid or recovered or within a longer time if the Commissioner agrees; and (b) (1) (2) (3) (4) 836 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EJ 12B the lessee must not revoke the allocation.
(c) Deﬁned in this Act: amount, Commissioner, deduction, income, income year, lessee, notice, return of income, tax year Compare: 2004 No 35 s EJ 10 Petroleum mining EJ 12 Petroleum development expenditure: default allocation rule (1) (2) (3) When this section applies This section applies to a petroleum miner’s petroleum devel- opment expenditure that relates to petroleum mining develop- ments in a permit area and that is incurred on or after 1 April 2008, when section EJ 12B does not apply to the expenditure.
Default allocation rule For the purposes of section DT 5(2)(a) (Petroleum develop- ment expenditure), a deduction for the petroleum development expenditure is allocated in equal amounts over a period of 7 in- come years.

The period of 7 years starts with the income year in which the expenditure is incurred.

Relationship with other petroleum mining provisions Sections EJ 13 to EJ 16 override subsection (2).
Sections DT 7, DT 8, DT 10, DT 11, DT 16, and IS 5 (which relate to petroleum miners) override this section.

Deﬁned in this Act: amount, deduction, income year, permit area, petroleum development expenditure, petroleum miner, petroleum mining development Section EJ 12: substituted (with effect on 1 April 2008), on 6 October 2009, by section 127(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
EJ 12B Petroleum development expenditure: reserve depletion method (1) When this section applies This section applies to a petroleum miner’s petroleum devel- opment expenditure that relates to petroleum mining develop- ments in a permit area, when the expenditure is incurred–– (a) (b) on or after 1 April 2008; and an election to apply this section, described in subsection (2), is made for the permit area.
837 Part E s EJ 12B Income Tax Act 2007 Reprinted as at 5 January 2010 Choice: ﬁrst year of commercial production and later years An election to apply this section may be made by a petroleum miner for a permit area, in a return of income for an income year, only if that income year is the ﬁrst one in which petrol- eum is produced in commercial quantities in the permit area.
The election is irrevocable, and applies this section to petrol- eum development expenditure that relates to petroleum mining developments in the relevant permit area for the income year and later income years.
Reserve depletion method expense allocation rule For the purposes of section DT 5(2)(b) (Petroleum develop- ment expenditure), the deduction allocated to an income year for the petroleum development expenditure that relates to a petroleum mining development in the relevant permit area is the amount calculated using the following formula, if the amount is positive: (reserve expenditure − previous expenditure) × reserve depletion for the year probable reserves.
Deﬁnition of items in formula The items in the formula are deﬁned in subsections (5) to (8).

Reserve expenditure Reserve expenditure is the total petroleum development ex- penditure that relates to the petroleum mining development for the income year or an earlier income year to which this section applied.
Previous expenditure Previous expenditure is the total petroleum development ex- penditure that relates to the petroleum mining development and that has been allocated to an earlier income year to which this section applied.

Reserve depletion for the year Reserve depletion for the year is the amount, expressed in barrels of oil equivalent, of petroleum produced from the pet- roleum mining development for the income year.
(2) (3) (4) (5) (6) (7) 838 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EJ 13 (8) (9) Probable reserves Probable reserves is the amount, expressed in barrels of oil equivalent, of the reserves of petroleum for the petroleum min- ing development that are not yet proven but are estimated, at the beginning of the income year, to have a better than 50% chance of being technically and commercially producible.
Relationship with other petroleum mining provisions Sections EJ 13 to EJ 16 override subsection (3).

Sections DT 7, DT 8, DT 10, DT 11, DT 16, and IS 5 (which relate to petroleum miners) override this section.
Deﬁned in this Act: amount, deduction, income year, permit area, petroleum development expenditure, petroleum miner, petroleum mining development Section EJ 12B: inserted (with effect on 1 April 2008), on 6 October 2009, by section 127(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

EJ 13 Relinquishing petroleum mining permit (1) (2) (3) When this section applies This section applies when a petroleum miner relinquishes a petroleum permit.
Amount of deduction The amount of the deduction that the miner is allowed on re- linquishing the permit is the difference between— (a) the amount of the deduction allowed under section DT 5 (Petroleum development expenditure) and attributable to— (i) (ii) the permit; or an asset of the kind described in section CT 7(1)(b) or (c) (Meaning of petroleum mining asset) held solely in connection with the permit; and (b) any part of the deduction allocated to earlier income years under section EJ 12(2) or EJ 12B(3).
Timing of deduction The deduction is allocated to the income year in which the miner relinquishes the permit.

Deﬁned in this Act: amount, deduction, income year, petroleum miner, petrol- eum permit Compare: 2004 No 35 s EJ 12 839 Part E s EJ 13B Income Tax Act 2007 Reprinted as at 5 January 2010 Section EJ 13(2)(b): amended (with effect on 1 April 2008), on 6 October 2009, by section 128(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
EJ 13B Dry well drilled When this section applies This section applies when— (a) the petroleum miner has petroleum development ex- penditure for a well, the drilling of which stops in an income year, and, from the time of stopping, the well— will never produce petroleum in commercial (i) quantities; and is abandoned; and (ii) part of a deduction under section DT 5(Petroleum de- velopment expenditure) for the petroleum development expenditure described in paragraph (a) has not been al- located under section EJ 12 or EJ 12B.
(b) Allocation The part of the deduction described in subsection (1) is allo- cated to the income year.

Deﬁned in this Act: amount, deduction, income year, petroleum development expenditure Section EJ 13B: inserted (with effect on 1 April 2008), on 6 October 2009, by section 129(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
EJ 13C Well not producing When this section applies This section applies when— (a) the petroleum miner has petroleum development ex- penditure for a well that, in an income year— (i) stops producing petroleum in commercial quan- tities; and is abandoned; and (ii) the petroleum miner has elected to apply section EJ 12B for the petroleum development expenditure described in paragraph (a) before the start of the income year; and part of a deduction under section DT 5 (Petroleum de- velopment expenditure) for the petroleum development (b) (c) (1) (2) (1) 840 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EJ 15 (2) expenditure described in paragraphs (a) and (b) has not been allocated under section EJ 12B.
Allocation The part of the deduction described in subsection (1) is allo- cated to the income year.

Deﬁned in this Act: amount, deduction, income year, petroleum development expenditure Section EJ 13C: inserted (with effect on 1 April 2008), on 6 October 2009, by section 129(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
EJ 14 Spreading deduction backwards (1) (2) (3) When this section applies This section applies when a petroleum miner has a deduction whose amount has been reduced under section IS 5 (Petroleum miners’ tax losses).

Spreading backwards The petroleum miner may allocate the amount of the deduc- tion to the tax year before that in which the net loss arises, or allocate parts of it to earlier tax years.
Amending returns The petroleum miner may amend their returns of income for the relevant tax years despite the operation of the time bar.

Deﬁned in this Act: amount, deduction, petroleum miner, return of income, tax year, time bar Compare: 2004 No 35 s IH 3(1) EJ 15 Disposal of petroleum mining asset (1) (2) When this section applies This section applies when a petroleum miner disposes of a petroleum mining asset.
Amount, and timing, of deduction Part of a deduction under section DT 5 (Petroleum develop- ment expenditure) is allocated to the income year in which the miner disposes of the asset.

The part is that to which both the following apply: (a) it is attributable to the asset; and 841 Part E s EJ 16 Income Tax Act 2007 Reprinted as at 5 January 2010 (b) it has not been allocated under section EJ 12 or EJ 12B to the income year in which the miner disposes of the asset or to an earlier income year.
(3) (4) Allocation to more than 1 year If the petroleum miner’s income from disposing of the asset is derived in 2 or more income years,— (a) the amount of the deduction is allocated among the in- come years in which the miner derives the income; and the amount allocated to each income year bears the same relation to the total amount of the deduction as the income that the miner derives in that income year bears to the total amount of income that the miner de- rives from the disposal.
(b) Relationship with section EJ 16 This section is overridden by section EJ 16.

Deﬁned in this Act: amount, deduction, dispose, income, income year, petrol- eum miner, petroleum mining asset Compare: 2004 No 35 s EJ 13 Section EJ 15(2)(b): substituted (with effect on 1 April 2008), on 6 October 2009, by section 130(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
EJ 16 Disposal of petroleum mining asset to associate When this section applies This section applies when, in an income year, a petroleum miner disposes of a petroleum mining asset to— a person associated with the miner: (a) a person who holds the asset for the miner: (b) a person who holds the asset for a person associated (c) with the miner.
Amount of deduction The maximum amount that may be allocated under section EJ 15 to the income year is the amount that would be the net income of the petroleum miner in the income year if their only income were from the disposal.
Deﬁned in this Act: amount, associated person, dispose, income, income year, net income, petroleum miner, petroleum mining asset Compare: 2004 No 35 s EJ 14 (1) (2) 842 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EJ 20 EJ 17 Partnership interests and disposal of part of asset In sections EJ 12 to EJ 16, unless the context requires other- wise,— (a) a partner is treated as having a share or interest in a pet- roleum permit or other property of a partnership to the extent of their interest in the income of the partnership: references to the disposal of an asset apply equally to the disposal of part of an asset.
Deﬁned in this Act: dispose, income, petroleum permit Compare: 2004 No 35 s EJ 15 (b) EJ 18 Petroleum mining operations outside New Zealand Sections EJ 12 to EJ 17, EJ 19, and EJ 20 apply with any ne- cessary modiﬁcations to a petroleum miner undertaking pet- roleum mining operations that are— (a) outside New Zealand and undertaken through a branch or a controlled foreign company; and substantially the same as the petroleum mining activ- ities governed by sections EJ 12 to EJ 17, EJ 19, and EJ 20.
(b) Deﬁned in this Act: controlled foreign company, New Zealand, petroleum miner, petroleum mining operations Compare: 2004 No 35 s EJ 16 EJ 19 Meaning of offshore development Deﬁnitions [Repealed] Section EJ 19: repealed (with effect on 1 April 2008), on 6 October 2009, by section 131(1) of the Taxation (International Taxation, Life Insurance, and Re- medial Matters) Act 2009 (2009 No 34).
EJ 20 Meaning of petroleum mining development (1) (2) Meaning In sections EJ 12 and EJ 12B, petroleum mining develop- ment means a place where 1 or more of the activities described in subsection (2) is carried out.
Activities: inclusions The activities are those carried out in connection with— developing a permit area for producing petroleum: (a) 843 Part E s EJ 21 Income Tax Act 2007 Reprinted as at 5 January 2010 (b) (c) (d) producing petroleum: processing, storing, or transmitting petroleum before its dispatch to a buyer, consumer, processor, reﬁnery, or user: removal or restoration operations.
(3) Activities: exclusions The activities do not include further treatment to which all the following apply: (a) it occurs after the well stream has been separated and stabilised into crude oil, condensate, or natural gas; and it is done— (i) (ii) (iii) it is not treatment at the production facilities.
by liquefaction or compression; or for the extraction of constituent products; or for the production of derivative products; and (c) Deﬁned in this Act: permit area, petroleum, removal or restoration operations (b) Section EJ 20: substituted (with effect on 1 April 2008), on 6 October 2009, by section 131(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Superannuation contributions EJ 21 Contributions to employees’ superannuation schemes When this section applies This section applies when an employer is allowed a deduction for a superannuation contribution to an employee’s superannu- ation scheme under section DC 7 (Contributions to employees’ superannuation schemes).
Timing of deduction The employer may choose to allocate the deduction to the income year for which the contribution was required by the superannuation scheme to be made, or for which the amount of the contribution was calculated taking into account the earn- ings paid to employees who were members of the scheme dur- ing the income year, if the employer makes the contribution within 63 days after the end of the income year.
(1) (2) 844 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EJ 23 (3) Election The employer must make the election before ﬁling a return of income for the income year or within a longer time if the Commissioner agrees.
Deﬁned in this Act: amount, Commissioner, deduction, employee, employer, income year, return of income, superannuation contribution, superannuation scheme Compare: 2004 No 35 s EJ 19 Research, development, and resulting market development EJ 22 Deductions for market development: product of research, development (1) (2) When this section applies This section applies when a person is allowed a deduction for expenditure under section DB 34 (Research or development) that is not interest and is incurred— (a) on market development for a product that has resulted from expenditure incurred by the person on research or development; and before the person begins commercial production or commercial use of the product.
(b) Choice for allocation of deduction The person may choose to allocate under section DB 34(7) all or part of the deduction to an income year— (a) after the income year in which the person incurs the expenditure; and in the way required by section EJ 23.
(b) Deﬁned in this Act: deduction, development, income year, research Compare: 2004 No 35 s EJ 20 EJ 23 Allocation of deductions for research, development, and resulting market development (1) When this section applies This section applies when a person has— (a) a deduction for expenditure incurred on research or de- velopment that the person chooses to allocate under sec- tion DB 34(7) (Research or development): 845 Part E s EJ 23 Income Tax Act 2007 Reprinted as at 5 January 2010 (b) (c) a deduction for an amount of depreciation loss for an item used for research or development, that the person chooses to allocate under section EE 1(5) (What this subpart does): a deduction for expenditure incurred on market devel- opment for a product that has resulted from expend- iture incurred on research or development that the per- son chooses to allocate under section EJ 22(2).
Timing of deduction The person must allocate the deduction to an income year— (a) in which the person derives an amount of income that is assessable income that the person would not have derived but for— (i) expenditure that gives rise to a deduction that may be allocated under this section: the use or disposal of an item for which the per- son has an amount of depreciation loss that may be allocated under this section: (ii) (b) to which under Part I (Treatment of tax losses) a loss balance is carried forward for the income year in which the expenditure or depreciation loss was incurred.
Minimum amount of deduction allocated to income year The person must not allocate to an income year (the current year) an amount of deductions referred to in subsection (1) that is less than the lesser of— (a) the amount of assessable income referred to in subsec- tion (2)(a) that the person derives in the current year: the amount of the deductions that have not been allo- cated to an income year before the current year.
(b) Maximum amount of deduction allocated to income year The person must not allocate to an income year (the current year) an amount of deductions referred to in subsection (1) that is more than the greater of— (a) the amount of assessable income referred to in subsec- tion (2)(a) that the person derives in the current year: the amount of the deductions that— (b) (2) (3) (4) 846 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EK 2 (i) (ii) arise in other income years from which a loss balance may be carried forward under Part I to the current year; and have not been allocated to income years before the current year.
Deﬁned in this Act: amount, assessable income, deduction, depreciation losses, development, income year, loss balance, research Compare: 2004 No 35 s EJ 21 Subpart EK—Environmental restoration accounts EK 1 Environmental Restoration Funds Account (1) (2) Account There is a Crown Bank Account called the Environmental Restoration Funds Account that is operated under the Public Finance Act 1989.
Payments from person paid into account Every payment a person makes to the Commissioner under section EK 2— (a) (b) must be paid into the Environmental Restoration Funds is public money; and Account.
Deﬁned in this Act: Commissioner, pay Compare: 2004 No 35 s EK 1 EK 2 Persons who may make payment to environmental restoration account A person may make a payment to the Commissioner for entry in the person’s environmental restoration account for an in- come year if the person— (a) (b) carries on a business in New Zealand; and expects to incur, for a later income year, expenditure that— (i) is not on revenue account property, other than land to which section CB 8 (Disposal: land used for landﬁll, if notice of election) applies; and 847 Part E s EK 3 Income Tax Act 2007 Reprinted as at 5 January 2010 (ii) is of a kind listed in schedule 19, part B (Expend- iture in avoiding, remedying, or mitigating detri- mental effects of discharge of contaminant); and is of a kind not listed in schedule 19, part C; and (c) makes a provision for such expenditure in ﬁnancial (iii) statements that are— (i) (ii) prepared for external reporting purposes; and audited by an accountant who is a chartered ac- countant or has equivalent professional qualiﬁca- tions; and given by the accountant a standard audit opinion, without qualiﬁcations on matters relating to the effect of this subpart.
(iii) Deﬁned in this Act: business, Commissioner, environmental restoration ac- count, income year, pay, revenue account property Compare: 2004 No 35 s EK 2 EK 3 Payments to environmental restoration account Upper limit of payment A person must not make a payment for an income year of more than the person’s maximum payment for the income year.

Lower limit of payment A person must not make a payment for an income year of less than $1,000.
Time for making payment A payment made after the day that is 6 months after the end of an income year is not made for the income year unless— (a) the Commissioner has allowed a longer period for the payment; and the payment is made within the period allowed by the Commissioner.
(b) Deﬁned in this Act: Commissioner, income year, maximum payment, pay Compare: 2004 No 35 s EK 3 (1) (2) (3) 848 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EK 4 EK 4 Environmental restoration account (1) (2) (3) (4) (5) (6) Person’s account The Commissioner must keep an environmental restoration account in the name of every person who makes a payment to the Commissioner under section EK 2.
Payments in account Every payment under section EK 2 that a person makes to the Commissioner must be entered in the person’s environmental restoration account.

Amounts in account The only amounts that may be entered in a person’s environ- mental restoration account are— (a) payments made by the person to the Commissioner under section EK 2: transfers made to the account under subsection (6): interest paid under section EK 6.
(b) (c) Amounts not available to others An amount entered in a person’s environmental restoration ac- count may not, while in the account,— (a) (b) be assigned or charged in any way: pass by operation of law to, or into the custody or control of, someone else, except when the person is bankrupt or has been put into liquidation: be an asset for the payment of the person’s debts or liabilities, except when the person is bankrupt or has been put into liquidation: be an asset for the payment of the debts or liabilities of a dead person’s estate.
(c) (d) Amounts not available except for refunds or transfers An amount entered in a person’s environmental restoration ac- count may not be removed from the environmental restoration account except by a refund under section EK 9 or EK 12 or by a transfer under subsection (6).
Transfers of amounts An amount may be transferred from the environmental restora- tion account of a person— 849 Part E s EK 5 Income Tax Act 2007 Reprinted as at 5 January 2010 (a) (b) (c) to an environmental restoration account of a person to whom the amount has been transferred under section EK 15 or EK 16(3)(b): to the department that is at the time responsible for ad- ministering the Environment Act 1986, if the amount has been transferred under section EK 16(3)(a): to an environmental restoration account of an amalga- mated company to which the amount has been trans- ferred under section EK 19.
Commissioner may close empty account The Commissioner may close an environmental restoration ac- count of a person if the amount in the environmental restora- tion account is zero.
Deﬁned in this Act: amalgamating company, amount, Commissioner, environ- mental restoration account, interest, liquidation, pay Compare: 2004 No 35 s EK 4 (7) EK 5 Details to be provided with payment to environmental restoration account Notice and details required A person making a payment to an environmental restoration account must provide the Commissioner with a notice, in a form prescribed by the Commissioner, giving— (a) (b) (c) the name of the person; and the income year for which the payment is made; and a calculation of the maximum payment for the person and the income year; and any additional information that the Commissioner re- quires.
(d) Time for providing information The person must provide the information required by subsec- tion (1) within 2 working days from the day of the payment.
Deﬁned in this Act: Commissioner, environmental restoration account, income year, maximum payment, pay, working day Compare: 2004 No 35 s EK 5 (1) (2) 850 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EK 7 EK 6 Interest on payments to environmental restoration account (1) (2) (3) (4) Interest payable Interest is payable by the Commissioner on— (a) a payment under section EK 2 to an environmental restoration account: an amount that is treated under section EK 15, EK 16, or EK 19 as being a payment to an environmental restora- tion account.
(b) Period Interest is computed with daily rests from the day after the date of the payment until the day before the date on which the payment is included in a refund under section EK 12 or in a transfer under section EK 15, EK 16, or EK 19.
Date to which interest accrues Interest that has accrued on a payment is payable to the person who has the environmental restoration account on the earlier of— (a) (b) 31 March in each year: the day on which the payment is included in a refund under section EK 12 or in a transfer under section EK 15, EK 16, or EK 19.

Rate The interest rate is 3% per year.


Deﬁned in this Act: Commissioner, environmental restoration account, interest, pay, year Compare: 2004 No 35 s EK 6 EK 7 Deduction for payment (1) When this section applies This section applies when a person is allowed a deduction under section DQ 4 (Environmental restoration accounts scheme) for a payment to their environmental restoration account under EK 2.
Amount of deduction The amount of the deduction is calculated using the formula— (2) 851 Part E s EK 8 Income Tax Act 2007 Reprinted as at 5 January 2010 (3) (4) (5) (6) Deﬁnition of items in formula The items in the formula are deﬁned in subsections (4) and (5).

Payment Payment is the lesser of— (a) the person’s payment to the Commissioner under sec- tion EK 2 for the income year; and the person’s maximum payment for the income year.
(b) Tax rate Tax rate is the highest rate of income tax on taxable income that— (a) is set out in schedule 1 (Basic tax rates: income tax, ESCT, RSCT, RWT, and attributed fringe beneﬁts); and would apply to the person for the tax year if the person had sufﬁcient taxable income.

(b) Timing of deduction The person is allowed the deduction for the income year for which the payment is made.
Deﬁned in this Act: Commissioner, deduction, environmental restoration ac- count, income tax, income year, maximum payment, pay, tax year, taxable in- come Compare: 2004 No 35 s EK 7 Section EK 7(5)(a): amended, on 1 April 2008, by section 562 of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
EK 8 Deduction for transfer (1) When this section applies This section applies when a person is allowed a deduction under section DQ 4 (Environmental restoration accounts scheme) for a transfer to their environmental restoration account under section EK 15, EK 16, or EK 19.
Amount of deduction The amount of the deduction is calculated using the formula— (2) 852 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EK 9 (3) (4) (5) (6) Deﬁnition of items in formula The items in the formula are deﬁned in subsections (4) and (5).

Transfer Transfer is the amount of the transfer to the person’s envir- onmental restoration account that is treated as a payment by the person under section EK 15(3), EK 16, or EK 19.
Tax rate Tax rate is the highest rate of income tax on taxable income that— (a) is set out in schedule 1 (Basic tax rates: income tax, ESCT, RSCT, RWT, and attributed fringe beneﬁts); and would apply to the person for the tax year if the person had sufﬁcient taxable income.

(b) Timing of deduction The person is allowed the deduction for the income year for which the transfer is made.
Deﬁned in this Act: deduction, environmental restoration account, income tax, income year, maximum payment, pay, tax year, taxable income Compare: 2004 No 35 s EK 8 Section EK 8(5)(a): amended, on 1 April 2008, by section 562 of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
EK 9 Refund of payment if excess, lacking details (1) (2) When this section applies This section applies when a person’s payment under section EK 2 for an income year is— (a) more than the person’s maximum payment for the in- come year: (b) made without providing the details required by section EK 5.
Refund As soon as practicable after the date on which the payment is received, the Commissioner must refund to the person— (a) the excess, if the payment is more than the person’s maximum payment for the income year: the payment, if the payment is described by subsection (1)(b).

(b) 853 Part E s EK 10 Income Tax Act 2007 Reprinted as at 5 January 2010 (3) No interest payable by Commissioner No interest is payable by the Commissioner under section EK 6 on the amount of the payment.
Deﬁned in this Act: Commissioner, income year, interest, maximum payment, pay Compare: 2004 No 35 s EK 9 EK 10 Certain refunds not income A refund under section EK 9 is excluded income under section CX 52 (Refund from environmental restoration account).
Deﬁned in this Act: excluded income Compare: 2004 No 35 s EK 10 EK 11 Application for refund Who may apply A person may apply to the Commissioner for a refund under section EK 12 of an amount in the person’s environmental restoration account if the refund— (a) corresponds to expenditure incurred by the person of a kind that is listed in schedule 19, part B (Expenditure in avoiding, remedying, or mitigating detrimental effects of discharge of contaminant) and not in schedule 19, part C: represents an excess in the person’s environmental restoration account over the maximum account balance for the person’s environmental restoration account for the income year.
(b) Application An application for a refund must— (a) (b) (c) be in writing; and state the grounds on which the application is made; and provide evidence satisfactory to the Commissioner veri- fying the existence of the grounds; and state the amount of the refund that the applicant wants.
(d) Deﬁned in this Act: Commissioner, environmental restoration account, income year Compare: 2004 No 35 s EK 11 (1) (2) 854 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EK 12 EK 12 Refund if request or excess balance (1) (2) When this section applies This section applies when— (a) a person wants a refund of some or all of the amount in the person’s environmental restoration account and none of sections EK 9, EK 15, EK 16, and EK 19 ap- plies: the amount in the person’s environmental restoration account is more than the maximum account balance for an income year.
(b) Refund if request made The Commissioner must make a refund under this section to a person if— (a) the person applies for a refund and has incurred expend- iture— (i) (ii) (iii) of a kind that is listed in schedule 19, part B (Ex- penditure in avoiding, remedying, or mitigating detrimental effects of discharge of contaminant) and not in schedule 19, part C; and of an amount equal to or greater than the amount given by subsection (3) for the amount of the refund; and after the ﬁrst date on which the person made to the Commissioner a payment under section EK 2 for entry in the person’s environmental restora- tion account or a transfer under section EK 15, EK 16, or EK 19 was made to the person’s envir- onmental restoration account: (b) the maximum account balance for the latest complete income year for the person’s environmental restoration account is less than the amount in the environmental restoration account at the end of that income year.
(3) Minimum amount of expenditure incurred The amount of expenditure incurred that corresponds to the amount of a refund is calculated using the formula— 855 Part E s EK 12 Income Tax Act 2007 Reprinted as at 5 January 2010 Deﬁnition of items in formula In the formula,— (a) (b) amount is the amount of the refund: tax rate is the highest rate of income tax on taxable income that— (i) is set out in schedule 1 ( Basic tax rates: income tax, ESCT, RSCT, RWT, and attributed fringe beneﬁts); and (ii) would apply to the person for the tax year if the person had sufﬁcient taxable income.
Amount of refund if expenditure incurred If a person is entitled to a refund under subsection (2)(a), the amount that the Commissioner must refund to the person is the smallest of— (a) (b) the refund for which the person applies: the contents of the person’s environmental restoration account at the time of the refund: the refund corresponding to the person’s expenditure that meets the requirements of subsection (2)(a)(i) to (iii).
(c) Amount of refund if maximum account balance decreases If a person is entitled to a refund under subsection (2)(b), the amount that the Commissioner must refund is the difference at the end of the latest complete income year between— (a) the amount in the person’s environmental restoration account after any transfer under section EK 15, EK 16, or EK 19 for the income year: the person’s maximum account balance for the income year.
(b) Relationship with section EK 17 Section EK 17 overrides subsections (5) and (6).

Deﬁned in this Act: amount, Commissioner, environmental restoration account, income tax, income year, maximum account balance, pay, tax year, taxable income Compare: 2004 No 35 s EK 12 Section EK 12(4)(b)(i): amended, on 1 April 2008, by section 562 of the Taxa- tion (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
(4) (5) (6) (7) 856 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EK 15 EK 13 Income when refund given on request A refund under section EK 12 is income, of the amount given by section CB 28 (Environmental restoration accounts), de- rived by the person in the income year in which the person receives the refund.
Deﬁned in this Act: Commissioner, income, income year Compare: 2004 No 35 s EK 13 EK 14 Application for transfer (1) (2) Who may apply A person may apply to the Commissioner for a transfer under section EK 15 from the amount in the person’s environmental restoration account.
Application An application for a transfer must— (a) (b) (c) Deﬁned in this Act: Commissioner, environmental restoration account Compare: 2004 No 35 s EK 14 be in writing; and state the grounds on which the application is made; and state the amount of the transfer that the applicant wants.
EK 15 Transfer on request (1) When this section applies This section applies when— (a) a person applies under section EK 14 for a transfer of some or all of the amount in their environmental restora- tion account to a person who is nominated in the appli- cation; and the person has transferred to the nominated person the obligations to which the amount relates; and none of sections EK 9, EK 12, EK 16, and EK 19 ap- plies.
(b) (c) (2) Transfer if request made The Commissioner must make a transfer under this section to an environmental restoration account of the person nominated in the application.
857 Part E s EK 16 Income Tax Act 2007 Reprinted as at 5 January 2010 (3) (4) (5) Transfer treated as payment by nominated person A transfer under subsection (2) is treated as being a payment by the nominated person to the nominated person’s environ- mental restoration account if the nominated person satisﬁes the Commissioner that— (a) the obligations to which the transferred amount relates have been transferred to the nominated person; and in the absence of the transfer, the nominated person would be entitled to make a payment, of the amount of the transfer, to the nominated person’s environmental restoration account.
(b) Commissioner to reverse transfer if requirements of subsection (3) not met If the nominated person does not meet the requirements of subsection (3) in relation to an amount, the Commissioner must transfer the amount to the environmental restoration ac- count of the person who made the application under subsection (1)(a).

Timing of reversal The transfer under subsection (4) is treated as taking place at the time of the original transfer under subsection (2).
Deﬁned in this Act: Commissioner, environmental restoration account, pay Compare: 2004 No 35 s EK 15 EK 16 Transfer on death, bankruptcy, or liquidation When this section applies This section applies when a person— (a) (b) has an environmental restoration account; and does 1 of the following: (i) (ii) (iii) dies: becomes bankrupt: is put into liquidation.
Transfer to other person Subsection (3) applies if the Commissioner is informed, by the administrator of the person’s estate, the Ofﬁcial Assignee, or the person’s liquidator, that the obligation to which the balance in the person’s environmental restoration account relates has been transferred to another person.
(1) (2) 858 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EK 17 (3) (4) (5) (6) (7) Transfer by Commissioner The Commissioner must transfer the amount referred to in sub- section (4) to an environmental restoration account of the per- son to whom the obligation has been transferred.
that Amount of transfer The Commissioner must transfer under subsection (3) the amount is in the person’s environmental restoration account on the date on which— (a) (b) the person dies, if subsection (1)(b)(i) applies: the person becomes bankrupt, if subsection (1)(b)(ii) applies: the person is put into liquidation, if subsection (1)(b)(iii) applies.

(c) Relationship with section EK 17 Section EK 17 overrides subsection (4).
Transfer treated as payment A transfer to the environmental account of a person under sub- section (3) is treated as a payment by the person to their envir- onmental account.

Year of income The amount of a transfer under this section is income, under section CB 28 (Environmental restoration accounts), derived by the person on the day before the day on which the amount of the transfer is determined under subsection (4).
Deﬁned in this Act: amount, Commissioner, environmental restoration account, income, liquidation, pay Compare: 2004 No 35 s EK 16 EK 17 Minimum refund or transfer The Commissioner must not give a refund or make a transfer under any of sections EK 9, EK 12, EK 15, EK 16, and EK 19 that is less than the lesser of— (a) (b) $1,000; and the balance in the person’s environmental restoration account on the date on which the refund or transfer is made.
Deﬁned in this Act: Commissioner, environmental restoration account Compare: 2004 No 35 s EK 17 859 Part E s EK 18 Income Tax Act 2007 Reprinted as at 5 January 2010 EK 18 Payments from which refunds come Each refund to a person is treated as coming from the total amount in the person’s environmental restoration account in the order in which the person made the payments into the ac- count.
Deﬁned in this Act: amount, environmental restoration account, pay Compare: 2004 No 35 s EK 18 EK 19 Environmental restoration account of amalgamating company If an amalgamating company with an environmental restora- tion account ends its existence on an amalgamation during an income year,— (a) the contents of the environmental restoration account of the amalgamating company are transferred to an envir- onmental restoration account of the amalgamated com- pany on the date of the amalgamation: the amalgamated company is treated as having— (i) made to the amalgamated company’s environ- mental restoration account the payments that the amalgamating company made before the amal- gamation to the amalgamating company’s envir- onmental restoration account; and (b) (ii) made from the amalgamated company’s environ- mental restoration account the transfers that the amalgamating company made before the amal- gamation from the amalgamating company’s en- vironmental restoration account; and received from the amalgamated company’s en- vironmental restoration account the refunds that the amalgamating company received before the amalgamation from the amalgamating com- pany’s environmental restoration account.
(iii) Deﬁned in this Act: amalgamated company, amalgamating company, amal- gamation, environmental restoration account, income year, pay Compare: 2004 No 35 s EK 19 860 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EK 21 EK 20 Environmental restoration account of consolidated group company (1) (2) (3) (4) Company with environmental restoration account A company that is part of a consolidated group may have an environmental restoration account.
Nominated company for group acting on behalf of company The nominated company for the consolidated group may act on behalf of the group company under this subpart to— (a) make payments, applications, and transfers: (b) receive refunds and transfers.

Use of consolidated ﬁnancial statements for group In making payments and applications under this subpart, the nominated company may rely on the audited consolidated ﬁ- nancial statements for the consolidated group.
Use of consolidated ﬁgures for liabilities anticipated and expenditure incurred If the nominated company relies on the audited consolidated ﬁ- nancial statements for the consolidated group, the consolidated ﬁgures for the anticipated liabilities and incurred expenditure of the consolidated group are attributed to the group compan- ies on the basis of the individual obligations of the companies to incur expenditure of a kind listed in schedule 19, part B (Expenditure in avoiding, remedying, or mitigating detrimen- tal effects of discharge of contaminant) and not in schedule 19, part C. Deﬁned in this Act: consolidated group, environmental restoration account, nominated company, pay Compare: 2004 No 35 s EK 20 EK 21 Notices in electronic format The Commissioner may require a person to provide a no- tice under this subpart the Commissioner prescribes under section 36BC of the Tax Administration Act 1994.
Deﬁned in this Act: Commissioner, electronic format Compare: 2004 No 35 s EK 21 in an electronic format that 861 Part E s EK 22 Income Tax Act 2007 Reprinted as at 5 January 2010 EK 22 Meaning of maximum payment Maximum payment In this subpart, maximum payment means the maximum pay- ment that under subsection (2) a person may make to the per- son’s environmental restoration account for an income year.
Amount of maximum payment The maximum payment that a person may make for an income year is the lesser of— (a) the amount by which the maximum account balance for the income year for the environmental restoration account is more than the amount in the environmental restoration account at the end of the income year: the amount, if any, calculated under subsection (3) for the person and the income year.
(b) Maximum payment for ﬁrst 5 years of environmental restoration funds scheme If a person has a maximum account balance for the 2005–06 income year that is more than zero, the amount referred to in subsection (2)(b) for the person and for that income year, and for each of the later income years before the 2010–11 income year, is the amount calculated using the formula— level increase + (year × 0.2 × initial level) - contents.
Deﬁnition of items in formula In the formula,— (a) level increase is the greater of zero and the amount by which the maximum account balance for the income year is more than the maximum account balance for the 2005–06 income year: year is 1 for the 2005–06 income year and increases by 1 for each successive income year to a maximum of 5 for the 2009–10 income year: initial level is the maximum account balance for the 2005–06 income year: contents is the amount in the environmental restoration account at the end of the income year.
(b) (c) (d) Deﬁned in this Act: amount, business, environmental restoration account, in- come year, maximum payment, pay Compare: 2004 No 35 s EK 22 (1) (2) (3) (4) 862 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EK 23 EK 23 Other deﬁnitions (1) (2) (3) Meaning of maximum account balance In this subpart, maximum account balance for a person and an income year means— (a) if the person does not meet the requirements of section EK 2 for the income year, zero: if the person meets the requirements of section EK 2 for the income year, the amount calculated using the formula— (b) provision × tax rate.
Deﬁnition of items in formula In the formula,— (a) provision is the provision in the person’s ﬁnancial statements for future expenditure that— (i) is of a kind listed in schedule 19, part B (Expend- iture in avoiding, remedying, or mitigating detri- mental effects of discharge of contaminant); and (ii) is not of a kind listed in schedule 19, part C: tax rate is the highest rate of income tax on taxable income that— (i) is set out in schedule 1 (Basic tax rates: income tax, ESCT, RSCT, RWT, and attributed fringe beneﬁts); and (b) (ii) would apply to the person for the tax year if the person had sufﬁcient taxable income.
Meaning of environmental restoration account In this subpart, environmental restoration account, for a per- son, means the account that the Commissioner keeps in the person’s name under section EK 4.

Deﬁned in this Act: business, Commissioner, environmental restoration ac- count, income tax, income year, taxable income Compare: 2004 No 35 s EK 23 Section EK 23(2)(b)(i): amended, on 1 April 2008, by section 562 of the Taxa- tion (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
863 Part E s EW 1 Income Tax Act 2007 Reprinted as at 5 January 2010 Subpart EW—Financial arrangements rules Introductory provisions EW 1 What this subpart does Financial arrangements rules This subpart contains most of the ﬁnancial arrangements rules.
Meaning of ﬁnancial arrangements rules Financial arrangements rules means— the sections in this subpart; and (a) sections CC 3 (Financial arrangements), DB 11 to DB (b) 15 (which relate to ﬁnancial arrangements adjustments), EZ 51 (Transitional adjustment when changing to ﬁnan- cial arrangements rules), FB 9 (Financial arrangements rules), GB 21 (Dealing that defeats intention of ﬁnancial arrangements rules), RA 11 and RA 12 (which relate to adjustments to correct errors); and sections 90AA to 90AD of the Tax Administration Act 1994.
(c) Purposes of ﬁnancial arrangements rules The purposes of the ﬁnancial arrangements rules are— (a) to require the parties to a ﬁnancial arrangement to ac- crue over the term of the arrangement a fair and reason- able amount of income derived or expenditure incurred under the arrangement, and so to prevent the deferral of income or the advancement of expenditure; and to require the parties to a ﬁnancial arrangement to disregard any distinction between capital and revenue amounts; and to require a party to a ﬁnancial arrangement to calculate a base price adjustment when the rights and obligations of the party under the arrangement cease.
(b) (c) Deﬁned in this Act: amount, ﬁnancial arrangement, ﬁnancial arrangements rules, income Compare: 2004 No 35 s EW 1 (1) (2) (3) 864 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EW 3 EW 2 Relationship of ﬁnancial arrangements rules with other provisions (1) (2) Financial arrangements rules override other provisions The ﬁnancial arrangements rules prevail over any other pro- vision in relation to the timing and quantifying of income and expenditure under a ﬁnancial arrangement to which the ﬁnan- cial arrangements rules apply, unless the other provision ex- pressly or by necessary implication requires otherwise.
(b) Interest excluded from certain valuations Expenditure under a ﬁnancial arrangement to which the ﬁnan- cial arrangements rules apply is not included in— (a) the cost of trading stock for low-turnover traders under subpart EB (Valuation of trading stock (including dealer’s livestock)): the cost of livestock under subpart EC (Valuation of livestock): the cost of bloodstock under subpart EC: the cost of revenue account property: the cost of timber: the cost of acquiring a ﬁlm or a ﬁlm right: ﬁlm production expenditure: petroleum development expenditure: petroleum exploration expenditure.
(c) (d) (e) (f) (g) (h) (i) Deﬁned in this Act: bloodstock, ﬁlm, ﬁlm production expenditure, ﬁlm right, ﬁ- nancial arrangement, ﬁnancial arrangements rules, income, low-turnover trader, petroleum development expenditure, petroleum exploration expenditure, rev- enue account property, trading stock Compare: 2004 No 35 s EW 2 Meaning of ﬁnancial arrangement and excepted ﬁnancial arrangement EW 3 What is a ﬁnancial arrangement?
(1) Meaning Financial arrangement means an arrangement described in any of subsections (2) to (4).
865 Part E s EW 4 Income Tax Act 2007 Reprinted as at 5 January 2010 (2) Money received for money provided A ﬁnancial arrangement is an arrangement under which a per- son receives money in consideration for that person, or another person, providing money to any person— (a) (b) at a future time; or on the occurrence or non-occurrence of a future event, whether or not the event occurs because notice is given or not given.
Examples of money received for money provided (3) Without limiting subsection (2), each of the following is a ﬁ- nancial arrangement: (a) (b) (c) a debt, including a debt that arises by law: a debt instrument: the deferral of the payment of some or all of the consid- eration for an absolute assignment of some or all of a person’s rights under another ﬁnancial arrangement or under an excepted ﬁnancial arrangement: the deferral of the payment of some or all of the consid- eration for a legal defeasance releasing a person from some or all of their obligations under another ﬁnan- cial arrangement or under an excepted ﬁnancial arrange- ment.
(d) (4) Excepted ﬁnancial arrangement ceasing to be excepted For sections EW 7 and EW 8,— (a) an excepted ﬁnancial arrangement that ceases to be an excepted ﬁnancial arrangement through the operation of section EW 7 is a ﬁnancial arrangement: an excepted ﬁnancial arrangement that ceases to be an excepted ﬁnancial arrangement for a party through the operation of section EW 8 is a ﬁnancial arrangement for the party.
(b) Deﬁned in this Act: consideration, excepted ﬁnancial arrangement, ﬁnancial arrangement, legal defeasance, money, pay Compare: 2004 No 35 s EW 3 EW 4 What is not a ﬁnancial arrangement?
Absolute assignment An absolute assignment of some or all of a person’s rights under another ﬁnancial arrangement or under an excepted ﬁ- (1) 866 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EW 5 (2) (3) nancial arrangement is not a ﬁnancial arrangement, except to the extent described in section EW 3(3)(c).
Legal defeasance A legal defeasance releasing a person from some or all of their obligations under another ﬁnancial arrangement or under an excepted ﬁnancial arrangement is not a ﬁnancial arrangement, except to the extent described in section EW 3(3)(d).

Excepted ﬁnancial arrangement An excepted ﬁnancial arrangement is not a ﬁnancial arrange- ment.

The relationship between ﬁnancial arrangements and excepted ﬁnancial arrangements is dealt with in section EW 6.
Deﬁned in this Act: excepted ﬁnancial arrangement, ﬁnancial arrangement, legal defeasance Compare: 2004 No 35 s EW 4 EW 5 What is an excepted ﬁnancial arrangement?

(1) (2) (3) Meaning Excepted ﬁnancial arrangement means an arrangement de- scribed in any of subsections (2) to (25).
However,— (a) an arrangement described in any of subsections (18) to (20) may cease to be an excepted ﬁnancial arrangement through the operation of section EW 7: an arrangement described in any of subsections (21) to (25) may cease to be an excepted ﬁnancial arrangement for a party who makes an election under section EW 8.
(b) Annuity Each of the following is an excepted ﬁnancial arrangement: an annuity for a term contingent on human life: (a) an annuity for a term not contingent on human life to (b) which section EY 8(2)(c) (Meaning of life insurance) applies.
Bet A bet on any of the following is an excepted ﬁnancial arrange- ment: (a) (b) a race, as deﬁned in section 5 of the Racing Act 2003: a sporting event under a sports betting system adminis- tered under Part 6 of the Racing Act 2003: 867 Part E s EW 5 Income Tax Act 2007 Reprinted as at 5 January 2010 (c) gambling, including a New Zealand lottery, as those terms are deﬁned in section 4(1) of the Gambling Act 2003.

Emissions unit (3B) An emissions unit is an excepted ﬁnancial arrangement.
Non-Kyoto greenhouse gas unit (3C) A non-Kyoto greenhouse gas unit is an excepted ﬁnancial ar- rangement.

(4) (5) (6) (7) (8) (9) Employment contract An employment contract is an excepted ﬁnancial arrangement.

Farm-out arrangement A farm-out arrangement is an excepted ﬁnancial arrangement.

Group investment fund An interest in a group investment fund is an excepted ﬁnancial arrangement.
Hire purchase: livestock or bloodstock A hire purchase agreement for livestock or bloodstock is an excepted ﬁnancial arrangement.

Insurance contract An insurance contract is an excepted ﬁnancial arrangement.

Lease not ﬁnance lease A lease that is not a ﬁnance lease is an excepted ﬁnancial ar- rangement.
Loan in New Zealand currency (10) A loan to which all the following apply is an excepted ﬁnancial arrangement for the lender: (a) (b) (c) the loan is in New Zealand currency; and the loan is interest-free; and the loan is repayable on demand.

Partnership or joint venture (11) An interest in a partnership or a joint venture is an excepted ﬁnancial arrangement.

Share-lending arrangement (12) A share-lending arrangement is an excepted ﬁnancial arrange- ment.
868 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EW 5 Share or option (13) A share, or an option to acquire or to dispose of shares, is an excepted ﬁnancial arrangement, if the share is acquired, or the person becomes a party to the option, on or after 20 May 1999.

This subsection does not apply to a withdrawable share or to an option to acquire or to dispose of withdrawable shares.
Speciﬁed preference share (14) A speciﬁed preference share to which section FZ 1 (Deduction for dividends paid on certain preference shares) of the Income Tax Act 2004 applies is an excepted ﬁnancial arrangement.

Superannuation (15) A membership of a superannuation scheme is an excepted ﬁ- nancial arrangement.

Warranty (16) A warranty for goods or services is an excepted ﬁnancial ar- rangement.
Certain arrangements to which transitional resident is party (17) An arrangement to which a transitional resident is a party is an excepted ﬁnancial arrangement for the transitional resident if— (a) no other party to the arrangement is a New Zealand resi- dent; and the arrangement is not for a purpose of a business car- ried on in New Zealand by a party to the arrangement.
(b) Loan in foreign currency: private or domestic purpose (18) A loan to which all the following apply is an excepted ﬁnancial arrangement for the borrower: (a) (b) (c) the loan is in foreign currency; and the borrower is a cash basis person; and the borrower uses the loan for a private or a domestic purpose.
Option: private or domestic purpose (19) An option to acquire or dispose of property, other than an in- terest in a ﬁnancial arrangement, is an excepted ﬁnancial ar- rangement for a person who becomes a party to the option for a private or a domestic purpose.
869 Part E s EW 5 Income Tax Act 2007 Reprinted as at 5 January 2010 Private or domestic agreement for the sale and purchase of property or services (20) An agreement for the sale and purchase of property or services entered into by a person, or a speciﬁed option granted to or by a person, is an excepted ﬁnancial arrangement for the person if,— (a) ﬁrst,— (i) (ii) the agreement is entered into by the person for a private or a domestic purpose; or the option is granted to or by the person for a private or a domestic purpose; and (b) (c) second, the subject matter of the agreement or option is— (i) real property whose purchase price is less than $1,000,000; or any other property whose purchase price is less than $400,000; or services whose purchase price is less than $400,000; and (ii) (iii) third,— (i) (ii) the agreement requires settlement of the property, or performance of the services, to take place on or before the 365th day after the date on which the agreement is entered into; or the option requires settlement of the property, or performance of the services, if an agreement is entered into as a result of the exercise of the op- tion, to take place on or before the 365th day after the date on which the option is granted.
Agreement for the sale and purchase of property or services (21) An agreement for the sale and purchase of property or services is an excepted ﬁnancial arrangement, except for a party who makes an election under section EW 8, if— (a) all a party’s sales or purchases under the agreement are prepaid; and for all the party’s agreements under which all sales and purchases are prepaid, the total value of prepayments, on every day in an income year, is $50,000 or less.
(b) 870 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EW 5 Short-term agreement for sale and purchase (22) A short-term agreement for sale and purchase is an excepted ﬁnancial arrangement, except for a party who makes an elec- tion under section EW 8.

Short-term option (23) A short-term option is an excepted ﬁnancial arrangement, ex- cept for a party who makes an election under section EW 8.
Travellers’ cheques (24) Travellers’ cheques are excepted ﬁnancial arrangements, ex- cept for a party who makes an election under section EW 8.

Variable principal debt instrument (25) A variable principal debt instrument is an excepted ﬁnancial arrangement, except for a party who makes an election under section EW 8, if the total value on every day in an income year of all variable principal debt instruments to which a person is a party is $50,000 or less.
Deﬁned in this Act: agreement for the sale and purchase of property or services, arrangement, bloodstock, cash basis person, emissions unit, excepted ﬁnancial arrangement, farm-out arrangement, ﬁnance lease, group investment fund, hire purchase agreement, income year, insurance contract, lease, New Zealand, New Zealand resident, non-Kyoto greenhouse gas unit, non-resident, pay, property, share, share-lending arrangement, short-term agreement for sale and purchase, short-term option, superannuation scheme, transitional resident, variable prin- cipal debt instrument, withdrawable share Compare: 2004 No 35 s EW 5 Section EW 5(3B) heading: substituted (with effect on 1 January 2009), on 6 October 2009, by section 132(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EW 5(3B): substituted (with effect on 1 January 2009), on 6 October 2009, by section 132(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section EW 5(3B) heading: inserted, on 26 September 2008, by section 74(1) of the Climate Change Response (Emissions Trading) Amendment Act 2008 (2008 No 85).
Section EW 5(3B): inserted, on 26 September 2008, by section 74(1) of the Climate Change Response (Emissions Trading) Amendment Act 2008 (2008 No 85).

Section EW 5(3C) heading: inserted (with effect on 1 January 2009), on 6 Oc- tober 2009, by section 132(2) of the Taxation (International Taxation, Life In- surance, and Remedial Matters) Act 2009 (2009 No 34).
Section EW 5(3C): inserted (with effect on 1 January 2009), on 6 October 2009, by section 132(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

871 Part E s EW 6 Income Tax Act 2007 Reprinted as at 5 January 2010 Section EW 5 list of deﬁned terms emissions unit: inserted (with effect on 1 January 2009), on 6 October 2009, by section 132(4)(b) of the Taxation (Inter- national Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EW 5 list of deﬁned terms ETS unit: repealed (with effect on 1 January 2009), on 6 October 2009, by section 132(4)(a) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section EW 5 list of deﬁned terms ETS unit: inserted, on 26 September 2008, by section 74(2) of the Climate Change Response (Emissions Trading) Amend- ment Act 2008 (2008 No 85).
Section EW 5 list of deﬁned terms non-Kyoto greenhouse gas unit: inserted (with effect on 1 January 2009), on 6 October 2009, by section 132(4)(b) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

EW 6 Relationship between ﬁnancial arrangements and excepted ﬁnancial arrangements Part of ﬁnancial arrangement An excepted ﬁnancial arrangement may be part of a ﬁnancial arrangement.
Income or expenditure under speciﬁc excepted ﬁnancial arrangements If an excepted ﬁnancial arrangement described in any of sec- tion EW 5(2) to (16) is part of a ﬁnancial arrangement, an amount solely attributable to the excepted ﬁnancial arrange- ment is not an amount taken into account under the ﬁnancial arrangements rules.
Income or expenditure under remaining excepted ﬁnancial arrangements If an excepted ﬁnancial arrangement described in any of sec- tion EW 5(17) to (25) is part of a ﬁnancial arrangement, an amount solely attributable to the excepted ﬁnancial arrange- ment is an amount taken into account under the ﬁnancial ar- rangements rules.
Deﬁned in this Act: amount, excepted ﬁnancial arrangement, ﬁnancial arrange- ment, ﬁnancial arrangements rules, income Compare: 2004 No 35 s EW 6 (1) (2) (3) 872 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EW 8 EW 7 Change from private or domestic purpose (1) (2) When this section applies This section applies when a person who is a party to an ex- cepted ﬁnancial arrangement described in any of section EW 5(18) to (20) stops using it for a private or a domestic purpose.
Excepted ﬁnancial arrangement becomes ﬁnancial arrangement On and after the date on which the person stops using the ex- cepted ﬁnancial arrangement for a private or a domestic pur- pose,— (a) it ceases to be an excepted ﬁnancial arrangement for the person; and the person becomes a party to a ﬁnancial arrangement.
(b) Deﬁned in this Act: excepted ﬁnancial arrangement, ﬁnancial arrangement Compare: 2004 No 35 s EW 7 EW 8 Election to treat certain excepted ﬁnancial arrangements as ﬁnancial arrangements (1) (2) (3) (4) Election A person may choose to treat as ﬁnancial arrangements all the excepted ﬁnancial arrangements to which the person is a party that are described in any of section EW 5(21) to (25).
Election for class of short-term agreements A person may choose to treat a class of short-term agreements for sale and purchase as ﬁnancial arrangements.

The person must identify the class by— (a) (b) (c) the currency that applies to the agreements; or the term of the agreements; or both the currency and the term.

How election made The person makes an election by returning income derived or expenditure incurred under the chosen arrangements under the ﬁnancial arrangements rules in their return of income.
How election revoked The person revokes the election by giving notice to the Commissioner with their return of income and within the 873 Part E s EW 9 Income Tax Act 2007 Reprinted as at 5 January 2010 (5) time that the return must be ﬁled under section 37 of the Tax Administration Act 1994.

Effect of revocation The revocation applies to ﬁnancial arrangements the person enters into after the income year in which the notice is given.
Deﬁned in this Act: Commissioner, excepted ﬁnancial arrangement, ﬁnancial arrangement, ﬁnancial arrangements rules, income, income year, notice, return of income, short-term agreement for sale and purchase Compare: 2004 No 35 s EW 8 Application of ﬁnancial arrangements rules EW 9 Persons to whom ﬁnancial arrangements rules apply Residents A person who is a party to a ﬁnancial arrangement must calcu- late and allocate income or expenditure under the arrangement for an income year under the ﬁnancial arrangements rules, if the arrangement is one to which the rules apply under section EW 10.
This subsection is overridden by subsection (2).

Non-residents Subsection (1) applies to a person who is not resident in New Zealand only if subsection (3) or (4) applies.

Non-resident with New Zealand ﬁxed establishment Subsection (1) applies to a person who is not resident in New Zealand to the extent to which the person is a party to a ﬁnan- cial arrangement for the purpose of a business carried on by the person through a ﬁxed establishment in New Zealand.
Non-resident trustee for New Zealand settlor Subsection (1) applies to a person who is not resident in New Zealand if— (a) the person is a trustee for a settlor who is resident in New Zealand; and the trustee is not a person to whom section HC 25 (For- eign-sourced amounts: non-resident trustees) apply.
(b) Deﬁned in this Act: ﬁnancial arrangement, ﬁnancial arrangements rules, ﬁxed establishment, income, New Zealand, resident in New Zealand, trustee Compare: 2004 No 35 s EW 9 (1) (2) (3) (4) 874 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EW 10 EW 10 Financial arrangements to which ﬁnancial arrangements rules apply (1) (2) (3) (4) (5) (6) Entered into on or after 20 May 1999 The ﬁnancial arrangements rules apply to a ﬁnancial arrange- ment that all its parties enter into on or after 20 May 1999.
Existing immediately before 20 May 1999 The ﬁnancial arrangements rules apply to a ﬁnancial arrange- ment existing immediately before 20 May 1999 to the extent to which a person becomes a party to the arrangement on or after 20 May 1999.
Rollover, extension, or advance on or after 20 May 1999 The ﬁnancial arrangements rules apply to a ﬁnancial arrange- ment that is rolled over or extended, or under which an advance is made, on or after 20 May 1999, under a binding contract en- tered into before 20 May 1999.
Binding contract before 20 May 1999 However, the ﬁnancial arrangements rules do not apply to a ﬁnancial arrangement if— (a) (b) all its parties enter into it on or after 20 May 1999; and they enter into it under a binding contract entered into before 20 May 1999.
Transferred under relationship agreement The ﬁnancial arrangements rules apply to a ﬁnancial arrange- ment to which all the following apply, to the extent to which the transferee becomes a party to it: (a) (b) the transferor is a party to it before 20 May 1999; and it is rolled over or extended, or an advance is made under it, on or after 20 May 1999, under a binding con- tract entered into before 20 May 1999; and it is transferred under a relationship agreement on or after 20 May 1999.
(c) Binding contract before 20 May 1999 and transfer under relationship agreement However, the ﬁnancial arrangements rules do not apply to a ﬁnancial arrangement if— (a) (b) all its parties enter into it on or after 20 May 1999; and they enter into it under a binding contract entered into before 20 May 1999; and 875 Part E s EW 11 Income Tax Act 2007 Reprinted as at 5 January 2010 (c) it is transferred under a relationship agreement on or after 20 May 1999.
Deﬁned in this Act: ﬁnancial arrangement, ﬁnancial arrangements rules, rela- tionship agreement Compare: 2004 No 35 s EW 10 EW 11 What ﬁnancial arrangements rules do not apply to The ﬁnancial arrangements rules do not apply to— (a) (b) (c) the calculation of resident passive income: the calculation of non-resident passive income: interest paid by the Commissioner under Part 7 of the Tax Administration Act 1994 for an overpayment of income tax: interest payable to the Commissioner under Part 7 of the Tax Administration Act 1994 for an underpayment of income tax.
(d) Deﬁned in this Act: Commissioner, ﬁnancial arrangements rules, income tax, interest, non-resident passive income, pay, resident passive income Compare: 2004 No 35 s EW 11 Calculation and allocation of income and expenditure over ﬁnancial arrangement’s term EW 12 When use of spreading method required A party to a ﬁnancial arrangement must use 1 of the spread- ing methods to calculate an amount of income or expenditure under the arrangement for each income year over the arrange- ment’s term, and to allocate it to the income year, unless sec- tion EW 13 applies.
Deﬁned in this Act: amount, ﬁnancial arrangement, income, income year, spreading method Compare: 2004 No 35 s EW 12 EW 13 When use of spreading method not required Base price adjustment year A person does not use any of the spreading methods for a ﬁ- nancial arrangement in the income year in which section EW 29 requires them to calculate a base price adjustment for it.
(1) 876 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EW 14 (2) (3) Trustee of personal injury compensation trust A trustee who holds a ﬁnancial arrangement in trust to man- age compensation paid for personal injury under the Injury Prevention, Rehabilitation, and Compensation Act 2001, the Accident Insurance Act 1988, any of the former Acts as de- ﬁned in section 13 of the Accident Insurance Act 1998, the Workers’ Compensation Act 1956, or a court order does not use any of the spreading methods for the ﬁnancial arrange- ment if the trustee is a cash basis person.
Cash basis person A cash basis person is not required to use any of the spreading methods, but may choose to do so under section EW 61.

Deﬁned in this Act: cash basis person, ﬁnancial arrangement, income year, pay, spreading method, trustee Compare: 2004 No 35 s EW 13 Section EW 13(2): substituted, on 1 April 2009, by section 6(1) of the Taxation (Business Tax Measures) Act 2009 (2009 No 5).
EW 14 What spreading methods do (1) (2) Description The spreading methods are methods of calculating and allo- cating income and expenditure under a ﬁnancial arrangement over the arrangement’s term.
Methods A spreading method is 1 of the following: (aa) a method for IFRS, to which sections EW 15B to EW 15I relate; or the yield to maturity method or an alternative, to which sections EW 16, EW 19, and EW 23 are relevant; or the straight-line method, to which sections EW 17 and EW 19 are relevant; or a market valuation method, to which sections EW 18, EW 19, and EW 23 are relevant; or a determination method or an alternative, to which sec- tions EW 20 and EW 23 are relevant; or a ﬁnancial reporting method, to which sections EW 21 and EW 23 are relevant; or a default method, to which section EW 22 is relevant.
(a) (b) (c) (d) (e) (f) 877 Part E s EW 15 Income Tax Act 2007 Reprinted as at 5 January 2010 (3) Result The amount calculated for and allocated to the income year under a spreading method is— (a) income, under section CC 3 (Financial arrangements), derived by the person in the income year; or expenditure incurred by the person in the income year.
(b) Deﬁned in this Act: amount, ﬁnancial arrangement, income, income year, spreading method Compare: 2004 No 35 s EW 14 Section EW 14(2)(aa): inserted, on 1 April 2008, by section 364(1) of the Tax- ation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section EW 14(2)(e): substituted (with effect on 1 April 2008), on 6 October 2009, by section 133 of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
EW 15 What is included when spreading methods used Consideration and amounts A person using a spreading method must include, for the purpose of calculating and allocating income and expenditure under the ﬁnancial arrangement,— (a) all consideration that has been paid, and all consider- ation that is or will be payable, to the person for or under the ﬁnancial arrangement, ignoring— (i) non-contingent fees, if the relevant method is not the IFRS ﬁnancial reporting method in section EW 15D: non-integral fees, if the relevant method is the IFRS ﬁnancial reporting method in section EW 15D; and (ii) (b) all consideration that has been paid, and all consider- ation that is or will be payable, by the person for or under the ﬁnancial arrangement, ignoring— (i) non-contingent fees, if the relevant method is not the IFRS ﬁnancial reporting method in section EW 15D: non-integral fees, if the relevant method is the IFRS ﬁnancial reporting method in section EW 15D; and (ii) (1) 878 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EW 15B (2) (c) (d) all amounts that have been remitted, and all amounts that are to be remitted, by the person under the ﬁnancial arrangement; and all amounts that would have been payable to the person under the ﬁnancial arrangement if the amounts had not been remitted by law.
Consideration in particular cases If any of sections EW 32 to EW 48 applies, the consideration referred to in subsection (1)(a) and (b) is adjusted under the relevant section.

Deﬁned in this Act: amount, consideration, ﬁnancial arrangement, IFRS, in- come, non-contingent fee, non-integral fee, pay, spreading method Compare: 2004 No 35 s EW 15 Section EW 15(1)(a): amended, on 1 April 2008, by section 365(1) of the Tax- ation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EW 15(1)(a)(i): added, on 1 April 2008, by section 365(1) of the Tax- ation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section EW 15(1)(a)(ii): added, on 1 April 2008, by section 365(1) of the Tax- ation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section EW 15(1)(b): amended, on 1 April 2008, by section 365(2) of the Tax- ation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EW 15(1)(b)(i): added, on 1 April 2008, by section 365(2) of the Tax- ation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section EW 15(1)(b)(ii): added, on 1 April 2008, by section 365(2) of the Tax- ation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section EW 15 list of deﬁned terms IFRS: inserted, on 1 April 2008, by section 365(3) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EW 15 list of deﬁned terms non-integral fee: inserted, on 1 April 2008, by section 365(3) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

EW 15B Applying IFRSs to ﬁnancial arrangements (1) When sections EW 15C to EW 15I apply Sections EW 15C to EW 15I apply when a person who is a party to a ﬁnancial arrangement uses IFRSs to prepare ﬁnan- cial statements and to report for ﬁnancial arrangements.
Certain methods available for use and certain mandatory Sections EW 15C to EW 15I set out— (2) 879 Part E s EW 15C Income Tax Act 2007 Reprinted as at 5 January 2010 (3) (4) (a) (b) the methods available to the person to use for calculat- ing and allocating income and expenditure under a ﬁ- nancial arrangement: the circumstances in which a person must use certain other methods.
Functional currency Even if another currency may be used as the functional cur- rency under IFRSs, the methods must be applied using New Zealand dollars.

Financial statements Unless the context otherwise requires, references to IFRSs in sections EW 15D to EW 15I are references to IFRS rules used to prepare the person’s ﬁnancial statements.
Deﬁned in this Act: ﬁnancial arrangement , ﬁnancial statements, IFRS, income Compare: 2004 No 35 s EW 15B Section EW 15B: inserted, on 1 April 2008, by section 366 of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section EW 15B(3) heading: added (with effect on 1 April 2008), on 6 October 2009, by section 134 of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EW 15B(3): added (with effect on 1 April 2008), on 6 October 2009, by section 134 of the Taxation (International Taxation, Life Insurance, and Re- medial Matters) Act 2009 (2009 No 34).

Section EW 15B(4) heading: added (with effect on 1 April 2008), on 6 October 2009, by section 134 of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EW 15B(4): added (with effect on 1 April 2008), on 6 October 2009, by section 134 of the Taxation (International Taxation, Life Insurance, and Re- medial Matters) Act 2009 (2009 No 34).
EW 15C Preparing and reporting methods Who this section applies to A person who uses IFRSs to prepare ﬁnancial statements and to report for ﬁnancial arrangements must use 1 of the following methods for the ﬁnancial arrangement: (a) (b) (c) (d) the IFRS ﬁnancial reporting method in section EW 15D: a determination alternative in section EW 15E: the expected value method in section EW 15F: the modiﬁed fair value method in section EW 15G.
(1) 880 (1) (2) Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EW 15D (2) Exclusions Subsection (1) does not apply in the circumstances set out in sections EW 15H and EW 15I.

Deﬁned in this Act: fair value method, ﬁnancial arrangement, ﬁnancial state- ments, IFRS Compare: 2004 No 35 s EW 15B(6) Section EW 15C: inserted, on 1 April 2008, by section 366 of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
EW 15D IFRS ﬁnancial reporting method General IFRS rules Under the IFRS ﬁnancial reporting method, a person must al- locate an amount to an income year under IFRS rules modiﬁed, as applicable, under subsection (2).

Modiﬁcations The allocation is modiﬁed as follows: (a) if the ﬁnancial arrangement is a ﬁnancial asset, an amount arising from an impaired credit adjustment under IFRSs is not allocated to an income year.
How- ever, when the fair value method is used, adjustments for ﬁnancial arrangements held by the person are excluded from this paragraph, if the ﬁnancial arrange- ments are not derivative instruments and the person’s business includes dealing in those ﬁnancial arrange- ments: borrowing costs are not capitalised under NZIAS 23: even though an amount arising from the use of the fair value method may be allocated to equity reserves under IFRSs, the amount must be allocated to an income year for tax purposes.
(ab) (b) Fair value method not used for certain ﬁnancial arrangements (2B) A person must not use the fair value method for a ﬁnancial arrangement if— (a) the ﬁnancial arrangement is treated under IFRSs by the person as a hedge of another ﬁnancial arrangement; and the person uses a method other than the IFRS ﬁnancial reporting method for the other ﬁnancial arrangement.
(b) 881 Part E s EW 15E Income Tax Act 2007 Reprinted as at 5 January 2010 (3) Meaning of impaired credit adjustment For the purposes of this section, impaired credit adjustment means— (a) for a ﬁnancial arrangement accounted for under the fair value method, the movement in fair value through the decline in credit quality of the arrangement: for a ﬁnancial arrangement not accounted for under the fair value method, credit impairment adjustments made under IFRSs.
(b) Deﬁned in this Act: amount, derivative instrument, fair value method, IFRS, impaired credit adjustment, income year, NZIAS 23, tax Compare: 2004 No 35 s EW 15C Section EW 15D: inserted, on 1 April 2008, by section 366 of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section EW 15D(2)(a): amended (with effect on 1 April 2008), on 6 October 2009, by section 135(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EW 15D(2)(ab): inserted (with effect on 1 April 2008), on 6 October 2009, by section 135(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

inserted (with effect on 1 April 2008), on 6 Section EW 15D(2B) heading: October 2009, by section 135(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EW 15D(2B): inserted (with effect on 1 April 2008), on 6 October 2009, by section 135(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section EW 15D list of deﬁned terms derivative instrument: inserted (with effect on 1 April 2008), on 6 October 2009, by section 135(4) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EW 15D list of deﬁned terms NZIAS 23: inserted (with effect on 1 April 2008), on 6 October 2009, by section 135(4) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
EW 15E Determination alternatives When this section applies This section applies when— (a) a person chooses in a return of income to use a determin- ation alternative to IFRS for a ﬁnancial arrangement; and the method is available under its terms for the person to use; and the ﬁnancial arrangement–– (b) (c) (1) 882 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EW 15E (i) (ii) is not treated under IFRSs by the person as a hedge; or is treated under IFRSs by the person as a hedge of other ﬁnancial arrangements, for each of which the person does not use the fair value method.
(2) (a) General IFRS rules The person must use 1 of the following methods modiﬁed, as applicable, under subsection (3) or (3B): (aa) Determination G3: Yield to maturity, but only if the ﬁnancial arrangement is denominated in New Zealand currency and is not a derivative instrument.
When ap- plying Determination G3, Determination G25: Vari- ation in the terms of a ﬁnancial arrangement must be used: Determination G9C: Financial arrangements that are denominated in a currency other than New Zealand dol- lars: an expected value approach: Determination G14B: Forward contracts for foreign ex- change and commodities: an expected value approach: Determination G27: Swaps: a determination made by the Commissioner under sec- tion 90AC(1)(bb) of the Tax Administration Act 1994: a method other than those set out in paragraphs (aa) to (d) if the alternative— (i) (c) (d) (b) (e) (ii) (iii) has regard to the purposes of the ﬁnancial ar- rangements rules under section EW 1(3); and is for a ﬁnancial arrangement similar to 1 to which the methods set out in paragraphs (aa) to (d) may apply; and results in the allocation to each income year of amounts that are not materially different from those that would have been allocated using 1 of the methods set out in paragraphs (aa) to (d).
(3) Modiﬁcations For a determination alternative that is Determination G9C or G14B, the allocation is modiﬁed as follows: (a) the term forward contract is treated as including a con- ditional or unconditional agreement to pay or be paid an amount calculated by reference to the price of property 883 Part E s EW 15E Income Tax Act 2007 Reprinted as at 5 January 2010 (b) or services, without the property being delivered or the services being performed: a requirement that all companies in a group of compan- ies to which the person belongs choose to use the deter- mination alternative is treated as met if— (i) all companies in the group choose Determination G9C or G14B in writing on or before the 63rd day after the person enters into the ﬁnancial arrange- ment, or a later time as the Commissioner allows; and the ﬁnancial arrangement is the ﬁrst ﬁnancial ar- rangement of the group for which Determination G9C or G14B may be used.
(ii) Modiﬁcations (3B) For a determination alternative that is Determination G27, the allocation is modiﬁed as follows: (a) method C must be used, and not methods A, B, or D: (b) for method C, if relevant, Determination G9C and not Determination G9A must be used.

Succeeding determinations For the purposes of this section, the determinations set out in subsection (2)(a) to (c) include a determination that succeeds the determination.
Deﬁned in this Act: amount, company, derivative instrument, ﬁnancial arrange- ment, ﬁnancial arrangements rules, group of companies, IFRS, income year, New Zealand, pay, return of income Compare: 2004 No 35 s EW 15D Section EW 15E: inserted, on 1 April 2008, by section 366 of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EW 15E(1)(c): substituted (with effect on 1 April 2008), on 6 October 2009, by section 136(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section EW 15E(2): amended (with effect on 1 April 2009), on 6 October 2009, by section 136(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EW 15E(2)(aa): inserted (with effect on 1 April 2008), on 6 October 2009, by section 136(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section EW 15E(2)(e): amended (with effect on 1 April 2009), on 7 December 2009, by section 19(1) of the Taxation (Consequential Rate Alignment and Re- medial Matters) Act 2009 (2009 No 63).
(4) 884 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EW 15F Section EW 15E(2)(e)(ii): amended (with effect on 1 April 2009), on 7 Decem- ber 2009, by section 19(1) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).

Section EW 15E(2)(e)(iii): amended (with effect on 1 April 2009), on 7 De- cember 2009, by section 19(1) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
Section EW 15E(3B) heading: inserted (with effect on 1 April 2009), on 6 Oc- tober 2009, by section 136(4) of the Taxation (International Taxation, Life In- surance, and Remedial Matters) Act 2009 (2009 No 34).

Section EW 15E(3B): inserted (with effect on 1 April 2009), on 6 October 2009, by section 136(4) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EW 15E list of deﬁned terms derivative instrument: inserted (with effect on 1 April 2009), on 6 October 2009, by section 136(5) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section EW 15E list of deﬁned terms New Zealand: inserted (with effect on 1 April 2009), on 6 October 2009, by section 136(5) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
EW 15F Expected value method (1) When this section applies This section applies when— (a) (b) (c) (d) a person has entered into a ﬁnancial arrangement in the ordinary course of their business and the person is not in the business of dealing in relation to the ﬁnancial arrangement; and the ﬁnancial arrangement is denominated in a currency other than New Zealand dollars or is a derivative instru- ment; and the ﬁnancial arrangement–– (i) is not treated under IFRSs by the person as a hedge; or is treated under IFRSs by the person as a hedge of other ﬁnancial arrangements, for each of which the person does not use the fair value method; and (ii) the person and all companies in a group of compan- ies to which the person belongs have chosen to use the expected value method and have notiﬁed the Commis- sioner at the time of ﬁling a return of income.
885 (b) (b) Part E s EW 15F Income Tax Act 2007 Reprinted as at 5 January 2010 Exception for some group members and ﬁnancial arrangements (1B) A person who is a member of a group of companies and has no- tiﬁed an election under subsection (1)(d) is not required under this section to use the expected value method for a ﬁnancial arrangement if— (a) the person does not have a business of a substantially similar nature to a business of another company in the group; and the ﬁnancial arrangement which— (i) is with other parties, of none are associated with the person or a member of the group; or all are associated with the person and use the method used by the person for the arrangement.
(ii) Method chosen The person must use a method that— (a) has the features of an expected value approach de- scribed in Determinations G9C and G14B; and allocates a reasonable amount for each income year of the term of the ﬁnancial arrangement, having regard to the purposes of the ﬁnancial arrangements rules under section EW 1(3).
Meaning of derivative instrument [Repealed] [Repealed] Deﬁned in this Act: amount, associated person, business, Commissioner, company, derivative instrument, ﬁnancial arrangement, ﬁnancial arrangements rules, group of companies, IFRS, notify, return of income Compare: 2004 No 35 s EW 15E(1), (2) Section EW 15F: inserted, on 1 April 2008, by section 366 of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EW 15F(1)(c): substituted (with effect on 1 April 2008), on 6 October 2009, by section 137(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section EW 15F(1)(d): substituted (with effect on 1 April 2008), on 6 October 2009, by section 137(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EW 15F(1B) heading: inserted (with effect on 1 April 2008), on 6 Oc- tober 2009, by section 137(3) of the Taxation (International Taxation, Life In- surance, and Remedial Matters) Act 2009 (2009 No 34).

(2) (3) 886 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EW 15G Section EW 15F(1B): inserted (with effect on 1 April 2008), on 6 October 2009, by section 137(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EW 15F(3) heading: repealed (with effect on 1 October 2008), on 6 Oc- tober 2009, pursuant to section 137(4) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section EW 15F(3): repealed (with effect on 1 October 2008), on 6 October 2009, by section 137(4) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EW 15F list of deﬁned terms associated person: inserted (with effect on 1 April 2008), on 6 October 2009, by section 137(5) of the Taxation (Inter- national Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
EW 15G Modiﬁed fair value method (1) When this section applies This section applies when— (a) a person has entered into a ﬁnancial arrangement in the ordinary course of their business and the person is not in the business of dealing in relation to the ﬁnancial arrangement; and the ﬁnancial arrangement is denominated in a currency other than New Zealand dollars or is a derivative instru- ment; and the ﬁnancial arrangement–– (i) is not treated under IFRSs by the person as a hedge; or is treated under IFRSs by the person as a hedge of other ﬁnancial arrangements, for each of which the person does not use the fair value method; and (ii) the person and all companies in a group of companies to which the person belongs have chosen to use the modi- ﬁed fair value method and have notiﬁed the Commis- sioner at the time of ﬁling a return of income.
(b) (c) (d) Exception for some group members and ﬁnancial arrangements (1B) A person who is a member of a group of companies and has no- tiﬁed an election under subsection (1)(d) is not required under this section to use the modiﬁed fair value method for a ﬁnan- cial arrangement if— 887 Part E s EW 15G Income Tax Act 2007 Reprinted as at 5 January 2010 (a) (b) the person does not have a business of a substantially similar nature to a business of another company in the group; and the ﬁnancial arrangement which— (i) is with other parties, of none are associated with the person or a member of the group; or all are associated with the person and use the method used by the person for the arrangement; and (ii) (c) subsection (3) does not require the person to use the modiﬁed fair value for the ﬁnancial arrangement.
Method chosen The person must use the fair value method, modiﬁed so that the following are not required to be allocated to an income year: an amount allocated by the person to equity reserves (a) under IFRSs for the ﬁnancial arrangement: an amount not allocated by the person to equity reserves under IFRSs for the ﬁnancial arrangement, if— (i) (b) the person and another person (the other person) are members of the same wholly-owned group; and the person and the other person are members of the same group consolidated under IFRSs; and the ﬁnancial arrangement is related to an arrange- ment (the other arrangement) of the other per- son; and the other person does not use the fair value method for the other arrangement; and the group consolidated under IFRSs makes an al- location, to equity reserves under IFRSs, corres- ponding to the amount.
(ii) (iii) (iv) (v) Some ﬁnancial arrangements with amounts allocated to equity reserves A person who is a member of a wholly-owned group and of a group consolidated under IFRSs (the consolidated group) must use the modiﬁed fair value method for a ﬁnancial ar- rangement if— (2) (3) 888 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EW 15H (a) (b) the person or the consolidated group allocates an amount to equity reserves under IFRSs for the ﬁnancial arrangement; and a member of the consolidated group, under subsection (2)(b), does not allocate to the income year an amount for a ﬁnancial arrangement.
Deﬁned in this Act: amount, business, Commissioner, company, derivative in- strument, fair value method, ﬁnancial arrangement, group of companies, IFRS, notify, return of income , wholly-owned group Compare: 2004 No 35 s EW 15E(1), (3) Section EW 15G: inserted, on 1 April 2008, by section 366 of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EW 15G(1)(c): substituted (with effect on 1 April 2008), on 6 October 2009, by section 138(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section EW 15G(1)(d): substituted (with effect on 1 April 2008), on 6 October 2009, by section 138(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EW 15G(1B) heading: inserted (with effect on 1 April 2008), on 6 October 2009, by section 138(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section EW 15G(1B): inserted (with effect on 1 April 2008), on 6 October 2009, by section 138(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EW 15G(2): substituted (with effect on 1 April 2008), on 6 October 2009, by section 138(4) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section EW 15G(3) heading: added (with effect on 1 April 2008), on 6 October 2009, by section 138(5) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EW 15G(3): added (with effect on 1 April 2008), on 6 October 2009, by section 138(5) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section EW 15G list of deﬁned terms wholly-owned group: added (with effect on 1 April 2008), on 6 October 2009, by section 138(6) of the Taxation (Inter- national Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
EW 15H Mandatory use of some determinations (1) Required methods Section EW 15C(1) does not apply when any of the following determinations apply to a person and a ﬁnancial arrangement: Determination G5C: Mandatory conversion convert- (a) ible notes: 889 Part E s EW 15I Income Tax Act 2007 Reprinted as at 5 January 2010 (b) (c) (d) (e) Determination G22: Optional conversion convertible notes denominated in New Zealand dollars convertible at the option of the holder: Determination G22A: Optional convertible notes de- nominated in New Zealand dollars: Determination G29: Agreements for sale and purchase of property denominated in foreign currency: exchange rate to determine the acquisition price and method for spreading income and expenditure.
However, when applying Determination G29, Determination G9C, and not Determination G9A, must be used: a method other than those set out in paragraphs (a) to (d) if the alternative— (i) has regard to the purposes of the ﬁnancial ar- rangements rules under section EW 1(3); and is for a ﬁnancial arrangement similar to 1 to which the methods set out in paragraphs (a) to (d) may apply; and results in the allocation to each income year of amounts that are not materially different from those that would have been allocated using 1 of the methods set out in paragraphs (a) to (d).
(ii) (iii) (2) Succeeding determinations For the purposes of this section, the determinations set out in subsection (1)(a), (c), and (d) include a determination that succeeds the determination.

Deﬁned in this Act: amount, ﬁnancial arrangement, ﬁnancial arrangements rules, income year Compare: 2004 No 35 s EW 15B(3) Section EW 15H: inserted, on 1 April 2008, by section 366 of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EW 15H(1)(d): amended (with effect on 1 April 2009), on 6 October 2009, by section 139(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
EW 15I Mandatory use of yield to maturity method for some arrangements When this section applies This section applies and section EW 15C(1) does not apply when— (1) 890 Reprinted as at 5 January 2010 (a) (b) Income Tax Act 2007 Part E s EW 15I a person is not required to use a method under section EW 15H for a ﬁnancial arrangement; and the ﬁnancial arrangement— (i) includes in part an excepted ﬁnancial arrange- ment; or is treated by the person or its issuer, all or in part, as an equity instrument under IFRSs; or is, under NZIAS 17 and in the person’s ﬁnancial statements, classiﬁed as an operating lease; or is an agreement for the sale and purchase of prop- erty or services.
(ii) (iib) (iii) (2) Methods The person must use 1 of the following methods to allocate an amount to an income year if the method is available under its terms for the person to use: (a) (b) the yield to maturity method: Determination G26: Variable rate ﬁnancial arrange- ments or a determination that succeeds it: a determination made by the Commissioner under sec- tion 90AC(1)(bb) of the Tax Administration Act 1994: a method other than those set out in paragraphs (a) to (c) if the alternative— (i) (c) (d) (ii) (iii) has regard to the purposes of the ﬁnancial ar- rangements rules under section EW 1(3); and is for a ﬁnancial arrangement similar to 1 to which the methods set out in paragraphs (a) to (c) may apply; and results in the allocation to each income year of amounts that are not materially different from those that would have been allocated using 1 of the methods set out in paragraphs (a) to (c).
(3) Meaning of equity instrument For the purposes of this section, equity instrument has the same meaning as in NZIAS 32.
Deﬁned in this Act: agreement for the sale and purchase of property or services , amount , Commissioner , equity instrument , excepted ﬁnancial arrangement , ﬁnancial arrangement , ﬁnancial arrangements rules , IFRS , income year, issue, NZIAS 17 Compare: 2004 No 35 s EW 15B(4) 891 Part E s EW 16 Income Tax Act 2007 Reprinted as at 5 January 2010 Section EW 15I: inserted, on 1 April 2008, by section 366 of the Taxation (Busi- ness Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EW 15I(1)(b)(iib): inserted (with effect on 1 April 2008), on 6 October 2009, by section 140(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section EW 15I list of deﬁned terms NZIAS 17: added (with effect on 1 April 2008), on 6 October 2009, by section 140(2) of the Taxation (International Tax- ation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
EW 16 Yield to maturity method or alternative Who may use yield to maturity method A person who is a party to a ﬁnancial arrangement may use the yield to maturity method, if the person is not required to use a method under section EW 15B.
Who may use alternative A person who is a party to a ﬁnancial arrangement may use an alternative to the yield to maturity method, if the person is not required to use a method under section EW 15B, but may do so only if the alternative— (a) (b) (c) has regard to the principles of accrual accounting; and conforms with commercially acceptable practice; and results in the allocation to each income year of amounts that are not materially different from those that would have been allocated using the yield to maturity method; and is also used by the person for ﬁnancial reporting pur- poses for ﬁnancial arrangements that are the same as, or similar to, the arrangements, although section EW 23 may apply if the alternative is not used in this way.
(d) Deﬁned in this Act: amount, ﬁnancial arrangement, IFRS, income year Compare: 2004 No 35 s EW 16 Section EW 16(1): amended, on 1 April 2008, by section 367(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section EW 16(2): amended, on 1 April 2008, by section 367(2) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EW 16 list of deﬁned terms IFRS: inserted, on 1 April 2008, by section 367(3) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
(1) (2) 892 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EW 17 EW 17 Straight-line method (1) Who may use straight-line method A person who is a party to a ﬁnancial arrangement may use the straight-line method if— (a) the total value of all the ﬁnancial arrangements to which the person is a party in an income year has been $1,850,000 or less on every day in the income year; and the person complies with section EW 25(1); and the person is not required to use a method under section EW 15B.
(b) (c) Calculation of total value of ﬁnancial arrangements (2) When calculating total value, the person must— (a) (b) include every one of their ﬁnancial arrangements, whether the ﬁnancial arrangements rules or the old ﬁnancial arrangements rules apply to it; and use the following values: (i) for a ﬁxed principal ﬁnancial arrangement, its face value: the for a variable principal debt amount owing by or to the person under the ﬁnancial arrangement on the relevant day: for a ﬁnancial arrangement to which the old ﬁ- nancial arrangements rules apply, the value de- termined under those rules.
instrument, (ii) (iii) (3) Increase in speciﬁed sum The Governor-General may make an Order in Council increas- ing the sum speciﬁed in subsection (1).

Deﬁned in this Act: amount, ﬁnancial arrangement, ﬁnancial arrangements rules, ﬁxed principal ﬁnancial arrangement, IFRS, income year, old ﬁnancial arrangements rules, variable principal debt instrument Compare: 2004 No 35 s EW 17 Section EW 17(1)(a): amended, on 1 April 2009, by section 7(1) of the Taxation (Business Tax Measures) Act 2009 (2009 No 5).
Section EW 17(1)(b): amended, on 1 April 2008, by section 368(1) of the Tax- ation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section EW 17(1)(c): added, on 1 April 2008, by section 368(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section EW 17 list of deﬁned terms IFRS: inserted, on 1 April 2008, by section 368(2) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
893 Part E s EW 18 Income Tax Act 2007 Reprinted as at 5 January 2010 EW 18 Market valuation method Who may use market valuation method A person who is a party to a ﬁnancial arrangement may use, for the arrangement, a market valuation method if— (a) either— (i) (ii) the person’s business includes dealing in ﬁnan- cial arrangements of the class to which the ar- rangement belongs; or the ﬁnancial arrangement is an exchange-traded option, a forward contract for foreign exchange, or a futures contract; and (b) (c) (d) (e) (f) (g) the parties to the ﬁnancial arrangement are not associ- ated persons; and either— (i) the Commissioner has approved the market, the method, and the source of information used to de- termine market values by a determination under section 90AC(1)(c) of the Tax Administration Act 1994; or the person can demonstrate market prices that are reliable; and (ii) the method conforms with commercially acceptable practice; and the person complies with section EW 25(4); and the method is also used by the person for ﬁnancial re- porting purposes for ﬁnancial arrangements that are the same as, or similar to, the arrangements, although sec- tion EW 23 may apply if the method is not used in this way; and the person is not required to use a method under section EW 15B.
Application of Tax Administration Act 1994 Section 22A(1) of the Tax Administration Act 1994 applies to a person to whom subsection (1)(c)(ii) applies.

Deﬁned in this Act: associated person, business, Commissioner, ﬁnancial ar- rangement, forward contract, futures contract, IFRS Compare: 2004 No 35 s EW 18 Section EW 18(1)(f): amended, on 1 April 2008, by section 369(1) of the Tax- ation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
(1) (2) 894 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EW 20 Section EW 18(1)(g): added, on 1 April 2008, by section 369(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section EW 18 list of deﬁned terms IFRS: amended, on 1 April 2008, by section 369(2) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
EW 19 Choice among some spreading methods A person who is not required to use a method under section EW 15B and who may use the yield to maturity method or an alternative, the straight-line method, or a market valu- ation method for a ﬁnancial arrangement may choose to use whichever of those methods the person can use for the arrangement.
Deﬁned in this Act: ﬁnancial arrangement, IFRS, spreading method Compare: 2004 No 35 s EW 19 Section EW 19 heading: amended, on 1 April 2008, by section 370(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section EW 19: amended, on 1 April 2008, by section 370(2) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EW 19 list of deﬁned terms IFRS: amended, on 1 April 2008, by section 370(3) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
EW 20 Determination method or alternative (1) Who may use determination method A person who is a party to a ﬁnancial arrangement may use a determination method, that is, a method in a determination made by the Commissioner under section 90AC(1)(d) of the Tax Administration Act 1994 and applying to the arrangement, if— (a) the person cannot use the yield to maturity method or an alternative; and the person— (i) may not use the straight-line method or a market valuation method; or (b) (ii) may use the straight-line method or a market valuation method but chooses not to do so; and (c) the person is not required to use a method under section EW 15B.
895 Part E s EW 21 Income Tax Act 2007 Reprinted as at 5 January 2010 (2) Who may use alternative A person who is a party to a ﬁnancial arrangement may use an alternative to a determination method, but may do so only if— the person cannot use the yield to maturity method or (a) an alternative; and the person— (i) may not use the straight-line method or a market valuation method; or (b) (bb) (c) (d) (e) (f) (ii) may use the straight-line method or a market valuation method but chooses not to do so; and the person is not required to use a method under section EW 15B; and the alternative has regard to the principles of accrual accounting; and the alternative conforms with commercially acceptable practice; and the alternative results in the allocation to each income year of amounts that are not materially different from those that would have been allocated using the deter- mination method; and the alternative is also used by the person for ﬁnancial reporting purposes for ﬁnancial arrangements that are the same as, or similar to, the arrangements although section EW 23 may apply if the alternative is not used in this way.
Deﬁned in this Act: amount, Commissioner, ﬁnancial arrangement, IFRS Compare: 2004 No 35 s EW 20 Section EW 20(1)(b)(ii): amended, on 1 April 2008, by section 371(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section EW 20(1)(c): added, on 1 April 2008, by section 371(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EW 20(2)(bb): inserted, on 1 April 2008, by section 371(2) of the Tax- ation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section EW 20 list of deﬁned terms IFRS: inserted, on 1 April 2008, by section 371(3) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
EW 21 Financial reporting method A person who is a party to a ﬁnancial arrangement may use a ﬁnancial reporting method if–– 896 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EW 22 (a) (b) the person cannot use the yield to maturity method or an alternative; and the person–– (i) may not use the straight-line method or a market valuation method; or (ii) may use the straight-line method or a market valuation method but chooses not to do so; and (f) (e) (c) (d) the person is not required to use a method under section EW 15B; and the Commissioner has not made a determination for the ﬁnancial arrangement under section 90AC(1)(d) of the Tax Administration Act 1994; and the method conforms with commercially acceptable practice; and the method is also used by the person for ﬁnancial re- porting purposes for ﬁnancial arrangements that are the same as, or similar to, the arrangement (although sec- tion EW 23 may apply if the method is not used in this way); and the method allocates a reasonable amount to each in- come year over the ﬁnancial arrangement’s term.
Deﬁned in this Act: amount, Commissioner, ﬁnancial arrangement, income year (g) Section EW 21: substituted (with effect on 1 April 2008), on 6 October 2009, by section 141 of the Taxation (International Taxation, Life Insurance, and Re- medial Matters) Act 2009 (2009 No 34).
EW 22 Default method A person who is a party to a ﬁnancial arrangement may use a default method if— (a) the person cannot use the yield to maturity method or an alternative; and the person— (i) may not use the straight-line method or a market valuation method; or (b) (ii) may use the straight-line method or a market valuation method but chooses not to do so; and (c) the person may not use a determination method or an alternative, or a ﬁnancial reporting method; and 897 Part E s EW 23 Income Tax Act 2007 Reprinted as at 5 January 2010 (d) (e) (f) [Repealed] the method conforms with commercially acceptable practice; and the method allocates a reasonable amount to each in- come year over the ﬁnancial arrangement’s term.
Deﬁned in this Act: amount, ﬁnancial arrangement, income, income year Compare: 2004 No 35 s EW 22 Section EW 22(c): amended (with effect on 1 April 2008), on 6 October 2009, by section 142 of the Taxation (International Taxation, Life Insurance, and Re- medial Matters) Act 2009 (2009 No 34).

Section EW 22(c): amended, on 1 April 2008, by section 373(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EW 22(d): repealed, on 1 April 2008, by section 373(2) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

EW 23 Failure to use method for ﬁnancial reporting purposes When this section applies This section applies when a person would be allowed to use a method but for the fact that the person does not comply with whichever is relevant of sections EW 16(2)(d), EW 18(1)(f), EW 20(2)(f) and EW 21(f).
Person treated as complying The person is treated as complying with whichever is relevant of sections EW 16(2)(d), EW 18(1)(f), EW 20(2)(f) and EW 21(f) if the method that the person uses for each ﬁnancial ar- rangement— (a) is used for the ﬁnancial arrangement, and each ﬁnancial arrangement that is the same as, or similar to, the ar- rangements, for every income year over its term for the purposes of the ﬁnancial arrangements rules; and appropriately reﬂects the dominant purpose for which the person entered into the ﬁnancial arrangement; and is not used for the purpose of tax avoidance; and has been approved for use in circumstances applying to the person by the Commissioner, either by giving notice to the person or by making a determination under section 90AC(1)(f) of the Tax Administration Act 1994.
(b) (c) (d) (1) (2) 898 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EW 24 (3) (4) Qualiﬁcation on subsection (2)(a) A method complies with subsection (2)(a), even if it is a change from a previous method, as long as the Commissioner approves the change in method under the circumstances or conditions speciﬁed in a determination under 90AC(1)(g) of the Tax Administration Act 1994.

IFRS ﬁnancial reporting This section is modiﬁed by section EZ 32B (Transitional rule for IFRS reporting).
Deﬁned in this Act: Commissioner, ﬁnancial arrangement, ﬁnancial arrange- ments rules, IFRS, income year, notice, tax avoidance Compare: 2004 No 35 s EW 23 Section EW 23(1): amended (with effect on 1 April 2008), on 6 October 2009, by section 143(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section EW 23(1): amended, on 1 April 2008, by section 374(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EW 23(2): amended (with effect on 1 April 2008), on 6 October 2009, by section 143(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section EW 23(2): amended, on 1 April 2008, by section 374(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section EW 23(4) heading: added, on 1 April 2008, by section 374(2) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EW 23(4): added, on 1 April 2008, by section 374(2) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section EW 23 list of deﬁned terms IFRS: inserted, on 1 April 2008, by section 374(3) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
EW 24 Consistency of use of spreading method (1) (2) Consistency required A person must use the same spreading method for ﬁnancial arrangements that are the same as, or similar to, the arrange- ments for every income year.

This subsection is overridden by subsection (3).

Straight-line method and market valuation method Section EW 25 sets out particular consistency requirements for the straight-line method and a market valuation method.
899 Part E s EW 25 Income Tax Act 2007 Reprinted as at 5 January 2010 IFRS method (2B) Section EW 25B sets out a particular consistency requirement for a method for IFRS preparers.

(3) Change of spreading method Section EW 26 sets out the circumstances in which a person may change their spreading method.
Deﬁned in this Act: ﬁnancial arrangement, IFRS, income year, spreading method Compare: 2004 No 35 s EW 24 Section EW 24(2B) heading: inserted, on 1 April 2008, by section 375(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section EW 24(2B): inserted, on 1 April 2008, by section 375(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EW 24 list of deﬁned terms IFRS: inserted, on 1 April 2008, by section 375(2) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
EW 25 Consistency of use of straight-line method and market valuation method Straight-line method for all ﬁnancial arrangements A person using the straight-line method in an income year for a ﬁnancial arrangement must use it for all ﬁnancial arrange- ments— (a) to which the person is a party at the end of the income year; and for which the person can use it.
(b) Straight-line method for every income year of term A person who starts to use the straight-line method for a ﬁnan- cial arrangement must use it over the arrangement’s remain- ing term until section EW 29 requires them to calculate a base price adjustment for the arrangement, unless section EW 26(1) applies.
Total value may be over $1,850,000 Subsection (2) applies even if the total value of all the ﬁnancial arrangements to which the person is a party is over $1,850,000 at any time in the arrangement’s remaining term.
Market valuation method A person who starts to use a market valuation method for a ﬁnancial arrangement must use it over the arrangement’s re- (1) (2) (3) (4) 900 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EW 25B (5) maining term until section EW 29 requires them to calculate a base price adjustment for the arrangement, unless section EW 26(1) applies.
Increase in speciﬁed sum The Governor-General may make an Order in Council under section EW 17(3) increasing the sum speciﬁed in subsection (3).

Deﬁned in this Act: ﬁnancial arrangement, income year Compare: 2004 No 35 s EW 25 Section EW 25(3) heading: amended, on 1 April 2009, by section 8(1) of the Taxation (Business Tax Measures) Act 2009 (2009 No 5).

Section EW 25(3): amended, on 1 April 2009, by section 8(2) of the Taxation (Business Tax Measures) Act 2009 (2009 No 5).
EW 25B Consistency of use of IFRS method (1) (2) (3) Consistency A person who uses a method for IFRS under section EW 15C for a ﬁnancial arrangement must use the method for— (a) the remaining term of the arrangement until section EW 29 requires them to calculate a base price adjustment for the arrangement: other ﬁnancial arrangements that are the same as, or similar to, the arrangement unless a different accounting treatment under IFRSs is used.
(b) Exception Despite subsection (1)(a), a person may change a method for IFRS if— (a) (b) the new method is available to them to use; and the accounting treatment for the ﬁnancial arrangement under IFRSs is changed in the same income year in which the method is changed for tax purposes.

Spreading method adjustment For the purposes of subsection (2), section EW 26(3), (4), and EW 27 apply as if the change in method were a change under section EW 26(2).
However, those sections do not apply if the change— (a) is from the fair value method; and 901 Part E s EW 26 Income Tax Act 2007 Reprinted as at 5 January 2010 (4) (b) relates to a ﬁnancial arrangement that is not subject to a creditor workout.

Modiﬁcation Section EZ 52B (Consistency of use of IFRS method: Deter- mination G3 change allowed) modiﬁes subsection (2).
Deﬁned in this Act: creditor workout, fair value method, ﬁnancial arrangement, IFRS, income year Compare: 2004 No 35 s EW 25B Section EW 25B: inserted, on 1 April 2008, by section 376 of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section EW 25B(3): amended (with effect on 1 April 2008), on 7 December 2009, by section 20 of the Taxation (Consequential Rate Alignment and Re- medial Matters) Act 2009 (2009 No 63).
Section EW 25B(3): amended (with effect on 1 April 2008), on 6 October 2009, by section 144(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section EW 25B(3)(a): substituted (with effect on 1 April 2008), on 7 Decem- ber 2009, by section 20 of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
Section EW 25B(3)(a): added (with effect on 1 April 2008), on 6 October 2009, by section 144(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section EW 25B(3)(b): substituted (with effect on 1 April 2008), on 7 Decem- ber 2009, by section 20 of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
Section EW 25B(3)(b): added (with effect on 1 April 2008), on 6 October 2009, by section 144(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section EW 25B(4) heading: added (with effect on 1 April 2008), on 6 October 2009, by section 144(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EW 25B(4): added (with effect on 1 April 2008), on 6 October 2009, by section 144(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section EW 25B list of deﬁned terms creditor workout: inserted (with effect on 1 April 2008), on 6 October 2009, by section 144(3) of the Taxation (Inter- national Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
EW 26 Change of spreading method Requirements for change from straight-line and market value method A person may change from the straight-line method or the market value method if they change to a method that is not (1) 902 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EW 26 (2) a method for IFRS under section EW 15B, and the Commis- sioner has given written authorisation for the change.
Change of other method A person may change from any spreading method to any other method if the Commissioner’s written authorisation under sub- section (1) is not required for the change, and they have a sound commercial reason for the change.

The advancement, deferral, or reduction of an income tax liability is not a sound commercial reason.
Spreading method adjustment (3) When a person changes their spreading method under subsec- tion (2),— (a) (b) they must use the formula in section EW 27 to calculate a spreading method adjustment for the income year in which they change the method; and their only income or expenditure under the ﬁnancial ar- rangement for the income year to which the formula is applied is the spreading method adjustment.
(4) (5) (6) Positive or negative spreading method adjustment A spreading method adjustment calculated under section EW 27 is,— (a) if positive, income, under section CC 3 (Financial ar- rangements), derived by the person in the income year for which the calculation is made: if negative, expenditure incurred by the person in the income year for which the calculation is made.
(b) Application of Tax Administration Act 1994 Section 22A(2) of the Tax Administration Act 1994 applies to a person to whom subsection (2) applies.

Exception for fair value method Section EW 29(13) applies, and subsections (3) and (4) do not apply, to a ﬁnancial arrangement, if the person’s change of spreading method involves a change— (a) from the fair value method and the ﬁnancial arrange- ment is not subject to a creditor workout: from the market value method to a method for IFRS under section EW 15B.
(b) 903 Part E s EW 26 Income Tax Act 2007 Reprinted as at 5 January 2010 Meaning of sound commercial reason In this section, sound commercial reason includes— (a) starting or stopping the use of IFRSs to prepare ﬁnancial statements at the same time as starting or stopping the use of a method for IFRS under section EW 15B: starting to use a method for IFRS under section EW 15B for a ﬁnancial arrangement for the ﬁrst time.
(b) Deﬁned in this Act: Commissioner, creditor workout, fair value method, ﬁ- nancial arrangement, ﬁnancial statements, IFRS, income, income tax liability, income year, sound commercial reason, spreading method Compare: 2004 No 35 s EW 26 Section EW 26(1) heading: substituted (with effect on 1 April 2008), on 6 Oc- tober 2009, by section 145(1) of the Taxation (International Taxation, Life In- surance, and Remedial Matters) Act 2009 (2009 No 34).
Section EW 26(1): substituted (with effect on 1 April 2008), on 6 October 2009, by section 145(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section EW 26(2): amended (with effect on 1 April 2008), on 6 October 2009, by section 145(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EW 26(6) heading: added, on 1 April 2008, by section 377(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section EW 26(6): substituted (with effect on 1 April 2008), on 6 October 2009, by section 145(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section EW 26(6): added, on 1 April 2008, by section 377(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EW 26(7) heading: added, on 1 April 2008, by section 377(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section EW 26(7): added, on 1 April 2008, by section 377(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section EW 26(7)(a): substituted (with effect on 1 April 2008), on 6 October 2009, by section 145(4) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EW 26 list of deﬁned terms creditor workout: inserted (with effect on 1 April 2008), on 6 October 2009, by section 145(5) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section EW 26 list of deﬁned terms fair value method: inserted, on 1 April 2008, by section 377(2) of the Taxation (Business Taxation and Remedial Mat- ters) Act 2007 (2007 No 109).
Section EW 26 list of deﬁned terms ﬁnancial statements: inserted, on 1 April 2008, by section 377(2) of the Taxation (Business Taxation and Remedial Mat- ters) Act 2007 (2007 No 109).

(7) 904 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EW 27 Section EW 26 list of deﬁned terms IFRS: inserted, on 1 April 2008, by section 377(2) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EW 26 list of deﬁned terms sound commercial reason: inserted, on 1 April 2008, by section 377(2) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

EW 27 Spreading method adjustment formula (1) (2) (3) (4) (5) (6) Calculation of spreading method adjustment A person calculates a spreading method adjustment using the formula in subsection (3).
What formula applies to The person must apply the formula to each ﬁnancial arrange- ment to which they— (a) are a party at the end of the income year in which they change their spreading method; and were a party at the end of the previous income year.

(b) Formula The formula is— income (new method) - expenditure (new method) - income (old method) + expenditure (old method).

Deﬁnition of items in formula The items in the formula are deﬁned in subsections (5) to (8).
Income (new method) Income (new method) is the amount that would have been income derived by the person under the ﬁnancial arrangement if the new method had been used for the arrangement in the period starting on the date on which the person became a party to the arrangement and ending on the last day of the income year for which the calculation is made.
Expenditure (new method) Expenditure (new method) is the amount that would have been expenditure incurred by the person under the ﬁnancial arrangement if the new method had been used for the arrange- ment in the period starting on the date on which the person became a party to the arrangement and ending on the last day of the income year for which the calculation is made.
905 Part E s EW 28 Income Tax Act 2007 Reprinted as at 5 January 2010 (7) (8) Income (old method) Income (old method) is income, under section CC 3 (Finan- cial arrangements), derived by the person under the ﬁnancial arrangement in earlier income years.

Expenditure (old method) Expenditure (old method) is expenditure incurred by the person under the ﬁnancial arrangement in earlier income years.
Deﬁned in this Act: amount, ﬁnancial arrangement, income, income year, spreading method Compare: 2004 No 35 s EW 27 Calculation and allocation of income and expenditure when rights and obligations under ﬁnancial arrangement cease EW 28 How base price adjustment calculated A party to a ﬁnancial arrangement who must calculate a base price adjustment, as described in sections EW 29 and EW 30, calculates it using the formula in section EW 31.
Deﬁned in this Act: ﬁnancial arrangement Compare: 2004 No 35 s EW 28 EW 29 When calculation of base price adjustment required Ceasing to be New Zealand resident A party to a ﬁnancial arrangement who ceases to be a New Zealand resident must calculate a base price adjustment as at the date of the party’s ceasing to be a New Zealand resident.

This subsection is overridden by section EW 30(1) and (2).
Ceasing to be party for purpose of New Zealand business A person who is not a New Zealand resident and who is a party to a ﬁnancial arrangement for the purpose of a business the party carries on through a ﬁxed establishment in New Zealand must calculate a base price adjustment as at the date of the party’s ceasing to be a party to the arrangement for that pur- pose.

Maturity A party to a ﬁnancial arrangement must calculate a base price adjustment as at the date on which the arrangement matures.
(1) (2) (3) 906 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EW 29 (4) (5) (6) (7) (8) (9) Treated as maturity A ﬁnancial arrangement that has not matured because an amount has not been paid is treated as if it had matured if— (a) (b) the amount not paid is immaterial; and the arrangement has been structured to avoid the appli- cation of section EW 31.
Disposal A party to a ﬁnancial arrangement who disposes of the ar- rangement must calculate a base price adjustment as at the date of the disposal.

Absolute assignment A party to a ﬁnancial arrangement who makes an absolute as- signment of all the party’s rights under the arrangement must calculate a base price adjustment as at the date of the absolute assignment.
Defeasance A party to a ﬁnancial arrangement who makes a legal defeas- ance of all the party’s obligations under the arrangement must calculate a base price adjustment as at the date of the legal de- feasance.

Sale at discount to associated person A party to a ﬁnancial arrangement that is a debt must calculate a base price adjustment as at the date on which the creditor sells the debt to a person associated with the debtor and at a discount in the circumstances described in section EW 43.
Discharge without consideration A party to a ﬁnancial arrangement must calculate a base price adjustment as at the date on which a party to the arrangement is discharged from making all remaining payments under the arrangement without fully adequate consideration.
Operation of law (10) A party to a ﬁnancial arrangement must calculate a base price adjustment as at the date on which a party to the arrangement is released from making all remaining payments under the ar- rangement under the Insolvency Act 2006 or the Companies Act 1993 or the laws of a country or territory other than New Zealand.
907 Part E s EW 29 Income Tax Act 2007 Reprinted as at 5 January 2010 Composition with creditors (11) A party to a ﬁnancial arrangement must calculate a base price adjustment as at the date on which a party to the arrangement is released from making all remaining payments under the ar- rangement by a deed or agreement of composition with the party’s creditors.
Lapse of time (12) A party to a ﬁnancial arrangement must calculate a base price adjustment as at the date on which all remaining payments under the arrangement become irrecoverable or unenforceable through the lapse of time.
Changing from fair value method (13) A party to a ﬁnancial arrangement must calculate a base price adjustment, at the date of a change for the ﬁnancial arrange- ment, where that change involves a change— (a) from the fair value method and the ﬁnancial arrange- ment is not subject to a creditor workout: from the market value method to a method for IFRS under section EW 15B.
(b) Deﬁned in this Act: amount, associated person, business, consideration, cred- itor workout, fair value method, ﬁnancial arrangement, ﬁxed establishment, legal defeasance, maturity, New Zealand, New Zealand resident, pay Compare: 2004 No 35 s EW 29 Section EW 29(13) heading: added, on 1 April 2008, by section 378(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EW 29(13): substituted (with effect on 1 April 2008), on 6 October 2009, by section 146(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section EW 29(13): added, on 1 April 2008, by section 378(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EW 29 list of deﬁned terms creditor workout: inserted (with effect on 1 April 2008), on 6 October 2009, by section 146(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section EW 29 list of deﬁned terms fair value method: added, on 1 April 2008, by section 378(2) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
908 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EW 30 EW 30 When calculation of base price adjustment not required (1) (2) (3) (4) (5) Cash basis person who ceases to be temporary New Zealand resident A cash basis person who ceases to be a New Zealand resident before the ﬁrst day of the fourth income year following the in- come year in which they ﬁrst became a New Zealand resident does not calculate a base price adjustment for a ﬁnancial ar- rangement to which they— (a) were a party before ﬁrst becoming a New Zealand resi- dent; and are a party on the date on which they cease to be a New Zealand resident.
(b) Other party who ceases to be New Zealand resident A party to a ﬁnancial arrangement who ceases to be a New Zealand resident does not calculate a base price adjustment to the extent to which the arrangement relates to a business the party carries on through a ﬁxed establishment in New Zealand.
Creditor when legal defeasance occurs A party who has a right to receive money under a ﬁnancial ar- rangement the obligations of which are the subject of a legal defeasance does not calculate a base price adjustment on the date of the defeasance if the defeasance requires another per- son to meet the remaining obligations of the arrangement.
Debtor when legal defeasance occurs A party to a ﬁnancial arrangement does not calculate a base price adjustment if— (a) their obligations under the arrangement are the subject of an absolute legal defeasance; and some or all of the consideration for the defeasance is deferred.
(b) Creditor when assignment occurs A party to a ﬁnancial arrangement does not calculate a base price adjustment if— (a) their rights under the arrangement are the subject of an absolute assignment; and 909 Part E s EW 31 Income Tax Act 2007 Reprinted as at 5 January 2010 (b) some or all of the consideration for the assignment is deferred.
Deﬁned in this Act: business, cash basis person, consideration, ﬁnancial ar- rangement, ﬁxed establishment, income year, legal defeasance, money, New Zealand, New Zealand resident Compare: 2004 No 35 s EW 30 EW 31 Base price adjustment formula Calculation of base price adjustment A person calculates a base price adjustment using the formula in subsection (5).

When formula applies The person calculates the base price adjustment for the income year in which section EW 29 applies to them.
Positive base price adjustment A base price adjustment, if positive, is income, under section CC 3 (Financial arrangements), derived by the person in the income year for which the calculation is made.

However, it is not income to the extent to which it arises from expenditure in- curred by the person under the ﬁnancial arrangement in earlier income years and for which a deduction was denied in those income years.
Negative base price adjustment A base price adjustment, if negative, is expenditure incurred by the person in the income year for which the calculation is made.

The person is allowed a deduction for the expenditure under section DB 11 (Negative base price adjustment).

Formula The formula is— consideration - income + expenditure + amount remitted.

Deﬁnition of items in formula The items in the formula are deﬁned in subsections (7) to (11).
Consideration Consideration is all consideration that has been paid, and all consideration that is or will be payable, to the person for or under the ﬁnancial arrangement, minus all consideration that has been paid, and all consideration that is or will be payable, (1) (2) (3) (4) (5) (6) (7) 910 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EW 31 by the person for or under the ﬁnancial arrangement.
For the purposes of this subsection, the following are ignored: (a) non-contingent fees, if the relevant method is not the IFRS ﬁnancial reporting method in section EW 15D: non-integral fees, if the relevant method is the IFRS ﬁnancial reporting method in section EW 15D.

(b) Consideration in particular cases If any of sections EW 32 to EW 48 applies, the consideration referred to in subsection (7) is adjusted under the relevant sec- tion.
Income Income is— (a) income derived by the person under the ﬁnancial ar- rangement in earlier income years; and dividends derived by the person from the release of the obligation to repay the amount lent; and income derived under section CF 2(2) and (3) (Remis- sion of speciﬁed suspensory loans).

(b) (c) (8) (9) Expenditure (10) Expenditure is expenditure incurred by the person under the ﬁnancial arrangement in earlier income years.
Amount remitted (11) Amount remitted is an amount that is not included in the consideration paid or payable to the person because it has been remitted— (a) (b) Deﬁned in this Act: amount, consideration, deduction, dividend, ﬁnancial ar- rangement, IFRS, income, income year, non-contingent fee, non-integral fee, pay Compare: 2004 No 35 s EW 31 by the person; or by law.
Section EW 31(7): amended (with effect on 1 April 2008), on 6 October 2009, by section 147(1)(a) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section EW 31(7): amended (with effect on 1 April 2008), on 6 October 2009, by section 147(1)(b) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EW 31(7): amended, on 1 April 2008, by section 379(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

911 Part E s EW 32 Income Tax Act 2007 Reprinted as at 5 January 2010 Section EW 31(7)(a): added, on 1 April 2008, by section 379(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section EW 31(7)(b): added, on 1 April 2008, by section 379(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EW 31(9)(a): amended (with effect on 1 April 2008), on 6 October 2009, by section 147(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section EW 31 list of deﬁned terms IFRS: inserted, on 1 April 2008, by section 379(2) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EW 31 list of deﬁned terms non-integral fee: inserted, on 1 April 2008, by section 379(2) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Consideration Consideration when ﬁnancial arrangement involves property or services EW 32 Consideration for agreement for sale and purchase of property or services, hire purchase agreement, speciﬁed option, or ﬁnance lease When this section applies This section applies when an original party to an agreement for the sale and purchase of property or services, a hire purchase agreement, a speciﬁed option, or a ﬁnance lease pays or is paid consideration that includes property or services.
Value of property or services The value of the property or services is determined by applying subsections (3) to (6) in numerical order until a subsection applies.

Lowest price The value of the property or services is the lowest price the parties would have agreed on for the property or services, on the date the agreement, option, or lease was entered into, if payment had been required in full at the time the ﬁrst right in the property was transferred or the services provided.
Two qualiﬁcations are— (a) this subsection does not apply to an agreement for the sale and purchase of property or services that is part of another ﬁnancial arrangement: (1) (2) (3) 912 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EW 33 (4) (5) (6) (7) (b) section EW 34 applies if the consideration is in a for- eign currency.
Cash price The value of the property or services is the cash price of the property or services to which the agreement, option, or lease relates, as determined by section 5 of the Credit Contracts and Consumer Finance Act 2003, if that Act applies to the agree- ment, option, or lease.
Future or discounted value The value of the property or services is the future value, or the discounted value, or a combination of both the future and discounted values, of the amounts paid or payable on the date on which the ﬁrst right in the property is transferred or the services are provided, as determined by the Commissioner under a determination under section 90AC(1)(i) of the Tax Administration Act 1994.
Determined by Commissioner The value of the property or services is the amount determined by the Commissioner when either party to the arrangement applies to the Commissioner for a speciﬁc determination.

Both parties must use this amount.

Exclusion This section does not apply if the agreement, option, or lease has lapsed or does not proceed.
Deﬁned in this Act: agreement for the sale and purchase of property or ser- vices, amount, Commissioner, consideration, ﬁnance lease, ﬁnancial arrange- ment, hire purchase agreement, pay, property, right, speciﬁed option Compare: 2004 No 35 s EW 32 EW 33 Consideration for hire purchase agreement or ﬁnance lease (1) (2) When this section applies This section applies when a party to a hire purchase agreement or a ﬁnance lease pays or is paid consideration for the agree- ment or lease.
Consideration The consideration for a hire purchase agreement or a ﬁnance lease includes expenditure or loss incurred by the lessor in 913 Part E s EW 34 Income Tax Act 2007 Reprinted as at 5 January 2010 preparing and installing the hire purchase asset or personal property lease asset for use to the extent to which it is not taken into account under EW 32.
Deﬁned in this Act: consideration, ﬁnance lease, hire purchase agreement, hire purchase asset, pay, personal property lease asset, lessor Compare: 2004 No 35 s EW 33 EW 34 Consideration in foreign currency When this section applies This section applies when the consideration payable under a ﬁnancial arrangement to which section EW 32(3) applies is in a foreign currency.
Lowest price The lowest price referred to in section EW 32(3) is the lowest price the parties would have agreed on in the foreign currency, converted into New Zealand dollars using the rate that the ori- ginal party applying section EW 32(3) selects from the rates in subsection (4).

The party may select the rate in subsection (4)(b) only if the period between the date on which the ﬁrst right in the property is to be transferred and the date on which ﬁnal payment is to be made is 5 years or less.
Consistent application of rate The party must apply the selected rate to the ﬁnancial arrange- ment for every income year over its term.
Rates The rates are— (a) the rate, on the date on which the parties enter into the ﬁnancial arrangement, available to the party from a New Zealand registered bank for the exchange of New Zealand dollars for the foreign currency for 1 of the fol- lowing dates: (i) the date on which the ﬁrst right in the property is to be transferred; or if that date is uncertain on the date on which the parties enter into the ﬁnancial arrangement, the date on which the parties reasonably expect, when entering into the arrangement, that the ﬁrst right in the property will be transferred; or (ii) (1) (2) (3) (4) 914 Reprinted as at 5 January 2010 (b) (c) Income Tax Act 2007 Part E s EW 36 the rate, on the date on which the parties enter into the ﬁnancial arrangement, available to the party from a New Zealand registered bank for the exchange of New Zealand dollars for the foreign currency for 1 of the fol- lowing dates: (i) (ii) the date on which ﬁnal payment is to be made; or if that date is uncertain on the date on which the parties enter into the ﬁnancial arrangement, the date on which the parties reasonably expect, when entering into the arrangement, that ﬁnal payment will be made; or an exchange rate approved by the Commissioner for this subsection in the circumstances applicable to the party in a determination under section 90AC(1)(k) of the Tax Administration Act 1994.
Deﬁned in this Act: Commissioner, consideration, ﬁnancial arrangement, in- come year, New Zealand, pay, property, registered bank, right, year Compare: 2004 No 35 s EW 34 EW 35 Value relevant for non-ﬁnancial arrangements rule (1) (2) When this section applies This section applies when the value of property acquired or disposed of under a ﬁnancial arrangement, or the consider- ation for it, is relevant in determining a person’s income or deductions under any provision of this Act that is not a ﬁnan- cial arrangements rule.
Value The person is treated as having acquired or disposed of the property for a value determined by applying section EW 32(2).
Deﬁned in this Act: consideration, deduction, ﬁnancial arrangement, ﬁnancial arrangements rules, income, property Compare: 2004 No 35 s EW 35 Consideration treated as paid to person EW 36 Consideration when person exits from rules: accrued entitlement When this section applies This section applies when— (1) 915 Part E s EW 37 Income Tax Act 2007 Reprinted as at 5 January 2010 (a) (b) a person is a party to a ﬁnancial arrangement; and 1 of the following situations arises: (i) the person ceases to be resident in New Zealand and is not a party to the arrangement for the pur- pose of a business carried on by them through a ﬁxed establishment in New Zealand; or the person, not resident in New Zealand, ceases to be a party to the arrangement for the purpose of a business carried on by them through a ﬁxed establishment in New Zealand; or the person starts using the arrangement for a pri- vate or domestic purpose and so it becomes an excepted ﬁnancial arrangement described in any of section EW 5(18) to (20); and (ii) (iii) (2) (c) at the time the situation arises, the person has an accrued entitlement to be paid consideration under the arrange- ment.
Disposal and consideration The person is treated as having disposed of their accrued en- titlement immediately before the situation arose and as having been paid the market value that the accrued entitlement had at that time.
Deﬁned in this Act: accrued entitlement, business, consideration, excepted ﬁ- nancial arrangement, ﬁnancial arrangement, ﬁxed establishment, New Zealand, pay, resident in New Zealand Compare: 2004 No 35 s EW 36 EW 37 Consideration when person enters rules: accrued obligation (1) When this section applies This section applies to a person who is a party to a ﬁnancial arrangement if, when the person has an accrued obligation to pay consideration under the arrangement, 1 or more of the fol- lowing situations arise: (a) the person is a non-resident who becomes a party to the arrangement for the purpose of a business carried on by the person through a ﬁxed establishment in New Zealand: the person is a non-resident who— (b) 916 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EW 38 (i) (ii) becomes a New Zealand resident who is not a transitional resident; and is not, immediately before becoming a New Zealand resident, a party to the arrangement for the purpose of a business carried on by the person through a ﬁxed establishment in New Zealand: the person is a transitional resident for whom the ar- rangement ceases to be an excepted ﬁnancial arrange- ment described in section EW 5(17): the person is a transitional resident who becomes a New Zealand resident who is not a transitional resident, re- sulting in the arrangement ceasing to be an excepted ﬁ- nancial arrangement described in section EW 5(17): the person stops using the arrangement for a private or domestic purpose, resulting in the arrangement ceasing to be an excepted ﬁnancial arrangement described in any of section EW 5(18) to (20).
(c) (d) (e) (2) Assumption and consideration The person is treated as having assumed the accrued obligation immediately after the situation arose and as having been paid the market value that a contract to assume the obligation had at that time.
Deﬁned in this Act: accrued obligation, business, consideration, excepted ﬁ- nancial arrangement, ﬁnancial arrangement, ﬁxed establishment, New Zealand, New Zealand resident, non-resident, pay, transitional resident Compare: 2004 No 35 s EW 37 EW 38 Consideration when disposal for no, or inadequate, consideration (1) When this section applies This section applies when— (a) (b) a person is a party to a ﬁnancial arrangement; and the person has an accrued entitlement under the arrange- ment; and the person disposes of the arrangement; and the disposal of the accrued entitlement— (i) is not for monetary consideration; or (c) (d) 917 Part E s EW 39 Income Tax Act 2007 Reprinted as at 5 January 2010 (ii) is for a consideration that is less than the market value of the entitlement on the date of the dis- posal.
(2) Consideration is market value The person is treated as having been paid the market value that the accrued entitlement had on the date of the disposal.
Deﬁned in this Act: accrued entitlement, consideration, ﬁnancial arrangement, pay Compare: 2004 No 35 s EW 38 EW 39 Consideration affected by unfavourable factors When this section applies This section applies when— (a) (b) (c) (d) a person is a party to a ﬁnancial arrangement; and the person has an accrued entitlement under the arrange- ment; and the person disposes of the arrangement; and the consideration for the disposal is affected by any of the following factors: (i) a decline in the other party’s creditworthiness be- tween the date on which the arrangement was en- tered into and the date of the disposal; or an increase, between the date on which the ar- rangement was entered into and the date of the disposal, in the possibility that the other party will not meet an obligation under the arrange- ment; or the occurrence of an event reducing or cancelling the other party’s obligations under the arrange- ment.
(ii) (iii) Exclusion This section does not apply when— (a) the person’s business includes holding or dealing in ﬁ- nancial arrangements of the class disposed of; and the parties to the arrangement disposed of are not asso- ciated persons.
(b) (1) (2) 918 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EW 40 (3) Consideration is market value The person is treated as having been paid the market value that the accrued entitlement had on the date of the disposal, as if the consideration had not been affected by a factor described in subsection (1)(d).
Deﬁned in this Act: accrued entitlement, associated person, business, consider- ation, ﬁnancial arrangement, pay Compare: 2004 No 35 s EW 40 Consideration treated as paid by person EW 40 Consideration when person exits from rules: accrued obligation (1) (2) When this section applies This section applies when— (a) (b) a person is a party to a ﬁnancial arrangement; and 1 of the following situations arises: (i) the person ceases to be resident in New Zealand and is not a party to the arrangement for the pur- pose of a business carried on by them through a ﬁxed establishment in New Zealand; or the person, not resident in New Zealand, ceases to be a party to the arrangement for the purpose of a business carried on by them through a ﬁxed establishment in New Zealand; or the person starts using the arrangement for a pri- vate or domestic purpose and so it becomes an excepted ﬁnancial arrangement described in any of section EW 5(18) to (20); and (ii) (iii) (c) at the time the situation arises, the person has an accrued obligation to pay consideration under the arrangement.
Relief and consideration The person is treated as having been relieved of the accrued obligation immediately before the situation arose and as hav- ing paid the market value that a contract to assume the obliga- tion had at that time.
Deﬁned in this Act: accrued obligation, business, consideration, excepted ﬁ- nancial arrangement, ﬁnancial arrangement, ﬁxed establishment, New Zealand, pay, resident in New Zealand Compare: 2004 No 35 s EW 41 919 Part E s EW 41 Income Tax Act 2007 Reprinted as at 5 January 2010 EW 41 Consideration when person enters rules: accrued entitlement When this section applies This section applies to a person who is a party to a ﬁnancial arrangement if, when the person has an accrued entitlement to receive consideration under the arrangement, 1 or more of the following situations arise: (a) the person is a non-resident who becomes a party to the arrangement for the purpose of a business carried on by the person through a ﬁxed establishment in New Zealand: the person is a non-resident who— (i) becomes a New Zealand resident who is not a transitional resident; and immediately before becoming a New is not, Zealand resident, a party to the arrangement for the purpose of a business carried on by the person through a ﬁxed establishment in New Zealand: (ii) the person is a transitional resident for whom the ar- rangement ceases to be an excepted ﬁnancial arrange- ment described in section EW 5(17): the person is a transitional resident who becomes a New Zealand resident who is not a transitional resident, re- sulting in the arrangement ceasing to be an excepted ﬁ- nancial arrangement described in section EW 5(17): the person stops using the arrangement for a private or domestic purpose, resulting in the arrangement ceasing to be an excepted ﬁnancial arrangement described in any of section EW 5(18) to (20).
(b) (c) (d) (e) Acquisition and consideration The person is treated as having acquired the accrued entitle- ment immediately after the situation arose and as having paid the market value that the accrued entitlement had at that time.
Deﬁned in this Act: accrued entitlement, business, consideration, excepted ﬁ- nancial arrangement, ﬁnancial arrangement, ﬁxed establishment, New Zealand, New Zealand resident, non-resident, pay, transitional resident Compare: 2004 No 35 s EW 42 (1) (2) 920 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EW 43 EW 42 Consideration when acquisition for no, or inadequate, consideration (1) (2) When this section applies This section applies when— (a) (b) a person becomes a party to a ﬁnancial arrangement; and the person acquires an entitlement under the arrange- ment— (i) (ii) not for monetary consideration; or for a consideration that is less than the market value of the entitlement on the date of the acqui- sition.
Consideration is market value The person is treated as having paid the market value that the entitlement had on the date of the acquisition.

Deﬁned in this Act: consideration, ﬁnancial arrangement, pay Compare: 2004 No 35 s EW 43 EW 43 Consideration when debt sold at discount to associate of debtor (1) (2) (3) When this section applies This section applies when a creditor sells a debt on or after 20 May 1999 to a person associated under the 1988 version provisions with the debtor and at a discount.
At a discount A creditor sells a debt at a discount if the creditor sells it for 80% or less of the market value of the debt.

Market value The market value of a debt affected by any of the following factors is determined as if its market value were not affected by the factor.
The factors are— (a) the occurrence of an event reducing or cancelling the debtor’s obligations under the debt; or the occurrence of 1 of the following between the date on which the debt was entered into and the date of the disposal: (i) a decline in the debtor’s creditworthiness; or (b) 921 Part E s EW 44 Income Tax Act 2007 Reprinted as at 5 January 2010 (ii) an increase in the possibility that the debtor will not meet an obligation under the debt.
(4) Consideration The debtor is treated as having paid the creditor the amount that the person associated with the debtor pays the creditor.
Deﬁned in this Act: 1988 version provisions, amount, associated person, con- sideration, pay Compare: 2004 No 35 s EW 45 EW 44 Consideration when debt forgiven for natural love and affection When this section applies: ﬁrst case This section applies when— (a) (b) (c) a person is a debtor; and the creditor is a natural person; and the creditor forgives the debtor’s debt because of the natural love and affection the creditor has for the debtor.
When this section applies: second case This section also applies when— a trust is a debtor; and (a) the trust was established mainly to beneﬁt 1 or both of (b) the following: (i) a natural person for whom the creditor has natural love and affection: an organisation or a trust whose income is exempt under section CW 41 (Charities: non-business income) or CW 42 (Charities: business income); and (ii) (c) (d) the creditor is a natural person; and the creditor forgives the debtor’s debt.
Two points about subsections (1) and (2) For the purposes of subsections (1) and (2),— (a) the debtor’s debt includes an amount accrued and un- paid at the time of the forgiveness; and the means by which the debt is forgiven, whether in a will or otherwise, is immaterial.

(b) (1) (2) (3) 922 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EW 45 (4) Consideration The debtor is treated as having paid the debt on the date on which the creditor forgives it.
Deﬁned in this Act: amount, consideration, income, pay Compare: 2004 No 35 s EW 46 EW 45 Consideration when debtor released from obligation (1) (2) (3) (4) When this section applies This section applies when— (a) (b) a person is released from the obligation to pay an amount owing under a ﬁnancial arrangement; and the release occurs under— (i) (ii) (iii) section 304 of the Insolvency Act 2006; or any of the Inland Revenue Acts; or a loan described in subsection (2).
Social assistance suspensory loan A loan referred to in subsection (1)(b)(iii) is a loan that— (a) is made by a department or instrument of the executive government of New Zealand; and provides for the person’s liability to pay to be wholly or partly remitted if they meet conditions intended to promote a social policy objective of the government of New Zealand; and is of a class declared by the Governor-General by Order in Council to be a social assistance suspensory loan.
(b) (c) Declaration as social assistance suspensory loan The Governor-General may make an Order in Council declar- ing a class of loan that meets the criteria in subsection (2) to be a social assistance suspensory loan.

Consideration The person is treated as having paid the amount owing on the date on which they are released from the obligation to pay it.
Deﬁned in this Act: amount, consideration, ﬁnancial arrangement, Inland Rev- enue Acts, New Zealand, pay Compare: 2004 No 35 s EW 47 923 Part E s EW 46 Income Tax Act 2007 Reprinted as at 5 January 2010 EW 46 Consideration when debtor released as condition of new start grant When this section applies This section applies when in an income year of a person— (a) animal husbandry: poultry-keeping: beekeeping: breeding horses other than bloodstock: horticulture: cropping; and the person carries on a business of— (i) (ii) (iii) (iv) (v) (vi) the person is paid a new start grant for the business for an event that is declared to be an emergency event; and the person incurs a liability to make a payment under a ﬁnancial arrangement— (i) (ii) in carrying on the business; and before the declaration of the emergency event; and the liability is forgiven or otherwise remitted— (i) as a prerequisite for the payment of the new start grant; and before the date that is 18 months after the end of the period for which the declaration applies; and in the absence of this section, the amount of the remitted liability would be income of the person.
(ii) (b) (c) (d) (e) Consideration The person is treated as having paid, on the date on which the liability is forgiven or remitted, the part of the amount owing that is the greater of zero and the amount calculated using the formula— remitted amount - current loss - loss balance - other loss.
Deﬁnition of items in formula In the formula,— (a) (b) remitted amount is the amount of the remitted liabil- ity: current loss is the tax loss that the person would have for the income year in which the liability is remitted in the absence of this section: (1) (2) (3) 924 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EW 46 (c) (d) loss balance is the amount of loss balance that the per- son may subtract from their net income for the income year in which the liability is remitted: other loss is a loss that— (i) is incurred by a person associated with the person who receives the new start grant; and (ii) meets the requirements of subsection (4).
(4) (5) Loss incurred by associated person from business or land The loss referred to in subsection (3)(d)— is incurred by a person who— (a) (i) carries on or has carried on the business for which the new start grant is paid or owns or has owned an estate in fee simple or leasehold estate in land used in the business; and in the opinion of the Commissioner, is under a substantial degree of control by the person; and in the opinion of the Commissioner, has a sub- stantial identity of interests with the person; and (ii) (iii) (b) (c) (d) the business referred to in paragraph (a)(i): land that is used in the business; and is incurred in relation to— (i) (ii) is, for the income year in which the liability is remit- ted,— a tax loss of the associated person: (i) (ii) a loss balance for the associated person; and is included in the calculation in subsection (3) to an extent to which the Commissioner determines, having regard to the interests of the associated person that are separate from those of the person.
Notice to associated person The Commissioner must give the associated person notice of a determination under subsection (4)(d).

Deﬁned in this Act: associated person, business, Commissioner, deduction, di- minished value, emergency event, income, income year, loss balance, notice, pay, tax loss Compare: 2004 No 35 s EW 47B Section EW 46(1): substituted, on 6 October 2009, by section 148(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
925 Part E s EW 46B Income Tax Act 2007 Reprinted as at 5 January 2010 Section EW 46 list of deﬁned terms emergency event: inserted, on 6 October 2009, by section 148(2)(b) of the Taxation (International Taxation, Life Insur- ance, and Remedial Matters) Act 2009 (2009 No 34).

Section EW 46 list of deﬁned terms qualifying event: repealed, on 6 October 2009, by section 148(2)(a) of the Taxation (International Taxation, Life Insur- ance, and Remedial Matters) Act 2009 (2009 No 34).
EW 46B Consideration when party changes from fair value method (1) (2) When this section applies This section applies when a party to a ﬁnancial arrangement— changes from the fair value method to another method; (a) and is required under section EW 29(13) to calculate a base price adjustment at the date of the change.

(b) Consideration The person is treated as having been paid an amount equal to the market value of the ﬁnancial arrangement on the date of the change.
Deﬁned in this Act: amount, fair value method, ﬁnancial arrangement Compare: 2004 No 35 s EW 48B Section EW 46B: inserted, on 1 April 2008, by section 380 of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Consideration when legal defeasance has occurred EW 47 Legal defeasance When this section applies This section applies when— (a) the obligations of a ﬁnancial arrangement were the sub- ject of a legal defeasance that required another person to meet the remaining obligations of the arrangement; and the person who has a right to receive money under the arrangement is now required by section EW 29 to cal- culate a base price adjustment for it.
(b) Consideration The consideration received by the person who has a right to receive money under the arrangement is the total of— (1) (2) 926 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EW 49 (a) (b) the amounts received from the original debtor; and the amounts received from the person required to meet the remaining obligations.
Deﬁned in this Act: amount, consideration, ﬁnancial arrangement, legal defeas- ance, money Compare: 2004 No 35 s EW 48 Consideration when anti-avoidance provision applies EW 48 Anti-avoidance provisions (1) (2) When this section applies This section applies when it is necessary to determine the con- sideration that is paid to or by a person in a case to which any of the following provisions applies: (a) section GB 21 (Dealing that defeats intention of ﬁnan- cial arrangements rules); or section GC 7 (Excess amount payable by person); or section GC 8 (Insufﬁcient amount receivable by per- son).
(b) (c) Consideration The consideration is the amount determined under the relevant provision.
Deﬁned in this Act: amount, consideration, pay Compare: 2004 No 35 s EW 49 Income and deduction provisions speciﬁcally related to ﬁnancial arrangements EW 49 Income and deduction when debt sold at discount to associate of debtor (1) (2) When this section applies This section applies when a creditor sells a debt on or after 20 May 1999 to a person associated under the 1988 version provisions with the debtor and at a discount.
At a discount A creditor sells a debt at a discount if the creditor sells it for 80% or less of the market value of the debt.

927 Part E s EW 50 Income Tax Act 2007 Reprinted as at 5 January 2010 (3) (4) (5) Market value The market value of a debt affected by any of the following factors is determined as if its market value were not affected by the factor.
The factors are— (a) the occurrence of an event reducing or cancelling the debtor’s obligations under the debt; or the occurrence of 1 of the following between the date on which the debt was entered into and the date of the disposal: (i) (ii) a decline in the debtor’s creditworthiness; or an increase in the possibility that the debtor will not meet an obligation under the debt.
(b) Original debt replaced with interest-free loan The associated person is treated as having provided the debtor with an interest-free loan for the amount paid for the debt.
Repayment: income and deduction If the debtor later repays the person associated with the debtor more than the amount the associated person paid for the debt, the excess amount paid by the debtor is— (a) income, under section CC 3(1) (Financial arrange- ments), of the person associated with the debtor; and a deduction that the debtor is allowed under section DB 13(1) (Repayment of debt sold at discount to associate of debtor).
(b) Deﬁned in this Act: 1988 version provisions, amount, associated person, de- duction, income, pay Compare: 2004 No 35 s EW 50 EW 50 Income when debt forgiven to trustee When this section applies This section applies when— a trust is a debtor; and (a) the trust was established mainly to beneﬁt 1 or both of (b) the following: (i) a natural person for whom the creditor has natural love and affection; or an organisation or a trust whose income is exempt under section CW 41 (Charities: non-business (ii) (1) 928 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EW 50 income) or CW 42 (Charities: business income); and (c) (d) (e) (f) the creditor is a natural person; and the creditor forgives the debtor’s debt; and a trustee of the trust makes a distribution, including a distribution of beneﬁciary income, to a beneﬁciary; and the beneﬁciary is— (i) not a natural person for whom the creditor has natural love and affection; and not an organisation or a trust whose income is exempt under section CW 41 or CW 42; and (ii) (g) the distribution is made on or after 20 May 1999.
(2) (3) Exclusion This section does not apply when— (a) (b) a trust (trust A) is a debtor; and trust A was established mainly to beneﬁt 1 or both of the following: (i) a natural person for whom the creditor has natural love and affection; or an organisation or a trust whose income is exempt under section CW 41 or CW 42; and (ii) (c) (d) (e) (f) the creditor is a natural person; and the creditor forgives the debtor’s debt; and a trustee of the trust makes a distribution to another trust (trust B); and at the time the distribution is made, trust B is also es- tablished mainly to beneﬁt 1 or both of the following: (i) a natural person for whom the creditor has natural love and affection; or an organisation or a trust whose income is exempt under section CW 41 or CW 42.
(ii) Two points about subsections (1) and (2) For the purposes of subsections (1) and (2),— (a) the debtor’s debt includes an amount accrued and un- paid at the time of the forgiveness; and the means by which the debt is forgiven, whether in a will or otherwise, is immaterial.
(b) 929 Part E s EW 51 Income Tax Act 2007 Reprinted as at 5 January 2010 (4) (5) (6) (7) Distribution is income of trustee The distribution is income of the trustee, under section CC 3(2) (Financial arrangements), to the extent to which it is less than or equal to the total amount of the debts of the trust forgiven to it by the creditor.
Distribution subtracted from total amount forgiven The distribution is subtracted from the total amount of the debts of the trust forgiven to it by the creditor as the total amount stands at the time of the distribution.

Timing The income is derived by the trustee in the income year in which the distribution is made.

Application of Tax Administration Act 1994 Section 22B of the Tax Administration Act 1994 applies to a trustee to whom this section applies.
Deﬁned in this Act: amount, beneﬁciary income, distribution, income, income year, pay, trustee Compare: 2004 No 35 s EW 51 EW 51 Deduction for security payment When subsection (2) applies: loss generally Subsection (2) applies when a person is allowed a deduction under section DB 14(2) (Security payment).

Amount of deduction The person is allowed a deduction no greater than the amount of the security payment.
When subsection (4) applies: share loss Subsection (4) applies when a person is allowed a deduction under section DB 14(4).

Amount of deduction The person is allowed a deduction no greater than the amount of the security payment.
Deﬁned in this Act: amount, deduction, pay, security payment Compare: 2004 No 35 s EW 52 (1) (2) (3) (4) 930 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EW 53 Treatment of original share acquired under ﬁnancial arrangement EW 52 Share supplier under share-lending arrangement (1) (2) (3) When this section applies This section applies to a person who— (a) acquires a share under a ﬁnancial arrangement (the ori- ginal ﬁnancial arrangement); and is the share supplier for a share-lending arrangement; and disposes of the share to the share user as an original share under the share-lending arrangement.
(b) (c) Treatment of reacquisition of original share If the person reacquires the original share under the share- lending arrangement, for the purposes of applying the ﬁnancial arrangements rules to the original ﬁnancial arrangement,— (a) the person did not dispose of the original share to the share user; and the person continued to own the original share until the time that the person reacquired the original share.
(b) Treatment of acquisition of replacement share If the person acquires an identical share under the share-lend- ing arrangement, for the purposes of the ﬁnancial arrange- ments rules in relation to the original ﬁnancial arrangement,— the identical share is the share that the person acquired (a) under the original ﬁnancial arrangement; and the person continued to own the identical share until the time that the person acquired the replacement share.
(b) Deﬁned in this Act: ﬁnancial arrangement, ﬁnancial arrangements rules, identi- cal share, original share, share, share-lending arrangement, share supplier, share user Compare: 2004 No 35 s EW 52B One kind of avoidance EW 53 Adjustment required (1) When this section applies This section applies when— (a) the terms of a ﬁnancial arrangement give either party, both parties, or an associated person the discretion to 931 Part E s EW 53 Income Tax Act 2007 Reprinted as at 5 January 2010 decide on an amount payable under the arrangement; and it is not generally accepted commercial practice to make ﬁnancial arrangements containing such terms; and a change in the amount brought about by the exercise of the discretion does not reﬂect changes in commodity, economic, ﬁnancial, or industrial indices, or in banking or general commercial rates; and the effect of the ﬁnancial arrangement is to defeat the intention of the ﬁnancial arrangements rules.
(b) (c) (d) Parties to calculate adjustment Each person who is a party to the ﬁnancial arrangement must calculate an adjustment for the income years speciﬁed in sub- section (3) by following the steps in subsections (4) to (6).
Income years The adjustment must be calculated for the following income years: (a) until the person ceases to be a party, the ﬁfth income year after the income year in which the parties entered into the ﬁnancial arrangement and every ﬁfth income year after that; and the income year in which the person ceases to be a party.
(b) First step The ﬁrst step the person takes is to calculate income or ex- penditure under the ﬁnancial arrangement for each income year using the yield to maturity method in the manner pre- scribed by the Commissioner in a determination under section 90AC(1)(a) of the Tax Administration Act 1994.
Consideration and amounts to be included at ﬁrst step The person must include the following amounts in the calcu- lation: (a) for every income year for which the calculation is made, as described in subsection (3), the consideration and amounts described in section EW 15 for the period start- ing on the date on which the person became a party to the ﬁnancial arrangement and ending on the last day of the income year for which the calculation is made; and (2) (3) (4) (5) 932 Reprinted as at 5 January 2010 (b) Income Tax Act 2007 Part E s EW 54 for every ﬁfth income year, as described in subsection (3)(a),— (i) an amount equal to the ﬁnancial arrangement’s market value on the last day of the income year, as if the person had disposed of the arrangement for that amount; or if the ﬁnancial arrangement has no market value, the amount that might reasonably be expected to be paid on a disposal at arm’s length.
(ii) (6) Second step The second step the person takes is to calculate the income tax liability for each income year using the income or expenditure calculated under subsections (4) and (5) in substitution for the income or expenditure previously calculated for the ﬁnancial arrangement for each income year.
Deﬁned in this Act: amount, associated person, Commissioner, consideration, ﬁnancial arrangement, ﬁnancial arrangements rules, income, income tax liabil- ity, income year, pay, prescribed Compare: 2004 No 35 s EW 53 Application of ﬁnancial arrangements rules to cash basis persons EW 54 Meaning of cash basis person (1) (2) Who is cash basis person A person is a cash basis person for an income year if— (a) 1 of the following applies in the person’s case for the income year: (i) (ii) section EW 57(3) applies in the person’s case for the income year.
section EW 57(1); or section EW 57(2); and (b) Persons excluded by Commissioner A person may be excluded under section EW 59 from being a cash basis person for a class of ﬁnancial arrangements.

Deﬁned in this Act: cash basis person, ﬁnancial arrangement, income year Section EW 54: substituted, on 1 April 2009, by section 9(1) of the Taxation (Business Tax Measures) Act 2009 (2009 No 5).
933 Part E s EW 55 Income Tax Act 2007 Reprinted as at 5 January 2010 EW 55 Effect of being cash basis person (1) (2) Use of spreading method A cash basis person is not required to apply any of the spread- ing methods to any of their ﬁnancial arrangements, but may choose to do so under section EW 61.
Calculation of base price adjustment The fact that a cash basis person does not use any of the spread- ing methods for the ﬁnancial arrangement does not excuse them from the requirement to calculate a base price adjust- ment when any of section EW 29(1) to (12) applies to them.
Deﬁned in this Act: cash basis person, ﬁnancial arrangement, spreading method Compare: 2004 No 35 s EW 55 EW 56 Natural person [Repealed] Section EW 56: repealed, on 1 April 2009, by section 10(1) of the Taxation (Business Tax Measures) Act 2009 (2009 No 5).
EW 57 Thresholds Income and expenditure threshold For the purposes of section EW 54(1)(a)(i), this subsection ap- plies if the absolute value of the person’s income and expend- iture in the income year under all ﬁnancial arrangements to which the person is a party is $100,000 or less.
Absolute value threshold For the purposes of section EW 54(1)(a)(ii), this subsection ap- plies if, on every day in the income year, the absolute value of all ﬁnancial arrangements to which the person is a party added together is $1,000,000 or less.
The value of each arrangement is,— (a) for a ﬁxed principal ﬁnancial arrangement, value: for a variable principal debt instrument, the amount ow- ing by or to the person under the ﬁnancial arrangement: for a ﬁnancial arrangement to which the old ﬁnancial arrangements rules apply, the value determined under those rules.
(b) (c) its face (1) (2) 934 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EW 57 (3) Deferral threshold For the purposes of section EW 54(1)(b), this subsection ap- plies if the result of applying the formula in subsection (4) to each ﬁnancial arrangement to which the person is a party at the end of the income year and adding the outcomes together is $40,000 or less.
Formula The formula is— (4) (5) (6) (7) (8) (accrual income - cash basis income) + (cash basis expenditure - accrual expenditure).

Deﬁnition of items in formula The items in the formula are deﬁned in subsections (6) to (9).
Accrual income Accrual income is the amount that would have been income derived by the person under the ﬁnancial arrangement if the person had been required to use a spreading method in the period starting on the date on which they became a party to the arrangement and ending on the last day of the income year for which the calculation is made.
It is calculated using 1 of the following methods, as chosen by the person: (a) the yield to maturity method, whether or not the person may use it, or has chosen to use it, for their ﬁnancial arrangement; or the straight-line method, whether or not the person may use it, or has chosen to use it, for their ﬁnancial arrange- ment; or an alternative method approved by the Commissioner.
(b) (c) Cash basis income Cash basis income is the amount that would have been in- come derived by the person under the ﬁnancial arrangement if the person had been a cash basis person in the period starting on the date on which they became a party to the arrangement and ending on the last day of the income year for which the calculation is made.
Cash basis expenditure Cash basis expenditure is the amount that would have been expenditure incurred by the person under the ﬁnancial arrange- ment if the person had been a cash basis person in the period 935 Part E s EW 57 Income Tax Act 2007 Reprinted as at 5 January 2010 starting on the date on which they became a party to the ar- rangement and ending on the last day of the income year for which the calculation is made.
(9) Accrual expenditure Accrual expenditure is the amount that would have been ex- penditure incurred under the ﬁnancial arrangement if the per- son had been required to use a spreading method in the period starting on the date on which they became a party to the ar- rangement and ending on the last day of the income year for which the calculation is made.
It is calculated using 1 of the following methods, as chosen by the person: (a) the yield to maturity method, whether or not the person may use it, or has chosen to use it, for their ﬁnancial arrangement; or the straight-line method, whether or not the person may use it, or has chosen to use it, for their ﬁnancial arrange- ment; or an alternative method approved by the Commissioner.
(b) (c) Increase in speciﬁed sums (10) The Governor-General may make an Order in Council increas- ing a sum speciﬁed in any of subsections (1) to (3).
Deﬁned in this Act: absolute value, amount, cash basis person, Commissioner, ﬁnancial arrangement, ﬁxed principal ﬁnancial arrangement, income, income year, old ﬁnancial arrangements rules, spreading method, variable principal debt instrument Compare: 2004 No 35 s EW 57 Section EW 57(1): amended, on 1 April 2009, by section 11(1) of the Taxation (Business Tax Measures) Act 2009 (2009 No 5).
Section EW 57(2): amended, on 1 April 2009, by section 11(2) of the Taxation (Business Tax Measures) Act 2009 (2009 No 5).

Section EW 57(3): amended, on 1 April 2009, by section 11(3) of the Taxation (Business Tax Measures) Act 2009 (2009 No 5).

Section EW 57(10) heading: added, on 1 April 2009, by section 11(4) of the Taxation (Business Tax Measures) Act 2009 (2009 No 5).

Section EW 57(10): added, on 1 April 2009, by section 11(4) of the Taxation (Business Tax Measures) Act 2009 (2009 No 5).
936 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EW 58 EW 58 Financial arrangements, income, and expenditure relevant to criteria (1) (2) (3) (4) Inclusions in and exclusions from thresholds The calculations required by section EW 57(1) to (3) are done for every ﬁnancial arrangement to which the person is a party or, as the relevant subsection requires, to income and expenditure under such an arrangement, whether the ﬁnancial arrangements rules or the old ﬁnancial arrangements rules apply to the arrangement.
Two qualiﬁcations are— (a) the calculations include an arrangement, or income and expenditure, to which subsection (2) or (3) applies only to the extent of the person’s interest in it, as described in each subsection; and the calculations exclude the value of an arrangement, and income and expenditure, in which the person has the interest described in subsection (4) or (5).
(b) Natural person who is partner [Repealed] [Repealed] Beneﬁciary of bare trust This subsection applies when the trustee of a bare trust is a party to a ﬁnancial arrangement.
A person who is a beneﬁciary of the bare trust— (a) is treated as a party to the arrangement to the extent of the beneﬁciary’s share of the beneﬁcial interest in the arrangement; and is treated as deriving income or incurring expenditure under the arrangement to the extent of the beneﬁciary’s share of the beneﬁcial interest in the arrangement.
(b) Beneﬁciary of trust other than bare trust This subsection applies when a person is a beneﬁciary of a trust, other than a bare trust, whose trustee is a party to a ﬁnan- cial arrangement.

The following are excluded from the calcu- lations required by section EW 57(1) to (3): (a) the value of the arrangement, if it produces trustee in- come or beneﬁciary income under the trust rules; and income under the arrangement that is trustee income or beneﬁciary income under the trust rules.
(b) 937 Part E s EW 59 Income Tax Act 2007 Reprinted as at 5 January 2010 (5) Trustee This subsection applies when a person is a party to a ﬁnancial arrangement as a trustee.
The following are excluded from the calculations required by section EW 57(1) to (3): (a) the value of the arrangement, if it produces trustee in- come or beneﬁciary income under the trust rules; and income under the arrangement that is trustee income or beneﬁciary income under the trust rules; and the value of the arrangement, if expenditure is incurred under it; and expenditure incurred under the arrangement.
(d) Deﬁned in this Act: beneﬁciary income, ﬁnancial arrangement, ﬁnancial ar- rangements rules, income, old ﬁnancial arrangements rules, return of income, trust rules, trustee, trustee income Compare: 2004 No 35 s EW 58 (b) (c) Section EW 58(1): amended, on 1 April 2009, by section 12(1) of the Taxation (Business Tax Measures) Act 2009 (2009 No 5).

Section EW 58(2) heading: repealed, on 1 April 2008, by section 13(1) of the Taxation (Limited Partnerships) Act 2008 (2008 No 2).
Section EW 58(2): repealed, on 1 April 2008, by section 13(1) of the Taxation (Limited Partnerships) Act 2008 (2008 No 2).

Section EW 58(3) heading: substituted, on 1 April 2009, by section 12(2)(a) of the Taxation (Business Tax Measures) Act 2009 (2009 No 5).

Section EW 58(3): amended, on 1 April 2009, by section 12(2)(b) of the Taxa- tion (Business Tax Measures) Act 2009 (2009 No 5).
Section EW 58(4) heading: substituted, on 1 April 2009, by section 12(3)(a) of the Taxation (Business Tax Measures) Act 2009 (2009 No 5).

Section EW 58(4): amended, on 1 April 2009, by section 12(3)(b) of the Taxa- tion (Business Tax Measures) Act 2009 (2009 No 5).

Section EW 58(5) heading: substituted, on 1 April 2009, by section 12(4)(a) of the Taxation (Business Tax Measures) Act 2009 (2009 No 5).
Section EW 58(5): amended, on 1 April 2009, by section 12(4)(b) of the Taxa- tion (Business Tax Measures) Act 2009 (2009 No 5).
EW 59 Exclusion by Commissioner The Commissioner may treat a person who would otherwise be a cash basis person for a class of ﬁnancial arrangements as not being a cash basis person for the class if— (a) the person, or any other person, has structured and pro- moted the class to defer an income tax liability: the parties to a ﬁnancial arrangement are associated, and the person’s calculation of income and expenditure (b) 938 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EW 60 under the ﬁnancial arrangement differs from that used by the associated person.
Deﬁned in this Act: associated person, cash basis person, Commissioner, ﬁnan- cial arrangement, income, income tax liability Section EW 59: substituted, on 1 April 2009, by section 13(1) of the Taxation (Business Tax Measures) Act 2009 (2009 No 5).
EW 60 Trustee of deceased’s estate (1) (2) (3) (4) When trustee of estate is cash basis person A trustee of a deceased’s estate is a cash basis person for ﬁnan- cial arrangements in the estate in the circumstances described in subsection (2) for the period described in subsection (3).
Circumstances The circumstances are that, at the time of the deceased’s death,— (a) (b) the deceased is a cash basis person; and the ﬁnancial arrangements in the deceased’s estate meet the requirements of section EW 54(1)(a) and (b).

Period The period is the income year in which the deceased dies and in each of the 4 following income years.
However, if at any time in those 5 income years the ﬁnancial arrangements in the de- ceased’s estate cease to meet the requirements of section EW 54(1)(a) and (b), the trustee ceases to be a cash basis person for ﬁnancial arrangements in the estate and cannot again be a cash basis person for them.

Modiﬁcations to be read in For the purposes of this section, sections EW 54 and EW 55 are read with the modiﬁcations necessary to make them refer to the case of a deceased estate.
Deﬁned in this Act: cash basis person, ﬁnancial arrangement, income year, trustee Compare: 2004 No 35 s EW 60 Section EW 60(2)(b): amended, on 1 April 2009, by section 14(1) of the Taxa- tion (Business Tax Measures) Act 2009 (2009 No 5).

Section EW 60(3): amended, on 1 April 2009, by section 14(1) of the Taxation (Business Tax Measures) Act 2009 (2009 No 5).

Section EW 60(4): amended, on 1 April 2009, by section 14(2) of the Taxation (Business Tax Measures) Act 2009 (2009 No 5).
939 Part E s EW 61 Income Tax Act 2007 Reprinted as at 5 January 2010 EW 61 Election to use spreading method (1) (2) (3) (4) (5) (6) Election of spreading method A cash basis person may choose to use a spreading method, unless subsection (2) applies.

Election not allowed A cash basis person may not choose to use a spreading method for a ﬁnancial arrangement in the income year in which section EW 29 requires them to calculate a base price adjustment for the arrangement.
How election made The person makes the election by calculating a cash basis ad- justment under section EW 62(1).

Effect of election The person must use a spreading method for— (a) all ﬁnancial arrangements to which the person is a party at the time of making the election; and all ﬁnancial arrangements the person enters into after the income year in which they make the election.
(b) How election revoked The person revokes the election by giving notice to the Com- missioner with a return of income and within the time that the return must be ﬁled under section 37 of the Tax Administration Act 1994.

Effect of revocation The revocation applies to all ﬁnancial arrangements the person enters into after the income year in which the notice is given.
Deﬁned in this Act: cash basis person, Commissioner, ﬁnancial arrangement, income year, notice, return of income, spreading method Compare: 2004 No 35 s EW 61 EW 62 When and how calculation of cash basis adjustment required Choosing spreading method A cash basis person who chooses to use a spreading method must calculate a cash basis adjustment for the income year in which they choose to use a spreading method as if they had ceased to be a cash basis person.
(1) 940 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EW 62 (2) (3) (4) (5) (6) (7) (8) Person becoming cash basis person A person who becomes a cash basis person in an income year must calculate a cash basis adjustment for a ﬁnancial arrange- ment to which they— (a) (b) are a party at the end of the income year; and were a party at the end of the previous income year.
Exclusions However,— (a) (b) a person who becomes a cash basis person in an income year and who chooses to continue using a spreading method in the income year must not calculate a cash basis adjustment; and a person who becomes a cash basis person in an income year must not calculate a cash basis adjustment for a ﬁnancial arrangement that is already being accounted for on a cash basis.
Person ceasing to be cash basis person A person who ceases to be a cash basis person in an income year must calculate a cash basis adjustment for a ﬁnancial ar- rangement to which they— (a) (b) are a party at the end of the income year; and were a party at the end of the previous income year.

Exclusion However, a person who ceases to be a cash basis person must not calculate a cash basis adjustment for a ﬁnancial arrange- ment that is already subject to a spreading method.
Person not cash basis person if adjustment not made A person who would be a cash basis person for a ﬁnancial arrangement if they calculated a cash basis adjustment for it, and who does not calculate the adjustment, is not a cash basis person for the arrangement.

Cash basis adjustment A person calculates a cash basis adjustment using the formula in section EW 63.
Adjustment is income or expenditure The only income or expenditure under the ﬁnancial arrange- ment for the income year to which the formula is applied is the cash basis adjustment.
941 Part E s EW 63 Income Tax Act 2007 Reprinted as at 5 January 2010 (9) Positive or negative cash basis adjustment A cash basis adjustment is,— (a) (b) if positive, income, under section CC 3(1) (Financial arrangements), derived by the person in the income year for which the calculation is made: if negative, expenditure incurred by the person in the income year for which the calculation is made.
Deﬁned in this Act: cash basis person, ﬁnancial arrangement, income, income year, spreading method Compare: 2004 No 35 s EW 62 EW 63 Cash basis adjustment formula Formula A person calculates a cash basis adjustment using the for- mula— adjusted income - adjusted expenditure - previous income + previous expenditure.

Deﬁnition of items in formula The items in the formula are deﬁned in subsections (3) to (6).
Adjusted income Adjusted income is,— (a) for a person who becomes a cash basis person, the amount that would have been income derived by the person under the ﬁnancial arrangement if the person had been a cash basis person in the period starting on the date on which they became a party to the arrange- ment and ending on the last day of the income year for which the calculation is made; and for a person who ceases to be a cash basis person, the amount that would have been income derived by the person under the ﬁnancial arrangement if the person had been required to use a spreading method in the period starting on the date on which they became a party to the arrangement and ending on the last day of the income year for which the calculation is made.
(b) Adjusted expenditure Adjusted expenditure is,— (1) (2) (3) (4) 942 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EX 1 (a) (b) for a person who becomes a cash basis person, the amount that would have been expenditure incurred by the person under the ﬁnancial arrangement if they had been a cash basis person in the period starting on the date on which they became a party to the arrangement and ending on the last day of the income year for which the calculation is made; and for a person who ceases to be a cash basis person, the amount that would have been expenditure incurred by the person under the ﬁnancial arrangement if the per- son had been required to use a spreading method in the period starting on the date on which they became a party to the arrangement and ending on the last day of the in- come year for which the calculation is made.
(5) (6) Previous income Previous income is income derived by the person under the ﬁnancial arrangement in earlier income years.

Previous expenditure Previous expenditure is expenditure incurred by the person under the ﬁnancial arrangement in earlier income years.
Deﬁned in this Act: amount, cash basis person, ﬁnancial arrangement, income, income year, spreading method Compare: 2004 No 35 s EW 63 Subpart EX—Controlled foreign company and foreign investment fund rules Controlled foreign company (CFC) rules When is a company a controlled foreign company?
EX 1 Meaning of controlled foreign company (1) Tests of control A foreign company is a controlled foreign company (CFC) if any of the following tests is met: (a) there is a group of 5 or fewer New Zealand residents whose total control interests in the company are more than 50% in any one of the control interest categories: 943 Part E s EX 1 Income Tax Act 2007 Reprinted as at 5 January 2010 (b) (c) a single New Zealand resident holds a control interest of 40% or more unless at the same time— (i) another person also holds a 40% or more control interest in the same control interest category; and the other person is not a New Zealand resident; and the other person is not associated with the New Zealand resident: (ii) (iii) there is a group of 5 or fewer New Zealand residents who can control the exercise of the shareholder deci- sion-making rights for the company and, as a result, control the company’s affairs.
Exception Even if a test in subsection (1) is met, a foreign company is not a CFC if— (a) the foreign company is a foreign investment vehicle; and 1 of the New Zealand residents is— a portfolio investment entity: (i) an entity eligible to be a portfolio investment en- (ii) tity: a life insurance company.
(iii) (b) Status applies for whole accounting period If any of the tests in subsection (1) is met at any time in a for- eign company’s accounting period and the exception in sub- section (2) does not apply at the time, the company is treated as a CFC for the whole of the accounting period.
Deﬁned in this Act: accounting period, associated person, CFC, company, con- trol, control interest, control interest category, foreign company, foreign invest- ment vehicle, life insurance, New Zealand resident, portfolio investment entity, shareholder decision-making right Compare: 2004 No 35 s EX 1 Section EX 1(2): amended, on 1 April 2008, by section 381 of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
(2) (3) 944 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EX 3 Calculation of person’s control interest EX 2 Four categories for calculating control interests (1) (2) (3) (4) Separate categories Under section EX 5(1), a direct control interest in a foreign company can arise in each of 4 separate categories of rights.
List of categories The 4 categories are— (a) (b) shareholding in the foreign company: shareholder decision-making rights for the foreign com- pany: rights to receive income from the foreign company: rights to receive distributions of the company’s net as- sets.

(c) (d) Detailed calculation rules In each category, more detailed calculation rules appear in sec- tion EX 5.
Four categories of control interests Accordingly, the rules in section EX 3 for calculating control interests by totalling various direct and indirect control inter- ests and associated parties’ interests are applied on a category by category basis, by reference to those categories of direct control interest.
Deﬁned in this Act: associated person, control interest, direct control interest, foreign company, income, shareholder decision-making right Compare: 2004 No 35 s EX 2 EX 3 Control interest: total of direct, indirect, and associated person interests (1) Calculation of control interest A New Zealand resident’s control interest in a foreign com- pany at any time is the total of the following for the relevant control interest category: (a) any direct control interest that the New Zealand resident holds in the company: any direct control interests in the company held by per- sons associated with the New Zealand resident: any indirect control interests that the New Zealand resi- dent holds in the company: (b) (c) 945 Part E s EX 4 Income Tax Act 2007 Reprinted as at 5 January 2010 (2) (3) (d) any indirect control interests in the company held by persons associated with the New Zealand resident.
Avoidance arrangements: ﬁrst kind Section GB 7 (Arrangements involving CFC control interests) may apply to treat a control interest as being held by a group of New Zealand residents in equal proportions.
Avoidance arrangements: other kinds Any of the following sections may apply to the calculation of a person’s control interest: (a) section GB 9 (Temporary disposals of direct control or income interests): section GB 10 (Temporary acquisitions of direct control or income interests): section GB 11 (Temporary increases in totals for con- trol interest categories): section GB 12 (Temporary reductions in totals for con- trol interest categories): section GB 13 (When combination of changes reduces income): section GB 14 (When combination of changes in- creases loss).
(b) (c) (d) (e) (f) Deﬁned in this Act: associated person, control interest, direct control interest, foreign company, New Zealand resident Compare: 2004 No 35 ss EX 3, GC 7, GC 9 EX 4 Limits to requirement to include associated person interests Non-resident relatives For the purposes of section EX 3, a New Zealand resident is as- sociated with a non-resident relative only if the New Zealand resident holds a direct control interest or indirect control inter- est in the foreign company.
No double counting Despite section EX 3(1)(b) and (d), for the purposes of deter- mining whether a foreign company is a CFC, a direct control interest or indirect control interest may be counted only once.
Deﬁned in this Act: associated person, CFC, control interest, direct control interest, foreign company, New Zealand resident, non-resident, relative Compare: 2004 No 35 s EX 4 (1) (2) 946 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EX 5 EX 5 Direct control interests (1) Categories of direct control interests A person has a direct control interest in a foreign company at any time if they hold— (a) (b) any of the shares in the foreign company: any of the shareholder decision-making rights for the company: a right to receive, or to control the application of, any of the income of the company for the accounting period in which the time falls: a right to receive, or to control the application of, any of the value of the net assets of the company, if they are distributed.
(c) (d) (2) Percentage of total is counted The direct control interest in each control interest category is the percentage of the total that the person holds.
Measurement of available subscribed capital (3) When the direct control interest in the category in subsection (1)(a) is calculated, the percentage is the total of the available subscribed capital per share calculated under the slice rule of the shares held as a percentage of the total available subscribed capital per share calculated under the slice rule of all shares in the company.
Varying decision-making rights (4) When the direct control interest in the category in subsection (1)(b) is calculated, if the percentage varies between the rights described in the different paragraphs of the deﬁnition of share- holder decision-making rights in section YA 1 (Deﬁnitions), the highest percentage is taken.
Income distribution rights: assumptions (5) When the direct control interest in the category in subsection (1)(c) is calculated, it is assumed that— (a) the income is distributed on the last day of the account- ing period; and the person’s entitlement is unchanged during the period; and a payment of interest on a debenture subject to section FA 2 (Recharacterisation of certain debentures), FA 2B (b) (c) 947 Part E s EX 6 Income Tax Act 2007 Reprinted as at 5 January 2010 (Stapled debt securities), or FZ 1 (Treatment of interest payable under debentures issued before certain date) is a distribution of income.
Deﬁned in this Act: accounting period, available subscribed capital, control interest category, direct control interest, foreign company, income, interest, pay, share, shareholder decision-making right, slice rule Compare: 2004 No 35 s EX 5 Section EX 5(5)(c): amended (with effect on 1 April 2008), on 6 October 2009, by section 150 of the Taxation (International Taxation, Life Insurance, and Re- medial Matters) Act 2009 (2009 No 34).
EX 6 Direct control interests include options and similar rights Entitlement to acquire or extinguish For the purposes of section EX 5, a person is treated as holding something if they are entitled to acquire it or extinguish it.
Entitlement arises in various ways A person is entitled to acquire or extinguish something if the entitlement is absolute or contingent and whether the entitle- ment— (a) (b) (c) (d) arises under a company’s constitution; or arises under the terms of an option; or arises under the terms of a convertible note; or arises under the terms of any arrangement substantially similar to any of those described in paragraphs (a) to (c); or arises in some other way.
(e) Standard security arrangements Despite subsections (1) and (2), a person is not treated as being entitled to acquire something if— (a) (b) the entitlement arises under a security arrangement; and the person acquired the security arrangement in a trans- action entered into on an arm’s length basis; and the security arrangement’s terms conform to generally accepted commercial practice.
(c) (1) (2) (3) 948 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EX 7 (4) No double counting Despite subsections (1) and (2), for the purpose of determining whether a foreign company is a CFC, each of the percentage holdings described in section EX 5 may be counted only once.
Deﬁned in this Act: arrangement, CFC, company, convertible note, direct con- trol interest, foreign company, security arrangement Compare: 2004 No 35 s EX 6 EX 7 Indirect control interests (1) (2) (3) (4) (5) (6) How indirect control interests arise A person has an indirect control interest in a foreign company to the extent to which the rules in this section attribute to them some or all of the direct control interests held by a CFC in the foreign company.
Attribution of CFC’s direct interests A CFC’s direct control interest in another foreign company is attributed under subsections (3) to (11).

Associates For the purposes of this section, the CFC is treated as also holding any direct control interests in the foreign company held by persons associated with the CFC.
Attribution to smallest controlling group Subsections (6) to (11) apply to attribute the CFC’s direct control interests to the smallest controlling group, to ensure that the attribution exercise does not dilute recognition of a factual chain of control.

Attribution on basis of respective income interests If the CFC’s direct control interests are attributed to more than 1 person, the direct control interests are divided in proportion to each group member’s respective income interest in the CFC.
One controlling group If there is only 1 group of New Zealand residents whose con- trol interests have caused the CFC to be a CFC under section EX 1, the CFC’s direct control interests are treated as being held by that group.

949 Part E s EX 8 Income Tax Act 2007 Reprinted as at 5 January 2010 (7) (8) (9) More than 1 group If there is more than 1 group whose control interests have caused the CFC to be a CFC under section EX 1, the CFC’s direct control interests are attributed to the smallest group.
Equal smallest groups If there are 2 or more groups that are equally the smallest, and 1 group has the greatest total control interests in the CFC, the attribution is to that group.

Equal smallest groups with equal greatest control interests If there are 2 or more smallest groups with equal greatest total control interests in the CFC, the attribution is made in full to each group.
No double counting (10) Despite subsection (9), for the purpose of determining whether a foreign company is a CFC, a direct control interest may be counted only once.

(11) Sequential application If a foreign company becomes a CFC under this section, this section is then applied to attribute its direct control interests.
Deﬁned in this Act: associated person, CFC, control, control interest, direct control interest, foreign company, income interest, New Zealand resident Compare: 2004 No 35 s EX 7 Calculation of person’s income interest EX 8 Income interests: total of direct and indirect interests Calculation of income interest A person’s income interest in a CFC at any time is the total of the following: (a) any direct income interest that the person holds in the CFC: any indirect income interest that the person holds in the CFC.
(b) Avoidance arrangements Any of the following sections may apply to the calculation of a person’s income interest: (a) section GB 9 (Temporary disposals of direct control or income interests): (1) (2) 950 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EX 9 (b) (c) (d) (e) (f) section GB 10 (Temporary acquisitions of direct control or income interests): section GB 11 (Temporary increases in totals for con- trol interest categories): section GB 12 (Temporary reductions in totals for con- trol interest categories): section GB 13 (When combination of changes reduces income): section GB 14 (When combination of changes in- creases loss).
Deﬁned in this Act: CFC, control interest category, direct control interest, direct income interest, income, income interest, indirect income interest Compare: 2004 No 35 s EX 8 EX 9 Direct income interests (1) Categories of direct income interest A person has a direct income interest in a CFC at any time if they hold— (a) (b) any of the shares in the foreign company: any of the shareholder decision-making rights for the company: a right to receive, or to control the application of, any of the income of the company for the accounting period in which the time falls: a right to receive, or to control the application of, any of the value of the net assets of the company, if they are distributed.
(c) (d) (2) (3) Percentage of total is counted The person’s direct income interest is the percentage of the total that the person holds.

Varying percentages However, if the percentage varies between the different cat- egories, the person’s direct income interest is the highest.
Measurement of available subscribed capital (4) When the direct income interest in the category in subsection (1)(a) is calculated, the percentage is the total of the available subscribed capital per share calculated under the slice rule of the shares held as a percentage of the total available subscribed 951 Part E s EX 10 Income Tax Act 2007 Reprinted as at 5 January 2010 capital per share calculated under the slice rule of all shares in the company.
Varying decision-making rights (5) When the direct income interest in the category in subsection (1)(b) is calculated, if the percentage varies between the rights described in the different paragraphs of the deﬁnition of share- holder decision-making rights in section YA 1 (Deﬁnitions), the highest percentage is taken.
Income distribution rights: assumptions (6) When the direct income interest in the category in subsection (b) (c) (1)(c) is calculated, it is assumed that— (a) the income is distributed on the last day of the account- ing period; and the person’s entitlement is unchanged during the period; and a payment of interest on a debenture subject to section FA 2 (Recharacterisation of certain debentures), FA 2B (Stapled debt securities), or FZ 1 (Treatment of interest payable under debentures issued before certain date) is a distribution of income.
Deﬁned in this Act: accounting period, available subscribed capital, CFC, debentures, direct income interest, foreign company, income, interest, pay, share, shareholder decision-making right, slice rule Compare: 2004 No 35 s EX 9 Section EX 9(6)(c): amended (with effect on 1 April 2008), on 6 October 2009, by section 151 of the Taxation (International Taxation, Life Insurance, and Re- medial Matters) Act 2009 (2009 No 34).
EX 10 Indirect income interests Looking through CFCs If a person has a direct income interest in a CFC, and the ﬁrst CFC has a direct income interest in another CFC, the person has an indirect income interest in the other CFC.

Calculation of indirect income interest The indirect income interest is calculated by multiplying the person’s direct income interest in the ﬁrst CFC by the ﬁrst CFC’s direct income interest in the other CFC.
(1) (2) 952 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EX 11 (3) Chains of CFCs If there are 2 or more CFCs in a chain of direct income inter- ests between the person and a CFC, the person has an indirect income interest in the CFC at the end of the chain that is calcu- lated by multiplying all the direct income interests in the chain.
Deﬁned in this Act: CFC, direct income interest, indirect income interest Compare: 2004 No 35 s EX 10 EX 11 Options and similar rights in certain cases (1) (2) (3) (4) Increase in income interest The rules in this section apply to increase a person’s income interest in a CFC (the ﬁrst CFC) in some cases.
Entitlement to acquire This section applies when the person, or some other person, such as another CFC taken into account when calculating an indirect income interest of the person in the ﬁrst CFC, has at any time an entitlement (the option) to acquire 1 of the things listed in section EX 9(1) in relation to the ﬁrst CFC but does not hold it.
Actual holder outside CFC rules attribution For this section to apply, the actual holder of the thing subject to the option must not be— another CFC: (a) a New Zealand resident, unless they are a New Zealand (b) resident whose income interest in the ﬁrst CFC for the accounting period in question is less than 10% under sections EX 14 to EX 17.
Terms of option indicating economic ownership For this section to apply, the option must have 1 of the follow- ing features: (a) in the absence of this section, the effect of the option would be to defeat the intent and application of subpart CQ (Attributed income from foreign equity) or DN (At- tributed losses from foreign equity) or this subpart, tak- ing into account the economic beneﬁt that the person gets as a result of the CFC deriving income: 953 Part E s EX 12 Income Tax Act 2007 Reprinted as at 5 January 2010 (b) (c) the consideration payable for the exercise of the option is less than the market value of the thing acquired at the time of the acquisition: the holder of the option (or an associated person) has directly or indirectly funded or assisted the actual holder to acquire or hold the thing subject to the option.
Calculation as if option exercised If each requirement for this section to apply is met, the per- son’s income interest is calculated as if the option holder had exercised the option.

Deﬁned in this Act: accounting period, associated person, CFC, income, in- come interest, indirect income interest, New Zealand resident, pay Compare: 2004 No 35 s EX 11 Section EX 11(3)(b): amended, on 1 April 2008, by section 382 of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
(5) EX 12 Reduction of total income interests (1) (2) Application of this section This section applies when the total income interests for a CFC for an accounting period would be more than 100%, because section EX 9(3) requires the highest percentage to be taken if varying percentage shareholder rights are held.
Proportional reduction Each person’s income interest for the period is reduced to the amount calculated using the formula— Deﬁned in this Act: accounting period, amount, CFC, income interest, share- holder Compare: 2004 No 35 s EX 12 EX 13 Income interests of partners [Repealed] Section EX 13: repealed, on 1 April 2008, by section 14(1) of the Taxation (Limited Partnerships) Act 2008 (2008 No 2).
954 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EX 16 Ten percent threshold and variations in income interest level EX 14 Attribution: 10% threshold A person has attributed CFC income or attributed CFC loss from a CFC only if the person’s income interest in the CFC is 10% or more for the relevant accounting period.
Deﬁned in this Act: accounting period, attributed CFC income, attributed CFC loss, CFC, income interest Compare: 2004 No 35 s EX 14 EX 15 Associates and 10% threshold (1) (2) Associates included For the purpose of applying the 10% threshold in sections CD 45, CQ 2, EX 14, EX 21, EX 34, and EX 58., a person’s income interest in a CFC is increased by each income interest in the CFC, for the relevant accounting period, of a person associated with the person.
Exception Despite subsection (1), the income interest of an associate is not counted if the associate is a CFC.

Deﬁned in this Act: accounting period, associated person, CFC, income interest Compare: 2004 No 35 s EX 15 Section EX 15(1): substituted, on 1 April 2008, by section 383 of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EX 15(1): amended (with effect on 30 June 2009), on 6 October 2009, by section 152(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section EX 15(1): amended (with effect on 1 April 2008), on 6 October 2009, by section 152(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
EX 16 Income interests for certain purposes (1) When this section applies This section applies for the purposes of determining the at- tributed CFC income or loss of a person for a period if the person holds an income interest in the CFC on a day in the period.
955 Part E s EX 17 Income Tax Act 2007 Reprinted as at 5 January 2010 (2) (3) Zero income interest For the purposes of calculating the attributed CFC income or loss of a person for a period, the person has an income interest in a CFC of zero on a day in the period if, on the day, the person is— (a) (b) a non-resident: a transitional resident.
Attribution not prevented This section does not override— (a) section CD 21 (Attributed repatriations from controlled foreign companies), which treats a dividend resulting from attributed repatriation as being derived while the person deriving it is a New Zealand resident; or section CQ 2(3) (When attributed CFC income arises), which treats any attributed CFC income as being de- rived while the person deriving it is a New Zealand resi- dent; or section CQ 5(4) (When FIF income arises), which treats any foreign investment fund (FIF) income as being de- rived while the person deriving it is a New Zealand resi- dent.
(b) (c) Deﬁned in this Act: accounting period, attributed CFC income, attributed re- patriation, CFC, dividend, FIF income, income interest, New Zealand resident, non-resident, transitional resident Compare: 2004 No 35 s EX 16 EX 17 Income interest if variations within period When this section applies This section applies when a person’s income interest in a CFC, calculated under sections EX 8 to EX 16, varies between days in a period.
Weighted average The person’s income interest for the period is the total of the amounts for the period, each of which is calculated using the formula in subsection (3) for a day in the period.
Formula The formula is— (1) (2) (3) 956 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EX 18A (4) Deﬁnition of items in formula In the formula,— (a) income interest for day is— (i) (ii) the income interest during the day, if the income interest does not vary during the day: the income interest at the start of the day, if the income interest varies during the day: days in period is the number of days in the period.
(b) Deﬁned in this Act: CFC, income interest Compare: 2004 No 35 s EX 17 Calculation of attributed CFC income or loss EX 18A Scheme for ﬁnding person’s attributed CFC income or loss (1) Formula and rules for calculation The attributed CFC income or loss of a person (an interest holder) holding an income interest in a CFC, for the purposes of the general rules in sections CQ 2(1) and DN 2(1)(which relate to attributed CFC income or loss), is found for the CFC and an accounting period from— (a) the formula in section EX 18, which uses the interest holder’s income interest and the CFC’s net attributable CFC income or loss determined as described in subsec- tion (2): the interest holder’s additional CFC attributed income under section EX 19: the reduction in the interest holder’s attributed CFC loss under section EX 20.
(b) (c) (2) Determination of attributed CFC income or loss from attributable CFC amount An interest holder with an income interest of a fraction (the fraction) in a CFC with an attributable CFC amount under section EX 20B for an accounting period has under section EX 18, for the CFC and accounting period,— 957 Part E s EX 18 Income Tax Act 2007 Reprinted as at 5 January 2010 (a) (b) attributed CFC income or loss equal to the fraction of the CFC’s net attributable CFC income or loss under sections EX 20C to EX 20E and the rules in sections EX 21 and EX 24 to EX 27, if paragraph (b) does not apply: no attributed CFC income or attributed CFC loss, if the CFC is— (i) a non-attributing active CFC under section EX 21B, determined as described in subsection (3): a non-attributing Australian CFC under section EX 22.
(ii) Non-attributing active CFCs (3) Whether a CFC is a non-attributing active CFC is determined under section EX 21B using— (a) a test in— (i) (ii) section EX 21D, if the interest holder does not use a test referred to in subparagraph (ii); or section EX 21E, if the CFC has accounts pre- pared to a standard meeting the requirements of section EX 21C and the interest holder chooses to use a test in that section based on those accounts; and the rules in sections EX 21 and EX 24 to EX 27.
(b) Deﬁned in this Act: accounting period, attributable CFC amount, attributed CFC income, attributed CFC loss, CFC, non-attributing active CFC, non-at- tributing Australian CFC Section EX 18A: inserted (with effect on 30 June 2009), on 6 October 2009, by section 153(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
EX 18 Formula for calculating attributed CFC income or loss If a person has attributed CFC income under section CQ 2 (When attributed CFC income arises) or an attributed CFC loss under section DN 2 (When attributed CFC loss arises), the amount of a person’s attributed CFC income or loss from a CFC for an accounting period is calculated using the for- mula— 958 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EX 19 person’s income interest for accounting period × net attributable CFC income or loss of CFC for accounting period.
Deﬁned in this Act: accounting period, amount, attributed CFC income, at- tributed CFC loss, CFC, income interest, loss, net attributable CFC income Compare: 2004 No 35 s EX 18 Section EX 18 formula: amended (with effect on 30 June 2009), on 6 October 2009, by section 154(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 18 list of deﬁned terms branch equivalent income: repealed (with effect on 30 June 2009), on 6 October 2009, by section 154(2)(a) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section EX 18 list of deﬁned terms net attributable CFC income: inserted (with effect on 30 June 2009), on 6 October 2009, by section 154(2)(b) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
EX 19 Taxable distribution from non-complying trust (1) (2) (3) (4) Application of this section This section applies when— (a) (b) a CFC derives a taxable distribution from a non-com- plying trust in an accounting period; and a person has attributed CFC income or loss from the CFC for the period, or would have if the taxable distri- bution were included in the CFC’s net attributable CFC income.
Additional attributed CFC income The taxable distribution is excluded under section EX 21(32) when calculating the CFC’s net attributable CFC income or loss, and instead the person has additional attributed CFC in- come.

Calculation of additional attributed CFC income The amount of the additional attributed CFC income is calcu- lated using the formula— person’s income interest in CFC for accounting period × taxable distribution.
Non-complying trust tax rate The person is liable for income tax on the additional attributed CFC income at the rate in schedule 1 (Basic tax rates: income 959 Part E s EX 20 Income Tax Act 2007 Reprinted as at 5 January 2010 (5) tax, ESCT, RSCT, RWT, and attributed fringe beneﬁts) that applies to amounts under HC 19 (Taxable distributions from non-complying trusts).
Disclosure restrictions on grey list CFCs [Repealed] [Repealed] Deﬁned in this Act: accounting period, amount, attributed CFC income, CFC, income interest, income tax, loss, net attributable CFC income, non-complying trust, taxable distribution Compare: 2004 No 35 s EX 19 Section EX 19(1)(b): amended (with effect on 30 June 2009), on 6 October 2009, by section 155(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 19(2): amended (with effect on 30 June 2009), on 6 October 2009, by section 155(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section EX 19(4): amended, on 1 April 2008, by section 384 of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EX 19(5) heading: repealed (with effect on 30 June 2009), on 6 October 2009, pursuant to section 155(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section EX 19(5): repealed (with effect on 30 June 2009), on 6 October 2009, by section 155(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 19 list of deﬁned terms branch equivalent income: repealed (with effect on 30 June 2009), on 6 October 2009, by section 155(4)(a) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section EX 19 list of deﬁned terms net attributable CFC income: inserted (with effect on 30 June 2009), on 6 October 2009, by section 155(4)(b) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
EX 20 Reduction in attributed CFC loss Application of this section: no economic loss This section applies when— (a) (b) a person has an amount of attributed CFC loss; and the person suffers no, or substantially no, corresponding economic loss, whether because of a call option, a put option, or any other reason.
Application of this section: attributed CFC loss excessive This section also applies if— (1) (2) 960 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EX 20B (a) (b) a person has an amount of attributed CFC loss; and the amount is more than any corresponding economic loss of the person, whether because of the application of the rules for calculating the person’s income interest or for any other reason.
Reduction to economic loss The attributed CFC loss is reduced to be equal to the economic loss, if any.

Deﬁned in this Act: amount, attributed CFC loss, income interest Compare: 2004 No 35 s EX 20 (3) Attributable CFC amount and net attributable CFC income or loss Heading: inserted (with effect on 30 June 2009), on 6 October 2009, by section 156(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
EX 20B Attributable CFC amount (1) (2) Attributable CFC amount Attributable CFC amount, for an accounting period and a CFC, means the amount calculated under the rules in section EX 21 using the formula— gross + arrangement.

Deﬁnition of items in formula The items in the formula in subsection (1) are deﬁned in sub- sections (3) and (4).
Gross (3) Gross is the total amount of income derived in the accounting period by the CFC that is 1 or more of the following: (a) a dividend that is paid in relation to rights that are a di- rect income interest of less than 10% in a foreign com- pany and are described in— section EX 31: (i) section EX 32: (ii) section EX 36: (iii) section EX 37: (iv) section EX 37B: (v) 961 Part E s EX 20B Income Tax Act 2007 Reprinted as at 5 January 2010 (b) (c) (d) (e) (f) (g) (h) (i) (j) (k) (l) (m) section EX 39: (vi) a dividend that is paid by a company resident in New Zealand to the extent to which the dividend is not fully imputed: an amount that is a deductible foreign equity distribu- tion or a distribution for ﬁxed-rate foreign equity: a royalty of a type referred to in subsection (5): rent of a type referred to in subsection (6): income from a business of general insurance or life in- surance that is a premium under an insurance contract or reinsurance contract: income from a life insurance policy of a type referred to in subsection (8): income from the supply of personal services of a type referred to in subsection (9): income from the disposal of revenue account property that is a share, other than a share referred to in subsec- tion (10): income from the disposal of revenue account property that is an option to acquire or dispose of a share: income from the disposal of revenue account property that is— (i) not a share, ﬁnancial arrangement, or life insur- ance policy; and used by the CFC with a purpose or effect
 of giv- ing rise to income of the CFC referred to in an- other paragraph of this subsection: (ii) income from a service, other than a telecommunications service, to the extent to which the service is physically performed in New Zealand: income from a service relating to the use of equipment to provide a telecommunications service, to the extent to which the equipment is at the time— (i) physically located outside any country or terri- tory; and owned by the CFC or by another CFC that is associated with the
 CFC; and not a mobile telephone handset or a radio receiver and transmitter for a ship or aircraft: (ii) (iii) 962 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EX 20B (n) income from a telecommunications service to the extent to which the service is physically performed in New Zealand and is not described in subsection (11).
(4) (5) Arrangement Arrangement is the total for the CFC and the accounting period of amounts of income under section CC 3 (Financial arrangements) for— (a) an arrangement that— (i) is a ﬁnancial arrangement, or a short-term agree- ment for sale and purchase for which the CFC has made an election under section EW 8 (Election to treat certain excepted ﬁnancial arrangements as ﬁnancial arrangements); and is not a derivative instrument; and is not referred to in subsection (12): (ii) (iii) a derivative instrument— (i) (b) (ii) (iii) that is held in the course of a business of the CFC for the purpose of dealing with the derivative in- strument: that is not entered in the ordinary course of a business of the CFC: to the extent to which the income is from a hedg- ing relationship, of a type referred to in NZIAS 39, with income of the CFC referred to in sub- section (3) or paragraph (a) or with a transaction producing such income of the CFC.
Attributable CFC amount: royalties A royalty derived by a CFC is included in an attributable CFC amount under subsection (3)(d) if none of the following are satisﬁed: (a) the CFC is regularly engaged in creating, developing, or adding value to property that produces royalties and the royalty is— (i) paid by a person who is not associated with the CFC under section YB 2 (Two companies with common control); and from property that is not linked to New Zealand under subsection (13); and (ii) 963 Part E s EX 20B Income Tax Act 2007 Reprinted as at 5 January 2010 (iii) from property that the CFC has created or devel- oped or to which the CFC has added substantial value: (b) (c) (d) the CFC is regularly engaged in creating, developing, or adding value to property that produces royalties and the royalty is— (i) paid by a person who is associated with the CFC under section YB 2; and from property that is not linked to New Zealand under subsection (13); and from property that the CFC has created or devel- oped, or to which the CFC has added substantial value; and an arm’s length amount determined under section GC 13 (Calculation of arm’s length amounts) for the arrangement between the CFC and the asso- ciated person: (ii) (iii) (iv) the royalty is— (i) (ii) the royalty is— (i) paid by a person who would be an associated non-attributing active CFC in the absence of this paragraph and subsections (7)(c) and (12)(a); and from property that is not linked to New Zealand under subsection (13): paid to the CFC by a person who
 is not associ- ated with the CFC under section YB 2, or by a CFC associated with the CFC under section YB 2 that has received a corresponding royalty pay- ment from such a person; and from property owned by a New Zealand resident who is not treated as a non-resident under a dou- ble tax agreement; and from property licensed to the CFC by the New Zealand resident for an arm’s length amount de- termined under section GC 13 for the arrange- ment between the CFC and the New Zealand resi- dent.
(ii) (iii) 964 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EX 20B (6) (7) Attributable CFC amount: rent Rent derived by a CFC is included in an attributable CFC amount under subsection (3)(e) if the rent is not of a type re- ferred to in subsection (7) and is from— a lease or sublease of land: (a) a lease or sublease of personal property: (b) a licence to use intangible property: (c) a hire or bailment.
(d) Attributable CFC amount: exclusions from rent Rent derived by a CFC from a source referred to in subsection (6) is not included in an attributable CFC amount under sub- section (3)(e) if the rent is— (a) (b) (c) (d) (e) (f) (g) from land in a country or territory under the laws of which the CFC is liable to income tax on the CFC’s income because of its domicile, residence, place of in- corporation, or centre of management: from property other than land, to the extent to which the rent relates to the use of the property in a country or territory referred to in paragraph (a): paid by a person who would be an associated non-at- tributing active CFC in the absence of this paragraph and subsections (5)(c) and (12)(a): a payment under a hire purchase agreement: a payment under a ﬁnance lease: a royalty: a payment under a licence to use intangible property that— (i) (ii) would not be included in an attributable CFC amount under subsection (5) if treated as a roy- alty for the purposes of that subsection.
is not a royalty; and (8) Attributable CFC amount: income from life insurance contract Income from a life insurance policy is included in an at- tributable CFC amount under subsection (3)(g) if the income is not included in a calculation of FIF income or loss and is— a distribution, if the life insurance policy is not intended (a) to compensate the CFC for ﬁnancial losses arising 965 Part E s EX 20B Income Tax Act 2007 Reprinted as at 5 January 2010 from the death or extended incapacity of a speciﬁed employee or member involved in the CFC’s business: a distribution that is not intended to compensate the CFC for ﬁnancial losses arising from the death or ex- tended incapacity of a speciﬁed employee or member involved in the CFC’s business, if the life insurance pol- icy is intended to compensate the CFC for such losses: income from a disposal of the life insurance policy, if the policy is revenue account property.
(b) (c) Attributable CFC amount: income from personal services Income derived by a CFC from the supply of personal services is included in an attributable CFC amount under subsection (3)(h) if the personal services are performed by another person (the working person) and— (a) (b) the working person is a New Zealand resident; and the personal services are not essential support for a product supplied by the CFC; and the working person is associated with the CFC under section YB 5 (Company and non-corporate 25% interest holder) at the time the services are performed or is a relative, at the beginning of the accounting period, of a person associated with the CFC under section YB 5; and 80% or more of the CFC’s total income in the account- ing period from supplying personal services is derived through personal services meeting the requirements of paragraph (a) performed by working persons meeting the requirements of paragraph (b); and to derive the income, the CFC uses a business struc- ture that requires depreciable property having, at the end of the accounting period, a total cost under sec- tion GB 28(7) (Interpretation of terms used in section GB 27) less than or equal to the greater of $75,000 and 25% of the CFC’s total income from personal services performed in the accounting period.
(c) (d) (e) Exclusions from attributable CFC amount: shares Income derived by a CFC from the disposal of a share that is revenue account property is not included in an attributable CFC amount under subsection (3)(i) if the CFC’s FIF income (9) (10) 966 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EX 20B or loss from the share in the period ending with the disposal is calculated using— (a) (b) (c) (d) the comparative value method: the deemed rate of return method: the fair dividend rate method: the cost method.
(11) Exclusions from attributable CFC amount: telecommunications services in New Zealand Income of a CFC from a telecommunications service phys- ically performed in New Zealand is not included in an at- tributable CFC amount under subsection (3)(n) if— (a) the service is the transmission, emission, or reception of information between New Zealand and the country or territory in which the CFC is liable to income tax on its income because of its domicile, residence, place of incorporation, or centre of management; and the CFC is Telecommunications 2004 (a network operator), or— (i) the (Interception Capability) Act operator network under a (ii) a group of persons has, for the whole of the CFC’s accounting period, voting interests and, if a mar- ket circumstance exists, market value interests, of more than 50% in the CFC; and the group of persons also has, for the whole of the CFC’s accounting period, voting interests and, if a market value circumstance exists, market value interests, of more than 50% in a network oper- ator; and the service is not performed using equipment that at the time is physically located in New Zealand and is in the possession of the CFC or of another CFC that is associated with the CFC; and the service is not performed by a person who at the time is physically located in New Zealand and is an employee or contractor of the CFC or of another CFC that is associated with the CFC.
967 (b) (c) (d) Part E s EX 20B Income Tax Act 2007 Reprinted as at 5 January 2010 (12) Exclusions from attributable CFC amount: income from ﬁnancial arrangements other than derivative instruments Income of a CFC from a ﬁnancial arrangement or excepted ﬁnancial arrangement that is referred to in subsection (4)(a)(i) is not included in an attributable CFC amount under subsection (4)(a) if the ﬁnancial arrangement or agreement is— (a) an agreement by the CFC to lend money to a person who would be an associated non-attributing active CFC in the absence of this paragraph and subsections (5)(c) and (7)(c): an agreement for the sale or purchase of property or services or a hire purchase agreement— (i) entered in the ordinary course of business by the CFC: for property or services produced or used by the CFC in business.
(ii) (b) Royalties: property linked to New Zealand (13) Property giving rise to a royalty is linked to New Zealand at a time in an accounting period for the purposes of subsection (5) if the property meets the requirements of subsection (14) at a time in the period— beginning— (a) (i) at the time the property was created, if the prop- erty has not since met the requirements of sub- section (15); or from the time the property most recently met the requirements of subsection (15); and ending at the time in the accounting period.
(ii) (b) Situations creating link with New Zealand (14) Property owned by a CFC has a link with New Zealand if the property— (a) (b) has been owned by a New Zealand resident: has been owned by a non-resident for the purposes of a business carried on in New Zealand through a ﬁxed establishment in New Zealand: was created or developed in New Zealand: has had substantial value added in New Zealand: has been acquired by a person who had a deduction for expenditure or loss incurred in the acquisition: (c) (d) (e) 968 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EX 20B (f) (g) is based on knowledge acquired by a person who— (i) acquired the knowledge with a purpose or inten- tion of creating the property; and had a deduction for expenditure or loss incurred in the acquisition: (ii) is created or developed from activities, or from the ex- tension, continuation, development, or completion of activities, if the activities produced knowledge acquired by a person who had a deduction for expenditure or loss incurred in the acquisition.
Situations breaking link with New Zealand (15) There is no link between property and New Zealand for a CFC when the property is owned by a non-resident who— (a) (b) is not a CFC and is not associated with the CFC; and is not associated with a person who has owned the prop- erty while it had a link with New Zealand.
Deﬁned in this Act: accounting period, agreement for the sale or purchase of property or services, associated, associated non-attributing active CFC, attributable CFC amount, business, CFC, comparative value method, de- ductible foreign equity distribution, deduction, deemed rate of return method, depreciable property, derivative instrument, dividend, exempt income, fair dividend rate method, ﬁnance lease, ﬁnancial arrangement, ﬁxed-rate foreign equity, fully imputed, general insurance, group of persons, hire purchase agreement, life insurance policy, loan, loss, market value circumstance, market value interest, money lent, New Zealand, New Zealand resident, non-attributing active CFC, non-resident, reinsurance contract, relative, resident in New Zealand, revenue account property, royalty, share, short-term agreement for sale and purchase, telecommunications service, voting interest insurance contract, life insurance, interest, income, land, Section EX 20B: inserted (with effect on 30 June 2009), on 6 October 2009, by section 156(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 20B(4) heading: substituted (with effect on 30 June 2009), on 7 De- cember 2009, by section 23(1) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).

Section EX 20B(4)(b)(iii): amended (with effect on 30 June 2009), on 7 De- cember 2009, by section 23(2) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
Section EX 20B(11)(b): substituted (with effect on 30 June 2009), on 7 Decem- ber 2009, by section 23(3) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).

Section EX 20B list of deﬁned terms group of persons: inserted (with effect on 30 June 2009), on 7 December 2009, by section 126 of the Taxation (Con- sequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
969 Part E s EX 20C Income Tax Act 2007 Reprinted as at 5 January 2010 Section EX 20B list of deﬁned terms market value circumstance: inserted (with effect on 30 June 2009), on 7 December 2009, by section 126 of the Tax- ation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
Section EX 20B list of deﬁned terms market value interest: inserted (with effect on 30 June 2009), on 7 December 2009, by section 126 of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).

Section EX 20B list of deﬁned terms voting interest: added (with effect on 30 June 2009), on 7 December 2009, by section 126 of the Taxation (Conse- quential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
EX 20C Net attributable CFC income or loss CFC’s net attributable CFC income or loss For the purpose of calculating the attributed CFC income or loss for an accounting period of a person (the interest holder) with an income interest in a CFC,— (a) the CFC’s net attributable CFC income for the ac- counting period is the greater of zero and the amount calculated using the formula in subsection (2): the CFC’s net attributable CFC loss for the accounting period is— (i) the absolute value of the amount calculated using the formula in subsection (2), if that amount is less than zero: zero, if subparagraph (i) does not apply.
(ii) (b) Formula for net attributable CFC income or loss The amount of a CFC’s net attributable CFC income or loss for an accounting period is calculated using the rules in section EX 21 and the formula— attributable CFC – (limited funding costs × fraction) – other deductions.

Deﬁnition of items in formula The items in the formula in subsection (2) are deﬁned in sub- sections (4) to (6), (8), and (9).

Attributable CFC Attributable CFC is the CFC’s attributable CFC amount for the accounting period.
(1) (2) (3) (4) 970 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EX 20C (5) (6) Limited funding costs Limited funding costs is— (a) (b) if paragraph (b) does not apply, the amount of the item funding costs in subsection (6)(a); or if the item funding in subsection (6)(b) is not zero and the interest holder chooses to rely on this paragraph, the amount calculated using the formula— funding costs × funding – group funding funding.
Deﬁnition of items in formula In the formula in subsection (5)(b),— (a) funding costs is the total of amounts in the accounting period— (i) for which the CFC would have a deduction relat- ing to a ﬁnancial arrangement referred to in sub- section (7)(a): that are distributions relating to ﬁxed-rate foreign equity or deductible foreign equity distributions of the CFC and paid by the CFC to companies resident in New Zealand or to CFCs: (ii) (b) (c) funding is the total amount of outstanding balances for ﬁnancial arrangements referred to in subsection (7)(a) and of shares referred to in subsection (7)(b): group funding is the lesser of the item funding and the total amount of outstanding balances for ﬁnancial arrangements— (i) under which the CFC provides funds to another CFC associated with the CFC under section YB 2 (Two companies with common control); and (ii) which produce for the CFC an amount included in the item arrangement under section EX 20B(4).
(7) Financial arrangements and shares contributing to funding costs A ﬁnancial arrangement to which a CFC is a party, or a share issued by the CFC, contributes to the item funding costs under subsection (6)(a) for the CFC if it is— 971 Part E s EX 20C Income Tax Act 2007 Reprinted as at 5 January 2010 (a) (b) a ﬁnancial arrangement that provides funds for the CFC: a share that is— (i) held by a company that is a New Zealand resident or a CFC; and a ﬁxed-rate foreign equity or a share giving a right to a deductible foreign equity distribution.
(ii) (8) Fraction Fraction is,— (a) (b) if the CFC is not excessively debt funded under section EX 20D, the amount calculated under subsection (10); or if the CFC is excessively debt funded under section EX 20D, the lesser of— (i) (ii) the amount calculated under subsection (10): the amount calculated under section EX 20D.
Other deductions (9) Other deductions is the amount of expenditure and loss in- curred in the accounting period by the CFC to the extent to which the expenditure and loss,— (a) if not consisting of deductions relating to ﬁnancial ar- rangements and shares, is— (i) (ii) incurred for the purpose of deriving an at- tributable CFC amount; and not incurred for the purpose of deriving an amount that is not an attributable CFC amount; and a deduction of the CFC: (iii) if consisting of deductions relating to ﬁnancial arrange- ments and shares referred to in subsection (7)(a) and (b), exceeds the amount of the item limited funding costs referred to in subsection (5): if consisting of deductions relating to ﬁnancial arrange- ments not referred to in subsection (7)(a), relates to a ﬁnancial arrangement referred to in section EX 20B(4).
(b) (c) Proportion by value of assets producing attributable CFC amount (10) The amount referred to in subsection (8)(a) and (b)(i) is calcu- lated using the formula— 972 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EX 20D attributable CFC’s assets – group funding total CFC’s assets – group funding.
(11) Deﬁnition of items in formula In the formula in subsection (10),— (a) attributable CFC’s assets is the total value of the CFC’s assets, to the extent to which each asset is used for the purpose of deriving an attributable CFC amount and not used for the purpose of deriving an amount that is not an attributable CFC amount: group funding is zero or, if subsection (5)(b) applies for the interest holder and the CFC, the amount of the item group funding referred to in subsection (6)(c): total CFC’s assets is the total value of the CFC’s assets.
(b) (c) Determining debts and assets of CFC (12) For the items referred to in subsection (11), the debts and assets of the CFC are determined under sections FE 8 to FE 11 (which contain rules for determining the apportionment of interest) as if the CFC were— (a) (b) Deﬁned in this Act: accounting period, attributable CFC amount, CFC, de- ductible foreign equity distribution, deduction, ﬁnancial arrangement, ﬁxed-rate foreign equity, generally accepted accounting practice, income interest, inter- est, loss, net attributable CFC income, net attributable CFC loss, share an excess debt outbound company; and the only member of the CFC’s New Zealand group.
Section EX 20C: inserted (with effect on 30 June 2009), on 6 October 2009, by section 156(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section EX 20C(6)(c)(ii): amended (with effect on 30 June 2009), on 7 Decem- ber 2009, by section 24(1) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
EX 20D Adjustment of fraction for excessively debt funded CFC (1) When this section applies This section applies for the purposes of section EX 20C(8) to a CFC that is excessively debt funded under subsection (2) in relation to a person (the interest holder) with an income interest in the CFC.
973 Part E s EX 20D Income Tax Act 2007 Reprinted as at 5 January 2010 (2) (3) Excessive debt funding A CFC is excessively debt funded under this section if— (a) the amount (the CFC’s debt-asset ratio) calculated us- ing the formula in subsection (4) is more than 0.75; and the amount (the CFC’s relative debt-asset ratio) given by section EX 20E is more than 1.10.
(b) Calculations for CFC For the purposes of subsections (4) to (8), the debts and assets of the CFC are determined under sections FE 8 to FE 11 (which contain rules for determining the apportionment of interest) as if the CFC were— (a) (b) an excess debt outbound company; and the only member of the CFC’s New Zealand group.
(4) Formula for debt-asset ratio of CFC The formula for the CFC’s debt-asset ratio referred to in sub- section (2)(a) is— total CFC’s debts – group funding total CFC’s assets – group funding.

Deﬁnition of items in formula The items in the formula in subsection (4) are deﬁned in sub- sections (6) to (8).
Total CFC’s debts Total CFC’s debts is the total amount for the CFC and the accounting period, determined under generally accepted ac- counting practice, of the outstanding balances of— (a) ﬁnancial arrangements entered by the CFC, each of which— (i) (ii) provides funds to the CFC; and gives rise to an amount for which the CFC would have a deduction: (b) (c) ﬁxed-rate foreign equity issued by the CFC and held by a company that is a New Zealand resident or another CFC: shares issued by the CFC in relation to which the CFC makes deductible foreign equity distributions to a com- pany that is a New Zealand resident or another CFC.
(5) (6) 974 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EX 20D Group funding (7) Group funding is— (a) (b) if paragraph (b) does not apply, zero; or if the interest holder chooses to rely on this paragraph and the item total CFC’s assets is greater than the item total CFC’s debts, the lesser of the item total CFC’s debts and the total amount of outstanding balances for ﬁnancial arrangements— (i) under which the CFC provides funds to another CFC associated with the CFC under section YB 2 (Two companies with common control); and (ii) which produce for the CFC an amount included in the item arrangement under section EX 20B(4).
(8) (9) Total CFC’s assets Total CFC’s assets is the total value of the CFC’s assets de- termined under generally accepted accounting practice.
Fraction for excessively debt funded CFC For a CFC that is excessively debt funded, the item fraction for the purposes of this section is the amount calculated using the formula in subsection (10) and determining the debts and assets of a CFC under sections FE 8 to FE 11 as if the CFC were— (a) (b) an excess debt outbound company; and the only member of the CFC’s New Zealand group.

Formula for fraction (10) The formula for the CFC’s fraction is— attributable CFC assets total CFC assets.
Deﬁnition of items in formula (11) The items in the formula in subsection (10) are deﬁned in sub- sections (12) and (13).
Attributable CFC assets (12) Attributable CFC assets is the total value of assets, consoli- dated under generally accepted accounting practice for all the 975 Part E s EX 20E Income Tax Act 2007 Reprinted as at 5 January 2010 interest holder’s CFCs and the accounting period, to the extent to which each asset is— (a) used for the purpose of deriving an attributable CFC amount; and not used for the purpose of deriving an amount that is not an attributable CFC amount.
(b) Total CFC assets (13) Total CFC assets is the total value of assets, consolidated under generally accepted accounting practice, for all the in- terest holder’s CFCs and the accounting period.
Deﬁned in this Act: accounting period, CFC, deductible foreign equity dis- tribution, deduction, excess debt outbound company, ﬁnancial arrangement, ﬁxed-rate foreign equity, New Zealand resident Section EX 20D: inserted (with effect on 30 June 2009), on 6 October 2009, by section 156(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 20D(7)(b)(ii): amended (with effect on 30 June 2009), on 7 Decem- ber 2009, by section 25(1) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
EX 20E Relative debt-asset ratio for CFC What this section does This section determines the relative debt-asset ratio of a CFC for the purposes of section EX 20D(2)(b) by determining an amount (the group debt-asset ratio) for the CFC’s group and comparing that amount with the debt-asset ratio of the CFC determined under section EX 20D(4).
Members of CFC’s group and calculations for group For the purposes of subsections (3) to (8),— the members of a CFC’s group are— (a) (i) (ii) the CFC: if the interest holder is a company, the members of the worldwide group that the interest holder would have under sections FE 31B, FE 31C, and FE 32 (which relate to the determination of groups) if the interest holder were an excess debt outbound company: if the interest holder is a trustee, the members of the trustee’s worldwide group under section (iii) (1) (2) 976 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EX 20E (iv) FE 3(1)(b) (Interest apportionment for individu- als): if the interest holder is a natural person, the per- son’s worldwide group referred to in section FE 5(1C)(a) to (c) (Thresholds for application of in- terest apportionment rules): (b) the debts and assets of the CFC’s group are determined under sections FE 8 to FE 11 and FE 18 (Measurement of debts and assets of worldwide group) as if the interest holder, if a company, were an excess debt outbound company.
Formula for CFC’s group debt-asset ratio The formula for the CFC’s group debt-asset ratio is— (3) (4) (5) total group debts total group assets.

Deﬁnition of items in formula The items in the formula in subsection (3) are deﬁned in sub- sections (5) and (6).
Total group debts Total group debts is the total amount, consolidated under gen- erally accepted accounting practice for the CFC’s group and the accounting period, of the outstanding balances of— (a) ﬁnancial arrangements entered by the group’s members, each of which— (i) (ii) provides funds to a group member; and gives rise to an amount for which a group mem- ber would have a deduction: (b) (c) ﬁxed-rate foreign equity issued by a member of the group and held by a company that is a New Zealand resident or a CFC: equity interests issued by a member of the group in re- lation to which the member makes deductible foreign equity distributions to a company that is a New Zealand resident or a CFC.
977 Part E s EX 21 Income Tax Act 2007 Reprinted as at 5 January 2010 (6) Total group assets Total group assets is the total value, consolidated under gen- erally accepted accounting practice for the accounting period, of the assets of the CFC’s group.

Formula for CFC’s relative debt-asset ratio The formula for the CFC’s relative debt-asset ratio is— (7) CFC’s debt-asset ratio group debt-asset ratio.
(8) Deﬁnition of items in formula In the formula in subsection (7),— (a) CFC’s debt-asset ratio is the CFC’s debt-asset ratio under section EX 20D(4): group debt-asset ratio is the CFC’s group debt-asset ratio under subsection (3).
(b) Deﬁned in this Act: accounting period, CFC, deductible foreign equity dis- tribution, deduction, excess debt outbound company, ﬁnancial arrangement, ﬁxed-rate foreign equity, New Zealand resident Section EX 20E: inserted (with effect on 30 June 2009), on 6 October 2009, by section 156(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Calculation of branch equivalent income or loss [Repealed] Heading: repealed (with effect on 30 June 2009), on 6 October 2009, by sec- tion 160 of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
EX 21 Attributable CFC amount and net attributable CFC income or loss: calculation rules Calculation rules for CFC The rules in this section apply for the purposes of— (a) calculating the attributable CFC amount for a CFC under section EX 20B: calculating the net attributable CFC income or loss for a CFC under section EX 20C: determining under section EX 21D whether a CFC is a non-attributing active CFC.
(b) (c) (1) 978 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EX 21 Calculation rules for test group of CFCs (1B) For the purpose of determining under section EX 21D whether a member of a group of CFCs is a non-attributing active CFC,— (a) the consolidated annual gross income of the group is calculated under the rules in this section; and the consolidated attributable CFC amount of the group is calculated under the rules in this section.
(b) (2) (3) (4) (5) (6) CFC treated as New Zealand resident The rules in this Act are applied as if the CFC were always a New Zealand resident.

Modiﬁcations to rules However, the rules in the Act are modiﬁed for the purposes of the calculation by the following subsections.
Conversion to New Zealand dollars The taxpayer must choose— (a) (b) for all the calculations to be done in New Zealand dol- lars; or for all the calculations to be done in the currency of the CFC’s ﬁnancial accounts; and if the CFC has no ﬁnan- cial accounts, the currency used is that of the CFC’s country of residence, the result being then converted into New Zealand dollars at the average of the close of trading spot exchange rates for the 15th day of each complete month that falls in the period.
Consent for change of currency Having chosen a currency, the taxpayer must use the same currency for calculating attributable CFC amount and net at- tributable CFC income or loss attributable to the CFC for each later consecutive accounting period, unless the Commissioner allows the taxpayer to choose again.
Change for commercial purpose The Commissioner may consent to a change under subsection (5) only if satisﬁed that— (a) the taxpayer’s main purpose in changing is a commer- cial one, and for this purpose, the reducing of tax is not a commercial purpose; and 979 Part E s EX 21 Income Tax Act 2007 Reprinted as at 5 January 2010 (b) the change does not have an effect of defeating the intent and application of subpart CQ (Attributed income from foreign equity) or DN (Attributed losses from foreign equity) or this subpart.
New Zealand currency for ﬁnancial arrangements Despite subsections (4) to (6), New Zealand currency calcu- lations must be used to calculate that part of the attributable CFC amount and net attributable CFC income or loss arising from ﬁnancial arrangements if— (a) the total value of ﬁnancial arrangements to which the CFC is a party is more than $1,000,000 at any time dur- ing the relevant accounting period, applying section EW 17(2)(b) (Straight-line method) to measure the values; or the CFC’s total net foreign exchange loss attributable to ﬁnancial arrangements, calculated under subsec- tions (4) to (6) for the accounting period, is more than $100,000.
(b) Limit to subsection (7) Subsection (7) does not apply to a ﬁnancial arrangement if— (a) (b) it is a variable principal debt instrument; and all the rights and obligations of all the parties to the ﬁ- nancial arrangement are expressed in the currency cho- sen under subsection (4)(b); and no other party to the ﬁnancial arrangement is associated with the CFC; and no person enters into the ﬁnancial arrangement under an arrangement that has a purpose of defeating the appli- cation of subsection (7).
(c) (d) Opening cost base: tangible assets: ﬁrst period If the taxpayer had no attributed CFC income or loss from the CFC for the previous accounting period, the taxpayer must choose whether to measure the cost base at the start of an ac- counting period of premises, plant, machinery, equipment, and trading stock of the CFC at— (a) historical cost minus any accumulated amounts of de- preciation loss, or another value used by the CFC as the starting value for the period for income tax calculations (7) (8) (9) 980 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EX 21 (10) (11) (12) in the country in which the CFC is resident, but only if the value is below market value; or the starting value that would be used under this Act if the CFC had always been a New Zealand resident.
(b) Opening cost base: tangible assets: later periods If the taxpayer had attributed CFC income or loss from the CFC for the previous period, the cost base at the start of an accounting period of premises, plant, machinery, equipment, and trading stock of the CFC is the closing value at the end of the previous period used to calculate the income or loss.
Opening cost base: ﬁnancial arrangements: ﬁrst period If the taxpayer had no attributed CFC income or loss from the CFC for the previous accounting period, the taxpayer must choose to calculate the consideration under the ﬁnancial ar- rangements rules for a ﬁnancial arrangement at the start of an accounting period, at— (a) (b) the market value of the ﬁnancial arrangement; or the absolute value calculated using the formula— consideration paid to the CFC + expenditure - consideration paid by the CFC - income.
Deﬁnition of items in formula In the formula,— (a) (b) (c) (d) consideration paid to the CFC is the consideration paid to the CFC for all periods before the accounting period: expenditure is expenditure that would have been in- curred under the ﬁnancial arrangements rules for all periods before the accounting period if the CFC had been resident in New Zealand: consideration paid by the CFC is the consideration paid by the CFC for all periods before the accounting period: income is income that would have been derived under the ﬁnancial arrangements rules for all periods before the accounting period if the CFC had been resident in New Zealand.
Provisions that do not apply (13) The following provisions do not apply: 981 Part E s EX 21 Income Tax Act 2007 Reprinted as at 5 January 2010 (a) (b) (c) (d) (db) (dc) (e) (f) (g) (h) (i) (j) the consolidation rules: section CB 27 (Income equalisation schemes) and sub- parts DQ (Income equalisation schemes and environ- mental restoration accounts schemes) and EH (Income equalisation schemes): sections CD 45 to CD 52 (which relate to the CFC attributed repatriation calculation rules) or subpart CQ (Attributed income from foreign equity) or DN (At- tributed losses from foreign equity) or this subpart to the extent to which any of the sections or subparts would re- sult in attributed CFC income, attributed CFC loss, or attributed repatriation for the CFC: section CW 8 (Money lent to government of New Zealand): section CW 9 (Dividend derived from foreign com- pany): section CW 10 (Dividend within New Zealand wholly- owned group: section CW 40(1) (Local and regional promotion bod- ies): sections DO 1 (Enhancements to land, except trees) and DO 2 (Erosion and shelter plantings): sections EW 9 (Persons to whom ﬁnancial arrange- ments rules apply) and EW 11(b) (What ﬁnancial ar- rangements rules do not apply to): subpart FE (Interest apportionment on thin capitalisa- tion): section GB 5 (Arrangements involving trust beneﬁciar- ies): sections IA 2 to IA 9, subpart IC, and sections IP 3 to IP 7, IZ 4, and IZ 5 (which relate to the use of tax losses).
Business treated as if carried on in New Zealand (14) The following provisions apply as if the CFC’s business activ- ities were carried on in New Zealand: (a) sections CT 1 to CT 3, CT 5 to CT 7, CX 42, CX 43, CZ 8, DT 1 to DT 15, DT 17 to DT 19, and IS 5 (which relate to petroleum mining): 982 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EX 21 (b) (c) (d) sections DO 4 to DO 7, DO 12, DP 1 to DP 3, DP 8, and DP 11 (which relate to farming, aquacultural, and forestry expenditure): section EZ 16 (Amount of depreciation loss for plant or machinery additional to section EZ 15 amount): the deﬁnitions in subpart YA (General deﬁnitions) that speciﬁcally apply for the purposes of those sections.
(15) Transfer pricing rules Sections GC 6 to GC 14 (which relate to transfer pricing ar- rangements between associated persons) apply only to a trans- action that has a purpose or effect of defeating any of the jur- isdictional ring-fencing rules for CFC losses and tax credits in— (a) (b) section DN 4 (Ring-fencing cap on deduction): section IQ 2 (Ring-fencing cap on attributed CFC net losses): section IQ 4 (Group companies using attributed CFC net losses): sections LK 1 to LK 7 (which relate to foreign tax credits and CFCs).
(c) (d) Also, when sections GC 6 to GC 14 are applied, the associated persons include persons associated under the parts of subpart YB (Associated persons and nominees) that apply for the pur- poses of the whole Act (excluding the 1973, 1988, and 1990 version provisions) or the 1988 version provisions.

Dividends (16) Dividends that are not part of the CFC’s attributable CFC amount are exempt income of the CFC.
Dividends: exempt income [Repealed] [Repealed] (17) Beneﬁts from money advanced (18) When section CC 7 (Consideration other than in money) is applied, the borrower is treated as if it carries on a business in New Zealand.
(19) No tainting by association Sections CB 9 to CB 13 (which relate to the disposal of land) and CV 1 (Group companies) do not apply to treat an amount 983 Part E s EX 21 Income Tax Act 2007 Reprinted as at 5 January 2010 derived by the CFC as income merely because of the activities of a person associated with the CFC if the associate is a non- resident.
Crown acquisition of land (20) The reference in section EI 8(1) (Disposal of land to the Crown) to the Crown includes any relevant government outside New Zealand.
Amount of depreciation loss recovered (21) When sections EE 48 to EE 52 (which relate to disposals and similar events) are applied, the CFC is treated as having had a deduction for an amount of depreciation loss, and to have an adjusted tax value accordingly, if an amount of depreciation loss has been deducted when calculating the CFC’s branch equivalent income or loss for any period and the attributed CFC income or loss of any person.
GST and value-added taxes (22) When sections CX 1 (Goods and Services Tax), DB 2 (Goods and Services Tax), EE 45 (Consideration for purposes of section EE 44), EE 54 (Cost: GST), and EZ 17 (Additional amount of depreciation loss: between 16 December 1991 and 1 April 1994) are applied, references to output tax, input tax, or goods and services tax (GST) payable include a reference to the equivalent item arising under the value-added tax or other tax rules of a country or territory outside New Zealand if the rules have a similar intent and application to the New Zealand GST rules.
Government grants to businesses (23) When section DF 1 (Government grants to businesses) is ap- plied, a reference to the New Zealand government includes a government outside New Zealand but, to the extent to which section DF 1 still does not apply to a grant or subsidy to the CFC from a government, the grant or subsidy is income of the CFC.
Subvention payments If an amount is paid as consideration for the transfer of tax losses,— (a) (b) it is income if derived by the CFC; and it is a deduction if— (24) 984 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EX 21 (i) (ii) paid by the CFC to a person who is resident in the same country as the CFC and not a non-attribut- ing active CFC; and deductible under the taxation law of that country.
Life insurers (25) Subsection (26) applies if— (a) (b) the CFC itself carries on the business of providing life insurance; or shares in the CFC are held, directly or indirectly, by a foreign company (the parent company, in subsection (26)) that carries on the business of providing life in- surance and those shares have to be taken into account under sections EX 8 to EX 13 to calculate the taxpayer’s income interest in the CFC.
(26) Policyholders If the test in subsection (25) is met, the life insurance rules do not apply and the net attributable CFC income or loss of the CFC is the amount actuarially determined to be the part of the CFC’s net attributable CFC income or loss to which shareholders, and not policyholders in either the CFC or the parent company, are entitled.
When subsection (26) does not apply (27) Despite subsection (25), subsection (26) does not apply if the Commissioner— (a) considers that the amount calculated is not a reasonable reﬂection of the part attributable to shareholders; or has requested and not received sufﬁcient information to enable the actuarial calculation to be reviewed.
(b) (28) Mineral mining activities Sections BC 7, CU 1 to CU 29, CX 44 to CX 46, CZ 2, CZ 4, DU 1 to DU 12, DZ 12, IS 1 to IS 4 (which relate to mineral mining) apply, with any necessary modiﬁcations, if the CFC carries on activities outside New Zealand that are substantially the same as the mineral mining activities to which those sec- tions apply.
(29) Petroleum mining activities Sections CT 1 to CT 3, CT 5, CX 42, CX 43, CZ 8, DT 1 to DT 15, DT 17 to DT 19, and IS 5 (which relate to petroleum 985 Part E s EX 21 Income Tax Act 2007 Reprinted as at 5 January 2010 mining) apply, with any necessary modiﬁcations, if the CFC carries on petroleum mining activities outside New Zealand that are substantially the same as the petroleum mining activ- ities to which those sections apply.
Finance leases and speciﬁed leases (30) A lease entered into by the CFC before the start of the ﬁrst ac- counting period in which the CFC is a CFC is neither a ﬁnance lease (subject to the ﬁnancial arrangements rules and sections FA 6 to FA 11 , which relate to ﬁnance leases), nor a speciﬁed lease (subject to sections FZ 2 to FZ 4, which relate to leases).
(31) (32) (33) When subsection (30) does not apply Subsection (30) does not apply if another party to the lease is either a CFC or a New Zealand resident.
Taxable distributions from non-complying trust If the CFC gets a taxable distribution from a non-complying trust— (a) section HC 22 (Use of tax losses to reduce taxable dis- tributions from non-complying trusts) does not apply; and the taxable distribution is not taken into account in cal- culating the CFC’s net attributable CFC income or loss; and section EX 19 applies.
(b) (c) CFCs with interest in FIFs If the CFC has rights in a FIF,— (a) the rights are not prevented from being an attributing interest of the CFC in a FIF merely because the notional New Zealand residence of the CFC under subsection (2) causes section EX 34 to apply; and the CFC’s FIF income or loss is not taken into account in calculating the net attributable CFC income; and section EX 58 applies.
(b) (c) (34) Transitional treatment of cross-border reinsurance Section CZ 12 (General insurance with risk period straddling 1 July 1993) applies as if the reference to New Zealand were a reference to the CFC’s country of residence.
Disclosure restrictions on grey list CFCs 986 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EX 21 (35) [Repealed] [Repealed] Deﬁned in this Act: 1973 version provisions, 1988 version provisions, 1990 ver- sion provisions, absolute value, accounting period, adjusted tax value, amount, annual gross income, arrangement, associated person, attributable CFC amount, attributed CFC income, attributed CFC loss, attributed repatriation, attributing interest, branch equivalent loss, business, CFC, close of trading spot exchange rate, Commissioner, consideration, consolidation rules, deduction, depreciation loss, dividend, exempt income, FIF, FIF income, ﬁnance lease, ﬁnancial ar- rangement, ﬁnancial arrangements rules, foreign company, GST, GST payable, income, income interest, income tax, income year, input tax, lease, life insur- ance, life insurance rules, loss, mineral, net attributable CFC income, net at- tributable CFC loss, net income, net loss, New Zealand, New Zealand resident, non-attributing active CFC, non-complying trust, non-resident, output tax, pay, petroleum, resident in New Zealand, share, shareholder, speciﬁed lease, tax, taxable distribution, trading stock, variable principal debt instrument Compare: 2004 No 35 s EX 21 Section EX 21 heading: amended (with effect on 30 June 2009), on 6 October 2009, by section 161(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 21(1) heading: substituted (with effect on 30 June 2009), on 6 Oc- tober 2009, by section 161(2) of the Taxation (International Taxation, Life In- surance, and Remedial Matters) Act 2009 (2009 No 34).

Section EX 21(1): substituted (with effect on 30 June 2009), on 6 October 2009, by section 161(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 21(1B) heading: inserted (with effect on 30 June 2009), on 6 Octo- ber 2009, by section 161(2) of the Taxation (International Taxation, Life Insur- ance, and Remedial Matters) Act 2009 (2009 No 34).

Section EX 21(1B): inserted (with effect on 30 June 2009), on 6 October 2009, by section 161(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 21(2): substituted (with effect on 30 June 2009), on 6 October 2009, by section 161(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section EX 21(5): amended (with effect on 30 June 2009), on 6 October 2009, by section 161(4) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 21(7): amended (with effect on 30 June 2009), on 6 October 2009, by section 161(5) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section EX 21(13)(db): inserted (with effect on 30 June 2009), on 6 October 2009, by section 161(6) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 21(13)(dc): inserted (with effect on 30 June 2009), on 6 October 2009, by section 161(6) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

987 Part E s EX 21 Income Tax Act 2007 Reprinted as at 5 January 2010 Section EX 21(15): amended (with effect on 1 April 2008), on 6 October 2009, by section 161(7) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 21(16) heading: substituted (with effect on 30 June 2009), on 6 October 2009, by section 161(9) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section EX 21(16): substituted (with effect on 30 June 2009), on 6 October 2009, by section 161(9) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 21(17) heading: repealed (with effect on 30 June 2009), on 6 Octo- ber 2009, by section 161(9) of the Taxation (International Taxation, Life Insur- ance, and Remedial Matters) Act 2009 (2009 No 34).

Section EX 21(17): repealed (with effect on 30 June 2009), on 6 October 2009, by section 161(9) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 21(24)(b): substituted (with effect on 30 June 2009), on 6 October 2009, by section 161(10) of the Taxation (International Taxation, Life Insur- ance, and Remedial Matters) Act 2009 (2009 No 34).

Section EX 21(26): amended (with effect on 30 June 2009), on 6 October 2009, by section 161(11)(a) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 21(26): amended (with effect on 30 June 2009), on 6 October 2009, by section 161(11)(b) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section EX 21(26): amended (with effect on 1 April 2008), on 7 December 2009, by section 26(1) of the Taxation (Consequential Rate Alignment and Re- medial Matters) Act 2009 (2009 No 63).
Section EX 21(32)(b): amended (with effect on 30 June 2009), on 6 October 2009, by section 161(12) of the Taxation (International Taxation, Life Insur- ance, and Remedial Matters) Act 2009 (2009 No 34).

Section EX 21(33)(b): amended (with effect on 30 June 2009), on 6 October 2009, by section 161(13) of the Taxation (International Taxation, Life Insur- ance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 21(35) heading: repealed (with effect on 30 June 2009), on 6 Octo- ber 2009, pursuant to section 161(14) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section EX 21(35): repealed (with effect on 30 June 2009), on 6 October 2009, by section 161(14) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 21 list of deﬁned terms 1973 version provisions: inserted (with effect on 1 April 2008), on 6 October 2009, by section 161(15) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section EX 21 list of deﬁned terms 1988 version provisions: inserted (with effect on 1 April 2008), on 6 October 2009, by section 161(15) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
988 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EX 21B Section EX 21 list of deﬁned terms 1990 version provisions: inserted (with effect on 1 April 2008), on 6 October 2009, by section 161(15) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 21 list of deﬁned terms annual gross income: inserted (with effect on 30 June 2009), on 6 October 2009, by section 161(16)(b) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section EX 21 list of deﬁned terms attributable CFC amount: inserted (with effect on 30 June 2009), on 6 October 2009, by section 161(16)(b) of the Tax- ation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 21 list of deﬁned terms branch equivalent income: repealed (with effect on 30 June 2009), on 6 October 2009, by section 161(16)(a) of the Tax- ation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section EX 21 list of deﬁned terms net attributable CFC income: inserted (with effect on 30 June 2009), on 6 October 2009, by section 161(16)(b) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 21 list of deﬁned terms net attributable CFC loss: inserted (with effect on 30 June 2009), on 6 October 2009, by section 161(16)(b) of the Tax- ation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section EX 21 list of deﬁned terms non-attributing active CFC: inserted (with effect on 30 June 2009), on 6 October 2009, by section 161(16)(b) of the Tax- ation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Non-attributing active CFCs Heading: inserted (with effect on 30 June 2009), on 6 October 2009, by section 162(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
EX 21B Non-attributing active CFCs (1) (2) Non-attributing active CFC Non-attributing active CFC, for an accounting period and a person (the interest holder), means a CFC that, alone or as part of a test group of companies under section EX 21D or EX 21E, meets the requirements of subsection (2) or (3).
CFC meeting test in section EX 21D or EX 21E A CFC is a non-attributing active CFC— (a) under section EX 21D, if the CFC meets the require- ments of that section and paragraph (b) does not apply: 989 Part E s EX 21C Income Tax Act 2007 Reprinted as at 5 January 2010 (b) under EX 21E, if— (i) the CFC meets the requirements of section EX 21C for the use of an applicable accounting standard in the application of EX 21E; and the person chooses to use the applicable account- ing standard in applying EX 21E; and the CFC meets the requirements of EX 21E.
(ii) (iii) (3) Insurer meeting requirements of determination A CFC that is an insurer meeting the requirements of a de- termination made by the Commissioner under section 91AAQ of the Tax Administration Act 1994 is a non-attributing active CFC.

Deﬁned in this Act: accounting period, CFC, non-attributing active CFC Section EX 21B: inserted (with effect on 30 June 2009), on 6 October 2009, by section 162(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Tests for non-attributing active CFCs Heading: inserted (with effect on 30 June 2009), on 6 October 2009, by section 162(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
EX 21C Applicable accounting standards for section EX 21E Applicable accounting standards In applying EX 21E to determine whether a CFC is a non-at- tributing active CFC for a person (the interest holder) with an interest in the CFC, the interest holder may use as an account- ing standard (the applicable accounting standard) 1 of the standards given by subsections (2) to (7) if section GB 15C (Arrangements related to accounting test for non-attributing active CFC) does not apply.
Generally accepted accounting practice with IFRS for CFC The interest holder may use generally accepted accounting practice in New Zealand including IFRSs and the framework for differential reporting for entities applying the New Zealand equivalents to the international ﬁnancial standards reporting regime (the generally accepted accounting practice with IFRS) for the CFC, if the interest holder or another person has accounts that— (1) (2) 990 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EX 21C (a) (b) include the accounts of the CFC; and comply with generally accepted accounting practice with IFRS; and (c) meet the audit requirements of subsection (8).
(3) (4) (5) (6) Generally accepted accounting practice with IFRS for test group The interest holder may use generally accepted accounting practice with IFRS for the CFC’s test group under section EX 21E(2), if the interest holder or another person has ac- counts that— (a) include the accounts of the members of the test group; and comply with generally accepted accounting practice with IFRS; and (b) (c) meet the audit requirements of subsection (8).
IFRSEs for CFC The interest holder may use IFRSEs for the CFC, if the interest holder or another person has accounts that— include the accounts of the CFC; and (a) (b) comply with the relevant IFRSEs; and (c) meet the audit requirements of subsection (8).
IFRSEs for test group The interest holder may use IFRSEs for the CFC’s test group under section EX 21E(2), if the interest holder or another per- son has accounts that— (a) include the accounts of the members of the test group; and (b) comply with the relevant IFRSEs; and (c) meet the audit requirements of subsection (8).
Generally accepted accounting practice without IFRS for CFC The interest holder may use generally accepted accounting practice in New Zealand for persons not required to use IFRS but required to comply with standards, other than IFRSs, ap- proved by the Accounting Standards Review Board under the Financial Reporting Act 1993 (the generally accepted ac- counting practice without IFRS) for the CFC, if the interest 991 Part E s EX 21C Income Tax Act 2007 Reprinted as at 5 January 2010 (b) (c) (d) (e) (f) (g) holder or another person is a company resident in New Zealand that— (a) has no revenue under Financial Reporting Standard 34 and Financial Reporting Standard 35; and is an issuer under section 4 of the Financial Reporting Act 1993 in neither of the current and preceding ac- counting periods; and is not required by section 19 of the Financial Reporting Act 1993 to ﬁle its accounts with the Registrar of Com- panies; and is not a large company under section 19A(1)(b) of the Financial Reporting Act 1993; and does not have accounts that are prepared and audited under generally accepted accounting practice with IFRS; and is not a subsidiary of a company having accounts that— include the accounts of the subsidiary; and (i) are prepared and audited, or required to be pre- (ii) pared, under generally accepted accounting prac- tice with IFRS; and has accounts that— (i) (ii) include the accounts of the CFC; and comply with generally accepted accounting prac- tice without IFRS; and (iii) meet the audit requirements of subsection (8).
Generally accepted accounting practice without IFRS for CFC’s test group The interest holder may use generally accepted accounting practice without IFRS for the CFC’s test group under section EX 21D(1), if the interest holder or another person is a com- pany resident in New Zealand that— (a) has no revenue under Financial Reporting Standard 34 and Financial Reporting Standard 35; and is an issuer under section 4 of the Financial Reporting Act 1993 in neither of the current and preceding ac- counting periods; and is not required by section 19 of the Financial Reporting Act 1993 to ﬁle its accounts with the Registrar of Com- panies; and (b) (c) (7) 992 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EX 21C (d) (e) (f) (g) is not a large company under section 19A(1)(b) of the Financial Reporting Act 1993; and does not have accounts that are prepared and audited under generally accepted accounting practice with IFRS; and is not a subsidiary of a company having accounts that— include the accounts of the subsidiary; and (i) are prepared and audited, or required to be pre- (ii) pared, under generally accepted accounting prac- tice with IFRS; and has accounts that— (i) include the accounts of the members of the CFC’s test group; and comply with generally accepted accounting prac- tice without IFRS; and (ii) (8) (9) (iii) meet the audit requirements of subsection (8).
Audit requirements Accounts meet the audit requirements of this subsection if they— (a) are audited by an accountant who is— (i) a chartered accountant or an accountant of equivalent professional standard in the country in which the accounts are prepared; and (ii) independent of the CFC and the person; and are given an unqualiﬁed opinion or an opinion of equivalent standard in the country in which the ac- counts are prepared.
(b) Compliance with accounting standards For the purposes of subsections (2) to (7), accounts are treated as complying with the accounting standard relevant to the sub- section if— (a) the accounts state that they comply with the accounting standard; and the accounts meet the audit requirements of subsection (8); and the Commissioner does not have reasonable grounds to suspect— (b) (c) 993 Part E s EX 21D Income Tax Act 2007 Reprinted as at 5 January 2010 (i) (ii) (iii) the fraudulent activity by the interest holder, CFC, a CFC in the CFC’s test group, or the auditor: preparation of the accounts with an intent to mis- lead: incompetence of the auditor.
Deﬁned in this Act: accounting period, annual gross income, associated, at- tributable CFC amount, CFC, generally accepted accounting practice, IFRS, IFRSE, insurer, New Zealand resident, non-attributing active CFC, rent, roy- alty Section EX 21C: inserted (with effect on 30 June 2009), on 6 October 2009, by section 162(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
EX 21D Non-attributing active CFC: default test CFC as part of test group A person (the interest holder) with an interest in a CFC may choose to apply this section for the CFC as a member of a group (a test group) if the group consists of companies— (a) each subject to the laws of the same country or territory under which the company is liable to income tax on its income because of its domicile, residence, place of incorporation, or centre of management; and in each of which the interest holder holds an income interest of more than 50%; and each of which is required to use the same currency under section EX 21(4); and that are consolidated for the purposes of this section— using like tax treatments for like transactions and (i) for other events in similar circumstances; and eliminating in full all balances, transactions, in- come, and expenses arising between members of the test group.
(ii) (b) (c) (d) Threshold ratio A CFC is a non-attributing active CFC under section EX 21B(2)(a) for an accounting period and a person if the amount calculated under subsection (3) using the formula in subsection (4)— (a) (b) is less than 0.05; and is not zero under subsection (3)(f).
(1) (2) 994 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EX 21D (3) Application of formula In using the formula in subsection (4)— (a) each item in the formula is determined— (i) for the CFC’s consolidated test group, if the in- terest holder chooses to apply the formula to the test group; or for the CFC, if subparagraph (i) does not apply; and (ii) (b) (c) (d) each item in the formula is determined for a test group after amounts included in the item are adjusted to re- move amounts corresponding to income interests not held by the interest holder; and a reference to a company that is associated is treated as being a reference to a company that is— (i) associated with a member of the CFC’s test group, although not a member of the CFC’s test group, if the interest holder chooses to apply the formula to the test group; or associated with the CFC, if subparagraph (i) does not apply; and (ii) a reference to a company that is in the same group of companies is treated as being a reference to a company that is— (i) in the same group of companies as a member of the CFC’s test group, although not a mem- ber of the CFC’s test group, if the interest holder chooses to apply the formula to the test group; or in the same group of companies as the CFC, if subparagraph (i) does not apply; and (ii) (e) (f) a numerator or denominator that is a negative number is treated as being zero; and the amount calculated using the formula is zero if the denominator is zero.
(4) Formula The amount that determines whether the CFC is a non-attribut- ing active CFC is calculated using the formula— 995 Part E s EX 21D Income Tax Act 2007 Reprinted as at 5 January 2010 (5) (6) (7) attributable − attributable adjustments gross – gross adjustments.

Deﬁnition of items in formula The items in the formula are deﬁned in subsections (6) to (9).

Attributable Attributable is the attributable CFC amount for the account- ing period.
Attributable adjustments Attributable adjustments is the total of amounts included in the item attributable, in subsection (6), that are— (a) (ii) if the interest holder chooses that this paragraph apply, income derived from the supply of personal services— included in an attributable CFC amount under (i) section EX 20B(3)(h); and not included in an attributable CFC amount under another paragraph of section EX 20B(3) and (4): if the interest holder chooses that this paragraph apply, the cost of revenue account property producing an amount (the included amount) included in the at- tributable CFC amount under section EX 20B(3)(k) to the extent, not exceeding the included amount, to which— (i) the cost is treated as a deduction of the CFC in the accounting period; and the deduction exceeds the amount of any income under subpart CH (Adjustments) relating to the deduction.
(b) (ii) Gross (8) Gross is the annual gross income for the accounting period in the absence of income under subpart CQ (Attributed income from foreign equity).
Gross adjustments (9) Gross adjustments is the total of the following amounts for the accounting period: (a) the amount of the item “attributable adjustments” in subsection (7): 996 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EX 21E (b) (c) (d) expenditure or loss that is included in the calculation of the attributable CFC amount under section EX 20B: income derived from a company that would meet the requirements of subsection (1)(a) to (c) for a member of a test group with the CFC: income from a supply that meets the requirements of section GB 15B (Supplies affecting default test for non- attributing active CFC).
Deﬁned in this Act: accounting period, annual gross income, associated non-at- tributing active CFC, attributable CFC amount, CFC, company, group of com- panies, income, interest, non-attributing active CFC, resident in New Zealand, royalty Section EX 21D: inserted (with effect on 30 June 2009), on 6 October 2009, by section 162(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 21D(7)(b): amended (with effect on 30 June 2009), on 7 Decem- ber 2009, by section 27(1) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
EX 21E Non-attributing active CFC: test based on accounting standard (1) (2) Applicable accounting standard A person (the interest holder) who chooses to determine under this section whether a CFC is a non-attributing active CFC for the person for an accounting period must use an accounting standard (the applicable accounting standard) permitted by section EX 21C.
CFC as part of test group The interest holder may choose to apply this section for the CFC as a member of a group (a test group) if— (a) the group consists of companies required under the ap- plicable accounting standard to consolidate, whether or not with companies that are not in the group; and each company is subject to the laws of the same country or territory under which the company is liable to income tax on its income because of its domicile, residence, place of incorporation, or centre of management; and the interest holder holds an income interest of more than 50% in each company; and each company has the same functional currency; and (b) (c) (d) 997 Part E s EX 21E Income Tax Act 2007 Reprinted as at 5 January 2010 (e) there are audited and consolidated ﬁnancial statements that— (i) include the accounts of the companies in the group, whether or not with accounts of compan- ies that are not in the group; and comply with the applicable accounting standard.
(ii) Threshold ratio A CFC is a non-attributing active CFC under section EX 21B(2)(b) for an accounting period and an interest holder if, under subsection (4),— (a) the amount calculated using the formula in subsection (5) is less than 0.05; and the amount calculated using the numerator in the for- mula in subsection (5) is equal to or more than zero; and the amount calculated using the denominator in the for- mula in subsection (5) is more than zero.
(b) (c) Application of formula In using the formula in subsection (5),— each item in the formula is— (a) determined under (i) standard; and adjusted so that no amount is included in the item more than once; and the applicable accounting (ii) (b) (c) (d) each item in the formula is determined— (i) from amounts consolidated for the CFC’s test group under the applicable accounting standard, if the interest holder chooses to apply the formula to the test group; or from amounts for the CFC, if subparagraph (i) does not apply; and (ii) each item in the formula is determined after adjustment of amounts included in the item by removing amounts corresponding to minority interests not held by the in- terest holder; and a reference to a company that is associated is treated as being a reference to a company that is— (i) associated with a member of the CFC’s test group, although not a member of the CFC’s test (3) (4) 998 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EX 21E group, if the interest holder chooses to apply the formula to the test group; or associated with the CFC, if subparagraph (i) does not apply; and (ii) (e) (f) (g) a reference to a company that is in the same group of companies is treated as being a reference to a company that is— (i) in the same group of companies as a member of the CFC’s test group, although not a member of the CFC’s test group, if the person chooses to apply the formula to the test group; or in the same group of companies as the CFC, if subparagraph (i) does not apply;
 and (ii) amounts determined for a CFC other than as part of a test group are— (i) determined in the functional currency of the CFC; and converted between currencies under the applic- able accounting standard, but ignoring exchange differences arising on a monetary item that forms part of a net investment of the CFC in a foreign operation; and (ii) amounts determined for a test group are— (i) converted from the functional currency of the CFC to the presentation currency of the consoli- dated accounts for the test group using the aver- age conversion rate for the accounting period; and otherwise converted between currencies under the applicable accounting standard.
(ii) (5) Formula The amount that determines whether the CFC is a non-attribut- ing active CFC is calculated using the formula— reported passive + added passive – removed passive reported revenue + added revenue – removed revenue.

Deﬁnition of items in formula The items in the formula are deﬁned in subsections (7) to (12).
(6) 999 Part E s EX 21E Income Tax Act 2007 Reprinted as at 5 January 2010 Reported passive Reported passive is the total amount of— (a) (b) (c) (d) (e) income from a dividend: income from interest: income from a royalty: income from rent: income, other than rent or interest, from a ﬁnance lease or operating lease: income or loss from a ﬁnancial asset, other than a derivative as deﬁned in NZIAS 39 or a share that is not revenue account property, in the form of— (i) (ii) a change in the reported fair value of the asset: a gain or loss on the derecognition, as deﬁned in NZIAS 39, of the asset: (iii) a foreign exchange gain or loss on the asset: income or loss from a derivative instrument, as deﬁned in NZIAS 39, and included in the CFC’s statement of income— (i) (f) (g) (ii) (iii) if the instrument is held in the course of a busi- ness of the CFC for the purpose of dealing with the derivative instrument: if the instrument is not entered in the ordinary course of a business of the CFC: to the extent to which the income or loss is from a hedging relationship, of a type referred to in NZIAS 39, with an amount that would change the numerator of the formula in subsection (5) or with a transaction producing such an amount of income or gain: (h) income or gains from a business of insurance, including income or gains from property used to back insurance assets.
Added passive Added passive is the total of amounts not included in the item reported passive for the accounting period that are 1 or more of the following: (a) income from a life insurance policy that is included in the attributable CFC amount for the accounting period under section EX 20B(3)(g): (7) (8) 1000 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EX 21E (b) (c) (d) income from the disposal of revenue account property that is included in the attributable CFC amount for the accounting period under section EX 20B(3)(k), if the property is— (i) not a share, ﬁnancial arrangement, or life insur- ance policy; and used by the CFC in a way giving rise to income or gains that increase the numerator of the formula in subsection (5): (ii) income from a supply of services performed in New Zealand that is included in the attributable CFC amount for the accounting period under section EX 20B(3)(l): income from a supply of telecommunications services that is included in the attributable CFC amount for the accounting period under section EX 20B(3)(m) or (n).
(9) Removed passive Removed passive is zero if the interest holder does not choose to include an amount for this item or is the total of amounts that are included in the item reported passive or added passive for the accounting period and are in a category included in categories chosen by the interest holder from the following: (a) (b) (c) (d) a dividend that is not included in the attributable CFC amount for the accounting period under section EX 20B(3)(a) to (c): a royalty that would be included in the attributable CFC amount for the accounting period but for section EX 20B(5)(a) to (d): rent that would be included in the attributable CFC amount for the accounting period but for section EX 20B(7)(a) to (c): the cost of revenue account property producing an amount (the included amount) included in the at- tributable CFC amount under section EX 20B(3)(k) to the extent, not exceeding the included amount, to which— (i) the cost would be a deduction of the CFC in the accounting period if the CFC were a resident of New Zealand; and 1001 Part E s EX 21E Income Tax Act 2007 Reprinted as at 5 January 2010 (ii) the deduction would exceed the amount of any income arising under subpart CH (Adjustments) relating to the deduction.
Reported revenue (10) Reported revenue is the total amount that is— (a) (b) (c) (d) included under the applicable accounting standard in— operating revenue, if the applicable accounting (i) standard is generally accepted accounting prac- tice without IFRS; or (ii) revenue, if subparagraph (i) does not apply: income, other than rent, from a ﬁnance lease or operat- ing lease: a gain or loss on a ﬁnancial asset, other than a deriva- tive as deﬁned in NZIAS 39 or a share not on revenue account, in the form of— (i) (ii) a change in the reported fair value of the asset: a gain or loss on the derecognition, as deﬁned in NZIAS 39, of the asset: a foreign exchange gain or loss on the asset: (iii) a gain or loss from a derivative instrument, as deﬁned in NZIAS 39, and included in the CFC’s statement of income— (i) if the derivative instrument is held in the course of a business of the CFC for the purpose of deal- ing with the derivative instrument: if the derivative instrument is not entered in the ordinary course of a business of the CFC: to the extent to which the gain or loss is from a hedging relationship, of a type referred to in NZIAS 39, with an amount that would change the denominator of the formula in subsection (5) or with a transaction producing such an amount of income or gain: (ii) (iii) (e) income or a gain from a business of insurance, including from property used to back insurance assets, if the ap- plicable accounting standard is not generally accepted accounting practice without IFRS.
1002 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EX 21E Added revenue (11) Added revenue is zero if the interest holder does not choose to include an amount for this item or is the total of amounts that are not included in the item reported revenue for the accounting period and are either or both of the following: (a) income from a life insurance policy that is included in the attributable CFC amount for the accounting period under section EX 20B(3)(g): income from the disposal of revenue account property that is included in the attributable CFC amount for the accounting period under section EX 20B(3)(k), if the property is— (i) not a share, ﬁnancial arrangement, or life insur- ance policy; and used by the CFC in a way giving rise to income or gains that increase the numerator of the formula in subsection (5).
(ii) Removed revenue (12) Removed revenue is the total of amounts that are included under the applicable accounting standard in the item reported revenue or added revenue for the accounting period and are 1 or more of the following: (a) an amount included in the item removed passive under subsection (9)(d): a dividend to the extent to which it is included in the item removed passive, under subsection (9)(a): income from a supply of personal services that is included in the item reported revenue, and in the at- tributable CFC amount for the accounting period under section EX 20B(3)(h): income or loss from a share that is not revenue account property under this Act in the form of— (i) (ii) a change in the reported fair value of the share: income or loss on the derecognition, as deﬁned in NZIAS 39, of the share: a foreign exchange gain or loss on the share: (iii) income derived from another CFC that— (i) is subject to the laws of the country or territory under which the CFC is liable to income tax on 1003 (b) (b) (c) (d) (e) Part E s EX 21E Income Tax Act 2007 Reprinted as at 5 January 2010 the CFC’s income because of the CFC’s domi- cile, residence, place of incorporation, or centre of management; and is liable to tax on its income in that country or territory because of its domicile, residence, place of incorporation, or centre of management; and could be consolidated with the CFC for the pur- poses of this section if appropriate audited ac- counts were prepared: (ii) (iii) (f) (g) if the applicable standard is
 generally accepted account- ing practice without IFRS, income from a liability, other than income derived in the normal course of business from a sale or supply of services, in the form of— (i) (ii) a reduction in the liability: a gain on the disposal or other derecognition of the liability: (iii) a foreign exchange gain on the liability: if the applicable standard is generally accepted account- ing practice without IFRS, income from an asset that is not a ﬁnancial asset under NZIAS 32 and not rev- enue account property as deﬁned in section YA 1 (Def- initions) in the form of— (i) (ii) (iii) an increase in the fair value of the asset: a gain on the disposal of the asset: a foreign exchange gain on the asset.
(b) Compliance with accounting standards If accounts meet the requirements of section EX 21C for the relevant accounting standard— (a) the accounts are treated as complying with the relevant accounting standard for the purposes of subsection (2): amounts drawn from the accounts, or from information that is used to prepare the accounts and is consistent with them, are treated as complying with the relevant accounting standard for the purposes of subsection (4) if the Commissioner does not have reasonable grounds to suspect— (i) fraudulent activity by the interest holder, the CFC, a CFC in the CFC’s test group, or the auditor: (13) 1004 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EX 22 (ii) (iii) preparation of the accounts with an intent to mis- lead: incompetence of the auditor.
Deﬁned in this Act: accounting period, associated non-attributing active CFC, attributable CFC amount, CFC, company, dividend, ﬁnancial arrangement, ﬁ- nance lease, group of companies, IFRS, income, life insurance policy, non-at- tributing active CFC, operating lease, premium, revenue account property, roy- alty Section EX 21E: inserted (with effect on 30 June 2009), on 6 October 2009, by section 162(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 21E(7)(g)(iii): amended (with effect on 30 June 2009), on 7 De- cember 2009, by section 28(1) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).

Section EX 21E(9)(d): amended (with effect on 30 June 2009), on 7 December 2009, by section 28(2) of the Taxation (Consequential Rate Alignment and Re- medial Matters) Act 2009 (2009 No 63).
Section EX 21E(10)(d)(iii): amended (with effect on 30 June 2009), on 7 De- cember 2009, by section 28(3) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).

Non-attributing Australian CFCs Heading: substituted (with effect on 30 June 2009), on 6 October 2009, by section 163(1) of the Taxation (International Taxation, Life Insurance, and Re- medial Matters) Act 2009 (2009 No 34).
EX 22 Non-attributing Australian CFCs (1) Criteria A CFC is a non-attributing Australian CFC for an account- ing period if— (a) at all times in the accounting period the CFC is— (i) (ii) resident in Australia; and under Australian law, subject to income tax on its income or treated as part of the head company of a consolidated group subject to income tax on its income; and treated as being resident in Australia under all agreements between the government of Australia and the governments of other countries or terri- tories that would be a double tax agreement if be- tween the government of New Zealand and the government of the other country or territory; and (iii) 1005 Part E s EX 23 Income Tax Act 2007 Reprinted as at 5 January 2010 (b) the CFC’s liability for income tax has not been reduced by— (i) an exemption from income tax for income de- rived from business activities carried on outside Australia: a special allowance, relief, or exemption with re- spect to offshore banking units.
(ii) (2) (3) No attributed CFC income or loss Sections CQ 2(1)(i) (When attributed CFC income arises) and DN 2(1)(i) (When attributed CFC loss arises) provide that no attributed CFC income or attributed CFC loss arises from a non-attributing Australian CFC.

CFCs with interest in FIF: look-through approach This section does not prevent FIF income or FIF loss arising under section EX 58 from an interest of a non-attributing Aus- tralian CFC in a FIF.
Deﬁned in this Act: accounting period, attributed CFC income, attributed CFC loss, CFC, double tax agreement, FIF, FIF income, FIF loss, income tax, non- attributing Australian CFC, resident in Australia Section EX 22: substituted (with effect on 30 June 2009), on 6 October 2009, by section 163(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
EX 23 Tax concession grey list CFCs [Repealed] Section EX 23: repealed (with effect on 30 June 2009), on 6 October 2009, by section 164(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Change of residence of companies EX 24 Companies moving to or from New Zealand Companies becoming foreign If a company becomes a foreign company, an accounting period of the company starts on the day when the company becomes a foreign company and the former accounting period ends on the previous day.
Companies ceasing to be foreign If a foreign company ceases to be a foreign company, an ac- counting period of the company starts on the day when the (1) (2) 1006 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EX 25 (3) company ceases to be a foreign company and the former ac- counting period ends on the previous day.
Pro-rating If subsection (1) or (2) applies to shorten an accounting period of a CFC, a person with attributed CFC income or loss from the CFC for the period may choose to calculate the branch equivalent income or loss of the CFC— (a) (b) using the results for the shortened period only; or by applying the pro-rating formula in subsection (4) to the results for the unshortened period.
(4) Formula The formula for calculating branch equivalent income or loss under subsection (3)(b) is— Deﬁned in this Act: accounting period, attributed CFC income, branch equiva- lent income, CFC, company, foreign company, loss, New Zealand Compare: 2004 No 35 s EX 25 Change of CFC’s balance date EX 25 Change of CFC’s balance date (1) (2) (3) Application of this section This section applies when a person— (a) (b) has an income interest in a CFC; and has calculated attributed CFC income or loss or at- tributed repatriation from the CFC on the basis of 1 accounting year (the old accounting year); and wants to change to use a different accounting year (the new accounting year) for the calculations.
(c) Change requiring Commissioner’s consent The person may make the change only if the Commissioner agrees.
Commissioner’s reasons The Commissioner may consider any relevant factors when making the decision, including— 1007 Part E s EX 26 Income Tax Act 2007 Reprinted as at 5 January 2010 (4) (a) (b) (c) (d) whether the change is sought because ownership of the CFC has changed: whether the change is sought because of taxation or other legal requirements in a country where the CFC is resident or does business: whether the change is sought to achieve consistent bal- ance dates in a group of companies: whether the change would postpone liability to income tax on attributed CFC income or on attributed repatri- ation.
No transitional deferral If the new accounting year ends in a later income year than the year the old accounting year ends in, and that fact would result in an amount of attributed CFC income or attributed repatriation being derived in the later income year, the amount is not deferred to the later income year and instead is treated as derived in the previous income year.

However, this subsection applies only once, in the year of the transition.
Deﬁned in this Act: accounting year, amount, attributed CFC income, attributed repatriation, business, CFC, Commissioner, group of companies, income inter- est, income tax, income year, loss Compare: 2004 No 35 s EX 26 Section EX 25(3)(d): substituted (with effect on 30 June 2009), on 6 October 2009, by section 165(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 25 list of deﬁned terms FDP: repealed (with effect on 30 June 2009), on 6 October 2009, by section 165(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Ownership measurement concession EX 26 Use of quarterly measurement Interests held at end of quarter In order to simplify the process of calculating a person’s con- trol interest or income interest in a foreign company, the per- son is treated as holding at all times during a quarter the same interest, including a zero interest, as the interest they hold at the end of the quarter.
(1) 1008 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EX 27 (2) (3) (4) Anti-avoidance The concession in subsection (1) is overridden by the anti- avoidance rules in sections GB 9 to GB 16 (which relate to arrangements involving CFCs).

Ignoring concession A person may choose not to apply the concession in subsection (1) when calculating their attributed CFC income or loss from a foreign company.
Election An election under subsection (3)— (a) must be in the form required by the Commissioner; and is irrevocable; and (b) applies in the income year in which it is made and later.
(c) Deﬁned in this Act: attributed CFC income, Commissioner, control interest, foreign company, income interest, income year, loss, quarter Compare: 2004 No 35 s EX 27 Anti-avoidance rule: stapled stock EX 27 Anti-avoidance rule: stapled stock (1) When this section applies This section applies when— (a) a New Zealand resident holds rights (the stapled rights) that give rise to an income interest or control interest in a foreign company; and the rights may, or may ordinarily, be disposed of only together with rights in another company; and the other company is a New Zealand resident or a CFC.
(b) (c) Stapled rights held by company (2) When each of subparts CQ (Attributed income from foreign equity) and DN (Attributed losses from foreign equity) and this subpart is applied, the stapled rights are held by the other company and not by the person.
Deﬁned in this Act: CFC, company, control interest, foreign company, income interest, New Zealand resident Compare: 2004 No 35 s EX 28 1009 Part E s EX 28 Income Tax Act 2007 Reprinted as at 5 January 2010 Foreign investment fund (FIF) rules What is a foreign investment fund?
EX 28 Meaning of FIF A foreign investment fund, or FIF, is any of the following (a) (b) (c) a foreign company: a foreign superannuation scheme: an insurer under a life insurance policy, but not if the policy is offered or entered into in New Zealand (in which case the insurer must comply with the life insur- ance rules in relation to the policy): an entity described in schedule 25, part A (Foreign in- vestment funds).
(d) Deﬁned in this Act: FIF, foreign company, foreign investment fund, foreign superannuation scheme, life insurance policy, life insurance rules, offered or entered into in New Zealand Compare: 2004 No 35 s EX 29 Attributing interests in FIFs EX 29 Attributing interests in FIFs Three categories A person has an attributing interest in a FIF if— (a) the person holds rights in 1 of the categories of rights described in subsections (2) to (4); and none of the exemptions in sections EX 31 to EX 43 applies to those rights.
(b) Category 1: direct income interest in foreign company The ﬁrst category is a direct income interest, as deﬁned in sec- tion EX 30, in a foreign company or in an entity described in schedule 25, part A (Foreign investment funds).

Category 2: foreign superannuation scheme entitlement The second category is rights to beneﬁt from a foreign super- annuation scheme, as a beneﬁciary or a member.
Category 3: foreign life policy entitlement The third category is rights to beneﬁt from a life insurance policy in relation to which a FIF is the insurer.

(1) (2) (3) (4) 1010 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EX 30 (5) Contingent rights The second and third categories include rights that are contin- gent or discretionary.
Deﬁned in this Act: attributing interest, direct income interest, FIF, foreign company, foreign superannuation scheme, life insurance policy Compare: 2004 No 35 s EX 30 Section EX 29(1)(b): amended (with effect on 1 April 2008), on 6 October 2009, by section 166 of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
EX 30 Direct income interests in FIFs (1) Categories of direct income interest A person has a direct income interest in a foreign company at any time if they hold— (a) (b) any of the shares in the foreign company: any of the shareholder decision-making rights for the company: a right to receive, or to apply, any of the income of the company for the accounting period in which the time falls: a right to receive, or to apply, any of the value of the net assets of the company, if they are distributed.
(c) (d) (2) (3) Percentage of total The person’s direct income interest is the percentage of the total that the person holds.

Varying percentages However, if the percentage varies between the different cat- egories, the person’s direct income interest is the highest.
Measurement of available subscribed capital (4) When the direct income interest in the category in subsection (1)(a) is calculated, the percentage is the total of the available subscribed capital per share calculated under the slice rule of the shares held as a percentage of the total available subscribed capital per share calculated under the slice rule of all shares in the company.
Varying decision-making rights (5) When the direct income interest in the category in subsection (1)(b) is calculated, if the percentage varies between the rights 1011 Part E s EX 31 Income Tax Act 2007 Reprinted as at 5 January 2010 described in the different paragraphs of the deﬁnition of share- holder decision-making rights in section YA 1 (Deﬁnitions), the highest percentage is taken.
Income distribution rights: assumptions (6) When the direct income interest in the category in subsection (1)(c) is calculated, it is assumed that— (a) the income is distributed on the last day of the account- ing period; and the person’s entitlement is unchanged during the period; and a payment of interest on a debenture subject to section FA 2 (Recharacterisation of certain debentures) or FA 2B (Stapled debt securities) is a distribution of income.
(b) (c) (7) (8) Meaning of company In this section, and in deﬁned terms referred to in this section, company includes an entity listed in schedule 25, part A (For- eign investment funds).

Partnerships In this section, if a partnership holds any rights, each partner is treated as holding a share of those rights in proportion to the partner’s interest in the partnership.
Deﬁned in this Act: accounting period, available subscribed capital, company, debentures, direct income interest, FIF, foreign company, income, interest, pay, share, shareholder decision-making right, slice rule Compare: 2004 No 35 s EX 31 Section EX 30(6)(c): amended (with effect on 1 April 2008), on 6 October 2009, by section 167 of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
EX 31 Exemption for ASX-listed Australian companies Exemption A person’s rights in a FIF in an income year are not an attribut- ing interest if— (a) (b) the rights are a share; and the share is not a share that may not, or ordinarily may not, be disposed of unless together with rights in another company; and the FIF is a company that meets the requirements of subsection (2).
(1) (c) 1012 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EX 31 (2) Australian listed company on approved index The company must— (a) (b) (c) (d) (e) at all times in the year when the person holds a right in the company, be resident in Australia; and at all times in the year when the person holds a right in the company, not be treated as resident in a country other than Australia under an agreement that— is between Australia and that other country; and (i) (ii) would be a double tax agreement if negotiated be- tween New Zealand and that other country; and have shares included in an index that is an approved in- dex under the ASX Market Rules, made under Chapter 7 of the Corporations Act 2001 (Aust),— (i) at the beginning of an income year, if subpara- graphs (ii) and (iii) do not apply; or (iii) (ii) when the person acquires the shares, if the person does not own shares in the company earlier in the year; or at the beginning of the ﬁnal month of the preced- ing income year if, in the ﬁrst month of an income year, the shares are cancelled or transferred under a scheme of arrangement entered into under Part 5.1 of the Corporations Act 2001 (Aust); and at all times in the year when the person holds a right in the company, not be an entity described in schedule 25, part B (Foreign investment funds); and at all times in the year when the person holds a right in the company, be required under the Income Tax Assess- ment Act 1997 (Aust) and Income Tax Assessment Act 1936 (Aust) to maintain a franking account.
Deﬁned in this Act: attributing interest, cancellation, company, double tax agreement, FIF, income year, resident in Australia, resident in New Zealand, share, year Compare: 2004 No 35 s EX 33C Section EX 31(1) heading: inserted, on 1 April 2008, by section 385(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section EX 31(1): substituted, on 1 April 2008, by section 385(1) of the Taxa- tion (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EX 31(2) heading: inserted, on 1 April 2008, by section 385(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

1013 Part E s EX 32 Income Tax Act 2007 Reprinted as at 5 January 2010 Section EX 31(2): inserted, on 1 April 2008, by section 385(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EX 31(2)(c)(i): amended (with effect on 1 April 2008), on 6 October 2009, by section 168(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section EX 31(2)(c)(ii): amended (with effect on 1 April 2008), on 6 October 2009, by section 168(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 31(2)(c)(iii): added (with effect on 1 April 2008), on 6 October 2009, by section 168(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section EX 31 list of deﬁned terms cancellation: inserted (with effect on 1 April 2008), on 6 October 2009, by section 168(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 31 list of deﬁned terms direct income interest: repealed, on 1 April 2008, by section 385(2) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section EX 31 list of deﬁned terms income tax: repealed, on 1 April 2008, by section 385(2) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
EX 32 Exemption for Australian unit trusts with adequate turnover or distributions Exemption A person’s rights in a FIF in an income year are not an attribut- ing interest if— (a) (b) (c) the rights are a direct income interest; and the FIF is a unit trust; and at all times in the year when the person holds a right in the unit trust, the unit trust is resident in Australia; and at all times in the year when the person holds a right in the unit trust, the unit trust is not treated as resident in a country other than Australia under an agreement that— (i) is between Australia and that other country; and (ii) would be a double tax agreement if negotiated be- tween New Zealand and that other country; and the unit trust is, at all times in the year, not an entity described in schedule 25, part B (Foreign investment funds); and at all times in the year when the unit trust makes a dis- tribution to investors, there is an RWT proxy under sec- (d) (e) (f) (1) 1014 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EX 32 (2) (3) (4) (5) (6) (g) tion 15N of the Tax Administration Act 1994 for the unit trust and payments by the unit trust to the person; and for the trust’s accounting year (the trust’s year) that ends in the person’s income year, the unit trust meets— the 25% minimum share turnover test in subsec- (i) tion (2): the 70% minimum distribution test in subsection (7).
(ii) 25% minimum turnover test The 25% minimum turnover test requires that, for the trust’s year, the amount of total net realised gains calculated under subsection (3) must be 25% or more of the amount of total net unrealised gains at the end of the year calculated under subsection (5).
Calculation of total net realised gains The amount of total net realised gains is calculated using the formula— total disposal gain − total cost Deﬁnition of items in formula In the formula in subsection (3),— (a) total disposal gain is the total of amounts derived from disposal of shares by the unit trust during the trust’s year: total cost is the total cost to the unit trust of those shares.
(b) Calculation of total net unrealised gains The amount of total net unrealised gains is calculated using the formula— total proﬁtable shares − total cost.
Deﬁnition of items in formula In the formula in subsection (5),— (a) total proﬁtable shares is the total of the market values of shares of the unit trust that are— (i) (ii) held at the end of the trust’s year; and have a market value greater than or equal to their cost to the unit trust: (b) total cost is the total cost to the unit trust of those shares.
1015 Part E s EX 32 Income Tax Act 2007 Reprinted as at 5 January 2010 (7) (8) (9) 70% minimum distribution test The 70% minimum distribution test requires that, for the trust’s year, the total amount of distributions by the unit trust during the trust’s year must be 70% or more of the total distributable gains for the trust’s year calculated under subsection (8).
Calculation of total distributable gains The amount of total distributable gains is calculated using the formula— closing equity + distributions − opening equity − contributions.
Deﬁnition of items in formula In the formula in subsection (8),— (a) closing equity is the amount by which, at the end of the trust’s year, the market value of the unit trust’s assets is more than the market value of the unit trust’s liabilities: distributions is the total amount of distributions to in- vestors by the unit trust during the trust’s year: opening equity is the amount by which, at the begin- ning of the trust’s year, the market value of the unit trust’s assets is more than the market value of the unit trust’s liabilities: contributions is the total amount of contributions by investors to the unit trust during the trust’s year.
(b) (c) (d) Currency (10) The calculations must be done in the currency of the unit trust’s ﬁnancial accounts.

Deﬁned in this Act: accounting year, attributing interest, company, direct in- come interest, FIF, income year, resident in Australia, resident in New Zealand, RWT proxy, share, unit trust, year Compare: 2004 No 35 s EX 33D Section EX 32: substituted, on 1 April 2008, by section 386 of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EX 32(1)(f): amended (with effect on 1 April 2008), on 7 December 2009, by section 29(1) of the Taxation (Consequential Rate Alignment and Re- medial Matters) Act 2009 (2009 No 63).

Section EX 32(9)(d): amended (with effect on 1 April 2008), on 6 October 2009, by section 169(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
1016 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EX 35 EX 33 Exemption for Australian regulated superannuation savings A person’s rights in a FIF are not an attributing interest if— (a) (b) the person is a natural person; and the FIF is a foreign superannuation scheme that is— an Australian approved deposit fund: (i) an Australian exempt public sector superannu- (ii) ation scheme: an Australian regulated superannuation fund: an Australian retirement savings account.
(iii) (iv) Deﬁned in this Act: attributing interest, Australian approved deposit fund, Australian exempt public sector superannuation scheme, Australian regulated superannuation fund, Australian retirement savings account, FIF, foreign superannuation scheme Compare: 2004 No 35 s EX 33E EX 34 CFC rules exemption A person’s rights in a FIF at any time are not an attributing interest if— (a) (b) the FIF is a CFC at the time; and the person has, under sections EX 14 to EX 17, an in- come interest of 10% or more in the CFC for the ac- counting period during which the time falls.
Deﬁned in this Act: accounting period, attributing interest, CFC, FIF, income interest Compare: 2004 No 35 s EX 32 Section EX 34(b): amended (with effect on 1 April 2008), on 6 October 2009, by section 170 of the Taxation (International Taxation, Life Insurance, and Re- medial Matters) Act 2009 (2009 No 34).
EX 35 Exemption for 10% or greater interest in grey list company A person’s rights in a FIF in an income year are not an attribut- ing interest if, at all times in the year,— (a) the rights are a direct income interest of 10% or more; and the FIF is a grey list company; and the person is not— (i) (ii) (iii) a portfolio investment entity: a superannuation scheme: a unit trust: (b) (c) 1017 Part E s EX 36 Income Tax Act 2007 Reprinted as at 5 January 2010 a life insurer: a group investment fund; and (iv) (v) the FIF is not an entity described in schedule 25, part B (Foreign investment funds).
(d) Deﬁned in this Act: attributing interest, company, direct income interest, FIF, grey list company, group investment fund, income year, life insurer, portfolio investment entity, superannuation scheme, unit trust Compare: 2004 No 35 s EX 33(1), (2) EX 36 Venture capital company emigrating to grey list country: 10-year exemption A person’s rights in a FIF in an income year are not an attribut- ing interest if— (a) (b) (c) the rights are a direct income interest; and the FIF is a grey list company; and the FIF is not an entity described in schedule 25, part B (Foreign investment funds); and the person has held shares in the company at all times after a time when— (i) (ii) the company was resident in New Zealand; and the shares were not listed on a recognised ex- change; and the company became a grey list company immediately after having, for 12 months or more,— (i) (ii) carried on business in New Zealand; and had in New Zealand more than 50% of its assets; and had in New Zealand more than 50% of its em- ployees; and (iii) the year begins less than 10 years after the company became a grey list company; and at all times in the year, the company has a ﬁxed estab- lishment in New Zealand; and the company through the ﬁxed establishment— (i) incurs in the year, expenditure other than interest of at least $1,000,000 or, if less than $1,000,000, at least 25% of the total expenditure, other than interest, incurred by the company in the year; and at all times in the year, engages at least 10 full- time employees or
 contractors or, if less than 10, (d) (e) (f) (g) (h) (ii) 1018 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EX 37 at least 25% of the total number engaged by the company.
Deﬁned in this Act: attributing interest, company, direct income interest, em- ployee, FIF, ﬁxed establishment, grey list company, income year, interest, New Zealand resident, recognised exchange, share, year Compare: 2004 No 35 s EX 33(3) Section EX 36(d): amended, on 1 April 2008, by section 387(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EX 36(e)(i): substituted, on 1 April 2008, by section 387(2) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section EX 36(h)(i): substituted, on 1 April 2008, by section 387(3) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section EX 36(h)(ii): substituted, on 1 April 2008, by section 387(3) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
EX 37 Grey list company owning New Zealand venture capital (d) (e) company: 10-year exemption A person’s rights in a FIF in an income year are not an attribut- ing interest if— (a) (b) (c) the rights are a direct income interest; and the FIF is a grey list company; and the FIF is not an entity described in schedule 25, part B (Foreign investment funds); and the person has held shares in the grey list company at all times after a time when the shares were not listed on a recognised exchange; and at all times in the year, the grey list company holds more than 50% of the voting interests in a company resident in New Zealand (the resident company) that, for 12 months or more, has— (i) (ii) carried on a business in New Zealand; and had in New Zealand more than 50% of the resi- dent company’s assets; and had in New Zealand more than 50% of the resi- dent company’s employees; and (iii) (f) (g) the year begins less than 10 years after the grey list com- pany ﬁrst held more than 50% of the voting interests in the resident company; and the resident company through a ﬁxed establishment in New Zealand— 1019 Part E s EX 37B Income Tax Act 2007 Reprinted as at 5 January 2010 (i) (ii) incurs in the year expenditure, other than interest, of at least $1,000,000 or, if less than $1,000,000, at least 25% of the total expenditure, other than interest, incurred by the company in the year: at all times in the year, engages at least 10 full- time employees or contractors or, if less than 10, at least 25% of the total number engaged by the company.
Deﬁned in this Act: attributing interest, company, direct income interest, em- ployee, FIF, ﬁxed establishment, grey list company, income year, interest, New Zealand resident, recognised exchange, share, voting interest, year Compare: 2004 No 35 s EX 33(4) Section EX 37(d): substituted, on 1 April 2008, by section 388(1) of the Taxa- tion (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EX 37(e): substituted, on 1 April 2008, by section 388(2) of the Taxa- tion (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section EX 37(e): amended (with effect on 1 April 2008), on 6 October 2009, by section 171(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 37(f): substituted (with effect on 1 April 2008), on 6 October 2009, by section 171(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section EX 37(g)(i): substituted, on 1 April 2008, by section 388(3) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section EX 37(g)(ii): substituted, on 1 April 2008, by section 388(3) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EX 37 list of deﬁned terms voting interest: inserted (with effect on 1 April 2008), on 6 October 2009, by section 171(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
EX 37B Share in grey list company acquired under venture investment agreement A person’s rights in a FIF in an income year are not an attribut- ing interest if— (a) (b) the FIF is a grey list company; and the person ﬁrst acquires a share or option to buy a share in the company— (i) (ii) under a venture investment agreement; and at the same time and on the same terms as an acquisition of an interest in the FIF by the Ven- 1020 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EX 38 ture Investment Fund or a company owned by the Venture Investment Fund.
Deﬁned in this Act: attributing interest, company, FIF, grey list company, in- come year, share Compare: 2004 No 35 s EX 37(4B) Section EX 37B: inserted, on 1 April 2008, by section 389 of the Taxation (Busi- ness Taxation and Remedial Matters) Act 2007 (2007 No 109).
EX 38 Exemption for employee share purchase scheme of grey list company A person’s rights in a FIF in an income year are not an attribut- ing interest if— (a) (b) (c) (d) the person is a natural person; and the rights are a direct income interest; and the FIF is a grey list company; and the FIF is not an entity described in schedule 25, part B (Foreign investment funds); and at the time the person acquires the shares, the FIF— (i) (ii) employs the person: owns, directly or indirectly, the person’s em- ployer; and the person acquires the shares under a share purchase agreement; and the share purchase agreement includes a restriction on the disposal of the shares; and at the beginning of the year, the period of the restric- tion— (i) (ii) has not expired: has expired for a period of less than 6 months.
(e) (f) (g) (h) Deﬁned in this Act: attributing interest, company, direct income interest, em- ployer, FIF, grey list company, share, share purchase agreement, year Compare: 2004 No 35 s EX 33(5) Section EX 38(g): substituted (with effect on 1 April 2008), on 6 October 2009, by section 172 of the Taxation (International Taxation, Life Insurance, and Re- medial Matters) Act 2009 (2009 No 34).
Section EX 38(g): substituted, on 1 April 2008, by section 390 of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
1021 Part E s EX 39 Income Tax Act 2007 Reprinted as at 5 January 2010 EX 39 Terminating exemption for grey list company with numerous New Zealand shareholders Qualifying requirements A person’s rights in a FIF are not an attributing interest if— (a) (b) (c) the rights are a direct income interest; and the FIF is a grey list company; and on 17 May 2006, the company— (i) (ii) was not an entity described in schedule 25, part was a grey list company; and (iv) (iii) B (Foreign investment funds); and had more than 20,000 shareholders who had ad- dresses in New Zealand on the company’s share register; and had shareholders referred to in subparagraph (iii) who between them held shares in the company carrying voting interests of more than 50%; and had assets of which more than 50% in total value were shares in other companies carrying voting interest of more than 50%; and on 17 May 2006, the shares were listed— (i) (ii) on a recognised exchange in New Zealand; and on a recognised exchange in a grey list country.
(v) (d) Notiﬁcation requirement The exemption in subsection (1) does not apply unless the grey list company notiﬁed the Commissioner, by 17 January 2007, that the company met the requirements of subsection (1)(b) and (c) on 17 May 2006.

Exemption terminating after 2011–12 year The exemption in subsection (1) does not apply to the 2012–13 income year and later income years.
Choosing not to apply exemption The exemption in subsection (1) does not apply for a person, for an income year (the initial year) and for later income years, if the person completes a return of income for the initial year on the basis that the exemption does not apply for the person and the initial income year.
(1) (2) (3) (4) 1022 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EX 41 (5) Additional temporary exemption An additional temporary exemption for a grey list company with numerous New Zealand shareholders is contained in sec- tion EZ 32 (Terminating exemption for grey list FIF investing in Australasian equities).
Deﬁned in this Act: attributing interest, company, direct income interest, FIF, grey list company, income year, recognised exchange, New Zealand, share- holder Compare: 2004 No 35 s EX 33B(1), (3) Section EX 39(1): substituted, on 1 April 2008, by section 391(1) of the Taxa- tion (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section EX 39(2): amended, on 1 April 2008, by section 391(2) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
EX 40 Foreign exchange control exemption A person’s rights in a FIF are not an attributing interest if and to the extent to which— (a) (b) the person is a natural person; and the person acquired the rights— (i) (ii) before ﬁrst becoming a New Zealand resident; or before exchange controls applying to the person and the interest were imposed by a foreign coun- try; or before 8.00 pm New Zealand Standard Time on 2 July 1992; and (iii) (c) the exchange controls prevent the person from deriving amounts from the rights, or from disposing of the rights, in New Zealand dollars, or consideration that is readily convertible into New Zealand dollars.
Deﬁned in this Act: amount, attributing interest, FIF, New Zealand, New Zealand resident Compare: 2004 No 35 s EX 34 EX 41 Income interest of non-resident or transitional resident (1) (2) Categories 2 and 3 Subsection (2) applies only to rights described in section EX 29(3) or (4).
Exemption for non-resident or transitional resident A person’s rights in a FIF at any time are not an attributing interest if— 1023 Part E s EX 42 Income Tax Act 2007 Reprinted as at 5 January 2010 (a) (b) (c) the person is a natural person; and the person acquires the rights when a non-resident or transitional resident; and at the time, the person is a non-resident or transitional resident.
Deﬁned in this Act: attributing interest, FIF, income year, New Zealand resi- dent, non-resident, transitional resident Compare: 2004 No 35 s EX 35 EX 42 New resident’s accrued superannuation entitlement exemption Exemption The rights of a natural person to beneﬁt, as a beneﬁciary or a member, from a foreign superannuation scheme at any time are not an attributing interest in a FIF— (a) to the extent to which the requirements of subsections (2) to (4) are met at the time; and if the requirements of subsections (5) to (9) are met at the time.
(b) Rights accruing before or after becoming resident The rights must have accrued during a period— (a) (b) for which the person is not a New Zealand resident: for which the person is a New Zealand resident and that— (i) begins when the person becomes a New Zealand resident; and ends before the ﬁrst day of the ﬁfth income year following the income year in which the person becomes a New Zealand resident.
(ii) Calculation of rights accruing The extent to which the rights have accrued during a period referred to in subsection (2) is calculated using the formula— closing value - opening value.

Deﬁnition of items in formula In the formula,— (a) closing value is the market value of the rights on the day that ends the period: (1) (2) (3) (4) 1024 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EX 42 (b) opening value is the market value of the rights on the day that begins the period.
(5) (6) (7) (8) Employee scheme or self-employed Either— (a) (b) the scheme must be one where the person’s rights can be acquired only through the person’s employment; or the person must be wholly or mainly self-employed, either when the person ﬁrst acquired the rights or at the relevant time for applying this section.
Contributions or beneﬁts: link to income The amount contributed to the scheme by or for the person must be calculated— (a) by some ﬁxed relationship to the person’s income from employment or self-employment; or to provide beneﬁts that bear a ﬁxed relationship to the person’s income from employment or self-employment, except to the extent to which the beneﬁts are adjusted by reference to an objective measure of inﬂation.
(b) Contributions by person, employer, or other scheme Contributions to the scheme for the person’s beneﬁt must be made only by or for— (a) (b) the person; or the person’s employer, or a person associated with the employer; or the scheme— (i) superannuation representatives another (c) as a transfer of the person’s beneﬁt rights in the other scheme; and if those beneﬁt rights would have qualiﬁed for the exemption in this section.
(ii) of Restricted rights to assign or cash in The person’s future beneﬁts under the scheme must not be able to be assigned, or exchanged for a current receipt of cash, or other property, except— (a) (b) if the person becomes physically incapacitated; or if the person is transferring the beneﬁt rights into an- other, similar, scheme; or 1025 Part E s EX 43 Income Tax Act 2007 Reprinted as at 5 January 2010 (c) (d) (e) when or after the person retires at normal retiring age; or if the person is assigning the beneﬁt rights to a spouse under a relationship agreement; or at the cost of a substantial decrease in the present value of the beneﬁts.
Relationship property assignment (9) When the person has obtained the rights by their being as- signed under a relationship agreement, the exemption in this section applies if the assignor spouse would have been entitled to it.
Deﬁned in this Act: amount, associated person, attributing interest, employer, FIF, foreign superannuation scheme, income, income from employment, market value, New Zealand resident, relationship agreement, superannuation scheme Compare: 2004 No 35 s EX 36 EX 43 Non-resident’s pension or annuity exemption Exemption The rights of a natural person to beneﬁt from a pension or annuity provided by a FIF are not an attributing interest if the requirements of subsections (2) and (3) are met.
Relevant period of non-residence The person must have provided the consideration for acquiring the rights— (a) (b) when the person was not resident in New Zealand; or when the person was resident in New Zealand but in the period ending 3 years after the end of the income year in which they last became a New Zealand resident; or when the person was resident in New Zealand but as a result of commuting or transferring their interest in a superannuation fund in anticipation of their ceasing to be a New Zealand resident.
(c) Restricted rights to assign or cash in The person’s future beneﬁts must not be able to be assigned, or exchanged for a current receipt of cash, or other property, except— (a) if the person is assigning the beneﬁt rights to a spouse under a relationship agreement; or (1) (2) (3) 1026 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EX 44 (b) at the cost of a substantial decrease in the present value of the beneﬁts.
(4) Elective exclusion of pre-1996–97 rights Subsection (1) does not apply if— (a) (b) the rights were acquired before the 1996–97 income year; and the person chose to treat the rights as an interest in a for- eign investment fund for the 1996–97 income year and later income years by complying with the requirements of section CG 15(4) of the Income Tax Act 1994.
Deﬁned in this Act: attributing interest, FIF, foreign investment fund, income year, matrimonial agreement, New Zealand resident, non-resident, relationship agreement, resident in New Zealand, superannuation fund, year Compare: 2004 No 35 s EX 37 Calculation of FIF income or loss EX 44 Six calculation methods (1) (2) Use of 1 method If the tests in section CQ 5 (When FIF income arises) or DN 6 (When FIF loss arises) are met, the amount of a person’s FIF income or loss is calculated under— (a) (b) (c) (d) (e) (f) the accounting proﬁts method; or the branch equivalent method; or the comparative value method; or the deemed rate of return method; or the fair dividend rate method; or the cost method.
Choosing method The person must choose which calculation method applies by completing their return of income accordingly, but the choice is limited by sections EX 46, EX 47, EX 48, and EX 62.
Deﬁned in this Act: accounting proﬁts method, amount, branch equivalent method, calculation method, comparative value method, cost method, deemed rate of return method, fair dividend rate, FIF income, loss, return of income Compare: 2004 No 35 s EX 38 1027 Part E s EX 45 Income Tax Act 2007 Reprinted as at 5 January 2010 EX 45 Exclusion of amounts of death beneﬁt No FIF income (1) When this section applies, a person is treated as not deriving FIF income to the extent to which the income arises solely from receiving a death beneﬁt under a life insurance policy.
(2) (3) Application of this section: contract before becoming resident This section applies if— (a) the person or the deceased (the contracting party), when not a New Zealand resident, entered into a bind- ing contract that gave rise to the beneﬁt; and at the time the contract was entered into, the contract- ing party either had not previously been a New Zealand resident or had not been a resident for at least the pre- vious 10 years; and the beneﬁt was not increased by a voluntary action taken after the contracting party became a resident.
(b) (c) Application of this section: pre-1992 contracts This section also applies if— (a) before 2 July 1992 the person or the contracting party entered into a binding contract giving rise to the beneﬁt; and the beneﬁt was not increased by a voluntary action taken on or after 2 July 1992.
(b) Deﬁned in this Act: amount, FIF income, life insurance policy, New Zealand resident, year Compare: 2004 No 35 s EX 39 EX 46 Limits on choice of calculation methods Same method for same FIF If a person has 2 or more attributing interests in the same FIF for the same period, the person must use the same calculation method for calculating FIF income or loss from each interest in that period, except to the extent to which— the interests are of different classes; and (a) this section prevents the same method being used.
(b) (1) 1028 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EX 46 (2) Accounting proﬁts method A person may use the accounting proﬁts method for an ac- counting period to calculate FIF income or loss from an at- tributing interest in a FIF only if— (a) (b) the FIF is a company; and at all times during the accounting period when the FIF exists, interests in the FIF similar to the person’s at- tributing interest were— (i) quoted on the ofﬁcial list of a recognised ex- change; or offered widely by or for the FIF to the public in 1 or more countries; and (ii) (c) (d) the net after-tax accounting proﬁts or losses of the FIF for the accounting period are calculated under generally accepted accounting practice, or an equivalent standard for consistent and undistorted reporting of net proﬁts, of the country in which the FIF is resident; and the net after-tax accounting proﬁts or losses are detailed in ﬁnancial statements— (i) (ii) (iii) (iv) sent or made available to shareholders in the FIF; and readily available to interested members of the public; and audited by a chartered accountant, or accountant of equivalent professional standard in the country in which the FIF is resident; and for which such an accountant has given a stand- ard audit opinion, without qualiﬁcations, to the effect that the ﬁnancial statements represent the income and ﬁnancial position of the FIF to the degree of validity normally required in the coun- try in which the FIF is resident; and (e) (f) (g) the net after-tax accounting
 proﬁts or losses are calcu- lated, in any case in which the FIF has 1 or more sub- sidiaries, on a consolidated basis; and the net after-tax accounting proﬁts or losses include any extraordinary items; and the person has no reason to believe that the net after-tax accounting proﬁts or losses do not fairly represent the 1029 Part E s EX 46 Income Tax Act 2007 Reprinted as at 5 January 2010 (h) (i) net after-tax proﬁts or losses of the FIF for the account- ing period; and the FIF is not an entity described in schedule 25, part C (Foreign investment funds); and the Commissioner has not concluded that the net after- tax accounting proﬁts or losses do not fairly represent the net after-tax proﬁts or losses of the FIF for the ac- counting period.
Branch equivalent method A person may use the branch equivalent method to calculate FIF income or loss from an attributing interest in a FIF for an accounting period only if— (a) (b) the FIF is a company; and the person can provide to the Commissioner, if re- quested, sufﬁcient information to enable the Commis- sioner to check the calculations required by section EX 50.
Deemed rate of return method: general rule A person may use the deemed rate of return method to calcu- late FIF income or loss from an attributing interest in a FIF for an income year only if the interest is not a direct income interest of less than 10% in a foreign company and any of the following applies: (a) it is not reasonably practicable for the person to use— the comparative value method, because the per- (i) son cannot determine the market value of the at- tributing interest at the end of the income year; or the accounting proﬁts method for any accounting period that falls wholly or partly in the year; or (ii) (b) the person is a natural person and at all times during the income year the total value of attributing interests in FIFs held by the person is $250,000 or less, the value of each interest being— (i) its book value, calculated under section EX 55(7), at the end of the previous income year, if the person held the interest then and used the deemed rate of return method to calculate FIF income for all attributing interests in the previ- ous income year: (3) (4) 1030 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EX 46 (c) (d) its market value, in any other case; or (ii) section EX 48 requires the person to use that method; or section EX 62 requires the person to continue using that method.
(5) (6) Deemed rate of return method: exception when section EX 47 applies Despite subsection (4), a person may use the deemed rate of return method to calculate FIF income or loss from an attribut- ing interest in a FIF if— (a) the interest is a direct income interest in a foreign com- pany of less than 10%; and the person is required by section EX 47 to use the deemed rate of return method for the interest.
(b) Comparative value method: shares in foreign companies A person may use the comparative value method to calculate FIF income or loss from an attributing interest in a FIF that is a share in a foreign company for an income year only if— (a) (b) the person is a natural person: the person is the trustee of a trust that— (i) (ii) (iii) has no gifting settlor who is not a natural person or deceased person; and at all times in the income year, is a complying trust for a distribution made at the time; and is, at all times in the income year, mainly for the beneﬁt of a natural person for whom the gift- ing settlors of the trust have natural love and af- fection (or had natural love and affection when alive) or is mainly for the beneﬁt of an organisa- tion or trust with income that is exempt income under section CW 41 or CW 42 (which relate to the income of charities); and is not a superannuation scheme: (c) (d) (iv) the person’s direct income interest in the FIF, increased for the purposes of this paragraph by each direct income interest of a person associated with them, is 10% or more at any time in the income year: the share is a non-ordinary share described in subsection (10).
1031 Part E s EX 46 Income Tax Act 2007 Reprinted as at 5 January 2010 Fair dividend rate method: shares in foreign companies A person may use the fair dividend rate method to calculate FIF income or loss from an attributing interest in a FIF that is a share in a foreign company for an income year only if— (a) the person’s direct income interest in the FIF, increased for the purposes of this paragraph by each direct income interest of a person associated with them, is less than 10%— (i) at any time in the year, if the FIF is a grey list company; or at all times in the year, if the FIF is not a grey list company: (ii) (b) the FIF is a foreign investment vehicle and the person is— (i) a portfolio investment entity or an entity eligible to be a portfolio investment entity: a life insurance company.
(ii) Fair dividend rate method: exemption for shares in foreign companies Despite subsection (7), a person must not use the fair dividend rate method to calculate FIF income or loss from an attributing interest in a FIF that is a share in a foreign company for an income year if— (a) the share is a non-ordinary share described in subsection (10): the person chooses to use the comparative value method for another attributing interest that is a share in a foreign company and for which the person would be allowed, in the absence of this paragraph, to use the fair dividend rate method.
(b) Cost method for shares in foreign companies A person may use the cost method to calculate FIF income or loss from an attributing interest in a FIF that is a share in a foreign company only if— (a) the person’s direct income interest in the FIF, increased for the purposes of this paragraph by each direct income interest of a person associated with them, is less than 10%— (7) (8) (9) 1032 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EX 46 (i) (ii) at any time in the income year, if the FIF is a grey list company; or at all times in the income year, if the FIF is not a grey list company; and use of the fair dividend rate method is allowed but is not practical because the person cannot determine the market value of the attributing interest at the start of the income year except by an independent valuation.
(b) Certain non-ordinary shares (10) For the purposes of subsections (6)(d) and (8)(a), a non-ordin- ary share in a foreign company is— (a) (b) (c) a ﬁxed-rate foreign equity: a non-participating redeemable share: an interest in a non-resident holding directly or indi- rectly assets of which 80% or more by value at a time in the income year— (i) consist of ﬁxed-rate foreign equities, or ﬁnancial arrangements providing funds to a person; and are denominated in New Zealand dollars or, under NZIAS 39, are hedged items having a value in New Zealand dollars governed by a hedging instrument that is highly effective: (ii) (cb) an interest in a non-resident if–– (i) the non-resident holds directly or indirectly as- sets of which 80% or more by value at a time in the income year consist of ﬁxed-rate foreign equities or ﬁnancial arrangements providing funds to a person ignoring ﬁnancial arrangements between the non-resident and other members of a group of companies that it is a member of; and the non-resident is not listed on a recognised ex- change or is listed on a recognised exchange but is a foreign investment vehicle, ignoring section HL 10(4) (Further eligibility requirements relat- ing to investments) for the purposes of this sub- paragraph; and the interest is, under NZIAS 39, a hedged item having a value in New Zealand dollars governed by a hedging instrument that is highly effective: (ii) (iii) 1033 Part E s EX 46 Income Tax Act 2007 Reprinted as at 5 January 2010 (d) (e) a share that involves an obligation—
 (i) of another person to provide to the investor, di- rectly or indirectly through an arrangement, an amount that is more than the issue price of the share; and that is non-contingent or subject to a contingency that is sufﬁciently remote to be immaterial: a share of a kind that the Commissioner determines under section 91AAO of the Tax Administration Act 1994 to be an interest for which the fair dividend rate method is not available.
(ii) (11) Commissioner’s determination overriding subsection (10)(a) to (d) Subsection (10)(a) to (d) does not apply to a share if the Com- missioner determines under section 91AAO of the Tax Admin- istration Act 1994 that the share is an interest for which the fair dividend rate is available.
Meaning of gifting settlor (12) A gifting settlor, for a trust (the relevant trust), means a per- son who— (a) makes a transfer of value, by disposing of property, to the trustee of— (i) (ii) the relevant trust: a trust with a trustee who settles property on the relevant trust, directly or through the trustees of other trusts; and is not the trustee of a trust.
(b) Deﬁned in this Act: accounting period, accounting proﬁts method, amount, attributing interest, branch equivalent method, calculation method, Commis- sioner, company, comparative value method, complying trust, cost method, deemed rate of return method, direct income interest, exempt income, fair divi- dend rate method, FIF, FIF income, ﬁnancial arrangement, ﬁxed-rate foreign equity, foreign company, foreign investment vehicle, generally accepted ac- counting practice, grey list company, income, income year, loss, market value, portfolio investment entity, recognised exchange, share, shareholder, super- annuation scheme, tax, trustee Compare: 2004 No 35 s EX 40 Section EX 46(6)(b): substituted, on 1 April 2008, by section 392(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EX 46(6)(b)(iii): amended (with effect on 1 April 2008), on 6 October 2009, by section 173(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

1034 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EX 46 Section EX 46(6)(b)(iv): added (with effect on 1 April 2008), on 6 October 2009, by section 173(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 46(6)(d): substituted (with effect on 1 April 2008), on 6 October 2009, by section 173(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section EX 46(7)(b): substituted (with effect on 1 April 2008), on 6 October 2009, by section 173(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 46(8)(a): substituted (with effect on 1 April 2008), on 6 October 2009, by section 173(5) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section EX 46(10) heading: substituted (with effect on 1 April 2008), on 6 October 2009, by section 173(6) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 46(10): amended (with effect on 1 April 2008), on 6 October 2009, by section 173(7) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section EX 46(10)(a): substituted (with effect on 1 January 2009), on 6 October 2009, by section 173(8) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 46(10)(c): substituted, on 1 April 2008, by section 392(2) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section EX 46(10)(c)(i): amended (with effect on 1 April 2009), on 7 Decem- ber 2009, by section 30 of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
Section EX 46(10)(cb): inserted (with effect on 1 April 2009), on 6 October 2009, by section 173(9) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section EX 46(10)(cb)(i): amended (with effect on 1 April 2009), on 7 Decem- ber 2009, by section 30 of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
Section EX 46(11) heading: amended, on 1 April 2008, by section 392(3) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section EX 46(11): amended, on 1 April 2008, by section 392(3) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section EX 46(12) heading: added, on 1 April 2008, by section 392(4) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EX 46(12): added, on 1 April 2008, by section 392(4) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section EX 46 list of deﬁned terms ﬁxed-rate foreign equity: inserted (with effect on 1 January 2009), on 6 October 2009, by section 173(13) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 46 list of deﬁned terms foreign investment vehicle: inserted (with effect on 1 April 2008), on 6 October 2009, by section 173(11)(b) of the Tax- 1035 Part E s EX 47 Income Tax Act 2007 Reprinted as at 5 January 2010 ation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 46 list of deﬁned terms foreign PIE: repealed (with effect on 1 April 2008), on 6 October 2009, by section 173(11)(a) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
EX 47 Method required for certain non-ordinary shares A person must calculate FIF income or loss for an income year from an attributing interest that is a non-ordinary share described in section EX 46(10) using— the comparative value method; or (a) the deemed rate of return method, if use of the com- (b) parative value method is not practical because the per- son cannot determine the market value of the attributing interest at the end of the income year.
Deﬁned in this Act: attributing interest, comparative value method, deemed rate of return method, fair dividend rate method, FIF income, FIF loss, income year, market value, share Section EX 47: substituted (with effect on 1 April 2008), on 6 October 2009, by section 174 of the Taxation (International Taxation, Life Insurance, and Re- medial Matters) Act 2009 (2009 No 34).
EX 48 Default calculation method When this section applies This section applies when— (a) a person does not choose a calculation method to calcu- late FIF income or loss from an attributing interest for a period; and sections EX 46, EX 47, and EX 62 do not have the effect of requiring a particular calculation method to be used.
(b) Default choice for direct income interests in FIF of less than 10% The person is treated as having chosen to use, for the period,— for a direct income interest in a foreign company of less (a) than 10% for which section EX 46(7) allows the use of the fair dividend rate method,— (i) the fair dividend rate method if it is practical to use it; and (1) (2) 1036 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EX 49 (ii) the cost method if it is not practical to use the fair dividend rate method.
(b) for any other interest,— (i) (ii) (iii) the accounting proﬁts method, if section EX 46(2) allows the use of that method and it is practical to use it; or the comparative value method, if use of the ac- counting proﬁts method is not allowed or is not practical, and it is practical to use the compara- tive value method; or the deemed rate of return method, if use of the accounting proﬁts method is not allowed or is not practical, and it is not practical to use the comparative value method.
Deﬁned in this Act: accounting proﬁts method, attributing interest, calculation method, comparative value method, cost method, deemed rate of return method, direct income interest, fair dividend rate method, FIF income, foreign company, loss Compare: 2004 No 35 s EX 41 EX 49 Accounting proﬁts method (1) (2) (3) (4) Formula If a person is using the accounting proﬁts method to calculate FIF income or loss from an attributing interest in a FIF, the total FIF income or loss from all their attributing interests in the FIF for the relevant accounting period is calculated using the formula— (accounting proﬁts or losses - foreign tax) × income interest.
Deﬁnition of items in formula The items in the formula are deﬁned in subsections (3) to (5).

Accounting proﬁts or losses Accounting proﬁts or losses is the net after-tax accounting proﬁts or losses of the FIF for the accounting period.

Foreign tax Foreign tax is the total for the accounting period of income tax on the income of the FIF— (a) for which the person is liable under the laws of a country or territory outside New Zealand; and paid by the person in the accounting period.
(b) 1037 Part E s EX 49 Income Tax Act 2007 Reprinted as at 5 January 2010 Income interest Income interest is the person’s income interest in the FIF for the accounting period.

The income interest is calculated under all the following CFC rules, applying as if the FIF were a CFC: (a) (b) (c) sections EX 8 to EX 11 and EX 13: sections EX 16 and EX 17: section EX 26, unless the person chooses to apply sub- section (6).
Election to measure on 31 March only For an income interest that the person has held for more than 12 months, the person may follow a simpliﬁed calculation process by choosing to be treated as holding, at all times in the income year, the same interest, including zero interest, that they held at the end of the income year.

The person makes the election by completing their return of income accordingly for the relevant income year.
Election irrevocable An election under subsection (6) is— (a) irrevocable and applies to the person and all their at- tributing interests in the FIF in later years; and overridden by the anti-avoidance rules in sections GB 9 to GB 16 (which relate to CFCs).
(b) Conversion to New Zealand dollars The person must choose, for the accounting period and each later accounting period and for all interests for which the per- son uses the accounting proﬁts method,— (a) for all the calculations to be done in the currency of the FIF’s ﬁnancial accounts, with the result then converted into New Zealand dollars at the average of the close of trading spot exchange rates for the 15th day of each complete month that falls in the accounting period; or for all the calculations of the net after-tax accounting proﬁts or losses of the FIF to be done in New Zealand dollars.
(b) Reduction in FIF loss to economic loss In the cases described in subsections (10) and (11), the amount of any FIF loss calculated under subsection (1) is reduced to be equal to the person’s corresponding economic loss, if any.
(5) (6) (7) (8) (9) 1038 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EX 50 (10) (11) Application of subsection (9): no economic loss Subsection (9) applies if the person suffers no, or substantially no, economic loss corresponding to the FIF loss, whether be- cause of a call option, a put option, or any other reason.
Application of subsection (9): FIF loss excessive Subsection (9) also applies if the amount of FIF loss is more than any corresponding economic loss suffered by the person, whether because of the application of the rules for calculating the person’s income interest or any other reason.
Deﬁned in this Act: accounting period, accounting proﬁts method, amount, at- tributing interest, CFC, close of trading spot exchange rate, FIF, FIF income, FIF loss, income interest, income year, loss, New Zealand, non-resident, pay, quarter, return of income, tax, tax year Compare: 2004 No 35 s EX 42 Section EX 49(6): substituted (with effect on 1 April 2008), on 7 December 2009, by section 31(1) of the Taxation (Consequential Rate Alignment and Re- medial Matters) Act 2009 (2009 No 63).
EX 50 Branch equivalent method (1) (2) (3) Formula If a person is using the branch equivalent method to calculate FIF income or loss from an attributing interest in a FIF, the total FIF income or loss from all their attributing interests in the FIF for the relevant accounting period is calculated using the formula— branch equivalent income or loss × income interest.

Deﬁnition of items in formula The items in the formula in subsection (1) are deﬁned in sub- sections (3) and (4).
Branch equivalent income or loss Branch equivalent income or loss is the branch equivalent income or loss of the FIF for the accounting period.
This is calculated by applying section EX 21 of the CFC rules as that provision reads ignoring section 161(1) to (6), (9) to (14), (16), and (17) of the Taxation (International Taxation, Life Insur- ance, and Remedial Matters) Act 2009— (a) as if the FIF were a CFC and the person were calculating their attributed CFC income or loss; and applying subsections (5) and (6).
(b) 1039 Part E s EX 50 Income Tax Act 2007 Reprinted as at 5 January 2010 Income interest Income interest is the person’s income interest in the FIF for the accounting period.

The income interest is calculated under all the following CFC rules, applying as if the FIF were a CFC: (a) (b) (c) sections EX 8 to EX 11 and EX 13: sections EX 16 and EX 17: section EX 26.
Taxable distributions If the FIF derives a taxable distribution from a non-complying trust in the accounting period,— (a) the taxable distribution is excluded when calculating the FIF’s branch equivalent income or loss, due to the com- bined effect of subsection (1) and section EX 21(32); and the person has additional attributed CFC income calcu- lated by multiplying the taxable distribution by the per- son’s income interest in the FIF; and the person is liable for income tax on the additional at- tributed CFC income at the rate in schedule 1 (Basic tax rates: income tax, ESCT, RSCT, RWT, and attributed fringe beneﬁts) that applies to amounts under section HC 22 (Use of tax losses to reduce taxable distributions from non-complying trusts).
(b) (c) Calculation of additional FIF income or loss If the FIF itself has an income interest, calculated under sub- section (4), in a foreign company for the accounting period, the person has additional FIF income or loss calculated using the formula— interest × FIF’s FIF income or loss.
Deﬁnition of items in formula In the formula in subsection (6),— (a) (b) interest is the person’s income interest in the FIF for the period: FIF’s FIF income or loss is the FIF’s FIF income or loss calculated under the rules in section EX 58(4) and (5), as if— (i) the FIF were the CFC referred to; and (4) (5) (6) (7) 1040 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EX 50 (8) (9) (10) (11) (12) (ii) the FIF’s interest in the foreign company were an attributing interest, despite any application of section EX 34.
Application of CFC rules tax credit rules The rules in sections LK 1 to LK 7 (which relate to tax credits for attributed CFC income) apply to allow the person to claim foreign tax credits but on the basis of the assumptions made in subsection (9).

The rules in those sections allow foreign tax credits relating to attributed CFC income but apply a jurisdic- tional ring-fencing approach to the use of tax credits.
Assumptions in reading tax credit rules Sections LK 1 to LK 7 are applied as if— (a) (b) the FIF were a CFC; and the FIF income of the person from the FIF were at- tributed CFC income; and the person’s income interest, calculated under subsec- tion (4) were their relevant income interest for the pur- poses of those sections; and any relevant person’s FIF income calculated under the branch equivalent method from a FIF that is resident in the relevant country were attributed CFC income.
(c) (d) Reduction in FIF loss to economic loss In the cases described in subsections (11) and (12), the amount of any FIF loss calculated under subsections (1) and (6) is re- duced to be equal to the person’s corresponding economic loss, if any.

Application of subsection (10): no economic loss Subsection (10) applies if the person suffers no, or substan- tially no, economic loss corresponding to the FIF loss, whether because of a call option, a put option, or any other reason.
Application of subsection (10): FIF loss excessive Subsection (10) also applies if the amount of FIF loss is more than any corresponding economic loss suffered by the person, whether because of the application of the rules for calculating the person’s income interest or any other reason.
Deﬁned in this Act: accounting period, amount, attributed CFC income, at- tributing interest, branch equivalent income, branch equivalent method, CFC, 1041 Part E s EX 51 Income Tax Act 2007 Reprinted as at 5 January 2010 FIF, FIF income, FIF loss, foreign company, income interest, income tax, loss, non-complying trust, non-resident, quarter, tax, taxable distribution Compare: 2004 No 35 s EX 43 Section EX 50(3): amended (with effect on 30 June 2009), on 6 October 2009, by section 175(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 50(5)(c): amended, on 1 April 2008, by section 562 of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

EX 51 Comparative value method (1) (2) (3) (4) Formula If a person is using the comparative value method to calcu- late FIF income or loss from an attributing interest in a FIF, the FIF income or loss from that interest for the relevant income year is calculated using the formula— (closing value + gains) - (opening value + costs).
Deﬁnition of items in formula The items in the formula are deﬁned in subsections (3) to (6).

Closing value Closing value is the market value of the person’s interest in the FIF at the end of the income year.

The value is zero if the person has disposed of the interest or is then applying another calculation method to it.

Gains Gains is the total of all amounts that the person derives during the income year from holding or disposing of the interest.
The amounts include any foreign withholding tax or other amount that the person is allowed as a credit under section LE 1 (Tax credits for imputation credits) or LJ 2 (Tax credits for foreign income tax).

Opening value (5) Opening value is the market value of the person’s interest in the FIF at the end of the previous income year, calculated using the exchange rate applying under section EX 57 for that previous year.
The value is zero if the person did not hold the interest then or was then applying another calculation method to it.
1042 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EX 51 (6) (7) (8) Costs Costs is the total for the income year of— (a) (b) all expenditure, if any, that the person incurs in acquir- ing or increasing the interest: income tax on the income of the FIF— (i) for which the person is liable under the laws of a country or territory outside New Zealand; and paid by the person in the income year.
(ii) Losses from some attributing interests not subject to rule Subsection (8) applies to a person who calculates under sub- section (1) an amount of FIF loss for an attributing interest in a FIF (the affected interest) that is neither of the following: (a) a direct income interest in a foreign company equal to or more than 10% at all times in the relevant income year: a non-ordinary share described in section EX 46(10).
(b) No total FIF loss from other attributing interests If, in the absence of this subsection, the person would have under subsection (1) a total FIF loss for the income year from all the person’s affected interests, the FIF loss for the income year for the person from each affected interest is reduced to the extent necessary for the total FIF loss from the affected interests to be zero.
Deﬁned in this Act: amount, attributing interest, calculation method, compara- tive value method, direct income interest, FIF, FIF income, FIF loss, foreign company, foreign withholding tax, income year, loss, market value, pay, tax Compare: 2004 No 35 s EX 44 Section EX 51(4): amended, on 1 April 2008, by section 393 of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EX 51(5): substituted (with effect on 1 April 2008), on 6 October 2009, by section 176(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section EX 51(7) heading: substituted (with effect on 1 April 2009), on 6 Oc- tober 2009, by section 176(2) of the Taxation (International Taxation, Life In- surance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 51(7): substituted (with effect on 1 April 2009), on 6 October 2009, by section 176(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section EX 51(8) heading: substituted (with effect on 1 April 2009), on 6 Oc- tober 2009, by section 176(2) of the Taxation (International Taxation, Life In- surance, and Remedial Matters) Act 2009 (2009 No 34).
1043 Part E s EX 52 Income Tax Act 2007 Reprinted as at 5 January 2010 Section EX 51(8): substituted (with effect on 1 April 2009), on 6 October 2009, by section 176(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
EX 52 Fair dividend rate method: usual method (1) (2) (3) (4) When this section applies This section applies when a person— (a) (b) calculates FIF income from an attributing interest in a FIF for an income year under the fair dividend rate method; and is neither— (i) a unit-valuing fund that is subject to section EX 53; nor another person that determines the market value of the attributing interest for each period of a day in the income year and that chooses to apply the method in section EX 53.
(ii) FIF income The person’s total FIF income for the income year from the attributing interests in FIFs (the FDR interests) for which the person uses the fair dividend rate method is calculated using the formula in subsection (3).

FIF income formula The formula is— (0.05 × opening value) + quick sale adjustment.

Deﬁnition of items in FIF income formula The items in the FIF income formula in subsection (3) are de- ﬁned in subsections (5) to (7).
Opening value (5) Opening value is the total of the market values of the FDR interests that— (a) (b) the person holds at the start of the income year; and are not, at the beginning of the income year, included in a direct income interest of 10% or more in a grey list company.
Exclusion for certain managed funds (5B) Subsection (5)(b) does not apply if— 1044 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EX 52 (a) (b) the person is a portfolio investment entity, an entity eli- gible to be a portfolio investment entity, or a life insur- ance company; and the FIF is a foreign investment vehicle.
(6) (7) (8) (9) (10) When quick sale adjustment required The quick sale adjustment is required, and is not zero, only if the person, in the income year,— (a) acquires or increases an FDR interest to which this sec- tion applies; and later disposes of or reduces the FDR interest.
(b) Quick sale adjustment Quick sale adjustment is the lesser of— (a) the total of the amounts (the peak holding method amount) calculated for each FDR interest using the for- mula in subsection (8): the total of the amounts (the quick sale gain amount) calculated for each FDR interest using the formula in subsection (12), treating a negative total as being zero.

(b) Peak holding method amount formula The formula is— 0.05 × peak holding differential × average cost.
Deﬁnition of items in formula The items in the formula in subsection (8) are deﬁned in sub- sections (10) and (11).
Peak holding differential Peak holding differential is,— (a) if no share reorganisation occurs in the income year, the lesser of— (i) the difference between the greatest shareholding in the year and the shareholding at the start of the year: the difference between the greatest shareholding in the year and the shareholding at the end of the year; or (ii) (b) if a share reorganisation occurs in the income year, the amount calculated under section EX 54 for the year.
1045 Part E s EX 52 Income Tax Act 2007 Reprinted as at 5 January 2010 Average cost (11) Average cost is— (a) (b) if no share reorganisation occurs in the income year, the total amount of expenditure that the person incurs in acquiring or increasing during the income year the attributing interest in the FIF divided by the total for the year of the shareholding increase in the attributing interest in the FIF for each acquisition or increase; or if a share reorganisation occurs in the income year, the amount calculated under section EX 54 for the year.
Quick sale gain amount formula (12) The formula, for each acquisition or increase in the attributing interest that is disposed of or reduced in the income year, is— gain - (interest × average cost).
(13) Deﬁnition of items in formula In the formula in subsection (12),— (a) (b) (c) gain is the total amount that the person derives from holding or disposing of the acquisition or increase: interest is the amount of the shareholding acquisition or increase: average cost is the total amount of expenditure that the person incurs in acquiring or increasing the attributing interest in the FIF divided by the total for the income year of the shareholding increase in the interest for each acquisition or increase.
LIFO for identifying attributing interests disposed of (14) For the purposes of subsection (12), attributing interests in a FIF are treated as being disposed of in the reverse order of their acquisition (last in-ﬁrst out).

Treatment of transaction under section EX 63 or EX 67 (14B) For the purposes of subsection (7), if the person is treated as disposing of or acquiring an attributing interest in an income year under section EX 63(5) or EX 67, the disposal or acqui- sition is ignored.
Treatment of attributing interests subject to returning share transfer (14C) If an attributing interest in a FIF is an original share subject to a returning share transfer, for the purposes of a person us- 1046 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EX 52 (15) ing the fair dividend rate method to calculate FIF income, the attributing interest is treated as held by the share supplier.
Meaning of shareholding In this section, shareholding means the number of shares or units in an attributing interest.
Deﬁned in this Act: amount, attributing interest, fair dividend rate method, FIF, FIF income, foreign investment vehicle, income year, investor, life insurance, market value, original share, portfolio investment entity, returning share trans- fer, share, shareholding, share reorganisation, share supplier Compare: 2004 No 35 ss EX 44B(2), EX 44C Section EX 52(1)(a): amended (with effect on 1 April 2008), on 6 October 2009, by section 177(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 52(1)(b): substituted, on 1 April 2008, by section 394(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section EX 52(2): substituted (with effect on 1 April 2008), on 6 October 2009, by section 177(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 52(5): amended (with effect on 1 April 2008), on 6 October 2009, by section 177(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section EX 52(5): amended, on 1 April 2008, by section 394(2) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section EX 52(5)(a): added, on 1 April 2008, by section 394(2) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EX 52(5)(b): added, on 1 April 2008, by section 394(2) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section EX 52(5B) heading: inserted (with effect on 1 April 2008), on 6 October 2009, by section 177(4) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 52(5B): inserted (with effect on 1 April 2008), on 6 October 2009, by section 177(4) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section EX 52(6): substituted (with effect on 1 April 2008), on 6 October 2009, by section 177(6) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 52(7)(a): substituted (with effect on 1 April 2008), on 6 October 2009, by section 177(7) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section EX 52(7)(b): substituted (with effect on 1 April 2008), on 6 October 2009, by section 177(7) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 52(11)(a): amended, on 1 April 2008, by section 394(3) of the Tax- ation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

1047 Part E s EX 52 Income Tax Act 2007 Reprinted as at 5 January 2010 Section EX 52(12) formula: amended, on 1 April 2008, by section 394(4) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EX 52(13)(a): amended (with effect on 1 April 2008), on 6 October 2009, by section 177(8)(a) of the Taxation (International Taxation, Life Insur- ance, and Remedial Matters) Act 2009 (2009 No 34).

Section EX 52(13)(b): substituted, on 1 April 2008, by section 394(5) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section EX 52(13)(c): added, on 1 April 2008, by section 394(5) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EX 52(13)(c): amended (with effect on 1 April 2008), on 6 October 2009, by section 177(8)(b) of the Taxation (International Taxation, Life Insur- ance, and Remedial Matters) Act 2009 (2009 No 34).

Section EX 52(14B) heading: inserted, on 1 April 2008, by section 394(6) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section EX 52(14B): inserted, on 1 April 2008, by section 394(6) of the Taxa- tion (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EX 52(14C) heading: inserted (with effect on 1 April 2008), on 6 Oc- tober 2009, by section 177(9) of the Taxation (International Taxation, Life In- surance, and Remedial Matters) Act 2009 (2009 No 34).

Section EX 52(14C): inserted (with effect on 1 April 2008), on 6 October 2009, by section 177(9) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 52 list of deﬁned terms foreign investment vehicle: inserted (with effect on 1 April 2008), on 6 October 2009, by section 177(10) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

inserted (with effect on Section EX 52 list of deﬁned terms life insurance: 1 April 2008), on 6 October 2009, by section 177(10) of the Taxation (Inter- national Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 52 list of deﬁned terms original share: inserted (with effect on 1 April 2008), on 6 October 2009, by section 177(10) of the Taxation (Inter- national Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section EX 52 list of deﬁned terms portfolio investment entity: inserted (with effect on 1 April 2008), on 6 October 2009, by section 177(10) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 52 list of deﬁned terms returning share transfer: inserted (with effect on 1 April 2008), on 6 October 2009, by section 177(10) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section EX 52 list of deﬁned terms share: inserted (with effect on 1 April 2008), on 6 October 2009, by section 177(10) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 52 list of deﬁned terms share supplier: inserted (with effect on 1 April 2008), on 6 October 2009, by section 177(10) of the Taxation (Inter- 1048 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EX 53 national Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
EX 53 Fair dividend rate method for unit-valuing funds and others by choice (1) When this section applies: ﬁrst case This section applies when a person— (a) (b) calculates FIF income from an attributing interest in a FIF for an income year under the fair dividend rate method; and is a unit trust or other entity (the fund) that— (i) makes investments for the beneﬁts of other per- sons (the investors); and assigns each investor an interest (the unit) in a proportion of the net returns from the invest- ments; and determines the value of the investor’s units for each of a number of periods (the unit valuation periods) making up the income year.
(ii) (iii) When this section applies: second case (1B) This section applies also when a person— (a) (b) (c) calculates FIF income from an attributing interest in a FIF for an income year under the fair dividend rate method; and the person is not subject to subsection (1); and the person— (i) determines the market value of the attributing in- terest for each period of a day (the unit valuation period) in the income year; and chooses that this section applies.
(ii) (2) FIF income The total FIF income for the income year of the fund or person (the interest holder) from the attributing interests in FIFs (the FDR interests) for which the fund or person uses the fair divi- dend rate method is the total of the amounts calculated using the formula in subsection (3) for each unit valuation period.
Formula The formula is— (3) 1049 Part E s EX 53 Income Tax Act 2007 Reprinted as at 5 January 2010 (4) Deﬁnition of items in formula The items in the formula in subsection (3) are deﬁned in sub- sections (5) to (15).
Opening value (5) Opening value is the total of the market values of the FDR interests that— (a) (b) the interest holder holds at the start of the unit valuation period; and are not, at the beginning of the income year, included in a direct income interest of 10% or more in a grey list company.
Exclusion for certain managed funds (5B) Subsection (5)(b) does not apply if— (a) (b) the interest holder is a portfolio investment entity, an entity eligible to be a portfolio investment entity, or a life insurance company; and the FIF is a foreign investment vehicle.

Period Period is the number of days in the unit valuation period.

Year Year is the number of days in the income year.
When quick sale adjustment required The quick sale adjustment is required, and is not zero, only if the interest holder has a unit valuation period of more than 1 day and, in the unit valuation period,— (a) acquires or increases an FDR interest to which this sec- tion applies; and later disposes of or reduces the FDR interest.
(b) Quick sale adjustment Quick sale adjustment is the lesser of— (a) the total of the amounts (the peak holding method amount) calculated for each FDR interest using the for- mula in subsection (10): (6) (7) (8) (9) 1050 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EX 53 (b) the total of the amounts (the quick sale gain amount) calculated for each FDR interest using the formula in subsection (14), treating a negative total as being zero.
Peak holding method amount formula (10) The formula is— 0.05 × peak holding differential × average cost.

Deﬁnition of items in formula (11) The items in the formula in subsection (10) are deﬁned in sub- sections (12) and (13).
(12) Peak holding differential Peak holding differential is,— (a) if no share reorganisation occurs in the unit valuation period, the lesser of— (i) the difference between the greatest shareholding in the period and the shareholding at the start of the period: the difference between the greatest shareholding in the period and the shareholding at the end of the period; or (ii) (b) if a share reorganisation occurs in the period, the amount calculated under section EX 54 for the period.
Average cost (13) Average cost is— (a) (b) if no share reorganisation occurs in the unit valuation period, the total amount of expenditure that the inter- est holder incurs in acquiring or increasing during the period the attributing interest in the FIF divided by the total for the period of the shareholding increase in the attributing interest in the FIF for each acquisition or in- crease; or if a share reorganisation occurs in the period, the amount calculated under section EX 54 for the period.
Quick sale gain amount formula (14) The formula, for each acquisition or increase in the attributing interest that is disposed of or reduced in the unit valuation period, is— gain - (interest × average cost).
1051 Part E s EX 53 Income Tax Act 2007 Reprinted as at 5 January 2010 (15) Deﬁnition of items in formula In the formula in subsection (14),— (a) (b) (c) gain is the total amount that the interest holder derives from holding or disposing of the acquisition or increase: interest is the amount of the shareholding acquisition or increase: average cost is the total amount of expenditure that the interest holder incurs in acquiring or increasing the at- tributing interest in the FIF divided by the total for the period of the shareholding increase in the interest for each acquisition or increase.
LIFO for identifying attributing interests disposed of (16) For the purposes of subsection (14), attributing interests in a FIF are treated as being disposed of in the reverse order of their acquisition (last in-ﬁrst out).

Deemed transaction under section EX 67 ignored (16B) For the purposes of subsection (9), if the person is treated as disposing of or acquiring an attributing interest in an income year under section EX 67, the disposal or acquisition is ig- nored.
Treatment of attributing interests subject to returning share transfer (16C) If an attributing interest in a FIF is an original share subject to a returning share transfer, for the purposes of a person us- ing the fair dividend rate method to calculate FIF income, the attributing interest is treated as held by the share supplier.

Meaning of shareholding In this section, shareholding means the number of shares or units in an attributing interest.
Deﬁned in this Act: amount, attributing interest, fair dividend rate method, FIF, FIF income, foreign investment vehicle, income year, investor, life insurance, market value, New Zealand, original share, portfolio investment entity, return- ing share transfer, share, share reorganisation, share supplier, unit valuation period Compare: 2004 No 35 ss EX 44B(1), (3), EX 44D Section EX 53 heading: amended, on 1 April 2008, by section 395(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EX 53(1) heading: amended, on 1 April 2008, by section 395(2) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

(17) 1052 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EX 53 Section EX 53(1)(a): amended (with effect on 1 April 2008), on 6 October 2009, by section 178(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 53(1B) heading: inserted, on 1 April 2008, by section 395(3) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section EX 53(1B): inserted, on 1 April 2008, by section 395(3) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section EX 53(1B)(a): amended (with effect on 1 April 2008), on 6 October 2009, by section 178(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 53(2): substituted (with effect on 1 April 2008), on 6 October 2009, by section 178(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section EX 53(2): amended, on 1 April 2008, by section 395(4) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EX 53(5): amended (with effect on 1 April 2008), on 6 October 2009, by section 178(4) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section EX 53(5): amended, on 1 April 2008, by section 395(5) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section EX 53(5)(a): added, on 1 April 2008, by section 395(5) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EX 53(5)(b): added, on 1 April 2008, by section 395(5) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section EX 53(5B) heading: inserted (with effect on 1 April 2008), on 6 October 2009, by section 178(5) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 53(5B): inserted (with effect on 1 April 2008), on 6 October 2009, by section 178(5) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section EX 53(8): substituted (with effect on 1 April 2008), on 6 October 2009, by section 178(7) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 53(8): amended, on 1 April 2008, by section 395(6) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section EX 53(9)(a): substituted (with effect on 1 April 2008), on 6 October 2009, by section 178(8) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 53(9)(b): substituted (with effect on 1 April 2008), on 6 October 2009, by section 178(8) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section EX 53(13)(a): amended, on 1 April 2008, by section 395(7) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section EX 53(14) formula: amended, on 1 April 2008, by section 395(8) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
1053 Part E s EX 53 Income Tax Act 2007 Reprinted as at 5 January 2010 Section EX 53(15)(a): substituted, on 1 April 2008, by section 395(9) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section EX 53(15)(a): amended (with effect on 1 April 2008), on 6 October 2009, by section 178(9)(a) of the Taxation (International Taxation, Life Insur- ance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 53(15)(b): substituted, on 1 April 2008, by section 395(9) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section EX 53(15)(c): added, on 1 April 2008, by section 395(9) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section EX 53(15)(c): amended (with effect on 1 April 2008), on 6 October 2009, by section 178(9)(b) of the Taxation (International Taxation, Life Insur- ance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 53(16B) heading: inserted, on 1 April 2008, by section 395(10) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section EX 53(16B): inserted, on 1 April 2008, by section 395(10) of the Tax- ation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EX 53(16C) heading: inserted (with effect on 1 April 2008), on 6 Oc- tober 2009, by section 178(10) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section EX 53(16C): inserted (with effect on 1 April 2008), on 6 October 2009, by section 178(10) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 53 list of deﬁned terms foreign investment vehicle: inserted (with effect on 1 April 2008), on 6 October 2009, by section 178(11) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section EX 53 list of deﬁned terms life insurance: inserted (with effect on 1 April 2008), on 6 October 2009, by section 178(11) of the Taxation (Inter- national Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 53 list of deﬁned terms original share: inserted (with effect on 1 April 2008), on 6 October 2009, by section 178(11) of the Taxation (Inter- national Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section EX 53 list of deﬁned terms portfolio investment entity: inserted (with effect on 1 April 2008), on 6 October 2009, by section 178(11) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 53 list of deﬁned terms returning share transfer: inserted (with effect on 1 April 2008), on 6 October 2009, by section 178(11) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section EX 53 list of deﬁned terms share: inserted (with effect on 1 April 2008), on 6 October 2009, by section 178(11) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
1054 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EX 54 Section EX 53 list of deﬁned terms share supplier: inserted (with effect on 1 April 2008), on 6 October 2009, by section 178(11) of the Taxation (Inter- national Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
EX 54 Fair dividend rate method and cost method: when periods affected by share reorganisations (1) (2) (3) Relevant items and formulas This section provides for the calculation, for an income year or unit valuation period (the affected period) in which a share reorganisation occurs, of the following: (a) the item peak holding differential for the purposes of the formulas in sections EX 52(8), EX 53(10), and EX 56(15): the item average cost for the purposes of the formulas in sections EX 52(8), EX 53(10) and EX 56(5) and (15): the item increase for the purposes of the formula in section EX 56(5).
(b) (c) Identifying reorganisation periods For the purposes of calculating the items for an affected period under this section,— (a) the affected period is treated as consisting of periods (the reorganisation periods) that do not overlap: a reorganisation period— (i) (b) begins with the start of the affected period and immediately before each share reorganisation in the affected period; and ends immediately before each share reorganisa- tion in the affected period and at the end of the affected period.
(ii) Identifying equivalent shareholdings For the purposes of calculating the items for an affected period under this section,— (a) the amount of the attributing interest in the FIF held by the person at any time (the comparison time) in a re- organisation period, is treated as being the amount (the equivalent shareholding) of the attributing interest in the FIF that the person would hold at the end of the af- fected period if, after the comparison time, the person 1055 Part E s EX 54 Income Tax Act 2007 Reprinted as at 5 January 2010 (b) did not increase or reduce the attributing interest in the FIF except under share reorganisations occurring in the affected period: the amount of an acquisition or increase (the acquired shareholding) by the person of the attributing interest in the FIF other than under a share reorganisation is treated as being the amount (the equivalent acquired shareholding) equal to the difference between— (i) the equivalent shareholding for the time of the acquisition or increase; and the amount that would be the equivalent share- holding for the time of the acquisition or increase if the person were not to have the acquired share- holding.
(ii) Peak holding differential The item peak holding differential, for a person and an af- fected period, is the lesser of the following: (a) the difference between the equivalent shareholding that is the greatest for the affected period and the equivalent shareholding at the start of the affected period: the difference between the equivalent shareholding that is the greatest for the affected period and the equivalent shareholding at the end of the affected period.
(b) Average cost The item average cost, for a person and an affected period, is the total amount of expenditure that the person incurs during the affected period in acquiring or increasing the attributing interest in the FIF divided by the total for the affected period of the equivalent acquired shareholding for each acquisition or increase.
Increase The item increase, for a person and an affected period, is the difference between the equivalent shareholding at the start of the affected period and the equivalent shareholding at the start of the period before the affected period.
Deﬁned in this Act: amount, attributing interest, FIF, income year, share re- organisation, unit valuation period Compare: 2004 No 35 s EX 44E (4) (5) (6) 1056 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EX 55 EX 55 Deemed rate of return method (1) (2) (3) (4) Formula changes if interest changes If a person is using the deemed rate of return method to calculate FIF income or loss from an attributing interest in a FIF for an income year, the FIF income or loss is calculated— by the formula in subsection (3) (the standard for- (a) mula) if the person has held the interest unchanged throughout the income year; and by totalling the amounts calculated by the formula in subsection (5) (the part-year formula) for each part of the income year during which the interest is unchanged, in any other case.
(b) When interest changes A person’s attributing interest in a FIF changes during an in- come year if the person— (a) (b) acquires or increases the interest; or disposes of or reduces the interest, but merely receiving an annuity payment from the interest is not a disposal or reduction.

Standard formula The standard formula is— opening book value × deemed rate.
Deﬁnition of items in standard formula In the standard formula,— (a) opening book value is the book value of the interest at the end of the previous income year, calculated under subsection (7): deemed rate is the rate set by the Governor-General by Order in Council for this section for the relevant income year.
(b) Part-year formula The part-year formula is— (5) Deﬁnition of items in part-year formula In the part-year formula,— (6) 1057 Part E s EX 55 Income Tax Act 2007 Reprinted as at 5 January 2010 (a) (b) (c) (d) (ii) opening book value is the book value, if any, of the interest at the end of the period before the part of the income year, calculated under subsection (7): costs is the total for the part of the income year of— (i) all expenditure, if any, that the person incurs in acquiring or increasing the interest: income tax on the income of the FIF for which the person is liable under the laws of a country or territory outside New Zealand and which is paid by the person in the part of the income year: deemed rate is the rate set by the Governor-General by Order in Council for this section for the relevant income year: days is the number of days in the part of the income year; and for this purpose, an acquisition or increase is treated as occurring at the start of a day, and a dispos- ition or reduction is treated as occurring at the end of a day.
Closing book value formula The book value, at the end of an income year or, in a case in which subsection (5) applies, a part of an income year, of an attributing interest of a person in a FIF under the deemed rate of return method is, unless subsection (9) applies, calculated using the formula (the closing book value formula)— (opening book value + costs + deemed income + top-up amounts) - gains.
(b) Deﬁnition of items in closing book value formula In the closing book value formula,— (a) opening book value is the book value, if any, of the interest at the end of the previous income year or the part of the income year, calculated under subsection (7): costs is the total for the income year or part of the income year of— (i) all expenditure, if any, that the person incurs in acquiring or increasing the interest: income tax on the income of the FIF for which the person is liable under the laws of a country or territory outside New Zealand and which is paid (ii) (7) (8) 1058 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EX 55 (9) (10) (11) (c) (d) (e) by the person in the income year or part of the income year: deemed income is the FIF income from the interest for the year or the part of the income year calculated under subsection (3) or (5): top-up amounts is amounts, gains from holding or disposing of the interest, that are top-up FIF income in the year under section EX 60 or EX 61: gains is the total of all amounts that the person derives during the year or the part of the income year from hold- ing or disposing of the interest; the amounts including any foreign withholding tax or other tax that the person is allowed as a credit under section LJ 2 (Tax credits for foreign income tax).
Closing book value zero if changing method The closing book value is always zero if the person is using a calculation method for the interest different from the deemed rate of return method at the end of the income year or, in a case to which subsection (5) applies, the part of the income year.
Top-up income if deemed rate inadequate If the closing book value of a person’s attributing interest in a FIF at the end of an income year or a part of an income year is below zero, the person has additional FIF income equal to the deﬁcit for the relevant income year.
When subsection (10) does not apply Subsection (10) does not apply if— (a) (b) the person is a natural person; and at all times during the income year the total value of the person’s attributing interests in FIFs is $250,000 or less, the value of each interest being— (i) its book value, calculated under subsection (7), at the end of the previous income year, if the person held the interest then and used the deemed rate of return method to calculate FIF income for all attributing interests in the previous income year: its market value, in any other case; and (ii) the deﬁcit in closing book value arises only because the person disposed of some or all of the interest; and (c) 1059 Part E s EX 56 Income Tax Act 2007 Reprinted as at 5 January 2010 (d) the gain that the person derived from disposing of the interest or part-interest is not income, or is income only to the extent to which it gives rise to FIF income.
Top-up income if gains more than deemed income (12) A person calculating FIF income under the deemed rate of re- turn method can also have additional FIF income under section EX 60.
(13) (14) FIF income reduced on disposal if deemed rate excessive If a person has disposed of the whole of an attributing interest in a FIF and the closing book value for the relevant income year or the part of the income year is more than zero, the excess is subtracted when the person’s FIF income under the deemed rate of return method for the income year is calculated.
When subsection (13) does not apply Subsection (13) does not apply if— (a) (b) the person is a natural person; and at all times during the income year the total value of at- tributing interests in FIFs held by the person is $250,000 or less, the value of each interest being— (i) its book value, calculated under subsection (7), at the end of the previous income year, if the person held the interest then and used the deemed rate of return method to calculate FIF income for all attributing interests in the previous income year: its market value, in any other case; and (c) (ii) the gain that the person derived from disposing of the interest or part-interest is not income, or is income only to the extent to which it gives rise to FIF income.
Deﬁned in this Act: amount, attributing interest, calculation method, deemed rate of return method, FIF, FIF income, foreign withholding tax, income, in- come year, loss, market value, pay, tax Compare: 2004 No 35 s EX 45 EX 56 Cost method Cost method formula If a person is using the cost method to calculate FIF income or loss from an attributing interest in a FIF for an income year, the person’s total FIF income from their attributing interests in the FIF for the income year is calculated using the formula— (1) 1060 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EX 56 (2) (3) (0.05 × opening value) + quick sale adjustment.
Deﬁnition of items in formula The items in the formula in subsection (1) are deﬁned in sub- sections (3) to (18).
Opening value Opening value is the total of the market values of the person’s attributing interests in the FIF, being— (a) (ab) (ac) (b) zero, if the relevant income year is the year in which the person acquires an attributing interest in the FIF; or the amount that is shown as the net asset value of the interest in audited ﬁnancial statements of the person for the relevant income year made available to the general public, if— (i) (ii) paragraph (a) does not apply; and the FIF makes available to the general public au- dited ﬁnancial statements for its accounting year ending in the relevant income year; and the person chooses that this paragraph applies; or (iii) the amount of the cost of the interest, if— (i) (ii) paragraphs (a) and (ab) do not apply; and the person acquires the interest in the 2005–06 or 2006–07 income year; and the interest was not an attributing interest for the income year before the relevant income year; or.
the amount of an independent valuation of the market value of the interest at the start of the relevant income year, if paragraphs (a), (ab) and (ac) do not apply and the person holds the interest at the start of the relevant income year, and— (i) (iii) the interest was not an attributing interest for which the person has FIF income or loss for the income year before the relevant income year: the person has used the cost method for the inter- est for a period of 4 or more income years end- ing before the relevant income year and has not applied this paragraph to the interest for any of those income years; or (ii) (c) the amount calculated using the formula in subsection (4), if paragraphs (a), (ab), (ac), and (b) do not apply and 1061 Part E s EX 56 Income Tax Act 2007 Reprinted as at 5 January 2010 the person’s shareholding (the current opening share- holding) at the start of the relevant income year is the same as the person’s shareholding (the preceding open- ing shareholding) at the start of the preceding income year; or the amount calculated using the formula in subsection (5), if paragraphs (a), (ab), (ac), and (b) do not apply and the person’s current opening shareholding is more than the preceding opening shareholding; or the amount calculated using the formula in subsection (6), if paragraphs (a), (ab), (ac), and (b) do not apply and the person’s current opening shareholding is less than the preceding opening shareholding.
(d) (e) Opening value formula: no shareholding change The formula referred to in subsection (3)(c) is— (4) 1.05 × preceding opening.

Opening value formula: shareholding increase The formula referred to in subsection (3)(d) is— (5) 1.05 × preceding opening + (increase × average cost).

Opening value formula: shareholding decrease The formula referred to in subsection (3)(e) is— (6) opening shareholding preceding shareholding × 1.05 × preceding opening.
Deﬁnition of items in formulas The items in the formula in subsections (4) to (6) are deﬁned in subsections (8) to (13).

Preceding opening Preceding opening is the opening value for the income year before the relevant income year.
FIF income [Repealed] [Repealed] Increase Increase is,— (7) (8) (9) (10) 1062 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EX 56 (a) (b) if no share reorganisation occurs in the preceding in- come year, the difference between the person’s share- holding at the start of the relevant income year and the person’s shareholding at the start of the preceding in- come year: if a share reorganisation occurs in the preceding income year, the amount calculated under section EX 54 for the preceding income year.
Average cost (11) Average cost is,— (a) (b) if no share reorganisation occurs in the preceding in- come year, the total amount of expenditure that the per- son incurs in acquiring or increasing during the preced- ing income year the attributing interest in the FIF di- vided by the total for the preceding income year of the increase in the attributing interest in the FIF for each acquisition or increase; or if a share reorganisation occurs in the preceding income year, the amount calculated under section EX 54 for the preceding income year.
Opening shareholding (12) Opening shareholding is the amount of the person’s share- holding at the start of the relevant income year.

Preceding shareholding (13) Preceding shareholding is the amount of the person’s share- holding at the start of the preceding income year.

When quick sale adjustment required (14) The quick sale adjustment is required only if, in the relevant income year, the person disposes of or reduces their attributing interest in the FIF after acquiring it or increasing it.
The quick sale adjustment is zero in any other case.

Quick sale adjustment (15) Quick sale adjustment is calculated using the formula— 0.05 × peak holding differential × average cost.

Deﬁnition of items in formula (16) The items in the formula in subsection (15) are deﬁned in sub- sections (17) and (18).
1063 Part E s EX 56 Income Tax Act 2007 Reprinted as at 5 January 2010 (17) Peak holding differential Peak holding differential is,— (a) if no share reorganisation occurs in the relevant income year, the lesser of— (i) the difference between the greatest shareholding in the year and the shareholding at the start of the year: the difference between the greatest shareholding in the year and the shareholding at the end of the year; or (ii) (b) if a share reorganisation occurs in the relevant income year, the amount calculated under section EX 54 for the year.
Average cost (18) Average cost is,— (a) (b) if no share reorganisation occurs in the relevant income year, the total amount of expenditure that the person in- curs in acquiring or increasing during the relevant in- come year the attributing interest in the FIF divided by the total for the year of the shareholding increase in the attributing interest in the FIF for each acquisition or in- crease; or if a share reorganisation occurs in the relevant income year, the amount calculated under section EX 54 for the year.
Meaning of shareholding In this section, shareholding means the number of shares or units in an attributing interest.
Deﬁned in this Act: amount, attributing interest, cost method, FIF, FIF income, FIF loss, income year, market value, New Zealand, share reorganisation, unit valuation period Compare: 2004 No 35 s EX 45B Section EX 56(3)(ac)(ii): amended (with effect on 1 April 2008), on 6 October 2009, by section 179(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 56(3)(ac)(iii): added (with effect on 1 April 2008), on 6 October 2009, by section 179(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section EX 56(3)(ab): inserted, on 1 April 2008, by section 396(1) of the Tax- ation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
(19) 1064 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EX 57 Section EX 56(3)(ac): inserted, on 1 April 2008, by section 396(1) of the Tax- ation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section EX 56(3)(b): amended, on 1 April 2008, by section 396(2) of the Tax- ation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EX 56(3)(b)(i): amended, on 1 April 2008, by section 396(3) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section EX 56(3)(c): amended, on 1 April 2008, by section 396(4) of the Tax- ation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section EX 56(3)(d): amended, on 1 April 2008, by section 396(5) of the Tax- ation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EX 56(3)(e): amended, on 1 April 2008, by section 396(6) of the Tax- ation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section EX 56(4) formula: substituted (with effect on 1 April 2008), on 6 Oc- tober 2009, by section 179(2) of the Taxation (International Taxation, Life In- surance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 56(5) formula: substituted (with effect on 1 April 2008), on 6 Oc- tober 2009, by section 179(3) of the Taxation (International Taxation, Life In- surance, and Remedial Matters) Act 2009 (2009 No 34).

Section EX 56(6) formula: substituted (with effect on 1 April 2008), on 6 Oc- tober 2009, by section 179(4) of the Taxation (International Taxation, Life In- surance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 56(9) heading: repealed (with effect on 1 April 2008), on 6 October 2009, pursuant to section 179(5) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section EX 56(9): repealed (with effect on 1 April 2008), on 6 October 2009, by section 179(5) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 56(11)(a): amended, on 1 April 2008, by section 396(7) of the Tax- ation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section EX 56(15) formula: substituted (with effect on 1 April 2008), on 6 October 2009, by section 179(6) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section EX 56(18)(a): amended, on 1 April 2008, by section 396(8) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EX 56 list of deﬁned terms close of trading spot exchange rate: re- pealed (with effect on 1 April 2008), on 6 October 2009, by section 179(7) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
EX 57 Conversion of foreign currency amounts: most methods When this section applies This section applies when— (1) 1065 Part E s EX 58 Income Tax Act 2007 Reprinted as at 5 January 2010 (a) (b) an amount in a foreign currency is the market value of, or is derived from or incurred on, an attributing interest in a FIF that a person has in an income year; and the person is using one of the following calculation methods (the relevant method) to calculate their FIF income or loss from the interest for the income year: (i) (ii) (iii) (iv) the comparative value method: the fair dividend rate method: the deemed rate of return method: the cost method.
(2) (3) Choosing conversion rates The person must choose either that— (a) each foreign currency amount in the income year is con- verted into New Zealand dollars using the exchange rate on the day for which the market value is determined or on which the amount is derived or incurred; or all foreign currency amounts in the income year are con- verted into New Zealand dollars at the average of the close of trading spot exchange rates for the 15th day of each month that falls in the income year.
(b) Election applying method-wide and for future years The election by the person must be applied for all attributing interests for which they use the relevant method for the income year and each later income year.
Deﬁned in this Act: amount, attributing interest, calculation method, close of trading spot exchange rate, comparative value method, cost method, deemed rate of return method, fair dividend rate method, FIF income, FIF loss, income year, New Zealand Compare: 2004 No 35 ss EX 44(7), EX 44C(11), EX 44D(13), EX 45(15), EX 45B(17) EX 58 Additional FIF income or loss if CFC owns FIF Application of this section This section applies when— (a) a person has an income interest of 10% or more in a CFC for an accounting period under sections EX 14 to EX 17; and because section EX 21(33) applies, FIF income and FIF loss is not taken into account in calculating the branch (b) (1) 1066 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EX 58 (2) (3) (4) (5) (6) equivalent income or loss of the CFC for the period for the person.
Calculation of FIF income or loss The person instead has FIF income or loss, for the income year in which the period ends, calculated using the formula— income interest × CFC’s FIF income or loss.

Deﬁnition of items in formula In the formula,— (a) (b) (b) (c) income interest is the person’s income interest in the CFC for the period under sections EX 8 to EX 13: CFC’s FIF income or loss is the CFC’s FIF income or loss for the period calculated under subsections (4) and (5).
Application of FIF rules to choice of method The person must— (a) choose, under sections EX 44 to EX 48, the calculation method for calculating the CFC’s FIF income or loss; and otherwise apply the calculation rules in sections EX 44 to EX 61 as if the person directly held the attributing interest; and apply the FIF loss ring-fencing rules in section DN 8 (Ring-fencing cap on deduction: branch equivalent method) as if the person directly held the attributing interest.
Exclusion of policyholders’ entitlements Despite subsection (4), the CFC’s FIF income or loss does not include any amount actuarially determined to be attributable to policyholders in the CFC or another company as a result of applying section EX 21(25) and (26) to the CFC.

Non-attributing Australian CFCs This section applies whether or not the CFC is a non-attribut- ing Australian CFC under section EX 22 for the period.
Disclosure restrictions on grey list CFCs 1067 Part E s EX 59 Income Tax Act 2007 Reprinted as at 5 January 2010 (7) [Repealed] [Repealed] Deﬁned in this Act: accounting period, amount, attributing interest, branch equivalent income, calculation method, CFC, company, FIF, FIF income, FIF loss, FIF rules, grey list, income interest, income year, loss Compare: 2004 No 35 s EX 46 Section EX 58(1)(a): amended (with effect on 1 April 2008), on 6 October 2009, by section 180(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 58(6) heading: substituted (with effect on 30 June 2009), on 6 Oc- tober 2009, by section 180(2) of the Taxation (International Taxation, Life In- surance, and Remedial Matters) Act 2009 (2009 No 34).

Section EX 58(6): substituted (with effect on 30 June 2009), on 6 October 2009, by section 180(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 58(7) heading: repealed (with effect on 30 June 2009), on 6 October 2009, pursuant to section 180(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section EX 58(7): repealed (with effect on 30 June 2009), on 6 October 2009, by section 180(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Relationship with other provisions in Act EX 59 Codes: comparative value method, deemed rate of return method, fair dividend rate method, and cost method (1) When this section applies This section applies when a person has an attributing interest in a FIF and calculates their FIF income or loss from the interest for a period using— (a) (b) (c) (d) the comparative value method: the deemed rate of return method: the fair dividend rate method: the cost method.
Exclusion for interests in grey list companies (1B) Subsection (1)(c) does not apply if— (a) (b) the FIF is a grey list company; and the person holds a direct income interest of 10% or more in the FIF at the beginning of the income year in which the period falls.
1068 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EX 59 Application of rule for certain managed funds (1C) Subsection (1B) does not apply if— (a) (b) the person is a portfolio investment entity, an entity eli- gible to be a portfolio investment entity, or a life insur- ance company; and the FIF is a foreign investment vehicle.
No income other than FIF income The person is treated as not having any income from the in- terest for the period other than FIF income and, in particular, any dividends derived in the period from the interest and any income gained from disposing of the interest in the period are disregarded.
(2) Exception to subsection (2): fees rebate (2B) An amount derived by the person from the interest is not dis- (3) (4) regarded under subsection (2) if— (a) (b) the amount is a rebate of fees; and the person was allowed a deduction for the payment of the fees.
No deductions other than FIF loss The person is denied a deduction for any amount incurred in the period on acquiring some or all of the interest, except to the extent to which the amount is taken into account under the relevant calculation method in calculating FIF income or loss for the period.

Application of trading stock rules The interest is not trading stock in the period and accordingly subpart EB (Valuation of trading stock (including dealer’s live- stock)) does not apply.
Deﬁned in this Act: amount, attributing interest, calculation method, com- pany, comparative value method, cost method, deduction, deemed rate of re- turn method, direct income interest, dividend, fair dividend rate method, FIF, FIF income, FIF loss, foreign investment vehicle, grey list company, income, life insurance, loss, portfolio investment entity, trading stock Compare: 2004 No 35 s EX 47 Section EX 59(1)(c): substituted (with effect on 1 April 2008), on 6 October 2009, by section 181(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 59(1)(c): substituted, on 1 April 2008, by section 397 of the Taxa- tion (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

1069 Part E s EX 60 Income Tax Act 2007 Reprinted as at 5 January 2010 Section EX 59(1B) heading: inserted (with effect on 1 April 2008), on 6 October 2009, by section 181(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 59(1B): inserted (with effect on 1 April 2008), on 6 October 2009, by section 181(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section EX 59(1C) heading: inserted (with effect on 1 April 2008), on 6 October 2009, by section 181(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 59(1C): inserted (with effect on 1 April 2008), on 6 October 2009, by section 181(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section EX 59(2B) heading: inserted (with effect on 1 April 2009), on 6 October 2009, by section 181(4) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 59(2B): inserted (with effect on 1 April 2009), on 6 October 2009, by section 181(4) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section EX 59 list of deﬁned terms company: inserted (with effect on 1 April 2008), on 6 October 2009, by section 181(5) of the Taxation (International Tax- ation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 59 list of deﬁned terms direct income interest: inserted (with ef- fect on 1 April 2008), on 6 October 2009, by section 181(5) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section EX 59 list of deﬁned terms foreign investment vehicle: inserted (with effect on 1 April 2008), on 6 October 2009, by section 181(5) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 59 list of deﬁned terms grey list company: inserted (with effect on 1 April 2008), on 6 October 2009, by section 181(5) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section EX 59 list of deﬁned terms life insurance: inserted (with effect on 1 April 2008), on 6 October 2009, by section 181(5) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 59 list of deﬁned terms portfolio investment entity: inserted (with effect on 1 April 2008), on 6 October 2009, by section 181(5) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
EX 60 Top-up FIF income: deemed rate of return method (1) When this section applies This section applies at any time when a person— (a) has an attributing interest in a FIF for a period; and 1070 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EX 61 (2) (3) (4) (b) (c) is calculating the FIF income or loss from the interest using the deemed rate of return method; and derives in the period, from holding or disposing of the interest, an amount that would have been income if sec- tion EX 59(2) had not applied.
Formula The gain is FIF income to the extent to which the amount cal- culated using the following formula is positive: total income gains - total FIF income.
Deﬁnition of items in formula In the formula,— (a) total income gains is the total of amounts, including the amount in question, derived by the person until that time from holding or disposing of the interest that would have been income if EX 59(2) had not applied: total FIF income is the total of FIF income, reduced by the total of any FIF losses, derived by the person from the interest until, and including, the relevant period.
(b) Consequence of partial sales If the person disposes of part of the interest, this section ap- plies to the part disposed of and the part retained as if they were separate interests.

If this means that an apportionment is necessary, it must be done on the basis of the respective mar- ket values at the time the part interest is disposed of.
Deﬁned in this Act: amount, attributing interest, deemed rate of return method, FIF, FIF income, FIF loss, income, loss, market value Compare: 2004 No 35 s EX 48 EX 61 Top-up FIF income: 1 April 1993 uplift interests (1) When this section applies This section applies at any time if a person— (a) (b) (c) has an attributing interest in a FIF for a period; and held the interest on 2 July 1992; and calculated their FIF income from the interest in the period starting on 1 April 1993 under the comparative value method or the deemed rate of return method; and was treated as having reacquired the interest on 1 April 1993 for an uplifted cost under section CG 23(1)(d) of (d) 1071 Part E s EX 62 Income Tax Act 2007 Reprinted as at 5 January 2010 (2) (3) (4) (e) the Income Tax Act 1994 or EZ 7 of the Income Tax Act 2004; and derives in the period, from holding or disposing of the interest, an amount that would have been income if sec- tion EX 59(2) had not applied.
Formula The gain is FIF income to the extent to which the amount cal- culated using the following formula is positive: total income gains - total FIF income.
Deﬁnition of items in formula In the formula,— (a) total income gains is the total of amounts, including the amount in question, that the person derived until that time from holding or disposing of the interest that would have been income if EX 59(2) had not applied: total FIF income is the total of FIF income, reduced by the total of any FIF losses, that the person derived from the interest until, and including, the relevant period.
(b) Consequence of partial sales If the person disposes of part of the interest, this section ap- plies to the part disposed of and the part retained as if they were separate interests.

If this means that an apportionment is necessary, it must be done on the basis of the respective mar- ket values at the time the part interest is disposed of.
Deﬁned in this Act: amount, attributing interest, comparative value method, deemed rate of return method, FIF, FIF income, FIF loss, income, market value Compare: 2004 No 35 s EX 49 Changing calculation method EX 62 Limits on changes of method No change unless allowed Once a person uses a particular calculation method to calculate FIF income or loss for an attributing interest in a FIF for a particular period, they must use the same method for interests in the FIF for the next period unless they are allowed to change under subsections (2) to (9).
(1) 1072 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EX 62 (2) (3) (4) Change on practical grounds The person may change if it is not practical to continue with the same method because— (a) in the case of the accounting proﬁts method, section EX 46(2) prevents its continued use or it is impossible to obtain enough information to continue to use it: in the case of the branch equivalent method, it is impos- sible to obtain enough information to continue to use it: in the case of the comparative value method, it is im- possible to ﬁnd out the end-of-year market value of the interest: in the case of the deemed rate of return method, if the person was entitled to use that method only by falling under the $250,000 threshold in section EX 46(4)(b), the threshold is exceeded: in the case of the deemed rate of return method, if it was the default method under section EX 48, it ceases to be the default method: in the case of the fair dividend rate method, it is im- possible to ﬁnd out the start-of-year market value of the interest except by an independent valuation: in the case of the cost method, if it was the default method under section EX 48, it ceases to be the default method.
(b) (c) (d) (e) (f) (g) Choosing to change The person may also change by notice to the Commissioner if— (a) (b) the notice complies with subsection (4); and either— (i) the person is a natural person and the $250,000 threshold in subsection (5) is not exceeded; or the change is to, or from, the branch equivalent method and within subsections (6) and (7).
(ii) Notice of election The notice of an election to change under subsection (3) must— (a) (b) give the reasons for the change; and comply with the Commissioner’s notice requirements; and 1073 Part E s EX 62 Income Tax Act 2007 Reprinted as at 5 January 2010 (c) (d) be given before the end of the ﬁrst income year or ac- counting period for which the change is to take effect, unless the Commissioner agrees to a retrospective no- tice; and in the case of a natural person relying on the $250,000 threshold test in subsection (3)(b)(i), be given before the end of the year or period that is before the one from the end of which the change takes effect.
Natural person: $250,000 threshold A natural person may make an election under subsection (3) if the total market value of their attributing interests in FIFs is $250,000 or less at the end of the income year or accounting period before the year or period from the end of which the change takes effect.
Changing to or from branch equivalent method A person may make an election under subsection (3) to change— (a) to the branch equivalent method if— (i) this is the ﬁrst time they have chosen to change to the branch equivalent method for an attributing interest in the FIF; or subsection (7) allows them to make another elec- tion: (ii) (b) from the branch equivalent method if— (i) they are changing back to a calculation method that they used for attributing interests in the fund before they used the branch equivalent method; and this is the ﬁrst time they have chosen to change from the branch equivalent method, unless sub- section (7) allows them to make another election.
(ii) Repeated changes to or from branch equivalent method A person may change more than once to, or from, the branch equivalent method if— (a) there has been a change in circumstances, such as a signiﬁcant change in shareholding, that signiﬁcantly changes their ability to obtain enough information to use the branch equivalent method; and (5) (6) (7) 1074 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EX 62 (b) altering their income tax liability is not the principal purpose or effect of the change.
(8) (9) Repeated changes between fair dividend rate method and comparative value method A person may change more than once from the fair dividend rate method to the comparative value method and from the comparative value method to the fair dividend rate method if the person is a natural person or the trustee of a trust that— (a) has no gifting settlor who is not a natural person or de- ceased person; and at all times in the income year, is a complying trust for a distribution made at the time; and is— (i) at all times in the income year, mainly for the beneﬁt of a natural person for whom the gifting settlors of the trust have natural love and affec- tion, or had natural love and affection when alive: (ii) mainly for the beneﬁt of an organisation or trust with income that is exempt income under section CW 41 or CW 42 (which relate to the income of charities); and (b) (c) (d) is not a superannuation scheme.
Change to fair dividend rate method in return for 2008–09, 2009–10 tax year A person may change to the fair dividend rate method from the branch equivalent method or the accounting proﬁts method in the person’s return of income for— (a) the 2008–09 tax year, if the person has not furnished a return for that tax year before the date on which the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 receives the Royal assent; or the 2009–10 tax year, if the person has furnished a re- turn for the 2008–09 tax year before the date on which that Act receives the Royal assent.
(b) Deﬁned in this Act: accounting period, accounting proﬁts method, attributing interest, branch equivalent method, calculation method, Commissioner, com- parative value method, complying trust, cost method, deemed rate of return method, exempt income, fair dividend rate method, FIF, FIF income, income 1075 Part E s EX 63 Income Tax Act 2007 Reprinted as at 5 January 2010 tax liability, income year, loss, market value, notice, return, return of income, settlor, superannuation scheme, tax year, trustee Compare: 2004 No 35 s EX 50 Section EX 62(1): amended (with effect on 1 April 2008), on 6 October 2009, by section 182(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 62(8)(a): substituted, on 1 April 2008, by section 398 of the Taxa- tion (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section EX 62(8)(b): substituted, on 1 April 2008, by section 398 of the Taxa- tion (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section EX 62(8)(c): substituted, on 1 April 2008, by section 398 of the Taxa- tion (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EX 62(8)(d): substituted, on 1 April 2008, by section 398 of the Taxa- tion (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section EX 62(9) heading: added (with effect on 1 April 2008), on 6 October 2009, by section 182(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 62(9): added (with effect on 1 April 2008), on 6 October 2009, by section 182(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section EX 62 list of deﬁned terms return: inserted (with effect on 1 April 2008), on 6 October 2009, by section 182(3) of the Taxation (International Tax- ation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 62 list of deﬁned terms return of income: inserted (with effect on 1 April 2008), on 6 October 2009, by section 182(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section EX 62 list of deﬁned terms tax year: inserted (with effect on 1 April 2008), on 6 October 2009, by section 182(3) of the Taxation (International Tax- ation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
EX 63 Consequences of changes in method Changes between cost-based methods and look-through methods Subsection (2) applies if a person holding an attributing in- terest in a FIF changes the calculation method for calculating FIF income or loss from the interest— (a) from 1 of the 4 cost-based calculation methods (the the deemed rate of re- comparative value method, turn method, the fair dividend rate method, or the cost method) to either of the look-through calculation methods (the accounting proﬁts method or the branch equivalent method); or (1) 1076 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EX 63 (b) from either of the look-through calculation methods to 1 of the 4 cost-based calculation methods.
(2) (3) (4) Treatment as sale for market value The person is treated as having— (a) disposed of the interest to an unrelated person imme- diately before the start of the ﬁrst accounting period to which the new method applies; and reacquired it immediately after the start of the period; and received for the disposal and paid for the reacquisition an amount equal to the interest’s market value at the time.
(b) (c) Changes from comparative value method or fair dividend rate method to cost method or deemed rate of return method If a person holding an attributing interest in a FIF changes from either of the comparative value method and the fair dividend rate method to either of the cost method and the deemed rate of return method for calculating FIF income or loss from the interest, the person is treated as having— (a) disposed of the interest to an unrelated person immedi- ately before the start of the ﬁrst income year to which the new method applies; and reacquired it immediately after the start of the income year; and received for the disposal and paid for the reacquisition an amount equal to the interest’s market value at the time of the disposal.
(b) (c) Changes from cost method or deemed rate of return method to comparative value method or fair dividend rate method If a person holding an attributing interest in a FIF changes from either of the cost method or the deemed rate of return method to either of the comparative value method or fair dividend rate method for calculating FIF income or loss from the interest, the person is treated as having— (a) disposed of the interest to an unrelated person immedi- ately before the start of the ﬁrst income year to which the new method applies; and 1077 Part E s EX 63 Income Tax Act 2007 Reprinted as at 5 January 2010 (b) (c) reacquired it immediately after the start of the income year; and received for the disposal and paid for the reacquisition an amount equal to,— (i) for a person changing from the cost method, what would have been the interest’s opening value under section EX 56 if the person had applied the cost method for the income year; or for a person changing from the deemed rate of return method, the interest’s closing book value under section EX 55(7) for the preceding income year.
(ii) Changes between comparative value method and fair dividend rate method If a person holding an attributing interest in a FIF changes from either of the comparative value method and the fair dividend rate method to the other of the comparative value method and the fair dividend rate method for calculating the FIF income or loss from the interest, the person is treated as having— (a) disposed of the interest to an unrelated person immedi- ately before the start of the ﬁrst income year to which the new method applies; and reacquired the interest at the start of the income year; and received for the disposal and paid for the reacquisition an amount equal to the market value of the interest at the time of the disposal.
(b) (c) Deﬁned in this Act: accounting period, accounting proﬁts method, amount, at- tributing interest, branch equivalent method, calculation method, comparative value method, cost method, deemed rate of return method, fair dividend rate method, FIF, FIF income, income year, loss, market value, pay Compare: 2004 No 35 s EX 51 Section EX 63(5) heading: added, on 1 April 2008, by section 399 of the Tax- ation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EX 63(5): added, on 1 April 2008, by section 399 of the Taxation (Busi- ness Taxation and Remedial Matters) Act 2007 (2007 No 109).
(5) 1078 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EX 64 Cases of entry into and exit from FIF rules EX 64 Migration of persons holding FIF interests (1) (2) (3) Leaving New Zealand Subsection (2) applies if a person— (a) (b) (c) ceases to be resident in New Zealand; and holds an attributing interest in a FIF at the time; and for the period before the change of residence, calculates FIF income or loss from the interest using— the comparative value method: (i) the deemed rate of return method: (ii) the fair dividend rate method: (iii) the cost method.
(iv) Treatment as sale at market value The person is treated as— (a) having sold the interest immediately before the change of residence for an amount equal to its market value at the time; and not holding the interest when not resident in New Zealand, unless they become resident again and sub- sections (3) and (4) apply.
Coming to New Zealand Subsection (4) applies if a person— (a) (b) is a non-resident or a transitional resident; and becomes a New Zealand resident who is not a transi- tional resident; and holds an attributing interest in a FIF at the time; and for the period after the change of residence or status, calculates FIF income or loss from the interest using— (i) (ii) (iii) (iv) the comparative value method: the deemed rate of return method: the fair dividend rate method: the cost method.
(b) (c) (d) (4) Treatment as purchase at market value The person is treated as— (a) having bought the interest immediately after the change of residence or status for an amount equal to its market value at the time; and 1079 Part E s EX 65 Income Tax Act 2007 Reprinted as at 5 January 2010 (b) not holding it when the person is a transitional resident or not a New Zealand resident, unless they had previ- ously ceased being resident and subsections (1) and (2) applied.
(5) (6) Look-through calculation method: relevance of income interest rules Subsection (6) applies if a person— (a) ceases to be— (i) (ii) (iii) a New Zealand resident who is not a transitional resident, and becomes a non-resident: a non-resident, and becomes a New Zealand resi- dent who is not a transitional resident: a transitional resident, and becomes a New Zealand resident who is not a transitional resi- dent; and (b) (c) holds an attributing interest in a FIF at the time; and for the accounting period in which the change occurs, uses the accounting proﬁts method or branch equivalent method to calculate FIF income or loss from the interest.
Income interest rules The income interest rule in section EX 16 is relevant to the calculation of the amount of FIF income or loss for the period.
Deﬁned in this Act: accounting period, accounting proﬁts method, amount, at- tributing interest, branch equivalent method, calculation method, comparative value method, cost method, deemed rate of return method, fair dividend rate method, FIF, FIF income, FIF loss, income interest, loss, market value, New Zealand, New Zealand resident, non-resident, resident in New Zealand, transi- tional resident Compare: 2004 No 35 s EX 52 EX 65 Changes in application of FIF exemptions Exemptions ceasing to apply Subsections (2) to (4) apply if a person— (a) (b) holds rights in 1 of the categories of rights described in section EX 29(2) to (4); and either— (i) the rights become an attributing interest in a FIF because 1 of the exemptions in sections EX 31 to EX 43 ceases to apply; or (1) 1080 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EX 65 (ii) the person starts having FIF income or loss from the rights because they incur a cost on an at- tributing interest in a FIF and exceed the $50,000 threshold in sections CQ 5(1)(d) or (e) (When FIF income arises) and DN 6(1)(d) or (e) (When FIF loss arises).
Market value for cost-based methods If the person uses the comparative value method, deemed rate of return method, the fair dividend rate method, or the cost method to calculate FIF income or loss from the rights for the period following the change, the person is treated as having— disposed of the rights to an unrelated person immedi- (a) ately before the change; and reacquired them immediately after the change; and received for the sale and paid for the repurchase an amount equal to their market value at the time.
(b) (c) Calculation of reduction in FIF income or loss If the change occurs during an accounting period of the FIF and the person uses the accounting proﬁts method or the branch equivalent method to calculate FIF income or loss from the rights for that period, the FIF income or loss is reduced by subtracting the amount calculated using the formula— Deﬁnition of items in formula In the formula in subsection (3),— (a) FIF income or loss is the FIF income or loss of the person from the rights for the period before allowing for the reduction: days before change is the number of complete days in the period before the change occurs: days in period is the number of days in the period.
(b) (c) Exemptions applying Subsections (6) to (8) apply if a person— (a) (b) holds an attributing interest in a FIF; and either— 1081 (2) (3) (4) (5) Part E s EX 65 Income Tax Act 2007 Reprinted as at 5 January 2010 (i) (ii) the interest ceases to be an attributing interest in a FIF because 1 of the exemptions in sections EX 31 to EX 43 starts to apply; or the person ceases having FIF income or loss from the interest because they dispose of an attribut- ing interest in a FIF and fall below the $50,000 threshold in sections CQ 5(1)(d) or (e) and DN 6(1)(d) or (e).
Market value for cost-based methods If the person uses the comparative value method, the deemed rate of return method, fair dividend rate method, or cost method to calculate FIF income or loss from the interest for the period before the change, the person is treated as having— disposed of the interest to an unrelated person immedi- (a) ately before the change; and reacquired it immediately after the change; and received for the sale and paid for the repurchase an amount equal to its market value at the time.
(b) (c) Calculation of reduction in FIF income or loss If the change occurs during an accounting period of the FIF and the person uses the accounting proﬁts methods or the branch equivalent method to calculate FIF income or loss from the interest for that period, the FIF income or loss is reduced by subtracting the amount calculated using the formula— Deﬁnition of items in formula In the formula in subsection (7),— (a) (b) FIF income or loss is the FIF income or loss of the person from the interest for the period before allowing for the reduction: days after change is the number of complete days in the period after the change occurs: days in period is the number of days in the period.
(c) Deﬁned in this Act: accounting period, accounting proﬁts method, amount, at- tributing interest, branch equivalent method, comparative value method, cost (6) (7) (8) 1082 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EX 66 method, deemed rate of return method, fair dividend rate method, FIF, FIF in- come, loss, market value, pay Compare: 2004 No 35 s EX 53 Section EX 65(1)(b)(i): amended (with effect on 1 April 2008), on 6 October 2009, by section 183(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 65(5)(b)(i): amended (with effect on 1 April 2008), on 6 October 2009, by section 183(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

EX 66 Entities emigrating from New Zealand (1) (2) (3) (4) When this section applies This section applies when a person holds rights that become an attributing interest in a FIF because an entity becomes a FIF.
Treatment as sale and repurchase The person is treated as having— (a) (b) (c) disposed of the interest immediately before the change to an unrelated person; and repurchased it immediately after the change; and received for the sale and paid for the repurchase an amount equal to the market value of the interest at the end of the business day on which the change occurred.
Calculation of reduction in FIF income or loss If the change occurs during an accounting period of the FIF and the person uses the accounting proﬁts method or branch equivalent method to calculate FIF income or loss from the rights for that period, section EX 24 does not apply and the FIF income or loss is reduced by subtracting the amount calculated using the formula— Deﬁnition of items in formula In the formula,— (a) FIF income or loss is the FIF income or loss of the person from the rights for the period before allowing for the reduction: days before change is the number of complete days in the period before the change occurs: (b) 1083 Part E s EX 66B Income Tax Act 2007 Reprinted as at 5 January 2010 days in period is the number of days in the period.
(c) Deﬁned in this Act: accounting period, accounting proﬁts method, amount, at- tributing interest, branch equivalent method, business, FIF, FIF income, loss, market value, New Zealand, pay Compare: 2004 No 35 s EX 54 EX 66B Entities ceasing to be FIFs (1) (2) (3) (4) When this section applies This section applies when a person holds rights that cease to be an attributing interest in a FIF because an entity ceases to be a FIF.
Treatment as sale and repurchase The person is treated as having,— (a) (b) (c) immediately before the change, disposed of the interest to an unrelated person; and immediately after the change, repurchased the interest; and received for the sale and paid for the repurchase an amount equal to the market value of the interest at the end of the business day on which the change occurred.
Calculation of reduction in FIF income or loss If the change occurs during an accounting period of the FIF and the person uses the accounting proﬁts method or branch equivalent method to calculate FIF income or FIF loss from the rights for that period, section EX 24 does not apply and the FIF income or FIF loss is reduced by subtracting the amount calculated using the formula— FIF income or loss × days after change days in period.
Deﬁnition of items in formula In the formula,— (a) FIF income or loss is the FIF income or FIF loss of the person from the rights for the period before allowing for the reduction: days after change is the number of complete days in the period after the change occurs: (b) 1084 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EX 67 days in period is the number of days in the period.
(c) Deﬁned in this Act: accounting period, accounting proﬁts method, amount, at- tributing interest, branch equivalent method, FIF, FIF income, FIF loss, market value, pay Section EX 66B: inserted (with effect on 1 April 2009), on 6 October 2009, by section 184(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
EX 67 FIF rules ﬁrst applying to interest on or after 1 April 2007 (1) (2) (3) When this section applies This section applies when a person has rights in a FIF that— for the period ending on a day (the preceding day) (a) are— (i) (ii) not an attributing interest: an attributing interest for which the person does not have FIF income or loss: rights for which the person is a share supplier in a returning share transfer; and (iii) (b) for the period beginning on the day (the application day) following the preceding day are an attributing in- terest for which the person has FIF income or loss.
Treatment as disposal and acquisition The person is treated as having— (a) (b) (c) disposed of the interest immediately before the applica- tion day to an unrelated person; and reacquired it immediately at the start of the application day; and received for the disposal and paid for the reacquisition an amount equal to the market value of the interest at the time of the disposal.
Payment of tax liability arising from transition A person who is liable to pay an amount of income tax (the amount of tax) because of the disposals in an income year, and related acquisitions, treated as occurring under this section— (a) may satisfy the liability by paying the Commissioner at least— 1085 Part E s EX 67 Income Tax Act 2007 Reprinted as at 5 January 2010 (i) (ii) (iii) one third of the amount of tax in the income year following the income year in which the disposals are treated as occurring; and one half of the balance of the amount of tax re- maining owing after payment made under sub- paragraph (i), in the second income year follow- ing the income year in which the disposals are treated as occurring; and the balance of the amount of tax remaining ow- ing after payments made under subparagraphs (i) and (ii), in the third income year following the income year in which the disposals are treated as occurring: (b) is not liable to pay any penalty or interest for which the person would otherwise be liable for an inaccuracy in an estimate, or shortfall in the payment, of provisional tax to the extent to which the inaccuracy or shortfall arises because of the disposals.
Deﬁned in this Act: amount, attributing interest, Commissioner, FIF, FIF in- come, FIF loss, income tax, income year, loss, market value, New Zealand, pay, tax Compare: 2004 No 35 s EX 54B Section EX 67(1) heading: substituted, on 1 April 2008, by section 400(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section EX 67(1): substituted, on 1 April 2008, by section 400(1) of the Taxa- tion (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EX 67(3): amended, on 1 April 2008, by section 400(2)(a) of the Tax- ation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section EX 67(3)(a)(i): amended, on 1 April 2008, by section 400(2)(b) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section EX 67(3)(a)(ii): amended, on 1 April 2008, by section 400(2)(c) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EX 67(3)(a)(iii): amended, on 1 April 2008, by section 400(2)(d) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section EX 67(3)(b): amended, on 1 April 2008, by section 400(2)(e) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
1086 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EX 68 Measurement of cost EX 68 Measurement of cost (1) (2) (3) (4) (5) (6) When this section applies This section applies when the cost of a person’s attributing interest in a FIF is being measured for the purposes of— (a) the natural person $50,000 threshold in sections CQ 5(1)(d) or (e) (When FIF income arises) and DN 6(1)(d) or (e) (When FIF loss arises): the comparative value method: the deemed rate of return method: the fair dividend rate method: the cost method.
(b) (c) (d) (e) FIFO cost ﬂow identiﬁcation If sections EX 52(14) and EX 53(16) do not apply and it is not possible to speciﬁcally identify the cost of the interest be- cause of multiple acquisitions or dispositions or both by the person, the ﬁrst-in-ﬁrst-out (the FIFO) method of identifying cost ﬂows is applied.
Deﬁnition of items in formula [Repealed] [Repealed] Share splits or similar If the person acquires the interest as the result of a share split, non-taxable bonus issue, or similar event, and the acquisition is not income for the person, subsections (5) and (6) apply.

Allocation of original cost The cost of the interest is a fair allocation, based on market values at the time of the split, of the cost of the original prop- erty that is split.
Allocation replacing original cost For the income year in which the split occurs and later,— (a) the cost allocated to the interest is no longer the cost of the original property that was split; and the person is treated as having incurred the allocated cost amount on acquiring the interest when the original property was acquired; and (b) 1087 Part E s EX 68 Income Tax Act 2007 Reprinted as at 5 January 2010 (7) (8) (9) (10) (c) the person is treated as not incurring any other cost on the interest merely because the original property ceases to exist.
Non-monetary cost If any cost is incurred in kind and not in money, the amount of the cost is equal to the market value of the cost incurred in kind, measured as at the time incurred.
Exclusion of term life insurance element of premiums If the interest is rights to beneﬁt under a life insurance policy, the cost of the interest excludes a premium incurred in an ear- lier income year, or accounting period, to the extent to which the premium relates only to term life insurance for the previ- ous period and does not increase the policy’s surrender value.
Exclusion of holding costs The cost of the interest does not include any expenditure under the ﬁnancial arrangements rules or interest on money borrowed to acquire it, or other holding costs, incurred after its acquisition.
Transitional rule: interests acquired before 1 January 2000 Subsection (11) applies, for the purposes of the $50,000 threshold in sections CQ 5(1)(d) or (e) and DN 6(1)(d) or (e), if— (a) (b) the interest was acquired before 1 January 2000; and the person chooses, for the income year for which the relevant paragraph is applied or an earlier income year, that subsection (11) applies to all interests acquired be- fore 1 January 2000.
Cost treated as half 1 April 2007 value (11) Despite subsections (1) to (9), the cost of the interest is treated as equal to half the market value of the interest on 1 April 2007.
Deﬁned in this Act: accounting period, amount, attributing interest, compara- tive value method, cost method, deemed rate of return method, fair dividend rate method, FIF, ﬁnancial arrangements rules, income, income year, interest, life insurance, life insurance policy, market value, non-taxable bonus issue, pre- mium, share Compare: 2004 No 35 s EX 56 Section EX 68(2) heading: substituted, on 1 April 2008, by section 401 of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
1088 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EX 69 Section EX 68(2): substituted, on 1 April 2008, by section 401 of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section EX 68(3) heading: repealed, on 1 April 2008, by section 401 of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section EX 68(3): repealed, on 1 April 2008, by section 401 of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Change of FIF’s balance date EX 69 Change of FIF’s balance date (1) (2) (3) When this section applies This section applies when a person— (a) (b) has an attributing interest in a FIF; and calculates their FIF income or loss from the FIF using the accounting proﬁts method or the branch equivalent method; and has calculated FIF income or loss from the FIF on the basis of 1 accounting year (the old accounting year); and wants to change to use a different accounting year (the new accounting year) for the calculations.
(c) (d) Commissioner’s consent The person may make the change only if the Commissioner agrees.

Commissioner’s reasons The Commissioner may take into account any relevant factors when making the decision, including— (a) whether the change is sought because ownership of the FIF has changed; and whether the change is sought because of taxation or other legal requirements in a country where the FIF is resident or does business; and whether the change would postpone liability to income tax on FIF income.
(b) (c) (4) New accounting year If the change is approved, the person may use the new account- ing year.
1089 Part E s EX 70 Income Tax Act 2007 Reprinted as at 5 January 2010 (5) (6) Limit on transitional deferral If, in order to make the transition, the transitional accounting period is more than 1 year and ends in a later income year than the old accounting year ends in, and that would result in an amount of FIF income being derived in the later income year, subsection (6) applies and section CQ 5(1)(g) (When FIF income arises) does not.
Income pro-rated over whole period For the transitional accounting period, the FIF income is di- vided by the number of days in the period and the resulting amount is FIF income of the person derived on each day in the period.
Deﬁned in this Act: accounting period, accounting proﬁts method, accounting year, amount, attributing interest, branch equivalent method, business, Com- missioner, FIF, FIF income, income tax, income year, loss, year Compare: 2004 No 35 s EX 57 Market value rules EX 70 Market value of life policy and superannuation entitlements When this section applies This section applies when, in order to calculate a person’s FIF income or loss, it is necessary to calculate the market value of a person’s rights to beneﬁt under a life insurance policy or as a beneﬁciary under a superannuation scheme.
Value of life insurance policy The market value of rights to beneﬁt under a life insurance policy is equal to their surrender value.

Limit to subsection (2) Subsection (2) applies only for the purpose of calculating the cost of a person’s rights to beneﬁt from a life insurance policy under— (a) (b) section EX 64(4); and section EX 65(2).
Value of superannuation scheme entitlement The market value at any time of a person’s rights to beneﬁt under a superannuation scheme is equal to the total of costs (1) (2) (3) (4) 1090 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EX 72 incurred up to that time by or for the person on acquiring the rights if— (a) it is not reasonably practicable to calculate the actual market value; and they have not derived any material gain from the rights up to that time.
(b) Deﬁned in this Act: FIF income, life insurance policy, loss, market value, super- annuation scheme Compare: 2004 No 35 s EX 58 EX 71 Non-market transactions in FIF interests Section GC 4 (Disposals and acquisitions of FIF attributing interests) applies to acquisitions and dispositions of attribut- ing interests in FIFs when the comparative value method, the deemed rate of return method, the fair dividend rate method, or the cost method is used.
Deﬁned in this Act: attributing interest, comparative value method, cost method, deemed rate of return method, fair dividend rate method, FIF Compare: 2004 No 35 s EX 59 Commissioner’s default assessment power EX 72 Commissioner’s default assessment power (1) When this section applies This section applies when— (a) a person has failed to disclose their control interest or income interest in a CFC or attributing interest in a FIF, under section 61 of the Tax Administration Act 1994: a person has failed to disclose information regarding their control interest or income interest in a CFC or at- tributing interest in a FIF, requested under section 17 of that Act: a person cannot obtain enough information to calculate their attributed CFC income or loss, FIF income or loss, or attributed repatriation for a period.
(b) (c) (2) Commissioner’s power The Commissioner may make an assessment of the amount of attributed CFC income or loss, FIF income or loss, or at- tributed repatriation for the relevant period.
1091 Part E s EY 1 Income Tax Act 2007 Reprinted as at 5 January 2010 Examples of methods (3) Without limiting the Commissioner’s discretion, the assess- ment may be based on any of the following: (a) the accounts of the CFC or FIF for the relevant period prepared for tax authorities, creditors, shareholders, or others: the application of a rate of presumed increase of 10% or more, compounding annually, to the CFC’s or FIF’s branch equivalent income calculated under section EX 21 for a previous period: the application of a rate of presumed increase of 10% or more, compounding annually, to the CFC’s or FIF’s ac- counting proﬁts as shown in its accounts for a previous period: an imputed rate of return on the market value of the interest at the start of the period: the actual gains or losses of the person in the period from holding or disposing of the interest: the change in the market value of the interest over the period.
(b) (c) (d) (e) (f) Deﬁned in this Act: amount, assessment, attributed CFC income, attributed re- patriation, attributing interest, branch equivalent income, CFC, Commissioner, control interest, FIF, FIF income, income interest, loss, market value, share- holder Compare: 2004 No 35 s EX 60 Subpart EY—Life insurance rules Introductory provisions EY 1 What this subpart does (1) (2) Life insurance rules This subpart contains most of the life insurance rules.
Meaning of life insurance rules Life insurance rules means— (a) (b) (c) the sections in this subpart; and subpart CR (Income from life insurance); and section CX 39 (Life insurers and fully reinsured per- sons); and subpart DR (Life insurance business expenditure); and (d) 1092 Reprinted as at 5 January 2010 (e) (f) Income Tax Act 2007 Part E s EY 3 section DZ 2 (Life insurers acquiring property before 1 April 1988); and section EZ 1 (Life insurers acquiring property before 1 April 1988); and section GC 3 (Disposals by life insurers); and section IT 1 (Life insurers’ policyholder net losses).
(g) (h) Deﬁned in this Act: life insurance rules Compare: 2004 No 35 s EY 1 EY 2 Matters to which this subpart relates (c) (d) (b) life insurer, The matters to which this subpart relates are— (a) life in- the meaning of actuarial reserves, claim, surance, life life insurance policy, reinsurance, life reinsurer, and life reinsurance pol- icy, seesections EY 3 to EY 14: life insurers’ premium loading, seesections EY 15 to EY 24: life insurers’ mortality proﬁt, seesections EY 25 to EY 34: life insurers’ discontinuance proﬁt, seesections EY 35 to EY 41: life insurers’ policyholder income, seesections EY 42 to EY 45: life insurers’ income and deductions when disposing of property, seesections EY 46 and EY 47: non-resident life insurers, seesections EY 48 and EY 49.
(g) Deﬁned in this Act: actuarial reserves, claim, deduction, discontinuance proﬁt, income, life insurance, life insurance policy, life insurer, life reinsurance, life reinsurance policy, life reinsurer, mortality proﬁt, non-resident, premium load- ing, property Compare: 2004 No 35 s EY 2 (e) (f) EY 3 Meaning of actuarial reserves (1) Meaning Actuarial reserves means a life insurer’s reserves as calcu- lated under section EY 4.
1093 Part E s EY 4 Income Tax Act 2007 Reprinted as at 5 January 2010 (2) Link between actuarial reserves and life insurer Actuarial reserves, for a life insurer at any time, means the life insurer’s actuarial reserves at that time.

Deﬁned in this Act: actuarial reserves, life insurer Compare: 2004 No 35 s EY 3 EY 4 Actuarial reserves: calculation Calculation by actuary The life insurer’s actuarial reserves must be calculated by an actuary.
All reserves or 1 or more amounts The actuary may calculate— (a) (b) the actuarial reserves for all the life insurance policies for which the life insurer is the insurer; or the amount in the life insurer’s actuarial reserves for 1 or more life insurance policies for which the life insurer is the insurer.
Interest, mortality, and other assumptions and bases of calculation The actuary must do the calculation using interest, mortality, and other assumptions and bases of calculation that— (a) are based on the same principles as those used in the actuarial advice on which the following are calculated: the level of surplus funds available to the life (i) insurer for allotment or payment to shareholders or policyholders; or the level of surplus funds available to the life insurer, if a superannuation scheme, for allotment to objects of the scheme other than the object of providing for members’ beneﬁts; and (ii) (b) (c) are likely to produce a reasonable estimation of the fu- ture experience of the life insurer in relation to life in- surance policies of which the life insurer is the insurer, having regard to the past experience of the life insurer in relation to life insurance policies of which the life in- surer was the insurer; and conform with commercially acceptable practice.
(1) (2) (3) 1094 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EY 5 (4) (5) (6) (7) Reserves for policy never negative The amount in the actuarial reserves for a life insurance policy must never be negative.

Reserves for all policies never less than total of surrender values The actuarial reserves at any time must not be less than the total of the surrender values of all the life insurance policies they cover at that time.
Reserves for policies same at end of one, and start of next, income year The amount in the actuarial reserves for life insurance policies at the start of an income year is the same as the amount in the actuarial reserves for the life insurance policies at the end of the previous income year.
Effect of partial reinsurance The actuarial reserves of a life insurer who has partial reinsur- ance must be reduced by an amount that the actuary respon- sible for actuarial control of the life insurer considers appropri- ate having regard to the nature of the life reinsurance policies.
Deﬁned in this Act: actuarial reserves, actuary, amount, income year, life in- surance policy, life insurer, life reinsurance policy, partial reinsurance, pay, shareholder, superannuation scheme Compare: 2004 No 35 s EY 4 EY 5 Actuarial reserves: actuary’s declaration (1) Content The actuary responsible for actuarial control of a life insurer must provide, with the life insurer’s return of income, a dec- laration that— (a) states that the actuary is the actuary responsible for ac- tuarial control of the life insurer; and states the speciﬁc interest, mortality, and other assump- tions and bases of calculation applied in calculating the life insurer’s premium loading, mortality proﬁt, dis- continuance proﬁt, and policyholder income or policy- holder net loss for the income year of the return; and states that the assumptions and bases of calculation comply with section EY 4.
(b) (c) 1095 Part E s EY 6 Income Tax Act 2007 Reprinted as at 5 January 2010 (2) Form The declaration must be in the form, if any, required by the Commissioner.
Deﬁned in this Act: actuarial reserves, actuary, Commissioner, discontinuance proﬁt, income year, life insurer, mortality proﬁt, policyholder income, policy- holder net loss, premium loading, return of income Compare: 2004 No 35 s EY 5 EY 6 Actuarial reserves: powers of Commissioner (1) Seeking advice from Government Actuary or other actuary The Commissioner may seek the advice of the Government Actuary or any other actuary on the interest, mortality, and other assumptions and bases of calculation used by the actuary who did the calculation under section EY 4(3).
Assessment on different basis (2) Whether or not the Commissioner seeks or obtains any such advice, the Commissioner may make an assessment for a life insurer and an income year on the basis of interest, mortality, and other assumptions and bases of calculation different from those used by the actuary who did the calculation under section EY 4(3).
Deﬁned in this Act: actuarial reserves, actuary, assessment, Commissioner, in- come year, life insurer Compare: 2004 No 35 s EY 6 EY 7 Meaning of claim Meaning in life insurance rules In the life insurance rules, claim— (a) means the amount that a life insurer is liable to pay under a life insurance policy because the contingency against which the life insured is covered under the pol- icy has occurred; subsections (2) to (5) expand on “the amount that a life insurer is liable to pay”: includes a payment made by a life insurer on the transfer of some or all of its life insurance business: in the expression “claim arising”, does not have the meaning given to the word “claim” in paragraph (a) or (b).
(b) (c) (1) 1096 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EY 8 (2) (3) (4) (5) Cash and non-cash beneﬁts For the purposes of subsection (1)(a), the amount that a life insurer is liable to pay includes— (a) (b) (c) (d) (e) (f) a payment on the death of a life insured: a payment on maturity: a payment of a cash bonus: a payment on the surrender of a policy: an annuity payment: a beneﬁt other than in cash.
Advance or amount in actuarial reserves For the purposes of subsection (1)(a), the amount that a life insurer is liable to pay does not include— (a) (b) an advance against the security of the policy; or a bonus or other discretionary amount added to the ac- tuarial reserves.
Amount before certain subtractions For the purposes of subsection (1)(a), the amount that a life insurer is liable to pay means the amount before the subtraction of the following amounts payable to the life insurer: (a) (b) (c) an advance against the security of the policy; and an unpaid premium for the policy; and interest on an amount referred to in paragraph (a) or (b).

Amount zero For the purposes of subsection (1)(a), the amount that a life insurer is liable to pay may be zero.
Deﬁned in this Act: actuarial reserves, amount, business, claim, interest, life insurance, life insurance policy, life insurance rules, life insured, life insurer, pay, premium Compare: 2004 No 35 s EY 7 EY 8 Meaning of life insurance (1) Meaning Life insurance means insurance under which— (a) person A (the life insurer) is liable to provide person B (the policyholder) with a beneﬁt described in subsec- tion (2); and the life insurer is entitled to receive consideration in return, either from the policyholder or from some other person.
(b) 1097 Part E s EY 8 Income Tax Act 2007 Reprinted as at 5 January 2010 (2) (3) (4) Beneﬁts The beneﬁts are— (a) (b) (c) a beneﬁt whose payment is contingent on the death of 1 or more human beings, including an annuity whose term is contingent on human life; or a beneﬁt whose payment is contingent on the survival of 1 or more human beings to a date, or an age, speciﬁed as part of the insurance, including an annuity whose term is contingent on human life; or a beneﬁt that is an annuity whose term is not contingent on human life, if the life insurer enters into the arrange- ment to provide the annuity as part of their business of providing life insurance.
Exclusion: death beneﬁts provided under accident or medical insurance Life insurance does not include accident or medical insur- ance under which— (a) 1 or more beneﬁts are payable for the death of the person whose life is insured; and all the beneﬁts referred to in paragraph (a) are— (i) (b) payable if the death is caused by a speciﬁed cause named in the policy; or payable incidentally to the provision of accident or medical beneﬁts, if the death is caused by a speciﬁed cause named in the policy.
(ii) Exclusion: death beneﬁts provided by superannuation funds Life insurance does not include an arrangement in which— a superannuation fund is liable to pay, as a beneﬁt to a (a) beneﬁciary of the fund, a lump sum on— (i) (ii) the death of 1 or more human beings speciﬁed in the trust deed; or the survival of 1 or more human beings speciﬁed in the trust deed to a date, or an age, speciﬁed in the trust deed; and the lump sum is made up of— (i) superannuation contributions made by or for the beneﬁciary; and allocated investment earnings attributable to con- tributions made by or for the beneﬁciary; and (b) (ii) 1098 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EY 10 (iii) any other allocation from the proﬁts of the superannuation fund attributable to contributions made by or for the beneﬁciary.
Deﬁned in this Act: arrangement, business, life insurance, life insurer, pay, superannuation contribution, superannuation fund Compare: 2004 No 35 s EY 8 EY 9 Meaning of life insurance policy Life insurance policy means a policy to the extent to which it states the terms under which life insurance is covered.
Deﬁned in this Act: life insurance, life insurance policy Compare: 2004 No 35 s EY 9 EY 10 Meaning of life insurer (1) (2) (3) (4) Meaning Life insurer means a person carrying on a business of pro- viding life insurance.

Exclusion A person carrying on a business of providing life insurance in an income year is treated as not carrying on a business of providing life insurance while the person has full reinsurance.
Inclusion An association of persons, a body of persons, or a trustee is treated as carrying on a business of providing life insurance to the extent to which— (a) the association, body, or trustee provides life insurance; and the consideration for the provision is something other than natural love and affection.
(b) Parties to policies treated as being unrelated Every life insurance policy entered into by the association, body, or trustee as insurer is treated as entered into with an unrelated party, even if the life insurer and the policyholder are, for example,— (a) (b) an association and a member of the association; or a trustee and a beneﬁciary of the trust.
1099 Part E s EY 11 Income Tax Act 2007 Reprinted as at 5 January 2010 (5) Relationship with subpart HE Subpart HE (Mutual associations) does not apply to the busi- ness of providing life insurance of the association, body, or trustee.
Deﬁned in this Act: business, full reinsurance, income year, life insurance, life insurance policy, life insurer, trustee Compare: 2004 No 35 s EY 10 EY 11 Superannuation schemes providing life insurance Beneﬁts treated as life insurance The provision by a trustee of a superannuation scheme of a beneﬁt to a member or beneﬁciary of the scheme is treated as the provision of life insurance if the trustee provides life insurance to any member or beneﬁciary, unless subsection (2) applies.
Exemption for certain schemes A trustee of a superannuation fund is treated as not carrying on the business of life insurance for an income year if the fund meets all the requirements of subsections (3) to (9) for the income year.

Fund must be registered At all times in the income year, the fund must be registered by the Government Actuary under the Superannuation Schemes Act 1989.
Trustee cannot be a life insurance company At all times in the income year, no trustee of the fund is a company carrying on the business of providing life insurance to which the Life Insurance Act 1908 applies.
Fund must be for employees or related parties At all times in the income year, the fund must be 1 of the following kinds: (a) a fund established by an employer, or group of employ- ers who are associated, to provide beneﬁts only to per- sons who are employees of or related by employment to such an employer, or to another associated employer who agrees after the fund’s establishment to make con- tributions to it: (1) (2) (3) (4) (5) 1100 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EY 11 (b) (c) a fund constituted under the National Provident Fund Restructuring Act 1990, the National Provident Fund Act 1950 or the Government Superannuation Fund Act 1956 that provides beneﬁts only to persons who are em- ployees of or related by employment to an employer who agrees or is required to contribute, or on whose be- half contributions are made, to the fund: a fund different from the kind described in paragraph (b) and constituted under— (i) (ii) (iii) the National Provident Fund Restructuring Act 1990 to provide beneﬁts to persons, and relatives and dependants of persons, who, before 1 April 1991, were members of a superannuation fund that met the requirements of paragraph (b): the National Provident Fund Act 1950 and which, but for the fact that a small number of the total employers to which the fund relates do not agree to or are not required to make contributions to the fund, would be a superannuation fund that met the requirements of paragraph (b): the National Provident Fund Restructuring Amendment Act 1997 to provide beneﬁts to persons, and relatives, dependants, and nomin- ated beneﬁciaries of persons, who immediately before becoming members of the superannuation fund, were members of a superannuation fund that met the requirements of either paragraph (b) or subparagraph (ii).
(6) Only certain fund beneﬁciaries allowed At all times in the income year, each beneﬁciary of the fund must be— (a) a natural person that is an employee of or related by employment to an employer of the kind referred to in subsection (5)(a) or (b): a natural person that is a beneﬁciary of the fund, in the case of a fund referred to in subsection (5)(c) (which refers to funds related to the National Provident Fund): an employer of members of the fund, to the extent of the employer’s contingent interest in a fund surplus.
(b) (c) 1101 Part E s EY 11 Income Tax Act 2007 Reprinted as at 5 January 2010 (7) (8) (9) (10) Signiﬁcant employer superannuation contributions required At all times in the income year, each employer is required by the trust deed or Act constituting the fund to make or is mak- ing, or having made on their behalf, superannuation contribu- tions to provide to a signiﬁcant extent the fund beneﬁts, except to the extent to which subsection (10) applies.
No avoidance effect The fund must not have been established, and must not be being used at any time in the income year, in a way that has the effect of defeating the intent and application of the life insurance rules.

Government Actuary approval required The trustee of the fund must have made a written application to the Government Actuary for, and the Government Actuary must have granted, approval that the fund is for the income year one that complies with subsections (3) to (8).
Exemptions to requirements of subsection (7) Subsection (7) does not apply if— (a) the Government Actuary is satisﬁed that, for the income year, subsection (7) would have been complied with but for the fund assets exceeding the accrued beneﬁts from the fund: the fund is one referred to in subsection (5)(c) (which refers to funds related to the National Provident Fund).
(b) Limited superannuation contributions disregarded for subsection (7) (11) For the purposes of subsection (7), superannuation contribu- tions that are merely nominal or that only meet the costs of administration and investment management are disregarded.
Notice by Government Actuary (12) The Government Actuary must notify the trustee of a super- annuation fund as soon as practicable after determining that— the fund complies with subsections (3) to (8) for an in- (a) come year: the fund ceases to comply with the subsections for an income year.
(b) 1102 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EY 12 Objection under Superannuation Schemes Act (13) A person dissatisﬁed with the Government Actuary’s de- cision can object under section 23 of the Superannuation Schemes Act 1989 and has no right of objection under the Tax Administration Act 1994.
(14) Meaning of related by employment In this section, a person is related by employment to an em- ployer if the person is— (a) a former employee, in the case of deferred beneﬁts re- lating to prior employment: a relative or dependent of an employee, in the case of beneﬁts arising from the employee’s or former em- ployee’s membership in the fund.
(b) Deﬁned in this Act: associated, company, employee, employer, income year, life insurance, life insurance rules, related by employment, relative, superannu- ation contribution, superannuation fund, superannuation scheme, trustee Compare: 2004 No 35 s GD 8(1), (3)–(8) Section EY 11(7) heading: amended (with effect on 1 April 2008), on 6 October 2009, by section 188(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EY 11(7): amended (with effect on 1 April 2008), on 6 October 2009, by section 188(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section EY 11(11) heading: amended (with effect on 1 April 2008), on 6 Octo- ber 2009, by section 188(2) of the Taxation (International Taxation, Life Insur- ance, and Remedial Matters) Act 2009 (2009 No 34).
Section EY 11(11): amended (with effect on 1 April 2008), on 6 October 2009, by section 188(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section EY 11 list of deﬁned terms superannuation contribution: inserted (with effect on 1 April 2008), on 6 October 2009, by section 188(3) of the Tax- ation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
EY 12 Meaning of life reinsurance (1) Meaning Life reinsurance means insurance provided to a life insurer by another person (person C), under which person C secures the life insurer, fully or partially, against the life insurer’s li- ability under a life insurance policy.
The words “fully” and “partially” describe the extent to which the life insurer is se- cured against the life insurer’s liability under the life insurance 1103 Part E s EY 12 Income Tax Act 2007 Reprinted as at 5 January 2010 policy; they do not describe the term for which the reinsurance is provided.
Full reinsurance The life insurer has full reinsurance if all the following apply: the life insurer offered or was offered or entered into a (a) life insurance policy or policies,— (i) in the case of a life insurer resident in New Zealand, as part of their business of providing life insurance; or in the case of a life insurer not resident in New Zealand, as part of their New Zealand business; and (ii) (b) (c) (d) the life insurer holds a life reinsurance policy or policies covering every life insurance policy described in para- graph (a); and the life insurer is fully secured against liability under the life insurance policy or policies by the life reinsurance policy or policies; and the life insurer offered or was offered or entered into the life reinsurance policy or policies in New Zealand.
Partial reinsurance The life insurer has partial reinsurance if all the following apply: (a) the life insurer— (i) holds a life reinsurance policy or policies fully securing them against liability for 1 or some, but not all, of the life insurance policies described in paragraph (b); or holds a life reinsurance policy or policies for all the life insurance policies described in paragraph (b) but only partially securing them against liabil- ity; or holds a life reinsurance policy or policies par- tially securing them against liability for 1 or some, but not all, of the life insurance policies described in paragraph (b); and (ii) (iii) (b) the life insurer offered or was offered or entered into the life insurance policy or policies covered by the life reinsurance policy or policies,— (2) (3) 1104 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EY 14 (i) (ii) in the case of a life insurer resident in New Zealand, as part of their business of providing life insurance; or in the case of a life insurer not resident in New Zealand, as part of their New Zealand business; and (c) the life insurer offered or was offered or entered into the life reinsurance policy or policies in New Zealand.
Life reinsurer Life reinsurer means a person in the position of person C. Deﬁned in this Act: business, full reinsurance, life insurance, life insurance policy, life insurer, life reinsurance, life reinsurance policy, life reinsurer, New Zealand business, offered or was offered or entered into, partial reinsurance, resident in New Zealand Compare: 2004 No 35 s EY 11 (4) EY 13 Meaning of life reinsurance policy Life reinsurance policy means a policy to the extent to which it states the terms under which life reinsurance is covered.
Deﬁned in this Act: life reinsurance, life reinsurance policy Compare: 2004 No 35 s EY 12 EY 14 Life insurance and life reinsurance: how sections relate (1) (2) (3) Life insurance deﬁnitions Sections EY 8 to EY 11 deﬁne terms relating to life insurance.

Life reinsurance deﬁnitions Sections EY 12 and EY 13 deﬁne terms relating to life rein- surance.
Life insurance term usually includes life reinsurance term A reference in this Act to any of the terms deﬁned in sections EY 8 to EY 11 includes the equivalent term in sections EY 12 and EY 13—for example, life insurer includes life rein- surer—unless the context requires otherwise.
Deﬁned in this Act: life insurance, life insurer, life reinsurance, life reinsurer Compare: 2004 No 35 s EY 13 1105 Part E s EY 15 Income Tax Act 2007 Reprinted as at 5 January 2010 EY 15 How premium loading is calculated Premium loading (1) (2) (3) (4) Life insurer providing life insurance at start of income year Section EY 16 sets out the steps that a life insurer follows to calculate the life insurer’s premium loading for an income year if the life insurer is in the business of providing life insurance at the start of the income year.
Life insurer not providing life insurance at start of income year Section EY 17 sets out the steps that a life insurer follows to calculate the life insurer’s premium loading for an income year if the life insurer starts the business of providing life insurance in the income year.

Premium loading formula (life) Section EY 18(1) sets out the premium loading formula (life).
This is the formula a life insurer uses, as the ﬁrst step in calcu- lating the life insurer’s premium loading for an income year, to calculate an amount for a life insured under a life insurance policy, except to the extent to which an annuity is being paid under the policy at some time in the income year.

Premium loading formula (active annuities) Section EY 18(2) sets out the premium loading formula (ac- tive annuities).
This is the formula a life insurer uses, as the ﬁrst step in calculating the life insurer’s premium loading for an income year, to calculate an amount for a life insured under a life insurance policy, to the extent to which an annuity is be- ing paid under the policy at some time in the income year.
Deﬁned in this Act: business, income year, life insurance, life insurance policy, life insured, life insurer, pay, premium loading, premium loading formula Compare: 2004 No 35 s EY 14 EY 16 Premium loading: when life insurers providing life insurance at start of income year Calculation of premium loading If a life insurer is in the business of providing life insurance at the start of an income year, the life insurer calculates their premium loading for the income year by following the steps in subsection (2).
(1) 1106 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EY 18 (2) Steps The steps are,— (a) ﬁrst, use the relevant premium loading formula to cal- culate an amount for each life insured under each life insurance policy existing at the start of the income year: second, for each such life insurance policy, add together the amounts for the lives insured under it: third, add together the totals reached under paragraph (b).
(b) (c) Deﬁned in this Act: amount, business, income year, life insurance, life insur- ance policy, life insured, life insurer, premium loading, premium loading for- mula Compare: 2004 No 35 s EY 15 EY 17 Premium loading: when life insurers not providing life insurance at start of income year (1) (2) Calculation of premium loading If a life insurer has started to carry on a business of providing life insurance in an income year, the life insurer calculates the life insurer’s premium loading for the income year by following the steps in subsection (2).
Steps The steps are,— (a) ﬁrst, use the relevant premium loading formula, ad- justed as described in section EY 19, to calculate an amount for each life insured under each life insurance policy existing at some time in the income year: second, for each such life insurance policy, add together the amounts for the lives insured under it: third, add together the totals reached under paragraph (b).
(b) (c) Deﬁned in this Act: amount, business, income year, life insurance, life insur- ance policy, life insured, life insurer, premium loading, premium loading for- mula Compare: 2004 No 35 s EY 16 EY 18 Premium loading formulas Premium loading formula (life) The premium loading formula (life) is— (1) 1107 Part E s EY 19 Income Tax Act 2007 Reprinted as at 5 January 2010 (2) (3) (4) (5) (6) 0.2 × claim probability × (opening sum assured - opening actuarial reserves).
Premium loading formula (active annuities) The premium loading formula (active annuities) is— 0.01 × claim probability × opening actuarial reserves.

Deﬁnition of items in formulas The items in the formulas are deﬁned in subsections (4) to (6).

Claim probability Claim probability is the probability of a claim arising under the policy for the life insured’s death in the income year.
It is determined at the start of the income year using the same mortality assumptions as are used to calculate the life insurer’s actuarial reserves at the start of the income year.

It is expressed as a decimal.

Variations to claim probability are in sections EY 19(2) and EY 20(2).
Opening sum assured Opening sum assured is the claim that would be payable under the policy for the life insured’s death in the income year or, if no such claim would be payable, the claim that would be payable under the policy for the life insured’s survival to the relevant date or age speciﬁed in the policy.

It is determined at the start of the income year.

It may be zero.

Variations to opening sum assured are in sections EY 19(3), EY 21(2), EY 22(3), and EY 23(2).
Opening actuarial reserves Opening actuarial reserves is the amount in the life insurer’s actuarial reserves for the life insured under the policy.

It is de- termined at the start of the income year.

A variation to opening actuarial reserves is in section EY 19(4).
Deﬁned in this Act: actuarial reserves, amount, claim, income year, life insured, life insurer, pay, premium loading formula Compare: 2004 No 35 s EY 17 EY 19 Premium loading formulas: when life insurers not providing life insurance at start of income year When this section applies This section applies when a life insurer has started to carry on a business of providing life insurance in an income year.
(1) 1108 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EY 20 (2) (3) (4) Claim probability In using the relevant premium loading formula, the life insurer treats the reference in claim probability to the start of the in- come year as a reference to the date on which the life insurance policy started to cover the life insured.
Opening sum assured In using the premium loading formula (life), the life insurer treats the reference in opening sum assured to the start of the income year as a reference to the date on which the life insurance policy started to cover the life insured.

Opening actuarial reserves In using the relevant premium loading formula, the life insurer treats the reference in opening actuarial reserves to the start of the income year as a reference to the end of the income year.
Deﬁned in this Act: business, income year, life insurance, life insurance policy, life insurer, premium loading formula Compare: 2004 No 35 s EY 18 EY 20 Premium loading formulas: option when more than 1 life insured (1) (2) (3) When this section applies This section applies when a life insurance policy covers more than 1 life insured.

Claim probability In using the relevant premium loading formula, the life insurer may use as claim probability a common factor for all the lives insured under the policy.
Features of common factor The common factor must be a reasonable approximation of the average probability of a claim arising under the policy for each life insured’s death in the income year.

It must be weighted as necessary to take account of— (a) differing claims for individual lives insured under the policy; and 1109 Part E s EY 21 Income Tax Act 2007 Reprinted as at 5 January 2010 (b) differing amounts in the life insurer’s actuarial reserves for individual lives insured under the policy.
Deﬁned in this Act: actuarial reserves, amount, claim, income year, life insur- ance policy, life insured, life insurer, premium loading formula Compare: 2004 No 35 s EY 19 EY 21 Premium loading formula (life): when annuity payable on death (1) (2) When this section applies This section applies when, and to the extent to which, a life insurance policy provides for the payment of an annuity the start of which is contingent on the life insured’s death.
Opening sum assured In using the premium loading formula (life), the life insurer uses as opening sum assured the net present value of the an- nuity.

The net present value is determined— (a) (b) at the start of the income year; and on the assumption that the life insured died at the start of the income year; and using the same assumptions and bases of calculation as are used to calculate the life insurer’s actuarial reserves for the income year.
(c) Deﬁned in this Act: actuarial reserves, income year, life insurance policy, life insured, life insurer, pay, premium loading formula Compare: 2004 No 35 s EY 20 EY 22 Premium loading formulas: when annuity payable on survival to date or age speciﬁed in policy When this section applies This section applies when, and to the extent to which, a life insurance policy provides for the payment of an annuity the start of which is contingent on the life insured’s survival to the relevant date or age speciﬁed in the policy.
Claim probability In using the relevant premium loading formula, the life insurer must use claim probability as deﬁned in section EY 18(4), without regard to the fact that the payment of the annuity is not contingent on the life insured’s death.

(1) (2) 1110 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EY 24 (3) Opening sum assured In using the premium loading formula (life), the life insurer must use as opening sum assured the net present value of the annuity.
The net present value is determined— (a) (b) at the relevant date or age speciﬁed in the policy; and on the assumption that the life insured survived to the date or age; and using the same assumptions and bases of calculation as are used to calculate the life insurer’s actuarial reserves for the income year.
(c) Deﬁned in this Act: actuarial reserves, income year, life insurance policy, life insured, life insurer, pay, premium loading formula Compare: 2004 No 35 s EY 21 EY 23 Premium loading formula (life): when partial reinsurance exists (1) (2) When this section applies This section applies when a life insurer has partial reinsurance.
Opening sum assured In using the premium loading formula (life), the life insurer must reduce opening sum assured by the claim receivable by the life insurer under the life reinsurance policy for the contin- gency against which the life insured is covered under the life insurance policy.
Deﬁned in this Act: claim, life insurance policy, life insured, life insurer, life reinsurance policy, partial reinsurance, premium loading formula Compare: 2004 No 35 s EY 22 EY 24 Premium loading formulas: individual result may never be negative If a life insurer gets a negative result from using a premium loading formula to calculate an amount for a life insured under a life insurance policy for an income year, the result is treated as zero.
Deﬁned in this Act: income year, life insurance policy, life insured, life insurer, premium loading formula Compare: 2004 No 35 s EY 23 1111 Part E s EY 25 Income Tax Act 2007 Reprinted as at 5 January 2010 EY 25 How mortality proﬁt is calculated Mortality proﬁt (1) (2) (3) Life insurer providing life insurance at start of income year Section EY 26 sets out the steps that a life insurer follows to calculate their mortality proﬁt for an income year if they are in the business of providing life insurance at the start of the income year.
Life insurer not providing life insurance at start of income year Section EY 27 sets out the steps that a life insurer follows to calculate their mortality proﬁt for an income year if they start the business of providing life insurance in the income year.
Mortality proﬁt formula Section EY 28 sets out the mortality proﬁt formula that a life insurer uses, as the ﬁrst step in calculating the life insurer’s mortality proﬁt for an income year, to calculate an amount for a life insured under a life insurance policy.
Deﬁned in this Act: business, income year, life insurance, life insurance policy, life insured, life insurer, mortality proﬁt, mortality proﬁt formula Compare: 2004 No 35 s EY 24 EY 26 Mortality proﬁt: when life insurers providing life insurance at start of income year Calculation of mortality proﬁt If a life insurer is in the business of providing life insurance at the start of an income year, the life insurer calculates the life insurer’s mortality proﬁt for the income year by following the steps in subsection (2).
Steps The steps are,— (a) ﬁrst, use the mortality proﬁt formula to calculate an amount for each life insured under each life insurance policy existing at the start of the income year: second, for each such life insurance policy, add together the amounts for the lives insured under it: third, add together the totals reached under paragraph (b): (b) (c) (1) (2) 1112 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EY 28 (d) fourth, if the result is positive, take it as the mortality proﬁt.
If the result is negative, sections EY 33 and EY 34 apply.
Deﬁned in this Act: amount, business, income year, life insurance, life insur- ance policy, life insured, life insurer, mortality proﬁt, mortality proﬁt formula Compare: 2004 No 35 s EY 25 EY 27 Mortality proﬁt: when life insurers not providing life insurance at start of income year (1) (2) Calculation of mortality proﬁt If a life insurer has started to carry on a business of providing life insurance in an income year, the life insurer calculates the life insurer’s mortality proﬁt for the income year by follow- ing the steps in subsection (2).
Steps The steps are,— (a) ﬁrst, use the mortality proﬁt formula, adjusted as de- scribed in section EY 29, to calculate an amount for each life insured under each life insurance policy exist- ing at some time in the income year: second, for each such life insurance policy, add together the amounts for the lives insured under it: third, add together the totals reached under paragraph (b): fourth, if the result is positive, take it as the mortality proﬁt.
If the result is negative, sections EY 33 and EY 34 apply.

(b) (c) (d) Deﬁned in this Act: amount, business, income year, life insurance, life insur- ance policy, life insured, life insurer, mortality proﬁt, mortality proﬁt formula Compare: 2004 No 35 s EY 26 EY 28 Mortality proﬁt formula (1) Formula The mortality proﬁt formula is— claim probability × (opening sum assured - opening actuarial reserves) - (closing sum assured - opening actuarial reserves).
Deﬁnition of items in formula The items in the formula are deﬁned in subsections (3) to (8).

(2) 1113 Part E s EY 28 Income Tax Act 2007 Reprinted as at 5 January 2010 Claim probability Claim probability is the probability of a claim arising under the policy for the life insured’s death in the income year.

It is determined at the start of the income year using the same mortality assumptions as are used to calculate the life insurer’s actuarial reserves at the start of the income year.
It is expressed as a decimal.

Variations to claim probability are in sections EY 29(2) and EY 30(2).

Opening sum assured Opening sum assured is the claim that would be payable under the policy for the life insured’s death in the income year.

It is determined at the start of the income year.

It may be zero.

Variations to opening sum assured are in sections EY 29(3), EY 31(2), and EY 32(2).
Opening actuarial reserves Opening actuarial reserves is the amount in the life insurer’s actuarial reserves for the life insured under the policy.

It is de- termined at the start of the income year.

A variation to opening actuarial reserves is in section EY 29(4).

Closing sum assured if life insured dies in current income year If a life insured dies in the income year to which the formula is being applied, closing sum assured is the claim payable under the policy for the death.

It may be zero.
It may be zero.

A variation to closing sum assured is in section EY 32(3).

Closing sum assured if life insured dies in 1990–91 income year or year up to current income year If a life insured dies in the 1990–91 income year or a later income year before the income year to which the formula is being applied, and the claim has not already been included in closing sum assured for an income year, closing sum assured is the claim payable under the policy for the death.

It may be zero.
It may be zero.

A variation to closing sum assured is in section EY 32(3).

(3) (4) (5) (6) (7) 1114 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EY 30 (8) Closing sum assured if subsections (6) and (7) do not apply If subsections (6) and (7) do not apply, closing sum assured is the same as opening actuarial reserves.
Deﬁned in this Act: actuarial reserves, amount, claim, income year, life insured, life insurer, mortality proﬁt formula, pay Compare: 2004 No 35 s EY 27 EY 29 Mortality proﬁt formula: when life insurers not providing life insurance at start of income year (1) (2) (3) (4) When this section applies This section applies when a life insurer starts to carry on a business of providing life insurance in an income year.
Claim probability In using the mortality proﬁt formula, the life insurer treats the reference in claim probability to the start of the income year as a reference to the date on which the life insurance policy started to cover the life insured.

Opening sum assured In using the mortality proﬁt formula, the life insurer treats the reference in opening sum assured to the start of the income year as a reference to the date on which the life insurance pol- icy started to cover the life insured.
Opening actuarial reserves In using the mortality proﬁt formula, the life insurer treats the reference in opening actuarial reserves to the start of the in- come year as a reference to the end of the income year.
Deﬁned in this Act: business, income year, life insurance, life insurance policy, life insurer, mortality proﬁt formula Compare: 2004 No 35 s EY 28 EY 30 Mortality proﬁt formula: option when more than 1 life insured (1) When this section applies This section applies when a life insurance policy covers more than 1 life insured.
1115 Part E s EY 31 Income Tax Act 2007 Reprinted as at 5 January 2010 (2) (3) Claim probability In using the mortality proﬁt formula, the life insurer may use as claim probability a common factor for all the lives insured under the policy.

Features of common factor The common factor must be a reasonable approximation of the average probability of a claim arising under the policy for each life insured’s death in the income year.
It must be weighted as necessary to take account of— (a) differing claims for individual lives insured under the policy; and differing amounts in the life insurer’s actuarial reserves for individual lives insured under the policy.
(b) Deﬁned in this Act: actuarial reserves, amount, claim, income year, life insur- ance policy, life insured, life insurer, mortality proﬁt formula Compare: 2004 No 35 s EY 29 EY 31 Mortality proﬁt formula: when annuity payable on death When this section applies This section applies when, and to the extent to which, a life insurance policy provides for the payment of an annuity the start of which is contingent on the life insured’s death.
Opening sum assured In using the mortality proﬁt formula, the life insurer uses as opening sum assured the net present value of the annuity.

The net present value is determined— (a) (b) at the start of the income year; and on the assumption that the life insured died at the start of the income year; and using the same assumptions and bases of calculation as are used to calculate the life insurer’s actuarial reserves for the income year.
(c) Deﬁned in this Act: actuarial reserves, income year, life insurance policy, life insured, life insurer, mortality proﬁt formula, pay Compare: 2004 No 35 s EY 30 (1) (2) 1116 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EY 33 EY 32 Mortality proﬁt formula: when partial reinsurance exists (1) (2) (3) When this section applies This section applies when a life insurer has partial reinsurance.
Opening sum assured In using the mortality proﬁt formula, the life insurer must re- duce opening sum assured by the claim receivable by the life insurer under the life reinsurance policy for the contingency against which the life insured is covered under the life insur- ance policy.
Closing sum assured In using the mortality proﬁt formula, the life insurer must re- duce closing sum assured by the claim receivable by the life insurer under the life reinsurance policy for the contingency against which the life insured is covered under the life insur- ance policy.
Deﬁned in this Act: claim, life insurance policy, life insured, life insurer, life reinsurance policy, mortality proﬁt formula, partial reinsurance Compare: 2004 No 35 s EY 31 EY 33 Mortality proﬁt formula: individual result may be negative only in some cases (1) (2) (3) Rule: not negative If a life insurer gets a negative result from using the mortality proﬁt formula to calculate an amount for a life insured under a life insurance policy for an income year, the result is treated as zero.
However, a negative result is not treated as zero if 1 of the exclusions in subsections (2) to (4) applies.

Exclusion: death in income year The ﬁrst exception is when the life insured died in the income year.

Exclusion: death in 1990–91 income year or later The second exception is when— (a) the life insured died in the 1990–91 income year or a later income year before the income year for which the formula is being used; and the claim has not already been included in closing sum assured for an income year.
(b) 1117 Part E s EY 34 Income Tax Act 2007 Reprinted as at 5 January 2010 (4) Exclusion: annuity being paid The third exception is when, and to the extent to which, the beneﬁt under the policy is an annuity that is being paid at some time in the income year.
Deﬁned in this Act: claim, income year, life insurance policy, life insured, life insurer, mortality proﬁt formula, pay Compare: 2004 No 35 s EY 32 EY 34 Mortality proﬁt formula: negative result (1) (2) (3) When this section applies This section applies when a life insurer is allowed a deduction under section DR 1 (Mortality proﬁt formula: negative result).

Amount of deduction The amount of the deduction is the negative result.
Timing of deduction The life insurer is allowed the deduction in the income year.

Deﬁned in this Act: amount, deduction, income year, life insurer, mortality proﬁt formula Compare: 2004 No 35 s EY 33 Discontinuance proﬁt EY 35 How discontinuance proﬁt is calculated Life insurer providing life insurance at any time Section EY 36 sets out the steps that a life insurer follows to calculate the life insurer’s discontinuance proﬁt for an income year.
Discontinuance proﬁt formula (existing policies) Section EY 37 sets out the discontinuance proﬁt formula (existing policies).
This is the formula a life insurer uses, as the ﬁrst step in calculating the life insurer’s discontinuance proﬁt for an income year, to calculate an amount for a life insurance policy that exists at the start of the income year and to which 1 of the following applies in the income year: (a) it terminates, wholly or partly, for a reason other than the life insured’s death or the life insured’s survival to the relevant date or age speciﬁed in the policy; or (1) (2) 1118 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EY 37 (3) (b) a claim is paid under it for a reason other than the life insured’s death or the life insured’s survival to the rele- vant date or age speciﬁed in the policy.
Discontinuance proﬁt formula (new policies) Section EY 38 sets out the discontinuance proﬁt formula (new policies).
This is the formula a life insurer uses, as the ﬁrst step in calculating the life insurer’s discontinuance proﬁt for an income year, to calculate an amount for a life insurance policy to which both the following apply: (a) (b) it does not exist at the start of the income year; and it terminates in the income year for a reason other than the life insured’s death or the life insured’s survival to the relevant date or age speciﬁed in the policy.
Deﬁned in this Act: claim, discontinuance proﬁt, discontinuance proﬁt formula, income year, life insurance, life insurance policy, life insured, life insurer, pay Compare: 2004 No 35 s EY 34 EY 36 Discontinuance proﬁt for income year (1) (2) Calculation of discontinuance proﬁt A life insurer calculates the life insurer’s discontinuance proﬁt for an income year by following the steps in subsection (2).
Steps The steps are,— (a) ﬁrst, use the relevant discontinuance proﬁt formula to calculate an amount for each life insurance policy exist- ing at some time in the income year: second, add all the amounts together.
(b) Deﬁned in this Act: amount, discontinuance proﬁt, discontinuance proﬁt for- mula, income year, life insurance policy, life insurer Compare: 2004 No 35 s EY 35 EY 37 Discontinuance proﬁt formula (existing policies) (1) Formula The discontinuance proﬁt formula (existing policies) is— pre-termination actuarial reserves - post-termination actuarial reserves - termination payment.
1119 Part E s EY 38 Income Tax Act 2007 Reprinted as at 5 January 2010 (2) (3) (4) (5) Deﬁnition of items in formula The items in the formula are deﬁned in subsections (3) to (5).

Pre-termination actuarial reserves Pre-termination actuarial reserves is the amount in the life insurer’s actuarial reserves for the life insurance policy, deter- mined immediately before the event described in section EY 35(2)(a) or (b).
It is calculated using the same assumptions and bases of calculation as were used at the start of the income year to calculate the amount in the life insurer’s actuarial reserves for the policy.

Post-termination actuarial reserves Post-termination actuarial reserves is the amount in the life insurer’s actuarial reserves for the life insurance policy, determined immediately after the event described in section EY 35(2)(a) or (b) and having regard to the fact that the event has occurred.
It is calculated using the same assumptions and bases of calculation as were used at the start of the income year to calculate the amount in the life insurer’s actuarial reserves for the policy.

Termination payment Termination payment is the claim payable by the life insurer on the occurrence of the event described in section EY 35(2)(a) or (b).

It may be zero.

A variation to termination payment is in section EY 39(2).
Deﬁned in this Act: actuarial reserves, amount, claim, discontinuance proﬁt formula, income year, life insurance policy, life insurer, pay Compare: 2004 No 35 s EY 36 EY 38 Discontinuance proﬁt formula (new policies) Formula The discontinuance proﬁt formula (new policies) is— premium - termination payment.

Deﬁnition of items in formula The items in the formula are deﬁned in subsections (3) and (4).
Premium Premium is all the premiums paid to the life insurer for the life insurance policy, including a premium due before, but paid (1) (2) (3) 1120 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EY 40 (4) after, it terminates.

A variation to premium is in section EY 40(2).

Termination payment Termination payment is the claim payable by the life insurer when the life insurance policy terminates.

It may be zero.

A variation to termination payment is in section EY 40(3).
Deﬁned in this Act: claim, discontinuance proﬁt formula, life insurance policy, life insurer, pay, premium Compare: 2004 No 35 s EY 37 EY 39 Discontinuance proﬁt formula (existing policies): when partial reinsurance exists (1) (2) When this section applies This section applies when a life insurer has partial reinsurance.
Termination payment In using the discontinuance proﬁt formula (existing policies), the life insurer must reduce termination payment by the claim receivable by the life insurer under the life reinsurance policy on the occurrence of the event described in section EY 35(2)(a) or (b).
Deﬁned in this Act: claim, discontinuance proﬁt formula, life insurer, life rein- surance policy, partial reinsurance Compare: 2004 No 35 s EY 38 EY 40 Discontinuance proﬁt formula (new policies): when partial reinsurance exists (1) (2) When this section applies This section applies when a life insurer has partial reinsurance.
Premium In using the discontinuance proﬁt formula (new policies), the life insurer must reduce premium by an amount to which both the following apply: (a) it is part of the premiums payable by the life insurer in the income year for a life reinsurance policy or policies (the life reinsurance premiums); and it is the part of the life reinsurance premiums that relates to the life insurance policy.
(b) 1121 Part E s EY 41 Income Tax Act 2007 Reprinted as at 5 January 2010 (3) Termination payment In using the discontinuance proﬁt formula (new policies), the life insurer must reduce termination payment by the claim receivable by the life insurer under the life reinsurance policy for the termination of the life insurance policy.
Deﬁned in this Act: amount, claim, discontinuance proﬁt formula, income year, life insurance policy, life insurer, life reinsurance policy, partial reinsurance, pay, premium Compare: 2004 No 35 s EY 39 EY 41 Discontinuance proﬁt formulas: individual result may never be negative If a life insurer gets a negative result from using a discontinu- ance proﬁt formula to calculate an amount for a life insurance policy for an income year, the result is treated as zero.
Deﬁned in this Act: discontinuance proﬁt formula, income year, life insurance policy, life insurer Compare: 2004 No 35 s EY 40 Policyholder income EY 42 How policyholder income is calculated Section EY 43 sets out the policyholder income formula that a life insurer uses for each income year to calculate the life insurer’s policyholder income for the income year.
Deﬁned in this Act: holder income formula Compare: 2004 No 35 s EY 41 income year, life insurer, policyholder income, policy- EY 43 Policyholder income formula Formula The policyholder income formula is— (1) claim due + (closing actuarial reserves – opening actuarial reserves) – (FDR adjustment + PILF adjustment) – (premium – underwriting result) (1 – tax rate).
1122 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EY 43 (2) (3) (4) (5) Deﬁnition of items in formula The items in the formula are deﬁned in subsections (3) to (8).
Claim due Claim due is the total of— (a) (b) each claim that became due and payable in the income year; and each claim that became due and payable in an earlier income year to the extent to which— (i) the claim relates to a contingency that was met in the 1990–91 income year or a later income year before the income year for which the formula is being used; and the claim has not already been included in claim in an income year.
(ii) Closing actuarial reserves Closing actuarial reserves is the life insurer’s actuarial re- serves, determined at the end of the income year.

A variation to closing actuarial reserves is in section EY 45(2).

Opening actuarial reserves Opening actuarial reserves is the life insurer’s actuarial re- serves, determined at the start of the income year.

A variation to opening actuarial reserves is in section EY 45(3).
FDR adjustment (5B) FDR adjustment is the amount set out in section EY 43B to the extent to which it applies.

PILF adjustment (5C) PILF adjustment is the amount set out in section EY 43C to the extent to which it applies.

(6) (7) Premium Premium is all the premiums due and payable to the life in- surer in the income year.

Premium does not include a pre- mium due and payable to the life insurer in an earlier income year.

A variation to premium is in section EY 44.


Underwriting result Underwriting result is the total of the following that the life insurer has in the income year: (a) the premium loading; and 1123 Part E s EY 43B Income Tax Act 2007 Reprinted as at 5 January 2010 (b) (c) the mortality proﬁt; and the discontinuance proﬁt.

(8) (9) Tax rate Tax rate is the basic rate of income tax set out in schedule 1, part A, clause 8 (Basic tax rates: income tax, ESCT, RSCT, RWT, and attributed fringe beneﬁts).
Positive result A positive result from using the policyholder income formula is policyholder income in the income year.

Negative result (10) A negative result from using the policyholder income formula is policyholder net loss for the income year, and is dealt with under section IT 1 (Life insurers’ policyholder net losses).
Deﬁned in this Act: actuarial reserves, claim, discontinuance proﬁt, income year, life insurer, mortality proﬁt, pay, policyholder income, policyholder in- come formula, policyholder net loss, premium, premium loading, tax Compare: 2004 No 35 s EY 42 Section EY 43(1) heading: substituted, on 1 April 2008, by section 402(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EY 43(1): substituted, on 1 April 2008, by section 402(1) of the Taxa- tion (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section EY 43(5B) heading: inserted, on 1 April 2008, pursuant to section 402(2) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section EY 43(5B): inserted, on 1 April 2008, pursuant to section 402(2) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EY 43(5C) heading: inserted, on 1 April 2008, pursuant to section 402(2) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section EY 43(5C): inserted, on 1 April 2008, pursuant to section 402(2) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section EY 43(8): amended, on 1 April 2008, by section 562 of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
EY 43B Policyholder income formula: FDR adjustment What this section applies to This section applies for the purposes of section EY 43(5B) to property that supports only actuarial reserves to the extent to which— (1) 1124 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EY 43B (a) (b) (c) property is an attributing interest in a FIF held by a life insurer or by a portfolio tax rate entity that the life insurer has invested in, directly or indirectly; and the life insurer or the portfolio tax rate entity uses the fair dividend rate method for the property; and section EY 43C does not apply.
When has life insurer indirectly invested in portfolio tax rate entity?

For the purposes of subsection (1), a life insurer is treated as investing indirectly in a portfolio tax rate entity (PTRE A) when a portfolio tax rate entity has invested in PTRE A and the investment may be traced through an unbroken chain of investments in portfolio tax rate entities to a direct investment by the life insurer in a portfolio tax rate entity.
FDR adjustment In using the policyholder income formula, the life insurer may calculate the item FDR adjustment — (a) (b) using the formula in subsection (5); or by calculating, using a reasonable method for the infor- mation available to the life insurer, the amount credited to actuarial reserves in relation to the property, but ex- cluding amounts that are related to FIF income under the fair dividend rate method.
Consistency requirement (4) In using the policyholder income formula, the life insurer must calculate the item FDR adjustment by always applying whichever of subsection (3)(a) or (b) is ﬁrst used.

Formula The formula referred to in subsection (3)(a) is— 0.6 × (FIF result − FDR income).

Deﬁnition of items in formula The items in the formula are deﬁned in subsections (7) and (8).
FIF result FIF result is the life insurer’s gains and losses for the income year, for the property, calculated using accepted accounting practice.

(2) (3) (4) (5) (6) (7) 1125 Part E s EY 43C Income Tax Act 2007 Reprinted as at 5 January 2010 (8) FDR income FDR income is the amount for the income year of the life in- surer’s income related to FIF income under the fair dividend rate method for the property, calculated using a reasonable method for the information available to the life insurer.
Deﬁned in this Act: amount, attributing interest, fair dividend rate method, FIF, FIF income, FIF loss, income portfolio investment-linked life fund Compare: 2004 No 35 s EY 42B Section EY 43B: inserted, on 1 April 2008, by section 403 of the Taxation (Busi- ness Taxation and Remedial Matters) Act 2007 (2007 No 109).
EY 43C Policyholder income formula: PILF adjustment What this section applies to This section applies for the purposes of section EY 42(5C) to property that supports only actuarial reserves for a portfolio investment-linked life fund to the extent to which the property is— (a) an attributing interest in a FIF,— (i) held by the life insurer or a portfolio tax rate entity that the life insurer has invested in directly or indirectly; and for which the life insurer or portfolio tax rate entity uses the fair dividend rate method for the property: (ii) (b) shares described in section CX 55 (Proceeds from cer- tain disposals by portfolio investment entities or New Zealand Superannuation Fund) held by the life insurer.
When has life insurer indirectly invested in portfolio tax rate entity?

For the purposes of subsection (1), a life insurer is treated as investing indirectly in a portfolio tax rate entity (PTRE A) when a portfolio tax rate entity has invested in PTRE A and the investment may be traced through an unbroken chain of investments in portfolio tax rate entities to a direct investment by the life insurer in a portfolio tax rate entity.
PIE adjustment In using the policyholder income formula, the life insurer may calculate the item PILF adjustment — (a) using the formula in subsection (5); or (1) (2) (3) 1126 Reprinted as at 5 January 2010 (b) Income Tax Act 2007 Part E s EY 43C by calculating, using a reasonable method for the infor- mation available to the life insurer, the amount credited to actuarial reserves in relation to the property, but ex- cluding amounts that are— (i) related to FIF income under the fair dividend rate method: dividends or distributions for shares described in subsection (1)(b) other than a distribution from a portfolio tax rate entity to which section CX 56(2) (Portfolio investor allocated income and distributions of income by portfolio investment entities) applies.
(ii) (4) (5) (6) (7) (8) (9) Consistency requirement In using the policyholder income formula, the life insurer must calculate the item PILE adjustment by always applying whichever of subsection (3)(a) or (b) is ﬁrst used.

Formula In using the policyholder income formula, the life insurer must calculate the item PILF adjustment using the following for- mula: 0.9 × (FIF result − FDR income) + 0.9 × excluded shares.

Deﬁnition of items in formula The items in the fonnula are deﬁned in subsections (7) to (9).
FIF result FIF result is the life insurer’s gains or losses for the income year, for the property described in subsection (1)(a), calculated using accepted accounting practice.

FDR income FDR income is the amount for the income year of the life insurer’s income related to FIF income under the fair dividend rate method for the property described in subsection (1)(a), calculated using a reasonable method for the information available to the life insurer.
Excluded shares Excluded shares is the total for the life insurer, for shares described in subsection (1)(b), of— 1127 Part E s EY 44 Income Tax Act 2007 Reprinted as at 5 January 2010 (a) (b) (c) the positive amount of income excluded by section CX 55(2): the negative amount of a deduction not allowed by sec- tion DB 23(3)(b) (Cost of revenue account property): the gains and losses for the shares, calculated using ac- cepted accounting practice, but excluding— (i) amounts already accounted for under paragraphs (a) and (b) or under subsection (7); and dividends and distributions for the shares, other than distributions from a portfolio tax rate entity to which section CX 56(2) applies.
Deﬁned in this Act: amount, attributing interest, deduction, dividend, excluded income, fair dividend rate method, FIF, FIF income, FIF loss, income, portfolio investment-linked life fund, share Compare: 2004 No 35 s EY 42C (ii) Section EY 43C: inserted, on 1 April 2008, by section 403 of the Taxation (Busi- ness Taxation and Remedial Matters) Act 2007 (2007 No 109).
EY 44 Policyholder income formula: when partial reinsurance exists When this section applies This section applies when a life insurer has partial reinsurance.

Premium In using the policyholder income formula, the life insurer must reduce premium by an amount calculated using the formula— reinsurance premium - reinsurance claim.

Deﬁnition of items in formula The items in the formula are deﬁned in subsections (4) and (5).
Reinsurance premium Reinsurance premium is the total of the premiums due and payable by the life insurer in the income year under the life reinsurance policies under which the life insurer has partial reinsurance.

Reinsurance premium does not include pre- miums due and payable by the life insurer in earlier income years.
Reinsurance claim Reinsurance claim is the total of the claims receivable by the life insurer in the income year under the life reinsurance (1) (2) (3) (4) (5) 1128 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EY 45 policies under which the life insurer has partial reinsurance.

Reinsurance claim does not include claims receivable by the life insurer in earlier income years.
Deﬁned in this Act: amount, claim, income year, life insurer, life reinsurance policy, partial reinsurance, pay, policyholder income formula, premium Compare: 2004 No 35 s EY 43 EY 45 Policyholder income formula: when life insurance business transferred (1) When this section applies This section applies when a life insurance business is trans- ferred in a transfer to which all the following apply: (a) the transferor and the transferee, whether or not resident in New Zealand, are part of the same wholly-owned group of companies immediately before and immedi- ately after the transfer; and 1 of the following is met: (i) if the transferor is resident in New Zealand, all the transferor’s life insurance business is trans- ferred to the transferee; or if the transferor is not resident in New Zealand, all the life insurance policies offered or entered into in New Zealand that are held by the trans- feror are transferred to the transferee; and the Commissioner receives conﬁrmation from the Gov- ernment Actuary that— (i) (ii) the requirements of paragraph (b) are met; and no policyholder will be unduly disadvantaged as a result of the transfer; and (ii) the Commissioner is satisﬁed that the transfer is being undertaken for commercial reasons and that no undue tax advantage to either the transferor or the transferee will arise as a result of the transfer.
(b) (c) (d) (2) Closing actuarial reserves In using the policyholder income formula for the income year in which the transfer occurs, the transferor must use as closing actuarial reserves the transferor’s actuarial reserves immedi- ately before the transfer.
1129 Part E s EY 46 Income Tax Act 2007 Reprinted as at 5 January 2010 (3) Opening actuarial reserves In using the policyholder income formula for the income year in which the transfer occurs, the transferee must use as open- ing actuarial reserves the total of— (a) the transferee’s actuarial reserves, determined at the start of the income year; and the transferee’s actuarial reserves for the business or policies transferred to the transferee, determined imme- diately after the transfer.
(b) Deﬁned in this Act: actuarial reserves, business, Commissioner, income year, life insurance, life insurance policy, offered or entered into in New Zealand, policyholder income formula, resident in New Zealand, wholly-owned group of companies Compare: 2004 No 35 s EY 44 Disposal of property EY 46 Income from disposal of property When this section applies This section applies when a life insurer disposes of any prop- erty of their life insurance business.
Property generally An amount that a life insurer derives from disposing of any property of their life insurance business is income of the life insurer under section CR 1(5) (Income of life insurer).

How- ever, if the property is a ﬁnancial arrangement, subsections (3) to (5) apply instead of this subsection.
Financial arrangement: application of ﬁnancial arrangements rules If the life insurer disposes of a ﬁnancial arrangement to which the ﬁnancial arrangements rules apply, subpart EW (Financial arrangements rules) applies.

Financial arrangement: application of old ﬁnancial arrangements rules If the life insurer disposes of a ﬁnancial arrangement to which the old ﬁnancial arrangements rules apply, sections EZ 33 to EZ 52 (which relate to the old ﬁnancial arrangements rules) apply.
(1) (2) (3) (4) 1130 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EY 48 (5) Financial arrangement: before old ﬁnancial arrangements rules If the life insurer receives an amount on or after 1 April 1982 as repayment or partial repayment of a ﬁnancial arrangement to which the old ﬁnancial arrangements rules would have applied if section EZ 45 (Application of old ﬁnancial arrangements rules) had not existed, the amount is income of the life insurer.
Deﬁned in this Act: amount, business, ﬁnancial arrangement, ﬁnancial arrange- ments rules, income, life insurance, life insurer, old ﬁnancial arrangements rules, pay, property Compare: 2004 No 35 s EY 45 EY 47 Deductions for disposal of property (1) (2) (3) When this section applies This section applies when a life insurer is allowed a deduction under section DR 2 (Disposal of property).
Amount of deduction The amount of the deduction is— (a) (b) the property’s acquisition value or cost; or the amount described in section EZ 2(1) (Deductions for disposal of property: 1982–83 and 1989–90 income years); or the amount described in section EZ 2(2).

(c) Timing of deduction The life insurer is allowed the deduction in the income year in which they dispose of the property.
Deﬁned in this Act: amount, deduction, income year, life insurer, property Compare: 2004 No 35 s EY 46 Non-resident life insurers EY 48 Non-resident life insurers with life insurance policies in New Zealand (1) When this section applies This section applies when a life insurer not resident in New Zealand offers or is offered or enters into life insurance poli- cies in New Zealand.
1131 Part E s EY 49 Income Tax Act 2007 Reprinted as at 5 January 2010 (2) (3) (4) Income derived from New Zealand The life insurer’s income from the business of providing life insurance, as determined under this section, is income derived from New Zealand.
Underwriting result and policyholder income The life insurer applies the items of the premium loading for- mula, the mortality proﬁt formula, the discontinuance proﬁt formula, and the policyholder income formula only to— (a) the life insurance policies the life insurer, as insurer, offered or was offered or entered into in New Zealand; and the life reinsurance policies held by the life insurer that relate exclusively to the life insurance policies the life insurer, as insurer, offered or was offered or entered into in New Zealand.
(b) Other income The life insurer’s income from the business of providing life insurance, other than under a formula referred to in subsection (3), is determined only in relation to the life insurer’s New Zealand business.
Deﬁned in this Act: business, discontinuance proﬁt formula, income, income derived from New Zealand, life insurance, life insurance policy, life insurer, life reinsurance policy, mortality proﬁt formula, New Zealand, New Zealand busi- ness, non-resident, offered or was offered or entered into, policyholder income formula, premium loading formula, resident in New Zealand Compare: 2004 No 35 s EY 47 EY 49 Non-resident life insurer becoming resident Non-resident life insurer may apply A life insurer not resident in New Zealand may apply to be treated for its New Zealand business as resident in New Zealand on and after the ﬁrst day of a particular income year.
Application The life insurer applies by— (a) (b) completing a written application specifying the particu- lar income year; and giving the application to the Commissioner not less than 20 working days before the start of the particular in- come year.

(1) (2) 1132 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EZ 1 (3) (4) (5) (6) Commissioner may grant The Commissioner may grant the application.
Company resident in New Zealand If the application is granted, the life insurer’s New Zealand business is treated, on and after the ﬁrst day of the particular income year, as being carried on by a company resident in New Zealand in which the life insurer holds all the issued shares.
Life insurer agent for company The life insurer is treated as carrying on its New Zealand busi- ness as agent for the company and is liable, as agent for the company, to pay amounts payable to the Commissioner and to provide returns of income and other information required by the Commissioner.

Company and life insurer separate persons The life insurer and the company are treated as being separate persons in relation to the life insurer’s New Zealand business.
Deﬁned in this Act: agent, amount, Commissioner, company, income year, life insurer, New Zealand business, non-resident, pay, resident in New Zealand, return of income, share, working day Compare: 2004 No 35 s EY 48 Subpart EZ—Terminating provisions Life insurance EZ 1 Life insurers acquiring property before 1 April 1988 When this section applies This section applies when section DZ 2 (Life insurers acquir- ing property before 1 April 1988) applies.
Amount of deduction The amount of the deduction is calculated using the formula— (1) (2) Deﬁnition of items in formula The items in the formula are deﬁned in subsections (4) to (9).
(3) 1133 Part E s EZ 1 Income Tax Act 2007 Reprinted as at 5 January 2010 Speciﬁc liability Speciﬁc liability is the amount in the life insurer’s total liabil- ity on the last day of the 1987–88 income year for the follow- ing matters covered by the life insurer’s Life Insurance Fund: (a) (b) (c) superannuation policies; and pre-1983 mortgage repayment insurance policies; and annuities that have been granted.
Total liability Total liability is the life insurer’s liability for life insurance policies on the last day of the 1987–88 income year.

Property sum The property sum is calculated under whichever is relevant of subsections (7) to (9).
Property acquired before last day of 1982–83 income year For property acquired on or before the last day of the 1982–83 income year, the property sum is calculated by subtracting the speciﬁed base cost for 1983 income year property from the market value of the property on 1 April 1988.
Property acquired after end of 1982–83 income year: not ﬁnancial arrangement For property acquired after the end of the 1982–83 income year that is not a ﬁnancial arrangement, the property sum is calculated by subtracting the cost price or acquisition value of the property from the market value of the property on 1 April 1988.
Property acquired after end of 1982–83 income year: ﬁnancial arrangement For property acquired after the end of the 1982–83 income year that is a ﬁnancial arrangement, the property sum is the base price adjustment for the arrangement, calculated as if the arrangement had matured on 1 April 1988 but using the for- mula in section EW 31 (Base price adjustment formula).
(4) (5) (6) (7) (8) (9) 1134 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EZ 2 Timing of deduction (10) The life insurer is allowed the deduction in the income year in which they dispose of the property.
Deﬁned in this Act: amount, deduction, ﬁnancial arrangement, income year, Life Insurance Fund, life insurance policy, life insurer, property, speciﬁed base cost for 1983 income year property, superannuation policy Compare: 2004 No 35 s EZ 1 EZ 2 Deductions for disposal of property: 1982–83 and 1989–90 income years (1) (2) Section EY 47(2)(b) For the purposes of section EY 47(2)(b) (Deductions for dis- posal of property), for property to which both the following apply, the amount of the deduction is the market value of the property on the last day of the 1989–90 income year: (a) the property is land or buildings acquired on or before the last day of the 1989–90 income year; and the proﬁt from the property’s disposal on or before the last day of the 1989–90 income year, had it been dis- posed of then at a proﬁt, would have been a capital proﬁt or gain and not a proﬁt on disposal of an investment sub- ject to income tax under section 204 of the Income Tax Act 1976 (as that section was immediately before its re- peal and substitution by section 13(1) of the Income Tax Amendment Act (No 2) 1990).
(b) Section EY 47(2)(c) For the purposes of section EY 47(2)(c), for property to which both the following apply, the amount of the deduction is the speciﬁed base cost for 1983 income year property: (a) the property was acquired on or before the last day of the 1982–83 income year; and subsection (1) does not apply to the property.
(b) Deﬁned in this Act: amount, deduction, income year, property, speciﬁed base cost for 1983 income year property Compare: 2004 No 35 s EZ 2 1135 Part E s EZ 3 Income Tax Act 2007 Reprinted as at 5 January 2010 Petroleum mining EZ 3 Petroleum development expenditure from 1 October 1990 to 15 December 1991 (1) (2) (3) (4) Timing of deduction Expenditure that is allowed as a deduction under section DZ 3 (Petroleum mining: development expenditure from 1 Oc- tober 1990 to 15 December 1991) must be deducted in equal amounts over the 10 years starting with the later of— (a) the income year in which commercial production starts; and the income year in which the expenditure is incurred.
(b) Petroleum mining operations outside New Zealand This section applies with any necessary modiﬁcations to a pet- roleum miner who undertakes petroleum mining operations that are— (a) outside New Zealand and undertaken through a branch or a controlled foreign company; and substantially the same as the petroleum mining activ- ities governed by this Act.
(b) Partnership interests For the purposes of this section, a partner is treated as having a share or interest in a petroleum permit or other property of a partnership to the extent of their income interest in the part- nership.

Disposal of part of asset For the purposes of this section, references to the disposal of an asset apply equally to the disposal of part of an asset.
Deﬁned in this Act: amount, commercial production, controlled foreign com- pany, deduction, dispose, income year, New Zealand, petroleum, petroleum miner, petroleum mining operations, petroleum permit Compare: 2004 No 35 s EZ 3 EZ 4 Valuation of livestock bailed or leased as at 2 September Livestock 1992 When this section applies This section applies when— (1) 1136 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EZ 4 (a) (b) an owner of livestock valued a class of livestock for the 1991–92 income year under section 86 of the Income Tax Act 1976 (as that section was in force before its repeal by section 21 of the Income Tax Amendment Act (No 2) 1993); and either— (i) the livestock was, as at 2 September 1992, at the use of a person under a bailment, lease, or other agreement that the owner entered into on or be- fore that date, or was, on or before that date, live- stock that was subject to a binding contract to bail or lease the livestock to a person, or otherwise al- low them to use the livestock; or the class of livestock was not one that the owner had on hand in the previous income year, but was a class that, as at 2 September 1992, was at the use of a person under a bailment, lease, or other agreement that the owner entered into on or before that date.
(ii) (2) (3) (4) Rolling average value The owner may value the livestock at a value equal to 70% of the rolling average value of that class of livestock.

When subsection (2) applies Subsection (2) applies for the 1992–93 income year and any later income year in which the livestock continues to be bailed, leased, or otherwise used by the person under the bailment, lease, or other agreement.
Number of livestock valued The number of speciﬁed livestock of a class that may be valued under this section is the number that is the least of— (a) the number of livestock of the class bailed, leased, or otherwise used (or, for a binding contract entered into before 2 September 1992 but not yet applying, the num- ber of livestock of that class provided for in the con- tract); and the number of livestock of the class bailed, leased, or otherwise used as at the end of the 1992–93 income year; and (b) 1137 Part E s EZ 5 Income Tax Act 2007 Reprinted as at 5 January 2010 (5) (c) the lesser of the opening and closing number of stock of the class bailed, leased, or otherwise used in a later in- come year up to and including the income year in which the livestock is being valued.
Meaning of rolling average value In this section, rolling average value, for an income year and a class of speciﬁed livestock, means one-third of the sum of the national average market values set for that income year and each of the 2 previous income years for livestock of that class.
Deﬁned in this Act: class, income year, lease, national average market value, rolling average value, speciﬁed livestock Compare: 2004 No 35 s EZ 4 EZ 5 Reduction: bloodstock not previously used for breeding in New Zealand: pre-1 August 2006 Bloodstock to which this section applies This section applies to bloodstock that— (a) (b) (c) was not used for breeding in New Zealand before 16 December 1991; and before a person (person A) acquired it, was not used for breeding in New Zealand by any other person, unless— the other person transferred the bloodstock to (i) person A under a matrimonial agreement to which section FB 18 (Bloodstock) applies; or the other person and person A were companies in the same wholly-owned group at the time person A acquired the bloodstock from the other person; and (ii) section EC 39(1) or (2) (First income year in breeding business) applies to,— (i) (ii) before 1 August 2006; or for an income year ending on or after 1 August 2006, if a requirement of paragraphs (a) to (c) of section EC 39(1) or (2) is ﬁrst met before 1 August 2006.
Stallion For the purposes of sections EC 39 and EC 40 (which relate to bloodstock), the reduction applying to the value of a stallion is (1) (2) 1138 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EZ 5 25% of the cost price of the stallion unless person A chooses to value the stallion by the reducing value method.
Stallion valued by reducing value method (3) When person A chooses to value the stallion by the reduc- ing value method, the reduction applying to the value of the stallion is 37.5% of its cost price in the ﬁrst income year and 37.5% of its opening value in each later income year.

Person A must give notice to the Commissioner of their election in their return of income for the ﬁrst income year.
(4) (5) (6) (7) Broodmare when ﬁrst used before 1 April 2001 For the purposes of sections EC 39 and EC 40, the reduction applying to the value of a broodmare is calculated using the formula— Deﬁnition of item in formula In the formula in subsection (4), age of broodmare is— (a) (b) 12 years of age; or the actual age in years, if the broodmare is 11 years of age or less at the end of the income year.
Broodmare when ﬁrst used on or after 1 April 2001 but before 1 August 2006 For the purposes of sections EC 39 and EC 40, the reduc- tion applying to the value of a broodmare to which section EC 39(2) applies is calculated using the formula— Deﬁnition of item in formula In the formula in subsection (6), age of broodmare is— (a) (b) 8 years of age; or the actual age in years, if the broodmare is 7 years of age or less at the end of the income year.
Deﬁned in this Act: bloodstock, broodmare, Commissioner, company, cost price, income year, matrimonial agreement, New Zealand, notice, return of in- come, stallion, wholly-owned group, year Compare: 2004 No 35 s EZ 4B 1139 Part E s EZ 6 Income Tax Act 2007 Reprinted as at 5 January 2010 EZ 6 Reduction: broodmare previously used for breeding in New Zealand: pre-1 August 2006 (1) (2) (3) (4) Broodmare to which this section applies This section applies to a broodmare that section EC 39(1) or (2) (First income year in breeding business) applies to,— (a) (b) before 1 August 2006; or for an income year ending on or after 1 August 2006, if a requirement of paragraphs (a) to (c) of section EC 39(1) or (2) is ﬁrst met before 1 August 2006.
Broodmare when ﬁrst used before 1 April 2001 For the purposes of sections EC 39 and EC 40 (which relate to bloodstock), the reduction applying to the value of a brood- mare to which section EC 39(1) applies and sections EC 41 (Reduction: bloodstock not previously used for breeding in New Zealand) and EZ 5 do not apply is calculated using the formula— Deﬁnition of item in formula In the formula in subsection (2), age of broodmare is— (a) (b) 12 years of age; or the actual age in years, if the broodmare is 11 years of age or less at the end of the income year.
Broodmare when ﬁrst used on or after 1 April 2001 but before 1 August 2006 For the purposes of sections EC 39 and EC 40, the reduc- tion applying to the value of a broodmare to which section EC 39(2) applies and sections EC 41 and EZ 5 do not apply is calculated using the formula— (5) Deﬁnition of item in formula In the formula in subsection (4), age of broodmare is— (a) 8 years of age; or 1140 Reprinted as at 5 January 2010 Income Tax Act 2007 Part E s EZ 7 (b) the actual age in years, if the broodmare is 7 years of age or less at the end of the income year.
Deﬁned in this Act: broodmare, cost price, income year, year Compare: 2004 No 35 s EZ 4C EZ 7 Buying patent rights before 1 April 1993 Patent rights (1) (2) (3) (4) (5) When this section applies This section applies when section DZ 8 (Buying patent rights before 1 April 1993) applies.

Amount of deduction The amount of the deduction is the expenditure that the person has incurred in buying the patent rights.
Amount when patent rights expired or disposed of If, before the expiry of the patent rights, the rights have come to an end or have been disposed of, the person is allowed a deduction of an amount that bears to the total sum of the ex- penditure on the purchase of the rights the same proportion as the unexpired term of the rights when they came to an end or were disposed of bears to their unexpired term at the date of their purchase.
An amount that the person has otherwise been allowed as a deduction is not included.

Timing of deduction: subsection (2) The deduction referred to in subsection (2) is allocated to the income years in relation to which the term of the patent rights that is unexpired at the date of purchase applies.

Timing of deduction: subsection (3) The deduction referred to in subsection (3) is allocated to the income year in which the rights have come to an end or been disposed of.
Deﬁned in this Act: amount, deduction, income year, patent rights Compare: 2004 No 35 s EZ 5 1141 Part E s EZ 8 Income Tax Act 2007 Reprinted as at 5 January 2010 EZ 8 Premium paid on land leased before 1 April 1993 Leases of land (1) (2) (3) (4) (5) When this section applies This section applies when section DZ 9 (Premium paid on land leased before 1 April 1993) applies.

Amount of deduction The amount of the deduction is the premium paid on the grant or renewal of the lease.
If person A does not use the land for the whole of a tax year, the amount of the deduction is reduced proportionately.

Amount when lease or renewal granted to another person If the lease or the renewal of the lease is granted to another person, the deduction must not be more than the amount of the premium paid by person A on the acquisition of the lease.

Timing of deduction The deduction is allocated evenly to the income years in rela- tion to which the term of the lease applies.
Meaning of term of the lease In this section, term of the lease, for a lease of indeﬁnite du- ration, means the minimum period it has to run.