Source document: https://docs-lawep.s3.us-east-2.amazonaws.com/1698754049739.pdf (New Zealand)
Reprint as at 30 August 2013 Income Tax Act 2007 Public Act Date of assent Commencement 2007 No 97 1 November 2007 see section A 2 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 Part B Core provisions Subpart BA—Purpose BA 1 Purpose Subpart BB—Income tax and resulting obligations Imposition of income tax BB 1 BB 2 Main obligations Page 124 124 125 125 125 126 128 128 129 Note Changes authorised by subpart 2 of Part 2 of the Legislation Act 2012 have been made in this reprint.
Note 4 at the end of this reprint provides a list of the amendments incorporated.

This Act is administered by the Inland Revenue Department.
1 Income Tax Act 2007 Reprinted as at 30 August 2013 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 BD 1 Subpart BD—Income, deductions, and timing Income, exempt income, excluded income, non-residents’ 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 BG 1 Tax avoidance Subpart BG—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 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 129 133 133 133 134 134 136 136 139 140 141 141 142 143 145 146 146 149 149 152 152 2 Reprinted as at 30 August 2013 Income Tax Act 2007 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 Exclusions for farm land CB 21 Farm land exclusion from sections CB 12 and CB 13 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 Timber 153 153 153 154 154 155 156 157 157 158 159 160 161 162 162 163 164 164 165 166 166 167 167 3 Income Tax Act 2007 Reprinted as at 30 August 2013 CB 25 Disposal of land with standing timber 168 CB 26 Disposal of certain shares by portfolio investment entities 168 Investments 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 Look-through companies CB 32B Owners of look-through companies CB 32C Income for ﬁrst year of look-through company 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 Subpart CC—Income from holding property (excluding
 equity) Land use 169 170 170 172 172 172 173 173 174 177 177 178 179 CC 1 Land CC 1B Consideration for agreement to grant, renew, extend, or 183 184 transfer leasehold estate or licence 4 Reprinted as at 30 August 2013 Income Tax Act 2007 CC 1C Consideration for agreement to surrender leasehold estate 184 or terminate licence 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 CC 13 Amounts paid in income years after hire purchase Hire purchase agreements 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 7B Shares issued under proﬁt distribution plans 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 CD 12 Superannuation schemes entering trust rules 185 185 186 186 187 187 188 188 189 190 191 192 192 195 195 195 196 196 197 198 199 199 200 200 201 201 5 Income Tax Act 2007 Reprinted as at 30 August 2013 CD 13 Notional distributions of producer boards and co-operative 202 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 23B Returns of capital: shares repurchased under proﬁt distribution plans 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 29B Issues to shareholders of rights to subscribe for or sell back shares 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 202 203 203 204 205 206 206 207 207 212 213 213 214 216 216 219 219 219 220 220 221 221 CD 34 Distribution to member of co-operative company based on 222 member’s transactions [Repealed] CD 34B Distributions to members of co-operative companies CD 35 Resident’s restricted amalgamations CD 36 Foreign investment fund income CD 37 Maori authority distributions CD 38 General calculation rule for transfers of value Calculation rules 222 225 225 228 228 6 Reprinted as at 30 August 2013 Income Tax Act 2007 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 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] CD 53 Prevention of double taxation of share cancellation Prevention of double taxation 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 228 232 233 235 235 244 250 250 250 250 250 250 251 251 251 253 254 255 257 258 258 260 261 7 Income Tax Act 2007 Reprinted as at 30 August 2013 CE 8 Attributed income from personal services Attributed income Restrictive covenants and exit inducement payments CE 9 Restrictive covenants CE 10 Exit inducements 261 262 263 CE 11 Proceeds from claims under policies of income protection 263 Income protection insurance insurance Tax credits CE 12 Tax credits for personal service rehabilitation payments 264 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 Receipts for expenditure or loss from insurance, indemnity, or otherwise 264 267 268 268 269 269 CG 5 Recoveries or receipts by employers from superannuation 270 schemes CG 5B Receipts from insurance, indemnity, or compensation for interruption or impairment
 of business activities CG 6 Receipts from insurance, indemnity, or compensation for trading stock CG 7 Recoveries after deduction of payments under lease CG 8 Capital contributions 271 271 272 273 Subpart CH—Adjustments Matching rules: revenue account property, prepayments, and deferred payments CH 1 Adjustment for closing values of trading stock, livestock, 274 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 275 275 276 8 Reprinted as at 30 August 2013 Income Tax Act 2007 CH 5 Adjustment for GST Goods and services tax (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 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 Attributed income of investors in multi-rate PIEs 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 Foreign investment fund income CQ 4 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 CR 1 CR 2 CR 3 CR 4 Policyholder base income of life insurer Shareholder base income of life insurer Income of non-resident general insurer Income for general insurance outstanding claims reserve Subpart CS—Superannuation funds [Repealed] Withdrawals [Repealed] CS 1 Withdrawals [Repealed] 276 277 277 278 278 278 279 279 280 281
 284 284 284 289 290 290 290 291 292 295 9 Income Tax Act 2007 Reprinted as at 30 August 2013 Exclusions [Repealed] CS 5 CS 4 CS 2 CS 3 Exclusions of withdrawals of various kinds [Repealed] Exclusion of withdrawal on grounds of hardship [Repealed] Exclusion of withdrawal to settle division of relationship property [Repealed] Exclusion of withdrawal paid as annuity or pension [Repealed] Exclusion of withdrawal on partial retirement [Repealed] Exclusion of withdrawal when member ends employment [Repealed] Exclusion of withdrawal when member ends employment: lock-in rule [Repealed] Exclusion of withdrawal from deﬁned beneﬁt fund when member ends employment [Repealed] CS 10 When member treated as not ending CS 6 CS 7 CS 9 CS 8 employment [Repealed] CS 10B Exclusion of permitted withdrawals from KiwiSaver schemes and complying superannuation funds [Repealed] 296 296 296 296 296 296 297 297 297 297 Transfers to or from superannuation funds and superannuation schemes [Repealed] CS 11 Transfer by superannuation fund to another superannuation 297 fund [Repealed] CS 12 Transfer from superannuation scheme to superannuation fund [Repealed] CS 13 Investment by superannuation fund in another superannuation fund [Repealed] Treatment of amounts when superannuation fund becomes superannuation scheme or vice versa [Repealed] CS 14 Superannuation fund becomes superannuation scheme [Repealed] CS 15 Superannuation fund becomes foreign superannuation scheme [Repealed] CS 16 Superannuation scheme becomes superannuation fund [Repealed] 298 298 298 298 298 10 Reprinted as at 30 August 2013 Income Tax Act 2007 Treatment of distributions when superannuation fund wound up [Repealed] CS 17 Superannuation fund wound up [Repealed] Treatment of loans to members [Repealed] CS 18 Value of loan treated as fund income [Repealed] Subpart CT—Income from petroleum mining CT 1 Disposal of exploratory material or petroleum mining asset CT 2 Damage to assets CT 3 CT 4 CT 5 Exploratory well used for commercial
 production Partnership interests and disposal of part of asset Petroleum mining operations outside New Zealand Deﬁnitions CT 6 Meaning of petroleum miner CT 6B Meaning of petroleum mining operations CT 7 Meaning of petroleum mining asset 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 299 299 300 300 300 301 302 302 303 304 306 306 308 309 310 311 311 312 313 313 314 315 315 316 11 Income Tax Act 2007 Reprinted as at 30 August 2013 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 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 CV 10 Foreign dividend payment account companies or conduit Supplementary dividend holding companies 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 [Repealed] Reprinted as at 30 August 2013 Income Tax Act 2007 CV 18 Hedging of currency movements in Australian 340 non-attributing shares and attributing FDR method interests Subpart CW—Exempt income Income from business or trade-like activities CW 1 Forestry companies established by the Crown, Maori 343 owners, and holding companies buying land with standing timber from founders CW 1B Treaty of Waitangi claim settlements: rights to take timber 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 CW 8B Certain amounts derived from use of assets Income from equity CW 9 Dividend derived from foreign company CW 10 Dividend within New Zealand wholly-owned group CW 11 Dividend of conduit tax relief holding
 company [Repealed] 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 CW 16 Allowance of Governor-General and other beneﬁts and Employee or contractor income privileges CW 17 Expenditure on account, and reimbursement, of employees CW 17B Relocation payments CW 17C Payments for overtime meals and certain other allowances 344 345 345 346 346 347 347 347 348 349 349 351 352 352 358 360 361 361 362 363 364 13 Income Tax Act 2007 Reprinted as at 30 August 2013 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 29B Amounts from Australian complying superannuation schemes reinvested in KiwiSaver schemes 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 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 Reprinted as at 30 August 2013 Income Tax Act 2007 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 55BB Minors’ income, to limited extent Partners and partnerships CW 55B Amounts of exempt income for partners 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 59C Life reinsurance outside New Zealand 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 393 393 394 394 394 394 394 395 396 397 398 398 399 400 401 401 401 402 402 403 404 Restructuring under New Zealand Railways Corporation Restructuring Act 1990 CW 65 New Zealand Railways Corporation restructure: exempt 404 income Subpart CX—Excluded income Goods and services tax CX 1 Goods and services tax 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 408 408 409 409 409 15 Income Tax Act 2007 Reprinted as at 30 August 2013 Fringe beneﬁts Private use of motor vehicle CX 6 CX 7 Employer or associated person treated as
 having right to use vehicle under arrangement Private use of motor vehicle: use by more than 1 employee CX 8 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 CX 33B Beneﬁts for members of Parliament 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 Reprinted as at 30 August 2013 Income Tax Act 2007 Insurance CX 39 Life insurers and fully reinsured persons [Repealed] 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] 430 430 430 431 431 431 432 434 434 436 438 Government funding of ﬁlm and television CX 48C Government funding additional to government screen 439 production payments CX 48D Tax credits for expenditure on research and development 439 Research and development 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 CX 51 Income equalisation schemes Farming, forestry, or ﬁshing Emissions units under Climate Change Response Act 2002 CX 51B Disposal of pre-1990 forest land emissions units CX 51C Disposal of ﬁshing quota emissions units CX 52 Refund from environmental restoration account Environmental restoration 439 440 440 441 441 442 442 17 Income Tax Act 2007 Reprinted as at 30 August 2013 Inﬂation-indexed instruments CX 53 Credits for inﬂation-indexed instruments CX 54 Share-lending collateral under share-lending Share-lending arrangements arrangements Portfolio investment income CX 55 Proceeds from disposal of investment shares CX 56 Attributed income of certain investors in multi-rate PIEs CX 56B Distributions to investors in multi-rate PIEs CX 56C Distributions to investors by listed PIEs CX 57 Credits for investment fees 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 CX 61 Avoidance arrangements Avoidance arrangements Partners and partnerships CX 62 Amounts of excluded income for partners Look-through companies CX 63 Dividends derived after company ceased to be look-through company 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 CZ 4 Mineral mining: company making loan before 1 April Exchange variations on 8 August 1975 CZ 5 1979 Exempt interest: overseas money lent to government or local or public authority before 29 July 1983 CZ 6 Commercial bills before 31 July 1986 CZ 7 Primary producer co-operative companies: 1987–88 income year Farm-out arrangements for petroleum mining before 16 December 1991 CZ 8 18 442 443 443 445 447 448 449 449 449 450 450 450 451 453 453 454 456 457 457 458 459 Reprinted as at 30 August 2013 Income Tax Act 2007 CZ 9 Available capital distribution amount: 1965 and 1985–1992 CZ 9B Available capital distribution amount: 1988 to 2010 CZ 10 Transitional relief for calculation of attributed repatriation 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 CZ 23 Insurance or compensation for buildings replaced as revenue account property affected by Canterbury earthquakes [Repealed] CZ 23 Employee beneﬁts for Canterbury earthquake relief: exempt income CZ 24 Employee beneﬁts for Canterbury earthquake relief: not fringe beneﬁts CZ 25 Land and buildings as revenue account property affected by Canterbury earthquakes
 and replaced—insurance or compensation, Government purchase CZ 26 Land and buildings affected by Canterbury earthquakes—sections CB 9 to CB 12 overridden for Government purchase Part D Deductions Subpart DA—General rules DA 1 General permission DA 2 General limitations 459 460 463 464 464 465 466 466 467 467 467 468 469 469 470 471 471 472 473 476 477 478 19 Income Tax Act 2007 Reprinted as at 30 August 2013 DA 3 Effect of speciﬁc rules on general rules DA 4 Treatment of amount of depreciation loss DA 5 Treatment of expenditure for commercial ﬁt-out Subpart DB—Speciﬁc rules for expenditure types Taxes and other amounts DB 1 Taxes, other than GST, and penalties DB 2 Goods and services tax DB 3 Determining tax liabilities DB 3B Use of money interest DB 4 Chatham Islands dues DB 4B Fees to purchase funds in tax pooling accounts 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 479 480 480 484 484 486 487 488 489 489 490 491 492 494 495 DB 10B Interest or expenditure connected to stapled debt security 495 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 DB 16 Share-lending collateral under share-lending Share-lending arrangements 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 496 496 497 497 498 498 499 499 500 500 20 Reprinted
 as at 30 August 2013 Income Tax Act 2007 DB 20B Consideration for agreement to grant, renew, extend, or transfer leasehold estate or licence DB 20C Consideration for agreement to surrender leasehold estate or terminate licence 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 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 DB 31 Bad debts DB 32 Bad debts owed to estates Bad debts 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 500 501 502 503 504 505 506 507 507 508 509 509 510 512 513 514 517 518 519 519 520 521 Unsuccessful software development DB 40B Expenditure in unsuccessful development of software 522 Marketing DB 41 Charitable or other public beneﬁt gifts by company Theft and bribery DB 42 Property misappropriated by employees or service providers 522 524 21 Income Tax Act 2007 Reprinted as at 30 August 2013 DB 43 Making good loss from misappropriation by partners DB 44 Restitution of stolen property DB 45 Bribes paid to public ofﬁcials 524 525 526 DB 46 Avoiding, remedying, or mitigating effects of discharge 527 Pollution control of contaminant DB 47 Payments for remitted amounts DB 48 Restrictive covenant breached Repayments 530 530 Matching rules: revenue account property,
 prepayments, and deferred payments DB 49 Adjustment for opening values of trading stock, livestock, 531 and excepted ﬁnancial arrangements DB 50 Adjustment for prepayments DB 51 Adjustment for deferred payment of employment income 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 Attributed PIE losses of certain investors DB 54 No deductions for fees relating to interests in multi-rate PIEs DB 54B Expenditure incurred by foreign investment PIEs Exempt income DB 55 Expenditure incurred in deriving exempt dividend Use of motor vehicle under certain arrangements DB 56 Expenditure incurred in operating motor vehicle under agreement or arrangement affected by section CX 7 532 533 534 534 535 535 536 537 538 Payments to spouses, civil union partners, or de facto partners DB 57 Payments to spouses, civil union partners, or de facto 538 partners other than for services Avoidance and non-market transactions DB 58 Adjustment for avoidance arrangements DB 59 Market value substituted 539 540 22 Reprinted as at 30 August 2013 Income Tax Act 2007 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 certain emissions units for post-1989 forest land emissions DB 62 Deduction for legal expenses Legal expenses Capital contributions DB 64 Capital contributions DB 65 Allowance for certain commercial buildings Subpart DC—Employee or contractor expenditure Pension payments to former employees Pension payments to former partners DC 1 Lump sum payments on retirement DC 2 DC 3 DC 3B Payments to working owners Payments to working partners DC 4 Payments to spouses, civil union partners, or de facto DC 5 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 Income Tax Act 2007 Reprinted as at 30 August 2013 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 DE 9 Inadequate logbook 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 DG—Expenditure related to use of certain assets Introductory
 provisions DG 1 What this subpart does DG 2 Application of this subpart DG 3 Meaning of asset for this subpart DG 4 Meaning of private use for this subpart DG 5 Meaning and treatment of interest expenditure for this subpart 24 569 569 570 570 571 572 574 575 575 575 576 576 577 578 578 579 580 582 583 583 584 586 587 588 590 592 Reprinted as at 30 August 2013 Income Tax Act 2007 DG 6 Associated persons: company rule modiﬁed When assets held simply DG 7 Expenditure related to income-earning use DG 8 Expenditure limitation rule DG 9 Apportionment formula When assets held in corporate structures DG 10 Interest expenditure rules DG 11 Interest expenditure: close companies DG 12 Interest expenditure: group companies DG 13 Interest expenditure: corporate shareholders DG 14 Interest expenditure: non-corporate shareholders Quarantined expenditure DG 15 Quarantined expenditure rules DG 16 Quarantined expenditure when asset activity negative DG 17 Allocation of amounts quarantined under section DG 16 DG 18 Quarantined expenditure: group companies and shareholders DG 19 Allocation of amounts quarantined under section DG 18 Certain modiﬁcations to rules DG 20 When income cannot be separately attributed DG 21 Opting out of treatment under this subpart DG 22 Application of rules to part years 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: attributable FIF income method Subpart DO—Farming and aquacultural business expenditure Farming DO 1 Enhancements to land 593 594 595 596 598 599 601 603 606 608 608 610 612 614 616 617 618 620 620 622 622 625 626 631 631 634 25 Income Tax Act 2007 Reprinted as at 30 August 2013 DO
 2 Plantings for erosion, shelter, and water protection Improvements to farm land purposes 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 under sections DO 5 and DO 6 DO 8 Meaning of planting and plot DO 9 Meaning of replaced area fraction DO 10 Farming or horticulture expenditure of lessor or sublessor DO 11 Improvement destroyed or made useless DO 11B Entering partners’ livestock deduction [Repealed] DO 12 Improvements to aquacultural business DO 13 Improvement destroyed or made useless Aquaculture Subpart DP—Forestry expenditure DP 1 DP 2 DP 3 DP 4 DP 5 DP 6 DP 7 DP 8 Expenditure of forestry business Plant or machinery Improvements to forestry land Improvement destroyed or made useless Forestry encouragement agreement: deductions Forestry encouragement agreement: no deduction Land contouring: no deduction Forestry business on land bought from the Crown, Maori owners, or holding company: no deduction DP 9 Cost of acquiring timber: forestry business on land bought from the Crown, Maori owners, or holding company DP 9B Treaty of Waitangi claim settlements: rights to take timber 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 Policyholder base allowable deduction of life insurer Reprinted as at 30 August 2013 Income Tax Act 2007 Shareholder base allowable deduction of life insurer DR 2 DR 3 Life reinsurance outside New Zealand
 DR 4 Life insurers’ claims reserves 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 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 Income Tax Act 2007 Reprinted as at 30 August 2013 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 7 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 Reprinted as at 30 August 2013 Income Tax Act 2007 DV 17 Consolidated groups: expenditure or loss incurred by group companies DV 18 Statutory producer boards and co-operative companies DV 19 Association rebates Partners and partnerships DV 20 Partners DV 21 Losses for QCs entering partnership regime Look-through companies DV 22 Owners of look-through companies DV 23 Losses for QCs entering look-through companies rules Sole traders DV 24 Losses for QCs becoming sole traderships DV 25 Hedging of currency movements in Australian non-attributing shares and attributing FDR method interests Subpart DW—Expenditure speciﬁc to certain industries DW 1 Airport operators DW 2 Bloodstock racing DW 3 Non-resident general insurers and shippers DW 4 Deduction for
 general insurance outstanding claims 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 [Repealed] 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 DZ 3 1 October 1990 to 15 December 1991 DZ 4 Expenditure on abandoned exploratory well before DZ 5 DZ 6 DZ 7 16 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 719 719 720 722 722 724 725 726 728 728 729 730 731 733 734 734 736 736 738 738 739 741 742 29 Income Tax Act 2007 Reprinted as at 30 August 2013 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 DZ 19 Attributed CFC loss carried back under section EZ 32C [Repealed] DZ 20 Expenditure incurred while income-earning activity interrupted by Canterbury earthquake DZ 21 Expenditure on certain assets before 31 March 2013 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 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 EB 5 Trading stock valuation methods Transfers of trading stock within wholly-owned groups Standard valuation EB 6 Cost EB 7 Cost allocation: cost-ﬂow method 30 742 742 743 743 746 747 748 748 749 750 751 752 752 753 755 756 757 759 762 763 764 765 765 766 768 Reprinted as at 30 August 2013 Income Tax Act 2007 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 768 769 770 771 772 772 773 773 773 774 774 775 776 777 777 778 EB 24 Apportionment on disposal of business assets that include 779 trading stock Subpart EC—Valuation of livestock Introductory provisions EC 1 Application of this subpart EC 2 Valuation of livestock EC 3 EC 4 EC 4B Compulsory use of herd scheme method for associated Livestock valuation methods Transfers of livestock within wholly-owned groups persons EC 4C Value and timing of transfers 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 arising from use of
 herd scheme 782 783 783 784 785 787 788 788 788 790 31 Income Tax Act 2007 Reprinted as at 30 August 2013 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 [Repealed] 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 EC 25 Cost price, replacement price, or market value EC 26 Bailee’s treatment of livestock Other methods Partnerships: cost price and national standard cost scheme EC 26B Entering partners’ cost base 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 32 792 793 794 796 798 798 799 799 800 802 802 803 804 804 804 805 805 806 807 809 809 809 810 810 811 811 812 Reprinted as at 30 August 2013 Income Tax Act 2007 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 ED 3 within wholly-owned groups Part-year tax calculations for transfers: general insurance OCR ED 4 Valuation of certain excepted ﬁnancial arrangements denominated in foreign currency Subpart EE—Depreciation Introductory provision EE 1 What this subpart does 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?
813 814 815 815 815 816 816 818 819 819 819 820 820 821 823 829 833 834 835 839 841 841 842 843 843 844 33 Income Tax Act 2007 Reprinted as at 30 August 2013 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 Depreciation rates 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 high residual value 845 847 848 848 849 851 851 852 852 854 855 855 856 856 858 859 860 860 861 862 863 865 865 EE 31 Annual rate for item acquired in person’s 1995–96 or later 867 income year EE 32 Election in relation to certain depreciable property 871 acquired on or after 1 April 2005 34 Reprinted as at 30 August 2013 Income Tax Act 2007 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 871 872 873 874 875 878 880 Transfers of depreciable property: associated persons and certain amalgamations EE 40 Transfer of depreciable property on or after 24 September 881 1997 EE 41 Transfer of depreciable property on certain amalgamations 884 on or after 14 May 2002 EE 42 Transfer of radiocommunications licence right on or after 24 September 1997 EE 43 Transfer of depreciable intangible property on or after 1 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 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 886 886 887 888 891 892 894 897 898 901 902 902 903 35 Income Tax Act 2007 Reprinted as at 30 August 2013 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 EF 1 Fringe beneﬁt tax Employer’s superannuation contribution tax EF 2 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 [Repealed] 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 [Repealed] 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 904 904 905 906 907 908 911 913 914 914 915 916 916 919 919 920 922 923 925 925 929 930 934 934 935 36 Reprinted as at 30 August 2013 Income Tax Act 2007 Deposits and accounts EH 4 Main deposit EH 5 Main income equalisation account Interest Interest on deposits in main income equalisation account EH 6 EH 7 Deduction of deposit Deduction 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 935 937 938 939 939 939 940 940 EH 12 Application for refund by person, trustee of estate, Ofﬁcial 940 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 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 941 941 942 943 944 944 945 945 946 946 948 948 948 949 949 949 949 949 37 Income Tax Act 2007 Reprinted as at 30 August 2013 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 950 950 951 951 952 953 Adverse event income equalisation scheme Application EH 37 Persons to whom adverse event income equalisation 955 scheme applies Deposits and accounts EH 38 Adverse event deposit EH 39 Adverse event income equalisation account 955 956 EH 40 Interest on deposits in adverse event income equalisation 957 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 957 958 958 EH 44 Application for refund by person, trustee of estate, Ofﬁcial 959 Assignee, or liquidator 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 959 960 960 960 961 961 962 962 964 38 Reprinted as at 30 August 2013 Income Tax Act 2007 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 964 964 965 965 965 966 966 967 968 Thinning operations income equalisation scheme Application EH 63 Persons to whom thinning operations income equalisation 969 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 Deductions EH 67 Deduction of deposit 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 970 971 972 973 973 974 974 974 975 975 976 977 977 39 Income Tax Act 2007 Reprinted as at 30 August 2013 Refunds: general provisions, and tax credits EH 77 Sections of main income equalisation scheme that apply to thinning operations income equalisation scheme EH 78 Meaning of thinning operations maximum deposit EH 79 Other deﬁnitions Deﬁnitions Subpart EI—Spreading of speciﬁc income Farming and forestry EI 1 Spreading backward of income from timber EI 2 Interest from inﬂation-indexed instruments Inﬂation-indexed instruments Intellectual property EI 3 EI 4 Assigning or granting copyright Spreading income from patent rights Land EI 4B Consideration for agreement to grant, renew, extend, or transfer leasehold estate or licence 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 EI 5 EI 6 EI 7 EI 8
 Shareholder-employees EI 9 Matching rule for employment income of shareholder-employee 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 EJ 1 EJ 2 EJ 3 EJ 4 EJ 5 40 978 978 979 980 981 982 983 984 986 987 987 988 989 991 992 993 995 997 Reprinted as at 30 August 2013 Income Tax Act 2007 EJ 6 EJ 7 EJ 8 EJ 9 Certiﬁcation of New Zealand ﬁlms Film production expenditure for New Zealand ﬁlms having no large budget ﬁlm grant Film production expenditure for other ﬁlms having no large budget ﬁlm grant Avoidance arrangements Leases EJ 10 Personal property lease payments EJ 11 Amount paid by lessee for non-compliance with covenant for repair 998 999 1000 1002 1002 1003 EJ 12 Petroleum development expenditure: default allocation 1004 Petroleum mining rule EJ 12B Petroleum development expenditure: reserve depletion 1004 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 EJ 19 Meaning of offshore development [Repealed] EJ 20 Meaning of petroleum mining development Deﬁnitions 1006 1007 1007 1008 1008 1009 1009 1010 1010 1010 EJ 21 Contributions to employees’ superannuation schemes 1011 Superannuation contributions Research, development, and resulting market development EJ 22 Deductions for market development: product of research, 1012 development EJ 23 Allocation of deductions for research, development, and 1012 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 1015 1015 1016 41 Income Tax Act 2007 Reprinted as at 30 August 2013 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 1016 1018 1018 1019 1020 1021 1022 1022 1022 1024 1025 1025 1026 1027 1027 1028 EK 20 Environmental restoration account of consolidated group 1028 company EK 21 Notices in electronic format EK 22 Meaning of maximum payment EK 23 Other deﬁnitions Subpart EM—Hedging of currency movements in Australian non-attributing shares and attributing FDR method interests EM 1 Australian non-attributing shares and attributing FDR method interests EM 2 Who does this subpart apply to?
EM 3 What hedges does this subpart apply to?
EM 4 EM 5 Fair dividend rate hedge portions EM 6 Irrevocable elections Income and expenditure for fair dividend rate hedge portions EM 7 Quarterly test of fair dividend rate hedge portions EM 8 Some deﬁnitions Subpart EW—Financial arrangements rules Introductory provisions 1029 1029 1030 1032 1033 1034 1035 1035 1038 1039 1040 EW 1 What this subpart does EW 2 Relationship of ﬁnancial arrangements rules with other 1045 1045 provisions 42 Reprinted as at 30 August 2013 Income Tax Act 2007 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 Some short-term agreements for sale and purchase acquired in business: election to treat 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 EW 24 Consistency of use of spreading method Income Tax Act 2007 Reprinted as at 30 August 2013 EW 25 Consistency of use of straight-line method and market 1084 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 Consideration Consideration when ﬁnancial arrangement involves property or services 1085 1087 1089 1091 1091 1093 1094 EW 32 Consideration for agreement for sale and purchase of 1097 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 1098 1099 1100 1100 1101 1102 1103 1104 1105 1106 EW 43 Consideration when debt sold at discount to associate of 1106 debtor 44 Reprinted as at 30 August 2013 Income Tax Act 2007 EW 44 Consideration when debt forgiven for natural love and 1107 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 1108 1109 1111 1111 1112 1113 1114 1115 1116 1117 1118 1119 1119 1119 1122 1124 1124 1125 1126 1127 45 Income Tax Act 2007 Reprinted as at 30 August 2013 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 EX 2 Four categories for calculating control interests 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, not PIE EX 15 Associates and 10% threshold EX 16 Income interests for certain purposes EX 17 Income interest if variations within period 1132 1134 1135 1136 1136 1137 1138 1140 1140 1142 1142 1143 1144 1144 1144 1145 1146 Calculation of attributed CFC income or loss EX 18A Scheme for ﬁnding person’s attributed CFC income or 1146 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 1148 1148 1150 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 cost fraction for excessively debt funded 1151 1161 1168 CFC 46 Reprinted as at 30 August 2013 Income Tax Act 2007 EX 20E Relative debt-asset ratio for CFC 1172 Calculation of branch equivalent income or loss [Repealed] EX 21 Attributable CFC amount and net attributable CFC income 1174 or loss: calculation rules EX 21B Non-attributing active CFCs 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 EX 25 Change of CFC’s balance date 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 EX 34 CFC rules exemption EX 35 Exemption for interest in FIF resident in Australia 1186 1187 1191 1194 1203 1204 1204 1205 1206 1207 1207 1208 1209 1210 1212 1214 1215 1215 47 Income Tax Act 2007 Reprinted as at 30 August 2013 EX 36 Venture capital company emigrating to grey list country: 1216 10-year exemption EX 37 Grey list company owning New Zealand venture capital 1218 company: 10-year exemption EX 37B Share in grey list company acquired under venture 1219 investment agreement EX 38 Exemption for employee share purchase scheme of grey 1219 list company EX 39 Terminating exemption for grey list company with numerous New Zealand shareholders [Repealed] 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 Five 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 [Repealed] EX 50 Attributable FIF income 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 1220 1220 1221 1221 1224 1225 1226 1226 1233 1234 1234 1235 1244 1246 1252 EX 54 Fair dividend rate method and cost method: when periods 1258 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 1260 1264 1269 1270
 Relationship with other provisions in Act EX 59 Codes: comparative value method, deemed rate of return 1272 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 Changing calculation method EX 62 Limits on changes of method EX 63 Consequences of changes in method 1275 1276 1277 1282 48 Reprinted as at 30 August 2013 Income Tax Act 2007 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 EX 67B Revaluation of inherited interests in grey list companies EX 68 Measurement of cost Measurement of cost EX 69 Change of FIF’s balance date 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 1285 1287 1289 1291 1292 1294 1295 1298 1299 1300 1300 Election relating to CFC or FIF EX 73 Election that CFC not non-attributing active CFC or FIF 1302 not non-attributing active FIF Subpart EY—Life insurance rules Introductory provisions EY 1 What this subpart does EY 2 EY 3 EY 4 Apportionment of income of particular source or nature, Policyholder base Shareholder base and of tax credits Part-year tax calculations EY 5 EY 6 Actuarial advice and guidance 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 1309 1309 1311 1312 1312 1315 1315 1316 1318 1318 1319 1322 1325 1325 49 Income Tax Act 2007 Reprinted as
 at 30 August 2013 Policyholder base Non-participation policies EY 15 Policyholder base income: non-participation policies EY 16 Policyholder base allowable deductions: non-participation 1326 1328 policies Proﬁt participation policies EY 17 Policyholder base income: proﬁt participation policies EY 18 Policyholder base allowable deductions: proﬁt 1329 1330 participation policies Shareholder base Non-participation policies EY 19 Shareholder base income: non-participation policies EY 20 Shareholder base allowable deductions: non-participation 1331 1332 policies Proﬁt participation policies EY 21 Shareholder base income: proﬁt participation policies EY 22 Shareholder base allowable deductions: proﬁt 1333 1335 participation policies Non-participation policies: reserves EY 23 Reserving amounts for life insurers: non-participation 1335 policies EY 24 Outstanding claims reserving amount: non-participation 1337 policies not annuities EY 25 Premium smoothing reserving amount: non-participation 1339 policies not annuities EY 26 Unearned premium reserving amount: non-participation 1341 policies not annuities EY 27 Capital guarantee reserving amount: non-participation 1342 policies not annuities Shareholder base other proﬁt: proﬁt participation policies EY 28 Shareholder base other proﬁt: proﬁt participation policies 1343 that are existing business EY 29 Shareholder base other proﬁt: proﬁt participation policies 1346 that are new business Transitional adjustments and annuities EY 30 Transitional adjustments: life risk EY 31 Annuities 1349 1359 50 Reprinted as at 30 August 2013 Income Tax Act 2007 EY 32 Mortality proﬁt formula: when partial reinsurance 1360 exists [Repealed] EY 33 Mortality proﬁt formula: individual result may be negative 1360 only in some cases [Repealed] EY 34 Mortality proﬁt formula: negative result [Repealed] EY 35 How discontinuance proﬁt is calculated [Repealed] EY 36 Discontinuance proﬁt for income year [Repealed] EY 37 Discontinuance proﬁt formula (existing
 policies) [Repealed] EY 38 Discontinuance proﬁt formula (new policies) [Repealed] EY 39 Discontinuance proﬁt formula (existing policies): when partial reinsurance exists [Repealed] EY 40 Discontinuance proﬁt formula (new policies): when partial reinsurance exists [Repealed] EY 41 Discontinuance proﬁt formulas: individual result may never be negative [Repealed] EY 42 How policyholder income is calculated [Repealed] EY 43 Policyholder income formula [Repealed] EY 43B Policyholder income formula: FDR adjustment [Repealed] EY 43C Policyholder income formula: PILF adjustment [Repealed] 1360 1360 1361 1361 1361 1361 1361 1361 1362 1362 1362 1362 EY 44 Policyholder income formula: when partial reinsurance 1362 exists [Repealed] EY 45 Policyholder income formula: when life insurance business transferred [Repealed] EY 46 Income from disposal of property [Repealed] EY 47 Deductions for disposal of property [Repealed] 1362 1363 1363 Non-resident life insurers EY 48 Non-resident life insurers with life insurance policies in 1363 New Zealand EY 49 Non-resident life insurer becoming resident 1364 Subpart EZ—Terminating provisions Life insurance EZ 1 Life insurers acquiring property before 1 April 1988 EZ 2 Deductions for disposal of property: 1982–83 and 1989–90 income years EZ 3 Petroleum mining Petroleum development expenditure from 1 October 1990 to 15 December 1991 1369 1371 1372 51 Income Tax Act 2007 Reprinted as at 30 August 2013 Livestock EZ 4 Valuation of livestock bailed or leased as at 2 September 1372 1992 EZ 5 Reduction: bloodstock not previously used for breeding 1374 in New Zealand: pre-1 August 2006 EZ 6 Reduction: broodmare previously used for breeding in 1376 New Zealand: pre-1 August 2006 Patent rights EZ 7 Buying patent rights before 1 April 1993 EZ 8 Premium paid on land leased before 1 April 1993 Leases of land EZ 9 Pool method for items accounted for by globo method for 1992–93 income year Depreciation 1377 1378 1378 EZ 10 Pool items accounted for by globo
 method for 1992–93 1379 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 1379 1380 1381 1382 1384 1386 1387 1388 EZ 19 Section EZ 17 amount of depreciation loss when person 1389 previously exempt from tax acquires item EZ 20 Adjusted tax value for software acquired before 1 April 1389 1993 EZ 21 Sections EE 45 and EE 47: permanent removal: allowance 1390 before 1 April 1995 52 Reprinted as at 30 August 2013 Income Tax Act 2007 EZ 22 Base value and total deductions in section EE 56: before 1391 1 April 1995 EZ 23 Economic rate for plant or equipment acquired before 1 April 2005 and buildings acquired before 19 May 2005 EZ 23B Property acquired after depreciable property affected by 1392 1393 Canterbury earthquakes EZ 23C Insurance for Canterbury earthquake damage of property: 1398 deemed sale and purchase EZ 23D Insurance for Canterbury earthquake damage of property: 1399 limit on depreciation recovery income EZ 23E Item treated as available for use if access restricted due 1400 to Canterbury earthquake EZ 23F Insurance for Canterbury earthquake damage causing disposal: optional timing rule for income, deductions 1400 EZ 23G Insurance for repairs of Canterbury earthquake damage: 1402 optional timing rule for income, deductions Deﬁnitions EZ 24 Meaning of new asset EZ 25
 Meaning of New Zealand-new asset EZ 26 Meaning of qualifying capital value EZ 27 Meaning of qualifying improvement EZ 28 Meaning of qualifying asset Accident insurance 1404 1405 1406 1408 1409 EZ 29 Private insurers under Accident Insurance Act 1998 EZ 30 Base premium for 1998–99 premium year under Accident 1409 1410 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 [Repealed] EZ 32B Transitional rule for IFRS reporting [Repealed] EZ 32C Treatment in section EX 20C of currency effects on CFC’s borrowing [Repealed] 1411 1411 1411 1412 EZ 32D Value of asset fraction: CFC with excessive debt funding 1412 and loan entered before 21 June 2012 EZ 32E Change in section EX 20B for income of CFC insurer: 1413 interest on terminal tax 53 Income Tax Act 2007 Reprinted as at 30 August 2013 Old ﬁnancial arrangements rules EZ 33 Application of old ﬁnancial arrangements rules EZ 34 Election to apply ﬁnancial arrangements rules in 1413 1414 subpart EW EZ 35 Accruals in relation to income and expenditure in respect 1414 of ﬁnancial arrangements EZ 36 Excepted ﬁnancial arrangement that is part of ﬁnancial 1421 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 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 EZ 52C Change of spreading method: Determination G22 to Determination G22A 1421 1426 1432 1433 1434 1435 1436 1437 1437 1439 1439 1440 1454 1455 1456 1458 1459 1460 EZ 52D Base price adjustment: ﬁnancial arrangements to which 1461 Determination G22 and Determination G22A applied Life insurance transitional adjustment: expected death strain Expected death strain formulas EZ 53 How expected death strain is calculated EZ 54 Expected death strain formulas 1463 1463 54 Reprinted as at 30 August 2013 Income Tax Act 2007 EZ 55 Expected death strain formulas: option when more than 1464 1 life insured EZ 56 Expected death strain formula (life): when annuity 1465 payable on death EZ 57 Expected death strain formulas: when annuity payable on 1466 survival to date or age speciﬁed in policy EZ 58 Expected death strain formula (life): when partial reinsurance exists Actuarial reserves EZ 59 Meaning of actuarial reserves EZ 60 Actuarial reserves: calculation Entry to new life insurance regime: transitional and miscellaneous provisions EZ 61 Allowance for cancelled amount: spreading EZ 62 Reinsurance transition: life ﬁnancial reinsurance may be life reinsurance EZ 63 Disposal and acquisition upon entry 1466 1467 1468 1469 1471 1471 Restructuring under New Zealand Railways Corporation Restructuring Act 1990 EZ 64 New Zealand Railways Corporation restructure: purpose 1472 and initial amounts for tax purposes EZ 65 Expenditure or loss incurred, and amounts derived EZ 66 Prepayments EZ 67 Leased assets EZ 68 Deﬁnitions 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 1473 1474 1475 1475 1478 1478 1481 1483 1483 55 Income Tax Act 2007 Reprinted as at 30 August 2013 FA 5 Assets acquired and disposed of after deduction of 1485 Leases 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 1486 1487 1487 1488 1489 1490 1491 FA 12 Recharacterisation of amounts derived under hire purchase 1493 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 1493 1494 1494 property FA 16 Treatment when agreement ends: when seller is cash basis 1496 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 10B Look-through companies FB 11 Pension payments to former employees 1497 1497 1499 1500 1500 1501 1502 1502 1503 1503 1504 1504 1504 1505 56 Reprinted as at 30 August 2013 Income Tax Act 2007 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 Forestry assets transferred to close relatives Transfer of prepaid property Transfer of certain ﬁnancial arrangements FC 3 FC 4 FC 5 FC 6 FC 7 FC 8 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 6B Alternative apportionment of interest by some excess debt entities 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 Income Tax Act 2007 Reprinted as at 30 August 2013 Calculations FE 12 Calculation of debt percentages FE 12B Calculations for group for test and apportionment using 1546 1548 interest-income ratio FE 13 Financial arrangements entered into with persons outside 1549 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 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 1551 1553 1555 1558 1558 1560 1561 1562 1567 1568 1569 1570 1571 1575 1576 1578 FE 30 Ownership interests in companies outside New Zealand 1579 group Worldwide group FE 31 Worldwide group for corporate excess debt entity if not 1581 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 1583 1584 1585 58 Reprinted as at 30 August 2013 Income Tax Act 2007 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 in 1585 1586 1586 1588 usual case FE 36B Identifying members of New Zealand banking group: 1590 Crown-owned, no interest apportionment 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] Interest apportionment rule
 [Repealed] FF 4 Threshold for application of interest apportionment rule [Repealed] 1591 1591 1592 1592 1593 1594 1594 1595 1595 FF 5 Determination of excess amount of interest expenditure 1595 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] 1595 1595 1596 1596 1596 1596 59 Income Tax Act 2007 Reprinted as at 30 August 2013 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 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 company B 1597 1597 1600 1600 1601 1602 1603 1604 1606 1606 1607 1607 1608 1609 1610 1610 1611 1613 1613 1614 FM 19 Financial
 arrangements: transfer for fair and reasonable 1615 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 1616 1616 1617 1617 Treatment of foreign dividends [Repealed] FM 24 General treatment of foreign dividends [Repealed] FM 25 Reduction in payments for foreign dividends [Repealed] 1619 1619 60 Reprinted as at 30 August 2013 Income Tax Act 2007 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 1619 1619 1620 1621 account FM 30 Application of certain provisions to consolidated groups 1622 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 1624 1626 1626 1626 1627 1628 1628 When membership starts and stops FM 38 Notice requirements on forming or joining consolidated 1629 group FM 39 Choosing to leave consolidated group FM 40 Losing eligibility or entitlement to be part of consolidated group FM 41 No nominated company FM 42 When company liquidated Subpart FN—Imputation groups of companies FN 1 When this subpart applies Imputation rules FN 2 Liabilities of companies in imputation group FN 3 Eligibility rules FN 4 FN 5 Imputation groups with reduced numbers FN 6 Nominated companies FN 7 FN 8 Forming imputation groups Trans-Tasman imputation groups and resident imputation 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 1630 1631 1632 1633 1633 1634 1634 1635 1636 1637 1638 1639 1639 1640 1640 1641 61 Income Tax Act 2007 Reprinted as at 30 August 2013 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 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 1642 1642 1644 1644 1644 1646 1647 1647 1647 1648 1648 1649 1650 1651 1652 1653 1653 1654 1655 FO 18 When amalgamating companies are parties to ﬁnancial 1656 arrangement FO 19 Calculation of outstanding accrued balance: consideration 1658 for discharge FO 20 Calculation of outstanding accrued balance: amounts 1659 remitted 62 Reprinted as at 30 August 2013 Income Tax Act 2007 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 Earthquake-affected group property 1661 1662 1665 1666 1666 1667 FZ 7 Valuation of group assets: insurance proceeds from 1668 Canterbury earthquake Part G Avoidance and non-market transactions Subpart GA—Avoidance: general GA 1 Commissioner’s power to adjust GA 2 Commissioner’s power to adjust: fringe beneﬁt tax 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 1670 1671 1675 1676 1676 1677 1678 1678 1679 63 Income Tax Act 2007 Reprinted as at 30 August 2013 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 1679 1680 1681 1682 1683 1684 1685 1686 GB 15B Supplies affecting default test for non-attributing active 1686 CFC GB 15C Arrangements related to accounting test for 1687 non-attributing active CFC Arrangements involving foreign investment funds GB 16 FIF income or loss: arrangements
 for measurement day 1688 concessions Arrangements involving ﬁlm rights GB 17 Excessive amounts for ﬁlm rights or production 1688 expenditure GB 18 Arrangements to acquire ﬁlm rights or incur production 1689 expenditure GB 19 When ﬁlm production expenditure payments delayed or 1690 contingent Arrangements involving petroleum mining GB 20 Arrangements involving petroleum mining 1691 Arrangements involving ﬁnancial arrangements GB 21 Dealing that defeats intention of ﬁnancial arrangements 1693 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 GB 25B Excessive effective look-through interests 1694 1694 1696 1697 1698 64 Reprinted as at 30 August 2013 Income Tax Act 2007 Arrangements involving repatriation of commercial bills GB 26 Arrangements involving repatriation of commercial bills 1699 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 1700 1703 1705 Arrangements involving restrictive covenants GB 30 Arrangements to avoid taxation of restrictive covenant 1708 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 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 [Repealed] GB 41 FDPA arrangements for carrying amounts forward 1709 1710 1711 1712 1712 1714 1715 1716 1717 1717 1717 Arrangements involving Maori authority credits GB 42 Maori authority credit arrangements to obtain tax 1718 advantage GB 43 Reconstruction of Maori authority credit arrangements to 1719 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 1720 1721 65 Income Tax Act 2007 Reprinted as at 30 August 2013 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 3B Disposals of emissions units GC 4 Disposals and acquisitions of FIF attributing interests GC 4B Disposals of ETS units at below market value [Repealed] GC 5 Leases for inadequate rent Leases Transfer pricing arrangements Purpose of rules and nature of arrangements GC 6 GC 7 Excess amount payable by person GC 8 GC 9 Compensating arrangement: person paying less than Insufﬁcient amount receivable by person 1723 1725 1726 1728 1728 1730 1731 1732 1732 1732 1733 1734 1735 1737 1737 1738 arm’s length amount GC 10 Compensating arrangement: person receiving more than 1739 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 1740 1742 1742 1743 1744 GZ 2 Arrangements involving cancellation of conduit tax relief 1744 credits [Repealed] GZ 3 Donations of trading stock for relief of Canterbury 1745 earthquakes 66 Reprinted as at 30 August 2013 Income Tax Act 2007 Part H Taxation of certain entities Subpart HA—Qualifying companies (QC) Introductory provisions HA 1 What this subpart does HA 2 Meaning of qualifying company HA 3 Meaning of loss-attributing qualifying company [Repealed] HA 4 Conditions applying Qualifying company status HA 5 Elections to become qualifying company HA 6 Corporate requirements HA 7 Shareholding requirements HA 7B Grandparenting requirement 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 [Repealed] HA 11 When requirements no longer met: qualifying companies HA 11B When requirements no longer met: LAQCs [Repealed] HA 12 Avoidance arrangements [Repealed] 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 [Repealed] 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 [Repealed] 1748 1749 1749 1749 1750 1751 1752 1754 1754 1755 1756 1756 1756 1759 1759 1759 1759 1760 1762 1763 1763 1764 1765 1765 1766 1766 67 Income Tax Act 2007 Reprinted as at 30 August 2013 HA 24 Treatment of tax losses other than certain foreign losses [Repealed] HA 25 Treatment of certain foreign losses
 [Repealed] HA 26 Attribution when balance dates differ [Repealed] HA 27 Attribution when loss results in reduction in value of shares [Repealed] 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 33B Transitional rules for look-through companies, partnerships, and sole traderships 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 [Repealed] HA 38 Elections by directors and shareholders required [Repealed] HA 39 Revocation of elections [Repealed] Qualifying company election tax HA 40 Liability for qualifying company election tax 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 HB—Look-through companies HB 1 Look-through companies are transparent Previous income and expenditure or loss HB 2 HB 3 Loss balances extinguished HB 4 General provisions relating to disposals HB 5 Disposal of owner’s interests HB 6 Disposal of trading stock HB 7 Disposal of depreciable property Reprinted as at 30 August 2013 Income Tax Act 2007 HB 8 Disposal of ﬁnancial arrangements and certain excepted 1788 ﬁnancial arrangements HB 9 Disposal of short-term agreements for sale and purchase HB 10 Disposal of livestock HB 11 Limitation on deductions by persons with interests in look-through companies HB 12 Limitation on deductions by
 owners of look-through companies: carry-forward HB 13 LTC elections 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 1790 1791 1791 1796 1798 1801 1803 1803 1803 1805 1805 1807 1807 1808 1808 1809 1809 1810 1810 1811 HC 16 Ordering rule for distributions from non-complying and 1813 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 1815 1816 1816 1816 69 Income Tax Act 2007 Reprinted as at 30 August 2013 HC 21 Distributions from community trusts 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 1817 1817 1818 1819 1820 1822 1823 1825 1826 Treatment of transition situations HC 30 Treatment of foreign trusts when settlor becomes resident 1827 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 70 1829 1831 1831 1832 1832 1834 1836 1837 1838 1838 1839 1839 1840 1840 1841 1841 1841 1841 Reprinted as at 30 August 2013 Income Tax Act 2007 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 HF 6 Tax treatment of Maori authority distributions Income Tax Act 2007 Reprinted as at 30 August 2013 HF 7 HF 8 Taxable Maori authority distributions Proportional allocation Changing status Table H1 Consequences of change in entity status for purposes of Maori authority rules HF 9 Treatment of companies and trusts that choose to apply 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 [Repealed] Introductory provisions [Repealed] HL 1 HL 2 Intended effect on portfolio tax rate entities and investors [Repealed] Scheme of subpart [Repealed] Eligibility requirements: portfolio investment entities and foreign investment vehicles [Repealed] 72 1863 1864 1866 1866 1867 1868 1869 1871 1872 1873 1875 1876 1877 1879 1880 1881 1887 1890 1890 Reprinted as at 30 August 2013 Income Tax Act 2007 HL 3 Eligibility requirements for entities [Repealed] HL 4 Effect of failure to meet eligibility requirements for entities [Repealed] Foreign investment vehicles [Repealed] HL 5 HL 5B Meaning of investor and portfolio investor class [Repealed] HL 5C Income interest requirement [Repealed] HL 6 HL 7 Investor
 membership requirement [Repealed] Investor return adjustment requirement: portfolio tax rate entity [Repealed] Imputation credit distribution requirement: portfolio listed company [Repealed] Investor interest size requirement [Repealed] HL 9 HL 10 Further eligibility requirements relating to HL 8 1891 1891 1891 1891 1891 1891 1892 1892 1892 1892 investments [Repealed] Becoming and ceasing to be portfolio investment entity [Repealed] HL 11 Election to become portfolio investment entity and 1892 cancellation of election [Repealed] HL 12 Unlisted company choosing to become portfolio listed 1893 company [Repealed] HL 13 Becoming portfolio investment entity [Repealed] HL 14 Tax consequences from transition [Repealed] HL 15 Ceasing to be portfolio investment entity [Repealed] 1893 1893 1893 Periods relevant to calculation of portfolio entity tax liability [Repealed] HL 16 Portfolio allocation period and portfolio calculation 1893 period [Repealed] Allocation of income in some cases [Repealed] HL 17 Treatment of income from interest when entitlement 1894 conditional or lacking [Repealed] HL 18 Certain new investors treated as part of existing portfolio 1894 investor class [Repealed] Calculating portfolio entity tax liability [Repealed] HL 19 Portfolio class net income and portfolio class net loss for 1894 portfolio allocation period [Repealed] HL 19B Treatment of certain provisions made by portfolio tax 1894 rate entity [Repealed] 73 Income Tax Act 2007 Reprinted as at 30 August 2013 HL 20 Portfolio class taxable income and portfolio class taxable 1895 loss for portfolio allocation period [Repealed] HL 21 Portfolio entity tax liability and tax credits of portfolio tax 1895 rate entity for period [Repealed] Payment by portfolio tax rate entity of tax for tax year [Repealed] HL 22 Payments of tax by portfolio tax rate entity making no 1895 election [Repealed] HL 23 Payments of tax by portfolio tax rate entity choosing to 1895 pay provisional tax [Repealed] HL 24 Payments of tax
 by portfolio tax rate entity choosing to make payments when investor leaves [Repealed] HL 25 Optional payments of tax by portfolio tax rate 1896 1896 entities [Repealed] Results for investors [Repealed] HL 26 Portfolio investor allocated income and portfolio investor 1896 allocated loss [Repealed] HL 27 Treatment of portfolio investor allocated loss for 1896 zero-rated portfolio investors and investors with portfolio investor exit period [Repealed] Tax credits for entity [Repealed] HL 28 Treatment of portfolio investor allocated loss for other 1897 investors [Repealed] HL 29 Credits received by portfolio tax rate entity or portfolio 1897 investor proxy [Repealed] Treatment of losses for entity [Repealed] HL 30 Portfolio entity formation loss [Repealed] HL 31 Portfolio class taxable income and portfolio class taxable loss for tax year [Repealed] HL 32 Treatment of portfolio class taxable loss and portfolio class land loss for tax year [Repealed] Portfolio investor proxies [Repealed] HL 33 Portfolio investor proxies [Repealed] 1897 1897 1897 1898 74 Reprinted as at 30 August 2013 Income Tax Act 2007 Subpart HM—Portfolio investment entities Introductory provisions HM 1 Outline of subpart and relationship with other Parts HM 2 What is a portfolio investment entity?
HM 3 Foreign PIE equivalents HM 4 Who is an investor?

HM 5 What is an investor class?
HM 6 Intended effects for multi-rate PIEs and investors HM 6B Optional look-through rules for certain PIEs HM 7 Requirements Entry rules Requirements HM 8 Residence in New Zealand HM 9 Collective schemes HM 10 Exclusion: life insurance business HM 11 Investment types HM 12 Income types HM 13 Maximum shareholdings in investments HM 14 Minimum number of investors HM 15 Maximum investor interests HM 16 Associates combined HM 17 Same rights to all investment proceeds HM 18 Requirements for listed PIEs: unlisted companies HM 19 Requirements for listed PIEs: fully crediting distributions HM 19B Modiﬁed rules for foreign investment zero-rate PIEs HM 19C Modiﬁed rules for foreign investment variable-rate PIEs HM 20 Re-entering as PIE: 5-year rule Exceptions HM 21 Exceptions for certain investors HM 22 Exceptions for certain funds HM 23 Exceptions for foreign PIE equivalents Exit rules HM 24 Immediate loss of PIE status HM 25 When entity no longer meets investment or investor requirements HM 26 Starting life insurance business HM 27 When multi-rate PIE no longer meets investor interest adjustment requirements HM 28 When listed PIE no longer meets crediting requirement HM 29 Choosing to cancel status Income Tax Act 2007 Reprinted as at 30 August 2013 HM 30 When foreign PIE equivalent no longer meets 1931 requirements Rules for multi-rate PIEs Introductory provisions HM 31 Rules for multi-rate PIEs HM 32 Rules for and treatment of investors in multi-rate PIEs HM 33 Proxies for PIE investors Attributing income to investors HM 34 Attribution periods HM 35 Determining net amounts and taxable amounts HM 35B Treatment of certain provisions made by multi-rate PIEs HM 35C Determining amounts for notiﬁed foreign investors HM 36 Calculating amounts attributed to investors HM 37 When income cannot be attributed HM 38 When superannuation fund investor has conditional
 entitlement HM 39 New investors in existing investor classes HM 40 Deductions for attributed PIE losses for zero-rated and exiting investors Calculating and paying tax liability HM 41 Options for calculation and payment of tax HM 42 Exit calculation option HM 42B Part-year tax calculations for PIEs under the exit calculation option for the 2010–11 tax year HM 43 Quarterly calculation option HM 44 Provisional tax calculation option HM 44B NRWT calculation option HM 45 Voluntary payments HM 46 Calculation process HM 47 Calculation of tax liability or tax credit of multi-rate PIEs 1932 1933 1934 1935 1936 1938 1939 1941 1943 1944 1946 1946 1947 1948 1949 1950 1951 1952 1955 1955 1956 HM 48 Adjustments to investor interests or to distributions 1958 Adjusting investors’ interests Using tax credits HM 49 Tax credits: when sections HM 50 to HM 55 apply HM 50 Attributing credits to investors HM 51 Use of foreign tax credits by PIEs HM 52 Use of foreign tax credits by zero-rated and certain exiting 1960 1960 1963 1964 investors HM 53 Use of tax credits other than foreign tax credits by PIEs 1966 76 Reprinted as at 30 August 2013 Income Tax Act 2007 HM 54 Use of tax credits other than foreign tax credits by investors HM 55 Tax credits for losses Special rules for foreign investment PIEs HM 55C Modiﬁed source rules HM 55D Requirements for investors in foreign investment PIEs HM 55E Changes in status of investors in foreign investment PIEs HM 55F Treatment of income attributed to notiﬁed foreign investors HM 55FB Notiﬁed foreign investors and tax credits for supplementary dividends 1967 1968 1968 1969 1971 1971 1972 HM 55G Allowable amounts and thresholds for income with New 1973 Zealand source HM 55H Treatment when certain requirements for foreign 1974 investment PIEs not met Prescribed and notiﬁed rates for investors in multi-rate PIEs HM 56 Prescribed investor rates: schedular rates HM 57 Prescribed investor rates for certain investors: 0% HM 57B Prescribed investor rates
 for new residents HM 58 Transition of rate for certain investors HM 59 Prescribed investor rates for certain investors: 0% [Repealed] HM 60 Notiﬁed investor rates HM 61 Certain exiting investors zero-rated Exit levels and periods HM 62 Exit levels for investors HM 63 Exit periods Treatment of losses by PIEs Losses of certain multi-rate PIEs HM 64 Use of investor classes’ losses HM 65 Use of land losses of investor classes Formation losses HM 66 Formation losses carried forward to tax year HM 67 Formation losses carried forward to ﬁrst quarter HM 68 When formation losses carried forward are less than 5% of formation investment value 1975 1976 1977 1977 1978 1978 1981 1983 1983 1984 1985 1987 1987 1988 77 Income Tax Act 2007 Reprinted as at 30 August 2013 HM 69 When formation losses carried forward are 5% or more of 1988 formation investment value: 3-year spread HM 70 Maximum amount of formation losses allocated by multi-rate PIEs to investor classes Elections and consequences HM 71 Choosing to become PIE HM 71B Choosing to become foreign investment PIE HM 72 When elections take effect HM 73 Transition: provisional tax HM 74 Transition: entities with non-standard income years HM 75 Transition: treatment of shares held in certain companies HM 76 Transition: FDPA companies Subpart HR—Other entities Partnerships and joint ventures [Repealed] 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 HR 4B Crown activities through New Zealand Superannuation Fund Airport operators HR 5 Airport operators: general HR 6 Airport operator’s assets HR 7 Meaning of airport operator’s activities HR 8 Transitional residents Transitional residents Financial institution special purpose vehicles HR 9 Financial institution special purpose vehicles are transparent 1989 1990 1990 1991 1992 1993 1994 1995 1996 1996 1997 2000 2000 2001 2002 2003 2004 2007 HR 9B
 Bankruptcy-remote property during application of section 2009 HR 9 HR 10 What happens when vehicle stops being ﬁnancial 2010 institution special purpose vehicle?
Subpart HZ—Terminating provisions HZ 1 Distributions from trusts of pre-1989 tax reserves HZ 2 Trusts that may become complying trusts 2013 2013 78 Reprinted as at 30 August 2013 Income Tax Act 2007 HZ 3 Special partnerships: transition into limited partnerships and limited partnerships deduction rules HZ 4 Overseas limited partnerships: transition into limited partnerships deduction rules HZ 4B Qualifying companies: transition into partnership HZ 4C Qualifying companies: transition into look-through companies HZ 4D Qualifying companies: transition into sole traderships HZ 5 Transitional provisions for PIE rules HZ 6 Saving of binding rules relating to portfolio investment entities Saving of binding rulings relating to settlements on trusts HZ 7 Part I Treatment of tax losses Subpart IA—General rules for tax losses IA 1 What this subpart does Tax losses IA 2 Using tax losses in tax year IA 3 Using loss balances carried forward to tax year IA 4 Restrictions on companies’ loss balances carried forward IA 5 Restrictions on companies grouping tax losses IA 6 Restrictions relating to ring-fenced tax losses IA 7 Restrictions relating to schedular income IA 8 Ordering rules IA 9 IA 10 Amended assessments 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 Income Tax Act 2007 Reprinted as at 30 August 2013 IC 13
 Variation of requirements for development companies in 2053 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 Continuity breach: tax loss components of companies carried forward Grouping part-year tax losses Breach in income year in which tax loss component arises Breach in tax year in which loss balance is grouped Statements and notices Financial statements required Notices required IP 3 IP 4 IP 5 IP 6 IP 7 Subpart IQ—Attributed controlled foreign company net losses and foreign investment fund net losses IQ 1A When this subpart applies IQ 1 General treatment IQ 1B Losses carried forward to tax year Ring-fencing cap on attributed CFC net losses IQ 2 IQ 2B Effect of attributed CFC net loss and FIF net loss from before ﬁrst affected year 80 2054 2055 2056 2057 2058 2059 2060 2061 2062 2062 2063 2064 2065 2066 2068 2069 2070 2071 2071 2072 2072 2077 Reprinted as at 30 August 2013 Income Tax Act 2007 IQ 2C Effect of FIF net loss if attributed FIF income method not 2084 available Ring-fencing cap on FIF net losses Group companies using attributed CFC net losses Group companies using FIF net losses [Repealed] Pre-consolidation losses: general treatment IQ 3 IQ 4 IQ 5 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 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 IT 1 IT 2 Subpart IT—Cancellation of life insurer’s losses Cancellation of life insurer’s policyholder net losses Cancellation of life insurer’s tax loss when allowed into policyholder base Subpart IV—Treatment of certain supplementary dividends [Repealed] Supplementary dividend holding companies [Repealed] Subpart IW—Use of tax losses to pay shortfall penalties Shortfall penalties Subpart IZ—Terminating provisions 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 IV 1 IW 1 IZ 1 IZ 2 IZ 3 IZ 4 IZ 5 IZ 6 IZ 7 2085 2087 2089 2089 2090 2092 2093 2094 2095 2097 2098 2098 2099 2100 2101 2102 2102 2103 2108 2110 2111 2112 2113 2113 81 Income Tax Act 2007 Reprinted as at 30 August 2013 Part L Tax credits and other credits Subpart LA—General rules for tax credits LA 1 What this Part does LA 2 LA 3 When total tax credit less than or equal to income tax Satisfaction of income tax liability 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 2115 2115 2116 2116 2117 2117 LA 7 Remaining refundable credits: tax credits under social 2119 policy schemes LA 8
 Remaining refundable credits: non-resident withholding 2120 tax LA 8B General rules particular to life insurers LA 9 Use of tax credits LA 10 Meaning of tax credit Subpart LB—Tax credits for payments, deductions, and family payments LB 1 LB 2 LB 3 LB 4 LB 5 LB 6 LB 7 LB 8 Tax credits for PAYE income payments Tax credits for provisional tax payments Tax credits for resident withholding tax Tax credits for families Tax credits for non-resident withholding tax Tax credits for RSCT Tax credits related to personal service rehabilitation payments: providers Tax credits related to personal service rehabilitation payments: payers 2121 2122 2122 2123 2124 2124 2125 2127 2127 2128 2129 Subpart LC—Tax credits for natural persons Tax credits for persons on low incomes [Repealed] LC 1 When net income under low income amount [Repealed] LC 2 When net income in low income abatement 2132 2132 range [Repealed] Tax credits for children [Repealed] LC 3 Child’s income [Repealed] 2132 82 Reprinted as at 30 August 2013 Income Tax Act 2007 Tax credits for transitional circumstances [Repealed] Tax credits for transitional circumstances [Repealed] LC 4 LC 5 Meaning of engaged in full-time work [Repealed] Tax credits for housekeeping [Repealed] Tax credits for housekeeping [Repealed] LC 6 LC 7 Meaning of housekeeper [Repealed] Some deﬁnitions [Repealed] LC 8 Tax credits for absentees [Repealed] LC 9 Tax credits for absentees [Repealed] Adjustments to certain tax credits [Repealed] LC 10 Adjustment for change in return date [Repealed] LC 11 Adjustment when person is non-resident for part of tax year [Repealed] LC 12 Assessment when person is non-resident [Repealed] Tax credits for independent earners LC 13 Tax credits for independent earners Subpart LD—Tax credits for gifts and donations Charitable and 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 Payroll donations LD 4 Tax
 credits for payroll donations LD 5 Calculating amount of tax credit and ﬁling particulars LD 6 When donation is paid to ineligible recipient LD 7 When donation returned to person LD 8 Meaning and ranking of payroll donation Subpart LE—Tax credits for imputation credits Tax credits for imputation credits LE 1 LE 2 Use of remaining credits by companies and trustees LE 2B Use of remaining credits by life insurer on policyholder base LE 3 Use of remaining credits by others LE 4 Trustees for minor beneﬁciaries 2132 2133 2133 2133 2133 2133 2134 2134 2134 2134 2136 2137 2138 2139 2141 2141 2142 2143 2144 2146 2147 2148 2148 83 Income Tax Act 2007 Reprinted as at 30 August 2013 Partners in partnerships 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 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] Reprinted as at 30 August 2013 Income Tax Act 2007 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 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 2165 2165 2165 2165 2165 2168 2169 2172 2172 2172 2175 2176 2177 2180 2184 2184 2185 2185 2186 2189 2190 2192 2192 2193 LK 11 When group membership lacking in tax year in which 2193 credit used
 Amalgamations of companies LK 12 Treatment of credits when companies amalgamate LK 13 Use of credits by amalgamated company 2195 2195 85 Income Tax Act 2007 Reprinted as at 30 August 2013 LK 14 Use by amalgamated company of credits carried forward LK 15 Use of amalgamating company’s credits 2196 2196 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] 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 2197 2197 2198 2198 2198 2198 2198 2198 2198 2199 2199 2200 2201 2201 2202 2203 2203 2206 2208 2209 credit ratio LP 6 Deriving supplementary dividend and breach of terms of 2209 trust LP 7 Supplementary dividend holding companies Requirements for supplementary dividend holding companies [Repealed] Relationship with exempt income rules [Repealed] Relationship with RWT rules [Repealed] LP 8 LP 9 LP 10 Limitation on deductions [Repealed] 2210 2210 2210 2210 86 Reprinted as at 30 August 2013 Income Tax Act 2007 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 [Repealed] Subpart LR—Tax credits for policyholder income LR 1 Tax credits for policyholder income Subpart LS—Tax credits for multi-rate PIEs and investors Tax credits for multi-rate PIEs Tax credits for investors in multi-rate PIEs Tax credits for zero-rated investors Tax credits for certain exiting investors LS 1 LS 2 LS 3 LS 4 Subpart LZ—Terminating provisions Underlying foreign tax credits [Repealed] LZ 1 Low tax jurisdiction companies [Repealed] Credits for certain non-resident investment companies LZ 2 Certain development projects [Repealed] LZ 3 LZ 4 Dividends derived from development Interest derived from development investments [Repealed] investments [Repealed] Some deﬁnitions [Repealed] LZ 5 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 2211 2211 2211 2211 2211 2212 2213 2214 2215 2216 2218 2218 2218 2218 2219 2219 2220 2220 2221 2221 2221 2222 87 Income Tax Act 2007 Reprinted as at 30 August 2013 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 MA 7 Meaning of full-time earner for family scheme MA 8 Some deﬁnitions for family scheme 2223 2223 2224 2224 2224 2224 2224 2226 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 or investment 2230 2234 2235 activities MB 4 Family scheme income of major shareholders in close 2236 companies MB 5 Treatment of distributions from superannuation schemes MB 6 Treatment of distributions from retirement savings schemes MB 7 Family scheme income of settlor of trust MB 8 Family scheme income from fringe beneﬁts MB 9 Family scheme income from deposits in main income equalisation accounts MB 10 Family scheme income from certain pensions and annuities MB 11 Family scheme income from amounts derived by dependent children MB 12 Family scheme income from non-residents’ foreign-sourced income MB 13 Family scheme income from other payments 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 2237 2238 2238 2240 2241 2241 2242 2243 2243 2246 2248 2248 2248 2248 2250 88 Reprinted as at 30 August 2013 Income Tax Act 2007 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 Parental tax credit 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 [Repealed] Income Tax Act 2007 Reprinted as at 30 August 2013 MF 4C Calculation of instalments: 1 October 2008 to 31 March 2289 2009
 [Repealed] MF 4D Calculation of instalments: 1 April 2010 to 30 September 2289 2010 MF 4E Calculation of instalments: 1 October 2010 to 31 March 2292 2011 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] 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 [Repealed] ML 1 What this subpart does [Repealed] ML 2 Tax credit for redundancy payments [Repealed] ML 3 Payment by Commissioner [Repealed] Subpart MZ—Terminating provisions MZ 1 Entitlement to child tax credit MZ 2 Calculation of child tax credit 90 2296 2297 2298 2303 2304 2305 2306 2308 2308 2308 2309 2310 2310 2310 2310 2310 2310 2311 2311 2312 2312 2312 2312 2313 Reprinted as at 30 August 2013 Income Tax Act 2007 MZ 3 Exclusions from determination of family scheme income 2314 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 Credits and debits OA 5 Credits OA 6 Debits OA 7 Opening balances of memorandum accounts Opening balances 2316 2316 2317 2318 2318 2320 2322 Shareholder continuity
 requirements OA 8 Shareholder continuity requirements for memorandum 2324 accounts Treatment of credits and debits on resident’s restricted amalgamation General provision OA 9 General treatment of credits and debits on resident’s 2327 restricted amalgamation OA 10 When credits or debits due to amalgamating company but 2328 When companies amalgamate 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 2329 2330 2330 amalgamation Amalgamation of companies in consolidated groups OA 14 Continuity of shareholding when group companies 2331 amalgamate OA 15 When credits or debits due to consolidated group but not 2332 recorded OA 16 When FDP account ends on resident’s restricted 2333 amalgamation 91 Income Tax Act 2007 Reprinted as at 30 August 2013 OA 17 When policyholder credit account ends on resident’s 2334 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 OB 3B General rule for life insurer’s policyholder base 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 OB 9 ICA dividend derived with imputation credit OB 9B ICA attributed PIE income with imputation credit 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 [Repealed] 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 Reprinted as at 30 August 2013 Income Tax Act 2007 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 35B ICA debit for transfer from tax pooling account for policyholder base liability 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 OB 46 ICA transfer from member fund OB 47 Debit for policyholder base imputation credits 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 Income Tax Act 2007 Reprinted as at 30 August 2013 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 OB 71 Imputation additional tax on leaving wholly-owned group OB 72 Imputation additional tax on joining wholly-owned group OB 72B Limit on using entitlement to refund after joining wholly-owned group 2390 2392 2394 2394 2395 2395 2397 2398 2399 2400 2403 2406 Distributions of statutory producer boards and co-operative companies OB 73 Statutory producer boards attaching imputation credits 2408 to cash distributions OB 74 Statutory producer boards attaching imputation credits to 2411 notional distributions OB 75 Statutory producer boards’ notional distributions that are 2412 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 2414 2414 2415 cash distributions OB 79 Co-operative companies attaching imputation credits to 2417
 notional distributions OB 80 Co-operative companies’ notional distributions that are 2418 dividends OB 81 Co-operative companies attaching FDP credits OB 82 When and how co-operative company makes election 2419 2419 94 Reprinted as at 30 August 2013 Income Tax Act 2007 Tables of credits and debits in memorandum accounts Table O1: imputation credits Table O2: imputation debits Subpart OC—Foreign dividend payment accounts (FDPA) Introductory provisions FDP accounts OC 1 General rules for companies with FDP accounts OC 2 OC 2B General rule for life insurer’s policyholder base OC 3 Choosing to become FDPA company OC 4 When company chooses to stop being FDPA company OC 5 When company emigrates OC 6 OC 7 OC 8 FDP credits FDPA payment of FDP [Repealed] FDPA dividend derived with FDP credit FDPA payment of FDP for transfer from CTR account [Repealed] FDPA transfer for net foreign attributed income [Repealed] OC 9 OC 10 FDPA payment of FDP for conduit debit 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 [Repealed] OC 20 Debit for policyholder base FDP credits OC 21 FDPA transfer to group account OC 22 FDPA breach of FDP ratio OC 23 FDPA breach of FDP ratio by PCA company [Repealed] 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 Income Tax Act 2007 Reprinted as at 30 August 2013 OC 29 FDP credits and imputation credits attached to dividends 2444 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 [Repealed] OC 35 Meaning of FDP reference period [Repealed] OC 36 Meaning of maximum deﬁcit debit [Repealed] OC 37 Meaning of policyholder FDP ratio [Repealed] OC 38 Meaning of reduced deﬁcit debit [Repealed] OC 39 Meaning of shareholder FDP ratio [Repealed] Table O3: FDP credits Table O4: FDP debits Subpart OD—Conduit tax relief accounts (CTRA) [Repealed] Introductory provisions [Repealed] OD 1 General rules for companies with CTR accounts [Repealed] OD 2 CTR accounts [Repealed] OD 3 Choosing to become CTR company [Repealed] OD 4 When company stops being CTR company [Repealed] CTR credits [Repealed] OD 5 CTRA tax credit for conduit tax relief [Repealed] OD 6 CTRA transfer from FDP account [Repealed] OD 7 CTRA dividend derived with CTR credit [Repealed] OD 8 CTRA reduction of FDP [Repealed] OD 9 CTRA reversal of tax advantage arrangement [Repealed] CTR debits [Repealed] OD 10 CTRA payment of dividend [Repealed] OD 11 CTRA transfer to FDP account [Repealed] OD 12 CTRA transfer to group account [Repealed] 96 2445 2447 2448 2449 2450 2451 2451 2451 2451 2451 2456 2456 2456 2457 2457 2457 2457 2457 2458 2458 2458 2458 Reprinted as at 30 August 2013 Income Tax Act 2007 OD 13 CTRA adjustment for conduit tax relief [Repealed] OD 14 CTRA break in shareholding chain for group company [Repealed] OD 15 CTRA break in shareholding chain for company [Repealed] OD 16 CTRA increase in resident shareholding [Repealed] OD 17 CTRA breach of CTR ratio [Repealed] OD 18 CTRA tax advantage arrangement [Repealed] OD 19 CTRA ﬁnal balance [Repealed] CTR credits attached to dividends [Repealed] OD 20 CTR credits attached to dividends [Repealed] OD 21 CTRA
 benchmark dividend rules [Repealed] OD 22 CTR credits and imputation credits attached to dividends [Repealed] Payment of FDP and refunds [Repealed] 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 [Repealed] Table O5: conduit tax relief credits [Repealed] Table O6: conduit tax relief debits [Repealed] 2458 2459 2459 2459 2459 2459 2459 2460 2460 2460 2460 2461 2461 Subpart OE—Branch equivalent tax accounts (BETA) Introductory provision OE 1 General rules for persons with branch equivalent tax 2463 accounts Companies with branch equivalent tax accounts [Repealed] Introductory provisions [Repealed] OE 2 Branch equivalent tax accounts of companies [Repealed] OE 3 Choosing to become BETA company [Repealed] OE 4 When company stops being BETA company [Repealed] OE 5 Treatment of attributed CFC income and FIF income in this subpart 2464 2464 2464 2464 97 Income Tax Act 2007 Reprinted as at 30 August 2013 Branch equivalent tax credits [Repealed] OE 6 BETA payment of income tax on foreign income [Repealed] OE 7 BETA payment of income tax [Repealed] OE 8 BETA unused amount of debit balance [Repealed] OE 9 BETA refund of FDP [Repealed] OE 10 BETA credit for loss of shareholder continuity [Repealed] OE 11 BETA ﬁnal balance [Repealed] 2465 2465 2466 2466 2466 2466 Treatment of debits from conduit relief [Repealed] OE 11B Company with debit balance, including debits from 2466 conduit relief, in some income years [Repealed] 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] 2467 2467 2467 2467 2467 Debit if credit balance at beginning of ﬁrst affected income year [Repealed] OE 16B Company with credit balance at beginning of ﬁrst 2468 affected income year [Repealed] Persons with
 branch equivalent tax accounts Introductory provisions OE 17 Person choosing to become BETA person OE 18 When person stops being BETA person 2468 2468 OE 19 BETA person’s payment of income tax on foreign income 2469 Branch equivalent tax credits 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 2470 2471 2471 Table O7: branch equivalent tax credits [Repealed] 98 Reprinted as at 30 August 2013 Income Tax Act 2007 Table O8: branch equivalent tax debits [Repealed] Table O9: person’s branch equivalent tax credits Table O10: person’s branch 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 OF 4 ASCA redemption credit ASC credits OF 5 ASCA transfer to imputation credit account ASC debits 2474 2475 2475 2476 2477 Table O11: ASC credits Table O12: ASC debits Subpart OJ—Policyholder credit accounts (PCA) [Repealed] Introductory provision [Repealed] OJ 1 General rules for companies and other persons with 2481 policyholder credit accounts [Repealed] Companies with policyholder credit accounts [Repealed] Introductory provision [Repealed] OJ 2 Policyholder credit accounts of companies [Repealed] 2482 Policyholder credits of PCA company [Repealed] PCA transfer from imputation credit account [Repealed] PCA transfer from FDP account [Repealed] PCA transfer of life insurance business [Repealed] PCA credit for maximum deﬁcit in FDP account [Repealed] PCA credit for reduced deﬁcit in FDP account [Repealed] OJ 3 OJ 4 OJ 5 OJ 6 OJ 7 2482 2482 2482 2483 2483 99 Income Tax Act 2007 Reprinted as at 30 August 2013 Policyholder debits of PCA company [Repealed] 2483 2483 2483 2483 2484 2484 2484 2484 2485 2485 2485 OJ 8 PCA payment of tax relating to policyholder base [Repealed] PCA transfer to imputation credit account [Repealed] OJ
 9 OJ 10 PCA transfer to group account [Repealed] OJ 11 PCA company’s transfer of life insurance business [Repealed] Persons with policyholder credit accounts [Repealed] Introductory provisions [Repealed] OJ 12 Choosing to become PCA person [Repealed] OJ 13 Choosing to stop being PCA person [Repealed] Policyholder credits of PCA person [Repealed] OJ 14 PCA person’s equivalent credit [Repealed] OJ 15 PCA person’s credit for transfer of life insurance business [Repealed] Policyholder debits of PCA person [Repealed] OJ 16 PCA person’s payment of tax relating to policyholder base [Repealed] OJ 17 PCA person’s equivalent debit [Repealed] OJ 18 PCA person’s debit for transfer of life insurance business [Repealed] Table O13: policyholder credits [Repealed] Table O14: policyholder debits [Repealed] Table O15: person’s policyholder credits [Repealed] Table O16: person’s policyholder debits [Repealed] Subpart OK—Maori authority credit accounts (MACA) Introductory provision OK 1 General rules for Maori authorities with Maori authority 2487 credit accounts 100 Reprinted as at 30 August 2013 Income Tax Act 2007 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 6B MACA attributed PIE income 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 OK 21 Further income tax for closing debit balance OK 22 Further income tax paid when Maori authority no longer Maori authority OK 23 Further income tax paid satisfying liability for income tax OK 24 Income tax paid satisfying liability for further income tax 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 2488 2489 2489 2489 2490 2490 2491 2491 2492 2492 2493 2493 2493 2495 2496 2496 2497 2498 2499 2499 2500 2501 2502 2502 2503 2504 2513 2514 101 Income Tax Act 2007 Reprinted as at 30 August 2013 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 [Repealed] OP 21 Consolidated ICA transfer from group’s policyholder credit account [Repealed] 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 Reprinted as at 30 August 2013 Income Tax Act 2007 OP 31 Consolidated ICA amount applied to pay other taxes OP 32 Consolidated ICA refund from tax pooling account OP 33 Consolidated ICA transfer within tax pooling account OP 33B Consolidated ICA debit for transfer from tax pooling account for policyholder base liability 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 debit for policyholder base imputation credits 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 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] 2536 2537 2538 2539 2540 2540 2542 2542 2543 2543 2544 2544 2545 2545 2546 2547 2549 2549 2550 2550 2551 2556 2556 2557 2558 2559 2559 103 Income Tax Act 2007 Reprinted as at 30 August 2013 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 2559 2560 2560 2561 2561 2562 income [Repealed] OP 63 Consolidated FDPA reversal of tax advantage arrangement 2562 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 [Repealed] 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 debit for policyholder base FDP credits OP 75 Consolidated FDPA breach of FDP ratio by PCA company OP 76 Consolidated FDPA tax advantage arrangement OP
 77 Consolidated FDPA ﬁnal balance Table O21: FDP credits of consolidated FDP groups Table O22: FDP debits of consolidated FDP groups Consolidated groups and CTR credits [Repealed] Introductory provisions [Repealed] OP 78 CTR accounts of consolidated groups [Repealed] OP 79 When credits and debits arise only in CTR group accounts [Repealed] OP 80 Provisions applying to consolidated groups with CTR accounts [Repealed] CTR credits of consolidated groups [Repealed] 104 2562 2563 2563 2564 2565 2565 2566 2566 2567 2567 2568 2568 2569 2569 2574 2574 2574 Reprinted as at 30 August 2013 Income Tax Act 2007 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 [Repealed] OP 84 Consolidated CTRA group company’s credit [Repealed] OP 85 Consolidated CTRA transfer from group’s FDP account [Repealed] OP 86 Consolidated CTRA reversal of tax advantage arrangement [Repealed] CTR debits of consolidated groups OP 87 Consolidated CTRA payment of dividend [Repealed] OP 88 Consolidated CTRA transfer to group’s FDP account [Repealed] OP 89 Consolidated CTRA adjustment for conduit tax relief [Repealed] OP 90 Consolidated CTRA group company’s debit [Repealed] OP 91 Consolidated CTRA increase in resident shareholding [Repealed] OP 92 Consolidated CTRA breach of CTR ratio [Repealed] OP 93 Consolidated CTRA tax advantage arrangement [Repealed] OP 94 Consolidated CTRA ﬁnal balance [Repealed] 2575 2575 2575 2575 2575 2575 2576 2576 2576 2576 2576 2576 2577 2577 Consolidated groups’ FDP payments and refunds [Repealed] OP 95 FDP payable for credits and debits in group’s CTR 2577 account [Repealed] OP 96 Refund on transfer from group’s FDP account [Repealed] 2577 Table O23: conduit tax relief credits of consolidated groups [Repealed] Table O24: conduit tax relief debits of consolidated groups [Repealed] Consolidated groups and branch equivalent tax accounts [Repealed]
 Introductory provisions [Repealed] OP 97 Branch equivalent tax accounts of consolidated BETA 2578 groups [Repealed] 105 Income Tax Act 2007 Reprinted as at 30 August 2013 OP 98 Choosing to stop being consolidated BETA 2578 group [Repealed] OP 99 When credits and debits arise only in branch equivalent 2578 tax group accounts [Repealed] Branch equivalent tax credits of consolidated BETA groups [Repealed] OP 100 Consolidated BETA payment of income tax on foreign 2579 income [Repealed] OP 101 Consolidated BETA payment of income tax [Repealed] OP 102 Consolidated BETA remaining debit balances [Repealed] OP 103 Consolidated BETA refund of FDP [Repealed] OP 104 Consolidated BETA credit for loss of shareholder 2579 2579 2579 2580 continuity [Repealed] Treatment by consolidated BETA groups of BETA debits from conduit relief [Repealed] OP 104B Consolidated BETA group with debit balance, 2580 including debits from conduit relief, in certain income years [Repealed] 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 2580 2580 2581 2581 continuity [Repealed] Debit if credit balance at beginning of ﬁrst affected income year [Repealed] OP 108B Consolidated BETA group with credit balance at 2581 beginning of ﬁrst affected income year [Repealed] Table O25: branch equivalent tax credits of consolidated BETA groups [Repealed] Table O26: branch equivalent tax debits of consolidated BETA groups [Repealed] 106 Reprinted as at 30 August 2013 Income Tax Act 2007 Consolidated groups and policyholder credit accounts [Repealed] Introductory provision [Repealed] OP 109 Policyholder credit accounts of consolidated 2582 groups [Repealed] Policyholder credits of consolidated groups [Repealed] OP 110 Consolidated PCA transfer from imputation credit account [Repealed] OP
 111 Consolidated PCA transfer from FDP account [Repealed] OP 112 Consolidated PCA group company’s credit [Repealed] OP 113 Consolidated PCA maximum deﬁcit debit in FDP account [Repealed] OP 114 Consolidated PCA reduced deﬁcit debit in FDP 2582 2582 2583 2583 2583 account [Repealed] Policyholder debits of consolidated groups [Repealed] OP 115 Consolidated PCA payment of tax relating to policyholder 2583 base [Repealed] OP 116 Consolidated PCA transfer to imputation credit 2583 account [Repealed] Table O27: policyholder credits of consolidated groups [Repealed] Table O28: policyholder debits of consolidated groups [Repealed] 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 2585 2585 2585 pre-imputation income year OZ 4 Terminating modiﬁcations to debits for loss of shareholder 2586 continuity OZ 5 ASCA lost excess available subscribed capital OZ 6 ASCA redemption of unused investments OZ 7 Memorandum accounts in transitional period OZ 7B Maori authority credit ratios for transitional period OZ 8 Attaching imputation credits and FDP credits: maximum permitted ratio 2586 2589 2589 2589 2592 107 Income Tax Act 2007 Reprinted as at 30 August 2013 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 OZ 15 Attaching imputation credits and notional distributions: modifying amounts OZ 16 BETA reductions [Repealed] OZ 17 CTRA reductions [Repealed] OZ 18 Credit-back of PCA balance 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
 Provisional tax obligations RA 3 Terminal tax obligations RA 4 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 Payment of tax by public authorities RA 7 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 Reprinted as at 30 August 2013 Income Tax Act 2007 RA 19 Refunds of excess amounts or when amounts mistakenly 2619 Refunds paid RA 20 Amalgamation of companies Amalgamations Regulations RA 21 Regulations 2619 2620 RA 22 Limits on application of other provisions for purposes of 2622 Application of other provisions PAYE rules RA 23 Application of other provisions for purposes of ESCT rules and NRWT rules RA 24 Application of other provisions for purposes of RSCT 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 RC 5 Methods for calculating provisional tax liability RC 6 RC 7 Estimation method RC 8 GST ratio method Standard method RC 9 Provisional tax payable in instalments Instalments of provisional tax 2622 2623 2624 2624 2624 2625 2627 2628 2628 2629 2630 2632 2633 2634 2637 109 Income Tax Act 2007 Reprinted as at 30 August 2013 Table R1: Summary of instalment dates and calculation methods for provisional tax 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 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 2642 2643 2644 2644 2645 2646 2647 2648 2649 2651 2652 2653 2655 RC 23 Calculating instalments in transitional years: estimation 2656 method RC 24 Calculating instalments in transitional years: GST ratio 2658 method RC 25 Consequences of change in balance date 2658 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 2659 2661 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 2662 2663 2663 2664 2665 2666 Attribution rule for income from personal services RC 34 Attribution rule for income from personal services 2667 110 Reprinted as at 30 August 2013 Income Tax Act 2007 RC 35 Further income tax credited to provisional tax liability 2669 Credits Disaster relief 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 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 RD 3 RD 4 PAYE rules and their application PAYE income payments Payment of amounts of tax to Commissioner Types of PAYE income payments Salary or wages RD 5 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 13B Adjustments for payroll donations 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 2670 2670 2671 2672 2672 2675 2676 2677 2679 2679 2683 2684 2685 2687 2687 2688 2690 2690 2691 2692 2693 2694 2694 2696 2697 2698 111 Income Tax Act 2007 Reprinted as at 30 August 2013 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 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 2699 2699 2703 2704 2705 2706 2706 2707 2708 2710 2711 2712 2713 2713 RD 35 Employment-related loans: value using market interest 2714 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 2716 2717 2717 2718 2719 2720 2722 2722 2723 2723 2725 2727 2728 2728 2729 2730 112 Reprinted as at 30 August 2013 Income Tax Act 2007 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 RD 55 Private use of motor vehicle: taxable value in cases of 2733 2734 2735 2736 part ownership RD 56 Private use of motor vehicle: when schedular value not 2736 used RD 57 Private use of motor vehicle: when schedular value used 2737 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 [Repealed] Calculating amounts of tax 2738 2739 2740 2742 2744 2745 2746 2746 2750 RD 67 Calculating amounts of tax for employer’s superannuation 2750 cash contributions RD 68 Choosing to have amount treated as salary or wages RD 69 Choosing different rates for employer’s superannuation cash contributions [Repealed] RD 70 Calculating amounts of tax on failure to withhold RD 71 Amounts of tax treated as paid to and received by 2751 2752 2752 2753 superannuation funds Tax on certain withdrawals from superannuation funds [Repealed] RD 72
 Recovery of tax paid by superannuation funds [Repealed] 2754 113 Income Tax Act 2007 Reprinted as at 30 August 2013 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 Persons who have withholding obligations RE 4 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 certain share issues RE 15 Bonus issues in lieu and shares issued under proﬁt distribution plans RE 16 Taxable Maori authority distributions RE 17 Replacement payments under share-lending arrangements RE 18 Payments made by RWT proxies RE 19 Choosing other 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 Reprinted as at 30 August 2013 Income Tax Act 2007 RE 30 When unincorporated bodies hold certiﬁcates 2785 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 2788 2789 RF 3 Obligation to withhold amounts of tax for non-resident 2792 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 associated with non-residents RF 11B Dividends paid by companies in certain situations 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 RG 2 FDP rules and their application [Repealed] Foreign dividends [Repealed] 2793 2793 2794 2795 2795 2796 2798 2801 2802 2802 2804 2804 2805 2805 2806 2806 2808 2808 115 Income Tax Act 2007 Reprinted as at 30 August 2013 Obligation to make payments [Repealed] RG 3 Obligation to pay FDP [Repealed] Calculation of payments [Repealed] RG 4 Calculating amount of FDP [Repealed] Adjustments to payments [Repealed] 2808 2808 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] 2809 2809 2809 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 RH 5 Calculating amounts of tax for retirement scheme Calculating amounts of tax
 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 [Repealed] 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 116 2809 2810 2811 2812 2813 2813 2815 2816 2817 2817 2818 2819 2819 2819 2822 2822 2824 2824 Reprinted as at 30 August 2013 Income Tax Act 2007 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 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 2825 2826 2827 2827 2828 2829 2830 2830 2831 2833 2834 2834 2835 2835 2836 2836 2837 2837 2837 Qualifying companies RM 32 Application of sections RM 13 to RM 17 to qualifying 2838 companies Certain unit
 trusts and group investment funds RM 33 Limits on refunds for certain unit trusts and group investment funds Subpart RP—Intermediaries Introductory provision RP 1 What this subpart does 2838 2840 117 Income Tax Act 2007 Reprinted as at 30 August 2013 PAYE intermediaries Obligations and treatment of PAYE intermediaries PAYE intermediaries RP 2 RP 3 Requirements for listed PAYE intermediaries RP 4 RP 5 RP 6 Operation of PAYE intermediaries’ trust accounts Payment of subsidies to certain PAYE intermediaries Subsidy claims Employers’ responsibilities RP 7 General responsibilities of employers RP 8 Information required from employers 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 19B Transfers for certain expected tax liabilities RP 20 Declining, amending, or reversing transfers RP 21 Refunds from tax pooling accounts 2841 2841 2842 2843 2844 2845 2846 2847 2847 2848 2848 2849 2850 2850 2851 2851 2852 2857 2858 2860 2861 2862 Subpart RZ—Terminating provisions Provisional tax RZ 1 Certain elections to become person with provisional tax 2863 liability RZ 2 Amount of provisional tax based on 1997–98 or earlier 2864 tax year Standard method: 2010–11 to 2012–13 income years RZ 3 RZ 4 GST ratio method: 2010–11 to 2013–14 income years RZ 5 Calculating amounts under standard method: 2010–11 to 2012–13 income years RZ 5B Standard method: new personal tax rate persons from 1 October 2008 to
 end 2009–10 income year [Repealed] 2864 2866 2868 2869 118 Reprinted as at 30 August 2013 Income Tax Act 2007 RZ 5C GST ratio method: new personal tax rate persons from 2869 1 October 2008 to end 2009–10 income year [Repealed] RZ 5D Standard method or GST method: transition for Maori 2870 authorities RZ 6 Limits on refunds: transitional dates Refunds Withdrawal income 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] Subpart YB—Associated persons and nominees Table Y1: Associated person rules [Repealed] Associated persons Person and trustee for relative YB 1 What this subpart does YB 2 Two companies YB 3 Company and person other than company YB 4 Two relatives YB 5 YB 6 Trustee and beneﬁciary YB 7 Two trustees with common settlor YB 8 Trustee and settlor YB 9 YB 10 Who is a settlor?
YB 11 Trustee and person with power of appointment or removal YB 12 Partnership and partner YB 13 Look-through companies and owners of interests YB 14 Tripartite relationship YB 15 Exceptions for employee trusts Settlor and beneﬁciary 2871 2871 2872 2873 2873 2873 2875 3137 3138 3140 3141 3143 3144 3144 3145 3145 3145 3146 3146 3146 3147 3148 3149 3150 119 Income Tax Act 2007 Reprinted as at 30 August 2013 YB 16 Exceptions for certain trusts and charitable organisations YB 17 Partnerships: partnership and associate of partner [Repealed] YB 18 Persons habitually acting together: 1988 version provisions [Repealed] YB 19 Person and controlled non-proﬁt organisation: 1990 version provisions [Repealed] YB 20 Some deﬁnitions [Repealed] YB 21 Transparency of nominees Nominees Subpart YC—Measurement of company ownership Control [Repealed] YC 1 Meaning of control [Repealed] 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 5B Treatment of mixed-ownership enterprises YC 6 Disregarding certain securities Voting and market value interests: modiﬁcations for continuity provisions Shares or options held by trustees YC 7 When sections YC 8 to YC 19B apply YC 8 Death of share or option holder YC 9 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 18C Railways restructure not affecting Crown economic ownership 120 3151 3152 3152 3152 3152 3153 3155 3155 3155 3156 3157 3158 3159 3159 3160 3160 3161 3162 3163 3163 3166 3166 3168 3169 3172 3175 3177 Reprinted as at 30 August 2013 Income Tax Act 2007 YC 19
 Legislative conversion of foreign company of proprietors YC 19B Treatment when certain trusts terminated YC 20 Credit account continuity provisions: excluded ﬁxed rate 3178 3179 3179 securities 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 YD 3B Crown 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 [Repealed] YD 8 Apportionment of premiums derived by non-resident general insurers Conduit tax relief companies: special residence rules [Repealed] YD 9 Residence of CTR company shareholders [Repealed] YD 10 Meaning of CTR holding company [Repealed] YD 11 Meaning of CTR group member [Repealed] Subpart YE—References to balance dates and years YE 1 References to balance dates and years 3181 3183 3183 3184 3185 3188 3189 3190 3190 3192 3193 3193 3193 Subpart YF—Currency conversion YF 1 General rules for currency conversion YF 2 Other rules for currency conversion: approved alternatives 3195 3197 Subpart YZ—Terminating provisions YZ 1 YZ 2 YZ 3 Source rule for interest Saving of effect of section 394L(4A) of Income Tax Act 1976 Saving effect of section DF 5 of Income Tax Act 1994 Part Z Repeals, amendments, and savings ZA 1 Repeals ZA 2 Consequential amendments to other enactments ZA 3 Transitional provisions ZA 4 Saving of binding rulings 3197 3198 3198 3200 3200 3201 3202 121 Income Tax Act 2007 Reprinted as at 30 August 2013 Saving of accrual determinations ZA 5 ZA 6 Comparative tables of old and new provisions Schedule 1 Basic tax rates: income tax, ESCT, RSCT, RWT, and attributed fringe beneﬁts 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 6 Prescribed rates: PIE investments and retirement scheme contributions 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 122 3203 3204 3206 3219 3223 3226 3236 3241 3246 3250 3251 3252 3253 3254 3257 3258 Reprinted as at 30 August 2013 Income Tax Act 2007 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 Schedule 25 Foreign investment funds Schedule 26 Low tax jurisdictions or territories [Repealed] Schedule 27 Countries and types of income with unrecognised tax Schedule 28 Requirements for complying fund rules Schedule 29 Portfolio investment entities: listed investors Schedule 31 Annualised equivalent amount for Part M Schedule 32 Recipients of charitable or other public beneﬁt gifts Schedule 36 Government enterprises Schedule 37 Statutory producer boards Schedule 38 Acts exempting income from tax: income included in family scheme income Schedule 39 Items for purposes of deﬁnition of special excluded depreciable property Schedule 48 Enactments repealed 3261 3265 3266 3268 3268 3269 3270 3273 3275 3278 3285 3287 3288 3289 3290 123 s A 1 Income Tax Act 2007 Reprinted as at 30 August 2013 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 3291 3337 3451 3457 A 1 Title This Act is the Income Tax
 Act 2007.
Compare: 2004 No 35 s A 1 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.

Act effective for 2008–09 income year and later (2) 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).
124 Reprinted as at 30 August 2013 Income Tax Act 2007 Part A s AA 3 Part A Purpose and interpretation Contents Interpretation AA 1 Purpose of Act AA 2 AA 3 Deﬁnitions AA 4 Crown bound AA 1 Purpose of Act Page 125 125 125 126 The main purposes 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 Aids to interpretation (1) 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.
(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 Role of Part Y (1) 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).
125 Part A s AA 4 Income Tax Act 2007 Reprinted as at 30 August 2013 (2) 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.
126 Reprinted as at 30 August 2013 Income Tax Act 2007 Part A s AA 4 Part B Core provisions Flowchart B1: Outline of Part 127 Income Tax Act 2007 Reprinted as at 30 August 2013 Subpart BA—Purpose Contents Page 128 BA 1 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: generally to set up the scheme of the Act and the main links between its Parts.
(b) (c) (d) Deﬁned in this Act: income tax, provisional tax, tax Compare: 2004 No 35 s BA 1 Subpart BB—Income tax and resulting obligations Contents Imposition of income tax BB 1 BB 2 Main obligations BB 3 Overriding effect of certain matters Page 128 129 129 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 1 128 Reprinted as at 30 August 2013 Income Tax Act 2007 Part B s BB 3 BB 2 Main obligations Income tax liability (1) 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 (2) Despite subsection (1), a non-ﬁling taxpayer is not required to ﬁle a return of income.
Provisional tax (3) A person liable to pay provisional tax must pay provisional tax for a tax year under the provisional tax rules.

Withholding liabilities (4) A person who has a withholding liability must satisfy it under subpart BE (Withholding liabilities).

Other obligations (5) 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 BB 3 Overriding effect of certain matters Tax avoidance arrangements: subpart BG (1) 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 (2) 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 3 129 Income Tax Act 2007 Reprinted as at 30 August 2013 Subpart BC—Calculating and satisfying income tax liabilities Contents 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 Page 133 133 133 134 134 136 136 139 130 Reprinted as at 30 August 2013 Income Tax Act 2007 Part B s BB 3 Flowchart B2: Calculating and satisfying income tax liabilities 131 Income Tax Act 2007 Reprinted as at 30 August 2013 132 Reprinted as at 30 August 2013 Income Tax Act 2007 Part B s BC 3 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 3 133 Part B s BC 4 Income Tax Act 2007 Reprinted as at 30 August 2013 BC 4 Net income and net loss (1) (2) (3) 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 (4) 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 5 134 Reprinted as at 30 August 2013 Income Tax Act 2007 Part B s BC 5 Flowchart B3: Calculating income tax liability 135 Part B s BC 6 Income Tax Act 2007 Reprinted as at 30 August 2013 BC 6 Income tax liability of ﬁling taxpayer (1) (2) 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.

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 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.
(1) (2) (3) 136 Reprinted as at 30 August 2013 Income Tax Act 2007 Part B s BC 7 (4) Income tax liability of multi-rate PIEs The income tax liability for a tax year of a multi-rate PIE is determined under subpart HM (Portfolio investment entities).
Deﬁned in this Act: amount, income, income tax liability, multi-rate PIE, schedular income, schedular income tax liability, tax year Compare: 2004 No 35 s BC 7 137 Part B s BC 7 Income Tax Act 2007 Reprinted as at 30 August 2013 Flowchart B4: Satisfying income tax liability 138 Reprinted as at 30 August 2013 Income Tax Act 2007 Part B s BC 8 Section BC 7(4) heading: added, on 1 April 2010 (applying for the 2010–11 and later income years), by section 4(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section BC 7(4): added, on 1 April 2010 (applying for the 2010–11 and later income years), by section 4(1) of the Taxation (International Taxation, Life In- surance, and Remedial Matters) Act 2009 (2009 No 34).

Section BC 7 list of deﬁned terms multi-rate PIE: inserted, on 1 April 2010, by section 4(2) of the Taxation (International Taxation, Life Insurance, and Re- medial Matters) Act 2009 (2009 No 34).
BC 8 Satisfaction of income tax liability (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 Contents BD 1 Income, exempt income, excluded income, non-residents’ foreign-sourced income, and assessable income Page 140 139 Part B s BD 1 Income Tax Act 2007 Reprinted as at 30 August 2013 BD 2 Deductions BD 3 Allocation of income to particular income years BD 4 Allocation of deductions to particular income years 141 141 142 BD 1 Income, exempt income, excluded income, non-residents’ foreign-sourced income, and assessable income Amounts of income (1) An amount is income of a person if it is their income under a provision in Part C (Income).
Exempt income (2) 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 (3) An amount of income of a person is excluded income if— (a) (b) 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.
Non-residents’ foreign-sourced income (4) 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 (5) 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) (c) their non-residents’ foreign-sourced income.
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 1 140 Reprinted as at 30 August 2013 BD 2 Deductions Income Tax Act 2007 Part B s BD 3 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) Application Every amount of income must be allocated to an income year under this section.

General rule (2) 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— (a) requires some people to recognise income on an accrual basis; and requires other people to recognise income on a cash basis; and (b) (c) more generally, deﬁnes the concept of derivation.
Income credited in account (4) 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.

(5) 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 (6) An amount of income may be allocated only once.

Deﬁned in this Act: amount, income, income year Compare: 2004 No 35 s BD 3 141 Part B s BD 4 Income Tax Act 2007 Reprinted as at 30 August 2013 BD 4 Allocation of deductions to particular income years (1) Application Every deduction must be allocated to an income year under this section.
General rule (2) 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 requires other people to recognise expenditure or loss on a cash basis; and (b) (c) more generally, deﬁnes the concept of incurrence.
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 (4) (5) 142 Reprinted as at 30 August 2013 Income Tax Act 2007 Part B s BE 1 Subpart BE—Withholding liabilities Contents BE 1 Withholding liabilities BE 1 Withholding liabilities PAYE income payments Page 143 (1) A person who makes a PAYE income payment must withhold an amount from the payment under the PAYE rules.
Resident passive income (2) 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 (3) 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 (4) A person who provides a fringe beneﬁt to another person must pay fringe beneﬁt tax under the FBT rules.
Employer’s superannuation cash contributions (5) A person who makes an employer’s superannuation cash con- tribution must pay ESCT under the ESCT rules.

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] Deﬁned in this Act: amount, dividend, employer’s superannuation cash contri- bution, 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 contri- bution, RSCT, RSCT rules, RWT rules, superannuation fund Compare: 2004 No 35 s BE 1 143 Part B s BE 1 Income Tax Act 2007 Reprinted as at 30 August 2013 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 October 2009, pursuant to section 5(3) of the Taxation (International Taxation, Life In- surance, 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).

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).
144 Reprinted as at 30 August 2013 Income Tax Act 2007 Part B s BF 1 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 sec- tion 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 Contents BF 1 Other obligations BF 1 Other obligations Page 145 (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): (d) [Repealed] 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 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).

145 Income Tax Act 2007 Reprinted as at 30 August 2013 Subpart BG—Avoidance Contents BG 1 Tax avoidance Page 146 BG 1 Tax avoidance Avoidance arrangement void (1) A tax avoidance arrangement is void as against the Commis- sioner for income tax purposes.
Reconstruction (2) 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 Contents BH 1 Double tax agreements Page 146 BH 1 Double tax agreements Meaning (1) Double tax agreement means an agreement that— 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 In- dustry Ofﬁce; and (ii) (a) (b) 146 Reprinted as at 30 August 2013 Income Tax Act 2007 Part B s BH 1 (c) 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) (b) (c) to provide relief from double taxation: 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-residents 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.
(d) (e) (f) (g) (h) Entry into force (3) 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 (4) 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 (5) An agreement that provides for the recovery of unpaid tax is subject to Part 10A of the Tax Administration Act 1994.

147 Part B s BH 1 Income Tax Act 2007 Reprinted as at 30 August 2013 Reference to proﬁts (6) 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.
Reference to unrelated persons (7) 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).
148 Reprinted as at 30 August 2013 Income Tax Act 2007 Part C s CA 2 Part C Income Subpart CA—General rules Contents CA 1 Amounts that are income CA 2 Amounts that are exempt income or excluded income Page 149 149 CA 1 Amounts that are income Amounts speciﬁcally identiﬁed (1) An amount is income of a person if it is their income under a provision in this Part.

Ordinary meaning (2) 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) What this section does This section identiﬁes the subparts in this Act that deal with exempt income and excluded income.

Exempt income (2) 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 (3) 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 2 149 Income Tax Act 2007 Reprinted as at 30 August 2013 Subpart CB—Income from business or trade-like activities Contents 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 13 150 Page 152 152 153 153 153 154 154 155 156 157 157 158 159 160 161 162 162 163 164 164 Reprinted as at 30 August 2013 Income Tax Act 2007 Part C s CA 2 Exclusions for farm land CB 21 Farm land exclusion from sections CB 12 and CB 13 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 165 166 166 167 167 168 CB 26 Disposal of certain shares by portfolio investment entities 168 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 Look-through companies CB 32B Owners of look-through companies CB 32C Income for ﬁrst year of look-through company 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 169 170 170 172 172 172 173 173 174 177 177 178 151 Part C s CB 1 Income Tax Act 2007 Reprinted as at 30 August 2013 Emissions units under Climate Change Response Act 2002 CB 36 Disposal of emissions units 179 Business generally CB 1 Amounts derived from business Income (1) An amount that a person derives from a business is income of the person.
(2) 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 (1) 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 (2) An amount that person A receives from the disposal of the trading stock is taken into account in determining their income 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- (3) 152 Reprinted as at 30 August 2013 Income Tax Act 2007 Part C s CB 5 ing the trading stock for the amount of the disposal referred to in subsection (2).
(4) (5) 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 Schemes for proﬁt CB 3 Proﬁt-making undertaking or scheme 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 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 4 153 Part C s CB 6 Income Tax Act 2007 Reprinted as at 30 August 2013 Land CB 6 Disposal: land acquired for purpose or with intention of disposal Income (1) 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: (b) with 1 or more intentions that included the intention of disposing of it.
(2) (3) Exclusions Subsection (1) is overridden by the exclusions for residential land in section CB 16 and for business premises in section CB 19.

(b) 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) (c) CB 7 Disposal: land acquired for purposes of business relating to land Income (1) An amount that a person (person A) derives from disposing of land is income of person A if— both the following apply: (a) (i) 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: (ii) (b) 154 Reprinted as at 30 August 2013 Income Tax Act 2007 Part C s CB 8 (c) (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 at the time of disposal, the land is not being used as a landﬁll; and the person acquiring the land is not an associated per- son; 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 (ii) the person makes an election under paragraph (d) for all land that the person acquires and uses as a landﬁll; and (b) (c) (d) (e) 155 Part C s CB 9 Income Tax Act 2007 Reprinted as at 30 August 2013 (f) 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 Section CB 8(c): substituted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 7(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
CB 9 Disposal within 10 years: land dealing business Income (1) An amount that a person derives from disposing of land is income of the person if— (a) (b) 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.
Income: associated person in business of dealing in land (2) 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.
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 (3) 156 Reprinted as at 30 August 2013 Income Tax Act 2007 Part C s CB 11 CB 10 Disposal within 10 years: land development or subdivision business Income (1) An amount that a person derives from disposing of land is income of the person if— (a) (b) 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.
Income: associated person in business of developing or subdividing land (2) 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) (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 8 CB 11 Disposal within 10 years of improvement: building business Income (1) 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 157 Part C s CB 12 Income Tax Act 2007 Reprinted as at 30 August 2013 (b) 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.
Income: associated person in business of erecting buildings (2) 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.
(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, 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 (1) 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 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.
(b) (c) (d) (e) Exclusions Subsection (1) is overridden by the exclusions for residential land in section CB 17, for business premises in section CB 20, (2) 158 Reprinted as at 30 August 2013 Income Tax Act 2007 Part C s CB 13 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 CB 13 Disposal: amount from major development or division and not already in income Income (1) 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.
(2) 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.

159 Part C s CB 14 Income Tax Act 2007 Reprinted as at 30 August 2013 (3) 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 Income (1) 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: 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: (b) (c) (d) (b) (c) (d) (e) (f) (2) 160 Reprinted as at 30 August 2013 Income Tax Act 2007 Part C s CB 15 (g) (h) (i) (j) (k) (l) 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 Income (1) 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) (b) (c) (d) 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.
(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 161 Part C s CB 16 Income Tax Act 2007 Reprinted as at 30 August 2013 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 (1) (2) (3) 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 CB 17 Residential exclusion from sections CB 12 and CB 13 Exclusion: developing or dividing land for residential use Sections CB 12 and CB 13 do not apply if— (1) 162 Reprinted as at 30 August 2013 Income Tax Act 2007 Part C s CB 18 (a) (b) the work involved in the undertaking or scheme is to cre- ate or effect a development, division, or improvement; 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.
(2) Exclusion: dividing residential land Sections CB 12 and CB 13 do not apply if— (a) (b) 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 (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) (3) 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— (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 163 Part C s CB 19 Income Tax Act 2007 Reprinted as at 30 August 2013 (b) includes the purpose of erecting a dwellinghouse on the land to be occupied as such a residence.
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 cre- ate or effect a development, division, or improvement; and 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 (b) 164 Reprinted as at 30 August 2013 Income Tax Act 2007 Part C s CB 21 (c) 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: 165 Part C s CB 22 Income Tax Act 2007 Reprinted as at 30 August 2013 (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 section 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 cre- ate or effect a development, division, or improvement; and the development, division, or improvement is for use in, and for the purposes of, the person’s deriving from (b) 166 Reprinted as at 30 August 2013 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).

Timber CB 24 Disposal of timber or right to take timber Income (1) 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.
(2) (3) 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 22 167 Part C s CB 25 Income Tax Act 2007 Reprinted as at 30 August 2013 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 Admin- istration 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 Disposal of certain shares by portfolio investment entities Investments When this section applies This section applies when— (a) the income from the disposal by a person (the entity) of the share is excluded income under section CX 55 (Proceeds from disposal of investment shares); 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; and the entity attributes the proceeds from the disposal to investors who are not entitled to the beneﬁt of the divi- dend.
(b) (c) (1) 168 Reprinted as at 30 August 2013 Income Tax Act 2007 Part C s CB 27 (2) (3) (4) Income The entity is treated as deriving an amount of income calcu- lated using the formula— (shares at declaration – shares on distribution) × dividend.
Deﬁnition of items in formula In the formula,— (a) (b) (c) shares at declaration is the number of shares held by the entity when the dividend is declared: shares on distribution is the number of shares for which the entity derives a dividend: dividend is the amount of the dividend per share or, for a share issued by an ICA company, the amount of the dividend per share that is not fully imputed.

Positive result The result of the formula must be a positive amount.
Deﬁned in this Act: amount, company, dividend, excluded income, fully im- puted, ICA company, income, pay, portfolio investment entity, share Compare: 2007 No 97 s CB 26 Section CB 26: substituted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 8(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section CB 26(1)(b)(ii): amended (with effect on 1 April 2012), on 17 July 2013, by section 4 of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).

Section CB 26(1)(c): inserted (with effect on 1 April 2012), on 17 July 2013, by section 4 of the Taxation (Livestock Valuation, Assets Expenditure, and Re- medial Matters) Act 2013 (2013 No 52).
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) 169 Part C s CB 27B Income Tax Act 2007 Reprinted as at 30 August 2013 (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).
Environmental restoration CB 28 Environmental restoration accounts Income from refund (1) 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— refund tax rate.
(2) 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— transfer tax rate.

Deﬁnitions of items in formulas The items in the formulas are deﬁned in subsections (4) to (6).

(3) Refund (4) Refund is the amount of the refund.


170 Reprinted as at 30 August 2013 Income Tax Act 2007 Part C s CB 28 (5) 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 (b) would apply to the person for the tax year if the person had sufﬁcient taxable income.

(6) Transfer Transfer is the amount in the environmental restoration ac- count that is transferred.
Income arising from renewal of resource consent (7) 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) (8) 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) 171 Part C s CB 29 Income Tax Act 2007 Reprinted as at 30 August 2013 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).
Minerals CB 29 Disposal of minerals Income (1) An amount that a person derives from disposing of minerals taken from land is income of the person.

(2) 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) 172 Reprinted as at 30 August 2013 Income Tax Act 2007 Part C s CB 32B (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 Look-through companies Heading: inserted, on 1 April 2011 (applying for income years beginning on or after 1 April 2011), by section 26(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
CB 32B Owners of look-through companies A person who has an effective look-through interest for a look- through company has an amount of income to the extent to which an amount of income results from the application of subpart HB (Look-through companies) to them and the look- through company.
Deﬁned in this Act: amount, effective look-through interest, income, look- through company 173 Part C s CB 32C Income Tax Act 2007 Reprinted as at 30 August 2013 Section CB 32B: inserted, on 1 April 2011 (applying for income years beginning on or after 1 April 2011), by section 26(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
CB 32C Income for ﬁrst year of look-through company Income (1) A person has an amount of income for an income year equal to the amount given by the formula in subsection (3) if the income year is one in which the person has,— (a) (b) on the ﬁrst day of that year, an effective look-through in- terest for a look-through company (LTC), and the com- pany existed in the previous income year, but was not a look-through company in that previous year: on the day after a look-through company amalgamates in that year with a company that ceases to exist after the amalgamation (the amalgamating company), an ef- fective look-through interest for the LTC, and the amal- gamating company was not a look-through company immediately before the amalgamation.
Exclusion (2) A person does not have income under this section if the income year is 1 of the ﬁrst or second income year that starts on or after 1 April 2011, and— (a) the LTC was a qualifying company that ﬁrst becomes a look-through company for the income year; and subsection (1)(b) does not apply for the income year.

(b) Income formula For the purposes of subsection (1), the amount of income is a positive amount calculated using the following formula: untaxed reserves × effective interest.
Deﬁnition of items in formula In the formula in subsection (3),— (a) (b) untaxed reserves is the amount given by the formula in subsection (5): effective interest is the person’s effective look-through interest for a look-through company on the relevant day under subsection (1)(a) or (b).
(3) (4) 174 Reprinted as at 30 August 2013 Income Tax Act 2007 Part C s CB 32C (5) (6) Untaxed reserves formula For the purposes of subsections (3) and (4), the amount of untaxed reserves is calculated using the following formula: dividends + balances assessable income balances tax rate exit exemption.

Deﬁnition of items in formula The items in the formula in subsection (5) are deﬁned in sub- sections (7) to (11).
Dividends (7) Dividends is the sum of the amounts that would be dividends if the following events occurred for the company or the amal- gamating company (the company), immediately before it be- came a look-through company or amalgamated with a look- through company: (a) (b) (c) it disposed of all of its property, other than cash, to an unrelated person at market value for cash; and it met all of its liabilities at market value, excluding income tax payable through disposing of the property or meeting the liabilities; and it was liquidated, with the amount of cash remaining being distributed to shareholders without imputation credits or FDP credits attached.
(8) Balances Balances is the sum of the following amounts: (a) (b) (c) the balance in the company’s imputation credit account: the balance in the company’s FDP account: an amount of income tax payable for an earlier income year but not paid before the relevant date, less refunds due for the earlier income year but paid after the relevant date.
Assessable income (9) Assessable income is the total assessable income that the com- pany would derive by taking the actions described in subsec- tion (7)(a) and (b) less the amount of any deduction that the company would have for taking those actions.

175 Part C s CB 32C Income Tax Act 2007 Reprinted as at 30 August 2013 Tax rate (10) Tax rate is the basic tax rate for the income year of the company that contains the relevant day described in subsec- tion (12).
Exit exemption (11) Exit exemption is the amount given by the formula in section CX 63(2) (Dividends derived after ceasing to be look-though company), treating the amount described in subsection (7) as a dividend paid by the company for the purposes of section CX 63(1), if section CX 63 would apply to a dividend paid by the company.
(12) Relevant day In subsections (7) to (9) and (11), the relevant day for measur- ing items in the formula is— (a) the last day of the income year before the income year described in subsection (1)(a), as applicable; or the day of the amalgamation described in subsec- tion (1)(b) as applicable.
(b) Income tax and refund (13) For the purposes of subsection (8)(c),— (a) (b) income tax payable is income tax that would, when paid, give rise to a credit in the company’s imputation credit account under sections OB 4 to OB 29 (which re- late to imputation credits): a refund of income tax due is the amount that would, when paid, give rise to a debit to the company’s im- putation credit account under sections OB 30 to OB 59 (which relate to imputation debits).
Deﬁned in this Act: amalgamating company, amalgamation, amount, assess- able income, basic tax rate, company, deduction, dispose, dividend, effective look-through interest, FDP account, FDP credit, imputation credit, imputation credit account, income, income tax, income year, liquidation, look-through company, qualifying company Section CB 32C: inserted, on 1 April 2011 (applying for income years beginning on or after 1 April 2011), by section 26(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
176 Reprinted as at 30 August 2013 Income Tax Act 2007 Part C s CB 34 Mutual associations CB 33 Amounts derived by mutual associations (1) (2) 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.
Income: other income provisions If the association derives from the transaction an amount that would, in the absence of this subsection, be income under a provision in this Part but for the mutual character of the trans- action, the amount is income of the association.
Deﬁned in this Act: amount, association, income, income year, member Compare: 2004 No 35 s HF 1(1) Section CB 33(2) heading: substituted (with effect on 1 April 2008), on 7 Sep- tember 2010 (applying for the 2008–09 and later income years), by section 5(1) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
Section CB 33(2): substituted (with effect on 1 April 2008), on 7 September 2010 (applying for the 2008–09 and later income years), by section 5(1) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
CB 34 Amounts derived by members from mutual associations (1) (2) 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).
177 Part C s CB 35 Income Tax Act 2007 Reprinted as at 30 August 2013 (3) (4) 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 (5) An association rebate— (a) (b) 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- 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).
178 Reprinted as at 30 August 2013 Income Tax Act 2007 Part C s CB 36 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).

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— (a) 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.
(b) (c) (d) (e) (f) (4) 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 in relation to post- 1989 forest land.

Surrender of unit: under forest sink covenant (4B) The person is treated as selling the unit for an amount of zero if the person transfers the emissions unit to the Crown under a forest sink covenant under section 67Y of the Forests Act 1949.
(5) Surrender of unit: deforestation of some pre-1990 forest land The person is treated as selling the unit for an amount of zero if— 179 Part C s CB 36 Income Tax Act 2007 Reprinted as at 30 August 2013 (a) (b) 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.
Surrender of post-1989 forest land emissions unit or forest sink emissions unit: for other purposes The person is treated as selling a post-1989 forest land emis- sions unit or forest sink emissions unit for an amount equal to the unit’s market value if the person surrenders the emissions unit other than— (a) (b) for emissions in relation to post-1989 forest land: by a transfer to the Crown under a forest sink covenant under section 67Y of the Forests Act 1949.
Surrender of unit: free unit other than forest land unit The person is treated as selling a unit that is not a forest land emissions unit for an amount equal to the unit’s market value if— (a) the person surrenders the unit when it has a value of zero; 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- 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) Excluded income: pre-1990 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.

(6) (7) (8) (9) 180 Reprinted as at 30 August 2013 Income Tax Act 2007 Part C s CB 36 Excluded income: ﬁshing quota emissions unit (10) Section CX 51C (Disposal of ﬁshing quota emissions units) applies to the disposal to another person of a ﬁshing quota emissions unit.
Deﬁned in this Act: amount, convert, emissions unit, ﬁshing quota emissions unit, forest land emissions unit, forest sink emissions unit, Kyoto emissions unit, New Zealand emissions unit, pre-1990 forest land emissions unit, post-1989 forest land emissions unit, surrender 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(4): amended (with effect on 1 July 2010), on 17 July 2013, by section 5 of the Taxation (Livestock Valuation, Assets Expenditure, and Remed- ial Matters) Act 2013 (2013 No 52).

Section CB 36(4B) heading: inserted (with effect on 1 January 2009), on 7 Sep- tember 2010, by section 6(1) of the Taxation (Annual Rates, Trans-Tasman Sav- ings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
Section CB 36(4B): inserted (with effect on 1 January 2009), on 7 September 2010, by section 6(1) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).

Section CB 36(6) heading: substituted (with effect on 1 January 2009), on 7 September 2010, by section 6(2) of the Taxation (Annual Rates, Trans-Tas- man Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
Section CB 36(6): substituted (with effect on 1 January 2009), on 7 September 2010, by section 6(2) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).

Section CB 36(7): substituted (with effect on 1 July 2010), on 21 December 2010, by section 27 of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section CB 36(9) heading: substituted (with effect on 1 January 2009), on 7 September 2010, by section 6(3) of the Taxation (Annual Rates, Trans-Tas- man Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).

Section CB 36(10) heading: added (with effect on 1 July 2010), on 7 September 2010, by section 6(4) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
Section CB 36(10): added (with effect on 1 July 2010), on 7 September 2010, by section 6(4) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).

Section CB 36 list of deﬁned terms ﬁshing quota emissions unit: inserted (with effect on 1 July 2010), on 7 September 2010, by section 6(5)(a) of the Taxa- tion (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remed- ial Matters) Act 2010 (2010 No 109).
Section CB 36 list of deﬁned terms forest sink emissions unit: inserted (with effect on 1 January 2009), on 7 September 2010, by section 6(5)(b) of the Taxa- 181 Income Tax Act 2007 Reprinted as at 30 August 2013 tion (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remed- ial Matters) Act 2010 (2010 No 109).
Subpart CC—Income from holding property (excluding equity) Contents Land use CC 1 Land CC 1B Consideration for agreement to grant, renew, extend, or transfer leasehold estate or licence Page 183 184 CC 1C Consideration for agreement to surrender leasehold estate 184 185 185 186 186 187 187 188 188 189 190 191 192 192 or terminate licence 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 CC 13 Amounts paid in income years after hire purchase Hire purchase agreements agreement ends 182 Reprinted as at 30 August 2013 CC 1 Land Income Income Tax Act 2007 Part C s CC 1 Land use (1) An amount described in subsection (2) is income of the owner (2) 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) Amounts derived from certain assets (2B) Despite subsections (1) and (2), an amount referred to in sec- tion CW 8B (Certain amounts derived from use of assets) is not a payment of rent or another amount for the purposes of this section.
(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 Section CC 1(2B) heading: inserted (with effect on 1 April 2013 and applying for the 2013–14 and later income years), on 17 July 2013, by section 6(1) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Section CC 1(2B): inserted (with effect on 1 April 2013 and applying for the 2013–14 and later income years), on 17 July 2013, by section 6(1) of the Taxa- tion (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
183 Part C s CC 1B Income Tax Act 2007 Reprinted as at 30 August 2013 CC 1B Consideration for agreement to grant, renew, extend, or transfer leasehold estate or licence (1) (2) (3) (4) When this section applies This section applies when a person (the payee) derives an amount as consideration for the agreement by the payee to the grant, renewal, extension, or transfer of a right (the land right) that is a leasehold estate, or a licence to use land.
Exception for payment to holder by transferee This section does not apply to an amount derived— by the payee as the holder of a land right; and (a) as consideration for the transfer of the land right to the (b) person paying the amount.

Income The amount is income of the payee.


Exception for tenant or licensee of residential premises The amount is not income if a payee is a natural person and de- rives the amount as a tenant or licensee of residential premises whose expenditure on the residential premises does not meet the requirements of the general permission.
Deﬁned in this Act: amount, general permission, income, land, leasehold estate, pay Section CC 1B: inserted (with effect on 1 April 2013 and applying to an amount that is derived on or after that date in relation to a lease or licence entered, re- newed, extended, or transferred on or after that date), on 17 July 2013, by section 7(1) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
CC 1C Consideration for agreement to surrender leasehold estate or terminate licence When this section applies This section applies when a person (the payee) derives an amount as consideration for the agreement by the payee to the surrender or termination of a right (the land right) that is a leasehold estate or licence to use land, and the payee is— (a) the person who owns the estate in land from which the land right is granted: the person who owns the land right.
(b) Income The amount is income of the payee.

(1) (2) 184 Reprinted as at 30 August 2013 Income Tax Act 2007 Part C s CC 3 (3) Exception for tenant or licensee of residential premises The amount is not income if the payee is a natural person and derives the amount as a tenant or licensee of residential premises whose expenditure on the residential premises does not meet the requirements of the general permission.
Deﬁned in this Act: amount, general permission, income, land, leasehold estate, own Section CC 1C: inserted (with effect on 1 April 2013 and applying to an amount that is derived on or after that date), on 17 July 2013, by section 7(2) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
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 (1) 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- 185 Part C s CC 4 Income Tax Act 2007 Reprinted as at 30 August 2013 (2) ment under subpart EW (Financial arrangements rules), the amount is income of the person.
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 Income (1) 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 (2) (3) 186 Reprinted as at 30 August 2013 Income Tax Act 2007 Part C s CC 7 CC 6 Prizes received under Building Societies Act 1965 Income (1) 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.
(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 (1) 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.
(2) (3) 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- 187 Part C s CC 8 Income Tax Act 2007 Reprinted as at 30 August 2013 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 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) 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) (2) Income: disposal The value of the commercial bill on the day the non-resident holder disposes of it is income of the person.

188 Reprinted as at 30 August 2013 Income Tax Act 2007 Part C s CC 9 (3) 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).

Royalties CC 9 Royalties Income (1) A royalty derived by a person is income of the person.
Meaning of royalty (2) 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) 189 Part C s CC 10 Income Tax Act 2007 Reprinted as at 30 August 2013 (3) Relevance of description of payment For the purposes of subsection (2), none of the following is relevant: (a) (b) whether the payment is periodical or otherwise: (c) whether the payment is an instalment of the purchase price of real property: how the payment is described or computed: (d) whether the payment is an instalment of the purchase price of personal property.
Deﬁned in this Act: income, natural resource, pay, royalty, standing timber Compare: 2004 No 35 s CC 9 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 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: (1) (2) (3) 190 Reprinted as at 30 August 2013 Income Tax Act 2007 Part C s CC 11 (ii) (iii) (iv) (v) 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 (b) an amount derived by the person from the rental, sale, use, or other exploitation of the ﬁlm.
(4) Relationship with sections CV 17 and YD 7 [Repealed] [Repealed] Deﬁned in this Act: amount, ﬁlm, income Compare: 2004 No 35 s CC 10 Section CC 10(4) heading: repealed, on 2 November 2012, by section 5 of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).

Section CC 10(4): repealed, on 2 November 2012, by section 5 of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
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 191 Part C s CC 12 Income Tax Act 2007 Reprinted as at 30 August 2013 CC 12 Lessor acquiring lease asset on expiry of term of lease (1) (2) When this section applies This section applies for the purposes of section FA 10(3) lessor acquiring asset), when, (Treatment when lease ends: 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, 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) 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 (2) 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.

192 Reprinted as at 30 August 2013 Income Tax Act 2007 Part C s CC 13 Income of buyer (3) 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 Contents 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 7B Shares issued under proﬁt distribution plans 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 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] Page 195 195 195 196 196 197 198 199 199 200 200 201 201 202 202 203 203 204 205 206 206 207 193 Income Tax Act 2007 Reprinted as at 30 August 2013 What is not a dividend?
CD 22 Returns of capital: off-market share cancellations CD 23 Ordering rule and slice rule CD 23B Returns of capital: shares repurchased under proﬁt distribution plans 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 29B Issues to shareholders of rights to subscribe for or sell back shares 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 207 212 213 213 214 216 216 219 219 219 220 220 221 221 CD 34 Distribution to member of co-operative company based on 222 member’s transactions [Repealed] CD 34B Distributions to members of co-operative companies 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 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] 222 225 225 228 228 228 232 233 235 235 244 250 250 250 194 Reprinted as at 30 August 2013 Income Tax Act 2007 Part C s CD 3 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] CD 53 Prevention of double taxation of share cancellation Prevention of double taxation dividends CD 54 Replacement payments Returning share transfers 250 250 250 251 251 251 253 CD 1 Dividend Income A dividend derived by a person is income of the person.
Deﬁned in this Act: dividend, income Compare: 2004 No 35 s CD 1 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 34B from being a divi- dend is income of the member.
Deﬁned in this Act: co-operative company, dividend, income Compare: 2004 No 35 s CD 1B Section CD 2: amended (with effect on 1 April 2010), on 7 September 2010, by section 7 of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).

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 2 195 Part C s CD 4 Income Tax Act 2007 Reprinted as at 30 August 2013 CD 4 Transfers of value generally Transfers of value from company (1) A transfer of value from a company to a person is a dividend if— (a) (b) 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.
(2) 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 (1) A transfer of value from a company to a person occurs when— (a) (b) 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.
Release of debt (2) 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.
Provision of services for less than market value (3) 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.

196 Reprinted as at 30 August 2013 Income Tax Act 2007 Part C s CD 6 (4) 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?
General test (1) 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) (ii) (iii) the company makes the transfer because of that share- holding of the relevant shareholder.
holds shares in the company; or is associated with a shareholder; and [Repealed] (b) Indication that test met (2) 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 (3) Despite subsection (1), a transfer of value by a statutory pro- ducer board to a member is not caused by a shareholding if— 197 Part C s CD 7 Income Tax Act 2007 Reprinted as at 30 August 2013 (a) (b) (c) the transfer is a cash distribution; and the distribution is a deduction under subpart HE (Mutual 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).
Deductible distributions of co-operative companies (4) 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) (5) 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 Section CD 6(1)(a)(ii): amended, on 1 April 2010 (applying for the 2010–11 and later income years), by section 13(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section CD 6(1)(a)(iii): repealed, on 1 April 2010 (applying for the 2010–11 and later income years), by section 13(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

CD 7 Bonus issues in lieu of dividend Bonus issues in lieu (1) 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.
Deﬁned in this Act: amount, bonus issue in lieu, dividend, pay, RWT Compare: 2004 No 35 s CD 6 (2) 198 Reprinted as at 30 August 2013 Income Tax Act 2007 Part C s CD 8 Section CD 7(2): amended (with effect on 1 October 2012), on 2 November 2012, by section 6 of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).

CD 7B Shares issued under proﬁt distribution plans Proﬁt distribution plan shares (1) A share issued by a company under a proﬁt distribution plan is a dividend.
(2) (3) Amount of dividend The amount of the dividend is the amount offered by the com- pany for the repurchase of the share.

Relationship with section CD 22 Section CD 22 does not apply in relation to a share issued under a proﬁt distribution plan and repurchased by the com- pany as part of the plan.
Deﬁned in this Act: amount, company, dividend, proﬁt distribution plan, RWT, share Section CD 7B: inserted (with effect on 1 October 2012), on 2 November 2012, by section 7 of the Taxation (Annual Rates, Returns Filing, and Remedial Mat- ters) Act 2012 (2012 No 88).
CD 8 Elections to make bonus issue into dividend Treating bonus issues as dividends (1) A bonus issue that is not a bonus issue in lieu or a share issued under a proﬁt distribution plan 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); and (b) the company chooses under this section to treat the bonus issue as a dividend.
Form of election (a) (2) A company chooses to treat a bonus issue as a dividend by— resolving, when it makes the bonus issue, that it is 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 (b) 199 Part C s CD 9 Income Tax Act 2007 Reprinted as at 30 August 2013 (3) (c) giving notice to the Commissioner under section 63 of the Tax Administration Act 1994 of the election and the amount.
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, proﬁt distribution plan, share Compare: 2004 No 35 s CD 7 Section CD 8(1): amended (with effect on 1 October 2012), on 2 November 2012, by section 8(1) of the Taxation (Annual Rates, Returns Filing, and Re- medial Matters) Act 2012 (2012 No 88).
Section CD 8(1)(a)(ii): amended (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 4(1) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).

Section CD 8 list of deﬁned terms proﬁt distribution plan: inserted (with ef- fect on 1 October 2012), on 2 November 2012, by section 8(2) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section CD 8 list of deﬁned terms share: inserted (with effect on 1 October 2012), on 2 November 2012, by section 8(2) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).

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 Interest absolutely vested in unit holder (1) 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 200 Reprinted as at 30 August 2013 Income Tax Act 2007 Part C s CD 12 (2) 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 relatives): section GB 25 (Close company remuneration to share- holders, directors, or relatives).
(b) (c) 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) 201 Part C s CD 13 Income Tax Act 2007 Reprinted as at 30 August 2013 CD 13 Notional distributions of producer boards and co-operative companies Notional distributions of producer boards (1) 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).
(2) Calculation: section OB 75 The amount of the dividend is calculated under section OB 75 (Statutory producer boards’ notional distributions that are divi- dends).

Notional distributions of co-operative companies (3) A notional distribution of a co-operative company is a dividend if the company determines to attach an imputation credit to the notional distribution under section OB 79 (Co-operative com- panies attaching imputation credits to notional distributions).
(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 Dividend (1) 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.
202 Reprinted as at 30 August 2013 Income Tax Act 2007 Part C s CD 16 (2) 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 (1) (2) (3) (4) 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) 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) 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) 203 Part C s CD 17 Income Tax Act 2007 Reprinted as at 30 August 2013 (2) (3) (4) 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 a person nominated by the trustee or the manager of the group investment fund.
(c) 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 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.

(1) (2) (3) 204 Reprinted as at 30 August 2013 Income Tax Act 2007 Part C s CD 18 (4) 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 (1) (2) (3) When this section applies This section applies when a person— (a) (b) (c) (d) 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 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— earlier reductions.
total tax paid Deﬁnition of items in formula In the formula,— (a) total tax paid is the total amount of income tax on in- come 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- (b) 205 Part C s CD 19 Income Tax Act 2007 Reprinted as at 30 August 2013 rives the dividend, have affected other dividends derived 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 (b) the person was not personally liable to pay the tax.
Deﬁned in this Act: amount, company, dividend, double tax agreement, income tax, New Zealand, pay, tax Compare: 2004 No 35 s CD 11 CD 20 Beneﬁts of shareholder-employees or directors Unclassiﬁed fringe beneﬁts (1) 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 (2) 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.
206 Reprinted as at 30 August 2013 Income Tax Act 2007 Part C s CD 22 (3) (4) 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 divi- dend.
(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).

What is not a dividend?


CD 22 Returns of capital: off-market share cancellations (1) (2) 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) 207 Part C s CD 22 Income Tax Act 2007 Reprinted as at 30 August 2013 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)).
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 (ii) (b) (3) (4) (5) 208 Reprinted as at 30 August 2013 Income Tax Act 2007 Part C s CD 22 is a taxable bonus issue under paragraph (d) of the deﬁnition of the term.
Overriding anti-avoidance rule (6) 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.
(7) (8) (9) 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 company 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,— 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 has beneﬁted or is eligible to beneﬁt 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 209 Part C s CD 22 Income Tax Act 2007 Reprinted as at 30 August 2013 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) (b) a redeemable share under section 68 of the Companies Act 1993 or an equivalent provision of foreign law; or issued under 1 of New
 Zealand’s Acts relating to co-operative companies; or subject to sections 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 (ii) (iii) (iv) (c) (d) 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) a protective right; or 210 Reprinted as at 30 August 2013 Income Tax Act 2007 Part C s CD 22 (ii) if the company is subject to 1 of New Zealand’s Acts relating to co-operative companies (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 (c) when the share is issued is not expected to arise 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 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) counted associate paragraph (b): amended, on 1 April 2010 (applying for the 2010–11 and later income years), by section 15(1)(a) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
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).
211 Part C s CD 23 Income Tax Act 2007 Reprinted as at 30 August 2013 CD 23 Ordering rule and slice rule Ordering rule (1) Under the ordering rule, the available subscribed capital per share is calculated for a share using the formula— available subscribed capital of class shares being cancelled of class.
(2) 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) Slice rule (3) Under the slice rule, the available subscribed capital per share is calculated for a share using the formula— available subscribed capital of class shares of class.
(4) Deﬁnition of items in formula In the formula in subsection (3),— (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 of class is the number of shares of the same class as the share, including the share, on issue at the time.
(b) Amount when foreign company information inadequate (5) 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) 212 Reprinted as at 30 August 2013 Income Tax Act 2007 Part C s CD 24 (b) the relevant shareholder cannot obtain sufﬁcient infor- mation to calculate the actual available subscribed cap- ital per share using the relevant rule.
Deﬁned in this Act: available subscribed capital, cancellation, foreign company, ordering rule, resident in New Zealand, share, shareholder, shares of the same class, slice rule Compare: 2004 No 35 s CD 15 CD 23B Returns of capital: shares repurchased under proﬁt distribution plans (1) (2) When this section applies This section applies when a company has issued a share to a shareholder under a proﬁt distribution plan and the shareholder exercises the option to have the share repurchased by the com- pany.
Amount paid The amount paid by the company to repurchase the share is not a dividend.

Deﬁned in this Act: amount, company, dividend, pay, proﬁt distribution plan, share, shareholder Section CD 23B: inserted (with effect on 1 October 2012), on 2 November 2012, by section 9 of the Taxation (Annual Rates, Returns Filing, and Remedial Mat- ters) Act 2012 (2012 No 88).
CD 24 Returns of capital: on-market share cancellations Companies acquiring own shares (1) 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 (2) 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 40: section CD 43(2)(c): section GA 1(4) (Commissioner’s power to ad- just); and 213 Part C s CD 25 Income Tax Act 2007 Reprinted as at 30 August 2013 (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 Section CD 24(2)(a)(i): amended (with effect on 1 April 2008), on 21 December 2010 (applying for the 2008–09 and later income years), by section 28(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
CD 25 Treasury stock acquisitions Treasury stock generally (1) 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 cancella- tion of the share, under section 67A(1) of the Compan- ies Act 1993 or section 24 of the Co-operative Compan- ies 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) (2) 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) a transfer is arm’s length only if it is— (i) to a person not associated with the company; or 214 Reprinted as at 30 August 2013 Income Tax Act 2007 Part C s CD 25 (ii) 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 (b) 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.
(4) (5) 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 (6) 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, im- putation credit account, imputation penalty tax, New Zealand, on-market can- 215 Part C s CD 26 Income Tax Act 2007 Reprinted as at 30 August 2013 cellation, 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).
CD 26 Capital distributions on liquidation or emigration (1) (2) (3) 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 (4) 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 When this section applies This section applies when— (1) 216 Reprinted as at 30 August 2013 Income Tax Act 2007 Part C s CD 27 (a) (b) 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 asso- ciated company is associated with a shareholder in the ﬁrst company.
(2) (3) (b) (c) 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.
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) 217 Part C s CD 27 Income Tax Act 2007 Reprinted as at 30 August 2013 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.
(b) (b) 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.
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 (c) (4) (5) (6) 218 Reprinted as at 30 August 2013 Income Tax Act 2007 Part C s CD 29B Section CD 27(1)(b): substituted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 17(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
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 29B Issues to shareholders of rights to subscribe for or sell back shares (1) (2) Issue of rights to subscribe for shares The issue by a company to a shareholder of a right to subscribe for a share, or to sell a share in the company to the company, is not a dividend.
Issue of shares under rights to subscribe for shares The issue by a company of a share to a person for consideration less than the market value, immediately before the issue, of a share in the same class of shares, is not a dividend if— (a) the person subscribes for the share under a right (a sub- scription right) issued by the company to a shareholder holding shares before the issue of the right; and 219 Part C s CD 30 Income Tax Act 2007 Reprinted as at 30 August 2013 (b) the company does not, as part of the issue of the sub- scription right, give the person a right to dispose of the share to the company.
Premiums from issue of rights to subscribe for shares (3) A distribution by a company to a shareholder is not a dividend if— (a) (b) (c) (d) the company issues to the shareholder a right (the share- holder right) to subscribe for, or dispose of to the com- pany, a share in the company at a given price (the share- holder price); and the shareholder fails or is ineligible to exercise the shareholder right; and another person pays to the company an amount— (i) (ii) for the shareholder right: greater than the shareholder price, for the issue of a share under the shareholder right; and the distribution is from the amount of the payment that does not increase the company’s available subscribed capital.
Deﬁned in this Act: available subscribed capital, bonus issue in lieu, company, consideration, dividend, pay, share, shareholder Section CD 29B: inserted (with effect on 1 April 2008 and applying for the 2008–09 and later tax years), on 17 July 2013, by section 8(1) of the Taxa- tion (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
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.
(1) 220 Reprinted as at 30 August 2013 Income Tax Act 2007 Part C s CD 33 (2) Meaning of ﬂat-owning company In this section, ﬂat-owning company means a company— (a) 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 (b) 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 FBT rules (1) A fringe beneﬁt subject to fringe beneﬁt tax is not a dividend.

Board (2) An amount that is employment income under section CE 1(1B) (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 29 August 2011 (applying for the 2008–09 and later income years), by section 140(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
CD 33 Payments corresponding to notional distributions of producer boards and co-operative companies Statutory producer board payments (1) An amount paid by a statutory producer board to a person in (b) 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) 221 Part C s CD 34 Income Tax Act 2007 Reprinted as at 30 August 2013 (c) the amount corresponds to a notional distribution amount treated as a dividend under section CD 13(1).
Co-operative company payments (2) An amount paid by a co-operative company to a person in re- lation 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 (3) 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 [Repealed] Section CD 34: repealed (with effect on 1 April 2010), on 7 September 2010, by section 8 of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
CD 34B Distributions to members of co-operative companies What this section applies to This section applies to a distribution by a co-operative com- pany, or by a company (a subsidiary) in which the co-opera- tive company has a voting interest of 100%, if— (a) the distribution is made after the Commissioner has re- ceived, from the co-operative company, an election in writing to apply this section; and the election has not been revoked.
(b) (1) 222 Reprinted as at 30 August 2013 Income Tax Act 2007 Part C s CD 34B (2) (3) (4) General rule: co-operative company distributions not dividends If the requirements in subsection (4) are met, a distribution by a co-operative company, or by a subsidiary, to a member of the co-operative company is not a dividend, to the extent to which the distribution is for their— (a) (b) (c) transaction shares: projected transactions shareholding: limited non-transaction shares.
Exception: distributions for excess shareholdings Subsection (2)(c) is ignored,— (a) for a distribution to a member, if the member holds shares in the co-operative company that— (i) are not transaction shares, are not their projected transactions shareholding, and are not limited non-transaction shares; and (ii) may entitle members to enter trading transac- tions: (b) for all distributions to all members, if the constitution of the co-operative company permits any member to hold shares that— (i) are not transaction shares, are not their projected transaction shareholding, and are not limited non-transaction shares; and (ii) may entitle members to enter trading transac- tions.
Requirements For the purposes of subsection (2), the requirements are— (a) the co-operative company is resident in New Zealand for the period to which the distribution relates; and the company making the distribution is resident in New Zealand for the period to which the distribution relates; and the co-operative company believes on reasonable grounds that the member at the time of the distribu- tion— (i) (ii) is resident in New Zealand: has a ﬁxed establishment in New Zealand.
(b) (c) 223 Part C s CD 34B Income Tax Act 2007 Reprinted as at 30 August 2013 Meaning of transaction shares In this section, transaction shares means the number of shares in the co-operative company that the member holds for trading transactions that occurred in the period to which the distribu- tion relates.

The number of shares must determine the value of the trading transactions.
Meaning of limited non-transaction shares In this section, limited non-transaction shares means the member’s shares that are not the member’s transaction shares or their projected transactions shareholding, and that may en- title the member to enter trading transactions, if the number of those shares is less than or equal to the greater of the follow- ing: (a) 20% of the member’s transaction shares on the date of entitlement for the distribution under section 125 of the Companies Act 1993: 20% of the member’s projected transactions sharehold- ing on the date of entitlement for the distribution under section 125 of that Act.
(b) Meaning of projected transactions shareholding In this section, projected transactions shareholding means the number of shares in the co-operative company that the member would have had to hold if the trading transactions ac- tually had occurred that the member had projected, using rea- sonable assumptions, would occur in the period to which the distribution relates.

The number of shares must determine the value of the trading transactions.
Meaning of trading transactions In this section, trading transactions means transactions be- tween the member and the co-operative company or subsidiary that are— (a) the sale and purchase of trading stock of the vendor that is not intangible property; and not subject to section CB 2 (Amounts received on dis- posal of business assets that include trading stock).
(b) Companies Act 1993 The 20 working day rule for ﬁxing a date in section 125(2) of the Companies Act 1993 does not apply to members’ entitle- (5) (6) (7) (8) (9) 224 Reprinted as at 30 August 2013 Income Tax Act 2007 Part C s CD 36 ments to receive distributions that are for transaction shares, projected transaction shareholdings, limited non-transaction shares, or shares described in subsection (3), if— (a) the co-operative company or the subsidiary, as the case may be, has given a copy of the election described in subsection (1) to the Registrar of Companies before the relevant distributions are paid; and for the purposes of section 125(1) of the Companies Act 1993, the co-operative company or the subsidiary, as the case may be, ﬁxes a date in relation to members’ entitlements to receive distributions before the entitle- ments arise, and that date is within the year or period to which the distributions relate.
(b) Deﬁned in this Act: Commissioner, company, co-operative company, dividend, limited non-transaction shares, projected transaction shareholding, resident in New Zealand, share, trading stock, trading transactions, transaction shares Section CD 34B: inserted (with effect on 1 April 2010), on 7 September 2010, by section 9 of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
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, amalgam- ation, amount, dividend, resident’s restricted amalgamation Compare: 2004 No 35 s CD 25 CD 36 Foreign investment fund income Amount not dividend (1) 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 225 Part C s CD 36 Income Tax Act 2007 Reprinted as at 30 August 2013 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) (iv) the fair dividend rate method.
[Repealed] (b) (c) Exclusion for interests in FIFs resident in Australia Subsection (1)(b)(iv) does not apply if the person’s interest in the company is included, at the beginning of the income year in which the payment is made, in a direct income interest of 10% or more in a FIF that, at the beginning of the income year,— (a) meets the requirements of section EX 35(b)(i) to (iii) (Exemption for interest in FIF resident in Australia); and does not have its liability for income tax reduced by an exemption, allowance, or relief referred to in section EX 35(c)(i) or (ii).
(b) 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 PIE equivalent.
(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 PIE equivalent, income year, life insurance, liquidation, loss, pay, portfolio in- vestment 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).
(2) (3) 226 Reprinted as at 30 August 2013 Income Tax Act 2007 Part C s CD 36 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(2) heading: replaced (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 5(1) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).

Section CD 36(2): replaced (with effect on 1 July 2011 and applying for in- come years beginning on or after that date), on 7 May 2012, by section 5(1) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 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).
Section CD 36(3)(b): substituted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 19(4) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

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: repealed, on 1 April 2010, by section 19(6) of the Taxation (International Taxation, Life In- surance, and Remedial Matters) Act 2009 (2009 No 34).

Section CD 36 list of deﬁned terms foreign PIE equivalent: inserted, on 1 April 2010, by section 19(6) 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: repealed (with effect on 1 July 2011), on 7 May 2012, by section 5(2) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).

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).
227 Part C s CD 37 Income Tax Act 2007 Reprinted as at 30 August 2013 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) (b) 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— (i) 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 shareholder in the company.
(ii) (1) (2) (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 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.
(1) 228 Reprinted as at 30 August 2013 Income Tax Act 2007 Part C s CD 39 (2) (3) 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 (4) 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 the company were not to choose to pay fringe beneﬁt tax on an income year basis under section RD 60 (Close company option).
(b) (5) (6) 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 229 Part C s CD 39 Income Tax Act 2007 Reprinted as at 30 August 2013 (b) 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.
(7) (8) (9) 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 determined at the end of the quarter for a loan made on the same terms between persons at arm’s length.
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 230 Reprinted as at 30 August 2013 Income Tax Act 2007 Part C s CD 39 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 Commissioner 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) (b) the average of the outstanding balances of the loan at the end of each month in the company’s tax year: the average of— (i) 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.
(ii) 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— 231 Part C s CD 40 Income Tax Act 2007 Reprinted as at 30 August 2013 (a) (b) the outstanding balance of the loan at the end of the accounting period is taken into account under sections CD 46 to CD 52 in calculating the New Zealand repatri- ation amount of the CFC for the accounting period; and as a result, the person derives a dividend under section CD 21.
When loan disregarded (14) Subsection (13) does not apply to the extent to which the loan is a loan to which— (a) (b) section CD 50(11) applies, meaning that the loan is dis- regarded 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.
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, 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 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 re- covery.

(1) (2) 232 Reprinted as at 30 August 2013 Income Tax Act 2007 Part C s CD 41 (3) (4) 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 5 (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 (5) 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) 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 Section CD 40(4): amended (with effect on 1 April 2013), on 17 July 2013, by section 9 of the Taxation (Livestock Valuation, Assets Expenditure, and Re- medial Matters) Act 2013 (2013 No 52).
CD 41 Adjustment if amount repaid later (1) 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) 233 Part C s CD 41 Income Tax Act 2007 Reprinted as at 30 August 2013 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 re- payment.

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 5 The refund is made despite sections RM 2 to RM 5 (which relate to refunds of excess tax), but subject to the other provi- sions of this Act.
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 Section CD 41(5) heading: amended (with effect on 1 April 2013), on 17 July 2013, by section 10(1) of the Taxation (Livestock Valuation, Assets Expend- iture, and Remedial Matters) Act 2013 (2013 No 52).
Section CD 41(5): amended (with effect on 1 April 2013), on 17 July 2013, by section 10(2) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
(2) (3) (4) (5) (6) 234 Reprinted as at 30 August 2013 Income Tax Act 2007 Part C s CD 43 CD 42 Adjustment if additional consideration paid (1) (2) (3) 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 (4) 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 CD 43 Available subscribed capital (ASC) amount (1) 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 – look-through company returns.
Deﬁnition of items in formula In the formula in subsection (1),— (2) 235 Part C s CD 43 Income Tax Act 2007 Reprinted as at 30 August 2013 (a) (b) (c) (d) 1 July 1994 balance is,— (i) 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 received, after 30 June 1994 and before the calculation time, for the issue of shares of the same class (the class) as the share, ignoring section HB 1 (Look-through companies are transparent): 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, CD 23B, or CD 24 or a corresponding provision of an earlier Act: look-through company returns is the total amount of consideration that the company paid, before the calcu- lation time, on the cancellation or buyback of shares in the relevant class while the company was a look-through company, ignoring section HB 1.
1 July 1994 balance The 1 July 1994 balance is calculated using the formula— (3) paid-up capital + premiums all shares issued × 30 June 1994 shares.
Deﬁnition of items in formula In the formula in subsection (3),— (a) 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: 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.
(b) (c) (d) (4) 236 Reprinted as at 30 August 2013 Income Tax Act 2007 Part C s CD 43 (5) (6) (7) 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) (ab) (b) (c) 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 share issued under a proﬁt distribution plan, the amount offered by the company for the repur- chase of the share; and in the case of a taxable bonus issue that is not a bonus issue in lieu or a share issued under a proﬁt distribution plan, the amount of the dividend arising from the tax- able 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) Subscriptions amount: non-taxable and exempt bonus issues The subscriptions amount does not include— (a) an amount for a bonus issue if none of subsection (6)(a), (ab), or (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,— 237 Part C s CD 43 Income Tax Act 2007 Reprinted as at 30 August 2013 (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) to (5) (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) 238 Reprinted as at 30 August 2013 Income Tax Act 2007 Part C s CD 43 Subscriptions amount: company share capital reorganisation (11) 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) (12) 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 cal- culated under the slice rule of the shares in the acquired 239 Part C s CD 43 Income Tax Act 2007 Reprinted as at 30 August 2013 company that is attributable to the shares issued in an- ticipation, except to the extent to which the shares is- sued 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 amal- gamated company’s shares, equal to the available sub- scribed 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- 240 Reprinted as at 30 August 2013 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 superannuation 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.
241 Part C s CD 43 Income Tax Act 2007 Reprinted as at 30 August 2013 (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— dividend excluding credits × actual ratio maximum ratio.
Deﬁnition of items in formula In the formula in subsection (26),— (a) (b) 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 divi- dends: modifying actual ratio) may apply to modify this paragraph): (c) 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, look-through com- pany, Maori authority, New Zealand, non-attributing Australian CFC, on-mar- ket cancellation, pay, proﬁt distribution plan, 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(1) formula: amended, on 1 April 2011 (applying for income years beginning on or after 1 April 2011), by section 29(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
(27) (28) 242 Reprinted as at 30 August 2013 Income Tax Act 2007 Part C s CD 43 Section CD 43(2)(b): amended, on 1 April 2011 (applying for income years beginning on or after 1 April 2011), by section 29(2) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).

Section CD 43(2)(c): amended (with effect on 1 October 2012), on 2 Novem- ber 2012, by section 10(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section CD 43(2)(c): amended, on 1 April 2011 (applying for income years beginning on or after 1 April 2011), by section 29(3) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).

Section CD 43(2)(d): added, on 1 April 2011 (applying for income years be- ginning on or after 1 April 2011), by section 29(3) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section CD 43(6)(ab): inserted (with effect on 1 October 2012), on 2 Novem- ber 2012, by section 10(2) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).

Section CD 43(6)(b): amended (with effect on 1 October 2012), on 2 Novem- ber 2012, by section 10(3) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section CD 43(7)(a): amended (with effect on 1 October 2012), on 2 Novem- ber 2012, by section 10(4) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).

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(9)(b): amended (with effect on 1 April 2008), on 7 September 2010 (applying for the 2008–09 and later income years), by section 10(1) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).

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).
Section CD 43 list of deﬁned terms consideration: inserted (with effect on 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 look-through company: inserted, on 1 April 2011, by section 29(4) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
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).

Section CD 43 list of deﬁned terms proﬁt distribution plan: inserted (with effect on 1 October 2012), on 2 November 2012, by section 10(5) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
243 Part C s CD 44 Income Tax Act 2007 Reprinted as at 30 August 2013 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— (receipt asc per share) × capital gains + (capital property distributed cost) total receipts capital losses total asc.
Deﬁnition of items in formula In the formula,— (a) (b) (c) (d) (e) (f) (g) (h) 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- 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.
(1) (2) 244 Reprinted as at 30 August 2013 Income Tax Act 2007 Part C s CD 44 Positive amounts (3) Despite subsection (1), the available capital distribution amount per share is zero if either multiplier in the formula is negative.
When foreign company information inadequate the available capital distribution (4) 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 (5) 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.

(b) (c) This subsection is overridden by subsection (6).
Capital gain amount: capital gains after 31 March 1988 and before 1992–93 (6) 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.
(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 dis- posal that the company is treated as making under sec- tion DB 26 (Amount from proﬁt-making undertaking or 245 Part C s CD 44 Income Tax Act 2007 Reprinted as at 30 August 2013 scheme and not already in income) or DB 27 (Amount from major development or division and not already in income); the capital gain amount is the excess; or after 31 March 1988, it receives a capital gain, including a gift, and no part is assessable 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 excluded 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) Capital gain amount: amalgamated company inheriting gain (8) 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 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 — 246 Reprinted as at 30 August 2013 Income Tax Act 2007 Part C s CD 44 (a) (b) 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.
Associated persons transactions (10B) No capital gain amount is derived or capital loss amount incurred by a company after 31 March 2010 on disposing of property under an arrangement with an associated person.

This subsection is overridden by subsection (10C).

Close company liquidations (10C) Subsection (10B) does not apply if— (a) (b) (c) the company is a close company; and the associated person is not a company; and the disposal is on the liquidation of the company.
(11) (12) Related person transactions [Repealed] [Repealed] Close companies liquidations [Repealed] [Repealed] 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 (b) 247 Part C s CD 44 Income Tax Act 2007 Reprinted as at 30 August 2013 (ii) an issue of a share before 1 April 1988 is treated as described in section CZ 9(2)(b).
Relationship with section CZ 9B (14B) For capital gain amounts derived or capital loss amounts in- curred between 1 April 1988 and 31 March 2010, see section CZ 9B (Available capital distribution amount: 1988 to 2010).
Meaning of related person [Repealed] [Repealed] Look-through relatives and nominees [Repealed] [Repealed] Look-through interposed companies [Repealed] [Repealed] 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, amalgam- ation, amount, assessable income, available capital distribution amount, avail- able subscribed capital, bonus issue, capital property, close company, company, dividend, income, liquidation, non-taxable bonus issue, ordering rule, pay, rela- tive, resident in New Zealand, revenue account property, share, shareholder, tax year, trustee Compare: 2004 No 35 s CD 33 Section CD 44(7)(b): amended (with effect on 1 April 2008), on 29 August 2011 (applying for the 2008–09 and later income years), by section 4(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section CD 44(10B) heading: inserted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 21(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section CD 44(10B): inserted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 21(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section CD 44(10C) heading: inserted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 21(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section CD 44(10C): inserted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 21(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section CD 44(11) heading: repealed, on 1 April 2010 (applying for the 2010–11 and later income years), pursuant to section 21(2) of the Taxation (15) (16) (17) (18) 248 Reprinted as at 30 August 2013 Income Tax Act 2007 Part C s CD 44 (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section CD 44(11): repealed, on 1 April 2010 (applying for the 2010–11 and later income years), by section 21(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section CD 44(12) heading: repealed, on 1 April 2010 (applying for the 2010–11 and later income years), pursuant to section 21(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section CD 44(12): repealed, on 1 April 2010 (applying for the 2010–11 and later income years), by section 21(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section CD 44(14B) heading: inserted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 21(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section CD 44(14B): inserted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 21(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

repealed, on 1 April 2010 (applying for the Section CD 44(15) heading: 2010–11 and later income years), pursuant to section 21(4) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section CD 44(15): repealed, on 1 April 2010 (applying for the 2010–11 and later income years), by section 21(4) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section CD 44(16) heading: repealed, on 1 April 2010 (applying for the 2010–11 and later income years), pursuant to section 21(4) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section CD 44(16): repealed, on 1 April 2010 (applying for the 2010–11 and later income years), by section 21(4) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section CD 44(17) heading: repealed, on 1 April 2010 (applying for the 2010–11 and later income years), pursuant to section 21(4) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section CD 44(17): repealed, on 1 April 2010 (applying for the 2010–11 and later income years), by section 21(4) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section CD 44 list of deﬁned terms assessable income: inserted (with effect on 1 April 2008), on 29 August 2011, by section 4(2) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section CD 44 list of deﬁned terms related person: repealed, on 1 April 2010, by section 594 of the Taxation (International Taxation, Life Insurance, and Re- medial Matters) Act 2009 (2009 No 34).

Attributed repatriation calculation rules 249 Part C s CD 45 Income Tax Act 2007 Reprinted as at 30 August 2013 [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).
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).
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).
250 Reprinted as at 30 August 2013 Income Tax Act 2007 Part C s CD 53 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 (1) 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 section CB 3 (Proﬁt-making undertaking or scheme); or section CB 4 (Personal property acquired for pur- pose of disposal); or section CB 5 (Business of dealing in personal property); or any other provision of this Act outside this sub- part.
(ii) (iii) (iv) (v) (2) 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.
251 Part C s CD 53 Income Tax Act 2007 Reprinted as at 30 August 2013 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 and CW 10 (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 revenue 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(3): amended (with effect on 1 July 2011 and applying for in- come years beginning on or after that date), on 7 May 2012, by section 6(1) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 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).

(3) (4) (5) (6) (7) 252 Reprinted as at 30 August 2013 Income Tax Act 2007 Part C s CD 54 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).

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 Contents 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 Page 254 255 257 258 258 260 261 253 Part C s CE 1 Income Tax Act 2007 Reprinted as at 30 August 2013 CE 8 Attributed income from personal services Attributed income Restrictive covenants and exit inducement payments CE 9 Restrictive covenants CE 10 Exit inducements 261 262 263 CE 11 Proceeds from claims under policies of income protection 263 Income protection insurance insurance Tax credits CE 12 Tax credits for personal service rehabilitation payments 264 Employment income CE 1 Amounts derived in connection with employment (1) 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: [Repealed] 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) Beneﬁt of accommodation (1B) The market value of the following beneﬁts provided to a person is income of the person if the beneﬁt is provided in relation to an ofﬁce or position held by them: (a) (b) the provision of accommodation: the provision of an accommodation allowance instead of accommodation.
Meaning of accommodation For the purposes of this section and section CX 28 (Accom- modation), accommodation means board or lodging, or the (2) 254 Reprinted as at 30 August 2013 Income Tax Act 2007 Part C s CE 2 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): repealed (with effect on 1 April 2008), on 21 December 2010 (applying for the 2008–09 and later income years), by section 30(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).

Section CE 1(1B) heading: inserted (with effect on 1 April 2008), on 21 Decem- ber 2010 (applying for the 2008–09 and later income years), by section 30(2) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section CE 1(1B): inserted (with effect on 1 April 2008), on 21 December 2010 (applying for the 2008–09 and later income years), by section 30(2) of the Tax- ation (GST and Remedial Matters) Act 2010 (2010 No 130).

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, section 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.
255 Part C s CE 2 Income Tax Act 2007 Reprinted as at 30 August 2013 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) 256 Reprinted as at 30 August 2013 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) value before reduction × period employed as non-resident period employed.
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 (b) with the date of the employee’s death.
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) 257 Part C s CE 4 Income Tax Act 2007 Reprinted as at 30 August 2013 (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 or to be incurred by an employee.
(1) 258 Reprinted as at 30 August 2013 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 section 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: 259 Part C s CE 6 Income Tax Act 2007 Reprinted as at 30 August 2013 (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 com- pany, contribution, dividend, employee, employer, employer’s superannuation contribution, employment-related loan, expenditure on account of an employee, FBT rules, life insurance policy, pay, premium, superannuation category 1 scheme, superannuation category 2 scheme, superannuation category 3 scheme, trustee Compare: 2004 No 35 s CE 5 Section CE 5(1): replaced (with effect on 1 April 2008), on 2 November 2012 (applying for the 2008–09 and later income years), by section 11(1) of the Tax- ation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
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 4and CE 7, share includes a convertible note.
Use in sections CE 2 to CE 4 and CE 7 For the purposes of sections CE 2 to CE 4and CE 7,— (1) (2) 260 Reprinted as at 30 August 2013 Income Tax Act 2007 Part C s CE 8 (a) (b) shares are treated as having been acquired on the date on which the right or option to buy them is exercised; and 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 Attributed income CE 8 Attributed income from personal services (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 8 261 Part C s CE 9 Income Tax Act 2007 Reprinted as at 30 August 2013 Restrictive covenants and exit inducement payments CE 9 Restrictive covenants When this section applies This section applies when— (a) 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.
(b) (b) (c) (d) 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.
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, (1) (2) (3) (4) 262 Reprinted as at 30 August 2013 Income Tax Act 2007 Part C s CE 11 (5) (6) whether the company referred to in paragraph (a)(i) or the company referred to in paragraph (a)(ii).
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) 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 (2) An amount that is or would be derived under the policy is in- come of the person.
Deﬁned in this Act: amount, employee, employer, income, pay Compare: 2004 No 35 s CE 11 263 Part C s CE 12 Income Tax Act 2007 Reprinted as at 30 August 2013 Tax credits CE 12 Tax credits for personal service rehabilitation payments (1) 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 (2) 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 Contents CF 1 Beneﬁts, pensions, compensation, and government grants CF 2 Remission of speciﬁed suspensory loans Page 264 267 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) (1) 264 Reprinted as at 30 August 2013 Income Tax Act 2007 Part C s CF 1 (2) Some deﬁnitions In this section,— accident compensation payment means— (a) (b) (c) (d) (e) (f) (g) 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: 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 Accident 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 Accident Com- pensation Act 2001 paid by the Corporation as deﬁned 265 Part C s CF 1 Income Tax Act 2007 Reprinted as at 30 August 2013 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 Accident
 Compensation Act 2001 (h) 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)(f) accident compensation payment: amended, on 21 Decem- ber 2010, by section 189 of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).

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: amended, on 21 Decem- ber 2010, by section 189 of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).

266 Reprinted as at 30 August 2013 Income Tax Act 2007 Part C s CF 2 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(2)(h) accident compensation payment: amended, on 21 Decem- ber 2010, by section 189 of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).

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).
CF 2 Remission of speciﬁed suspensory loans (1) 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 (2) An amount remitted on the speciﬁed suspensory loan is in- come of the person.

(3) (4) 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 Contents CG 1 Amount of depreciation recovery income CG 2 Remitted amounts CG 3 Bad debt repayment Page 268 268 269 267 Part C s CG 1 Income Tax Act 2007 Reprinted as at 30 August 2013 CG 4 Receipts for expenditure or loss from insurance, 269 indemnity, or otherwise CG 5 Recoveries or receipts by employers from superannuation 270 schemes CG 5B Receipts from insurance, indemnity, or compensation for interruption or impairment of business activities CG 6 Receipts from insurance, indemnity, or compensation for trading stock CG 7 Recoveries after deduction of payments under lease CG 8 Capital contributions 271 271 272 273 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 When this section applies This section applies when— (a) (b) (c) (d) 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 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.
How remission or cancellation occurs Remission or cancellation occurs, for the purposes of this sec- tion, in 1 of the following ways: (1) (2) (3) (4) 268 Reprinted as at 30 August 2013 Income Tax Act 2007 Part C s CG 4 (a) (b) 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 Receipts for expenditure or loss from insurance, indemnity, or otherwise (1) (2) (3) When this section applies This section applies when— (a) a person is allowed a deduction for expenditure or loss; and the person derives an amount relating to the expenditure or loss, whether through insurance, indemnity, or other- wise; and the amount, to the extent of the deduction, is not income of the person under any other provision of this Act.
(b) (c) Income The amount derived is, to the extent of the deduction, income of the person.

Timing of income The income is allocated to the later of— 269 Part C s CG 5 Income Tax Act 2007 Reprinted as at 30 August 2013 (a) the income year in which the expenditure or loss is in- curred: the income year in which the amount is derived.
(b) Deﬁned in this Act: amount, deduction, income year, loss Section CG 4: replaced (with effect on 4 September 2010), on 2 November 2012, by section 12(1) of the Taxation (Annual Rates, Returns Filing, and Re- medial Matters) Act 2012 (2012 No 88).
CG 5 Recoveries or receipts by employers from superannuation schemes 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) Income The amount recovered or received is, to the extent of the de- duction, income of the employer.

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 (1) (2) (3) 270 Reprinted as at 30 August 2013 Income Tax Act 2007 Part C s CG 6 CG 5B Receipts from insurance, indemnity, or compensation for interruption or impairment of business activities (1) (2) (3) When this section applies This section applies when a person receives an amount of in- surance, indemnity, or compensation for an interruption or im- pairment of business activities resulting from an event.
Income The part of the insurance, indemnity, or compensation at- tributable to income (the replaced income) that the person would have derived if not for the event is income of the person.

Timing of income The income is allocated to the later of— (a) (b) the income year to which the replaced income relates: the earlier of— (i) (ii) the income year in which the amount is received: the income year in which the amount is reason- ably able to be estimated.
Deﬁned in this Act: amount, business, income, income year Section CG 5B: inserted (with effect on 4 September 2010), on 29 August 2011, by section 5 of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).

Section CG 5B(2): amended (with effect on 4 September 2010), on 2 Novem- ber 2012, by section 13(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section CG 5B(3): replaced (with effect on 4 September 2010), on 2 Novem- ber 2012, by section 13(2) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
CG 6 Receipts from insurance, indemnity, or compensation for trading stock (1) 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.
271 Part C s CG 7 Income Tax Act 2007 Reprinted as at 30 August 2013 (2) (3) 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) (iii) a temporary building; and 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.
(b) (c) 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).

(1) (2) (3) 272 Reprinted as at 30 August 2013 Income Tax Act 2007 Part C s CG 8 (4) 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) CG 8 Capital contributions (1) (2) (3) (4) When this section applies This section applies for the income year (the ﬁrst year) in which a person derives a capital contribution and for the 9 income years after that ﬁrst year.

Income For an income year, the amount given by the following formula is income of the person derived in that income year: capital contribution 10.
Deﬁnition of item in formula In the formula, capital contribution is the capital contribution that the person derives in the ﬁrst year.

Exception This section does not apply for the capital contribution if the person has chosen, in accordance with section DB 64(1)(c) (Capital contributions), to apply section DB 64 instead.
Deﬁned in this Act: amount, capital contribution, income, income year, return of income Section CG 8: added (with effect on 20 May 2010), on 28 May 2010 (applying for capital contributions derived after 20 May 2010), by section 75(1) of the Taxation (Budget Measures) Act 2010 (2010 No 27).
Subpart CH—Adjustments Contents Matching rules: revenue account property, prepayments, and deferred payments CH 1 Adjustment for closing values of trading stock, livestock, 274 and excepted ﬁnancial arrangements Page 273 Part C s CH 1 Income Tax Act 2007 Reprinted as at 30 August 2013 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 Interest apportionment on thin capitalisation Interest apportionment: excess debt entity CH 9 CH 10 Interest apportionment: reporting bank 275 275 276 276 277 277 278 278 278 Matching rules: revenue account property, prepayments, and deferred payments CH 1 Adjustment for closing 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 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): 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) (1) 274 Reprinted as at 30 August 2013 Income Tax Act 2007 Part C s CH 3 (2) (3) (4) 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 (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 that is to be treated as income in an income year.

275 Part C s CH 4 Income Tax Act 2007 Reprinted as at 30 August 2013 (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) 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 practice), an amount owing to them or an amount owed by them as quantiﬁed in those paragraphs.
Income (2) 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 Income (1) An adjustment taken into account under section 20(3)(e) 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 adjustment made in relation to a capital asset.
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 Compare: 2004 No 35 s CH 5 Section CH 5(1): amended, on 1 April 2011 (applying to taxable supplies made on or after 1 April 2011), by section 31(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section CH 5(2): substituted, on 1 April 2011 (applying to taxable supplies made on or after 1 April 2011), by section 31(2) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).

(2) (3) 276 Reprinted as at 30 August 2013 Income Tax Act 2007 Part C s CH 7 Section CH 5(3) list of deﬁned terms taxable supply: repealed, on 1 April 2011, by section 31(3) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
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 ar- rangements).
(d) (e) Deﬁned in this Act: amount, arrangement, Commissioner, income, relative 277 Part C s CH 8 Income Tax Act 2007 Reprinted as at 30 August 2013 CH 8 Market value substituted Transfer pricing arrangements (1) 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 (2) A person may be treated as deriving an amount— (a) (b) 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).
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 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) (1) (2) 278 Reprinted as at 30 August 2013 Income Tax Act 2007 Part C s CP 1 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).
Contents CO 1 Income from voluntary activities Page 279 CO 1 Income from voluntary activities Income (1) An amount derived by a person in undertaking a voluntary activity is income of the person.

(2) 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 Contents CP 1 Attributed income of investors in multi-rate PIEs Page 279 CP 1 Attributed income of investors in multi-rate PIEs (1) When this section applies This section applies when a multi-rate PIE attributes an amount of income for an income year calculated under sec- tions HM 35, HM 35C, and HM 36 (which relate to the attribution of amounts to investors) to a person who is an investor in the PIE.
279 Income Tax Act 2007 Reprinted as at 30 August 2013 (2) Income The amount is income of the person in the income year of the person in which the PIE’s income year ends.

Deﬁned in this Act: amount, income, income year, investor, multi-rate PIE, PIE Compare: 2007 No 97 s CP 1 Section CP 1: substituted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 28(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section CP 1(1): amended, on 29 August 2011, by section 6 of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Subpart CQ—Attributed income from foreign equity Contents 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 Foreign investment fund income CQ 4 CQ 5 When FIF income arises CQ 6 Calculation of FIF income CQ 7 Treatment of attributing interests subject to returning share transfer [Repealed] Page 280 281 284 284 284 289 290 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 1 280 Reprinted as at 30 August 2013 Income Tax Act 2007 Part C s CQ 2 CQ 2 When attributed CFC income arises General rule (1) A person has attributed CFC income from a foreign company 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 is not a portfolio investment entity; 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) (bb) (c) (d) (e) (f) (g) (h) (i) Special rule: branch equivalent FIF with taxable distribution (2) A person also has attributed CFC income if section EX 50(5) (Attributable FIF income method) applies because— 281 Part C s CQ 2 Income Tax Act 2007 Reprinted as at 30 August 2013 (2B) (a) (b) (c) the person has an attributing interest in a foreign invest- ment fund (FIF); and the person is using the attributable FIF income method to calculate 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 (3) 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, attributable FIF income method, attributed repatriation, attribut- ing interest, 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, portfolio investment entity, taxable distribution, transitional resident Compare: 2004 No 35 s CQ 2 Section CQ 2(1)(bb): inserted (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 7(1) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
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).
(4) 282 Reprinted as at 30 August 2013 Income Tax Act 2007 Part C s CQ 2 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).

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(2): amended (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 7(2) of the Tax- ation (International Investment and Remedial Matters) Act 2012 (2012 No 34).

Section CQ 2(2)(b): amended (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 7(3) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 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 attributable FIF income method: inserted (with effect on 1 July 2011), on 7 May 2012, by section 7(4)(b) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 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 branch equivalent method: repealed (with effect on 1 July 2011), on 7 May 2012, by section 7(4)(a) of the Taxation (Inter- national Investment and Remedial Matters) Act 2012 (2012 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).
283 Part C s CQ 3 Income Tax Act 2007 Reprinted as at 30 August 2013 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).
Section CQ 2 list of deﬁned terms portfolio investment entity: inserted (with effect on 1 July 2011), on 7 May 2012, by section 7(4)(b) of the Taxation (Inter- national Investment and Remedial Matters) Act 2012 (2012 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 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 (1) A person has FIF income in an income year if— 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) 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): (a) (b) (c) 284 Reprinted as at 30 August 2013 Income Tax Act 2007 Part C s CQ 5 (ii) (iii) (iv) (v) (vi) (vii) 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 in section EX 35 (Exemption for interest in FIF resident in Australia): 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 ex- emption): (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) 285 Part C s CQ 5 Income Tax Act 2007 Reprinted as at 30 August 2013 (xiv) (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 exception): an exemption given by sections EX 50, EX 18A(2)(b)(i), and EX 21B (which relate to the attributable FIF income method and FIFs corresponding to non-attributing active CFCs); and (xv) if the person is a natural person and not acting as a trustee,— (i) (d) (e) (ii) (iii) 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: the person includes, in a return for the year, FIF income or loss from an attributing interest in a FIF: the person has, in the return for 1 of the preceding 4 income years (the earlier year), included FIF income or loss from attributing interests in FIFs with a total cost of $50,000 or less, calculated under section EX 68, at all times in the earlier year when the person is a New Zealand resident; and if the person is acting as trustee of a trust that meets the requirements of subsection (5),— (i) 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: the person includes, in a return for the year, FIF income or loss from an attributing interest in
 a FIF: the person has, in the return for 1 of the preceding 4 income years (the earlier year), included FIF (ii) (iii) 286 Reprinted as at 30 August 2013 Income Tax Act 2007 Part C s CQ 5 (f) (g) income or loss from attributing interests in FIFs with a total cost of $50,000 or less, calculated under section EX 68, at all times in the earlier year; 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 per- son, an income amount is calculated for the year 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 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 (2) Despite subsection (1), if the calculation method is the at- tributable FIF income method,— (a) (b) 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.
(3) 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).
287 Part C s CQ 5 Income Tax Act 2007 Reprinted as at 30 August 2013 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.
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, amount, associated person, attributable FIF income method, attributing interest, calculation method, CFC, FIF, FIF income, foreign company, foreign superannuation scheme, grey list, grey list company, income, income interest, income year, life insurance policy, loss, 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)(c)(v): replaced (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 8(1) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section CQ 5(1)(c)(xiv): amended (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 8(2) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).

Section CQ 5(1)(c)(xv): inserted (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 8(2) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
(4) (5) 288 Reprinted as at 30 August 2013 Income Tax Act 2007 Part C s CQ 6 Section CQ 5(1)(d): replaced (with effect on 1 July 2011 and applying for in- come years beginning on or after that date), on 7 May 2012, by section 8(3) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section CQ 5(1)(e): replaced (with effect on 1 July 2011 and applying for in- come years beginning on or after that date), on 7 May 2012, by section 8(3) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).

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(2): amended (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 8(4) of the Tax- ation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
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 accounting proﬁts method: repealed (with effect on 1 July 2011), on 7 May 2012, by section 8(5)(a) of the Taxation (Inter- national Investment and Remedial Matters) Act 2012 (2012 No 34).

Section CQ 5 list of deﬁned terms attributable FIF income method: inserted (with effect on 1 July 2011), on 7 May 2012, by section 8(5)(b) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section CQ 5 list of deﬁned terms branch equivalent method: repealed (with effect on 1 July 2011), on 7 May 2012, by section 8(5)(a) of the Taxation (Inter- national Investment and Remedial Matters) Act 2012 (2012 No 34).

Section CQ 5 list of deﬁned terms loss: inserted (with effect on 1 July 2011), on 7 May 2012, by section 8(5)(b) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 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- 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 6 289 Part C s CQ 7 Income Tax Act 2007 Reprinted as at 30 August 2013 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).
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).
Contents CR 1 CR 2 CR 3 CR 4 Policyholder base income of life insurer Shareholder base income of life insurer Income of non-resident general insurer Income for general insurance outstanding claims reserve Page 290 290 291 292 CR 1 Policyholder base income of life insurer If, but for this section, a life insurer has an amount of policy- holder base income for an income year, and that amount is not income under this Part, the amount is income of the life insurer for the income year.
Deﬁned in this Act: amount, income, income year, life insurer, policyholder base income Section CR 1: substituted, on 1 July 2010, by section 33(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

CR 2 Shareholder base income of life insurer If, but for this section, a life insurer has an amount of share- holder base income for an income year, and that amount is not income under this Part, the amount is income of the life insurer for the income year.
Deﬁned in this Act: amount, income, income year, life insurer, shareholder base income Section CR 2: substituted, on 1 July 2010, by section 33(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
290 Reprinted as at 30 August 2013 Income Tax Act 2007 Part C s CR 3 CR 3 Income of non-resident general insurer (1) (2) (3) What this section applies to This section applies to a premium that is treated as having a source in New Zealand under section YD 8 (Apportionment of premiums 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.
291 Part C s CR 4 Income Tax Act 2007 Reprinted as at 30 August 2013 (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, ﬁxed establishment, general insurance, gross, income, insurance, insurance contract, insured person, insurer, money lent, New Zealand, non-resident, offered or entered into in New Zealand, pay, premium, resident in New Zealand, source in New Zealand Compare: 2004 No 35 ss FC 13, FC 14(2) Section CR 3(1): amended, on 21 December 2010, by section 32(1) of the Tax- ation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section CR 3 list of deﬁned terms derived from New Zealand: repealed, on 21 December 2010, by section 32(2)(a) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).

Section CR 3 list of deﬁned terms source in New Zealand: inserted, on 21 De- cember 2010, by section 32(2)(b) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
CR 4 Income for general insurance outstanding claims reserve 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) (1) 292 (2) (3) Reprinted as at 30 August 2013 Income Tax Act 2007 Part C s CR 4 (b) general insurance contracts, excluding contracts having premiums to which section CR 3 (Income of non-resi- dent general insurer) applies.
When this section does not apply (1B) This section does not apply for contracts that section DZ 10 (General insurance with risk period straddling 1 July 1993) applies to.

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— opening outstanding claims reserve closing outstanding claims reserve.
Deﬁnition of items in formula In the formula,— (a) (ii) opening outstanding claims reserve is— (i) 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, IFRS 4, income, income year, insurer, life insurer, outstanding claims reserve, premium 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).
Section CR 4(1B) heading: inserted (with effect on 1 April 2008 and apply- ing for the 2008–09 income year and later income years), on 17 July 2013, by section 11(1) of the Taxation (Livestock Valuation, Assets Expenditure, and Re- medial Matters) Act 2013 (2013 No 52).
Section CR 4(1B): inserted (with effect on 1 April 2008 and applying for the 2008–09 income year and later income years), on 17 July 2013, by section 11(2) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Mat- ters) Act 2013 (2013 No 52).
293 Income Tax Act 2007 Reprinted as at 30 August 2013 Section CR 4 list of deﬁned terms general insurance contract: repealed (with effect on 1 April 2008), on 7 September 2010, by section 11(b) of the Taxa- tion (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remed- ial Matters) Act 2010 (2010 No 109).
Section CR 4 list of deﬁned terms premium: added (with effect on 1 April 2008), on 7 September 2010, by section 11(a) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).

Subpart CS—Superannuation funds [Repealed] Subpart CS: repealed, on 1 April 2011, by section 12 of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
Contents Withdrawals [Repealed] CS 1 Withdrawals [Repealed] Exclusions [Repealed] CS 4 CS 5 CS 2 CS 3 Exclusions of withdrawals of various kinds [Repealed] Exclusion of withdrawal on grounds of hardship [Repealed] Exclusion of withdrawal to settle division of relationship property [Repealed] Exclusion of withdrawal paid as annuity or pension [Repealed] Exclusion of withdrawal on partial retirement [Repealed] Exclusion of withdrawal when member ends employment [Repealed] Exclusion of withdrawal when member ends employment: lock-in rule [Repealed] Exclusion of withdrawal from deﬁned beneﬁt fund when member ends employment [Repealed] CS 10 When member treated as not ending CS 6 CS 7 CS 9 CS 8 employment [Repealed] CS 10B Exclusion of permitted withdrawals from KiwiSaver schemes and complying superannuation funds [Repealed] 294 Page 295 296 296 296 296 296 296 297 297 297 297 Reprinted as at 30 August 2013 Income Tax Act 2007 Part C s CS 1 Transfers to or from superannuation funds and superannuation schemes [Repealed] CS 11 Transfer by superannuation fund to another superannuation 297 fund [Repealed] CS 12 Transfer from superannuation scheme to superannuation fund [Repealed] CS 13 Investment by superannuation fund in another superannuation fund [Repealed] Treatment of amounts when superannuation fund becomes superannuation scheme or vice versa [Repealed] CS 14 Superannuation fund becomes superannuation scheme [Repealed] CS 15 Superannuation fund becomes foreign superannuation scheme [Repealed] CS 16 Superannuation scheme becomes superannuation fund [Repealed] Treatment of distributions when superannuation fund wound up [Repealed] CS 17 Superannuation fund wound up [Repealed] Treatment of loans to members [Repealed] CS 18 Value of loan treated as fund income [Repealed] 298 298 298 298 298 299 299 Withdrawals [Repealed] Heading: repealed, on 1 April 2011, by section 12 of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
CS 1 Withdrawals [Repealed] Section CS 1: repealed, on 1 April 2011, by section 12 of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).

295 Part C s CS 2 Income Tax Act 2007 Reprinted as at 30 August 2013 Exclusions [Repealed] Heading: repealed, on 1 April 2011, by section 12 of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
CS 2 Exclusions of withdrawals of various kinds [Repealed] Section CS 2: repealed, on 1 April 2011, by section 12 of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).

CS 3 Exclusion of withdrawal on grounds of hardship [Repealed] Section CS 3: repealed, on 1 April 2011, by section 12 of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
CS 4 Exclusion of withdrawal to settle division of relationship property [Repealed] Section CS 4: repealed, on 1 April 2011, by section 12 of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).

CS 5 Exclusion of withdrawal paid as annuity or pension [Repealed] Section CS 5: repealed, on 1 April 2011, by section 12 of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
CS 6 Exclusion of withdrawal on partial retirement [Repealed] Section CS 6: repealed, on 1 April 2011, by section 12 of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).

CS 7 Exclusion of withdrawal when member ends employment [Repealed] Section CS 7: repealed, on 1 April 2011, by section 12 of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
296 Reprinted as at 30 August 2013 Income Tax Act 2007 Part C s CS 11 CS 8 Exclusion of withdrawal when member ends employment: lock-in rule [Repealed] Section CS 8: repealed, on 1 April 2011, by section 12 of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
CS 9 Exclusion of withdrawal from deﬁned beneﬁt fund when member ends employment [Repealed] Section CS 9: repealed, on 1 April 2011, by section 12 of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).

CS 10 When member treated as not ending employment [Repealed] Section CS 10: repealed, on 1 April 2011, by section 12 of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
CS 10B Exclusion of permitted withdrawals from KiwiSaver schemes and complying superannuation funds [Repealed] Section CS 10B: repealed, on 1 April 2011, by section 12 of the Taxation (An- nual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Mat- ters) Act 2010 (2010 No 109).
Transfers to or from superannuation funds and superannuation schemes [Repealed] Heading: repealed, on 1 April 2011, by section 12 of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).

CS 11 Transfer by superannuation fund to another superannuation fund [Repealed] Section CS 11: repealed, on 1 April 2011, by section 12 of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
297 Part C s CS 12 Income Tax Act 2007 Reprinted as at 30 August 2013 CS 12 Transfer from superannuation scheme to superannuation fund [Repealed] Section CS 12: repealed, on 1 April 2011, by section 12 of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
CS 13 Investment by superannuation fund in another superannuation fund [Repealed] Section CS 13: repealed, on 1 April 2011, by section 12 of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
Treatment of amounts when superannuation fund becomes superannuation scheme or vice versa [Repealed] Heading: repealed, on 1 April 2011, by section 12 of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
CS 14 Superannuation fund becomes superannuation scheme [Repealed] Section CS 14: repealed, on 1 April 2011, by section 12 of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).

CS 15 Superannuation fund becomes foreign superannuation scheme [Repealed] Section CS 15: repealed, on 1 April 2011, by section 12 of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
CS 16 Superannuation scheme becomes superannuation fund [Repealed] Section CS 16: repealed, on 1 April 2011, by section 12 of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
298 Reprinted as at 30 August 2013 Income Tax Act 2007 Part C s CS 18 Treatment of distributions when superannuation fund wound up [Repealed] Heading: repealed, on 1 April 2011, by section 12 of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
CS 17 Superannuation fund wound up [Repealed] Section CS 17: repealed, on 1 April 2011, by section 12 of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).

Treatment of loans to members [Repealed] Heading: repealed, on 1 April 2011, by section 12 of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
CS 18 Value of loan treated as fund income [Repealed] Section CS 18: repealed, on 1 April 2011, by section 12 of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
Subpart CT—Income from petroleum mining Contents CT 1 Disposal of exploratory material or petroleum mining asset CT 2 Damage to assets CT 3 CT 4 CT 5 Exploratory well used for commercial production Partnership interests and disposal of part of asset Petroleum mining operations outside New Zealand CT 6 Meaning of petroleum miner CT 6B Meaning of petroleum mining operations Deﬁnitions Page 300 300 300 301 302 302 303 299 Part C s CT 1 Income Tax Act 2007 Reprinted as at 30 August 2013 CT 7 Meaning of petroleum mining asset 304 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 dispos- ing 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 (1) 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.

Income (2) 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: (3) 300 Reprinted as at 30 August 2013 Income Tax Act 2007 Part C s CT 4 (a) (b) (c) 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.
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 (4) (5) CT 4 Partnership interests and disposal of part of asset In this subpart, and in sections CX 42 (Disposal of ownership 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: 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 (b) 301 Part C s CT 5 Income Tax Act 2007 Reprinted as at 30 August 2013 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 [Repealed] [Repealed] Deﬁned in this Act: consideration, permit area, petroleum, petroleum miner, petroleum mining operations, petroleum permit Compare: 2004 No 35 s CT 6 (1) (2) (3) (4) 302 Reprinted as at 30 August 2013 Income Tax Act 2007 Part C s CT 6B 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) (3) 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) 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) by liquefaction or compression; or for the extraction of constituent products; or (b) 303 Part C s CT 7 Income Tax Act 2007 Reprinted as at 30 August 2013 for the production of derivative products; and (iii) (c) it is not treatment at the production facilities.
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 petroleum permit: (a) an asset that— (b) (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: (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) by liquefaction or compression; or for the extraction of constituent products; or (b) (1) (2) (3) (4) 304 Reprinted as at 30 August 2013 Income Tax Act 2007 Part C s CT 7 for the production of derivative products; and (iii) it is not treatment at the production facilities.
(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 Contents CU 1 Mining company’s 2 kinds of income Introductory provision 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 Page 306 306 308 309 310 311 311 312 313 313 314 315 315 316 317 318 319 319 320 322 305 Part C s CU 1 Income Tax Act 2007 Reprinted as at 30 August 2013 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 323 323 324 326 326 327 328 329 330 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 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.
Income classiﬁed For the income year in which the mining company disposes of the products, the Commissioner must classify the mining (1) (2) 306 Reprinted as at 30 August 2013 Income Tax Act 2007 Part C s CU 2 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).
(3) (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 the mining operations or the combination of mining operations and associated mining operations.
(b) 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 2 307 Part C s CU 3 Income Tax Act 2007 Reprinted as at 30 August 2013 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 re- ceive, 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 pass- ing 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) 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- (1) (2) (3) (4) 308 Reprinted as at 30 August 2013 Income Tax Act 2007 Part C s CU 4 (5) (6) 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) (7) 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 CU 4 Compensation for lost, destroyed, or damaged assets When sections CU 5 to CU 8 apply Sections CU 5 to CU 8 apply when— (1) 309 Part C s CU 5 Income Tax Act 2007 Reprinted as at 30 August 2013 (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 12(1)(a) section DZ 1954–2005); and (Mineral mining: (ii) 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) (2) 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 mining, mining company, mining development expenditure, mining exploration expend- iture, 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 the amount, if any, payable to the company for the dis- posal of any scrap of the asset.
(b) 310 Reprinted as at 30 August 2013 Income Tax Act 2007 Part C s CU 7 (2) (3) 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 311 Part C s CU 8 Income Tax Act 2007 Reprinted as at 30 August 2013 (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 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) (1) (2) (3) (4) 312 Reprinted as at 30 August 2013 Income Tax Act 2007 Part C s CU 10 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 Income (1) 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.
(2) 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 (3) 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) 313 Part C s CU 11 Income Tax Act 2007 Reprinted as at 30 August 2013 (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 (2) 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.

(3) Timing of income The income is allocated to the income year in which each ﬁrst day falls.
Company stops mining (4) 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 CU 11 Meaning of asset for sections CU 3 to CU 10 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 (1) 314 Reprinted as at 30 August 2013 Income Tax Act 2007 Part C s CU 13 (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 (1) 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 315 Part C s CU 14 Income Tax Act 2007 Reprinted as at 30 August 2013 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 mining 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.
316 Reprinted as at 30 August 2013 Income Tax Act 2007 Part C s CU 15 (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 (1) (2) (3) (4) (5) (6) 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 (b) will not be used for mining purposes in the prescribed period.
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.

317 Part C s CU 16 Income Tax Act 2007 Reprinted as at 30 August 2013 (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 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— reinvestment proﬁt amount loan amount × repayment.

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.
(1) (2) (3) (4) (5) 318 Reprinted as at 30 August 2013 Income Tax Act 2007 Part C s CU 18 (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 (1) 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 319 Part C s CU 19 Income Tax Act 2007 Reprinted as at 30 August 2013 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 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) 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.
(1) (2) 320 Reprinted as at 30 August 2013 Income Tax Act 2007 Part C s CU 19 (3) (4) (5) (6) 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) 321 Part C s CU 20 Income Tax Act 2007 Reprinted as at 30 August 2013 (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 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 (1) (2) 322 Reprinted as at 30 August 2013 Income Tax Act 2007 Part C s CU 22 CU 21 Meaning of income from mining Deﬁnitions (1) (2) Meaning Income from mining means the part of the income of a mining company that is derived in an income year from the company’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) 323 Part C s CU 23 Income Tax Act 2007 Reprinted as at 30 August 2013 (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.
Service for reward (4) 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) 324 Reprinted as at 30 August 2013 Income Tax Act 2007 Part C s CU 23 (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.
(4) 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 venture, non-resident mining operator, resident mining operator Compare: 2004 No 35 s CU 23 325 Part C s CU 24 Income Tax Act 2007 Reprinted as at 30 August 2013 CU 24 Meaning of mining exploration expenditure Meaning (1) 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— 326 Reprinted as at 30 August 2013 Income Tax Act 2007 Part C s CU 26 (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 2(1) 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) 327 Part C s CU 27 Income Tax Act 2007 Reprinted as at 30 August 2013 Service for reward (2) 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) (3) 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 Section CU 26(1)(a)(iii): amended, on 24 May 2013, by section 65 of the Crown Minerals Amendment Act 2013 (2013 No 14).
CU 27 Meaning of resident mining operator Meaning (a) (b) (1) Resident mining operator means a person who— 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) (ii) 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.
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 (2) 328 Reprinted as at 30 August 2013 Income Tax Act 2007 Part C s CU 28 1991 or under an existing privilege as deﬁned in section 2(1) of that Act.
Service for reward (3) 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 Section CU 27(2)(c): amended, on 24 May 2013, by section 65 of the Crown Minerals Amendment Act 2013 (2013 No 14).
CU 28 Meaning of speciﬁed mineral (1) 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) 329 Part C s CU 29 Income Tax Act 2007 Reprinted as at 30 August 2013 (2) 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) (b) in the industrial development of New Zealand: 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 (iii) does not include— (i) calcining or sintering; or (b) 330 Reprinted as at 30 August 2013 Income Tax Act 2007 Part C s CU 29 (ii) 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 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 min- ing 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, privil- ege, 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 331 Part C s CU 29 Income Tax Act 2007 Reprinted as at 30 August 2013 (d) making, to a mining holding company, loans that are to be used— (i) (ii) to ﬁnance a mining company’s mining ex- ploration expenditure or mining development expenditure; or 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 29 332 Reprinted as at 30 August 2013 Income Tax Act 2007 Part C s CV 1 Subpart CV—Income speciﬁc to certain entities Contents 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 CV 10 Foreign dividend payment account companies or conduit Supplementary dividend holding companies 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 [Repealed] CV 18 Hedging of currency movements in Australian non-attributing shares and attributing FDR method interests Page 333 334 334 335 335 335 336 336 337 337 338 338 338 339 339 339 340 340 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 333 Part C s CV 2 Income Tax Act 2007 Reprinted as at 30 August 2013 (b) had the group of companies been a single company, the amount would have been income of that single com- pany.
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.
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) (1) (2) 334 Reprinted as at 30 August 2013 Income Tax Act 2007 Part C s CV 6 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 Income (1) An amount that a Crown Research Institute derives is income of the institute if the amount is provided to the institute for the purposes of— (a) any 1 or more of the activities listed in section 7 of the Research, Science, and Technology Act 2010; or producing outputs relating to public good science and technology.
(b) (2) Meaning In this section, public good science and technology means science or technology— (a) that is likely to increase knowledge or understanding of the physical, biological, or social environment; or that is likely to develop, maintain, or increase skills or scientiﬁc or technological expertise that is of particular importance to New Zealand; or (b) 335 Part C s CV 7 Income Tax Act 2007 Reprinted as at 30 August 2013 (c) that may be of beneﬁt to New Zealand, but is unlikely to be funded, or adequately funded, from non-govern- mental sources.
Deﬁned in this Act: amount, Crown Research Institute, income Compare: 2004 No 35 s CV 2 Section CV 6: substituted, on 1 February 2011, by section 18 of the Research, Science, and Technology Act 2010 (2010 No 131).

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 (1) 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 relat- ing 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 (2) An Order in Council under subsection (1)— (a) has force and effect despite any provision in this Act or any other Inland Revenue Act: 336 Reprinted as at 30 August 2013 Income Tax Act 2007 Part C s CV 10 (3) (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 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).
337 Part C s CV 11 Income Tax Act 2007 Reprinted as at 30 August 2013 CV 11 Maori authorities Income (1) 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) (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 (b) 338 Reprinted as at 30 August 2013 Income Tax Act 2007 Part C s CV 16 (c) a taxable distribution from a foreign trust to which sec- tion HC 18 (Taxable distributions from foreign trusts) applies.
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) 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) 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.

339 Part C s CV 17 Income Tax Act 2007 Reprinted as at 30 August 2013 Exemption (3) 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.
(4) 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 CV 17 Non-resident ﬁlm renters [Repealed] Section CV 17: repealed, on 2 November 2012, by section 14 of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
CV 18 Hedging of currency movements in Australian non-attributing shares and attributing FDR method interests The amount of income that a person has under section EM 6 (Income and expenditure for fair dividend rate hedge portions) is income of the person.

Deﬁned in this Act: amount, income Section CV 18: inserted, on 17 July 2013, by section 12 of the Taxation (Live- stock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Subpart CW—Exempt income Contents Income from business or trade-like activities CW 1 Forestry companies established by the Crown, Maori 343 owners, and holding companies buying land with standing timber from founders Page 340 Reprinted as at 30 August 2013 Income Tax Act 2007 Part C s CV 18 CW 1B Treaty of Waitangi claim settlements: rights to take timber 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 CW 8B Certain amounts derived from use of assets Income from equity CW 9 Dividend derived from foreign company CW 10 Dividend within New Zealand wholly-owned group CW 11 Dividend of conduit tax relief holding company [Repealed] 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 CW 16 Allowance of Governor-General and other beneﬁts and Employee or contractor income privileges 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 344 345 345 346 346 347 347 347 348 349 349 351 352 352 358 360 361 361 362 363 364 366 367 368 369 370 372 373 341
 Income Tax Act 2007 Reprinted as at 30 August 2013 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 29B Amounts from Australian complying superannuation schemes reinvested in KiwiSaver schemes 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 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 55BB Minors’ income, to limited extent Reprinted as at 30 August 2013 Income Tax Act 2007 Part C s CW 1 Partners and partnerships CW 55B Amounts of exempt income for partners 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 59C Life reinsurance outside New Zealand 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 396 397 398 398 399 400 401 401 401 402 402 403 404 Restructuring under New Zealand Railways Corporation Restructuring Act 1990 CW 65 New Zealand Railways Corporation restructure: exempt 404 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 (1) (2) 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),— (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: 343 Part C s CW 1B Income Tax Act 2007 Reprinted as at 30 August 2013 (3) (4) (b) 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 CW 1B Treaty of Waitangi claim settlements: rights to take timber (1) When this section applies This section applies when a person’s right to take timber (the old right) is extinguished, and new rights (the new rights) to take timber are granted to the person in place of the old right, if— (a) the sole reason for the new rights replacing the old right is to facilitate a Treaty of Waitangi claim settlement process; and the rights and obligations of the new rights are equiva- lent to the old right, ignoring differences that are solely for the reason in paragraph (a).
(b) Exempt income (2) An amount under section CB 24(1)(b) (Disposal of timber or right to take timber) for the extinguishing of the old right, or for the granting of the new rights, is exempt income of the relevant person.

The amount is not income under that section.

Exception Subsection (2) does not apply to an amount to the extent it is compensation paid, for the new rights replacing the old right, to the person who is granted the new rights.
(3) 344 Reprinted as at 30 August 2013 Income Tax Act 2007 Part C s CW 3 (4) Relationship with section DP 9B Section DP 9B (Treaty of Waitangi claim settlements: rights to take timber) deals with the cost of the new rights for the person who is granted them.

Deﬁned in this Act: amount, exempt income, income, pay, person, right to take timber Section CW 1B: inserted (with effect on 1 April 2008), on 29 August 2011, by section 7 of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
CW 2 Forestry encouragement agreements (1) 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 (2) 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.
(3) (4) 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 the person is relieved from some or all of their liability to pay the interest.
(b) (c) (d) 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) When this section applies This section applies when a forestry company or a Maori in- vestment company issues a qualifying debenture.
345 Part C s CW 3B Income Tax Act 2007 Reprinted as at 30 August 2013 (2) 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).
Income from holding property (excluding equity) CW 4 Annuities under life insurance policies (1) 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.


(2) Excluded annuities (3) 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 4 346 Reprinted as at 30 August 2013 Income Tax Act 2007 Part C s CW 7 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) Relationship with sections LZ 6 to LZ 8 (3) A person who derives interest that is exempt income under this section is not entitled to a tax credit for the interest under 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 outside New Zealand is exempt income if— 347 Part C s CW 8 Income Tax Act 2007 Reprinted as at 30 August 2013 (a) (b) 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.
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,— it is lent for the purposes of a non-commercial (i) 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.
(ii) (c) 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 (1) (2) 348 Reprinted as at 30 August 2013 Income Tax Act 2007 Part C s CW 9 CW 8B Certain amounts derived from use of assets (1) (2) When this section applies This section applies when a person derives income from the use of an asset described in section DG 3 (Meaning of asset for this subpart).
When person opts out of assets expenditure rules Income that the person derives from the use of the asset is exempt income if— (a) they meet the requirements of section DG 21 (Opting out of treatment under this subpart); and they choose under that section to treat the income as exempt income.
(b) Below-market use and use by associates (3) An amount of income that the person derives in relation to the private use of an asset as described in section DG 4(1) (Meaning of private use for this subpart) is exempt income.
Deﬁned in this Act: amount, asset, exempt income, income Section CW 8B: inserted (with effect on 1 April 2013 and applying for the 2013–14 and later income years for an item of property referred to in section DG 3(2)(a)(i), and for the 2014–15 and later income years for an item of prop- erty referred to in section DG 3(2)(a)(ii) and (iii)), on 17 July 2013, by section 13(1) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Income from equity CW 9 Dividend derived from foreign company Exempt income (1) A dividend from a foreign company is exempt income if de- rived by a company that is resident in New Zealand.
(2) 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 that meets the requirements of neither section EX 34 (CFC rules exemption) nor sec- tion EX 35 (Exemption for interest in FIF resident in Australia) and is excluded from being an attributing in- terest by— (i) section EX 31 (Exemption for ASX-listed Aus- tralian companies): 349 Part C s CW 9 Income Tax Act 2007 Reprinted as at 30 August 2013 (ii) (iii) (iv) (v) (vi) 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.
Non-application to certain dividends This section does not apply to a dividend— (a) (b) derived by a portfolio investment entity: excluded by section CD 36(2) (Foreign investment fund income) from the effect of section CD 36(1).
Deﬁned in this Act: company, dividend, deductible foreign equity distribution, exempt income, ﬁxed-rate foreign equity, portfolio investment 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(2)(a): amended (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 9(1) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).

Section CW 9(3) heading: replaced (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 9(2) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section CW 9(3): replaced (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 9(2) of the Tax- ation (International Investment and Remedial Matters) Act 2012 (2012 No 34).

Section CW 9 list of deﬁned terms multi-rate PIE: repealed (with effect on 1 July 2011), on 7 May 2012, by section 9(3)(a) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section CW 9 list of deﬁned terms portfolio investment entity: inserted (with effect on 1 July 2011), on 7 May 2012, by section 9(3)(b) of the Taxation (Inter- national Investment and Remedial Matters) Act 2012 (2012 No 34).
(3) 350 Reprinted as at 30 August 2013 Income Tax Act 2007 Part C s CW 10 Section CW 9 list of deﬁned terms portfolio tax rate entity: repealed (with effect on 1 July 2011), on 7 May 2012, by section 9(3)(a) of the Taxation (Inter- national Investment and Remedial Matters) Act 2012 (2012 No 34).
CW 10 Dividend within New Zealand wholly-owned group Exempt income (1) A dividend is exempt income if— (a) (b) (c) (d) (e) 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 (3) to (6) are met.
(2) (3) (4) (5) (6) Aligned balance dates [Repealed] [Repealed] 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- 351 Part C s CW 11 Income Tax Act 2007 Reprinted as at 30 August 2013 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 Section CW 10(1)(e): amended, on 29 August 2011, by section 8(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section CW 10(2) heading: repealed, on 29 August 2011, pursuant to section 8(2) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).

Section CW 10(2): repealed, on 29 August 2011, by section 8(2) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
CW 11 Dividend of conduit tax relief holding company [Repealed] Section CW 11: repealed (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 10(1) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
CW 12 Proceeds of share disposal by qualifying foreign equity investor Exempt income: proceeds from disposal of share in resident company (1) 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 investor from the time of the purchase to the time of the disposal; and (c) 352 Reprinted as at 30 August 2013 Income Tax Act 2007 Part C s CW 12 (d) (e) 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).
Requirements relating to main activity of resident company land development: land ownership: (2) 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) (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.
Requirements relating to resident company that provides capital to others (3) 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) 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 (iii) 353 Part C s CW 12 Income Tax Act 2007 Reprinted as at 30 August 2013 (b) (c) (iv) 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 com- pany 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 the shares of the resident company are quoted on no ofﬁcial list of a recognised exchange.
(ii) Some deﬁnitions In this section,— foreign exempt entity means a person who— (a) (b) (c) (d) (e) 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 (4) 354 Reprinted as at 30 August 2013 Income Tax Act 2007 Part C s CW 12 (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 (f) 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) (ii) (iii) 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 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) 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 (b) (c) 355 Part C s CW 12 Income Tax Act 2007 Reprinted as at 30 August 2013 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 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 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 does not have a holder of a direct or indirect interest in the capital of the unincorporated body who,— (i) is resident in New Zealand: (d) (e) (f) (g) (h) (i) 356 Reprinted as at 30 August 2013 Income Tax Act 2007 Part C s CW 12 (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) (b) (c) (d) (e) (f) 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— (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.
(5) Residency of territory For the purpose of this section, whether a person is resident in a territory other than New Zealand is determined— 357 Part C s CW 13 Income Tax Act 2007 Reprinted as at 30 August 2013 (a) (b) 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.
(6) Approval and withdrawal of approval for territory The Governor-General may by Order in Council— (a) approve a territory for the purpose of this section: (b) withdraw the approval of a territory for the purpose of this section.
Deﬁned in this Act: amount, associated, business, company, dividend, dou- ble tax agreement, exempt income, foreign exempt entity, foreign exempt part- nership, foreign exempt person, income, insurance, interest, land, pay, per- sonal 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(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).

Section CW 12 list of deﬁned terms 1990 version provisions: repealed, on 1 April 2010, by section 594 of the Taxation (International Taxation, Life In- surance, and Remedial Matters) Act 2009 (2009 No 34).
CW 13 Proceeds from share or option acquired under venture investment agreement Exempt income: proceeds from share or option (1) 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.
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.
(2) 358 Reprinted as at 30 August 2013 Income Tax Act 2007 Part C s CW 13 (3) (4) (5) 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,— (a) 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 (b) (c) 359 Part C s CW 14 Income Tax Act 2007 Reprinted as at 30 August 2013 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 Section CW 10 does not apply to treat as exempt income a dividend derived by a company that has been a qualifying com- pany at some time before the date on which it derives the divi- dend, 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) Section CW 14: amended (with effect on 1 July 2011 and applying for in- come years beginning on or after that date), on 7 May 2012, by section 11(1) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
360 Reprinted as at 30 August 2013 Income Tax Act 2007 Part C s CW 16 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, dividend, exempt income, fully im- puted, 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 bonus issue: repealed, on 2 November 2012, by section 15 of the Taxation (Annual Rates, Returns Filing, and Remed- ial Matters) Act 2012 (2012 No 88).

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 Allowance of Governor-General and other beneﬁts and privileges The following are exempt income: (a) (b) the allowance of the Governor-General, paid under sec- tion 6 of the Governor-General Act 2010: any beneﬁt or privilege provided under an agreement made under section 11(1) of the Governor-General Act 2010 or an agreement referred to in section 28(1)(d) of that Act.
Deﬁned in this Act: exempt income Section CW 16: substituted, on 23 November 2010, by section 23 of the Gov- ernor-General Act 2010 (2010 No 122).

Section CW 16 list of deﬁned terms exempt income: inserted (with effect on 1 April 2008), on 17 July 2013, by section 14 of the Taxation (Livestock Valu- ation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
361 Part C s CW 17 Income Tax Act 2007 Reprinted as at 30 August 2013 CW 17 Expenditure on account, and reimbursement, of employees (1) Exempt income: expenditure on account Expenditure on account of an employee, being a payment to which section CE 5 (Meaning of expenditure on account of an employee) applies, that is incurred by an employer in con- nection with the employee’s employment or service is exempt income of the employee to the extent to which the expenditure is expenditure for which the employee would be allowed a de- duction if they incurred the expenditure and if the employment limitation did not exist.
Exempt income: reimbursement (2) 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(1): amended (with effect on 1 April 2008), on 2 November 2012 (applying for the 2008–09 and later income years), by section 16(1) of the (3) (4) (5) 362 Reprinted as at 30 August 2013 Income Tax Act 2007 Part C s CW 17B Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
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).

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 Exempt income (1) 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.
(2) (3) 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 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— (b) 363 Part C s CW 17C Income Tax Act 2007 Reprinted as at 30 August 2013 (5) (6) (i) (ii) (iii) taking up new employment with a new employer; or taking up new duties at a new location with their existing employer; or 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 (1) 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 (2) 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) to work outdoors and away from their employ- ment base for most of the day; and (b) 364 Reprinted as at 30 August 2013 Income Tax Act 2007 Part C s CW 17C (ii) to undertake a long period of physical activity in travelling through a neighbourhood or district on foot or by bicycle; and (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) 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) (6) 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 365 Part C s CW 18 Income Tax Act 2007 Reprinted as at 30 August 2013 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).
CW 18 Allowance for additional transport costs Exempt income (1) 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) (2) (3) 366 Reprinted as at 30 August 2013 Income Tax Act 2007 Part C s CW 19 Quantifying additional transport costs (4) 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: (b) 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.
(c) 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— 367 Part C s CW 20 Income Tax Act 2007 Reprinted as at 30 August 2013 (a) (b) circus performers, dancers, lecturers, motion picture artists, musicians, television artists, and theatre artists; and athletes, boxers, wrestlers, and other professional sportspersons.
radio artists, singers, 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 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 participants 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— (1) (2) (3) 368 Reprinted as at 30 August 2013 Income Tax Act 2007 Part C s CW 21 (a) (b) 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) (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) 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,— (2) 369 Part C s CW 22 Income Tax Act 2007 Reprinted as at 30 August 2013 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 in New Zealand unlawfully under the Immigration Act 2009 (d) (c) pleasure craft is deﬁned in section 2 of the Maritime Trans- port 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 Section CW 21(2) non-resident crew member: amended, on 29 November 2010, by section 406(1) of the Immigration Act 2009 (2009 No 51).
CW 22 Amounts derived by overseas experts and trainees in New Zealand by government arrangement (1) 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: (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) (c) Exempt income: maintenance or bursaries (2) 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 370 Reprinted as at 30 August 2013 Income Tax Act 2007 Part C s CW 22 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: receiving education, training, or experience; and (iv) the visit occurs under an arrangement for assistance en- tered into by the government of New Zealand.
(b) (3) Some deﬁnitions In this section,— 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) 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 (ii) 371 Part C s CW 23 Income Tax Act 2007 Reprinted as at 30 August 2013 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 CW 23 Income for military or police service in operational area (1) (2) 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 (3) 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— (b) (4) 372 Reprinted as at 30 August 2013 Income Tax Act 2007 Part C s CW 25 (i) (ii) a regular force gratuity: a bonus or bounty for re-engagement in a regular force 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 CW 24 Deferred military pay for active service Exempt income (1) 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.
(2) 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 Defence, 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 373 Part C s CW 26 Income Tax Act 2007 Reprinted as at 30 August 2013 (b) 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.
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 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: (b) (c) (1) 374 Reprinted as at 30 August 2013 Income Tax Act 2007 Part C s CW 29 (d) (e) a payment of portable veteran’s pension: an overseas pension.
(2) 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) (ii) a monetary beneﬁt paid under that Act; or a monetary beneﬁt, other than New Zealand superannuation pension, a paid under the Social Welfare (Transitional Provisions) Act 1990: veteran’s or (b) an overseas pension to the extent to which it is subject to an arrangement under section 70(3) of the Social Se- curity Act 1964.
Deﬁned in this Act: amount, exempt income, New Zealand superannuation, overseas pension, pay, portable New Zealand superannuation, portable vet- eran’s pension, veteran’s pension Compare: 2004 No 35 s CW 23 Section CW 28(2)(a)(i): amended, on 17 July 2013, by section 15(1) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Section CW 28(2)(b): amended, on 17 July 2013, by section 15(2) of the Taxa- tion (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).

Section CW 28 list of deﬁned terms income-tested beneﬁt: repealed, on 17 July 2013, by section 15(3) of the Taxation (Livestock Valuation, Assets Expend- iture, and Remedial Matters) Act 2013 (2013 No 52).
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) an Australian approved deposit fund: (b) 375 Part C s CW 29B Income Tax Act 2007 Reprinted as at 30 August 2013 (ii) (iii) (iv) an Australian exempt public sector superannu- ation scheme: an Australian regulated superannuation fund: an Australian retirement savings account.
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 29B Amounts from Australian complying superannuation schemes reinvested in KiwiSaver schemes An amount of income derived in an income year by a natural person from an Australian complying superannuation scheme is exempt income if, in the income year, it is contributed to a KiwiSaver scheme.
Deﬁned in this Act: amount, Australian complying superannuation scheme, ex- empt income, income, income year, KiwiSaver scheme Section CW 29B: inserted, on 1 July 2013, by section 13 of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
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 it is not designated as being subject to tax.
(b) (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 An amount is exempt income of a person to the extent to which it is income of the person and is not exempt income under an- other provision of subpart CW, if the amount is travel, accom- modation, attendance, and communication services, as deﬁned in section 20A(7) of the Civil List Act 1979, and— (a) the amount is–– (i) (ii) referred to in section 20A of that Act: paid under section 25 of that Act; and 376 Reprinted as at 30 August 2013 (b) Income Tax Act 2007 Part C s CW 33 the amount is–– (i) provided to a person to whom any of section 25(1)(b) to (e) of that Act applies: provided to a member of the family of a person described in subparagraph (i).
Deﬁned in this Act: amount, exempt income, income (ii) Section CW 31: replaced (with effect on 1 April 2008), on 17 July 2013, by section 16 of the Taxation (Livestock Valuation, Assets Expenditure, and Re- medial Matters) Act 2013 (2013 No 52).
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 (1) 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 Accident Compensa- tion Act 2001, of any of the following kinds: (i) 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: 377 (b) (b) (c) (d) Part C s CW 34 Income Tax Act 2007 Reprinted as at 30 August 2013 (2) (e) (f) 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.
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 Section CW 33(1)(b): amended, on 21 December 2010, by section 189 of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
CW 34 Compensation payments Exempt income (1) An amount of income from the following payments is exempt income: (a) (b) (c) (d) (e) (f) (g) 378 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: 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).
Reprinted as at 30 August 2013 Income Tax Act 2007 Part C s CW 35 (2) 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 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 Accident Compen- sation 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 (b) (c) 379 Part C s CW 36 Income Tax Act 2007 Reprinted as at 30 August 2013 year after taking into account any amount of tax with- held.
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).

Section CW 35(a): amended, on 21 December 2010, by section 189 of the Tax- ation (GST and Remedial Matters) Act 2010 (2010 No 130).
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 Exempt income (1) An amount of income derived from sinking funds relating to the debt of a public authority is exempt income.
Exempt income (2) 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 extent to which it is a superannuation scheme.
(3) (4) 380 Reprinted as at 30 August 2013 Income Tax Act 2007 Part C s CW 39 (5) 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.

Exclusion: mixed-ownership enterprises (5B) Subsection (2) does not apply to an amount of income derived by a mixed-ownership enterprise.
(6) 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, income, mixed-ownership enterprise, public authority, State enterprise, superannuation scheme, trustee Compare: 2004 No 35 s CW 31 Section CW 38(5B) heading: inserted, on 30 June 2012, by section 11 of the Public Finance (Mixed Ownership Model) Amendment Act 2012 (2012 No 45).
Section CW 38(5B): inserted, on 30 June 2012, by section 11 of the Public Finance (Mixed Ownership Model) Amendment Act 2012 (2012 No 45).

Section CW 38 list of deﬁned terms mixed-ownership enterprise: inserted, on 30 June 2012, by section 11 of the Public Finance (Mixed Ownership Model) Amendment Act 2012 (2012 No 45).

CW 39 Local authorities Exempt income (1) An amount of income derived from sinking funds relating to the debt of a local authority is exempt income.
Exempt income (2) Any other amount of income derived by a local authority is exempt income.

(3) (4) 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— 381 Part C s CW 40 Income Tax Act 2007 Reprinted as at 30 August 2013 (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 derived 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 section 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 Exempt income: beautiﬁcation societies (1) An amount of income derived by an association or society is exempt income if— (a) (ii) 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.
(b) Exclusion: council-controlled organisation Subsection (1) does not apply to an amount of income de- rived— (a) by a council-controlled organisation: (2) 382 Reprinted as at 30 August 2013 Income Tax Act 2007 Part C s CW 41 (b) by a local authority from a council-controlled organisa- tion.

Exempt income: trustees of Cornwall Park (3) 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 (1) (2) (3) (4) 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 institu- tion established and maintained exclusively for charit- able purposes and not carried on for the private pecu- niary 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: 383 Part C s CW 41 Income Tax Act 2007 Reprinted as at 30 August 2013 (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.
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).
(5) 384 Reprinted as at 30 August 2013 Income Tax Act 2007 Part C s CW 42 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 (1) (2) (3) 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); and (b) 385 Part C s CW 42 Income Tax Act 2007 Reprinted as at 30 August 2013 (c) either— (i) the person retains or reserves an interest in the asset; or the asset will revert to the person.
(ii) 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 advan- tage; 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).
(4) (5) 386 Reprinted as at 30 August 2013 Income Tax Act 2007 Part C s CW 42 (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) 387 Part C s CW 42 Income Tax Act 2007 Reprinted as at 30 August 2013 (vi) (vii) 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): (viii) section CG 3 (Bad debt repayment): (ix) 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).

(9) 388 Reprinted as at 30 August 2013 Income Tax Act 2007 Part C s CW 43 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 (1) 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) (2) (3) 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 (4) 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.
(5) 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, 389 Part C s CW 44 Income Tax Act 2007 Reprinted as at 30 August 2013 (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 37 390 Reprinted as at 30 August 2013 Income Tax Act 2007 Part C s CW 46 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 39 391 Part C s CW 47 Income Tax Act 2007 Reprinted as at 30 August 2013 CW 47 TAB and racing clubs Exempt income: racing organisations (1) An amount of income derived by any of the following bodies is exempt income: (a) the New Zealand Racing Board: (b) New Zealand Thoroughbred Racing: Harness Racing New Zealand: (c) the New Zealand Greyhound Racing Association (In- (d) corporated).
Exempt income: racing clubs (2) 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 Exempt income (1) An amount of income derived by a society or association estab- lished mainly to promote or encourage scientiﬁc or industrial research is exempt income if— 392 Reprinted as at 30 August 2013 Income Tax Act 2007 Part C s CW 51 (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 Exempt income: veterinary clubs (1) 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 (2) 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 393 Part C s CW 52 Income Tax Act 2007 Reprinted as at 30 August 2013 (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 394 Reprinted as at 30 August 2013 Income Tax Act 2007 Part C s CW 55BB 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).
CW 55BB Minors’ income, to limited extent (1) When this section applies This section applies for a tax year to a person, other than an absentee, when the person is— younger than 15: (a) younger than 18, and attends— (b) (i) a private primary school, state primary school, private secondary school, or state secondary school, in each case as deﬁned in the Education Act 1964: a partnership school kura hourua (within the meaning of section 2(1) of the Education Act 1989): an integrated school as deﬁned in section 2 of the Private Schools Conditional Integration Act 1975: a school providing special education as deﬁned in the Education Act 1964 and the Education Act 1989: was a person to whom paragraph (b) applied dur- ing the previous tax year; and turned 18 on or after 1 January in that previous tax year; and continues to attend a school of a kind referred to in paragraph (b).
(ia) (ii) (iii) (ii) (iii) (c) younger than 19, and— (i) Exempt income—if less than limit (2) An amount of income derived by the person in the tax year is exempt income if— (a) the income is none of— (i) a PAYE income payment from which the per- son’s employer is required to withhold tax under the PAYE rules: 395 Part C s CW 55B Income Tax Act 2007 Reprinted as at 30 August 2013 resident passive income: non-resident passive income: excluded income: exempt income under another provision; and (ii) (iii) (iv) (v) the person derives in the tax year a total amount of in- come meeting the requirements of paragraph (a) that is less than $2,340.
(b) Deﬁned in this Act: absentee, employer, excluded income, exempt income, in- come, non-resident passive income, PAYE income payment, PAYE rules, resi- dent passive income, tax, tax year Section CW 55BB: inserted, on 29 May 2012 (applying for the 2012–13 and later tax years), by section 4(1) of the Taxation (Budget Measures) Act 2012 (2012 No 38).

Section CW 55BB(1)(b)(ia): inserted, on 13 June 2013, by section 46 of the Education Amendment Act 2013 (2013 No 34).
Section CW 55BB(2)(a)(i): replaced (with effect on 29 May 2012 and applying for the 2012–13 and later tax years), on 17 July 2013, by section 17(1) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).

Section CW 55BB list of deﬁned terms employer: inserted (with effect on 29 May 2012), on 17 July 2013, by section 17(2) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Section CW 55BB list of deﬁned terms PAYE rules: inserted (with effect on 29 May 2012), on 17 July 2013, by section 17(2) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).

Section CW 55BB list of deﬁned terms tax: inserted (with effect on 29 May 2012), on 17 July 2013, by section 17(2) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
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).
396 Reprinted as at 30 August 2013 Income Tax Act 2007 Part C s CW 56 Income from certain activities CW 56 Non-resident aircraft operators Exempt income (1) 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.
Determination (2) 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.
(3) Some deﬁnitions In this section,— 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 45 397 Part C s CW 57 Income Tax Act 2007 Reprinted as at 30 August 2013 CW 57 Non-resident company involved in exploration and development activities Exempt income (1) 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 2014.
(b) (2) Some deﬁnitions In this section,— exploration and development activities means the following activities undertaken for the purposes of identifying and de- veloping 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) (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 in New Zealand; and on the seaward side of the mean high-water mark; and a permit area or part of a permit area.
Section CW 57(1)(b): substituted (with effect on 31 December 2009), on 7 Sep- tember 2010, by section 14 of the Taxation (Annual Rates, Trans-Tasman Sav- ings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
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 46 398 Reprinted as at 30 August 2013 Income Tax Act 2007 Part C s CW 59 CW 59 New Zealand companies operating in Niue Exempt income: income wholly or mainly from Niue (1) An amount of income derived by a company incorporated in New Zealand that derives its income wholly or mainly from Niue is exempt income.
(2) Exclusion Subsection (1) does not apply if the company, if it were a for- eign company, would at any time during the income year in which the amount is derived be a controlled foreign company.
Exempt income: dividends (3) 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) Exempt income: Niue development projects (4) 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) (5) Exclusions Subsections (1), (3), and (4) do not apply to— (a) an amount of income derived from sources in New Zealand; or 399 Part C s CW 59B Income Tax Act 2007 Reprinted as at 30 August 2013 (6) (7) (b) a dividend, to the extent to which it constitutes distribu- tion of an amount derived by the company from sources in New Zealand.
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 (b) is or will be important in the development of Niue.
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 CW 59B Income of and distributions by certain international funds Trustees (1) 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 (2) An amount derived by a person is exempt income of the person if the income is a distribution by— the trustee of the Niue International Trust Fund: (a) (b) the trustee of the Tokelau International Trust Fund.
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 400 Reprinted as at 30 August 2013 Income Tax Act 2007 Part C s CW 61 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 59C Life reinsurance outside New Zealand An amount of life reinsurance claim derived by a life insurer is exempt income to the extent to which, for the relevant life reinsurance policy, deductions for premiums are denied under section DR 3 (Life reinsurance outside New Zealand).
Deﬁned in this Act: amount, claim, deduction, exempt income, income, life insurer, life reinsurance, life reinsurance policy, New Zealand, premium Section CW 59C: inserted, on 1 July 2010, by section 49(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
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 (1) An amount of income derived in an income year by a natural person from providing a standard-cost household service is ex- empt income if the amount is exempt income under a deter- mination made under section 91AA(2)(a) of the Tax Adminis- tration Act 1994.
(2) 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 under section 91AA of that Act, as incurring an amount of expenditure in providing the services.
401 Part C s CW 62 Income Tax Act 2007 Reprinted as at 30 August 2013 (3) 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.
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— (a) chosen either by themselves or by a group of which they are a member; and (2) (3) (4) 402 Reprinted as at 30 August 2013 Income Tax Act 2007 Part C s CW 63 (b) (c) 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) Honoraria For the purposes of this section, 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) (7) 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).
Section CW 62B(5): amended, on 7 September 2010 (applying for the 2009–10 and later income years), by section 15(1) of the Taxation (Annual Rates, Trans- Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
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).

403 Part C s CW 64 Income Tax Act 2007 Reprinted as at 30 August 2013 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 Restructuring under New Zealand Railways Corporation Restructuring Act 1990 Heading: inserted (with effect on 31 December 2012), on 17 July 2013, by sec- tion 18 of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
CW 65 New Zealand Railways Corporation restructure: exempt income Railways vesting and land-related payments The following are exempt income of KiwiRail Holdings Limited and any company in which it directly or indirectly owns 100% of the shares (wholly-owned subsidiary): (a) (b) an amount derived from the Railways vesting: an amount derived by KiwiRail Holdings Limited or a wholly-owned subsidiary in relation to–– (i) (ii) a disposal or grant of land, if that land is owned on 31 December 2012 by the Crown or New Zealand Railways Corporation: the termination or variation of a lease granted by the Crown or New Zealand Railways Corporation over land, if that land is owned on 31 December 2012 by the Crown or New Zealand Railways Corporation.
Meaning of Railways vesting In this section, Railways vesting has the same meaning as in section EZ 68 (Deﬁnitions).

Deﬁned in this Act: amount, company, dispose, exempt income, land, lease, Railways vesting, share Section CW 65: inserted (with effect on 31 December 2012), on 17 July 2013, by section 18 of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
(1) (2) 404 Reprinted as at 30 August 2013 Income Tax Act 2007 Part C s CW 65 Subpart CX—Excluded income Contents Goods and services tax CX 1 Goods and services tax 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 Private use of motor vehicle CX 6 CX 7 Employer or associated person treated as having right to use vehicle under arrangement Private use of motor vehicle: use by more than 1 employee CX 8 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 Page 408 408 409 409 409 410 411 411 412 412 413 414 414 415 415 415 417 418 419 420 421 421 422 422 423 424 424 424 405 Income Tax Act 2007 Reprinted as at 30 August 2013 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 CX 33B Beneﬁts for members of Parliament 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 [Repealed] 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] 424 425 426 426 426 427 427 428 428 429 429 430 430 430 431 431 431 432 434 434 436 438 Government funding of ﬁlm and television CX 48C Government funding additional to government screen 439 production payments Research and development CX 48D Tax credits for expenditure on research and development 439 CX 49 Employer’s superannuation contributions 439 Superannuation and savings 406 Reprinted as at 30 August 2013 Income Tax Act 2007 Part C s CW 65 CX 50 Tax credits for KiwiSaver and complying superannuation 440 funds CX 50B Contributions to retirement savings schemes CX 51 Income equalisation schemes Farming, forestry, or ﬁshing Emissions units under Climate Change Response Act 2002 CX 51B Disposal of pre-1990 forest land emissions units CX 51C Disposal of ﬁshing quota emissions units CX 52 Refund from environmental restoration account Environmental restoration Inﬂation-indexed instruments CX 53 Credits for inﬂation-indexed instruments CX 54 Share-lending collateral under share-lending Share-lending arrangements arrangements Portfolio investment income CX 55 Proceeds from disposal of investment shares CX 56 Attributed income of certain investors in multi-rate PIEs CX 56B Distributions to investors in multi-rate PIEs CX 56C Distributions to investors by listed PIEs CX 57 Credits for investment fees 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 CX 61 Avoidance arrangements Avoidance arrangements Partners and partnerships CX 62 Amounts of excluded income for partners Look-through companies CX 63 Dividends derived after company ceased to be look-through company 440 441 441 442 442 442 443 443 445 447 448 449 449 449 450 450 450 451 407 Part C s CX 1 Income Tax Act 2007 Reprinted as at 30 August 2013 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 Meaning (1) A fringe beneﬁt is a beneﬁt that— (a) (b) (c) 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.
Arrangement to provide beneﬁt (2) 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.

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.

(3) (4) 408 Reprinted as at 30 August 2013 Income Tax Act 2007 Part C s CX 5 Arrangements (5) A beneﬁt may be treated for the purposes of the FBT rules as being provided by an employer to an employee under— section GB 31 (FBT arrangements: general): (a) section GB 32 (Beneﬁts provided to employee’s associ- (b) ates).
Deﬁned in this Act: arrangement, associated person, employee, employer, em- ployment, FBT rules, fringe beneﬁt, unclassiﬁed beneﬁt Compare: 2004 No 35 s CX 2 Section CX 2(5): amended, on 1 April 2010 (applying for the 2010–11 and later income years), by section 51(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section CX 2 list of deﬁned terms FBT rules: inserted, on 1 April 2010 (apply- ing for the 2010–11 and later income years), by section 51(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

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 (1) (2) 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— (a) a payment of a premium on a life insurance policy that is excluded from being expenditure on account of an 409 Part C s CX 6 Income Tax Act 2007 Reprinted as at 30 August 2013 (b) 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 employees) 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 al- lowance 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) Fringe beneﬁts CX 6 Private use of motor vehicle When fringe beneﬁt arises (1) 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.
Exclusion: work-related vehicles Subsection (1) does not apply when the vehicle is a work-re- lated vehicle.

Exclusion: emergency calls Subsection (1) does not apply when the vehicle is used for an emergency call.
(2) (3) 410 Reprinted as at 30 August 2013 Income Tax Act 2007 Part C s CX 8 (4) (5) 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 (1) (2) 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.
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- 411 Part C s CX 9 Income Tax Act 2007 Reprinted as at 30 August 2013 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 When fringe beneﬁt arises (1) 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) (d) as an employee share loan: under a share purchase scheme: [Repealed] as an advance of salary and wages, if,— (i) 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) 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 (2) (3) 412 Reprinted as at 30 August 2013 Income Tax Act 2007 Part C s CX 11 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, tax year Compare: 2004 No 35 s CX 9 Section CX 10(2)(c): repealed, on 1 April 2011, by section 16(1) of the Taxa- tion (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remed- ial Matters) Act 2010 (2010 No 109).
Section CX 10 list of deﬁned terms superannuation fund: repealed, on 1 April 2011, by section 16(2) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
CX 11 Employment-related loans: loans by life insurers When fringe beneﬁt treated as arising (1) A life insurer provides a beneﬁt that is treated as an employ- ment-related loan if— (a) (b) (c) 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) (2) (3) 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: 413 Part C s CX 12 Income Tax Act 2007 Reprinted as at 30 August 2013 (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 When fringe beneﬁt arises (1) A fringe beneﬁt arises when travel, accommodation, attend- ance, and communications services are exempt income under section CW 31 (Services for members of Parliament).
(2) Relationship with sections CX 5 and CX 28 This section overrides sections CX 5 and CX 28.

Deﬁned in this Act: exempt income, fringe beneﬁt Section CX 12: replaced (with effect on 1 April 2008), on 17 July 2013, by sec- tion 19 of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
CX 13 Contributions to superannuation schemes When fringe beneﬁt arises (1) 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).
(2) 414 Reprinted as at 30 August 2013 Income Tax Act 2007 Part C s CX 16 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 (1) 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.

(2) (3) (4) 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 415 Part C s CX 16 Income Tax Act 2007 Reprinted as at 30 August 2013 (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) 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) (5) 416 Reprinted as at 30 August 2013 Income Tax Act 2007 Part C s CX 17 (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 (1) 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 (2) 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 (3) 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,— (4) 417 Part C s CX 18 Income Tax Act 2007 Reprinted as at 30 August 2013 (5) (6) (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; and 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.

Relationship with subpart DG Section DG 2(4) (Application of this subpart) may apply to require a company to treat a beneﬁt under this section as a dividend.
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 Section CX 17(4)(a): amended (with effect on 1 April 2008), on 7 September 2010, by section 17(1) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
Section CX 17(6) heading: inserted (with effect on 1 April 2013 and applying for the 2013–14 and later income years for an item of property referred to in section DG 3(2)(a)(i), and for the 2014–15 and later income years for an item of property referred to in section DG 3(2)(a)(ii) and (iii)), on 17 July 2013, by section 20(1) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Section CX 17(6): inserted (with effect on 1 April 2013 and applying for the 2013–14 and later income years for an item of property referred to in section DG 3(2)(a)(i), and for the 2014–15 and later income years for an item of prop- erty referred to in section DG 3(2)(a)(ii) and (iii)), on 17 July 2013, by section 20(1) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
CX 18 Beneﬁts provided to associates of both employees and shareholders 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 (1) 418 Reprinted as at 30 August 2013 Income Tax Act 2007 Part C s CX 19 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) Exclusions and limitations CX 19 Beneﬁts provided instead of allowances When not fringe beneﬁt (1) A beneﬁt that an employer provides to an employee in connec- tion 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 follow- ing 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 419 Part C s CX 20 Income Tax Act 2007 Reprinted as at 30 August 2013 (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 ex- empt income under section CW 17B (Relocation pay- ments).
(c) Temporary change in workplace (2) A beneﬁt that an employer provides to an employee is not a fringe beneﬁt if it— (a) (b) (c) (d) 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 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 420 Reprinted as at 30 August 2013 (b) Income Tax Act 2007 Part C s CX 22 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 CX 21 Business tools (1) (2) 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) 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 nevertheless be provided mainly for business use if the employee performs 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 dividend under section CD 20(2) (Beneﬁts of shareholder-employees or directors) is not a fringe beneﬁt if it is made solely because 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 19 421 Part C s CX 23 Income Tax Act 2007 Reprinted as at 30 August 2013 CX 23 Beneﬁts provided on premises When not fringe beneﬁt (1) 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 used or consumed 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 used or consumed by the employee on the premises of— (i) (ii) the employer: the company that provides the beneﬁt.
(2) Premises of person In this section, the premises of a person— (a) (b) include premises that the person owns or leases: 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.
(c) Deﬁned in this Act: company, employee, employer, fringe beneﬁt, group of companies, lease Compare: 2004 No 35 s CX 20 Section CX 23(1)(a): amended (with effect on 5 August 2010), on 21 December 2010, by section 34 of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).

Section CX 23(1)(b): amended (with effect on 5 August 2010), on 21 December 2010, by section 34 of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
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) is related to the employee’s health or safety; and 422 Reprinted as at 30 August 2013 Income Tax Act 2007 Part C s CX 25 (b) 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 When not fringe beneﬁt (1) 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) (2) (3) 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.
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 (b) 423 Part C s CX 26 Income Tax Act 2007 Reprinted as at 30 August 2013 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 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 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 When not fringe beneﬁt (1) A beneﬁt in a form of entertainment described in section DD 2 (Limitation rule) that an employer provides to an employee is 424 Reprinted as at 30 August 2013 Income Tax Act 2007 Part C s CX 30 not a fringe beneﬁt.

This subsection is overridden by subsec- tion (2).
When is fringe beneﬁt (2) 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) (b) (c) 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) Deﬁned in this Act: employee, employer, employment, fringe beneﬁt Compare: 2004 No 35 s CX 25 CX 30 Distinctive work clothing When not fringe beneﬁt (1) Distinctive work clothing that an employer provides to an em- ployee is not a fringe beneﬁt, whether provided by sale or otherwise.
(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 (ii) (b) 425 Part C s CX 31 Income Tax Act 2007 Reprinted as at 30 August 2013 (c) is not clothing that employees would normally wear for private purposes.
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 CX 33 Goods provided at discount by third parties (1) 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 (2) 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) 426 Reprinted as at 30 August 2013 Income Tax Act 2007 Part C s CX 34 (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 33B Beneﬁts for members of Parliament Reasonable estimates may be used to determine, for the pur- poses of the FBT rules, what beneﬁt provided under the Civil List Act 1979 to a member of Parliament is a fringe beneﬁt, or excluded from being a fringe beneﬁt, or valued at zero.
Deﬁned in this Act: FBT rules, fringe beneﬁt Section CX 33B: inserted (with effect on 1 July 2013), on 17 July 2013, by sec- tion 22 of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
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 emergency services relating to the health or safety of any person; and (ii) (iii) (iv) (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 427 Part C s CX 35 Income Tax Act 2007 Reprinted as at 30 August 2013 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 (1) (2) Meaning 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) (c) to shares, rights, or options in a qualifying company: to a loan made under a share purchase scheme: 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 428 Reprinted as at 30 August 2013 Income Tax Act 2007 Part C s CX 38 (b) any other travel that confers a private beneﬁt on the em- ployee.
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) (b) 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— (i) 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.
(ii) Exclusion: car Subsection (1) does not apply to a car.
(2) Exclusion: private use (3) 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 429 Part C s CX 39 Income Tax Act 2007 Reprinted as at 30 August 2013 (b) 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 Insurance CX 39 Life insurers and fully reinsured persons [Repealed] Section CX 39: repealed, on 1 July 2010, by section 55(1) of the Taxation (Inter- national Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
CX 40 Superannuation fund deriving amount from life insurance policy (1) 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 (2) 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 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) (1) 430 Reprinted as at 30 August 2013 Income Tax Act 2007 Part C s CX 44 (2) 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 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 excluded 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 (1) When subsection (2) applies Subsection (2) applies when— (a) a mining company derives an amount from disposing of a mining share; and 431 Part C s CX 45 Income Tax Act 2007 Reprinted as at 30 August 2013 (b) (c) (d) 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).
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 (2) (3) (4) CX 45 Disposal of mining shares acquired with reinvestment proﬁt When subsection (2) applies Subsection (2) applies when— (1) 432 Reprinted as at 30 August 2013 Income Tax Act 2007 Part C s CX 45 (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).
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) (b) (c) (d) 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) (b) 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 433 (2) (3) (4) (5) Part C s CX 46 Income Tax Act 2007 Reprinted as at 30 August 2013 (c) (d) 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.
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 (6) 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 When this section applies This section applies when— (a) (b) 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) is in the nature of a grant or subsidy to the person; or is a grant-related suspensory loan to the person; and (ii) (1) 434 Reprinted as at 30 August 2013 Income Tax Act 2007 Part C s CX 47 (c) (d) the payment is not in the nature of an advance or loan other than a grant-related suspensory loan; and the payment corresponds 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): expenditure that they incur in acquiring, con- structing, installing, or extending an asset for which they would have an amount of depreciation loss in the absence of section DF 1.
(ii) (2) (3) 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.
Further exclusion (4) A person may choose that this section not apply to a payment under a grant to the extent to which— (a) (b) (c) the grant is made to the person for the person’s business as a technology development grant or under a technol- ogy transfer voucher; and the payment is withheld until the conditions of the grant are satisﬁed; and in the absence of section DF 1, the person would be allowed for an income year before the income year of the payment,— (i) a deduction for expenditure to which the payment corresponds: depreciation loss resulting from expenditure to which the payment corresponds.
(ii) 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 41 435 Part C s CX 48 Income Tax Act 2007 Reprinted as at 30 August 2013 Section CX 47(1)(a): substituted (with effect on 1 October 2010), on 21 De- cember 2010, by section 35(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section CX 47(1)(b): substituted (with effect on 1 October 2010), on 21 De- cember 2010, by section 35(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).

Section CX 47(1)(c): substituted (with effect on 1 October 2010), on 21 De- cember 2010, by section 35(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section CX 47(1)(d): substituted (with effect on 1 October 2010), on 21 De- cember 2010, by section 35(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).

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(4) heading: added (with effect on 1 October 2010), on 21 De- cember 2010, by section 35(2) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section CX 47(4): added (with effect on 1 October 2010), on 21 December 2010, by section 35(2) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).

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) 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 in carrying on the business— (i) incurs a liability for expenditure or loss before the declaration of the emergency event; and (b) (c) (1) 436 Reprinted as at 30 August 2013 Income Tax Act 2007 Part C s CX 48 (ii) 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) (d) (e) (2) (3) (4) 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 loss balance current loss other loss.
Deﬁnition of items in formula In the formula,— (a) (b) remitted amount is the amount of the remitted liability: 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 (ii) meets the requirements of subsection (4).
(c) (d) 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 437 Part C s CX 48B Income Tax Act 2007 Reprinted as at 30 August 2013 (ii) (iii) 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 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,— a tax loss component of the associated person: (i) (ii) a loss balance for the associated person; and 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.
(b) (c) (d) 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) 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).

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).
438 Reprinted as at 30 August 2013 Income Tax Act 2007 Part C s CX 49 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 Remedial Matters) Act 2009 (2009 No 34).

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 439 Part C s CX 50 Income Tax Act 2007 Reprinted as at 30 August 2013 (b) the trustees of the superannuation scheme to whom the contribution is made.
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 (1) 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 scheme contributor for RSCT on the contribu- tion: (b) the retirement savings scheme.
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: (b) (2) 440 Reprinted as at 30 August 2013 Income Tax Act 2007 Part C s CX 51B (c) includes the amount of the contribution in a return of income for the income year in which the contribution is made.
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).

CX 51B Disposal of pre-1990 forest land emissions units (1) 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 (2) 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).
441 Part C s CX 51C Income Tax Act 2007 Reprinted as at 30 August 2013 CX 51C Disposal of ﬁshing quota emissions units (1) Who this section applies to This section applies to a person who disposes of a ﬁshing quota emissions unit other than by surrender.
Excluded income: disposal (2) An amount of income that the person derives from the dis- posal is excluded income if, at the time of the disposal, the person would not derive income, other than exempt income or excluded income, from a disposal of the individual transfer- able quota to which the emissions unit relates.
Deﬁned in this Act: amount, emissions unit, excluded income, exempt income, ﬁshing quota emissions unit Section CX 51C: inserted (with effect on 1 July 2010), on 7 September 2010, by section 18 of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
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, previously debited in account, in the amount payable over a previ- ous period.
(b) (c) (1) 442 Reprinted as at 30 August 2013 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 disposal of investment shares (1) What this section applies to This section applies in an income year to the following entities unless the entity is assured, under an arrangement with another person, of having a gain on the disposal: (a) (b) (c) a portfolio investment entity other than a life fund PIE: the New Zealand Superannuation Fund: a life insurer.
Excluded income (2) An amount that the entity derives from the disposal in the in- come year of a share issued by a company referred to in sub- section (3) is— (a) excluded income of the entity for the income year, if the entity is described in subsection (1)(a) or (b); or excluded income of the entity for the income year to the extent to which the amount is actuarially determined to be policyholder base income, if the entity is a life insurer.
(b) (3) Particular company The company referred to in subsection (2) is,— (a) at all times in the income year, a company resident in New Zealand and not treated under and for the pur- 443 Part C s CX 55 Income Tax Act 2007 Reprinted as at 30 August 2013 poses of a double tax agreement as not resident in New Zealand; or a company that meets the following requirements: (i) (b) a company that, at all times in the income year, is resident in Australia and not treated as resident in a country other than Australia under an agree- ment between Australia and the other country, that would be a double tax agreement if negoti- ated between New Zealand and the other country; and a company that, at the start of the income year or at the time the shares are ﬁrst acquired in the income year, is included in an approved index under the ASX Market Rules made under Chap- ter 7 of the Corporations Act 2001 (Aust); and a company that, at all times in the income year, is required under the Income Tax Assessment Act 1997 (Aust) and the Income Tax Assessment Act 1936 (Aust) to maintain a franking account.
(ii) (iii) Non-participating redeemable shares This section does not apply to— (a) (b) a ﬁxed-rate share, within the meaning of paragraphs (a) to (d) of the deﬁnition of that term; 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.
Deﬁned in this Act: actuarially determined, amount, arrangement, available subscribed capital, company, double tax agreement, excluded income, ﬁxed- rate share, income, income year, life fund PIE, life insurer, pay, policyholder base income, portfolio investment entity, resident in Australia, resident in New Zealand, share, slice rule Section CX 55: substituted, on 1 April 2010, by section 63(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section CX 55(4): replaced, on 2 November 2012, by section 17(1) of the Tax- ation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).

Section CX 55 list of deﬁned terms available subscribed capital: inserted, on 2 November 2012, by section 17(2)(b) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
(4) 444 Reprinted as at 30 August 2013 Income Tax Act 2007 Part C s CX 56 Section CX 55 list of deﬁned terms ﬁxed-rate share: inserted, on 2 November 2012, by section 17(2)(b) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).

Section CX 55 list of deﬁned terms non-participating redeemable share: re- pealed, on 2 November 2012, by section 17(2)(a) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section CX 55 list of deﬁned terms pay: inserted, on 2 November 2012, by section 17(2)(b) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).

Section CX 55 list of deﬁned terms slice rule: inserted, on 2 November 2012, by section 17(2)(b) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
CX 56 Attributed income of certain investors in multi-rate PIEs (1) When this section applies This section applies when an investor in a multi-rate PIE de- rives income attributed under section CP 1 (Attributed income of investors in multi-rate PIEs) in an income year, and— (a) the prescribed investor rate for the investor in the rele- vant calculation period is more than zero; and that rate is not more than the notiﬁed investor rate in relation to the investor when the PIE calculates— (i) (b) its income tax liability under section HM 47 (Cal- culation of tax liability or tax credit of multi-rate PIEs) in relation to the income; or a voluntary payment under section HM 45 (Vol- untary payments) that is intended to be a ﬁnal payment of its income tax liability in relation to the income.
(ii) When this section also applies (1B) This section also applies when a foreign investment PIE at- tributes income to an investor who is, for the calculation period in which the amount is attributed,— (a) a notiﬁed foreign investor other than a person referred to in section HM 55D(6): a transitional resident who has chosen a prescribed in- vestor rate referred to in schedule 6, table 1, row 10 (Pre- scribed rates: PIE investments and retirement scheme contributions): (b) 445 Part C s CX 56 Income Tax Act 2007 Reprinted as at 30 August 2013 (c) (d) a transitional resident when the calculation period falls in the tax year in which the person becomes or ceases to be a transitional resident: an investor in the PIE when the calculation period falls in the tax year in which the person either becomes or ceases to be resident in New Zealand.
When this section does not apply This section does not apply when— (a) the PIE calculates its income tax liability using the quar- terly calculation option under section HM 43 (Quarterly calculation option) and the amount is attributed to an investor who is treated under section HM 61 (Certain exiting investors zero-rated) as zero-rated: an amount of attributed PIE income is derived by a trustee who has chosen a prescribed investor rate re- ferred to in schedule 6, table 1, row 5 or 7, as applicable: a person to whom section HM 57B (Prescribed investor rates for new residents) applies chooses not to apply the section to determine their prescribed investor rate for a resident year.
(b) (c) Excluded income The amount is excluded income of the investor.
Deﬁned in this Act: amount, attribution period, calculation period, excluded income, foreign investment PIE, income, income tax liability, income year, in- vestor, multi-rate PIE, notiﬁed foreign investor, notiﬁed investor rate, pay, PIE, prescribed investor rate, quarter, resident in New Zealand, tax year, transitional resident Section CX 56: substituted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 65(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section CX 56(1)(b): amended, on 1 October 2010, by section 5(1) of the Tax- ation (Budget Measures) Act 2010 (2010 No 27).

Section CX 56(1B) heading: inserted, on 29 August 2011 (applying for the 2012–13 and later income years for a foreign investment variable-rate PIE and a notiﬁed foreign investor in the PIE), by section 9(1) of the Taxation (Tax Ad- ministration and Remedial Matters) Act 2011 (2011 No 63).
Section CX 56(1B): inserted, on 29 August 2011 (applying for the 2012–13 and later income years for a foreign investment variable-rate PIE and a notiﬁed foreign investor in the PIE), by section 9(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
(2) (3) 446 Reprinted as at 30 August 2013 Income Tax Act 2007 Part C s CX 56B Section CX 56(2)(b): amended, on 1 April 2012 (applying for the 2012–13 and later income years), by section 9(3) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).

Section CX 56(2)(b): amended, on 29 August 2011, by section 9(2) of the Tax- ation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section CX 56(2)(b): amended, on 1 April 2010 (applying for income years be- ginning on or after 1 April 2010), by section 8(1) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).

Section CX 56(2)(c): inserted, on 1 April 2012 (applying for the 2012–13 and later income years), by section 9(3) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section CX 56 list of deﬁned terms foreign investment PIE: inserted, on 29 Au- gust 2011, by section 9(4) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).

Section CX 56 list of deﬁned terms notiﬁed foreign investor: inserted, on 29 August 2011, by section 9(4) of the Taxation (Tax Administration and Re- medial Matters) Act 2011 (2011 No 63).
Section CX 56 list of deﬁned terms notiﬁed investor rate: inserted, on 1 Oc- tober 2010, by section 5(2) of the Taxation (Budget Measures) Act 2010 (2010 No 27).

Section CX 56 list of deﬁned terms resident in New Zealand: inserted, on 29 August 2011, by section 9(4) of the Taxation (Tax Administration and Re- medial Matters) Act 2011 (2011 No 63).
Section CX 56 list of deﬁned terms tax year: inserted, on 29 August 2011, by section 9(4) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).

Section CX 56 list of deﬁned terms transitional resident: inserted, on 29 Au- gust 2011, by section 9(4) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
CX 56B Distributions to investors in multi-rate PIEs Excluded income (1) An amount of income derived by an investor in a multi-rate PIE as a distribution of or dividend of the PIE is excluded income of the investor.
Treatment as non-resident passive income (2) Despite subsection (1), an amount paid by a foreign investment PIE to a notiﬁed foreign investor in the PIE is not excluded income under this section to the extent to which it is treated under section HM 44B (NRWT calculation option) as non- resident passive income.
Deﬁned in this Act: amount, dividend, excluded income, foreign investment PIE, income, investor, multi-rate PIE, non-resident passive income, notiﬁed for- eign investor 447 Part C s CX 56C Income Tax Act 2007 Reprinted as at 30 August 2013 Section CX 56B: inserted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 65(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section CX 56B(1) heading: inserted, on 29 August 2011, by section 10(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).

Section CX 56B(2) heading: inserted, on 29 August 2011 (applying for the 2012–13 and later income years for a foreign investment variable-rate PIE and a notiﬁed foreign investor in the PIE), by section 10(2) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section CX 56B(2): inserted, on 29 August 2011 (applying for the 2012–13 and later income years for a foreign investment variable-rate PIE and a notiﬁed for- eign investor in the PIE), by section 10(2) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).

Section CX 56B list of deﬁned terms foreign investment PIE: inserted, on 29 August 2011, by section 10(3) of the Taxation (Tax Administration and Re- medial Matters) Act 2011 (2011 No 63).
Section CX 56B list of deﬁned terms non-resident passive income: inserted, on 29 August 2011, by section 10(3) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).

Section CX 56B list of deﬁned terms notiﬁed foreign investor: inserted, on 29 August 2011, by section 10(3) of the Taxation (Tax Administration and Re- medial Matters) Act 2011 (2011 No 63).
CX 56C Distributions to investors by listed PIEs Resident investors If an investor in a listed PIE derives an amount in an income year as a distribution by or dividend of the PIE, the amount is excluded income of the investor if they— (a) (b) (c) are resident; and are a natural person or a trustee; and do not include the amount as income in a return of in- come for the income year.
Imputed dividends If subsection (1)(a) to (c) does not apply to the investor, the amount is excluded income to the extent to which the amount of the distribution or dividend is more than the amount that is fully credited as described in section CD 43(26) (Available subscribed capital amount).
Deﬁned in this Act: amount, dividend, excluded income, income year, investor, listed PIE, PIE, resident, return of income, trustee (1) (2) 448 Reprinted as at 30 August 2013 Income Tax Act 2007 Part C s CX 59 Section CX 56C: inserted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 65(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
CX 57 Credits for investment fees (1) When this section applies This section applies when— (a) a multi-rate PIE includes a credit for fees in the calcula- tion of its tax liability under section HM 47 (Calculation of tax liability or tax credit of multi-rate PIEs) in rela- tion to an investor in an investor class of the PIE; and an amount of the credit is attributed to the investor as a member of the class.

(b) (2) Excluded income The amount allocated is excluded income of the investor.
Deﬁned in this Act: amount, excluded income, investor, investor class, multi- rate PIE, PIE Section CX 57: substituted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 66(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
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) 449 Part C s CX 60 Income Tax Act 2007 Reprinted as at 30 August 2013 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).

450 Reprinted as at 30 August 2013 Income Tax Act 2007 Part C s CX 63 Look-through companies Heading: added, on 1 April 2011 (applying for income years beginning on or after 1 April 2011), by section 36 of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
CX 63 Dividends derived after company ceased to be look-through company Dividends (1) A dividend derived by a person from a company after it has ceased to be a look-through company is excluded income of the person to the extent to which it is equal to or less than the amount given by subsection (2).

(2) (3) (4) Excluded income formula For the purposes of subsection (1), the amount is calculated using the following formula: exit dividends – dividends after look-through.
Deﬁnition of items in formula The items in the formula are deﬁned in subsections (4) and (5).
Exit dividends Exit dividends is the sum of the amounts that would be divi- dends if the company, immediately after it ceased to be a look- through company,— (a) disposed of all of its property, other than cash, to an unrelated person at market value for cash; and (b) met all its liabilities at market value, excluding income tax payable through disposing of the property or meet- ing the liabilities; and were liquidated, with the amount of cash remaining be- ing distributed to its shareholders without imputation credits or FDP credits attached.
(c) Dividends after look-through (5) Dividends after look-through is the total dividends paid by the company after it ceases to be a look-through company and before it pays the dividend described in subsection (1) to the person.
Deﬁned in this Act: amount, company, dispose, dividend, excluded income, FDP credit, imputation credit, income tax, liquidation, look-through company, shareholder 451 Income Tax Act 2007 Reprinted as at 30 August 2013 Section CX 63: added, on 1 April 2011 (applying for income years beginning on or after 1 April 2011), by section 36 of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Subpart CZ—Terminating provisions Contents Share purchase agreement income before 19 July 1968 CZ 1 CZ 2 Mining company’s 1970–71 tax year CZ 3 CZ 4 Mineral mining: company making loan before 1 April Exchange variations on 8 August 1975 CZ 5 1979 Exempt interest: overseas money lent to government or local or public authority before 29 July 1983 CZ 6 Commercial bills before 31 July 1986 CZ 7 Primary producer co-operative companies: 1987–88 income year Farm-out arrangements for petroleum mining before 16 December 1991 CZ 8 CZ 9 Available capital distribution amount: 1965 and 1985–1992 CZ 9B Available capital distribution amount: 1988 to 2010 CZ 10 Transitional relief for calculation of attributed repatriation 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 452 Page 453 453 454 456 457 457 458 459 459 460 463 464 464 465 466 466 467 467 467 468 469 469 Reprinted as at 30 August 2013 Income Tax Act 2007 Part C s CZ 2 CZ 22 Geothermal wells between 31 March 2003 and 17 May 2006 CZ 23 Insurance or compensation for buildings replaced as revenue account property affected by Canterbury earthquakes [Repealed] CZ 23 Employee beneﬁts for Canterbury earthquake relief: exempt income CZ 24 Employee beneﬁts for Canterbury earthquake relief: not fringe beneﬁts CZ 25 Land and buildings as revenue account property affected by
 Canterbury earthquakes and replaced—insurance or compensation, Government purchase CZ 26 Land and buildings affected by Canterbury earthquakes—sections CB 9 to CB 12 overridden for Government purchase 470 471 471 472 473 476 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) 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.
(b) (2) Application of subpart CU The provisions of subpart CU (Income from mineral mining) apply, with any necessary modiﬁcations, as follows: 453 Part C s CZ 3 Income Tax Act 2007 Reprinted as at 30 August 2013 (a) (b) (c) 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 derive income other than income from mining in the 1971–72 tax year or a later tax year.
(3) 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.
(1) 454 Reprinted as at 30 August 2013 Income Tax Act 2007 Part C s CZ 3 (2) (3) (4) (5) 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,— 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 (ii) was lent in a currency other than New Zealand currency; and 455 Part C s CZ 4 Income Tax Act 2007 Reprinted as at 30 August 2013 (b) (c) (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) (d) in relation to money lent, by a person, on or after 23 January 1985, money that is expressed to be re- payable 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 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 (1) (2) 456 Reprinted as at 30 August 2013 Income Tax Act 2007 Part C s CZ 6 CZ 5 Exempt interest: overseas money lent to government or local or public authority before 29 July 1983 Exempt income (1) 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) (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 6 457 Part C s CZ 7 Income Tax Act 2007 Reprinted as at 30 August 2013 CZ 7 Primary producer co-operative companies: 1987–88 income year 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) 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 could qualify for a deduction under section 200(4) (b) (1) (2) (3) (4) 458 Reprinted as at 30 August 2013 Income Tax Act 2007 Part C s CZ 9 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 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 459 Part C s CZ 9B Income Tax Act 2007 Reprinted as at 30 August 2013 (b) an amount is derived by the company that is attributable to— (i) (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.
(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 9B Available capital distribution amount: 1988 to 2010 (1) When this section applies This section applies for the purposes of section CD 44 (Avail- able capital distribution amount) in relation to capital gain amounts derived or capital loss amounts incurred in the period that starts on 1 April 1988 and ends on 31 March 2010.
Related person transactions (2) No capital gain amount is derived or capital loss amount in- curred by a company disposing of property under an arrange- ment with a related person.

But this subsection 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.
460 Reprinted as at 30 August 2013 Income Tax Act 2007 Part C s CZ 9B (3) Meaning of related person In this section, related person means a person related to a company (the ﬁrst company) because 1 of the following ap- plies to the person and the ﬁrst 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.
(4) Look-through relatives and nominees For the purposes of subsection (3), 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 461 Part C s CZ 9B Income Tax Act 2007 Reprinted as at 30 August 2013 (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 For the purposes of subsection (3)(e), if shares or voting rights in a company are owned or controlled by another company, 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) Relationship with section CD 44 Section CD 44(7)(c) (Available capital distribution amount) overrides this section.

Deﬁned in this Act: amount, close company, company, liquidation, related per- son, share, shareholder, trustee Section CZ 9B: inserted, on 1 April 2010, by section 67 of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section CZ 9B(2)(c): amended (with effect on 1 April 2010), on 7 Septem- ber 2010, by section 19 of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).

Section CZ 9B(6) heading: added, on 1 April 2010 (applying for the 2010–11 and later income years), by section 9(1) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
Section CZ 9B(6): added, on 1 April 2010 (applying for the 2010–11 and later income years), by section 9(1) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
(5) (6) 462 Reprinted as at 30 August 2013 Income Tax Act 2007 Part C s CZ 10 CZ 10 Transitional relief for calculation of attributed repatriation dividends: 2 July 1992 (1) (2) (3) 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 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) 463 Part C s CZ 11 Income Tax Act 2007 Reprinted as at 30 August 2013 (4) 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 CZ 11 Recovery of deductions for software acquired before 1 April 1993 (1) 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 (2) An amount derived from the disposal of the item is income.

(3) 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— (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) 464 Reprinted as at 30 August 2013 Income Tax Act 2007 Part C s CZ 13 (b) (c) 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 (2) 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.

(3) 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 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 (1) 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 (2) 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.
(3) 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 465 Part C s CZ 14 Income Tax Act 2007 Reprinted as at 30 August 2013 from 1 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),— subsection (2) does not apply to the interest: (a) section CD 22(2) applies to the interest on and after (b) 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 15 466 Reprinted as at 30 August 2013 Income Tax Act 2007 Part C s CZ 18 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 In- dustry Restructuring Act 2001, derives a dividend as a result 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 (1) 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) 467 Part C s CZ 19 Income Tax Act 2007 Reprinted as at 30 August 2013 (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).
Exempt income (2) An amount derived by a provider is exempt income if— (a) (b) 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) 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 indi- rectly 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 (Charities: business income) but for the trustee or company making a dividend, distribution, or settlement to a community 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) 468 Reprinted as at 30 August 2013 Income Tax Act 2007 Part C s CZ 21 (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 (1) 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.
469 Part C s CZ 22 Income Tax Act 2007 Reprinted as at 30 August 2013 (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.
(1) (2) 470 Reprinted as at 30 August 2013 Income Tax Act 2007 Part C s CZ 23 (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 CZ 23 Insurance or compensation for buildings replaced as revenue account property affected by Canterbury earthquakes [Repealed] Section CZ 23: repealed (with effect on 4 September 2010), on 2 November 2012, by section 18 of the Taxation (Annual Rates, Returns Filing, and Remed- ial Matters) Act 2012 (2012 No 88).
CZ 23 Employee beneﬁts for Canterbury earthquake relief: exempt income (1) (b) Exempt income Income derived by an employee from an employer is exempt income to the extent given by subsection (2) if the income— would be assessable income in the absence of this sec- (a) tion; and is provided by the employer for the purpose of relief of employees from the adverse effects of a Canterbury earthquake, as deﬁned in section 4 of the Canterbury Earthquake Recovery Act 2011, of 4 September 2010 or 22 February 2011; and is derived in the period of 8 weeks beginning on the day of that Canterbury earthquake; and does not replace a PAYE income payment; and does not depend on the seniority of the employee; and is available to another employee, who is not an asso- ciated person of the employer and is or was immedi- (d) (e) (f) (c) 471 Part C s CZ 24 Income Tax Act 2007 Reprinted as at 30 August 2013 ately before a Canterbury earthquake in full-time em- ployment with the employer, if the employee is an as- sociated person of the employer; and is treated by the employer as being exempt income for the employee.
(g) (2) Extent of exemption Income satisfying subsection (1) is exempt income to the ex- tent that the income is— (a) accommodation as deﬁned in section CE 1(2) (Amounts derived in connection with employment): less than or equal to $3,200 in total, if the income is in a form other than accommodation.
(b) Deﬁned in this Act: assessable income, employee, employer, exempt income, fringe beneﬁt, income Section CZ 23: inserted (with effect on 4 September 2010), on 24 May 2011, by section 4 of the Taxation (Canterbury Earthquake Measures) Act 2011 (2011 No 24).
CZ 24 Employee beneﬁts for Canterbury earthquake relief: not fringe beneﬁts When this section applies This section applies when an employee receives from an em- ployer a beneﬁt that— (a) would be a fringe beneﬁt in the absence of this section; and is for the purpose of the relief of employees from the adverse effects of a Canterbury earthquake, as deﬁned in section 4 of the Canterbury Earthquake Recovery Act 2011, of 4 September 2010 or 22 February 2011; and is received in the period of 8 weeks beginning on the day of that Canterbury earthquake; and does not replace a PAYE income payment; and does not depend on the seniority of the employee; and is available to another employee, who is not an asso- ciated person of the employer and is or was immedi- ately before a Canterbury earthquake in full-time em- ployment with the employer, if the employee is an as- sociated person of the employer; and is treated by the employer as not being a fringe beneﬁt.
(b) (c) (d) (e) (f) (g) (1) 472 Reprinted as at 30 August 2013 Income Tax Act 2007 Part C s CZ 25 (2) (3) Beneﬁts with known value for employee Beneﬁts satisfying subsection (1) that would, in the absence of this section, be fringe beneﬁts having a value for the employee that the employer could estimate, are not fringe beneﬁts to the extent that their total value as fringe beneﬁts for the period would be less than or equal to the amount by which $3,200 exceeds the income that is— (a) (b) exempt income under section CZ 23(2)(b); and derived by the employee from the employer in the same period.
Beneﬁts with unknown value for employee Beneﬁts satisfying subsection (1) that would, in the absence of this section, be fringe beneﬁts having a value for the employee that the employer could not estimate, are not fringe beneﬁts.

Deﬁned in this Act: associated person, employee, employer, exempt income, fringe beneﬁt, income, PAYE income payment Section CZ 24: added (with effect on 4 September 2010), on 24 May 2011, by section 4 of the Taxation (Canterbury Earthquake Measures) Act 2011 (2011 No 24).
CZ 25 Land and buildings as revenue account property affected by Canterbury earthquakes and replaced—insurance or compensation, Government purchase (1) When this section applies This section applies for a person and an income year (the cur- rent year) before the 2016–17 income year when the per- son,— (a) in or before the current year, derives for buildings or land (the affected property), all of which is revenue account property,— (i) insurance or compensation, if a Canterbury earth- quake as that term is deﬁned in section 4 of the Canterbury Earthquake Recovery Act 2011 dam- ages the land and damages each building, or the neighbourhood of the building, causing the build- ing to be useless for the purpose of deriving in- come and consequently to be abolished or aban- doned for later demolition: 473 Part C s CZ 25 Income Tax Act 2007 Reprinted as at 30 August 2013 (ii) an amount from a purchase by the Government from the person under section 53(1) of the Can- terbury Earthquake Recovery Act 2011; and in the absence of this section, would have in or before the current year a total amount of income under section CG 6 (Receipts from insurance, indemnity, or compen- sation for trading stock) from the insurance or compen- sation for the affected property that exceeds the total amount of deductions under section DB 23 (Cost of rev- enue account property) for the affected property; and plans in the current year to acquire property (the re- placement property) replacing affected property and meeting the requirements of subsection (4); and gives written notice to the Commissioner under subsec- tion (6) in relation to the affected property.
(b) (c) (d) Suspended recovery income The amount of the excess (the excess recovery) referred to in subsection (1)(a) is not income of the person except to the ex- tent of the amount (the suspended recovery income) remain- ing after adjustment under subsection (3) that is attributed to an income year by subsection (5).
Effect of purchase of replacement property If the person incurs expenditure (the replacement cost) to ac- quire replacement property,— (a) for the purposes of determining the value of the replace- ment property for section EA 2 (Other revenue account property), the amount of the person’s expenditure on the replacement property, to the extent that it is less than or equal to the total amount of the income under section CG 6 for the affected property, is treated as being re- duced by an amount calculated by multiplying the re- placement cost by the excess recovery and dividing the result by the total amount of deductions under section DB 23 for the affected property; and the amount of the suspended recovery income immedi- ately before the expenditure is reduced by an amount equal to the reduction of expenditure under paragraph (a) for the purposes of section EA 2.
(b) (2) (3) 474 Reprinted as at 30 August 2013 Income Tax Act 2007 Part C s CZ 25 (4) (5) Requirements for replacement property For an item of affected property, replacement property must be a building or land that is revenue account property— (a) acquired in or before the person’s 2015–16 income year; and located in greater Christchurch as that term is deﬁned in section 4 of the Canterbury Earthquake Recovery Act 2011.
(b) Amount remaining at end of 2015–16 income year or when person changes intentions, is liquidated, or becomes bankrupt The person has an amount of income for the affected property in the current year equal to the amount of suspended recovery income when— (a) the current year ends, if the current year is the 2015–16 income year: in the current year, the person decides not to replace the affected property: in the current year, the person goes into liquidation or becomes bankrupt.
(b) (c) Notice of election for affected property (6) A person choosing to rely on this section to suspend in a cur- rent year the recognition of suspended recovery income from the insurance for affected property must give written notice to the Commissioner— (a) (b) by the later of 31 January 2012 and the date on which the return of income is ﬁled for the earliest income year (the estimate year) in which the amount of the insurance for the affected property can be reasonably estimated; and if the current year is after the estimate year,— (i) for each income year between the estimate year and the current year, by the date on which the return of income is ﬁled for that income year; and for the current year, by the date on which the return of income is ﬁled for the current year.
(ii) Contents of notice of election (7) A notice under subsection (6) must— (a) describe the affected property; and 475 Part C s CZ 26 Income Tax Act 2007 Reprinted as at 30 August 2013 (b) (c) (d) give details of replacement property acquired in the cur- rent year to replace, in full or in part, the affected prop- erty; and give the cost of the replacement property and the reduc- tion under subsection (3) of that cost for the purposes of section EA 2; and give the amount, for the affected property, of the income from insurance or compensation remaining suspended under this section at the end of the current year.
(8) Relationship to section CG 6 This section overrides section CG 6.

Deﬁned in this Act: amount, deduction, income, income year, notice, return of income Section CZ 25: inserted (with effect on 4 September 2010), on 2 November 2012, by section 19 of the Taxation (Annual Rates, Returns Filing, and Remed- ial Matters) Act 2012 (2012 No 88).
CZ 26 Land and buildings affected by Canterbury earthquakes—sections CB 9 to CB 12 overridden for Government purchase Sections CB 9 to CB 12 (which relate to disposals within 10 years of acquisition) do not apply to a person and land or build- ings purchased by the Government from the person under sec- tion 53(1) of the Canterbury Earthquake Recovery Act 2011.
Deﬁned in this Act: land Section CZ 26: inserted (with effect on 4 September 2010), on 2 November 2012, by section 20 of the Taxation (Annual Rates, Returns Filing, and Remed- ial Matters) Act 2012 (2012 No 88).
476 Reprinted as at 30 August 2013 Income Tax Act 2007 Part D s DA 1 Part D Deductions Subpart DA—General rules Contents 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 DA 5 Treatment of expenditure for commercial ﬁt-out Page 477 478 479 480 480 DA 1 General permission Nexus with income (1) 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.
(2) (3) General permission Subsection (1) is called the general permission.

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 1 477 Part D s DA 2 Income Tax Act 2007 Reprinted as at 30 August 2013 DA 2 General limitations Capital limitation (1) 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 (2) 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 (3) 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 (4) 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 (5) A person is denied a deduction for an amount of expenditure or loss to the extent to which it is incurred in deriving non-resi- dent passive income of the kind referred to in section RF 2(3) (Non-resident passive income).

This rule is called the with- holding tax limitation.
Non-residents’ foreign-sourced income limitation (6) 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.

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 (7) 478 Reprinted as at 30 August 2013 Income Tax Act 2007 Part D s DA 3 DA 3 Effect of speciﬁc rules on general rules Supplements to general permission (1) 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 (2) 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.
(3) 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 (4) 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 (5) 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) Part E (6) 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 3 479 Part D s DA 4 Income Tax Act 2007 Reprinted as at 30 August 2013 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 DA 5 Treatment of expenditure for commercial ﬁt-out When applying the capital limitation to expenditure, to the ex- tent to which the expenditure relates to a building’s item of commercial ﬁt-out (the item), the expenditure is treated as re- lating to the item, and not the building.
Deﬁned in this Act: capital limitation, commercial ﬁt-out, expenditure Section DA 5: inserted (with effect on 1 April 2011 and applying for the 2011–12 and later income years), on 17 July 2013, by section 23(1) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Subpart DB—Speciﬁc rules for expenditure types Contents Taxes and other amounts DB 1 Taxes, other than GST, and penalties DB 2 Goods and services tax DB 3 Determining tax liabilities DB 3B Use of money interest DB 4 Chatham Islands dues DB 4B Fees to purchase funds in tax pooling accounts 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 480 Page 484 484 486 487 488 489 489 490 491 492 494 495 Reprinted as at 30 August 2013 Income Tax Act 2007 Part D s DA 5 DB 10B Interest or expenditure connected to stapled debt security 495 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 DB 16 Share-lending collateral under share-lending Share-lending arrangements 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 20B Consideration for agreement to grant, renew, extend, or transfer leasehold estate or licence DB 20C Consideration for agreement to surrender leasehold estate or terminate licence 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 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 DB 31 Bad debts Bad debts 496 496 497 497 498 498 499 499 500 500 500 501 502 503 504 505 506 507 507 508 509 509 510 481 Income Tax Act 2007 Reprinted as at 30 August 2013 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 512 513 514 517 518 519 519 520 521 Unsuccessful software development DB 40B Expenditure in unsuccessful development of software 522 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 522 524 524 525 526 DB 46 Avoiding, remedying, or mitigating effects of discharge 527 Pollution control of contaminant DB 47 Payments for remitted amounts DB 48 Restrictive covenant breached Repayments 530 530 Matching rules: revenue account property, prepayments, and deferred payments DB 49 Adjustment for opening values of trading stock, livestock, 531 and excepted ﬁnancial arrangements DB 50 Adjustment for prepayments DB 51 Adjustment for deferred payment of employment income 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 532 533 534 534 482 Reprinted as at 30 August 2013 Income Tax Act 2007 Part D s DA 5 Investment income DB 53 Attributed PIE losses of certain investors DB 54 No
 deductions for fees relating to interests in multi-rate PIEs DB 54B Expenditure incurred by foreign investment PIEs Exempt income DB 55 Expenditure incurred in deriving exempt dividend Use of motor vehicle under certain arrangements DB 56 Expenditure incurred in operating motor vehicle under agreement or arrangement affected by section CX 7 535 535 536 537 538 Payments to spouses, civil union partners, or de facto partners DB 57 Payments to spouses, civil union partners, or de facto 538 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 certain emissions units for post-1989 forest land emissions Legal expenses DB 62 Deduction for legal expenses Capital contributions DB 64 Capital contributions DB 65 Allowance for certain commercial buildings 539 540 540 541 541 542 543 544 Taxes and other amounts Heading: substituted (with effect on 1 April 2008), on 29 August 2011, by section 12 of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
483 Part D s DB 1 Income Tax Act 2007 Reprinted as at 30 August 2013 DB 1 Taxes, other than GST, and penalties No deduction (1) A person is denied a deduction for the following: (a) (b) (c) (d) (e) 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) 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) (3) Some ancillary tax excluded Subsection (1) does not apply to— (a) (b) (c) (d) (e) pay-as-you-earn (PAYE): fringe beneﬁt tax (FBT): employer’s superannuation contribution tax (ESCT): resident withholding tax (RWT): non-resident withholding tax (NRWT).

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 (1) 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.
484 Reprinted as at 30 August 2013 Deduction Income Tax Act 2007 Part D s DB 2 (2) A registered person is allowed a deduction for deductible out- put tax 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) (3) (4) (5) Exclusion Subsection (2) does not apply to an adjustment made in rela- tion to a capital asset.
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, deductible output tax, deduction, depreciable property, depreciation loss, general limitation, general permission, goods, GST, GST payable, income, input tax, output tax, pay, registered person, services, supplement Compare: 2004 No 35 s DB 2 Section DB 2(2): amended, on 1 April 2011 (applying to taxable supplies made on or after 1 April 2011), by section 37(2) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section DB 2(2): amended (with effect on 1 April 2008), on 21 December 2010 (applying for the 2008–09 and later income years), by section 37(1) of the Tax- ation (GST and Remedial Matters) Act 2010 (2010 No 130).

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).
Section DB 2(3): substituted, on 1 April 2011 (applying to taxable supplies made on or after 1 April 2011), by section 37(3) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).

Section DB 2 list of deﬁned terms deductible output tax: inserted, on 21 De- cember 2010, by section 37(4)(a) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
485 Part D s DB 3 Income Tax Act 2007 Reprinted as at 30 August 2013 Section DB 2 list of deﬁned terms taxable supply: repealed, on 21 December 2010, by section 37(4)(b) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
DB 3 Determining tax liabilities Deduction (1) A person is allowed a deduction for expenditure that they incur (b) (c) 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: (d) making a contribution towards the expenditure incurred by another person if— (i) (ii) (iii) 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 income tax or GST; and 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 (b) (c) (2) 486 Reprinted as at 30 August 2013 Income Tax Act 2007 Part D s DB 3B (3) (4) (d) (e) 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.
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).

DB 3B Use of money interest Deduction (1) A person is allowed a deduction for an amount of interest they are liable to pay under Part 7 of the Tax Administration Act 1994.
(2) Timing of deduction The deduction is allocated under section EF 5 (Use of money interest payable by person).

487 Part D s DB 4 Income Tax Act 2007 Reprinted as at 30 August 2013 (3) 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, capital limitation, deduction, employment limita- tion, general limitation, general permission, private limitation Section DB 3B: inserted (with effect on 1 April 2008), on 29 August 2011, by section 13(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
DB 4 Chatham Islands dues Deduction (1) 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: (b) subsection (3) overrides the general permission.
Deﬁned in this Act: business, capital limitation, deduction, general permission, general limitation, income year, pay, supplement Compare: 2004 No 35 s DB 4 (2) (3) (4) 488 Reprinted as at 30 August 2013 Income Tax Act 2007 Part D s DB 5 DB 4B Fees to purchase funds in tax pooling accounts Deduction (1) A person is allowed a deduction for expenditure incurred in purchasing an amount held in a tax pooling account to pay a liability for provisional tax, terminal tax, or an increase in an assessment of tax as described in sections RP 17 to RP 21 (which relate to tax pooling intermediaries).
(2) (3) Timing of deduction The deduction is allocated to the income year in which the amount is transferred into the person’s tax account by the Commissioner to satisfy the person’s obligation to pay the tax.

Link with subpart DA This section supplements the general permission and over- rides the private limitation, the employment limitation, and the withholding tax limitation.

The other general limitations still apply.


Deﬁned in this Act: amount, assessment, Commissioner, deduction, employ- ment limitation, general permission, income year, intermediary, pay, private limitation, provisional tax, tax account with the Commissioner, tax pooling ac- count, terminal tax, withholding tax limitation Section DB 4B: inserted, on 29 August 2011, by section 14 of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Financing costs DB 5 Transaction costs: borrowing money for use as capital Deduction (1) A person is allowed a deduction for expenditure incurred in borrowing money that is used as capital in deriving their in- come.

Relationship with subpart DG (1B) Subpart DG (Expenditure related to use of certain assets) over- rides this section for expenditure to which that subpart relates.
489 Part D s DB 6 Income Tax Act 2007 Reprinted as at 30 August 2013 (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: capital limitation, deduction, general limitation, general permission, income Compare: 2004 No 35 s DB 5 Section DB 5(1B) heading: inserted (with effect on 1 April 2013 and applying for the 2013–14 and later income years), on 17 July 2013, by section 24(1) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Section DB 5(1B): inserted (with effect on 1 April 2013 and applying for the 2013–14 and later income years), on 17 July 2013, by section 24(1) of the Taxa- tion (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).

DB 6 Interest: not capital expenditure Deduction (1) 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).

(2) (3) (4) 490 Reprinted as at 30 August 2013 Income Tax Act 2007 Part D s DB 7 DB 7 Interest: most companies need no nexus with income Deduction (1) A company is allowed a deduction for interest incurred.

(2) (3) (4) (5) (6) 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) ap- plies 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 income exempted under section CW 60 (Stake money) and ancillary to the company’s business of breeding.
(c) 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.

Relationship with subpart DG (6B) Subpart DG (Expenditure related to use of certain assets) over- rides this section for expenditure to which that subpart relates.
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 (7) (8) 491 Part D s DB 8 Income Tax Act 2007 Reprinted as at 30 August 2013 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(6B) heading: inserted (with effect on 1 April 2013 and applying for the 2013–14 and later income years), on 17 July 2013, by section 25(1) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Section DB 7(6B): inserted (with effect on 1 April 2013 and applying for the 2013–14 and later income years), on 17 July 2013, by section 25(1) of the Taxa- tion (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).

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).

DB 8 Interest: money borrowed to acquire shares in group companies Deduction: borrowing to acquire group company shares (1) 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.
(2) 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 (3) 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.
492 Reprinted as at 30 August 2013 Income Tax Act 2007 Part D s DB 8 (4) (5) (6) 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 resi- dent’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.
Relationship with subpart DG (6B) Subpart DG (Expenditure related to use of certain assets) over- rides this section for expenditure to which that subpart relates.

(7) (8) 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: 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(6B) heading: inserted (with effect on 1 April 2013 and applying for the 2013–14 and later income years), on 17 July 2013, by section 26(1) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Section DB 8(6B): inserted (with effect on 1 April 2013 and applying for the 2013–14 and later income years), on 17 July 2013, by section 26(1) of the Taxa- tion (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).

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).
493 Part D s DB 9 Income Tax Act 2007 Reprinted as at 30 August 2013 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 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 as having been paid and derived at the end of the quarter in which the amount is calculated.
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- the general permission; and the exempt income limitation.
(1) (2) (3) (4) (5) 494 Reprinted as at 30 August 2013 Income Tax Act 2007 Part D s DB 10B 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 (1) When this section applies This section applies for the purposes of section FA 2 (Rechar- acterisation of certain debentures).
No deduction (2) 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) (3) (4) 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) DB 10B Interest or expenditure connected to stapled debt security No deduction (1) 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.

(2) 495 Part D s DB 11 Income Tax Act 2007 Reprinted as at 30 August 2013 (3) 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 Deduction (1) 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.
(2) 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 DB 12 Base price adjustment under old ﬁnancial arrangements rules Deduction (1) 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 (2) 496 Reprinted as at 30 August 2013 Income Tax Act 2007 Part D s DB 14 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 (1) (2) (3) (4) (5) 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).

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 11 497 Part D s DB 15 Income Tax Act 2007 Reprinted as at 30 August 2013 DB 15 Sureties (1) When this section applies This section applies when a surety incurs expenditure or loss under a security arrangement.
No deduction (with exceptions) (2) 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) (b) (c) 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.
(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 No deduction (1) 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) the general permission: (2) 498 Reprinted as at 30 August 2013 Income Tax Act 2007 Part D s DB 18 sections DB 23 to DB 26.
(b) Deﬁned in this Act: amount, deduction, general permission, share-lending ar- rangement, share-lending collateral Compare: 2004 No 35 s DB 12B 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, replacement payment, share-lending arrangement Compare: 2004 No 35 s DB 12C Section DB 17 list of deﬁned terms portfolio investment-linked life fund: repealed (with effect on 1 April 2008), on 29 August 2011 (applying for the 2008–09 and later income years), by section 140(1) of the Taxation (Tax Ad- ministration and Remedial Matters) Act 2011 (2011 No 63).
Premises or land costs DB 18 Transaction costs: leases Deduction (1) A person is allowed a deduction for expenditure that they incur for the preparation and registration, or the renewal, of a lease of property.

(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: capital limitation, deduction, general limitation, general permission, lease Compare: 2004 No 35 s DB 13 499 Part D s DB 19 Income Tax Act 2007 Reprinted as at 30 August 2013 DB 19 Expenses of failed or withdrawn application for resource consent Deduction (1) 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) (2) (3) 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 DB 20 Destruction of temporary building Deduction (1) A person is allowed a deduction for a loss that they incur through the destruction of a temporary building.

(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, loss, supplement, temporary building Compare: 2004 No 35 s DB 14 DB 20B Consideration for agreement to grant, renew, extend, or transfer leasehold estate or licence When this section applies This section applies when— (1) 500 Reprinted as at 30 August 2013 Income Tax Act 2007 Part D s DB 20C (a) (b) a person (the payer) incurs an amount of expenditure as consideration for the agreement by another person (the payee) to the grant, renewal, extension, or transfer of a right (the land right) that is a leasehold estate, or a licence to use land; and the payer is the person who owns— (i) (ii) the land right: the estate in land from which the land right is granted; and (c) the payee is the person who is obtaining the land right.
Deduction The payer is allowed a deduction for the amount.

Relationship 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, depreciable intan- gible property, estate, general limitation, general permission, land, leasehold estate, own Section DB 20B: inserted (with effect on 1 April 2013 and applying to an amount that is incurred on or after that date in relation to a lease or licence en- tered, renewed, extended, or transferred on or after that date), on 17 July 2013, by section 27(1) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
(2) (3) DB 20C Consideration for agreement to surrender leasehold estate or terminate licence (1) When this section applies This section applies when— (a) a person (the payer) incurs an amount of expenditure as consideration for the agreement by another person (the payee) to the surrender or termination of a right (the land right) that is a leasehold estate or licence to use land; and the payer is a person who owns the land right or a person who owns the estate in land from which the land right is granted; and the payee is a person who owns the estate in land from which the land right is granted or a person who owns the land right.
(b) (c) 501 Part D s DB 21 Income Tax Act 2007 Reprinted as at 30 August 2013 (2) (3) Deduction The payer is allowed a deduction for the amount.

Relationship 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, estate, general limi- tation, general permission, land, leasehold estate, own Section DB 20C: inserted (with effect on 1 April 2013 and applying to an amount that is incurred on or after that date), on 17 July 2013, by section 27(2) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Mat- ters) Act 2013 (2013 No 52).
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) 502 Reprinted as at 30 August 2013 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) 503 Part D s DB 23 Income Tax Act 2007 Reprinted as at 30 August 2013 (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-com- pliance 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 (1) A person is allowed a deduction for expenditure that they incur as the cost of revenue account property.
No deduction (2) Despite subsection (1), a person is denied a deduction for ex- penditure incurred as the cost of revenue account property if— (a) (b) [Repealed] section CX 55, CX 56B, or CX 56C (which relate to portfolio investment income) applies to income derived by the person from the disposal of the revenue account property.

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 Section DB 23(2) heading: substituted, on 29 August 2011, by section 15(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
(3) 504 Reprinted as at 30 August 2013 Income Tax Act 2007 Part D s DB 24 Section DB 23(2)(a): repealed, on 1 April 2010 (applying for the 2010–11 and later income years), by section 73(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section DB 23(2)(b): amended, on 29 August 2011, by section 15(2) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
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- 505 Part D s DB 25 Income Tax Act 2007 Reprinted as at 30 August 2013 tion (3), is more than the amount offset under section IC 1, as adjusted under subsection (4).
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 (1) 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 (2) 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.

506 Reprinted as at 30 August 2013 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.
507 Part D s DB 28 Income Tax Act 2007 Reprinted as at 30 August 2013 (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) 508 Reprinted as at 30 August 2013 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) 509 Part D s DB 31 Income Tax Act 2007 Reprinted as at 30 August 2013 (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) Bad debts DB 31 Bad debts No deduction (with exception) (1) 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 (2) 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 510 Reprinted as at 30 August 2013 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.
Deduction: ﬁnancial arrangement debt: dealers in arrangements (3) 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.
Deduction: ﬁnancial arrangement debt: dealers in property or services sold (4) 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) (b) (c) (d) (e) Deduction: bad debt representing loss already offset (5) 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 511 Part D s DB 32 Income Tax Act 2007 Reprinted as at 30 August 2013 (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) 512 Reprinted as at 30 August 2013 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 Deduction: scientiﬁc research (1) 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.
(2) 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 513 Part D s DB 34 Income Tax Act 2007 Reprinted as at 30 August 2013 (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 (1) 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 (2) (3) (4) 514 Reprinted as at 30 August 2013 Income Tax Act 2007 Part D s DB 34 (b) 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 develop- ment; 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.
Choice for allocation of deduction (7) 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— 515 Part D s DB 34 Income Tax Act 2007 Reprinted as at 30 August 2013 (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 (8) 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.
(9) Relationship with section EA 2 If expenditure to which this section applies is incurred in devis- ing 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).

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).
516 Reprinted as at 30 August 2013 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 or issued under the Financial Reporting Act 1993, 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) 517 Part D s DB 36 Income Tax Act 2007 Reprinted as at 30 August 2013 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) new reporting standard: amended, on 1 July 2011, by sec- tion 12 of the Financial Reporting Amendment Act 2011 (2011 No 22).
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 Deduction (1) 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 (2) 518 Reprinted as at 30 August 2013 Income Tax Act 2007 Part D s DB 38 DB 37 Expenses of failed or withdrawn patent application Deduction (1) 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— (a) (b) 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.
(c) (2) (3) 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 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) 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).
519 Part D s DB 39 Income Tax Act 2007 Reprinted as at 30 August 2013 (4) (5) 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 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 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— unexpired term of the patent rights at the date of sale unexpired term of the patent rights at the date of acquisition × cost.

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 (1) (2) (3) (4) 520 Reprinted as at 30 August 2013 Income Tax Act 2007 Part D s DB 40 DB 40 Patent applications or patent rights acquired on or after 1 April 1993 (1) (2) (3) (4) (5) 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.
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 Unsuccessful software development Heading: inserted (with effect on 1 April 2008), on 2 November 2012 (apply- ing for the 2008–09 and later income years), by section 21(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
521 Part D s DB 40B Income Tax Act 2007 Reprinted as at 30 August 2013 DB 40B Expenditure in unsuccessful development of software (1) (2) (3) (4) When this section applies This section applies when a person incurs expenditure in the development of software for use in the person’s business if— the development of the software is abandoned when the (a) software is not depreciable property of the person; and the software would have been depreciable property of the person if the development had been completed.
(b) Deduction The person is allowed a deduction for expenditure incurred in the development of the software to the extent to which no deduction has been allowed for the expenditure under another provision of this Act or under another Act.

Timing of deduction The deduction is allocated to the income year in which the development of the software is abandoned.

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 Section DB 40B: inserted (with effect on 1 April 2008), on 2 November 2012 (applying for the 2008–09 and later income years), by section 21(1) of the Tax- ation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
DB 41 Charitable or other public beneﬁt gifts by company Marketing Who this section applies to [Repealed] [Repealed] (1) Deduction (2) A company is allowed a deduction for a charitable or other public beneﬁt gift that it makes to a donee organisation.
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- (3) 522 Reprinted as at 30 August 2013 Income Tax Act 2007 Part D s DB 41 (4) 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, deduction, donee organisation, general limitation, general permission, income year, net income, 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 6 January 2010, by section 74(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

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).

Section DB 41 list of deﬁned terms close company: repealed, on 6 January 2010, by section 74(2)(a) of the Taxation (International Taxation, Life Insur- ance, and Remedial Matters) Act 2009 (2009 No 34).
Section DB 41 list of deﬁned terms company: repealed, on 6 January 2010, by section 74(2)(a) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section DB 41 list of deﬁned terms recognised exchange: repealed, on 6 Janu- ary 2010, by section 74(2)(a) of the Taxation (International Taxation, Life In- surance, and Remedial Matters) Act 2009 (2009 No 34).
Section DB 41 list of deﬁned terms share: repealed, on 6 January 2010, by section 74(2)(a) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section DB 41 list of deﬁned terms donee organisation: inserted, on 6 January 2010, by section 74(2)(b) of the Taxation (International Taxation, Life Insur- ance, and Remedial Matters) Act 2009 (2009 No 34).
523 Part D s DB 42 Income Tax Act 2007 Reprinted as at 30 August 2013 Theft and bribery DB 42 Property misappropriated by employees or service providers (1) (2) (3) (4) (5) 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 a person who misappropri- ates property is associated with the person who carries on the business.

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 Section DB 42(2): substituted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 75(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
DB 43 Making good loss from misappropriation by partners 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 (1) 524 Reprinted as at 30 August 2013 Income Tax Act 2007 Part D s DB 44 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 is received in the course of the business either by the partnership or 1 or more of its partners.
(b) (2) (3) (4) 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 (1) 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.
(2) (3) 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.

525 Part D s DB 45 Income Tax Act 2007 Reprinted as at 30 August 2013 (4) 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 DB 45 Bribes paid to public ofﬁcials 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,— (1) (2) (3) (4) 526 Reprinted as at 30 August 2013 Income Tax Act 2007 Part D s DB 46 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) routine government action is deﬁned in section 105C of the Crimes Act 1961.
(5) 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 (1) 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, in either part A or B (Expenditure in avoiding, remedying, or miti- gating detrimental effects of discharge of con- taminant) 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 elec- tion); and (ii) (c) no other provision allows a deduction for the expend- iture.
527 Part D s DB 46 Income Tax Act 2007 Reprinted as at 30 August 2013 (2) 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) (c) 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: 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.
(3) Deﬁnition of items in formula The items in the formula in subsection (2)(a) are deﬁned in subsections (4) and (6).
Rate (4) 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 (5) 528 Reprinted as at 30 August 2013 Income Tax Act 2007 Part D s DB 46 (b) 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.
Value (6) Value is— (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.

(7) (8) (9) 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— 100% assumed life.
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 37 529 Part D s DB 47 Income Tax Act 2007 Reprinted as at 30 August 2013 Section DB 46(1)(b)(i): amended (with effect on 1 April 2008), on 21 December 2010 (applying for the 2008–09 and later income years), by section 38(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Repayments DB 47 Payments for remitted amounts (1) (2) (3) 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 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.
(b) (c) (d) (e) (f) 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 DB 48 Restrictive covenant breached 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 (1) 530 Reprinted as at 30 August 2013 Income Tax Act 2007 Part D s DB 49 (2) (3) (4) (5) (b) (c) 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.
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) 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 (1) 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): (b) 531 Part D s DB 50 Income Tax Act 2007 Reprinted as at 30 August 2013 (c) (d) 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).
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).
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 (2) (3) (4) (5) DB 50 Adjustment for prepayments 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.

(1) (2) 532 Reprinted as at 30 August 2013 Income Tax Act 2007 Part D s DB 51 (3) 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) (2) (3) 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 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).
533 Part D s DB 51B Income Tax Act 2007 Reprinted as at 30 August 2013 DB 51B Adjustments for leases that become ﬁnance leases (1) (2) (3) 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).
Change to accounting practice DB 52 Adjustment for change to accounting practice 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 (1) (2) (3) 534 Reprinted as at 30 August 2013 Income Tax Act 2007 Part D s DB 54 Investment income DB 53 Attributed PIE losses of certain investors (1) (2) (3) When this section applies This section applies to an investor in a multi-rate PIE when— an amount of attributed PIE loss is attributed under (a) section HM 36 (Calculating amounts attributed to in- vestors) to an investor for an attribution period in a tax year; and either the investor is— (i) (ii) a zero-rated investor; or treated under section HM 61 (Certain exiting in- vestors zero-rated) as zero-rated.
(b) Deduction The investor is allowed a deduction for the amount allocated to the investor’s income year in which the PIE’s tax year ends.

Link with subpart DA This section supplements the general permission.

The general limitations still apply.
Deﬁned in this Act: amount, attributed PIE loss, attribution period, deduction, exit period, general limitation, general permission, income tax liability, income year, investor, multi-rate PIE, PIE, quarter, tax year, zero-rated portfolio in- vestor Compare: 2007 No 97 s DB 53 Section DB 53: substituted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 77(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
DB 54 No deductions for fees relating to interests in multi-rate PIEs (1) When this section applies This section applies when an investor in an investor class of a multi-rate PIE incurs expenses in relation to their investor in- terest, and the entity includes the amount in the calculation of its tax liability under section HM 47 (Calculation of tax liabil- ity or tax credit of multi-rate PIEs) in relation to the investor.

No deduction The investor is denied a deduction for the amount.
(2) 535 Part D s DB 54B Income Tax Act 2007 Reprinted as at 30 August 2013 (3) Link with subpart DA This section overrides the general permission.

Deﬁned in this Act: amount, deduction, general permission, investor, investor class, investor interest, multi-rate PIE Compare: 2007 No 97 s DB 54 Section DB 54: substituted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 78(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section DB 54 heading: replaced, on 17 July 2013, by section 28 of the Taxa- tion (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
DB 54B Expenditure incurred by foreign investment PIEs When this section applies This section applies when a foreign investment PIE incurs ex- penditure or loss in deriving income attributable to— (a) (b) a notiﬁed foreign investor in the PIE: a transitional resident who has chosen under section HM 55D(9) (Requirements for investors in foreign in- vestment PIEs) to use the speciﬁed prescribed investor rate.

No deduction The PIE is denied a deduction for the amount of the expend- iture or loss.
Relationship with section DB 7 This section overrides section DB 7 (Interest: most companies need no nexus with income).

Link with subpart DA This section overrides the general permission.
Deﬁned in this Act: amount, deduction, foreign investment PIE, general per- mission, income, loss, notiﬁed foreign investor, prescribed investor rate, transi- tional resident Section DB 54B: inserted, on 29 August 2011 (applying for the 2012–13 and later income years for a foreign investment variable-rate PIE and a notiﬁed for- eign investor in the PIE), by section 16(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section DB 54B(1): replaced, on 2 November 2012, by section 22(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).

(1) (2) (3) (4) 536 Reprinted as at 30 August 2013 Income Tax Act 2007 Part D s DB 55 Section DB 54B list of deﬁned terms prescribed investor rate: inserted, on 2 November 2012, by section 22(2) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section DB 54B list of deﬁned terms transitional resident: inserted, on 2 November 2012, by section 22(2) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Exempt income DB 55 Expenditure incurred in deriving exempt dividend Deduction (1) A company that derives a dividend that is exempt income of the company under section CW 9 (Dividend derived from foreign company) is allowed a deduction of the amount of the expend- iture incurred by the company in deriving the dividend.

(2) (3) 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 (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
537 Part D s DB 56 Income Tax Act 2007 Reprinted as at 30 August 2013 Use of motor vehicle under certain arrangements DB 56 Expenditure incurred in operating motor vehicle under agreement or arrangement affected by section CX 7 Deduction (1) 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.
(2) 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 (1) 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) (2) 538 Reprinted as at 30 August 2013 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 Deduction denied (1) 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 (2) 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 ar- rangements).

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 (3) 539 Part D s DB 59 Income Tax Act 2007 Reprinted as at 30 August 2013 DB 59 Market value substituted Transfer pricing arrangements (1) A person may be denied a deduction under section GC 7 (Ex- cess amount payable by person).
Acquisition for below market value (2) A person may be treated as providing an amount— (a) (b) 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).

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 (3) 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).
DB 60 Acquisition of emissions units When this section applies This section applies when an emissions unit is transferred to a person for a price of zero— (a) under section 64, or Part 4, subpart 2, of the Climate Change Response Act 2002: in relation to a forest sink covenant under section 67Y of the Forests Act 1949 entered by the person.

(b) 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 (1) (2) (3) 540 Reprinted as at 30 August 2013 Income Tax Act 2007 Part D s DB 61 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).
Section DB 60(1): substituted (with effect on 1 January 2009), on 7 Septem- ber 2010, by section 20 of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
DB 60B Liabilities for emissions (1) (2) (3) When this section applies This section applies when a person incurs a liability— (a) under the Climate Change Response Act 2002 for emis- sions relating to post-1989 forest land or pre-1990 forest land: to transfer emissions units to the Crown under a forest sink covenant under section 67Y of the Forests Act 1949 entered by the person.

(b) 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, emissions unit, 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).
Section DB 60B(1): substituted (with effect on 1 January 2009), on 7 September 2010, by section 21(1) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).

Section DB 60B list of deﬁned terms emissions unit: inserted (with effect on 1 January 2009), on 7 September 2010, by section 21(2) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
DB 61 Surrender of certain emissions units for post-1989 forest land emissions (1) When this section applies This section applies when a person surrenders a pre-1990 for- est land emissions unit or ﬁshing quota emissions unit to meet a liability under the Climate Change Response Act 2002 to surrender units in relation to post-1989 forest land.
541 Part D s DB 62 Income Tax Act 2007 Reprinted as at 30 August 2013 (2) Treated as disposal and reacquisition The person is treated as having disposed of the emissions 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, emissions unit, ﬁshing quota emissions unit, pre- 1990 forest land emissions unit, surrender Section DB 61: substituted (with effect on 1 July 2010), on 7 September 2010, by section 22 of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).

Legal expenses Heading: added, on 1 April 2009, by section 4 of the Taxation (Business Tax Measures) Act 2009 (2009 No 5).
DB 62 Deduction for legal expenses 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).
(1) (2) (3) (4) 542 Reprinted as at 30 August 2013 Income Tax Act 2007 Part D s DB 64 Capital contributions Heading: added (with effect on 20 May 2010), on 28 May 2010 (applying for capital contributions derived after 20 May 2010), by section 76(1) of the Taxa- tion (Budget Measures) Act 2010 (2010 No 27).
DB 64 Capital contributions (1) (2) (3) When this section applies This section applies if,— (a) (b) (c) a person has derived a capital contribution after 20 May 2010; and in the absence of this section, the person would be al- lowed a deduction for the relevant capital contribution property, or for the relevant expenditure for the capital contribution property; and the person has chosen to apply this section in a return of income for the income year in which the capital con- tribution is derived.
Deductions For the purposes of quantifying the amount of depreciation loss under subpart EE (Depreciation) in relation to the capital contribution property or the amount of deduction under sub- part DO (Farming and aquacultural business expenditure) in relation to expenditure for the capital contribution property,–– the capital contribution property’s adjusted tax value, (a) base value, cost, or value, as applicable, is reduced by the amount of the capital contribution, under subpart EE: the relevant expenditure for the capital contribution property is reduced by the amount of the capital contri- bution, under subpart DO.
(b) Links with subpart DA This section overrides the general permission.

Deﬁned in this Act: adjusted tax value, amount, capital contribution, capital contribution property, deduction, expenditure, general permission, income, in- come year, return of income Section DB 64: inserted (with effect on 20 May 2010), on 28 May 2010 (ap- plying for capital contributions derived after 20 May 2010), by section 76(1) of the Taxation (Budget Measures) Act 2010 (2010 No 27).
Section DB 64(1)(b): replaced (with effect on 1 April 2011 and applying for the 2011–12 and later income years), on 17 July 2013, by section 29(1) of the 543 Part D s DB 65 Income Tax Act 2007 Reprinted as at 30 August 2013 Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Section DB 64(2) heading: replaced (with effect on 1 April 2011 and applying for the 2011–12 and later income years), on 17 July 2013, by section 29(2) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).

Section DB 64(2): replaced (with effect on 1 April 2011 and applying for the 2011–12 and later income years), on 17 July 2013, by section 29(2) of the Taxa- tion (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Section DB 64 list of deﬁned terms capital contribution property: inserted (with effect on 1 April 2011 and applying for the 2011–12 and later income years), on 17 July 2013, by section 29(3) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Section DB 64 list of deﬁned terms expenditure: inserted (with effect on 1 April 2011 and applying for the 2011–12 and later income years), on 17 July 2013, by section 29(3) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
DB 65 Allowance for certain commercial buildings When this section applies This section applies when— (a) a person owns an item that is a commercial building (the building), and the building is depreciable property with an annual rate of 0%, in an income year; and the item starting pool described in subsection (3)(a) is greater than the total of all deductions allowed under this section for income years before the income year; and the person has been allowed a deduction for an amount of depreciation loss for the building for the 2010–11 income year and the person has not disposed of it since then; and the person has never had a deduction for an amount of depreciation loss for a separate item of depreciable property that is commercial ﬁt-out and that was acquired at the same time as the building and relates to the build- ing; and the building was acquired in the 2010–11 or earlier in- come years; and the person is not allowed a deduction under any other provision in relation to the building, for the income year.
(b) (c) (d) (e) (f) (1) 544 Reprinted as at 30 August 2013 Income Tax Act 2007 Part D s DB 65 (2) (3) (4) (5) Deduction Except as provided by subsection (6), the person is treated as having a loss for the income year equal to the amount calcu- lated using the formula— starting pool × 0.02 × whole months 12.
Deﬁnition of items in formula In the formula in subsection (2),— (a) starting pool is the amount given by the formula in subsection (4): (b) whole months is the number of whole months in the income year in which the item is used, or is available for use, by the person in deriving assessable income or carrying on a business for the purpose of deriving assessable income.
Starting pool: formula For the purposes of subsection (3)(a), the amount is calculated using the formula— (0.15 × building atv) – ﬁtout atv.
Deﬁnition of items in formula In the formula in subsection (4),— (a) (b) building atv is the adjusted tax value of the building that results for the 2010–11 income year after all rele- vant amounts for that income year have been subtracted under subpart EE (Depreciation): ﬁtout atv is the total adjusted tax value of all items of commercial ﬁt-out that results for the 2010–11 income year after all relevant amounts for that income year have been subtracted under subpart EE, if— (i) the items of commercial ﬁt-out relate to the build- ing and were acquired after the building was ac- quired; and the person has had a deduction for an amount of depreciation loss for the items of commercial ﬁt-out.
(ii) 545 Income Tax Act 2007 Reprinted as at 30 August 2013 Exception: deductible amount (6) Despite subsection (2), if the item starting pool described in subsection (3)(a), reduced by the total of all deductions al- lowed under this section for income years before the income year, is equal to an amount (the deductible amount) that is smaller than the amount given by the formula in subsection (2) (the formula amount), then the person is treated as having a loss for the income year equal to the deductible amount instead of the formula amount.
(7) Treatment of amounts under speciﬁc and general rules for deductions The capital limitation does not apply to a loss under this sec- tion merely because the item of property is itself of a capital nature.
Deﬁned in this Act: adjusted tax value, amount, assessable income, building, capital limitation, commercial building, commercial ﬁt-out, deduction, depre- ciable property, depreciation loss, dispose, estimated useful life, income year Section DB 65: inserted, on 1 April 2011 (applying for the 2011–12 and later income years), by section 39(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Subpart DC—Employee or contractor expenditure Contents Pension payments to former employees Pension payments to former partners DC 1 Lump sum payments on retirement DC 2 DC 3 DC 3B Payments to working owners Payments to working partners DC 4 Payments to spouses, civil union partners, or de facto DC 5 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 Page 547 548 549 550 551 552 553 553 554 555 555 556 557 546 Reprinted as at 30 August 2013 Income Tax Act 2007 Part D s DC 1 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 558 560 562 DC 1 Lump sum payments on retirement Deduction (1) 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.
(2) (3) (4) (5) 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 considered the loss of employment or service through redundancy if they resulted in ending the seasonal work.
(b) 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 1 547 Part D s DC 2 Income Tax Act 2007 Reprinted as at 30 August 2013 DC 2 Pension payments to former employees When subsection (2) applies Subsection (2) applies when— (a) (b) (c) (d) (c) (d) (e) (f) 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.
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.
When subsection (4) applies Subsection (4) applies when— (a) (b) 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 (1) (2) (3) 548 Reprinted as at 30 August 2013 Income Tax Act 2007 Part D s DC 3 (4) (5) 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 (6) A deduction under this section is allocated to the income year in which the amount is paid.

(7) (8) Relationship with section FB 11 Section FB 11 (Pension payments to former employees) ex- pands on 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, 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) 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.
549 Part D s DC 3B Income Tax Act 2007 Reprinted as at 30 August 2013 (3) 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) (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 3B Payments to working owners Deduction (1) A person who has an effective look-through interest for a look- through company (an owner) is allowed a deduction for their share of a payment made under a contract of employment to a working owner.
Amount of deduction The amount of the deduction is limited to the amount of the payment authorised by the contract of employment and any bonus, whether or not the payment of a bonus is authorised by the contract.
(2) 550 Reprinted as at 30 August 2013 Income Tax Act 2007 Part D s DC 4 (3) (4) Meaning of contract of employment In this section, contract of employment, for a working owner, means an agreement that— (a) speciﬁes the terms and conditions of the services to be performed by the working owner; and speciﬁes the amount payable to the working owner for the performance of the services; and is in writing.

(b) (c) Link with subpart DA This section supplements the general permission.
The general limitations still apply.

Deﬁned in this Act: amount, contract of employment, deduction, effective look- through interest, general limitation, general permission, look-through company, pay, supplement, working owner Section DC 3B: inserted, on 1 April 2011 (applying for income years beginning on or after 1 April 2011), by section 40(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
DC 4 Payments to working partners Deduction (1) 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) (2) (3) 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.
551 Part D s DC 5 Income Tax Act 2007 Reprinted as at 30 August 2013 (4) (5) (6) 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 is in writing.

(b) (c) (d) 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 No deduction without approval (1) 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).

(2) (3) 552 Reprinted as at 30 August 2013 Income Tax Act 2007 Part D s DC 7 (4) 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 Deduction (1) 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) (b) the fund is not a superannuation scheme; and the employees’ rights to receive beneﬁts from the fund are fully secured.
(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: 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 Deduction (1) An employer is allowed a deduction for a superannuation con- tribution to an employees’ superannuation scheme.
Exclusion [Repealed] (1B) [Repealed] (2) (3) 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).

553 Part D s DC 8 Income Tax Act 2007 Reprinted as at 30 August 2013 (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, 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).
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 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 (1) (2) (3) (4) 554 Reprinted as at 30 August 2013 Income Tax Act 2007 Part D s DC 10 DC 9 Restrictive covenants or exit inducements Deduction (1) 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).
(2) (3) 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 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 (1) (2) 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 555 Part D s DC 11 Income Tax Act 2007 Reprinted as at 30 August 2013 (b) 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.
(3) (4) (5) 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 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.
(b) 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 When this section applies This section applies when— (a) an employee of a person (person A) becomes an em- ployee of another person (person B); and (1) 556 Reprinted as at 30 August 2013 Income Tax Act 2007 Part D s DC 12 (b) (c) (d) 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.
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.

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 (2) (3) DC 12 Loans to employees under share purchase schemes Deduction (1) 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) (2) 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.
557 Part D s DC 13 Income Tax Act 2007 Reprinted as at 30 August 2013 (3) (4) (5) Shares issued by another group company Subsection (4) applies when— (a) (b) (c) (d) 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 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 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) the shares to be available for no more than their market value at the date of purchase or subscription; and (1) (2) 558 Reprinted as at 30 August 2013 Income Tax Act 2007 Part D s DC 13 (b) 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.
(3) (4) (5) Eligibility The scheme must provide for— (a) employees to be eligible to participate equally in the scheme, that is,— (i) 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 (ii) (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 (b) (c) (d) (b) 559 Part D s DC 14 Income Tax Act 2007 Reprinted as at 30 August 2013 (6) (7) (c) (d) (e) 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.
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 (b) 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).
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 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- (1) 560 Reprinted as at 30 August 2013 Income Tax Act 2007 Part D s DC 14 striction ends, that the Commissioner applies in determining whether or not to approve the scheme.
(2) (3) (4) (5) General rule The scheme must provide for— (a) the trustee— (i) (ii) to transfer the shares to the employee if the em- ployee is still employed by the company; or 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) 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 13 561 Part D s DC 15 Income Tax Act 2007 Reprinted as at 30 August 2013 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 (1) Deﬁnitions In this section, and in sections DC 12 to DC 14,— employee— (a) means a person that— (i) (ii) is employed by a company: is not a corporation sole, a body corporate, or an unincorporated body: (b) does not include— (i) (ii) a director of the company; or a person who, with any associated person, holds 10% or more of the issued capital of the company [Repealed] (iii) 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.
562 Reprinted as at 30 August 2013 Income Tax Act 2007 Part D s DC 15 (2) (3) (4) 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 is transferred to another company in the group, the em- ployee is treated as continuing in their employment.
(b) 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 Section DC 15(1) employee paragraph (a): replaced (with effect on 1 April 2008), on 2 November 2012 (applying for the 2008–09 and later income years), by section 23(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section DC 15(1) employee paragraph (b)(ii): amended (with effect on 1 April 2008), on 2 November 2012 (applying for the 2008–09 and later income years), by section 23(2)(a) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
563 Income Tax Act 2007 Reprinted as at 30 August 2013 Section DC 15(1) employee paragraph (b)(iii): repealed (with effect on 1 April 2008), on 2 November 2012 (applying for the 2008–09 and later income years), by section 23(2)(b) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Subpart DD—Entertainment expenditure Contents 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 DD 1 Entertainment expenditure generally Page 564 565 566 566 568 569 569 569 569 570 570 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.

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 (1) (2) (3) (4) 564 Reprinted as at 30 August 2013 Income Tax Act 2007 Part D s DD 2 DD 2 Limitation rule (1) (2) (3) (4) (5) 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) (b) (c) (b) 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.
Pleasure craft The limitation rule— (a) applies to deductions for expenditure on yachts or other pleasure craft; and 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.
565 Part D s DD 3 Income Tax Act 2007 Reprinted as at 30 August 2013 (6) (7) 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 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 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 (1) 566 Reprinted as at 30 August 2013 Income Tax Act 2007 Part D s DD 4 (2) (3) 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- ees and their guests to use and is not open to all the person’s employees working in the premises.
(b) 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).

567 Part D s DD 5 Income Tax Act 2007 Reprinted as at 30 August 2013 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) 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 as- sociated 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 (1) (2) (3) (4) 568 Reprinted as at 30 August 2013 Income Tax Act 2007 Part D s DD 9 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— income of the person who consumes it; or (a) (b) a fringe beneﬁt to which fringe beneﬁt tax applies.
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 29 569 Part D s DD 10 Income Tax Act 2007 Reprinted as at 30 August 2013 (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 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) 570 Reprinted as at 30 August 2013 Income Tax Act 2007 Part D s DE 1 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 Contents 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 DE 9 Inadequate logbook DE 10 Variance during logbook term DE 11 Replacement vehicles DE 12 Mileage rate method Mileage rates Page 571 572 574 575 575 575 576 576 577 578 578 579 Introductory provisions DE 1 What this subpart does (1) 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.
571 Part D s DE 2 Income Tax Act 2007 Reprinted as at 30 August 2013 (2) 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 DE 2 Deductions for business use Deduction (1) A person is allowed a deduction for— (a) (b) 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.
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 (b) (2) (3) (4) 572 Reprinted as at 30 August 2013 Income Tax Act 2007 Part D s DE 2 (5) (6) (7) (c) using the formula in subsection (11) if that subsection applies to the amount of depreciation loss.
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): 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.
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).
Calculation of deduction: depreciation loss on disposal The formula referred to in subsection (4)(b) is— (8) disposal depreciation loss × all deductions (base value adjusted tax value).
(9) 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 relat- ing to the vehicle for which the person has been allowed 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): 573 (b) (b) (b) (c) Part D s DE 3 Income Tax Act 2007 Reprinted as at 30 August 2013 (d) adjusted tax value is the vehicle’s adjusted tax value on the date on which the disposal or event occurs.
When subsection (11) applies (10) Subsection (11) applies when— (a) (b) 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.

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 actual records, see section DE 5: a logbook, see sections DE 6 to DE 11: The 3 methods that may be used to calculate the proportion of business use of a motor vehicle are— (a) (b) (c) mileage rates, see section DE 12.
Deﬁned in this Act: business use, motor vehicle Compare: 2004 No 35 s DE 3 574 Reprinted as at 30 August 2013 Income Tax Act 2007 Part D s DE 6 DE 4 Default method for calculating proportion of business use (1) (2) 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) 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 Logbook DE 6 Using logbook for test period 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 575 Part D s DE 7 Income Tax Act 2007 Reprinted as at 30 August 2013 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 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 (1) 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 (2) 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: 576 Reprinted as at 30 August 2013 Income Tax Act 2007 Part D s DE 9 (b) (c) (d) 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.
(3) 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: 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 (b) (c) DE 9 Inadequate logbook (1) (2) 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 577 Part D s DE 10 Income Tax Act 2007 Reprinted as at 30 August 2013 (3) (4) (b) did not represent that use at all.
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.

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 percentage points than the proportion established by the logbook, and the pro- portion of business use recorded in the logbook no longer rep- resents the average use of the motor vehicle for business pur- poses, 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 Section DE 10: amended (with effect on 1 April 2008), on 21 December 2010 (applying for the 2008–09 and later income years), by section 41(1) of the Tax- ation (GST and Remedial Matters) Act 2010 (2010 No 130).
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 (b) 578 Reprinted as at 30 August 2013 Income Tax Act 2007 Part D s DE 12 for each income year, or part of an income year, of the remaining logbook term.
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 (1) 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 the expenditure or loss on a motor vehicle that represents the proportion of business use of the vehicle.
Amount of deduction (2) 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.
(3) 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).
Contents 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 Page 580 582 583 583 579 Part D s DF 1 Income Tax Act 2007 Reprinted as at 30 August 2013 DF 5 Government funding additional to government screen 584 production payments DF 1 Government grants to businesses (1) When this section applies This section applies when— (a) (b) (c) (d) 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) is in the nature of a grant or subsidy to the person; or is a grant-related suspensory loan to the person; and (ii) the payment is not in the nature of an advance or loan other than a grant-related suspensory loan; and the person does not make an election that section CX 47(4) (Government grants to businesses) apply to the payment.
When subsection (2) applies (1B) Subsection (2) applies when, in the absence of this section, the person would be allowed a deduction for expenditure by the person to which the payment by the local or public authority corresponds.

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) expenditure by the person in the acquisition, construc- tion, installation, or extension of an item of depreciable property is expenditure to which the payment by the local or public authority corresponds; and in the absence of this section, the person would be al- lowed a deduction for an amount of depreciation loss for the item of depreciable property.
(b) (2) (3) 580 Reprinted as at 30 August 2013 Income Tax Act 2007 Part D s DF 1 (4) 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 (5) Despite the time bar, the Commissioner may amend an assess- ment at any time in order to give effect to this section.

(6) (7) 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(1) heading: substituted (with effect on 1 October 2010), on 21 De- cember 2010, by section 42(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section DF 1(1): substituted (with effect on 1 October 2010), on 21 December 2010, by section 42(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).

Section DF 1(1B) heading: inserted (with effect on 1 October 2010), on 21 De- cember 2010, by section 42(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).

Section DF 1(1B): inserted (with effect on 1 October 2010), on 21 December 2010, by section 42(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section DF 1(3): substituted (with effect on 1 October 2010), on 21 December 2010, by section 42(2) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).

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).
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).
581 Part D s DF 2 Income Tax Act 2007 Reprinted as at 30 August 2013 DF 2 Repayment of grant-related suspensory loans Deduction (1) 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) 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 (2) (3) (4) (5) 582 Reprinted as at 30 August 2013 Income Tax Act 2007 Part D s DF 4 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 (1) (2) (3) When this section applies This section applies when a person is paid under the Accident Compensation Act 2001 a personal service rehabilitation pay- ment 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 tax rate.
1 Deﬁnition 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: 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).
(b) (4) Link with subpart DA This section supplements the general permission and overrides the capital limitation and private limitation for the amount de- 583 Part D s DF 5 Income Tax Act 2007 Reprinted as at 30 August 2013 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(1): amended, on 21 December 2010, by section 189 of the Taxa- tion (GST and Remedial Matters) Act 2010 (2010 No 130).

Section DF 4(3) heading: amended (with effect on 1 April 2008), on 29 August 2011 (applying for the 2008–09 and later income years), by section 140(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section 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 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 expend- iture 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) 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.
(1) (2) 584 Reprinted as at 30 August 2013 Income Tax Act 2007 Part D s DF 5 (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 DG—Expenditure related to use of certain assets Subpart DG: inserted (with effect on 1 April 2013 and applying for the 2013–14 and later income years for an item of property referred to in section DG 3(2)(a)(i), and for the 2014–15 and later income years for an item of property referred to in section DG 3(2)(a)(ii) and (iii)), on 17 July 2013, by section 30(1) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Contents Introductory provisions DG 1 What this subpart does DG 2 Application of this subpart DG 3 Meaning of asset for this subpart DG 4 Meaning of private use for this subpart DG 5 Meaning and treatment of interest expenditure for this subpart DG 6 Associated persons: company rule modiﬁed When assets held simply DG 7 Expenditure related to income-earning use DG 8 Expenditure limitation rule DG 9 Apportionment formula Page 586 587 588 590 592 593 594 595 596 585 Part D s DG 1 Income Tax Act 2007 Reprinted as at 30 August 2013 When assets held in corporate structures DG 10 Interest expenditure rules DG 11 Interest expenditure: close companies DG 12 Interest expenditure: group companies DG 13 Interest expenditure: corporate shareholders DG 14 Interest expenditure: non-corporate shareholders Quarantined expenditure DG 15 Quarantined expenditure rules DG 16 Quarantined expenditure when asset activity negative DG 17 Allocation of amounts quarantined under section DG 16 DG 18 Quarantined expenditure: group companies and shareholders DG 19 Allocation of amounts quarantined under section DG 18 Certain modiﬁcations to rules DG 20 When income cannot be separately attributed DG 21 Opting out of treatment under this subpart DG 22 Application of rules to part years 598 599 601 603 606 608 608 610 612 614 616 617 618 Introductory provisions Heading: inserted (with effect on 1 April 2013 and applying for the 2013–14 and later income years for an item of property referred to in section DG 3(2)(a)(i), and for the 2014–15 and later income years for an item of property referred to in section DG 3(2)(a)(ii) and (iii)), on 17 July 2013, by section 30(1) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
DG 1 What this subpart does This subpart sets out the rules for the deductibility and appor- tionment of expenditure incurred for an income year in relation to an asset when the asset is used partly for income-earning purposes and partly for private purposes, and for a time during the income year, the asset is not in use.
Deﬁned in this Act: asset, deduction, income, income year inserted (with effect on 1 April 2013 and applying for the Section DG 1: 2013–14 and later income years for an item of property referred to in section DG 3(2)(a)(i), and for the 2014–15 and later income years for an item of property referred to in section DG 3(2)(a)(ii) and (iii)), on 17 July 2013, by section 30(1) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
586 Reprinted as at 30 August 2013 Income Tax Act 2007 Part D s DG 2 DG 2 Application of this subpart (1) (2) (3) Asset by asset The rules in this subpart apply on an asset by asset basis.

Relationship with sections DB 5, DB 7, and DB 8 The rules in this subpart override sections DB 5, DB 7, and DB 8 (which relate to deductions for ﬁnancing expenditure) in relation to expenditure that this subpart applies to.
Relationship with subpart DD Subpart DD (Entertainment expenditure) does not apply to ex- penditure incurred in relation to the private use of an asset to which this subpart applies.

Relationship with FBT rules and dividend rules (4) No liability to pay fringe beneﬁt tax arises from the private use of an asset to which this subpart applies.
In circumstances where section CX 17 (Beneﬁts provided to employees who are shareholders or investors) applies to a company to which this subpart also applies, the company must choose to treat a non-cash beneﬁt referred to in that section as a dividend.
(5) (6) Application to groups of and interests in companies For the purposes of this subpart,— (a) a group of companies is treated as a wholly-owned group of companies: a voting interest in a company includes a market value interest when a market value circumstance exists for the company.
(b) Rules for identifying voting and market value interests In this subpart,— (a) for the purposes of determining the extent to which a company (company A) has a voting interest or market value interest in another company (company B), the look-through rule in section YC 4 (Look-through rule for corporate shareholders) does not apply to treat com- pany A’s voting interest or market value interest as held by company A’s shareholders or anyone else; and for the purposes of determining the extent to which company A has a voting interest or market value in- terest of more than 10% in an associated company, the look-through rule in section YC 4 does not apply to treat (b) 587 Part D s DG 3 Income Tax Act 2007 Reprinted as at 30 August 2013 (c) a voting interest or a market value interest of company A in the associated company as held by their respective 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.
Deﬁned in this Act: asset, associated, company, deduction, dividend, fringe beneﬁt tax, group of companies, market value circumstance, market value in- terest, private use, voting interest, wholly-owned group of companies inserted (with effect on 1 April 2013 and applying for the Section DG 2: 2013–14 and later income years for an item of property referred to in section DG 3(2)(a)(i), and for the 2014–15 and later income years for an item of property referred to in section DG 3(2)(a)(ii) and (iii)), on 17 July 2013, by section 30(1) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
DG 3 Meaning of asset for this subpart Meaning of asset For the purposes of this subpart, an asset, for an income year, means an item of property described in subsection (2) held by a person described in subsection (3) to the extent to which the item— (a) is used by the person in the income year partly to derive income and partly for private use; and is not in use— (i) for at least 62 days in the income year; or (ii) when the asset is typically used only on working days, for at least 62 working days in the income year.
(b) What items of property?
Subsection (1) applies to an asset that, in the complete form in which the person uses it for income-earning purposes,— (a) is 1 of the following: (i) (ii) land, including improvements to land: a ship, boat, or craft used in navigation on or under water, whether or not it has a means of propulsion: an aircraft; and (iii) for an item referred to in paragraph (a)(ii) and (iii), has— (i) a cost to the person of $50,000 or more; or (b) (1) (2) 588 Reprinted as at 30 August 2013 Income Tax Act 2007 Part D s DG 3 (ii) a market value on the date of acquisition of the asset of $50,000 or more, if the asset was not acquired at market value; and (c) includes any related items, things, or accessories per- taining to the asset.
Which persons?

(3) A person excludes a company other than a close company and, for the purposes of this subpart, a reference in the deﬁnition of close company to a natural person includes a reference to a trustee.
Exclusions (4) Despite subsection (2), an asset is excluded from the operation of the rules in this subpart if— (a) the use of the asset meets the following criteria: the private use of the asset is minor; and (i) the main use of the asset is use in a business that (ii) is not a rental or charter business; and for a company or a trustee of a trust, the use of the asset places an obligation on the company or the trustee, as applicable, to pay fringe beneﬁt tax or income tax: (iii) (b) (c) the asset is a residential property and its only income- earning use is as a long-term rental property: the asset— (i) is being used in an income year by a person (per- son A); and during the income year, undergoes a change of use; and the only uses made of the asset for the income year are the use by person A and the use by an- other person from which person A derives in- come.
(ii) (iii) (5) Meaning of market value For the purposes of this subpart, other than subsection (2)(b)(ii), market value means the price at which the asset is provided for use at a particular time or for a particular season— (a) in the open market; and 589 Part D s DG 4 Income Tax Act 2007 Reprinted as at 30 August 2013 freely offered; and (b) (c) made on ordinary terms; and (d) to a member of the public at arm’s length.
(6) (7) Partnerships and look-through companies For the purposes of this section, if the asset is held through a partnership or a look-through company, the value of the inter- ests in the asset held by all the partners in the partnership or all the shareholders in the look-through company, as applicable, is aggregated.

What constitutes use For the purposes of this subpart, the use of an asset is the active use of the asset for its intended purpose.
Example Graeme owns a yacht that he used with his family for a 4-week holiday.

He also rented the yacht at market rates to other people who were not associates on 4 occasions, totalling 3 weeks.

The cost of the yacht (including some capital improvements and items such as lifejackets and a dinghy) is $85,000.

The rules in this subpart apply to Graeme.
Deﬁned in this Act: amount, asset, business, close company, company, deduc- tion, fringe beneﬁt tax, income, income tax, income year, land, look-through company, market value, partnership, private use, shareholder, tax, trustee, work- ing day Section DG 3: inserted (with effect on 1 April 2013 and applying for the 2013–14 and later income years for an item of property referred to in section DG 3(2)(a)(i), and for the 2014–15 and later income years for an item of property referred to in section DG 3(2)(a)(ii) and (iii)), on 17 July 2013, by section 30(1) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
DG 4 Meaning of private use for this subpart (1) What is private use?
For the purposes of this subpart, private use of an asset— (a) means the use of the asset by a person described in sub- section (2), whether or not— (i) (ii) the use is exclusive: an amount of income is derived in relation to its use: 590 Reprinted as at 30 August 2013 Income Tax Act 2007 Part D s DG 4 (b) (c) includes the use of an asset when income derived in relation to the use of the asset is an amount that is less than 80% of the market value amount: excludes the use of the asset referred to in subsections (3) to (5).
(2) (3) (4) (5) Use by natural persons The person referred to in subsection (1)(a) is a natural person who is— (a) the person who owns, leases, licenses, or otherwise has the asset; or a person associated with them.

(b) Ordinary business use The use of an asset is not private use if— (a) the asset is used to derive income for a particular period; and the person uses the asset during the period solely in the ordinary course of their business.
Repairs The use of an asset is not private use if— (a) the asset is used to derive income for a particular period; and damage is caused to the asset during the period; and the damage is not the result of ordinary wear and tear; and the person uses the asset after the end of the period to repair the damage; and the use of the asset referred to in paragraph (d) is neces- sary in order for the person to carry out the repairs.
Relocation expenses The use of an asset is not private use if— (a) the asset is used to derive income for a particular period in an income year; and the person uses the asset before the start of the period, or after the end of the period, or both, to relocate the asset; and the use referred to in paragraph (b) and the relocation of the asset are necessary for the income-earning purposes; and (b) (b) (c) (d) (e) (b) (c) 591 Part D s DG 5 Income Tax Act 2007 Reprinted as at 30 August 2013 (6) (d) the income the person derives for the income year from the use of the asset includes an amount payable for the cost of relocation.
Exempt income Subsections (3) to (5) do not apply if the person derives an amount of exempt income in relation to the use of the asset.

For the treatment of certain amounts of income derived from the use of assets as described in this section, see section CW 8B (Certain amounts derived from use of assets).

Example Mary owns a launch.


During the course of an income year, she takes her family out on the launch, she lets her brother use the launch (paying the market rate of $200 per day) and she lets her friend use the launch (paying fuel costs only at the rate of $50 per day).

All these uses are instances of private use.


When Mary rents out the launch to non-associates at market rates, takes the launch to another port for rental to non-associates at $250 per day and then back again to the home port, or takes the launch to a boatyard for repair after damage was caused by a non-associate during a rental period, none of these instances is private use.
Deﬁned in this Act: amount, asset, associated person, business, exempt income, income, lease, market value, pay, private use inserted (with effect on 1 April 2013 and applying for the Section DG 4: 2013–14 and later income years for an item of property referred to in section DG 3(2)(a)(i), and for the 2014–15 and later income years for an item of property referred to in section DG 3(2)(a)(ii) and (iii)), on 17 July 2013, by section 30(1) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
DG 5 Meaning and treatment of interest expenditure for this subpart Interest expenditure In this subpart, interest expenditure, for a person to whom this subpart applies, means expenditure on interest, and in- cludes an amount of interest on the sum of the outstanding balances of ﬁnancial arrangements entered into by the person, if the ﬁnancial arrangement— (a) (b) provides funds to the person; and gives rise to an amount for which the person would have a deduction.
(1) 592 Reprinted as at 30 August 2013 Income Tax Act 2007 Part D s DG 6 (2) (3) Apportionment For the purposes of this subpart,— (a) if the person is not a company, an amount of interest expenditure incurred in relation to an asset is included in the item expenditure in section DG 9(3)(a): if the person is a company other than a qualifying com- pany, an amount of interest expenditure incurred in re- lation to an asset is apportioned under section DG 11: if the person is a qualifying company, they are treated for the purposes of this subpart as a person that is not a company.
(b) (c) Exchange rate ﬂuctuations Interest expenditure does not include a deduction for an amount that arises only from movement in currency exchange rates.
Deﬁned in this Act: amount, asset, company, deduction, ﬁnancial arrangement, interest, interest expenditure, qualifying company Section DG 5: inserted (with effect on 1 April 2013 and applying for the 2013–14 and later income years for an item of property referred to in section DG 3(2)(a)(i), and for the 2014–15 and later income years for an item of property referred to in section DG 3(2)(a)(ii) and (iii)), on 17 July 2013, by section 30(1) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
DG 6 Associated persons: company rule modiﬁed Despite section YB 3(1), for the purposes of this subpart, a company and a person other than a company are associated persons if— (a) the person has a voting interest in the company of 5% or more; or the person’s share in the company gives them a right to use the asset.
(b) Deﬁned in this Act: asset, associated person, company, share, voting interest Section DG 6: inserted (with effect on 1 April 2013 and applying for the 2013–14 and later income years for an item of property referred to in section DG 3(2)(a)(i), and for the 2014–15 and later income years for an item of property referred to in section DG 3(2)(a)(ii) and (iii)), on 17 July 2013, by section 30(1) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
593 Part D s DG 7 Income Tax Act 2007 Reprinted as at 30 August 2013 When assets held simply Heading: inserted (with effect on 1 April 2013 and applying for the 2013–14 and later income years for an item of property referred to in section DG 3(2)(a)(i), and for the 2014–15 and later income years for an item of property referred to in section DG 3(2)(a)(ii) and (iii)), on 17 July 2013, by section 30(1) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
DG 7 Expenditure related to income-earning use Expenditure on certain business and regulatory requirements (1) A person is allowed a deduction for expenditure or loss, in- cluding an amount of depreciation loss, to the extent to which the amount incurred— (a) relates solely to the use of an asset for deriving income of the person, other than exempt income; and is expenditure— (i) (b) (ii) from which the person would not reasonably ex- pect to receive a personal beneﬁt, or for a com- pany, an associate of the person: that the person must reasonably incur to meet a regulatory requirement so that they may use the asset for deriving income and that would not have been incurred but for the requirement.
Expenditure that must be apportioned (2) Despite subsection (1) and for the avoidance of doubt, all ex- penditure on repairs and maintenance incurred in relation to an asset must be treated as expenditure that is limited under section DG 8.

However, this subsection does not apply to the cost of repairing damage described in section DG 4(4).

Example John operates a charter boat which he also uses privately.
He incurs expenses including costs in meeting Maritime New Zealand survey requirements, advertising costs, and general maintenance costs.

The advertising costs are fully deductible because they deliver no personal beneﬁt.

The survey costs are fully deductible if they are incurred only for charter pur- poses.
The maintenance costs are not deductible under this provision because they deliver a personal beneﬁt as well as an 594 Reprinted as at 30 August 2013 Example—continued Income Tax Act 2007 Part D s DG 8 income-earning beneﬁt.

A portion of these maintenance costs may be allowed as a deduction under section DG 8.
Deﬁned in this Act: amount, asset, associated person, company, deduction, de- preciation loss, exempt income, income Section DG 7: inserted (with effect on 1 April 2013 and applying for the 2013–14 and later income years for an item of property referred to in section DG 3(2)(a)(i), and for the 2014–15 and later income years for an item of property referred to in section DG 3(2)(a)(ii) and (iii)), on 17 July 2013, by section 30(1) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
DG 8 Expenditure limitation rule Limited deduction (1) A person is allowed a deduction for expenditure or loss, in- cluding an amount of depreciation loss, that they incur in rela- tion to the income-earning use of an asset to the extent of the amount calculated using the formula in section DG 9(2).
(2) (3) Depreciation recovery and loss on disposal In the treatment of assets generally,— (a) if some or all of the expenditure on an asset is appor- tioned for tax purposes on the basis of space, ﬂoor area, or on another similar basis, that method of apportion- ment overrides the rules in this subpart to the extent of the amount of the deduction: depreciation recovery income on disposal is dealt with in section EE 49 (Amount of depreciation recovery in- come when item partly used for business): depreciation loss on disposal is dealt with in sections EE 44 to EE 48, and EE 50(6) and (7) (which relate to amounts of depreciation loss).
(b) (c) Relationship with other sections This section— (a) supplements the general permission and overrides the capital limitation and the private limitation, but the other limitations still apply: 595 Part D s DG 9 Income Tax Act 2007 Reprinted as at 30 August 2013 (b) overrides section EE 50(2) (Amount of depreciation loss when item partly used to produce income).
Deﬁned in this Act: amount, asset, capital limitation, deduction, depreciation loss, depreciation recovery income, general permission, private limitation inserted (with effect on 1 April 2013 and applying for the Section DG 8: 2013–14 and later income years for an item of property referred to in section DG 3(2)(a)(i), and for the 2014–15 and later income years for an item of property referred to in section DG 3(2)(a)(ii) and (iii)), on 17 July 2013, by section 30(1) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
DG 9 Apportionment formula (1) What this section does This section provides the formula for use in sections DG 8 and DG 11 to DG 13 to calculate the way in which an amount of expenditure or loss that a person incurs in relation to an asset is apportioned between its income-earning use and its private or other use.

Formula The apportionment formula is— (2) expenditure × income-earning days (income-earning days + counted days).
Deﬁnition of items in formula In the formula,— (a) expenditure is the total expenditure or loss that is in- curred by the person for an income year in relation to the asset, and that would be deductible in the absence of this subpart, other than expenditure that is— (i) related solely to the income-earning use of the asset as described in section DG 7; or (ii) related solely to the private use of the asset: income-earning days is the total number of days in the income year for which the person derives income from the use of the asset, other than exempt income under section CW 8B(3) (Certain amounts derived from use of assets), including any days on which— (i) the use made of the asset is use described in sec- tion DG 4(3) to (5): (b) (3) 596 Reprinted as at 30 August 2013 (ii) Income Tax Act 2007 Part D s DG 9 the asset has become unavailable for use because another person who had earlier reserved the asset for their own use, subsequently did not take ad- vantage of that reservation: a fringe beneﬁt tax liability arises: (iii) counted days is the total number of days in the income year on which the asset is in use, and the day is not an income-earning day as described in paragraph (b).
(c) Other units of measurement (4) A unit of measurement of time other than days, whether relat- ing to hours, or nights, or anything else, is to be used in the formula and in subsection (3)(b) and (c), if it achieves a more appropriate apportionment.

For this purpose, the same unit must be used in relation to both items in subsection (3)(b) and (c).

Example Jim rents out his aeroplane at market value for 100 hours in an income year, and uses it for his personal enjoyment for 50 hours.
Jim incurs expenditure of $10,000 for general repairs and main- tenance of the plane.

He may deduct two-thirds of the expend- iture (section DG 9(2)).

The formula is $10,000 × (100/(100 + 50)) = $6,666.67.
Deﬁned in this Act: amount, asset, deduction, exempt income, fringe beneﬁt tax, income, income year, market value, private use Section DG 9: inserted (with effect on 1 April 2013 and applying for the 2013–14 and later income years for an item of property referred to in section DG 3(2)(a)(i), and for the 2014–15 and later income years for an item of property referred to in section DG 3(2)(a)(ii) and (iii)), on 17 July 2013, by section 30(1) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
When assets held in corporate structures Heading: inserted (with effect on 1 April 2013 and applying for the 2013–14 and later income years for an item of property referred to in section DG 3(2)(a)(i), and for the 2014–15 and later income years for an item of property referred to in section DG 3(2)(a)(ii) and (iii)), on 17 July 2013, by section 30(1) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
597 Part D s DG 10 Income Tax Act 2007 Reprinted as at 30 August 2013 DG 10 Interest expenditure rules (1) Groups of companies Sections DG 11 to DG 14 provide for the apportionment of interest expenditure incurred by a company that has an as- set to which this subpart applies, and by other companies that are in the same group of companies as the company, and by shareholders.
Companies must provide information disclos- ure statements under section 30D of the Tax Administration Act 1994 to enable the calculations to be made.
Exclusions: group companies (2) A company (company A) that is treated as part of a wholly- owned group under this subpart, but is not part of a wholly- owned group for the other purposes of this Act, is excluded from the interest expenditure rules in sections DG 11 to DG 14 for an income year if— (a) no private use of an asset of a company in the group has been made in the income year by a shareholder of company A: no tax losses have been made available under subpart IC (Grouping tax losses) between company A and other companies in the group.
(b) Exclusion: corporate shareholders Section DG 13 does not apply to a corporate shareholder if— the shareholder has a direct or indirect interest of less (a) than 50% in the company that has the asset; and the shareholder has not enjoyed any private use of the asset.
(b) Exclusion: non-corporate shareholders Section DG 14 does not apply to a shareholder if— (a) the shareholder has a direct or indirect interest of less than 50% in the company that has the asset; and the shareholder has not enjoyed any private use of the asset.
(b) Treatment of qualifying companies The interest expenditure rules apply to a qualifying company in the following way: (3) (4) (5) 598 Reprinted as at 30 August 2013 Income Tax Act 2007 Part D s DG 11 (6) (a) (b) the company is treated as if section DG 11(3) applied to it in order to calculate the amount of the company’s net asset balance; and sections DG 12 to DG 14 then apply to determine the amount of the deduction to which the company, another company, or a shareholder is entitled.
Associated persons For the purposes of subsections (2), (3), and (4), a reference to a shareholder includes a person associated with the share- holder, unless the associated person is also a shareholder.
Deﬁned in this Act: amount, asset, associated person, company, deduction, group of companies, income year, interest expenditure, net asset balance, pri- vate use, qualifying company, shareholder, tax loss, wholly-owned group Section DG 10: inserted (with effect on 1 April 2013 and applying for the 2013–14 and later income years for an item of property referred to in section DG 3(2)(a)(i), and for the 2014–15 and later income years for an item of prop- erty referred to in section DG 3(2)(a)(ii) and (iii)), on 17 July 2013, by section 30(1) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
DG 11 Interest expenditure: close companies (1) (2) (3) What this section does This section quantiﬁes the amount of a deduction that a close company is allowed for an income year when— (a) the company has an asset to which this subpart applies; and the company incurs interest expenditure for the income year.
(b) Determining values and deductions The company must ﬁrst determine the amount of its debt value and its asset value for the income year, and then apply either subsection (3) or subsections (4) to (6).
Debt value less than asset value If the debt value for the income year is equal to or less than the asset value for the income year, the company is allowed a deduction of a portion of interest expenditure incurred for the income year— (a) of an amount calculated using the formula in section DG 9(2); and 599 Part D s DG 11 Income Tax Act 2007 Reprinted as at 30 August 2013 (4) (5) (6) (b) treating the company’s total interest expenditure for the income year as if it were the item expenditure in the formula.
Debt value more than asset value If the debt value for the income year is more than the asset value for the income year, the company must calculate a re- duced amount of interest expenditure for the income year us- ing the formula— interest expenditure × company’s asset value company’s debt value.
Deﬁnition of items in formula In the formula,— (a) interest expenditure is the total amount of interest ex- penditure incurred by the company for the income year: company’s asset value is the amount of the company’s asset value for the income year: company’s debt value is the amount of the company’s debt value for the income year.
(b) (c) Apportionment of reduced amounts The company is allowed a deduction for the income year of a portion of the reduced amount described in subsection (4),— of an amount calculated using the formula in section (a) DG 9(2); and treating the reduced amount as if it were the item ex- penditure in the formula.
(b) Net asset balance (7) When subsection (3) applies for an income year, the amount that remains outstanding after subtracting the debt value for the income year from the asset value for the income year (the net asset balance), must be used under sections DG 12 to DG 14, as applicable.
Meaning of asset value For the purposes of this subpart, asset value means the value of the asset at the end of an income year, using— (a) for land, including an improvement to land, the amount given by the later of either its most recent capital value or annual value (as set by the relevant local authority), (8) 600 Reprinted as at 30 August 2013 Income Tax Act 2007 Part D s DG 12 (9) or its cost on acquisition (or market value, if the trans- action involves an associated person): for other property, its adjusted tax value.
(b) Meaning of debt value For the purposes of this subpart, debt value— (a) means the average outstanding amount that gives rise to the interest payable by the company, measured by reference to the amounts outstanding at the start of and at the end of an income year; and for a person who has, in the income year, more than 1 asset to which this subpart applies, is reduced in sub- section (5)(c), sections DG 12(6)(c) and DG 13(8)(c), by an amount previously taken into account under this subpart for the income year.
(b) Example Holiday Home Ltd holds a holiday home with a rateable value of $200,000.

The company has debt of $40,000, with associated interest expenditure of $4,000.

Since the debt value is less than the asset value, all the interest expenditure must be apportioned (section DG 11(3)).

Boat Ltd has a charter boat whose cost is $60,000.

The com- pany has debt of $100,000, with associated interest expenditure of $10,000.
Since the debt value is more than the asset value, the company must apportion interest expenditure of $6,000 (section DG 11(4)–(6)).

The formula is $10,000 × ($60,000/$100,000) = $6,000.
Deﬁned in this Act: adjusted tax value, amount, asset, asset value, associated person, close company, cost, debt value, deduction, income, income year, in- terest, interest expenditure, land, market value, net asset balance, pay Section DG 11: inserted (with effect on 1 April 2013 and applying for the 2013–14 and later income years for an item of property referred to in section DG 3(2)(a)(i), and for the 2014–15 and later income years for an item of prop- erty referred to in section DG 3(2)(a)(ii) and (iii)), on 17 July 2013, by section 30(1) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
DG 12 Interest expenditure: group companies When this section applies This section applies for an income year when— (1) 601 Part D s DG 12 Income Tax Act 2007 Reprinted as at 30 August 2013 (a) (b) (c) a close company or a qualifying company (company A) has a net asset balance; and company A is part of the same group of companies as another company (company B); and company B has interest expenditure for which it is al- lowed a deduction.
How this section applies: looping rule This section applies sequentially to every group company B until— (a) the net asset balance for the income year is reduced to zero, or is treated as reduced to zero; or no other group companies exist to which this section applies.
(b) Debt value less than net asset balance If company B’s debt value for the income year is equal to or less than the net asset balance for the income year, company B is allowed a deduction of a portion of interest expenditure in- curred for the income year,— (a) of an amount calculated by company A using the for- mula in section DG 9(2); and treating company B’s total interest expenditure for the income year as if it were the item expenditure in the formula.
(b) Recalculation of net asset balance In the application of subsection (3), the amount of the net as- set balance must be recalculated on each application, being re- duced by an amount equal to each counted group company’s debt value.
Debt value more than net asset balance If company B’s debt value for the income year is more than the net asset balance for the income year, company B must calcu- late a reduced amount of interest expenditure for the income year using the formula— interest expenditure × net asset balance company B’s debt value.
Deﬁnition of items in formula In the formula,— (2) (3) (4) (5) (6) 602 Reprinted as at 30 August 2013 Income Tax Act 2007 Part D s DG 13 (a) (b) (c) interest expenditure is the total amount of interest ex- penditure incurred by company B for the income year: net asset balance is the amount of the net asset balance for the income year: company B’s debt value is the amount of company B’s debt value for the income year.
Apportionment of reduced amounts Company B is allowed a deduction for the income year of a portion of the reduced amount described in subsection (5),— of an amount calculated by company A using the for- (a) mula in section DG 9(2); and treating the reduced amount as if it were the item ex- penditure in the formula.

(b) (7) Net asset balance zero (8) Once a calculation is made under subsection (5), company B’s net asset balance is treated as zero.
(9) Net asset balance If a net asset balance remains outstanding after the application of this section for an income year, the amount must be used under sections DG 13 and DG 14, as applicable.

Example Holiday Home Ltd has an asset balance of $160,000 ($200,000 less $40,000) and is wholly owned by Parent Ltd. Parent has debt of $30,000, with associated interest expenditure of $3,000.
Since Parent’s debt value is less than the asset balance, all of Parent’s interest expenditure must be apportioned (section DG 12(3)).
Deﬁned in this Act: amount, asset value, close company, company, debt value, deduction, group of companies, income year, interest expenditure, net asset bal- ance, qualifying company inserted (with effect on 1 April 2013 and applying for the Section DG 12: 2013–14 and later income years for an item of property referred to in section DG 3(2)(a)(i), and for the 2014–15 and later income years for an item of prop- erty referred to in section DG 3(2)(a)(ii) and (iii)), on 17 July 2013, by section 30(1) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
DG 13 Interest expenditure: corporate shareholders When this section applies This section applies when— (1) 603 Part D s DG 13 Income Tax Act 2007 Reprinted as at 30 August 2013 (a) (b) ﬁrst, section DG 12, if applicable; or secondly, section DG 11; and a net asset balance remains outstanding for an income year after the application of— (i) (ii) 1 or more of the following companies, none of which is part of a group of companies that includes company A, exists: (i) (ii) a company that is a shareholder in company A: a company that is a shareholder in a company that is part of the same group of companies as com- pany A and has a voting interest in company A: a company that has a voting interest in a company referred to in subparagraph (i) or (ii).
(iii) How this section applies: looping rule This section applies sequentially as follows: (a) (b) (c) ﬁrst, to the companies referred to in subsection (1)(b)(i) and (ii); and secondly, to the extent to which the debt value of the company for the income year remains less than the com- pany’s share of the net asset balance, to the companies that are shareholders in a company referred to in para- graph (a); and so on, until either— (i) the company’s share of the net asset balance for the income year is reduced to zero or is treated as reduced to zero; or no other corporate shareholders exist to which this section applies.
(ii) Limitation by share in asset balance The deduction that the company is allowed for interest expend- iture incurred for the income year is limited by its share of the net asset balance.

The share of the asset balance is calculated using the formula— net asset balance × company’s interest.
Deﬁnition of items in formula In the formula in subsection (3),— (2) (3) (4) 604 Reprinted as at 30 August 2013 Income Tax Act 2007 Part D s DG 13 (a) (b) net asset balance is the amount of the net asset balance after the application of section DG 11 or DG 12, as applicable, and as recalculated under subsection (6): company’s interest is the relevant voting interest in company A, expressed as a percentage.
(5) (6) (7) (8) Debt value less than asset balance If the debt value for the company for the income year is equal to or less than its share of the net asset balance for the income year, the company is allowed a deduction of a portion of inter- est expenditure incurred for the income year,— (a) of an amount calculated by company A using the for- mula in section DG 9(2); and treating the total interest expenditure for the income year as if it were the item expenditure in the formula.
(b) Recalculation of asset balance In the application of subsection (5), the amount that is the com- pany’s share of the net asset balance must be recalculated on each application, being reduced by an amount equal to each counted company’s debt value.
Debt value more than asset balance If the debt value for the company for the income year is more than its share of the net asset balance, the company must cal- culate a reduced amount of interest expenditure incurred for the income year using the formula— interest expenditure × company’s share of net asset balance company’s debt value.
Deﬁnition of items in formula In the formula in subsection (7),— (a) interest expenditure is the total amount of interest ex- penditure incurred by the company for the income year: company’s share of net asset balance is the amount calculated for the company under subsection (3): company’s debt value is the amount of the debt value of the company for the income year.
(b) (c) (9) Apportionment of reduced amounts The company is allowed a deduction for the income year of a portion of the reduced amount described in subsection (7),— 605 Part D s DG 14 Income Tax Act 2007 Reprinted as at 30 August 2013 (a) (b) of an amount calculated by company A using the for- mula in section DG 9(2); and treating the reduced amount as if it were the item ex- penditure in the formula.
Net asset balance zero (10) Once a calculation is made under subsection (7), the amount that is the company’s share of the net asset balance is treated as zero.

(11) Net asset balance If a net asset balance remains outstanding after the application of this section for an income year, the amount must be used under section DG 14.
Example Parent Ltd has 2 equal corporate shareholders, company Y, which has debt of $20,000 with associated interest expenditure of $2,000, and company Z, which has debt of $70,000 with associated interest expenditure of $7,000.

Both companies’ share of the net asset balance is $65,000 ($130,000 × 50%).

Since company Y’s debt value is less than its share of the net asset balance, all its interest expenditure must be apportioned (section DG 13(5)).
Company Z’s debt value is greater than its share of the net asset balance, so it must apportion interest expenditure of $6,500 (section DG 13(7)–(9)).

The formula is $7,000 × ($65,000/$70,000) = $6,500.
Deﬁned in this Act: amount, company, debt value, deduction, group of com- panies, income year, interest expenditure, net asset balance, shareholder, voting interest Section DG 13: inserted (with effect on 1 April 2013 and applying for the 2013–14 and later income years for an item of property referred to in section DG 3(2)(a)(i), and for the 2014–15 and later income years for an item of prop- erty referred to in section DG 3(2)(a)(ii) and (iii)), on 17 July 2013, by section 30(1) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
DG 14 Interest expenditure: non-corporate shareholders When this section applies This section applies for an income year when— (a) a net asset balance remains outstanding for an income year after the application of— (i) ﬁrst, section DG 13, if applicable: (1) 606 Reprinted as at 30 August 2013 Income Tax Act 2007 Part D s DG 14 secondly, section DG 12, if applicable: thirdly, section DG 11, if neither applies; and (ii) (iii) a person exists who— (i) (b) is not a company, other than a company acting as a trustee; and has a voting interest in company A; and has interest expenditure for which they are al- lowed a deduction.
(ii) (iii) (2) (3) Amount to be apportioned For a natural person, the amount of interest expenditure that must be apportioned is only the amount of interest that the per- son incurs on money borrowed to acquire shares in company A or in a company referred to in section DG 13(1)(b).

Method of apportionment The apportionment is made using the rules set out in section DG 13(2) to (10), treating the person as if they were the com- pany.
Example Company Y has 2 shareholders: Thomas, who has borrowed $200,000 to acquire a 50% interest in the company, and Brent, who has borrowed $10,000 to buy his 50% interest.

Each has a share of the remaining net asset balance of $22,500.

The formula $20,000) × 50% = $22,500.

Since Thomas’s debt is ($65,000 value is greater than his share of the net asset balance, Thomas must apportion 11.25% of his total interest expenditure (sections DG 14 and DG 13(7)–(9)).

The formula is 22,500/200,000.


Since Brent’s debt value is less than his share of the net asset bal- ance, all Brent’s interest expenditure must be apportioned (sec- tions DG 14 and DG 13(5)).
Deﬁned in this Act: amount, company, deduction, income year, interest, interest expenditure, net asset balance, share, trustee, voting interest Section DG 14: inserted (with effect on 1 April 2013 and applying for the 2013–14 and later income years for an item of property referred to in section DG 3(2)(a)(i), and for the 2014–15 and later income years for an item of prop- erty referred to in section DG 3(2)(a)(ii) and (iii)), on 17 July 2013, by section 30(1) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
607 Part D s DG 15 Income Tax Act 2007 Reprinted as at 30 August 2013 Quarantined expenditure Heading: inserted (with effect on 1 April 2013 and applying for the 2013–14 and later income years for an item of property referred to in section DG 3(2)(a)(i), and for the 2014–15 and later income years for an item of property referred to in section DG 3(2)(a)(ii) and (iii)), on 17 July 2013, by section 30(1) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
DG 15 Quarantined expenditure rules Sections DG 16 and DG 18 provide the rules that limit the amount of a person’s deduction under sections DG 7, DG 8, and DG 11 to DG 14 for an income year when the income derived from the use of the asset does not reach a speciﬁed threshold.

The excess expenditure is quarantined and denied as a deduction for the income year.
Sections DG 17 and DG 19 provide for the allocation of the quarantined amount to a later income year when the income derived is sufﬁcient to offset the expenditure.

Companies must provide information disclosure statements under section 30D of the Tax Administration Act 1994 to enable the calculations to be made.
Deﬁned in this Act: amount, asset, company, deduction, income, income year Section DG 15: inserted (with effect on 1 April 2013 and applying for the 2013–14 and later income years for an item of property referred to in section DG 3(2)(a)(i), and for the 2014–15 and later income years for an item of prop- erty referred to in section DG 3(2)(a)(ii) and (iii)), on 17 July 2013, by section 30(1) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
DG 16 Quarantined expenditure when asset activity negative When this section applies This section applies when— (a) (b) a person incurs expenditure for which they are allowed a deduction that is limited under section DG 7, DG 8, or DG 11, as applicable, for an income year; and the amount of income derived for the income year from the use of an asset, other than an amount of exempt income, is less than 2% of— (i) for land, including an improvement to land, the amount given by the later of either its most re- cent capital value or annual value, as set by the relevant local authority, or its cost on acquisition (1) 608 Reprinted as at 30 August 2013 Income Tax Act 2007 Part D s DG 16 (2) (3) (4) (5) (6) or market value, if the transaction involves an as- sociated person: for other property to which this subpart applies, its adjusted tax value.
(ii) Quarantined amount The amount of the person’s excess expenditure for the income year is calculated using the formula— expenditure asset income.
Deﬁnition of items in formula In the formula,— (a) expenditure is the total of the following amounts: (i) the total amount of deductions that the person is allowed for the income year under sections DG 7, DG 8, and DG 11, as applicable and after any necessary apportionment; and an amount of the person that was quarantined under this section for an earlier income year and is not yet allocated to an income year: (ii) (b) asset income is the total amount of income, other than an amount of exempt income, derived for the income year from the use of the asset.
No deduction for quarantined amount The excess expenditure calculated under subsection (2) is quarantined and denied as a deduction for the income year.

Outstanding proﬁt balance If the amount of expenditure for the income year is less than the amount of income for the income year, the excess income is the outstanding proﬁt balance for the income year to be used under section DG 18.
If the amount of expenditure for the income year is equal to or more than the amount of income for the income year, the outstanding proﬁt balance is treated as zero.

Zero result For the purposes of the formula in subsection (2), if the amount of income for the income year is greater than the amount of expenditure for the income year, the result of the formula is treated as zero.
609 Part D s DG 17 Income Tax Act 2007 Reprinted as at 30 August 2013 Example David has a city apartment with a rateable value of $300,000.

He rents out the apartment and also uses it privately.

He receives market rate rental of $4,000 from non-associates, and $6,000 from associates.

David’s total allowable expenditure, under sec- tions DG 7, DG 8, and DG 11, is $15,000.
Since David’s income from non-associates is less than 2% of the apartment’s rateable value, the excess expenditure of $5,000 is denied as a deduc- tion.

The amount denied may be allocated to a later income year under section DG 17.
Deﬁned in this Act: adjusted tax value, amount, asset, associated person, cost, deduction, exempt income, income, income year, land, market value inserted (with effect on 1 April 2013 and applying for the Section DG 16: 2013–14 and later income years for an item of property referred to in section DG 3(2)(a)(i), and for the 2014–15 and later income years for an item of prop- erty referred to in section DG 3(2)(a)(ii) and (iii)), on 17 July 2013, by section 30(1) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
DG 17 Allocation of amounts quarantined under section DG 16 When this section applies This section applies for an income year (the current year) when— (a) a person has an amount of excess expenditure quaran- tined under section DG 16 in relation to an asset for an income year before the current year; and the person’s income for the current year from the use of the asset is more than the amount of their deductions under sections DG 7, DG 8, and DG 11, as applicable.
(b) Deduction and allocation The amount of previously quarantined expenditure that the person is allowed as a deduction for the current year must not be more than the lesser of— (a) (b) the amount referred to in subsection (1)(a): the amount calculated using the formula— asset income expenditure.
Deﬁnition of items in formula In the formula,— (a) asset income is the total amount of income derived for the current year from the use of the asset: (1) (2) (3) 610 Reprinted as at 30 August 2013 Income Tax Act 2007 Part D s DG 17 (4) (5) (6) (b) expenditure is the total amount of deductions that the person is allowed in relation to the asset for the current year under sections DG 7, DG 8, and DG 11, as applic- able, and after any necessary apportionment.
Outstanding proﬁt balance If the lesser amount in subsection (2) is the quarantined amount referred to in subsection (2)(a), an outstanding proﬁt balance arises of an amount that is the difference between the amount of income for the current year and the amount of expenditure for the current year, including the quarantined amount allocated to the current year.

The outstanding proﬁt balance is available for use under section DG 19.
Zero result For the purposes of the formula in subsection (2), if the amount of expenditure for the current year is greater than the amount of income for the current year, the result of the formula is treated as zero.
Modiﬁcation for certain assets For the purposes of subsection (1)(a), a quarantined amount that is related to an asset may be used in relation to another asset of the person if— (a) the ﬁrst asset is damaged, destroyed, or lost, and is no longer held by the person; and a second asset is acquired to replace the ﬁrst asset; and the 2 assets are identical or substantially the same.
(b) (c) Example, continued from section DG 16 In the following income year, David derives $10,000 from renting his city apartment at market rates to a non-associate.

David’s total allowable expenditure, under sections DG 7, DG 8, and DG 11, is $8,000.

He also has expenditure of $5,000 quarantined from the previous income year.

David is able to deduct $2,000 of that quarantined expenditure.

The remaining $3,000 continues to be quarantined and may be allowed as a deduction for a later income year.
Deﬁned in this Act: amount, asset, deduction, income, income year Section DG 17: inserted (with effect on 1 April 2013 and applying for the 2013–14 and later income years for an item of property referred to in section DG 3(2)(a)(i), and for the 2014–15 and later income years for an item of prop- erty referred to in section DG 3(2)(a)(ii) and (iii)), on 17 July 2013, by section 611 Part D s DG 18 Income Tax Act 2007 Reprinted as at 30 August 2013 30(1) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
DG 18 Quarantined expenditure: group companies and shareholders When this section applies This section applies when— (a) a person incurs expenditure for an income year for which they are allowed a deduction that is limited under 1 or more of sections DG 12 to DG 14; and the income year is an income year in which section DG 16(1)(b) applies.
(b) How this section applies: ﬁrst looping rule The ﬁrst application of this section is to every group com- pany B in sequence until no other group companies exist to which this subsection applies.
How this section applies: second looping rule The second application of this section is sequentially to— (a) ﬁrst, 1 or more of the following persons, none of which is a company referred to in subsection (2): (i) (ii) a person who is a shareholder in company A: a person who is a shareholder in a company that is part of the same group of companies as com- pany A and has a voting interest in company A; and (b) (c) secondly, a person who is a shareholder in a company referred to in paragraph (a); and so on, until no other persons exist to which this subsec- tion applies.
Quarantined amount The amount of the person’s excess expenditure for the income year is calculated using the formula— expenditure outstanding proﬁt balance.
Deﬁnition of items in formula In the formula,— (a) expenditure is the total of the following amounts: (i) the total amount of deductions that the person is allowed for the income year under sections (1) (2) (3) (4) (5) 612 Reprinted as at 30 August 2013 Income Tax Act 2007 Part D s DG 18 (ii) DG 12 to DG 14, as applicable and after any ne- cessary apportionment; and an amount of the person that was quarantined under this section for an earlier income year and is not yet allocated to an income year: (b) outstanding proﬁt balance,— (i) (ii) for company B, is the amount of the outstanding proﬁt balance referred to in section DG 16(5): for a shareholder, is the amount that is the per- son’s share of the outstanding proﬁt balance re- ferred to in section DG 16(5), calculated using the formula in section DG 13(3), treating the out- standing proﬁt balance as if it were the net asset balance.
(6) (7) (8) No deduction for quarantined amount The excess expenditure calculated under subsection (4) is either quarantined or remains quarantined, as applicable, and is denied as a deduction for the income year.

Recalculation of outstanding proﬁt balance For the purposes of subsections (4) and (5)(b), the amount that is the outstanding proﬁt balance must be recalculated on each application, being reduced by an amount equal to the amount of any deduction counted.
Zero result For the purposes of the formula in subsection (4), if the amount of the outstanding proﬁt balance for the income year is greater than the amount of expenditure for the income year, the result of the formula is treated as zero.

Example Aircraft Ltd owns an aircraft to which the rules in this subpart apply; the income derived from the asset in the current year is less than 2% of the cost of the aircraft.
The company has calculated an outstanding proﬁt balance of $12,000 after the application of section DG 16.

Aircraft is 100% owned by Parent Ltd, which has apportioned interest expenditure of $5,000 calculated under sec- tion DG 12.

Parent has 2 equal shareholders, Alisa who has ap- portioned interest expenditure of $8,000, and Hamish who has apportioned interest expenditure of $1,000, both calculated under section DG 14.
Parent must apply section DG 18 ﬁrst, and is not 613 Part D s DG 19 Income Tax Act 2007 Reprinted as at 30 August 2013 Example—continued required to quarantine any of its interest expenditure; the out- standing proﬁt balance is reduced to $7,000 ($12,000 $5,000).

Alisa’s and Hamish’s share of the outstanding proﬁt balance is $3,500 each ($7,500 × 50%).

Alisa must quarantine $4,500 of interest expenditure ($8,000 $3,500); Hamish is not required to quarantine any interest expenditure.
Deﬁned in this Act: amount, asset, company, deduction, group of companies, income year, net asset balance, shareholder, voting interest Section DG 18: inserted (with effect on 1 April 2013 and applying for the 2013–14 and later income years for an item of property referred to in section DG 3(2)(a)(i), and for the 2014–15 and later income years for an item of prop- erty referred to in section DG 3(2)(a)(ii) and (iii)), on 17 July 2013, by section 30(1) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
DG 19 Allocation of amounts quarantined under section DG 18 When this section applies This section applies for an income year (the current year) when— (a) a person has an amount of excess expenditure quaran- tined under section DG 18 for an income year before the current year; and an outstanding proﬁt balance referred to in section DG 17(4) is available for use for the current year.
(b) How this section applies This section applies sequentially in the order set out in sec- tion DG 18(2) and (3) until the outstanding proﬁt balance is reduced to zero.

Deduction and allocation The amount of previously quarantined expenditure that the person is allowed as a deduction for the current year must not be more than the lesser of— (a) (b) the quarantined amount referred to in subsection (1)(a): the amount calculated using the formula— outstanding proﬁt balance expenditure.
Deﬁnition of items in formula In the formula,— (a) outstanding proﬁt balance,— (1) (2) (3) (4) 614 Reprinted as at 30 August 2013 Income Tax Act 2007 Part D s DG 19 (i) (ii) for company B, is the amount of the outstanding proﬁt balance determined for the company for the current year under section DG 18(5), if applic- able, or otherwise under section DG 17(4): for a shareholder, is the amount that is the per- son’s share of the outstanding proﬁt balance for the current year under section DG 18(5), if ap- plicable, or otherwise under section DG 17(4), calculated using the formula in section DG 13(3), treating the outstanding proﬁt balance as if it were the net asset balance: (b) expenditure is the total amount of deductions that the person is allowed for the current year under sections DG 12 to DG 14, as applicable, and after any necessary apportionment.
Recalculation of outstanding proﬁt balance For the purposes of subsections (3) and (4)(a), the amount that is the outstanding proﬁt balance must be recalculated on each application, being reduced by an amount equal to the amount of any deduction for quarantined expenditure counted.
Zero result For the purposes of the formula in subsection (3), if the amount of expenditure for the current year is greater than the amount of the outstanding proﬁt balance for the current year, the result of the formula is treated as zero.

(5) (6) Example, continued from section DG 18 In the following income year, Aircraft has calculated an outstand- ing proﬁt balance of $16,000 after the application of section DG 18.
Section DG 19 does not apply to Parent or Alisa be- cause they have no previously quarantined interest expenditure.

However, the section does apply to Hamish because he has $4,500 of quarantined interest expenditure from the previous year.

Hamish’s current year apportioned interest expenditure is $7,000, calculated under section DG 14, and his share of the outstanding proﬁt balance is $8,000 ($16,000 × 50%).

Hamish is allowed a deduction for $1,000 of previously quarantined expenditure ($8,000 $7,000).
His remaining quarantined expenditure is $3,500 ($4,500 Deﬁned in this Act: amount, company, deduction, income year, net asset bal- ance, shareholder $1,000).
615 Part D s DG 20 Income Tax Act 2007 Reprinted as at 30 August 2013 inserted (with effect on 1 April 2013 and applying for the Section DG 19: 2013–14 and later income years for an item of property referred to in section DG 3(2)(a)(i), and for the 2014–15 and later income years for an item of prop- erty referred to in section DG 3(2)(a)(ii) and (iii)), on 17 July 2013, by section 30(1) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Certain modiﬁcations to rules Heading: inserted (with effect on 1 April 2013 and applying for the 2013–14 and later income years for an item of property referred to in section DG 3(2)(a)(i), and for the 2014–15 and later income years for an item of property referred to in section DG 3(2)(a)(ii) and (iii)), on 17 July 2013, by section 30(1) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
DG 20 When income cannot be separately attributed Exclusion from rules Sections DG 16 and DG 18 do not apply to the use of an asset for an income year when— (a) the person derives an amount of income for the income year from the use of the asset in a business activity; and because of the nature of the activity, an amount cannot be separately attributed to the use of the asset.
(b) Re-inclusion Subsection (1) does not apply if— (a) (b) the person also uses the asset in deriving an amount of income that is separately attributable to the use of the asset; and the use of the asset referred to in paragraph (a) is at least 80% of the total use of the asset both in the business activity referred to in subsection (1) and as described in paragraph (a).
Example Paul uses a helicopter on his farm to check stock for 50 hours in an income year, rents it out for 50 hours, and also uses it privately.

While the income from the rental is clear, the income Paul derives in relation to the use of the helicopter in farming operations is not.
The use of the helicopter falls outside the rules under the exclu- sion in section DG 20(1), and does not meet the requirements for re-inclusion under section DG 20(2) as the use of the helicop- ter to earn rental income is only 50% of the total income-earning (1) (2) 616 Reprinted as at 30 August 2013 Example—continued Income Tax Act 2007 Part D s DG 21 use of the helicopter.

Any loss attributable to the helicopter is not quarantined.
Deﬁned in this Act: amount, asset, business, income, income year Section DG 20: inserted (with effect on 1 April 2013 and applying for the 2013–14 and later income years for an item of property referred to in section DG 3(2)(a)(i), and for the 2014–15 and later income years for an item of prop- erty referred to in section DG 3(2)(a)(ii) and (iii)), on 17 July 2013, by section 30(1) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
DG 21 Opting out of treatment under this subpart (1) (2) Opt-out threshold If the amount of income derived for an income year from the use of an asset is less than $4,000, the person who has the asset may choose to treat the income as exempt income under sec- tion CW 8B(2) (Certain amounts derived from use of assets).

The threshold amount does not include an amount of income exempt under section CW 8B(3).
Quarantined expenditure If, in relation to the use of an asset in an income year, the per- son has an amount of quarantined expenditure for the income year, they may choose to treat the amount of income derived that gives rise to the quarantined expenditure as exempt in- come under section CW 8B for the income year.
Consequences of opting out (3) When a person who has an asset chooses under subsection (1) or (2) to treat the income derived from the use of the asset as exempt income, any interest expenditure that must be appor- tioned under section DG 9 is treated as expenditure incurred in deriving exempt income.

(4) No application to companies This section does not apply when the person who has the asset is a company.

Example Mike rents his bach out through the Internet to a non-associate.
The gross amount he receives for an income year is $3,000.

Mike can opt out of the rules in this subpart, which would mean that he 617 Part D s DG 22 Income Tax Act 2007 Reprinted as at 30 August 2013 Example—continued would not be liable to tax on the amount, but would also not be entitled to claim any deductions in relation to the bach.
Deﬁned in this Act: amount, asset, exempt income, income, income year, inter- est expenditure Section DG 21: inserted (with effect on 1 April 2013 and applying for the 2013–14 and later income years for an item of property referred to in section DG 3(2)(a)(i), and for the 2014–15 and later income years for an item of prop- erty referred to in section DG 3(2)(a)(ii) and (iii)), on 17 July 2013, by section 30(1) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
DG 22 Application of rules to part years When this section applies This section applies when the total income-earning use, private use, and non-use of an asset of a person relates to only part of an income year.

Non-use period For the purposes of section DG 3(1)(b), the number of days is calculated using the formula— days 365 × 62.
When assets acquired during year: debt value For the purposes of section DG 11(9), if the company acquires the asset during the income year, the debt value is treated as the outstanding amount at the end of the income year.

When assets disposed of during year: debt value For the purposes of section DG 11(9), if the company disposes of the asset during the income year, the debt value is treated as the outstanding amount at the start of the income year.
When assets both acquired and disposed of during year For the purposes of section DG 11(9), if the company both acquires and disposes of the asset during the income year, the debt value is treated as the average of the outstanding amounts on the date on which the asset was acquired and the date of its disposal.
(1) (2) (3) (4) (5) 618 Reprinted as at 30 August 2013 Income Tax Act 2007 Part D s DG 22 (6) (7) (8) When assets acquired during year: interest expenditure For the purposes of sections DG 11 to DG 14, when com- pany A acquires or disposes of an asset during an income year, the amount of interest expenditure that must be apportioned is calculated on a pro rata basis.

Ring-fenced losses in part years For the purposes of section DG 16(1)(b), the threshold is cal- culated using the formula— days 365 × 2%.
Deﬁnition of item in formulas In the formulas in subsections (2) and (7), days is the number of days in the income year on which the person has the asset, and for the purposes of the calculation, section DG 9(4) simi- larly applies.
Deﬁned in this Act: amount, asset, company, debt value, income year, interest expenditure, private use Section DG 22: inserted (with effect on 1 April 2013 and applying for the 2013–14 and later income years for an item of property referred to in section DG 3(2)(a)(i), and for the 2014–15 and later income years for an item of prop- erty referred to in section DG 3(2)(a)(ii) and (iii)), on 17 July 2013, by section 30(1) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Subpart DN—Attributed losses from foreign equity Contents 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 Page 620 620 622 622 625 626 631 619 Part D s DN 1 Income Tax Act 2007 Reprinted as at 30 August 2013 DN 8 Ring-fencing cap on deduction: attributable FIF income 631 method Attributed controlled foreign company (CFC) loss DN 1 Attributed controlled foreign company loss Deduction (1) 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.
(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: 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 (1) A person has an attributed CFC loss from a foreign company 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 is not a portfolio investment entity; 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 (b) (bb) (c) (d) (e) 620 Reprinted as at 30 August 2013 Income Tax Act 2007 Part D s DN 2 (2) (f) (g) (h) (i) 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).
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 attributable CFC loss, New Zealand resident, non-attributing active CFC, non- attributing Australian CFC, portfolio investment entity, 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)(bb): inserted (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 12(1) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 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).
621 Part D s DN 3 Income Tax Act 2007 Reprinted as at 30 August 2013 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).
Section DN 2 list of deﬁned terms portfolio investment entity: inserted (with effect on 1 July 2011), on 7 May 2012, by section 12(2) of the Taxation (Inter- national Investment and Remedial Matters) Act 2012 (2012 No 34).

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 Amount of deduction: CFC not elective attributing CFC The deduction that a person is allowed in an income year for an attributed CFC loss from a CFC (the ﬁrst CFC) that is not (1) 622 Reprinted as at 30 August 2013 Income Tax Act 2007 Part D s DN 4 (b) an elective attributing CFC for the person in the income year is no more than the total of— (a) total attributed CFC income of the person for the income year from other CFCs, each of which is resident in the same country as the ﬁrst CFC for the relevant account- ing period: total FIF income of the person for the income year from FIFs,— (i) each of which is resident in the same country as the ﬁrst CFC for the relevant accounting period; and for each of which the person uses the attributable FIF income method.
(ii) Amount of deduction: elective attributing CFC (1B) The deduction that a person is allowed in an income year for an attributed CFC loss from a CFC (the ﬁrst CFC) that is an elective attributing CFC for the person in the income year is no more than the total of— (a) total attributed CFC income of the person for the income year from other CFCs, each of which— (i) is resident in the same country as the ﬁrst CFC for the relevant accounting period; and is an elective attributing CFC for the person in the income year; and has the same election commencement year as the ﬁrst CFC: (ii) (iii) (b) total FIF income of the person for the income year from FIFs, each of which— (i) is resident in the same country as the ﬁrst CFC for the relevant accounting period; and is an elective attributing FIF for the person in the income year; and has the same election commencement year as the ﬁrst CFC.
(ii) (iii) Income only once (2) When subsection (1) or (1B) 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— 623 Part D s DN 4 Income Tax Act 2007 Reprinted as at 30 August 2013 (a) (b) subsection (1) or (1B) is applied to another attributed CFC loss; or section DN 8 is applied to a FIF loss.
Relationship with subpart IQ (3) Any excess not able to be deducted because of subsection (1) or (1B) is an attributed CFC net loss able to be used under sec- tions 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, attributable FIF income method, CFC, deduction, election commencement year, elective attributing CFC, elect- ive attributing FIF, FIF, FIF income, FIF loss, income year Compare: 2004 No 35 s DN 4 Section DN 4(1) heading: replaced (with effect on 30 June 2009), on 2 Novem- ber 2012 (applying for income years beginning on or after 1 July 2009), by sec- tion 24(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section DN 4(1): replaced (with effect on 30 June 2009), on 2 November 2012 (applying for income years beginning on or after 1 July 2009), by section 24(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).

Section DN 4(1)(b)(ii): amended (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 2 November 2012, by section 24(2) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section DN 4(1B) heading: inserted (with effect on 30 June 2009), on 2 Novem- ber 2012 (applying for income years beginning on or after 1 July 2009), by sec- tion 24(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).

Section DN 4(1B): inserted (with effect on 30 June 2009), on 2 November 2012 (applying for income years beginning on or after 1 July 2009), by section 24(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section DN 4(2): amended (with effect on 30 June 2009), on 2 November 2012 (applying for income years beginning on or after 1 July 2009), by section 24(3) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).

Section DN 4(3): replaced (with effect on 30 June 2009), on 2 November 2012 (applying for income years beginning on or after 1 July 2009), by section 24(4) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section DN 4 list of deﬁned terms attributable FIF income method: inserted (with effect on 1 July 2011), on 7 May 2012, by section 13(2)(b) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
624 Reprinted as at 30 August 2013 Income Tax Act 2007 Part D s DN 5 Section DN 4 list of deﬁned terms branch equivalent method: repealed (with effect on 1 July 2011), on 7 May 2012, by section 13(2)(a) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).

Section DN 4 list of deﬁned terms election commencement year: inserted, on 2 November 2012, by section 24(5) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section DN 4 list of deﬁned terms elective attributing CFC: inserted, on 2 November 2012, by section 24(5) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).

Section DN 4 list of deﬁned terms elective attributing FIF: inserted, on 2 November 2012, by section 24(5) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Foreign investment fund (FIF) loss DN 5 Foreign investment fund loss Deduction (1) A person is allowed a deduction for a FIF loss.

(2) (3) Ring-fencing rule for loss calculated under attributable FIF income method The deduction for a FIF loss calculated under the attributable FIF income 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: attributable FIF income method, calculation method, capital limitation, deduction, FIF loss, general limitation, general permission, supple- ment Compare: 2004 No 35 s DN 5 Section DN 5(2) heading: amended (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 14(1) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section DN 5(2): amended (with effect on 1 July 2011 and applying for in- come years beginning on or after that date), on 7 May 2012, by section 14(1) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).

Section DN 5 list of deﬁned terms attributable FIF income method: inserted (with effect on 1 July 2011), on 7 May 2012, by section 14(2)(b) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section DN 5 list of deﬁned terms branch equivalent method: repealed (with effect on 1 July 2011), on 7 May 2012, by section 14(2)(a) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
625 Part D s DN 6 Income Tax Act 2007 Reprinted as at 30 August 2013 DN 6 When FIF loss arises General rule (1) A person has a FIF loss in an income year if,— at any time in the year, the person has— (i) (a) 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) (vii) 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 regime exemption in section EX 34 (CFC rules exemption): the exemption in section EX 35 (Exemption for interest in FIF resident in Australia): 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 ex- emption): (viii) the exemption for an employee share purchase scheme of a grey list company in section EX 38 626 Reprinted as at 30 August 2013 Income Tax Act 2007 Part D s DN 6 (ix) (x) (xi) (xii) (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): (xiv) (xiii) the immigrant’s accrued superannuation en- titlement exemption in section EX 42 (New resident’s accrued superannuation entitlement exemption): the annuity or pension exemption in section EX 43 (Non-resident’s pension or annuity ex- ception): an exemption given by sections EX 50, EX 18A(2)(b)(i), and EX 21B (which relate to the attributable FIF income method and FIFs corresponding to non-attributing active CFCs); and (xv) (d) if the person is a natural person and not acting as a trustee,— (i) 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: the person includes, in a return for the year, FIF income or loss from an attributing interest in a FIF: (ii) 627 Part D s DN 6 Income Tax Act 2007 Reprinted as at 30 August 2013 (iii) the person has, in the return for 1 of the preceding 4 income years (the earlier year), included FIF income or loss from attributing interests in FIFs with a total cost of $50,000 or less, calculated under section EX 68, at all times in the earlier year when the person is a New Zealand resident; and (e) (f) (g) if the person is acting as trustee of a trust that meets the requirements of subsection (4),— (i) 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: the person includes, in a return for the year, FIF income or loss from an attributing
 interest in a FIF: the person has, in a return for 1 of the preceding 4 income years (the earlier year), included FIF income or loss from attributing interests in FIFs with a total cost of $50,000 or less, calculated under section EX 68, at all times in the earlier year; and (ii) (iii) 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 per- son, 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).
(1B) 628 Reprinted as at 30 August 2013 Income Tax Act 2007 Part D s DN 6 Look-through calculation methods (2) Despite subsection (1), if the calculation method is the at- tributable FIF income method,— (a) (b) 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.
(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: (d) the settlor of the trust is the Accident Compensation Corporation.
Deﬁned in this Act: accounting period, amount, attributable FIF income method, attributing interest, calculation method, CFC, FIF, FIF income, FIF loss, foreign company, foreign superannuation scheme, grey list, grey list loss, New company, income interest, income year, life insurance policy, 629 (b) (c) Part D s DN 6 Income Tax Act 2007 Reprinted as at 30 August 2013 Zealand resident, non-attributing Australian CFC, non-resident, relative, share, shareholder, transitional resident, trustee, unit trust Compare: 2004 No 35 s DN 6 Section DN 6(1)(c)(v): replaced (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 15(1) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section DN 6(1)(c)(xiv): amended (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 15(2) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).

Section DN 6(1)(c)(xv): inserted (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 15(2) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section DN 6(1)(d): replaced (with effect on 1 July 2011 and applying for in- come years beginning on or after that date), on 7 May 2012, by section 15(3) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).

Section DN 6(1)(e): replaced (with effect on 1 July 2011 and applying for in- come years beginning on or after that date), on 7 May 2012, by section 15(3) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
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).
Section DN 6(2): amended (with effect on 1 July 2011 and applying for in- come years beginning on or after that date), on 7 May 2012, by section 15(4) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).

Section DN 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 DN 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 DN 6 list of deﬁned terms accounting proﬁts method: repealed (with effect on 1 July 2011), on 7 May 2012, by section 15(5)(a) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section DN 6 list of deﬁned terms attributable FIF income method: inserted (with effect on 1 July 2011), on 7 May 2012, by section 15(5)(b) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).

Section DN 6 list of deﬁned terms branch equivalent method: repealed (with effect on 1 July 2011), on 7 May 2012, by section 15(5)(a) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
630 Reprinted as at 30 August 2013 Income Tax Act 2007 Part D s DN 8 Section DN 6 list of deﬁned terms FIF income: inserted (with effect on 1 July 2011), on 7 May 2012, by section 15(5)(b) of the Taxation (International Invest- ment and Remedial Matters) Act 2012 (2012 No 34).

Section DN 6 list of deﬁned terms loss: inserted (with effect on 1 July 2011), on 7 May 2012, by section 15(5)(b) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section DN 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: attributable FIF income method (1) Amount of deduction: FIF not elective attributing FIF The deduction that a person is allowed in an income year for a FIF loss from a FIF (the ﬁrst FIF) that is not an elective attributing FIF for the person in the income year is no more than the total of— (a) total attributed CFC income of the person for the in- come year from CFCs, each of which is resident in the same country as the ﬁrst FIF for the relevant accounting period: total FIF income of the person for the income year from other FIFs,— (i) each of which is resident in the same country as the ﬁrst FIF for the relevant accounting period; and for each of which the person uses the attributable FIF income method.
(ii) (b) Amount of deduction: elective attributing FIF (1B) The deduction that a person is allowed in an income year for a FIF loss from a FIF (the ﬁrst FIF) that is an elective attributing 631 Part D s DN 8 Income Tax Act 2007 Reprinted as at 30 August 2013 FIF for the person in the income year is no more than the total of— (a) total attributed CFC income of the person for the income year from CFCs, each of which— (i) is resident in the same country as the ﬁrst FIF for the relevant accounting period; and is an elective attributing CFC for the person in the income year; and has the same election commencement year as the ﬁrst FIF: (ii) (iii) (b) total FIF income of the person for the income year from other FIFs, each of which— (i) is resident in the same country as the ﬁrst FIF for the relevant accounting period; and is an elective attributing FIF for the person in the income year; and has the same election commencement year as the ﬁrst FIF.
(ii) (iii) Income only once (2) When subsection (1) or (1B) 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— subsection (1) or (1B) to another FIF loss; or (a) section DN 4 to an attributed CFC loss.

(b) Relationship with section IQ 3 (3) Any excess not able to be deducted because of subsection (1) or (1B) 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- tributable FIF income method, attributed CFC loss, CFC, deduction, election commencement year, elective attributing CFC, elective attributing FIF, FIF, FIF income, FIF loss, FIF net loss, income year Compare: 2004 No 35 s DN 9 Section DN 8(1) heading: replaced (with effect on 30 June 2009), on 2 Novem- ber 2012 (applying for income years beginning on or after 1 July 2009), by sec- tion 25(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section DN 8(1): replaced (with effect on 30 June 2009), on 2 November 2012 (applying for income years beginning on or after 1 July 2009), by section 25(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
632 Reprinted as at 30 August 2013 Income Tax Act 2007 Part D s DN 8 Section DN 8(1)(b)(ii): amended (with effect on 1 July 2009 and applying for income years beginning on or after that date), on 2 November 2012, by section 25(2) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section DN 8(1B) heading: inserted (with effect on 30 June 2009), on 2 Novem- ber 2012 (applying for income years beginning on or after 1 July 2009), by sec- tion 25(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).

Section DN 8(1B): inserted (with effect on 30 June 2009), on 2 November 2012 (applying for income years beginning on or after 1 July 2009), by section 25(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section DN 8(2): amended (with effect on 30 June 2009), on 2 November 2012 (applying for income years beginning on or after 1 July 2009), by section 25(3) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).

Section DN 8(3): replaced (with effect on 30 June 2009), on 2 November 2012 (applying for income years beginning on or after 1 July 2009), by section 25(4) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section DN 8 list of deﬁned terms attributable FIF income method: inserted (with effect on 1 July 2011), on 7 May 2012, by section 16(3)(b) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).

Section DN 8 list of deﬁned terms branch equivalent method: repealed (with effect on 1 July 2011), on 7 May 2012, by section 16(3)(a) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section DN 8 list of deﬁned terms election commencement year: inserted, on 2 November 2012, by section 25(5) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).

Section DN 8 list of deﬁned terms elective attributing CFC: inserted, on 2 November 2012, by section 25(5) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section DN 8 list of deﬁned terms elective attributing FIF: inserted, on 2 November 2012, by section 25(5) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Subpart DO—Farming and aquacultural business expenditure Contents Farming DO 1 Enhancements to land DO 2 Plantings for erosion, shelter, and water protection purposes DO 3 Trees on farms Page 634 635 636 633 Part D s DO 1 Income Tax Act 2007 Reprinted as at 30 August 2013 Improvements to farm land 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 under sections DO 5 and DO 6 DO 8 Meaning of planting and plot DO 9 Meaning of replaced area fraction DO 10 Farming or horticulture expenditure of lessor or sublessor DO 11 Improvement destroyed or made useless DO 11B Entering partners’ livestock deduction [Repealed] DO 12 Improvements to aquacultural business DO 13 Improvement destroyed or made useless Aquaculture 636 638 640 643 643 644 644 645 646 646 648 Farming DO 1 Enhancements to land Deduction (1) 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) 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.
(b) (c) (d) (e) (f) (g) 634 Reprinted as at 30 August 2013 Income Tax Act 2007 Part D s DO 2 (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 Section DO 1 heading: amended (with effect on 1 April 2011), on 17 July 2013, by section 31 of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
DO 2 Plantings for erosion, shelter, and water protection purposes (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 or plants, whether or not on the land, for the purpose of— (a) (b) (c) preventing or combating erosion of the land: providing shelter to the land: preventing or mitigating detrimental effects on a water- course or body of water from the discharge of farming or agricultural contaminants.

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 Section DO 2 heading: replaced (with effect on 1 April 2011), on 17 July 2013, by section 32(1) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Section DO 2(2): replaced (with effect on 1 April 2011 and applying to a person for expenditure incurred in the 2011–12 or a later income year or in an income year corresponding to a tax year beginning on or after 1 April 2008 and before 1 April 2011 if the person includes the expenditure as a deduction in a tax return made on or before the due date for a tax return for the income year), on 17 July 635 Part D s DO 3 Income Tax Act 2007 Reprinted as at 30 August 2013 2013, by section 32(2) of the Taxation (Livestock Valuation, Assets Expend- iture, and Remedial Matters) Act 2013 (2013 No 52).
DO 3 Trees on farms (1) (2) (3) When this section applies This section applies when— (a) (b) (c) (b) a person carries on, on land in New Zealand, a farming or agricultural business that is the principal business car- ried 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 trees planted under a forestry encouragement agreement under the Forestry Encouragement Act 1962.
(ii) (iii) 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.

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— (1) 636 Reprinted as at 30 August 2013 Income Tax Act 2007 Part D s DO 4 (a) (b) (c) 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.
Deduction: expenditure: owner of land (2) 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 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.
(d) (e) (f) Deduction: expenditure: non-owner of land (3) 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) (4) Amount, and timing, of deduction The amount of the deduction is calculated using the formula— schedule 20 percentage × diminished value.

637 Part D s DO 5 Income Tax Act 2007 Reprinted as at 30 August 2013 (5) 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) the amount of the deduction is the diminished value of (b) 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.
(c) (7) (8) 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 DO 5 Expenditure on land: planting of listed horticultural plants 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 (1) 638 Reprinted as at 30 August 2013 Income Tax Act 2007 Part D s DO 5 (2) (3) (4) (5) (6) (b) the land has been developed by the planting of listed horticultural plants on the land.
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— (a) 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.
(b) 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— 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: 639 Part D s DO 6 Income Tax Act 2007 Reprinted as at 30 August 2013 (c) the deduction is allocated to the income year in which the listed horticultural plant ceases to exist or to be used in deriving income.
(7) (8) 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,— (a) 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.
(b) (c) 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 Section DO 5(4) formula: replaced (with effect on 1 April 2013 and applying for the 2013–14 and later income years), on 17 July 2013, by section 33(1) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
DO 6 Expenditure on land: horticultural replacement planting 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: (1) 640 Reprinted as at 30 August 2013 Income Tax Act 2007 Part D s DO 6 (b) regrafts, or causes to be regrafted, a listed horticultural plant on the land as a replacement plant.
(2) (3) (4) (5) 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) 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— replacement expenditure × 7.5% fraction.
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): 641 Part D s DO 6 Income Tax Act 2007 Reprinted as at 30 August 2013 (b) the amount that is calculated using the formula in sub- section (8).
Formula for ﬁrst amount The ﬁrst amount is calculated using the formula— (6) replacement expenditure × 7.5% fraction.

(7) 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— (8) replacement expenditure × 15% earlier fraction later fraction replaced area fraction.
(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 642 Reprinted as at 30 August 2013 Income Tax Act 2007 Part D s DO 8 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 Separate accounting for additional listed horticultural plants if deduction under section DO 6 (1) 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 the listed horticultural plants beneﬁt the business of the person in the income year; and the listed horticultural plants are not replacement plants.
(b) (c) (d) Combined accounting for listed horticultural plants if no deduction under section DO 6 (2) 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 (b) 643 Part D s DO 9 Income Tax Act 2007 Reprinted as at 30 August 2013 other listed horticultural plants that are involved in the business of the person 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 (1) (2) Meaning In section DO 6, replaced area fraction, for a planting and an income year, means the amount calculated using the for- mula— replacement area plot area × 100%.
Deﬁnition of items in formula In the formula in subsection (1),— (a) 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.
(b) 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 When this section applies This section applies when a person— (a) 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,— (b) (c) (1) 644 Reprinted as at 30 August 2013 Income Tax Act 2007 Part D s DO 11 (i) (ii) 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.
(2) 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 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 made useless for the purpose of deriving the person’s income; and the person would be entitled for the income year to a deduction under section DO 4 or DO 5 for expenditure on the improvement if the improvement had not been destroyed or made useless; and the uselessness occurs in an income year that corres- ponds to the 2005–06 tax year or a later tax year; and the uselessness 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) Deduction: diminished value of expenditure The person is allowed a deduction of the amount of the dimin- ished value, for the income year, of the expenditure on the im- 645 Part D s DO 11B Income Tax Act 2007 Reprinted as at 30 August 2013 (3) provement plus a deduction for the amount of expenditure for removing the improvement from the land referred to in sub- section (1)(a).

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 Section DO 11(1)(b): amended (with effect on 1 April 2010 and applying for the 2010–11 and later income years), on 17 July 2013, by section 34(1) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Section DO 11(1)(c): amended (with effect on 1 April 2010 and applying for the 2010–11 and later income years), on 17 July 2013, by section 34(2) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).

Section DO 11(1)(d): amended (with effect on 1 April 2010 and applying for the 2010–11 and later income years), on 17 July 2013, by section 34(3) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Section DO 11(1)(e): amended (with effect on 1 April 2010 and applying for the 2010–11 and later income years), on 17 July 2013, by section 34(4) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).

Section DO 11(2): amended (with effect on 1 April 2010 and applying for the 2010–11 and later income years), on 17 July 2013, by section 34(5) of the Taxa- tion (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
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).
DO 12 Improvements to aquacultural business Aquaculture When this section applies This section applies when— (a) a person carries on an aquacultural business in New Zealand; and (1) 646 Reprinted as at 30 August 2013 Income Tax Act 2007 Part D s DO 12 (b) (c) 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 (2) 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 (3) 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 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) (4) Amount, and timing, of deduction The amount of the deduction is calculated using the formula— schedule 20 percentage × diminished value.

647 Part D s DO 13 Income Tax Act 2007 Reprinted as at 30 August 2013 (5) (6) Deﬁnition of items in formula In the formula,— (a) schedule 20 percentage is the percentage set out oppos- ite the description of the improvement in any of sched- ule 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) requirements of section that meets the 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) (d) (e) 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- 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.
(1) 648 Reprinted as at 30 August 2013 Income Tax Act 2007 Part D s DP 1 (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 7 Subpart DP—Forestry expenditure Contents DP 1 DP 2 DP 3 DP 4 DP 5 DP 6 DP 7 DP 8 Expenditure of forestry business Plant or machinery Improvements to forestry land Improvement destroyed or made useless Forestry encouragement agreement: deductions Forestry encouragement agreement: no deduction Land contouring: no deduction Forestry business on land bought from the Crown, Maori owners, or holding company: no deduction DP 9 Cost of acquiring timber: forestry business on land bought from the Crown, Maori owners, or holding company DP 9B Treaty of Waitangi claim settlements: rights to take timber DP 10 Cost of acquiring timber or right to take timber: other cases DP 11 Cost of timber Page 649 651 651 653 654 655 655 656 657 657 658 659 DP 1 Expenditure of forestry business Deduction (1) A person carrying on a forestry business on land in New Zealand is allowed a deduction for expenditure that they incur on— (a) administrative overheads, rates, rent, insurance pre- miums, or other expenses of the same kinds: 649 Part D s DP 1 Income Tax Act 2007 Reprinted as at 30 August 2013 (b) (c) (d) (e) (f) (g) (h) interest on money borrowed for the purposes of the busi- ness 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: 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) (i) the cost of standing timber that is lost or destroyed.
Timing of deduction (2) 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).
(3) 650 Reprinted as at 30 August 2013 Income Tax Act 2007 Part D s DP 3 DP 2 Plant or machinery (1) (2) (3) (4) (b) (c) (b) (c) When this section applies: ﬁrst case This section applies when— (a) 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.
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.

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, depreciation 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) When this section applies This section applies when— (a) a person carries on a forestry business on land in New Zealand; and 651 Part D s DP 3 Income Tax Act 2007 Reprinted as at 30 August 2013 (b) 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 (2) 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 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 (3) 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) (4) (5) 652 Reprinted as at 30 August 2013 Income Tax Act 2007 Part D s DP 4 (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: 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).
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— in an income year that corresponds to the (i) 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 653 Part D s DP 5 Income Tax Act 2007 Reprinted as at 30 August 2013 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: (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) 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.

654 Reprinted as at 30 August 2013 Income Tax Act 2007 Part D s DP 7 (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, deduction, general limitation, general permission, interest, pay Compare: 2004 No 35 s DP 4 DP 6 Forestry encouragement agreement: no deduction No deduction (1) 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 the person is later relieved from some or all of their liability to repay the principal.
(b) (c) (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 No deduction (1) 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.
(2) Link with subpart DA This section overrides the general permission.
Deﬁned in this Act: deduction, general permission, income Compare: 2004 No 35 s DP 6 655 (b) (b) Part D s DP 8 Income Tax Act 2007 Reprinted as at 30 August 2013 DP 8 Forestry business on land bought from the Crown, Maori owners, or holding company: no deduction No deduction: forestry company (1) 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).
No deduction: Maori investment company (2) 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.
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).
(3) (4) 656 Reprinted as at 30 August 2013 Income Tax Act 2007 Part D s DP 9B DP 9 Cost of acquiring timber: forestry business on land bought from the Crown, Maori owners, or holding company (1) (2) (3) 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— (a) 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).
(b) Deﬁned in this Act: business, forestry business, forestry company, holding com- pany, 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 9B Treaty of Waitangi claim settlements: rights to take timber (1) When this section applies This section applies when a person’s right to take timber (the old right) has been extinguished, and new rights (the new rights) to take timber are granted to the person in place of the old right, if section CW 1B (Treaty of Waitangi claim settle- ments: rights to take timber) applied to exempt income for the extinguishing of the old right.
657 Part D s DP 10 Income Tax Act 2007 Reprinted as at 30 August 2013 (2) Cost of acquiring new rights The person who is granted the new rights is treated, for each new right, as having acquired the new right for a cost equal to the expenditure they incurred in relation to the old right, but only to the extent that the expenditure relates to the land covered by the new right and has not been deducted previously.
Deﬁned in this Act: exempt income, land, person, right to take timber Section DP 9B: inserted (with effect on 1 April 2008), on 29 August 2011, by section 17 of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
DP 10 Cost of acquiring timber or right to take timber: other cases 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 section 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— (1) (2) (3) 658 Reprinted as at 30 August 2013 Income Tax Act 2007 Part D s DP 11 (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 (1) (2) (3) 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— 659 Part D s DP 11 Income Tax Act 2007 Reprinted as at 30 August 2013 (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) Meaning of timber In this section, timber includes— (a) (b) (c) 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.
(4B) Subsection (2) does not apply if the amount of income of the person under section CB 24 would be exempt income under section CW 1B (Treaty of Waitangi claim settlements: rights to take timber) but for section CW 1B(3).

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, exempt income, general permission, income, 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).
Section DP 11(4B): inserted (with effect on 1 April 2008), on 29 August 2011, by section 18(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).

Section DP 11 list of deﬁned terms exempt income: inserted (with effect on 1 April 2008), on 29 August 2011, by section 18(2) of the Taxation (Tax Ad- ministration and Remedial Matters) Act 2011 (2011 No 63).
Section DP 11 list of deﬁned terms income: inserted (with effect on 1 April 2008), on 29 August 2011, by section 18(2) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
(5) 660 Reprinted as at 30 August 2013 Income Tax Act 2007 Part D s DQ 2 Subpart DQ—Income equalisation schemes and environmental restoration accounts schemes Contents 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 Page 661 661 662 662 DQ 1 Main income equalisation scheme Deduction (1) 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).
(2) (3) Timing of deduction The deduction is allocated to the income year corresponding to the tax year described in section EH 7(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 Deduction (1) 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).
(2) Timing of deduction The deduction is allocated to the income year corresponding to the tax year described in section EH 41(3).

661 Part D s DQ 3 Income Tax Act 2007 Reprinted as at 30 August 2013 (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 (1) 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).
(2) (3) 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 DQ 4 Environmental restoration accounts scheme Deduction for payment (1) 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).
(2) Timing of deduction The deduction under subsection (1) is allocated to the income year referred to in section EK 7.
662 Reprinted as at 30 August 2013 Income Tax Act 2007 Part D s DR 1 Deduction for transfer (3) 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 (4) A deduction under subsection (3) is allocated to the income year referred to in section EK 8.

(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, general limitation, general permission, income year, pay, supplement Compare: 2004 No 35 s DQ 4 Subpart DR—Life insurance business expenditure Contents Policyholder base allowable deduction of life insurer Shareholder base allowable deduction of life insurer DR 1 DR 2 DR 3 Life reinsurance outside New Zealand DR 4 Life insurers’ claims reserves Page 663 664 665 665 DR 1 Policyholder base allowable deduction of life insurer (1) Deduction If, but for this section, a life insurer has an amount of policy- holder base allowable deduction for an income year and that amount is neither a deduction under this Part nor denied as a 663 Part D s DR 2 Income Tax Act 2007 Reprinted as at 30 August 2013 deduction under this Part, the amount is a deduction of the life insurer for the income year.
No cross-deducting: section EY 2 (2) A policyholder base allowable deduction is not allowed against shareholder base income.

Section EY 2 (Policyholder base) deals with allowing policyholder base allowable deductions against policyholder base income, and deals with deductions that relate to the life insurer’s schedular income derived by their life fund PIE that is a multi-rate PIE.

(3) Link with subpart DA Subsections (1) and (2) override the general permission.
Deﬁned in this Act: amount, deduction, general permission, income year, life fund PIE, life insurer, multi-rate PIE, policyholder base allowable deduction, policyholder base income, shareholder base income Section DR 1: substituted, on 1 July 2010, by section 94(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
DR 2 Shareholder base allowable deduction of life insurer (1) Deduction If, but for this section, a life insurer has an amount of share- holder base allowable deduction for an income year and that amount is neither a deduction under this Part nor denied as a deduction under this Part, the amount is a deduction of the life insurer for the income year.

No cross-deducting (2) A shareholder base allowable deduction is not allowed against policyholder base income.
(3) Link with subpart DA Subsections (1) and (2) override the general permission.

Deﬁned in this Act: amount, deduction, general permission, income year, life insurer, policyholder base income, shareholder base allowable deduction Section DR 2: substituted, on 1 July 2010, by section 94(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
664 Reprinted as at 30 August 2013 Income Tax Act 2007 Part D s DR 4 DR 3 Life reinsurance outside New Zealand No deduction A life insurer is denied a deduction for life reinsurance pre- miums they incur if the relevant life reinsurance policy,— (a) was not offered in New Zealand: (b) was not entered into in New Zealand.
Deﬁned in this Act: amount, deduction, general permission, income year, life insurer, life reinsurance, life reinsurance policy, New Zealand Section DR 3: substituted, on 1 July 2010, by section 94(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
DR 4 Life insurers’ claims reserves (1) (2) (3) No deduction on account of claims For a life insurer’s life insurance policies, the life insurer is denied a deduction relating to the life insurer’s outstanding claims or for a claim’s expenditure or loss for an income year, except as provided by— (a) section EY 24 (Outstanding claims reserving amount: non-participation policies not annuities): subsection (2).
(b) Deduction for payments of current claims The life insurer is allowed a deduction for the amount of ex- penditure or loss of a claim paid under a life insurance policy for the income year.

Link with subpart DA This section supplements the general permission.

The general limitations still apply.


Deﬁned in this Act: claim, deduction, general limitation, general permission, life insurance policy, life insurer Section DR 4: added, on 1 July 2010, by section 94(1) of the Taxation (Inter- national Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Subpart DS—Film industry expenditure Contents DS 1 Acquiring ﬁlm rights Page 666 665 Part D s DS 1 Income Tax Act 2007 Reprinted as at 30 August 2013 Film production expenditure 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 667 669 670 671 DS 1 Acquiring ﬁlm rights Deduction (1) 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.
(2) (3) 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 (4) 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) (5) 666 Reprinted as at 30 August 2013 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(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 Deduction (1) 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) (2) 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 reimburse- ment as ﬁlm production expenditure incurred by person A.
(b) (3) Exclusion This section does not apply to ﬁlm production expenditure if the ﬁlm— 667 Part D s DS 2 Income Tax Act 2007 Reprinted as at 30 August 2013 (a) (b) (c) 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.
(4) 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 large budget ﬁlm grant 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 large budget ﬁlm grant is made.

(b) No other deduction (5) 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) (ii) the general permission must be satisﬁed; or 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, large budget ﬁlm grant, New Zealand, pay, supplement Compare: 2004 No 35 s DS 2 (6) (7) 668 Reprinted as at 30 August 2013 Income Tax Act 2007 Part D s DS 2B 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(4)(a): amended (with effect on 1 January 2010), on 7 September 2010, by section 23(1)(a) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).

Section DS 2(4)(b): amended (with effect on 1 January 2010), on 7 September 2010, by section 23(1)(b) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
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: repealed (with effect on 1 January 2010), on 7 September 2010, by section 23(2)(a) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 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 ﬁlm grant: inserted (with ef- fect on 1 January 2010), on 7 September 2010, by section 23(2)(b) of the Taxa- tion (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remed- ial Matters) Act 2010 (2010 No 109).
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).
669 Part D s DS 3 Income Tax Act 2007 Reprinted as at 30 August 2013 (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 (1) 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 (2) 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.
(3) (4) 670 Reprinted as at 30 August 2013 Income Tax Act 2007 Part D s DS 4 (5) 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 (6) Despite the time bar, the Commissioner may amend an assess- ment at any time in order to give effect to this section.
(7) 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 (1) (2) (3) Meaning 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 it gives a right, the right creates an obligation for the person or an associated person, and the person or the (b) (c) 671 (4) (5) Income Tax Act 2007 Reprinted as at 30 August 2013 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 [Repealed] [Repealed] Deﬁned in this Act: amount, arrangement, associated person, deduction, ﬁlm income, ﬁlm reimbursement scheme, ﬁlm right, income, shareholder Compare: 2004 No 35 s DS 4 Section DS 4(5) heading: repealed, on 17 July 2013, pursuant to section 172 of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Section DS 4(5): repealed, on 17 July 2013, by section 172 of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).

Section DS 4 list of deﬁned terms 1973 version provisions: repealed, on 1 April 2010, by section 96(4) 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: repealed, on 1 April 2010, by section 96(4) 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: repealed, on 1 April 2010, by section 96(4) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section DS 4 list of deﬁned terms loss-attributing qualifying company: re- pealed, on 17 July 2013, by section 172 of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Subpart DT—Petroleum mining expenditure Contents 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 Page 673 674 675 677 677 672 Reprinted as at 30 August 2013 Income Tax Act 2007 Part D s DT 1A 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 678 678 679 679 680 681 682 683 683 683 684 685 685 686 686 686 Petroleum exploration expenditure DT 1A Ring-fenced allocations (1) (2) 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 673 Part D s DT 1 Income Tax Act 2007 Reprinted as at 30 August 2013 from all petroleum mining operations undertaken outside New Zealand.
Excess allocations: carried forward and re-instated next year (3) 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 (4) 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 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 Deduction (1) 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 (2) (3) 674 (1) (2) (3) Reprinted as at 30 August 2013 Income Tax Act 2007 Part D s DT 2 DT 2 Arrangement for petroleum exploration expenditure and sale of property What this section applies to This section applies to a person and an arrangement if— (a) (b) (c) 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 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) exploratory material; or a petroleum permit; or the property is not— (i) (ii) (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.
675 Part D s DT 2 Income Tax Act 2007 Reprinted as at 30 August 2013 (4) 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).

(6) 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 (7) 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: 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, on 1 April 2010 (applying for the 2010–11 and later income years), by section 98(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
(8) (9) 676 Reprinted as at 30 August 2013 Income Tax Act 2007 Part D s DT 4 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: repealed, on 1 April 2010, by section 98(5) 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: repealed, on 1 April 2010, by section 98(5) 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: repealed, on 1 April 2010, by section 98(5) 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 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 4 677 Part D s DT 5 Income Tax Act 2007 Reprinted as at 30 August 2013 Petroleum development expenditure DT 5 Petroleum development expenditure Deduction (1) A petroleum miner is allowed a deduction for petroleum de- velopment expenditure incurred by them.
(2) (3) (4) 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).
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 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,— 678 Reprinted as at 30 August 2013 Income Tax Act 2007 Part D s DT 8 (a) (b) (c) 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 199.
Deﬁned in this Act: permit area, petroleum, petroleum development expend- iture, petroleum mining asset, petroleum permit Compare: 2004 No 35 s DT 6 DT 7 Exploratory well expenditure (1) When this section applies This section applies when— (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 (2) 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 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, 679 Part D s DT 9 Income Tax Act 2007 Reprinted as at 30 August 2013 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 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 (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 15 (Disposal of petroleum mining asset) to the income year in which the miner disposes of the asset.
No deduction The miner is denied a deduction for the amount that section EJ 16(2) prevents from being allocated to the income year in which the miner disposes of the asset.

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 29 August 2011 (applying for the 2008–09 and later income years), by section 19(1) of the Tax- ation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section DT 9(2): substituted (with effect on 1 April 2008), on 29 August 2011 (applying for the 2008–09 and later income years), by section 19(2) of the Tax- ation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
(1) (2) (3) 680 Reprinted as at 30 August 2013 Income Tax Act 2007 Part D s DT 10 DT 10 Disposal of petroleum mining asset outside association (1) (2) (3) (4) (5) (6) (7) 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.

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 10 681 Part D s DT 11 Income Tax Act 2007 Reprinted as at 30 August 2013 DT 11 Association ending 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) (b) while person A holds the asset,— (i) (ii) 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.
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 (1) (2) (3) (4) (5) (6) 682 Reprinted as at 30 August 2013 Income Tax Act 2007 Part D s DT 14 Other expenditure DT 12 Damage to assets Deduction (1) A petroleum miner is allowed a deduction for the cost of repairing a damaged asset of the kind described in section CT 7(1)(b) or (c) (Meaning of petroleum mining asset).
(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 miner, supplement Compare: 2004 No 35 s DT 12 DT 13 Disposal of ownership interests in controlled petroleum mining entities No deduction (1) A person who disposes of shares or trust interests in a con- trolled petroleum mining entity is denied a deduction for their cost.
(2) (3) 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) 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.
683 Part D s DT 15 Income Tax Act 2007 Reprinted as at 30 August 2013 (2) (3) (4) (5) 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).

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 (b) 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.
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).

(1) (2) 684 Reprinted as at 30 August 2013 Income Tax Act 2007 Part D s DT 17 (3) (4) 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 DT 16 Removal or restoration operations Deduction (1) A petroleum miner is allowed a deduction for expenditure that they incur on removal or restoration operations.

(2) (3) (4) 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 Petroleum mining permit (1) A deduction for expenditure incurred to acquire a petroleum permit is attributable to the permit area of the petroleum per- mit.
685 Part D s DT 18 Income Tax Act 2007 Reprinted as at 30 August 2013 Other assets (2) 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.
(3) 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 Ad- ministration Act 1994.

Deﬁned in this Act: permit area, petroleum permit Compare: 2004 No 35 s DT 17 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— 686 Reprinted as at 30 August 2013 Income Tax Act 2007 Part D s DU 1 (a) (b) 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.
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 Contents 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 7 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 Page 687 688 690 691 692 693 694 695 696 697 698 698 DU 1 Mining exploration expenditure and mining development expenditure Deduction (1) A mining company is allowed a deduction for mining explor- ation expenditure and mining development expenditure that it incurs.
(2) Amount of deduction The amount of the deduction is the amount determined under section DU 2.

687 Part D s DU 2 Income Tax Act 2007 Reprinted as at 30 August 2013 (3) (4) 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 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) 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 (1) (2) (3) 688 Reprinted as at 30 August 2013 Income Tax Act 2007 Part D s DU 2 (4) (5) (6) 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- 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).
689 Part D s DU 3 Income Tax Act 2007 Reprinted as at 30 August 2013 DU 3 Replacing or repairing asset 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 (4) 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 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.
(c) (d) Deduction The company is allowed a deduction for the excess.

(1) (2) (3) (5) (6) 690 Reprinted as at 30 August 2013 Income Tax Act 2007 Part D s DU 4 (7) (8) (9) 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 DU 4 Income appropriated to expenditure (1) (2) 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: (a) 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.
(b) 691 Part D s DU 5 Income Tax Act 2007 Reprinted as at 30 August 2013 (3) (4) (5) 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 DU 5 Non-mining asset used to derive income from mining 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.
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 (b) (1) (2) (3) 692 Reprinted as at 30 August 2013 Income Tax Act 2007 Part D s DU 6 (c) any other matters that the Commissioner considers rele- vant.
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 (1) (2) (3) 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) 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.
693 Part D s DU 7 Income Tax Act 2007 Reprinted as at 30 August 2013 (4) (5) 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) (b) 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- 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— 694 Reprinted as at 30 August 2013 Income Tax Act 2007 Part D s DU 8 mining expenditure income from mining.
Deﬁnition of items in formula In the formula in subsection (4),— (a) mining expenditure is an amount consisting of— (5) (i) (ii) 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): (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 (1) (2) (3) 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.
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 695 Part D s DU 9 Income Tax Act 2007 Reprinted as at 30 August 2013 (b) 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.
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.
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.
(4) 696 Reprinted as at 30 August 2013 Income Tax Act 2007 Part D s DU 10 (5) 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 (1) (2) (3) (4) (5) 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 sub- section (2) is omitted.

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

Application of section DU 4 Section DU 4 applies with the additional modiﬁcation that sub- section (4) is omitted.
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 10 697 Part D s DU 11 Income Tax Act 2007 Reprinted as at 30 August 2013 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 Deduction (1) 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.
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 (2) 698 Reprinted as at 30 August 2013 Income Tax Act 2007 Part D s DU 12 (b) (c) 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) (3) (4) (5) (6) (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 min- ing exploration expenditure and mining development expenditure 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).

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 12 699 Income Tax Act 2007 Reprinted as at 30 August 2013 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 Contents 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 Page 701 702 704 705 707 708 711 712 712 713 713 714 715 716 717 717 718 719 719 720 700 Reprinted as at 30 August 2013 Income Tax Act 2007 Part D s DV 1 Partners and partnerships DV 20 Partners DV 21 Losses for QCs entering partnership regime Look-through companies DV 22 Owners of look-through companies DV 23 Losses for QCs entering look-through companies rules Sole traders DV 24 Losses for QCs becoming sole traderships DV 25 Hedging of currency movements in Australian non-attributing shares and attributing FDR method interests 722 722 724 725 726 728 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 1 701 Part D s DV 2 Income Tax Act 2007 Reprinted as at 30 August 2013 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 (b) 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).
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.
702 Reprinted as at 30 August 2013 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 multi-rate PIE, in the income year in which the expenditure is transferred by the mem- ber 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 multi-rate PIE is allowed a deduction for expenditure trans- ferred to it by a member superannuation fund.

However, the maximum amount transferred must be no more than the mem- ber fund’s share of the taxable income of the PIE for the in- come 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: 703 Part D s DV 3 Income Tax Act 2007 Reprinted as at 30 August 2013 (ii) it overrides the capital limitation and the exempt income limitation: the other general limitations still apply: (iii) (b) subsection (9) overrides the general permission.
Deﬁned in this Act: amount, assessable income, capital limitation, Commis- sioner, deduction, exempt income limitation, general limitation, general per- mission, income year, multi-rate PIE, notice, return of income, superannuation fund, supplement Compare: 2004 No 35 s DV 2 Section DV 2(6): substituted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 102(2) 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): substituted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 102(4) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section DV 2 list of deﬁned terms investor interest: repealed (with effect on 1 April 2010), on 21 December 2010, by section 43 of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).

Section DV 2 list of deﬁned terms multi-rate PIE: inserted, on 1 April 2010, by section 102(6)(b) 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: repealed, on 1 April 2010, by section 102(6)(a) 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: repealed, on 1 April 2010, by section 102(6)(a) of the Taxation (International Taxation, Life Insur- ance, 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.
(1) (2) (3) 704 Reprinted as at 30 August 2013 Income Tax Act 2007 Part D s DV 4 Non-resident passive income (4) 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 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 section 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 multi-rate PIE.
(2) (3) KiwiSaver schemes [Repealed] [Repealed] 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 705 Part D s DV 4 Income Tax Act 2007 Reprinted as at 30 August 2013 (b) (c) (d) the income year that it chooses to treat as being incurred by the master superannuation fund: 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) 706 Reprinted as at 30 August 2013 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: (b) subsection (7) overrides the general permission.
Deﬁned in this Act: amount, assessable income, capital limitation, deduction, income year, KiwiSaver general scheme, multi-rate PIE, superannuation fund, superannuation scheme, supple- ment Compare: 2004 No 35 s DV 4 limitation, general permission, income, Section DV 4(1B) heading: substituted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 103(2) of the Taxation (Inter- national Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section DV 4(1B): substituted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 103(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section DV 4(2) heading: repealed, on 1 May 2011, by section 56 of the Kiwi- saver Amendment Act 2011 (2011 No 8).

Section DV 4(2): repealed, on 1 May 2011, by section 56 of the Kiwisaver Amendment Act 2011 (2011 No 8).
Section DV 4 list of deﬁned terms multi-rate PIE: inserted, on 1 April 2010, by section 103(4)(b) 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: repealed, on 1 April 2010, by section 103(4)(a) of the Taxation (International Taxation, Life Insur- ance, 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 multi-rate PIE has a deduction under section DV 2(8B) for an income year for expend- iture 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.
707 Part D s DV 5 Income Tax Act 2007 Reprinted as at 30 August 2013 (2) (3) 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.

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, multi-rate PIE, tax year Section DV 4B: substituted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 104(2) 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 (1) (2) When this section applies This section applies when— (a) a group investment fund that derives category A income, a public unit trust, or a superannuation fund (the mem- ber fund) invests some or all of its funds in a master fund; and (c) (b) 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— (b) 708 Reprinted as at 30 August 2013 Income Tax Act 2007 Part D s DV 5 (i) (ii) expenditure on any other ﬁnancial arrangement; or expenditure on revenue account property.
(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.

709 Part D s DV 5 Income Tax Act 2007 Reprinted as at 30 August 2013 Amount of deduction when master fund is multi-rate PIE (7B) Despite subsection (7), a master fund that is a multi-rate PIE is allowed a deduction for expenditure transferred to it by a mem- ber fund.
However, the maximum amount transferred must be no more than the member fund’s share of the taxable income of the PIE for the income year in which the amount is trans- ferred, 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: (b) subsection (9) overrides the general permission.
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, multi-rate PIE, public unit trust, return of income, revenue account property, superannu- ation fund, supplement, tax loss, tax year Compare: 2004 No 35 s DV 5 Section DV 5(7B) heading: substituted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 105(2) of the Taxation (Inter- national Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section DV 5(7B): substituted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 105(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section DV 5 list of deﬁned terms investor interest: repealed (with effect on 1 April 2010), on 21 December 2010, by section 44 of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section DV 5 list of deﬁned terms multi-rate PIE: inserted, on 1 April 2010, by section 105(4)(b) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

710 Reprinted as at 30 August 2013 Income Tax Act 2007 Part D s DV 6 Section DV 5 list of deﬁned terms portfolio investor interest: repealed, on 1 April 2010, by section 105(4)(a) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section DV 5 list of deﬁned terms portfolio tax rate entity: repealed, on 1 April 2010, by section 105(4)(a) of the Taxation (International Taxation, Life Insur- ance, and Remedial Matters) Act 2009 (2009 No 34).

DV 6 Formula for calculating maximum deduction (1) (2) (3) 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 (4) 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.
(5) Multi-rate PIEs This section does not apply to an amount of expenditure trans- ferred to a master fund that is a multi-rate PIE.
Deﬁned in this Act: amount, corresponding income year, deduction, master fund, multi-rate PIE, non-resident passive income, taxable income Compare: 2004 No 35 s DV 6 Section DV 6(5) heading: substituted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 106(2) of the Taxation (Inter- national Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section DV 6(5): substituted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 106(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section DV 6 list of deﬁned terms multi-rate PIE: inserted, on 1 April 2010, by section 106(4)(b) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
711 Part D s DV 7 Income Tax Act 2007 Reprinted as at 30 August 2013 Section DV 6 list of deﬁned terms portfolio tax rate entity: repealed, on 1 April 2010, by section 106(4)(a) of the Taxation (International Taxation, Life Insur- ance, and Remedial Matters) Act 2009 (2009 No 34).
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 October 2009, by section 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 section 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 section 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 section 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 (1) 712 Reprinted as at 30 August 2013 Income Tax Act 2007 Part D s DV 10 (2) (3) (b) has a constitution that prohibits a distribution of prop- erty in any form to a member, proprietor, or shareholder.
Amount of deduction The organisation is allowed a deduction for the lesser of— (a) (b) $1,000; and 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 No deduction (1) A person who derives beneﬁciary income is denied a deduc- tion for expenditure or loss that a trustee incurs in deriving the income.
(2) (3) 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 Deduction (1) A building society is allowed a deduction for— (a) expenditure incurred on money borrowed by way of withdrawable shares: 713 Part D s DV 11 Income Tax Act 2007 Reprinted as at 30 August 2013 (b) (c) 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.
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 (2) (3) (4) DV 11 Distribution to member of co-operative company, excluded from being dividend Deduction (1) 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 34B (Distributions to members of co-operative companies) from being a dividend.
Amount of deduction The amount of the deduction is the amount of the distribution that is excluded by section CD 34B from being a dividend.

(2) 714 Reprinted as at 30 August 2013 Income Tax Act 2007 Part D s DV 12 (3) (4) Timing of deduction The deduction is allocated to the income year to which the distribution relates.

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 Section DV 11(1): amended (with effect on 1 April 2010), on 7 September 2010, by section 24(1) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
Section DV 11(2): amended (with effect on 1 April 2010), on 7 September 2010, by section 24(2) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).

Section DV 11(3): amended (with effect on 1 April 2010), on 7 September 2010, by section 24(3) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
DV 12 Maori authorities: donations Deduction (1) A Maori authority is allowed a deduction for— (a) (b) 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 donee organisation.
Amount of deduction The deduction for the total of all donations and gifts made in an income year is limited to 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, donee organisation, general limitation, general permission, income year, Maori authority, net income, supplement, tax year Compare: 2004 No 35 s DV 11 (2) (3) 715 Part D s DV 13 Income Tax Act 2007 Reprinted as at 30 August 2013 Section DV 12(1)(b): amended, on 6 January 2010, by section 108(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
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).

Section DV 12 list of deﬁned terms donee organisation: inserted, on 6 January 2010, by section 108(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
DV 13 Group companies When this section applies This section applies when,— (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- eral supplement, wholly-owned group of companies Compare: 2004 No 35 s DV 12 limitation, general permission, income year, income, (1) (2) (3) 716 Reprinted as at 30 August 2013 Income Tax Act 2007 Part D s DV 15 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 ex- penditure on land) for the land or business if the amal- gamation 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 company would have been allowed under section DO 4, DO 5, DO 6, DO 12, or DP 3.

(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) 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 (2) 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 717 Part D s DV 16 Income Tax Act 2007 Reprinted as at 30 August 2013 amalgamating company did or did not do in the circumstances set out in section FO 8.
Depreciation loss for property transferred (3) 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).

(4) 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 DV 16 Consolidated groups: intra-group transactions (1) 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) (2) 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 (3) A company that is part of a consolidated group is— (a) (b) 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.
718 Reprinted as at 30 August 2013 Income Tax Act 2007 Part D s DV 18 (4) 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 (1) (2) (3) (4) 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 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 company 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) 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 719 Part D s DV 19 Income Tax Act 2007 Reprinted as at 30 August 2013 distributions by statutory producer boards and co-operative companies) 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) (2) (3) DV 19 Association rebates When this section applies This section applies when an association— (a) (b) enters into a mutual transaction with a member; and in relation to the transaction, pays an association rebate to a member.
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 corresponding to the accounting year for which the association rebate is paid.
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 with members 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.
(1) (2) (3) (4) 720 Reprinted as at 30 August 2013 Income Tax Act 2007 Part D s DV 19 (b) (c) (b) Amount under formula The amount is calculated using the formula— assessable income (deductions + amount distributed).
(5) (6) Deﬁnition of items in formula In the formula,— (a) assessable income is the total amount of the associ- ation’s assessable income attributable to mutual trans- actions with members: deductions are the total deductions that the association is allowed, other than under this section, that are at- tributable to the assessable income referred to in para- graph (a): 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) 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: accounting year, amount, assessable income, association, association rebate, capital limitation, deduction, general permission, imputation credit, income, income year, member, mutual transaction, net income, net loss, pay, share, statutory producer board Compare: 2004 No 35 s HF 1(2), (3)(a), (b), (4) Section DV 19(1): substituted (with effect on 1 April 2008), on 7 September 2010 (applying for the 2008–09 and later income years), by section 25(1) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
721 Part D s DV 20 Income Tax Act 2007 Reprinted as at 30 August 2013 Section DV 19(1)(a): amended (with effect on 1 April 2008), on 29 August 2011 (applying for the 2008–09 and later income years), by section 20(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section DV 19(3): substituted (with effect on 1 April 2008), on 7 September 2010 (applying for the 2008–09 and later income years), by section 25(2) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).

Section DV 19(4): amended (with effect on 1 April 2008), on 29 August 2011 (applying for the 2008–09 and later income years), by section 20(2) of the Tax- ation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section DV 19(6)(a): amended (with effect on 1 April 2008), on 29 August 2011 (applying for the 2008–09 and later income years), by section 20(3)(a) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).

Section DV 19(6)(b): amended (with effect on 1 April 2008), on 29 August 2011 (applying for the 2008–09 and later income years), by section 20(3)(b) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section DV 19 list of deﬁned terms accounting year: inserted (with effect on 1 April 2008), on 7 September 2010 (applying for the 2008–09 and later income years), by section 25(3) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).

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: inserted, on 1 April 2008, by section 10(1) of the Taxation (Limited Partnerships) Act 2008 (2008 No 2).
DV 21 Losses for QCs entering partnership regime When this section applies This section applies to a person when,— (a) for an income year, a person’s partnership (the partner- ship) has effectively replaced a qualifying company or companies under a QCP transitional process; and ignoring the application of section HZ 4B(3) (Qualify- transition into partnership), the com- ing companies: (b) (1) 722 Reprinted as at 30 August 2013 Income Tax Act 2007 Part D s DV 21 pany or companies would have had loss balances to carry forward to the ﬁrst or second income year, as ap- plicable, starting on or after 1 April 2011 (the relevant transitional income year).
Losses extinguished (2) Despite section HZ 4B(3), for the relevant transitional income year and subsequent income years, a loss balance under Part I (Treatment of tax losses) is cancelled if the loss balance arose in relation to an income year before the relevant transitional income year.
(3) (4) (5) Deduction The person is allowed a deduction for an amount equal to an amount given by the formula in subsection (4), to the extent to which it is equal to or less than the net income the person would have for the income year if they were treated as having only income and deductions arising from the application of subpart HG (Joint venturers, partners, and partnerships) for the partnership.
Deduction formula For the purposes of subsection (3), the amount is calculated using the formula— (loss balance extinguished subsequent deductions) × partnership share.
Deﬁnition of items in formula In the formula,— (a) loss balance extinguished is the loss balance cancelled under subsection (2): subsequent deductions is the total amount of deduc- tions allowed for previous income years under this sec- tion for all persons with a partnership share in the part- nership: partnership share is the person’s average partnership share for the partnership for the income year.
(b) (c) Exception (6) Despite subsection (3), a person is not allowed a deduction for an amount in subsection (4) to the extent to which— 723 Part D s DV 22 Income Tax Act 2007 Reprinted as at 30 August 2013 (a) (b) it arises from an amount carried forward under sub- parts IA and IQ (which relate to the treatment of foreign losses); and it is greater than the maximum amount they may sub- tract from their net income under subpart IQ, treating the amount as an attributed CFC net loss or a FIF net loss carried forward under subpart IQ, and the person as having the net income they would have for the income year if they were treated as having only income and de- ductions arising from the application of subpart HG for the partnership.
(7) Link with subpart DA This section overrides the general permission and the general limitations.
Deﬁned in this Act: amount, attributed CFC net loss, company, deduction, FIF net loss, general limitation, general permission, income, income year, loss balance, net income, partnership, partnership share, QCP transitional process, qualifying company Section DV 21: inserted, on 1 April 2011 (applying for income years beginning on or after 1 April 2011), by section 45(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Look-through companies Heading: inserted, on 1 April 2011 (applying for income years beginning on or after 1 April 2011), by section 45(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).

DV 22 Owners of look-through companies A person who has an effective look-through interest for a look- through company has a deduction to the extent to which a deduction results from the application of subpart HB (Look- through companies) to them and the look-through company.
Deﬁned in this Act: deduction, effective look-through interest, look-through company Section DV 22: inserted, on 1 April 2011 (applying for income years beginning on or after 1 April 2011), by section 45(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
724 Reprinted as at 30 August 2013 Income Tax Act 2007 Part D s DV 23 DV 23 Losses for QCs entering look-through companies rules (1) (2) (3) (4) When this section applies This section applies to a person who has an effective look- through interest for a look-through company (the LTC) for an income year when— (a) the LTC was a qualifying company that ﬁrst becomes a look-through company for the ﬁrst or second income year that starts on or after 1 April 2011; and but for becoming a look-through company and the ap- plication of section HB 3 (Loss balances extinguished), there would have been a loss balance to carry forward to the ﬁrst or second income year that starts on or after 1 April 2011 (the relevant transitional income year).
(b) Deduction The person is allowed a deduction for an amount equal to an amount given by the formula in subsection (3), to the extent to which it is equal to or less than the net income the person would have for the income year if they were treated as having only income and deductions arising from the application of subpart HB (Look-through companies) for the LTC.
Deduction formula For the purposes of subsection (2), the amount is calculated using the formula— (loss balance extinguished subsequent deductions) × effective interest.
Deﬁnition of items in formula In the formula,— (a) loss balance extinguished is the loss balance that would have been carried forward to the relevant transi- tional income year: subsequent deductions is the total amount of deduc- tions allowed for previous income years under this sec- tion for all persons with an effective look-through inter- est for the LTC: effective interest is the person’s average effective look- through interest for the income year for the LTC.
(b) (c) 725 Part D s DV 24 Income Tax Act 2007 Reprinted as at 30 August 2013 Exception (5) Despite subsection (2), a person is denied a deduction for an (b) amount in subsection (3) to the extent to which— (a) it arises from an amount carried forward under sub- parts IA and IQ (which relate to the treatment of foreign losses); and it is greater than the maximum amount they may sub- tract from their net income under subpart IQ, treating the amount as an attributed CFC net loss or a FIF net loss carried forward under subpart IQ, and the person as having the net income they would have for the income year if they were treated as having only income and de- ductions arising from the application of subpart HB for the LTC.
(6) Link with subpart DA This section overrides the general permission and the general limitations.
Deﬁned in this Act: amount, attributed CFC net loss, deduction, effective look- through interest, FIF net loss, general limitation, general permission, income, income year, look-through company, loss balance, net income, qualifying com- pany Section DV 23: inserted, on 1 April 2011 (applying for income years beginning on or after 1 April 2011), by section 45(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Sole traders Heading: added, on 1 April 2011 (applying for income years beginning on or after 1 April 2011), by section 45(1) of the Taxation (GST and Remedial Mat- ters) Act 2010 (2010 No 130).
DV 24 Losses for QCs becoming sole traderships When this section applies This section applies to a person when,— (a) (b) for an income year, the person’s sole tradership has ef- fectively replaced a qualifying company under a QCST transitional process; and ignoring the application of section HZ 4D(3) (Quali- fying companies: transition into sole traderships), the company would have had a loss balance to carry for- ward to the ﬁrst or second income year, as applicable, (1) 726 Reprinted as at 30 August 2013 Income Tax Act 2007 Part D s DV 24 starting on or after 1 April 2011 (the relevant transi- tional income year).
Losses extinguished (2) Despite section HZ 4D(3), for the relevant transitional income year and subsequent income years, a loss balance under Part I (Treatment of tax losses) is cancelled if the loss balance arose in relation to an income year before the relevant transitional income year.

(3) (4) (5) Deduction The person is allowed a deduction for an amount equal to an amount given by the formula in subsection (4).
Deduction formula For the purposes of subsection (3), the amount is calculated using the following formula: loss balance extinguished subsequent deductions.

 Deﬁnition of items in formula In the formula,— (a) (b) loss balance extinguished is the loss balance cancelled under subsection (2): subsequent deductions is the total amount of deduc- tions allowed for previous income years under this sec- tion.
Exception (6) Despite subsection (3), a person is denied a deduction for an amount in subsection (4) to the extent to which— (a) it arises from an amount carried forward under sub- parts IA and IQ (which relate to the treatment of foreign losses); and it is greater than the maximum amount they may sub- tract from their net income under subpart IQ, treating the amount as an attributed CFC net loss or a FIF net loss carried forward under subpart IQ.
(b) (7) Link with subpart DA This section overrides the general permission and the general limitations.
Deﬁned in this Act: amount, attributed CFC net loss, deduction, FIF net loss, general limitation, general permission, income, income year, loss balance, net income, QCST transitional process, qualifying company 727 Part D s DV 25 Income Tax Act 2007 Reprinted as at 30 August 2013 Section DV 24: added, on 1 April 2011 (applying for income years beginning on or after 1 April 2011), by section 45(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
DV 25 Hedging of currency movements in Australian non-attributing shares and attributing FDR method interests Deduction (1) A person is allowed a deduction for the amount of expenditure that the person has under section EM 6 (Income and expend- iture for fair dividend rate hedge portions).

(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: amount, deduction, general limitation, general permission Section DV 25: inserted, on 17 July 2013, by section 35 of the Taxation (Live- stock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Subpart DW—Expenditure speciﬁc to certain industries Contents DW 1 Airport operators DW 2 Bloodstock racing DW 3 Non-resident general insurers and shippers DW 4 Deduction for general insurance outstanding claims reserve Page 728 729 730 731 DW 1 Airport operators No deduction (with exception) (1) 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 728 Reprinted as at 30 August 2013 Income Tax Act 2007 Part D s DW 2 (2) (3) 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 (1) 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) (2) 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) No deduction (with exception) (3) 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) 729 Part D s DW 3 Income Tax Act 2007 Reprinted as at 30 August 2013 (4) 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 and shippers No deduction (1) 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) 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.

[Repealed] (b) (c) 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) Section DW 3 heading: amended, on 2 November 2012, by section 26(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section DW 3(2)(b): amended, on 2 November 2012, by section 26(2) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).

Section DW 3(2)(c): repealed, on 2 November 2012, by section 26(3) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
(2) (3) (4) 730 Reprinted as at 30 August 2013 Income Tax Act 2007 Part D s DW 4 DW 4 Deduction for general insurance outstanding claims reserve (1) 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.
When this section does not apply (1B) This section does not apply for contracts that section DZ 10 (General insurance with risk period straddling 1 July 1993) applies to.

(2) (3) (4) 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 liability or for a claim’s expenditure or loss, except as pro- vided 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) 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 (ii) 731 Part D s DW 4 Income Tax Act 2007 Reprinted as at 30 August 2013 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.
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, except that the capital limitation does not apply for general insurance contracts after they are trans- ferred to an insurer.
Deﬁned in this Act: amount, capital limitation, deduction, general limitation, general permission, IFRS 4, income year, insurer, life insurer, outstanding claims reserve, pay 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).
Section DW 4(1B) heading: inserted (with effect on 1 April 2008 and applying for the 2008–09 and later income years), on 17 July 2013, by section 36(1) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).

Section DW 4(1B): inserted (with effect on 1 April 2008 and applying for the 2008–09 and later income years), on 17 July 2013, by section 36(1) of the Taxa- tion (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Section DW 4(6): amended (with effect on 7 September 2010), on 2 Novem- ber 2012, by section 27(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).

Section DW 4 list of deﬁned terms capital limitation: inserted (with effect on 7 September 2010), on 2 November 2012, by section 27(2) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section DW 4 list of deﬁned terms general insurance contract: repealed (with effect on 1 April 2008), on 7 September 2010, by section 26(b) of the Taxa- tion (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remed- ial Matters) Act 2010 (2010 No 109).

Section DW 4 list of deﬁned terms pay: inserted (with effect on 1 April 2008), on 7 September 2010, by section 26(a) of the Taxation (Annual Rates, Trans- Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
(5) (6) 732 Reprinted as at 30 August 2013 Income Tax Act 2007 Part D s DX 1 Subpart DX—Other expenditure Contents DX 1 Testamentary annuities DX 2 Tax credits: conduit ﬁnancing arrangements [Repealed] DX 3 Tax credits: supplementary dividend holding companies [Repealed] Page 733 734 734 DX 1 Testamentary annuities (1) (2) (3) 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.
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— (a) 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.
(b) (c) (b) 733 Part D s DX 2 Income Tax Act 2007 Reprinted as at 30 August 2013 (4) (5) (6) 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 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).
DX 3 Tax credits: supplementary dividend holding companies [Repealed] Section DX 3: repealed, on 1 October 2012 (applying for the 2013–14 and later income years), by section 17(1) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
734 Reprinted as at 30 August 2013 Income Tax Act 2007 Part D s DX 3 Subpart DZ—Terminating provisions Contents DZ 1 Commercial bills before 31 July 1986 DZ 2 Life insurers acquiring property before 1 April 1988 Petroleum mining: development expenditure from DZ 3 1 October 1990 to 15 December 1991 DZ 4 Expenditure on abandoned exploratory well before DZ 5 DZ 6 DZ 7 16 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 DZ 19 Attributed CFC loss carried back under section EZ 32C [Repealed] DZ 20 Expenditure incurred while income-earning activity interrupted by Canterbury earthquake DZ 21 Expenditure on certain assets before 31 March 2013 Page 736 736 738 738 739 741 742 742 742 743 743 746 747 748 748 749 750 751 752 752 753 735 Part D s DZ 1 Income Tax Act 2007 Reprinted as at 30 August 2013 DZ 1 Commercial bills before 31 July 1986 Deduction (1) 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.
(2) (3) 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— (a) 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 (b) (c) (d) (e) (1) 736 Reprinted as at 30 August 2013 Income Tax Act 2007 Part D s DZ 2 (2) (3) (4) (ii) 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 (f) section DR 2 does not apply to the disposal.
Deduction The life insurer is allowed a deduction for the amount quan- tiﬁed 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- 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 2 737 Part D s DZ 3 Income Tax Act 2007 Reprinted as at 30 August 2013 DZ 3 Petroleum mining: development expenditure from 1 October 1990 to 15 December 1991 Deduction (1) A petroleum miner is allowed a deduction for petroleum mining development expenditure incurred by them on or after 1 October 1990 and before or on 15 December 1991.
This subsection is overridden by subsection (2).

(2) (3) (4) (5) 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).

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 Deduction (1) 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— 738 Reprinted as at 30 August 2013 Income Tax Act 2007 Part D s DZ 5 (a) (b) 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.
(2) (3) (4) 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) Timing of deduction The deduction is allocated to the income year in which the well is sealed and abandoned.
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 Deduction: excess expenditure incurred before 16 December 1991 (1) 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).
739 Part D s DZ 5 Income Tax Act 2007 Reprinted as at 30 August 2013 Deduction: excess expenditure incurred on or after 16 December 1991 (2) 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 petroleum development expenditure) and quantiﬁed and allocated under whichever of sections EJ 12 to EJ 16 (which relate to petrol- eum mining) applies.

Reduction of deductions (3) 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).
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 Income 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— (4) (5) 740 Reprinted as at 30 August 2013 Income Tax Act 2007 Part D s DZ 6 (a) (b) (c) residual expenditure; and expenditure incurred on or before the date on which the 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.
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.

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 (6) (7) 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) 741 Part D s DZ 7 Income Tax Act 2007 Reprinted as at 30 August 2013 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) (2) (3) 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 section, if the person dies after incurring expenditure on buy- ing the rights, references to the person include their personal representative, 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 DZ 9 Premium paid on land leased before 1 April 1993 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.
(1) 742 Reprinted as at 30 August 2013 Income Tax Act 2007 Part D s DZ 11 (2) (3) 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 (1) (2) (3) 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 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.
(b) (c) 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 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 743 Part D s DZ 11 Income Tax Act 2007 Reprinted as at 30 August 2013 (b) (c) (d) 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 (e) (ii) 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- 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 (g) 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) (f) 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) 744 Reprinted as at 30 August 2013 (h) Income Tax Act 2007 Part D s DZ 11 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).
(2) (3) (4) 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) (ii) (iii) 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 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 Pub- lic 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 11 745 Part D s DZ 12 Income Tax Act 2007 Reprinted as at 30 August 2013 DZ 12 Mineral mining: 1954–2005 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 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.
(ii) (iii) (iv) (v) 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- (ii) (1) (2) 746 Reprinted as at 30 August 2013 Income Tax Act 2007 Part D s DZ 13 (3) (4) mula in section 31(3) of the Land and Income Tax Amendment Act (No 2) 1972.
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- 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) 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) (2) 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.

747 Part D s DZ 14 Income Tax Act 2007 Reprinted as at 30 August 2013 (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: 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 denied a deduction for an amount of depreciation loss for the asset.
Lessee (3) 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) (4) 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 (1) 748 Reprinted as at 30 August 2013 Income Tax Act 2007 Part D s DZ 16 (b) (c) (d) 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.
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— months of ownership 240 × cost.

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 (2) (3) (4) DZ 16 Geothermal wells between 31 March 2003 and 17 May 2006 (1) 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: (b) 749 Part D s DZ 17 Income Tax Act 2007 Reprinted as at 30 August 2013 (ii) acquired between 31 March 2003 and 17 May 2006; and a deduction for expenditure on the well is denied under another provision.
(c) Deduction In the income year in which the well’s geothermal energy proving period ends, the person is allowed a deduction for ex- penditure 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 (2) (3) DZ 17 Expenditure on improvements to aquacultural business 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 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): (1) (2) (3) 750 Reprinted as at 30 August 2013 Income Tax Act 2007 Part D s DZ 18 (4) (b) diminished value is the diminished value of the im- provement.

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 (1) (2) (3) 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 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.
(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 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) 751 Part D s DZ 19 Income Tax Act 2007 Reprinted as at 30 August 2013 (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: amount, capital limitation, deduction, diminished value, general limitation, general permission, income year, land Compare: 2004 No 35 s DZ 17 DZ 19 Attributed CFC loss carried back under section EZ 32C [Repealed] Section DZ 19: repealed (with effect on 30 June 2009), on 2 November 2012 (applying for income years beginning on or after 1 July 2009), by section 28(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
DZ 20 Expenditure incurred while income-earning activity interrupted by Canterbury earthquake When this section applies This section applies for a person and an income year (the cur- rent year) before the 2016–17 income year when— (a) the person has an income-earning activity in greater Christchurch (as deﬁned in section 4 of the Canterbury Earthquake Recovery Act 2011) immediately before a Canterbury earthquake (as deﬁned in that section); and the activity is interrupted for a period (the period of interruption) as a result of the Canterbury earthquake; and in the current year, during the period of interruption, the person incurs expenditure or loss (the interruption expenditure) in meeting an obligation relating to the income-earning activity; and the interruption expenditure does not meet the require- ments of the general permission for the person and the income-earning activity but would do so but for the in- terruption; and the person resumes the income-earning activity in an income year (the resumption year) before the 2016–17 income year.
(b) (c) (d) (e) (1) 752 Reprinted as at 30 August 2013 Income Tax Act 2007 Part D s DZ 21 (2) (3) (4) Deduction for interruption expenditure The person is allowed a deduction for the interruption expend- iture.

Timing of deduction The deduction is allocated to the resumption year.

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, income year, loss Section DZ 20: inserted (with effect on 4 September 2010), on 2 November 2012 (applying for the 2010–11 to the 2015–16 income years), by section 29(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
DZ 21 Expenditure on certain assets before 31 March 2013 (1) (2) When this section applies This section applies when— (a) a company has on 31 March 2013 an asset described in section DG 3 (Meaning of asset for this subpart); and the asset is transferred before the end of the company’s 2013–14 income year to— (i) 1 or more of the company’s shareholders in pro- portion to their shareholding: 1 or more of the shareholders of a shareholder in proportion to their shareholding; and the company chooses to apply this section.
(ii) (b) (c) Depreciation recovery income and adjusted tax value For the purposes of sections CG 1 (Amount of depreciation recovery income), EE 1(3) (What this subpart does), EE 21 to EE 24, and EE 55 to EE 60 (which relate to depreciation), the transfer is treated as if it were a disposal and acquisition for an amount equal to the adjusted tax value of the asset on the date of the transfer.

Example BoatCo has a boat on 31 March 2013 which meets the various requirements set out in subpart DG.
All the shares in BoatCo are owned by Michelle.

The boat has a market value of $75,000, 753 Part D s DZ 21 Income Tax Act 2007 Reprinted as at 30 August 2013 Example—continued and an adjusted tax value of $55,000.

BoatCo transfers the boat to Michelle without payment (which is treated as a dividend of $75,000).

For depreciation purposes, BoatCo is treated as dis- posing of the boat for $55,000, and Michelle is treated as acquir- ing it for $55,000.
Deﬁned in this Act: adjusted tax value, amount, asset, company, income year, shareholder Section DZ 21: inserted (with effect on 1 April 2013), on 17 July 2013, by sec- tion 37 of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
754 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EA 1 Part E Timing and quantifying rules Subpart EA—Matching rules: revenue account property, prepayments, and deferred payments Contents EA 1 Trading stock, livestock, and excepted ﬁnancial arrangements EA 2 Other revenue account property EA 3 EA 4 Deferred payment of employment income Prepayments Page 755 756 757 759 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)): 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) 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 755 Part E s EA 2 Income Tax Act 2007 Reprinted as at 30 August 2013 (4) the income year under section DB 49 (Adjustment for open- ing values of trading stock, livestock, and excepted ﬁnancial arrangements).
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 (1) (c) (d) (b) 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): 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).
(g) (e) (f) Timing of deduction (2) 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 756 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EA 3 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) (b) revenue account property to which section EA 2 applies: trading stock valued under subpart EB (Valuation of 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): a leasehold estate, or licence to use land, to which sec- tion EI 4B (Consideration for agreement to grant, renew, extend, or transfer leasehold estate or licence) applies: 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).
(c) (d) (db) (e) (f) (g) (h) 757 Part E s EA 3 Income Tax Act 2007 Reprinted as at 30 August 2013 (3) 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 (4) 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 (5) 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 (6) 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.
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.
(7) 758 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EA 4 (8) 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, land, leasehold estate, pay, revenue account property, services Compare: 2004 No 35 s EA 3 Section EA 3(2)(db): inserted (with effect on 1 April 2013), on 17 July 2013, by section 38(1) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
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).

Section EA 3 list of deﬁned terms land: inserted (with effect on 1 April 2013), on 17 July 2013, by section 38(2) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Section EA 3 list of deﬁned terms leasehold estate: inserted (with effect on 1 April 2013), on 17 July 2013, by section 38(2) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
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 for the period described in subsection (3), 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).
(1) (2) (b) (b) 759 Part E s EA 4 Income Tax Act 2007 Reprinted as at 30 August 2013 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 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 (b) (3) (4) (5) 760 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EA 4 (c) the buyer may be allowed a deduction under section DC 10(3) (Sale of business: transferred employment income obligations).
(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 section 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) Contents 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 Page 762 763 764 765 761 Part E s EB 1 Income Tax Act 2007 Reprinted as at 30 August 2013 EB 5 Transfers of trading stock within wholly-owned groups 765 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 766 768 768 769 770 771 772 772 773 773 773 774 774 775 776 777 777 778 EB 24 Apportionment on disposal of business assets that include 779 trading stock 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 1 762 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EB 2 EB 2 Meaning of trading stock (1) (2) (3) 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 disposal of investment shares) applies to the income of the person from a dis- posal of the excepted ﬁnancial arrangement: livestock not used in a dealing business: consumable aids to be used in the process of producing trading stock: a spare part not held for sale or exchange: (d) (e) (f) (g) (h) 763 Part E s EB 3 Income Tax Act 2007 Reprinted as at 30 August 2013 an emissions unit: a non-Kyoto greenhouse gas unit.
(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)(e): amended, on 1 April 2010, by section 112(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
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)(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 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 Valuation method (1) 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 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- (b) (2) 764 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EB 5 ment for opening values of trading stock, livestock, and excepted ﬁnancial arrangements).
Excepted ﬁnancial arrangements valued at cost (3) 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 EB 4 Trading stock valuation methods (1) 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 (2) A person who is a low-turnover trader may value closing stock by a method described in section EB 14.

(3) 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 (1) 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 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 (b) 765 Part E s EB 6 Income Tax Act 2007 Reprinted as at 30 August 2013 (c) (d) (e) 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 Valuation at cost (1) A person may determine the value of their closing stock at cost.

If the person chooses this method, they must include and allocate costs under generally accepted accounting practice or as described in subsection (1B)(b).
766 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EB 6 Valuation at cost: agricultural produce (1B) Despite subsection (1), a person who uses NZIAS 41 for their (2) (3) 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, ignoring 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 or issued under the Financial Reporting Act 1993 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(3): amended, on 1 July 2011, by section 12 of the Financial Re- porting Amendment Act 2011 (2011 No 22).
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).

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).
767 Part E s EB 7 Income Tax Act 2007 Reprinted as at 30 August 2013 EB 7 Cost allocation: cost-ﬂow method (1) (2) (3) (4) (5) 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 (6) 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— (a) has a business of manufacturing or producing trading stock; and determines the value of their closing stock at cost; and allocates costs by— (b) (c) (1) 768 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EB 9 (2) a budgeted method; or a standard cost method; and (i) (ii) is not a low-turnover trader to whom section EB 17(3) applies.
(d) 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 person 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 EB 9 Discounted selling price Valuation at discounted selling price (1) 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.
(2) (3) 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) Retailers with turnover of $1,000,000 or less (4) 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 769 Part E s EB 10 Income Tax Act 2007 Reprinted as at 30 August 2013 (5) (6) (7) 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).

inserted, on 1 April 2008, by Section EB 9 list of deﬁned terms NZIAS 2: section 350(2) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
EB 10 Replacement price Valuation at replacement price (1) 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— (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 (2) 770 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EB 11 (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 (1) 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.
(2) (3) (4) (5) 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.
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 8or EB 15 to (a) EB 18; or discounted selling price, as described in section EB 9 or EB 19; or (b) 771 Part E s EB 12 Income Tax Act 2007 Reprinted as at 30 August 2013 (c) replacement price, as described in section EB 10 or EB 20.
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 Options (1) A person who is a low-turnover trader may value closing stock— (a) (b) (c) by a standard valuation method, as described in sections EB 6 to EB 12; or by a low-turnover valuation method, as described in sec- tions EB 14 to EB 22; or as low value trading stock, in the circumstances de- scribed in section EB 23.
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 3 (which contain deﬁnitions of associated persons), is no more than the greater of— (a) $3,000,000; and (2) 772 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EB 16 (3) (b) 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 Section EB 13(2): amended, on 1 April 2010 (applying for the 2010–11 and later income years), by section 113(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
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.

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 16 773 Part E s EB 17 Income Tax Act 2007 Reprinted as at 30 August 2013 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 In determining the value of the 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 EB 18 Costs: other stock of low-turnover traders When this section applies This section applies when a low-turnover trader— (1) 774 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EB 19 (a) (b) acquires trading stock other than by manufacture or pro- duction; and determines the value of their closing stock at cost.
(2) 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 (1) 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 (2) 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.
(3) (4) 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— (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 (b) 775 Part E s EB 20 Income Tax Act 2007 Reprinted as at 30 August 2013 (5) (6) (c) 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) 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: inserted, 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 Financial statements prepared (1) 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 (2) A low-turnover trader who does not prepare ﬁnancial state- ments may determine the value of their closing stock at its re- placement price.
Establishing replacement price The replacement price is— (a) the market value of the trading stock on the last day of the income year; or (3) 776 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EB 22 (b) the last price that the low-turnover trader paid during the income year to acquire equivalent trading stock.
Deﬁned in this Act: ﬁnancial statements, income year, low-turnover trader, trad- ing stock Compare: 2004 No 35 s EB 20 EB 21 Market selling value for low-turnover traders Valuation at market selling value (1) 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.

(2) 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 (1) 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 (2) 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 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 (b) (c) 777 Part E s EB 23 Income Tax Act 2007 Reprinted as at 30 August 2013 (d) (e) 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.
When changes allowed (3) 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 (4) A low-turnover trader who makes a change as described in sub- section (3) must keep sufﬁcient details of the change, and the reasons for the change, under section 22 of the Tax Adminis- tration 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 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 reasonably estimates that the value of their closing stock for the income year is less than $10,000.
(b) (1) 778 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EB 24 (2) 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 (1) (2) (3) (4) 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 also applies if a person disposes of an interest in trading stock together with other assets of a business or an interest in those other assets, whether or not the disposal of the partial interest is to another person.

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 779 Income Tax Act 2007 Reprinted as at 30 August 2013 (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.
Transfers under settlement of relationship property (5) 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) Section EB 24(1): amended (with effect on 1 April 2008), on 7 September 2010, by section 27(1) of the Taxation (Annual Rates, Trans-Tasman Savings Porta- bility, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
Subpart EC—Valuation of livestock Contents Introductory provisions EC 1 Application of this subpart EC 2 Valuation of livestock EC 3 EC 4 EC 4B Compulsory use of herd scheme method for associated Livestock valuation methods Transfers of livestock within wholly-owned groups persons EC 4C Value and timing of transfers 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 arising from 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 Page 782 783 783 784 785 787 788 788 788 790 792 793 794 796 798 780 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EB 24 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 [Repealed] 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 EC 25 Cost price, replacement price, or market value EC 26 Bailee’s treatment of livestock Other methods Partnerships: cost price and national standard cost scheme EC 26B Entering partners’ cost base 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 EC 38 Application of sections EC 39 to EC 48 Valuation of bloodstock 798 799 799 800 802 802 803 804 804 804 805 805 806 807 809 809 809 810 810 811 811 812 813 814 815 815 781 Part E s EC 1 Income Tax Act 2007 Reprinted as at 30 August 2013 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 815 816 816 818 819 819 819 820 820 821 Introductory provisions EC 1 Application of this subpart When this subpart applies This subpart applies to the valuation of property when a per- son who owns or carries on a business, other than of selling livestock, holds livestock for the purposes of sale or exchange in the ordinary course of carrying on the 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.

Section EC 1(1) heading: replaced (with effect on 1 April 2008), on 2 Novem- ber 2012, by section 30(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section EC 1(1): replaced (with effect on 1 April 2008), on 2 November 2012, by section 30(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).

(1) (2) 782 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EC 3 EC 2 Valuation of livestock Valuation method (1) 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.
(2) Use of value The value determined under subsection (1) is— (a) the closing value of the livestock for the income year for the purposes of section CH 1 (Adjustment for closing values of trading stock, livestock, and excepted ﬁnan- cial 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).
(b) 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 3 783 Part E s EC 4 Income Tax Act 2007 Reprinted as at 30 August 2013 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) (b) (c) (d) (e) 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 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) 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 (1) (2) (3) 784 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EC 4B EC 4B Compulsory use of herd scheme method for associated persons (1) (2) When this section applies This section applies if, in an income year (the current year), a person (the transferor) disposes of livestock of a type for which they use the herd scheme (the transfer) to an associated person (the transferee), and the transfer is not in the ordinary course of business.
When this section does not apply This section does not apply to the transfer of livestock if,–– (a) (b) (c) the transferor and the transferee would not be associated if the transferee or an associate were not the descendants in relation to the transferor or an associate of the trans- feror; and the transfer is at market value and the transfer’s consid- eration is wholly on arm’s length commercial terms and conditions, ignoring terms and conditions relating to ﬁ- nancing; and for the transferor and associates of the transferor, but excluding their descended associates,–– (i) all of their speciﬁed livestock in the income year of the transfer have been disposed of; and they do not derive income from the disposal of speciﬁed livestock that are part of a farming busi- ness in the next 4 income years.
(ii) (3) When this section does not apply: deceased treated as alive and transferor This section does not apply if it would not apply treating a transfer of livestock to or from the estate of a deceased or under a will of a deceased as a transfer made by the deceased imme- diately before their death to the relevant transferee.

However, this subsection does not apply if the will of the deceased cre- ates a life interest in the relevant livestock.
Compulsory use of herd scheme method (4) Despite sections EC 7(2), EC 12(1), EC 22(1), and EC 25(1), the transferee is treated as choosing and giving a notice of election, with application beginning for the current year, to use the herd scheme for a type of livestock, if the formula in 785 Part E s EC 4B Income Tax Act 2007 Reprinted as at 30 August 2013 subsection (5) calculates zero or a positive amount for a class in the type of livestock.
Formula The formula, for the purposes of subsections (1) and (4), is–– hypothetical end herd scheme amount minimum herd scheme amount.
Deﬁnition of items in formula In the formula,— (a) hypothetical end herd scheme amount is the lesser of the following 2 amounts, or the ﬁrst amount if they are the same: (i) the number of animals in the current year that the person would have of a class (the relevant class), adding back animals in all transfers described in subsection (1) that this section would apply to: the number of animals of the relevant class that the person valued under the herd scheme at the end of the year before the current year: (ii) (b) minimum herd scheme amount is the number of ani- mals of the relevant class that the person has in the cur- rent year.
Deﬁnitions In this section,— (a) descendant means the son, daughter, or grandchild of the transferor or of an associate of the transferor: descended associate means–– (i) (b) (ii) an associate (the associate) of the transferor that would not be associated if the associate or an- other associate were not descendants in relation to the transferor or another associate of the trans- feror: an associate (the associate) of the transferor that carries on a farming business separately from the transferor, and would not be associated if the as- sociate or another associate were not relatives in relation to the transferor or another associate of the transferor.
Deﬁned in this Act: amount, associated, class, descendant, descended associate, herd scheme, income year, notice (5) (6) (7) 786 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EC 4C Section EC 4B: inserted (with effect on 28 March 2012), on 17 July 2013, by section 39 of the Taxation (Livestock Valuation, Assets Expenditure, and Re- medial Matters) Act 2013 (2013 No 52).
EC 4C Value and timing of transfers (1) (2) (3) (4) (5) When this section applies This section applies to a transfer (the transfer) of speciﬁed livestock that section EC 4B applies to.

Same tax year If the transfer occurs in the same tax year for both the trans- feror and transferee, then the transfer is treated as a disposal and acquisition at the value of the relevant livestock under the herd scheme at the end of the transferor’s corresponding in- come year.
Different tax year If the transfer occurs in different tax years for the transferor and transferee, then subsection (4) or (5) applies.

Different tax year: transferee earlier If the transferee acquires the relevant livestock in a tax year earlier than the tax year in which the transferor disposes of it, then the transfer is treated as a disposal and acquisition at the value of the relevant livestock under the herd scheme at the beginning of the transferor’s corresponding income year.
Different tax year: transferee later If the transferee acquires the relevant livestock in a tax year (the later tax year) later than the tax year in which the trans- feror disposes of it, then–– (a) the transfer is treated as a disposal and acquisition at the value of the relevant livestock under the herd scheme at the end of the transferor’s corresponding income year: for the purposes of the transferee’s opening value under section EC 16, the transferee is treated as owning and valuing the relevant livestock under the herd scheme on the last day of the transferee’s income year correspond- ing to the tax year before the later tax year.
(b) Deﬁned in this Act: herd scheme, income year, speciﬁed livestock, tax year Section EC 4C: inserted (with effect on 28 March 2012), on 17 July 2013, by section 39 of the Taxation (Livestock Valuation, Assets Expenditure, and Re- medial Matters) Act 2013 (2013 No 52).
787 Part E s EC 5 Income Tax Act 2007 Reprinted as at 30 August 2013 EC 5 Transfer of livestock because of self-assessed adverse event (1) (2) (3) 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) 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 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) 788 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EC 7 (c) (d) 1 of the cost price, replacement price, or market value methods described in section EC 25: the method described in section EC 26.
Person chooses (2) 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.
(4) (5) (6) 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 on use of valuation methods Restrictions apply to the use of valuation methods, as de- scribed in sections EC 8 to EC 10.
Exception to subsection (2): express written notice required in certain cases Subsection (2) does not apply to the extent to which an election requires a notice under section EC 11.
Deﬁned in this Act: Commissioner, cost price, herd scheme, income year, na- tional standard cost scheme, notice, return of income, speciﬁed livestock Compare: 2004 No 35 s EC 7 Section EC 7(5) heading: replaced (with effect on 1 April 2008 and applying for the 2008–09 and later income years), on 17 July 2013, by section 40(1) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Section EC 7(5): replaced (with effect on 1 April 2008 and applying for the 2008–09 and later income years), on 17 July 2013, by section 40(1) of the Taxa- tion (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).

Section EC 7(6) heading: inserted (with effect on 1 April 2008 and applying for the 2008–09 and later income years), on 17 July 2013, by section 40(1) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Section EC 7(6): inserted (with effect on 1 April 2008 and applying for the 2008–09 and later income years), on 17 July 2013, by section 40(1) of the Taxa- 789 Part E s EC 8 Income Tax Act 2007 Reprinted as at 30 August 2013 tion (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Section EC 7 list of deﬁned terms notice: inserted (with effect on 1 April 2008 and applying for the 2008–09 and later income years), on 17 July 2013, by section 40(2) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
EC 8 Restrictions arising from use of herd scheme First restriction (1) A valuation method other than the herd scheme is not available to a person, in an income year after the 2011–12 income year, for a type of speciﬁed livestock if the person— (a) gives a notice of election, with application beginning for or before the income year, to use the herd scheme for the type of speciﬁed livestock; and does not give before 18 August 2011 a later notice of election, with application beginning for or before the income year, to use another valuation method for the type of speciﬁed livestock.
First exception: election after 18 August 2011 for fattening business (2) Despite subsection (1), a valuation method other than the herd scheme is available to a person in an income year after the 2011–12 income year, if–– (a) the person gives a notice of election as described in sub- section (1)(a); and the person gives, on or after 18 August 2011, a later notice of election to use another valuation method for the relevant type of speciﬁed livestock (the livestock); and the later notice is given, with application beginning for the income year (the starting income year) in which all female breeding livestock cease being intended to be used for breeding purposes; and the livestock are used in a fattening farming business for and after the starting income year.
(b) (b) (c) (d) Second exception: increase in a class (3) Despite subsection (1), a valuation method other than the herd scheme is available to a person in an income year, to the extent 790 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EC 8 of a person’s animals of a class, in an income year (the current year), that are in excess of the person’s class closing animal balance.
A deﬁnition and a formula (4) Class closing animal balance means the number of animals of a class calculated using the formula–– last year’s class amount + associated class transfers.
(5) Deﬁnition of items in formula In the formula,–– (a) (b) last year’s class amount is the animals of the relevant class that the person valued under the herd scheme at the end of the year before the current year: associated class transfers is the amount, if positive, calculated under section EC 4B(5), for the relevant class, that are transferred in the current year to the person to the extent to which section EC 4B(4) applies to the type of animals transferred.
Second restriction (6) 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: amount, class, class closing animal balance, cost price, herd scheme, income year, national standard cost scheme Section EC 8: replaced (with effect on 18 August 2011), on 17 July 2013, by section 41(1) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Section EC 8(3) heading: replaced (with effect on 28 March 2012), on 17 July 2013, by section 41(2) of the Taxation (Livestock Valuation, Assets Expend- iture, and Remedial Matters) Act 2013 (2013 No 52).

Section EC 8(3): replaced (with effect on 28 March 2012), on 17 July 2013, by section 41(2) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Section EC 8(4) heading: replaced (with effect on 28 March 2012), on 17 July 2013, by section 41(2) of the Taxation (Livestock Valuation, Assets Expend- iture, and Remedial Matters) Act 2013 (2013 No 52).

Section EC 8(4): replaced (with effect on 28 March 2012), on 17 July 2013, by section 41(2) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
791 Part E s EC 9 Income Tax Act 2007 Reprinted as at 30 August 2013 Section EC 8(5) heading: inserted (with effect on 28 March 2012), on 17 July 2013, by section 41(2) of the Taxation (Livestock Valuation, Assets Expend- iture, and Remedial Matters) Act 2013 (2013 No 52).

Section EC 8(5): inserted (with effect on 28 March 2012), on 17 July 2013, by section 41(2) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Section EC 8(6) heading: inserted (with effect on 28 March 2012), on 17 July 2013, by section 41(2) of the Taxation (Livestock Valuation, Assets Expend- iture, and Remedial Matters) Act 2013 (2013 No 52).

Section EC 8(6): inserted (with effect on 28 March 2012), on 17 July 2013, by section 41(2) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Section EC 8 list of deﬁned terms amount: inserted (with effect on 28 March 2012), on 17 July 2013, by section 41(3) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).

Section EC 8 list of deﬁned terms class closing animal balance: inserted (with effect on 28 March 2012), on 17 July 2013, by section 41(3) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
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 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 (1) (2) (3) 792 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EC 10 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.
(4) (5) 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- 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) 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 793 Part E s EC 11 Income Tax Act 2007 Reprinted as at 30 August 2013 (3) (4) (5) 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.
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 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 (1) (2) 794 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EC 11 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; and a later election, described in section EC 8(2)(b) and (c), to value livestock of a particular type under a valuation method other than the herd scheme.
(b) (c) (3) (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 the herd scheme or when another valuation method is available, as described in section 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 live- stock under the national standard cost scheme.
(d) (c) Information for notices of election (4) A notice of election must state— (a) the income year in which the election is ﬁrst to apply; and 795 Part E s EC 12 Income Tax Act 2007 Reprinted as at 30 August 2013 (b) (c) (d) 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) 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) (ii) Section EC 11(2)(b): amended (with effect on 18 August 2011), on 17 July 2013, by section 42 of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Section EC 11(2)(c): inserted (with effect on 18 August 2011), on 17 July 2013, by section 42 of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).

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 elec- tion 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 person 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) (2) 796 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EC 12 (3) (4) (5) 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.
Look-through company owners’ interests For the purposes of an election under this section, a person’s interest for a look-through company that owns livestock is treated separately from any other interest that the person has in livestock.

Separate elections are required for the person’s owner’s interest 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, look-through company, na- tional standard cost scheme, owner’s interests, proﬁt-sharing arrangement, spe- ciﬁed livestock, type Compare: 2004 No 35 s EC 12 Section EC 12(5) heading: added, on 1 April 2011 (applying for income years beginning on or after 1 April 2011), by section 46(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section EC 12(5): added, on 1 April 2011 (applying for income years beginning on or after 1 April 2011), by section 46(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).

Section EC 12 list of deﬁned terms look-through company: inserted, on 1 April 2011, by section 46(2) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section EC 12 list of deﬁned terms owner’s interests: inserted, on 1 April 2011, by section 46(2) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
797 Part E s EC 13 Income Tax Act 2007 Reprinted as at 30 August 2013 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 Herd scheme EC 14 Herd scheme Election to use herd scheme (1) A person may choose to value speciﬁed livestock of any type and class under the herd scheme.

Election of other method (2) 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.
798 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EC 16 Election to leave herd scheme (3) 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 (1) (2) 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) 799 Part E s EC 17 Income Tax Act 2007 Reprinted as at 30 August 2013 (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 multi- plied by its herd value ratio for the previous income year.

This subsection overrides section DB 49(3) (Adjustment for open- ing 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 Section EC 16(3): amended (with effect on 1 April 2008), on 29 August 2011 (applying for the 2008–09 and later income years), by section 22(1) of the Tax- ation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
EC 17 Herd value ratio Adoption of herd value ratio (1) 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 (2) Herd value ratios calculated under subsection (5) do not apply to livestock on the Chatham Islands.

The Chatham Islands ad- justment 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) 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 (b) 800 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EC 17 (c) the income year following 2 consecutive income years in which the person has not valued livestock of that type under the herd scheme.
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.

(4) (5) Formula The formula is— (6) (average value × number) (herd value × number).
(7) (c) (b) Deﬁnition of items in formula In the formula,— (a) 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, na- tional average market value, notice, speciﬁed livestock, type Compare: 2004 No 35 s EC 17 801 Part E s EC 18 Income Tax Act 2007 Reprinted as at 30 August 2013 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 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 Adjustment for herd livestock on Chatham Islands (1) 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— (a) the income year in which the person stops valuing, 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) 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 (3) 802 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EC 20 EC 20 Herd livestock disposed of before values determined (1) When this section applies This section applies when, in an income year, a person— (a) stops deriving income from the disposal of speciﬁed livestock; and disposes of speciﬁed livestock before the 1 November that precedes the determination of the national average market values for the income year; and [Repealed] (b) (c) When this section does and does not apply (1B) This section does not apply when, in an income year, a per- son’s speciﬁed livestock is disposed of, and section EC 4B(4) applies to the transfer.
However, if section EC 4C(4) applies to the transfer, then this section may apply.

(2) 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 Section EC 20(1)(a): amended (with effect on 1 April 2012 and applying for the 2012–13 and later income years), on 17 July 2013, by section 43(1) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Section EC 20(1)(b): amended (with effect on 1 April 2012 and applying for the 2012–13 and later income years), on 17 July 2013, by section 43(2) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).

Section EC 20(1)(c): repealed (with effect on 1 April 2012 and applying for the 2012–13 and later income years), on 17 July 2013, by section 43(3) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Section EC 20(1B) heading: inserted (with effect on 1 April 2012 and applying for the 2012–13 and later income years), on 17 July 2013, by section 43(4) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).

Section EC 20(1B): inserted (with effect on 1 April 2012 and applying for the 2012–13 and later income years), on 17 July 2013, by section 43(4) of the Taxa- tion (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
803 Part E s EC 21 Income Tax Act 2007 Reprinted as at 30 August 2013 EC 21 Herd livestock on death before values determined [Repealed] Section EC 21: repealed (with effect on 28 March 2012), on 17 July 2013, by section 44 of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
National standard cost scheme EC 22 National standard cost scheme Election to use national standard cost scheme (1) A person may choose to value speciﬁed livestock under the national standard cost scheme, subject to the restrictions de- scribed in section EC 9.

(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 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 ani- mals 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 (1) (2) 804 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EC 25 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 de- clared).
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— (a) 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, ap- plying 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.
(b) (c) (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 Other methods EC 25 Cost price, replacement price, or market value Election (1) 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.
805 Part E s EC 26 Income Tax Act 2007 Reprinted as at 30 August 2013 (2) 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,— (a) 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) (b) 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 person 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.
(1) (2) (3) 806 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EC 26B (4) 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).
EC 26B Entering partners’ cost base (1) (2) (3) 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,— (4) 807 Part E s EC 26B Income Tax Act 2007 Reprinted as at 30 August 2013 (a) (b) (c) 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 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: 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 808 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EC 29 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 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.
(b) (c) 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) Determined by Commissioner The Commissioner may determine a standard value for an income year for a type or category of non-speciﬁed livestock.
809 Part E s EC 30 Income Tax Act 2007 Reprinted as at 30 August 2013 Application to income year (2) 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) (d) if the Commissioner agrees, its standard value.
Deﬁned in this Act: Commissioner, cost price, income year, non-speciﬁed live- stock, standard value Compare: 2004 No 35 s EC 30 EC 31 Enhanced production 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 stand- ard 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- (1) (2) 810 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EC 33 (b) 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 Valuation of high-priced livestock EC 32 Application of sections EC 33 to EC 37 (1) 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 (2) A person may choose to use either the straight-line method or the diminishing value method to value high-priced livestock.
(3) Diminishing value method If the person chooses to use the diminishing value method, they must give notice to the Commissioner that they are us- ing 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 section EC 34.

The person cannot revoke their election to use the diminishing value method for the livestock.
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) 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.
811 Part E s EC 34 Income Tax Act 2007 Reprinted as at 30 August 2013 (3) 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 (1) 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- 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) 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- (4) 812 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EC 35 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) (5) 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 EC 35 Livestock reaching national average market value and livestock no longer used for breeding (1) (2) (3) 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 (b) 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 813 Part E s EC 36 Income Tax Act 2007 Reprinted as at 30 August 2013 (c) 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.
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 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 (4) (5) EC 36 Immature livestock and recently bought livestock 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) (1) (2) 814 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EC 39 (3) 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 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 (1) (2) 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 (b) 815 Part E s EC 40 Income Tax Act 2007 Reprinted as at 30 August 2013 (3) (4) (c) buys the broodmare, with the intention of using it for breeding in their breeding business.
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 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 Bloodstock to which this section applies This section applies to bloodstock that— (a) was not used for breeding in New Zealand before 16 De- cember 1991; and (1) 816 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EC 41 (b) before a person (person A) acquired it, was not used for breeding in New Zealand by any other person.
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) (b) (c) 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: 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.

(4) Broodmare when ﬁrst used on or after 1 April 2001 For the purposes of sections EC 39 and EC 40, the reduction applying to the value of a broodmare to which section EC 39(2) applies is calculated using the formula— 1.25 × cost price of broodmare age of broodmare.
9 817 Part E s EC 42 Income Tax Act 2007 Reprinted as at 30 August 2013 (5) (6) 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: bloodstock 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 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 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 reduction applying to the value of a broodmare to which section EC 39(2) applies and section EC 41 does not apply is calculated using the formula— cost price of broodmare 9 age of broodmare.
Deﬁnition of item in formula In the formula, age of broodmare is— (a) 8 years of age; or (1) (2) (3) 818 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EC 45 (4) (b) 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 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 45 819 Part E s EC 46 Income Tax Act 2007 Reprinted as at 30 August 2013 EC 46 Use of bloodstock for racing (1) (2) (3) (4) 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 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 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.
(1) 820 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EC 48 (2) 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 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 (1) 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) (2) (3) 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— 821 Part E s EC 48 Income Tax Act 2007 Reprinted as at 30 August 2013 (4) (5) (6) (7) gross proceeds value of breeding stock.
Deﬁnition of items in formula In the formula,— (a) gross proceeds is— (i) (ii) the amount of the proceeds of disposing of the breeding stock; or 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.
(b) 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 (8) An application under subsection (2) must be made in writing within the relevant time limits described in subsections (6) and 822 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s ED 1 (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 Subpart ED—Valuation of excepted ﬁnancial arrangements Contents 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 ED 3 within wholly-owned groups Part-year tax calculations for transfers: general insurance OCR ED 4 Valuation of certain excepted ﬁnancial arrangements denominated in foreign currency Page 823 829 833 834 835 ED 1 Valuation of excepted ﬁnancial arrangements Valuation methods for excepted ﬁnancial arrangements (1) 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 (2) 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 (3) 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).
823 Part E s ED 1 Income Tax Act 2007 Reprinted as at 30 August 2013 (4) (5) 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: post-1989 forest land emissions units: forest sink emissions units: replacement forest land emissions units: (b) (bb) (c) (cb) ﬁshing quota emissions units, if the holder of the units would derive income, other than exempt income and ex- cluded income, from a disposal of the individual trans- ferable quota to which the units relate: 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: (db) ﬁshing quota emissions units, if the holder of the units would derive no income, other than exempt income and excluded income, from a disposal of the individual transferable quota to which the units relate: 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).
(d) (e) 824 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s ED 1 (a) Exceptions: types of emissions units pooled with other types (5C) Despite subsection (5B), for the purposes of subsection (5),— emissions units described in paragraphs (a) to (cb) may be pooled together: emissions units described in paragraphs (d) and (db) may be pooled together.
(b) Persons complying with generally accepted accounting practice (6) 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 (7) 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 Administra- tion Act 1994.
Valuation of emissions units issued for zero price (7B) Despite subsection (1),— (a) (b) an emissions unit transferred under Part 4, subpart 2, of the Climate Change Response Act 2002 in an income year for no payment of a price, and to which section ED 1B does not apply, has a value of zero for the period beginning with the transfer and ending before the end of the income year: a forest land emissions unit has a value of zero at the end of each income year: 825 Part E s ED 1 Income Tax Act 2007 Reprinted as at 30 August 2013 (c) (cb) (d) a replacement forest land emissions unit has a value of zero at the end of each income year: a ﬁshing quota emissions unit has a value at the end of each income year of— (i) the market value of the unit at the end of the in- come year, if the holder of the unit would derive income, other than exempt income and excluded income, from a disposal of the individual trans- ferable quota to which the units relate; or (ii) zero, if subparagraph (i) does not apply: 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, ﬁshing quota emissions unit, forest land emissions unit, forest sink emissions unit, generally accepted accounting practice, iden- tical share, income tax liability, income year, NZIAS 8, original share, pay, post-1989 forest land emissions unit, pre-1990 forest land, pre-1990 forest land emissions unit, replacement forest land emissions unit, revenue account prop- erty, 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) 826 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s ED 1 Section ED 1(5B): inserted (with effect on 1 January 2009), on 6 October 2009, pursuant to section 115(1) of the Taxation (International Taxation, Life Insur- ance, and Remedial Matters) Act 2009 (2009 No 34).

Section ED 1(5B)(bb): inserted (with effect on 1 January 2009), on 7 September 2010, by section 28(1) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
Section ED 1(5B)(cb): inserted (with effect on 1 July 2010), on 7 September 2010, by section 28(2) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).

Section ED 1(5B)(db): inserted (with effect on 1 July 2010), on 7 September 2010, by section 28(3) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
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): substituted (with effect on 1 July 2010), on 7 September 2010, by section 28(4) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
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(7B)(a): substituted (with effect on 1 July 2010), on 21 December 2010, by section 47(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section ED 1(7B)(a): amended (with effect on 1 July 2010), on 2 November 2012, by section 31 of the Taxation (Annual Rates, Returns Filing, and Remed- ial Matters) Act 2012 (2012 No 88).

Section ED 1(7B)(cb): inserted (with effect on 1 July 2010), on 21 December 2010, by section 47(2) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
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 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- 827 Part E s ED 1 Income Tax Act 2007 Reprinted as at 30 August 2013 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 ﬁshing quota emissions unit: inserted (with effect on 1 July 2010), on 7 September 2010, by section 28(5)(a) of the Taxa- tion (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remed- ial Matters) Act 2010 (2010 No 109).
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).
Section ED 1 list of deﬁned terms forest sink emissions unit: inserted (with effect on 1 January 2009), on 7 September 2010, by section 28(5)(b) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Re- medial Matters) Act 2010 (2010 No 109).

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 pay: inserted (with effect on 1 July 2010), on 21 December 2010, by section 47(3) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).

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 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).
828 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s ED 1B ED 1B Valuation of emissions units issued for zero price (1) (2) (3) What this section applies to This section applies to emissions units held by a person in an income year that— (a) are transferred to the person at a price of zero— (i) (ii) (iii) (iv) under sections 80 to 86F of the Climate Change Response Act 2002: under section 64 of the Climate Change Re- sponse Act 2002 for a removal activity listed in Schedule 4, Part 2 of that Act: by a public authority under a supplementary agreement to a negotiated greenhouse agree- ment: by a public authority as a rebate, under a negoti- ated greenhouse agreement, for an indirect emis- sions charge; and (b) (c) (d) (e) (f) have been held continuously by the person from the time of the transfer; and have not been valued under either of subsections (4)(a) and (8)(a) before the income year; and [Repealed] [Repealed] [Repealed] Value of units transferred to person if no earlier emissions unit shortfall year If an emissions unit is transferred to the person in the income year and there is no earlier income year that is an emissions unit shortfall year for the person under subsections (9) and (10), the emissions unit is assigned a value of zero at the time of the transfer.
Value of units transferred to person in income year after emissions unit shortfall year If an earlier income year is an emissions unit shortfall year for the person immediately before an emissions unit (the trans- ferred unit) is transferred to the person in the income year, the value of the transferred unit at the time of the transfer is given by the application of the paragraphs in subsection (4) in 829 Part E s ED 1B Income Tax Act 2007 Reprinted as at 30 August 2013 alphabetical order to transferred units until all the transferred units are assigned a value.
Valuation method at transfer for transferred units If emissions units are transferred to the person in an income year when there is a unit shortfall under subsections (9) and (10) for an earlier emissions unit shortfall year,— (a) for each emissions unit shortfall year in date order, transferred units, up to the number corresponding to the unit shortfall relating to the emissions unit shortfall year, are each assigned a value equal to the market value of an emissions unit at the end of the emissions unit shortfall year: transferred units are each assigned a value equal to zero.
(b) Value of units with zero value immediately before end of income year If the value of an emissions unit (the revalued unit) held by the person immediately before the end of the income year is zero, the value of the revalued unit at the end of the year is given by the application of the paragraphs in subsection (8) in alphabetical order to revalued units until all the revalued units are assigned a value.
Limit on application of subsection (8)(a) The maximum number of units valued under subsection (8)(a) for the income year is the greater of zero and the number cal- culated using the formula— unit entitlement disposals at zero value.
Deﬁnition of items in formula In the formula,— (a) unit entitlement is the total for the income year of amounts, each of which the person would have for the period of overlap between a calendar year ending 31 De- cember and the income year if the period of overlap were treated as a year, of— (i) ﬁnal allocation entitlement under section 83 of the Climate Change Response Act 2002: allocation entitlement under section 85 of that Act: (ii) (4) (5) (6) (7) 830 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s ED 1B (iii) (iv) (v) allocation entitlement under section 64 of the Cli- mate Change Response Act 2002 for a removal activity listed in Schedule 4, Part 2 of that Act: emissions units corresponding to the actual emis- sions amount under a supplementary agreement to a negotiated greenhouse agreement: emissions units corresponding to a rebate, under a negotiated greenhouse agreement, for an indi- rect emissions charge: (b) disposals at zero value is the number of emissions units disposed of by the person in the income year that had a value of zero at the disposal.
(8) (9) Valuation method at end of income year for revalued units If the person holds revalued units immediately before the end of the income year, the units are each assigned a value— (a) equal to the market value of an emissions unit at the end of the income year: equal to zero.
(b) Emissions unit shortfall year If the number of units assigned a market value for an income year under subsection (8)(a) is less than the maximum number given by subsection (6) for the income year, at the end of the income year— (a) the income year is an emissions unit shortfall year and has 2 numbers (the unit shortfall and the unit shortfall value) associated with it: the unit shortfall relating to the emissions unit short- fall year is the difference between the maximum num- ber given by subsection (6) for the income year and the number of zero value units assigned a market value under subsection (8)(a) for the income year: the unit shortfall value relating to the emissions unit shortfall year is the unit shortfall multiplied by the mar- ket value of an emissions unit at the end of the income year.
(b) (c) 831 Part E s ED 1B Income Tax Act 2007 Reprinted as at 30 August 2013 Reductions in unit shortfall and unit shortfall value (10) When an emissions unit held by a person is assigned a value under subsection (4)(a) in relation to a year that is an emissions unit shortfall year for the person,— (a) the unit shortfall relating to that year is reduced by the number of emissions units assigned a value in relation to that year: the unit shortfall value relating to that year is reduced by an amount equal to the number of emissions units assigned a value in relation to that year multiplied by the value assigned to each of those emissions units: the year ceases to be an emissions unit shortfall year, if the unit shortfall relating to the year is reduced to zero.
(b) (c) Unit shortfall values treated as values of additional emissions units for purposes of adjustments (11) For the purposes of sections CH 1 and DB 49 (which relate to adjustments for values of excepted ﬁnancial arrangements), the person is treated as holding at the end of the income year additional emissions units with a value equal to the total of the unit shortfall values relating to emissions unit shortfall years for the person.
Deﬁned in this Act: amount, emissions unit, emissions unit shortfall year, ﬁsh- ing quota emissions units, forest land emissions units, income year, public au- thority, replacement forest land emissions units, year Section ED 1B: substituted (with effect on 1 July 2010), on 21 December 2010, by section 48 of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section ED 1B(1)(a)(i): replaced (with effect on 1 July 2010), on 2 November 2012, by section 32(1) of the Taxation (Annual Rates, Returns Filing, and Re- medial Matters) Act 2012 (2012 No 88).

Section ED 1B(1)(a)(ii): replaced (with effect on 1 July 2010), on 2 November 2012, by section 32(1) of the Taxation (Annual Rates, Returns Filing, and Re- medial Matters) Act 2012 (2012 No 88).
Section ED 1B(1)(a)(iii): inserted (with effect on 1 July 2010), on 2 November 2012, by section 32(1) of the Taxation (Annual Rates, Returns Filing, and Re- medial Matters) Act 2012 (2012 No 88).

Section ED 1B(1)(a)(iv): inserted (with effect on 1 July 2010), on 2 November 2012, by section 32(1) of the Taxation (Annual Rates, Returns Filing, and Re- medial Matters) Act 2012 (2012 No 88).
Section ED 1B(1)(d): repealed (with effect on 1 July 2010), on 2 November 2012, by section 32(2) of the Taxation (Annual Rates, Returns Filing, and Re- medial Matters) Act 2012 (2012 No 88).

832 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s ED 2 Section ED 1B(1)(e): repealed (with effect on 1 July 2010), on 2 November 2012, by section 32(2) of the Taxation (Annual Rates, Returns Filing, and Re- medial Matters) Act 2012 (2012 No 88).
Section ED 1B(1)(f): repealed (with effect on 1 July 2010), on 2 November 2012, by section 32(2) of the Taxation (Annual Rates, Returns Filing, and Re- medial Matters) Act 2012 (2012 No 88).

Section ED 1B(7)(a)(iii): replaced (with effect on 1 July 2010), on 2 Novem- ber 2012, by section 32(3) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section ED 1B(7)(a)(iv): inserted (with effect on 1 July 2010), on 2 November 2012, by section 32(3) of the Taxation (Annual Rates, Returns Filing, and Re- medial Matters) Act 2012 (2012 No 88).

Section ED 1B(7)(a)(v): inserted (with effect on 1 July 2010), on 2 November 2012, by section 32(3) of the Taxation (Annual Rates, Returns Filing, and Re- medial Matters) Act 2012 (2012 No 88).
ED 2 Transfers of certain excepted ﬁnancial arrangements within wholly-owned groups (1) (2) (3) 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 the market value of the excepted ﬁnancial arrangement on the date of the transfer is less than its cost to company A.
(b) (c) (d) 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.
833 Part E s ED 3 Income Tax Act 2007 Reprinted as at 30 August 2013 Not dividend (4) 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 ED 3 Part-year tax calculations for transfers: general insurance OCR When this section applies This section applies when an insurer to whom sections CR 4 and DW 4 (which relate to outstanding claims reserves) apply (the transferor) transfers general insurance contracts to an- other person (the transferee) in an income year.
Part-year calculations for transfers The transferor does a part-year calculation immediately before the transfer, as described in subsection (3), for the transferred general insurance contracts, but only for their part-year end- ing on the day the transfer occurs.

The transferee also does a part-year calculation for the transferred contracts, as described in subsection (3), but only for their part-year starting on the day the transfer occurs.
The transferee’s relevant opening out- standing claims reserve amounts equal the transferor’s rele- vant closing outstanding claims reserve amounts immediately before the transfer, but if the reinsurance associated with trans- ferred policies is not assigned by the transferor to the trans- feree, the transferee’s reserve amounts are calculated without subtracting relevant reinsurance amounts.
Part-year calculations for transfers: description For calculating their income tax liability for the tax year that corresponds to the income year, the transferor and transferee treat references, in sections CR 4 and DW 4 and in the new life insurance rules, to an income year or a tax year as if they are references to 2 separate tax years and corresponding income years (the part-years) within that tax year.
(1) (2) (3) 834 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s ED 4 (4) Part-year calculations for transfers: effect Transferor’s and transferee’s part-year calculations may give rise to income and deductions for the income year, but they do not create any part-year tax return obligations.
Deﬁned in this Act: amount, deduction, general insurance, IFRS 4, income, income tax liability, income year, insurer, outstanding claims reserve, pay, tax year Section ED 3: inserted (with effect on 7 September 2010), on 2 November 2012, by section 33(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
ED 4 Valuation of certain excepted ﬁnancial arrangements denominated in foreign currency (1) (2) (3) Who this section applies to This section applies to a person who, in an income year (the current year),— (a) has an excepted ﬁnancial arrangement, of a type (the ar- rangement type) described in section EW 5(21) to (25) (What is an excepted ﬁnancial arrangement?
), denom- inated in a foreign currency; and has an amount of foreign currency payable or receiv- able under the excepted ﬁnancial arrangement (a for- eign currency payment) at the end of the current year.
(b) Person may choose valuation timing used for ﬁnancial statements The person may choose to value a foreign currency payment at the close of trading spot exchange rate applicable at the end of the current year, if the person, in preparing ﬁnancial state- ments, determines values at the end of the income year for amounts of foreign currency payable or receivable by the per- son.
Consistent valuation timing for excepted ﬁnancial arrangement If foreign currency payments under a person’s excepted ﬁnan- cial arrangement are valued under subsection (2) for an income year, the amounts of foreign currency payable or receivable under all of the person’s excepted ﬁnancial arrangements of 835 Income Tax Act 2007 Reprinted as at 30 August 2013 the arrangement type are valued in the same way for the in- come year and later income years.
Deﬁned in this Act: amount, close of trading spot exchange rate, excepted ﬁ- nancial arrangement, ﬁnancial arrangement, income year Section ED 4: inserted (with effect on 27 September 2012 and applying for a person and an excepted ﬁnancial arrangement on and after that date, except if the person takes a tax position for the excepted ﬁnancial arrangement, relying on an election made under section EW 8 before its amendment by the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013, in a return of income received by the Commissioner before that date or under a determination or binding ruling made by the Commissioner before that date), on 17 July 2013, by section 45(1) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Subpart EE—Depreciation Contents Introductory provision EE 1 What this subpart does 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 Page 839 841 841 842 843 843 844 845 847 848 848 849 851 836 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s ED 4 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 Depreciation rates 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 high residual value 851 852 852 854 855 855 856 856 858 859 860 860 861 862 863 865 865 EE 31 Annual rate for item acquired in person’s 1995–96 or later 867 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 871 871 872 873 874 875 878 880 837 Income Tax Act 2007 Reprinted as at 30 August 2013 Transfers of depreciable property: associated persons and certain amalgamations EE 40 Transfer of depreciable property on or after 24 September 881 1997 EE 41 Transfer of depreciable property on certain amalgamations 884 on or after 14 May 2002 EE 42 Transfer of radiocommunications licence right on or after 24 September 1997 EE 43 Transfer of depreciable intangible property on or after 1 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 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 838 886 886 887 888 891 892 894 897 898 901 902 902 903 904 904 905 906 907 908 911 913 914 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EE 1 EE 64 Meaning of excluded depreciable property EE 65 Meaning of maximum pooling value EE 66 Meaning of
 poolable property EE 67 Other deﬁnitions 914 915 916 916 Introductory provision EE 1 What this subpart does (1) 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 (2) 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 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 (3) 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 47 occurs; and (b) (c) (d) (b) (c) 839 Part E s EE 1 Income Tax Act 2007 Reprinted as at 30 August 2013 (d) 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), EE 52(3), and EZ 23B(8) (Property acquired after depreciable property affected by Canterbury earth- quakes).
(4) Amounts of loss incurred and income derived To avoid doubt,— (a) (b) 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.
Allocation of deduction for depreciation loss (5) A person who in an income year uses an item for research or development or for market development that gives rise to a de- duction allocated under section EJ 22 (Deductions for market development: product of research, development), and as a re- sult 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) 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 Section EE 1(3)(c): amended, on 2 November 2012, by section 34 of the Tax- ation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
(6) 840 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EE 3 Section EE 1(3)(d): amended (with effect on 4 September 2010), on 29 August 2011, by section 23 of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).

Meaning of own EE 2 Nature of ownership of item Kinds of ownership (1) 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 5.
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) (2) 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: (3) 841 Part E s EE 4 Income Tax Act 2007 Reprinted as at 30 August 2013 title to the item passes to the buyer; or the seller repossesses the item.
(a) (b) Deﬁned in this Act: depreciable property, hire purchase agreement, hire pur- chase asset, own Compare: 2004 No 35 s EE 3 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 improve- ment: (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 a person to whom the lessor disposes of the land during the period is treated as not owning the ﬁxture or improvement.
(ii) Deﬁned in this Act: improvement, lessee, lessor, own Compare: 2004 No 35 s EE 4 (1) (2) 842 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EE 6 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 Meaning of depreciable property EE 6 What is depreciable property?
Description (1) 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.

843 Part E s EE 7 Income Tax Act 2007 Reprinted as at 30 August 2013 Subsections (2) to (4) expand on this subsection.
Property: tangible (2) An item of tangible property is depreciable property if— it is described by subsection (1); and it is not described by section EE 7.

(a) (b) Property: intangible (3) An item of intangible property is depreciable property if— (4) (a) (b) (c) 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.
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 other than depreciable intangible property, al- though buildings, ﬁxtures, and the improvements listed in schedule 13 (Depreciable land improvements) are depreciable property if they are described by section EE 6(1): trading stock: livestock to which subpart EB (Valuation of trading stock (including dealer’s livestock)) applies: ﬁnancial arrangements: excepted ﬁnancial arrangements other than depreciable intangible property: 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: (b) (c) (d) (e) (f) 844 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EE 8 (j) (i) (g) (h) 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: building, deduction, depreciable intangible property, de- preciable property, dispose, excepted ﬁnancial arrangement, ﬁnancial arrange- ment, land, own, property, trading stock Compare: 2004 No 35 s EE 7 Section EE 7(a): amended (with effect on 1 April 2008 and applying for the 2008–09 and later income years), on 17 July 2013, by section 46(1) of the Taxa- tion (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Section EE 7(e): replaced (with effect on 1 April 2008 and applying for the 2008–09 and later income years), on 17 July 2013, by section 46(2) of the Taxa- tion (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).

Section EE 7 list of deﬁned terms building: inserted (with effect on 30 July 2009), on 28 May 2010, by section 84 of the Taxation (Budget Measures) Act 2010 (2010 No 27).
Section EE 7 list of deﬁned terms depreciable intangible property: inserted (with effect on 1 April 2008), on 17 July 2013, by section 46(3) of the Taxa- tion (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).

Section EE 7 list of deﬁned terms land: inserted (with effect on 1 April 2008), on 17 July 2013, by section 46(3) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
EE 8 Election that property not be depreciable Item acquired (1) 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 (2) A person may choose that an item of property they own ceases to be depreciable property if— (a) the use of the item changes; and 845 Part E s EE 8 Income Tax Act 2007 Reprinted as at 30 August 2013 (b) (c) 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.
Retrospective election (3) A person who has deducted none of the amounts of depreci- ation loss for which they were allowed a deduction for an item 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 (4) An election under this section is made as follows: (a) (b) (c) 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.
Effect of election (5) An election under this section has effect for the person for— the income year for which they make the election; and all later income years until— (i) (a) (b) 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 (6) An election made under subsection (3) also has retrospective effect for the person for— 846 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EE 9 (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 How amounts of depreciation loss and depreciation recovery income are calculated EE 9 Description of elements of calculation (1) (2) (3) 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) 847 Part E s EE 10 Income Tax Act 2007 Reprinted as at 30 August 2013 (4) (5) (6) (7) 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: (a) section EE 54 deals with the effect of goods and services 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.

(b) (c) 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 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 (1) 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.
848 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EE 12 Exclusion: building or petroleum-related depreciable property (2) 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 (3) 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.

Exclusion: consideration less than adjusted tax value (4) A person has the amount of depreciation loss calculated under section EE 48(2) for a disposal or event to which the subsection applies.
Exclusion: item partly used for business (5) A person has the amount of depreciation loss calculated under section EE 50(6) for a disposal or event to which the subsection applies.

Exclusion: recent acquisition of item partly used for business (6) A person has the amount of depreciation loss calculated under section EE 50(9) for a disposal or event to which the subsection applies.
Deﬁned in this Act: building, adjusted tax value, amount, business, depre- ciable property, depreciation loss, dispose, income year, petroleum-related de- preciable property Compare: 2004 No 35 s EE 11 Section EE 11 list of deﬁned terms building: inserted (with effect on 30 July 2009), on 28 May 2010, by section 84 of the Taxation (Budget Measures) Act 2010 (2010 No 27).
Methods EE 12 Depreciation methods Meaning of depreciation method (1) Depreciation method means— (a) a method that a person may use to calculate an amount of depreciation loss: 849 Part E s EE 12 Income Tax Act 2007 Reprinted as at 30 August 2013 (b) (c) 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.
(2) 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 (b) (c) (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): 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 (3) 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.
(4) 850 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EE 14 (5) (6) 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 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- 851 Part E s EE 15 Income Tax Act 2007 Reprinted as at 30 August 2013 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 EE 16 Amount resulting from standard calculation (1) 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— annual rate × value or cost × months 12.

Deﬁnition of items in formula The items in the formula are deﬁned in subsections (3) to (5).
(2) Annual rate (3) 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 (4) 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: (b) when the person uses the straight-line method,— 852 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EE 16 (i) (ii) 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: (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: (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 16 853 Part E s EE 17 Income Tax Act 2007 Reprinted as at 30 August 2013 EE 17 Amount resulting from petroleum-related depreciable property calculation (1) 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— annual rate × value or cost × days 365.
Deﬁnition of items in formula The items in the formula are deﬁned in subsections (3) to (5).

(2) Annual rate (3) 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 (4) 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: (b) when the person uses the straight-line method, the item’s cost to the person; a variation to cost is in section EE 18.
Days (5) 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 17 854 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EE 19 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 (1) (2) When this section applies This section applies when— (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.
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 19 855 Part E s EE 20 Income Tax Act 2007 Reprinted as at 30 August 2013 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— rate × starting adjusted tax value + ending adjusted tax value 2 × months 12.

Deﬁnition of items in formula The items in the formula are deﬁned in subsections (4) to (8).

(3) Rate (4) Rate is the diminishing value rate.


It is 1 of the following: (a) (b) 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— (5) 856 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EE 21 (a) (b) 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.
(6) 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.
(8) Months: income year of longer than normal length [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).

857 Part E s EE 22 Income Tax Act 2007 Reprinted as at 30 August 2013 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 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 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).
(b) Insurance or compensation for damage to item If a person in an income year derives an amount of insurance, indemnity, or compensation (the compensation amount) for damage to an item included in a pool at the end of the income year and the compensation amount exceeds the expenditure or loss that the person incurs because of the damage, the excess is subtracted from the adjusted tax value of the pool.
Item disposed of If a person disposes of an item included in a pool, and de- rives an amount of consideration from the disposal, or derives an amount of insurance, indemnity, or compensation to which subsection (2B) does not apply for damage to the item occur- ring before the disposal, any excess of the amount derived over the expenditure or loss incurred in deriving the amount is sub- tracted from the adjusted tax value of the pool in which the item was included on the date of the disposal.
(1) (2) (2B) (3) 858 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EE 23 (4) (5) (6) 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 Section EE 22(2B) heading: inserted (with effect on 4 September 2010), on 2 November 2012, by section 35(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section EE 22(2B): inserted (with effect on 4 September 2010), on 2 Novem- ber 2012, by section 35(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).

Section EE 22(3): amended (with effect on 4 September 2010), on 2 Novem- ber 2012, by section 35(2) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
EE 23 Combined pools Combining pools allowed (1) A person using the pool method may at any time combine any number of pools to form a single pool.
859 Part E s EE 24 Income Tax Act 2007 Reprinted as at 30 August 2013 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 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) Calculation of deduction For the income year in which the plant variety rights are granted, the person is allowed a deduction for expenditure on the plant variety rights application of an amount calculated using the formula— cost × months of ownership depreciation months.
(1) (2) 860 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EE 26 (3) Deﬁnition of items in formula In the formula,— (a) cost is the cost to the person of the plant variety rights application: (c) (b) 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 (1) 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): 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: (b) (c) (d) 861 Part E s EE 27 Income Tax Act 2007 Reprinted as at 30 August 2013 (e) (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 acquired 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) No rate for ﬁxed life intangible property or excluded depreciable property (2) 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.

(3) Overriding effect of election under section EE 32 Subsection (1)(a), (c), and (d) are overridden by section EE 32.
Deﬁned in this Act: building, depreciable property, economic rate, estimated residual market value, excluded depreciable property, ﬁxed life intangible prop- erty Compare: 2004 No 35 s EE 25 Section EE 26 list of deﬁned terms building: inserted (with effect on 30 July 2009), on 28 May 2010, by section 84 of the Taxation (Budget Measures) Act 2010 (2010 No 27).
EE 27 Economic rate for certain depreciable property What this section is about This section is about setting the economic depreciation rate that applies to a kind of item of depreciable property.

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— (1) (2) (3) 862 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EE 28 (a) (b) following the procedure set out in this section; and issuing a determination under section 91AAF of the Tax Administration Act 1994.
(4) Procedure for setting economic rate To set the diminishing value rate for a kind of item of depre- ciable property, the Commissioner— (a) (b) (c) 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) 2 estimated useful life.

(6) 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: building, 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 Section EE 27 list of deﬁned terms building: inserted (with effect on 30 July 2009), on 28 May 2010, by section 84 of the Taxation (Budget Measures) Act 2010 (2010 No 27).
EE 28 Economic rate for buildings (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 that is a building and for which an economic rate is not set under 863 Part E s EE 28 Income Tax Act 2007 Reprinted as at 30 August 2013 (2) (3) 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.
(b) (c) 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.
Formula The formula is— (4) 1 estimated useful life.

(5) 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 (6) Despite subsection (1), a person who before 19 May 2005 en- ters into a binding contract for the purchase or construction of a building must apply to the building the economic rate for the kind of the building determined under section EZ 23.
Deﬁned in this Act: building, 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 864 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EE 30 Section EE 28 list of deﬁned terms building: inserted (with effect on 30 July 2009), on 28 May 2010, by section 84 of the Taxation (Budget Measures) Act 2010 (2010 No 27).
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 aircraft, minibus, straight-line rate Compare: 2004 No 35 s EE 25D EE 30 Economic rate for plant, equipment, or building, with high residual value (1) 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— (a) 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 865 Part E s EE 30 Income Tax Act 2007 Reprinted as at 30 August 2013 (2) (3) (b) (c) 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 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— (4) 1 (( residual value cost ) 1 estimated useful life ).

Deﬁnition of items in formula In the formula,— (a) residual value is the greater of— (i) estimated residual market value, which is deﬁned in section EE 67: 13.5% of cost: (ii) (5) 866 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EE 31 (b) cost is the cost of items of the kind to which the formula is applied: (c) estimated useful life is deﬁned in section EE 63.
Deﬁned in this Act: building, Commissioner, depreciable property, diminishing value rate, economic rate, estimated residual market value, estimated useful life, excluded 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).
Section EE 30(3)(b): substituted (with effect on 1 April 2008), on 7 September 2010 (applying for the 2008–09 and later income years), by section 30(1) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).

Section EE 30 list of deﬁned terms building: inserted (with effect on 30 July 2009), on 28 May 2010, by section 84 of the Taxation (Budget Measures) Act 2010 (2010 No 27).
EE 31 Annual rate for item acquired in person’s 1995–96 or later income year (1) 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)).
Subsection (2) applies to specify the an- nual rate for the item if the requirements in subsection (2A) are met, and subsection (3) applies to specify the annual rate for the item if subsections (2A) and (2) do not apply and the requirements in subsection (3A) are met.
Requirements for subsection (2) rate (2A) This subsection applies, and the rate is 1 of the rates given by subsection (2), if the person— (a) (b) acquires the item on or before 20 May 2010; or decides to purchase or construct the item, meets the ad- ministrative requirements in subsection (4), and— 867 Part E s EE 31 Income Tax Act 2007 Reprinted as at 30 August 2013 (i) (ii) enters into a binding contract for the purchase or construction of the item on or before 20 May 2010: after deciding to purchase or construct the item, incurs expenditure in relation to its purchase or construction on or before 20 May 2010.
(2) Rate for item acquired on or before 20 May 2010 If subsection (2A) applies, the rate is 1 of the following: (a) the item’s economic rate, special rate, or provisional rate, for an item not described in paragraph (b), (c), or (d): 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) a diminishing value rate of 15% or a straight-line rate of 10%, for an international aircraft: 0% for a building that has an economic rate or provi- sional rate of more than 0% due to an estimated useful life of 50 years or more.
(b) (c) (d) Requirements for subsection (3) rate (3A) This subsection applies, and the rate is 1 of the rates given by subsection (3), if subsections (2A) and (2) do not apply and the person— (a) (b) acquires the item after 20 May 2010; or decides to purchase or construct the item, and— (i) enters into a binding contract for the purchase or construction of the item after 20 May 2010: incurs expenditure in relation to the item’s pur- chase or construction after 20 May 2010.
(ii) Rate for item acquired after 20 May 2010 If subsection (3A) applies, the rate is 1 of the following: (a) the item’s economic rate, special rate, or provisional rate, for an item not described in paragraph (b) or (c): (3) 868 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EE 31 (b) (c) a diminishing value rate of 15% or a straight-line rate of 10% for an international aircraft: 0%, for a building that has an economic rate or provi- sional rate of more than 0% due to an estimated useful life of 50 years or more.
(4) Administrative requirements For the purposes of subsection (2A)(b), a person must— (a) have available for the Commissioner documents dated on or before 20 May 2010 that evidence that the person had, on or before 20 May 2010, decided to purchase or construct the relevant item: send to the Commissioner a statutory declaration that the person had, on or before 20 May 2010, decided to purchase or construct the relevant item.
(b) Deﬁned in this Act: acquire, annual rate, building, Commissioner, depreciable property, diminishing value rate, economic rate, estimated useful life, 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(1): amended (with effect on 20 May 2010), on 21 December 2010, by section 49(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section EE 31(1): amended (with effect on 20 May 2010), on 28 May 2010, by section 77(1) of the Taxation (Budget Measures) Act 2010 (2010 No 27).

Section EE 31(2A) heading: inserted (with effect on 20 May 2010), on 21 De- cember 2010, by section 49(2) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).

Section EE 31(2A): inserted (with effect on 20 May 2010), on 21 December 2010, by section 49(2) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section EE 31(2) heading: substituted (with effect on 20 May 2010), on 28 May 2010, by section 77(2)(a) of the Taxation (Budget Measures) Act 2010 (2010 No 27).

Section EE 31(2): amended (with effect on 20 May 2010), on 21 December 2010, by section 49(3) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).

Section EE 31(2): amended (with effect on 20 May 2010), on 28 May 2010, by section 77(2)(b) of the Taxation (Budget Measures) Act 2010 (2010 No 27).
Section EE 31(2)(a): amended, on 1 April 2011 (applying for the 2011–12 and later income years), by section 77(4)(a) of the Taxation (Budget Measures) Act 2010 (2010 No 27).

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).
869 Part E s EE 31 Income Tax Act 2007 Reprinted as at 30 August 2013 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).

Section EE 31(2)(c): amended, on 1 April 2011 (applying for the 2011–12 and later income years), by section 77(4)(b) of the Taxation (Budget Measures) Act 2010 (2010 No 27).
Section EE 31(2)(d): added, on 1 April 2011 (applying for the 2011–12 and later income years), by section 77(4)(b) of the Taxation (Budget Measures) Act 2010 (2010 No 27).

Section EE 31(3A) heading: inserted (with effect on 20 May 2010), on 21 De- cember 2010, by section 49(4) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).

Section EE 31(3A): inserted (with effect on 20 May 2010), on 21 December 2010, by section 49(4) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section EE 31(3) heading: added (with effect on 20 May 2010), on 28 May 2010, by section 77(3) of the Taxation (Budget Measures) Act 2010 (2010 No 27).

Section EE 31(3): amended (with effect on 20 May 2010), on 21 December 2010, by section 49(5) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).

Section EE 31(3): added (with effect on 20 May 2010), on 28 May 2010, by section 77(3) of the Taxation (Budget Measures) Act 2010 (2010 No 27).
Section EE 31(3)(a): amended, on 1 April 2011 (applying for the 2011–12 and later income years), by section 77(4)(c) of the Taxation (Budget Measures) Act 2010 (2010 No 27).

Section EE 31(3)(b): amended, on 1 April 2011 (applying for the 2011–12 and later income years), by section 77(4)(d) of the Taxation (Budget Measures) Act 2010 (2010 No 27).
Section EE 31(3)(c): added, on 1 April 2011 (applying for the 2011–12 and later income years), by section 77(4)(d) of the Taxation (Budget Measures) Act 2010 (2010 No 27).

Section EE 31(4) heading: added (with effect on 20 May 2010), on 21 December 2010, by section 49(6) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).

Section EE 31(4): added (with effect on 20 May 2010), on 21 December 2010, by section 49(6) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section EE 31 list of deﬁned terms building: inserted (with effect on 30 July 2009), on 28 May 2010, by section 84 of the Taxation (Budget Measures) Act 2010 (2010 No 27).

Section EE 31 list of deﬁned terms Commissioner: inserted (with effect on 20 May 2010), on 21 December 2010, by section 49(7) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section EE 31 list of deﬁned terms estimated useful life: inserted, on 1 April 2011 (applying for the 2011–12 and later income years), by section 77(5) of the Taxation (Budget Measures) Act 2010 (2010 No 27).
870 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EE 33 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: building, depreciable property, depreciation loss, economic depreciation rate, income year, return of income, tax year Compare: 2004 No 35 s EE 26B Section EE 32 list of deﬁned terms building: inserted (with effect on 30 July 2009), on 28 May 2010, by section 84 of the Taxation (Budget Measures) Act 2010 (2010 No 27).
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) 871 Part E s EE 34 Income Tax Act 2007 Reprinted as at 30 August 2013 1 legal life.

(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 (1) 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— (2) 1 legal life.
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.
(3) (4) 872 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EE 35 (5) (6) (7) (8) 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.
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 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 Rate set for item of depreciable property (1) 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.
873 Part E s EE 36 Income Tax Act 2007 Reprinted as at 30 August 2013 No special rate for excluded depreciable property, special excluded depreciable property, or building (2) A special rate may not be set for an item of excluded depre- ciable property, an item of special excluded depreciable prop- erty, or a building.
No provisional rate for ﬁxed life intangible property or excluded depreciable property (3) A provisional rate may not be set for an item of ﬁxed life in- tangible property or an item of excluded depreciable property.

(4) Exception Section FA 11B(7) (Adjustments for certain operating leases) overrides this section.
Deﬁned in this Act: building, depreciable property, excluded depreciable prop- erty, ﬁxed life intangible property, provisional rate, special excluded depre- ciable property, special rate Compare: 2004 No 35 s EE 28 Section EE 35(2) heading: substituted (with effect on 20 May 2010), on 28 May 2010, by section 78(1) of the Taxation (Budget Measures) Act 2010 (2010 No 27).
Section EE 35(2): substituted (with effect on 20 May 2010), on 28 May 2010, by section 78(1) of the Taxation (Budget Measures) Act 2010 (2010 No 27).

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).
Section EE 35 list of deﬁned terms building: inserted (with effect on 30 July 2009), on 28 May 2010, by section 84 of the Taxation (Budget Measures) Act 2010 (2010 No 27).

Section EE 35 list of deﬁned terms special excluded depreciable property: inserted (with effect on 20 May 2010), on 28 May 2010, by section 78(2) of the Taxation (Budget Measures) Act 2010 (2010 No 27).
EE 36 Using economic rate or provisional rate instead of special rate Allowed to use economic or provisional rate (1) 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).
874 Reprinted as at 30 August 2013 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,— 875 Part E s EE 37 Income Tax Act 2007 Reprinted as at 30 August 2013 (a) (ab) 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), if paragraph (ab) does not apply: a person who uses the diminishing value method or the straight-line method for the item that was improved must use subsection (3B) if— (i) treating the improvement as an item, section EE 31(2A) does not apply, but section EE 31(3A) does apply; and the item that was improved is a grandparented structure, or is not a building, is not a used import car, is not an international aircraft, or 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: (ii) (b) a person who uses the pool method for the item that was improved must apply subsections (6) and (7).
Improvement compulsorily treated as separate item (3B) For the purposes of subsection (3)(ab), a person must treat the improvement as a separate item of depreciable property.

(4) (5) 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,— (b) 876 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EE 37 (i) (ii) 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.
(6) 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),— (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, building, depreciable property, dimin- ishing value method, grandparented structure, improvement, income year, inter- national aircraft, maximum pooling value, New Zealand, pool, pool method, straight-line method Compare: 2004 No 35 s EE 30 Section EE 37(3)(a): substituted (with effect on 20 May 2010), on 28 May 2010, by section 79(2) of the Taxation (Budget Measures) Act 2010 (2010 No 27).
Section EE 37(3)(ab): substituted (with effect on 20 May 2010), on 28 May 2010, by section 79(2) of the Taxation (Budget Measures) Act 2010 (2010 No 27).

Section EE 37(3)(ab)(i): substituted (with effect on 20 May 2010), on 21 De- cember 2010, by section 50 of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).

Section EE 37(3B) heading: inserted (with effect on 30 July 2009), on 28 May 2010, by section 79(3) of the Taxation (Budget Measures) Act 2010 (2010 No 27).
Section EE 37(3B): inserted (with effect on 30 July 2009), on 28 May 2010, by section 79(3) of the Taxation (Budget Measures) Act 2010 (2010 No 27).

Section EE 37 list of deﬁned terms building: inserted (with effect on 30 July 2009), on 28 May 2010, by section 84 of the Taxation (Budget Measures) Act 2010 (2010 No 27).
877 Part E s EE 38 Income Tax Act 2007 Reprinted as at 30 August 2013 Section EE 37 list of deﬁned terms grandparented structure: inserted (with ef- fect on 30 July 2009), on 28 May 2010, by section 79(4) of the Taxation (Budget Measures) Act 2010 (2010 No 27).

Section EE 37 list of deﬁned terms international aircraft: inserted (with effect on 30 July 2009), on 28 May 2010, by section 79(4) of the Taxation (Budget Measures) Act 2010 (2010 No 27).
Section EE 37 list of deﬁned terms New Zealand: inserted (with effect on 30 July 2009), on 28 May 2010, by section 79(4) of the Taxation (Budget Meas- ures) Act 2010 (2010 No 27).
EE 38 Items of low value 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) Threshold value for item The threshold value for an item is— (1) (2) 878 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EE 38 (3) (4) (5) (6) (7) (8) (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 31 879 Part E s EE 39 Income Tax Act 2007 Reprinted as at 30 August 2013 EE 39 Items no longer used 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 deriv- ing assessable income; and neither they nor a person associated with them intends to use the item in deriving assessable income or carry- (b) (1) (2) (3) (4) 880 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EE 40 (5) (6) (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, associ- ated person, building, business, depreciable property, depreciation loss, dispose, geothermal energy proving period, income year, pool method Compare: 2004 No 35 s EE 32 Section EE 39 list of deﬁned terms building: inserted (with effect on 30 July 2009), on 28 May 2010, by section 84 of the Taxation (Budget Measures) Act 2010 (2010 No 27).
Transfers of depreciable property: associated persons and certain amalgamations EE 40 Transfer of depreciable property on or after 24 September 1997 (1) (2) 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 deduction if section EE 11(1) had not applied.
881 Part E s EE 40 Income Tax Act 2007 Reprinted as at 30 August 2013 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.
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, (3) (4) (5) (6) (7) 882 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EE 40 for the purpose of deriving assessable income or carrying on a business for the purpose of deriving assessable income; or (b) if section EE 58 does not apply, the lesser of— the cost of the item to person A: (i) the cost of the item to the associated person.
(ii) (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: (b) 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).
Fixed life intangible property (10) 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) is overridden by section EE 41: 883 Part E s EE 41 Income Tax Act 2007 Reprinted as at 30 August 2013 (b) 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, 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 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 amalgamations) 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) (1) (2) 884 Reprinted as at 30 August 2013 (b) Income Tax Act 2007 Part E s EE 41 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) (3) (4) (5) 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).
(b) 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: (b) 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, 885 Part E s EE 42 Income Tax Act 2007 Reprinted as at 30 August 2013 ﬁxed life intangible property, restricted amalgamation Compare: 2004 No 35 s EE 34 income, income year, property, resident’s 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 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 (b) 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.
(1) 886 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EE 44 (2) 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 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 has consider- ation 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) (b) (c) (d) 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: a person receives, for an item of property, an amount of insurance to which section EZ 23B (Property acquired after depreciable property affected by Canterbury earth- quakes) applies.
Deﬁned in this Act: arrangement, consideration, dispose, geothermal energy proving period, geothermal well, property Compare: 2004 No 35 s EE 37 887 Part E s EE 45 Income Tax Act 2007 Reprinted as at 30 August 2013 Section EE 44(1): amended (with effect on 1 April 2008), on 21 December 2010, by section 51 of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section EE 44(2)(c): amended (with effect on 4 September 2010), on 29 August 2011, by section 24 of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).

Section EE 44(2)(d): added (with effect on 4 September 2010), on 29 August 2011, by section 24 of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
EE 45 Consideration for purposes of section EE 44 (1) General rule For the purposes of section EE 44, the consideration equals the amount that a person derives excluding any GST charged if the person is a registered person, as modiﬁed by subsec- tions (3) to (11) minus the amount (the disposal cost) that they incur in deriving that amount, to the extent to which the dis- posal cost— (a) is not allowed as a deduction to the person other than as a deduction for an amount of depreciation loss; and is not counted in “the amount that a person derives”.
(b) GST for disposal costs (1B) All amounts deducted or deductible by the person under sec- tion 20(3) of the Goods and Services Tax Act 1985 in relation to the disposal cost described in subsection (1) are subtracted from the disposal costs under that subsection.

Consideration may be zero or negative For the purposes of section EE 44, the consideration may be zero or a negative amount.
Other than market value If the person has consideration that is not the item’s market value, the amount that the person derives 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 (b) (2) (3) 888 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EE 45 (4) (5) (6) (7) (8) (c) this subsection does not apply in a case described in any of subsections (5) to (10).
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 amount that a person derives from the event described in section EE 47(3) is the amount of insurance, indemnity, 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 consideration 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 amount that a person derives from the event described in section EE 47(6) is the amount of the deduction for depreci- ation loss allowed under section EE 39(4).
Irreparable damage or damage rendering building useless The amount that a person derives from the event described in section EE 47(4) is the total of the amount of insurance, indemnity, or compensation, and the amount of proceeds from the disposal, they receive for the affected item (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 consideration received for a supply of services by the registered person under section 5(13) of the Goods and Services Tax Act 1985.

889 Part E s EE 45 Income Tax Act 2007 Reprinted as at 30 August 2013 (9) Repossession The amount that a person derives from the event described 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 “amount that a 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 amount 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 amount that a person derives from the event referred to in section EE 47(10) is described in section EZ 21(1) (Sec- 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 Section EE 45(1) heading: substituted (with effect on 1 April 2008), on 21 De- cember 2010, by section 52(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section EE 45(1): substituted (with effect on 1 April 2008), on 21 December 2010, by section 52(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).

Section EE 45(1B) heading: inserted (with effect on 1 April 2008), on 21 De- cember 2010, by section 52(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).

Section EE 45(1B): inserted (with effect on 1 April 2008), on 21 December 2010, by section 52(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
890 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EE 46 Section EE 45(2) heading: substituted (with effect on 1 April 2008), on 21 De- cember 2010, by section 52(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).

Section EE 45(2): substituted (with effect on 1 April 2008), on 21 December 2010, by section 52(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section EE 45(3): amended (with effect on 1 April 2008), on 21 December 2010, by section 52(2) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).

Section EE 45(6): amended (with effect on 1 April 2008), on 21 December 2010, by section 52(3) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).

Section EE 45(7): amended (with effect on 1 April 2008), on 21 December 2010, by section 52(4) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section EE 45(8) heading: substituted (with effect on 4 September 2010), on 29 August 2011, by section 25(1) of the Taxation (Tax Administration and Re- medial Matters) Act 2011 (2011 No 63).

Section EE 45(8): amended (with effect on 4 September 2010), on 2 Novem- ber 2012, by section 36(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section EE 45(8): amended (with effect on 4 September 2010), on 29 August 2011, by section 25(2) of the Taxation (Tax Administration and Remedial Mat- ters) Act 2011 (2011 No 63).

Section EE 45(8): amended (with effect on 1 April 2008), on 21 December 2010, by section 52(5) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).

Section EE 45(9): amended (with effect on 1 April 2008), on 21 December 2010, by section 52(6)(a) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section EE 45(9)(a): amended (with effect on 1 April 2008), on 21 December 2010, by section 52(6)(b) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).

Section EE 45(10): amended (with effect on 1 April 2008), on 21 December 2010, by section 52(7) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).

Section EE 45(11): amended (with effect on 1 April 2008), on 21 December 2010, by section 52(8) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
EE 46 Items for purposes of section EE 44 (1) 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— 891 Part E s EE 47 Income Tax Act 2007 Reprinted as at 30 August 2013 (a) (b) 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.
(2) 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 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.
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 occur- ring on the ﬁrst day of the next income year, and includes a change in use of an item for the purposes of the deﬁnition of commercial ﬁt-out and a change in the status of a building related to an item for the purposes of that deﬁnition.

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.
(1) (2) (3) 892 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EE 47 (4) (5) (6) (7) (8) (b) Irreparable damage or damage rendering building or grandparented structure useless The third event is— (a) the irreparable damage of an item of property that is not a building or grandparented structure; or the damage of an item of property that is a building or grandparented structure, or of the neighbourhood of the building or grandparented structure, causing the build- ing or grandparented structure to be— (i) (ii) useless for the purpose of deriving income; and demolished or abandoned for later demolition.
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) 893 Part E s EE 48 Income Tax Act 2007 Reprinted as at 30 August 2013 (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 Section EE 47(2): amended, on 1 April 2011 (applying for the 2011–12 and later income years), by section 53(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section EE 47(4) heading: substituted (with effect on 4 September 2010), on 29 August 2011, by section 26 of the Taxation (Tax Administration and Remed- ial Matters) Act 2011 (2011 No 63).

Section EE 47(4): substituted (with effect on 4 September 2010), on 29 August 2011, by section 26 of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
EE 48 Effect of disposal or event (1) 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: (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 amount given by subsections (1B) and (1C).
(b) Amount for subsection (1)(b) (1B) The amount for the purposes of subsection (1)(b) is given by the following formula: item depreciation loss + CZ 11 item amount + DB 64 item amount.
894 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EE 48 (1C) (2) Deﬁnition of items in formula In the formula in subsection (1B),— (a) item depreciation loss is the total of the amounts of depreciation loss for which the person has been allowed deductions for the item: (b) CZ 11 item amount is the amount of any deduction allowed for the acquisition of the item, for the person, if the item is one to which section CZ 11 (Recovery of deductions for software acquired before 1 April 1993) applies: DB 64 item amount is the amount of the capital contri- bution for the item, for the person, if the item is one to which section DB 64 (Capital contributions) applies.
(c) 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 that is the amount by which the consideration is less than the item’s adjusted tax value on that date.
Income year of depreciation recovery income (2B) The person derives the depreciation recovery income in the income year that is the earliest income year in which the con- sideration can be reasonably estimated.
(3) When subsection (2) does not apply Subsection (2) does not apply if the item is a building unless— the building or grandparented structure has been ren- (a) dered useless for the purpose of deriving income, and demolished or abandoned for later demolition as a result of damage to the building or grandparented structure or of the neighbourhood of the building or grandparented structure; and [Repealed] the damage is caused— (i) by a natural event not under the control of the person, an agent of the person, or an associated person; and (b) (c) 895 Part E s EE 48 Income Tax Act 2007 Reprinted as at 30 August 2013 (ii) other than as a result of the action or failure to act of the person, an agent of the person, or an associated person.
Deﬁned in this Act: acquire, adjusted tax value, amount, building, capital con- tribution, consideration, deduction, depreciation loss, depreciation recovery in- come, dispose, income, income year Compare: 2004 No 35 s EE 41 Section EE 48(1): amended (with effect on 4 September 2010), on 29 August 2011, by section 27(1) of the Taxation (Tax Administration and Remedial Mat- ters) Act 2011 (2011 No 63).
Section EE 48(1)(b): substituted (with effect on 20 May 2010), on 28 May 2010, by section 80(1) of the Taxation (Budget Measures) Act 2010 (2010 No 27).

Section EE 48(1B) heading: inserted (with effect on 20 May 2010), on 28 May 2010, by section 80(2) of the Taxation (Budget Measures) Act 2010 (2010 No 27).

Section EE 48(1B): inserted (with effect on 20 May 2010), on 28 May 2010, by section 80(2) of the Taxation (Budget Measures) Act 2010 (2010 No 27).
Section EE 48(1C) heading: inserted (with effect on 20 May 2010), on 28 May 2010, by section 80(2) of the Taxation (Budget Measures) Act 2010 (2010 No 27).

Section EE 48(1C): inserted (with effect on 20 May 2010), on 28 May 2010, by section 80(2) of the Taxation (Budget Measures) Act 2010 (2010 No 27).

Section EE 48(2): amended (with effect on 4 September 2010), on 29 August 2011, by section 27(2) of the Taxation (Tax Administration and Remedial Mat- ters) Act 2011 (2011 No 63).
Section EE 48(2B) heading: inserted (with effect on 4 September 2010), on 29 August 2011, by section 27(3) of the Taxation (Tax Administration and Re- medial Matters) Act 2011 (2011 No 63).

Section EE 48(2B): inserted (with effect on 4 September 2010), on 29 August 2011, by section 27(3) of the Taxation (Tax Administration and Remedial Mat- ters) Act 2011 (2011 No 63).
Section EE 48(3) heading: substituted (with effect on 4 September 2010), on 29 August 2011, by section 27(4) of the Taxation (Tax Administration and Re- medial Matters) Act 2011 (2011 No 63).

Section EE 48(3)(a): substituted (with effect on 4 September 2010), on 29 Au- gust 2011, by section 27(5) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section EE 48(3)(b): repealed (with effect on 4 September 2010), on 29 Au- gust 2011, by section 27(6) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).

Section EE 48(3)(c): substituted (with effect on 4 September 2010), on 29 Au- gust 2011, by section 27(7) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section EE 48 list of deﬁned terms building: inserted (with effect on 30 July 2009), on 28 May 2010, by section 84 of the Taxation (Budget Measures) Act 2010 (2010 No 27).

896 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EE 49 Section EE 48 list of deﬁned terms capital contribution: inserted (with effect on 20 May 2010), on 28 May 2010, by section 80(3) of the Taxation (Budget Measures) Act 2010 (2010 No 27).
EE 49 Amount of depreciation recovery income when item partly used for business (1) Item to which this section applies This section applies to an item of property that— (a) (b) 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) (2) 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).

Formula The formula is— (3) all deductions (base value adjusted tax value) × amount of depreciation recovery income.

Deﬁnition of items in formula The items in the formula are deﬁned in subsections (5) to (8).
(4) All deductions (5) 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.

(6) Base value Base value has the applicable one of the meanings in sections EE 57 to EE 59.

897 Part E s EE 50 Income Tax Act 2007 Reprinted as at 30 August 2013 Adjusted tax value (7) 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 (8) 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 When subsection (2) applies Subsection (2) applies when— (a) 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) 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.
(b) (c) (d) 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— depreciation loss × qualifying use days all days.
Deﬁnition of items in formula In the formula in subsection (2),— (1) (2) (3) 898 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EE 50 (a) (b) (c) depreciation loss is the amount of depreciation loss for the income year: qualifying use 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 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 (4) 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.
(5) (6) (7) When subsection (6) applies Subsection (6) applies when— (a) (b) 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 (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— disposal depreciation loss × all deductions (base value adjusted tax value at date).
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 (b) 899 Part E s EE 50 Income Tax Act 2007 Reprinted as at 30 August 2013 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.
(c) (d) (8) 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.
(9) Partial use: formula The deduction the person is allowed for the amount of depre- ciation loss is calculated using the formula— disposal depreciation loss × qualifying use days all days.
Deﬁnition of items in formula In the formula in subsection (9),— (a) 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 income 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): (10) 900 (b) (c) (d) (b) Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EE 51 (c) 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 (1) (2) (3) (4) 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.

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 901 Part E s EE 52 Income Tax Act 2007 Reprinted as at 30 August 2013 (b) the income year in which the item is recovered, in any other case.
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) 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 (2) 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.
(3) 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 EE 53 Unused geothermal well brought into use (1) When this section applies This section applies to a person when an event occurs to which section EE 47(6) applies.
902 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EE 54 (2) 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 (1) (2) (3) (4) 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 subsections (3) and (4).

Deductions from output tax The item’s cost is reduced by the amount of any adjustment taken into account in the income year under section 20(3)(e) of the Goods and Services Tax Act 1985.

Adjustments for output tax The item’s cost is increased by adding an amount of deductible output tax that the person has for the income year.
Deﬁned in this Act: amount, deductible output tax, depreciable property, depre- ciation loss, depreciation recovery income, GST, income year, input tax, output tax Compare: 2004 No 35 s EE 45 Section EE 54(2): amended, on 1 April 2011, by section 54(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section EE 54(3) heading: substituted, on 1 April 2011 (applying to taxable supplies made on or after 1 April 2011), by section 54(2) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).

Section EE 54(3): substituted, on 1 April 2011 (applying to taxable supplies made on or after 1 April 2011), by section 54(2) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section EE 54(4) heading: substituted, on 1 April 2011 (applying to taxable supplies made on or after 1 April 2011), by section 54(2) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).

903 Part E s EE 55 Income Tax Act 2007 Reprinted as at 30 August 2013 Section EE 54(4): substituted, on 1 April 2011 (applying to taxable supplies made on or after 1 April 2011), by section 54(2) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section EE 54 list of deﬁned terms deductible output tax: inserted, on 1 April 2011, by section 54(3) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).

Section EE 54 list of deﬁned terms taxable supply: repealed, on 1 April 2011, by section 54(3) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Adjusted tax value EE 55 Meaning of adjusted tax value Meaning (1) Adjusted tax value means,— (2) (a) (b) 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.

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) heading: inserted (with effect on 1 April 2008), on 29 August 2011 (applying for the 2008–09 and later income years), by section 140(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section 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 Formula The formula referred to in section EE 55 is— total deductions.

base value Deﬁnition of items in formula In the formula,— (1) (2) 904 Reprinted as at 30 August 2013 (a) Income Tax Act 2007 Part E s EE 57 base value has the applicable meaning in sections EE 57, EE 58, EE 59, and EZ 22(1) (Base value and total deductions in section EE 56: before 1 April 1995): 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.
(1) (2) (3) 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 (b) (c) (d) 905 Part E s EE 58 Income Tax Act 2007 Reprinted as at 30 August 2013 (ii) is excluded from it if it is described in section EZ 22(2)(b).
Deﬁned in this Act: amount, deduction, depreciation loss Compare: 2004 No 35 s EE 48 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 906 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EE 59 assessable income or carrying on a business for the purpose of deriving assessable income.
Deﬁned in this Act: acquire, amount, assessable income, building, business, de- duction, depreciation loss, income year, petroleum-related depreciable property Compare: 2004 No 35 s EE 49 Section EE 58 list of deﬁned terms building: inserted (with effect on 30 July 2009), on 28 May 2010, by section 84 of the Taxation (Budget Measures) Act 2010 (2010 No 27).
EE 59 Base value in section EE 56 when property is petroleum-related depreciable property (1) (2) (3) 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 (b) 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.
(4) 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.
907 Part E s EE 60 Income Tax Act 2007 Reprinted as at 30 August 2013 (5) (b) 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 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 deduction 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) (c) EE 60 Total deductions in section EE 56 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: (1) (2) 908 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EE 60 (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).
(3) Treatment of assets not available for use 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 carrying on a business for the purpose of deriving assessable in- come.
(b) Treatment of assets not available for use (3B) Subsection (3)(b) does not apply in relation to an amount of depreciation loss for an item that is not available for use in de- riving assessable income or carrying on a business for the pur- pose of deriving assessable income.

However, this exclusion does not apply to an amount of depreciation loss for which the person has a deduction under section EE 39.
(4) (5) 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,— 909 Part E s EE 60 Income Tax Act 2007 Reprinted as at 30 August 2013 (a) (b) (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 6(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) (iii) unless subparagraph (ii) applies, the beginning of the month in which the person started to use the item, 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 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 Section EE 60(3B) heading: replaced (with effect on 1 April 2008 and applying for the 2008–09 and later income years), on 17 July 2013, by section 47(1) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Section EE 60(3B): inserted (with effect on 1 April 2008), on 7 September 2010 (applying for the 2008–09 and later income years), by section 31(1) of the Taxa- tion (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remed- ial Matters) Act 2010 (2010 No 109).
Section EE 60(3B): amended (with effect on 1 April 2008 and applying for the 2008–09 and later income years), on 17 July 2013, by section 47(1) of the 910 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EE 61 Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).

Section EE 60(5)(a)(ii): amended (with effect on 1 April 2008), on 2 November 2012, by section 37 of the Taxation (Annual Rates, Returns Filing, and Remed- ial Matters) Act 2012 (2012 No 88).
Deﬁnitions EE 61 Meaning of annual rate Meaning (1) 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).
(2) (3) 1995–96 income year or later The rate is the rate set by section EE 31(2)(a) or (b), or by section EE 31(3)(a), as applicable, 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), or by section EE 31(3)(b), as applicable, if the item is an international air- craft that the person acquires in their 1995–96 income year or a later income year.
1995–1996 income year or later: buildings with estimated useful lives of 50 years or more (3B) The rate is the rate set by section EE 31(2)(d), or by section EE 31(3)(c), as applicable, if the item is a building that— (a) has an economic rate or provisional rate of more than 0% due to an estimated useful life of 50 years or more; and the person acquires in their 1995–96 income year or a later income year.
(b) (4) Fixed life intangible property The rate is the rate set by section EE 33 if both the following apply to the item: (a) (b) the item is an item of ﬁxed life intangible property; and the item is not an item of excluded depreciable property.

911 Part E s EE 61 Income Tax Act 2007 Reprinted as at 30 August 2013 (5) (6) 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) (7) 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.

Special excluded depreciable property (7B) The rate is 0% for all depreciation methods, if the item is an item of special excluded depreciable property that would be an item of excluded depreciable property but for the exclusion in section EE 64(3).
Exception Section FA 11B(7) (Adjustments for certain operating leases) overrides this section.
Deﬁned in this Act: acquire, annual rate, building, depreciable property, eco- nomic rate, estimated useful life, excluded depreciable property, ﬁxed life intan- gible property, income year, international aircraft, own, provisional rate, special excluded depreciable property Compare: 2004 No 35 s EE 52 Section EE 61(2): amended (with effect on 20 May 2010), on 28 May 2010, by section 81(1) of the Taxation (Budget Measures) Act 2010 (2010 No 27).
Section EE 61(3): amended (with effect on 20 May 2010), on 28 May 2010, by section 81(2) of the Taxation (Budget Measures) Act 2010 (2010 No 27).

Section EE 61(3B) heading: inserted, on 1 April 2011 (applying for the 2011–12 and later income years), by section 81(3) of the Taxation (Budget Measures) Act 2010 (2010 No 27).

Section EE 61(3B): inserted, on 1 April 2011 (applying for the 2011–12 and later income years), by section 81(3) of the Taxation (Budget Measures) Act 2010 (2010 No 27).
(8) 912 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EE 62 Section EE 61(7B) heading: inserted, on 1 April 2011 (applying for the 2011–12 and later income years), by section 81(4) of the Taxation (Budget Measures) Act 2010 (2010 No 27).

Section EE 61(7B): inserted, on 1 April 2011 (applying for the 2011–12 and later income years), by section 81(4) of the Taxation (Budget Measures) Act 2010 (2010 No 27).
Section EE 61(8) heading: inserted, on 1 April 2008, by section 358 of the 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).

Section EE 61 list of deﬁned terms building: inserted (with effect on 30 July 2009), on 28 May 2010, by section 84 of the Taxation (Budget Measures) Act 2010 (2010 No 27).
Section EE 61 list of deﬁned terms economic rate: inserted, on 1 April 2011 (applying for the 2011–12 and later income years), by section 81(5) of the Tax- ation (Budget Measures) Act 2010 (2010 No 27).

Section EE 61 list of deﬁned terms estimated useful life: inserted, on 1 April 2011 (applying for the 2011–12 and later income years), by section 81(5) of the Taxation (Budget Measures) Act 2010 (2010 No 27).
Section EE 61 list of deﬁned terms provisional rate: inserted, on 1 April 2011 (applying for the 2011–12 and later income years), by section 81(5) of the Tax- ation (Budget Measures) Act 2010 (2010 No 27).

Section EE 61 list of deﬁned terms special excluded depreciable property: added, on 1 April 2011 (applying for the 2011–12 and later income years), by section 81(5) of the Taxation (Budget Measures) Act 2010 (2010 No 27).
EE 62 Meaning of depreciable intangible property Meaning (1) Depreciable intangible property means the property listed in schedule 14 (Depreciable intangible property).

(2) (3) Criteria for listing in schedule 14 For property to be listed in schedule 14, the criteria are as follows: (a) (b) it must be intangible; and 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 53 913 Part E s EE 63 Income Tax Act 2007 Reprinted as at 30 August 2013 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 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 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.
(b) (c) (d) (e) (1) 914 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EE 65 (2) (3) 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.
Another exclusion Excluded depreciable property does not include special ex- cluded depreciable property.
Deﬁned in this Act: Commissioner, depreciable property, excluded depreciable property, income year, New Zealand, property, qualifying improvement, quali- fying asset, special excluded depreciable property, trading stock Compare: 2004 No 35 s EE 55 Section EE 64(3) heading: added, on 1 April 2011 (applying for the 2011–12 and later income years), by section 82(1) of the Taxation (Budget Measures) Act 2010 (2010 No 27).
Section EE 64(3): added, on 1 April 2011 (applying for the 2011–12 and later income years), by section 82(1) of the Taxation (Budget Measures) Act 2010 (2010 No 27).

Section EE 64 list of deﬁned terms special excluded depreciable property: inserted, on 1 April 2011 (applying for the 2011–12 and later income years), by section 82(2) of the Taxation (Budget Measures) Act 2010 (2010 No 27).
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) 915 Part E s EE 66 Income Tax Act 2007 Reprinted as at 30 August 2013 EE 66 Meaning of poolable property (1) (2) (3) (4) Meaning Poolable property, for an income year, means an item of de- preciable 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 (b) 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.
(c) Wholly used or subject to fringe beneﬁt tax The item— (a) (b) 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.
Deﬁned in this Act: acquire, adjusted tax value, assessable income, building, business, Commissioner, depreciable property, fringe beneﬁt tax, income year, maximum pooling value, own, poolable property Compare: 2004 No 35 s EE 57 Section EE 66 list of deﬁned terms building: inserted (with effect on 30 July 2009), on 28 May 2010, by section 84 of the Taxation (Budget Measures) Act 2010 (2010 No 27).
EE 67 Other deﬁnitions In this Act,— depreciation method means a method described in section EE 12 916 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EE 67 diminishing value 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 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) 917 Part E s EE 67 Income Tax Act 2007 Reprinted as at 30 August 2013 (c) 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 excluded depreciable property means all buildings that are items not speciﬁed in schedule 39 (Items for purposes of deﬁnition of special excluded depreciable property) 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, building, depreciable intangible 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, improvement, income year, international aircraft, legal life, New Zealand, own, pay, petroleum, petroleum-related depreciable property, plant 918 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EF 2 variety rights, pool, pool method, property, provisional rate, special excluded depreciable property, special rate, straight-line method, straight-line rate Compare: 2004 No 35 s EE 58 Section EE 67 deﬁnition special excluded depreciable property: inserted, on 1 April 2011 (applying for the 2011–12 and later income years), by section 83(1) of the Taxation (Budget Measures) Act 2010 (2010 No 27).
Section EE 67 list of deﬁned terms building: inserted (with effect on 30 July 2009), on 28 May 2010, by section 84 of the Taxation (Budget Measures) Act 2010 (2010 No 27).

Section EE 67 list of deﬁned terms special excluded depreciable property: inserted, on 1 April 2011 (applying for the 2011–12 and later income years), by section 83(2) of the Taxation (Budget Measures) Act 2010 (2010 No 27).
Subpart EF—Taxes and levies Contents 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 [Repealed] Page 919 919 920 922 923 925 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, 919 Part E s EF 3 Income Tax Act 2007 Reprinted as at 30 August 2013 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 (1) 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 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 (2) (3) (4) 920 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EF 3 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) (5) 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) a levy to fund the Work Account under section 168 of the Accident Compensation Act 2001; or an employer’s premium to fund the Employers’ Account under section 281B of the Accident In- surance Act 1998: (ii) (b) (c) (d) (e) (f) (g) (h) [Repealed] the following levy or premium: (i) (ii) (ii) a levy to fund the Work Account under section 168B or 211 of the Accident Compensation Act 2001; or a premium to fund the Self-Employed Work Ac- count under section 300 of the Accident Insur- ance Act 1998: the following levy or premium: (i) a levy to fund the Earners’ Account under section 219(1) of the Accident Compensation Act 2001; or a premium to fund the Earners’ Account under section 283(1) of the Accident Insurance Act 1998: an Earners’ Account levy under section 283(2) of the Accident Insurance Act 1998: 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: 921 Part E s EF 4 Income Tax Act 2007 Reprinted as at 30 August 2013 (i) 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 Section EF 3(5)(a)(i): amended, on 21 December 2010, by section 189 of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).

Section EF 3(5)(b): repealed, on 3 March 2010, by section 49 of the Accident Compensation Amendment Act 2010 (2010 No 1).
Section EF 3(5)(c)(i): amended, on 21 December 2010, by section 189 of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).

Section EF 3(5)(d)(i): amended, on 21 December 2010, by section 189 of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).

Section EF 3(5)(e): substituted, on 3 March 2010, by section 49 of the Accident Compensation Amendment Act 2010 (2010 No 1).
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.
Interest paid in same year as liability arises [Repealed] [Repealed] Effect of amended assessment [Repealed] [Repealed] Amended assessment in same year [Repealed] [Repealed] Deﬁned in this Act: Commissioner, income, income year, interest, pay Compare: 2004 No 35 s EF 4 Section EF 4(1): amended (with effect on 1 April 2011), on 29 August 2011 (applying for the 2011–12 and later income years), by section 28(1) of the Tax- ation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section EF 4(2) heading: repealed (with effect on 1 April 2011), on 29 Au- gust 2011 (applying for the 2011–12 and later income years), pursuant to sec- tion 28(2) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
(1) (2) (3) (4) 922 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EF 5 Section EF 4(2): repealed (with effect on 1 April 2011), on 29 August 2011 (applying for the 2011–12 and later income years), by section 28(2) of the Tax- ation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section EF 4(3) heading: repealed (with effect on 1 April 2011), on 29 Au- gust 2011 (applying for the 2011–12 and later income years), pursuant to sec- tion 28(2) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).

Section EF 4(3): repealed (with effect on 1 April 2011), on 29 August 2011 (applying for the 2011–12 and later income years), by section 28(2) of the Tax- ation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section EF 4(4) heading: repealed (with effect on 1 April 2011), on 29 Au- gust 2011 (applying for the 2011–12 and later income years), pursuant to sec- tion 28(2) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).

Section EF 4(4): repealed (with effect on 1 April 2011), on 29 August 2011 (applying for the 2011–12 and later income years), by section 28(2) of the Tax- ation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section EF 4 list of deﬁned terms assessment: repealed (with effect on 1 April 2011), on 29 August 2011, by section 28(3) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).

Section EF 4 list of deﬁned terms notice: repealed (with effect on 1 April 2011), on 29 August 2011, by section 28(3) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section EF 4 list of deﬁned terms tax year: repealed (with effect on 1 April 2011), on 29 August 2011, by section 28(3) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).

EF 5 Use of money interest payable by person Timing of deduction (1) A deduction for interest payable by a person to the Commis- sioner under Part 7 of the Tax Administration Act 1994 is allo- cated to the income year in which the person pays the interest.
(2) (3) (4) Assessment made in same year as liability arises [Repealed] [Repealed] Effect of amended assessment [Repealed] [Repealed] Terminal amended assessment [Repealed] [Repealed] Amended assessment in same year 923 Part E s EF 5 Income Tax Act 2007 Reprinted as at 30 August 2013 (5) [Repealed] [Repealed] Deﬁned in this Act: Commissioner, deduction, income year, pay Compare: 2004 No 35 s EF 5 Section EF 5(1): substituted (with effect on 1 April 2011), on 29 August 2011 (applying for the 2011–12 and later income years), by section 29(1) of the Tax- ation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section EF 5(2) heading: repealed (with effect on 1 April 2011), on 29 Au- gust 2011 (applying for the 2011–12 and later income years), pursuant to sec- tion 29(2) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).

Section EF 5(2): amended (with effect on 1 April 2008), on 2 November 2012, by section 38 of the Taxation (Annual Rates, Returns Filing, and Remedial Mat- ters) Act 2012 (2012 No 88).
Section EF 5(2): repealed (with effect on 1 April 2011), on 29 August 2011 (applying for the 2011–12 and later income years), by section 29(2) of the Tax- ation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).

Section EF 5(3) heading: repealed (with effect on 1 April 2011), on 29 Au- gust 2011 (applying for the 2011–12 and later income years), pursuant to sec- tion 29(2) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section EF 5(3): repealed (with effect on 1 April 2011), on 29 August 2011 (applying for the 2011–12 and later income years), by section 29(2) of the Tax- ation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).

Section EF 5(4) heading: repealed (with effect on 1 April 2011), on 29 Au- gust 2011 (applying for the 2011–12 and later income years), pursuant to sec- tion 29(2) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section EF 5(4): repealed (with effect on 1 April 2011), on 29 August 2011 (applying for the 2011–12 and later income years), by section 29(2) of the Tax- ation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).

Section EF 5(5) heading: repealed (with effect on 1 April 2011), on 29 Au- gust 2011 (applying for the 2011–12 and later income years), pursuant to sec- tion 29(2) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section EF 5(5): repealed (with effect on 1 April 2011), on 29 August 2011 (applying for the 2011–12 and later income years), by section 29(2) of the Tax- ation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).

Section EF 5 list of deﬁned terms assessment: repealed (with effect on 1 April 2011), on 29 August 2011, section 29(3) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section EF 5 list of deﬁned terms Commissioner: substituted (with effect on 1 April 2011), on 29 August 2011, section 29(3) of the Taxation (Tax Adminis- tration and Remedial Matters) Act 2011 (2011 No 63).

Section EF 5 list of deﬁned terms deduction: substituted (with effect on 1 April 2011), on 29 August 2011, section 29(3) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
924 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EG 1 Section EF 5 list of deﬁned terms income tax liability: repealed (with effect on 1 April 2011), on 29 August 2011, section 29(3) of the Taxation (Tax Adminis- tration and Remedial Matters) Act 2011 (2011 No 63).

Section EF 5 list of deﬁned terms income year: substituted (with effect on 1 April 2011), on 29 August 2011, section 29(3) of the Taxation (Tax Adminis- tration and Remedial Matters) Act 2011 (2011 No 63).
Section EF 5 list of deﬁned terms interest: repealed (with effect on 1 April 2011), on 29 August 2011, section 29(3) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).

Section EF 5 list of deﬁned terms liquidation: repealed (with effect on 1 April 2011), on 29 August 2011, section 29(3) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section EF 5 list of deﬁned terms notice: repealed (with effect on 1 April 2011), on 29 August 2011, section 29(3) of the Taxation (Tax Administration and Re- medial Matters) Act 2011 (2011 No 63).

Section EF 5 list of deﬁned terms pay: substituted (with effect on 1 April 2011), on 29 August 2011, section 29(3) of the Taxation (Tax Administration and Re- medial Matters) Act 2011 (2011 No 63).
Section EF 5 list of deﬁned terms tax year: repealed (with effect on 1 April 2011), on 29 August 2011, section 29(3) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).

EF 6 Different tax years [Repealed] Section EF 6: repealed (with effect on 1 April 2011), on 29 August 2011 (ap- plying for the 2011–12 and later income years), by section 30(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Subpart EG—Recognition of accounting treatment Contents 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 [Repealed] EG 1 Election to use balance date used in foreign country When this section applies This section applies when— (1) Page 925 929 930 925 Part E s EG 1 Income Tax Act 2007 Reprinted as at 30 August 2013 (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 in- come 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— (a) 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 (b) (c) (2) (3) (4) 926 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EG 1 (d) (e) 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.
(5) 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 (6) 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) (7) (8) 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— (a) 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.
(b) (c) 927 Part E s EG 1 Income Tax Act 2007 Reprinted as at 30 August 2013 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 foreign 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) 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 does not have a source in 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, dividend, exempt income, FIF income, ﬁnancial arrangements rules, foreign expenditure, foreign source income, income, income tax, income year, net in- come, pay, resident in New Zealand, return of income, source in New Zealand, tax year Compare: 2004 No 35 s EG 1 Section EG 1(10) foreign source income: amended, on 21 December 2010, by section 55(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section EG 1 list of deﬁned terms derived from New Zealand: repealed, on 21 December 2010, by section 55(2)(a) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).

(9) (10) 928 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EG 2 Section EG 1 list of deﬁned terms source in New Zealand: inserted, on 21 De- cember 2010, by section 55(2)(b) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
EG 2 Adjustment for changes to accounting practice (1) (2) (3) (4) 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 accounting that is regarded as accrual accounting under generally accepted accounting practice 929 Part E s EG 3 Income Tax Act 2007 Reprinted as at 30 August 2013 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 [Repealed] Section EG 3: repealed, on 1 April 2010 (applying for the 2010–11 and later income years), by section 122(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Subpart EH—Income equalisation schemes Contents 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 Interest on deposits in main income equalisation account EH 6 EH 7 Deduction of deposit Deduction 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 930 Page 934 934 935 935 937 938 939 939 939 940 940 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EG 3 EH 12 Application for refund by person, trustee of estate, Ofﬁcial 940 Refunds: on application 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 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 941 941 942 943 944 944 945 945 946 946 948 948 948 949 949 949 949 949 950 950 951 951 952 953 Adverse
 event income equalisation scheme Application EH 37 Persons to whom adverse event income equalisation 955 scheme applies 931 Income Tax Act 2007 Reprinted as at 30 August 2013 Deposits and accounts EH 38 Adverse event deposit EH 39 Adverse event income equalisation account 955 956 EH 40 Interest on deposits in adverse event income equalisation 957 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 957 958 958 EH 44 Application for refund by person, trustee of estate, Ofﬁcial 959 Assignee, or liquidator 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 932 959 960 960 960 961 961 962 962 964 964 964 965 965 965 966 966 967 968 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EG 3 Thinning operations income equalisation scheme Application EH 63 Persons to whom thinning operations income equalisation 969 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 Deductions EH 67 Deduction of deposit 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 EH 77 Sections of main income equalisation scheme that apply to thinning operations income equalisation scheme EH 78 Meaning of thinning operations maximum deposit EH 79 Other deﬁnitions Deﬁnitions 970 971 972 973 973 974 974 974 975 975 976 977 977 978 978 979 933 Part E s EH 1 Income Tax Act 2007 Reprinted as at 30 August 2013 Introductory provisions EH 1 Income equalisation schemes Description (1) 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.
(2) (3) 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.
(b) (c) (b) (c) 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 EH 2 Income Equalisation Reserve Account 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) is public money; and (1) (2) 934 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EH 4 (b) must be paid into the Income Equalisation Reserve Ac- 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 Deposits and accounts EH 4 Main deposit Deposit for business or forestry (1) 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: 935 Part E s EH 4 Income Tax Act 2007 Reprinted as at 30 August 2013 (b) (c) 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.
Upper limit of deposit (2) 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 (3) 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 (4) 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) 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) (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 (5) 936 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EH 5 been used to develop or expand a farmer’s business, if the per- son 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) 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 (4) 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) (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) 937 Part E s EH 6 Income Tax Act 2007 Reprinted as at 30 August 2013 (5) 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 Interest EH 6 Interest on deposits in main income equalisation account No interest payable (1) 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.

(2) (3) (4) 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 (5) Accrued interest on a deposit is added to the deposit.

(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 6 938 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EH 9 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 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 9 939 Part E s EH 10 Income Tax Act 2007 Reprinted as at 30 August 2013 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 (1) 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: the liquidator appointed for the person may apply under section EH 25.
(b) (c) (d) Application (2) An application for a refund must— be in writing; and state the grounds on which it is made; and (a) (b) 940 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EH 14 state the amount applied for.
(c) Deﬁned in this Act: amount, Commissioner, liquidation, main income equal- isation account, person, trustee Compare: 2004 No 35 s EH 12 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 Year of income (1) 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 re- ceives the application for the refund.
When year of income may be different (a) (2) However, subsection (3) applies instead of subsection (1) if— 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.
(b) 941 Part E s EH 15 Income Tax Act 2007 Reprinted as at 30 August 2013 (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 14 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: to enable them to undertake, immediately after the (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: (a) 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: (b) (1) (2) (3) 942 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EH 16 (4) (c) 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 EH 16 Income when refund given for development or recovery Year of income (1) 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 (a) (2) However, subsection (3) applies instead of subsection (1) if— 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.
(b) (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 16 943 Part E s EH 17 Income Tax Act 2007 Reprinted as at 30 August 2013 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.

Section 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 (1) 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 (a) (2) However, subsection (3) applies instead of subsection (1) if— the refund includes a deposit made for an accounting 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) (3) 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 (4) A person makes an election under this section by giving the Commissioner notice within 1 of the following times: 944 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EH 20 (a) (b) 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.
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) When this section applies This section applies when a person— (a) (b) has a main income equalisation account; and dies.
Refund (2) Despite section FC 2 (Transfer at market value), the Commis- sioner 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 Year of income (1) A refund under section EH 19 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 (2) 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 20 945 Part E s EH 21 Income Tax Act 2007 Reprinted as at 30 August 2013 EH 21 Income when refund given on death, and election to allocate amount to earlier year (1) (2) 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 (3) 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— (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.
(1) 946 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EH 22 (2) 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 (3) 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 (4) 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 (5) A trustee makes an election under this section by a notice that— (a) (b) speciﬁes— (i) (ii) each amount allocated to a later accounting year; and the accounting year to which each amount is al- located; and 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, 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 22 947 Part E s EH 23 Income Tax Act 2007 Reprinted as at 30 August 2013 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.

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 (1) (2) 948 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EH 30 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 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 Tax credit EH 30 When person entitled to 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 section (a) EH 31; and 949 Part E s EH 31 Income Tax Act 2007 Reprinted as at 30 August 2013 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 (1) A refund that entitles a person to a tax credit is 1 to which both the following apply: (a) (b) 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.
Amount (2) 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 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.
(b) 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 A person in the following circumstances is entitled to a tax credit: (a) the person’s income in the accounting year in ques- tion includes a refund of the kind described in sec- 950 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EH 34 (c) (b) tion 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 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 EH 34 Meaning of income from forestry Deﬁnitions (1) (2) 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— (3) 951 Part E s EH 35 Income Tax Act 2007 Reprinted as at 30 August 2013 (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— (a) 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 the income equalisation schemes referred to in section EH 1(2).
(b) (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 (2) (3) 952 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EH 36 (4) (5) (6) (ii) the farmer did not make a payment under section EH 38 for the farming or agricultural business for the accounting year.
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 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 account- ing 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: (b) (c) (d) 953 Part E s EH 36 Income Tax Act 2007 Reprinted as at 30 August 2013 (e) (f) (g) 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 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 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 (b) 954 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EH 38 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 Deposits and accounts EH 38 Adverse event deposit Deposit for adverse event (1) 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 (2) 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 (3) 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.
955 Part E s EH 39 Income Tax Act 2007 Reprinted as at 30 August 2013 Time of making deposit (4) 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 (1) (2) (3) 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.

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 (4) 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) 956 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EH 41 (5) 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) (3) 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— (a) (b) 31 March in each year; and the date the deposit is refunded.

Added to deposit (4) Accrued interest on a deposit is added to the deposit.

(5) 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) When this section applies This section applies when a person is allowed a deduction income equalisation under section DQ 2 (Adverse event scheme).
957 Part E s EH 42 Income Tax Act 2007 Reprinted as at 30 August 2013 (2) (3) 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 (1) (2) 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.

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 44 958 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EH 45 Refunds: on application EH 44 Application for refund by person, trustee of estate, Ofﬁcial Assignee, or liquidator (1) 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 (2) An application for a refund must— be in writing; and state the grounds on which it is made; and state the amount applied for.
(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 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 46 959 Part E s EH 46 Income Tax Act 2007 Reprinted as at 30 August 2013 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 (1) (2) 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 EH 48 Income when refund given on retirement, and election to allocate amount to earlier year Year of income (1) 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 (a) (2) However, subsection (3) applies instead of subsection (1) if— the refund includes a deposit made for an accounting 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) 960 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EH 50 (3) 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 (4) 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) When this section applies This section applies when a person— (a) (b) has an adverse event income equalisation account; and dies.
Refund (2) Despite section FC 2 (Transfer at market value), the Commis- sioner must refund to the trustee of the person’s estate 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, person, trustee Compare: 2004 No 35 s EH 50 EH 50 Income when refund given on death Year of income (1) A refund under section EH 49 is income, under section CB 27 (Income equalisation schemes), derived by the person imme- diately before their death.
961 Part E s EH 51 Income Tax Act 2007 Reprinted as at 30 August 2013 When year of income may be different (2) 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 (1) (2) 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 (3) 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, 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 When this section applies This section applies when— (1) 962 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EH 52 (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.
(2) Amount allocated remains in account (3) 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 (4) 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 (5) A trustee makes an election under this section by a notice that— (a) (b) speciﬁes— (i) (ii) each amount allocated to a later accounting year; and the accounting year to which each amount is al- located; and 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: 963 Part E s EH 53 Income Tax Act 2007 Reprinted as at 30 August 2013 (ii) a further time allowed by the Commissioner in a case or class of cases.
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 EH 55 Refund on liquidation (1) When this section applies This section applies when a person— (a) (b) has an adverse event income equalisation account; and is put into liquidation.

964 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EH 58 (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 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 as- sessment 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 59 965 Part E s EH 59 Income Tax Act 2007 Reprinted as at 30 August 2013 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 (1) 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.
(2) 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 (3) 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 (4) 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 61 966 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EH 61 Deﬁnitions EH 61 Meaning of adverse event maximum deposit Meaning (1) 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.
(2) (3) (4) 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 live- stock would, if unsold, have been included at the end of the accounting year in which it is sold.
Under this subsection, the cost of livestock sold is determined using the previous account- ing year’s closing value for the class of livestock in which the livestock sold would have been included.

967 Part E s EH 62 Income Tax Act 2007 Reprinted as at 30 August 2013 (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— number at start × value + number bought × price number at start + number bought.
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 EC 16(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 Commis- sioner 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: (b) 968 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EH 63 (c) (d) (e) (f) (g) the date of the person’s retirement, when section EH 47 applies: 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,— 969 Part E s EH 64 Income Tax Act 2007 Reprinted as at 30 August 2013 (2) (a) (b) carries on a forestry business on land in New Zealand; and 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, in- come, 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 (1) 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 (2) 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 (3) 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 (4) A person makes a deposit for an accounting year by— (a) making the deposit during the accounting year; or 970 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EH 65 (b) (c) doing both the following: (i) 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 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) (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 971 Part E s EH 66 Income Tax Act 2007 Reprinted as at 30 August 2013 (b) interest paid under section EH 66.
Amounts not available to others (4) 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) (5) 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 EH 66 Interest on deposits in thinning operations income Interest equalisation account No interest payable (1) 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) 31 March in each year; and (2) (3) (4) 972 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EH 68 (b) the date the deposit is refunded.
Added to deposit (5) Accrued interest on a deposit is added to the deposit.

(6) 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.
973 Part E s EH 69 Income Tax Act 2007 Reprinted as at 30 August 2013 (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) 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 (2) An application for a refund must— be in writing; and state the grounds on which it is made; and state the amount applied for.
(a) (b) (c) Deﬁned in this Act: amount, Commissioner, liquidation, person, thinning op- erations income equalisation account Compare: 2004 No 35 s EH 72 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) 974 Reprinted as at 30 August 2013 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 Year of income (1) 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 (a) (2) However, subsection (3) applies instead of subsection (1) if— 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.
(b) (3) 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, 975 Part E s EH 74 Income Tax Act 2007 Reprinted as at 30 August 2013 (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 (1) 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 (2) However, subsection (3) applies instead of subsection (1) if— 976 Reprinted as at 30 August 2013 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 78 977 Part E s EH 77 Income Tax Act 2007 Reprinted as at 30 August 2013 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 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 the income equalisation schemes referred to in section EH 1(2).
(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).
(1) (2) (3) 978 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EH 79 EH 79 Other deﬁnitions In the thinning operations income equalisation scheme,— 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 81 979 Income Tax Act 2007 Reprinted as at 30 August 2013 Subpart EI—Spreading of speciﬁc income Contents Farming and forestry EI 1 Spreading backward of income from timber EI 2 Interest from inﬂation-indexed instruments Inﬂation-indexed instruments Intellectual property EI 3 EI 4 Assigning or granting copyright Spreading income from patent rights Land EI 4B Consideration for agreement to grant, renew, extend, or transfer leasehold estate or licence 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 EI 5 EI 6 EI 7 EI 8 Shareholder-employees EI 9 Matching rule for employment income of shareholder-employee Page 980 981 982 983 984 986 987 987 988 989 Farming and forestry EI 1 Spreading backward of income from timber 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.

(1) (2) 980 Reprinted as at 30 August 2013 Application Income Tax Act 2007 Part E s EI 2 (3) 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 (1) (2) 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 relationship 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 at the end of the lender’s previous income year, if it was lent before the lender’s current income year.
(ii) 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) 981 Part E s EI 3 Income Tax Act 2007 Reprinted as at 30 August 2013 This subsection is overridden by subsection (3).

Increase not treated as credited (3) An increase is not treated as having been credited to the extent to which— (a) (b) (c) 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.
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 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 granting an interest in the copyright by licence.
(ii) 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 (1) (2) (3) 982 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EI 4 (4) (5) (6) 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 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 983 Part E s EI 4B Income Tax Act 2007 Reprinted as at 30 August 2013 Land EI 4B Consideration for agreement to grant, renew, extend, or transfer leasehold estate or licence When this section applies This section applies when a person, in an income year, derives an amount that is income under section CC 1B (Consideration for agreement to grant, renew, extend, or transfer leasehold estate or licence), or incurs an amount of expenditure that is allowed as a deduction under section DB 20B (Consideration for agreement to grant, renew, extend, or transfer leasehold estate or licence), and the amount is incurred or derived— (a) in relation to a right (the land right) that is a leasehold estate or a licence to use land; and in relation to a period (the spreading period)— (i) (b) beginning with the commencement, or a renewal or extension, of the land right; and ending before the earliest following date on which the land right may be terminated, or may expire, if not extended or renewed.
(ii) Exception for amount of income under section CC 1 or CG 8 This section does not apply to an amount that is income under section CC 1 or CG 8 (which relate to income from land or capital contributions).
Timing of income and deductions for land right with spreading period If the amount is incurred or derived— (a) before the end of the spreading period, the amount is allocated in equal portions to each month that— includes part of the spreading period; and (i) ends after the amount is incurred or derived; and (ii) is included in an income year ending within 50 (iii) years from the beginning of the spreading period; and (b) at or after the end of the spreading period, the amount is allocated to the income year in which it is incurred or derived.
(1) (2) (3) 984 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EI 4B (4) (5) Effect for income of person ceasing to have estate in land If an amount of income would be allocated to a spreading period of a land right under subsection (3) for a person in the absence of this subsection, the amount is allocated to an in- come year (the balance year) ending before the end of the spreading period, if— (a) at the beginning of the balance year, the person holds the land right, or the estate in land from which the land right is granted; and in the balance year, the person ceases to hold the land right, or the estate in land from which the land right is granted; and the amount would be allocated under subsection (3) to an income year— (i) the end of the (b) (c) ending before, or including, spreading period; and after the balance year.
(ii) Effect for deduction of person ceasing to have leasehold estate or licence If an amount of a deduction would be allocated to a spreading period of a land right under subsection (3) for a person (the af- fected person) in the absence of this subsection, the amount is allocated to an income year (the balance year) ending before the end of the spreading period, if— (a) at the beginning of the balance year, either or both of the land right and the estate in land from which the land right is granted are held by the affected person or a per- son associated with the affected person; and at the end of the balance year, neither of the land right and the estate in land from which the land right is granted are held by the affected person or a person associated with the affected person; and the amount would be allocated under subsection (3) to an income year— (i) the end of the ending before, or including, spreading period; and after the balance year.
(ii) (b) (c) 985 Part E s EI 5 Income Tax Act 2007 Reprinted as at 30 August 2013 (6) Relationship between subsections Subsections (4) and (5) override subsection (3).
Deﬁned in this Act: amount, associated, deduction, estate, income, income year, land, leasehold estate, own Section EI 4B: inserted (with effect on 1 April 2013 and applying to an amount that is incurred or derived on or after that date in relation to a lease or licence entered, renewed, extended, or transferred on or after that date), on 17 July 2013, by section 48(1) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
EI 5 Amount paid to lessor for non-compliance with covenant for repair (1) (2) 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 (3) 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 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.
(b) (c) (4) 986 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EI 7 (5) 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 EI 6 Amount paid for non-compliance: when lessor ceases to own land (1) (2) (3) 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 EI 7 Leases: income derived in anticipation (1) 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.
987 Part E s EI 8 Income Tax Act 2007 Reprinted as at 30 August 2013 (2) (3) (4) 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 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.
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.
(1) (2) (3) 988 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EI 9 (4) (5) 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 (1) (2) 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 connection with employment), the income is allocated in the way set out in subsections (2) and (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).
989 Income Tax Act 2007 Reprinted as at 30 August 2013 (3) 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 Contents Farming and forestry EJ 1 EJ 2 EJ 3 EJ 4 EJ 5 EJ 6 EJ 7 EJ 8 EJ 9 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 large budget ﬁlm grant Film production expenditure for other ﬁlms having no large budget ﬁlm grant Avoidance arrangements Leases EJ 10 Personal property lease payments EJ 11 Amount paid by lessee for non-compliance with covenant for repair Page 991 992 993 995 997 998 999 1000 1002 1002 1003 Petroleum mining EJ 12 Petroleum development expenditure: default allocation 1004 rule EJ 12B Petroleum development expenditure: reserve depletion 1004 method 990 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EJ 1 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 EJ 19 Meaning of offshore development [Repealed] EJ 20 Meaning of petroleum mining development Deﬁnitions 1006 1007 1007 1008 1008 1009 1009 1010 1010 1010 EJ 21 Contributions to employees’ superannuation schemes 1011 Superannuation contributions Research, development, and resulting market development EJ 22 Deductions for market development: product of research, 1012 development EJ 23 Allocation of deductions for research, development, and 1012 resulting market development 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 1 991 Part E s EJ 2 Income Tax Act 2007 Reprinted as at 30 August 2013 EJ 2 Spreading forward of deductions for repairs to ﬁshing boats 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 21 of the Maritime Rules made under 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 (1) (2) (3) (4) (5) 992 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EJ 3 (6) (b) 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.
Some deﬁnitions In this section,— ﬁshing boat— (a) means a boat registered as a ﬁshing vessel under section (b) 103 of the Fisheries Act 1996; 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 Section EJ 2(1): amended (with effect on 1 April 2008), on 2 November 2012 (applying for the 2008–09 and later income years), by section 39(1) of the Tax- ation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section EJ 2(6) ﬁshing boat paragraph (a): amended (with effect on 1 April 2008), on 2 November 2012 (applying for the 2008–09 and later income years), by section 39(2) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
EJ 3 Spreading forward of fertiliser expenditure (1) (2) 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.
993 Part E s EJ 3 Income Tax Act 2007 Reprinted as at 30 August 2013 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- 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) 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) (3) (4) (5) 994 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EJ 4 Personal representative (6) 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 EJ 4 Expenditure incurred in acquiring ﬁlm rights in feature Films ﬁlms Feature ﬁlms (1) 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 large budget ﬁlm grant is made.
(b) (2) 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.
(3) Calculation of apportioned amount The apportioned amount is calculated for the income year us- ing the formula— completed months non-completed months × deduction.
Deﬁnition of items in formula In the formula,— (4) 995 Part E s EJ 4 Income Tax Act 2007 Reprinted as at 30 August 2013 (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 ends on the last day of the income year before the income year referred to in subsection (2): (ii) (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, income year, large budget ﬁlm grant, remaining 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(1)(b): amended (with effect on 1 January 2010), on 7 September 2010, by section 32(1) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).

Section EJ 4 list of deﬁned terms government screen production payment: repealed (with effect on 1 January 2010), on 7 September 2010, by section 32(2)(a) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
Section EJ 4 list of deﬁned terms large budget ﬁlm grant: inserted (with effect on 1 January 2010), on 7 September 2010, by section 32(2)(b) of the Taxa- tion (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remed- ial Matters) Act 2010 (2010 No 109).
(5) (6) 996 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EJ 5 EJ 5 Expenditure incurred in acquiring ﬁlm rights in ﬁlms other than feature ﬁlms Films other than feature ﬁlms (1) 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 large budget ﬁlm grant is made.
(b) (2) (3) (4) 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 in (a) 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 (b) 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, income year, large budget ﬁlm grant, remaining 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).
997 Part E s EJ 6 Income Tax Act 2007 Reprinted as at 30 August 2013 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(1)(b): amended (with effect on 1 January 2010), on 7 September 2010, by section 33(1) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
Section EJ 5 list of deﬁned terms government screen production payment: repealed (with effect on 1 January 2010), on 7 September 2010, by section 33(2)(a) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
Section EJ 5 list of deﬁned terms large budget ﬁlm grant: inserted (with effect on 1 January 2010), on 7 September 2010, by section 33(2)(b) of the Taxa- tion (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remed- ial Matters) Act 2010 (2010 No 109).
EJ 6 Certiﬁcation of New Zealand ﬁlms (1) (2) 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.
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 (3) 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- (4) (5) 998 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EJ 7 tion for the purpose of obtaining a certiﬁcate or for any other reason.
Effect of revocation (6) A revoked certiﬁcate is void from the time the certiﬁcate was issued.

(7) 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 large budget ﬁlm grant New Zealand ﬁlms (1) 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 large budget ﬁlm grant is made; and the ﬁlm has a ﬁnal certiﬁcate under section EJ 6.
(b) Timing of deduction: up to completion of ﬁlm (2) 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 (3) 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, income year, large budget ﬁlm grant, New Zealand Compare: 2004 No 35 s EJ 7 Section EJ 7 heading: amended (with effect on 1 January 2010), on 7 September 2010, by section 34(1) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
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).

999 Part E s EJ 8 Income Tax Act 2007 Reprinted as at 30 August 2013 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(1)(a): amended (with effect on 1 January 2010), on 7 September 2010, by section 34(2) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).

Section EJ 7 list of deﬁned terms government screen production payment: repealed (with effect on 1 January 2010), on 7 September 2010, by section 34(3)(a) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
Section EJ 7 list of deﬁned terms large budget ﬁlm grant: inserted (with effect on 1 January 2010), on 7 September 2010, by section 34(3)(b) of the Taxa- tion (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remed- ial Matters) Act 2010 (2010 No 109).
EJ 8 Film production expenditure for other ﬁlms having no large budget ﬁlm grant Films other than New Zealand ﬁlms (1) 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 large budget ﬁlm grant is made; and the ﬁlm does not have a ﬁnal certiﬁcate under section EJ 6.
(b) 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.
(2) 1000 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EJ 8 (3) (4) (5) 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 production expenditure, ﬁlm right, income year, large budget ﬁlm grant, 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 (with effect on 1 January 2010), on 7 September 2010, by section 35(1) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 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).
Section EJ 8(1)(a): amended (with effect on 1 January 2010), on 7 September 2010, by section 35(2) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).

Section EJ 8 list of deﬁned terms government screen production payment: repealed (with effect on 1 January 2010), on 7 September 2010, by section 35(3)(a) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
Section EJ 8 list of deﬁned terms large budget ﬁlm grant: inserted (with effect on 1 January 2010), on 7 September 2010, by section 35(3)(b) of the Taxa- tion (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remed- ial Matters) Act 2010 (2010 No 109).
1001 Part E s EJ 9 Income Tax Act 2007 Reprinted as at 30 August 2013 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 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— part of term term of the lease × total of payments.

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): total of payments is the total amount of the personal property lease payments.
(b) (c) 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 (1) (2) (3) (4) 1002 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EJ 11 EJ 11 Amount paid by lessee for non-compliance with covenant for repair (1) (2) (3) (4) 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) (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 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 1003 Part E s EJ 12 Income Tax Act 2007 Reprinted as at 30 August 2013 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 petrol- eum 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.
Choice: ﬁrst year of commercial production and later years (2) 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.
1004 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EJ 12B (3) 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).

(4) Reserve expenditure (5) 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.
(6) 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 (7) 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.
(8) 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.

1005 Part E s EJ 13 Income Tax Act 2007 Reprinted as at 30 August 2013 (9) 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 petrol- eum 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 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 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).
(1) (2) (3) 1006 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EJ 13C EJ 13B Dry well drilled (1) (2) 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.
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 (1) 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 expenditure described in paragraphs (a) and (b) has not been allocated under section EJ 12B.
1007 (b) (b) (c) Part E s EJ 14 Income Tax Act 2007 Reprinted as at 30 August 2013 (2) 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 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) (b) it is attributable to the asset; and 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.
(1) (2) 1008 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EJ 17 (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 (1) (2) 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 EJ 17 Partnership interests and disposal of part of asset In sections EJ 12 to EJ 16, unless the context requires other- wise,— 1009 Part E s EJ 18 Income Tax Act 2007 Reprinted as at 30 August 2013 (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 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) producing petroleum: (b) (1) (2) 1010 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EJ 21 (c) (d) 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) (c) it is not treatment at the production facilities.
Deﬁned in this Act: permit area, petroleum, removal or restoration operations by liquefaction or compression; or for the extraction of constituent products; or for the production of derivative products; and (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 (1) (2) 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.
1011 Part E s EJ 22 Income Tax Act 2007 Reprinted as at 30 August 2013 (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 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): (1) 1012 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EJ 23 (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).
(2) (3) (4) 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 de- rived 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) 1013 Income Tax Act 2007 Reprinted as at 30 August 2013 (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 Contents 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 Page 1015 1015 1016 1016 1018 1018 1019 1020 1021 1022 1022 1022 1024 1025 1025 1026 1027 1027 1028 EK 20 Environmental restoration account of consolidated group 1028 company EK 21 Notices in electronic format EK 22 Meaning of maximum payment 1029 1029 1014 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EK 2 EK 23 Other deﬁnitions 1030 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 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) (ii) 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 1015 Part E s EK 3 Income Tax Act 2007 Reprinted as at 30 August 2013 (iii) given by the accountant a standard audit opinion, without qualiﬁcations on matters relating to the effect of this subpart.
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 (1) 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 (2) A person must not make a payment for an income year of less than $1,000.
Time for making payment (3) 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 EK 4 Environmental restoration account Person’s account The Commissioner must keep an environmental restoration ac- count 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— (1) (2) (3) 1016 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EK 4 (a) (b) (c) 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.
Amounts not available to others (4) 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 (5) 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 (6) An amount may be transferred from the environmental restora- tion account of a person— (a) 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.
(b) (c) 1017 Part E s EK 5 Income Tax Act 2007 Reprinted as at 30 August 2013 (7) 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 EK 5 Details to be provided with payment to environmental restoration account Notice and details required (1) 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) (2) 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 EK 6 Interest on payments to environmental restoration account 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) (1) 1018 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EK 7 (2) (3) (4) 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 section EK 2.
Amount of deduction The amount of the deduction is calculated using the formula— (2) payment tax rate.

(3) (4) 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) 1019 Part E s EK 8 Income Tax Act 2007 Reprinted as at 30 August 2013 (5) (6) 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 (b) would apply to the person for the tax year if the person had sufﬁcient taxable income.

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) transfer tax rate.

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 environ- mental 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— (3) (4) (5) 1020 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EK 9 (6) (a) is set out in schedule 1 (Basic tax rates: income tax, ESCT, RSCT, RWT, and attributed fringe beneﬁts); and (b) would apply to the person for the tax year if the person had sufﬁcient taxable income.

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) 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 (2) 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) No interest payable by Commissioner (3) 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 1021 Part E s EK 10 Income Tax Act 2007 Reprinted as at 30 August 2013 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 (1) 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 (a) (b) (c) (2) An application for a refund must— 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 (d) state the amount of the refund that the applicant wants.
Deﬁned in this Act: Commissioner, environmental restoration account, income year Compare: 2004 No 35 s EK 11 EK 12 Refund if request or excess balance 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: (1) 1022 (2) (3) (4) Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EK 12 (b) the amount in the person’s environmental restoration account is more than the maximum account balance for an income year.
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.
Minimum amount of expenditure incurred The amount of expenditure incurred that corresponds to the amount of a refund is calculated using the formula— amount tax rate.
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 1023 Part E s EK 13 Income Tax Act 2007 Reprinted as at 30 August 2013 (ii) would apply to the person for the tax year if the person had sufﬁcient taxable income.
(5) (6) (7) 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).
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 1024 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EK 15 EK 14 Application for transfer Who may apply (1) 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 (2) An application for a transfer must— be in writing; and state the grounds on which the application is made; and state the amount of the transfer that the applicant wants.
(a) (b) (c) Deﬁned in this Act: Commissioner, environmental restoration account Compare: 2004 No 35 s EK 14 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.
Transfer treated as payment by nominated person (3) 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 (b) 1025 Part E s EK 16 Income Tax Act 2007 Reprinted as at 30 August 2013 the transfer, to the nominated person’s environmental restoration account.
Commissioner to reverse transfer if requirements of subsection (3) not met If the nominated person does not meet the requirements of sub- section (3) in relation to an amount, the Commissioner must transfer the amount to the environmental restoration account 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 (4) (5) 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.
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.
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) the person dies, if subsection (1)(b)(i) applies: that (1) (2) (3) (4) 1026 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EK 18 (b) (c) the person becomes bankrupt, if subsection (1)(b)(ii) applies: the person is put into liquidation, if subsection (1)(b)(iii) applies.
Relationship with section EK 17 Section EK 17 overrides subsection (4).

(5) Transfer treated as payment (6) 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.

(7) 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 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 1027 Part E s EK 19 Income Tax Act 2007 Reprinted as at 30 August 2013 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, amalgam- ation, environmental restoration account, income year, pay Compare: 2004 No 35 s EK 19 EK 20 Environmental restoration account of consolidated group company Company with environmental restoration account (1) 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.
(2) 1028 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EK 22 (3) (4) 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 notice under this subpart in an electronic format that the Commis- sioner prescribes under section 36BC of the Tax Administra- tion Act 1994.
Deﬁned in this Act: Commissioner, electronic format Compare: 2004 No 35 s EK 21 EK 22 Meaning of maximum payment (1) (2) 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 1029 Part E s EK 23 Income Tax Act 2007 Reprinted as at 30 August 2013 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) (3) (4) 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 EK 23 Other deﬁnitions 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) (1) 1030 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EK 23 provision × tax rate.
(2) (3) Deﬁnition of items in formula In the formula,— (a) provision is the provision in the person’s ﬁnancial state- ments 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).
Subpart EM—Hedging of currency movements in Australian non-attributing shares and attributing FDR method interests Subpart EM: inserted, on 17 July 2013, by section 49 of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).

Contents EM 1 Australian non-attributing shares and attributing FDR method interests EM 2 Who does this subpart apply to?

EM 3 What hedges does this subpart apply to?
EM 4 EM 5 Fair dividend rate hedge portions Irrevocable elections Page 1032 1033 1034 1035 1035 1031 Part E s EM 1 Income Tax Act 2007 Reprinted as at 30 August 2013 EM 6 Income and expenditure for fair dividend rate hedge portions EM 7 Quarterly test of fair dividend rate hedge portions EM 8 Some deﬁnitions 1038 1039 1040 EM 1 Australian non-attributing shares and attributing FDR method interests Application of this subpart This subpart applies to determine the income and expenditure for a person’s hedges, to the extent to which their hedges have a fair dividend rate hedge portion (see: subsection (2) below, and sections EM 5 to EM 7), and their hedges hedge–– (a) Australian non-attributing shares for which–– (i) amounts derived from disposal would be either excluded income of the person under section CX 55 (Proceeds from disposal of investment shares), or the person’s capital receipt; and the person determines the market value for each of a number of periods making up the income year: (ii) (b) attributing interests in a FIF for which the person–– (i) calculates FIF income using the fair dividend rate method; and uses section EX 53 (Fair dividend rate method for unit-valuing funds and others by choice).
(ii) Speciﬁc rules In this subpart,–– (a) section EM 2 provides rules for who this subpart applies to: section EM 3 provides rules for what hedges this subpart applies to: section EM 4 provides rules for irrevocable elections to choose that eligible hedges are subject to this subpart: section EM 5 provides rules that set maximum fair divi- dend rate hedge portions for a person’s eligible hedges: (b) (c) (d) (1) (2) 1032 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EM 2 (e) (f) (g) section EM 6 provides the calculation to determine the income and expenditure for a person’s fair dividend rate hedge portions: section EM 7 provides a quarterly test of the person’s fair dividend rate hedge portions, and provides rules that apply if the value of hedge portions to eligible hedged assets exceeds 1.05, including a rule to not apply this subpart: section EM 8 provides some deﬁnitions for this subpart.
Relationship with ﬁnancial arrangements rules This subpart, and not subpart EW (Financial arrangements rules), determines a person’s income and expenditure for their fair dividend rate hedge portions.
Deﬁned in this Act: attributing interests, Australian non-attributing shares, eli- gible hedge, excluded income, fair dividend rate hedge portion, fair dividend rate method, FIF, hedge, income Section EM 1: inserted, on 17 July 2013, by section 49 of the Taxation (Live- stock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).

(3) EM 2 Who does this subpart apply to?

(1) Who does this subpart apply to?
This subpart applies to a person if section EM 1 applies to the person, to the extent to which the person–– (a) (b) (c) (d) is listed in schedule 29, part A or B (Portfolio invest- ment entities: listed investors), but is not a life insurer: is a separate identiﬁable fund forming part of a life insurer that holds investment subject to life insurance policies under which beneﬁts are directly linked to the value of the investments held in the fund: is a fund that is equivalent to an investor class described in section HM 22(1) (Exceptions for certain funds): is a group investment fund, superannuation fund, or unit trust in which–– (i) 20 or more people hold an investor interest, and each person who holds an investor interest has 20% or less of the total investor interests for the fund or trust: a person described in paragraph (a) or (b) (a listed person) or a person whose only income is char- (ii) 1033 Part E s EM 3 Income Tax Act 2007 Reprinted as at 30 August 2013 itable income (a charitable person) holds an in- vestor interest, and each person who is not a listed person or a charitable person holds an investor in- terest of 20% or less of the total investor interests for the fund or trust.
(2) (3) Combining people and investor interests For the purposes of applying subsection (1)(d)(i) and (ii), if a person is associated with another person, they are treated as 1 person who holds their combined investor interests, if their combined investor interests total 5% or more of the total in- vestor interests for the fund or trust.

Subsection (3) overrides this subsection.


Exception to combining people and investor interests Subsection (2) does not apply to make 2 associated people into 1 person, or to combine investor interests of 2 associated persons, if 1 of them is a listed person.
Deﬁned in this Act: associated person, exempt income, group investment fund, income, investor class, investor interest, life insurance policies, life insurer, superannuation fund, unit trust Section EM 2: inserted, on 17 July 2013, by section 49 of the Taxation (Live- stock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).

EM 3 What hedges does this subpart apply to?
This subpart applies to a person’s hedge (an eligible hedge) if section EM 1 applies to the hedge, and the hedge–– (a) is a contract to conditionally or unconditionally ac- quire or dispose of foreign exchange in return for New Zealand currency, or is a swap with one leg denominated in a foreign currency and the other leg denominated in New Zealand currency; and is not an option; and is not entered into with an associated person; and has, under IFRSs, a fair value of zero when it is ﬁrst entered into; and is subject to an election under section EM 4.
(e) Deﬁned in this Act: associated person, eligible hedge, hedge, IFRS (b) (c) (d) Section EM 3: inserted, on 17 July 2013, by section 49 of the Taxation (Live- stock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
1034 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EM 5 EM 4 Irrevocable elections (1) (2) (3) Elections This subpart applies to a person’s eligible hedge, to the extent of their fair dividend rate hedge portion for the eligible hedge, if the person has made an election to apply this subpart under subsection (2) or (3).
Elections: speciﬁc For the purposes of subsection (1), for each eligible hedge, an election under this subsection must, unless subsection (3) applies, be made–– when the hedge is ﬁrst entered into; and (a) (b) when a hedge of the hedge is ﬁrst entered into.
Election: general For the purposes of subsection (1), a general election under this subsection may be made before the eligible hedge or a hedge of the hedge is entered into, and that election will apply automatically to the relevant hedge when it is entered into.

Elections: effect irrevocable (4) An election under this section is irrevocable and cannot be amended, except a general election under subsection (3) may be changed before a relevant hedge is entered into.
The income and expenditure for the fair dividend rate hedge portion of the relevant hedge must be determined under this subpart.

(5) Elections: effect on some or all The portion of a person’s eligible hedge that is not a fair divi- dend rate hedge portion does not give rise to income and ex- penditure under this subpart, despite an election for the eligible hedge, and subpart EW (Financial arrangements rules) deter- mines a person’s income and expenditure for that portion.
Deﬁned in this Act: eligible hedge, fair dividend rate hedge portion, income Section EM 4: inserted, on 17 July 2013, by section 49 of the Taxation (Live- stock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).

EM 5 Fair dividend rate hedge portions (1) Maximum calculated This section calculates the maximum fair dividend rate hedge portion for a person’s eligible hedge.
1035 Part E s EM 5 Income Tax Act 2007 Reprinted as at 30 August 2013 Choice of fair dividend rate hedge portion: cannot be changed (2) A person must, subject to the maximum calculated under this section, irrevocably choose the fair dividend rate hedge portion for a person’s eligible hedge.
Choice of formulas (3) A person may choose to use either subsections (4) and (5), or subsections (6) to (10), to calculate the maximum fair dividend rate hedge portions for all of the person’s eligible hedges when the hedge is ﬁrst entered into.

They may not choose to use, for example, subsection (4) for some hedges and subsection (6) for other hedges.
First formula The maximum fair dividend rate hedge portion for a person’s eligible hedge (the calculation hedge) is the lesser of 100% and the amount, expressed as a percentage, calculated, using the formula in this subsection, when the hedge is ﬁrst entered into.

Subsection (8) overrides this subsection.

The formula is–– 1.05 × (eligible currency assets + proxied currency assets) FDR hedges amount calculation hedge amount.
Deﬁnition of items in formula In the formula in subsection (4), all items are expressed in the calculation currency (see: eligible currency assets), and–– (a) eligible currency assets is the total market value of a person’s assets described in section EM 1(1)(a) and (b) that are denominated in the same currency (the calcu- lation currency) that the calculation hedge hedges: proxied currency assets is,–– (i) (b) unless subparagraph (ii) or (iii) applies, the total market value of a person’s assets described in section EM 1(1)(a) and (b) that are denominated in a currency (the proxied currency) other than the calculation currency, if an eligible hedge that is denominated in the calculation currency acts like hedging for the assets due to a relationship (4) (5) 1036 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EM 5 (ii) (iii) between exchange rate movements in the proxied currency and the calculation currency: zero, if the person has hedges denominated in the proxied currency: zero, if the person has a hedge, denominated in a currency other than the proxied currency or the calculation currency, that acts like hedging for the assets due to a relationship between exchange rate movements in the proxied currency and that other currency: (c) (d) FDR hedges amount is the amount of calculation cur- rency hedged by a person’s fair dividend rate hedge portions, but excluding the portion for the calculation hedge: calculation hedge amount is the amount of foreign cur- rency that is hedged by the calculation hedge.
Second formula The maximum fair dividend rate hedge portion for a person’s eligible hedge (the calculation hedge) is the lesser of the amounts, expressed as percentages, calculated using the formula in this subsection and the formula in subsection (9), when the hedge is ﬁrst entered into.

Subsection (8) overrides this subsection.

The formula is–– 1 non-eligible currency assets hedges amount.
Deﬁnition of items in formula In the formula in subsection (6), all items are expressed in New Zealand currency, and–– (a) non-eligible currency assets is the total market value of a person’s assets that: are denominated in a foreign currency; and (i) (ii) are not described in section EM 1(1)(a) and (b): hedges amount is the amount of foreign currency that is hedged by a person’s hedges including the calculation hedge.
(b) (6) (7) 1037 Part E s EM 6 Income Tax Act 2007 Reprinted as at 30 August 2013 (8) Exception for more than 100% non-eligible currency asset hedges If the maximum fair dividend rate hedge portion for the calcu- lation hedge is less than zero, then the fair dividend rate hedge portion for the hedge is zero.

Formula for purposes of subsection (6) The formula for the purposes of subsection (6) is: (9) 1.05 × eligible currency assets FDR hedges amount current hedge amount.
(10) Deﬁnition of items in formula In the formula in subsection (9), all items are expressed in New Zealand currency, and–– (a) eligible currency assets is the total market value of a person’s assets described in section EM 1(1)(a) and (b): FDR hedges amount is the amount of foreign currency hedged by a person’s fair dividend rate hedge portions, but excluding the portion for the calculation hedge: current hedge amount is the amount of foreign cur- rency that is hedged by the calculation hedge.
(b) (c) Relationship with subject matter (11) Section EM 7 overrides this section.

Deﬁned in this Act: eligible hedge, fair dividend rate hedge portion, hedge, income Section EM 5: inserted, on 17 July 2013, by section 49 of the Taxation (Live- stock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
EM 6 Income and expenditure for fair dividend rate hedge portions Using the formula to calculate income and expenditure (1) A person uses the formula in subsection (2) for each valuation period described in subsection (3)(b) that this subpart applies to them.

A positive amount from the formula is a person’s income for their fair dividend rate hedge portions.

A negative amount from the formula is a person’s expenditure for their fair dividend rate hedge portions.
1038 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EM 7 (2) (3) Formula The formula for determining a person’s income and expend- iture for their fair dividend rate hedge portions is–– FDR portions’ value × 0.05 × valuation period days in the year.
Deﬁnition of items in formula In the formula,–– (a) (b) FDR portions’ value is the market value of a person’s fair dividend rate hedge portions at the start of a relevant valuation period in New Zealand currency: valuation period is the number of days in whichever of the following periods is relevant: (i) (ii) the period described in section EM 1(1)(a)(ii): the unit valuation period described in section EX 53 (Fair dividend rate method for unit-valu- ing funds and others by choice): (c) days in the year is the number of days in the income year in which the relevant period falls.
Deﬁned in this Act: amount, fair dividend rate hedge portion, income, income year Section EM 6: inserted, on 17 July 2013, by section 49 of the Taxation (Live- stock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).

EM 7 Quarterly test of fair dividend rate hedge portions Quarterly FDR hedging ratio (1) A person must use the ﬁrst formula, in subsection (2), on the last day of a quarter of an income year, to calculate their quar- terly FDR hedging ratio.
(2) (3) First formula The formula for calculating the person’s quarterly FDR hedg- ing ratio is–– FDR hedges amount eligible currency assets.
Deﬁnition of items in formula In the formula in subsection (2), all items are expressed in New Zealand currency, and–– 1039 Part E s EM 8 Income Tax Act 2007 Reprinted as at 30 August 2013 (4) (5) (6) (a) (b) FDR hedges amount is the total amount of foreign cur- rency that is hedged by a person’s fair dividend rate hedge portions: eligible currency assets is the total market value of a person’s assets described in section EM 1(1)(a) and (b).
Second formula If a person’s quarterly FDR hedging ratio for a quarter is greater than 1.05 and subsection (6) does not apply, then, despite section EM 5, the fair dividend rate hedge portion of each eligible hedge, from 5 working days after the last day of the quarter, is calculated using the formula–– 0.85 quarterly FDR hedging ratio × FDR hedge portion.
Deﬁnition of items in second formula In the formula in subsection (4),–– (a) FDR hedge portion is the fair dividend rate hedge por- tion of the relevant eligible hedge: quarterly FDR hedging ratio is the person’s quarterly FDR hedging ratio for the relevant quarter.

(b) Subpart not applied for over-hedging If a person’s quarterly FDR hedging ratio is greater than 1.05 on the last day of 2 consecutive quarters, then this subpart will not apply to the person for the next 2 quarters.
Subpart EW (Financial arrangements rules) applies.

Deﬁned in this Act: eligible hedge, fair dividend rate hedge portion, hedge, income year, person, quarterly FDR hedging ratio Section EM 7: inserted, on 17 July 2013, by section 49 of the Taxation (Live- stock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
EM 8 Some deﬁnitions In this subpart,–– Australian non-attributing shares means a person’s rights in a FIF in an income year if the rights–– (a) are a share in a company resident in Australia at all times in the year when the person holds a right in the company; and 1040 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EM 8 (b) are not an attributing interest, because of the application of section EX 31 (Exemption for ASX-listed Australian companies) (b) eligible hedge means a hedge described in section EM 3 fair dividend rate hedge portion means the percentage portion of the hedging of the foreign currency exchange rate movements in the value of a person’s assets for an eligible hedge under this subpart hedge–– (a) means 1 or more related ﬁnancial arrangements that a person enters into with the sole purpose and net effect of offsetting exposure to foreign currency exchange rate movements in the value of their assets, and hedging is the effect of holding a hedge for that purpose; and includes, in a hedge described in paragraph (a), a hedge of that hedge investor interest means–– (a) if the relevant entity is a company, a shareholding that gives the holder an entitlement to a distribution of the proceeds from the entity’s investments; or if the relevant entity is not a company, an interest that, under the rules of the entity, gives the holder an entitle- ment to a proportion of the funds available for distribu- tion of the proceeds from the entity’s investments, and that distribution is the same as if the entity were a com- pany and the holder were a shareholder in that company quarterly FDR hedging ratio means the ratio calculated us- ing the formula in section EM 7(2).
Section EM 8: inserted, on 17 July 2013, by section 49 of the Taxation (Live- stock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).

(b) Subpart EW—Financial arrangements rules Contents Introductory provisions EW 1 What this subpart does Page 1045 1041 Income Tax Act 2007 Reprinted as at 30 August 2013 EW 2 Relationship of ﬁnancial arrangements rules with other 1045 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 Some short-term agreements for sale and purchase acquired in business: election to treat 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 30 August 2013 Income Tax Act 2007 Part E s EM 8 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 1084 1084 1085 1087 1089 1091 1091 1093 1094 Consideration Consideration when ﬁnancial arrangement involves property or services EW 32 Consideration for agreement for sale and purchase of 1097 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 1098 1099 1100 1100 1101 1102 1103 1104 1105 1106 EW 43 Consideration when debt sold at discount to associate of 1106 debtor 1043 Income Tax Act 2007 Reprinted as at 30 August 2013 EW 44 Consideration when debt forgiven for natural love and 1107 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 1108 1109 1111 1111 1112 1113 1114 1115 1116 1117 1118 1119 1119 1119 1122 1124 1124 1125 1126 1127 1044 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EW 2 Introductory provisions EW 1 What this subpart does (1) (2) (3) Financial arrangements rules This subpart contains most of the ﬁnancial arrangements rules.
Meaning of ﬁnancial arrangements rules Financial arrangements rules means— (a) (b) the sections in this subpart; and sections CC 3 (Financial arrangements), DB 11 to DB 15 (which relate to ﬁnancial arrangements adjust- ments), EZ 51 (Transitional adjustment when changing to ﬁnancial arrangements rules), FB 9 (Financial arrangements rules), GB 21 (Dealing that defeats inten- tion of ﬁnancial arrangements rules), RA 11 and RA 12 (which relate to adjustments to correct errors); and sections 90AA to 90ADof the Tax Administration Act 1994.
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.
(c) (b) (c) Deﬁned in this Act: amount, ﬁnancial arrangement, ﬁnancial arrangements rules, income Compare: 2004 No 35 s EW 1 EW 2 Relationship of ﬁnancial arrangements rules with other provisions (1) Financial arrangements rules override other provisions The ﬁnancial arrangements rules prevail over any other provi- sion in relation to the timing and quantifying of income and 1045 Part E s EW 3 Income Tax Act 2007 Reprinted as at 30 August 2013 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.
(2) (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).

Money received for money provided (2) 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.
1046 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EW 4 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 (1) An absolute assignment of some or all of a person’s rights under another ﬁnancial arrangement or under an excepted ﬁ- nancial arrangement is not a ﬁnancial arrangement, except to the extent described in section EW 3(3)(c).
Legal defeasance (2) 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).

1047 Part E s EW 5 Income Tax Act 2007 Reprinted as at 30 August 2013 Excepted ﬁnancial arrangement (3) 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) 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 to the extent to which it is not life ﬁnancial reinsurance: 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 (3) A bet on any of the following is an excepted ﬁnancial arrange- ment: (a) (b) (c) 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: 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.
1048 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EW 5 Non-Kyoto greenhouse gas unit (3C) A non-Kyoto greenhouse gas unit is an excepted ﬁnancial ar- rangement.
Research and development agreement (3D) An agreement between a person and another person (the provider) that the provider will provide property or services to the person in consideration for a payment to the provider by a public authority under a technology development grant, or technology transfer voucher, for the beneﬁt of the person is an excepted ﬁnancial arrangement for the person.

Employment contract (4) An employment contract is an excepted ﬁnancial arrangement.
Farm-out arrangement (5) A farm-out arrangement is an excepted ﬁnancial arrangement.

Group investment fund (6) An interest in a group investment fund is an excepted ﬁnancial arrangement.

Hire purchase: livestock or bloodstock (7) A hire purchase agreement for livestock or bloodstock is an excepted ﬁnancial arrangement.

Insurance contract (8) An insurance contract to the extent to which it is not life ﬁnan- cial reinsurance is an excepted ﬁnancial arrangement.
Lease not ﬁnance lease (9) 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.
1049 Part E s EW 5 Income Tax Act 2007 Reprinted as at 30 August 2013 Look-through companies (11B) A look-through interest for a look-through company is an ex- cepted ﬁnancial arrangement.

Share-lending arrangement (12) A share-lending arrangement is an excepted ﬁnancial arrange- ment.

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.
1050 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EW 5 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.
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— 1051 Part E s EW 5 Income Tax Act 2007 Reprinted as at 30 August 2013 (a) (b) 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.
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 ﬁnan- cial arrangement, farm-out arrangement, ﬁnance lease, group investment fund, hire purchase agreement, income year, insurance contract, lease, life ﬁnancial reinsurance, look-through company, look-through interest, New Zealand, New Zealand resident, non-Kyoto greenhouse gas unit, non-resident, pay, property, public authority, share, share-lending arrangement, short-term agreement for sale and purchase, short-term option, superannuation scheme, transitional resi- dent, variable principal debt instrument, withdrawable share Compare: 2004 No 35 s EW 5 Section EW 5(2): amended, on 1 July 2010, by section 132(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
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).
1052 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EW 5 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).
Section EW 5(3D) heading: inserted (with effect on 1 October 2010), on 21 De- cember 2010, by section 56(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).

Section EW 5(3D): inserted (with effect on 1 October 2010), on 21 December 2010, by section 56(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).

Section EW 5(8): amended, on 1 July 2010, by section 132(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EW 5(11B) heading: inserted, on 1 April 2011 (applying for income years beginning on or after 1 April 2011), by section 56(2) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).

Section EW 5(11B): inserted, on 1 April 2011 (applying for income years be- ginning on or after 1 April 2011), by section 56(2) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
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 life ﬁnancial reinsurance: inserted, on 1 July 2010, by section 132(5) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section EW 5 list of deﬁned terms look-through company: inserted, on 1 April 2011, by section 56(4) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section EW 5 list of deﬁned terms look-through interest: inserted, on 1 April 2011, by section 56(4) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).

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).
Section EW 5 list of deﬁned terms public authority: inserted (with effect on 1 October 2010), on 21 December 2010, by section 56(3) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).

1053 Part E s EW 6 Income Tax Act 2007 Reprinted as at 30 August 2013 EW 6 Relationship between ﬁnancial arrangements and excepted ﬁnancial arrangements Part of ﬁnancial arrangement (1) An excepted ﬁnancial arrangement may be part of a ﬁnancial arrangement.
(2) (3) 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 EW 7 Change from private or domestic purpose (1) When this section applies This section applies when a person who is a party to an excepted 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 (2) 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 1054 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EW 8 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 Some short-term agreements for sale and purchase acquired in business: election to treat as ﬁnancial arrangements (1) (2) (3) (4) (5) Who this section applies to This section applies to a person carrying on a business of ac- quiring short-term agreements for sale and purchase for the purpose of collecting amounts owing, under the agreements, at the time of acquisition.
Election The person may choose to treat all such acquired short-term agreements for sale and purchase as ﬁnancial arrangements.

How election made The person makes an election by returning income derived or expenditure incurred under the acquired arrangements under the ﬁnancial arrangements rules in their return of income.
How election revoked The person revokes the election by giving notice to the Com- missioner with their return of income and within the time that the return must be ﬁled under section 37 of the Tax Adminis- tration Act 1994.

Effect of revocation The revocation applies to excepted 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 Section EW 8 heading: replaced (with effect on 27 September 2012), on 17 July 2013, by section 50(1) of the Taxation (Livestock Valuation, Assets Expend- iture, and Remedial Matters) Act 2013 (2013 No 52).
Section EW 8(1) heading: replaced (with effect on 27 September 2012 and ap- plying for a person and an excepted ﬁnancial arrangement on and after that date, except if the person takes a tax position for the excepted ﬁnancial arrangement, relying on an election made under section EW 8 before its amendment by sec- tion 50(2) and (3) of the Taxation (Livestock Valuation, Assets Expenditure, 1055 Part E s EW 8 Income Tax Act 2007 Reprinted as at 30 August 2013 and Remedial Matters) Act 2013, in a return of income received by the Com- missioner before that date or under a determination or binding ruling made by the Commissioner before that date), on 17 July 2013, by section 50(2) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Section EW 8(1): replaced (with effect on 27 September 2012 and applying for a person and an excepted ﬁnancial arrangement on and after that date, except if the person takes a tax position for the excepted ﬁnancial arrangement, relying on an election made under section EW 8 before its amendment by section 50(2) and (3) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013, in a return of income received by the Commissioner before that date or under a determination or binding ruling made by the Commissioner before that date), on 17 July 2013, by section 50(2) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Section EW 8(2) heading: replaced (with effect on 27 September 2012 and ap- plying for a person and an excepted ﬁnancial arrangement on and after that date, except if the person takes a tax position for the excepted ﬁnancial arrangement, relying on an election made under section EW 8 before its amendment by sec- tion 50(2) and (3) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013, in a return of income received by the Com- missioner before that date or under a determination or binding ruling made by the Commissioner before that date), on 17 July 2013, by section 50(2) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Section EW 8(2): replaced (with effect on 27 September 2012 and applying for a person and an excepted ﬁnancial arrangement on and after that date, except if the person takes a tax position for the excepted ﬁnancial arrangement, relying on an election made under section EW 8 before its amendment by section 50(2) and (3) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013, in a return of income received by the Commissioner before that date or under a determination or binding ruling made by the Commissioner before that date), on 17 July 2013, by section 50(2) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Section EW 8(3): amended (with effect on 27 September 2012 and applying for a person and an excepted ﬁnancial arrangement on and after that date, except if the person takes a tax position for the excepted ﬁnancial arrangement, relying on an election made under section EW 8 before its amendment by section 50(2) and (3) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013, in a return of income received by the Commissioner before that date or under a determination or binding ruling made by the Commissioner before that date), on 17 July 2013, by section 50(3) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Section EW 8(5): amended (with effect on 1 April 2008), on 17 July 2013, by section 50(4) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
1056 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EW 10 Application of ﬁnancial arrangements rules EW 9 Persons to whom ﬁnancial arrangements rules apply Residents (1) 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).


(2) (3) (4) 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 EW 10 Financial arrangements to which ﬁnancial arrangements rules apply (1) (2) 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.
1057 Part E s EW 11 Income Tax Act 2007 Reprinted as at 30 August 2013 (3) 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 (4) 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.
(5) 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 contract 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 (6) 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 it is transferred under a relationship agreement on or after 20 May 1999.
(c) 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) the calculation of resident passive income: the calculation of non-resident passive income: 1058 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EW 13 (c) (d) interest paid by the Commissioner under Part 7 of the Tax Administration Act 1994 for an overpayment of in- come tax: interest payable to the Commissioner under Part 7 of the Tax Administration Act 1994 for an underpayment of income tax.
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 (1) A person does not use any of the spreading methods for a ﬁnan- cial arrangement in the income year in which section EW 29 requires them to calculate a base price adjustment for it.
Trustee of personal injury compensation trust (2) A trustee who holds a ﬁnancial arrangement in trust to man- age compensation paid for personal injury under the Accident Compensation Act 2001, the Accident Insurance Act 1988, any of the former Acts as deﬁned 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 arrangement if the trustee is a cash basis person.
1059 Part E s EW 14 Income Tax Act 2007 Reprinted as at 30 August 2013 Cash basis person (3) 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).
Section EW 13(2): amended, on 21 December 2010, by section 189 of the Tax- ation (GST and Remedial Matters) Act 2010 (2010 No 130).

EW 14 What spreading methods do (1) Description The spreading methods are methods of calculating and allo- cating income and expenditure under a ﬁnancial arrangement over the arrangement’s term.
Methods (2) A spreading method is 1 of the following: (aa) (a) (b) (c) (d) (e) (f) 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.
(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 1060 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EW 15 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 (1) 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) (ii) 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 or the modiﬁed fair value method in section EW 15G; and (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 or the modiﬁed fair value method in section EW 15G; and (ii) (c) all amounts that have been remitted, and all amounts that are to be remitted, by the person under the ﬁnancial arrangement; and 1061 Part E s EW 15B Income Tax Act 2007 Reprinted as at 30 August 2013 (2) (d) 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): inserted, on 1 April 2008, by section 365(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section EW 15(1)(a)(ii): amended (with effect on 1 April 2008), on 29 August 2011, by section 31(1) of the Taxation (Tax Administration and Remedial Mat- ters) Act 2011 (2011 No 63).

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): inserted, on 1 April 2008, by section 365(2) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section EW 15(1)(b)(ii): amended (with effect on 1 April 2008), on 29 August 2011, by section 31(2) of the Taxation (Tax Administration and Remedial Mat- ters) Act 2011 (2011 No 63).

Section EW 15 list of deﬁned terms IFRS: inserted, on 1 April 2008, by sec- tion 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 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— (a) the methods available to the person to use for calculat- ing and allocating income and expenditure under a ﬁ- nancial arrangement: (1) (2) 1062 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EW 15C (b) the circumstances in which a person must use certain other methods.
(3) 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 (4) 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 (1) 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.
1063 Part E s EW 15D Income Tax Act 2007 Reprinted as at 30 August 2013 (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 (1) 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).

(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: (ab) borrowing costs are not capitalised under NZIAS 23: (b) 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.
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 for the other ﬁnancial arrangement a method that is neither of the following: (i) the IFRS ﬁnancial reporting method: (b) 1064 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EW 15D (ii) the method required under Determination G29: Agreements for sale and purchase of property de- nominated in foreign currency: exchange rate to determine the acquisition price and method for spreading income and expenditure.
(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).

Section EW 15D(2B) heading: 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(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(2B)(b): substituted (with effect on 1 April 2008), on 29 Au- gust 2011, by section 32 of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
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).
1065 Part E s EW 15E Income Tax Act 2007 Reprinted as at 30 August 2013 EW 15E Determination alternatives When this section applies This section applies when— (a) (b) (c) 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— (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; or is treated under IFRSs by the person as a hedge of something that is not a ﬁnancial arrangement.
(ii) (iii) 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: (a) (c) (d) (b) 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) has regard to the purposes of the ﬁnancial ar- rangements rules under section EW 1(3); and (e) (1) (2) 1066 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EW 15E (ii) (iii) 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) (b) 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 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.

1067 Part E s EW 15E Income Tax Act 2007 Reprinted as at 30 August 2013 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(1)(c)(ii): amended (with effect on 1 April 2008), on 7 Septem- ber 2010, by section 36 of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
Section EW 15E(1)(c)(iii): added (with effect on 1 April 2008), on 7 Septem- ber 2010, by section 36 of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).

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).
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).
(4) 1068 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EW 15F 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) 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; or is treated under IFRSs by the person as a hedge of something that is not a ﬁnancial arrangement; and (ii) (iii) (d) 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.
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 is with other parties, of which— (b) 1069 Part E s EW 15F Income Tax Act 2007 Reprinted as at 30 August 2013 (i) (ii) 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.
Method chosen The person must use a method that— (a) (b) 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, NZIAS 39, 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)(c)(ii): amended (with effect on 1 April 2008), on 7 Septem- ber 2010, by section 37 of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
Section EW 15F(1)(c)(iii): added (with effect on 1 April 2008), on 7 Septem- ber 2010, by section 37 of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).

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).

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).

(2) (3) 1070 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EW 15G 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 ef- fect on 1 April 2008), on 6 October 2009, by section 137(5) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section EW 15F list of deﬁned terms NZIAS 39: inserted (with effect on 1 April 2008), on 29 August 2011 (applying for the 2008–09 and later income years), by section 140(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
EW 15G Modiﬁed fair value method (1) When this section applies This section applies when— (a) (b) (c) 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; or is treated under IFRSs by the person as a hedge of something that is not a ﬁnancial arrangement; and (ii) (iii) (d) 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.
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— 1071 Part E s EW 15G Income Tax Act 2007 Reprinted as at 30 August 2013 (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 is with other parties, of which— (i) 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.
(2) 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 (3) 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— 1072 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EW 15G (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)(c)(ii): amended (with effect on 1 April 2008), on 7 Septem- ber 2010, by section 38 of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
Section EW 15G(1)(c)(iii): added (with effect on 1 April 2008), on 7 Septem- ber 2010, by section 38 of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).

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 Oc- tober 2009, by section 138(3) of the Taxation (International Taxation, Life In- surance, 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 ef- fect on 1 April 2008), on 6 October 2009, by section 138(6) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
1073 Part E s EW 15H Income Tax Act 2007 Reprinted as at 30 August 2013 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 convertible (a) notes: (b) 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: (c) (d) 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 ap- plying 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) (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 (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).
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).
(2) 1074 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EW 15I EW 15I Mandatory use of yield to maturity method for some arrangements (1) When this section applies This section applies and section EW 15C(1) does not apply when— (a) a person is not required to use a method under section EW 15H for a ﬁnancial arrangement; and the ﬁnancial arrangement— (i) (b) 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) Determination G26: Variable rate ﬁnancial arrange- the yield to maturity method: (c) (d) 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) 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).
(ii) (iii) 1075 Part E s EW 16 Income Tax Act 2007 Reprinted as at 30 August 2013 (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, ﬁ- nancial arrangement, ﬁnancial arrangements rules, IFRS, income year, issue, NZIAS 17, NZIAS 32 Compare: 2004 No 35 s EW 15B(4) 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).
Section EW 15I list of deﬁned terms NZIAS 32: added (with effect on 1 April 2008), on 29 August 2011 (applying for the 2008–09 and later income years), by section 140(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).

EW 16 Yield to maturity method or alternative Who may use yield to maturity method (1) 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 (2) 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, (d) 1076 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EW 17 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, 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 sec- tion 367(3) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
EW 17 Straight-line method Who may use straight-line method (1) 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) 1077 Part E s EW 18 Income Tax Act 2007 Reprinted as at 30 August 2013 (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 sec- tion 368(2) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
EW 18 Market valuation method Who may use market valuation method (1) 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) 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) (d) (e) the method conforms with commercially acceptable practice; and the person complies with section EW 25(4); and 1078 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EW 19 (2) (f) (g) 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).
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: inserted, on 1 April 2008, by sec- tion 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: inserted, on 1 April 2008, by sec- tion 370(3) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
1079 Part E s EW 20 Income Tax Act 2007 Reprinted as at 30 August 2013 EW 20 Determination method or alternative Who may use determination method (1) 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.
Who may use alternative (2) 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 1080 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EW 21 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 sec- tion 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— (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 (f) (c) (e) (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) 1081 Part E s EW 22 Income Tax Act 2007 Reprinted as at 30 August 2013 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 (ii) may use the straight-line method or a market valuation method but chooses not to do so; and the person may not use a determination method or an alternative, or a ﬁnancial reporting method; and [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.
(b) (c) (d) (e) (f) 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 rele- vant of sections EW 16(2)(d), EW 18(1)(f), EW 20(2)(f) and (1) (2) 1082 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EW 23 EW 21(f) if the method that the person uses for each ﬁnancial arrangement— (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) Qualiﬁcation on subsection (2)(a) (3) 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 section 90AC(1)(g) of the Tax Administration Act 1994.

(4) 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).

1083 Part E s EW 24 Income Tax Act 2007 Reprinted as at 30 August 2013 Section EW 23 list of deﬁned terms IFRS: inserted, on 1 April 2008, by sec- tion 374(3) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
EW 24 Consistency of use of spreading method Consistency required (1) 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).

(2) 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.
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 sec- tion 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 (1) 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) 1084 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EW 25B Straight-line method for every income year of term (2) 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.
(3) 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 (4) A person who starts to use a market valuation method for a ﬁnancial arrangement must use it over the arrangement’s re- maining term until section EW 29 requires them to calculate a base price adjustment for the arrangement, unless section EW 6(1) applies.
(5) 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 Consistency (1) 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 adjust- ment 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) 1085 Part E s EW 25B Income Tax Act 2007 Reprinted as at 30 August 2013 Exception (2) 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) (b) is from the fair value method; and 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)(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(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).

(3) (4) 1086 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EW 26 inserted (with ef- Section EW 25B list of deﬁned terms creditor workout: fect on 1 April 2008), on 6 October 2009, by section 144(3) of the Taxation (International 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 (1) A person may change from the straight-line method or the market value method if they change to a method that is not a method for IFRS under section EW 15B, and the Commis- sioner has given written authorisation for the change.
Change of other method (2) A person may change from any spreading method to any other method if the Commissioner’s written authorisation under subsection (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) 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.
Positive or negative spreading method adjustment (4) 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) (b) 1087 Part E s EW 26 Income Tax Act 2007 Reprinted as at 30 August 2013 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) 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) Modiﬁcation Section EZ 52C (Change of spreading method: Determination G22 to Determination G22A) modiﬁes this section.
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(7) heading: added, on 1 April 2008, by section 377(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
(5) (6) (7) (8) 1088 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EW 27 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(8) heading: added, on 26 September 2010, by section 39 of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).

Section EW 26(8): added, on 26 September 2010, by section 39 of the Taxa- tion (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remed- ial Matters) Act 2010 (2010 No 109).
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 (Inter- national 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).

Section EW 26 list of deﬁned terms IFRS: inserted, on 1 April 2008, by sec- tion 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 Remed- ial Matters) Act 2007 (2007 No 109).

EW 27 Spreading method adjustment formula Calculation of spreading method adjustment (1) A person calculates a spreading method adjustment using the formula in subsection (3).
(2) 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 (b) were a party at the end of the previous income year.

Formula The formula is— (3) income (new method) expenditure (new method) income (old method) + expenditure (old method).
1089 Part E s EW 27 Income Tax Act 2007 Reprinted as at 30 August 2013 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.
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 per- son under the ﬁnancial arrangement in earlier income years.

Modiﬁcation Section EZ 52C (Change of spreading method: Determination G22 to Determination G22A) modiﬁes this section.
Deﬁned in this Act: amount, ﬁnancial arrangement, income, income year, spreading method Compare: 2004 No 35 s EW 27 Section EW 27(9) heading: added, on 26 September 2010, by section 40 of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).

Section EW 27(9): added, on 26 September 2010, by section 40 of the Taxa- tion (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remed- ial Matters) Act 2010 (2010 No 109).
(4) (5) (6) (7) (8) (9) 1090 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EW 29 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 (1) 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 (2) 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 (3) A party to a ﬁnancial arrangement must calculate a base price adjustment as at the date on which the arrangement matures.
Treated as maturity (4) 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 (5) 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.
1091 Part E s EW 29 Income Tax Act 2007 Reprinted as at 30 August 2013 Absolute assignment (6) 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 (7) 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 (8) 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 (9) 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.
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.
1092 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EW 30 Changing from fair value method (13) A party to a ﬁnancial arrangement must calculate a base price adjustment, for the ﬁrst income year for which a changed method is used for the ﬁnancial arrangement, where the change in method is— (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): amended (with effect on 1 April 2008), on 29 August 2011, by section 33 of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).

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 list of deﬁned terms creditor workout: inserted (with effect on 1 April 2008), on 6 October 2009, by section 146(2) of the Taxation (Inter- national Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section EW 29 list of deﬁned terms fair value method: inserted, on 1 April 2008, by section 378(2) of the Taxation (Business Taxation and Remedial Mat- ters) Act 2007 (2007 No 109).
EW 30 When calculation of base price adjustment not required Cash basis person who ceases to be temporary New Zealand resident (1) 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) 1093 Part E s EW 31 Income Tax Act 2007 Reprinted as at 30 August 2013 Other party who ceases to be New Zealand resident (2) 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 (3) 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 (4) 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.
Creditor when assignment occurs (5) 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 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 (1) 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.
(2) 1094 (b) (b) Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EW 31 Positive base price adjustment (3) 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 (4) 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 sections DB 6 to DB 8 (which relate to deductions for interest) or, if none of those sections applies, under section DB 11 (Negative base price adjustment).

Formula The formula is— consideration (5) (6) income + expenditure + amount remitted.
Deﬁnition of items in formula The items in the formula are deﬁned in subsections (7) to (11).

Consideration (7) 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, 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) (8) Consideration in particular cases If any of sections EW 32 to EW 48, or EZ 52D applies, the consideration referred to in subsection (7) is adjusted under the relevant section.
Income Income is— (9) 1095 Part E s EW 31 Income Tax Act 2007 Reprinted as at 30 August 2013 (a) (b) (c) 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).

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 con- sideration 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(4): amended (with effect on 1 April 2008), on 29 August 2011 (applying for the 2008–09 and later income years), by section 34(1) of the Tax- ation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).

Section EW 31(7): amended (with effect on 1 April 2008), on 29 August 2011 (applying for the 2008–09 and later income years), by section 140(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section 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).

Section EW 31(7)(a): substituted (with effect on 1 April 2008), on 29 August 2011 (applying for the 2008–09 and later income years), by section 140(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section EW 31(7)(b): substituted (with effect on 1 April 2008), on 29 August 2011 (applying for the 2008–09 and later income years), by section 140(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).

Section EW 31(8): amended, on 26 September 2010, by section 41 of the Taxa- tion (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remed- ial Matters) Act 2010 (2010 No 109).
1096 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EW 32 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 sec- tion 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 (1) (2) (3) 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: section EW 34 applies if the consideration is in a foreign currency.
(b) 1097 Part E s EW 33 Income Tax Act 2007 Reprinted as at 30 August 2013 (4) (5) (6) (7) 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 dis- counted values, of the amounts paid or payable on the date on which the ﬁrst right in the property is transferred or the ser- vices are provided, as determined by the Commissioner under a determination under section 90AC(1)(i) of the Tax Admin- istration 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 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 preparing and installing the hire purchase asset or personal (1) (2) 1098 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EW 34 property lease asset for use to the extent to which it is not taken into account under section 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 (1) (2) (3) (4) 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) 1099 Part E s EW 35 Income Tax Act 2007 Reprinted as at 30 August 2013 (b) (c) 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) 1100 Reprinted as at 30 August 2013 (a) (b) Income Tax Act 2007 Part E s EW 37 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) 1101 Part E s EW 38 Income Tax Act 2007 Reprinted as at 30 August 2013 (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 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) (1) 1102 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EW 39 (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 (1) (2) 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) 1103 Part E s EW 40 Income Tax Act 2007 Reprinted as at 30 August 2013 (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 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 (1) (2) 1104 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EW 41 EW 41 Consideration when person enters rules: accrued entitlement (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 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) (2) 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 1105 Part E s EW 42 Income Tax Act 2007 Reprinted as at 30 August 2013 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) When this section applies This section applies when a creditor sells a debt on or after 20 May 1999 to a person associated with the debtor and at a discount.
At a discount (2) 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) (3) 1106 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EW 44 (4) (ii) an increase in the possibility that the debtor will not meet an obligation under the debt.
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: amount, associated person, consideration, pay Compare: 2004 No 35 s EW 45 Section EW 43(1): amended, on 1 April 2010, by section 21 of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
Section EW 43 list of deﬁned terms 1988 version provisions: repealed, on 1 April 2010, by section 594 of the Taxation (International Taxation, Life In- surance, and Remedial Matters) Act 2009 (2009 No 34).
EW 44 Consideration when debt forgiven for natural love and affection (1) (2) 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.
(3) 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 1107 Part E s EW 45 Income Tax Act 2007 Reprinted as at 30 August 2013 (4) (b) the means by which the debt is forgiven, whether in a will or otherwise, is immaterial.

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) 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 (2) A loan referred to in subsection (1)(b)(iii) is a loan that— (a) (b) (c) 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.
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 (3) (4) 1108 (1) (2) (3) Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EW 46 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 loss balance current loss other loss.
Deﬁnition of items in formula In the formula,— (a) (b) remitted amount is the amount of the remitted liability: 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: 1109 Part E s EW 46 Income Tax Act 2007 Reprinted as at 30 August 2013 (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).
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).
(4) (5) 1110 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EW 47 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 end of the ﬁrst income year for which the replacement method is used for the ﬁnancial arrangement.
(b) Consideration The person is treated as having been paid an amount equal to the market value of the ﬁnancial arrangement at the end of the ﬁrst income year for which the replacement method is used for the ﬁnancial arrangement.

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).
Section EW 46B(1)(b): amended (with effect on 1 April 2008), on 29 August 2011 (applying for the 2008–09 and later income years), by section 35(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).

Section EW 46B(2): amended (with effect on 1 April 2008), on 29 August 2011 (applying for the 2008–09 and later income years), by section 35(2) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Consideration when legal defeasance has occurred EW 47 Legal defeasance (1) 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 1111 Part E s EW 48 Income Tax Act 2007 Reprinted as at 30 August 2013 (2) (b) 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.
Consideration The consideration received by the person who has a right to receive money under the arrangement is the total of— (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 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 (1) (2) 1112 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E 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) When this section applies This section applies when a creditor sells a debt on or after 20 May 1999 to a person associated with the debtor and at a discount.
At a discount (2) A creditor sells a debt at a discount if the creditor sells it for 80% or less of the market value of the debt.

(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 as- sociate of debtor).
(b) Deﬁned in this Act: amount, associated person, deduction, income, pay Compare: 2004 No 35 s EW 50 1113 Part E s EW 50 Income Tax Act 2007 Reprinted as at 30 August 2013 Section EW 49(1): amended, on 1 April 2010, by section 22 of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
Section EW 49 list of deﬁned terms 1988 version provisions: repealed, on 1 April 2010, by section 594 of the Taxation (International Taxation, Life In- surance, and Remedial Matters) Act 2009 (2009 No 34).
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 income) or CW 42 (Charities: business income); 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, 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.
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) the creditor is a natural person; and the creditor forgives the debtor’s debt; and (1) (2) 1114 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EW 51 (e) (f) 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: a natural person for whom the creditor has natural (i) love and affection; or an organisation or a trust whose income is exempt under section CW 41 or CW 42.
(ii) (3) (4) (5) (6) (7) 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) 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 (1) When subsection (2) applies: loss generally Subsection (2) applies when a person is allowed a deduction under section DB 14(2) (Security payment).

1115 Part E s EW 52 Income Tax Act 2007 Reprinted as at 30 August 2013 (2) (3) (4) 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 Treatment of original share acquired under ﬁnancial arrangement EW 52 Share supplier under share-lending arrangement 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 (1) (2) (3) 1116 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EW 53 (b) the person continued to own the identical share until the time that the person acquired the replacement share.
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) (2) (3) 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 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) (4) First step The ﬁrst step the person takes is to calculate income or ex- penditure under the ﬁnancial arrangement for each income 1117 Part E s EW 54 Income Tax Act 2007 Reprinted as at 30 August 2013 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.
(5) (6) 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 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) (b) 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 Who is cash basis person (1) A person is a cash basis person for an income year if— 1118 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EW 57 (a) (b) 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 Persons excluded by Commissioner (2) 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).
EW 55 Effect of being cash basis person Use of spreading method (1) 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.

(2) 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 (1) 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.
1119 Part E s EW 57 Income Tax Act 2007 Reprinted as at 30 August 2013 (2) 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, its face 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) (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) (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).

(5) Accrual income (6) 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 1120 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EW 57 (b) (c) 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.
Cash basis income (7) 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 (8) 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 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.
Accrual expenditure (9) 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 1121 Part E s EW 58 Income Tax Act 2007 Reprinted as at 30 August 2013 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).
EW 58 Financial arrangements, income, and expenditure relevant to criteria 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 (1) (2) (3) 1122 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EW 58 (b) 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.
(4) (5) 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) 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).

1123 Part E s EW 59 Income Tax Act 2007 Reprinted as at 30 August 2013 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 under the ﬁnancial arrangement differs from that used by the associated person.
(b) 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 When trustee of estate is cash basis person (1) 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 deceased’s estate cease to meet the requirements of section EW 54(1)(a) and (b), the trustee ceases to be a cash basis per- son for ﬁnancial arrangements in the estate and cannot again be a cash basis person for them.
(2) (3) 1124 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EW 61 (4) 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).

EW 61 Election to use spreading method Election of spreading method (1) A cash basis person may choose to use a spreading method, unless subsection (2) applies.
Election not allowed (2) 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.

(3) (4) (5) 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 Administra- tion Act 1994.
1125 Part E s EW 62 Income Tax Act 2007 Reprinted as at 30 August 2013 (6) 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 (1) 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.
Person becoming cash basis person (2) 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— are a party at the end of the income year; and (a) (b) were a party at the end of the previous income year.
Exclusions (3) 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 (4) 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) are a party at the end of the income year; and (b) were a party at the end of the previous income year.
1126 Reprinted as at 30 August 2013 Exclusion Income Tax Act 2007 Part E s EW 63 (5) 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 (6) 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 (7) A person calculates a cash basis adjustment using the formula in section EW 63.
(8) 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.
Positive or negative cash basis adjustment (9) 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 (1) A person calculates a cash basis adjustment using the for- mula— adjusted income adjusted expenditure + previous expenditure.

previous income Deﬁnition of items in formula The items in the formula are deﬁned in subsections (3) to (6).
(2) Adjusted income (3) Adjusted income is,— 1127 Part E s EW 63 Income Tax Act 2007 Reprinted as at 30 August 2013 (a) (b) 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.
Adjusted expenditure (4) Adjusted expenditure is,— (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.
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 (5) (6) 1128 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EW 63 Subpart EX—Controlled foreign company and foreign investment fund rules Contents 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 EX 2 Four categories for calculating control interests 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, not PIE EX 15 Associates and 10% threshold EX 16 Income interests for certain purposes EX 17 Income interest if variations within period Page 1132 1134 1135 1136 1136 1137 1138 1140 1140 1142 1142 1143 1144 1144 1144 1145 1146 Calculation of attributed CFC income or loss EX 18A Scheme for ﬁnding person’s attributed CFC income or 1146 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 1148 1148 1150 1151 1129 Income Tax Act 2007 Reprinted as at 30 August 2013 EX 20C Net attributable CFC income or loss EX 20D Adjustment of cost fraction for excessively debt funded CFC EX 20E Relative debt-asset ratio for CFC 1161 1168 1172 Calculation of branch equivalent income or loss [Repealed] EX 21 Attributable CFC amount and net attributable CFC income 1174 or loss: calculation rules EX 21B Non-attributing active CFCs 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 EX 25 Change of CFC’s balance date 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 1130 1186 1187 1191 1194 1203 1204 1204 1205 1206 1207 1207 1208 1209 1210 1212 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EW 63 EX 33 Exemption for Australian regulated superannuation savings EX 34 CFC rules exemption EX 35 Exemption for interest in FIF resident in Australia EX 36 Venture capital company emigrating to grey list country: 10-year exemption 1214 1215 1215 1216 EX 37 Grey list company owning New Zealand venture capital 1218 company: 10-year exemption EX 37B Share in grey list company acquired under venture 1219 investment agreement EX 38 Exemption for employee share purchase scheme of grey 1219 list company EX 39 Terminating exemption for grey list company with numerous New Zealand shareholders [Repealed] 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 Five 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 [Repealed] EX 50 Attributable FIF income 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 1220 1220 1221 1221 1224 1225 1226 1226 1233 1234 1234 1235 1244 1246 1252 EX 54 Fair dividend rate method and cost method: when periods 1258 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 1260 1264
 1269 1270 Relationship with other provisions in Act EX 59 Codes: comparative value method, deemed rate of return 1272 method, fair dividend rate method, and cost method EX 60 Top-up FIF income: deemed rate of return method 1275 1131 Part E s EX 1 Income Tax Act 2007 Reprinted as at 30 August 2013 EX 61 Top-up FIF income: 1 April 1993 uplift interests 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 EX 67B Revaluation of inherited interests in grey list companies EX 68 Measurement of cost Measurement of cost EX 69 Change of FIF’s balance date 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 Election relating to CFC or FIF 1276 1277 1282 1285 1287 1289 1291 1292 1294 1295 1298 1299 1300 1300 EX 73 Election that CFC not non-attributing active CFC or FIF 1302 not non-attributing active FIF Controlled foreign company (CFC) rules When is a company a controlled foreign company?
EX 1 Meaning of controlled foreign company Tests of control (1) A foreign company is a controlled foreign company (CFC) if any of the following tests is met: 1132 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EX 1 (a) (b) 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: a single New Zealand resident holds a control interest of 40% or more unless at the same time— (i) the person’s control interest is less than or equal to a control interest in the same category held by another person; and the other person is not a New Zealand resident; and the other person is not associated with the New Zealand resident: (ii) (iii) (2) (3) (c) 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) (b) the foreign company is a foreign PIE equivalent; and 1 of the New Zealand residents is— a portfolio investment entity: (i) an entity that qualiﬁes for PIE status: (ii) a life insurance company.
(iii) 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.