Source document: https://docs-lawep.s3.us-east-2.amazonaws.com/1698754665449.pdf (New Zealand)
Reprint as at 29 August 2011 Income Tax Act 2004 Public Act Date of assent 2004 No 35 7 May 2004 Income Tax Act 2004: repealed, on 1 April 2008, by section ZA 1(1) of the Income Tax Act 2007 (2007 No 97).

Contents A 1 A 2 Title Commencement Part A Purpose and interpretation AA 1 Purpose of Act AA 2 AA 3 Deﬁnitions Interpretation Page 84 84 84 85 85 Note Changes authorised by section 17C of the Acts and Regulations Publication Act 1989 have been made in this eprint.
A general outline of these changes is set out in the notes at the end of this eprint, together with other explanatory material about this eprint.
1 Income Tax Act 2004 Reprinted as at 29 August 2011 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 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 BC 9 BC 10 Surplus credits Income tax liability of ﬁling taxpayer Income tax liability of person with schedular income Surplus rebates 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 87 88 88 89 93 93 93 93 94 94 96 97 97 99 100 101 101 102 103 105 105 106 2 Reprinted as at 29 August 2011 Income Tax Act 2004 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 Proﬁt-making undertaking or scheme Schemes for proﬁt Personal property Personal property acquired for purpose of disposal CB 3 CB 4 Business of dealing in personal property CB 4B Disposal of certain shares by portfolio investment entity or New Zealand Superannuation Fund after declaration of dividend Land CB 5A Land partially sold or sold with other land CB 5 Disposal: land acquired for purpose or with intention of disposal CB 6 Disposal: land acquired for purposes of business relating to land CB 6B Disposal: Land used for landﬁll, if notice of
 election CB 7 Disposal within 10 years: land dealing business CB 8 Disposal within 10 years: land development or subdivision business CB 9 Disposal within 10 years of improvement: building business CB 10 Disposal: schemes for development or division begun within 10 years CB 11 Disposal: amount from major development or division and not already in income CB 12 Disposal: amount from land affected by change and not already in income CB 13 Transactions between associated persons Exclusions for residential land CB 14 Residential exclusion from sections CB 5 to CB 9 CB 15 Residential exclusion from sections CB 10 and CB 11 122 122 124 125 125 125 125 126 127 127 128 129 129 130 131 132 133 134 135 135 3 Income Tax Act 2004 Reprinted as at 29 August 2011 CB 16 Residential exclusion from section CB 12 Exclusions for business premises CB 17 Business exclusion from sections CB 5 to CB 9 CB 18 Business exclusion from sections CB 10 and CB 11 Exclusions for farm land CB 19 Farm land exclusion from sections CB 10 and CB 11 CB 20 Farm land exclusion from section CB 12 CB 21 Investment exclusion from sections CB 10 and CB 11 Exclusion for investment land Timber CB 22 Disposal of timber or right to take timber CB 23 Disposal of land with standing timber Farming, forestry, or ﬁshing CB 24 Income equalisation schemes CB 24B Environmental restoration accounts Environmental restoration Minerals CB 25 Disposal of minerals CB 26 Sale of patent applications or patent rights Intellectual property Transfer of business CB 27 Sale of business: transferred employment income obligations CB 28 Property obtained by theft Stolen property CB 29 Disposal of ETS units Emissions trading scheme Subpart CC—Income from holding property (excluding equity) Land use CC 1 Land CC 2 Non-compliance with covenant for repair CC 3 Financial arrangements Financial instruments 4 136 137 137 138 139 139 140 140 141 141 143 144 144 144 145 147 147 148 Reprinted as at 29 August 2011 Income Tax Act 2004 Payments of
 interest Prizes received under Building Societies Act 1965 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 CC 9 Royalties CC 10 Films Royalties Subpart CD—Income from equity Income CD 1 Dividend CD 1B Distribution excluded from being dividend What is a dividend?
CD 2 Meaning of dividend CD 3 Transfers of value generally CD 4 What is a transfer of value?

CD 5 When is a transfer caused by a shareholding relationship?
CD 6 Bonus issues in lieu of dividend CD 7 Elections to make bonus issue into dividend CD 7B Interests in money or property of foreign unit trust CD 7C Bonus issue by foreign unit trust instead of money or property 148 148 149 149 150 150 151 152 155 156 156 156 156 158 159 159 160 160 CD 8 Notional distributions of producer boards and co-operative 161 companies CD 9 Tax credits linked to dividends CD 10 Certain dividends not increased by tax credits CD 10B Credit transfer notice CD 10C Dividend reduced if foreign tax paid on company’s income CD 11 Foreign tax credits and refunds linked to dividends CD 12 Beneﬁts of shareholder-employees or directors CD 13 Attributed repatriations from controlled foreign companies What is not a dividend?
CD 14 Returns of capital: off-market share cancellations CD 15 Ordering rule and slice rule CD 16 Returns of capital: on-market share cancellations CD 17 Treasury stock acquisitions CD 18 Capital distributions on liquidation or emigration 162 162 163 164 165 165 166 167 171 172 173 175 5 Income Tax Act 2004 Reprinted as at 29 August 2011 CD 19 Property made available intra-group CD 20 Transfers of certain excepted ﬁnancial arrangements within wholly-owned groups CD 21 Non-taxable bonus issues CD 21B Transfer by unit trust of legal interest after beneﬁcial interest vests CD 22 Flat-owning companies CD 23 Employee beneﬁts CD 24 Payments corresponding to notional distributions of producer boards and co-operative companies CD 24B Distribution to member of co-operative company based on member’s transactions CD 25 Qualifying amalgamations CD 26 Foreign investment fund income Calculation rules CD 27 General calculation rule for transfers of value CD 28 Calculation of amount of dividend when property made available CD 29 Adjustment if dividend recovered by company CD 30 Adjustment if amount repaid later CD 31 Adjustment if additional consideration paid CD 32 Available subscribed capital amount CD 33 Available capital distribution amount CFC attributed repatriation calculation rules CD 34 When does a person have attributed repatriation from a CFC?
CD 35 New Zealand repatriation amount CD 36 New Zealand property amount CD 37 Cost of tangible property CD 38 Cost of associated party equity CD 39 Outstanding balances of ﬁnancial arrangements CD 40 Property transfers between associated persons CD 41 Unrepatriated income balance CD 42 Prevention of double taxation of share cancellation Prevention of double taxation dividends CD 43 Replacement payments Returning share transfers 176 178 178 179 179 179 180 181 182 183 185 186 189 191 192 192 200 206 208 209 210 211 212 215 216 217 219 6 Reprinted as at 29 August 2011 Income Tax Act 2004 Subpart CE—Employee or contractor income Employment income CE 1 Amounts derived in connection with employment CE 2 Value and timing of beneﬁts under share purchase agreements CE 3 Restrictions on disposal of shares under share purchase agreements CE 4 Adjustments to value of beneﬁts under share purchase agreements Deﬁnitions CE 5 Meaning of expenditure on account of an employee CE 6 Meaning of share: when share acquired CE 7 Meaning of share purchase agreement CE 8 Attributed income from personal services Attributed income Restrictive covenants and exit inducement payments CE 9 Restrictive covenants CE 10 Exit inducements 220 222 224 225 226 229 229 229 230 231 CE 11 Proceeds from claims under policies of income protection 231 Income protection insurance insurance Tax credits CE 12 Tax credits under section LD 1B added to provider’s 232 income Subpart CF—Income from living allowances, compensation, and government grants CF 1 Beneﬁts, pensions, compensation, and government grants CF 2 Remission of speciﬁed suspensory loans Subpart CG—Recoveries CG 1 Amount of depreciation recovery income CG 2 Remitted amounts CG 3 Bad debt repayment CG 4 Recovered expenditure or loss CG 5 Recoveries or receipts by employers from superannuation schemes CG 6 Receipts from insurance, indemnity, or compensation for trading stock 233 235 236 236 237 237 238 239 7 Income Tax Act 2004 Reprinted as at 29 August 2011 Subpart CH—Adjustments Matching rules:
 revenue account property, prepayments, and deferred payments CH 1 Adjustment for closing values of trading stock, livestock, 240 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 CH 5 Adjustment for GST GST Subpart CP—Income from portfolio investment entities CP 1 Portfolio investor allocated income Subpart CQ—Attributed income from foreign equity Attributed controlled foreign company income CQ 1 Attributed controlled foreign company income CQ 2 When attributed CFC income arises CQ 3 Calculation of attributed CFC income Foreign investment fund income Foreign investment fund income CQ 4 CQ 5 When FIF income arises CQ 6 Calculation of FIF income Subpart CR—Income from life insurance Income of life insurer CR 1 CR 2 Amount of income of life insurer CR 3 Income for general insurance outstanding claims reserve Subpart CS—Superannuation funds Withdrawals CS 1 Withdrawals Exclusions Exclusions of withdrawals of various kinds Exclusion of withdrawal on grounds of hardship Exclusion of withdrawal to settle division of relationship property Exclusion of withdrawal paid as annuity or pension Exclusion of withdrawal on partial retirement Exclusion of withdrawal when member ends employment CS 2 CS 3 CS 4 CS 5 CS 6 CS 7 8 241 242 242 242 243 244 244 246 246 246 251 252 252 253 255 257 260 260 261 261 262 Reprinted as at 29 August 2011 Income Tax Act 2004 CS 8 CS 9 Exclusion of withdrawal when member ends employment: lock-in rule Exclusion of withdrawal from deﬁned beneﬁt fund when member ends employment CS 10 When member treated as not ending employment CS 10B Exclusion of permitted withdrawals from KiwiSaver schemes and complying superannuation funds 266 266 266 267 Transfers to or from superannuation funds and superannuation schemes CS 11 Transfer by superannuation fund to another superannuation 267 fund CS 12 Transfer from
 superannuation scheme to superannuation fund CS 13 Investment by superannuation fund in another superannuation fund Treatment of amounts when superannuation fund becomes superannuation scheme or vice versa CS 14 Superannuation fund becomes superannuation scheme CS 15 Superannuation fund becomes foreign superannuation scheme CS 16 Superannuation scheme becomes superannuation fund Treatment of distributions when superannuation fund wound up CS 17 Superannuation fund wound up 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 268 269 269 270 270 270 271 272 272 273 273 274 275 276 278 9 Income Tax Act 2004 Reprinted as at 29 August 2011 Income from mining CU 2 Mining company that processes or manufactures CU 3 Disposal of assets CU 4 Compensation for lost, destroyed, or damaged assets CU 5 Compensation and scrap payment: income from mining CU 6 Compensation and scrap payment: use to replace or repair asset CU 7 Compensation and scrap payment: not income from mining CU 8 Compensation and scrap payment: more than expenditure CU 9 Previous deduction for income appropriated CU 10 Mining asset used to derive income other than income from mining CU 11 Meaning of asset for sections CU 3 to CU 10 CU 12 Application of sections to resident mining operators CU 13 Application of sections to non-resident mining operators CU 14 Recovery of reinvestment proﬁt on disposal of mining shares CU 15 Recovery of reinvestment proﬁt not used for mining purposes CU 16 Recovery of reinvestment proﬁt on repayment of loans CU 17 Repayment by
 mining company of amount written off CU 18 Amount treated as repayment for purposes of section CU 17: excess CU 19 Amount treated as repayment for purposes of section CU 17: net income CU 20 Mining company or mining holding company liquidated Deﬁnitions CU 21 Meaning of income from mining CU 22 Meaning of mining company CU 23 Meaning of mining development expenditure CU 24 Meaning of mining exploration expenditure CU 25 Meaning of mining operations CU 26 Meaning of mining venture CU 27 Meaning of resident mining operator CU 28 Meaning of speciﬁed mineral CU 29 Other deﬁnitions Subpart CV—Income speciﬁc to certain entities CV 1 Group companies CV 2 Crown Research Institutes CV 3 Australian wine producer rebate Reprinted as at 29 August 2011 Income Tax Act 2004 CV 4 Regulations: Australian wine producer rebate Subpart CW—Exempt income Income from business or trade-like activities CW 1 Forestry companies established by Crown, Maori 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 Income from equity CW 9 Dividend derived by company from overseas CW 10 Dividend within New Zealand wholly-owned group CW 11 Dividend of conduit tax relief holding company CW 11B Proceeds of share disposal by qualiﬁed foreign equity investor CW 11C Proceeds from share or option acquired under venture investment agreement Employee or contractor income CW 12 Income of
 Governor-General CW 13 Expenditure on account, and reimbursement, of employees CW 13B Relocation payments CW 13C Payments for overtime meals and certain other allowances CW 14 Allowance for additional transport costs CW 15 Amounts derived during short-term visits CW 16 Amounts derived by visiting entertainers (including sportspersons) CW 17 Amounts derived by visiting crew of pleasure craft CW 18 Amounts derived by overseas experts and trainees in New Zealand by government arrangement 306 309 310 311 312 312 312 313 313 314 314 315 315 317 317 324 327 327 328 330 331 333 333 335 336 11 Income Tax Act 2004 Reprinted as at 29 August 2011 CW 19 Income for military or police service in operational area CW 20 Deferred military pay for active service CW 21 Value of board for religious society members CW 22 Jurors’ and witnesses’ fees Certain income of transitional resident CW 22B Certain income derived by transitional resident Income from living allowances, compensation, and government grants CW 23 Pensions CW 23B Reinvested amount from foreign superannuation scheme in Australia CW 24 Annuities from Crown Bank Accounts CW 25 Services for members of Parliament CW 26 Maintenance payments CW 27 Allowances and beneﬁts CW 28 Compensation payments CW 28B Payment of certain accident compensation payments CW 29 Scholarships and bursaries CW 30 Film production grants Income of certain entities CW 31 Public authorities CW 32 Local authorities CW 33 Local and regional promotion bodies CW 34 Charities: non-business income CW 35 Charities: business income CW 36 Charitable bequests CW 37 Friendly societies CW 38 Funeral trusts CW 39 Bodies promoting amateur games and sports CW 40 TAB and racing clubs CW 40B Income from conducting gaming-machine gambling CW 41 Bodies promoting scientiﬁc or industrial research CW 42 Veterinary services bodies CW 43 Herd improvement bodies CW 44 Community trusts Income from certain activities CW 45 Non-resident aircraft operators CW 45B Non-resident
 company involved in exploration and development activities CW 46 Disposal of companies’ own shares Reprinted as at 29 August 2011 Income Tax Act 2004 CW 47 New Zealand companies operating in Niue CW 48 Stake money CW 49 Providing standard-cost household service CW 49B Interest paid under KiwiSaver Act 2006 Income of, and distributions by, certain international funds CW 49C Income of certain international funds CW 49D Distributions by certain international funds Income exempt under other Acts CW 50 Exemption under other Acts Income exempt under Parts F to I CW 51 Exemption under Parts to be rewritten Subpart CX—Excluded income Goods and services tax CX 1 GST 361 363 363 364 364 364 365 365 368 KiwiSaver and complying superannuation fund tax credits CX 1B KiwiSaver and complying superannuation fund tax credits 368 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 6B 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 7 CX 8 Subsidised transport CX 9 Employment-related loans CX 10 Employment-related loans: loans by life insurers CX 11 Services for members of Parliament CX 12 Contributions to superannuation schemes CX 13 Contributions to sickness, accident, or death beneﬁt funds CX 14 Contributions to funeral trusts CX 15 Contributions to life or health insurance 368 369 369 369 370 371 372 372 372 373 374 375 375 375 375 13 Income Tax Act 2004 Reprinted as at 29 August 2011 CX 16 Beneﬁts provided to employees who are shareholders or 378 investors Exclusions and limitations CX 17 Beneﬁts provided instead of allowances CX 18 Beneﬁts to enable performance of duties CX 18B Business tools
 CX 19 Beneﬁts to non-executive directors CX 20 Beneﬁts provided on premises CX 20B Beneﬁts related to health or safety CX 21 Beneﬁts provided by charitable organisations CX 22 Non-liable payments CX 23 Assistance with tax returns CX 24 Accommodation CX 25 Entertainment CX 26 Distinctive work clothing CX 26B Contributions to income protection insurance CX 27 Services provided to superannuation fund CX 27B Goods provided at discount by third parties Deﬁnitions CX 28 Meaning of emergency call CX 29 Meaning of employee share loan CX 30 Meaning of private use CX 31 Meaning of unclassiﬁed beneﬁt CX 32 Meaning of work-related vehicle Insurance CX 33 Life insurers and fully reinsured persons CX 34 Superannuation fund deriving amount from life insurance policy CX 35 Resident insurance underwriters Petroleum mining CX 36 Disposal of ownership interests in controlled petroleum mining entities CX 37 Farm-out arrangements for petroleum mining Mineral mining CX 38 Disposal of mining shares CX 39 Disposal of mining shares acquired with reinvestment proﬁt CX 40 Repayment of loans made from reinvestment proﬁt 14 379 381 381 382 382 383 384 385 385 386 386 386 387 387 388 388 389 390 390 391 391 392 392 393 393 393 395 396 Reprinted as at 29 August 2011 Income Tax Act 2004 Government grants CX 41 Government grants to businesses CX 41B Amounts remitted as condition of new start grant Contributions to superannuation scheme or retirement savings scheme CX 42 Employer’s superannuation contributions CX 42B Contributions to retirement savings scheme CX 43 Income equalisation schemes Farming, forestry, or ﬁshing CX 43B Refund from environmental restoration account Environmental restoration CX 44 Credits for inﬂation-indexed instruments Inﬂation-indexed instruments CX 44B Share-lending collateral under share-lending Share-lending arrangements arrangements Portfolio investment entities CX 44C Proceeds from disposal of certain shares by portfolio investment entities or New Zealand Superannuation
 Fund CX 44D Portfolio investor allocated income and distributions of income by portfolio investment entities CX 44E Rebates of certain fees by portfolio tax rate entities CX 44F Issue of post-1989 forest land units CX 44G Disposal of pre-1990 forest land units Income excluded under Parts F to I CX 45 Exclusion under Parts to be rewritten Subpart CY—Income under Parts F to I CY 1 Amounts that are income under Parts to be rewritten 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 396 398 400 400 401 401 402 402 403 404 406 406 407 407 408 409 409 410 412 412 413 15 Income Tax Act 2004 Reprinted as at 29 August 2011 CZ 7 CZ 8 Primary producer co-operative companies: 1987-88 income year Farm-out arrangements for petroleum mining before 16 December 1991 CZ 9 Available capital distribution amount: 1965 and 1985 to 414 415 415 1992 CZ 10 Transitional relief for calculation of attributed repatriation 416 dividends: 2 July 1992 CZ 11 Recovery of deductions for software acquired before 1 April 1993 CZ 12 General insurance with risk period straddling1 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 Geothermal wells between 31 March 2003 and 17 May 2006 Part D Deductions Subpart DA—General rules DA 1 General Permission
 DA 2 General limitations DA 3 Effect of speciﬁc rules on general rules DA 4 Treatment of amount of depreciation loss Subpart DB—Speciﬁc rules for expenditure types Taxes and other amounts DB 1 Taxes, other than GST, and penalties DB 2 GST DB 3 Determining tax liabilities DB 3B Use of money interest DB 4 Chatham Islands dues Financing costs DB 5 Transaction costs: borrowing money for use as capital DB 6 Interest: not capital expenditure 16 417 418 418 419 420 420 420 421 422 422 432 433 434 435 438 439 440 442 443 443 444 Reprinted as at 29 August 2011 Income Tax Act 2004 DB 7 DB 8 Interest: most companies need no nexus with income Interest: money borrowed to acquire shares in group companies 444 445 DB 8B Interest or expenditure connected to stapled debt security 446 Financial arrangements adjustments DB 9 Negative base price adjustment DB 9B Base price adjustment under old ﬁnancial arrangements rules DB 10 Repayment of debt sold at discount to associate of debtor DB 11 Security payment DB 12 Sureties DB 12B Share-lending collateral under share-lending Share-lending arrangements arrangements DB 12C Replacement payments and imputation credits under share-lending arrangements Premises or land costs DB 13 Transaction costs: leases DB 13B Expenses of failed or withdrawn application for resource consent DB 14 Destruction of temporary building DB 15 Amounts paid for non-compliance with covenant for repair DB 16 Amounts paid for non-compliance and change in use Revenue account property DB 17 Cost of revenue account property DB 18 Share losses DB 19 Amount from proﬁt-making undertaking or scheme and not already in income DB 20 Amount from major development or division and not already in income DB 21 Amount from land affected by change and not already in income DB 22 Cost of non-speciﬁed mineral DB 23 Bad debts DB 24 Bad debts owed to estates Bad debts DB 25 Scientiﬁc research Research and development 447 447 448 448 449 449 450 450 451 451 452 453 454 455 457 457 458 459
 460 462 463 17 Income Tax Act 2004 Reprinted as at 29 August 2011 DB 26 Research or development DB 27 Some deﬁnitions DB 28 Patent expenses DB 28B Expenses of failed or withdrawn patent application DB 29 Patent rights: devising patented inventions DB 30 Patent rights acquired before 1 April 1993 DB 31 Patent applications or patent rights acquired on or after 1 April 1993 DB 32 Gifts of money by company Marketing Theft and bribery DB 33 Property misappropriated by employees or service providers DB 34 Making good loss from misappropriation by partners DB 35 Restitution of stolen property DB 36 Bribes paid to public ofﬁcials 464 467 469 469 470 471 471 473 474 475 476 476 DB 37 Avoiding, remedying, or mitigating effects of discharge 478 Pollution control of contaminant DB 38 Payments for remitted amounts DB 39 Restrictive covenant breached Repayments 481 481 Matching rules: revenue account property, prepayments, and deferred payments DB 40 Adjustment for opening values of trading stock, livestock, 482 and excepted ﬁnancial arrangements DB 41 Adjustment for prepayments DB 42 Adjustment for deferred payment of employment income Change to accounting practice DB 43 Adjustment for change to accounting practice Portfolio investment entities DB 43B Certain investors have deduction for portfolio investor allocated loss DB 43C Certain fees charged by portfolio tax rate entities to investors not allowed as deductions 484 484 485 485 486 DB 44 Expenditure incurred in deriving exempt dividend 487 Exempt income 18 Reprinted as at 29 August 2011 Income Tax Act 2004 Use of motor vehicle under certain arrangements DB 45 Expenditure incurred in operating motor vehicle under agreement or arrangement affected by section CX 6B Emissions trading scheme DB 46 Acquisition of ETS units DB 46B Liabilities for emissions DB 47 Surrender of pre-1990 forest land units for post-1989 forest land deforestation Subpart DC—Employee or contractor expenditure Pension payments to former employees Pension
 payments to former partners Payments to working partners DC 1 Lump sum payments on retirement DC 2 DC 3 DC 4 DC 5 Contributions to employees’ beneﬁt funds DC 6 Contributions to employees’ superannuation schemes DC 7 Attribution of personal services DC 8 Restrictive covenants or exit inducements DC 9 Sale of business: transferred employment income obligations DC 10 Transfers of employment income obligations to associates DC 11 Loans to employees under share purchase schemes DC 12 Criteria for approval of share purchase schemes: before period of restriction ends DC 13 Criteria for approval of share purchase schemes: when period of restriction ends DC 14 Some deﬁnitions Subpart DD—Entertainment expenditure DD 1 Entertainment expenditure generally DD 2 Limitation rule DD 3 When limitation rule does not apply DD 4 Employment-related activities DD 5 Promoting businesses, goods, or services DD 6 Entertainment as business or for charitable purpose DD 7 Entertainment outside New Zealand DD 8 Entertainment that is income or fringe beneﬁt DD 9 Relationship with FBT rules DD 10 Interpretation: reimbursement and apportionment DD 11 Some deﬁnitions Income Tax Act 2004 Reprinted as at 29 August 2011 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 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 Payment by claimant receiving personal service rehabilitation payment DF 4 Subpart DN—Attributed losses from foreign equity Attributed controlled foreign company 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 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: not branch equivalent method [Repealed] 516 516 519 519 520 520 521 521 522 523 523 524 524 526 527 527 529 529 530 530 531 532 537 537 DN 9 Ring-fencing cap on deduction: branch equivalent method 537 20 Reprinted as at 29 August 2011 Income Tax Act 2004 Subpart DO—Farming and aquacultural business expenditure Farming DO 1 Enhancements to land, except trees DO 2 Erosion and shelter plantings DO 3 Trees on farms DO 4 DO 4B Expenditure on land: planting of listed horticultural Improvements to farm land plants DO 4C Expenditure on land: horticultural replacement planting DO 4D Accounting for expenditure on listed horticultural plants under sections DO 4B and DO 4C DO 4E Some deﬁnitions DO 5 Farming or horticulture expenditure of lessor or sublessor DO 5B Improvement destroyed or made useless DO 6 DO 7 Improvements to aquacultural business Improvement destroyed or made useless Aquaculture Subpart DP—Forestry expenditure Expenditure of forestry business DP 1 Plant or machinery DP 2 DP 3 Improvements to forestry land DP 3B Improvement destroyed or made useless DP 4 DP 5 DP 6 DP 7 Forestry encouragement agreement: deductions Forestry encouragement agreement: no deduction Land contouring: no deduction Forestry business on land bought from Crown, Maori owners, or holding company: no deduction DP 8 Cost of acquiring timber: forestry business on land bought from Crown, Maori owners, or holding company DP 8B Treaty of Waitangi claim settlements: rights to take timber DP 9 Cost of acquiring timber or
 right to take timber: other cases DP 10 Cost of timber Subpart DQ—Income equalisation schemes and environmental restoration accounts scheme 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 539 540 540 541 543 546 548 549 549 550 551 553 554 556 557 558 559 560 561 561 562 563 563 564 566 566 567 567 21 Income Tax Act 2004 Reprinted as at 29 August 2011 Subpart DR—Life insurance business expenditure DR 1 Mortality proﬁt formula: negative result DR 2 Disposal of property DR 3 Speciﬁc deductions denied to life insurers and fully reinsured persons Subpart DS—Film industry expenditure DS 1 Acquiring ﬁlm rights DS 2 DS 2B Expenditure in acquiring ﬁlm, or ﬁlm right, intended for Film production expenditure 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 licences 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 22 568 569 570 571 572 574 575 576
 578 579 579 582 582 582 583 583 584 584 585 586 587 588 588 589 590 590 591 591 Reprinted as at 29 August 2011 Income Tax Act 2004 DT 20 Petroleum mining operations outside New Zealand Subpart DU—Mineral mining expenditure DU 1 Mining exploration expenditure and mining development expenditure DU 2 Mining exploration expenditure or mining development expenditure on acquisition of asset Income appropriated to expenditure DU 3 Replacing or repairing asset DU 4 DU 5 Non-mining asset used to derive income from mining DU 6 Depreciation DU 7 Limit on deduction DU 8 Meaning of asset for sections DU 1 to DU 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 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 10B Distribution to member of co-operative company, excluded from being dividend DV 11 Maori authorities: donations DV 12 Group companies DV 13 Amalgamated company: expenditure on improvements for farming, horticultural, aquacultural, and forestry businesses Subpart DW—Expenditure speciﬁc to certain industries DW 1 Airport operators DW 2 Bloodstock racing Income Tax Act 2004 Reprinted as at 29 August 2011 DW 3 Deduction for general insurance outstanding claims 621 reserve DX 1 Testamentary annuities Subpart DX—Other expenditure Subpart DY—Deductions under Parts F to I DY 1 Amounts that are
 deductions under Parts to be rewritten DY 2 Amounts that are not deductions under Parts to be rewritten Subpart DZ—Terminating provisions DZ 1 Commercial bills before 31 July 1986 DZ 2 Life insurers acquiring property before 1 April 1988 Petroleum mining: development expenditure from 1 DZ 3 October 1990 to 15 December 1991 DZ 4 Expenditure on abandoned exploratory well before 16 DZ 5 DZ 6 DZ 7 December 1991 Farm-out arrangements for petroleum mining before 16 December 1991 Partnership interests and disposal of part of asset before 16 December 1991 Petroleum mining operations outside New Zealand before 16 December 1991 DZ 8 Buying patent rights before 1 April 1993 Premium paid on land leased before 1 April 1993 DZ 9 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 to 2005 DZ 13 Enhancements to land unamortised at end of 2004-05 year DZ 14 Patent applications before 1 April 2005 DZ 15 Geothermal wells between 31 March 2003 and 17 May 2006 DZ 16 Expenditure on improvements to aquacultural business before 1995-96 income year DZ 17 Expenditure on improvements to forestry land before 1995-96 income year 622 624 625 626 626 628 629 630 632 632 632 633 633 634 636 638 638 639 640 641 24 Reprinted as at 29 August 2011 Income Tax Act 2004 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 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 665 666 667 669 673 673 675 675 676 677 678 679 680 681 681 682 683 684 684 684 684 685 686 687 688 688 25 Income Tax Act 2004 Reprinted as at 29 August 2011 EB 23 Valuing closing stock under $5,000 Low value trading stock Subpart EC—Valuation of livestock Introductory provisions Livestock valuation methods EC 1 Application of this subpart EC 2 Valuation of livestock EC 3 EC 4 Value of livestock on death of person [Repealed] EC 5 EC 5B Transfer of livestock because of self-assessed adverse Transfers of livestock within wholly-owned groups event Valuation of speciﬁed livestock EC 6 Application of sections EC 7 to EC 27 EC 7 Valuation methods EC 8 Restrictions on use of herd scheme EC 9 Restrictions on use of national standard cost scheme EC 10 Restrictions on use of cost price method EC 11 Restrictions on making of elections EC 12 Interests in livestock EC 13 Changes in partnership interests Herd scheme EC 14 Herd scheme EC 15 Determining national average market values EC 16 Valuation under herd scheme EC 17 Herd value ratio EC 18 Inaccurate herd value ratio EC 19 Chatham Islands adjustment to herd value EC 20 Herd livestock disposed of before values determined EC 21 Herd livestock on death before values determined National standard cost scheme EC 22 National standard cost scheme EC 23
 Determining national standard costs EC 24 Methods for determining costs using national standard cost scheme Other methods EC 25 Cost price, replacement price, or market value EC 26 Bailee’s treatment of livestock 26 689 691 692 692 693 693 694 695 695 696 696 698 699 700 701 702 703 703 704 705 706 706 707 707 708 708 709 710 Reprinted as at 29 August 2011 Income Tax Act 2004 EC 27 Some deﬁnitions Deﬁnitions Valuation of non-speciﬁed livestock EC 28 Application of sections EC 29 to EC 31 EC 29 Determining standard values EC 30 Closing value methods EC 31 Enhanced production Valuation of high-priced livestock EC 32 Application of sections EC 33 to EC 37 EC 33 Determining depreciation percentages EC 34 General rule EC 35 Livestock reaching national average market value and livestock no longer used for breeding EC 36 Immature livestock and recently bought livestock EC 37 Bailment Valuation of bloodstock EC 38 Application of sections EC 39 to EC 48 EC 39 First income year in breeding business EC 40 Later income years in breeding business EC 41 Reduction: bloodstock not previously used for breeding in New Zealand other than as shuttle stallions EC 42 Reduction: bloodstock previously used for breeding in New Zealand EC 43 Accident, birth deformity, or infertility EC 44 Other bloodstock EC 45 Residual value of bloodstock EC 46 Use of bloodstock for racing EC 47 Change of use of bloodstock in course of business EC 48 Replacement breeding stock Subpart ED—Valuation of excepted ﬁnancial arrangements ED 1 Valuation of excepted ﬁnancial arrangements ED 2 Transfers of certain excepted ﬁnancial arrangements within wholly-owned groups Subpart EE—Depreciation Introductory provision EE 1 What this subpart does 711 711 711 712 712 713 714 714 715 717 717 717 717 718 719 721 722 722 723 723 724 724 727 729 733 27 Income Tax Act 2004 Reprinted as at 29 August 2011 Meaning of own EE 2 Nature of ownership of item EE 3 Ownership of goods subject to reservation of title EE 4 Ownership of
 lessee’s improvements: lessee EE 5 Ownership of lessee’s improvements: other person Meaning of depreciable property EE 6 What is depreciable property?
EE 7 What is not depreciable property?
EE 8 Election that property not be depreciable How amounts of depreciation loss and depreciation recovery income are calculated EE 9 Description of elements of calculation EE 10 Calculation rule: item temporarily not available EE 11 Calculation rule: income year in which item disposed of EE 12 Depreciation methods Methods Amount of depreciation loss under diminishing value method or straight-line method EE 13 Application of sections EE 14 to EE 19 EE 14 Diminishing value or straight-line method: calculating amount of depreciation loss EE 15 Amount of adjusted tax value EE 16 Amount resulting from standard calculation EE 17 Amount resulting from petroleum-related depreciable property calculation EE 18 Cost: change from diminishing value to straight-line method EE 19 Cost: ﬁxed life intangible property Amount of depreciation loss under pool method EE 20 Application of sections EE 21 to EE 24 EE 21 Pool method: calculating amount of depreciation loss EE 22 Cases affecting pool EE 23 Combined pools EE 24 Property ceasing to qualify for pool EE 24B Depreciation loss for plant variety rights application upon grant of rights in 2005–06 or later income year Depreciation rates EE 25 Setting of economic depreciation rate 28 735 736 736 737 738 739 740 741 743 743 744 746 746 747 747 749 750 750 751 751 753 754 754 755 756 Reprinted as at 29 August 2011 Income Tax Act 2004 EE 25B Economic rate for certain depreciable property EE 25C Economic rate for buildings EE 25D Economic rate for certain aircraft and motor vehicles EE 25E Economic rate for plant, equipment, or building, with 757 758 760 761 high residual value EE 26 Annual rate for item acquired in person’s 1995-96 or later 762 income year EE 26B Election in respect of certain depreciable property acquired on or after 1 April 2005 EE 27 Annual rate for ﬁxed life intangible property EE 27B Annual rate for patent granted in 2005–06 or later income year EE 27C Annual rate for patent applications lodged with complete speciﬁcations on or after 1 April 2005 [Repealed] EE 27D
 Annual rate for patents: applications lodged with complete speciﬁcations on or after 1 April 2005 [Repealed] EE 27E Annual rate for plant variety rights [Repealed] EE 28 Special rate or provisional rate EE 29 Using economic rate or provisional rate instead of special rate Improvements, items of low value, or items no longer used EE 30 Improvements EE 31 Items of low value EE 32 Items no longer used 763 764 765 767 767 767 767 768 769 771 773 Transfers of depreciable property: associated persons and non-qualifying amalgamations EE 33 Transfer of depreciable property on or after 24 September 774 1997 EE 34 Transfer of depreciable property in non-qualifying amalgamation on or after 14 May 2002 EE 35 Transfer of radiocommunications licence right on or after 24 September 1997 EE 36 Transfer of depreciable intangible property on or after 1 July 1997 Disposals and similar events EE 37 Application of sections EE 41 to EE 44 EE 38 Consideration for purposes of section EE 37 EE 39 Items for purposes of section EE 37 EE 40 Events for purposes of section EE 37 778 780 781 781 782 786 786 29 Income Tax Act 2004 Reprinted as at 29 August 2011 EE 41 Effect of disposal or event EE 42 Amount of depreciation recovery income when item partly used for business EE 43 Amount of depreciation recovery income when lost or stolen items recovered EE 44 Amount of depreciation recovery income when compensation received EE 44B Unused geothermal well brought into use EE 45 Cost: GST Interpretation provisions Adjusted tax value EE 46 Meaning of adjusted tax value EE 47 Formula EE 48 Base value in section EE 47 when none of sections EE 49, EE 50, and EZ 21(1) applies EE 49 Base value in section EE 47 when no previous deduction EE 50 Base value in section EE 47 when property is petroleum-related depreciable property EE 51 Total deductions in section EE 47 Deﬁnitions EE 52 Meaning of annual rate EE 53 Meaning of depreciable intangible property EE 54 Meaning of estimated useful life EE 55 Meaning of
 excluded depreciable property EE 56 Meaning of maximum pooling value EE 57 Meaning of poolable property EE 58 Other deﬁnitions Subpart EF—Taxes and levies Fringe beneﬁt tax Speciﬁed superannuation contribution withholding tax EF 1 EF 2 EF 3 ACC levies and premiums EF 4 Use of money interest payable by Commissioner EF 5 Use of money interest payable by person EF 6 Different tax years Subpart EG—Recognition of accounting treatment EG 1 Election to use balance date used in foreign country EG 2 Adjustment for changes to accounting practice EG 3 Allocation of income, deductions, and credits by portfolio tax rate entity 30 788 790 791 792 792 793 794 794 795 796 797 798 801 803 804 804 805 806 806 809 809 810 812 813 814 815 818 819 Reprinted as at 29 August 2011 Income Tax Act 2004 Subpart EH—Income equalisation schemes Introductory provisions EH 1 EH 2 Income equalisation schemes Income Equalisation Reserve Account Main income equalisation scheme Application EH 3 Persons to whom main income equalisation scheme applies Deposits and accounts EH 4 Main deposit EH 5 Main income equalisation account Interest 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 823 824 825 825 827 828 829 829 829 830 830 EH 12 Application for refund by person, trustee of estate, Ofﬁcial 830 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 831 831 832 833 834 834 835 836 836 837 838 838 31 Income Tax Act 2004 Reprinted as at 29 August 2011 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 Rebate of income tax EH 30 When person entitled to rebate of income tax EH 31 Kind and amount of refund that entitles person to rebate of income tax EH 32 Kind of person entitled to rebate of income tax EH 33 Amount of rebate of income tax Deﬁnitions EH 34 Meaning of income from forestry EH 35 Meaning of main maximum deposit EH 36 Meaning of self-assessed adverse event [Repealed] EH 37 Other deﬁnitions Adverse event income equalisation scheme Application 839 839 839 839 840 840 840 841 841 842 842 844 844 EH 38 Persons to whom adverse event income equalisation 846 scheme applies Deposits and accounts EH 39 Adverse event deposit EH 40 Adverse event income equalisation account 846 847 EH 41 Interest on deposits in adverse event income equalisation 848 Interest account Deduction EH 42 Deduction of deposit Refunds: automatic EH 43 Refund of excess deposit EH 44 Income does not include excess deposit Refunds: on application 848 849 849 EH 45 Application for refund by person, trustee of estate, Ofﬁcial 849 Assignee, or liquidator EH 46 Refund on request EH 47 Income when refund given on request 850 850 32 Reprinted as at 29 August 2011 Income Tax Act 2004 EH 48 Refund on retirement EH 49 Income when refund given on retirement, and election to allocate amount to earlier year EH 50 Refund on death EH 51 Income when refund given on death EH 52 Income when refund given on death, and election to allocate amount to earlier year EH 53 Income when refund given on death, and election to allocate amount to later year or years EH 54
 Refund on bankruptcy EH 55 Income when refund given on bankruptcy EH 56 Refund on liquidation EH 57 Income when refund given on liquidation Refunds: general provisions EH 58 Amendment of assessment EH 59 Minimum refund EH 60 Deposits from which refunds come EH 61 Transfer of deposit Transfers Deﬁnitions EH 62 Meaning of adverse event maximum deposit EH 63 Meaning of self-assessed adverse event [Repealed] EH 64 Other deﬁnitions 851 851 852 852 853 853 855 855 855 856 856 856 856 857 857 859 859 Thinning operations income equalisation scheme Application EH 65 Persons to whom thinning operations income equalisation 860 scheme applies Deposits and accounts EH 66 Thinning operations deposit EH 67 Thinning operations income equalisation account EH 68 Interest on deposits in thinning operations income equalisation account Interest Deductions EH 69 Deduction of deposit EH 70 Refund of excess deposit Refunds: automatic 861 862 863 864 864 33 Income Tax Act 2004 Reprinted as at 29 August 2011 EH 71 Income does not include excess deposit Refunds: on application EH 72 Application for refund by person or liquidator EH 73 Refund on request EH 74 Income when refund given on request EH 75 Refund for development or recovery EH 76 Income when refund given for development or recovery EH 77 Refund on liquidation EH 78 Income when refund given on liquidation Refunds: general provisions, and rebate of income tax EH 79 Sections of main income equalisation scheme that apply to thinning operations income equalisation scheme EH 80 Meaning of thinning operations maximum deposit EH 81 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 Assigning or granting copyright EI 3 EI 3B Spreading income from patent rights Land 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 Crown EI 4 EI 5 EI 6 EI 7 Shareholder-employees EI 8 Matching rule for employment income of shareholderemployee 865 865 865 866 866 867 868 869 869 869 870 872 872 873 875 875 876 877 877 879 Subpart EJ—Spreading of speciﬁc expenditure Farming and forestry EJ 1 Spreading backward of deductions for costs of timber 881 34 Reprinted as at 29 August 2011 Income Tax Act 2004 EJ 2 EJ 3 EJ 4 EJ 5 EJ 6 EJ 7 EJ 8 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 screen production grant Film production expenditure for other ﬁlms having no large budget screen production grant Leases Personal property lease payments EJ 9 EJ 10 Amount paid by lessee for non-compliance with covenant for repair EJ 11 Petroleum development expenditure: default allocation Petroleum mining rule EJ 11B Petroleum development expenditure: reserve depletion method EJ 12 Relinquishing petroleum permit EJ 12B Dry well drilled EJ 12C Well not producing EJ 13 Disposal of petroleum mining asset EJ 14 Disposal of petroleum mining asset to associate EJ 15 Partnership interests and disposal of part of asset EJ 16 Petroleum mining operations outside New Zealand Deﬁnitions EJ 17 Meaning of offshore development [Repealed] EJ 18 Meaning of petroleum mining development EJ 19 Contributions to employees’ superannuation schemes Superannuation contributions Research, development, and resulting market development 881 882 884 886 887 888 889 890 891 892 892 894 895 895 896 897 897 898 898 898 899 EJ 20 Deductions for market development—product of research, 900 development 35 Income Tax Act 2004 Reprinted as at 29 August 2011 EJ 21 Allocation
 of deductions for research, development, and 900 resulting market development Subpart EK—Environmental restoration accounts EK 1 Environmental Restoration Funds Account EK 2 Persons who may make payment to environmental restoration account Payments to environmental restoration account EK 3 EK 4 Environmental restoration account EK 5 Details to be provided with payment to environmental restoration account Interest on payments to environmental restoration account EK 6 EK 7 Deduction for payment EK 8 Deduction for transfer EK 9 Refund of payment if excess, lacking details EK 10 Certain refunds not income EK 11 Application for refund EK 12 Refund if request or excess balance EK 13 Income when refund given on request EK 14 Application for transfer EK 15 Transfer on request EK 16 Transfer on death, bankruptcy, or liquidation EK 17 Minimum refund or transfer EK 18 Payments from which refunds come EK 19 Environmental restoration account of amalgamating company EK 20 Environmental restoration account of member of consolidated group EK 21 Commissioner may require notice in electronic format EK 22 Meaning of maximum payment EK 23 Other deﬁnitions Subpart EW—Financial arrangements rules Introductory provisions EW 1 What this subpart does EW 2 Relationship of ﬁnancial arrangements rules with other 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?
36 903 903 904 905 906 907 907 908 909 910 910 911 913 913 914 915 916 916 917 918 918 919 920 924 925 926 927 928 Reprinted as at 29 August 2011 Income Tax Act 2004 EW 6 Relationship between ﬁnancial arrangements and excepted 933 ﬁnancial arrangements EW 7 Change from private or domestic purpose EW 8 Election to treat certain excepted ﬁnancial arrangements as ﬁnancial arrangements Application of ﬁnancial arrangements rules EW 9 Persons to whom ﬁnancial arrangements rules apply EW 10 Financial arrangements to which ﬁnancial arrangements rules apply EW 11 What ﬁnancial arrangements rules do not apply to Calculation and allocation of income and expenditure over ﬁnancial arrangement’s term EW 12 When use of spreading method required EW 13 When use of spreading method not required EW 14 What spreading methods do EW 15 What is included when spreading methods used EW 15B IFRS taxpayer method EW 15C IFRS method EW 15D Determination alternatives to IFRS EW 15E Expected value method and equity-free fair value method EW 16 Yield to maturity method or alternative EW 17 Straight-line method EW 18 Market valuation method EW 19 Choice among YTM or alternative, SL, and MV 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 EW 25 Consistency of use of straight-line method and market valuation method 933 934 934 935 937 937 937 938 939 941 944 946 948 950 951 952 953 954 955 956 957 958 959 EW 25B Consistency of use of speciﬁc individual methods under 960 IFRS taxpayer 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 961 963 964 37 Income Tax Act 2004 Reprinted as at 29 August 2011 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 964 967 968 Consideration Consideration when ﬁnancial arrangement involves property or services EW 32 Consideration for agreement for sale and purchase of 971 property or services, hire purchase agreement, speciﬁed lease, 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 treated as paid to person on distribution in kind [Repealed] EW 40 Consideration affected by unfavourable factors Consideration treated as paid by person EW 41 Consideration when person exits from rules: accrued obligation EW 42 Consideration when person enters rules: accrued entitlement EW 43 Consideration when acquisition for no, or inadequate, consideration EW 44 Consideration treated as paid by person on distribution in kind [Repealed] EW 45 Consideration when debt sold at discount to associate of debtor EW 46 Consideration when debt forgiven for natural love and affection EW 47 Consideration when debtor released from obligation EW 47B Consideration when debtor released as condition of new start grant 972 973 974 974 975 977 977 977 978 979 981 981 982 982 983 984 38 Reprinted as at 29 August 2011 Income Tax Act 2004 Consideration when legal defeasance has occurred EW 48 Legal defeasance 986 Consideration when change from fair value method under IFRS method EW 48B Consideration when change from fair value method 987 under IFRS method Consideration when anti-avoidance provision applies EW 49 Anti-avoidance provisions Income and deduction provisions speciﬁcally related to ﬁnancial arrangements EW 50 Income and deduction when debt sold at discount to
 associate of debtor EW 51 Income when debt forgiven to trustee EW 52 Deduction for security payment Treatment of original share acquired under ﬁnancial arrangement EW 52B 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 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 Subpart EX—Controlled foreign company and foreign investment fund rules Controlled foreign company rules When is a company a controlled foreign company?
EX 1 Meaning of CFC 988 988 989 991 992 993 995 995 995 996 998 1000 1000 1001 1002 1003 1008 39 Income Tax Act 2004 Reprinted as at 29 August 2011 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 Ten percent threshold and variations in income interest level EX 14 Attribution: 10% threshold EX 15 Associates and 10% threshold EX 16 Income interests for certain purposes EX 17 Income interest if variations within period Calculation of attributed CFC income or loss EX 18 Formula for calculating attributed CFC income or loss EX 19 Taxable distribution from non-qualifying trust EX 20 Reduction in attributed CFC loss 1009 1010 1010 1011 1012 1013 1014 1015 1016 1017 1018 1019 1019 1019 1020 1021 1022 1022 1023 Calculation of branch equivalent income or loss EX 21 Branch equivalent income or loss: calculation rules 1024 Grey list exemption EX 22 Unqualiﬁed grey list CFCs EX 23 Tax concession grey list CFCs Residence of companies EX 24 Residence in grey list country EX 25 Companies moving to or from New Zealand EX 26 Change of CFC’s balance date Change of CFC’s balance date 1033 1033 1034 1035 1036 40 Reprinted as at 29 August 2011 Income Tax Act 2004 Ownership measurement concession EX 27 Use of quarterly measurement Anti-avoidance rule: stapled stock EX 28 Anti-avoidance rule: stapled stock Foreign investment fund rules What is a foreign investment fund?
EX 29 Meaning of FIF Attributing interests in FIFs EX 30 Attributing interests in FIFs EX 31 Direct income interests in FIFs EX 32 CFC rules exemption EX 33 Exemptions: direct income interests in FIF in grey list country 1037 1038 1038 1039 1039 1041 1041 EX 33B Exemptions limited by income years: shares in certain 1046 grey list companies EX 33C Exemption: shares in listed Australian company EX 33D Exemption: units in certain Australian unit trusts EX 33E Australian superannuation fund exemption EX 34 Foreign exchange control exemption EX 35 Income interest of non-resident or transitional resident EX 36 New resident’s accrued superannuation entitlement exemption EX 37 Non-resident’s pension or annuity exemption Calculation of FIF income or loss EX 38 Six calculation methods EX 39 Exclusion of amounts of death beneﬁt EX 40 Limits on choice of calculation methods EX 40B Use of particular calculation methods required EX 41 Default calculation method EX 42 Accounting proﬁts method EX 43 Branch equivalent method EX 44 Comparative value method EX 44B Fair dividend rate method EX 44C Fair dividend rate method: usual method EX 44D Fair dividend rate method: method for unit valuers and persons valuing interests daily EX 44E Fair dividend rate method and cost method: calculating items in formulas for periods affected by share reorganisations EX 45 Deemed rate of return method 1048 1050 1052 1053 1053 1054 1057 1058 1059 1060 1066 1067 1068 1070 1073 1076 1077 1082 1088 1090 41 Income Tax Act 2004 Reprinted as at 29 August 2011 Additional FIF income or loss if CFC owns FIF EX 45B Cost method EX 46 Additional FIF income or loss if CFC owns FIF 1094 1100 Relationship with other provisions in Act EX 47 Codes: comparative value method, deemed rate of return 1102 method, fair dividend rate method, and cost method EX 48 Top-up FIF income: deemed rate of return method EX 49 Top-up FIF income: 1 April 1993 uplift interests Changing calculation method EX 50 Limits on changes of method EX 51 Consequences of changes in method Cases
 of entry into and exit from FIF rules EX 52 Migration of persons holding FIF interests EX 53 Changes in application of FIF exemptions EX 54 FIFs migrating from New Zealand EX 54B FIF rules ﬁrst applying to interest for income year beginning on or after 1 April 2007 EX 55 Death of persons holding FIF interests [Repealed] EX 56 Measurement of cost Measurement of cost EX 57 Change of FIF’s balance date Change of FIF’s balance date Market value rules EX 58 Market value of life policy and superannuation entitlements EX 59 Non-market transactions in FIF interests Commissioner’s default assessment power EX 60 Commissioner’s default assessment power Subpart EY—Life insurance rules EY 1 What this subpart does EY 2 Matters to which this subpart relates EY 3 Meaning of actuarial reserves EY 4 Actuarial reserves: calculation EY 5 Actuarial reserves: actuary’s declaration EY 6 Actuarial reserves: powers of Commissioner EY 7 Meaning of claim EY 8 Meaning of life insurance 42 1104 1105 1106 1109 1112 1115 1119 1120 1122 1122 1124 1126 1127 1127 1130 1131 1132 1132 1133 1134 1134 1136 Reprinted as at 29 August 2011 Income Tax Act 2004 EY 9 Meaning of life insurance policy EY 10 Meaning of life insurer EY 11 Meaning of life reinsurance EY 12 Meaning of life reinsurance policy EY 13 Life insurance and life reinsurance: how sections relate Premium loading EY 14 How premium loading is calculated EY 15 Premium loading: when life insurers providing life insurance at start of income year 1137 1137 1138 1140 1140 1140 1141 EY 16 Premium loading: when life insurers not providing life 1142 insurance at start of income year EY 17 Premium loading formulas EY 18 Premium loading formulas: when life insurers not providing life insurance at start of income year EY 19 Premium loading formulas: option when more than 1 1142 1143 1144 life insured EY 20 Premium loading formula (life): when annuity payable 1145 on death EY 21 Premium loading formulas: when annuity payable on 1145 survival to date or age
 speciﬁed in policy EY 22 Premium loading formula (life): when partial reinsurance 1146 exists EY 23 Premium loading formulas: individual result may never 1146 be negative Mortality proﬁt EY 24 How mortality proﬁt is calculated EY 25 Mortality proﬁt: when life insurers providing life insurance at start of income year EY 26 Mortality proﬁt: when life insurers not providing life insurance at start of income year EY 27 Mortality proﬁt formula EY 28 Mortality proﬁt formula: when life insurers not providing life insurance at start of income year 1147 1147 1148 1148 1150 EY 29 Mortality proﬁt formula: option when more than 1 life 1150 insured EY 30 Mortality proﬁt formula: when annuity payable on death EY 31 Mortality proﬁt formula: when partial reinsurance exists EY 32 Mortality proﬁt formula: individual result may be negative only in some cases EY 33 Mortality proﬁt formula: negative result 1151 1152 1152 1153 43 Income Tax Act 2004 Reprinted as at 29 August 2011 Discontinuance proﬁt EY 34 How discontinuance proﬁt is calculated EY 35 Discontinuance proﬁt for income year EY 36 Discontinuance proﬁt formula (existing policies) EY 37 Discontinuance proﬁt formula (new policies) EY 38 Discontinuance proﬁt formula (existing policies): when partial reinsurance exists EY 39 Discontinuance proﬁt formula (new policies): when partial reinsurance exists EY 40 Discontinuance proﬁt formulas: individual result may never be negative Policyholder income EY 41 How policyholder income is calculated EY 42 Policyholder income formula EY 42B Policyholder income formula: FDR adjustment EY 42C Policyholder income formula: PILF adjustment EY 43 Policyholder income formula: when partial reinsurance exists EY 44 Policyholder income formula: when life insurance business transferred Disposal of property EY 45 Income from disposal of property EY 46 Deductions for disposal of property Non-resident life insurers 1153 1154 1154 1155 1156 1156 1157 1157 1157 1159 1161 1163 1164 1165 1166 EY 47
 Non-resident life insurers with life insurance policies in 1166 New Zealand EY 48 Non-resident life insurer may become resident 1167 Subpart EZ—Terminating provisions Life insurance Life insurers acquiring property before 1 April 1988 EZ 1 EZ 2 Deductions for disposal of property: 1982-83 and 1989-90 1171 1172 income years EZ 3 Petroleum mining Petroleum development expenditure from 1 October 1990 to 15 December 1991 1173 EZ 4 Valuation of livestock bailed or leased as at 2 September 1174 Livestock 1992 44 Reprinted as at 29 August 2011 Income Tax Act 2004 EZ 4B Reduction: bloodstock not previously used for breeding 1175 in New Zealand: pre-1 August 2006 EZ 4C Reduction: broodmare previously used for breeding in 1177 New Zealand: pre-1 August 2006 Patent rights EZ 5 Buying patent rights before 1 April 1993 EZ 6 Premium paid on land leased before 1 April 1993 Leases of land EZ 7 EZ 8 EZ 9 Foreign investment fund rules FIF interests held on 1 April 1993 [Repealed] Depreciation Pool method for items accounted for by globo method for 1992-93 income year Pool items accounted for by globo method for 1992-93 income year EZ 10 Amounts of depreciation recovery income and depreciation loss for part business use in or before 1992-93 income year EZ 11 Amount of depreciation loss for item acquired from associated person on or before 23 September 1997 EZ 12 Annual rate for item acquired on or after 1 April 1993 and before end of person’s 1994-95 income year EZ 13 Pre-1993 depreciation rate EZ 14 Annual rate for excluded depreciable property: 1992-93 tax year EZ 15 Amount of depreciation loss for plant or machinery additional to section EZ 14 amount EZ 16 Additional amount of depreciation loss: between 16 December 1991 and 1 April 1994 EZ 17 Section EZ 16 amount of depreciation loss when items transferred between companies in wholly-owned group before 1 April 1993 1178 1179 1180 1180 1180 1181 1181 1183 1183 1185 1187 1188 1189 EZ 18 Section EZ 16 amount of depreciation loss when
 person 1190 previously exempt from tax acquires item EZ 19 Adjusted tax value for software acquired before 1 April 1191 1993 EZ 20 Sections EE 38 and EE 40: permanent removal: allowance 1191 before 1 April 1995 EZ 21 Base value and total deductions in section EE 47: before 1 1192 April 1995 45 Income Tax Act 2004 Reprinted as at 29 August 2011 EZ 21B Economic rate for plant or equipment acquired before 1 1193 April 2005 and buildings acquired before 19 May 2005 Deﬁnitions EZ 22 Meaning of new asset EZ 23 Meaning of New Zealand-new asset EZ 24 Meaning of qualifying capital value EZ 25 Meaning of qualifying improvement EZ 26 Meaning of qualifying asset Accident insurance 1194 1196 1197 1198 1199 EZ 27 Private insurers under Accident Insurance Act 1998 EZ 28 Base premium for 1998-99 premium year under Accident 1200 1201 Insurance Act 1998 CFC and FIF rules EZ 29 Disclosure restrictions on grey list CFCs before 2011–12 1202 Old ﬁnancial arrangements rules EZ 30 Application of old ﬁnancial arrangements rules EZ 31 Election to apply ﬁnancial arrangements rules in subpart 1204 1204 EW EZ 32 Accruals in relation to income and expenditure in respect 1204 of ﬁnancial arrangements EZ 33 Excepted ﬁnancial arrangement that is part of ﬁnancial 1211 arrangement EZ 34 Cash basis holder EZ 35 Income and expenditure where ﬁnancial arrangement redeemed or disposed of EZ 36 Forgiveness of debt EZ 37 Accrued income written off EZ 38 Sale of debt to associate of debtor EZ 39 Post facto adjustment EZ 40 Variable principal debt instruments EZ 41 Relationship with rest of Act EZ 42 Application of old ﬁnancial arrangements rules EZ 43 Election to treat short term trade credit as ﬁnancial arrangement EZ 44 Election to continue to treat certain excepted ﬁnancial arrangements as ﬁnancial arrangements EZ 45 Deﬁnitions EZ 46 Determination of core acquisition price where consideration for property denominated in foreign currency 46 1211 1217 1222 1223 1224 1225 1227 1227 1228 1229 1230 1230
 1244 Reprinted as at 29 August 2011 Income Tax Act 2004 EZ 47 Rules for non-market transactions EZ 48 Transitional adjustment when changing to ﬁnancial arrangements rules EZ 49 References to new rules include old rules EZ 50 Transitional rule for IFRS ﬁnancial reporting method EZ 51 Transitional rule for ﬁnancial reporting method EZ 52 Transitional rule for changes from the fair value method 1245 1246 1248 1249 1249 1250 Part F Apportionment and recharacterised transactions Subpart FB—Apportionment FB 2 Apportionment of income derived partly in New Zealand 1256 and partly elsewhere FB 3 Disposal of trading stock FB 4 Income derived from disposal of trading stock together with other assets of business FB 4A Land on revenue account FB 7 Depreciation: partial income-producing use Subpart FC—Recharacterisation Debentures and notes Floating rate of interest on debentures Interest on debentures issued in substitution for shares FC 1 FC 2 FC 2B Stapled debt securities 1257 1258 1260 1260 1264 1265 1266 Share dealing FC 3 FC 4 Valuation adjustments where company acquires its shares 1267 1268 Shares FC 5 Assets purchased and resold after deduction of payments 1270 Leases under lease Effect of speciﬁed lease on lessor and lessee Income of lessor under speciﬁed lease FC 6 FC 7 FC 8 Deduction to lessee under speciﬁed lease Finance leases FC 8A Lease of personal property lease asset treated as sale FC 8B Rules for personal property lease asset during term of ﬁnance lease FC 8C Termination of ﬁnance lease FC 8D Lessor’s use of personal property lease asset after ﬁnance lease ends 1271 1274 1275 1275 1275 1276 1277 47 Income Tax Act 2004 Reprinted as at 29 August 2011 FC 8E Purchase and sale of personal property lease asset by lessee or associated person FC 8F Lessor’s income FC 8G Deduction to lessee FC 8H Adjustment required if lease becomes ﬁnance lease FC 8I Adjustment required for certain operating leases entered before 20 June 2007 Purpose FC 9 FC 10 Taxation of hire
 purchase agreements Hire purchase 1277 1277 1278 1278 1279 1280 1280 FC 13 Premiums derived by non-resident general insurers treated 1285 Non-resident general insurers as being derived from New Zealand FC 14 Non-resident general insurers’ income FC 15 Non-resident general insurers’ expenditure FC 16 Liability to make return and pay income tax FC 17 Premiums paid to residents of Switzerland Non-resident shippers FC 18 Non-resident shippers’ income FC 19 Non-resident shippers’ excluded income FC 20 Non-resident shippers’ expenditure Non-resident ﬁlm renters 1288 1288 1288 1289 1290 1290 1291 FC 21 Amounts derived by non-residents from renting ﬁlms 1291 Transitional residents FC 22 Tax treatment of foreign-sourced amounts derived by transitional resident FC 23 General requirements for being transitional resident FC 24 Transitional resident 1292 1292 1293 Subpart FCB—Emigration of resident companies FCB 1 Tax effects of company becoming non-resident to reﬂect 1296 tax effects of liquidation FCB 2 Emigrating company treated as paying distribution to 1297 shareholders FCB 3 Emigrating company treated as disposing of property and 1298 immediately reacquiring property Subpart FD—Consolidation of companies Purpose and application of consolidated grouping provisions 1299 FD 1 48 Reprinted as at 29 August 2011 Income Tax Act 2004 Interpretation FD 2 FD 3 Companies which may constitute consolidated group FD 4 FD 5 Company may not be member of more than 1 consolidated Formation of consolidated group group FD 6 Nominated companies FD 7 FD 8 FD 9 Joining existing consolidated group Leaving consolidated group Part income year accounts and part tax year income allocation FD 10 Special provisions relating to dispositions of property FD 11 Application of international tax rules Subpart FDA—Imputation group of companies FDA 1 Companies that may constitute imputation group FDA 2 Formation, entry, and combination of imputation groups FDA 3 Membership of groups FDA 4 Liability of
 members of imputation group FDA 5 Nominated company FDA 6 Leaving imputation group Subpart FE—Amalgamation FE 1 Amalgamation of companies: purpose FE 2 Cancellation of shares held by amalgamating company on amalgamation 1299 1300 1301 1303 1304 1304 1307 1309 1310 1317 1317 1319 1320 1320 1320 1321 1324 1325 FE 3 Deduction to amalgamated company for bad debts and 1325 expenditure FE 4 Amalgamated company to assume unexpired accrual 1326 FE 5 expenditure and proﬁts or gains of amalgamating company Transfer of property or obligations under ﬁnancial arrangements deemed to be at market value FE 6 Acquisition of property by amalgamated company on qualifying amalgamation FE 6A Deduction to amalgamating company for depreciable FE 7 property transferred Succession of obligations of amalgamating company under ﬁnancial arrangement on amalgamation 1326 1327 1331 1331 FE 8 Amalgamated company to assume rights and obligations 1333 of amalgamating company FE 9 Amalgamation not to result in deemed income or 1333 remission of liabilities 49 Income Tax Act 2004 Reprinted as at 29 August 2011 FE 10 Treatment of ﬁnancial arrangements between 1334 amalgamating companies Subpart FF—Transfers under relationship agreements Patent applications and patent rights Speciﬁed livestock Shares or options Financial arrangements Business stock in hand Personal property Commercial bills Land FF 1 FF 2 FF 3 FF 4 FF 5 FF 6 FF 7 Disposal of timber under relationship agreement FF 8 FF 9 FF 10 Non-speciﬁed livestock FF 11 High-priced livestock FF 12 Bloodstock FF 13 Trading stock FF 14 Leased assets FF 15 Amount of depreciation loss for qualifying assets FF 16 Depreciable property FF 17 Pensions FF 18 Land used in speciﬁed activity FF 19 Mining assets Subpart FG—Apportionment of interest costs Purpose of this subpart Entities to which interest deduction rules potentially apply FG 1 FG 2 FG 3 When interest apportioned under section FG 8 or annual total deduction adjusted under section FG 8B FG 4 Rules for
 calculating New Zealand group debt percentage FG 5 Rules for calculating worldwide group debt percentage FG 6 Concession for on-lending FG 7 Concession for exchange rate ﬂuctuations FG 8 Apportionment of interest deductions—taxpayer not in New Zealand banking group FG 8B Adjustment of annual total deduction—reporting bank FG 8C New Zealand banking group of registered bank FG 8D Reporting bank for New Zealand banking group FG 8E Measurement periods and measurement days FG 8F Financial value and regulatory value FG 8G New Zealand net equity of New Zealand banking group FG 8H Net equity threshold FG 8I Valuation of debt and risk-weighted exposures Reprinted as at 29 August 2011 Income Tax Act 2004 FG 8J Treatment of temporary change in New Zealand net equity 1390 or net equity threshold Treatment of speciﬁed leases and interest expense FG 9 FG 10 Mode of elections 1390 1390 Subpart FH—Foreign attributed income excess interest allocation FH 1 Circumstances in which group excess interest allocation 1391 required FH 2 Rules for determining company’s foreign attributed income group FH 3 Rules for determining New Zealand foreign attributed income group debt percentage FH 4 Rules for determining consolidated foreign attributed income group debt percentage FH 5 Rule for calculating group excess interest allocation 1393 1393 1394 1396 amount FH 6 Rule for calculating company’s excess interest allocation 1397 percentage FH 7 Rule for calculating individual excess interest allocation 1398 amount FH 8 Rules for applying surplus group excess interest allocation amount to increase income tax and dividend withholding payment 1399 FI 1 FI 2 FI 3 FI 4 Subpart I—Effect of certain disposals and resulting acquisitions Disposals and resulting acquisitions to which subpart FI applies Disposal and resulting acquisition
 of property treated as occurring at market value Date on which disposal and resulting acquisition treated as occurring Disposal and resulting acquisition of property by spouse, civil union partner, or de facto partner on death of person Distributions of property to close relatives and others Disposal and resulting acquisition of timber Relationship of section FI 2(2) to subpart CB Relationship of subpart FI to unexpired prepayments Death occurring before 1 October 2005 FI 5 FI 6 FI 7 FI 8 FI 9 FI 10 Value of property acquired by beneﬁciary of trust before 1 October 2005 FI 11 Disposal of certain ﬁnancial arrangements on death 1401 1402 1402 1403 1404 1405 1405 1406 1407 1408 1409 51 Income Tax Act 2004 Reprinted as at 29 August 2011 Subpart FZ—Terminating provisions FZ 1 Deduction for dividends paid on certain preference shares FZ 2 Amounts owing under convertible notes deemed to be 1409 1410 share capital and holders deemed to be shareholders Part G Avoidance and non-market transactions Subpart GB—Avoidance: general GB 1 Agreements purporting to alter incidence of tax to be void 1415 Subpart GC—Avoidance: speciﬁc GC 1 Arrangement to defeat application of cross-border arrangement provision GC 2 Arrangements to defeat application of net loss carry 1419 1419 forward provisions GC 3 Effect on continuity provisions of change in beneﬁciaries 1420 of trust GC 4 Arrangement to defeat application of net loss offset 1420 provisions GC 5 Arrangement to defeat application of qualifying company 1420 provisions GC 6 Arrangement to defeat application of depreciation provisions GC 7 Arrangements in respect of CFCs GC 8 Arrangement to defeat application of CFC attributed repatriation provisions GC 9 Variations in control or income interests in foreign companies 1421 1421 1422 1422 GC 10 Attributed CFC income and FIF income: arrangements in 1427 respect of elections GC 11A Non-market transactions to acquire ﬁlm rights GC 11B Manipulation of arrangements to acquire ﬁlm rights GC 12
 Petroleum mining GC 14 Income of beneﬁciaries GC 14A Sale or transfer of commercial bill to New Zealand resident GC 14B Attribution rule for personal services GC 14C Deﬁnitions for use in section GC 14B GC 14D Attribution rule: calculation GC 14E Attribution rule: exception GC 14EB Treatment of dividends as if from qualifying company [Repealed] 1427 1428 1428 1430 1431 1431 1432 1433 1435 1435 52 Reprinted as at 29 August 2011 Income Tax Act 2004 GC 14F Arrangement to avoid application of restrictive covenant 1435 rule GC 14G Arrangement to avoid application of rules for returning 1436 share transfers Fringe beneﬁt tax GC 15 Beneﬁt given to associated person of employee GC 16 Value of motor vehicle acquired from associated person GC 17 Fringe beneﬁt tax: general GC 17B Fringe beneﬁt tax: arrangement void Deductions GC 18 Agreements not to make tax deductions to be void GC 19 Resident withholding tax GC 20 Agreements not to make resident withholding tax deductions to be void Imputation GC 21 Imputation continuity requirements GC 22 Imputation: arrangement to obtain tax advantage GC 23 Imputation: dividend paid by another company GC 24 Application of speciﬁc imputation provisions to consolidated groups GC 25 Avoidance of dividend withholding payments GC 26 Arrangement to defeat application of branch equivalent tax account provisions 1436 1437 1438 1439 1440 1440 1441 1441 1441 1445 1446 1447 1447 GC 27 Arrangement to defeat application of dividend withholding 1447 payment account provisions GC 27A Arrangement to obtain tax advantage with respect to 1448 Maori authority credit account provisions (subpart MK) GC 28 Tax credits for families Tax credits for families Arrangements involving money not at risk GC 29 Application of sections GC 29 to GC 31 GC 30 Deﬁned terms for sections GC 29 to GC 31 GC 31 Deferral of surplus deductions from arrangement Subpart GD—Non-market transactions Trading stock 1450 1451 1454 1455 GD 1 Sale or other disposal of trading stock for
 inadequate 1460 consideration 53 Income Tax Act 2004 Reprinted as at 29 August 2011 GD 2 Distribution of trading stock to shareholders of 1462 company [Repealed] Remuneration GD 3 Payment of excessive salary or wages, or allocation of 1462 excessive share of proﬁts or losses, to relative employed by or in partnership with taxpayer GD 4 Payments to taxpayer’s spouse, civil union partner or de 1464 facto partner GD 5 Excessive remuneration by close company to shareholder, 1465 director, or relative Superannuation and life insurance GD 6 Value of loans provided by superannuation fund deemed 1465 to be income of fund GD 7 Distribution of property to policyholders GD 8 Superannuation schemes GD 10 Leases for inadequate rent Leases Other non-market transactions GD 11 Financial arrangements rules GD 12 Non-market transactions for incurring ﬁlm production expenditure 1466 1467 1471 1472 1472 GD 12A Film production expenditure if payments postponed or 1473 contingent GD 12B Manipulation of arrangements to incur ﬁlm production 1473 expenditure GD 13 Cross-border arrangements between associated persons GD 14 Attributing interests in FIFs GD 15 Disposal of timber, or right to take timber, or standing timber to associated person GD 16 Disposals of ETS units at below market value Subpart GE—Non-market transactions: speciﬁc GE 1 New Zealand Raspberry Marketing Council Subpart GZ—Terminating provisions Pre-1974 agreements purporting to alter incidence of tax GZ 1 1473 1478 1479 1480 1480 1482 Part H Treatment of net income of certain entities Subpart HB—Consolidated groups of companies HB 1 Returns, assessments, and liability of consolidated group 1488 54 Reprinted as at 29 August 2011 Income Tax Act 2004 HB 2 Taxable income to be calculated generally as if group 1490 were single company Subpart HC—Special partnerships HC 1 Special partnerships [Repealed] 1493 HD 1 Assessment of partners, co-trustees, and joint venturers 1494 Subpart HD—Partnerships Subpart HE—Unit trusts HE 1
 Unit trusts HE 2 Group investment funds Subpart HF—Mutual associations HF 1 Proﬁts of mutual associations in respect of transactions with members Subpart HG—Qualifying companies HG 1 Qualifying company regime HG 2 Determination of effective interest in company HG 3 Director elections, and revocation of director elections HG 4 Shareholder elections HG 5 Revocation of shareholder elections HG 6 Period of grace for new elections following death, revocation of shareholder election, or issue of new shares HG 7 Date on which non-complying company ceases to be qualifying company, and Commissioner’s power to defer HG 8 Liability of electing shareholder for income tax of company HG 9 Taxation of shareholders in qualifying companies HG 10 Taxation of qualifying company HG 11 Taxation on election to become qualifying company HG 12 Payment of qualifying company election tax HG 13 Dividends from qualifying company HG 14 Loss attributing qualifying companies HG 14A Minority shareholders in loss attributing qualifying companies HG 15 Revocation of loss attribution elections HG 16 Net losses of loss attributing qualifying company to be attributed to shareholders HG 17 Attributed CFC losses and FIF losses HG 18 Company that ceases to be loss attributing qualifying company also ceases to be qualifying company 1494 1495 1498 1502 1503 1504 1505 1508 1509 1511 1513 1514 1515 1515 1519 1519 1525 1527 1527 1527 1529 1531 55 Income Tax Act 2004 Reprinted as at 29 August 2011 Subpart HH—Trusts Interpretation HH 1 HH 1A Treatment of settlements on trust HH 2 Trusts settled by persons before becoming resident Income of beneﬁciaries HH 3 HH 3A Beneﬁciary income of minors HH 3B Exemption for beneﬁciary income $1,000 or less HH 3C Source of beneﬁciary income HH 3D Treatment of various settlements HH 3E Exceptions HH 3F Deﬁnitions of guardian, minor, and relative HH 4 Trustee income HH 5 Existing trusts becoming subject to tax HH 6 Distributions from trusts HH 7 Commissioner may determine amount of
 trustee income HH 8 Income received by trustee after death of deceased person HI 1 HI 2 HI 3 HI 4 HI 5 HI 6 HI 7 HI 8 Subpart HI—Maori authorities Application of Act to Maori authority Eligibility to be Maori authority Election to become Maori authority Distributions by Maori authority Amount distributed to member by Maori authority Proportional allocation required if distribution includes amount other than taxable Maori authority distribution Distribution includes Maori authority credit attached and RWT deducted Treatment of companies and trusts that elect to apply this subpart HI 9 Market value calculations HJ 1 Government Superannuation Fund Subpart HJ—Superannuation Subpart HK—Agency Agents generally HK 1 Agent to make returns and be assessed as principal HK 2 Rate and amount of tax payable by agent HK 3 Liability of principal not affected HK 4 Agent may recover tax from principal HK 5 Agent may retain from money of principal amount required for tax HK 6 Assessment deemed authority for payment of tax by agent 1565 56 Reprinted as at 29 August 2011 Income Tax Act 2004 HK 7 Agents to be personally liable for payment of tax HK 8 Relation of principal and agent arising in effect Special cases of agency HK 9 Guardian of person under disability to be agent HK 10 Liability of mortgagee in possession HK 11 Liability for tax payable by company left with insufﬁcient assets HK 12 Company deemed agent of debenture holders HK 13 Modiﬁcation of agency provisions in respect of income from company debentures Agents of absentees and non-residents HK 16 Liability of agent of absentee principal for returns and tax HK 17 Partner of absentee deemed agent HK 18 Master of ship deemed agent of absentee owner HK 19 Tenant, mortgagor, or other debtor to be agent of absentee landlord, mortgagee, or other creditor HK 20 Person having
 disposal of income deemed agent HK 21 Company to be agent of absentee shareholders HK 22 Trustee of group investment fund to be agent of absentee investors HK 23 Banking company to be agent of absentee depositors HK 24 Liability as agent of employer of non-resident taxpayer and employer’s agent HK 25 Non-resident trader to be agent of employees in New Zealand HK 26 Agents in New Zealand of principals resident abroad Subpart HL—Portfolio investment entities Introductory provisions Intended effect on portfolio tax rate entities and investors Scheme of subpart HL 1 HL 2 Eligibility requirements: portfolio investment entities and foreign investment vehicles HL 3 Eligibility requirements for entities HL 4 Effect of failure to meet eligibility requirements for entities Foreign investment vehicles HL 5 HL 5B Meaning of investor and portfolio investor class HL 5C Income interest requirement HL 6 Investor membership requirement 1566 1566 1566 1567 1567 1571 1571 1572 1573 1573 1573 1574 1574 1574 1574 1575 1576 1576 1579 1580 1584 1586 1588 1589 1590 1591 57 Income Tax Act 2004 Reprinted as at 29 August 2011 HL 7 HL 8 Investor return adjustment requirement: portfolio tax rate entity Imputation credit distribution requirement: portfolio listed company Investor interest size requirement HL 9 HL 10 Further eligibility requirements relating to investments 1594 1596 1596 1600 Becoming and ceasing to be portfolio investment entity HL 11 Election to become portfolio investment entity and 1604 cancellation of election HL 11B Unlisted company may choose to become portfolio listed 1605 company HL 12 Becoming portfolio investment entity HL 13 Tax consequences from transition HL 14 Ceasing to be portfolio investment entity 1606 1609 1610 Periods relevant to calculation of portfolio entity tax liability HL 15 Portfolio allocation period and portfolio calculation 1611 period Allocation of income in some cases HL 16 Treatment of income from interest if no investor entitled 1612 or
 investor has conditional entitlement HL 17 Certain new investors treated as part of existing portfolio 1614 investor class Calculating portfolio entity tax liability HL 18 Portfolio class net income and portfolio class net loss for 1615 portfolio allocation period HL 19 Portfolio class taxable income and portfolio class taxable 1616 loss for portfolio allocation period HL 19B Treatment of certain provisions made by portfolio tax 1617 rate entity HL 20 Portfolio entity tax liability and rebates of portfolio tax 1618 rate entity for period Payment by portfolio tax rate entity of tax for tax year HL 21 Payments of tax by portfolio tax rate entity making no 1622 election HL 22 Payments of tax by portfolio tax rate entity choosing to 1623 pay provisional tax HL 23 Payments of tax by portfolio tax rate entity choosing to 1624 make payments when investor leaves 58 Reprinted as at 29 August 2011 Income Tax Act 2004 HL 23B Optional payments of tax by portfolio tax rate entities 1626 Results for investors HL 24 Portfolio investor allocated income and portfolio investor 1627 allocated loss HL 25 Treatment of portfolio investor allocated loss for 1630 zero-rated portfolio investors and investors with portfolio investor exit period Rebate for entity HL 26 Treatment of portfolio investor allocated loss for other 1631 investors Treatment of credits received by entity HL 27 Credits received by portfolio tax rate entity or portfolio 1632 investor proxy Treatment of losses for entity HL 28 Portfolio entity formation loss HL 29 Portfolio class taxable income and portfolio class taxable loss for tax year HL 30 Treatment of portfolio class taxable loss and portfolio class land loss for tax year HL 31 Portfolio investor proxies Portfolio investor proxies Subpart HZ—Terminating provisions HZ 1 Trust distributions HZ 2 Trusts that may become qualifying trusts Part I Treatment of net losses 1638 1641 1642 1643 1645 1646 Subpart ID—Application of Part to schedular income ID 1 No offset in
 calculating some income tax liabilities 1648 Subpart IE—Net losses IE 1 IE 2 IE 3 IE 4 Net losses may be offset against future net income Speciﬁed activity net losses Attributed CFC net losses FIF net losses Subpart IF—Net losses: companies IF 1 Net losses may be offset against future net income 1649 1650 1655 1656 1657 59 Income Tax Act 2004 Reprinted as at 29 August 2011 IF 2 IF 3 IF 4 IF 5 IF 6 IF 7 IG 1 IG 2 IG 3 IG 4 IG 5 IG 6 IG 7 IG 8 IG 9 Special provision in relation to net losses of companies for 1990-91 and 1991-92 income years Attributed CFC net losses Losses, attributed CFC net losses, and FIF net losses of amalgamating company Ordering of losses of amalgamated company Losses, attributed CFC net losses, and FIF net losses of amalgamated company Offsetting supplementary dividend against net income Subpart IG—Net losses: groups of companies Companies included in group of companies Net loss offset between group companies Special provisions in relation to group companies for 1991-92 tax year Group of companies attributed CFC net losses Group of companies FIF net losses Loss carry forward and grouping by consolidated group and consolidated group members Attributed CFC net losses and FIF net losses of consolidated group members Net losses, attributed CFC net losses, and FIF net losses of amalgamated company Net losses, attributed CFC net losses, and FIF net losses offset against net income of amalgamated company IG 10 Net losses used to pay penalties Subpart IH—Losses: miners Losses of mining companies and petroleum miners Companies engaged in exploring for, searching for, or mining petroleum Loss carry back by petroleum miners Companies engaged in exploring for, searching for, or mining certain minerals Resident mining operators Subpart II—Losses: life insurers Policyholder net losses Policyholder net loss for tax year preceding 1990-91 Carry forward of policyholder net loss IH 1 IH 2 IH 3 IH 4 IH 5 II 1 II 2 II 3 Subpart IZ—Withdrawal tax IZ 1 IZ 2
 Application of this subpart Rate of withdrawal tax 1661 1662 1662 1663 1663 1664 1665 1668 1679 1680 1682 1683 1687 1691 1691 1692 1693 1697 1698 1699 1702 1703 1703 1704 1705 1705 60 Reprinted as at 29 August 2011 Income Tax Act 2004 IZ 3 Withdrawal income IZ 4 IZ 5 IZ 6 IZ 7 Payment of withdrawal tax Evidence of liability in proceedings for recovery Relief in certain cases Application of other provisions to withdrawal tax Part K Rebates KB 2 Subpart KB—General Proportionate adjustment to rebates on change of return date KB 3 Calculations of rebates producing negative amounts Subpart KC—Individual rebates KC 1 Low income rebate KC 2 Rebate in certain cases for children KC 3 Transitional tax allowance KC 4 Rebate in certain cases for housekeeper KC 5 Rebate in respect of gifts of money KC 6 Rebate in respect of redundancy payment Subpart KD—Tax credits for families KD A1 Calculation of tax credits under this subpart KD 1 Determination of net income KD 1A Working for Families tax credits KD 2 Calculation of subpart KD credit KD 2AAA In-work tax credit KD 2AAAB Continuation of child tax credit payments KD 2AA Rules for subpart KD credit KD 2AB Parental tax credit KD 2A Calculating net contributions to family tax credit, in-work tax credit child tax credit, and parental tax credit KD 3 Calculation of minimum family tax credit KD 3A Rules for minimum family tax credit KD 3B Applications for guaranteed minimum family tax credit KD 4 Allowance of credit of tax in end of year assessment KD 5 Credit of tax by instalments KD 5B Rates for interim instalments for period beginning on or after 1 July 1998 [Repealed] KD 5C Adjustment of family tax credit amounts, abatement threshold amounts, amounts of in-work tax credit and parental tax credit, and amount of minimum family tax credit Income Tax Act 2004 Reprinted as at 29 August
61 Income Tax Act 2004 Reprinted as at 29 August 2011 KD 6 Chief executive to deliver credit of tax KD 7 Commissioner to deliver credit of tax by instalments KD 7A Effect of extra interim instalment on entitlement to tax credit KD 8 Credit of tax deemed to be excluded income KD 9 Advice KE 1 Rebate for interest on home vendor mortgages Subpart KE—Housing rebates Subpart KF—Rebates for non-residents KF 3 Rebates for absentees 1773 1776 1779 1781 1781 1781 1783 Subpart KG—Industry-speciﬁc rebates KG 1 Rebate for savings in special farm, ﬁshing vessel, and 1783 home ownership accounts KI 1 KJ 1 KJ 2 KJ 3 KJ 4 KJ 5 KJ 6 Subpart KH—Conduit tax relief KH 1 Conduit tax relief KH 2 Calculation of percentage of shareholders not resident Subpart KI—Rebates for portfolio tax rate entities Rebate for portfolio tax rate entity relating to certain investors Subpart KJ—KiwiSaver scheme and complying superannuation fund tax credits Tax credits relating to KiwiSaver scheme and complying superannuation fund members Person’s requirements Tax credit amount Payment Rules Tax credits relating to employers contributing to KiwiSaver schemes and complying superannuation funds Employer requirements Tax credit amount KJ 7 KJ 8 KJ 9 Using the tax credit KJ 10 Treatment when short payment and unpaid amount of compulsory employer contributions found after tax credit used KJ 11 Employees who opt out KJ 12 Group of persons 1 employer 62 1785 1786 1788 1790 1790 1791 1792 1793 1795 1796 1796 1797 1798 1799 1800 Reprinted as at 29 August 2011 Income Tax Act 2004 Subpart KZ—Terminating provisions KZ 1 Rebate from tax payable by persons receiving war pension KZ 2 Rebate in respect of loss not carried forward KZ 3 Continuation of rebates in respect of certain speciﬁed 1800 1801 1802 development projects Part L Credits Subpart LB—Imputation credits: shareholders and imputation system LB 1 Determination of amount of credit in certain cases LB 1A Treatment of imputation credits of beneﬁciary minor LB 2 Credit of tax for imputation credit LB 3 Credit
 of retirement scheme contribution withholding tax 1805 1811 1811 1815 for imputation credit Subpart LC—Foreign tax LC 1 Credits in respect of tax paid in country or territory outside 1816 New Zealand LC 1A Amendment of schedule 6 by Order in Council LC 2 Maximum credits LC 3 Recovery of excess credit allowed through not taking into account refund of foreign tax Foreign tax credits: CFCs LC 4 LC 5 Group of companies CFC tax credits LC 8 CFC tax credits of amalgamating company LC 9 Ordering of CFC tax credits of amalgamated company LC 10 CFC tax credits of amalgamated company LC 11 CFC tax credits of amalgamated company credited against 1819 1819 1819 1821 1825 1826 1827 1828 1828 income tax liability of another company LC 12 CFC tax credits of company credited against income tax 1829 liability of amalgamated company LC 13 Information for credit to be furnished within 4 years 1829 Miscellaneous provisions LC 14 Ascertainment of New Zealand income tax liability LC 14A Source of dividends LC 15 United Kingdom tax on dividends [Repealed] LC 16 Foreign tax credits of consolidated group members Subpart LD—Credit for tax paid or withheld LD 1 Tax deductions to be credited against tax assessed 1830 1831 1831 1832 1836 63 Income Tax Act 2004 Reprinted as at 29 August 2011 LD 1B Tax deductions from certain accident compensation payments: credit allowed to provider LD 1C Tax deductions from certain accident compensation payments: credit allowed to claimant LD 2 Non-resident withholding tax: credit allowed LD 3 Resident withholding tax payments to be credited against 1838 1839 1840 1840 income tax assessed LD 3A Maori authority credit to be credited against income tax 1842 assessed LD 4 Credit of retirement scheme contribution withholding tax 1843 for Maori authority credit LD 6 Allowance for provisional tax paid by agent Provisional tax to be credited against income tax liability LD 7 LD 8 Credit of tax for dividend withholding payment credit in hands of shareholder LD 9
 Refund to non-resident or exempt shareholders LD 10 Credit for investor for tax paid by entity if portfolio investor allocated income not excluded income LD 10B Credit for zero-rated portfolio investor for tax paid by entity in relation to portfolio investor allocated income 1844 1844 1844 1846 1848 1848 LD 11 Credit for investor for payment under section HL 21(5) by 1849 entity for portfolio investor exit period LD 12 Credit for retirement scheme contribution withholding tax 1849 if retirement scheme contribution not excluded income Subpart LE—Non-resident investors Purpose of subpart LE 1 LE 2 Credits in respect of dividends to non-resident investors LE 3 LE 4 Allocation of deductions by section LE 3 holding Special rules for holding companies company Subpart LF—Underlying foreign tax credits LF 1 Underlying foreign tax credits generally, and interpretation LF 2 Granting of underlying foreign tax credit LF 3 Amount of underlying foreign tax credit LF 4 Dividends from lower-tier companies LF 5 Dividends from grey list companies LF 6 LF 7 Procedures with respect to underlying foreign tax credit Interest paid in conduit ﬁnancing arrangements Subpart LG—Conduit tax relief credits LG 1 Conduit tax relief additional dividends 64 1851 1851 1854 1857 1858 1860 1862 1865 1866 1873 1876 1878 Reprinted as at 29 August 2011 Income Tax Act 2004 Part M Tax payments Subpart MB—Provisional tax Introductory provisions MB 1 Outline of subpart MB 2 Who pays provisional tax?
MB 2A Election to be provisional taxpayer [Repealed] MB 2B Amount of provisional tax based on 1997-98 or earlier tax year [Repealed] MB 3 Becoming provisional taxpayer by election MB 3B Provisional taxpayer affected by self-assessed adverse event or qualifying event [Repealed] Calculation of provisional tax liability MB 4 Methods for calculating provisional tax liability MB 5 Standard method MB 5A Amount of provisional tax instalments in transitional year [Repealed] MB 6 Estimation method MB 7 GST ratio method Instalments of provisional tax MB 8 Provisional tax payable in instalments MB 9 Calculating amount of instalment under standard and estimation methods MB 9A Provisional tax and attribution rule for services [Repealed] MB 10 Calculating amount of instalment using GST ratio MB 11 Using GST refund to pay instalment of provisional tax MB 11B Transitional provisions relating to alignment of dates of payment for provisional tax and GST [Repealed] MB 12 Voluntary payments MB 13 Paying 2 instalments for tax year MB 14 Paying 1 instalment for tax year Requirements for using GST ratio MB 15 Who may use GST ratio?
MB 16 Choosing to use GST ratio MB 17 Changing determination method MB 18 Disposal of assets Transitional years MB 19 Calculating residual income tax in transitional years MB 20 Paying provisional tax in transitional years 1890 1891 1892 1892 1892 1893 1893 1895 1896 1896 1897 1901 1906 1908 1908 1909 1909 1910 1910 1911 1913 1916 1916 1918 1920 1921 65 Income Tax Act 2004 Reprinted as at 29 August 2011 MB 21 Calculating instalments in transitional years: standard 1923 method MB 22 Calculating instalments in transitional years: estimation 1924 method MB 23 Calculating instalments in transitional years: GST ratio 1925 method MB 24 Consequences of change in balance date 1925 When provisional taxpayers start or stop paying GST, or change taxable periods MB 25 Registering for GST or cancelling registration MB 26 Changing GST cycle MB 27 Payment of provisional tax instalments when GST cycle 1928 1929 1930 changed Penalties and interest provisions MB 28 Application of provisions of Tax Administration Act 1994 1933 Treatment of groups of companies and amalgamated companies MB 29 Provisional tax rules and consolidated groups MB 30 Residual income tax of consolidated groups MB 31 Consolidated groups using estimation method MB 32 Consolidated groups using GST ratio method MB 33 Wholly-owned groups of companies MB 34 Amalgamated companies: calculating residual income tax MB 35 Attribution rule for services Attribution rule for services Overpayments and credits MB 36 Overpaid provisional tax MB 37 Further income tax credited to provisional tax liability 1934 1934 1935 1936 1937 1938 1939 1940 1942 MB 38 Provisional taxpayer affected by self-assessed adverse 1942 event or qualifying event Disaster relief Subpart MBA—Pooling of provisional tax MBA 1 Purpose MBA 2 Function of intermediary and tax pooling account MBA 3 Application to establish tax pooling account MBA 4 Tax pooling account MBA 5 Deposits to tax pooling account MBA 6 Transfers from tax pooling account 1944 1944 1944 1945 1946 1947 66 Reprinted as at 29 August 2011
 Income Tax Act 2004 MBA 7 Refunds from tax pooling account MBA 8 Wind up of tax pooling account MBA 9 Tax treatment of payments of interest Subpart MBB—Early-payment discount of income tax MBB 1 Purpose MBB 2 Availability of early-payment discount MBB 3 Credit treated as being payment as income tax MBB 4 Some deﬁnitions MC 1 Payment of terminal tax Subpart MC—Terminal tax Subpart MD—Refunds MD 1 Refund of excess tax MD 2 Limit on refunds and allocations of tax MD 2A Limits on refunds of tax for certain qualifying unit trusts and group investment funds MD 2B Limits on refunds of tax in relation to Maori authorities MD 3 Refund of income tax not to exceed amount of credit balance MD 5 No credits or debits for excess income tax or dividend withholding payments not refunded or allocated Subpart ME—Imputation credit accounts Imputation credit accounts: general ME 1 Companies required to maintain imputation credit account ME 1A Companies electing to maintain imputation credit account ME 1B Amount of dividend for imputation rules if paid in Australian currency Imputation credit account ME 2 Balance of imputation credit account ME 3 ME 4 Credits arising to imputation credit account ME 5 Debits arising to imputation credit account ME 6 Company may attach imputation credit to dividend ME 6B Share user may attach imputation credit to replacement payment 1948 1949 1950 1950 1951 1952 1952 1953 1954 1956 1960 1960 1962 1964 1967 1968 1970 1971 1971 1972 1979 1989 1993 ME 7 Transfer by life insurance company of credit balance to 1993 policyholder credit account ME 8 Allocation rules for imputation credits ME 9 Further tax payable where end of year debit balance, or when company ceases to be imputation credit account company 1995 1997 67 Income Tax Act 2004 Reprinted as at 29 August 2011 ME 9B Imputation credit account company leaving wholly-owned 2000 group ME 9C Imputation credit account company joining wholly-owned 2003 group Consolidated imputation groups ME 10 Consolidated
 imputation group to maintain separate imputation credit account ME 11 Credits arising to imputation credit account of group ME 12 Debits arising to imputation credit account of group ME 13 Debiting and crediting between consolidated imputation group and individual companies ME 14 Application of speciﬁc imputation provisions to consolidated imputation groups Policyholder credit accounts ME 15 Resident life insurance companies to maintain policyholder credit account ME 16 Calculation of balance of policyholder credit account ME 17 Policyholder credit account of company ME 18 Credits and debits arising to policyholder credit account of company 2006 2007 2013 2020 2022 2026 2026 2026 2027 ME 19 Election to use credit balance as credit against policyholder 2030 base income tax liability or as credit in imputation credit account ME 19A Credit balance may be transferred on transfer of life 2031 insurance business ME 20 Determinations by Commissioner as to credits and debits 2032 arising to policyholder credit account ME 21 Person may elect to maintain policyholder credit account ME 22 Policyholder credit account of person ME 23 Credits and debits arising to policyholder credit account of person ME 24 Use of credit balance to reduce income tax Policyholder credit accounts: consolidated groups ME 25 Policyholder credit accounts and consolidated groups ME 26 Credits and debits arising to group policyholder credit account ME 27 Debiting and crediting between group and individual policyholder credit accounts 2033 2034 2035 2037 2038 2038 2040 ME 28 Application of policyholder credit account provisions to 2041 consolidated group 68 Reprinted as at 29 August 2011 Income Tax Act 2004 Imputation credit accounts and policyholder credit accounts: amalgamated companies ME 29 Debits and credits arising to imputation credit account or 2042 policyholder credit account on amalgamation Imputation credit accounts: statutory producer boards ME 30 Statutory producer board may determine to
 attach imputation credit to certain distributions ME 31 Amount of imputation credit to be attached to cash 2044 2045 distribution ME 32 Amount of imputation credit to be attached to notional 2046 distribution ME 33 Notional distribution deemed to be dividend ME 34 Statutory producer boards and dividend withholding 2048 2049 payments Imputation credits: co-operative companies ME 35 Co-operative company may make annual determination to 2050 attach imputation credit to certain distributions ME 36 Amount of imputation credit to be attached to cash 2051 distribution ME 37 Amount of imputation credit to be attached to notional 2052 distribution ME 38 Notional distribution deemed to be dividend or taxable 2052 Maori authority distribution ME 39 Co-operative companies and dividend withholding 2053 payments Imputation credit accounts: credits and debits incorrectly recorded ME 40 Determinations by Commissioner as to credits and debits 2054 arising to imputation credit account Imputation credit accounts: unit trusts and group investment funds ME 41 Special debits arising to imputation credit account of unit 2055 trust or group investment fund Subpart MF—Branch equivalent tax accounts Branch equivalent tax accounts of companies MF 1 Company may elect to maintain branch equivalent tax 2058 account MF 2 Balance of branch equivalent tax account MF 3 Branch equivalent tax account of company 2059 2059 69 Income Tax Act 2004 Reprinted as at 29 August 2011 MF 4 Credits and debits arising to branch equivalent tax account 2060 of company MF 5 Use of credit to reduce dividend withholding payment, or 2066 use of debit to satisfy income tax liability MF 6 Determinations by Commissioner as to credits and debits 2068 arising to branch equivalent tax account Consolidated groups MF 7 Branch equivalent tax accounts and consolidated groups MF 8 Debits and credits arising to group branch equivalent tax account MF 9 Debiting and crediting between group and individual branch equivalent tax
 accounts MF 10 Use of consolidated group credit to reduce dividend withholding payment, or use of group or individual debit to satisfy income tax liability Branch equivalent tax accounts of persons MF 11 Person may elect to maintain branch equivalent tax 2070 2071 2075 2075 2079 account MF 12 Branch equivalent tax account of person MF 13 Credits and debits arising to branch equivalent tax account 2080 2080 of person MF 14 Debit election to offset income tax payable in respect of 2082 foreign dividend MF 15 Extension of branch equivalent tax account provisions to 2082 certain FIF income Amalgamated companies MF 16 Debits and credits arising to branch equivalent tax account 2083 of amalgamated company on amalgamation Subpart MG—Dividend withholding payment accounts MG 1 Balance of dividend withholding payment account MG 2 Company may elect to maintain dividend withholding payment account MG 3 Dividend withholding payment account MG 4 Credits arising to dividend withholding payment account MG 5 Debits arising to dividend withholding payment account MG 6 Company may attach dividend withholding payment credit to dividend 2085 2086 2087 2088 2090 2094 MG 7 Transfer by life insurance company of credit balance to 2095 policyholder credit account MG 8 Allocation rules for dividend withholding payment credits 2096 70 Reprinted as at 29 August 2011 Income Tax Act 2004 MG 8B Policyholder credit account companies and dividend withholding payment credits MG 9 Further dividend withholding payment payable by company MG 10 Dividend with both imputation credit and dividend withholding payment credit attached 2098 2102 2104 MG 11 Transfer of credit balance to imputation credit account 2105 Credits and debits incorrectly recorded MG 12 Determinations by Commissioner as to credits and debits 2105 arising to dividend withholding payment credit account MG 13 Dividend withholding payment accounts and consolidated 2107 Consolidated groups groups MG 14 Credits arising to group dividend
 withholding payment 2109 account MG 15 Debits arising to group dividend withholding payment 2111 account MG 16 Debiting and crediting between group and individual 2114 dividend withholding payment accounts MG 16A Application of speciﬁc dividend withholding provisions 2116 to consolidated groups Amalgamated companies MG 17 Debits and credits arising to dividend withholding 2118 payment account of amalgamated company on amalgamation Subpart MH—Payment of tax by public authorities MH 1 Payment of tax by public authorities Subpart MI—Conduit tax relief accounts MI 1 Balance of conduit tax relief account MI 2 Company may elect to be conduit tax relief company and maintain conduit tax relief account MI 3 Conduit tax relief account MI 4 Credits arising to conduit tax relief account MI 5 Debits arising to conduit tax relief account MI 6 End of imputation year clearing transfer to or from dividend withholding payment account MI 7 Attachment of conduit tax relief credit to dividend MI 8 Allocation rules for conduit tax relief credits MI 9 Arrangement to obtain tax advantage 2120 2121 2121 2122 2123 2124 2127 2128 2128 2128 71 Income Tax Act 2004 Reprinted as at 29 August 2011 MI 10 Dividend withholding payment payable in respect of conduit tax relief account debits MI 11 Refund of tax in respect of transfer from dividend withholding payment account Credits and debits incorrectly recorded MI 12 Correction by Commissioner of credits and debits MI 13 Debits and credits arising to conduit tax relief account of amalgamated company on amalgamation 2128 2129 2130 2130 Consolidated groups MI 14 Consolidated group to maintain separate conduit tax relief 2132 account MI 15 Consolidated group conduit tax relief account MI 16 Consolidated group member is conduit tax relief company MI 17 Credits arising to group conduit tax relief account MI 18 Debits arising to group conduit tax relief account MI 19 Debiting and crediting between group and individual conduit tax relief accounts MI 20 End
 of imputation year clearing transfer to or from dividend withholding payment account MI 21 Dividend with-holding payment payable in respect of group conduit tax relief account debits MI 22 Application of speciﬁc conduit tax relief account provisions to consolidated groups 2132 2132 2132 2134 2136 2137 2138 2139 Subpart MJ—Supplementary available subscribed capital accounts MJ 1 Qualifying unit trust or group investment fund may elect 2141 to maintain supplementary available subscribed capital account MJ 2 Balance of supplementary available subscribed capital 2141 MJ 3 MJ 4 account Supplementary available subscribed capital account Supplementary available subscribed capital account: opening balance MJ 5 Credits arising to supplementary available subscribed capital account MJ 6 Debits arising to supplementary available subscribed capital account 2142 2142 2143 2144 72 Reprinted as at 29 August 2011 Income Tax Act 2004 Liquidation of qualifying unit trust or group investment fund MJ 7 Special rule for certain qualifying unit trusts and group investment funds Credits and debits incorrectly recorded MJ 8 Correction by Commissioner of credits and debits Subpart MK—Maori authority credit accounts MK 1 Maori authority to maintain Maori authority credit account MK 2 Balance of Maori authority credit account MK 3 Maori authority credit account MK 4 Credits arising to Maori authority credit account MK 5 Debits arising to Maori authority credit account MK 6 Maori authority may attach Maori authority credit to distribution MK 7 Allocation rules for Maori authority credit account credits MK 8 Further tax payable for end of year debit balance or when Maori authority ceases to exist Credits and debits incorrectly recorded MK 9 Correction by Commissioner of credits and debits Subpart MZ—Terminating provisions MZ 1 Savings for certain credits arising in relation to overpayment of income tax or dividend withholding payment 2145 2145 2146 2147 2147 2147 2149 2153 2153 2155 2156 2157
 MZ 2 Ordering rule for purposes of section MZ 1 MZ 3 Transfers of dividend withholding payment credit balance 2158 2159 to imputation credit account MZ 4 Attachment of dividend withholding payment credits to 2160 dividends to non-residents MZ 5 Application of excess tax to nil period MZ 6 Application of excess tax for 2001-02 tax year MZ 7 Application of allocation debit rules to certain dividends [Repealed] MZ 8 Certain elections to become provisional taxpayer MZ 9 Amount of provisional tax based on 199798 or earlier tax year MZ 10 Calculating provisional tax instalments: section MB 4 MZ 11 Calculating provisional tax instalments: sections MB 7 and MB 10 MZ 12 Calculating provisional tax instalments: section MB 9 2161 2162 2163 2163 2163 2164 2164 2164 73 Income Tax Act 2004 Reprinted as at 29 August 2011 Part N Withholding taxes and taxes on income of others Subpart NB—General NB 1 Withholding tax obligations of consolidated group 2172 members Subpart NBA—PAYE intermediaries NBA 1 Purpose NBA 2 Accreditation requirements of PAYE intermediaries NBA 3 Approval by Commissioner of employer arrangements 2173 2174 2176 with PAYE intermediary NBA 4 Employer having PAYE intermediary: responsibilities and 2177 status under PAYE rules and SSCWT rules NBA 5 PAYE intermediary: responsibilities and status under PAYE rules and SSCWT rules NBA 6 Operation of trust account NBA 7 Refund by Commissioner of deductions NBA 8 Termination of employer arrangements with PAYE 2179 2181 2182 2183 intermediary Subpart NBB—Subsidy payable to certain listed PAYE intermediaries NBB 1 Purpose NBB 2 Accreditation of listed PAYE intermediary NBB 3 Obligations of listed PAYE intermediaries NBB 4 Revocation of listing NBB 5 Listed PAYE intermediary claim form NBB 6 Calculation and payment of subsidy to certain listed PAYE 2184 2184 2185 2185 2186 2187 intermediaries NBB 7 Termination of employer arrangements with listed PAYE 2188 intermediary Subpart NC—Withholding of PAYE Tax deductions NC 1
 Application of PAYE rules NC 2 Tax deductions to be made by employers or PAYE 2190 2190 intermediaries NC 3 Tax deductions from amounts credited to or applied for 2192 employees NC 4 Beneﬁts and superannuation and other payments deemed 2192 to be salary or wages Payment to be made by employee where tax deduction exceeds source deduction payment 2193 NC 5 74 Reprinted as at 29 August 2011 Income Tax Act 2004 NC 6 Amounts of tax deductions 2194 Amounts of tax deductions Reduced deductions NC 7 Delivery of withholding declaration NC 8 Application of tax codes speciﬁed in tax code declarations 2195 2196 or tax code certiﬁcates NC 8A Entitlement to undertake employment NC 9 Cessation of transitional tax allowance for purposes of 2200 2200 tax code NC 10 Amount of total tax deduction where several deductions 2201 made for 1 week NC 11 Increased deductions to cover deﬁciency in deductions 2201 from advance payments NC 12 Amount of tax deductions for pay period current when 2202 tax deductions altered NC 12A Employee using incorrect tax code NC 13 Power of Commissioner to reduce tax deductions NC 14 Special tax code certiﬁcates Duties of employer or PAYE intermediary as to deductions NC 15 Payment of tax deductions to Commissioner Employee’s duties where deductions not made NC 16 Employee to pay deductions to Commissioner Miscellaneous provisions NC 18 Bond in lieu of tax deductions in case of certain non-resident employees NC 19 Amount of tax deductions deemed to be received by employee 2203 2204 2204 2206 2208 2209 2211 NC 20 Application of other provisions to amounts payable under 2211 PAYE rules NC 21 Regulations ND 1 Employer’s liability for fringe beneﬁt tax Subpart ND—Fringe beneﬁt tax Value of fringe beneﬁts ND 1A Private use of motor vehicle: value of beneﬁt ND 1AB Private use of motor vehicle: 24-hour period ND 1B Private use of motor vehicle: test period to establish private use 2213 2216 2218 2220 2221 75 Income Tax Act 2004 Reprinted as at 29 August 2011 ND 1C
 Subsidised transport: value of beneﬁt ND 1D Employment-related loans: value of beneﬁt using prescribed interest ND 1DB Employment-related loans: election to value beneﬁt using market interest ND 1E Employment-related loans: repayment ND 1F Employment-related loans: regulations ND 1G Meaning of prescribed interest ND 1H Contributions to superannuation schemes: value of beneﬁt 2222 2223 2224 2225 2226 2226 2227 ND 1I Contributions to funds, trusts, and insurance: value of 2227 beneﬁt ND 1IB Beneﬁts provided by charitable organisations ND 1J Goods: value of beneﬁt ND 1K Services: value of beneﬁt ND 1L When value of fringe beneﬁt cannot be ascertained ND 1M Meaning of identical goods ND 1N Goods at staff discount ND 1O Goods on special with staff discount ND 1P Deﬁnitions for sections ND 1N and ND 1O ND 1Q Unclassiﬁed beneﬁts ND 1R Adjustments for unclassiﬁed beneﬁts on amalgamation Taxable value of fringe beneﬁts ND 1S Payments towards fringe beneﬁts ND 1T Private use of motor vehicle: determining taxable value in cases of part ownership 2227 2228 2229 2230 2230 2230 2231 2231 2232 2234 2235 2236 ND 1U Private use of motor vehicle: when schedular value not 2236 used ND 1V Private use of motor vehicle: when schedular value used 2237 ND 1W Application Application Payment of fringe beneﬁt tax ND 2 Election to pay fringe beneﬁt tax per quarter ND 3 Attributed fringe beneﬁts ND 4 Attributed fringe beneﬁts: exception for subsidised transport ND 5 Multi-rate calculation for attributed fringe beneﬁts ND 5A Special rule for fringe beneﬁts attributed to shareholder-employees or employees receiving attributed income 2238 2239 2239 2241 2241 2244 76 Reprinted as at 29 August 2011 Income Tax Act 2004 ND 6 Calculation of fringe beneﬁt tax on non-attributed fringe 2244 beneﬁts ND 7 Deﬁnition of cash remuneration ND 7A Timing of certain cash remuneration ND 8 Special rule for employer who stops employing staff 2245 2246 2247 during tax year ND 8B Special rule for employer who is
 charitable organisation 2247 providing short-term charge facility ND 9 Payment of fringe beneﬁt tax: ﬁrst 3 quarters of tax year ND 10 Payment of fringe beneﬁt tax: ﬁnal quarter of tax year ND 11 Payment of fringe beneﬁt tax: no fringe beneﬁt provided 2248 2249 2250 during quarter ND 12 Special ﬁling rule for employer who stops employing staff 2250 during tax year ND 13 Payment of fringe beneﬁt tax on annual basis for employees who are not shareholder-employees ND 14 Payment of fringe beneﬁt tax on income year basis for shareholder-employees ND 15 Change in period for which fringe beneﬁt tax payable ND 16 Amendment to thresholds for fringe beneﬁt categories by Order in Council Subpart NE—Speciﬁed superannuation contribution withholding tax NE 1 Application NE 2 Speciﬁed superannuation contribution withholding tax imposed NE 2AA Employee election that higher rate of speciﬁed superannuation contribution withholding tax apply [Repealed] NE 2AB Employer election that progressive rates of speciﬁed superannuation contribution withholding tax apply [Repealed] NE 2A Employee election that speciﬁed superannuation contributions be treated as salary or wages NE 2B Employer election that progressive rates of speciﬁed NE 3 superannuation contribution withholding tax apply Speciﬁed superannuation contribution withholding tax to be deducted NE 3B Calculation amounts in relation to current speciﬁed superannuation contribution for complying superannuation fund Period for payment NE 4 2250 2252 2255 2256 2257 2257 2258 2258 2259 2259 2259 2262 2264 77 Income Tax Act 2004 Reprinted as at 29 August 2011 Failure to deduct tax NE 5 NE 6 Tax deemed for certain purposes to have been received by 2264 2265 superannuation fund NE 7 Application of other provisions to speciﬁed superannuation 2266 contribution withholding tax Subpart NEA—Tax on certain withdrawals from superannuation funds NEA 1 Recovery of tax paid by superannuation fund 2267 Subpart NEB—Retirement scheme contribution
 withholding tax NEB 1 Retirement scheme contribution withholding tax imposed NEB 2 Retirement scheme contribution withholding tax to be deducted NEB 3 Payment and notice of deductions NEB 4 Failure to deduct NEB 5 Retirement savings schemes NEB 6 Retirement scheme contributors NEB 7 Application of other provisions to retirement scheme contribution withholding tax Subpart NF—Resident withholding tax Application NF 1 Application of RWT rules Liability to pay resident withholding tax Liability to pay resident withholding tax NF 2 NF 2AA Election to be RWT proxy NF 2A Election to apply higher rate of deduction NF 2B Companies to notify interest payer NF 2C Transitional rule: notiﬁcations by companies between 1 April 2001 and 31 May 2001 (both dates inclusive) NF 2D Election rates of deduction for companies NF 2E Amounts withheld from distributions to holders of FIF attributing interests NF 3 Requirements for agents or trustees to make resident withholding tax deductions on receipt of payments Payment of resident withholding tax NF 4 Payment of deductions of resident withholding tax to Commissioner 2267 2268 2269 2269 2270 2271 2272 2274 2277 2290 2291 2292 2292 2293 2293 2294 2295 NF 5 Non-resident withholding tax deducted in substitution for 2298 resident withholding tax 78 Reprinted as at 29 August 2011 Income Tax Act 2004 NF 6 Resident withholding tax deductions varied to correct Miscellaneous provisions errors NF 7 Refunds of deductions NF 8 Resident withholding tax deductions from dividends deemed to be dividend withholding payment credits 2299 2301 2302 NF 8A Resident withholding tax deductions from distributions 2304 treated as Maori authority credits NF 8B Resident withholding tax deductions from replacement 2304 payments treated as imputation credits NF 9 Certiﬁcates of exemption NF 10 Unincorporated bodies NF 11 Cancellation of certiﬁcates of exemption NF 12 Amount of resident withholding tax deduction deemed to have been received NF 13 Application of other
 provisions in relation to resident withholding tax Subpart NG—Non-resident withholding tax General NG 1 Application of NRWT rules NG 2 Non-resident withholding tax imposed NG 3 Non-resident withholding tax to be ﬁnal tax in certain cases NG 4 Non-resident withholding tax to be minimum tax in certain cases NG 5 Persons who may apply for approval NG 6 Approval of person as approved issuer NG 7 Revocation of approval Deduction of non-resident withholding tax NG 8 Deduction of non-resident withholding tax NG 9 Non-resident withholding tax on dividends not paid in money NG 10 Power of Commissioner to grant relief from or vary amount of deductions 2305 2310 2312 2315 2315 2317 2318 2321 2322 2322 2323 2323 2324 2325 2327 Payment of non-resident withholding tax NG 11 Payment of deductions of non-resident withholding tax to 2328 Commissioner NG 12 Person deriving non-resident withholding income to pay non-resident withholding tax to Commissioner 2330 79 Income Tax Act 2004 Reprinted as at 29 August 2011 NG 13 Failure to make deductions of non-resident withholding 2331 tax or to make payments to Commissioner Miscellaneous provisions NG 14 Non-resident withholding tax on dividends paid to 2332 company under control of non-resident NG 15 Deductions of non-resident withholding tax deemed to be 2333 received by person entitled to payment NG 16 Non-resident withholding tax deducted in error NG 16A Variation in non-resident withholding tax deductions to correct errors NG 16B Person withholding amount as retirement scheme contribution withholding tax when liable for non-resident withholding tax NG 17 Application of other provisions to non-resident withholding tax Subpart NH—Dividend withholding payments NH 1 Liability to make deduction in respect of foreign withholding payment dividend NH 2 Amount of dividend withholding payment to be deducted NH 3 Payment and recovery of dividend withholding payment NH 4 Refund for overpayment and to company in loss 2333 2335 2336 2336 2338 2339
 2341 2344 Consolidated groups NH 5 Dividend withholding payments and consolidated groups NH 6 Application of speciﬁc dividend withholding payment 2348 2352 provisions to consolidated groups Conduit tax relief NH 7 Reduction in liability under conduit tax relief Subpart NZ—Terminating provisions NZ 1 Adjustment of dividends payable to preference shareholders Part O Deﬁnitions and related matters Subpart OB—General deﬁnitions OB 1 Deﬁnitions OB 2 Meaning of source deduction payment OB 3 Meaning of qualifying company OB 3A Extended meaning of charitable purpose OB 6 Meaning of income tax 80 2354 2356 2358 2648 2650 2653 2653 Reprinted as at 29 August 2011 Income Tax Act 2004 Subpart OC—Special entities subject to tax OC 1 Airport operators OC 3 OC 4 Co-operative marketing companies: regulations Statutory producer boards 2657 2660 2660 Subpart OD—Control interests, associated parties, and nominees OD 1 Deﬁning when company is under control of persons 2662 Measurement of control and ownership interests OD 2 Purpose of provisions governing measurement of voting 2663 and market value interests OD 3 Voting interests OD 4 Market value interests OD 5 Modiﬁcations to measurement of voting and market value interests in case of continuity provisions OD 5AA Modiﬁcations to voting and market value interests for application of continuity provisions to reverse takeover OD 5A Modiﬁcations to measurement of voting and market value interests in cases of continuity provisions and demutualisation of insurers 2663 2665 2667 2675 2677 OD 5B Modiﬁcations to measurement of voting and market value 2680 interests in cases of continuity provisions and legislative conversion of companies of proprietors OD 6 Modiﬁcations to measurement of voting and market value 2681 interests in case of credit account continuity provisions Associated persons OD 7 Deﬁning when 2 persons are associated persons OD 8 Further deﬁnitions of associated persons OD 9 Nominees are transparent Nominees Subpart OE—Source
 of income and residence OE 1 Determination of residence of person other than company OE 2 Determination of residence of company OE 4 Classes of income treated as having source in New Zealand OE 5 Commission agency contracts performed out of New Zealand OE 7 Conduit tax relief holding companies and group members OE 8 Residence of conduit tax relief company shareholders 2681 2682 2689 2690 2691 2692 2695 2695 2697 81 Income Tax Act 2004 Reprinted as at 29 August 2011 Subpart OF—References to balance dates and years OF 1 References to balance dates and years generally OF 2 References to years in particular provisions Part Y Repeals, amendments, and savings YA 1 Repeals YA 2 Consequential amendments to other enactments YA 3 Transitional provisions YA 4 YA 5 YA 5B Saving of effect of section 394L(4A) of Income Tax Act Saving of binding rulings Saving of accrual determinations 1976 YA 5C Saving effect of section DF 5 of Income Tax Act 1994 YA 6 Comparative tables of old and new provisions Schedule 1 Basic rates of income tax and speciﬁed superannuation contribution withholding tax Schedule 2 Fringe beneﬁt values Schedule 3 International tax rules: grey list countries Schedule 4 Foreign investment funds Schedule 5 Low tax jurisdictions or territories Schedule 6 Countries whose taxes receive limited recognition for certain New Zealand tax purposes Schedule 6B Expenditure in avoiding, remedying, or mitigating detrimental effects of discharge of contaminant Schedule 7 Expenditure on farming, aquacultural, and forestry improvements Schedule 8 Types and classes of livestock 2698 2699 2700 2700 2700 2701 2702 2703 2704 2704 2705 2709 2715 2717 2718 2727 2728 2730 2736 82 Reprinted as at 29 August 2011 Income Tax Act 2004 Schedule 9 Categories of livestock for which national standard costs to be declared Schedule 10 Straight-line equivalents of diminishing value rates of depreciation Schedule 11 Banded rates of depreciation Schedule 11B Banded rates of depreciation Schedule 12 Amount
 that, for purposes of section KD 5(6), is deemed to be equivalent of an annual amount Schedule 13 Months for payment of provisional tax and terminal tax Schedule 14 Rate of resident withholding tax deductions Schedule 15 Statutory producer boards Schedule 16 Depreciable land improvements Schedule 17 Depreciable intangible property Schedule 18 State enterprises Schedule 19 Basic tax deductions Schedule 20 Enactments repealed Schedule 21 Enactments amended Schedule 22 Amendments to Tax Administration Act 1994 2741 2743 2748 2749 2750 2755 2760 2763 2763 2764 2765 2766 2787 2793 2845 83 s A 1 Income Tax Act 2004 Reprinted as at 29 August 2011 Schedule 22A Identiﬁed policy changes Schedule 23 Comparative tables of Old and New Provisions 2896 2900 A 1 Title This Act is the Income Tax Act 2004.
Compare: 1994 No 164 s AA 1(1) A 2 Commencement 1 April 2005 This Act comes into force on 1 April 2005.
(1) Act effective for 2005-06 tax year and later (2) However, except when the context requires otherwise, this Act applies only— (a) with respect to the tax on income derived in the 2005-06 tax year and later tax years, in the case of a person whose income year is the same as the tax year; and (b) with respect to the tax on income derived in the corres- ponding income years, in the case of a person whose income year is not the same as the tax year.
Deﬁned in this Act: corresponding income year, income, income year, tax, tax year Compare: 1994 No 164 s AA 1(2), (3) Part A Purpose and interpretation Contents AA 1 Purpose of Act AA 2 AA 3 Deﬁnitions Interpretation AA 1 Purpose of Act The main purposes of this Act are— 84 Page 84 85 85 Reprinted as at 29 August 2011 Income Tax Act 2004 Part A s AA 3 (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: 1994 No 164 s AA 1 Paragraphs (a) and (b) were amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting the expression “:” for the expression “; and”.

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 3(2) AA 3 Deﬁnitions (1) References to this Act Except in this Part and Parts B to E, a reference to this Act includes a reference to the Tax Administration Act 1994 unless the context requires that it not be included.

Signiﬁcance of Part O (2) 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 O (Deﬁnitions and related matters).
Compare: 1994 No 164 s AA 4 85 Income Tax Act 2004 Reprinted as at 29 August 2011 Part B Core Provisions Contents Subpart BA—Purpose BA 1 Purpose Subpart BB—Income tax and resulting obligations Imposition of income tax BB 1 BB 2 Main obligations BB 3 Overriding effect of certain matters Subpart BC—Calculating and satisfying income tax liabilities BC 1 Non-ﬁling and ﬁling taxpayers BC 2 Annual gross income BC 3 Annual total deduction BC 4 Net income and net loss BC 5 Taxable income BC 6 BC 7 BC 8 BC 9 BC 10 Surplus credits Income tax liability of ﬁling taxpayer Income tax liability of person with schedular income Surplus rebates 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 Page 87 88 88 89 93 93 93 93 94 94 96 97 97 99 100 101 101 102 103 105 105 86 Reprinted as at 29 August 2011 Income Tax Act 2004 Part B s BA 1 Subpart BH—Double tax agreements BH 1 Double tax agreements 106 Subpart BA—Purpose Contents Page 87 BA 1 Purpose BA 1 Purpose The purposes of this Part are— (a) to impose income tax, provisional tax, withholding tax, and other tax obligations concerning taxes: 87 Income Tax Act 2004 Reprinted as at 29 August 2011 (b) (c) (d) 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.
Deﬁned in this Act: income tax, provisional tax, tax Compare: 1994 No 164 s BA 1 Paragraphs (a) to (c) were amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting the expression “:” for the expression “; and”.
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 88 88 89 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, tax, taxable income Compare: 1994 No 164 s BB 1 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.
88 Reprinted as at 29 August 2011 Income Tax Act 2004 Part B s BB 3 Provisional tax (3) A provisional taxpayer 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 under subpart BF (Other obli- gations) must satisfy it under that subpart.
Deﬁned in this Act: income tax liability, non-ﬁling taxpayer, provisional tax rules, provisional tax, provisional taxpayer, return of income, tax year Compare: 1994 No 164 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) Despite anything in this Act, except section BH 1(5) (Double tax agreements), or in any other enactment, 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: 1994 No 164 s BB 3 Subpart BC—Calculating and satisfying income tax liabilities Contents BC 1 Non-ﬁling and ﬁling taxpayers Page 93 89 Income Tax Act 2004 Reprinted as at 29 August 2011 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 BC 9 BC 10 Surplus credits Income tax liability of ﬁling taxpayer Income tax liability of person with schedular income Surplus rebates Satisfaction of income tax liability 93 93 93 94 94 96 97 97 99 90 Reprinted as at 29 August 2011 Income Tax Act 2004 Part B s BB 3 91 Income Tax Act 2004 Reprinted as at 29 August 2011 92 Reprinted as at 29 August 2011 Income Tax Act 2004 Part B s BC 4 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: 1994 No 164 ss BC 1(1), BC 2 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: 1994 No 164 s BC 4 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: 1994 No 164 s BC 5 BC 4 Net income and net loss (1) 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.
93 Part B s BC 5 Income Tax Act 2004 Reprinted as at 29 August 2011 (2) (3) 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 with a net loss for a tax year may, under Part I (Treat- ment of net losses),— (a) subtract the net loss from their net income for a future tax year; or (b) make the net loss available to another person to subtract from that other person’s net income for that or a future tax year.
Deﬁned in this Act: annual gross income, annual total deduction, net income, net loss, tax year Compare: 1994 No 164 s BC 6 BC 5 Taxable income A person’s taxable income for a tax year is determined by sub- tracting any available net losses that the person has from their net income under Part I (Treatment of net losses).
Deﬁned in this Act: available net loss, net income, taxable income, tax year Compare: 1994 No 164 s BC 7 BC 6 Income tax liability of ﬁling taxpayer 94 Reprinted as at 29 August 2011 Income Tax Act 2004 Part B s BC 6 95 Part B s BC 7 Income Tax Act 2004 Reprinted as at 29 August 2011 (1) (2) (3) (4) (5) Calculation rules The income tax liability of a ﬁling taxpayer for a tax year is the amount calculated under subsections (2) to (5).
Unadjusted income tax liability The unadjusted income tax liability of the ﬁling taxpayer for the tax year is calculated by multiplying their taxable income for the tax year by the applicable basic tax rate.

Adjusted income tax liability The unadjusted income tax liability of the ﬁling taxpayer be- comes their adjusted income tax liability by subtracting their allowable rebates from their unadjusted income tax liability.
Result positive If the adjusted income tax liability is more than zero, that amount is the ﬁling taxpayer’s income tax liability for the tax year.

Result negative If the adjusted income tax liability is zero or negative, the ﬁling taxpayer’s income tax liability for the tax year is zero.
Deﬁned in this Act: adjusted income tax liability, allowable rebates, amount, applicable basic tax rate, ﬁling taxpayer, income tax liability, tax year, taxable income, unadjusted income tax liability Compare: 1994 No 164 s BC 8(1)-(5) 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.
(1) (2) 96 Reprinted as at 29 August 2011 Income Tax Act 2004 Part B s BC 9 (3) Multiple schedular income If a person has more than 1 kind of schedular income for a tax year, their schedular income tax liability for the year is the total of the amounts calculated for each kind of schedular income.
Deﬁned in this Act: amount, income, income tax liability, schedular income, schedular income tax liability, tax year Compare: 1994 No 164 s BC 3 BC 8 Surplus rebates (1) (2) Amount of surplus rebates If a person’s adjusted income tax liability is negative for a tax year, their amount of surplus rebates is the lesser of— (a) the total of the refundable rebates to which they are en- titled for the year; and the difference between zero and their adjusted income tax liability.
(b) Refunds from Commissioner The Commissioner must refund the amount of surplus rebates under section KD 4 (Allowance of credit of tax in end of year assessment).
Deﬁned in this Act: adjusted income tax liability, amount, Commissioner, re- fundable rebate, tax year Compare: 1994 No 164 ss BC 8(6), BC 10(1) BC 9 Satisfaction of income tax liability 97 Part B s BC 9 Income Tax Act 2004 Reprinted as at 29 August 2011 98 Reprinted as at 29 August 2011 Income Tax Act 2004 Part B s BC 10 (1) (2) Use of tax credits Credits for tax paid or tax withheld, calculated under Part L (Credits), satisfy a person’s income tax liability for a tax year as far as the credits extend.
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.
Deﬁned in this Act: income tax liability, tax, tax year, terminal tax Compare: 1994 No 164 ss BC 1(2), BC 9(1) BC 10 Surplus credits (1) (2) Composition of surplus credits The composition of a person’s surplus credits is determined as if their credits for tax paid or tax withheld were set off against their income tax liability in the following order: (a) (b) non-refundable credits: credits for supplementary dividends allowed to them under subpart LE (Non-resident investors): convertible credits: refundable credits.
(c) (d) Application of surplus credits If, for a tax year, the total of a person’s credits for tax paid or tax withheld is more than their income tax liability, then,— (a) ﬁrst, their surplus credits are offset against their other income tax obligations, under Parts L (Credits) and M (Tax payments); and second, any remaining surplus credits they have are dealt with under Parts L (Credits) and M (Tax pay- ments); and third, any surplus refundable credits they have are re- funded by the Commissioner under Parts M (Tax pay- ments) and N (Withholding taxes and taxes on income of others).
(b) (c) Deﬁned in this Act: Commissioner, convertible credit, income tax, income tax liability, non-refundable credit, refundable credit, supplementary dividend, sur- plus refundable credits, tax, tax year Compare: 1994 No 164 ss BC 9(2), (3), BC 10(2) 99 Income Tax Act 2004 Reprinted as at 29 August 2011 Subpart BD—Income, deductions, and timing Contents BD 1 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 Page 100 101 101 102 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 (Terminating provisions); 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 section HH 4(3) (Trustee income) 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: 100 Reprinted as at 29 August 2011 Income Tax Act 2004 Part B s BD 3 their exempt income: their excluded income: their non-residents’ foreign-sourced income.
(a) (b) (c) Deﬁned in this Act: amount, annual gross income, assessable income, excluded income, exempt income, foreign-sourced amount, income, non-resident, non- residents’ foreign-sourced income Compare: 1994 No 164 s BD 1 Subsection (5)(a) and (b) were amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) bysubstituting the expression “:” for the expression “; or”.
BD 2 Deductions An amount is a deduction of a person if they are allowed a deduction for the amount under Part D (Deductions).

Deﬁned in this Act: amount, deduction Compare: 1994 No 164 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.
101 Part B s BD 4 Income Tax Act 2004 Reprinted as at 29 August 2011 (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: 1994 No 164 ss BD 3(1)-(4), EB 1(1) 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) (4) 102 Reprinted as at 29 August 2011 Income Tax Act 2004 Part B s BE 1 (5) 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: 1994 No 164 ss BD 4, EF 1(1)(a) Subpart BE—Withholding liabilities Contents BE 1 Withholding liabilities Page 103 BE 1 Withholding liabilities Source deduction payments (1) A person who makes a source deduction payment must with- hold an amount from the payment under the PAYE rules.

Resident withholding income (2) A person who makes a payment of resident withholding in- come must withhold an amount from the payment under the RWT rules.
Non-resident withholding income (3) A person who makes a payment of non-resident withholding income 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.

Speciﬁed superannuation contributions (5) A person who makes a speciﬁed superannuation contribution to a superannuation fund must pay speciﬁed superannuation contribution withholding tax under the SSCWT rules.
103 Income Tax Act 2004 Reprinted as at 29 August 2011 Retirement scheme contributions (5B) A person who makes a retirement scheme contribution to a retirement savings scheme must pay retirement scheme con- tribution withholding tax under the RSCWT rules.

Dividend withholding payments (6) A person who receives dividends must make dividend with- holding payments under the dividend withholding payment rules.
Deﬁned in this Act: amount, , dividend, , dividend withholding payment, , divi- dend withholding payment rules, , FBT rules, , fringe beneﬁt, , fringe beneﬁt tax, non-resident withholding income, , NRWT rules, , PAYE rules, , payment, , resident withholding income, , retirement savings scheme, retirement scheme contribution, retirement scheme contribution withholding tax, RSCWT rules, RWT rules, , source deduction payment, , speciﬁed superannuation contribu- tion, , speciﬁed superannuation contribution withholding tax, , SSCWT rules, , superannuation fund Compare: 1994 No 164 s BE 1 Section BE 1(5B) heading: inserted (with effect from 1 April 2007), on 19 De- cember 2007, by section 4(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section BE 1(5B): inserted (with effect from 1 April 2007), on 19 December 2007, by section 4(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section BE 1 list of deﬁned terms retirement savings scheme: inserted (with effect from 1 April 2007), on 19 December 2007, by section 4(2) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section BE 1 list of deﬁned terms retirement scheme contribution: inserted (with effect from 1 April 2007), on 19 December 2007, by section 4(2) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section BE 1 list of deﬁned terms retirement scheme contribution withhold- ing tax: inserted (with effect from 1 April 2007), on 19 December 2007, by sec- tion 4(2) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section BE 1 list of deﬁned terms RSCWT rules: inserted (with effect from 1 April 2007), on 19 December 2007, by section 4(2) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Subpart BF—Other obligations Contents BF 1 Other obligations 104 Page 105 Reprinted as at 29 August 2011 Income Tax Act 2004 Part B s BG 1 BF 1 Other obligations A person must pay the following under the relevant Part: (a) qualifying company election tax under Part H (Treat- ment of net income of certain entities): income tax on taxable distributions from non-qualifying trusts under Part H (Treatment of net income of certain entities): withdrawal tax under Part I (Treatment of net losses): further income tax under Part M (Tax payments): further dividend withholding payments under Part M (Tax payments).
(b) (c) (d) (e) Deﬁned in this Act: further dividend withholding payment, further income tax, income tax, non-qualifying trust, qualifying company election tax, taxable dis- tribution, withdrawal tax Compare: 1994 No 164 s BF 1 Paragraphs (a) to (d) were amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting the expression “:” for the expression “; and”.
Subpart BG—Avoidance Contents BG 1 Tax avoidance Page 105 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: 1994 No 164 s BG 1 105 Income Tax Act 2004 Reprinted as at 29 August 2011 Subpart BH—Double tax agreements Contents BH 1 Double tax agreements Page 106 BH 1 Double tax agreements Meaning (1) Double tax agreement means an agreement that— (a) (b) (c) has been negotiated for 1 or more of the purposes set out in subsection (2); and has been agreed between— (i) the government of any territory outside New Zealand and the government of New Zealand; or the Taipei Economic and Cultural Ofﬁce in New Zealand and the New Zealand Commerce and In- dustry Ofﬁce; and (ii) has entered into force as a result of a declaration by the Governor-General by Order in Council under subsec- tion (3).
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) (2) 106 Reprinted as at 29 August 2011 Income Tax Act 2004 Part B s BH 1 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.

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.
Deﬁned in this Act: business, double tax agreement, income, income tax, net income, New Zealand, New Zealand resident, non-resident, source in New Zealand, tax Compare: 1994 No 164 s BH 1 Subsection (4) was amended, as from 3 April 2006, by section 4 Taxation (De- preciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by substituting the words “any other Inland Revenue Act or the Ofﬁcial Information Act 1982 or the Privacy Act 1993,” for the words “any other enactment,”.
Subsections (4)(a) and (b) were amended, as from 21 December 2004, by sec- tion 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting the expression “:” for the expression “; or”.
107 Income Tax Act 2004 Reprinted as at 29 August 2011 Part C Income Contents 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 Proﬁt-making undertaking or scheme Schemes for proﬁt Personal property Personal property acquired for purpose of disposal CB 3 CB 4 Business of dealing in personal property CB 4B Disposal of certain shares by portfolio investment entity or New Zealand Superannuation Fund after declaration of dividend Land CB 5A Land partially sold or sold with other land CB 5 Disposal: land acquired for purpose or with intention of disposal CB 6 Disposal: land acquired for purposes of business relating to land CB 6B Disposal: Land used for landﬁll, if notice of election CB 7 Disposal within 10 years: land dealing business CB 8 Disposal within 10 years: land development or subdivision business CB 9 Disposal within 10 years of improvement: building business CB 10 Disposal: schemes for development or division begun within 10 years CB 11 Disposal: amount from major development or division and not already in income CB 12 Disposal: amount from land affected by change and not already in income CB 13 Transactions between associated persons Page 122 122 124 125 125 125 125 126 127 127 128 129 129 130 131 132 133 134 108 Reprinted as at 29 August 2011 Income Tax Act 2004 Part B s BH 1 Exclusions for residential land CB 14 Residential exclusion from sections CB 5 to CB 9 CB 15 Residential exclusion from sections CB 10 and CB 11 CB 16 Residential exclusion from section CB 12 Exclusions for business premises CB 17 Business exclusion from sections CB 5 to CB 9 CB 18 Business exclusion from sections CB 10 and CB 11 Exclusions for farm land CB 19 Farm land exclusion from sections CB 10 and CB 11 CB 20 Farm land exclusion from section CB 12 CB 21 Investment exclusion from sections CB 10 and CB 11 Exclusion for investment land Timber CB 22 Disposal
 of timber or right to take timber CB 23 Disposal of land with standing timber Farming, forestry, or ﬁshing CB 24 Income equalisation schemes CB 24B Environmental restoration accounts Environmental restoration Minerals CB 25 Disposal of minerals CB 26 Sale of patent applications or patent rights Intellectual property Transfer of business CB 27 Sale of business: transferred employment income obligations CB 28 Property obtained by theft Stolen property CB 29 Disposal of ETS units Emissions trading scheme Subpart CC—Income from holding property (excluding equity) Land use CC 1 Land 135 135 136 137 137 138 139 139 140 140 141 141 143 144 144 144 145 147 109 Income Tax Act 2004 Reprinted as at 29 August 2011 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 Subpart CD—Income from equity Income CD 1 Dividend CD 1B Distribution excluded from being dividend What is a dividend?
CD 2 Meaning of dividend CD 3 Transfers of value generally CD 4 What is a transfer of value?

CD 5 When is a transfer caused by a shareholding relationship?
CD 6 Bonus issues in lieu of dividend CD 7 Elections to make bonus issue into dividend CD 7B Interests in money or property of foreign unit trust CD 7C Bonus issue by foreign unit trust instead of money or property 147 148 148 148 149 149 150 150 151 152 155 156 156 156 156 158 159 159 160 160 CD 8 Notional distributions of producer boards and co-operative 161 companies CD 9 Tax credits linked to dividends CD 10 Certain dividends not increased by tax credits CD 10B Credit transfer notice CD 10C Dividend reduced if foreign tax paid on company’s income CD 11 Foreign tax credits and refunds linked to dividends CD 12 Beneﬁts of shareholder-employees or directors CD 13 Attributed repatriations from controlled foreign companies CD 14 Returns of capital: off-market share cancellations What is not a dividend?
162 162 163 164 165 165 166 167 110 Reprinted as at 29 August 2011 Income Tax Act 2004 Part B s BH 1 CD 15 Ordering rule and slice rule CD 16 Returns of capital: on-market share cancellations CD 17 Treasury stock acquisitions CD 18 Capital distributions on liquidation or emigration CD 19 Property made available intra-group CD 20 Transfers of certain excepted ﬁnancial arrangements within wholly-owned groups CD 21 Non-taxable bonus issues CD 21B Transfer by unit trust of legal interest after beneﬁcial interest vests CD 22 Flat-owning companies CD 23 Employee beneﬁts CD 24 Payments corresponding to notional distributions of producer boards and co-operative companies CD 24B Distribution to member of co-operative company based on member’s transactions CD 25 Qualifying amalgamations CD 26 Foreign investment fund income Calculation rules CD 27 General calculation rule for transfers of value CD 28 Calculation of amount of dividend when property made available CD 29 Adjustment if dividend recovered by company CD 30 Adjustment if amount repaid later CD 31 Adjustment if additional consideration paid CD 32 Available subscribed capital amount CD 33 Available capital distribution amount CFC attributed repatriation calculation rules CD 34 When does a person have attributed repatriation from a CFC?
CD 35 New Zealand repatriation amount CD 36 New Zealand property amount CD 37 Cost of tangible property CD 38 Cost of associated party equity CD 39 Outstanding balances of ﬁnancial arrangements CD 40 Property transfers between associated persons CD 41 Unrepatriated income balance CD 42 Prevention of double taxation of share cancellation Prevention of double taxation dividends Income Tax Act 2004 Reprinted as at 29 August 2011 CD 43 Replacement payments Returning share transfers Subpart CE—Employee or contractor income Employment income CE 1 Amounts derived in connection with employment CE 2 Value and timing of beneﬁts under share purchase agreements CE 3 Restrictions on disposal of shares under share purchase agreements CE 4 Adjustments to value of beneﬁts under share purchase agreements Deﬁnitions CE 5 Meaning of expenditure on account of an employee CE 6 Meaning of share: when share acquired CE 7 Meaning of share purchase agreement CE 8 Attributed income from personal services Attributed income Restrictive covenants and exit inducement payments CE 9 Restrictive covenants CE 10 Exit inducements 219 220 222 224 225 226 229 229 229 230 231 CE 11 Proceeds from claims under policies of income protection 231 Income protection insurance insurance Tax credits CE 12 Tax credits under section LD 1B added to provider’s 232 income Subpart CF—Income from living allowances, compensation, and government grants CF 1 Beneﬁts, pensions, compensation, and government grants CF 2 Remission of speciﬁed suspensory loans Subpart CG—Recoveries CG 1 Amount of depreciation recovery income CG 2 Remitted amounts CG 3 Bad debt repayment CG 4 Recovered expenditure or loss CG 5 Recoveries or receipts by employers from superannuation 233 235 236 236 237 237 238 schemes 112 Reprinted as at 29 August 2011 Income Tax Act 2004 Part B s BH 1 CG 6 Receipts from insurance, indemnity, or compensation for 239 trading stock Subpart
 CH—Adjustments Matching rules: revenue account property, prepayments, and deferred payments CH 1 Adjustment for closing values of trading stock, livestock, 240 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 CH 5 Adjustment for GST GST Subpart CP—Income from portfolio investment entities CP 1 Portfolio investor allocated income Subpart CQ—Attributed income from foreign equity Attributed controlled foreign company income CQ 1 Attributed controlled foreign company income CQ 2 When attributed CFC income arises CQ 3 Calculation of attributed CFC income Foreign investment fund income Foreign investment fund income CQ 4 CQ 5 When FIF income arises CQ 6 Calculation of FIF income Subpart CR—Income from life insurance Income of life insurer CR 1 CR 2 Amount of income of life insurer CR 3 Income for general insurance outstanding claims reserve Subpart CS—Superannuation funds Withdrawals CS 1 Withdrawals Exclusions CS 2 CS 3 CS 4 Exclusions of withdrawals of various kinds Exclusion of withdrawal on grounds of hardship Exclusion of withdrawal to settle division of relationship property 241 242 242 242 243 244 244 246 246 246 251 252 252 253 255 257 260 260 113 Income Tax Act 2004 Reprinted as at 29 August 2011 CS 5 CS 6 CS 7 CS 8 CS 9 Exclusion of withdrawal paid as annuity or pension Exclusion of withdrawal on partial retirement Exclusion of withdrawal when member ends employment Exclusion of withdrawal when member ends employment: lock-in rule Exclusion of withdrawal from deﬁned beneﬁt fund when member ends employment CS 10 When member treated as not ending employment CS 10B Exclusion of permitted withdrawals from KiwiSaver schemes and complying superannuation funds 261 261 262 266 266 266 267 Transfers to or from superannuation funds and superannuation schemes CS 11 Transfer by superannuation fund to another
 superannuation 267 fund CS 12 Transfer from superannuation scheme to superannuation fund CS 13 Investment by superannuation fund in another superannuation fund Treatment of amounts when superannuation fund becomes superannuation scheme or vice versa CS 14 Superannuation fund becomes superannuation scheme CS 15 Superannuation fund becomes foreign superannuation scheme CS 16 Superannuation scheme becomes superannuation fund Treatment of distributions when superannuation fund wound up CS 17 Superannuation fund wound up 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 268 269 269 270 270 270 271 272 272 273 273 274 275 276 114 Reprinted as at 29 August 2011 Income Tax Act 2004 Part B s BH 1 Subpart CU—Income from mineral mining Introductory provision CU 1 Mining company’s 2 kinds of income Income from mining CU 2 Mining company that processes or manufactures CU 3 Disposal of assets CU 4 Compensation for lost, destroyed, or damaged assets CU 5 Compensation and scrap payment: income from mining CU 6 Compensation and scrap payment: use to replace or repair asset CU 7 Compensation and scrap payment: not income from mining CU 8 Compensation and scrap payment: more than expenditure CU 9 Previous deduction for income appropriated CU 10 Mining asset used to derive income other than income from mining CU 11 Meaning of asset for sections CU 3 to CU 10 CU 12 Application of sections to resident mining operators CU 13 Application of sections to non-resident mining operators CU 14 Recovery of reinvestment proﬁt on disposal of mining shares CU 15 Recovery of reinvestment proﬁt not used for mining purposes CU 16 Recovery of
 reinvestment proﬁt on repayment of loans CU 17 Repayment by mining company of amount written off CU 18 Amount treated as repayment for purposes of section CU 17: excess CU 19 Amount treated as repayment for purposes of section CU 17: net income CU 20 Mining company or mining holding company liquidated Deﬁnitions CU 21 Meaning of income from mining CU 22 Meaning of mining company CU 23 Meaning of mining development expenditure CU 24 Meaning of mining exploration expenditure CU 25 Meaning of mining operations CU 26 Meaning of mining venture CU 27 Meaning of resident mining operator CU 28 Meaning of speciﬁed mineral CU 29 Other deﬁnitions Income Tax Act 2004 Reprinted as at 29 August 2011 Subpart CV—Income speciﬁc to certain entities CV 1 Group companies CV 2 Crown Research Institutes CV 3 Australian wine producer rebate CV 4 Regulations: Australian wine producer rebate Subpart CW—Exempt income Income from business or trade-like activities CW 1 Forestry companies established by Crown, Maori 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 Income from equity CW 9 Dividend derived by company from overseas CW 10 Dividend within New Zealand wholly-owned group CW 11 Dividend of conduit tax relief holding company CW 11B Proceeds of share disposal by qualiﬁed foreign equity investor CW 11C Proceeds from share or option acquired under venture investment
 agreement Employee or contractor income CW 12 Income of Governor-General CW 13 Expenditure on account, and reimbursement, of employees CW 13B Relocation payments CW 13C Payments for overtime meals and certain other allowances CW 14 Allowance for additional transport costs CW 15 Amounts derived during short-term visits 116 305 305 306 306 309 310 311 312 312 312 313 313 314 314 315 315 317 317 324 327 327 328 330 331 333 Reprinted as at 29 August 2011 Income Tax Act 2004 Part B s BH 1 CW 16 Amounts derived by visiting entertainers (including sportspersons) CW 17 Amounts derived by visiting crew of pleasure craft CW 18 Amounts derived by overseas experts and trainees in New Zealand by government arrangement CW 19 Income for military or police service in operational area CW 20 Deferred military pay for active service CW 21 Value of board for religious society members CW 22 Jurors’ and witnesses’ fees Certain income of transitional resident CW 22B Certain income derived by transitional resident Income from living allowances, compensation, and government grants CW 23 Pensions CW 23B Reinvested amount from foreign superannuation scheme in Australia CW 24 Annuities from Crown Bank Accounts CW 25 Services for members of Parliament CW 26 Maintenance payments CW 27 Allowances and beneﬁts CW 28 Compensation payments CW 28B Payment of certain accident compensation payments CW 29 Scholarships and bursaries CW 30 Film production grants Income of certain entities CW 31 Public authorities CW 32 Local authorities CW 33 Local and regional promotion bodies CW 34 Charities: non-business income CW 35 Charities: business income CW 36 Charitable bequests CW 37 Friendly societies CW 38 Funeral trusts CW 39 Bodies promoting amateur games and sports CW 40 TAB and racing clubs CW 40B Income from conducting gaming-machine gambling CW 41 Bodies promoting scientiﬁc or industrial research CW 42 Veterinary services bodies CW 43 Herd improvement bodies CW 44 Community trusts 333 335 336 338 339
bodies CW 44 Community trusts Income Tax Act 2004 Reprinted as at 29 August 2011 Income from certain activities CW 45 Non-resident aircraft operators CW 45B Non-resident company involved in exploration and development activities CW 46 Disposal of companies’ own shares CW 47 New Zealand companies operating in Niue CW 48 Stake money CW 49 Providing standard-cost household service CW 49B Interest paid under KiwiSaver Act 2006 Income of, and distributions by, certain international funds CW 49C Income of certain international funds CW 49D Distributions by certain international funds Income exempt under other Acts CW 50 Exemption under other Acts Income exempt under Parts F to I CW 51 Exemption under Parts to be rewritten Subpart CX—Excluded income Goods and services tax CX 1 GST 359 360 361 361 363 363 364 364 364 365 365 368 KiwiSaver and complying superannuation fund tax credits CX 1B KiwiSaver and complying superannuation fund tax credits 368 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 6B 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 7 CX 8 Subsidised transport CX 9 Employment-related loans CX 10 Employment-related loans: loans by life insurers CX 11 Services for members of Parliament 118 368 369 369 369 370 371 372 372 372 373 374 Reprinted as at 29 August 2011 Income Tax Act 2004 Part B s BH 1 CX 12 Contributions to superannuation schemes CX 13 Contributions to sickness, accident, or death beneﬁt funds CX 14 Contributions to funeral trusts CX 15 Contributions to life or health insurance CX 16 Beneﬁts provided to employees who are shareholders or investors Exclusions and limitations CX 17 Beneﬁts provided
 instead of allowances CX 18 Beneﬁts to enable performance of duties CX 18B Business tools CX 19 Beneﬁts to non-executive directors CX 20 Beneﬁts provided on premises CX 20B Beneﬁts related to health or safety CX 21 Beneﬁts provided by charitable organisations CX 22 Non-liable payments CX 23 Assistance with tax returns CX 24 Accommodation CX 25 Entertainment CX 26 Distinctive work clothing CX 26B Contributions to income protection insurance CX 27 Services provided to superannuation fund CX 27B Goods provided at discount by third parties Deﬁnitions CX 28 Meaning of emergency call CX 29 Meaning of employee share loan CX 30 Meaning of private use CX 31 Meaning of unclassiﬁed beneﬁt CX 32 Meaning of work-related vehicle Insurance CX 33 Life insurers and fully reinsured persons CX 34 Superannuation fund deriving amount from life insurance policy CX 35 Resident insurance underwriters Petroleum mining CX 36 Disposal of ownership interests in controlled petroleum mining entities CX 37 Farm-out arrangements for petroleum mining CX 38 Disposal of mining shares Mineral mining Income Tax Act 2004 Reprinted as at 29 August 2011 CX 39 Disposal of mining shares acquired with reinvestment proﬁt CX 40 Repayment of loans made from reinvestment proﬁt Government grants CX 41 Government grants to businesses CX 41B Amounts remitted as condition of new start grant Contributions to superannuation scheme or retirement savings scheme CX 42 Employer’s superannuation contributions CX 42B Contributions to retirement savings scheme CX 43 Income equalisation schemes Farming, forestry, or ﬁshing CX 43B Refund from environmental restoration account Environmental restoration CX 44 Credits for inﬂation-indexed instruments Inﬂation-indexed instruments CX 44B Share-lending collateral under share-lending Share-lending arrangements arrangements Portfolio investment entities CX
 44C Proceeds from disposal of certain shares by portfolio investment entities or New Zealand Superannuation Fund CX 44D Portfolio investor allocated income and distributions of income by portfolio investment entities CX 44E Rebates of certain fees by portfolio tax rate entities CX 44F Issue of post-1989 forest land units CX 44G Disposal of pre-1990 forest land units Income excluded under Parts F to I CX 45 Exclusion under Parts to be rewritten Subpart CY—Income under Parts F to I CY 1 Amounts that are income under Parts to be rewritten Subpart CZ—Terminating provisions Share purchase agreement income before 19 July 1968 CZ 1 CZ 2 Mining company’s 1970-71 tax year CZ 3 Exchange variations on 8 August 1975 395 396 396 398 400 400 401 401 402 402 403 404 406 406 407 407 408 409 409 410 120 Reprinted as at 29 August 2011 Income Tax Act 2004 Part B s BH 1 CZ 4 Mineral mining: company making loan before 1 April 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 to 1992 412 412 413 414 415 415 CZ 10 Transitional relief for calculation of attributed repatriation 416 dividends: 2 July 1992 CZ 11 Recovery of deductions for software acquired before 1 April 1993 CZ 12 General insurance with risk period straddling1 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 Geothermal wells between 31 March 2003 and 17 May 2006 Subpart CA—General rules Contents CA 1 Amounts that are income CA 2 Amounts that are exempt income or excluded income 417 418 418 419 420 420 420 421 422 422 Page 122 122 121 Part C s CA 1 Income Tax Act 2004 Reprinted as at 29 August 2011 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: 1994 No 164 ss BD 1(1), CD 5 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 (Terminating provisions); 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 Subpart CB—Income from business or trade-like activities Contents Business generally CB 1 Amounts derived from business CB 2 Proﬁt-making undertaking or scheme Schemes for proﬁt Page 124 125 122 Reprinted as at 29 August 2011 Income Tax Act 2004 Part C s CA 2 Personal property Personal property acquired for purpose of disposal CB 3 CB 4 Business of dealing in personal property CB 4B Disposal of certain shares by portfolio investment entity or New Zealand Superannuation Fund after declaration of dividend Land CB 5A Land partially sold or sold with other land CB 5 Disposal: land acquired for purpose or with intention of disposal CB 6 Disposal: land acquired for purposes of business relating to land CB 6B Disposal: Land used for landﬁll, if notice of election CB 7 Disposal within 10 years: land dealing business CB 8 Disposal within 10 years: land development or subdivision business CB 9 Disposal within 10 years of improvement: building business CB 10 Disposal: schemes for development or division begun within 10 years CB 11 Disposal: amount from major development or division and not already in income CB 12 Disposal: amount from land affected by change and not already in income CB 13 Transactions between associated persons Exclusions for residential land CB 14 Residential exclusion from sections CB 5 to CB 9 CB 15 Residential exclusion from sections CB 10 and CB 11 CB 16 Residential exclusion from section CB 12 Exclusions for business premises CB 17 Business exclusion from sections CB 5 to CB 9 CB 18 Business exclusion from sections CB 10 and CB 11 Exclusions for farm land CB 19 Farm land exclusion from sections CB 10 and CB 11 CB 20 Farm land exclusion from section CB 12 CB 21 Investment exclusion from sections CB 10 and CB 11 Exclusion for investment land 125 125 125 126 127 127 128 129 129 130 131 132 133 134 135 135 136 137 137 138 139 139 123 Part C s CB 1 Income Tax Act 2004 Reprinted as at 29 August 2011 Timber
 CB 22 Disposal of timber or right to take timber CB 23 Disposal of land with standing timber Farming, forestry, or ﬁshing CB 24 Income equalisation schemes CB 24B Environmental restoration accounts Environmental restoration Minerals CB 25 Disposal of minerals CB 26 Sale of patent applications or patent rights Intellectual property Transfer of business CB 27 Sale of business: transferred employment income obligations CB 28 Property obtained by theft Stolen property CB 29 Disposal of ETS units Emissions trading scheme 140 140 141 141 143 144 144 144 145 Business generally CB 1 Amounts derived from business Income (1) An amount that a person derives from a business is income of the person.
Exclusion Subsection (1) does not apply to an amount that is of a capital nature.

Deﬁned in this Act: amount, business, income Compare: 1994 No 164 s CD 3 (2) 124 Reprinted as at 29 August 2011 Income Tax Act 2004 Part C s CB 4B Schemes for proﬁt CB 2 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: 1994 No 164 s CD 4 Personal property CB 3 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: 1994 No 164 s CD 4 CB 4 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: 1994 No 164 s CD 4 CB 4B Disposal of certain shares by portfolio investment entity or New Zealand Superannuation Fund after declaration of dividend (1) When this section applies This section applies to a portfolio investment entity or the New Zealand Superannuation Fund (the entity) if— (a) (b) the entity disposes of a share in a company; and section CX 44C (Proceeds from disposal of certain shares by portfolio investment entities or New Zealand Superannuation Fund) applies to the disposal; and a dividend from the share is— (i) (ii) declared before the disposal; and paid to a holder of the share who after the disposal becomes entitled to the dividend.
(c) 125 Part C s CB 5A Income Tax Act 2004 Reprinted as at 29 August 2011 (2) Income The entity derives an amount of income that is the greater of zero and the amount calculated using the formula (declaration shares - distribution shares) x distribution.

Deﬁnition of items in formula The items in the formula are deﬁned in subsections (4) to (6).

(3) Declaration shares (4) Declaration shares is the number of shares in the company held by the entity when the dividend is declared.
Distribution shares (5) Distribution shares is the number of shares in the company for which the entity derives the dividend.

Distribution (6) Distribution is the amount for a share of— (a) the dividend that is not fully imputed as that term is de- ﬁned in section NG 2(3) (Application of NRWT rules), if the share is issued by a company that has an imput- ation credit account; or the dividend, if paragraph (a) does not apply.
(b) Deﬁned in this Act: amount, company, dividend, imputation credit account, income, portfolio investment entity, share Section CB 4B: substituted (with effect from 1 October 2007), on 19 December 2007, by section 5 of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section CB 4B: inserted, on 1 October 2007, by section 4 of the Taxation (Sav- ings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81).
Section CB 4B(1)(a): amended, on 1 October 2007, by section 4 of the Taxation (KiwiSaver and Company Tax Rate Amendments) Act 2007 (2007 No 19).

CB 5A Land partially sold or sold with other land Land Sections CB 5 to CB 21 apply to amounts derived from the disposal of land if the land— (a) (b) is part of the land to which the relevant section applies: is the whole of the land to which the relevant section applies: is disposed of together with other land.
(c) Deﬁned in this Act: amount, dispose, land 126 Reprinted as at 29 August 2011 Income Tax Act 2004 Part C s CB 6 Section CB 5A: inserted (with effect from 1 April 2005), on 19 December 2007, by section 6(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
CB 5 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) Exclusions Subsection (1) is overridden by the exclusions for residential land in section CB 14 and for business premises in section CB 17.
Deﬁned in this Act: amount, business, dispose, income, land Compare: 1994 No 164 s CD 1(2)(a) Subsection (1)(a) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting the expression “:” for the expression “; or”.
CB 6 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) (ii) at the time person A acquired the land they, or an associated person, carried on a business of dealing in land; and person A acquired the land for the purpose of the business; or both the following apply: (i) at the time person A acquired the land they, or an associated person, carried on a business of developing land or dividing land into lots; and (b) 127 Part C s CB 6B Income Tax Act 2004 Reprinted as at 29 August 2011 (c) (ii) person A acquired the land for the purpose of the business; or all the following apply: (i) 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 14 and for business premises in section CB 17.
Deﬁned in this Act: amount, associated person, business, dispose, improve- ments, income, land Compare: 1994 No 164 s CD 1(2)(b)(i), (c)(i), (d)(i) CB 6B Disposal: Land used for landﬁll, if notice of election (b) (c) (d) 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 person under section OD 7; and the person gives written notice to the Commissioner of an election that the land be subject to this section by the day that is the later of the following: (i) the day that is 12 months after the day on which the person acquires the land: 24 June 2006; and (f) (e) (ii) the person makes an election under paragraph (d) for all land that the person acquires and uses as a landﬁll; and any person associated with the person makes an elec- tion under paragraph (d) for all land that the associated person acquires and uses as a landﬁll.
Deﬁned in this Act: associated person, Commissioner, dispose 128 Reprinted as at 29 August 2011 Income Tax Act 2004 Part C s CB 8 Section CB 6B was inserted, as from 1 October 2005, by section 4 Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) with application as from the 2005–06 income year.
CB 7 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.
(3) Exclusions Subsections (1) and (2) are overridden by the exclusions for residential land in section CB 14 and for business premises in section CB 17.
Deﬁned in this Act: amount, associated person, business, dispose, income, land, year Compare: 1994 No 164 s CD 1(2)(b)(ii) CB 8 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) 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, (b) 129 Part C s CB 9 Income Tax Act 2004 Reprinted as at 29 August 2011 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 14 and for business premises in section CB 17.

Deﬁned in this Act: amount, associated person, business, dispose, income, land, year Compare: 1994 No 164 s CD 1(2)(c)(ii) Subsection (2)(a) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting the expression “:” for the expression “; or”.
CB 9 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) (b) they dispose of the land within 10 years of completing improvements to it; and at the time they began the improvements, they carried on a business of erecting buildings, whether or not the land was acquired for the purpose of the business.
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 130 Reprinted as at 29 August 2011 Income Tax Act 2004 Part C s CB 10 with person A at the time the improvements were begun car- ried on a business of erecting buildings, whether or not— (a) (b) person A carried on a business of erecting buildings; or the land was acquired for the purpose of person B’s business.
Exclusions Subsections (1) and (2) are overridden by the exclusions for residential land in section CB 14 and for business premises in section CB 17.
Deﬁned in this Act: amount, associated person, business, dispose, improve- ments, income, land, year Compare: 1994 No 164 s CD 1(2)(d)(ii) (3) CB 10 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) (2) Exclusions Subsection (1) is overridden by the exclusions for residential land in section CB 15, for business premises in section CB 18, for farm land in section CB 19, and for investment land in section CB 21.
Deﬁned in this Act: amount, business, dispose, income, land, year Compare: 1994 No 164 s CD 1(2)(f) 131 Part C s CB 11 Income Tax Act 2004 Reprinted as at 29 August 2011 CB 11 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 5 to CB 10 and CB 12; 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.
Exclusions Subsection (1) is overridden by the exclusions for residential land in section CB 15, for business premises in section CB 18, for farm land in section CB 19, and for investment land in section CB 21.

Relationship with section DB 20 Section DB 20 (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: 1994 No 164 s CD 1(2)(g) Section CB 11(2) heading: substituted (with effect from 1 April 2005), on 19 December 2007, by section 7(1) of the Taxation (Business Taxation and Re- medial Matters) Act 2007 (2007 No 109).
(2) (3) 132 Reprinted as at 29 August 2011 Income Tax Act 2004 Part C s CB 12 Section CB 11(2): substituted (with effect from 1 April 2005), on 19 December 2007, by section 7(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
CB 12 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 5 to CB 10; 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).
(2) 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: 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: (b) (c) (d) (b) (c) (d) (e) (f) (g) (h) (i) 133 Part C s CB 13 Income Tax Act 2004 Reprinted as at 29 August 2011 (j) (k) (l) 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).
Exclusions Subsection (1) is overridden by the exclusions for residential property in section CB 16 and for farm land in section CB 20.

Deﬁned in this Act: amount, dispose, income, land, year Compare: 1994 No 164 s CD 1(2)(e) Subsection (2)(a) to (k) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting the expression “:” for the expression “; or”.
(3) CB 13 Transactions between associated persons Income (1) An amount that a person (transferee) derives from disposing of land is income of the transferee under whichever is applic- able of sections CB 5 to CB 12 if— (a) (b) (c) (d) the land has been transferred to the transferee from an- other person (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 5 to CB 12 if the transferor had retained and disposed of the land.
Date on which some transferees acquire land For the purposes of sections CB 6 to CB 10 and CB 12, if the transferor and transferee are associated persons at the time of the transfer, the transferee is treated as having acquired the land on the date on which the transferor acquired it.
Deﬁned in this Act: amount, associated person, dispose, income, land Compare: 1994 No 164 ss CD 1(11), GD 9(1) (2) 134 Reprinted as at 29 August 2011 Income Tax Act 2004 Part C s CB 15 Exclusions for residential land CB 14 Residential exclusion from sections CB 5 to CB 9 (1) (2) (3) Exclusion Sections CB 5 to CB 9 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: 1994 No 164 s CD 1(3)(b) CB 15 Residential exclusion from sections CB 10 and CB 11 (1) Exclusion: developing or dividing land for residential use Sections CB 10 and CB 11 do 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 residing on the land of the person or any member of their family living with them.
(b) 135 Part C s CB 16 Income Tax Act 2004 Reprinted as at 29 August 2011 (2) Exclusion: dividing residential land Sections CB 10 and CB 11 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: 1994 No 164 s CD 1(2)(f)(iv), (6) Section CB 15(1): amended (with effect from 1 April 2005), on 19 December 2007, by section 8 of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
CB 16 Residential exclusion from section CB 12 Exclusion Section CB 12 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 includes the purpose of erecting a dwellinghouse on the land to be occupied as such a residence.
(b) Deﬁned in this Act: dispose, land, residential purposes Compare: 1994 No 164 s CD 1(4)(a)(ii), (b)(ii) (1) (2) (3) 136 Reprinted as at 29 August 2011 Income Tax Act 2004 Part C s CB 18 Exclusions for business premises CB 17 Business exclusion from sections CB 5 to CB 9 (1) (2) (3) Exclusion Sections CB 5 to CB 9 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: 1994 No 164 s CD 1(3)(a) CB 18 Business exclusion from sections CB 10 and CB 11 Sections CB 10 and CB 11 do 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 the business does not consist of the undertaking or scheme.
(b) (c) Deﬁned in this Act: business, land Compare: 1994 No 164 s CD 1(2)(f)(iii) Section CB 18 heading: amended (with effect from 1 April 2005), on 19 De- cember 2007, by section 9(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

137 Part C s CB 19 Income Tax Act 2004 Reprinted as at 29 August 2011 Section CB 18: amended (with effect from 1 April 2005), on 19 December 2007, by section 9(2) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Exclusions for farm land CB 19 Farm land exclusion from sections CB 10 and CB 11 Exclusion Sections CB 10 and CB 11 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) (e) 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: 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 Compare: 1994 No 164 s CD 1(7) Subsection (1)(b) was amended, as from 26 April 2005, by section 3(1) Income Tax Amendment Act 2005 (2005 No 11) by substituting “spouse or civil union partner” for “spouse”.
(1) (2) 138 Reprinted as at 29 August 2011 Income Tax Act 2004 Part C s CB 21 Subsection (1)(b) was amended, as from 1 April 2007, by section 3(2) Income Tax Amendment Act 2005 (2005 No 11) by substituting “spouse, civil union partner or de facto partner” for “spouse or civil union partner”.

Subsection (2)(a) to (d) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; and”.
CB 20 Farm land exclusion from section CB 12 (1) (2) Exclusion Section CB 12 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 12(1).
Deﬁned in this Act: business, dispose, land Compare: 1994 No 164 s CD 1(4)(a)(i), (b)(i), (c) Subsection (1)(a) was amended, as from 26 April 2005, by section 3(1) Income Tax Amendment Act 2005 (2005 No 11) by substituting “spouse or civil union partner” for “spouse” in both places it appears.
Subsection (1)(a) was amended, as from 1 April 2007, by section 3(2) Income Tax Amendment Act 2005 (2005 No 11) by substituting “spouse, civil union partner or de facto partner” for “spouse or civil union partner” in both places it appears.
Exclusion for investment land CB 21 Investment exclusion from sections CB 10 and CB 11 Sections CB 10 and CB 11 do not apply if— 139 Part C s CB 22 Income Tax Act 2004 Reprinted as at 29 August 2011 (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 person’s deriving from the land income of the kind described in section CC 1 (Land).
Deﬁned in this Act: income, land Compare: 1994 No 164 s CD 1(2)(f)(v) Section CB 21 heading: amended (with effect from 1 April 2005), on 19 De- cember 2007, by section 10(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section CB 21: amended (with effect from 1 April 2005), on 19 December 2007, by section 10(2) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Timber CB 22 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) Whether or not person owns land Subsection (1) applies whether or not the person owns the land on which the timber is situated.
Deﬁned in this Act: amount, dispose, income, own, right to take timber Compare: 1994 No 164 s CJ 1(1) CB 23 Disposal of land with standing timber When this section applies This section applies when a person disposes of land with stand- ing timber on it.
Exclusions This section does not apply when the standing timber is of 1 of the following kinds: (a) trees that are ornamental or incidental, as evidenced by a certiﬁcate given under section 44C of the Tax Administration Act 1994; or (1) (2) 140 Reprinted as at 29 August 2011 Income Tax Act 2004 Part C s CB 24B (b) (c) 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 à prendre) granted before 1 January 1984.
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: 1994 No 164 s CJ 1(2)(a)-(d), (e)(i) (3) Farming, forestry, or ﬁshing CB 24 Income equalisation schemes (b) 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 47, EH 49, EH 51 to EH 53, EH 55, and EH 57 (which relate to the adverse event income equal- isation scheme): sections EH 74, EH 76, and EH 78 (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 (c) Paragraphs (a) and (b) were amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting the expression “:” for the expression “; or”.
Environmental restoration This heading was inserted, as from 21 June 2005, by section 5 Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79).
CB 24B Environmental restoration accounts Income from refund (1) A person who receives a refund for a tax year under section EK 12 (Refund on request) derives for the person’s corresponding 141 Part C s CB 24B Income Tax Act 2004 Reprinted as at 29 August 2011 income year an amount of income calculated using the for- mula— (2) Income from transfer from environmental restoration account If there is a transfer from a person’s environmental restoration account under section EK 15 (Transfer on request), EK 16 (Transfer on death, bankruptcy, or liquidation), or EK 19 (Environmental restoration account of amalgamating com- pany), the person derives for the corresponding income year an amount of income calculated using the formula— Deﬁnitions of items in formulas The items in the formulas are deﬁned in subsections (4) to (6).
(3) Refund (4) Refund is the amount of the refund.

(5) (6) Tax rate Tax rate is the highest rate of income tax on taxable income that— (a) (b) would apply to the person for the tax year if the person is stated in schedule 1; and had sufﬁcient taxable income.

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 6B, part A, paragraphs 2 to 5 (Expenditure in avoiding, rem- edying, or mitigating detrimental effects of discharge of con- taminant) and not in schedule 6B, part C derives income under subsection (8) if— (a) the deduction under section DB 37 (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 142 Reprinted as at 29 August 2011 Income Tax Act 2004 Part C s CB 25 (b) 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.
(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 37 (Avoiding, rem- edying, or mitigating effects of discharge of contamin- ant) 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 37 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, taxable income, tax year.

(b) Section CB 24B was inserted, as from 1 October 2005, by section 5 Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) with application as from the 2005–06 income year.

Minerals CB 25 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: 1994 No 164 s CJ 1(1) 143 Part C s CB 26 Income Tax Act 2004 Reprinted as at 29 August 2011 Intellectual property CB 26 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.


Section CB 26 was substituted, as from 1 October 2005, by section 6(1) Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) with application to patent applications lodged for the ﬁrst time after 21 June 2005.
Transfer of business CB 27 Sale of business: transferred employment income obligations (1) (2) (3) When this section applies This section applies when section DC 9 (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.


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 Compare: 1994 No 164 s CD 3A CB 28 Property obtained by theft Stolen property 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.
(1) (2) 144 Reprinted as at 29 August 2011 Income Tax Act 2004 Part C s CB 29 (3) 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: 1994 No 164 ss CD 6(1), (2), EN 5(1), (2) Emissions trading scheme Heading: added, on 26 September 2008, by section 58 of the Climate Change Response (Emissions Trading) Amendment Act 2008 (2008 No 85).

CB 29 Disposal of ETS units (1) (2) (3) When this section applies This section applies when a person disposes of an ETS unit.
Income The amount that a person derives on disposal by the person of an ETS unit is income.

Surrender of unit: generally zero income If the person disposes of the unit by surrender under the Cli- mate Change Response Act 2002, the person is treated as de- riving no income, unless subsection (4) applies.
Surrender of unit: pre-1990 forest land deforestation (4) Despite subsection (3), subsection (5) applies if— (a) (b) (c) the person surrenders the ETS unit in relation to the deforestation of pre-1990 forest land; and at the time of the surrender, the person would not derive income, other than exempt income or excluded income, from a disposal of the pre-1990 forest land without tim- ber; and the ETS unit is not a post-1989 forest land unit.
Surrendered unit treated as sold for cost If subsection (4) applies, the surrendered unit is treated as hav- ing been sold by the person, at the time of its surrender, to an unrelated person for an amount equal to its cost.
Converted unit treated as sold If a person converts a New Zealand unit into a Kyoto unit under the Climate Change Response Act 2002, the person is treated (5) (6) 145 Income Tax Act 2004 Reprinted as at 29 August 2011 (7) (8) as having sold the converted unit for an amount equal to its cost, if any.

Exempt income: pre-1990 forest land unit Section CW 3B (Pre-1990 forest land units: emissions trading scheme) applies to the disposal to another person of a pre-1990 forest land unit.
Disposal at below market value Section GD 16 (Disposals of ETS units at below market value) may apply to treat a disposal (other than a surrender) as being for market value.
Deﬁned in this Act: amount, convert, ETS unit, excluded income, exempt in- come, forest land unit, income, Kyoto unit, New Zealand unit, pre-1990 forest land unit, post-1989 forest land unit, pre-1990 forest land, surrender Section CB 29: added, on 26 September 2008, by section 58 of the Climate Change Response (Emissions Trading) Amendment Act 2008 (2008 No 85).
Subpart CC—Income from holding property (excluding equity) Contents Land use CC 1 Land CC 2 Non-compliance with covenant for repair Financial instruments Financial arrangements Payments of interest CC 3 CC 4 CC 5 Annuities CC 6 CC 7 Consideration other than in money CC 8 Use of money interest payable by Commissioner CC 8B Certain commercial bills: non-resident holders Prizes received under Building Societies Act 1965 CC 9 Royalties CC 10 Films Royalties 146 Page 147 147 148 148 148 149 149 150 150 151 152 Reprinted as at 29 August 2011 CC 1 Land Income Income Tax Act 2004 Part C s CC 2 Land use (1) An amount described in subsection (2) is income of the owner (2) (3) 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; or (f) other revenues.

(g) Relationship with section GD 10 The treatment of leases of property to related parties for less than an adequate rent is dealt with in section GD 10 (Leases for inadequate rent).
Deﬁned in this Act: amount, business, income, lease, own Compare: 1994 No 164 s CE 1(1)(e) Subsection (2)(a) to (e) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting the expression “:” for the expression “; or”.
CC 2 Non-compliance with covenant for repair (1) (2) (3) 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.
147 Part C s CC 3 Income Tax Act 2004 Reprinted as at 29 August 2011 (4) Relationship with sections EI 4 and EI 5 Subsection (3) is overridden by sections EI 4 (Amount paid to lessor for non-compliance with covenant for repair) and EI 5 (Amount paid for non-compliance: when lessor ceases to own land).
Deﬁned in this Act: amount, income, income year, lease, repairs Compare: 1994 No 164 s EN 1(1), (2) Financial instruments CC 3 Financial arrangements (1) (2) Income: party to ﬁnancial arrangement If a person who is a party to a ﬁnancial arrangement is treated as deriving an amount of income under the ﬁnancial arrange- ment under subpart EW (Financial arrangements rules), the amount is income of the person.
Income: trustee Income derived by a trustee in the circumstances described in section EW 51 (Income when debt forgiven to trustee) is income of the trustee.

Deﬁned in this Act: amount, ﬁnancial arrangement, income, trustee Compare: 1994 No 164 s CE 1(1)(c) 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: 1994 No 164 s CE 1(1)(a) CC 5 Annuities Income (1) An annuity derived by a person is income of the person.
148 Reprinted as at 29 August 2011 Income Tax Act 2004 Part C s CC 7 (2) (3) 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 24 This section is overridden by sections CW 4 (Annuities under life insurance policies) and CW 24 (Annuities from Crown Bank Accounts).
Deﬁned in this Act: income Compare: 1994 No 164 s CE 1(1)(a) 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: 1994 No 164 s CE 1(2)(d) CC 7 Consideration other than in money (1) When this section applies This section applies when— (a) 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 is not interest; and (b) (c) 149 Part C s CC 8 Income Tax Act 2004 Reprinted as at 29 August 2011 (2) (3) the current commercial rate, given the nature and term of the loan, if the borrower had not provided the beneﬁt (whether or not the contract between the borrower and the lender provides for the payment of interest if the beneﬁt is not provided).
Income The amount described in subsection (3) is income of the lender.

Amount of income The amount is the interest that the borrower would have been liable to pay if the lender had lent the money to the borrower in consideration of the payment of interest at the current com- mercial rate, given the nature and term of the loan, reduced by the amount of any interest that the borrower pays.
Deﬁned in this Act: amount, business, income, interest, New Zealand, pay, payment Compare: 1994 No 164 s CE 1(1)(b), (2)(a)-(c) 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: 1994 No 164 s ED 5 CC 8B Certain commercial bills: non-resident holders When this section applies This section applies in relation to a commercial bill held by a non-resident when— (a) neither the ﬁnancial arrangements rules nor the old ﬁ- nancial arrangements rules apply to the calculation and allocation of income and expenditure in relation to the (1) 150 Reprinted as at 29 August 2011 Income Tax Act 2004 Part C s CC 9 (b) commercial bill because of the application of section EW 9(2) to (4) or EZ 45(e) (which relate to the applica- tion of the rules); and the non-resident holder— (i) disposes of the commercial bill other than by re- demption; or redeems a commercial bill whose issuer is an as- sociated person of the non-resident.
(ii) (2) (3) Income: disposal The value of the commercial bill on the day the non-resident holder disposes of it is income of the person.

Income: redemption The amount that the non-resident holder receives on redemp- tion is income of the person.
Deﬁned in this Act: amount, associated person, commercial bill, , ﬁnancial arrangements rules, income, non-resident, old ﬁnancial arrangements rules Section CC 8B: inserted (with effect on 1 April 2005), on 6 October 2009, by section 735(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: (b) (c) (d) (e) 151 Part C s CC 10 Income Tax Act 2004 Reprinted as at 29 August 2011 (f) (g) (h) (i) 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).
(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, royalty, standing timber Compare: 1994 No 164 ss CD 2, OB 1 royalty Subsection (2)(a) was amended, as from 1 October 2005, by section 7 Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) by substituting “patent, plant variety rights,” for the expression “patent,” with application as from the 2005–06 income year.
Subsections (2)(a) to (h) and (3)(a) to (c) were amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting the expression “:” for the expression “; or”.
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.
(1) 152 Reprinted as at 29 August 2011 Income Tax Act 2004 Part C s CC 10 (2) (3) (4) Right or interest The right or interest is a right or interest, including a future or contingent right or interest, of any of the following kinds: (a) (b) (c) (d) (e) (f) copyright in the ﬁlm: a licence relating to the copyright: an equitable right in the copyright: an equitable right in a licence relating to the copyright: any other right existing in or attaching to the ﬁlm: a right to income, or a share of income, from the rental, sale, use, or other exploitation of the ﬁlm.
Income The following amounts are income of the person: (a) an amount received or receivable by the person for— (i) the use of, or the right to use, the ﬁlm or a right or interest in a right in the ﬁlm: the granting of a licence for a future right in the ﬁlm: the disposal of some or all of a right or interest in a right in the ﬁlm: the assignment of a right or an interest in a right: the assignment of a right to derive income from the use of a right or interest; and (ii) (iii) (iv) (v) (b) an amount derived by the person from the rental, sale, use, or other exploitation of the ﬁlm.
Relationship with section FC 21 This section is overridden by section FC 21 (Amounts derived by non-residents from renting ﬁlms).

Deﬁned in this Act: amount, ﬁlm, income Compare: 1994 No 164 s CJ 2 Subsection (2)(a) to (e) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting the expression “:” for the expression “; or”.
Subsection (3)(a)(i) to (iv) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting the expression “:” for the expression “; and”.

153 Income Tax Act 2004 Reprinted as at 29 August 2011 Subpart CD—Income from equity Contents Income CD 1 Dividend CD 1B Distribution excluded from being dividend What is a dividend?

CD 2 Meaning of dividend CD 3 Transfers of value generally CD 4 What is a transfer of value?
CD 5 When is a transfer caused by a shareholding relationship?
CD 6 Bonus issues in lieu of dividend CD 7 Elections to make bonus issue into dividend CD 7B Interests in money or property of foreign unit trust CD 7C Bonus issue by foreign unit trust instead of money or property Page 155 156 156 156 156 158 159 159 160 160 CD 8 Notional distributions of producer boards and co-operative 161 companies CD 9 Tax credits linked to dividends CD 10 Certain dividends not increased by tax credits CD 10B Credit transfer notice CD 10C Dividend reduced if foreign tax paid on company’s income CD 11 Foreign tax credits and refunds linked to dividends CD 12 Beneﬁts of shareholder-employees or directors CD 13 Attributed repatriations from controlled foreign companies What is not a dividend?
CD 14 Returns of capital: off-market share cancellations CD 15 Ordering rule and slice rule CD 16 Returns of capital: on-market share cancellations CD 17 Treasury stock acquisitions CD 18 Capital distributions on liquidation or emigration CD 19 Property made available intra-group CD 20 Transfers of certain excepted ﬁnancial arrangements within wholly-owned groups CD 21 Non-taxable bonus issues CD 21B Transfer by unit trust of legal interest after beneﬁcial interest vests CD 22 Flat-owning companies 154 162 162 163 164 165 165 166 167 171 172 173 175 176 178 178 179 179 Reprinted as at 29 August 2011 Income Tax Act 2004 Part C s CD 1 CD 23 Employee beneﬁts CD 24 Payments corresponding to notional distributions of producer boards and co-operative companies CD 24B Distribution to member of co-operative company based on member’s transactions CD 25 Qualifying amalgamations CD 26 Foreign investment fund income Calculation rules CD 27 General calculation rule for transfers of value CD 28 Calculation of amount of dividend when property made available CD 29 Adjustment if dividend recovered by company CD 30 Adjustment if amount repaid later CD 31 Adjustment if additional consideration paid CD 32 Available subscribed capital amount CD 33 Available capital distribution amount CFC attributed repatriation calculation rules CD 34 When does a person have attributed repatriation from a CFC?
CD 35 New Zealand repatriation amount CD 36 New Zealand property amount CD 37 Cost of tangible property CD 38 Cost of associated party equity CD 39 Outstanding balances of ﬁnancial arrangements CD 40 Property transfers between associated persons CD 41 Unrepatriated income balance CD 42 Prevention of double taxation of share cancellation Prevention of double taxation dividends CD 43 Replacement payments Returning share transfers CD 1 Dividend Income A dividend derived by a person is income of the person.
Deﬁned in this Act: dividend, income Compare: 1994 No 164 ss CE 1(1)(a), CF 1 179 180 181 182 183 185 186 189 191 192 192 200 206 208 209 210 211 212 215 216 217 219 155 Part C s CD 1B Income Tax Act 2004 Reprinted as at 29 August 2011 The heading to section CD 1 was substituted, as from 1 October 2006, by section 5 Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).
CD 1B Distribution excluded from being dividend A distribution, derived by a member of a co-operative com- pany, that is excluded by section CD 24B from being a divi- dend is income of the member.

Deﬁned in this Act: co-operative company, dividend, income Section CD 1B was inserted, as from 3 April 2006, by section 6(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) with application as from the income year corresponding to the 2005–06 tax year.
What is a dividend?

CD 2 Meaning of dividend Sections CD 3 to CD 13 deﬁne what is a dividend.

Deﬁned in this Act: dividend CD 3 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 5; and none of the exclusions in sections CD 14 to CD 26 ap- plies to the transfer.
(2) Calculation rules Sections CD 27 to CD 31 apply for the purposes of calculating the amount of the dividend.

Deﬁned in this Act: company, dividend, transfer of value Compare: 1994 No 164 s CF 2(1)(a)-(e), (g)-(l), (1A), (3), (7), (10) CD 4 What is a transfer of value?
General test (1) A transfer of value from a company to a person occurs when— (a) the company provides money or money’s worth to the person; and 156 Reprinted as at 29 August 2011 Income Tax Act 2004 Part C s CD 4 (b) 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.

(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: 1994 No 164 s CF 2(1)(a)-(e), (g)-(l), (1A), (3), (10) Section CD 4(2B) heading: inserted (with effect on 1 April 2005), on 6 October 2009, by section 736(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section CD 4(2B): inserted (with effect on 1 April 2005), on 6 October 2009, by section 736(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section CD 4 list of deﬁned terms market value: inserted (with effect on 1 April 2005), on 6 October 2009, by section 736(2) of the Taxation (International Tax- ation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section CD 4 list of deﬁned terms share: inserted (with effect on 1 April 2005), on 6 October 2009, by section 736(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section CD 4 list of deﬁned terms shareholder: inserted (with effect on 1 April 2005), on 6 October 2009, by section 736(2) of the Taxation (International Tax- ation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
157 Part C s CD 5 Income Tax Act 2004 Reprinted as at 29 August 2011 CD 5 When is a transfer caused by a shareholding relationship?
General test (1) A transfer of value from a company to a person (recipient) is caused by a shareholding in the company if— the recipient at any relevant time— (a) (i) (ii) (iii) holds shares in the company; or is associated with a shareholder; or is the trustee of a trust, and a beneﬁciary of the trust is either a shareholder or the spouse, civil union partner or de facto partner of a shareholder; and (b) the company makes the transfer because of that share- holding of the relevant shareholder.
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— (a) (b) the transfer is a cash distribution; and the distribution is a deduction under section HF 1 (Proﬁts of mutual associations in respect of transactions with members) or any other provision of this Act; and the board does not choose to treat the distribution as a dividend under section ME 30 (Statutory producer board may determine to attach imputation credit to cer- tain distributions).
(c) 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 section HF 1 (Proﬁts of mutual associations in respect of transactions with members) or any other provision of this Act; and the company does not choose to treat the distribution as a dividend under section ME 35 (Co-operative company (c) 158 Reprinted as at 29 August 2011 Income Tax Act 2004 Part C s CD 7 may make annual determination to attach imputation credit to certain distributions).
Deﬁned in this Act: arrangement, associated person, company, co-operative company, deduction, share, shareholder, statutory producer board, transfer of value, trustee Compare: 1994 No 164 s CF 2(1)(g), (k), (l), (2), (7) Subsection (1)(a)(iii) was amended, as from 26 April 2005, by section 3(1) In- come Tax Amendment Act 2005 (2005 No 11) by substituting “spouse or civil union partner” for “spouse”.
Subsection (1)(a)(iii) was amended, as from 1 April 2007, by section 3(2) In- come Tax Amendment Act 2005 (2005 No 11) by substituting “spouse, civil union partner or de facto partner” for “spouse or civil union partner”.

CD 6 Bonus issues in lieu of dividend Bonus issues in lieu (1) A bonus issue in lieu is a dividend.

(2) Amount of dividend The amount of the dividend is the money or money’s worth offered as an alternative, minus any resident withholding tax payable in relation to the dividend.
Deﬁned in this Act: amount, bonus issue in lieu, dividend, pay, resident with- holding tax Compare: 1994 No 164 s CF 2(1)(f), (6)(a) CD 7 Elections to make bonus issue into dividend Treating bonus issues as dividends (1) A bonus issue that is not a bonus issue in lieu is a dividend if— (a) (b) the bonus issue— (i) (ii) is issued fully paid from reserves of the company: if a dividend, would not be exempt income under section CW 10 (Dividend within New Zealand wholly-owned group) or CW 11 (Dividend of conduit tax relief holding company); and the company chooses under this section to treat the bonus issue as a dividend.
Form of election (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 (a) 159 Part C s CD 7B Income Tax Act 2004 Reprinted as at 29 August 2011 (3) (b) (c) resolving, when it makes the bonus issue, the amount to be treated as a dividend, which must be more than zero; and giving notice to the Commissioner under section 63 of the Tax Administration Act 1994 of the election and the amount.
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 Compare: 1994 No 164 ss CF 2(1)(f), (6)(b), CF 8 Subsection (1) (excluding the heading) was substituted, as from 1 October 2005, by section 8(1) Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) with application for an issue of shares made on or after 16 November 2004.
CD 7B 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 Section CD 7B was inserted, as from 1 October 2005, by section 168 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111).
CD 7C 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 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.
160 Reprinted as at 29 August 2011 Income Tax Act 2004 Part C s CD 8 (2) 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 Section CD 7C was inserted, as from 1 October 2005, by section 168 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111).
CD 8 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 ME 30 (Statutory pro- ducer board may determine to attach imputation credit to cer- tain distributions).
(2) Calculation: section ME 33 The amount of the dividend is calculated under section ME 33 (Notional distribution deemed to be dividend).

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 ME 35 (Co-operative company may make annual determination to attach imputation credit to certain distributions).
(4) (5) Calculation: section ME 38 The amount of the dividend is calculated under section ME 38 (Notional distribution deemed to be dividend or taxable Maori authority distribution).

Corresponding payments not dividends Section CD 24 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, statutory producer board Compare: 1994 No 164 s CF 2(1)(l) 161 Part C s CD 9 Income Tax Act 2004 Reprinted as at 29 August 2011 CD 9 Tax credits linked to dividends (1) (2) (3) Imputation and dividend withholding payment credits The amount of a dividend is increased by— (a) (b) an imputation credit attached to the dividend: a dividend withholding payment credit attached to the dividend.
Relationship with section CD 10 Subsection (1) is overridden by sections CD 10 and CD 10B.

When subsection (1) does not apply Subsection (1) does not apply in— (a) Part L (Credits), except for subpart LE (Non-resident investors); or Part M (Tax payments); or Part N (Withholding taxes and taxes on income of others).
(b) (c) Deﬁned in this Act: amount, dividend, dividend withholding payment credit, imputation credit, tax Compare: 1994 No 164 s CF 6(1) Subsection (1)(a) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting the expression “:” for the expression “; and”.
Subsection (2) was amended, as from 1 July 2006, by section 7 Taxation (De- preciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by substituting “sections CD 10 and CD 10B” for “section CD 10”.
CD 10 Certain dividends not increased by tax credits When this section applies This section applies when a unit trust manager, in the ordinary course of their management activities for a unit trust,— (a) acquires units from unit holders under the terms on which the units were offered to potential unit holders; and derives a dividend from the redemption or other cancel- lation of units in the unit trust.
(b) Credit not included For the purposes of Parts B, C, E, and F, the dividend derived does not include an amount of imputation credit attached to it to the extent to which the dividend (exclusive of the imputation (1) (2) 162 Reprinted as at 29 August 2011 Income Tax Act 2004 Part C s CD 10B (3) (4) credit) recovers the price paid by the unit trust manager to acquire the units.

Relationship with section FC 3 To the extent to which subsection (2) applies, section FC 3 (Share dealing) does not apply.
Some deﬁnitions In this section,— imputation credit includes a dividend withholding payment 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, dividend withholding pay- ment credit, imputation credit, pay, tax, unit trust, unit trust manager Compare: 1994 No 164 s CF 7A CD 10B Credit transfer notice (1) (2) (3) (4) When this section applies This section applies if a share user under a share-lending ar- rangement— (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.

Deﬁnition In this section, imputation credit includes a dividend with- holding payment credit.
Deﬁned in this Act: amount, credit transfer notice, dividend, dividend withhold- ing payment credit, imputation credit, original share, share-lending arrange- ment, share supplier, share user.

163 Part C s CD 10C Income Tax Act 2004 Reprinted as at 29 August 2011 Section CD 10B was inserted, as from 1 July 2006, by section 8(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).
CD 10C Dividend reduced if foreign tax paid on company’s income (b) (c) (d) (b) When this section applies This section applies if a person— (a) 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, within the time allowed by the Commissioner, sufﬁcient informa- tion to satisfy the Commissioner as to the amount of income tax paid.
Amount of dividend reduced The amount of the dividend is reduced by the greater of zero and the amount calculated using the formula— total tax paid – earlier reductions.
Deﬁnition of items in formula In the formula,— (a) 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- rives the dividend, have affected other dividends derived by the person from the company.
Deﬁned in this Act: branch equivalent method, Commissioner, company, con- trolled foreign company, dividend, FIF income or loss, foreign company, for- eign investment fund, income, income tax Section CD 10C was inserted, as from 1 April 2006, by section 8(2) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).
(1) (2) (3) 164 Reprinted as at 29 August 2011 Income Tax Act 2004 Part C s CD 12 CD 11 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: 1994 No 164 ss CF 6(2), CF 7 CD 12 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 16(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.
(3) 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 16(2) (Beneﬁts provided to employees who are shareholders or investors) means it is a fringe beneﬁt; and 165 Part C s CD 13 Income Tax Act 2004 Reprinted as at 29 August 2011 (4) (b) section CD 23 accordingly excludes it from being a divi- dend.
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 statutory obligations.
Deﬁned in this Act: company, director, dividend, employee, fringe beneﬁt, non- executive director, shareholder, unclassiﬁed beneﬁt Compare: 1994 No 164 ss CF 2(1A), CI 2A(1), (2), OB 1 non-executive dir- ector shareholder CD 13 Attributed repatriations from controlled foreign companies Attributed repatriations (1) An amount of attributed repatriation of a person who has an income interest in a CFC is a dividend.
Calculation: sections CD 34 to CD 41 The amount of the dividend is calculated under sections CD 34 to CD 41.
Timing of income The dividend is treated as having been paid by the CFC to the person, and as having been derived by the person,— (a) 6 months after the end of the accounting period of the CFC for which the attributed repatriation is calculated, if the person is a company for which the dividend is exempt income under section CW 9 (Dividend derived by company from overseas); and at the end of the accounting period, in any other case.
(b) New Zealand residents The dividend of a person who has ceased to be a New Zealand resident is treated as being derived while the person is a New Zealand resident.

Deﬁned in this Act: accounting period, amount, attributed repatriation, CFC, company, dividend, exempt income, income interest, New Zealand resident, pay Compare: 1994 No 164 ss CF 2(16), CG 8(13) (2) (3) (4) 166 Reprinted as at 29 August 2011 Income Tax Act 2004 Part C s CD 14 What is not a dividend?
CD 14 Returns of capital: off-market share cancellations (1) (2) (3) (4) Application of this section This section applies if a company pays an amount to a share- holder because of the off-market cancellation of a share in the company, other than on liquidation of the company.
Ordering rule The amount is not a dividend to the extent to which it is less than or equal to the available subscribed capital per share cal- culated under the ordering rule, if— (a) (b) 1 of the bright line tests in subsection (3) is met; and the company is not an unlisted trust that has chosen the slice rule for the share under subsection (4); and the anti-avoidance rule in subsection (6) does not apply.
(c) Bright line tests The bright line tests referred to in subsection (2)(a) are as fol- lows: (a) the cancellation is part of a pro rata cancellation that re- sults in a ﬁfteen percent capital reduction for the com- pany: the cancellation is part of a pro rata cancellation that re- sults in a ten percent capital reduction for the company and the Commissioner has given a notice under subsec- tion (8): the cancellation is not part of a pro rata cancellation and results in the shareholder suffering a ﬁfteen percent interest reduction: the company is an unlisted trust and the cancellation is not part of a pro rata cancellation: the share is a non-participating redeemable share.
(b) (c) (d) (e) Unlisted trusts choosing slice rule If the company is an unlisted trust, it may issue a share on terms that the ordering rule does not apply and that instead the slice rule applies to the cancellation.

If this happens, the amount paid is not a dividend to the extent to which it is less than or equal to the available subscribed capital per share calculated under the slice rule (but still subject to the antiavoidance rule in subsection (6)).
167 Part C s CD 14 Income Tax Act 2004 Reprinted as at 29 August 2011 (5) (b) Calculation concessions for foreign unlisted widelyheld trusts If a company is an unlisted widely-held trust not resident in New Zealand and a shareholder cannot obtain sufﬁcient infor- mation to calculate the available subscribed capital per share under the ordering rule,— (a) the share is treated as if it were issued under subsection (4) on terms that the slice rule applies; and the available subscribed capital under the slice rule is— the amount paid for the issue of the share, if sub- (i) paragraph (ii) does not apply; or the value of the money or property in which a beneﬁcial interest would have vested in the share- holder had the share not been issued, if the share is a taxable bonus issue under paragraph (d) of the deﬁnition of the term.
(ii) 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) 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,— (9) 168 Reprinted as at 29 August 2011 Income Tax Act 2004 Part C s CD 14 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, de facto partner or minor child of the shareholder, or a trustee of a trust under which a spouse, civil union partner, de facto partner or minor child of the shareholder is a beneﬁciary counted associate: paragraph (b) of this deﬁnition was amended, as from 26 April 2005, by section 3(1) Income Tax Amendment Act 2005 (2005 No 11) by substituting “spouse, civil union partner” for “spouse” in both places it occurs.
counted associate: paragraph (b) of this deﬁnition was amended, as from 1 April 2007, by section 3(2) Income Tax Amendment Act 2005 (2005 No 11) by sub- stituting “spouse, civil union partner, de facto partner” for “spouse, civil union partner” in both places it occurs.
ﬁfteen percent capital reduction means the circumstance in which the total amount paid by the company on account of the cancellation (or on account of any other pro rata cancellation of participating shares in the company occurring at the same time) is at least 15% of the market value of all participating shares in the company at the time the company ﬁrst gave notice to shareholders of the cancellation ﬁfteen percent interest reduction means the circumstance in which, immediately after and as a result of the cancellation (together with any other cancellation of participating shares in the company occurring at the same time),— (a) the total direct voting interests in the company of the shareholder and any counted associates is 85% or less of their total direct voting interests in the company im- mediately before the cancellation; and if at the time of the cancellation a market value circum- stance exists, the total direct market value interests in the company of the shareholder and any counted asso- ciates is 85% or less of their total direct market value interests immediately before the cancellation (b) non-participating redeemable share means a share that meets the following conditions (a) the share is issued, under the company’s constitution or establishing legislation, on terms that involve the share being required or allowed to be redeemed or repaid be- fore the company is liquidated; and 169 Part C s CD 14 Income Tax Act 2004 Reprinted as at 29 August 2011 (b) (c) (d) the share is— (i) 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 section FC 1 (Floating rate of interest on debentures) or FC 2 (Interest on debentures issued in substitution for shares) or section FC 2B(2) (Stapled debt securities); or a unit in a unit trust that is not a widely-held trust; and (ii) (iii) (iv) 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 decisionmak- ing rights in relation to the share except— (i) (ii) a protective right; or if to 1 of New the company is Zealand’sActs relating to co-operative compan- ies subject (b) participating share means a share that is not a non-participat- ing redeemable share protective right means a shareholder decision-making right that— (a) arises only if the shareholder’s position may be altered to the shareholder’s detriment or if the company de- faults on its obligations under the terms of the share; and is granted to the shareholder only to assist the share- holder to prevent the alteration or to remedy the default; and when the share is issued is not expected to arise (c) ten percent capital reduction means the circumstance in which the total amount paid by the company on account of the cancellation (or paid on account of any other pro rata cancellation of participating shares in the company occurring at the same time) is at least 10% of the market value of all 170 Reprinted as at 29 August 2011 Income Tax Act 2004 Part C s CD 15 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 de- cision-making rights, slice rule, ten percent capital reduction, trustee, unit trust, unlisted trust, unlisted widely-held trust, widely-held trust Compare: 1994 No 164 s CF 3(1)(b), (2)(c), (14) Subsection (3)(a) to (d) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting the expression “:” for “; or”.
Subsection (5) (excluding the heading) was substituted, as from 1 October 2005, by section 9 Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) with application as from the 2005–06 income year.

Section CD 14(9) non-participating redeemable share paragraph (b)(iii): amended (with effect on 25 February 2008), on 6 October 2009, by section 737 of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
CD 15 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— (2) Deﬁnition of items in formula In the formula,— (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) 171 Part C s CD 16 Income Tax Act 2004 Reprinted as at 29 August 2011 Slice rule (3) Under the slice rule, the available subscribed capital per share is calculated for a share using the formula— (4) Deﬁnition of items in formula In the formula,— (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) the relevant shareholder cannot obtain sufﬁcient infor- (b) mation to calculate the actual available subscribed cap- ital per share using the relevant rule.
Deﬁned in this Act: available subscribed capital, cancellation, foreign company, ordering rule, resident in New Zealand, share, shareholder, shares of the same class, slice rule Compare: 1994 No 164 ss CF 3(2)(b), OB 1 available subscribed capital per share, available subscribed capital per share cancelled CD 16 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) section CD 29: section CD 32(2)(c): 172 Reprinted as at 29 August 2011 Income Tax Act 2004 Part C s CD 17 (b) (iii) section GB 1(3) (Agreements purporting to alter incidence of tax to be void); and gives rise to an imputation credit account debit under section ME 5(1)(c) and (2)(c) (Debits arising to imput- ation credit account).
Deﬁned in this Act: amount, available subscribed capital, company, dividend, imputation credit account, on-market cancellation, ordering rule, pay, share Compare: 1994 No 164 ss CF 3(1)(e), (f), OB 1 available subscribed capital Subsection (2)(a)(i) and (ii) was amended, as from 21 December 2004, by sec- tion 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting the expression “:” for “; and”.
CD 17 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 can- cellation of the share, under section 67A(1) of the Companies Act 1993 or section 24 of the Co-operative Companies Act 1996 (each of which relates to treasury stock); and the acquisition is not part of a pro rata cancellation or something that is in substance a pro rata cancellation.
(b) (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 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— 173 Part C s CD 17 Income Tax Act 2004 Reprinted as at 29 August 2011 (i) (ii) to a person not associated with the company; or in a transaction that occurs on a recognised ex- change, through a broker or some other agent in- dependent of the company, and that is not pre- ceded by any arrangement between the transferee and the company for the transfer; and (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 calculated in the case of the ﬁrst anniversary 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 ME 5(1)(c) and (2)(c) (Debits arising to imputation credit account) apply as if the original acquisition were an on-market cancellation but item “a” of the formula in section ME 5(1)(c) 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- 174 Reprinted as at 29 August 2011 Income Tax Act 2004 Part C s CD 18 putation credit account, imputation penalty tax, New Zealand, on-market can- cellation, ordering rule, pay, pro rata cancellation, recognised exchange, share, shareholder Compare: 1994 No 164 s CF 3(1)(d), (da), (3), (3A) Section CD 17(4): substituted (with effect on 1 April 2005), on 6 October 2009, by section 738(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
CD 18 Capital distributions on liquidation or emigration (1) (2) (3) Application of this section This section applies if a shareholder— (a) (b) is paid an amount in relation to a share on the liquidation of the company: is treated under section FCB 2 (Emigrating company treated as paying distribution to 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 33.

(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: 1994 No 164 s CF 3(1)(c), (i), (4) The heading to section CD 18 was amended, as from 3 April 2006, by sec- tion 9(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscel- laneous Provisions) Act 2006 (2006 No 3) by inserting “or emigration” after “liquidation” with application as from the income year corresponding to the 2005–06 tax year.
175 Part C s CD 19 Income Tax Act 2004 Reprinted as at 29 August 2011 Subsection (1) (excluding the heading) was substituted, as from 3 April 2006, by section 9(2) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) with application as from the income year corresponding to the 2005–06 tax year.
The list of deﬁned terms was amended, as from 3 April 2006, by section 9(3) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by inserting “emigrating company” with application as from the income year corresponding to the 2005–06 tax year.
CD 19 Property made available intra-group Application of this section This section applies if— (a) (b) a transfer of value is made by a company (ﬁrst com- pany) to another company (associated company); and if this section did not exist, the transfer would be a divi- dend under section CD 5(1)(a)(ii) (because the associ- ated company is associated with a shareholder in the ﬁrst company) or under section CD 5(1)(a)(iii) (because the associated company is the trustee of a trust of which a shareholder in the ﬁrst company, or a shareholder’s spouse, civil union partner or de facto partner, is a bene- ﬁciary).
Intra-group property arrangements worth $10,000 or less The transfer of value is not a dividend if— (a) the transfer consists of making property available for less than market value; and the transfer is not a loan; and in the tax 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 if this section did not exist is $10,000 or less.
(b) (c) Downward transfers of value The transfer of value is also not a dividend if— (a) either— (i) (ii) the ﬁrst company has a voting interest in the as- sociated company; or the ﬁrst company is associated with a company (parent company) that has a voting interest in the associated company and that could have (1) (2) (3) 176 Reprinted as at 29 August 2011 Income Tax Act 2004 Part C s CD 19 received the transfer of value without it being assessable income, non-resident withholding in- come, or a gain subject to dividend withholding payment for the parent company; and (4) (5) (6) (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 respect of 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 respect of either the ﬁrst company or the associated company) a market value inter- est in the associated company, of more than 10%.
(ii) Relationship with section FC 3 Subsection (3) does not apply to a transfer of value that is subject to section FC 3 (Share dealing).
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 OD 3(3)(d) (Voting interests) 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) 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 rules in sections OD 3(3)(d) (Voting interests) and OD 4(3)(d) (Market value interests) do 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 177 Part C s CD 20 Income Tax Act 2004 Reprinted as at 29 August 2011 (b) 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 of more than 10% in the associated company, the look-through rules in sections OD 3(3)(d) (Voting interests) and OD 4(3)(d) (Market value interests) do 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, dividend withholding payment, loan, market value circumstance, market value interest, non-resident withholding income, shareholder, tax year, transfer of value, trustee, voting interest Compare: 1994 No 164 s CF 2(13)-(14) (c) Subsection (1)(b) was amended, as from 26 April 2005, by section 3(1) Income Tax Amendment Act 2005 (2005 No 11) by substituting “spouse or civil union partner” for “spouse”.
Subsection (1)(b) was amended, as from 1 April 2007, by section 3(2) Income Tax Amendment Act 2005 (2005 No 11) by substituting “spouse, civil union partner or de facto partner” for “spouse or civil union partner”.
CD 20 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 whollyowned 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: 1994 No 164 s EE 14(4) CD 21 Non-taxable bonus issues A non-taxable bonus issue is not a dividend.
Deﬁned in this Act: dividend, non-taxable bonus issue Compare: 1994 No 164 s CF 3(1)(a) 178 Reprinted as at 29 August 2011 Income Tax Act 2004 Part C s CD 23 CD 21B Transfer by unit trust of legal interest after beneﬁcial interest vests Transfer of legal interest in money or property that is dividend If money or property of a unit trust is a dividend under section CD 7B 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 Section CD 21B was inserted, as from 1 October 2005, by section 169 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111).

CD 22 Flat-owning companies (1) (2) Occupation rights If a ﬂat-owning company makes residential property available to a person, that is not a dividend.
Meaning of ﬂat-owning company In this section, ﬂat-owning company means a company— (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: 1994 No 164 s CF 2(1)(e), (21) CD 23 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(c) (Amounts derived in connection with employment) is not a dividend.
Deﬁned in this Act: amount, dividend, employment income, FBT rules, fringe beneﬁt, fringe beneﬁt tax Compare: 1994 No 164 s CF 3(1)(g), (h) 179 Part C s CD 24 Income Tax Act 2004 Reprinted as at 29 August 2011 CD 24 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 a tax year is not a dividend if— (a) the person was a member of the board at some time during the tax 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 tax year; or the total levies payable by members to the board for the tax year; and (ii) (c) the amount corresponds to a notional distribution amount treated as a dividend under section CD 8(1).
Co-operative company payments (2) An amount paid by a co-operative company to a person in re- lation to a tax year is not a dividend if— (a) the person was a shareholder of the company at some time during the tax 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 tax year; and the amount corresponds to a notional distribution amount treated as a dividend under section CD 8(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, levy, member, pay, produce transactions, producer board, shareholder, statutory producer board, tax year Compare: 1994 No 164 s CF 3(1)(ia), (j), (4) 180 Reprinted as at 29 August 2011 Income Tax Act 2004 Part C s CD 24B CD 24B Distribution to member of co-operative company based on member’s transactions Election by co-operative company that distribution not be dividend (1) A co-operative company may choose that an amount of a dis- tribution (trading distribution) to a member of the co-opera- tive company is not a dividend if— (a) the trading distribution is made by the co-operative company, or by a company (subsidiary company) in which the co-operative company owns voting interests equal to 100%; and the requirements of subsection (2) are met.
(b) Further requirements for election (2) A co-operative company may make an election under subsec- tion (1) if— (a) (b) (c) (d) (e) the co-operative company is resident in New Zealand for the period to which the trading distribution relates; and the company making the distribution is resident in New Zealand for the period to which the trading distribution relates; and the co-operative company believes on reasonable grounds that the member at the time of the distribu- tion— (i) (ii) the value of the trading distribution is determined by the value for the period of transactions between the member and the co-operative company or subsidiary company that satisfy subsection (3); and the number of shares in the co-operative company held by the member determines the value of the transactions with the co-operative company or subsidiary company that the member has a right to enter.
is resident in New Zealand: has a ﬁxed establishment in New Zealand; and Transactions must involve trading stock (3) A transaction must— (a) be the sale and purchase of trading stock of the vendor that is not intangible property; and 181 Part C s CD 25 Income Tax Act 2004 Reprinted as at 29 August 2011 (4) (5) (6) (b) not be subject to section FB 3 (Disposal of trading stock) or FB 4(1) (Income derived from disposal of trading stock together with other assets of business).
Amount excluded from being dividend The amount of a trading distribution that is excluded under subsection (1) from being a dividend for a member is the lesser of the following: (a) (b) the amount of the trading distribution: the amount of the trading distribution relating to shares in the co-operative company that the member acquires for the purpose of obtaining the right to enter transac- tions with the co-operative company or subsidiary com- pany.
Form of election The co-operative company makes an election under subsection (1) for an income year containing the period to which a trading distribution relates by giving the Commissioner notice of the election when providing the company’s return of income for the tax year to which the income year corresponds.

Period of election The election applies for distributions in the income year re- ferred to in subsection (5) and for distributions in later income years.
Deﬁned in this Act: company, co-operative company, resident in New Zealand, shareholder Section CD 24B was inserted, as from 3 April 2006, by section 10(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) with application for distributions made as from 3 April 2006.
Section CD 24B list of deﬁned terms foreign-sourced amount: repealed (with effect on 1 April 2005), on 7 December 2009, by section 163 of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
CD 25 Qualifying amalgamations An amount derived by an amalgamated company on a quali- fying amalgamation from an amalgamating company that ceases to exist on the amalgamation is not a dividend if it arises from— (a) the amalgamated company acquiring property of the amalgamating company; or 182 Reprinted as at 29 August 2011 Income Tax Act 2004 Part C s CD 26 (b) the amalgamated company being relieved of an obliga- tion owed to the amalgamating company.
Deﬁned in this Act: amalgamated company, amalgamating company, amalgam- ation, amount, dividend, qualifying amalgamation Compare: 1994 No 164 s CF 5(a) CD 26 Foreign investment fund income Amount not dividend (1) An amount paid by a company to a person is not a dividend if,— (a) (b) at the time the person derives the amount, the person’s interest in the company is an attributing interest or would have been an attributing interest if the company had not been liquidated; and the person calculates their FIF income or loss in relation to the interest and the period in which the amount is paid under— (i) (ii) (iii) (iv) the comparative value method: the deemed rate of return method: the cost method: the fair dividend rate method.
Exclusion for interests in grey list companies Subsection (1)(b)(iv) does not apply if— the FIF is a grey list company; and (a) the person holds a direct income interest of 10% or more (b) in the FIF at the beginning of the income year in which the period falls.
Application of rule for certain managed funds Subsection (2) does not apply if— (a) the person is a portfolio investment entity, an entity eli- gible to be a portfolio investment entity, or a life insur- ance company; and the FIF is a foreign investment vehicle.
(b) Deﬁned in this Act: amount, attributing interest, company, comparative value method, cost method, deemed rate of return method, direct income interest, divi- dend, fair dividend rate method, FIF income, foreign investment fund, foreign investment vehicle, life insurance, liquidation, loss, pay, portfolio investment entity Compare: 1994 No 164 s CF 3(1)(k) 183 (2) (3) Part C s CD 26 Income Tax Act 2004 Reprinted as at 29 August 2011 Section CD 26(1) heading: substituted (with effect on 19 December 2007), on 7 September 2010, by section 197 of the Taxation (Annual Rates, Trans-Tas- man Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
Section CD 26(1) heading: inserted (with effect on 1 April 2007), on 6 October 2009, by section 739(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section CD 26(1): substituted (with effect on 19 December 2007), on 7 Septem- ber 2010, by section 197 of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
Section CD 26(b): substituted, on 19 December 2007, by section 11 of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Paragraph (b) was amended, as from 1 April 2007, by section 5(1) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) by substituting “comparative value method, the deemed rate of return method, the cost method, or the fair dividend rate method” for “comparative value method or the deemed rate of return method”.
See section 5(3) of that Act as to the application of this amendment for income years beginning on or after 1 April 2007.

Section CD 26(1)(b)(iv): amended (with effect on 1 April 2007), on 6 October 2009, by section 739(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section CD 26(1)(c): repealed (with effect on 1 April 2007), on 6 October 2009, by section 739(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section CD 26(2) heading: added (with effect on 1 April 2007), on 6 October 2009, by section 739(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section CD 26(2): added (with effect on 1 April 2007), on 6 October 2009, by section 739(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section CD 26(3) heading: added (with effect on 1 April 2007), on 6 October 2009, by section 739(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section CD 26(3): added (with effect on 1 April 2007), on 6 October 2009, by section 739(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section CD 26 list of deﬁned terms direct income interest: inserted (with ef- fect on 1 April 2007), on 6 October 2009, by section 739(4) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section CD 26 list of deﬁned terms foreign investment vehicle: inserted (with effect on 1 April 2007), on 6 October 2009, by section 739(4) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
inserted (with effect Section CD 26 list of deﬁned terms life insurance: on 1 April 2007), on 6 October 2009, by section 739(4) of the Taxation 184 Reprinted as at 29 August 2011 Income Tax Act 2004 Part C s CD 27 (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section CD 26 list of deﬁned terms portfolio investment entity: added (with effect on 1 April 2007), on 6 October 2009, by section 739(4) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

The list of deﬁned terms was amended, as from 1 April 2007, by section 5(2) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) by inserting “cost method” and “fair dividend rate method”.
See sec- tion 5(3) of that Act as to the application of this amendment for income years beginning on or after 1 April 2007.

CD 27 General calculation rule for transfers of value Calculation rules (1) (2) Difference in value The amount of a dividend that is a transfer of value from a company to a person is calculated using the formula— value from company – value from person.
Deﬁnition of items in formula In the formula,— (a) value from company is the market value of the money or money’s worth that the company provides to the person (b) value from person — (i) is the market value of the money or money’s worth (if any) that the person provides to the company as consid- eration 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) (3) Relationship with sections CD 28 to CD 31 This section is overridden by sections CD 28 to CD 31.
Deﬁned in this Act: amount, company, dividend, shareholder, transfer of value Compare: 1994 No 164 s CF 2(1)(c)-(e) 185 Part C s CD 28 Income Tax Act 2004 Reprinted as at 29 August 2011 CD 28 Calculation of amount of dividend when property made available (1) (2) (3) How this section applies This section applies to determine the amount of a dividend that arises under section CD 3 because a company makes property available to a person.
Amounts calculated quarterly The amount of the dividend is calculated for each quarter dur- ing which the property is made available.

Date when amounts treated as paid The amount of the dividend calculated for a quarter is treated as being paid by the company to the person and as being de- rived by the person 6 months after the end of the company’s in- come year.
However, if the company gives notice to the share- holder on an earlier date of the amount of the dividend for that quarter, the amount is treated as being paid and derived on that earlier date instead.
Using FBT rules (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 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 32 (which relate to fringe beneﬁts); and the company were not to choose to pay fringe beneﬁt tax on an income year basis under section ND 14 (Payment of fringe beneﬁt tax on income year basis for share- holder-employees).
(b) 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 (5) 186 Reprinted as at 29 August 2011 Income Tax Act 2004 Part C s CD 28 amount over the amount of income accruing to the company in the quarter calculated under the yield to maturity method.
(6) (7) (8) (9) Benchmark rate: fringe beneﬁt tax rate for certain loans For the purposes of subsection (5), the benchmark rate of in- terest is the prescribed rate of interest if— (a) all amounts payable to the company for the loan are expressed in New Zealand dollars; and either the borrower is not a company or, if the borrower is another company, the company making the loan no- tiﬁes the Commissioner that this subsection is to apply to the loan and the quarter.
(b) Setting benchmark rate For the purposes of subsection (5), the benchmark rate is the rate set by the Commissioner if— (a) all amounts payable to the company in relation to the loan are payable in a single currency other than New Zealand dollars; and the Commissioner has set a benchmark rate for that cur- rency and the quarter; and either the borrower is not a company or, if the borrower is another company, the company making the loan no- tiﬁes the Commissioner that this subsection is to apply to the loan and the quarter.
(b) (c) Default benchmark rate For the purposes of subsection (5), if neither subsection (6) nor (7) applies, the benchmark rate of interest is a market rate 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 187 Part C s CD 28 Income Tax Act 2004 Reprinted as at 29 August 2011 (b) (c) the amount payable by the company is income of the borrower in the tax year or a previous tax year; and the amount payable by the company is payable without any tax deduction under the PAYE rules, the RWT rules, or the NRWT rules.
Daily loan balance: company nominating amount (10) Subject to subsection (9), for the purposes of subsection (5), the daily balance of the loan for a tax year is treated as being equal to the notional balance chosen under subsection (11) by the company making the loan if— (a) (b) (c) the borrower is a company; and the loan is a variable principal debt instrument; and the company making the loan notiﬁes the 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) a notice given to the Commissioner with the company’s return of income for the relevant tax year; or 188 Reprinted as at 29 August 2011 Income Tax Act 2004 Part C s CD 29 (b) 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 3 as a result of any difference between the interest (if any) payable by a person to a CFC in an accounting period of the CFC under a loan and the benchmark rate of interest speciﬁed in any of subsections (6) to (8) if— (a) the outstanding balance of the loan at the end of the ac- counting period is taken into account under sections CD 35 to CD 41 in calculating the New Zealand repatriation amount of the CFC for the accounting period; and as a result, the person derives a dividend under section CD 13.
(b) 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 39(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, attributed repatriation, 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 deduction, tax year, variable principal debt instrument Compare: 1994 No 164 s CF 2(11), (12), (19) Subsection (11)(a) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting the expression “:” for “; or”.
CD 29 Adjustment if dividend recovered by company (1) When dividends recovered If a company recovers a dividend from a shareholder under section 56 of the Companies Act 1993 or an equivalent provi- 189 Part C s CD 29 Income Tax Act 2004 Reprinted as at 29 August 2011 sion of foreign law, this section applies to the extent necessary to ensure that— (a) the recovered dividend and any attached imputation credit or dividend withholding payment 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.

Refunds If the Commissioner is given notice of the recovery, the Com- missioner must refund any relevant— (a) income tax, dividend withholding payment, or dividend withholding payment penalty tax of the shareholder; and non-resident withholding tax or resident withholding tax of the company.
(b) Relationship with sections MD 1 and NH 4 The refund is made despite sections MD 1 (Refund of excess tax) and NH 4 (Refund for overpayment and to company in loss), but subject to the other provisions of this Act.
(2) (3) (4) 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 com- pany or dividend withholding payment account com- pany, the imputation credit account or dividend with- holding payment account of the shareholder.
Deﬁned in this Act: assessment, Commissioner, company, dividend, dividend withholding payment, dividend withholding payment account, dividend with- holding payment account company, dividend withholding payment credit, divi- dend withholding payment penalty tax, imputation credit, imputation credit ac- count, imputation credit account company, income tax, non-resident withhold- ing tax, notice, resident withholding tax, shareholder Compare: 1994 No 164 s CF 2(8) Subsection (2) was amended, as from 21 December 2004, by section 270 Tax- ation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting the expression “113B” for “113A”.
190 Reprinted as at 29 August 2011 Income Tax Act 2004 Part C s CD 30 CD 30 Adjustment if amount repaid later (1) (2) (3) (4) (5) (6) When released debt repaid If the release by a company of a shareholder’s obligation to pay money to the company has been treated as a dividend and the released amount is later repaid to the company, this section applies to the extent necessary to ensure that— (a) the dividend is disregarded for the purposes of this Act; and the resulting refunds are made.
(b) When close company expenditure repaid If any expenditure of a close company that shareholders in the company believed on reasonable grounds was only for the beneﬁt of the company is nevertheless a dividend and the ex- penditure is later repaid to the company, this section applies to the extent necessary to ensure that— (a) the dividend is disregarded for the purposes of this Act; and the resulting refunds are made.
(b) Amendment of assessments Section 113B of the Tax Administration Act 1994 requires the Commissioner to amend assessments if given notice of the re- payment.

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

Relationship with section MD 1 The refund is made despite section MD 1 (Refund of excess tax), but subject to the other provisions 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: 1994 No 164 s CF 2(9), (10) 191 Part C s CD 31 Income Tax Act 2004 Reprinted as at 29 August 2011 Subsection (3) was amended, as from 21 December 2004, by section 270 Tax- ation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting the expression “113B” for “113A”.
CD 31 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: 1994 No 164 s CF 2(9A) CD 32 Available subscribed capital amount Formula for calculating amount of available subscribed capital For a share (share) in a company at any relevant time (calcu- lation time), the amount of available subscribed capital is calculated using the formula— 1 July 1994 balance + subscriptions – returns.
(1) 192 Reprinted as at 29 August 2011 Income Tax Act 2004 Part C s CD 32 (2) Deﬁnition of items in formula In the formula,— (a) 1 July 1994 balance is,— (i) (b) 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 (20), 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: (c) returns, subject to subsections (21) to (24), is the total amount of consideration that the company paid, after 30 June 1994 and before the calcula- tion time, on the cancellation of shares in the rele- vant class and that was not a dividend because of section CD 14 or CD 16 or a corresponding pro- vision of an earlier Act.
1 July 1994 balance The 1 July 1994 balance is calculated using the formula (3) (4) Deﬁnition of items in formula In the formula,— (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) 193 Part C s CD 32 Income Tax Act 2004 Reprinted as at 29 August 2011 1 July 1994 balance: bonus issues after 30 September 1988 The capital amount included in calculating the 1 July 1994 amount does not include an amount paid up by way of a bonus issue made after 30 September 1988, unless— (a) (b) the bonus issue was a taxable bonus issue; or the amount was paid up by application of an amount of qualifying share premium.
Subscriptions amount: taxable bonus issues and debt capitalisations The subscriptions amount includes,— (a) in the case of a bonus issue in lieu, the amount offered as an alternative to the bonus issue; and in the case of a taxable bonus issue that is not a bonus issue in lieu, the amount of the dividend arising from the taxable bonus issue; and in the case of shares issued on conversion of, or as con- sideration for the release of, a debt claim against the company, the amount of debt converted or released.
(b) (c) (b) Subscriptions amount: non-taxable and exempt bonus issues The subscriptions amount does not include— (a) an amount for a bonus issue if neither subsection (6)(a) nor (b) applies; or an amount for a taxable bonus issue made to a share- holder to whom the bonus issue was exempt income under section CW 9 (Dividend derived by company from overseas) or CW 10 (Dividend within New Zealand wholly-owned group) (or under a correspond- ing repealed provision) except to the extent to which the taxable bonus issue is fully credited.
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,— (i) if the dividend was exempt income of the share- holder under section CW 9 (Dividend derived by company from overseas) or CW 10 (Dividend (5) (6) (7) (8) 194 Reprinted as at 29 August 2011 Income Tax Act 2004 Part C s CD 32 within New Zealand wholly-owned group) (or a corresponding provision of an earlier Act); and if the shareholder was not required to deduct an amount of dividend withholding payment from the dividend by section NH 1 (Liability to make deduction in respect of foreign withholding pay- ment dividend); and to the extent to which the dividend is not fully credited; or (ii) (iii) (b) an amount received by the company that is mainly at- tributable, directly or indirectly, to the company paying a dividend at a time when the company is a controlled foreign company to another controlled foreign company (regardless of whether either company is resident in a grey list country).
(9) (10) 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 deﬁned in section IG 1(5) (Com- panies included in 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.
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— 195 Part C s CD 32 Income Tax Act 2004 Reprinted as at 29 August 2011 (a) (b) 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.
(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 (acquiring company) issues shares in con- sideration for acquiring, directly or indirectly, shares in another company (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 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 196 Reprinted as at 29 August 2011 Income Tax Act 2004 Part C s CD 32 (b) the total additional amount paid by the acquiring com- pany referred to in subsection (13)(d).
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) Subscriptions amount: emigrating company (15B) If a company has been treated under section FCB 2 (Emigrat- ing company treated as paying distribution to shareholders) as paying a distribution to shareholders, the subscriptions amount includes the amount of the distribution that is a dividend.

(16) 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 (17) The subscriptions amount does not include amounts included in calculating the 1 July 1994 balance.

Subscriptions amount: treasury stock sales excluded (18) 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 17 to de- termine that the amount paid by the company on a previous share acquisition is not subject to section CD 17(4) to (6).
197 Part C s CD 32 Income Tax Act 2004 Reprinted as at 29 August 2011 Subscriptions amount: superannuation fund’s interest in GIF (19) 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.
(20) (21) 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 treated under section ME 5(5) (Debits arising to imputation credit account) as if it were an on-market cancellation by the company, it is treated in the same way for the purposes of calculating the returns amount.
Returns amount: recovered amounts (22) 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.
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 x asc per share.
Deﬁnition of items in formula In the formula,— (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.
(23) (24) 198 Reprinted as at 29 August 2011 Income Tax Act 2004 Part C s CD 32 (25) 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— (26) (27) Deﬁnition of items in formula In the formula,— (a) (b) dividend excluding credits is the dividend excluding any attached imputation credit or dividend withholding payment credit: actual ratio is the total of the imputation ratio and divi- dend withholding payment ratio of the dividend (sec- tion MZ 18 (Fully credited: modifying the actual ratio) modiﬁes this paragraph): (c) maximum ratio is the maximum imputation ratio spe- ciﬁed in section ME 8(1) (Allocation rules for imput- ation credits).
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 voting interest, company, consideration, controlled foreign company, divi- dend, dividend withholding payment, dividend withholding payment credit, dividend withholding payment ratio, exempt income, fully credited, grey list, group investment fund, imputation credit, imputation ratio, Maori authority, New Zealand, on-market cancellation, pay, qualifying share premium, share, shareholder, shares of the same class, slice rule, superannuation fund, tax year, taxable bonus issue, taxable income Compare: 1994 No 164 ss CF 3(2)(a), (14), CF 4, OB 1 available subscribed capital, fully credited, ineligible capital amount, qualifying share premium, transitional capital amount 199 Part C s CD 33 Income Tax Act 2004 Reprinted as at 29 August 2011 Subsection (15) (excluding the heading) was substituted, as from 1 April 2005, by section 11(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) with application as from the income year corresponding to the 2005–06 tax year.
Subsection (15B) was inserted, as from 3 April 2006, by section 11(2) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) with application as from the income year corresponding to the 2005–06 tax year.

Section CD 32(26)(b): amended (with effect from 1 October 2007), on 19 De- cember 2007, by section 12 of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section CD 32 list of deﬁned terms consideration: inserted (with effect on 25 February 2008), on 6 October 2009, by section 740 of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
CD 33 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— Deﬁnition of items in formula In the formula,— (a) 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: (b) (c) (d) (e) (1) (2) 200 Reprinted as at 29 August 2011 Income Tax Act 2004 Part C s CD 33 (f) (g) (h) capital losses is the total of capital loss amounts of the company arising in the 1992-93 or a later tax year, but excluding any loss occurring when the company dis- tributes property to shareholders on the liquidation: total receipts is the total of all amounts received by shareholders on the liquidation: total asc is the total of the available subscribed capital of all shares in the company at the time of the liquid- ation.
Positive amounts (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- 201 Part C s CD 33 Income Tax Act 2004 Reprinted as at 29 August 2011 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 disposal that the company is treated as making under section DB 19 (Amount from proﬁt-making undertaking or scheme and not already in income) or DB 20 (Amount from major development or division and not already in in- come); the capital gain amount is the excess; or after 31 March 1988, it receives a capital gain, including a gift, and no part is 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 com- pany on liquidation of the other company that is ex- cluded from being a dividend as a result of section CD 18(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 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 determined); or the amount is described in section CZ 9(1) (Available capital distribution amount: 1965 and 1985 to 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 ceases to exist on the amal- (a) gamation; 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) 202 Reprinted as at 29 August 2011 Income Tax Act 2004 Part C s CD 33 (9) (10) 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.


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

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

Close companies liquidations (12) Subsection (11) does not apply if— (a) (b) (c) the company is a close company; and the related person is not a company; and the disposal is on the liquidation of the company.
Reinvested exempt dividends (13) When a capital gain amount, a capital loss amount, or the cost of capital property is determined, the cost of any shares sub- scribed for by the company in another company does not in- clude any consideration for the subscribed shares that is ex- cluded from the available subscribed capital of the other com- pany under section CD 32(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,— (b) 203 Part C s CD 33 Income Tax Act 2004 Reprinted as at 29 August 2011 (i) (ii) an amount paid before 11 June 1965 is treated as described in section CZ 9(2)(a) (Available capital distribution amount: 1965 and 1985 to 1992); or an issue of a share before 1 April 1988 is treated as described in section CZ 9(2)(b) (Available capital distribution amount: 1965 and 1985 to 1992).
Meaning of related person In subsections (11) and (12), related person means a person related to a company (ﬁrst company) because 1 of the follow- ing applies to the person and the company: (a) 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.
(15) 204 (b) (c) (d) (e) (f) (g) (h) Reprinted as at 29 August 2011 Income Tax Act 2004 Part C s CD 33 Look-through relatives and nominees (16) For the purposes of subsection (15), a person is treated as hold- ing anything held by— (a) (b) (c) their spouse, civil union partner or de facto partner; or their child; or a child of their spouse, civil union partner or de facto partner; or 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.
(d) Look-through interposed companies (17) For the purposes of subsection (15)(e), if shares or voting rights in a company are owned or controlled by another com- pany, a look-through approach must be applied.
The look- through approach requires that— (a) the shares or voting rights are treated as if owned or controlled by the shareholders in the other company; and if a shareholder in the other company is a company, that shareholder’s portion of the shares or voting rights are treated as if owned or controlled by the shareholders in the shareholder company; and the approach is applied in the same way to any chain of companies, whatever the length of the chain.
(b) (c) (18) Meaning of capital property In this section, capital property means property of the com- pany that is not revenue account property.
Deﬁned in this Act: amalgamated company, amalgamating company, amalgam- ation, amount, available capital distribution amount, available subscribed cap- ital, bonus issue, capital property, close company, company, dividend, income, liquidation, nominee, non-taxable bonus issue, ordering rule, pay, related per- son, relative, resident in New Zealand, revenue account property, share, share- holder, tax year, trustee Compare: 1994 No 164 ss CF 3(2)(b), (6)-(12), (14) excess return amount, CF 5(b), OB 1 capital gain amount Subsection (2)(c) was amended, as from 1 April 2005, by section 12(1) Taxa- tion (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provi- sions) Act 2006 (2006 No 3) by substituting “capital gain amounts available” for “capital gain available” with application as from the income year corres- ponding to the 2005–06 tax year.
Subsection (7)(b) was substituted, as from 1 April 2005, by section 12(2) Taxa- tion (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provi- 205 Part C s CD 34 Income Tax Act 2004 Reprinted as at 29 August 2011 sions) Act 2006 (2006 No 3) with application as from the income year corres- ponding to the 2005–06 tax year.
Section CD 33(11): amended (with effect on 1 April 2005), on 7 December 2009, by section 149 of the Taxation (Consequential Rate Alignment and Re- medial Matters) Act 2009 (2009 No 63).

Subsection (16)(a) was amended, as from 26 April 2005, by section 3(1) Income Tax Amendment Act 2005 (2005 No 11) by substituting “spouse or civil union partner” for “spouse”.
Subsection (16)(a) was amended, as from 1 April 2007, by section 3(2) Income Tax Amendment Act 2005 (2005 No 11) by substituting “spouse, civil union partner or de facto partner” for “spouse or civil union partner”.

Subsection (16)(c) was amended, as from 26 April 2005, by section 3(1) Income Tax Amendment Act 2005 (2005 No 11) by substituting “spouse or civil union partner” for “spouse”.
Subsection (16)(c) was amended, as from 1 April 2007, by section 3(2) Income Tax Amendment Act 2005 (2005 No 11) by substituting “spouse, civil union partner or de facto partner” for “spouse or civil union partner”.

Subsection (16)(d) was amended, as from 26 April 2005, by section 3(1) Income Tax Amendment Act 2005 (2005 No 11) by substituting “spouse or civil union partner” for “spouse”.
Subsection (16)(d) was amended, as from 26 April 2005, by section 3(1) Income Tax Amendment Act 2005 (2005 No 11) by substituting “a child of their spouse or civil union partner” for “their spouse’s child”.

Subsection (16)(d) was amended, as from 1 April 2007, by section 3(2) Income Tax Amendment Act 2005 (2005 No 11) by substituting “spouse, civil union partner or de facto partner” for “spouse or civil union partner”.
Subsection (16)(d) was amended, as from 1 April 2007, by section 3(2) Income Tax Amendment Act 2005 (2005 No 11) by substituting “a child of their spouse, civil union partner or de facto partner” for “a child of their spouse or civil union partner”.

CFC attributed repatriation calculation rules CD 34 When does a person have attributed repatriation from a CFC?
General rule (1) A person has an amount of attributed repatriation from a CFC if— (a) the person has an income interest under sections EX 8 to EX 13 (which relate to the calculation of a person’s income interest) in the CFC in 1 of the CFC’s account- ing periods; and 206 Reprinted as at 29 August 2011 Income Tax Act 2004 Part C s CD 34 (2) (3) (b) (bb) (c) 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 at any time in the accounting period, the person is a New Zealand resident who is not a transitional resident; and the CFC has a New Zealand repatriation amount for the accounting period, under sections CD 35 to CD 41.
Formula The amount of the person’s attributed repatriation for the ac- counting period is calculated using the formula— Deﬁnition of items in formula In the formula,— (a) income interest is the income interest of the person for the period in the accounting period during which the person is a New Zealand resident who is not a transi- tional resident: repatriation is the New Zealand repatriation amount for the CFC and the accounting period: days is the number of days in the accounting period during which the person is a New Zealand resident who is not a transitional resident: days in accounting period is the number of days in the accounting period.
(b) (c) (d) Deﬁned in this Act: accounting period, amount, attributed repatriation, CFC, income interest, New Zealand repatriation amount, New Zealand resident, tran- sitional resident Compare: 1994 No 164 s CG 8(1) Section CD 34(1)(b): amended (with effect from 1 April 2005), on 19 Decem- ber 2007, by section 13(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Subsection (1)(bb) was inserted, as from 1 October 2005, by section 13(1) Tax- ation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Pro- visions) Act 2006 (2006 No 3) with application for: a person who becomes a transitional resident as from 1 April 2006; and as from the income year corres- ponding to the 2005–06 tax year.

See section 13(5) and (6) of that Act as to the application of this amendment.
Subsection (2) formula was substituted, as from 1 October 2005, by section 13(2) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellan- eous Provisions) Act 2006 (2006 No 3) with application for: a person who be- 207 Part C s CD 35 Income Tax Act 2004 Reprinted as at 29 August 2011 comes a transitional resident as from 1 April 2006; and as from the income year corresponding to the 2005–06 tax year.

See section 13(5) and (6) of that Act as to the application of this amendment.
Subsection (3) was inserted, as from 1 October 2005, by section 13(3) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) with application for: a person who becomes a transitional resident as from 1 April 2006; and as from the income year corresponding to the 2005–06 tax year.

See section 13(5) and (6) of that Act as to the application of this amendment.
The list of deﬁned terms was amended, as from 1 October 2005, by section 13(4)(a) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscel- laneous Provisions) Act 2006 (2006 No 3) by inserting “New Zealand resident” with application for: a person who becomes a transitional resident as from 1 April 2006; and as from the income year corresponding to the 2005–06 tax year.

See section 13(5) and (6) of that Act as to the application of this amendment.
The list of deﬁned terms was amended, as from 1 October 2005, by section 13(4)(b) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscel- laneous Provisions) Act 2006 (2006 No 3) by inserting “transitional resident” with application for: a person who becomes a transitional resident as from 1 April 2006; and as from the income year corresponding to the 2005–06 tax year.

See section 13(5) and (6) of that Act as to the application of this amendment.
CD 35 New Zealand repatriation amount (1) (2) Formula The New Zealand repatriation amount of a CFC for an ac- counting period is calculated using the formula— closing New Zealand property – opening New Zealand property.
Deﬁnition of items in formula In the formula,— (a) closing New Zealand property is the amount of New Zealand property of the CFC at the end of the account- ing period calculated under the rules in sections CD 36 to CD 40: opening New Zealand property is the amount of New Zealand property of the CFC at the start of the account- ing period, calculated under the rules in sections CD 36 to CD 40.

(b) Positive amounts The New Zealand repatriation amount can never be negative.
(3) 208 Reprinted as at 29 August 2011 Income Tax Act 2004 Part C s CD 36 (4) CFC’s unrepatriated income balance The New Zealand repatriation amount can never be more than the unrepatriated income balance of the CFC for the account- ing period, calculated under section CD 41.
Deﬁned in this Act: accounting period, amount, CFC, New Zealand, New Zealand repatriation amount Compare: 1994 No 164 s CG 8(2) CD 36 New Zealand property amount Formula The amount of New Zealand property of a CFC at any time is calculated using the formula— tangible property + associated party equity + associated party debt.
(1) (2) Deﬁnition of items in formula In the formula,— (a) (b) (c) tangible property is the total amount of tangible prop- erty (including real property), measured at cost, held by the CFC and situated in New Zealand: associated party equity is the total amount of shares or options over shares, measured at cost, held by the CFC in companies that are at the time both— resident in New Zealand; and (i) (ii) associated with the CFC: associated party debt is the total amount of balances outstanding, measured under section CD 39, but never totalling less than zero, of all ﬁnancial arrangements, to which both— (i) (ii) the CFC is a party; and a New Zealand resident associated with the CFC at the time is a party.
(3) Acquisitions from associates below market value If the CFC acquires any property from a person who is associ- ated (at the time of acquisition) with the CFC for a cost that is less than the market value of the property at the time, the cost to the CFC of acquiring the property is treated as being equal to the market value at the time.
209 Part C s CD 37 Income Tax Act 2004 Reprinted as at 29 August 2011 (4) Speciﬁc calculation rules in sections CD 37 to CD 40 There are speciﬁc calculation rules in sections CD 37 to CD 40, which apply, despite anything in this section, when the amount of New Zealand property is being calculated.
Deﬁned in this Act: amount, associated person, CFC, company, ﬁnancial ar- rangement, New Zealand, New Zealand resident, resident in New Zealand, share Compare: 1994 No 164 s CG 8(3), (5), (14) tangible property CD 37 Cost of tangible property Capital expenditure The cost of any item of tangible property (except trading stock) includes each of the following expenditures if no deduction would have been allowed under this Act for it (except for an amount of depreciation loss) had the CFC been a New Zealand resident: (a) (b) (c) the original purchase price of the property: other expenditure incurred on purchasing the property: expenditure incurred before the relevant time in improv- ing the property: expenditure incurred before the relevant time in estab- lishing or improving the CFC’s legal right to the prop- erty.
(d) Outstanding third party funding The cost of any item of tangible property is reduced (but not to less than zero) by the balance outstanding at the time of a loan to the extent to which— (a) (b) the loan is secured over the property; and the lender is not associated at the time with the CFC; and the balance is attributable to expenditure on the property included in the cost under subsection (1) (including any reﬁnancing of an amount that is attributable to such ex- penditure).
(c) Temporary New Zealand property Subject to section CD 40(3) and (4), the amount of the tangible property item in the formula in section CD 36(1) excludes the cost of any property that is— (a) situated in New Zealand for less than 365 days in total; or (1) (2) (3) 210 Reprinted as at 29 August 2011 (b) Income Tax Act 2004 Part C s CD 38 disposed of by the CFC— (i) by the later of 364 days after its acquisition and 9 months after the end of the CFC’s accounting period in which it was acquired; and to a person that is either a New Zealand resident or is not associated with the CFC at the time of the disposal.
(ii) (4) (5) CFC’s business operations assets excluded The amount of the tangible property item in the formula in section CD 36(1) excludes the cost of any property that is ac- quired or used by the CFC in the course of carrying on a sub- stantial business, unless subsection (5) applies.
(b) What exclusion does not apply to Subsection (4) does not apply if the business— (a) is carried on solely or mainly for the purpose of defeat- ing the application of section CD 13; or is of the same nature as a business also carried on in New Zealand at the time of the acquisition by a person that is— (i) (ii) (iii) a New Zealand resident; and associated at the time with the CFC; and not a company in which the CFC holds at the time shares that are excluded from the New Zealand repatriation amount measurement by section CD 38(1).
Deﬁned in this Act: accounting period, associated person, business, CFC, com- pany, deduction, depreciation loss, New Zealand, New Zealand repatriation amount, New Zealand resident, share, trading stock Compare: 1994 No 164 s CG 8(6), (14) qualiﬁed transitory property Subsection (1)(a) to (c) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting the expression “:” for “; and”.
CD 38 Cost of associated party equity (1) Shares in subsidiaries engaged in same business The cost of associated party equity at any time excludes the cost of shares or options over shares acquired in a company if— 211 Part C s CD 39 Income Tax Act 2004 Reprinted as at 29 August 2011 (a) (b) (c) (d) (e) the CFC and the company are a wholly-owned group of companies at the time; and the company carries on a business of the same nature as a substantial business carried on by the CFC before the acquisition; and the CFC (or another CFC associated with it at the time) has a signiﬁcant involvement in managing the com- pany’s business; and neither the company’s business nor the CFC’s business is carried on solely or mainly for the purpose of defeat- ing the application of section CD 13; and neither the company’s business nor the CFC’s business is of the same nature as a business also carried on in New Zealand at the time of the acquisition by a person that is— (i) (ii) (iii) a New Zealand resident; and associated at the time with the CFC; and not a company in which the CFC holds at the time shares that are excluded from the New Zealand repatriation amount measurement by this subsec- tion.
(2) Currency conversions If any shares or options are not denominated in New Zealand dollars, the cost is calculated by converting the amount in the relevant foreign currency at the rate of exchange applying on the date the shares or options were acquired.
Deﬁned in this Act: associated person, business, CFC, company, New Zealand, New Zealand resident, New Zealand repatriation amount, share, wholly-owned group of companies Compare: 1994 No 164 s CG 8(7) CD 39 Outstanding balances of ﬁnancial arrangements Rules for attributed repatriation calculation only The rules in this section apply only for the purposes of cal- culating the amount of the associated party debt item in the formula in section CD 36(1).
(1) 212 Reprinted as at 29 August 2011 Income Tax Act 2004 Part C s CD 39 (2) (3) (4) (5) Balance: amounts due The outstanding balance of a ﬁnancial arrangement to which the CFC is a party is the amount due to or by the CFC under the ﬁnancial arrangement, whether or not payable at the time.
Calculation under CFC rules The amount due is calculated by applying section EX 21 (Branch equivalent income or loss: calculation rules) and 1 of the spreading methods under the ﬁnancial arrangements rules as if calculating the branch equivalent income or loss of the CFC.
Currency conversion If the amount is not due in New Zealand dollars, the amount is converted by applying the exchange rate between the foreign currency and New Zealand dollars that applies on the date the ﬁnancial arrangement is entered into.
All arrangements with same associate In calculating the net outstanding balance of a ﬁnancial ar- rangement to which the CFC and an associated person are par- ties, all ﬁnancial arrangements entered into by those parties are treated as a single ﬁnancial arrangement, with outstanding bal- ances aggregated and netted off.
Short-term ﬁnancial arrangements (6) No account is taken of a ﬁnancial arrangement that, on the date it is entered into, is reasonably expected to and does mature within 365 days of the day on which it was entered into.
(7) (8) Aggregation of consecutive or successive arrangements For the purposes of subsection (6), if 2 or more consecutive or successive ﬁnancial arrangements may, having regard to the tenor of this section, fairly be regarded as 1 ﬁnancial arrange- ment, those ﬁnancial arrangements are to be regarded as 1 ﬁ- nancial arrangement.
Accruing amounts For the purposes of subsections (6) and (10)(c)(i), an amount accrued (including interest and discount on issue) on a ﬁnan- cial arrangement is treated as— (a) a new ﬁnancial arrangement entered into on the date of accrual; and 213 Part C s CD 39 Income Tax Act 2004 Reprinted as at 29 August 2011 (b) having been paid only when previous accruals on the ﬁnancial arrangement have been paid.
Temporary adjustments (9) A temporary reduction or increase in the outstanding balance, at the end of an accounting period of the CFC, of any ﬁnan- cial arrangement is disregarded if it has a purpose or effect of defeating the application of section CD 13.
When ﬁnancial arrangement matures within 5 years or is remitted (10) Subsections (11) and (12) apply if— (a) (b) (c) (d) a CFC is party to a ﬁnancial arrangement; and the outstanding balance of the ﬁnancial arrangement has been or, but for subsection (11), would be taken into account in calculating the New Zealand repatriation amount of the CFC for an accounting period; and either— (i) the ﬁnancial arrangement matures within 5 years of the date on which it was entered into; or an amount owing under the ﬁnancial arrangement is remitted or released and, as a result, a person derives a dividend; and (ii) section CZ 10(4) (Transitional relief for calculation of attributed repatriation dividends: 2 July 1992) does not apply to the ﬁnancial arrangement.
Retrospective exclusion of amounts If a person with an income interest in the CFC notiﬁes the Commissioner in writing of the maturity or dividend, for the purposes of calculating the dividend amount which the person has derived under section CD 13 from the CFC,— (a) the ﬁnancial arrangement is disregarded, if subsection (10)(c)(i) applies; or the amount remitted or released is disregarded, if sub- section (10)(c)(ii) applies.
(b) Amendment of assessments and refunds In order to give effect to subsection (11), the Commissioner must— (a) amend any relevant assessment under section 113C of the Tax Administration Act 1994; and (11) (12) 214 Reprinted as at 29 August 2011 Income Tax Act 2004 Part C s CD 40 (b) refund any income tax, dividend withholding payment, dividend withholding payment penalty tax, or late pay- ment penalty, despite section MD 1 (Refund of excess tax) but otherwise subject to this Act.
Substitution of ﬁnancial arrangements (13) For the purposes of subsection (10)(c)(i), a ﬁnancial arrange- ment (ﬁrst ﬁnancial arrangement) to which a CFC is a party is not treated as maturing within 5 years of the date on which it was entered into if— (a) on or after the date of maturity, another ﬁnancial ar- rangement (second ﬁnancial arrangement) is entered into by the CFC or a CFC associated with the ﬁrst CFC at any time during the term of the second ﬁnancial ar- rangement; and the second ﬁnancial arrangement is a substitute, whole or part, for the ﬁrst ﬁnancial arrangement; and the second ﬁnancial arrangement was entered into with a purpose of ensuring that subsections (11) and (12) apply.
in (b) (c) Deﬁned in this Act: accounting period, amount, associated person, attributed re- patriation, branch equivalent income, CFC, Commissioner, dividend, dividend withholding payment, dividend withholding payment penalty tax, ﬁnancial ar- rangement, ﬁnancial arrangements rules, income interest, income tax, interest, loss, maturity, New Zealand, New Zealand repatriation amount, pay, year Compare: 1994 No 164 ss CF 2(17), (18), CG 8(8) Subsection (12)(a) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting the expression “113C” for “113B”.
CD 40 Property transfers between associated persons (1) Transfers between associated CFCs Subsection (2) applies if— (a) (b) a CFC disposes of any property to another CFC; and the ﬁrst CFC held the property at the start of the ac- counting period in which the disposal occurs; and the 2 CFCs are associated persons at the time of the disposal.
(c) 215 Part C s CD 41 Income Tax Act 2004 Reprinted as at 29 August 2011 Calculation as if property held by second CFC for whole period (2) A person can choose to calculate their attributed repatriation from both CFCs as if the disposal had occurred at the start of each CFC’s accounting period in which the disposal in fact occurs.

The election is made by the person preparing their return of income accordingly.
(3) (4) Transfers to non-residents with mismatching accounting periods Subsection (4) applies if— (a) a CFC disposes of property to an associated person who is not a New Zealand resident during an accounting period (transfer period); and the CFC did not own the property at the end of the pre- vious accounting period; and the associated person has an accounting period that ends on a later date than the CFC’s transfer period ends; and the associated person holds the property at the end of the CFC’s transfer period; and the associated person does not hold the property at the end of its own accounting period in which the disposal occurs.
(b) (c) (d) (e) Calculation as if CFC holding property at the end of period For the purposes of calculating the CFC’s New Zealand repat- riation amount, it is treated as if it still held the property at the end of the transfer period.
Deﬁned in this Act: accounting period, associated person, attributed repatri- ation CFC, New Zealand repatriation amount, New Zealand resident, return of income Compare: 1994 No 164 s CG 8(4), (10) CD 41 Unrepatriated income balance Formula The unrepatriated income balance of a CFC for an accounting period is calculated using the formula— shareholders’ funds – available subscribed capital – previous New Zealand repatriation amounts.
(1) 216 Reprinted as at 29 August 2011 Income Tax Act 2004 Part C s CD 42 (2) Deﬁnition of items in formula In the formula,— (a) (b) (c) shareholders’ funds is the total shareholders’ funds of the CFC at the end of the accounting period, measured under generally accepted accounting practice: available subscribed capital is the CFC’s available subscribed capital at the end of the accounting period, excluding any amount resulting from— (i) a bonus issue by the CFC derived by a person who is not a resident of New Zealand; or direct or indirect reinvestment of a distribution by the CFC after 2 July 1992 to a person not resident in New Zealand: (ii) previous New Zealand repatriation amounts is the total of any— (i) New Zealand repatriation amount of the CFC for a previous accounting period, reduced under any amended assessment under section CD 39(12); and speciﬁed repatriation amount of the CFC for a previous accounting period ending after 2 July 1992 and before the 2003-04 tax year calculated under section CG 8 of the Income Tax Act 1994 as it applied before the 2003-04 tax year and re- duced under any amended assessment under sec- tion CF 2(17) of the Income Tax Act 1994 as it similarly applied.
(ii) (3) Positive amounts The unrepatriated income balance can never be negative.
Deﬁned in this Act: accounting period, assessment, available subscribed capital, bonus issue, CFC, generally accepted accounting practice, New Zealand repat- riation amount, resident in New Zealand, resident of New Zealand, tax year Compare: 1994 No 164 s CG 8(11) Prevention of double taxation CD 42 Prevention of double taxation of share cancellation dividends Application of this section This section applies if— (1) 217 Part C s CD 42 Income Tax Act 2004 Reprinted as at 29 August 2011 (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 (other rules): (i) section CB 1 (Amounts derived from business); or section CB 2 (Proﬁt-making undertaking or scheme); or section CB 3 (Personal property acquired for pur- pose of disposal); or section CB 4 (Business of dealing in personal property); or any other provision of this Act outside this sub- part.
(ii) (iii) (iv) (v) 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 dividend withholding payment credit).
Non-taxable dividends Subsection (2) does not apply to the extent to which— (a) the dividend is exempt income of the person under sec- tions CW 9 to CW 11 (which relate to income from equity); and section NH 1 (Liability to make deduction in respect of foreign withholding payment dividend) does not require the person to deduct a dividend withholding payment from the dividend.
(b) Subsection (3)(b): formula For the purposes of subsection (3)(b), the extent to which a person is required to deduct a dividend withholding payment is calculated using the formula— Deﬁnition of items in formula In the formula,— (2) (3) (4) (5) 218 Reprinted as at 29 August 2011 Income Tax Act 2004 Part C s CD 43 (a) (b) dividend withholding payment is any dividend with- holding payment that must be deducted from the divi- dend under section NH 2(1) (Amount of dividend with- holding payment to be deducted): tax rate is the basic rate of income tax for companies, expressed as a decimal, stated in schedule 1, part A, clause 5 (Basic rates of income tax and speciﬁed super- annuation contribution withholding tax), that applies for the tax year in which the dividend is paid.
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 14 to CD 19.

Relationship with section FC 3 This section is overridden by section FC 3 (Share dealing).
Deﬁned in this Act: amount, cancellation, company, dividend, dividend with- holding payment, dividend withholding payment credit, exempt income, imput- ation credit, income, income tax, share, tax year Compare: 1994 No 164 s CF 2(15) Returning share transfers This heading was inserted, as from 1 July 2006, by section 14 Taxation (Depre- ciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).
(6) (7) CD 43 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 Section CD 43 was inserted, as from 1 July 2006, by section 14 Taxation (De- preciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).
219 Income Tax Act 2004 Reprinted as at 29 August 2011 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 CE 8 Attributed income from personal services Attributed income Restrictive covenants and exit inducement payments CE 9 Restrictive covenants CE 10 Exit inducements Page 220 222 224 225 226 229 229 229 230 231 CE 11 Proceeds from claims under policies of income protection 231 Income protection insurance insurance Tax credits CE 12 Tax credits under section LD 1B added to provider’s 232 income Employment income CE 1 Amounts derived in connection with employment Income The following amounts derived by a person in connection with their employment or service are income of the person: (a) salary or wages or an allowance, bonus, extra pay, or gratuity: (1) 220 Reprinted as at 29 August 2011 Income Tax Act 2004 Part C s CE 1 (b) (c) (d) (e) (f) (g) 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.
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.
(2) Meaning of accommodation For the purposes of this section and section CX 24 (Accom- modation), accommodation means board or lodging, or the use of a house or living premises, or the use of part of a house or living premises.
Deﬁned in this Act: accommodation, amount, expenditure on account of an employee, extra pay, income, salary or wages, share purchase agreement Compare: 1994 No 164 ss CH 3, OB 1 monetary remuneration Section CE 1(1) heading: inserted (with effect on 1 April 2005), on 6 October 2009, by section 741(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 2005), on 21 December 2010 (applying for the 2005–06 and later income years), by section 164(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).

Section CE 1(1B) heading: inserted (with effect on 1 April 2005), on 21 Decem- ber 2010 (applying for the 2005–06 and later income years), by section 164(2) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section CE 1(1B): inserted (with effect on 1 April 2005), on 21 December 2010 (applying for the 2005–06 and later income years), by section 164(2) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).

Section CE 1(2) heading: added (with effect on 1 April 2005), on 6 October 2009, by section 741(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 2005), on 6 October 2009, by section 741(3) of the Taxation (International Taxation, Life Insurance, and Re- medial Matters) Act 2009 (2009 No 34).

221 Part C s CE 2 Income Tax Act 2004 Reprinted as at 29 August 2011 Paragraphs (a) to (f) were amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting the expression “:” for “; and”.
Section CE 1 list of deﬁned terms accommodation: inserted (with effect on 1 April 2005), on 6 October 2009, by section 741(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 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 tax year.
If restrictions apply to the disposal of shares received under a share purchase agreement, 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 tax year in which they acquire the shares.
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 tax 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 tax year in which the associated per- son acquires the shares.
(1) (2) (3) (4) 222 Reprinted as at 29 August 2011 Income Tax Act 2004 Part C s CE 2 (5) (6) (7) (8) (9) 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 tax year in which the last associated 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.
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 given by the following formula: (b) Deﬁned in this Act: amount, associated person, employee, employer, non-resi- dent, share, share purchase agreement, share purchase scheme, tax year, transi- tional resident Compare: 1994 No 164 s CH 2(2), (3) ﬁrst proviso, second proviso 223 Part C s CE 3 Income Tax Act 2004 Reprinted as at 29 August 2011 Subsection (8) was inserted, as from 1 April 2006, by section 15(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) with application for income years beginning as from 1 April 2006.
Subsection (9) was inserted, as from 1 October 2005, by section 15(2) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) with application for: a person who becomes a transitional resident as from 1 April 2006; and as from the income year corresponding to the 2005–06 tax year.

See section 15(5) and (6) of that Act as to the application of this amendment.
The list of deﬁned terms was amended, as from 1 October 2005, by section 15(3)(a) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscel- laneous Provisions) Act 2006 (2006 No 3) by inserting the word “non-resident” with application for: a person who becomes a transitional resident as from 1 April 2006; and as from the income year corresponding to the 2005–06 tax year.

See section 15(5) and (6) of that Act as to the application of this amendment.
The list of deﬁned terms was amended, as from 1 October 2005, by section 15(3)(b) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscel- laneous Provisions) Act 2006 (2006 No 3) by inserting “transitional resident” with application for: a person who becomes a transitional resident as from 1 April 2006; and as from the income year corresponding to the 2005–06 tax year.

See section 15(5) and (6) of that Act as to the application of this amendment.
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).
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- (b) (2) (3) 224 Reprinted as at 29 August 2011 Income Tax Act 2004 Part C s CE 4 (4) tionally transfer some or all of the shares to the em- 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, matrimonial agreement, share, share purchase agreement, tax year, year Compare: 1994 No 164 s CH 2(3)(a), (b), third proviso The heading to subsection (4) was amended, as from 26 April 2005, by section 3(1) Income Tax Amendment Act 2005 (2005 No 11) by substituting “relation- ship agreements” for “matrimonial agreements”.
Subsection (4) was amended, as from 26 April 2005, by section 3(1) Income Tax Amendment Act 2005 (2005 No 11) by substituting “relationship agreements” for “matrimonial agreements”.
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, share, share purchase agreement Compare: 1994 No 164 s CH 2(4) 225 Part C s CE 5 Income Tax Act 2004 Reprinted as at 29 August 2011 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.
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 or de facto partner or their child).

This subsection is overrid- den 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 13 (Expenditure on account, and reimbursement, of em- ployees): an allowance for additional transport costs under section CW 14 (Allowance for additional transport costs): an amount paid under section CW 13B (Relocation payments) or section CW 13C (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 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 or de facto partner or their child) if— (i) the premium cannot be refunded to, or converted to cash by, the employee or an associated person; and (e) (f) (d) (1) (2) (3) 226 Reprinted as at 29 August 2011 (ii) Income Tax Act 2004 Part C s CE 5 the only beneﬁts that are payable under the policy are those payable on the death of the employee (or their spouse, civil union partner or de facto partner or their child) or those payable because of accident, disease, or sickness of the employee (or their spouse, civil union partner or de facto partner or their child): (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 or 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 pol- icy taken out for the beneﬁt of the employee (or their spouse, civil union partner or 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 or 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, premium, superannuation category 1 scheme, superannuation category 2 scheme, superannuation category 3 scheme, trustee Compare: 1994 No 164 s OB 1 expenditure on account of an employee, spe- ciﬁed fund Subsection (2) was amended, as from 26 April 2005, by section 3(1) Income Tax Amendment Act 2005 (2005 No 11) by substituting “spouse or civil union partner” for “spouse”.
Subsection (2) was amended, as from 1 April 2007, by section 3(2) Income Tax Amendment Act 2005 (2005 No 11) by substituting “spouse, civil union partner or de facto partner” for “spouse or civil union partner”.

227 Part C s CE 5 Income Tax Act 2004 Reprinted as at 29 August 2011 Subsection (3)(a) to (h) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; or”.
Section CE 5(3)(bb): inserted (with effect on 1 April 2005), on 6 October 2009, by section 742 of the Taxation (International Taxation, Life Insurance, and Re- medial Matters) Act 2009 (2009 No 34).

Section CE 5(3)(bb): amended (with effect on 1 April 2005), on 7 December 2009, by section 150 of the Taxation (Consequential Rate Alignment and Re- medial Matters) Act 2009 (2009 No 63).
Subsection (3)(f) before subpara (i) was amended, as from 26 April 2005, by section 3(1) Income Tax Amendment Act 2005 (2005 No 11) by substituting “spouse or civil union partner” for “spouse”.

Subsection (3)(f) before subpara (i) was amended, as from 1 April 2007, by section 3(2) Income Tax Amendment Act 2005 (2005 No 11) by substituting “spouse, civil union partner or de facto partner” for “spouse or civil union part- ner”.
Subsection (3)(f)(ii) was amended, as from 26 April 2005, by section 3(1) In- come Tax Amendment Act 2005 (2005 No 11) by substituting “spouse or civil union partner” for “spouse” in both places it occurs.

Subsection (3)(f)(ii) was amended, as from 1 April 2007, by section 3(2) Income Tax Amendment Act 2005 (2005 No 11) by substituting “spouse, civil union partner or de facto partner” for “spouse or civil union partner” in both places it occurs.
Subsection (3)(g) was amended, as from 26 April 2005, by section 3(1) Income Tax Amendment Act 2005 (2005 No 11) by substituting “spouse or civil union partner” for “spouse”.

Subsection (3)(g) was amended, as from 1 April 2007, by section 3(2) Income Tax Amendment Act 2005 (2005 No 11) by substituting “spouse, civil union partner or de facto partner” for “spouse or civil union partner”.
Subsection (3)(h) was amended, as from 26 April 2005, by section 3(1) Income Tax Amendment Act 2005 (2005 No 11) by substituting “spouse or civil union partner” for “spouse”.

Subsection (3)(h) was amended, as from 1 April 2007, by section 3(2) Income Tax Amendment Act 2005 (2005 No 11) by substituting “spouse, civil union partner or de facto partner” for “spouse or civil union partner”.
Subsection (3)(i) was amended, as from 26 April 2005, by section 3(1) Income Tax Amendment Act 2005 (2005 No 11) by substituting “spouse or civil union partner” for “spouse”.

Subsection (3)(i) was amended, as from 1 April 2006, by section 16(a) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by substituting “scheme:” for “scheme.”.
Subsection (3)(i) was amended, as from 1 April 2007, by section 3(2) Income Tax Amendment Act 2005 (2005 No 11) by substituting “spouse, civil union partner or de facto partner” for “spouse or civil union partner”.

Subsection (3)(j) was inserted, as from 1 April 2006, by section 16(a) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).
228 Reprinted as at 29 August 2011 Income Tax Act 2004 Part C s CE 8 The list of deﬁned terms was amended, as from 1 April 2006, by section 16(b) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by inserting “contribution”.

CE 6 Meaning of share: when share acquired (1) (2) Meaning In sections CE 2 to CE 4 and 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 4 and CE 7,— (a) shares are treated as having been acquired on the date on which the right or option to buy them is exercised; and 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.
(b) Deﬁned in this Act: convertible note, employee, share, trustee Compare: 1994 No 164 s CH 2(5), (6), (8) The heading to section CE 6 was amended, as from 1 April 2005, by section 6 Taxation (Savings Investment and Miscellaneous Provisions Act 2006 (2006 No 81) by adding “: when share acquired”.
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: 1994 No 164 s CH 2(1), (7) Attributed income CE 8 Attributed income from personal services (1) When this section applies This section applies when, under sections GC 14B to GC 14E (which relate to the attribution rule), a person is required to attribute an amount to another person.
229 Part C s CE 9 Income Tax Act 2004 Reprinted as at 29 August 2011 (2) (3) 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: 1994 No 164 ss CD 7, EN 8 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.
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.
(1) (2) (3) 230 (b) (b) (c) (d) Reprinted as at 29 August 2011 Income Tax Act 2004 Part C s CE 11 (4) (5) Sale of all shares in company For the purposes of subsection (3),— (a) the sale of a business includes the sale of shares in a company, but only if the sale is of all the shares in the company and the company— (i) (ii) carries on a business; or directly or indirectly wholly owns another com- pany that carries on a business; and (b) in that case, the words “person B” in subsection (3)(c) and (d) mean the company that carries on the business, whether the company referred to in paragraph (a)(i) or the company referred to in paragraph (a)(ii).
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.

Deﬁned in this Act: amount, associated person, business, company, employee, income, share Compare: 1994 No 164 s CHA 1 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) (d) loss of status.
Deﬁned in this Act: amount, income Compare: 1994 No 164 s CHA 2 Income protection insurance This heading was inserted, as from 1 April 2006, by section 17 Taxation (De- preciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).
CE 11 Proceeds from claims under policies of income protection insurance (1) When this section applies This section applies if an employer is liable to pay, or con- tribute to the payment of, a premium under a policy of income 231 Part C s CE 12 Income Tax Act 2004 Reprinted as at 29 August 2011 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 Section CE 11 was inserted, as from 1 April 2006, by section 17 Taxation (De- preciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).

Tax credits Heading: added, on 1 July 2008, by section 14 of the Taxation (Business Taxa- tion and Remedial Matters) Act 2007 (2007 No 109).
CE 12 Tax credits under section LD 1B added to provider’s income (1) When this section applies This section applies when a person is allowed under section LD 1B (Tax deductions from certain accident compensation payments: credit allowed to provider) a credit against the per- son’s income tax liability in an income year.

Income (2) An amount equal to the credit is income of the person in the income year, if the amount is not income under any other pro- vision.
Deﬁned in this Act: income, income year, payment Section CE 12: added, on 1 July 2008, by section 14 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 233 235 232 Reprinted as at 29 August 2011 Income Tax Act 2004 Part C s CF 1 CF 1 Beneﬁts, pensions, compensation, and government grants (1) (2) Income The following amounts are income: (a) (b) (c) (d) (e) (f) an accident compensation payment: an education grant: an income-tested beneﬁt: a living alone payment: a New Zealand superannuation payment: a parental leave payment paid under Part 7A of the Parental Leave and Employment Protection Act 1987: a pension: a veteran’s pension.
(g) (h) Some deﬁnitions In this section,— accident compensation payment means— (a) (b) (c) a payment under the Accident Compensation Act 1982 of earnings-related compensation that is not recovered or recoverable by, or refunded to, to the chief executive of the department currently responsible for administer- ing the Social Security Act 1964: a payment under section 80(4) of the Accident Com- pensation Act 1982 that is not recovered or recoverable by, or refunded to, to the chief executive of the depart- ment currently responsible for administering the Social Security Act 1964: 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; or (v) 233 Part C s CF 1 Income Tax Act 2004 Reprinted as at 29 August 2011 (d) (e) (f) (g) 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 workrelated personal injury: a payment under the Injury Prevention, Rehabilitation, and Compensation Act 2001 paid by the Corporation as deﬁned in that Act, of weekly compensation that is not recovered or recoverable under section 248 of that Act: a payment under section 81(1)(b) of the Injury Preven- tion, Rehabilitation, and Compensation Act 2001 paid by the Corporation as deﬁned in that Act, for attendant care as deﬁned in schedule 1,
 clause 12 of that Act.
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) pension: this deﬁnition was amended, as from 26 April 2005, by section 3(1) Income Tax Amendment Act 2005 (2005 No 11) by substituting “spouse or civil union partner” for “spouse” in each place it occurs.
pension: this deﬁnition was amended, as from 1 April 2007, by section 3(2) Income Tax Amendment Act 2005 (2005 No 11) by substituting “spouse, civil 234 Reprinted as at 29 August 2011 Income Tax Act 2004 Part C s CF 2 union partner or de facto partner” for “spouse or civil union partner” in each place it occurs.
Deﬁned in this Act: accident compensation payment, amount, chief executive of the department currently responsible for administering the Social Security Act 1964, education grant, income, income-tested beneﬁt, living alone payment, New Zealand superannuation, pension, personal service rehabilitation payment, veteran’s pension, year Compare: 1994 No 164 s CC 1 Subsection (1)(a) to (g) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; and”.
accident compensation payment: paragraphs (a), (b), (d), and (e) of this def- inition were amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; or”.

Section CF 1(2) accident compensation payment paragraph (f): substituted (with effect on 1 April 2005), on 6 October 2009, by section 743 of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section CF 1(2) accident compensation payment paragraph (g): substituted (with effect on 1 April 2005), on 6 October 2009, by section 743 of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section CF 1 list of deﬁned terms personal service rehabilitation payment: inserted, on 1 July 2008, by section 15(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) 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 a previous income year that is 1 of the 3 income years.

235 Income Tax Act 2004 Reprinted as at 29 August 2011 (4) Business ceasing If the person ceases to carry 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 ceases business.
Deﬁned in this Act: amount, business, income, income year, public authority Compare: 1994 No 164 s DC 2 Subpart CG—Recoveries Contents CG 1 Amount of depreciation recovery income CG 2 Remitted amounts CG 3 Bad debt repayment CG 4 Recovered expenditure or loss CG 5 Recoveries or receipts by employers from superannuation schemes Page 236 236 237 237 238 CG 6 Receipts from insurance, indemnity, or compensation for 239 trading stock 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 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).
(1) 236 Reprinted as at 29 August 2011 Income Tax Act 2004 Part C s CG 4 (2) (3) (4) Income The amount to which the remission or cancellation applies is income of the person.

Timing of income The income is allocated to the income year in which the re- mission or cancellation occurs.
(b) How remission or cancellation occurs Remission or cancellation occurs, for the purposes of this sec- tion, in 1 of the following ways: (a) a liability is remitted to the extent to which the person is discharged from it without fully adequate consideration in money or money’s worth: a liability is cancelled to the extent to which the person is released from it under the Insolvency Act 2006 or the Companies Act 1993 or the laws of a country or territory other than New Zealand: a liability is cancelled to the extent to which the person is released from it by a deed or agreement of composi- tion with the person’s creditors: a liability is cancelled to the extent to which it is irrecov- erable or unenforceable through lapse of time.
Deﬁned in this Act: amount, deduction, dividend, income, income year, New Zealand Compare: 1994 No 164 ss CE 4(1), (2), IE 1(4)(d) (d) (c) Subsection (4)(a) to (c) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting the expression “:” for “; or”.

Section CG 2(4)(b): amended, on 3 December 2007, by section 445 of the In- solvency Act 2006 (2006 No 55).
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: 1994 No 164 s CE 1(1)(d) CG 4 Recovered expenditure or loss When this section applies This section applies when— (1) 237 Part C s CG 5 Income Tax Act 2004 Reprinted as at 29 August 2011 (a) (b) (c) a person is allowed a deduction for expenditure or loss; and the person recovers some or all of the expenditure or loss, whether through insurance, indemnity, or other- wise; and the amount recovered, to the extent of the deduction, is not income of the person under any other provision of this Act.
Income The amount recovered is, to the extent of the deduction, in- come of the person.

Timing of income The income is allocated to the income year in which the amount is recovered.
Deﬁned in this Act: amount, deduction, income year, loss Compare: 1994 No 164 ss DJ 1(c), DJ 5(2), DJ 7, DJ 8(1), DL 1(6), (12), DL 4 The list of deﬁned terms was amended, as from 1 October 2005, by section 10 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by inserting “, loss” after “income year” with application as from the 2005–06 income year.
(2) (3) 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) (1) 238 Reprinted as at 29 August 2011 Income Tax Act 2004 Part C s CG 6 (2) (3) 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, superannuation scheme Compare: 1994 No 164 s DF 3(3), (4) CG 6 Receipts from insurance, indemnity, or compensation for trading stock (1) (2) (3) When this section applies This section applies when a person receives an amount of in- surance, indemnity, or compensation for the loss or destruction of, or damage to,— trading stock: (a) anything acquired, manufactured, or produced for a pur- (b) pose ancillary to a business of manufacturing or produc- ing goods for sale or exchange.
Income The part of the insurance, indemnity, or compensation that is attributable to the asset is income if— (a) the person is allowed a deduction in a tax 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, tax year, trading stock Compare: 1994 No 164 s EE 19 Subsection (1)(a) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; or”.
239 Income Tax Act 2004 Reprinted as at 29 August 2011 Subpart CH—Adjustments Contents Matching rules: revenue account property, prepayments, and deferred payments CH 1 Adjustment for closing values of trading stock, livestock, 240 Page 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 CH 5 Adjustment for GST GST 241 242 242 242 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) 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.

(1) (2) 240 Reprinted as at 29 August 2011 Income Tax Act 2004 Part C s CH 2 (3) (4) 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: 1994 No 164 s EE 2(4) Subsection (1)(a) and (b) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; or”.
Subsection (1)(c) was amended, as from 1 July 2006, by section 20(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by substituting “arrangements):” for “arrangements).”.

Subsection (1)(d) was inserted, as from 1 July 2006, by section 20(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).
Subsection (4) was amended, as from 1 July 2006, by section 20(2) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by substituting “arrangements or share-lending right,” for “arrangements,”.

The list of deﬁned terms was amended, as from 1 July 2006, by section 20(3)(a) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by inserting “original share”..
The list of deﬁned terms was amended, as from 1 July 2006, by section 20(3)(b) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by inserting “share-lending right”..
The list of deﬁned terms was amended, as from 1 July 2006, by section 20(3)(c) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by inserting “share supplier”.. CH 2 Adjustment for prepayments (1) 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.
241 Part C s CH 3 Income Tax Act 2004 Reprinted as at 29 August 2011 (2) Income The unexpired amount is income of the person in the income year.
Deﬁned in this Act: amount, income, income year Compare: 1994 No 164 s EF 1(1)(b) CH 3 Adjustment for deferred payment of employment income (1) (2) 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.

Income The unpaid amount is income of the person in the income year.
Deﬁned in this Act: amount, employment income, income, income year Compare: 1994 No 164 s EF 1(1)(b) 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 prac- tice), 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) (Adjustment for changes to accounting practice) is income of the person.

Deﬁned in this Act: amount, income Compare: 1994 No 164 s EC 1 GST CH 5 Adjustment for GST Income (1) An amount calculated under sections 21F and 21G of the Goods and Services Tax Act 1985 relating to the application of goods and services is income of a person.
242 Reprinted as at 29 August 2011 Income Tax Act 2004 Part C s CP 1 (2) (3) Exclusion This section does not apply to an amount that relates to the application of a capital asset— (a) for the principal purpose of making taxable supplies, when the asset was acquired or produced other than for the principal purpose of making taxable supplies: other than for the principal purpose of making taxable supplies, when the asset was acquired or produced for the principal purpose of making taxable supplies: other than for the purpose of deriving income.
(b) (c) Timing of income The income is allocated to the income year in which the amount is calculated.

Deﬁned in this Act: amount, income, income year, taxable supply Compare: 1994 No 164 s ED 4(3) Subsection (2)(a) and (b) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; or”.
Subpart CP—Income from portfolio investment entities Subpart CP: inserted, on 1 October 2007, by section 7 of the Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81).

CP 1 Portfolio investor allocated income The amount of portfolio investor allocated income of a person who is an investor in a portfolio tax rate entity is income of the person in the income year that includes the end of the entity’s income year for which the person is allocated the amount.
Deﬁned in this Act: income, income year, investor, portfolio investor allocated income, portfolio tax rate entity Section CP 1: substituted, on 1 October 2007, by section 5 of the Taxation (KiwiSaver and Company Tax Rate Amendments) Act 2007 (2007 No 19).

Section CP 1: inserted, on 1 October 2007, by section 7 of the Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81).
243 Income Tax Act 2004 Reprinted as at 29 August 2011 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 Page 244 244 246 246 246 251 Attributed controlled foreign company income CQ 1 Attributed controlled foreign company income Attributed CFC income of a person is income.
Deﬁned in this Act: attributed CFC income, income Compare: 1994 No 164 s CG 1(a) 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 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 (b) (c) (d) (e) 244 Reprinted as at 29 August 2011 Income Tax Act 2004 Part C s CQ 2 (f) 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 branch equivalent income for the accounting period under section EX 21 (Branch equivalent income or loss: calculation rules); or the special rule in section EX 19 (Taxable distri- bution from non-qualifying trust) applies because the CFC gets a distribution from a non-qualifying trust; and (ii) (g) the CFC is not an unqualiﬁed grey list CFC for the ac- counting period, under section EX 22 (Unqualiﬁed grey list CFCs).
Special rule: branch equivalent FIF with taxable distribution (2) A person also has attributed CFC income if section EX 43(5) (Branch equivalent method) applies because— (a) (b) the person has an attributing interest in a FIF; and the person is using the branch equivalent method to cal- culate FIF income; and the FIF receives a taxable distribution from a non-quali- fying trust.
(c) Treated as derived while person New Zealand resident (3) Attributed CFC income of a person who has ceased to be a New Zealand resident is treated as being derived while the person was a New Zealand resident.
Dividend income can arise (4) A person with an income interest of 10% or more in a CFC can also have dividend income under section CD 13 (Attributed repatriations from controlled foreign companies) to the extent to which any attributed repatriation is calculated for the person and the CFC under sections CD 34 to CD 41 (which relate to CFC attributed repatriation calculation rules).
Deﬁned in this Act: accounting period, attributed CFC income, attributed repatriation, attributing interest, branch equivalent income, branch equivalent method, CFC, distribution, dividend, FIF, FIF income, foreign company, grey list, income, income interest, income year, New Zealand resident, non-qualify- ing trust, taxable distribution, transitional resident Compare: 1994 No 164 ss CG 6(1)(a), CG 7(1), (6), CG 13(1), CG 21(2)(a) 245 Part C s CQ 3 Income Tax Act 2004 Reprinted as at 29 August 2011 Subsection (1)(d) was substituted, as from 1 October 2005, by section 21(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) with application for: a person who becomes a transitional resident as from 1 April 2006; and as from the income year cor- responding to the 2005–06 tax year.
See section 21(4) and (5) of that Act as to the application of this amendment.

Subsection (1)(e) was amended, as from 1 October 2005, by section 170 Tax- ation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “EX 17” for “EX 16” with application as from the 2005–06 income year.
Subsection (1)(e) was amended, as from 1 October 2005, by section 21(2) Tax- ation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Pro- visions) Act 2006 (2006 No 3) by substituting “part of the accounting period during which the person is a New Zealand resident who is not a transitional resident” for “accounting period” with application for: a person who becomes a transitional resident as from 1 April 2006; and as from the income year cor- responding to the 2005–06 tax year.
See section 21(4) and (5) of that Act as to the application of this amendment.

The list of deﬁned terms was amended, as from 1 October 2005, by section 21(3) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellan- eous Provisions) Act 2006 (2006 No 3) by inserting “transitional resident” with application for: a person who becomes a transitional resident as from 1 April 2006; and as from the income year corresponding to the 2005–06 tax year.
See section 21(4) and (5) of that Act as to the application of this amendment.

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 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: 1994 No 164 s CG 1(b) CQ 5 When FIF income arises General rule (1) A person has FIF income in an income year if— (a) at any time in the year, the person has— 246 Reprinted as at 29 August 2011 Income Tax Act 2004 Part C s CQ 5 (i) (ii) rights in a foreign company, or a foreign super- annuation scheme, or an entity listed in schedule 4, part A (Foreign investment funds); or rights under a life insurance policy issued by a non-resident; and (b) (c) at that time, the rights are an attributing interest in a FIF under sections EX 30 (Attributing interests in FIFs) and EX 31 (Direct income 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) (iib) (iic) (iid) (iie) (iii) (iv) (v) (vi) the CFC rules exemption in section EX 32 (CFC rules exemption): the grey list exemption in section EX 33 (Exemp- tions: direct income interests in FIF in grey list country): the exemptions limited by income years in sec- tion EX 33B (Exemptions limited by income years: shares in certain grey list companies): the exemption for shares in a listed Australian company in section EX 33C (Exemption: shares in listed Australian company): the exemption for units in certain Australian unit trusts in section EX 33D (Exemption: units in certain Australian unit trusts): the Australian superannuation fund exemption in section EX 33E (Australian superannuation fund exemption): the foreign exchange control exemption in sec- tion EX 34 (Foreign exchange control exemp- tion): the exemption for a non-resident or transitional resident in section EX 35 (Income interest of non-resident or transitional resident): the immigrant’s accrued superannuation entitle- ment exemption in section EX 36 (Immigrant’s accrued superannuation entitlement exemption): the non-resident’s annuity or pension exemption in section EX 37 (Non-resident’s pension or an- nuity exemption); and 247 Part C s CQ 5 Income Tax Act 2004 Reprinted as at 29 August 2011 if
 the person is a natural person and not acting as a trustee, the person holds, at any time in the year when the person is a New Zealand resident, attributing inter- ests in FIFs for which the total of the following amounts is more than $50,000: (i) if subparagraph (ii) does not apply to the interest, the cost of the interest calculated under section EX 56 (Measurement of cost): if the person acquired the interest before 1 Janu- ary 2000 and chooses, for the year or an ear- lier year, that this subparagraph and section DN 6(1)(d)(ii) (When FIF loss arises) apply to all interests acquired before 1 January 2000, half of the market value of the interest on 1 April 2007; and (ii) if the person is acting as a trustee of a trust that meets the requirements of subsection (5), the person holds, at any time in the year, attributing interests in FIFs for which the total of the following amounts is more than $50,000: if subparagraph (ii) does not apply to the interest, (i) the cost of the interest calculated under section EX 56 (Measurement of cost): if the person acquired the interest before 1 Janu- ary 2000 and chooses, for the year or an ear- lier year, that this subparagraph and section DN 6(1)(d)(ii) apply to all interests acquired before 1 January 2000, half of the market value of the in- terest on 1 April 2007; and (ii) 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 38 to EX 45B (which relate to the calcula- tion of FIF income or loss), EX 48 (Top-up FIF income: deemed rate of return method), or EX 49 (Top-up FIF income: 1 April 1993 uplift interests).
(d) (db) (e) (f) 248 Reprinted as at 29 August 2011 Income Tax Act 2004 Part C s CQ 5 (1B) Treatment of deemed transaction under section EX 51, EX 53, or EX 54B If a person is treated under section EX 51(5) (Consequences of changes in method), EX 53 (Changes in application of FIF exemptions), or EX 54B (FIF rules ﬁrst applying to interest for income year beginning on or after 1 April 2007) as disposing of or acquiring rights in an income year, the disposal or acqui- sition is ignored for the purposes of subsection (1)(d) and (db).
Look-through calculation methods (2) Despite subsection (1), if the calculation method is the ac- counting proﬁts method or branch equivalent method,— (a) FIF income arises in the income year only if the relevant accounting period of the FIF ends during the year; and the tests in subsection (1)(a), (b), (c), and (e) are applied on the basis that references in subsection (1)(a), (b), (c), and (e) to any time in the year are read as references to any time in the relevant accounting period.
(b) Special rule: CFC with FIF interest (3) A person with an income interest of 10% or more in a CFC can also have FIF income in an income year under the special rule in section EX 46 (Additional FIF income or loss if CFC owns FIF), which applies when the CFC has an attributing interest in a FIF (whether or not the CFC is an unqualiﬁed grey list CFC under section EX 22 (Unqualiﬁed grey list CFCs)).
(4) (5) Treated as derived while person New Zealand resident FIF income of a person who has ceased to be a New Zealand resident is treated as being derived while the person was a New Zealand resident.
When application of subsection (1) affected by subsection (1)(db) Subsection (1)(db) applies to the trustee of a trust for an in- come year if— (a) 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 under section OD 7 (Deﬁning when 2 persons are asso- ciated persons); and 249 Part C s CQ 5 Income Tax Act 2004 Reprinted as at 29 August 2011 (b) (c) (d) (ii) is required by a court order to pay damages or compensation to the beneﬁciary: 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: the settlor of the trust is the Accident Compensation Corporation: 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.
Deﬁned in this Act: accounting period, accounting proﬁts method, amount, associated person, attributing interest, branch equivalent method, calculation method, CFC, FIF, FIF income, foreign company, foreign superannuation scheme, grey list, income, income interest, income year, life insurance policy, New Zealand resident, non-resident, relative, transitional resident, trustee Compare: 1994 No 164 ss CG 7(5), CG 15(1), (2), CG 16(2), (5) Subsection (1)(c)(i) to (v) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; or”.
Subsection (1)(c)(ii) was amended, as from 18 December 2006, by section 8(1)(a) Taxation (Savings Investment and Miscellaneous Provisions Act 2006 (2006 No 81) by substituting “(Exemptions: direct income interests in FIF in grey list country)” for “(Grey list exemption)” with application as from the 2006–07 income year.
Subsection (1)(c)(iib) to (iie) was inserted, as from 18 December 2006, by sec- tion 8(1)(b) Taxation (Savings Investment and Miscellaneous Provisions Act 2006 (2006 No 81) with application as from the 2006–07 income year.
Subsection (1)(c)(iv) was substituted, as from 1 October 2005, by section 22(1)(a) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscel- laneous Provisions) Act 2006 (2006 No 3) with application for: a person who becomes a transitional resident as from 1 April 2006; and as from the income year corresponding to the 2005–06 tax year.

See section 22(3) and (4) of that Act as to the application of this amendment.
Subsection (1)(d) was substituted, as from 1 April 2007, by section 8(2) Tax- ation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) .

See section 8(7) of that Act as to the application of this amendment for income years beginning on or after 1 April 2007.

Section CQ 5(1)(d): amended (with effect from 1 April 2007), on 19 Decem- ber 2007, by section 16(1)(a) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Subsection (1)(db) was inserted, as from 1 April 2007, by section 8(2) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) .

See section 8(7) of that Act as to the application of this amendment for income years beginning on or after 1 April 2007.
250 Reprinted as at 29 August 2011 Income Tax Act 2004 Part C s CQ 6 Section CQ 5(1)(db): amended (with effect from 1 April 2007), on 19 Decem- ber 2007, by section 16(1)(b) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Subsection (1)(e) was substituted, as from 1 October 2005, by section 22(1)(b) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) with application for: a person who becomes a transitional resident as from 1 April 2006; and as from the income year cor- responding to the 2005–06 tax year.

See section 22(3) and (4) of that Act as to the application of this amendment.
Subsection (1)(f) was substituted, as from 1 April 2007, by section 8(3) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) .

See section 8(7) of that Act as to the application of this amendment for income years beginning on or after 1 April 2007.

Section CQ 5(1)(f): amended (with effect from 1 April 2007), on 19 Decem- ber 2007, by section 16(1)(c) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section CQ 5(1B) heading: inserted (with effect from 1 April 2007), on 19 De- cember 2007, by section 16(2) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section CQ 5(1B): inserted (with effect from 1 April 2007), on 19 December 2007, by section 16(2) of the Taxation (Business Taxation and Remedial Mat- ters) Act 2007 (2007 No 109).
Subsection (5) and the preceding heading were inserted, as from 1 April 2007, by section 8(4) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) .

See section 8(7) of that Act as to the application of this amendment for income years beginning on or after 1 April 2007.
The list of deﬁned terms was amended, as from 1 October 2005, by section 22(2) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellan- eous Provisions) Act 2006 (2006 No 3) by inserting “transitional resident” with application for: a person who becomes a transitional resident as from 1 April 2006; and as from the income year corresponding to the 2005–06 tax year.

See section 22(3) and (4) of that Act as to the application of this amendment.
The list of deﬁned terms was amended, as from 1 April 2007, by section 8(5) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) by inserting “associated person” and “relative”.

CQ 6 Calculation of FIF income The amount of any FIF income is calculated, using the relevant calculation method, under sections EX 38 to EX 49 (which relate to the calculation of FIF income or loss).
Deﬁned in this Act: amount, calculation method, FIF income Section CQ 6 was amended, as from 1 October 2005, by section 171 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “EX 38” for “EX 42”.
251 Income Tax Act 2004 Reprinted as at 29 August 2011 Subpart CR—Income from life insurance Contents Income of life insurer CR 1 CR 2 Amount of income of life insurer CR 3 Income for general insurance outstanding claims reserve Page 252 252 253 CR 1 Income of life insurer (1) (2) (3) (4) Income: premium loading The premium loading that a life insurer has in an income year is income of the life insurer in the income year.
Income: mortality proﬁt The mortality proﬁt that a life insurer has in an income year is income of the life insurer in the income year.

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

Income: policyholder income The policyholder income that a life insurer has in an income year is income of the life insurer in the income year.
Income: disposal amount (5) An amount that a life insurer derives from disposing of any property of their life insurance business is income of the life insurer.
Deﬁned in this Act: amount, business, discontinuance proﬁt, income, income year, life insurance, life insurer, mortality proﬁt, policyholder income, premium loading, property Compare: 1994 No 164 ss CM 5(1), CM 6(1), CM 7(1), CM 10, CM 15(3) CR 2 Amount of income of life insurer Premium loading The premium loading that a life insurer has in an income year is quantiﬁed under sections EY 14 to EY 23 (which relate to premium loading).
(1) 252 Reprinted as at 29 August 2011 Income Tax Act 2004 Part C s CR 3 (2) (3) (4) (5) Mortality proﬁt The mortality proﬁt that a life insurer has in an income year is quantiﬁed under sections EY 24 to EY 33 (which relate to mortality proﬁt).

Discontinuance proﬁt The discontinuance proﬁt that a life insurer has in an income year is quantiﬁed under sections EY 34 to EY 40 (which relate to discontinuance proﬁt).
Policyholder income The policyholder income that a life insurer has in an income year is quantiﬁed under sections EY 41 to EY 44 (which relate to policyholder income).

Disposal of property The amount of income that a life insurer derives from dispos- ing of any property of their life insurance business is quantiﬁed under section EY 45 (Income from disposal of property).
Deﬁned in this Act: amount, business, discontinuance proﬁt, income, income year, life insurance, life insurer, mortality proﬁt, policyholder income, premium loading, property CR 3 Income for general insurance outstanding claims reserve (1) (2) (3) When this section applies This section applies for— (a) an insurer who uses IFRS 4, Appendix D for general insurance contracts; and general insurance contracts, excluding contracts having premiums to which section FC 14 applies.
(b) 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) opening outstanding claims reserve is— 253 Income Tax Act 2004 Reprinted as at 29 August 2011 (i) (ii) the amount of the insurer’s closing outstanding claims reserve for the income year before the cur- rent year (the prior year); or the amount of the insurer’s reserve for outstand- ing claims liability, calculated at the end of the prior year, using the basis the insurer used for tax purposes in that prior year, if the current year is the ﬁrst year that this section applies to the in- surer: (b) closing outstanding claims reserve is the amount of the insurer’s outstanding claims reserve, calculated at the end of the current year.
Deﬁned in this Act: amount, general insurance contract, IFRS 4, income, in- come year, insurer, life insurer, outstanding claims reserve Section CR 3: added (with effect on 1 April 2006), on 6 October 2009, by section 744(1) of the Taxation (International Taxation, Life Insurance, and Re- medial Matters) Act 2009 (2009 No 34).
Subpart CS—Superannuation funds CS 1 Withdrawals Contents Withdrawals Exclusions CS 2 CS 3 CS 4 CS 5 CS 6 CS 7 CS 8 CS 9 Exclusions of withdrawals of various kinds Exclusion of withdrawal on grounds of hardship Exclusion of withdrawal to settle division of relationship property Exclusion of withdrawal paid as annuity or pension Exclusion of withdrawal on partial retirement Exclusion of withdrawal when member ends employment Exclusion of withdrawal when member ends employment: lock-in rule Exclusion of withdrawal from deﬁned beneﬁt fund when member ends employment CS 10 When member treated as not ending employment CS 10B Exclusion of permitted withdrawals from KiwiSaver schemes and complying superannuation funds Page 255 257 260 260 261 261 262 266 266 266 267 254 Reprinted as at 29 August 2011 Income Tax Act 2004 Part C s CS 1 Transfers to or from superannuation funds and superannuation schemes CS 11 Transfer by superannuation fund to another superannuation 267 fund CS 12 Transfer from superannuation scheme to superannuation fund CS 13 Investment by superannuation fund in another superannuation fund Treatment of amounts when superannuation fund becomes superannuation scheme or vice versa CS 14 Superannuation fund becomes superannuation scheme CS 15 Superannuation fund becomes foreign superannuation scheme CS 16 Superannuation scheme becomes superannuation fund Treatment of distributions when superannuation fund wound up CS 17 Superannuation fund wound up 268 269 269 270 270 270 CS 1 Withdrawals Withdrawals (1) When this section applies This section applies when a withdrawal is made from a super- annuation fund if— the fund is— (a) (i) (ii) a fund to which the member’s employer has made speciﬁed superannuation contributions for the member’s beneﬁt; or a fund that has received a transfer from another superannuation fund for the member; and the withdrawal is related to the member’s membership of the fund; and the application of this section to the withdrawal is not excluded by any of sections CS 2 to CS 9.
(b) (c) (2) Income of superannuation fund from withdrawal The superannuation fund derives from the withdrawal an amount of assessable income that is given by the following formula: 255 Part C s CS 1 Income Tax Act 2004 Reprinted as at 29 August 2011 Deﬁnition of items in formula The items in the formula are deﬁned in subsections (4) to (5).
(3) Withdrawal (4) Withdrawal is the total of— (a) (b) the amount of money that is withdrawn from the super- annuation fund: the market value of the part of the withdrawal that is not an amount of money, on the date of the withdrawal.

Other contributions (4B) Other contributions is the part of the withdrawal that the trustee of the superannuation fund establishes is not em- ployer’s contributions to superannuation savings.
Tax rate Tax rate is the basic rate of income tax stated in schedule 1, part A, clause 4 (Basic rates of income tax and speciﬁed superannuation contribution withholding tax).
Reduction of income The superannuation fund may reduce the income by 25% for each tax year to which both the following apply: (a) the tax year is 1 of the 4 tax years before the tax year in which the withdrawal is made; and in the tax year, the total of the member’s taxable income and the employer’s speciﬁed superannuation contribu- tions to the fund for the member’s beneﬁt is less than $60,000.
(b) Timing of income The income is allocated as follows: (a) if the superannuation fund is wound up or becomes a foreign superannuation scheme, the income is allocated to the tax year in which the withdrawal is made: in any other case, the income is allocated to the tax year following the tax year in which the withdrawal is made.
(b) (5) (6) (7) 256 Reprinted as at 29 August 2011 Income Tax Act 2004 Part C s CS 2 (8) Application of Tax Administration Act 1994 Sections 32A to 32C of the Tax Administration Act 1994 apply when this section applies.
Deﬁned in this Act: amount, employer, employer’s contributions to superannu- ation savings, foreign superannuation scheme, income, income tax, member, speciﬁed superannuation contribution, superannuation fund, tax year, taxable income, trustee, withdrawal Compare: 1994 No 164 ss CL 4, EN 6 Subsection (2) was substituted, as from 1 October 2005, by section 172(1) Tax- ation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) with application as from the 2005–06 income year.
Subsection (2) formula was amended, as from 18 December 2006, by section 9(1) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) by substituting “withdrawal” for “withdrawn” with application as from the 2005–06 income year.
Subsection (3) was amended, as from 1 October 2005, by section 172(2) Tax- ation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “subsections (4) to (5)” for “subsections (4) and (5)” with ap- plication as from the 2005–06 income year.

Subsection (4) was substituted, as from 1 October 2005, by section 172(3) Tax- ation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111).
Subsection (4B) was inserted, as from 1 October 2005, by section 172(3) Tax- ation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) with application as from the 2005–06 income year.

Subsection (7)(a) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; or”.
Exclusions CS 2 Exclusions of withdrawals of various kinds (1) (2) Withdrawal of member’s contributions Section CS 1 does not apply to a withdrawal of a member’s contributions.
Withdrawal of employer’s contributions Section CS 1 applies to a withdrawal of the employer’s contri- butions to superannuation savings for a member’s beneﬁt only if— (a) the employer increases the level of the employer’s spe- ciﬁed superannuation contributions on and after 1 April 2000, as compared with the level in the last pay period ending before 1 April 2000; and 257 Part C s CS 2 Income Tax Act 2004 Reprinted as at 29 August 2011 (b) the employer does not come within any of subsection (3)(a) to (c).
Increase not treated as such (3) An employer who increases the level of speciﬁed superannu- ation contributions is treated as not doing so— (a) to the extent to which the employer increases the level by making additional speciﬁed superannuation con- tributions for the member’s beneﬁt to compensate for underpaying speciﬁed superannuation contributions for the member’s beneﬁt; or if the increase is required by a trust deed or a contract, or an amendment to a trust deed or a contract, and the requirement existed before 1 April 2000; or if the level of speciﬁed superannuation contributions does not change as a percentage of salary as between the level on and after 1 April 2000 and the level in the last pay period ending before 1 April 2000.
(b) (c) (4) Superannuation fund administration costs Section CS 1 does not apply to a withdrawal for fees and ex- penses associated with the management and marketing of the superannuation fund.
Withdrawals from KiwiSaver schemes for purpose of purchase of ﬁrst home [Repealed] (4B) [Repealed] Life, health, sickness, or accident insurance Section CS 1 does not apply to— (a) a withdrawal for the payment of premiums for life insur- ance, health insurance, sickness insurance, or accident insurance held by or for a member of the superannu- ation fund, whether the insurance is group insurance or individual insurance; or a withdrawal to pay an amount claimed under insurance described in paragraph (a).
(b) Transfer between funds Section CS 1 does not apply to a withdrawal that takes the form of a direct transfer of an amount from a superannuation fund to another superannuation fund.

(5) (6) 258 Reprinted as at 29 August 2011 Income Tax Act 2004 Part C s CS 2 (7) (8) (9) Transfer from wound-up fund Section CS 1 does not apply to a withdrawal that takes the form of a direct transfer to another superannuation fund of an amount from a superannuation fund that is wound up.
Amount in fund on certain dates Section CS 1 does not apply to a withdrawal of an amount, or earnings on it, that is in the superannuation fund— (a) on the fund’s balance date that precedes 1 April 2000, if a trustee of the fund calculates the amount in the fund on the balance date; or at the close of business on 31 March 2000, in any other case.
(b) Interpretation of subsection (8) For the purposes of subsection (8),— (a) (b) the amount that is in the superannuation fund is calcu- lated according to market value: an amount in a superannuation fund includes speciﬁed superannuation contributions received after the fund’s balance date that precedes 1 April 2000 or 31 March 2000, as applicable, if the contributions relate to a pay period ending on or before the fund’s balance date or 31 March 2000, as applicable.
Application of Tax Administration Act 1994 (10) Section 32C of the Tax Administration Act 1994 applies when this section applies.
Deﬁned in this Act: amount, employer, employer’s contributions to superannu- ation savings, life insurance, member, member’s contribution, pay, pay period, premium, speciﬁed superannuation contribution, superannuation fund, trustee, withdrawal Compare: 1994 No 164 ss CL 3, CL 21 Section CS 2(4B) heading: repealed, on 19 December 2007, by section 17 of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section CS 2(4B): repealed, on 19 December 2007, by section 17 of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Subsection (4B) and the heading were inserted, as from 1 December 2006, by section 231 KiwiSaver Act 2006 (2006 No 40).

See section 232 of that Act as to the transitional provision requiring all KiwiSaver contributions to be paid to the Commissioner in the ﬁrst 3 months.

See clause 2(2) KiwiSaver Act Commencement Order 2006 (SR 2006/357).
259 Part C s CS 3 Income Tax Act 2004 Reprinted as at 29 August 2011 Subsection (9)(a) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; and”.

CS 3 Exclusion of withdrawal on grounds of hardship (1) (2) Signiﬁcant ﬁnancial hardship Section CS 1 does not apply to a withdrawal to the extent to which the withdrawal is necessary to alleviate signiﬁcant ﬁ- nancial hardship.
Meaning of signiﬁcant ﬁnancial hardship In this section, signiﬁcant ﬁnancial hardship includes sig- niﬁcant ﬁnancial difﬁculties that arise because of— (a) a member’s inability to meet minimum living expenses; or a member’s inability to carry out their usual occupation because of their temporary or permanent illness, injury, or disability; or a member’s inability to meet mortgage repayments on their principal family residence resulting in the mort- gagee seeking to enforce the mortgage on the residence; or the cost of modifying a residence to meet special needs arising from a disability of a member or a member’s dependant; or the cost of medical treatment for an illness or injury of a member or a member’s dependant; or the cost of palliative care for a member or a member’s dependant; or the cost of a funeral for a deceased member or a mem- ber’s deceased dependant.
(b) (c) (d) (e) (f) (g) Deﬁned in this Act: member, mortgage, signiﬁcant ﬁnancial hardship, with- drawal Compare: 1994 No 164 s CL 5 CS 4 Exclusion of withdrawal to settle division of relationship property Section CS 1 does not apply to a withdrawal to the extent that the withdrawal is necessary to settle the division of rela- tionship property under the Property (Relationships) Act 1976 260 Reprinted as at 29 August 2011 Income Tax Act 2004 Part C s CS 6 upon the ending of a marriage, civil union or de facto rela- tionship for the purpose of whichever is applicable of sections 2A(2), 2AB(2) and 2D(4) of that Act.
Section CS 4 was substituted, as from 26 April 2005, by section 3(1) Income Tax Amendment Act 2005 (2004 No 11).

CS 5 Exclusion of withdrawal paid as annuity or pension Section CS 1 does not apply to a withdrawal if the amount withdrawn is— (a) used to buy an annuity that is payable for life or over 10 or more years; or payable as an annuity for life or over 10 or more years; or payable as a pension for life or over 10 or more years.
(b) (c) Deﬁned in this Act: amount, withdrawal, year Compare: 1994 No 164 s CL 7 CS 6 Exclusion of withdrawal on partial retirement (1) Partial retirement Section CS 1 does not apply to a withdrawal made on or after the date on which a member partially retires, if, on the date the withdrawal is made,— (a) the member is employed for 30 hours per week or less; and the member has reduced their working hours because they are nearing full retirement; and the member stops contributing to the superannuation fund; and the member’s employer stops making speciﬁed super- annuation contributions to the superannuation fund for the member’s beneﬁt; and the member gives a notice as described in subsection (2) to the trustees of the superannuation fund.
(b) (c) (d) (e) (2) Notice The member’s notice to the trustees of the superannuation fund must— (a) state that the member does not intend to increase their hours in paid employment in the future; and 261 Part C s CS 7 Income Tax Act 2004 Reprinted as at 29 August 2011 (b) (c) state that the member’s employer understands that the member’s hours in paid employment will not increase in the future; and be signed by the employer to acknowledge that the em- ployer’s understanding is as described in paragraph (b).
Later withdrawals (3) A member who makes a withdrawal after giving notice as re- quired by subsection (2) is not required to give notice for each later withdrawal if their intention has not changed.
Deﬁned in this Act: employer, member, notice, speciﬁed superannuation con- tribution, superannuation fund, trustee, withdrawal Compare: 1994 No 164 s CL 12 CS 7 Exclusion of withdrawal when member ends employment Ending employment because of injury, disability, or death Section CS 1 does not apply to a withdrawal made on or after the date on which a member ends their employment with an employer if the member ends their employment because the member is injured or disabled or dies.
Ending employment after period of speciﬁed superannuation contributions Section CS 1 does not apply to a withdrawal from a super- annuation fund of speciﬁed superannuation contributions that have been made for the member by the employer, or another employer, if— (a) the member has been in employment throughout the period that— (i) starts on the 1st day of the tax year that starts 2 tax years before the start of the tax year in which the member ends their employment; and ends on the day on which the member ends their employment; and (ii) (b) (c) the speciﬁed superannuation contributions are made to the superannuation fund or to a superannuation fund that has transferred, whether directly or indirectly, the funds relating to its members to the superannuation fund; and the speciﬁed superannuation contributions have not been part of a withdrawal, other than a transfer between (1) (2) 262 Reprinted as at 29 August 2011 Income Tax Act 2004 Part C s CS 7 superannuation funds that is referred to in paragraph (b); and the withdrawal— (i) (ii) (iii) satisﬁes subsections (3) and (4): satisﬁes subsection (4B): does not include employer contributions to super- annuation savings of more than the amount found by multiplying $5,000 by the number of income years for which the speciﬁed superannuation con- tributions were made on behalf of the member; and the withdrawal is made at the time described in subsec- tion (5).
(d) (e) Limited increase in employer contributions between income years (3) A withdrawal satisﬁes this subsection if, at the time of the withdrawal, speciﬁed superannuation contributions have been made for the member by the employer, or another employer, such that— (a) the contributions relate to some or all of a period of employment that— (i) starts on the 1st day of the tax year that starts 2 tax years before the tax year in which the member ends their employment; and ends on the day on which the member ends their employment; and (ii) (b) (c) in each of the ﬁrst 2 tax years in the period referred to in paragraph (a), the contributions— (i) are in total less than 150% of the total of speciﬁed superannuation contributions made for the mem- ber in the previous tax year: satisfy subparagraph (i) after the application of subsection (4); and (ii) in the tax year in which the member ends their employ- ment, the contributions— (i) have an annualised value that is less than 150% of the speciﬁed superannuation contributions made for the member in the previous tax year: 263 Part C s CS 7 Income Tax Act 2004 Reprinted as at 29 August 2011 (ii) satisfy subparagraph (i) after the application of subsection (4).
(4) Increases disregarded under subsection (3)(b)(i) or (c)(i) For the purposes of subsection (3), speciﬁed superannuation contributions to a superannuation fund that are 150% or more of the speciﬁed superannuation contributions made in the pre- vious tax year are treated as not being so— (a) to the extent to which the employer increases the level by making additional speciﬁed superannuation con- tributions for the member’s beneﬁt to compensate for underpaying speciﬁed superannuation contributions for the member’s beneﬁt; or if the increase occurs before 1 April 2000; or if the increase is required by a trust deed or a contract, or an amendment to a trust deed or a contract, and the requirement existed before 1 April 2000; or if the employer starts making speciﬁed superannuation contributions for a member’s beneﬁt under a contract, or an amendment to a contract, that was signed before 1 April 2000; or if the level of speciﬁed superannuation contributions does not change as a percentage of salary as between the level on and after 1 April 2000 and the level in the last pay period ending before 1 April 2000.
(b) (c) (d) (e) Increases in employer contributions considered consistent by Commissioner (4B) A withdrawal satisﬁes this subsection if, at the time of the withdrawal, speciﬁed superannuation contributions have been made for the member by the employer, or another employer, such that— (a) the contributions relate to some or all of the period that— (i) starts on the 1st day of the tax year that starts 2 tax years before the tax year in which the member ends their employment; and ends on the day on which the member ends their employment; and (ii) (b) the Commissioner considers that the contributions are consistent in size and frequency with the employer’s 264 Reprinted as at 29 August 2011 Income Tax Act 2004 Part C s CS 7 (c) speciﬁed superannuation contributions for other em- ployees in comparable positions; and the Commissioner considers that the contributions are consistent in size and frequency during the period or periods to which the employer’s speciﬁed superannu- ation contributions for the member relate.
(5) (6) (7) Time for purposes of subsection (2) For the purposes of subsection (2), the times are— (a) on or after the date on which a member ends their em- ployment with an employer; or shortly before the date on which the member ends their employment, in anticipation of the member’s ending their employment.
(b) Ending employment in any other case If a withdrawal is made on or after the date on which a member ends their employment with an employer and the application of section CS 1 is not excluded by subsection (1) or (2), section CS 1 applies only to the withdrawal of an amount equal to the employer’s contributions to superannuation savings calculated for the period starting on the ﬁrst day of the tax year that starts 2 tax years before the date on which the member ends their employment and ending on the date of withdrawal.
What is not ending employment Section CS 10 describes a case in which a member is treated as not ending their employment for the purposes of this section.
Deﬁned in this Act: amount, employer, employer’s contributions to super- annuation savings, member, pay period, speciﬁed superannuation contribution, superannuation fund, tax year, withdrawal Compare: 1994 No 164 s CL 8(1)-(6) Subsections (2) and (3) were substituted, as from 1 October 2005, by section 173(1) Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) with application as from the 2005–06 income year.
The heading to subsection (4) was substituted, as from 1 October 2005, by sec- tion 173(2) Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) with application as from the 2005–06 income year.

The heading to subsection (4B) was inserted, as from 1 October 2005, by sec- tion 173(3) Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) with application as from the 2005–06 income year.
Subsection (4B) was substituted, as from 1 October 2005, by section 23(1) Tax- ation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Pro- 265 Part C s CS 8 Income Tax Act 2004 Reprinted as at 29 August 2011 visions) Act 2006 (2006 No 3) with application as from the 2005–06 income year.
CS 8 Exclusion of withdrawal when member ends employment: lock-in rule (1) (2) Deferral of withdrawal Section CS 1 does not apply to a withdrawal of an amount made 2 years after the date on which a member ends their employment with an employer if, when the member ends their employment, the member defers the withdrawal for 2 years after the date of ending their employment.
What is not ending employment Section CS 10 describes a case in which a member is treated as not ending their employment for the purposes of this section.
Deﬁned in this Act: amount, employer, member, withdrawal, year Compare: 1994 No 164 s CL 9 CS 9 Exclusion of withdrawal from deﬁned beneﬁt fund when member ends employment (1) (2) Deﬁned beneﬁt fund Section CS 1 does not apply to a withdrawal made from a deﬁned beneﬁt fund— (a) on or after the date on which a member ends their em- ployment with an employer, irrespective of the mem- ber’s length of service; or shortly before the date on which a member ends their employment with an employer, in anticipation of the member’s ending their employment, irrespective of the member’s length of service.
(b) What is not ending employment Section CS 10 describes a case in which a member is treated as not ending their employment for the purposes of this section.

Deﬁned in this Act: deﬁned beneﬁt fund, employer, member, withdrawal Compare: 1994 No 164 s CL 10(1) CS 10 When member treated as not ending employment When this section applies This section applies for the purposes of sections CS 7 to CS 9.
(1) 266 Reprinted as at 29 August 2011 Income Tax Act 2004 Part C s CS 11 Transfer to related employer (2) A member is treated as not ending their employment with an employer (employer A) if the member transfers from em- ployer A to another employer (employer B) and employer B is a related employer of employer A.
(3) Related employer Employer B is a related employer of employer A if employer B— (a) (b) is treated as a separate employer from employer A; and is— (i) (ii) a branch or division of employer A; or associated with employer A. Deﬁned in this Act: associated person, employer, member Compare: 1994 No 164 s CL 11 CS 10B Exclusion of permitted withdrawals from KiwiSaver schemes and complying superannuation funds Section CS 1 does not apply to a permitted withdrawal from a KiwiSaver scheme or a complying superannuation fund.
Deﬁned in this Act: complying superannuation fund, KiwiSaver scheme, per- mitted withdrawal Section CS 10B: inserted (with effect from 1 July 2007), on 19 December 2007, by section 4 of the Taxation (KiwiSaver) Act 2007 (2007 No 110).
Transfers to or from superannuation funds and superannuation schemes CS 11 Transfer by superannuation fund to another superannuation fund Notiﬁcation of nature of amount transferred (1) An amount transferred by a superannuation fund (transferor fund) to another superannuation fund (transferee fund) re- tains its nature in the transferee fund if— (a) (b) the transferee fund is not a deﬁned beneﬁt fund; and the trustees of the transferor fund, the member’s past employer, or the member’s present employer give no- tice to the transferee fund of the nature of the amount transferred.
267 Part C s CS 12 Income Tax Act 2004 Reprinted as at 29 August 2011 (2) No notiﬁcation of nature of amount transferred If the trustees of the transferor fund, the member’s past em- ployer, or the member’s present employer do not give notice to the transferee fund of the nature of the amount transferred, the amount transferred is treated as being, in the transferee fund, the employer’s contributions to superannuation savings.
Notiﬁcation of nature of amounts transferred to deﬁned beneﬁt fund (3) Amounts to which section CS 2(1) or (8) apply that are trans- ferred by a superannuation fund to a deﬁned beneﬁt fund re- tain their nature in the deﬁned beneﬁt fund if the trustees of the superannuation fund give notice to the deﬁned beneﬁt fund of the nature of the amounts.
(4) No notiﬁcation of nature of amounts transferred to deﬁned beneﬁt fund If the trustees of the superannuation fund do not give notice to the deﬁned beneﬁt fund of the nature of the amounts to which section CS 2(1) or (8) apply, section CS 1 applies to the amount transferred when it is withdrawn from the deﬁned beneﬁt fund unless the application of section CS 1 is excluded by any of sections CS 2 to CS 9.
Deﬁned in this Act: amount, deﬁned beneﬁt fund, employer, employer’s con- tributions to superannuation savings, member, notice, notify, superannuation fund, trustee Compare: 1994 No 164 s CL 14 CS 12 Transfer from superannuation scheme to superannuation fund An amount transferred directly from a superannuation scheme to a superannuation fund is treated as being, in the superannu- ation fund, the member’s contribution.
Deﬁned in this Act: amount, member’s contribution, superannuation fund, superannuation scheme Compare: 1994 No 164 s CL 15 268 Reprinted as at 29 August 2011 Income Tax Act 2004 Part C s CS 14 CS 13 Investment by superannuation fund in another superannuation fund (1) (2) Superannuation fund investing in another superannuation fund If a superannuation fund (superannuation fund A) is a mem- ber of another superannuation fund (superannuation fund B),— (a) superannuation fund A’s investment in superannuation fund B is not a transfer; and a withdrawal of an amount related to superannuation fund A’s investment in superannuation fund B is not a transfer; and a withdrawal of an amount related to superannuation fund A’s investment in superannuation fund B is not a withdrawal to which section CS 2 applies.
(b) (c) Superannuation fund investing in superannuation scheme If a superannuation fund is a member of a superannuation scheme,— (a) the fund’s investment in the scheme is not a transfer; and a withdrawal by the fund related to the investment is not a transfer.
(b) Deﬁned in this Act: amount, member, superannuation fund, superannuation scheme, withdrawal Compare: 1994 No 164 s CL 16 Treatment of amounts when superannuation fund becomes superannuation scheme or vice versa CS 14 Superannuation fund becomes superannuation scheme (1) Effect of change If a superannuation fund becomes a superannuation scheme, other than a foreign superannuation scheme,— (a) an amount in the fund at the time it becomes a super- annuation scheme retains its nature; and the following sections apply to a withdrawal from the superannuation scheme as if the scheme were a super- annuation fund: (b) 269 Part C s CS 15 Income Tax Act 2004 Reprinted as at 29 August 2011 (i) (ii) sections CS 1 to CS 17 and NEA 1 (Recovery of tax paid by superannuation fund); and sections 32A, 32B, and 32C of Administration Act 1994. the Tax (2) Market value of amounts The amount in the superannuation fund at the time it becomes a superannuation scheme is calculated according to market value.
Deﬁned in this Act: amount, foreign superannuation scheme, superannuation fund, superannuation scheme, withdrawal Compare: 1994 No 164 s CL 17 CS 15 Superannuation fund becomes foreign superannuation scheme If a superannuation fund becomes a foreign superannuation scheme, every amount in the superannuation fund is treated as if it had been withdrawn immediately before the fund became a foreign superannuation scheme.
Deﬁned in this Act: amount, foreign superannuation scheme, superannuation fund Compare: 1994 No 164 s CL 18 CS 16 Superannuation scheme becomes superannuation fund If a superannuation scheme becomes a superannuation fund, every amount in the superannuation scheme at the time it be- comes a superannuation fund is treated as being a member’s contribution to the superannuation fund.
Deﬁned in this Act: amount, member’s contribution, superannuation fund, superannuation scheme Compare: 1994 No 164 s CL 19 Treatment of distributions when superannuation fund wound up CS 17 Superannuation fund wound up When a superannuation fund is wound up, a distribution re- lated to a member’s membership is treated as being a with- drawal.
Deﬁned in this Act: member, superannuation fund, withdrawal Compare: 1994 No 164 s CL 20 270 Reprinted as at 29 August 2011 Income Tax Act 2004 Part C s CT 1 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 Deﬁnitions CT 6 Meaning of petroleum miner CT 6B Meaning of petroleum mining operations CT 7 Meaning of petroleum mining asset Page 271 272 272 273 273 274 275 276 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 37 This section is overridden by section CX 37 (Farm-out ar- rangements for petroleum mining).
Deﬁned in this Act: consideration, dispose, exploratory material, income, pet- roleum miner, petroleum mining asset Compare: 1994 No 164 s CJ 3 271 Part C s CT 2 Income Tax Act 2004 Reprinted as at 29 August 2011 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: 1994 No 164 s CJ 5 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: (a) it is directly attributable to drilling or acquiring the ex- ploratory well; and the petroleum miner or a holder of a previous interest in the well is or has been allowed a deduction for it as petroleum exploration expenditure; and it is incurred in relation to the permit held currently by the petroleum miner, or a previous permit surrendered in exchange for the permit currently held under section 32(3) of the Crown Minerals Act 1991.
(b) (c) Timing of income The amount is allocated to the income year in which commer- cial production from the well starts.
Part interest If the petroleum miner has a part interest in the exploratory well when that well is ﬁrst used for commercial production, the amount of expenditure treated as income under this section must bear the same proportion to the exploratory well expend- (3) (4) (5) 272 Reprinted as at 29 August 2011 Income Tax Act 2004 Part C s CT 5 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: 1994 No 164 s DM 1(9)(a) CT 4 Partnership interests and disposal of part of asset In this subpart, and in sections CX 36 (Disposal of owner- ship interests in controlled petroleum mining entities) and CX 37 (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: 1994 No 164 ss DM 9, DM 10 (b) Paragraph (a) was amended, as from 21 December 2004, by section 270 Taxa- tion (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; and”.
CT 5 Petroleum mining operations outside New Zealand This subpart, and sections CX 36 (Disposal of ownership inter- ests in controlled petroleum mining entities) and CX 37 (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 36 and CX 37.
(b) Deﬁned in this Act: controlled foreign company, New Zealand, petroleum miner, petroleum mining operations Compare: 1994 No 164 s DM 7(1) 273 Part C s CT 6 Income Tax Act 2004 Reprinted as at 29 August 2011 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: 1994 No 164 s OB 1 development operations, further processing, petroleum miner Section CT 6(1): substituted (with effect from 1 April 2005), on 19 December 2007, by section 18(1) of the Taxation (Business Taxation and Remedial Mat- ters) Act 2007 (2007 No 109).
Section CT 6(2): amended (with effect from 1 April 2005), on 19 December 2007, by section 18(2) of the Taxation (Business Taxation and Remedial Mat- ters) Act 2007 (2007 No 109).

Section CT 6(3) heading: repealed (with effect from 1 April 2005), on 19 De- cember 2007, by section 18(3) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section CT 6(3): repealed (with effect from 1 April 2005), on 19 December 2007, by section 18(3) of the Taxation (Business Taxation and Remedial Mat- ters) Act 2007 (2007 No 109).

Subsection (3)(a) to (d) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; or”.
(1) (2) (3) (4) 274 Reprinted as at 29 August 2011 Income Tax Act 2004 Part C s CT 6B Section CT 6(4) heading: repealed (with effect from 1 April 2005), on 19 De- cember 2007, by section 18(3) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section CT 6(4): repealed (with effect from 1 April 2005), on 19 December 2007, by section 18(3) of the Taxation (Business Taxation and Remedial Mat- ters) Act 2007 (2007 No 109).
Section CT 6 list of deﬁned terms petroleum mining operations: inserted (with effect from 1 April 2005), on 19 December 2007, by section 18(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: omitted (with effect from 1 April 2005), on 19 December 2007, by section 18(4)(b) of the Taxation (Business Taxation 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 the activities described in subsection (2) and not excluded by subsection (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) (b) Activities: exclusions The activities do not include further treatment to which all the following apply: (a) it occurs after the well stream has been separated and stabilised into crude oil, condensate, or natural gas; and it is done— (i) (ii) (iii) it is not treatment at the production facilities.
by liquefaction or compression; or for the extraction of constituent products; or for the production of derivative products; and (c) Deﬁned in this Act: permit area, petroleum, petroleum mining operations, re- moval or restoration operations 275 Part C s CT 7 Income Tax Act 2004 Reprinted as at 29 August 2011 Section CT 6B: inserted (with effect from 1 April 2005), on 19 December 2007, by section 19 of the Taxation (Business 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) (iii) by liquefaction or compression; or for the extraction of constituent products; or for the production of derivative products; and (b) (1) (2) (3) (4) 276 Reprinted as at 29 August 2011 Income Tax Act 2004 Part C s CT 7 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: 1994 No 164 s OB 1 development operations, further processing, permit speciﬁc asset, petroleum mining asset Subsection (1)(a) and (b)(ii) was amended, as from 21 December 2004, by sec- tion 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; and”.
Subsection (3)(a) to (c) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; or”.
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 Previous deduction for income appropriated CU 9 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 Page 278 278 280 282 283 283 284 284 285 286 286 287 288 288 289 290 291 291 277 Part C s CU 1 Income Tax Act 2004 Reprinted as at 29 August 2011 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 292 294 295 295 296 298 299 299 300 301 302 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: 1994 No 164 s DN 1(2) 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.
(1) 278 Reprinted as at 29 August 2011 Income Tax Act 2004 Part C s CU 2 (2) (3) (4) Income classiﬁed For the income year in which the mining company disposes of the products, the Commissioner must classify the mining company’s income from the disposal as income from mining or income other than income from mining.

The Commissioner must classify the income by apportioning it under subsection (3) or by making a decision under subsection (4).
Apportionment In apportioning the income, the Commissioner must make an appropriate apportionment of the value of the stock of products on hand at the start and end of the income year and must take into account the matters the Commissioner considers relevant and appropriate, including— (a) the capital employed, or the expenditure or losses in- curred, in the mining operations, associated mining op- erations, and processing of the speciﬁed minerals or the use of the speciﬁed minerals in a manufacturing oper- ation: the extent of the steps involved in the mining operations, associated mining operations, and processing of the spe- ciﬁed minerals or the use of the speciﬁed minerals in a manufacturing operation.
(b) Decision In making a decision, the Commissioner must take into ac- count the amount that would have been— (a) the value received or receivable for the speciﬁed min- erals if they had been disposed of in the income year to a wholly independent person in the state in which they resulted from the mining operations or the combination of mining operations and associated mining operations; and the value of the products on hand at the end of the income year if the speciﬁed minerals from which they came had been valued for the purposes of subpart EB (Valuation of trading stock (including dealer’s livestock)) in the state in which they resulted from (b) 279 Part C s CU 3 Income Tax Act 2004 Reprinted as at 29 August 2011 the mining operations or the combination of mining operations and associated mining operations.
Deﬁned in this Act: amount, associated mining operations, Commissioner, in- come, income from mining, income year, mining company, mining operations, speciﬁed mineral Compare: 1994 No 164 s DN 1(4) Subsection (3)(a) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; and”.
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: (1) (2) (3) 280 Reprinted as at 29 August 2011 Income Tax Act 2004 Part C s CU 3 (4) (5) (6) (a) (b) 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).
Consideration other than in cash If some or all of the consideration for the disposal is other than in cash, and the disposal is not to an associated person, the consideration that is not in cash has the value agreed between the company and the person to whom the asset is disposed of.

If the company and the person do not agree, or if the Com- missioner considers that the value agreed is unreasonable, the consideration that is not in cash has the value that the Com- missioner decides.
Disposal to associated person If the disposal is to an associated person, the consideration for the disposal is the market value that the asset has on the date of the disposal.
When subsection (7) applies Subsection (7) applies when— (a) (b) (c) (d) the company disposes of the asset to a person acquiring it for use in carrying on their mining operations or as- sociated mining operations or a mining venture; and the company and the person give notice to the Commis- sioner that they have agreed to apply subsection (7); and the notice is given to the Commissioner within 1 of the following times: (i) the time within 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) 281 Part C s CU 4 Income Tax Act 2004 Reprinted as at 29 August 2011 (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: 1994 No 164 s DN 1(9)-(12)(b) Subsection (3)(a) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; or”.
Subsection (6)(c)(i) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; or”.
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— (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 section DZ 12(1)(a) (Mineral mining: 1954 to 2005); and (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) 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 (1) (2) 282 Reprinted as at 29 August 2011 Income Tax Act 2004 Part C s CU 6 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 Compare: 1994 No 164 s DN 1(13) 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) (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 Compare: 1994 No 164 s DN 1(13), (14) CU 6 Compensation and scrap payment: use to replace or repair asset (1) (2) Choice 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).
Choice of 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 within which the com- pany must ﬁle a return of income for the income year in which the loss, destruction, or damage occurred; and (b) 283 Part C s CU 7 Income Tax Act 2004 Reprinted as at 29 August 2011 (c) 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.
Deﬁned in this Act: asset, Commissioner, income year, mining company, no- tice, return of income Compare: 1994 No 164 s DN 1(14) 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 the amount (if any) payable to the company for the dis- posal of any scrap of the asset.
(b) Deﬁned in this Act: amount, asset, income from mining, mining company Compare: 1994 No 164 s DN 1(14)(a), (b) 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.

(1) (2) 284 Reprinted as at 29 August 2011 Income Tax Act 2004 Part C s CU 9 (3) (4) (5) 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 within 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 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.
(b) (c) (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: mount, asset, Commissioner, company, income, income from mining, income year, mining company, mining operations Compare: 1994 No 164 s DN 1(14)(e), (g), (i) 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.

285 Part C s CU 10 Income Tax Act 2004 Reprinted as at 29 August 2011 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: 1994 No 164 s DN 1(6) CU 10 Mining asset used to derive income other than income from mining (1) When this section applies This section applies when— (a) 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.
(b) 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: 1994 No 164 s DN 1(8) 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— (1) 286 Reprinted as at 29 August 2011 (a) Income Tax Act 2004 Part C s CU 12 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 to 2005); and (ii) (2) (3) (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 For the purposes of sections CU 3 to CU 10, a partner’s share or interest in each asset of the partnership is the same as the partner’s interest in the totality of the assets of the partnership.
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: 1994 No 164 s DN 1(14)(f), (16), (17) Subsection (3)(a) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; and”.
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 to 2005); and 287 Part C s CU 13 Income Tax Act 2004 Reprinted as at 29 August 2011 (b) section CU 11(1)(a)(ii) applies as described in section DZ 12(2)(b) (Mineral mining: 1954 to 2005).
Deﬁned in this Act: mining company, resident mining operator Compare: 1994 No 164 s DN 4(1), (5), (7) CU 13 Application of sections to non-resident mining operators (1) (2) 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 were income from a mining venture, mining operations were mining ventures, and associated mining operations were min- ing ventures.
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 to 2005); and section CU 11(1)(a)(ii) applies as described in section DZ 12(2)(b) (Mineral mining: 1954 to 2005).
(b) Deﬁned in this Act: associated mining operations, income from mining, mining company, mining operations, mining venture, non-resident mining operator Compare: 1994 No 164 s DN 5(2)(a), (c) CU 14 Recovery of reinvestment proﬁt on disposal of mining shares When this section applies This section applies when— (a) (b) a company derives an amount from disposing of a min- ing share, including a disposal described in section CU 20; and an amount of the company’s reinvestment proﬁt is used in calculating the deduction for the cost of the mining share under section DU 11(2)(b) (Disposal of mining shares by company).
Income The lesser of the following amounts is income of the company: (1) (2) 288 Reprinted as at 29 August 2011 Income Tax Act 2004 Part C s CU 15 (a) (b) the amount derived from the disposal of the mining 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.

Timing of income The income is allocated to the income year in which the mining share is disposed of.
Relationship with sections CX 38 and CX 39 This section is overridden by sections CX 38 (Disposal of min- ing shares) and CX 39 (Disposal of mining shares acquired with reinvestment proﬁt).
Deﬁned in this Act: amount, company, deduction, income, income year, mining share, reinvestment proﬁt Compare: 1994 No 164 s DN 2(7), (8)(c) (3) (4) CU 15 Recovery of reinvestment proﬁt not used for mining purposes (1) (2) (3) (4) 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 within the prescribed period; and (b) will not be used for mining purposes within the pre- scribed 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 within the prescribed period.

Income The reinvestment proﬁt is income of the company.
(5) 289 Part C s CU 16 Income Tax Act 2004 Reprinted as at 29 August 2011 (6) (7) Timing of income The income is allocated to the last income year of the pre- scribed period.

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: 1994 No 164 s DN 2(3), (4) CU 16 Recovery of reinvestment proﬁt on repayment of loans When this section applies This section applies when— (a) a company (lender company) makes a loan to a mining company or a mining holding company; and the loan is made wholly or partly out of the lender com- pany’s reinvestment proﬁt; and the loan is wholly or partly repaid.
(b) (c) Income The amount calculated using the formula in subsection (3) is income of the lender company.

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

(b) (c) Timing of income The income is allocated to the income year in which the re- payment is made.
(1) (2) (3) (4) (5) 290 Reprinted as at 29 August 2011 Income Tax Act 2004 Part C s CU 18 (6) Relationship with section CX 40 This section is overridden by section CX 40 (Repayment of loans made from reinvestment proﬁt).
Deﬁned in this Act: amount, company, income, income year, mining company, mining holding company, reinvestment proﬁt Compare: 1994 No 164 s DN 2(5) 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 Compare: 1994 No 164 s DN 3(7), (8) CU 18 Amount treated as repayment for purposes of section CU 17: excess (1) When this section applies This section applies when,— (a) in a tax year, a holding company of a mining company is allowed, under section DU 12 (Amount written off by 291 Part C s CU 19 Income Tax Act 2004 Reprinted as at 29 August 2011 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 tax 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, loan, mining com- pany, share, tax year Compare: 1994 No 164 s DN 3(6), (8) 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 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) 292 Reprinted as at 29 August 2011 Income Tax Act 2004 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) 293 Part C s CU 20 Income Tax Act 2004 Reprinted as at 29 August 2011 (7) (c) (d) a partner’s share or interest in each asset of the partner- ship is the same as the partner’s interest in the totality of the assets of the partnership: 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 tax 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, prescribed proportion, tax year Compare: 1994 No 164 s DN 3(4), (5), (8), (9) Subsection (6)(a) to (c) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; and”.
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: 1994 No 164 s DN 2(8) (1) (2) 294 Reprinted as at 29 August 2011 Income Tax Act 2004 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 min- ing company that is derived in a tax 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, mining company, mining operations, mining venture, non-resident mining operator, resident mining operator, tax year Compare: 1994 No 164 ss DN 4(4), DN 5(1), OB 1 gross income from mining CU 22 Meaning of mining company Meaning (1) Mining company means a New Zealand company 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) 295 Part C s CU 23 Income Tax Act 2004 Reprinted as at 29 August 2011 (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, income, mining company, New Zealand, New Zealand company, speciﬁed mineral Compare: 1994 No 164 s DN 1(1) 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) 296 Reprinted as at 29 August 2011 Income Tax Act 2004 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: 1994 No 164 ss DN 4(4), DN 5(1), OB 1 development expenditure (d) Subsection (2)(a) to (c), (d)(i) to (iv), (e), (f) and (g)(ii) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; or”.
297 Part C s CU 24 Income Tax Act 2004 Reprinted as at 29 August 2011 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— (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: 1994 No 164 ss DN 4(4), DN 5(1), OB 1 exploration expenditure (c) Subsection (2)(a) to (e) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; or”.
(4) 298 Reprinted as at 29 August 2011 Income Tax Act 2004 Part C s CU 26 Subsection (3)(a) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; or”.
CU 25 Meaning of mining operations Meaning (1) Mining operations means operations that— (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: 1994 No 164 ss DN 4(4), DN 5(1), OB 1 mining operations CU 26 Meaning of mining venture Meaning (1) Mining venture means a venture that— (a) (b) is carried on, or is proposed to be carried on,— (i) (ii) (iii) in New Zealand; and as a business; and under an exploration permit, prospecting per- mit, or mining permit granted under the Crown Minerals Act 1991 or under an existing privilege as deﬁned in section 106 of the Act; and consists, or is proposed to consist, wholly or mainly of— 299 Part C s CU 27 Income Tax Act 2004 Reprinted as at 29 August 2011 (i) (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.
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: 1994 No 164 s OB 1 mining venture 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) personally and actively in the ﬁeld; and (2) 300 Reprinted as at 29 August 2011 Income Tax Act 2004 Part C s CU 28 (b) (c) as a business; and under an exploration permit, prospecting permit, or mining permit granted under the Crown Minerals Act 1991 or under an existing privilege as deﬁned in section 106 of the 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: 1994 No 164 s OB 1 active miner, resident mining operator 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) 301 Part C s CU 29 Income Tax Act 2004 Reprinted as at 29 August 2011 (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: 1994 No 164 s OB 1 speciﬁed mineral Subsection (1)(a) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; and”.

Subsection (2)(a) and (b) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; or”.
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 New Zealand company that holds shares, or for which shares are held, in the mining company initial treatment, for a speciﬁed mineral,— (a) means— (i) (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- (ii) 302 Reprinted as at 29 August 2011 Income Tax Act 2004 Part C s CU 29 (b) (iii) does not include— (i) (ii) centration if the speciﬁed mineral had required concentration; or concentration; and calcining or sintering; or the production of, or processes carried on in con- nection with the production of, alumina, or pel- lets or other agglomerated forms of iron loan, for a holding company and a mining company, means a loan by the holding company to the mining company made when the holding company is a holding company of the mining company mining holding company means a New Zealand company 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) 303 Part C s CU 29 Income Tax Act 2004 Reprinted as at 29 August 2011 (c) making loans to a mining company to enable it— (i) (ii) to ﬁnance its mining exploration expenditure or mining development expenditure; or to carry on its mining operations or associated mining operations; or (d) making, to a mining holding company, loans that are to be used— (i) (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) for an amount derived from a disposal of a mining share, the tax year in which the disposal occurs and the next 6 tax years; or for an amount repaid for a loan made to a mining company or a mining holding company, the tax year in which the amount is repaid and the next 6 tax years (b) (b) 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 38 to CX 40 (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) Deﬁned in this Act: amount, associated mining operations, company, excluded income, holding company, initial treatment, lease, loan, mining company, min- 304 Reprinted as at 29 August 2011 Income Tax Act 2004 Part C s CV 2 ing development expenditure, mining exploration expenditure, mining holding company, mining operations, mining share, mining venture, New Zealand, New Zealand company, petroleum mining company, resident in New Zealand, share, speciﬁed mineral, tax year Compare: 1994 No 164 ss DN 2(10), DN 3(12), OB 1 Subpart CV—Income speciﬁc to certain entities Contents CV 1 Group companies CV 2 Crown Research Institutes CV 3 Australian wine producer rebate CV 4 Regulations: Australian wine producer rebate Page 305 305 306 306 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 a member of a wholly-owned group of companies; and had the group of companies been a single company, the amount would have been income of that single com- pany.
(b) Deﬁned in this Act: amount, company, income, income year, wholly-owned group of companies Compare: 1994 No 164 s CK 1 CV 2 Crown Research Institutes An amount that a Crown Research Institute derives is income of the institute if the amount is for the purpose of producing outputs relating to public good science and technology, as de- ﬁned in section 2 of the Foundation for Research, Science, and Technology Act 1990.
Deﬁned in this Act: amount, Crown Research Institute, income Compare: 1994 No 164 s CK 4(1) 305 Part C s CV 3 Income Tax Act 2004 Reprinted as at 29 August 2011 CV 3 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 Sections CV 3 and CV 4 were inserted, as from 21 December 2005, by section 4 Taxation (Urgent Measures) Act 2005 (2005 No 121).
CV 4 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 in respect of wine produced in New Zealand, the Governor-General may from time to time, 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 in re- spect of 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 with respect 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: (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,— (3) 306 Reprinted as at 29 August 2011 Income Tax Act 2004 Part C s CV 4 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 System (Wine Equalisation Tax) Act 1999 (Aust), as amended from time to time, and regulations made under that Act.
Deﬁned in this Act: amount, Australian ﬁnancial year, Australian wine producer rebate, Inland Revenue Acts, New Zealand resident, wine Sections CV 3 and CV 4 were inserted, as from 21 December 2005, by section 4 Taxation (Urgent Measures) Act 2005 (2005 No 121).
Subpart CW—Exempt income Contents Income from business or trade-like activities CW 1 Forestry companies established by Crown, Maori 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 Income from equity CW 9 Dividend derived by company from overseas CW 10 Dividend within New Zealand wholly-owned group CW 11 Dividend of conduit tax relief holding company CW 11B Proceeds of share disposal by qualiﬁed foreign equity investor CW 11C Proceeds from share or option acquired under venture investment agreement CW 12 Income of Governor-General Employee or contractor income Page 309 310 311 312 312 312 313 313 314 314 315 315 317 317 324 327 307 Income Tax Act 2004 Reprinted as at 29 August 2011 CW 13 Expenditure on account, and reimbursement, of employees CW 13B Relocation payments CW 13C Payments for overtime meals and certain other allowances CW 14 Allowance for additional transport costs CW 15 Amounts derived during short-term visits CW 16 Amounts derived by visiting entertainers (including sportspersons) CW 17 Amounts derived by visiting crew of pleasure craft CW 18 Amounts derived by overseas experts and trainees in New Zealand by government arrangement CW 19 Income for military or police service in operational area CW 20 Deferred military pay for active service CW 21 Value of board for religious society members CW 22 Jurors’ and witnesses’ fees Certain income of transitional resident CW 22B Certain income derived by transitional resident Income from living allowances, compensation, and government grants CW 23 Pensions
 CW 23B Reinvested amount from foreign superannuation scheme in Australia CW 24 Annuities from Crown Bank Accounts CW 25 Services for members of Parliament CW 26 Maintenance payments CW 27 Allowances and beneﬁts CW 28 Compensation payments CW 28B Payment of certain accident compensation payments CW 29 Scholarships and bursaries CW 30 Film production grants Income of certain entities CW 31 Public authorities CW 32 Local authorities CW 33 Local and regional promotion bodies CW 34 Charities: non-business income CW 35 Charities: business income CW 36 Charitable bequests CW 37 Friendly societies CW 38 Funeral trusts CW 39 Bodies promoting amateur games and sports Reprinted as at 29 August 2011 Income Tax Act 2004 Part C s CW 1 CW 40 TAB and racing clubs CW 40B Income from conducting gaming-machine gambling CW 41 Bodies promoting scientiﬁc or industrial research CW 42 Veterinary services bodies CW 43 Herd improvement bodies CW 44 Community trusts Income from certain activities CW 45 Non-resident aircraft operators CW 45B Non-resident company involved in exploration and development activities CW 46 Disposal of companies’ own shares CW 47 New Zealand companies operating in Niue CW 48 Stake money CW 49 Providing standard-cost household service CW 49B Interest paid under KiwiSaver Act 2006 Income of, and distributions by, certain international funds CW 49C Income of certain international funds CW 49D Distributions by certain international funds Income exempt under other Acts CW 50 Exemption under other Acts Income exempt under Parts F to I CW 51 Exemption under Parts to be rewritten 357 357 358 358 359 359 359 360 361 361 363 363 364 364 364 365 365 Income from business or trade-like activities CW 1 Forestry companies established by Crown, Maori owners, and holding companies buying land with standing timber from founders When this section applies This
 section applies when a forestry company buys land with standing timber on it from a seller who is the Crown, the Maori owners, or a holding company of the forestry company.
Land sold by Maori Trustee, trustee for Maori owners, or Maori incorporation For the purposes of subsection (1),— (1) (2) 309 Part C s CW 1B Income Tax Act 2004 Reprinted as at 29 August 2011 (3) (4) (a) (b) land sold to the forestry company by the Maori Trustee or by a trustee for a Maori owner is treated as if it had been sold by the beneﬁcial owners: land sold to the forestry company by a Maori incorpor- ation is treated as if it had been sold by the members of the incorporation.
Exempt income The amount described in section CB 23(3) (Disposal of land with standing timber) is exempt income of the seller.

Relationship with section DP 8 Section DP 8 (Cost of acquiring timber: forestry business on land bought from Crown, Maori owners, or holding company) 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: 1994 No 164 s DL 5(1)(d)(i)-(iii) Subsection (2)(a) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; and”.
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 22(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.


310 Reprinted as at 29 August 2011 Income Tax Act 2004 Part C s CW 2 (3) (4) 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.

Relationship with section DP 8B Section DP 8B (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 2005), on 29 August 2011, by section 192 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 Compare: 1994 No 164 s DL 6(2)(a), (3) 311 Part C s CW 3 Income Tax Act 2004 Reprinted as at 29 August 2011 CW 3 Forestry companies and Maori investment companies (1) (2) When this section applies This section applies when a forestry company or a Maori in- vestment company issues a qualifying debenture.
Exempt income Interest derived from the qualifying debenture is exempt in- come to the extent to which it is paid by the issue of a further qualifying debenture.
Deﬁned in this Act: exempt income, forestry company, interest, Maori invest- ment company, pay, qualifying debenture Compare: 1994 No 164 s DL 5(1)(a) 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 745 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 34 (Superannuation fund deriving amount 312 Reprinted as at 29 August 2011 Income Tax Act 2004 Part C s CW 6 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, resident in New Zealand, superannuation fund Compare: 1994 No 164 s CB 9(f) 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: 1994 No 164 s CB 1(1)(b) 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 sections HH 3 to HH 6 (which relate to trustee income) and HZ 2 (Trusts that may become qualifying trusts); or an unincorporated body.
(f) 313 Part C s CW 7 Income Tax Act 2004 Reprinted as at 29 August 2011 Relationship with section KE 1 (3) A person who derives interest that is exempt income under this section is not entitled to a rebate for the interest under section KE 1 (Rebate for 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: 1994 No 164 s CB 1(1)(c), (2) CW 7 Foreign-sourced interest Interest that a person derives from a country or territory outside New Zealand is exempt income if— (a) the person was not resident in New Zealand during the period for which the interest was payable; and the interest was exempt under the laws of the overseas country or territory from a tax that is substantially the same as income tax imposed under this Act.
(b) Deﬁned in this Act: exempt income, income tax, interest, New Zealand, pay, resident in New Zealand Compare: 1994 No 164 s CB 2(1)(e) 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— (i) the government of New Zealand; or a local authority or a public authority; and (ii) in the case of money lent to a local or public authority,— (c) (1) (2) 314 Reprinted as at 29 August 2011 Income Tax Act 2004 Part C s CW 10 (i) (ii) it is lent for the purposes of a non-commercial activity carried on in New Zealand by the local or public authority; and the government of New Zealand has approved the exempt status of the interest or redemption payment.
Deﬁned in this Act: commercial bill, exempt income, interest, local authority, money lent, New Zealand, non-resident, pay, public authority, redemption pay- ment Compare: 1994 No 164 ss CB 2(1)(b), CZ 2 Income from equity CW 9 Dividend derived by company from overseas Exempt income (1) A dividend from a foreign company is exempt income if de- rived by a company that is— (a) (b) resident in New Zealand; and not a portfolio tax rate entity.
(2) Dividend withholding payment rules apply The dividend withholding payment rules apply to the dividend.

Deﬁned in this Act: company, dividend, dividend withholding payment rules, exempt income, foreign company, portfolio tax rate entity resident in New Zealand Compare: 1994 No 164 s CB 10(1) Section CW 9(1): substituted, on 1 October 2007, by section 10(1) of the Tax- ation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81).
Section CW 9 list of deﬁned terms portfolio tax rate entity: inserted, on 1 October 2007, by section 10(2) of the Taxation (Savings Investment and Mis- cellaneous Provisions) Act 2006 (2006 No 81).
CW 10 Dividend within New Zealand wholly-owned group Exempt income (1) A dividend is exempt income if— (a) (b) (c) it is derived by a company (recipient) that is resident in New Zealand; and it is derived from a company (payer) that is in 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 315 Part C s CW 10 Income Tax Act 2004 Reprinted as at 29 August 2011 (d) (e) the payer is not a company that can derive only exempt income; and the requirements in subsections (2) to (7) are met.
Aligned balance dates (2) At the time the dividend is derived,— (a) (b) the recipient and the payer have income years that end on the same date; or a difference in balance dates— (i) is necessary to avoid a material distortion in the net income of 1 of them because aspects of a single business cycle would otherwise be split between 2 income years; and is not part of a tax avoidance arrangement.
(ii) 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 if section 6(4) of the Local Government Act 2002 did not exist.
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 4(2) (What is a transfer of value?).

Exclusion: certain friendly society dividends The dividend must not be derived by a friendly society from a company registered as an insurer under the Accident Insurance Act 1998 that is under the control of the society.
Exclusion: certain sickness, accident, or death beneﬁt fund dividends The dividend must not be derived by a trustee in trust for a sickness, accident, or death beneﬁt fund from a company regis- tered as an insurer under the Accident Insurance Act 1998 that is under the control of the trustee.
(3) (4) (5) (6) 316 Reprinted as at 29 August 2011 Income Tax Act 2004 Part C s CW 11B (7) Relationship with section FZ 1 This dividend must not be a dividend for which a deduction arises under section FZ 1 (Deduction for dividends paid on certain preference shares).
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: 1994 No 164 s CB 10(2), (3) CW 11 Dividend of conduit tax relief holding company (1) (2) Exempt income: credit If a conduit tax relief holding company derives a dividend with a conduit tax relief credit attached, the dividend is exempt in- come to the extent to which it is fully conduit tax relief cred- ited.
Exempt income: additional dividend If a conduit tax relief holding company derives a conduit tax relief additional dividend, the conduit tax relief additional dividend is exempt income.
Deﬁned in this Act: conduit tax relief additional dividend, conduit tax relief credit, conduit tax relief holding company, dividend, exempt income, fully con- duit tax relief credited Compare: 1994 No 164 s CB 10(4), (5) CW 11B Proceeds of share disposal by qualiﬁed foreign equity investor (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 (called 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 (c) 317 Part C s CW 11B Income Tax Act 2004 Reprinted as at 29 August 2011 from the time of the purchase to the time of the disposal; and at some time in the 12-month period that starts from the time of the purchase referred to in paragraph (b), the shares of the resident company are quoted on no ofﬁcial list of a recognised exchange; and the resident company satisﬁes either or both of subsec- tions (2) and (3).
(d) (e) Requirements relating to main activity of resident company land development: land ownership: (2) A resident company satisﬁes 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 satisﬁes this subsection if— (a) 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 (iii) (ii) 318 Reprinted as at 29 August 2011 Income Tax Act 2004 Part C s CW 11B (iv) has, as a main activity, an activity that is referred to in subsection (2)(a) to (c) and (e) to (g); and does not provide capital, directly or indirectly, to a company that is resident in New Zealand and has, as a main activity, an activity that is referred to in subsection (2)(d) and (h) and is not the provision of capital to other companies; and throughout the period referred to in subsection (1)(c), each other company that is not resident in New Zealand does not provide capital, directly or indirectly, to a 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) (b) (c) (4) Some deﬁnitions In this section— foreign exempt entity means a person who— (a) 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 (called in this deﬁnition 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 of the part of the ter- ritory, 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 under (b) (c) (d) (e) 319 Part C s CW 11B Income Tax Act 2004 Reprinted as at 29 August 2011 (f) (g) section OD 8(1) (Further deﬁnitions of associ- ated persons), an interest of 10% or more in the capital of the legal entity; and is resident in no territory that is approved for the purpose of this section by the Governor-General by an Order in Council; and (ii) does not have a member who, when treated as holding the interests of any person who is associated with the member under section OD 8(1) (Further deﬁnitions of associated persons), has an interest of 10% or more in the capital of the legal entity and who— (i) would be entitled to receive an amount derived from a disposal to which this section would apply; and (ii) would receive an amount referred to in subpara- graph (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 (iii) would in any circumstances, under the laws of the territory in which the member is resident or under the laws of part of the territory, be
 entitled to receive from the government of the territory or of the 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 subparagraph (ii); and does not have a holder of a direct or indirect interest in the capital of the legal entity who— (i) (ii) is a resident of New Zealand; and holds a total direct or indirect interest of 10% or more in the capital of the legal entity, when treated as holding the interests of any person who is associated with the holder under section OD 8(1) 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- 320 Reprinted as at 29 August 2011 Income Tax Act 2004 Part C s CW 11B (b) (c) (d) (e) (f) (g) (h) ernor-General by an Order in Council or under the laws of a part of such a territory; and consists of persons (called in this deﬁnition partners); and under the laws of the territory, or of the part of the ter- ritory, is not subject to a tax on income other than as a body that handles income of the partners; and has at least 1 partner (called in this deﬁnition a general partner) who is liable for all debts of the unincorpor- ated body and who has signiﬁcant involvement in, and control of, the business activities of the unincorporated body; and has at least 1 partner (called in this deﬁnition a special partner) whose liability 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 under section OD 8(1) (Further deﬁnitions of associ- ated
 persons), an interest of 10% or more in the capital of the unincorporated 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 under section OD 8(1) (Further deﬁnitions of associated persons), 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 321 Part C s CW 11B Income Tax Act 2004 Reprinted as at 29 August 2011 (i) under the laws of part of the territory, be entitled to receive from the government of the territory or of the 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— is a resident of New Zealand; and (i) holds a total direct or indirect interest of 10% or (ii) more in the capital of the unincorporated body, when treated as holding the interests of any per- son who is associated with the holder under sec- tion OD 8(1) foreign exempt person means a person who— (a) is resident in a territory that is approved for the purposes of this section by the Governor-General by an Order in Council; and is not part of an unincorporated body that satisﬁes para- graphs (a) to (c) of the deﬁnition of foreign exempt partnership; and is not a legal entity that satisﬁes paragraphs (a) to (c) of the deﬁnition of foreign exempt entity; and under the laws of the territory, or of the part of the ter- ritory, 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 of the 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 (b) (c) (d) (e) 322 Reprinted as at 29 August 2011 (f) Income Tax Act 2004 Part C s CW 11B does not have a holder of a direct or indirect interest in the person who— (i) (ii) is a resident of New Zealand; and holds a total direct or indirect interest of 10% or more in the capital of the person, when treated as holding the interests of any person who is asso- ciated with the holder under section OD 8(1) qualifying foreign equity investor means a person who is not resident in New Zealand and who is 1 or more of the following (a) (b) (c) a foreign exempt entity: a person who is part of a foreign exempt partnership: a foreign exempt person.
(5) (6) Residency of territory For the purpose of this section, whether a person is resident in a territory other than New Zealand is determined— (a) under a double tax agreement between New Zealand and the territory that is in force under the terms of the double tax agreement, if— (i) (ii) there is such a double tax agreement; and the double tax agreement provides for the resi- dency of the person: (b) under the laws of the territory, if paragraph (a) does not apply.
Approval and withdrawal of approval for territory The Governor-General may, from time to time 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, business, company, dividend, double tax agree- ment, exempt income, foreign exempt entity, foreign exempt partnership, for- eign exempt person, income, insurance, interest, land, payment, personal prop- erty lease payment, qualifying foreign equity investor, recognised exchange, resident in New Zealand, royalty, share, tax Section CW 11B was inserted, as from 1 October 2005, by section 174 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111).
Section CW 11B(4) foreign exempt entity paragraph (c): substituted, on 19 December 2007, by section 20(1)(a) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

323 Part C s CW 11C Income Tax Act 2004 Reprinted as at 29 August 2011 Section CW 11B(4) foreign exempt entity paragraph (f)(iii): amended, on 19 December 2007, by section 20(1)(b) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section CW 11B(4) foreign exempt entity paragraph (f)(iii): amended, on 19 December 2007, by section 20(1)(c) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section CW 11B(4) foreign exempt entity paragraph (g): added, on 19 Decem- ber 2007, by section 20(1)(c) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section CW 11B(4) foreign exempt partnership paragraph (c): substituted, on 19 December 2007, by section 20(2)(a) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section CW 11B(4) foreign exempt partnership paragraph (h)(ii): amended, on 19 December 2007, by section 20(2)(b) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section CW 11B(4) foreign exempt partnership paragraph (h)(ii): amended, on 19 December 2007, by section 20(2)(c) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section CW 11B(4) foreign exempt partnership paragraph (i): added, on 19 December 2007, by section 20(2)(c) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section CW 11B(4) foreign exempt person paragraph (d): substituted, on 19 December 2007, by section 20(3)(a) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section CW 11B(4) foreign exempt person paragraph (e)(ii): amended, on 19 December 2007, by section 20(3)(b) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section CW 11B(4) foreign exempt person paragraph (e)(ii): amended, on 19 December 2007, by section 20(3)(c) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section CW 11B(4) foreign exempt person paragraph (f): added, on 19 De- cember 2007, by section 20(3)(c) of the Taxation (Business Taxation and Re- medial Matters) Act 2007 (2007 No 109).
Section CW 11B(5)(a): substituted, on 19 December 2007, by section 20(4) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section CW 11B(5)(b): substituted, on 19 December 2007, by section 20(4) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
CW 11C 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 324 Reprinted as at 29 August 2011 Income Tax Act 2004 Part C s CW 11C (2) (3) (4) company is exempt income if the requirements of subsections (2) to (5) are satisﬁed.
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 satisﬁes subsection (3), the company must have in New Zealand— (a) more than 50% in value of the company’s assets; and (b) more than 50% in number of the company’s employees.
Requirement relating to acquisition of ﬁrst share or option The second requirement is that, when the non-resident ﬁrst acquires a share or option to buy a share (ﬁrst interest) in the company, a person (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.
325 Part C s CW 11C Income Tax Act 2004 Reprinted as at 29 August 2011 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 has a direct or indirect interest of more than 10% in the share or option.
(b) (c) Venture investment agreement In this section, venture investment agreement means an agreement that— (a) 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 (b) (c) (ii) more than 50% in number of the company’s em- ployees.
Deﬁned in this Act: employee, income, interest, non-resident, resident in New Zealand, share, venture investment agreement, Venture Investment Fund Section CW 11C was inserted, as from 3 April 2006, by section 24(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) with application for shares or options purchased for a non-resident by a venture capital manager in relation to a venture investment agreement made on or before 31 March 2010.
(5) (6) 326 Reprinted as at 29 August 2011 Income Tax Act 2004 Part C s CW 13 Employee or contractor income CW 12 Income of Governor-General The following are exempt income: (a) the salary and allowance of the Governor-General paid under section 3 of the Civil List Act 1979: the salary of a person acting as the Administrator of the Government paid under section 8 of the Civil List Act 1979.
(b) Deﬁned in this Act: exempt income Compare: 1994 No 164 s CB 7(a), (b) Paragraph (a) was amended, as from 21 December 2004, by section 270 Taxa- tion (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; and”.
CW 13 Expenditure on account, and reimbursement, of employees (1) Exempt income: expenditure on account Expenditure on account of an employee incurred by an em- ployer in connection with the employee’s employment or ser- vice is exempt income of the employee to the extent to which the expenditure is expenditure for which the employee would be allowed a deduction if they incurred the expenditure and if the employment limitation did not exist.
Exempt income: reimbursement (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.
(3) 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) 327 Part C s CW 13B Income Tax Act 2004 Reprinted as at 29 August 2011 (4) (5) Relationship with sections CW 13B and CW 13C This section does not apply to an amount referred to in section CW 13B or CW 13C.

Depreciation loss included In this section, expenditure includes an amount of depreciation loss.
Deﬁned in this Act: amount, deduction, depreciation loss, employee, employer, employment limitation, exempt income, expenditure on account of an employee Compare: 1994 No 164 s CB 12(1), (3), (3B), (3C) Section CW 13(4) heading: added (with effect on 1 April 2005), on 6 October 2009, by section 746(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section CW 13(4): added (with effect on 1 April 2005), on 6 October 2009, by section 746(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section CW 13(4): amended (with effect on 1 April 2005), on 7 December 2009, by section 151 of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
Section CW 13(5) heading: added (with effect on 1 April 2005), on 6 October 2009, by section 746(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section CW 13(5): added (with effect on 1 April 2005), on 6 October 2009, by section 746(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section CW 13 list of deﬁned terms depreciation loss: inserted (with effect on 1 April 2005), on 6 October 2009, by section 746(3) of the Taxation (Inter- national Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

CW 13B 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.
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).

(2) 328 Reprinted as at 29 August 2011 Income Tax Act 2004 Part C s CW 13B (3) (4) (5) (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 For the purposes of this section, 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— (i) (b) 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.
(ii) (iii) Exemption from distance test The requirement in subsection (4)(a) for a workplace to be be- yond reasonable travelling distance of the person’s residence does not apply to a person whose accommodation forms an in- tegral 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 13B: inserted (with effect on 1 April 2005), on 6 October 2009, by section 747 of the Taxation (International Taxation, Life Insurance, and Re- medial Matters) Act 2009 (2009 No 34).
329 Part C s CW 13C Income Tax Act 2004 Reprinted as at 29 August 2011 CW 13C 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) (b) (c) (d) (b) 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 to undertake a long period of physical activity in travelling through a neighbourhood or district on foot or by bicycle; and (ii) 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) Eligibility requirements: overtime meals Subsection (1) applies only if— (a) 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) (3) 330 Reprinted as at 29 August 2011 Income Tax Act 2004 Part C s CW 14 (4) (5) (6) Eligibility requirements: sustenance allowances Subsection (2) applies only if the employer has an established policy or practice of paying a sustenance allowance.
Actual cost or reasonable estimate The amount paid must be— (a) the actual cost to the employee, and for an overtime meal referred to in subsection (1), with documentation required for amounts over $20 per meal; or a reasonable estimate of the expenditure likely to be incurred by the employee or a group of employees for whom an amount is payable.
(b) Meaning of overtime For the purposes of this section, overtime, for a person and a day, means time worked for an employer on the day beyond the person’s ordinary hours of work as set out in their employment agreement.

Deﬁned in this Act: amount, employee, employer, exempt income, overtime, pay Section CW 13C: inserted (with effect on 1 April 2005), on 6 October 2009, by section 747 of the Taxation (International Taxation, Life Insurance, and Re- medial Matters) Act 2009 (2009 No 34).
CW 14 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.
(2) 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) 331 Part C s CW 14 Income Tax Act 2004 Reprinted as at 29 August 2011 (3) (b) Meaning of additional transport costs In this section, additional transport costs means the costs to an employee of travelling between their home and place of work that are more than would ordinarily be expected.
The costs must be attributable to 1 or more of the following factors: the day or time of day when the work duties are per- (a) formed: the need to transport any goods or material for use or disposal in the course of the employee’s work: the requirement to fulﬁl a statutory obligation: a temporary change in the employee’s place of work while in the same employment: any other condition of the employee’s work: the absence of an adequate public passenger transport service that operates ﬁxed routes and a regular timetable for the employee’s place of work.
(c) (d) (e) (f) Quantifying additional transport costs (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 Compare: 1994 No 164 s CB 12(2)-(4) Subsection (3)(a) to (e) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; or”.

Subsection (4)(a) and (b) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; and”.
332 Reprinted as at 29 August 2011 Income Tax Act 2004 Part C s CW 16 CW 15 Amounts derived during short-term visits (1) (2) (3) Exempt income Income that a non-resident person derives in a tax year from performing personal or professional services in New Zealand during a visit is exempt income if— (a) the visit is for 92 or fewer days (counting the days of arrival and departure as a whole day each); and the total number of days on which the person is present in New Zealand in the tax year is 92 or fewer; and the services are performed for or on behalf of a person who is not resident in New Zealand; and the amount derived from the personal or professional services is chargeable in the country or territory in which the person is resident with a tax that is substan- tially the same as income tax imposed under this Act.
(b) (c) (d) Exclusion This section does not apply to the income of a public enter- tainer.

Meaning of public entertainer In this section, public entertainer includes— (a) circus performers, dancers, lecturers, motion picture television artists, musicians, artists, and theatre artists; and athletes, boxers, wrestlers, and other professional sportspersons.
radio artists, singers, (b) Deﬁned in this Act: amount, exempt income, income, income tax, New Zealand, non-resident, public entertainer, resident in New Zealand, tax year Compare: 1994 No 164 s CB 2(1)(c) CW 16 Amounts derived by visiting entertainers (including sportspersons) (1) 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 333 Part C s CW 16 Income Tax Act 2004 Reprinted as at 29 August 2011 (b) (c) 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) 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— (a) provides the services of the non-resident entertainer during the visit to New Zealand; and is 1 of the following: (i) (ii) the entertainer’s employer; or a company of which the entertainer is an ofﬁcer; or a ﬁrm of which the entertainer is a principal.
(iii) (b) Meaning of non-resident entertainer In this section, non-resident entertainer means a non-resi- dent person, as deﬁned in subpart OE (Source of income and residence), who carries out an activity or performance in con- nection with— (a) a solo or group performance by actors, compères, 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 (2) (3) (4) (b) 334 Reprinted as at 29 August 2011 Income Tax Act 2004 Part C s CW 17 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: 1994 No 164 s CB 2(1)(a) CW 17 Amounts derived by visiting crew of pleasure craft (1) (2) Exempt income Income that a non-resident crew member derives from per- forming services in New Zealand relating to a pleasure craft while it is in New Zealand is exempt income if— (a) the services are performed for a person who is not resi- dent in New Zealand; and the pleasure craft is the subject of a security given under section 116 of the Customs and Excise Act 1996; and the pleasure craft is not owned, wholly or partly or di- rectly or indirectly, by— (i) (ii) a resident of New Zealand; or a controlled foreign company.
(b) (c) Some deﬁnitions In this section,— non-resident crew member means a person who— is a crew member of a pleasure craft; and (a) is a non-resident, a matter determined without applying (b) section OE 1(2) (Determination of residence of person other than company); 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 1987 (d) (c) pleasure craft is deﬁned in section 2 of the Maritime Transport Act 1994.
Deﬁned in this Act: amount, controlled foreign company, exempt income, in- come, New Zealand, non-resident, non-resident crew member, pleasure craft, resident in New Zealand, year Compare: 1994 No 164 s CB 2(1)(f), (3B), (4) 335 Part C s CW 18 Income Tax Act 2004 Reprinted as at 29 August 2011 CW 18 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: teaching or lecturing: (ii) (iii) making investigations: (iv) receiving education, training, or experience; and the visit occurs under an arrangement for assistance en- tered into by the government of New Zealand.
(b) (c) Exempt income: maintenance or bursaries (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 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: teaching or lecturing: (ii) (iii) making investigations: (iv) receiving education, training, or experience; and the visit occurs under an arrangement for assistance en- tered into by the government of New Zealand.
(b) 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) the Commonwealth Education Scheme; or (3) 336 Reprinted as at 29 August 2011 Income Tax Act 2004 Part C s CW 18 (ii) a programme of the United Nations, or any specialised agency of the United Nations, for cultural, economic, educational, expert, profes- sional, or technical assistance; or (c) (b) (ii) for the purpose of providing education, training, or experience for ofﬁcers of the Samoan, Cook Islands, Niuean, or Tokelauan public services, or for persons resident in Samoa, the Cook Islands, Niue, or Tokelau; or with the government of any other country or with any international organisation, if it is an arrangement that— is for the purpose of providing cultural, eco- (i) nomic, educational, expert, professional, or technical assistance, or administrative or other training, or the means or facilities for making investigations, whether upon a bilateral, co-op- erative, multilateral, mutual, or unilateral basis; and is in principle similar to any arrangement to which paragraph (a) or (b) applies international organisation means an organisation whose members are sovereign powers, whether countries of the Commonwealth or foreign sovereign powers, or the govern- ments of those countries or powers non-resident person means a person who would not be resi- dent in New Zealand if they were not present in New Zealand under an arrangement for assistance entered into by the gov- ernment of New Zealand.
The residence of the person is de- termined without applying section OE 1(2) (Determination of residence of person other than company).
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, resident in New Zealand Compare: 1994 No 164 s CB 2(1)(d), (3), (4) Subsection (1)(b)(i) to (iii) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; or”.
Subsection (2)(a)(i) to (iii) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; or”.
337 Part C s CW 19 Income Tax Act 2004 Reprinted as at 29 August 2011 CW 19 Income for military or police service in operational area (1) (2) When this section applies This section applies if a member of the New Zealand Defence Force or the police (the member) derives an amount of income for serving in an operational area.
Exempt income The following amounts are exempt income of the member: (a) (b) an amount of operational allowance: an amount exempted by a decision of the ministerial committee under subsection (3).
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 to exempt an amount of in- come derived by a member for being in an operational area.
Some deﬁnitions In this section,— operational allowance, for a member, means an allowance payable by the Government of New Zealand that— (a) is paid directly and solely for being in an operational area; and is not— (i) (ii) a regular force gratuity: a bonus or bounty for re-engagement in a regular force (b) operational area means an area— (a) to which the Minister of Defence has ordered the de- ployment of New Zealand Defence Force members for a speciﬁc mission authorised by the Government; and that the Chief of Defence Force delineates for that mis- sion.
(b) Deﬁned in this Act: amount, exempt income, income, New Zealand, operational allowance, operational area Section CW 19 was substituted, as from 18 March 2007, by section 11 Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81).
(4) 338 Reprinted as at 29 August 2011 Income Tax Act 2004 Part C s CW 22 CW 20 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 Compare: 1994 No 164 s CB 9(b) CW 21 Value of board for religious society members The value of personal board and lodging and other basic per- sonal necessities received by a member of a religious society or order is exempt income if— (a) the member’s sole occupation is service in a religious society or order; and it is in the nature of the service that members are not paid for their work and do not receive a reward for it, other than those necessities.
(b) Deﬁned in this Act: exempt income Compare: 1994 No 164 s CB 6(b) CW 22 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 Compare: 1994 No 164 s CB 6(c) Certain income of transitional resident This heading was inserted, as from 1 October 2005, by section 25(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) with application for: a person who becomes a transitional 339 Part C s CW 22B Income Tax Act 2004 Reprinted as at 29 August 2011 resident as from 1 April 2006; and as from the income year corresponding to the 2005–06 tax year.
See section 25(2) and (3) of that Act as to the application of this amendment.
CW 22B 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 Section CW 22B was inserted, as from 1 October 2005, by section 25(1) Tax- ation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Pro- visions) Act 2006 (2006 No 3) with application for: a person who becomes a transitional resident as from 1 April 2006; and as from the income year corres- ponding to the 2005–06 tax year.
See section 25(2) and (3) of that Act as to the application of this amendment.
Income from living allowances, compensation, and government grants CW 23 Pensions Exempt income The following are exempt income: (a) a pension or allowance under the War Pensions Act 1954, other than a veteran’s pension: a pension or allowance of any other kind granted in New Zealand or overseas by any government relating to any war or to disability attributable to or aggravated by ser- vice in the armed forces or the police: a payment of portable New Zealand superannuation: a payment of portable veteran’s pension: an overseas pension.
(b) (c) (d) (e) Meaning of overseas pension In this section, overseas pension means— (a) an overseas pension, to the extent of sums subtracted under section 70 of the Social Security Act 1964, by (1) (2) 340 Reprinted as at 29 August 2011 Income Tax Act 2004 Part C s CW 23B the department currently responsible for administering the Act, from— (i) a monetary beneﬁt paid under Part 1 of the Act; or a monetary beneﬁt, other than New Zealand superannuation pension, a paid under the Social Welfare (Transitional Provisions) Act 1990: veteran’s (ii) or (b) an overseas pension to the extent to which it is sub- ject to an arrangement under section 70(3) of the Social Security Act 1964 but not to the extent of the equiva- lent amount of New Zealand superannuation, veteran’s pension, or income-tested beneﬁt paid under section 70(3)(b) of the Act.
Deﬁned in this Act: amount, exempt income, income-tested beneﬁt, New Zealand superannuation, overseas pension, portable New Zealand superannu- ation, portable veteran’s pension, veteran’s pension Compare: 1994 No 164 s CB 5(1)(a), (f), (fa), (o) Subsection (1)(a) to (d) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; and”.
Subsection (2)(a)(ii) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; and”.
CW 23B Reinvested amount from foreign superannuation (b) scheme 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) the person in the income year invests the amount in an- other foreign superannuation scheme; and each foreign superannuation scheme is constituted in Australia and is— (i) (ii) an Australian approved deposit fund: an Australian exempt public sector superannu- ation scheme: an Australian regulated superannuation fund: an Australian retirement savings account.
(iii) (iv) Deﬁned in this Act: Australian approved deposit fund, Australian exempt pub- lic sector superannuation scheme, Australian regulated superannuation fund, 341 Part C s CW 24 Income Tax Act 2004 Reprinted as at 29 August 2011 Australian retirement savings account, exempt income, foreign superannuation scheme, income, income year Section CW 23B was inserted, as from 1 April 2005, by section 12(1) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) with application as from the 2006–07 income year.
CW 24 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, tax Compare: 1994 No 164 s CB 7(c) CW 25 Services for members of Parliament Travel, accommodation, attendance, and communication ser- vices, as deﬁned in section 20A(7) of the Civil List Act 1979, are exempt income if they— (a) are— (i) (ii) are provided to— (i) (b) referred to in section 20A of the Act: paid under section 25 of the Act; and a person to whom any of section 25(1)(b) to (e) of the Act applies: a member of the family of a person described in subparagraph (i).
(ii) Deﬁned in this Act: exempt income Compare: 1994 No 164 s CB 7(d) Paragraphs (a)(i) and (b)(i) were amended, as from 21 December 2004, by sec- tion 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; or”.
CW 26 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, de (b) 342 Reprinted as at 29 August 2011 Income Tax Act 2004 Part C s CW 27 facto partner, former spouse, former civil union partner or former de facto partner.
Deﬁned in this Act: exempt income Compare: 1994 No 164 s CB 9(a) Paragraph (a) was amended, as from 21 December 2004, by section 270 Taxa- tion (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; and”.

Paragraph (b) was amended, as from 26 April 2005, by section 3(1) Income Tax Amendment Act 2005 (2005 No 11) by substituting “spouse, civil union partner, former spouse or former civil union partner” for “spouse or former spouse”.
Paragraph (b) was amended, as from 1 April 2007, by section 3(2) Income Tax Amendment Act 2005 (2005 No 11) by substituting “spouse, civil union partner, de facto partner, former spouse, former civil union partner or former de facto partner” for “spouse, civil union partner, former spouse or former civil union partner”.
CW 27 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 Injury Prevention, Rehabilitation, and Compensation 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: 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 (b) (c) (d) (e) (f) 343 Part C s CW 28 Income Tax Act 2004 Reprinted as at 29 August 2011 (2) 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, tax year, trustee Compare: 1994 No 164 ss CB 5(1)(e), (l), (m), (q), CB 6(a), (e) Subsection (1)(a), (b)(v), and (c) to (e) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; and”.
Subsection (1)(b)(i) to (iv) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; or”.
CW 28 Compensation payments Exempt income (1) An amount of income from the following payments is exempt income: (a) (b) (c) (d) (e) (f) (g) 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).
Some deﬁnitions In this section,— (2) 344 Reprinted as at 29 August 2011 Income Tax Act 2004 Part C s CW 28B (c) (b) 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 under section 25 of the National Provident Fund Act 1950: a payment by a friendly society, but not a payment re- ferred to in paragraph (d) or (e) of the deﬁnition of the term accident compensation payment in section CF 1(2) (Beneﬁts, pensions, compensation, and govern- ment grants): a payment from a sickness, accident, or death bene- ﬁt fund to which the person was a contributor when the period of incapacity began, but not a payment re- ferred to in paragraph (d) or (e) of the deﬁnition of the term accident compensation payment in section CF 1(2) (Beneﬁts, pensions, compensation, and govern- ment grants): 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 of the deﬁnition of the term accident compensation payment in section CF 1(2) (Beneﬁts, pensions, com- pensation, and government grants) nor a payment cal- culated according to loss of earnings or proﬁts.
payment relating to incapacity for work: paragraphs (a) to (c) of this deﬁnition were amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; or”.
Deﬁned in this Act: accident insurance contract, exempt income, friendly soci- ety, interest, lease, payment relating to incapacity for work, sickness, accident or death beneﬁt fund Compare: 1994 No 164 s CB 5(1)(b), (c), (g), (h), (j), (k), (n), (p) (d) (f) Subsection (1)(a) to (f) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; or”.
CW 28B Payment of certain accident compensation payments The amount paid to a person (the claimant) for an income year as a personal service rehabilitation payment for the per- 345 Part C s CW 29 Income Tax Act 2004 Reprinted as at 29 August 2011 son under the Injury Prevention, Rehabilitation, and Compen- sation Act 2001 is exempt income of the claimant if— (a) the claimant pays an amount to another person for pro- viding a key aspect of social rehabilitation referred to in the deﬁnition of personal service rehabilitation pay- ment in section OB 1; and the amount paid by the claimant for a key aspect of social rehabilitation for the income year is equal to or more than the amount of personal service rehabilitation payments, after any deduction of tax under this Act, paid to the claimant for the year.
(b) Deﬁned in this Act: exempt income, income year, payment, personal service rehabilitation payment Section CW 28B: inserted, on 1 July 2008, by section 21 of the Taxation (Busi- ness Taxation and Remedial Matters) Act 2007 (2007 No 109).
CW 29 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: 1994 No 164 s CB 9(d) CW 30 Film production grants An amount derived by a company as a large budget screen production grant is exempt income.
Deﬁned in this Act: company, exempt income, large budget screen production grant Compare: 1994 No 164 s CB 9(i) Income of certain entities CW 31 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.
346 Reprinted as at 29 August 2011 Income Tax Act 2004 Part C s CW 32 (3) (4) (5) (6) 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.
Exclusion: certain public authorities Subsection (2) does not apply to an amount of income derived by the following public authorities: (a) (b) (c) (d) Public Trust: State enterprises: Crown Research Institutes: the department or ministry that is currently responsible for administering the Marketing Act 1936, if the amount is derived for a function that the department or ministry exercises under the Act.

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, public authority, State enterprise, superannuation scheme, trustee Compare: 1994 No 164 s CB 3(a), (c), (e) Subsection (5)(a) to (c) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; or”.
CW 32 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.

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— (3) (4) 347 Part C s CW 33 Income Tax Act 2004 Reprinted as at 29 August 2011 (a) (b) (c) is derived by a local authority; and is not rates; and is derived from— (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: 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 if section 6(4) of the Local Government Act 2002 did not exist.
(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: 1994 No 164 s CB 3(b), (c) Section CW 32(4)(c)(i): substituted (with effect from 1 April 2005), on 19 De- cember 2007, by section 22 of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
CW 33 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) the association or society is established mainly to— (i) advertise, beautify, or develop a city or other dis- trict so as to attract population, tourists, trade, or visitors: create, develop, or increase amenities for the gen- eral public in a city or other district; and none of the funds of the association or society is used, or is or may become available to be used, for any other purpose that is not a charitable purpose.
(ii) (b) 348 Reprinted as at 29 August 2011 Income Tax Act 2004 Part C s CW 34 (2) Exclusion: council-controlled organisation Subsection (1) does not apply to an amount of income de- rived— (a) (b) by a council-controlled organisation: 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: 1994 No 164 s CB 4(1)(j), (l), (3) Subsections (1)(a)(i) and (2)(a) were amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; or”.
Section CW 33 list of deﬁned terms associated person: repealed (with effect on 1 April 2005), on 6 October 2009, by section 748 of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
CW 34 Charities: non-business income (1) 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 (1B) 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, registered as a charitable entity.
(2) 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).
349 Part C s CW 35 Income Tax Act 2004 Reprinted as at 29 August 2011 (3) Exclusion: council-controlled organisation income This section does not apply to income derived by— (a) (b) 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.
Deﬁned in this Act: amount, business, charitable purpose, council-controlled organisation, exempt income, income, local authority, trustee Compare: 1994 No 164 s CB 4(1)(c), (e), (3) Subsection (1)(a) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; and”.

Section CW 34(1B) heading: inserted, on 1 July 2008, by section 65 of the Charities Act 2005 (2005 No 39).
Section CW 34(1B): inserted, on 1 July 2008, by section 65 of the Charities Act 2005 (2005 No 39).

Section CW 34(3): substituted (with effect from 1 April 2005), on 19 December 2007, by section 23 of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
CW 35 Charities: business income Exempt income Income derived directly or indirectly from a business carried on by, or for, or for the beneﬁt of a trust, society, or institution of a kind referred to in section CW 34(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, registered as a charitable entity; 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.
(ab) (b) Exclusion This section does not apply to income derived by— (1) (2) 350 Reprinted as at 29 August 2011 Income Tax Act 2004 Part C s CW 35 (a) (b) 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.
(3) (4) (5) 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 either— (i) the person retains or reserves an interest in the asset; or the asset will revert to the person.
(ii) (b) (c) 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)(b) for a tax 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) 351 Part C s CW 35 Income Tax Act 2004 Reprinted as at 29 August 2011 (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).
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)(b), 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 relevant 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 trustee company; or are Public Trust; or are the Maori Trustee.
(ii) (iii) (iv) Beneﬁt or advantage For the purposes of subsection (1)(b), a beneﬁt or advantage to a person— (6) (7) (8) 352 Reprinted as at 29 August 2011 Income Tax Act 2004 Part C s CW 35 (a) may or may not be something that is convertible into (b) (c) (d) 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 21 (which relate to income from business or trade-like activities): section CB 28 (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): 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): (iii) (iv) (v) (vi) (vii) (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; and 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.
(9) 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)(b), the amount is trustee income.
Deﬁned in this Act: amount, associated person, business, charitable purpose, company, council-controlled organisation, director, exempt income, income, in- terest, local authority, money lent, New Zealand, shareholder, tax year, trustee, trustee company, trustee income Compare: 1994 No 164 s CB 4(1)(e), (3) Section CW 35(1)(ab): inserted, on 1 July 2008, by section 66 of the Charities Act 2005 (2005 No 39).
353 Part C s CW 36 Income Tax Act 2004 Reprinted as at 29 August 2011 Section CW 35(2): substituted (with effect from 1 April 2005), on 19 December 2007, by section 24 of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Subsection (8)(a), (b)(ix), and (c) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; and”.
Subsection (8)(b)(i) to (viii) was amended, as from 21 December 2004, by sec- tion 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; or”.

Subsection (8)(b)(v) was amended, as from 1 April 2005, by section 13(1) Taxa- tion (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) by substituting “Dividend” for “Income” with application as from the 2005–06 income year.
CW 36 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 in subsections (2) and (3) are met, having regard to all relevant matters including— (a) the terms of the deceased’s will, including the rights of annuitants, legatees, and other beneﬁciaries; and the nature and extent of the debts and liabilities of, and other charges against, the estate and their likely effect on the income and assets available for distribution to the beneﬁciaries; and the shares and prospective shares of the beneﬁciaries in the income and assets of the estate.
(b) (c) Gift to charity The ﬁrst requirement is that the amount arises from or is at- tributable to assets of the estate that have been left to a trust, society, or institution of a kind referred to in section CW 34(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 34 or CW 35.
(2) (3) 354 Reprinted as at 29 August 2011 Income Tax Act 2004 Part C s CW 37 (5) Registration as charitable entity not required until end of income year that follows income year in which deceased died (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, registered as a charitable entity.
For the purposes of subsection (4), until the end of the income year that follows the income year in which the deceased died, the requirements in sections CW 34 and CW 35 for the trustee or trustees of the trust, the society, or the institution to be regis- tered as a charitable entity must be disregarded when applying those sections for the purposes of this section.
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 in- come is derived, the trustee or trustees of the trust, the society, or the institution is not, or are not, registered as a charitable entity.
Deﬁned in this Act: amount, business, distribution, exempt income, income, New Zealand Compare: 1994 No 164 s CB 4(1)(d) (6) Section CW 36(4) heading: added, on 1 July 2008, by section 67 of the Charities Act 2005 (2005 No 39).

Section CW 36(4): added, on 1 July 2008, by section 67 of the Charities Act 2005 (2005 No 39).

Section CW 36(5): added, on 1 July 2008, by section 67 of the Charities Act 2005 (2005 No 39).
Section CW 36(6): added, on 1 July 2008, by section 67 of the Charities Act 2005 (2005 No 39).

CW 37 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 355 Part C s CW 38 Income Tax Act 2004 Reprinted as at 29 August 2011 (b) a company registered as an insurer under the Accident Insurance Act 1998.
Deﬁned in this Act: amount, business, company, exempt income, friendly so- ciety, income Compare: 1994 No 164 s CB 4(1)(a) CW 38 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) 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 and de facto partners and surviving dependants of de- ceased employees of the employer; and (iii) (b) (c) (d) 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, trustee Compare: 1994 No 164 s CB 5(1)(ib) Paragraph (a)(i) and (ii) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; and”.

Paragraph (a)(ii) was amended, as from 26 April 2005, by section 3(1) Income Tax Amendment Act 2005 (2005 No 11) by substituting “spouses, civil union partners” for “spouses”.
Paragraph (a)(ii) was amended, as from 1 April 2007, by section 3(2) Income Tax Amendment Act 2005 (2005 No 11) by substituting “spouses, civil union partners, de facto partners” for “spouses, civil union partners”.

Paragraph (a)(iii) was amended, as from 26 April 2005, by section 3(1) In- come Tax Amendment Act 2005 (2005 No 11) by substituting “spouses and civil union partners” for “spouses”.
Paragraph (a)(iii) was amended, as from 1 April 2007, by section 3(2) Income Tax Amendment Act 2005 (2005 No 11) by substituting “spouses, civil union partners and de facto partners” for “spouses and civil union partners”.
356 Reprinted as at 29 August 2011 Income Tax Act 2004 Part C s CW 40B CW 39 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: 1994 No 164 s CB 4(1)(h), (2) CW 40 TAB and racing clubs Exempt income: racing organisations (1) An amount of income derived by any of the following bodies is exempt income: the New Zealand Racing Board: (a) (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: 1994 No 164 s CB 4(1)(i), (2) Subsection (1)(a) to (c) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; or”.
CW 40B 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— 357 Part C s CW 41 Income Tax Act 2004 Reprinted as at 29 August 2011 (a) (b) 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.
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.

Section CW 40B was inserted, as from 3 April 2006, by section 27 Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).
CW 41 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— (a) 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.
(b) (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: 1994 No 164 ss CB 4(1)(b), (2), CK 4(2) CW 42 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 358 Reprinted as at 29 August 2011 Income Tax Act 2004 Part C s CW 45 (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.
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: 1994 No 164 s CB 4(1)(f), (2) CW 43 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 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) Deﬁned in this Act: amount, associated person, exempt income, income, New Zealand Compare: 1994 No 164 s CB 4(1)(g), (2) CW 44 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: 1994 No 164 s CB 4(1)(m) Income from certain activities CW 45 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 359 Part C s CW 45B Income Tax Act 2004 Reprinted as at 29 August 2011 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: 1994 No 164 s CB 14 CW 45B 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 2009.
(b) Some deﬁnitions In this section,— (2) 360 Reprinted as at 29 August 2011 Income Tax Act 2004 Part C s CW 47 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.

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 45B was inserted, as from 1 October 2005, by section 11 Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) with application as from the 2005–06 income year.
CW 46 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: 1994 No 164 s CB 15 CW 47 New Zealand companies operating in Niue Exempt income: income wholly or mainly from Niue (1) An amount of income derived in a tax year by a New Zealand company 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 tax year be a con- trolled foreign company.
361 Part C s CW 47 Income Tax Act 2004 Reprinted as at 29 August 2011 Exempt income: dividends (3) A dividend derived in a tax year from a New Zealand company 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 tax year; or a trustee of a trust of which a settlor or beneﬁciary is resident in New Zealand during the tax year.
(c) Exempt income: Niue development projects (4) An amount of income derived by a New Zealand company 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.
Exclusions Subsections (1), (3), and (4) do not apply to— (a) an amount of income derived from sources in New Zealand; or a dividend, to the extent to which it constitutes distribu- tion of an amount derived by the company from sources in New Zealand.

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 (b) (c) (d) (b) (5) (6) (7) 362 Reprinted as at 29 August 2011 Income Tax Act 2004 Part C s CW 49 purposes of this section if satisﬁed that the business or enter- prise— (a) has been or will be entered upon wholly or mainly for the purpose of developing Niue; or is or will be important in the development of Niue.
(b) Deﬁned in this Act: amount, attributed CFC income, business, company, con- trolled foreign company, dividend, exempt income, FIF, FIF rules, foreign com- pany, income, New Zealand company, resident in New Zealand, settlor, source in New Zealand, tax year, trustee Compare: 1994 No 164 s CB 8 CW 48 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 Compare: 1994 No 164 s CB 9(c), (ca) CW 49 Providing standard-cost household service An amount of income derived in an income year by a natural person from providing a standard-cost household service is exempt income if— (a) the amount income under a determin- ation made under section 91AA(2)(a) of the Tax Administration Act 1994: the person— (i) is exempt (b) may be treated, under a determination made under section 91AA of the Tax Administration Act 1994, as incurring an amount of costs that is greater than or equal to the amount of income; and in calculating the person’s income tax liability for the income year, elects to include in the tax- payer’s annual total deduction no amount that, in the absence of this paragraph, would be a de- (ii) 363 Part C s CW 49B Income Tax Act 2004 Reprinted as at 29 August 2011 duction incurred by the taxpayer in providing the standard-cost household service.
Deﬁned in this Act: amount, annual total deduction, exempt income, income, income tax liability, income year, standard-cost household service Section CW 49 was substituted, as from 1 October 2005, by section 175 Taxa- tion (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111).

CW 49B Interest paid under KiwiSaver Act 2006 Interest paid by the Commissioner under section 84 of the KiwiSaver Act 2006 is exempt income.
Section CW 49B was inserted, as from 1 December 2006, by section 231 Kiwi- Saver Act 2006 (2006 No 40).

See section 232 of that Act as to the transitional provision requiring all KiwiSaver contributions to be paid to the Commissioner in the ﬁrst 3 months.

See clause 2(2) KiwiSaver Act Commencement Order 2006 (SR 2006/357).
Income of, and distributions by, certain international funds Heading: inserted (with effect from 1 April 2005), on 19 December 2007, by section 25(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

CW 49C Income of certain international funds An amount of income derived by a person is exempt income if the person is— the trustee of the Niue International Trust Fund: (a) (b) the trustee of the Tokelau International Trust Fund.
Deﬁned in this Act: amount, exempt income, income, Niue International Trust Fund, Tokelau International Trust Fund trustee Section CW 49C: inserted (with effect from 1 April 2005), on 19 December 2007, by section 25(1) of the Taxation (Business Taxation and Remedial Mat- ters) Act 2007 (2007 No 109).
CW 49D Distributions by certain international funds An amount of income derived by a person is exempt income 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 364 Reprinted as at 29 August 2011 Income Tax Act 2004 Part C s CW 51 Section CW 49D: inserted (with effect from 1 April 2005), on 19 December 2007, by section 25(1) of the Taxation (Business Taxation and Remedial Mat- ters) Act 2007 (2007 No 109).
Income exempt under other Acts CW 50 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: 1994 No 164 s CB 9(e) Income exempt under Parts F to I CW 51 Exemption under Parts to be rewritten An amount of income is exempt income if it is exempt under a provision in any of Parts F to I. Deﬁned in this Act: amount, exempt income, income Compare: 1994 No 164 s BD 1(2)(a) Subpart CX—Excluded income Contents Goods and services tax Page 368 CX 1 GST KiwiSaver and complying superannuation fund tax credits CX 1B KiwiSaver and complying superannuation fund tax credits 368 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 6B 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 7 368 369 369 369 370 371 372 365 Income Tax Act 2004 Reprinted as at 29 August 2011 Subsidised transport CX 8 CX 9 Employment-related loans CX 10 Employment-related loans: loans by life insurers CX 11 Services for members of Parliament CX 12 Contributions to superannuation schemes CX 13 Contributions to sickness, accident, or death beneﬁt funds CX 14 Contributions to funeral trusts CX 15 Contributions to life or health insurance CX 16 Beneﬁts provided to employees who are shareholders or investors Exclusions and limitations CX 17 Beneﬁts provided instead of allowances CX 18 Beneﬁts to enable performance of duties CX 18B Business tools CX 19 Beneﬁts to non-executive directors CX 20 Beneﬁts provided on premises CX 20B Beneﬁts related to health or safety CX 21 Beneﬁts provided by charitable organisations CX 22 Non-liable payments CX 23 Assistance with tax returns CX 24 Accommodation CX 25 Entertainment CX 26 Distinctive work clothing CX 26B Contributions to income protection insurance CX 27 Services provided to superannuation fund CX 27B Goods provided at discount by third parties Deﬁnitions CX 28 Meaning of
 emergency call CX 29 Meaning of employee share loan CX 30 Meaning of private use CX 31 Meaning of unclassiﬁed beneﬁt CX 32 Meaning of work-related vehicle Insurance CX 33 Life insurers and fully reinsured persons CX 34 Superannuation fund deriving amount from life insurance policy CX 35 Resident insurance underwriters CX 36 Disposal of ownership interests in controlled petroleum 393 Petroleum mining mining entities 366 Reprinted as at 29 August 2011 Income Tax Act 2004 Part C s CW 51 CX 37 Farm-out arrangements for petroleum mining Mineral mining CX 38 Disposal of mining shares CX 39 Disposal of mining shares acquired with reinvestment proﬁt CX 40 Repayment of loans made from reinvestment proﬁt Government grants CX 41 Government grants to businesses CX 41B Amounts remitted as condition of new start grant Contributions to superannuation scheme or retirement savings scheme CX 42 Employer’s superannuation contributions CX 42B Contributions to retirement savings scheme CX 43 Income equalisation schemes Farming, forestry, or ﬁshing CX 43B Refund from environmental restoration account Environmental restoration CX 44 Credits for inﬂation-indexed instruments Inﬂation-indexed instruments CX 44B Share-lending collateral under share-lending Share-lending arrangements arrangements Portfolio investment entities CX 44C Proceeds from disposal of certain shares by portfolio investment entities or New Zealand Superannuation Fund CX 44D Portfolio investor allocated income and distributions of income by portfolio investment entities CX 44E Rebates of certain fees by portfolio tax rate entities CX 44F Issue of post-1989 forest land units CX 44G Disposal of pre-1990 forest land units Income excluded under Parts F to I CX 45 Exclusion under Parts to be rewritten 393 393 395 396 396 398 400 400 401 401 402 402 403 404 406 406 407 407 367 Part C s CX 1 Income Tax
 Act 2004 Reprinted as at 29 August 2011 Goods and services tax CX 1 GST The following are excluded income of a registered person: output tax on goods and services they supply: (a) (b) GST payable to them by the Commissioner.
Deﬁned in this Act: Commissioner, excluded income, goods, GST payable, output tax, registered person, services Compare: 1994 No 164 s ED 4(1), (3)(b), (g), (7) Paragraph (a) was amended, as from 21 December 2004, by section 270 Taxa- tion (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; and”.
KiwiSaver and complying superannuation fund tax credits This heading was inserted, as from 1 July 2007, by section 6 Taxation (Kiwi- Saver and Company Tax Rate Amendments) Act 2007 (2007 No 19).

CX 1B KiwiSaver and complying superannuation fund tax credits A payment by the Commissioner of an amount of a tax credit under subpart KJ (KiwiSaver scheme and complying super- annuation fund tax credits) is excluded income of the person deriving the payment.
Deﬁned in this Act: amount, Commissioner, excluded income Section CX 1B was inserted, as from 1 July 2007, by section 6 Taxation (Kiwi- Saver and Company Tax Rate Amendments) Act 2007 (2007 No 19).
Fringe beneﬁts Introductory provisions CX 2 Meaning of fringe beneﬁt Meaning (1) A fringe beneﬁt is a beneﬁt that— (a) (b) 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 8, CX 9, or CX 11 to CX 15; or is an unclassiﬁed beneﬁt; and (ii) 368 Reprinted as at 29 August 2011 Income Tax Act 2004 Part C s CX 5 (c) 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.

(3) (4) 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 ND Subpart ND (Fringe beneﬁt tax) deals with the calculation of the taxable value of fringe beneﬁts.

Deﬁned in this Act: arrangement, employee, employer, employment, fringe beneﬁt, unclassiﬁed beneﬁt Compare: 1994 No 164 ss CI 1, CI 2(1) CX 3 Excluded income A fringe beneﬁt is excluded income of the employee.
Deﬁned in this Act: employee, excluded income, fringe beneﬁt 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: 1994 No 164 s CI 1(o)(i) CX 5 Relationship with exempt income (1) 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— (2) 369 Part C s CX 6 Income Tax Act 2004 Reprinted as at 29 August 2011 (a) (b) a payment of a premium on a life insurance policy that is excluded from being expenditure on account of an employee under section CE 5(3)(f) to (i) (Meaning of expenditure on account of an employee): an allowance that is exempt income under section CW 13 (Expenditure on account, and reimbursement, of em- ployees) to the extent to which it is made to enable the employee to provide a beneﬁt to another person.
Exempt cash payment not fringe beneﬁt To the extent to which a beneﬁt that an employer provides to an employee in connection with their employment would have been exempt income if it had been paid in cash, the beneﬁt is not a fringe beneﬁt.

Exclusion Subsection (3) does not apply to interest, dividends, or an 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, premium Compare: 1994 No 164 s CI 1(o)(ii), (iii) Subsection (2)(a) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; or”.
(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.
370 Reprinted as at 29 August 2011 Income Tax Act 2004 Part C s CX 6B (2) (3) (4) (5) Exclusion: work-related vehicles Subsection (1) does not apply when the vehicle is a workre- lated vehicle.

Exclusion: emergency calls Subsection (1) does not apply when the vehicle is used for an emergency call.
Exclusion: absences from home Subsection (1) does not apply when the employee is absent from home, with the vehicle, for a period of at least 24 hours continuously, if the employee is required, in the performance of their duties, to use a vehicle and regularly to be absent from home.
Use on part of day For the purposes of subsections (3) and (4), the whole of the day on which a motor vehicle is used as described in the ap- plicable subsection is treated as a day on which the vehicle is not available for private use.
Deﬁned in this Act: emergency call, employee, fringe beneﬁt, lease, motor ve- hicle, private use, work-related vehicle Compare: 1994 No 164 ss CI 1(a), (b), CI 11(16), OB 1 private use or enjoy- ment Subsection (1)(b) was substituted, as from 1 April 2006, by section 28 Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).
CX 6B Employer or associated person treated as having right to use vehicle under arrangement (1) When this section applies This section applies for the application of the 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) 371 Part C s CX 7 Income Tax Act 2004 Reprinted as at 29 August 2011 (2) 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, lease, motor vehicle uses the vehicle privately: has a right to use the vehicle privately.
Section CX 6B was inserted, as from 1 April 2006, by section 29(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).

See section 29(2) of that Act as to the application of this amendment for a person and a period beginning as from 1 April 2006 for which the person or the person’s employer is required to forward a return to the Commissioner under subpart ND (Fringe beneﬁt tax).
CX 7 Private use of motor vehicle: use by more than 1 employee If, on any day, a motor vehicle is made available by an em- ployer for the private use of more than 1 employee, this avail- ability is treated as a single instance.

The taxable value of the fringe beneﬁt is reduced by the total amount of any contribu- tions paid by an employee or employees.
Deﬁned in this Act: amount, contribution, employee, employer, fringe beneﬁt, motor vehicle, private use Compare: 1994 No 164 s CI 2(4) CX 8 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: 1994 No 164 s CI 1(d) CX 9 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) as an employee share loan: under a share purchase scheme: by a superannuation fund to the extent to which the value of the loan constitutes income of the fund under (2) 372 Reprinted as at 29 August 2011 Income Tax Act 2004 Part C s CX 10 (d) section GD 6 (Value of loans provided by superannu- ation fund deemed to be income of fund): 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 subpart ND (Fringe beneﬁt tax), the total out- standing of such advances to the employee is not more than $2,000; and the contract of employment does not require the employer to make the advance.
(ii) (3) Loan owing The employer provides a fringe beneﬁt in a tax year in which the loan is owing.

The circumstances in which a loan is owing include a case in which, under the arrangement for the loan, an amount is payable in the future, or would be payable in the future if a particular event happened, and the employee or an associated person is or would be liable to pay the amount.
Deﬁned in this Act: amount, arrangement, associated person, employee, em- ployee share loan, employer, employment-related loan, fringe beneﬁt, income, share purchase scheme, superannuation fund, tax year Compare: 1994 No 164 ss CI 1(c), (i), (ia), (j), OB 1 owing Subsection (2)(a) and (b) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; or”.
Subsection (2)(c) was amended, as from 1 April 2006, by section 30(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by substituting “fund):” for “fund).”.

See section 29(2) of that Act as to the application of this amendment for a person and a period beginning as from 1 April 2006 for which the person or the person’s employer is required to forward a return to the Commissioner under subpart ND (Fringe beneﬁt tax).
Subsection (2)(d) was inserted, as from 1 April 2006, by section 30(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).

See section 29(2) of that Act as to the application of this amendment for a person and a period beginning as from 1 April 2006 for which the person or the person’s employer is required to forward a return to the Commissioner under subpart ND (Fringe beneﬁt tax).
CX 10 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— 373 Part C s CX 11 Income Tax Act 2004 Reprinted as at 29 August 2011 (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) (ii) a person associated with the life insurer: 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: 1994 No 164 s CI 2(8), (9) Subsection (3)(a) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; and”.
CX 11 Services for members of Parliament A fringe beneﬁt arises when travel, accommodation, attend- ance, and communications services are exempt income under section CW 25 (Services for members of Parliament).
Deﬁned in this Act: exempt income, fringe beneﬁt Compare: 1994 No 164 s CI 1(ga) 374 Reprinted as at 29 August 2011 Income Tax Act 2004 Part C s CX 15 CX 12 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.

(2) Exclusion This section does not apply if the contribution is a speciﬁed superannuation contribution.
Deﬁned in this Act: contribution, employee, employer, fringe beneﬁt, speciﬁed superannuation contribution, superannuation scheme Compare: 1994 No 164 s CI 1(g), (k) CX 13 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: 1994 No 164 s CI 1(e) CX 14 Contributions to funeral trusts A fringe beneﬁt arises when an employer makes a contribution to a fund in the circumstances described in section CW 38 (Funeral trusts).
Deﬁned in this Act: contribution, employer, fringe beneﬁt Compare: 1994 No 164 s CI 1(eb) CX 15 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) Exclusion This section does not apply to a premium or contribution de- scribed in section CZ 15 (Accident insurance contracts before 1 July 2000).
375 Part C s CX 15 Income Tax Act 2004 Reprinted as at 29 August 2011 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) (ii) 10 years; or 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 (b) (c) 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 (3) (4) (5) 376 Reprinted as at 29 August 2011 Income Tax Act 2004 Part C s CX 15 if it satisﬁed 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) (b) 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 the payment of the part of each bonus declared on the policy attributable to the part of the premiums described in subparagraph (i).
(ii) (6) 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, speciﬁed insurance premium, year Compare: 1994 No 164 ss CI 1(f), (ja), CI 3(8A), OB 1 policy of life insur- ance, policy of pension insurance, policy of personal accident or sickness insurance (b) Subsection (3) was amended, as from 26 April 2005, by section 3(1) Income Tax Amendment Act 2005 (2005 No 11) by substituting “spouse or civil union partner” for “spouse”.
Subsection (3) was amended, as from 1 April 2007, by section 3(2) Income Tax Amendment Act 2005 (2005 No 11) by substituting “spouse, civil union partner or de facto partner” for “spouse or civil union partner”.

Subsection (4) was amended, as from 26 April 2005, by section 3(1) Income Tax Amendment Act 2005 (2005 No 11) by substituting “spouse or civil union partner” for “spouse”.
Subsection (4) was amended, as from 1 April 2007, by section 3(2) Income Tax Amendment Act 2005 (2005 No 11) by substituting “spouse, civil union partner or de facto partner” for “spouse or civil union partner”.

377 Part C s CX 16 Income Tax Act 2004 Reprinted as at 29 August 2011 Subsection (5)(a) was amended, as from 26 April 2005, by section 3(1) Income Tax Amendment Act 2005 (2005 No 11) by substituting “spouse or civil union partner” for “spouse”.
Subsection (5)(a) was amended, as from 1 April 2007, by section 3(2) Income Tax Amendment Act 2005 (2005 No 11) by substituting “spouse, civil union partner or de facto partner” for “spouse or civil union partner”.

Subsection (5)(b)(i) was amended, as from 26 April 2005, by section 3(1) In- come Tax Amendment Act 2005 (2005 No 11) by substituting “spouse or civil union partner” for “spouse”.
Subsection (5)(b)(i) was amended, as from 1 April 2007, by section 3(2) Income Tax Amendment Act 2005 (2005 No 11) by substituting “spouse, civil union partner or de facto partner” for “spouse or civil union partner”.

Subsection (6)(a) was amended, as from 26 April 2005, by section 3(1) Income Tax Amendment Act 2005 (2005 No 11) by substituting “spouse or civil union partner” for “spouse”.
Subsection (6)(a) was amended, as from 1 April 2007, by section 3(2) Income Tax Amendment Act 2005 (2005 No 11) by substituting “spouse, civil union partner or de facto partner” for “spouse or civil union partner”.

Subsection (6)(b) was amended, as from 26 April 2005, by section 3(1) Income Tax Amendment Act 2005 (2005 No 11) by substituting “spouse or civil union partner” for “spouse”.
Subsection (6)(b) was amended, as from 1 April 2007, by section 3(2) Income Tax Amendment Act 2005 (2005 No 11) by substituting “spouse, civil union partner or de facto partner” for “spouse or civil union partner”.
CX 16 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.
378 Reprinted as at 29 August 2011 Exclusion Income Tax Act 2004 Part C s CX 17 (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.
(4) (5) Non-cash beneﬁts Subsection (2) applies to non-cash beneﬁts that would,— (a) if section CD 23 (Employee beneﬁts) did not exist, be dividends under section CD 3 (Transfers of value gener- ally) if provided to a person in their capacity as a share- holder; and if section CX 4 did not exist, be unclassiﬁed beneﬁts if provided to a person in their capacity as an employee.
(b) Notice of election The company or trustee must give notice to the Commissioner of the election referred to in subsection (2) within the time allowed for ﬁling a fringe beneﬁt tax return for the period in which the beneﬁt was provided.
Deﬁned in this Act: Commissioner, company, dividend, employee, employ- ment, FBT rules, fringe beneﬁt, fringe beneﬁt tax, group investment fund, in- vestor, non-executive director, notice, return, share, shareholder, trustee, un- classiﬁed beneﬁt Compare: 1994 No 164 ss CI 2(2), (3), CI 2A Section CX 16(4)(a): amended (with effect on 21 December 2004), on 7 Sep- tember 2010, by section 198(1) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
Subsection (4)(a) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; and”.
Exclusions and limitations CX 17 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,— 379 Part C s CX 17 Income Tax Act 2004 Reprinted as at 29 August 2011 (i) would have been exempt income under section CW 13 (Expenditure on account, and reimburse- ment, of employees); and (ii) would have been paid for reasons other than to enable the employee to provide a beneﬁt to an- other person; or an allowance that reimburses the employee for transport costs that— (i) would have been incurred both in connection with their employment and for the beneﬁt of the employer in travelling between home and work; and (ii) would have been attributable to any 1 or more of the factors set out in section CW 14(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 13B (Relocation pay- ments).
(b) (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 one 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, relative Compare: 1994 No 164 s CI 1(o)(iv), (v) The heading to subsection (1) was inserted, as from 1 April 2006, by section 31(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellan- eous Provisions) Act 2006 (2006 No 3).
See section 31(3) of that Act as to the 380 Reprinted as at 29 August 2011 Income Tax Act 2004 Part C s CX 18B application of this amendment for a person and a period beginning as from 1 April 2006 for which the person or the person’s employer is required to for- ward a return to the Commissioner under subpart ND (Fringe beneﬁt tax).
Section CX 17(1)(b)(ii): amended (with effect on 1 April 2005), on 6 October 2009, by section 749 of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section CX 17(1)(c): added (with effect on 1 April 2005), on 6 October 2009, by section 749 of the Taxation (International Taxation, Life Insurance, and Re- medial Matters) Act 2009 (2009 No 34).
Subsection (2) was inserted, as from 1 April 2006, by section 31(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).

See section 31(3) of that Act as to the application of this amendment for a person and a period beginning as from 1 April 2006 for which the person or the person’s employer is required to forward a return to the Commissioner under subpart ND (Fringe beneﬁt tax).
The list of deﬁned terms was amended, as from 1 April 2006, by section 31(2) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by adding the expression “, relative”.

See section 31(3) of that Act as to the application of this amendment for a person and a period beginning as from 1 April 2006 for which the person or the person’s employer is required to forward a return to the Commissioner under subpart ND (Fringe beneﬁt tax).
CX 18 Beneﬁts to enable performance of duties The taxable value of a beneﬁt that an employer provides to an employee by way of subsidised transport, or in the form of expenditure that an employer incurs on accommodation or transport provided to an employee, is zero if the expenditure— relates to travel by the employee in order for them to (a) perform their employment duties; and does not relate to the providing or taking of leave or a vacation; and is not increased as a result of the beneﬁt.
(c) Deﬁned in this Act: employee, employer, subsidised transport Compare: 1994 No 164 s CI 4(4) (b) CX 18B Business tools (1) When use of business tool not fringe beneﬁt The private use of a business tool that an employer provides to an employee, and the availability for private use of such a business tool, is not a fringe beneﬁt if— (a) the business tool is provided mainly for business use; and 381 Part C s CX 19 Income Tax Act 2004 Reprinted as at 29 August 2011 (2) (b) 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 not more than $5,000.
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 Section CX 18B was inserted, as from 1 April 2006, by section 32(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).
See section 32(2) of that Act as to the application of this amendment for a person and a period beginning as from 1 April 2006 for which the person or the person’s employer is required to forward a return to the Commissioner under subpart ND (Fringe beneﬁt tax).
CX 19 Beneﬁts to non-executive directors A transfer of value to a non-executive director that is a dividend under section CD 12(2) (Beneﬁts of shareholderemployees 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: 1994 No 164 s CI 1(na) CX 20 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 received or used by the employee on the premises of— (i) (ii) the employer: a company that is in the same group of companies as the employer: 382 Reprinted as at 29 August 2011 (b) Income Tax Act 2004 Part C s CX 20B provided to the employee by a company that is in the same group of companies as the employer of the em- ployee and received or used 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, employer’s premises, fringe beneﬁt, group of companies, lease Compare: 1994 No 164 s CI 1(q) Subsection (1) (excluding the heading) was substituted, as from 1 April 2006, by section 33(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).
See section 33(4) of that Act as to the application of this amendment for a person and a period beginning as from 1 April 2006 for which the person or the person’s employer is required to forward a return to the Commissioner under subpart ND (Fringe beneﬁt tax).

Subsection (2) was substituted, as from 1 April 2006, by section 33(2) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).
See section 33(4) of that Act as to the application of this amendment for a person and a period beginning as from 1 April 2006 for which the person or the person’s employer is required to forward a return to the Commissioner under subpart ND (Fringe beneﬁt tax).

The list of deﬁned terms was amended, as from 1 April 2006, by section 33(3) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by inserting “company” and “group of com- panies”.
See section 33(4) of that Act as to the application of this amendment for a person and a period beginning as from 1 April 2006 for which the person or the person’s employer is required to forward a return to the Commissioner under subpart ND (Fringe beneﬁt tax).
CX 20B 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 383 Part C s CX 21 Income Tax Act 2004 Reprinted as at 29 August 2011 (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 20 from being a fringe beneﬁt if provided on the employer’s premises.
Deﬁned in this Act: employee, employer, employment, fringe beneﬁt (c) Section CX 20B was inserted, as from 1 April 2006, by section 34(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).

See section 34(2) of that Act as to the application of this amendment for a person and a period beginning as from 1 April 2006 for which the person or the person’s employer is required to forward a return to the Commissioner under subpart ND (Fringe beneﬁt tax).
CX 21 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) 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 exceeds 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 (2) (3) 384 Reprinted as at 29 August 2011 (b) Income Tax Act 2004 Part C s CX 23 places the liability for some or all of the payment for the goods or services on the organisation; and is not a fringe beneﬁt under section CX 9.
(c) Deﬁned in this Act: business, charitable organisation, employee, employment, fringe beneﬁt Compare: 1994 No 164 s CI 1(m) The heading to subsection (1) was inserted, as from 1 April 2006, by section 35(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellan- eous Provisions) Act 2006 (2006 No 3).
See section 35(2) of that Act as to the application of this amendment for a person and a period beginning as from 1 April 2006 for which the person or the person’s employer is required to for- ward a return to the Commissioner under subpart ND (Fringe beneﬁt tax).

Subsections (2) and (3) were inserted, as from 1 April 2006, by section 35(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).
See section 35(2) of that Act as to the appli- cation of this amendment for a person and a period beginning as from 1 April 2006 for which the person or the person’s employer is required to forward a return to the Commissioner under subpart ND (Fringe beneﬁt tax).
CX 22 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 source deduction payments, all of which are not liable for income tax.
Deﬁned in this Act: employee, fringe beneﬁt, income tax, income year, quarter, source deduction payment Compare: 1994 No 164 s CI 1(n) CX 23 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: 1994 No 164 s CI 1(la) 385 Part C s CX 24 Income Tax Act 2004 Reprinted as at 29 August 2011 CX 24 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 Compare: 1994 No 164 s CI 1(p) Section CX 24: substituted (with effect on 1 April 2005), on 6 October 2009, by section 750(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

CX 25 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 not a fringe beneﬁt.
This subsection is overridden by sub- section (2).
When is fringe beneﬁt (2) A beneﬁt in a form of entertainment described in section DD 2 (Limitation rule) 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: 1994 No 164 s CI 1(r) CX 26 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.
386 Reprinted as at 29 August 2011 Income Tax Act 2004 Part C s CX 27 (2) Meaning of distinctive work clothing In this section, distinctive work clothing means clothing (in- cluding a single item of clothing) that— (a) is worn by an employee as, or as part of, a uniform that can be identiﬁed with the employer— (i) through the permanent and prominent display of a name, logo, or other identiﬁcation that the em- ployer regularly uses in carrying on their activity or undertaking; or because the colour scheme, pattern, or style is readily associated with the employer; and is worn in the course, or as an incident, of employment; and is not clothing that employees would normally wear for private purposes.
(ii) (b) (c) Deﬁned in this Act: distinctive work clothing, employee, employer, employ- ment, fringe beneﬁt Compare: 1994 No 164 ss CI 1(s), OB 1 distinctive work clothing CX 26B 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 Section CX 26B was inserted, as from 1 April 2006, by section 36(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).

See section 36(2) of that Act as to the application of this amendment for a person and a period beginning as from 1 April 2006 for which the person or the person’s employer is required to forward a return to the Commissioner under subpart ND (Fringe beneﬁt tax).
CX 27 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 387 Part C s CX 27B Income Tax Act 2004 Reprinted as at 29 August 2011 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: 1994 No 164 s CI 1(l) CX 27B Goods provided at discount by third parties (1) When this section applies This section applies if 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) (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 Section CX 26B was inserted, as from 1 April 2006, by section 37(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).
See section 37(2) of that Act as to the application of this amendment for a person and a period beginning as from 1 April 2006 for which the person or the person’s employer is required to forward a return to the Commissioner under subpart ND (Fringe beneﬁt tax).
CX 28 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— (b) 388 Reprinted as at 29 August 2011 Income Tax Act 2004 Part C s CX 29 (i) (ii) (iii) (iv) 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 (c) (d) the employer, their client or customer, or a member of the public requests the services; and except when paragraph (b)(iv) applies, the services are required to be performed between the hours of 6.00 pm and 6.00 am on days other than a Saturday, Sunday, or statutory public holiday, and at any time on other days.
Deﬁned in this Act: business, emergency call, employee, employer, employ- ment, local authority, public authority Compare: 1994 No 164 s OB 1 emergency call CX 29 Meaning of employee share loan (1) 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) 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 389 Part C s CX 30 Income Tax Act 2004 Reprinted as at 29 August 2011 (2) (e) 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, qualifying company, share Compare: 1994 No 164 s OB 1 employee share loan beneﬁt Subsections (1)(a)(i), and (2)(a) and (b) were amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; or”.
CX 30 Meaning of private use Private use, for a motor vehicle, includes— (a) the employee’s use of the vehicle for travel between home and work; and any other travel that confers a private beneﬁt on the em- ployee.
(b) Deﬁned in this Act: employee, motor vehicle, private use Compare: 1994 No 164 s OB 1 private use or enjoyment CX 31 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 15; and not a beneﬁt excluded under this subpart.
(b) Deﬁned in this Act: employee, employer, employment, fringe beneﬁt, unclas- siﬁed beneﬁt Compare: 1994 No 164 s CI 1(h) 390 Reprinted as at 29 August 2011 Income Tax Act 2004 Part C s CX 33 CX 32 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: motorcar Subsection (1) does not apply to a motorcar.

(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 other travel in the course of their employment during which the travel arises incidentally to the business use.
Deﬁned in this Act: business use, employee, employer, employment, motor vehicle, motorcar, work-related vehicle Compare: 1994 No 164 s OB 1 work related vehicle (b) Insurance CX 33 Life insurers and fully reinsured persons (1) Persons to whom this section applies The amounts described in subsection (2) are excluded income of— (a) (b) a life insurer: a person who is carrying on a business of providing life insurance but who is treated as not carrying on a business of providing life insurance because they have full reinsurance.
391 Part C s CX 34 Income Tax Act 2004 Reprinted as at 29 August 2011 (2) Excluded income The amounts are— (a) a premium derived by the life insurer or the person under a life insurance policy; or a claim receivable by the life insurer or the person under a life reinsurance policy.
(b) Deﬁned in this Act: amount, business, claim, excluded income, full reinsur- ance, life insurance, life insurance policy, life insurer, life reinsurance policy, premium Compare: 1994 No 164 ss CM 3, CM 12(c), (d) Subsection (1)(a) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; and”.
CX 34 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: 1994 No 164 s CL 2 CX 35 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) 392 Reprinted as at 29 August 2011 Income Tax Act 2004 Part C s CX 38 (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 section OE 4(1)(e) or (f) or (g) or (h) or (l) or (m) or (n) (Classes of income treated as having source in New Zealand).
Deﬁned in this Act: amount, business, excluded income, general insurance, income, insurance contract, New Zealand, payment, resident in New Zealand Compare: 1994 No 164 s CN 5 Petroleum mining CX 36 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: 1994 No 164 s CJ 6 CX 37 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: 1994 No 164 s CJ 4(1) CX 38 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 393 Part C s CX 38 Income Tax Act 2004 Reprinted as at 29 August 2011 (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, if this section did not exist, be income of the company under any of sections CB 1 to CB 4 (which relate to income from business or tradelike 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 within the prescribed period.
When subsection (4) applies Subsection (4) applies when— (a) (b) (c) (d) a mining company (seller) derives an amount from dis- posing of a mining share; and the disposal is to a mining company or to a mining hold- ing company (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) (Disposal of mining shares by company); and the excess amount would, if this section did not exist, be income of the seller under any of sections CB 1 to CB 4 (which relate to income from business or trade-like activities).
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: 1994 No 164 s DN 2(2) (2) (3) (4) 394 Reprinted as at 29 August 2011 Income Tax Act 2004 Part C s CX 39 CX 39 Disposal of mining shares acquired with reinvestment proﬁt (1) (2) (3) When subsection (2) applies Subsection (2) applies when— (a) 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, if this section did not exist, 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 within the prescribed period.
When subsection (4) applies Subsection (4) applies when— (a) a company (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 (buyer); and an amount of the reinvestment proﬁt of the seller 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, if this section did not exist, be income of the seller under section CU 14 (Recovery of reinvestment proﬁt on disposal of mining shares).
(b) (c) (b) (c) (d) (4) 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— (5) 395 Part C s CX 40 Income Tax Act 2004 Reprinted as at 29 August 2011 (a) (b) (c) (d) a company derives an amount from disposing of a min- ing share; and the disposal is of the kind described in section CU 20 (Mining company or mining holding company liqui- dated); and an amount of the reinvestment proﬁt of the company is used in calculating the deduction for the cost of the 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, if this section did not exist, be income of the company under section CU 14 (Recovery of reinvest- ment proﬁt on disposal of mining shares).
(6) Excluded income The amount that would be income is excluded income of the company to the extent to which it consists of mining shares.
Deﬁned in this Act: amount, company, deduction, excluded income, income, mining company, mining holding company, mining purposes, mining share, prescribed period, reinvestment proﬁt Compare: 1994 No 164 s DN 2(9) CX 40 Repayment of loans made from reinvestment proﬁt (1) (2) When this section applies This section applies when an amount would, if this section did not exist, 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 within the prescribed period.
Deﬁned in this Act: amount, company, excluded income, income, mining pur- poses, prescribed period Compare: 1994 No 164 s DN 2(6) Government grants CX 41 Government grants to businesses When this section applies This section applies when— (1) 396 Reprinted as at 29 August 2011 Income Tax Act 2004 Part C s CX 41 (a) (b) (c) (d) is in the nature of a grant or subsidy; or is a grant-related suspensory loan; and a local authority or a public authority makes a payment to a person for a business that the person carries on; and the payment— (i) (ii) the payment is not in the nature of an advance or loan; and the payment is made to the person in relation to— (i) expenditure that they incur and for which they would be allowed a deduction in the absence of section DF 1 (Government grants to businesses); or expenditure that they incur in acquiring, con- structing, installing, or extending an asset for which they have an amount of depreciation loss.
(ii) (2) (3) Excluded income The payment is excluded income of the person.

Exclusions This section does not apply to— (a) (b) a large budget screen production grant: a grant made under the Agriculture Recovery Pro- gramme for the Lower North Island and Eastern Bay of Plenty, to the extent that the grant relates to expend- iture— (i) (ii) incurred by the recipient before the grant; and for which the recipient would be allowed a de- duction in the absence of section DF 1.
Deﬁned in this Act: amount, business, deduction, depreciation loss, excluded income, grant-related suspensory loan, large budget screen production grant, local authority, public authority Compare: 1994 No 164 ss DC 1, DC 3(1) Section CX 41(1)(d)(i): amended (with effect on 1 April 2005), on 6 October 2009, by section 751(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Subsection (3) was substituted, as from 3 April 2006, by section 38(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) with application as from the income year corresponding to the 2005–06 tax year.

Section CX 41(3)(b)(ii): amended (with effect on 1 April 2005), on 6 October 2009, by section 751(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
397 Part C s CX 41B Income Tax Act 2004 Reprinted as at 29 August 2011 CX 41B Amounts remitted as condition of new start grant When this section applies This section applies if 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 a qualifying event; and the person in carrying on the business— (i) incurs a liability for expenditure or loss before the declaration of the state of emergency that relates to the qualifying event; and before the date that is 3 months after the end of the state of emergency, takes the liability into ac- count in calculating the person’s taxable income for an income year; and (ii) 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 state of emergency; and (ii) (b) (c) (d) (e) the amount of the remitted liability is income of the person under section CG 2 (Remitted amounts).
Excluded income The remitted liability is excluded income of the person to the extent that is the greater of zero and the amount calculated under the formula— remitted amount -- current loss -- available loss -- other loss Deﬁnition of items in formula In the formula— (a) remitted amount is the amount of the remitted liability: (1) (2) (3) 398 Reprinted as at 29 August 2011 Income Tax Act 2004 Part C s CX 41B (b) (c) (d) 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: available loss is the available net losses that are avail- able 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 satisﬁes subsection (4).
(ii) (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 from— (i) (ii) is, for the income year in which the liability is remit- ted,— (i) (ii) a net loss of the associated person: an available net loss for the associated person; and is included in the calculation in subsection (3) to an extent that the Commissioner determines, having regard to the interests of the associated person that are separate from those of the person.
(5) Notice to associated person The Commissioner must give to the associated person written notice of a determination under subsection (4)(d).
Deﬁned in this Act: business, capital limitation, deduction, diminished value, general limitation, general permission, income, income year, qualifying event 399 Part C s CX 42 Income Tax Act 2004 Reprinted as at 29 August 2011 Section CX 41B was inserted, as from 1 October 2005, by section 176 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111).
Contributions to superannuation scheme or retirement savings scheme Heading: substituted (with effect from 1 April 2007), on 19 December 2007, by section 26 of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

CX 42 Employer’s superannuation contributions An employer’s superannuation contribution is excluded in- come of— (a) the employee for whose beneﬁt the contribution is pro- vided; and the trustees of the superannuation scheme to whom the contribution is made.
(b) Deﬁned in this Act: employee, employer’s superannuation contribution, ex- cluded income, superannuation scheme, trustee Compare: 1994 No 164 ss CL 1, OB 1 monetary remuneration CX 42B Contributions to retirement savings scheme Excluded income (1) A retirement scheme contribution is excluded income of— (a) the person for whose beneﬁt the retirement scheme con- tribution is provided, to the extent to which the retire- ment scheme contribution is— (i) (ii) money: an amount of imputation credit or Maori author- ity credit that is used to meet the liability of the retirement scheme contributor for retirement scheme contribution withholding tax on the re- tirement scheme contribution: (b) the retirement savings scheme.
Exclusion Subsection (1)(a) does not apply if the person for whose bene- ﬁt the retirement scheme contribution is provided— (a) supplies to the retirement scheme contributor, or to the retirement savings scheme, a retirement scheme with- (2) 400 Reprinted as at 29 August 2011 Income Tax Act 2004 Part C s CX 43B holding rate that is less than the retirement scheme pre- scribed rate for the person: includes the retirement scheme contribution in a return of income for the income year in which the retirement scheme contribution is provided: is a non-resident and the retirement scheme contribution is non-resident withholding income.
(b) (c) Deﬁned in this Act: excluded income, income year, non-resident, non-resident withholding income, retirement savings scheme, retirement scheme contribu- tion, retirement scheme contributor, retirement scheme prescribed rate, retire- ment scheme withholding rate, return of income Section CX 42B: inserted (with effect from 1 April 2007), on 19 December 2007, by section 27 of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Farming, forestry, or ﬁshing CX 43 Income equalisation schemes A refund under section EH 8 (Refund of excess deposit), EH 43 (Refund of excess deposit), or EH 70 (Refund of excess deposit) is excluded income.
Deﬁned in this Act: excluded income Compare: 1994 No 164 ss EI 1(4), EI 11(4), EI 17(2) Environmental restoration This heading was inserted, as from 1 October 2005, by section 12(1) Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) with application for a refund made to a person in an income year starting on or after 10 June 2005.
CX 43B 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.

Section CX 43B was inserted, as from 1 October 2005, by section 12(1) Taxa- tion (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) with application for a refund made to a person in an income year starting on or after 10 June 2005.
Section CX 43B was amended, as from 1 October 2005, by section 14(1) Taxa- tion (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) by omitting “, or after earlier payment or request for refund” with application for expenditure incurred by a person in an income year starting on or after 10 June 2005.
401 Part C s CX 44 Income Tax Act 2004 Reprinted as at 29 August 2011 Inﬂation-indexed instruments CX 44 Credits for inﬂation-indexed instruments (1) 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) (2) Excluded income The credit is excluded income of the lender.

Deﬁned in this Act: amount, excluded income, money lent, New Zealand, pay Compare: 1994 No 164 s EB 5(1) Share-lending arrangements This heading was inserted, as from 1 July 2006, by section 39 Taxation (Depre- ciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).
CX 44B 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 Section CX 44B was inserted, as from 1 July 2006, by section 39 Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).
Portfolio investment entities Heading: inserted, on 1 October 2007, by section 15 of the Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81).
402 Reprinted as at 29 August 2011 Income Tax Act 2004 Part C s CX 44C CX 44C Proceeds from disposal of certain shares by portfolio investment entities or New Zealand Superannuation Fund (1) When this section applies This section applies to income derived by a portfolio invest- ment entity or by a life insurer, in relation to that part of the life insurer that is a portfolio investment-linked life fund, or the New Zealand Superannuation Fund from the disposal of a share if— (a) (ii) the share is issued by a company resident in New Zealand and not treated under a double tax agreement as not being resident in New Zealand or by a company— resident in Australia and not treated as being resi- (i) dent in a country other than Australia in an agree- ment between Australia and another country that would be a double tax agreement if the agreement were negotiated between New Zealand and the other country; and included in an index that is an approved index under the ASX Market Rules, made under Chap- ter 7 of the Corporations Act 2001 (Aust); and required under the Income Tax Assessment Act 1997 (Aust) and Income Tax Assessment Act 1936 (Aust) to maintain a franking account; and the share is not a non-participating redeemable share; and the entity disposing of the share is not assured, under an arrangement entered with another person when the share is acquired, of having a gain on the disposal.
(iii) (b) (c) (2) Excluded income The income is excluded income of the portfolio investment entity or the New Zealand Superannuation Fund.
Deﬁned in this Act: amount, arrangement, company, dividend, double tax agreement, excluded income, income, non-participating redeemable share, portfolio investment entity, portfolio investment-linked life fund resident, resident in Australia, resident in New Zealand, share Section CX 44C: inserted, on 1 October 2007, by section 15 of the Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81).
Section CX 44C heading: amended, on 1 October 2007, by section 7(1) of the Taxation (KiwiSaver and Company Tax Rate Amendments) Act 2007 (2007 No 19).

403 Part C s CX 44D Income Tax Act 2004 Reprinted as at 29 August 2011 Section CX 44C(1): amended (with effect from 1 October 2007), on 19 Decem- ber 2007, by section 28(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section CX 44C(1): amended, on 1 October 2007, by section 7(2) of the Taxa- tion (KiwiSaver and Company Tax Rate Amendments) Act 2007 (2007 No 19).

Section CX 44C(1)(a)(i): substituted (with effect from 1 October 2007), on 19 December 2007, by section 28(2) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section CX 44C(1)(b): amended (with effect from 1 October 2007), on 19 De- cember 2007, by section 28(3) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section CX 44C(1)(c): added (with effect from 1 October 2007), on 19 Decem- ber 2007, by section 28(3) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section CX 44C(2): amended, on 1 October 2007, by section 7(3) of the Taxa- tion (KiwiSaver and Company Tax Rate Amendments) Act 2007 (2007 No 19).

Section CX 44C list of deﬁned terms portfolio investment-linked life fund: inserted (with effect from 1 October 2007), on 19 December 2007, by section 28(4) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
CX 44D Portfolio investor allocated income and distributions of income by portfolio investment entities (b) Portfolio investor allocated income Portfolio investor allocated income derived under section CP 1 (Portfolio investor allocated income) in a portfolio calculation period in an income year by an investor in a portfolio tax rate entity is excluded income of the investor if— (a) the prescribed investor rate for the investor and the port- folio calculation period is more than zero; and the prescribed investor rate for the investor and the port- folio calculation period is not more than the portfolio investor rate for the investor and the portfolio calcula- tion period when the entity calculates in relation to the portfolio investor allocated income— (i) (ii) the portfolio entity tax liability of the entity; or the amount of a payment under section HL 23B (Optional payments of tax by portfolio tax rate entities) that the entity intends to be a ﬁnal pay- ment of the portfolio entity tax liability of the en- tity in relation to the portfolio investor allocated income; and (1) 404 Reprinted as at 29 August 2011 (c) Income Tax Act 2004 Part C s CX 44D for a portfolio tax rate entity making payments of tax under section HL 21 (Payments of tax by portfolio tax rate entity making no election), the portfolio investor allocated income is not allocated to a portfolio alloca- tion period that includes part of a portfolio investor exit period for the investor.
Distribution of income by portfolio tax rate entity (2) An amount of income derived by an investor as a distribution or dividend of a portfolio tax rate entity is excluded income of the investor.
Distribution by portfolio investment entity that is not portfolio tax rate entity (3) An amount of income derived in an income year by an investor as a distribution or dividend of a portfolio listed company is— excluded income of the investor, if the investor is a resi- (a) dent who— (i) (ii) is a natural person or a trustee; and does not include the distribution as income in a return of income for the income year: (b) excluded income of the investor, if paragraph (a) does not apply, to the extent to which the amount of the dis- tribution exceeds the total of the following: (i) the amount of the distribution that is fully im- puted, as that term is deﬁned in section NG 2(3) (Non-resident withholding tax imposed): the amount of the distribution that is fully divi- dend withholding payment credited, as that term is deﬁned in section NG 2(4).
(ii) Deﬁned in this Act: amount, distribution, excluded income, income, income year, investor, New Zealand resident, portfolio investment entity, portfolio in- vestor allocated income, portfolio investor exit period, portfolio investor rate, portfolio listed company, portfolio tax rate entity, prescribed investor rate, re- turn of income, zero-rated portfolio investor Section CX 44D: inserted, on 1 October 2007, by section 15 of the Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81).
Section CX 44D heading: amended, on 1 October 2007, by section 8(1) of the Taxation (KiwiSaver and Company Tax Rate Amendments) Act 2007 (2007 No 19).

Section CX 44D(1) heading: substituted (with effect from 1 October 2007), on 19 December 2007, by section 29(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
405 Part C s CX 44E Income Tax Act 2004 Reprinted as at 29 August 2011 Section CX 44D(1): substituted (with effect from 1 October 2007), on 19 De- cember 2007, by section 29(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section CX 44D(2): amended (with effect from 1 October 2007), on 19 Decem- ber 2007, by section 29(2) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section CX 44D(3): amended (with effect from 1 October 2007), on 19 Decem- ber 2007, by section 29(3) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section CX 44D(3)(a)(i): substituted (with effect from 1 October 2007), on 19 December 2007, by section 29(4) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section CX 44D(3)(a)(i): substituted, on 1 October 2007, by section 8(2) of the Taxation (KiwiSaver and Company Tax Rate Amendments) Act 2007 (2007 No 19).

Section CX 44D(3)(b): substituted, on 1 October 2007, by section 8(3) of the Taxation (KiwiSaver and Company Tax Rate Amendments) Act 2007 (2007 No 19).
CX 44E Rebates of certain fees by portfolio tax rate entities A rebate of fees allocated to an investor as a member of a port- folio investor class by a portfolio tax rate entity is excluded in- come of the investor if the rebate is included in the calculation of the entity’s portfolio entity tax liability under section HL 20 (Portfolio entity tax liability and rebates of portfolio tax rate entity for period) for the investor, the portfolio investor class, and a portfolio calculation period.
Deﬁned in this Act: excluded income, investor, portfolio calculation period, portfolio entity tax liability, portfolio investor class, portfolio tax rate entity CX 44E: inserted, on 1 October 2007, by section 9 of the Taxation (KiwiSaver and Company Tax Rate Amendments) Act 2007 (2007 No 19).
Emissions units under Climate Change Response Act 2002 Heading: inserted (with effect on 26 September 2008), on 6 October 2009, by section 752 of the Taxation (International Taxation, Life Insurance, and Remed- ial Matters) Act 2009 (2009 No 34).

CX 44F Issue of post-1989 forest land units When this section applies This section applies when a person is issued a post-1989 forest land unit.
(1) 406 Reprinted as at 29 August 2011 Income Tax Act 2004 Part C s CX 45 Excluded income (2) An amount of income derived by the person from the issue is excluded income, if the person is treated as deriving an amount of income from the issue.

Deﬁned in this Act: amount, excluded income, income, post-1989 forest land unit Section CX 44F: inserted, on 26 September 2008, by section 60 of the Climate Change Response (Emissions Trading) Amendment Act 2008 (2008 No 85).
CX 44G Disposal of pre-1990 forest land units (1) Who this section applies to This section applies to a person who disposes of a pre-1990 forest land 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 unit relates.
Deﬁned in this Act: amount, excluded income, income, pre-1990 forest land, pre-1990 forest land unit, surrender Section CX 44G: inserted (with effect on 26 September 2008), on 6 October 2009, by section 753 of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Income excluded under Parts F to I CX 45 Exclusion under Parts to be rewritten An amount of income is excluded income if it is excluded under a provision in any of Parts F to I. Deﬁned in this Act: amount, excluded income, income Compare: 1994 No 164 s BD 1(2)(b) Subpart CY—Income under Parts F to I Contents CY 1 Amounts that are income under Parts to be rewritten Page 408 407 Part C s CY 1 Income Tax Act 2004 Reprinted as at 29 August 2011 CY 1 Amounts that are income under Parts to be rewritten Start here An amount is income of a person if it is their income under a provision in any of Parts F to I. Deﬁned in this Act: amount, income Compare: 1994 No 164 s BD 1(1) 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 to 1992 Page 409 409 410 412 412 413 414 415 415 CZ 10 Transitional relief for calculation of attributed repatriation 416 dividends: 2 July 1992 CZ 11 Recovery of deductions for software acquired before 1 April 1993 CZ 12 General insurance with risk period straddling1 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 417 418 418 419 420 420 420 421 CZ 19 Community trust receipts in 2004-05 or 2005-06 tax year 422
 408 Reprinted as at 29 August 2011 Income Tax Act 2004 Part C s CZ 2 CZ 20 Geothermal wells between 31 March 2003 and 17 May 422 2006 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: 1994 No 164 s CH 2(1) CZ 2 Mining company’s 1970-71 tax year (1) (2) When this section applies This section applies when— (a) section 152 or 153 of the Land and Income Tax Act 1954 (as in force before the commencement of section 153F of the Act) applied to a mining company for the 1970-71 tax year; and the company acquires an asset by incurring the explor- ation expenditure or development expenditure referred to in section 27(3)(a) of the Land and Income Tax Amendment Act 1971.
(b) Application of subpart CU The provisions of subpart CU (Income from mineral mining) apply, with any necessary modiﬁcations, as follows: (a) section CU 3 (Disposal of assets) applies to the com- pany as if every reference in the section to an asset in- cluded a reference to an asset of the kind described in subsection (1)(b) that the company disposes of in the 1971-72 tax year or a later tax year: section CU 3 (Disposal of assets) applies to a person who acquires an asset of the kind described in subsec- tion (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 acquires 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 (b) (c) 409 Part C s CZ 3 Income Tax Act 2004 Reprinted as at 29 August 2011 (3) 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.
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: 1994 No 164 ss DN 1(15)(b), DN 4(6), DN 5(2)(b) Subsection (2)(a) and (b) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; and”.
CZ 3 Exchange variations on 8 August 1975 When this section applies This section applies when— (a) a person carrying on a business in New Zealand— (i) receives a loan in 2 or more instalments for the purposes of the business; or (ii) makes a loan in 2 or more instalments in the course of carrying on the business; and (b) (c) an exchange variation arises in relation to the whole or partial repayment of the loan; and the person derives an amount or incurs a loss through the exchange variation.
Income or deduction The amount derived is income of the person and the loss in- curred is a deduction that they are allowed.

Instalments and repayments For the purposes of this section, unless the terms of the loan expressly provide otherwise,— (a) (b) each instalment is treated as a separate loan; and repayments are applied so that the separate loans are repaid in the order in which they were received.
(1) (2) (3) 410 Reprinted as at 29 August 2011 Income Tax Act 2004 Part C s CZ 3 (4) (5) 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 (b) (ii) was lent in a currency other than New Zealand currency; and (iii) was expressed to be repayable in a currency other than New Zealand currency: for money lent, by a person, on or after 1 January 1974 and on or before 22 January 1985, money that— (i) was lent with the consent of the Reserve Bank under the Exchange Control Regulations 1978 if required; and (ii) was expressed to be repayable in a currency other than New Zealand currency: (c) for money lent, to a person, on or after 23 January 1985, money that— 411 Part C s CZ 4 Income Tax Act 2004 Reprinted as at 29 August 2011 (i) (ii) 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: (d) in relation to money lent, by a person, on or after 23 January 1985, money that is expressed to be repayable in a currency other than New Zealand currency.
Deﬁned in this Act: amount, business, deduction, exchange variation, ﬁnan- cial arrangement, ﬁnancial arrangements rules, income, loan, money lent, New Zealand Compare: 1994 No 164 s CZ 1(1), (2), (4), (5) Subsection (5)(a)(iii), (b)(ii) and (c)(ii) relating to the deﬁnition loan was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; and”.
CZ 4 Mineral mining: company making loan before 1 April 1979 (1) (2) Application of this section This section applies if sections CU 17 to CU 19 (which relate to the repayment by a mining company of an amount written 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: 1994 No 164 s DN 3(11) 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 412 Reprinted as at 29 August 2011 Income Tax Act 2004 Part C s CZ 6 (2) (b) 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.
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, debentures, exempt income, income tax, interest, local authority, money lent, New Zealand, non-resident, pay, pub- lic authority Compare: 1994 No 164 ss CB 2(5), CZ 2 CZ 6 Commercial bills before 31 July 1986 (1) (2) (3) 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, matrimonial agreement Compare: 1994 No 164 s CE 3 Subsection (2) was amended, as from 26 April 2005, by section 3(1) Income Tax Amendment Act 2005 (2005 No 11) by substituting “relationship agreement” for “matrimonial agreement”.
Subsection (3) was repealed, as from 1 October 2005, by section 13 Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) with application as from the 2005–06 income year.
413 Part C s CZ 7 Income Tax Act 2004 Reprinted as at 29 August 2011 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 or a previous 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 or a previous 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) 414 Reprinted as at 29 August 2011 Income Tax Act 2004 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, primary producer co-operative company, section 200, share, share- holder, slice rule Compare: 1994 No 164 s CK 3 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: 1994 No 164 s CJ 4(2) CZ 9 Available capital distribution amount: 1965 and 1985 to 1992 (1) Section CD 33(7)(e) For the purposes of section CD 33(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 415 Part C s CZ 10 Income Tax Act 2004 Reprinted as at 29 August 2011 (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 or section EZ 2 of the Income Tax Act 1994.
(2) Section CD 33(14)(b) For the purposes of section CD 33(14)(b) (Available capital distribution amount),— (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: 1994 No 164 ss CF 3(6), OB 1 capital gain amount (b) CZ 10 Transitional relief for calculation of attributed repatriation dividends: 2 July 1992 Loans made by CFC to intermediary before 2 July 1992 Subsection (2) applies for the purposes of calculating at- tributed repatriation from a 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 (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 GC 8 (Arrangement to defeat application of CFC attributed repatriation provisions); and the New Zealand resident associated person repays the intermediary and the intermediary repays the CFC; and (b) (c) (d) (1) 416 Reprinted as at 29 August 2011 Income Tax Act 2004 Part C s CZ 11 (2) (3) (4) (e) the CFC uses the proceeds to make a loan directly to the New Zealand resident associated person.
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) 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, ﬁnancial arrangement, New Zealand, New Zealand resident Compare: 1994 No 164 s CG 8(9), (12) 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.

417 Part C s CZ 12 Income Tax Act 2004 Reprinted as at 29 August 2011 (3) Relationship with sections EE 37 to EE 44 and EZ 19 Sections EE 37 to EE 44 (which relate to disposals and similar events) apply to the item.

Section EZ 19 (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: 1994 No 164 s EG 19(1)(a)(ii) Subsection (1)(a) and (b) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; or”.
CZ 12 General insurance with risk period straddling1 July 1993 (1) 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 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.
(b) (c) 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: 1994 No 164 s CZ 6(d)(i)-(iii), (vi), (vii) 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 418 Reprinted as at 29 August 2011 Income Tax Act 2004 Part C s CZ 14 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 OB 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 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: 1994 No 164 s CZ 4(3)-(5) 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 14(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 14(4) (Returns of capital: off-market share cancellations),— (a) subsection (2) does not apply to the interest; and 419 Part C s CZ 15 Income Tax Act 2004 Reprinted as at 29 August 2011 (b) section CD 14(2) applies to the interest on and after 1 April 1999.
Deﬁned in this Act: dividend, group investment fund, interest, superannuation fund, trustee Compare: 1994 No 164 ss CZ 4A(1), (2), CZ 4B(1), (2) Subsection (3)(a) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; and”.
CZ 15 Accident insurance contracts before 1 July 2000 A premium or contribution referred to in section CX 15(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 the Act applied, to the extent to which it related to cover and entitlements for workre- lated personal injury, that was in force before 1 July 2000.
(b) Deﬁned in this Act: contribution Compare: 1994 No 164 s CI 1(ja) CZ 16 Interest payable to exiting company: 2001 Interest payable under schedule 4, clause 12 of the Dairy Industry Restructuring Act 2001 to an exiting company (as deﬁned 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 exempt income.
Deﬁned in this Act: exempt income, interest, pay Compare: 1994 No 164 s CB 1(1)(d) CZ 17 Dividend of exiting company: 2001 If an exiting company (as deﬁned in section 5 of the Dairy Industry Restructuring Act 2001) derives a dividend as a re- sult of a buy-out of the company’s interests in the New Zealand 420 Reprinted as at 29 August 2011 Income Tax Act 2004 Part C s CZ 18 Dairy Board under schedule 4 of the Act, the dividend is ex- empt income.
Deﬁned in this Act: dividend, exempt income Compare: 1994 No 164 s CB 10(6) CZ 18 Beneﬁt provider approved within 6 months of 25 November 2003 (1) When this section applies This section applies when a person (provider)— (a) (b) (c) (d) 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 (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— (i) within the 6 months starting on 25 November 2003; or (ii) (ii) within a further period allowed by the Commis- sioner, if the provider satisﬁes the Commissioner that the provider was not aware of the require- ment for the Commissioner’s approval in sufﬁ- cient time to obtain the approval under subpara- graph (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— 421 Part C s CZ 19 Income Tax Act 2004 Reprinted as at 29 August 2011 (i) (ii) (iii) (iv) a beneﬁciary of the trust for which the provider is the trustee; or a member of the provider; or a member of an organisation that directly or in- directly controls the provider; or a relative of a person described in any of subpara- graphs (i) to (iii).
Deﬁned in this Act: amount, business, Commissioner, exempt income, life in- surance, relative, sickness, accident, or death beneﬁt fund, trustee Compare: 1994 No 164 s CB 4(1)(ab) 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 34 (Charities: non-business income) or CW 35 (Char- ities: business income) but for the trustee or company making a dividend, distribution, or settlement to a com- munity trust in the 2004-05 or 2005-06 tax year on the winding up of the trust or company; and either— (i) the corpus of the trust was provided by the com- munity trust; or the company is wholly owned by the community trust.
(ii) (b) Deﬁned in this Act: amount, community trust, company, corpus, dividend, ex- empt income, income, tax year, trustee Compare: 1994 No 164 s CB 4(1)(n) CZ 20 Geothermal wells between 31 March 2003 and 17 May 2006 When this section applies This section applies to a person’s geothermal well, if— (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) (b) the person— (1) 422 Reprinted as at 29 August 2011 Income Tax Act 2004 Part C s CZ 20 (i) (ii) uses the well, or has the well available for use, after the end of the well’s geothermal energy proving period, in deriving assessable income or carrying on a business for the purpose of deriving assessable income: disposes of the well.
(2) Income The person has, for the ﬁrst income year in which this section applies, income equal to,— (a) (b) if subsection (1)(b)(i) applies, the total amount of de- ductions that the person is allowed for the well under section DZ 7 of the Income Tax Act 1994 and section DZ 15 (Geothermal wells between 31 March 2003 and 17 May 2006) for all income years; or if subsection (1)(b)(ii) applies, the lesser of— (i) 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 and section DZ 15 for all income years.
(ii) Deﬁned in this Act: amount, business, deduction, dispose, geothermal energy proving period, geothermal well, income, income year .

Section CZ 20 was inserted, as from 1 April 2005, by section 16(1) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) with application as from the 2005–06 income year.
Part D Deductions Contents Subpart DA—General rules DA 1 General Permission DA 2 General limitations DA 3 Effect of speciﬁc rules on general rules DA 4 Treatment of amount of depreciation loss Page 432 433 434 435 423 Income Tax Act 2004 Reprinted as at 29 August 2011 Subpart DB—Speciﬁc rules for expenditure types Taxes and other amounts DB 1 Taxes, other than GST, and penalties DB 2 GST DB 3 Determining tax liabilities DB 3B Use of money interest DB 4 Chatham Islands dues 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 438 439 440 442 443 443 444 444 445 DB 8B Interest or expenditure connected to stapled debt security 446 Financial arrangements adjustments DB 9 Negative base price adjustment DB 9B Base price adjustment under old ﬁnancial arrangements rules DB 10 Repayment of debt sold at discount to associate of debtor DB 11 Security payment DB 12 Sureties DB 12B Share-lending collateral under share-lending Share-lending arrangements arrangements DB 12C Replacement payments and imputation credits under share-lending arrangements Premises or land costs DB 13 Transaction costs: leases DB 13B Expenses of failed or withdrawn application for resource consent DB 14 Destruction of temporary building DB 15 Amounts paid for non-compliance with covenant for repair DB 16 Amounts paid for non-compliance and change in use Revenue account property DB 17 Cost of revenue account property DB 18 Share losses DB 19 Amount from proﬁt-making undertaking or scheme and not already in income 447 447 448 448 449 449 450 450 451 451 452 453 454 455 457 424 Reprinted as at 29 August 2011 Income Tax Act 2004 Part C s CZ 20 DB 20 Amount from major development or division and not already in income DB 21 Amount from land affected by change and not already in income DB 22 Cost of non-speciﬁed mineral DB 23 Bad debts DB 24 Bad debts owed to estates Bad debts
 Research and development DB 25 Scientiﬁc research DB 26 Research or development DB 27 Some deﬁnitions DB 28 Patent expenses DB 28B Expenses of failed or withdrawn patent application DB 29 Patent rights: devising patented inventions DB 30 Patent rights acquired before 1 April 1993 DB 31 Patent applications or patent rights acquired on or after 1 April 1993 DB 32 Gifts of money by company Marketing Theft and bribery DB 33 Property misappropriated by employees or service providers DB 34 Making good loss from misappropriation by partners DB 35 Restitution of stolen property DB 36 Bribes paid to public ofﬁcials 457 458 459 460 462 463 464 467 469 469 470 471 471 473 474 475 476 476 DB 37 Avoiding, remedying, or mitigating effects of discharge 478 Pollution control of contaminant DB 38 Payments for remitted amounts DB 39 Restrictive covenant breached Repayments 481 481 Matching rules: revenue account property, prepayments, and deferred payments DB 40 Adjustment for opening values of trading stock, livestock, 482 and excepted ﬁnancial arrangements DB 41 Adjustment for prepayments DB 42 Adjustment for deferred payment of employment income 484 484 425 Income Tax Act 2004 Reprinted as at 29 August 2011 Change to accounting practice DB 43 Adjustment for change to accounting practice DB 43B Certain investors have deduction for portfolio investor Portfolio investment entities allocated loss DB 43C Certain fees charged by portfolio tax rate entities to investors not allowed as deductions Exempt income DB 44 Expenditure incurred in deriving exempt dividend Use of motor vehicle under certain arrangements DB 45 Expenditure incurred in operating motor vehicle under agreement or arrangement affected by section CX 6B Emissions trading scheme DB 46 Acquisition of ETS units DB 46B Liabilities for emissions DB 47 Surrender of pre-1990 forest land units for post-1989 forest land deforestation Subpart DC—Employee or contractor expenditure Pension payments to former employees Pension
 payments to former partners Payments to working partners DC 1 Lump sum payments on retirement DC 2 DC 3 DC 4 DC 5 Contributions to employees’ beneﬁt funds DC 6 Contributions to employees’ superannuation schemes DC 7 Attribution of personal services DC 8 Restrictive covenants or exit inducements DC 9 Sale of business: transferred employment income obligations DC 10 Transfers of employment income obligations to associates DC 11 Loans to employees under share purchase schemes DC 12 Criteria for approval of share purchase schemes: before period of restriction ends DC 13 Criteria for approval of share purchase schemes: when period of restriction ends DC 14 Some deﬁnitions Subpart DD—Entertainment expenditure DD 1 Entertainment expenditure generally DD 2 Limitation rule 426 485 485 486 487 488 489 490 490 491 492 494 496 497 497 498 498 499 501 501 502 504 506 508 508 Reprinted as at 29 August 2011 Income Tax Act 2004 Part C s CZ 20 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 FBT 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 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 Payment by claimant receiving personal service rehabilitation payment DF 4 Subpart DN—Attributed losses from foreign equity Attributed controlled foreign company loss DN 1 Attributed controlled foreign company loss DN 2 When attributed CFC loss arises DN 3 Calculation of attributed CFC loss 510 510 512 513 513 513 513 514 514 516 516 519 519 520 520 521 521 522 523 523 524 524 526 527 527 529 529 530 427 Income Tax Act 2004 Reprinted as at 29 August 2011 DN 4 Ring-fencing cap on deduction Foreign investment fund 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: not branch equivalent method [Repealed] 530 531 532 537 537 DN 9 Ring-fencing cap on deduction: branch equivalent method 537 Subpart DO—Farming and aquacultural business expenditure Farming DO 1 Enhancements to land, except trees DO 2 Erosion and shelter plantings DO 3 Trees on farms DO 4 DO 4B Expenditure on land: planting of listed horticultural Improvements to farm land plants DO 4C Expenditure on land: horticultural replacement planting DO 4D Accounting for expenditure on listed horticultural plants under sections DO 4B and DO 4C DO 4E Some deﬁnitions DO 5 Farming or horticulture expenditure of lessor or sublessor DO 5B Improvement destroyed or made useless DO 6 DO 7 Improvements to aquacultural business Improvement destroyed or made useless Aquaculture Subpart DP—Forestry expenditure Expenditure of forestry business DP 1 Plant or machinery DP 2 Improvements to forestry land DP 3 DP 3B Improvement destroyed or made useless DP 4 DP 5 DP 6 DP 7 Forestry encouragement agreement: deductions Forestry encouragement agreement: no deduction Land contouring: no deduction Forestry business on land bought from Crown, Maori owners, or holding company: no deduction DP 8 Cost of acquiring timber: forestry business on land bought from Crown, Maori owners, or holding company DP 8B Treaty of Waitangi claim settlements: rights to take
 timber 539 540 540 541 543 546 548 549 549 550 551 553 554 556 557 558 559 560 561 561 562 563 428 Reprinted as at 29 August 2011 Income Tax Act 2004 Part C s CZ 20 DP 9 Cost of acquiring timber or right to take timber: other cases DP 10 Cost of timber Subpart DQ—Income equalisation schemes and environmental restoration accounts scheme DQ 1 Main income equalisation scheme DQ 2 Adverse event income equalisation scheme DQ 3 Thinning operations income equalisation scheme DQ 4 Environmental restoration accounts scheme Subpart DR—Life insurance business expenditure DR 1 Mortality proﬁt formula: negative result DR 2 Disposal of property DR 3 Speciﬁc deductions denied to life insurers and fully reinsured persons Subpart DS—Film industry expenditure DS 1 Acquiring ﬁlm rights DS 2 DS 2B Expenditure in acquiring ﬁlm, or ﬁlm right, intended for Film production expenditure 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 licences 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 563 564 566 566 567 567 568 569 570 571 572 574 575 576 578 579 579 582 582 582 583 583 584 584 585 586 429 Income Tax Act 2004 Reprinted as at 29 August 2011 Other expenditure DT 12 Damage to assets DT 13 Disposal of ownership interests in controlled petroleum mining entities DT 14 Farm-out arrangements DT 15 Persons associated with petroleum miner DT 16 Removal or
 restoration operations General provisions DT 17 Attribution of expenditure DT 18 Replacement permits DT 19 Partnership interests and disposal of part of asset DT 20 Petroleum mining operations outside New Zealand Subpart DU—Mineral mining expenditure DU 1 Mining exploration expenditure and mining development expenditure DU 2 Mining exploration expenditure or mining development expenditure on acquisition of asset Income appropriated to expenditure DU 3 Replacing or repairing asset DU 4 DU 5 Non-mining asset used to derive income from mining DU 6 Depreciation DU 7 Limit on deduction DU 8 Meaning of asset for sections DU 1 to DU 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 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 Reprinted as at 29 August 2011 Income Tax Act 2004 Part C s CZ 20 DV 10B Distribution to member of co-operative company, excluded from being dividend DV 11 Maori authorities: donations DV 12 Group companies DV 13 Amalgamated company: expenditure on improvements for farming, horticultural, aquacultural, and forestry businesses Subpart DW—Expenditure speciﬁc to certain industries DW 1 Airport operators DW 2 Bloodstock racing DW 3 Deduction for general insurance outstanding claims reserve DX 1 Testamentary annuities Subpart DX—Other expenditure Subpart
 DY—Deductions under Parts F to I DY 1 Amounts that are deductions under Parts to be rewritten DY 2 Amounts that are not deductions under Parts to be rewritten Subpart DZ—Terminating provisions DZ 1 Commercial bills before 31 July 1986 DZ 2 Life insurers acquiring property before 1 April 1988 Petroleum mining: development expenditure from 1 DZ 3 October 1990 to 15 December 1991 DZ 4 Expenditure on abandoned exploratory well before 16 DZ 5 DZ 6 DZ 7 December 1991 Farm-out arrangements for petroleum mining before 16 December 1991 Partnership interests and disposal of part of asset before 16 December 1991 Petroleum mining operations outside New Zealand before 16 December 1991 DZ 8 Buying patent rights before 1 April 1993 DZ 9 Premium paid on land leased before 1 April 1993 DZ 10 General insurance with risk period straddling 1 July 1993 DZ 11 Film reimbursement scheme on or before 30 June 2001 DZ 12 Mineral mining: 1954 to 2005 DZ 13 Enhancements to land unamortised at end of 2004-05 year DZ 14 Patent applications before 1 April 2005 DZ 15 Geothermal wells between 31 March 2003 and 17 May 2006 616 617 618 618 620 620 621 622 624 625 626 626 628 629 630 632 632 632 633 633 634 636 638 638 639 431 Income Tax Act 2004 Reprinted as at 29 August 2011 DZ 16 Expenditure on improvements to aquacultural business before 1995-96 income year DZ 17 Expenditure on improvements to forestry land before 640 641 1995-96 income year 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 Page 432 433 434 435 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.
General permission Subsection (1) is called the general permission.

Deﬁned in this Act: amount, assessable income, business, deduction, depreci- ation loss, excluded income, general permission, loss Compare: 1994 No 164 s BD 2(1)(b)(i), (ii) (2) 432 Reprinted as at 29 August 2011 Income Tax Act 2004 Part D s DA 2 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 limita- tion.

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 schedular income subject to ﬁnal withholding.
This rule is called the withholding 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.

(7) Relationship of general limitations to general permission Each of the general limitations in this section overrides the general permission.
Deﬁned in this Act: amount, capital limitation, deduction, employment limi- tation, exempt income, exempt income limitation, general limitation, general permission, income from employment, loss, non-residents’ foreign-sourced income, non-residents’ foreign-sourced income limitation, private limitation, schedular income subject to ﬁnal withholding, withholding tax limitation Compare: 1994 No 164 s BD 2(2) 433 Part D s DA 3 Income Tax Act 2004 Reprinted as at 29 August 2011 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— (a) that it overrides the general permission or the relevant limitation; or that 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: 1994 No 164 s BD 2(1)(b)(iii), (2)(e) 434 Reprinted as at 29 August 2011 Income Tax Act 2004 Part D s DA 4 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: 1994 No 164 s BD 2(1)(a) Subpart DB—Speciﬁc rules for expenditure types Contents Taxes and other amounts DB 1 Taxes, other than GST, and penalties DB 2 GST DB 3 Determining tax liabilities DB 3B Use of money interest DB 4 Chatham Islands dues 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 Page 438 439 440 442 443 443 444 444 445 DB 8B Interest or expenditure connected to stapled debt security 446 Financial arrangements adjustments DB 9 Negative base price adjustment DB 9B Base price adjustment under old ﬁnancial arrangements rules DB 10 Repayment of debt sold at discount to associate of debtor DB 11 Security payment DB 12 Sureties DB 12B Share-lending collateral under share-lending Share-lending arrangements arrangements DB 12C Replacement payments and imputation credits under share-lending arrangements DB 13 Transaction costs: leases Premises or land costs 447 447 448 448 449 449 450 450 435 Income Tax Act 2004 Reprinted as at 29 August 2011 DB 13B Expenses of failed or withdrawn application for resource 451 consent DB 14 Destruction of temporary building DB 15 Amounts paid for non-compliance with covenant for repair DB 16 Amounts paid for non-compliance and change in use Revenue account property DB 17 Cost of revenue account property DB 18 Share losses DB 19 Amount from proﬁt-making undertaking or scheme and not already in income DB 20 Amount from major development or division and not already in income DB 21 Amount from land affected by change and not already in income DB 22 Cost of non-speciﬁed mineral DB 23 Bad debts DB 24 Bad debts owed to estates Bad debts Research and development DB 25 Scientiﬁc research DB 26 Research or development DB 27 Some deﬁnitions DB 28 Patent expenses DB 28B Expenses of failed or withdrawn patent application DB 29 Patent
 rights: devising patented inventions DB 30 Patent rights acquired before 1 April 1993 DB 31 Patent applications or patent rights acquired on or after 1 April 1993 DB 32 Gifts of money by company Marketing Theft and bribery DB 33 Property misappropriated by employees or service providers DB 34 Making good loss from misappropriation by partners DB 35 Restitution of stolen property DB 36 Bribes paid to public ofﬁcials 451 452 453 454 455 457 457 458 459 460 462 463 464 467 469 469 470 471 471 473 474 475 476 476 436 Reprinted as at 29 August 2011 Income Tax Act 2004 Part D s DA 4 DB 37 Avoiding, remedying, or mitigating effects of discharge 478 Pollution control of contaminant DB 38 Payments for remitted amounts DB 39 Restrictive covenant breached Repayments 481 481 Matching rules: revenue account property, prepayments, and deferred payments DB 40 Adjustment for opening values of trading stock, livestock, 482 and excepted ﬁnancial arrangements DB 41 Adjustment for prepayments DB 42 Adjustment for deferred payment of employment income Change to accounting practice DB 43 Adjustment for change to accounting practice DB 43B Certain investors have deduction for portfolio investor Portfolio investment entities allocated loss DB 43C Certain fees charged by portfolio tax rate entities to investors not allowed as deductions Exempt income DB 44 Expenditure incurred in deriving exempt dividend Use of motor vehicle under certain arrangements DB 45 Expenditure incurred in operating motor vehicle under agreement or arrangement affected by section CX 6B Emissions trading scheme DB 46 Acquisition of ETS units DB 46B Liabilities for emissions DB 47 Surrender of pre-1990 forest land units for post-1989 forest land deforestation 484 484 485 485 486 487 488 489 490 490 Taxes and other amounts Heading: substituted (with effect on 1 April 2005), on 29 August 2011, by section 193 of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
437 Part D s DB 1 Income Tax Act 2004 Reprinted as at 29 August 2011 DB 1 Taxes, other than GST, and penalties No deduction (1) A person is denied a deduction for the following: (a) (b) (c) income tax; and a civil penalty under Part 9 of the Tax Administration Act 1994; and 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) Meaning of income tax In this section, income tax— (a) includes— (i) (ii) further income tax: a tax imposed in a country or territory outside New Zealand that is substantially the same as income tax: imputation penalty tax: a dividend withholding payment, further divi- dend withholding payment, and dividend with- holding payment penalty tax: qualifying company election tax: (iii) (iv) (b) (v) does not include— (i) (ii) fringe beneﬁt tax: speciﬁed superannuation contribution withhold- ing tax.
Link with subpart DA This section overrides the general permission.
Deﬁned in this Act: deduction dividend withholding payment, dividend with- holding payment penalty tax, fringe beneﬁt tax, further dividend withholding payment, further income tax, general permission GST, imputation penalty tax, income tax, New Zealand, qualifying company election tax, speciﬁed super- annuation contribution withholding tax, tax Compare: 1994 No 164 s DB 1 Subsections (1)(a) and (b), and (2)(a)(i) to (v) were amended, as from 21 De- cember 2004, by section 270 Taxation (Venture Capital and Miscellaneous Pro- (2) (3) 438 Reprinted as at 29 August 2011 Income Tax Act 2004 Part D s DB 2 visions) Act 2004 (2004 No 111) by substituting the expression “:” for the ex- pression “; and”.
Subsection (2)(b)(i) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting the expression “:” for the expression “; or”.

DB 2 GST No deduction (1) A registered person is denied a deduction for the following: input tax on a supply of goods or services to them: (a) (b) GST payable by them to the Commissioner.
Deduction (2) A registered person is allowed a deduction for output tax on a supply of goods or services that section 5B, 21, or 21I(1) to (3) of the Goods and Services Tax Act 1985 treats them as making, but only to the extent to which— (a) they are allowed a deduction for expenditure that they incur in acquiring or producing the goods or services; or they are allowed a deduction for an amount of depreci- ation loss for the goods or services.
(b) (3) (4) (5) Exclusion Subsection (2) does not apply to an amount that relates to the application of a capital asset— (a) for the principal purpose of making taxable supplies, when the asset was acquired or produced other than for the principal purpose of making taxable supplies; or other than for the principal purpose of making taxable supplies, when the asset was acquired or produced for the principal purpose of making taxable supplies; or other than for the purpose of deriving income.
(b) (c) 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 45 (Cost: GST).

Link with subpart DA The link between this section and subpart DA (General rules) is as follows: 439 Part D s DB 3 Income Tax Act 2004 Reprinted as at 29 August 2011 (a) (b) subsection (1) overrides the general permission: subsection (2) supplements the general permission.
The general limitations still apply.
Deﬁned in this Act: amount, Commissioner, deduction, depreciable property, depreciation loss, general limitation, general permission, goods, GST, GST payable, income, input tax, output tax, registered person, services, supplement, taxable supply Compare: 1994 No 164 s ED 4(2), (3), (7) Section DB 2(2): amended (with effect on 1 April 2005), on 21 December 2010 (applying for the 2005–06 and later income years), by section 165 of the Taxa- tion (GST and Remedial Matters) Act 2010 (2010 No 130).
Subsection (5)(a) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting the expression “:” for the expression “; and”.
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) 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.
(ii) (iii) 440 Reprinted as at 29 August 2011 Income Tax Act 2004 Part D s DB 3 (2) (3) Exclusions This section does not apply to expenditure that a person incurs in connection with the following matters: (a) a matter arising from a return of income or a return under the Goods and Services Tax Act 1985 that was fraudulent or wilfully misleading: an offence under any of the Inland Revenue Acts: a shortfall penalty assessed under this Act or an earlier Act, the Tax Administration Act 1994, or the Goods and Services Tax Act 1985 (but not an assessment that is later cancelled): an objection, challenge, or appeal that is inconsequen- tial or frivolous: a matter arising under the Goods and Services Tax Act 1985 to the extent to which it relates to a taxable activity that does not constitute a business for the purposes of this Act.
(b) (c) (d) (e) Some deﬁnitions In this section,— GST payable— (a) means an amount of GST calculated under sections 19 to 19D and 20 of the Goods and Services Tax Act 1985; and includes— (i) (ii) an amount refundable under those sections; and an amount referred to in section 17(2) or 51B of the Goods and Services Tax Act 1985 (b) GST payable: paragraph (b)(ii) of this deﬁnition was substituted, as from 1 Oc- tober 2005, by section 177 Taxation (Venture Capital and Miscellaneous Provi- sions) Act 2004 (2004 No 111).
taxable activity is deﬁned in section 6 of the Goods and Services Tax Act 1985 taxable period is deﬁned in section 2 of the Goods and Services Tax Act 1985 441 Part D s DB 3B Income Tax Act 2004 Reprinted as at 29 August 2011 (4) 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, private limitation, return of income, supplement, tax year, taxable activity, taxable period Compare: 1994 No 164 s DJ 5(1), (3), (4) Subsection (1)(a) to (c) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting the expression “:” for the expression “; and”.
Subsection (2)(a) to (d) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting the expression “:” for the expression “; or”.

Section DB 3(4): substituted (with effect on 1 April 2005), on 6 October 2009, by section 754(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section DB 3 list of deﬁned terms capital limitation: inserted (with effect on 1 April 2005), on 6 October 2009, by section 754(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.
Timing of deduction The deduction is allocated under section EF 5 (Use of money interest payable by person).

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 2005), on 29 August 2011, by section 194(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
(2) (3) 442 Reprinted as at 29 August 2011 Income Tax Act 2004 Part D s DB 5 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.

(2) (3) (4) 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, supplement Compare: 1994 No 164 s DJ 3 Subsection (4)(a) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting the expression “:” for the expression “; and”.
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.

443 Part D s DB 6 Income Tax Act 2004 Reprinted as at 29 August 2011 (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: 1994 No 164 s DJ 11 DB 6 Interest: not capital expenditure Deduction (1) A person is allowed a deduction for interest incurred.

(2) (3) Exclusion Subsection (1) does not apply to interest for which a person is denied a deduction under section DB 1.

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: 1994 No 164 s DD 1(1)(b)(i), (ii) DB 7 Interest: most companies need no nexus with income Deduction (1) A company is allowed a deduction for interest incurred.

Exclusion: qualifying company Subsection (1) does not apply to a qualifying company.
Exclusion: exempt income If a company (company A) derives exempt income or another company (company B) in the same wholly-owned group of companies derives exempt income, subsection (1) applies to company A only if all the exempt income is 1 or more of the following: (a) (b) dividends; or income exempted under section CW 46 (Disposal of companies’ own shares); or income exempted under section CW 48 (Stake money) and ancillary to the company’s business of breeding.
(c) (2) (3) 444 Reprinted as at 29 August 2011 Income Tax Act 2004 Part D s DB 8 (4) (5) (6) 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.
Link with subpart DA This section supplements the general permission and overrides the capital limitation, the exempt income limitation, and the withholding tax limitation.

The other general limitations still apply.
Deﬁned in this Act: business, capital limitation, company, deduction, dividend, exempt income, exempt income limitation, ﬁxed establishment, general limita- tion, general permission, income, interest, New Zealand, non-resident company, qualifying company, supplement, wholly-owned group of companies, withhold- ing tax limitation Compare: 1994 No 164 ss BD 2A, DD 1(3), (4) 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 in the same group of companies.
(2) Exclusion: group not in existence at tax year end Subsection (1) does not apply if the 2 companies are not in the same group of companies at the end of the tax year for which the deduction is claimed.

Deduction: interest after qualifying amalgamation (3) A company is allowed a deduction for interest incurred on money borrowed to acquire shares in another company that has ceased to exist on a qualifying amalgamation.
445 Part D s DB 8B Income Tax Act 2004 Reprinted as at 29 August 2011 (4) (5) (6) Exclusion: group not in existence immediately before qualifying amalgamation Subsection (3) does not apply if the 2 companies were not in the same group of companies immediately before the qualify- ing amalgamation.

Application from tax year of qualifying amalgamation Subsection (3) applies in the tax year in which the qualifying amalgamation occurs and in later tax years.
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, deduction, exempt income limitation, general limitation, general permission, group of companies, interest, qualifying amal- gamation, share, supplement, tax year, withholding tax limitation Compare: 1994 No 164 ss DD 1(1)(b)(iii), (2), DD 3 DB 8B Interest or expenditure connected to stapled debt security No deduction (1) A company that issues a stapled debt security is denied, while section FC 2B(2) (Stapled debt securities) applies to the secur- ity, a deduction for— (a) (b) interest payable under the security: expenditure or loss incurred in connection with the se- curity: expenditure or loss incurred in borrowing the money secured by or owing under the security.
(c) Relationship with sections DB 5 to DB 8 This section overrides sections DB 5 to DB 8.

Link with subpart DA This section overrides the general permission.

Deﬁned in this Act: deduction, general permission, interest, pay, stapled debt security Section DB 8B: inserted (with effect on 25 February 2008), on 6 October 2009, by section 755 of the Taxation (International Taxation, Life Insurance, and Re- medial Matters) Act 2009 (2009 No 34).
(2) (3) 446 Reprinted as at 29 August 2011 Income Tax Act 2004 Part D s DB 9B Financial arrangements adjustments DB 9 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 previous 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: 1994 No 164 s EH 47(4) DB 9B Base price adjustment under old ﬁnancial arrangements rules (1) A person is allowed a deduction for an amount that is a deduc- tion under section EZ 34(6) (Cash basis holder) or EZ 35(3) or (4) (Income and expenditure where ﬁnancial arrangement redeemed or disposed of).
(2) 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 Section DB 9B was inserted, as from 1 April 2005, by section 40(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) with application as from the income year corresponding to the 2005–06 tax year.
Subsection (2) was inserted, as from 1 April 2005, by section 17(1) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) with application as from the 2005–06 income year.

The list of deﬁned terms was inserted, as from 1 April 2005, by section 17(2) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) with application as from the 2005–06 income year.
447 Part D s DB 10 Income Tax Act 2004 Reprinted as at 29 August 2011 DB 10 Repayment of debt sold at discount to associate of debtor Deduction (1) When section EW 50(6)(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: 1994 No 164 s EH 53(1), (7) DB 11 Security payment When subsection (2) applies Subsection (2) applies when— (a) (b) a person receives a security payment for a loss; and no other provision of this Act allows the person a de- duction for the loss.

Deduction: loss The person is allowed a deduction for the loss quantiﬁed in section EW 52(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 18; and the requirements of section DB 18 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 52(4) (Deduction for security payment).
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, security payment, supplement Compare: 1994 No 164 s EH 55 (1) (2) (3) (4) (5) 448 Reprinted as at 29 August 2011 DB 12 Sureties Income Tax Act 2004 Part D s DB 12B (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: 1994 No 164 s EH 56 Share-lending arrangements This heading was inserted, as from 1 July 2006, by section 41 Taxation (Depre- ciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).
DB 12B 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.
449 Part D s DB 12C Income Tax Act 2004 Reprinted as at 29 August 2011 (2) Link with subpart DA and other subject matter This section overrides— (a) (b) Deﬁned in this Act: amount, deduction, general permission, share-lending ar- rangement, share-lending collateral the general permission: sections DB 17 to DB 19.

Sections DB 12B and DB 12C were inserted, as from 1 July 2006, by section 41 Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).
DB 12C 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 sections ME 6B and NF 8B (which relate to imputation credits) to the replacement payment.
Deﬁned in this Act: amount, deduction, imputation credit, replacement pay- ment, share-lending arrangement Sections DB 12B and DB 12C were inserted, as from 1 July 2006, by section 41 Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).

Premises or land costs DB 13 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.
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: 1994 No 164 s DJ 11 (2) 450 Reprinted as at 29 August 2011 Income Tax Act 2004 Part D s DB 14 DB 13B 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 Section DB 13B was inserted, as from 1 October 2005, by section 178 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111).
Subsection (1)(b) was amended, as from 1 October 2005, by section 14 Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) by substituting “depreciable property, or otherwise a deduction,” for “a resource consent that is depreciable property” with application as from the 2005–06 in- come year.

DB 14 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: 1994 No 164 s DD 1(c) 451 Part D s DB 15 Income Tax Act 2004 Reprinted as at 29 August 2011 DB 15 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.
Relationship with section EJ 10 This section is overridden by section EJ 10 (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, repairs, supplement, term of the lease Compare: 1994 No 164 s EO 5 (1) (2) (3) (4) (5) 452 Reprinted as at 29 August 2011 Income Tax Act 2004 Part D s DB 16 DB 16 Amounts paid for non-compliance and change in use (1) (2) (3) When this section applies This section applies when— (a) 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 tax year in which the lessor receives the amount or in any of the following 4 tax years,— (i) (b) (ii) (iii) (iv) 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 37 (Avoiding, rem- edying, or mitigating effects of discharge of con- taminant), no other provision of this Act would allow the lessor a deduction for the expenditure.
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) the part of the amount that is assessable income derived (b) by the lessor in the tax year in which the expenditure is incurred through the operation of— (i) section CC 2 (Non-compliance with covenant for repair); or section EI 4 (Amount paid to lessor for non-com- pliance with covenant for repair); or section EI 5 (Amount paid for non-compliance: when lessor ceases to own land).
(ii) (iii) 453 Part D s DB 17 Income Tax Act 2004 Reprinted as at 29 August 2011 (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, own, supplement, tax year Compare: 1994 No 164 s EN 1(6), (8) Subsection (1)(b)(iv) was substituted, as from 1 October 2005, by section 15(1) Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) with application for expenditure incurred by a person in an income year starting on or after 10 June 2005.
Revenue account property DB 17 Cost of revenue account property When this section applies This section applies if a person incurs expenditure as the cost of revenue account property.

Deduction The person is allowed a deduction for the expenditure.
Exclusion for portfolio investment entities Subsection (2) does not apply to the expenditure if— (a) (b) [Repealed] section CX 44C (Proceeds from disposal of certain shares by portfolio investment entities or New Zealand Superannuation Fund) applies to income derived by the person from the disposal of the revenue account property.
Link with subpart DA The link between this section and subpart DA (General rules) is— (a) subsection (2) overrides the capital limitation but the general permission must still be satisﬁed; and subsection (3) overrides the general permission; and the other general limitations still apply.
(b) (c) Deﬁned in this Act: capital limitation, deduction, general limitation, general permission, portfolio investment entity, revenue account property Compare: 1994 No 164 s DJ 13 Section DB 17(1): substituted, on 1 October 2007, by section 18(1) of the Tax- ation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81).
(1) (2) (3) (4) 454 Reprinted as at 29 August 2011 Income Tax Act 2004 Part D s DB 18 Section DB 17(1): amended, on 1 October 2007, by section 10(1) of the Taxa- tion (KiwiSaver and Company Tax Rate Amendments) Act 2007 (2007 No 19).

Section DB 17(2): substituted, on 1 October 2007, by section 18(1) of the Tax- ation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81).
Section DB 17(3): added, on 1 October 2007, by section 18(1) of the Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81).

Section DB 17(3)(a): repealed (with effect on 1 October 2007), on 6 October 2009, by section 756 of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section DB 17(3)(a): substituted (with effect from 1 October 2007), on 19 De- cember 2007, by section 30(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section DB 17(3)(b): amended, on 1 October 2007, by section 10(2) of the Taxation (KiwiSaver and Company Tax Rate Amendments) Act 2007 (2007 No 19).

Section DB 17(4): added, on 1 October 2007, by section 18(1) of the Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81).
Section DB 17 list of deﬁned terms portfolio investment entity: inserted, on 1 October 2007, by section 18(2) of the Taxation (Savings Investment and Mis- cellaneous Provisions) Act 2006 (2006 No 81).

Section DB 17 list of deﬁned terms portfolio investment-linked life fund: re- pealed (with effect on 1 April 2005), on 7 December 2009, by section 163 of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
Section DB 17 list of deﬁned terms portfolio investment-linked life fund: in- serted (with effect from 1 October 2007), on 19 December 2007, by section 30(2) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
DB 18 Share losses (1) When this section applies This section applies when— (a) 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 (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) itself uses the amount subscribed for the share; or (b) (c) (d) 455 Part D s DB 18 Income Tax Act 2004 Reprinted as at 29 August 2011 (e) (f) (g) (ii) uses it to fund directly or indirectly another com- pany (company C); and company B or company C has a net loss, in the calcu- lation of which the amount used is taken into account; and company A, or a company that is in the same group of companies as company A at any time in the income year in which company B or company C has the net loss, offsets an amount for the net loss under section IG 2 (Net loss offset between group companies); 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 sub- section (3), is more than the amount offset under section IG 2 (Net loss offset between group companies), 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 net loss; and company A incurs it in a tax year before the tax year in which company A incurs the share loss; and company A has been denied a deduction for it by the operation of subsection (2).
(b) (c) Other offsets added The amount offset under section IG 2 (Net loss offset between group companies) includes every amount that company A, or a company that is in the same group of companies as company A at any time in the income year in which company A has the net loss, has offset for the net loss under that section in a tax year before the tax year that corresponds to the income year in which the share loss is incurred.
(4) 456 Reprinted as at 29 August 2011 Income Tax Act 2004 Part D s DB 20 (5) Link with subpart DA This section overrides the general permission.
Deﬁned in this Act: amount, company, deduction, general permission, group of companies, loss, net loss, share, tax year Compare: 1994 No 164 s DJ 1(b) DB 19 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 2 (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: 1994 No 164 s DJ 15 DB 20 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 11 (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.
457 Part D s DB 21 Income Tax Act 2004 Reprinted as at 29 August 2011 (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: 1994 No 164 s DJ 14(3) DB 21 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 12 (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) 458 Reprinted as at 29 August 2011 Income Tax Act 2004 Part D s DB 22 percentage of proﬁt x 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: 1994 No 164 s DJ 14(1), (2) DB 22 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 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 25 (Disposal of minerals).
(b) (c) (d) Deduction The person is allowed a deduction for the amount.

(2) 459 Part D s DB 23 Income Tax Act 2004 Reprinted as at 29 August 2011 (3) (4) (5) 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: 1994 No 164 s DJ 13A Bad debts DB 23 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 satisﬁed.
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 subsection (1)(a) is satis- ﬁed; and the amount is attributable to the income; and subsection (5) does not limit the deduction.
(b) (c) 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— 460 Reprinted as at 29 August 2011 Income Tax Act 2004 Part D s DB 23 (a) (b) (c) (d) the amount is a bad debt and subsection (1)(a) is satis- ﬁed; 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 subsection (1)(a) is satis- ﬁed; 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.
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 IG 2 (Net loss offset between group companies) that are described in paragraphs (e) and (f) if— (a) the person writing off the amount of debt is a company (company A); and 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 (b) (c) (d) (e) (b) (c) 461 Part D s DB 24 Income Tax Act 2004 Reprinted as at 29 August 2011 (d) (e) (f) company B or company C has a net loss, in the calcu- lation of which the amount used is taken into account; and company A, or a company that is in the same group of companies as company A at any time in the income year in which company B or company C has the net loss, offsets an amount for the net loss under section IG 2 (Net loss offset between group companies); 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, net loss, supplement, tax year Compare: 1994 No 164 ss DJ 1(a)(i), (iii), (iv), EH 54 DB 24 Bad debts owed to estates When this section applies This section applies when— (a) a debt owing to a person at the date of their death is, in a tax year,— (i) (ii) assessable income of the person; or assessable income of the trustee of their estate; and (1) 462 Reprinted as at 29 August 2011 Income Tax Act 2004 Part D s DB 25 (b) 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 tax 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 tax year by or in trust for the beneﬁciary, and to the extent to which the amount is chargeable against the capital of the beneﬁciary; and third, the trustee or a beneﬁciary denied a deduction for the balance in the tax 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, supplement, tax year, trustee, trustee income Compare: 1994 No 164 s DJ 2 Research and development DB 25 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) (b) is not created from the scientiﬁc research; and 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 463 Part D s DB 26 Income Tax Act 2004 Reprinted as at 29 August 2011 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: 1994 No 164 s DJ 9 DB 26 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 due to its being an immaterial amount for ﬁnancial re- porting purposes; and (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 (2) (3) (4) 464 Reprinted as at 29 August 2011 Income Tax Act 2004 Part D s DB 26 (ii) under paragraph 68(a) of the new reporting stand- ard applying, for the purposes of that paragraph, paragraphs 54 to 67 of that standard.
(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 due to its being an im- material 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) 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 (ii) (iii) (iv) (v) 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 (6B) 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— (a) to an income year after the income year in which the person incurs the expenditure; and in the way required by section EJ 21 (Allocation of deductions for research, development, resulting market development).
(b) 465 Part D s DB 26 Income Tax Act 2004 Reprinted as at 29 August 2011 Section need not be applied (7) A person may return income and expenditure in their return of income on the basis that this section does not apply to expend- iture incurred on research or development in the income year to which the return relates.
Relationship with section EA 2 If expenditure to which this section applies is incurred in 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 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: 1994 No 164 s DJ 9A(1)-(5) Section DB 26(2): substituted (with effect on 1 April 2005), on 7 December 2009, by section 152(1) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
Section DB 26(2): amended (with effect from 1 April 2007), on 19 December 2007, by section 31(1) of the Taxation (Business Taxation and Remedial Mat- ters) Act 2007 (2007 No 109).

Section DB 26(3) heading: repealed (with effect from 1 April 2007), on 19 De- cember 2007, by section 31(2) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section DB 26(3): repealed (with effect from 1 April 2007), on 19 December 2007, by section 31(2) of the Taxation (Business Taxation and Remedial Mat- ters) Act 2007 (2007 No 109).

Section DB 26(4)(a): amended (with effect from 1 April 2007), on 19 Decem- ber 2007, by section 31(3) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section DB 26(4)(b): substituted (with effect on 1 April 2005), on 7 December 2009, by section 152(2) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).

Section DB 26(4)(b): substituted (with effect from 1 April 2007), on 19 De- cember 2007, by section 31(4) of the Taxation (Business Taxation and Remed- ial Matters) Act 2007 (2007 No 109).
Subsection (5) was amended, as from 1 April 2005, by section 16(1) Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) by substituting “in an income year” for “for a tax year” with application as from the 2005–06 income year.
(8) (9) 466 Reprinted as at 29 August 2011 Income Tax Act 2004 Part D s DB 27 Section DB 26(5)(b): substituted (with effect from 1 April 2007), on 19 De- cember 2007, by section 31(5) of the Taxation (Business Taxation and Remed- ial Matters) Act 2007 (2007 No 109).
Subsection (6B) was inserted, as from 1 October 2006, by section 42(1) Taxa- tion (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provi- sions) Act 2006 (2006 No 3) with application as from the income year corres- ponding to the 2005–06 tax year.

Subsection (7) was amended, as from 1 April 2005, by section 16(2) Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) by substituting “income year” for “tax year” with application as from the 2005–06 income year.
The deﬁned terms were amended, as from 1 April 2005, by section 16(3)(a)Tax- ation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) by inserting the words “income year,” with application as from the 2005–06 in- come year.

Section DB 26 list of deﬁned terms new reporting standard: inserted (with effect on 1 April 2005), on 7 December 2009, by section 163 of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
Section DB 26 list of deﬁned terms old reporting standard: inserted (with effect on 1 April 2005), on 7 December 2009, by section 163 of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).

Section DB 26 list of deﬁned terms reporting standard: repealed (with effect on 1 April 2005), on 7 December 2009, by section 163 of the Taxation (Conse- quential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
The deﬁned terms were amended, as from 1 April 2005, by section 16(3)(b) Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) by repealing the words “, tax year” with application as from the 2005–06 income year.
DB 27 Some deﬁnitions (1) Deﬁnitions In this section, and in section DB 26,— development is deﬁned in paragraph 8 of the reporting stand- ard new reporting standard means the New Zealand Equivalent to International Accounting Standard 38, approved by the Ac- counting Standards Review Board, and as amended from time to time or an equivalent standard issued in its place old reporting standard means Financial Reporting Standard No 13 1995 (Accounting for Research and Development Ac- tivities) being the standard approved under the Financial Re- porting Act 1993, or an equivalent standard issued in its place, that applies in the tax year in which the expenditure is incurred 467 Part D s DB 27 Income Tax Act 2004 Reprinted as at 29 August 2011 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 26: an activity that is neither research nor development for the purposes of section DB 26: the date from which the expenditure or the activity is excluded from being research or development.
Deﬁned in this Act: development, new reporting standard, old reporting stand- ard, research, tax year Compare: 1994 No 164 ss DJ 9A(6), (7), DJ 9B (b) (c) Section DB 27(1) heading: substituted (with effect from 1 April 2007), on 19 December 2007, by section 32(1) of the Taxation (Business Taxation and Re- medial Matters) Act 2007 (2007 No 109).
Section DB 27(1): substituted (with effect from 1 April 2007), on 19 December 2007, by section 32(1) of the Taxation (Business Taxation and Remedial Mat- ters) Act 2007 (2007 No 109).
Subsection (1) was amended, as from 1 October 2006, by section 43(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by substituting “sections DB 26, EE 1 (What this subpart does), EJ 20 (Deductions for market development-product of research, develop- ment), and EJ 21 (Allocation of deductions for research, development, resulting market development)” for the expression “section DB 26” with application for income years corresponding to the 2005–06 and subsequent tax years.
Section DB 27(1) new reporting standard: inserted (with effect on 1 April 2005), on 7 December 2009, by section 153 of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).

Section DB 27(1) old reporting standard: inserted (with effect on 1 April 2005), on 7 December 2009, by section 153 of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
Section DB 27(1) reporting standard: repealed (with effect on 1 April 2005), on 7 December 2009, by section 153 of the Taxation (Consequential Rate Align- ment and Remedial Matters) Act 2009 (2009 No 63).

Section DB 27 list of deﬁned terms Financial Reporting Standard No 13 1995 (Accounting for Research and Development Activities): omitted (with effect from 1 April 2007), on 19 December 2007, by section 32(2) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section DB 27 list of deﬁned terms new reporting standard: inserted (with effect on 1 April 2005), on 7 December 2009, by section 163 of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
(2) 468 Reprinted as at 29 August 2011 Income Tax Act 2004 Part D s DB 28B Section DB 27 list of deﬁned terms old reporting standard: inserted (with effect on 1 April 2005), on 7 December 2009, by section 163 of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
Section DB 27 list of deﬁned terms reporting standard: repealed (with effect on 1 April 2005), on 7 December 2009, by section 163 of the Taxation (Conse- quential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
DB 28 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 tax year in which they incur the expenditure.

(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, tax year Compare: 1994 No 164 s DJ 6(1) DB 28B 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) Timing of deduction The deduction is allocated to the income year in which the grant is refused or the application is withdrawn.

469 Part D s DB 29 Income Tax Act 2004 Reprinted as at 29 August 2011 (3) 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 Section DB 28B was inserted, as from 1 October 2005, by section 179 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111).

DB 29 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 a tax year, they are allowed a deduction for expenditure incurred 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.
Deduction: devising invention If the person sells all the patent rights relating to the invention, they are allowed a deduction for the expenditure that they have incurred (whenever it is incurred) in connection with devising the invention to the extent to which a deduction has not already been allowed under subsection (2).
Deduction: devising invention: proportion of expenditure If the person sells some of the patent rights relating to the in- vention, they are allowed a deduction for part of the expend- iture described in subsection (3).

The part is calculated by dividing the amount derived from the sale by the market value of the whole of the patent rights on the date of the sale.
(3) (4) 470 Reprinted as at 29 August 2011 Income Tax Act 2004 Part D s DB 31 (5) 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, patent rights, tax year Compare: 1994 No 164 ss DJ 6(2), EN 2(3)(a) DB 30 Patent rights acquired before 1 April 1993 (1) (2) (3) (4) When this section applies This section applies when a person sells patent rights that they acquired before 1 April 1993.

Deduction The person is allowed a deduction on the sale of the patent rights.
Amount of deduction The amount is calculated using the formula— Link with subpart DA This section overrides the capital limitation.

The general per- mission must still be satisﬁed and the other general limitations still apply.
Deﬁned in this Act: amount, capital limitation, general limitation, general per- mission, patent rights Compare: 1994 No 164 s EN 2(3)(b) DB 31 Patent applications or patent rights acquired on or after 1 April 1993 (1) (2) 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.
471 Part D s DB 31 Income Tax Act 2004 Reprinted as at 29 August 2011 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 14 (Patent applications before 1 April 2005): total amounts of depreciation loss is the total of the amounts, for which the person is allowed a deduction, of depreciation loss 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 rights Compare: 1994 No 164 s EN 2(3)(c) The heading to section DB 31 was amended, as from 21 June 2005, by sec- tion 17(1) Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) by substituting “Patent applications or patent rights” for “Patent rights” with application for patent applications lodged for the ﬁrst time on or after 21 June 2005.
Subsection (1) was amended, as from 21 June 2005, by section 17(2) Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) by inserting the words “a patent application with a complete speciﬁcation or” be- fore the words “patent rights” with application for patent applications lodged for the ﬁrst time on or after 21 June 2005.
Subsection (2) was amended, as from 21 June 2005, by section 17(3) Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) by inserting the words “patent application with a complete speciﬁcation or” before the words “patent rights” with application for patent applications lodged for the ﬁrst time on or after 21 June 2005.
Subsection (4)(a) and (b) were amended, as from 21 June 2005, by section 17(4) Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) by inserting the words “patent application with a complete speciﬁcation or” before the words “patent rights” in both places it appears with application for patent applications lodged for the ﬁrst time on or after 21 June 2005.
(3) (4) (5) 472 Reprinted as at 29 August 2011 Income Tax Act 2004 Part D s DB 32 Subsection (4)(a) and (b) was substituted, as from 21 June 2005, by section 19(1) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) with application to a patent application that is lodged for the ﬁrst time on or after 21 June 2005.
DB 32 Gifts of money by company Marketing (1) (2) (3) (4) Who this section applies to This section applies to— (a) (b) a company that is not a close company: a close company that has its shares quoted on the ofﬁcial list of a recognised exchange.

Deduction The company is allowed a deduction for a gift of money that it makes to a society, institution, association, organisation, trust, or fund of any of the kinds described in section KC 5(1) (Re- bate in respect of gifts of money).
Amount of deduction The deduction for the total of all gifts made in an income year is limited to 5% of the amount that would be the company’s net income in the corresponding tax year 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, close company, company, deduction, general limi- tation, general permission, net income, recognised exchange, share, supple- ment, tax year Compare: 1994 No 164 s DJ 4 Subsection (1)(a) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting the expression “:” for the expression “; and”.
Section DB 32(3) heading: substituted (with effect on 19 December 2007), on 6 October 2009, by section 757(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section DB 32(3): substituted (with effect on 19 December 2007), on 7 Decem- ber 2009, by section 154 of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
Section DB 32(3): substituted (with effect on 19 December 2007), on 6 October 2009, by section 757(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

473 Part D s DB 33 Income Tax Act 2004 Reprinted as at 29 August 2011 Section DB 32(3): amended, on 19 December 2007, by section 33 of the Taxa- tion (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Theft and bribery DB 33 Property misappropriated by employees or service providers When this section applies This section applies when— (a) (b) a person carries on a business; and an employee of the business, or a person who provides services to the business, misappropriates property; and no other provision of this Act allows the person who carries on the business a deduction for the loss resulting from the misappropriation.
(c) (b) (c) Exclusions This section does not apply when— (a) the person who misappropriates the property is a rela- tive of the person who carries on the business; or the business is carried on by a company, and— (i) the company and the person who misappropriates the property are associated persons; or the company and a relative of the person who misappropriates the property are associated per- sons; or (ii) the person who carries on the business is a trustee of a trust, and the person who misappropriates the property either created the trust, settled property on the trust, or is a beneﬁciary of the trust.
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.
(1) (2) (3) (4) 474 Reprinted as at 29 August 2011 Income Tax Act 2004 Part D s DB 34 (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: associated person, business, capital limitation, Commis- sioner, company, deduction, employee, general limitation, general permission, income year, relative, supplement, trustee Compare: 1994 No 164 s DJ 8 DB 34 Making good loss from misappropriation by partners (1) (2) (3) (4) When this section applies This section applies when a person carrying on a business in partnership pays an amount to make good a loss that arises from a partner, other than the person or the person’s spouse, civil union partner or de facto partner, misappropriating prop- erty that— (a) belongs to another person who is neither a partner in the partnership nor the spouse, civil union partner or de facto partner of a partner; and is received in the course of the business either by the partnership or 1 or more of its partners.
(b) 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, supplement Compare: 1994 No 164 s DJ 7 Subsection (1) before paragraph (a) was amended, as from 26 April 2005, by section 3(1) Income Tax Amendment Act 2005 (2005 No 11) by substituting “spouse or civil union partner” for “spouse”.
Subsection (1) before paragraph (a) was amended, as from 1 April 2007, by section 3(2) Income Tax Amendment Act 2005 (2005 No 11) by substituting “spouse, civil union partner or de facto partner” for “spouse or civil union part- ner”.

475 Part D s DB 35 Income Tax Act 2004 Reprinted as at 29 August 2011 Subsection (1)(a) was amended, as from 26 April 2005, by section 3(1) Income Tax Amendment Act 2005 (2005 No 11) by substituting “spouse or civil union partner” for “spouse”.
Subsection (1)(a) was amended, as from 1 April 2007, by section 3(2) Income Tax Amendment Act 2005 (2005 No 11) by substituting “spouse, civil union partner or de facto partner” for “spouse or civil union partner”.

DB 35 Restitution of stolen property Deduction (1) A person who derives income under section CB 28 (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 28 applies.
(2) (3) (4) 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 person claiming through the person beneﬁcially entitled to the prop- erty.

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: 1994 No 164 s DJ 18 DB 36 Bribes paid to public ofﬁcials When this section applies Subsection (2) 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) obtain or retain business for person A; or (1) 476 Reprinted as at 29 August 2011 Income Tax Act 2004 Part D s DB 36 (2) (3) (4) (5) (ii) obtain an improper advantage for person A in the conduct of business; and the ofﬁcial either has or does not have the authority to act or to fail to act.
(c) No deduction Person A is denied a deduction for the amount of the bribe.
Exclusions This section does not apply if— (a) the bribe is given outside New Zealand and, at the time it is given by person A, the bribe is not an offence under the laws of the foreign country in which is situated the principal ofﬁce of the person, organisation or other body by whom the foreign public ofﬁcial is employed or for whom they provide services: the bribe is paid wholly or mainly to ensure or expedite the performance by a foreign public ofﬁcial of a rou- tine government action when the value of the beneﬁt is small.
(b) No deduction (with exception) Some deﬁnitions In this section,— beneﬁt, foreign country, and foreign public ofﬁcial are de- ﬁned in section 105C of the Crimes Act 1961 bribe is deﬁned in section 99 of the Crimes Act 1961 public ofﬁcial means— (a) (b) a member of Parliament or a Minister of the Crown; and a judicial ofﬁcer, a law enforcement ofﬁcer, or an of- ﬁcial, as those terms are deﬁned in section 99 of the Crimes Act 1961; and a foreign public ofﬁcial routine government action is deﬁned in section 105C of the Crimes Act 1961.
(c) (6) 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, public ofﬁcial, routine government action Compare: 1994 No 164 s DJ 22 477 Part D s DB 37 Income Tax Act 2004 Reprinted as at 29 August 2011 The heading to subsection (1) was substituted, as from 1 April 2005, by section 20(1)(a) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) with application as from the 2005–06 income year.
Subsection (1)(b) was amended, as from 18 December 2006, by section 20(1)(b) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) by omitting “New Zealand” with application as from the 2005–06 in- come year.

Subsection (3) was substituted, as from 18 December 2006, by section 20(1)(c) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) with application as from the 2005–06 income year.
Subsection (4) was repealed, as from 18 December 2006, by section 20(1)(c) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) with application as from the 2005–06 income year.
Pollution control DB 37 Avoiding, remedying, or mitigating effects of discharge of contaminant When this section applies This section applies if 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 type listed in schedule 6B (Expenditure in avoiding, remedying, or mitigating detrimental effects of discharge of contaminant) and not in schedule 6B, part C; and not incurred in relation to revenue account prop- erty other than land that is subject to section CB 6B (Disposal: land used for landﬁll, if notice of election); and (ii) (c) no other provision allows a deduction for the expend- iture.
Amount and timing of deduction The person is allowed for an income year a deduction for the expenditure of,— (a) if paragraphs (b) and (c) do not apply, an amount that is calculated using the formula— (b) rate x value: if the operations of the business for which the expend- iture was incurred come to an end in the income year, (1) (2) 478 Reprinted as at 29 August 2011 Income Tax Act 2004 Part D s DB 37 (c) 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 (5).
Rate (4) Rate is— (a) 100%, if the expenditure is of a type listed in sched- ule 6B, part A, item 1, or part B (Expenditure in avoid- ing, remedying, or mitigating detrimental effects of dis- charge of contaminant) and the rate is not given by para- graph (b) or (c): the appropriate rate given by subsection (5) if— (i) the expenditure is of a type listed in schedule 6B, part A, items 2 to 5; and (ii) no applicable rate is given by paragraph (c): the rate for the type 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.
(b) (c) (5) Banded straight-line rate or corresponding diminishing value rate The rate for expenditure if subsection (4)(b) is satisﬁed is— (a) the straight-line rate given in schedule 11, column 2 that is nearest to the rate calculated for the expenditure using the formula in subsection (7), if the person elects to use the straight-line method: the diminishing value rate given in schedule 11, col- umn 1 that corresponds to the straight-line rate given by paragraph (a), if the person elects to use the dimin- ishing value method.
(b) 479 Part D s DB 37 Income Tax Act 2004 Reprinted as at 29 August 2011 Value (6) Value is— (a) (b) the adjusted tax value of the expenditure, if the person elects to use the straight-line method: the diminished value of the expenditure for the income year, if the person elects to use the diminishing value method.
Formula for rate for expenditure with assumed life The formula for the straight-line rate for a type of expenditure to which subsection (4)(b) applies is— Deﬁnition of item in formula In the formula in subsection (7), assumed life for expenditure and an income year is,— (a) for expenditure associated with a business activity that does not require a resource consent, 35: for expenditure associated with a business activity that requires a resource consent, the lesser of 35 and the number of the years in the period of the resource consent that include or follow the time at which the expenditure is incurred.
(b) Link with subpart DA This section overrides the capital limitation.

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

Deﬁned in this Act: amount, business, capital limitation, deduction, diminished value, general limitation, general permission.
income year, New Zealand Subsection (1)(b) was amended, as from 1 October 2005, by section 18(1) Taxa- tion (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) by substituting “waste” for “industrial waste” with application for expenditure incurred by a person in the 2005–06 income year if the income year starts before 10 June 2005.
Section DB 37 was substituted, as from 1 October 2005, by section 19(1) Taxa- tion (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) with application for expenditure incurred by a person in an income year starting on or after 10 June 2005.
(7) (8) (9) 480 Reprinted as at 29 August 2011 Income Tax Act 2004 Part D s DB 39 Repayments DB 38 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, supplement Compare: 1994 No 164 s IE 1(4)(g) DB 39 Restrictive covenant breached (1) When this section applies This section applies when an employee (person A) makes a payment to another person (person B) in the following cir- cumstances: (a) person A derives assessable income under section CE 9 (Restrictive covenants); and person A breaches a term of the undertaking they gave to person B; and person A is, consequently, required to make the pay- ment to person B.
(b) (c) 481 Part D s DB 40 Income Tax Act 2004 Reprinted as at 29 August 2011 (2) (3) (4) (5) 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 (Restrictive covenants); 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, supplement Compare: 1994 No 164 ss DJ 21, EO 7 Matching rules: revenue account property, prepayments, and deferred payments DB 40 Adjustment for opening values of trading stock, livestock, and excepted ﬁnancial arrangements When this section applies This section applies when a person has some or all of the fol- lowing at the start of an income year: (a) trading stock valued under subpart EB (Valuation of trading stock (including dealer’s livestock)): livestock valued under subpart EC (Valuation of live- stock): excepted ﬁnancial arrangements that are revenue ac- count property valued under subpart ED (Valuation of excepted ﬁnancial arrangements): a share supplier’s share-lending right, if the original shares that relate to the right are excepted ﬁnancial ar- rangements described in paragraph (c).
(b) (c) (d) (1) 482 Reprinted as at 29 August 2011 Income Tax Act 2004 Part D s DB 40 (2) (3) (4) (5) 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: 1994 No 164 s EE 2(4) Subsection (1)(a) and (b) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting the expression “:” for the expression “; or”.
Subsection (1)(c) was amended, as from 1 July 2006, by section 44(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by substituting the expression “arrangements):” for the expression “arrangements).”.

Subsection (1)(d) was inserted, as from 1 July 2006, by section 44(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).
Subsection (4) was amended, as from 1 July 2006, by section 44(2) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by substituting “arrangements or share-lending right had” for “arrangements had”.

The list of deﬁned terms was amended, as from 1 July 2006, by section 44(3)(a) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by inserting the words “original share”..
The list of deﬁned terms was amended, as from 1 July 2006, by section 44(3)(b) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by inserting the words “share-lending right”.. 483 Part D s DB 41 Income Tax Act 2004 Reprinted as at 29 August 2011 The list of deﬁned terms was amended, as from 1 July 2006, by section 44(3)(c) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by inserting the words “share supplier”.. DB 41 Adjustment for prepayments (1) (2) (3) When this section applies This section applies when a person has, under section EA 3 (Prepayments), an unexpired amount of expenditure at the end of an income year.
Deduction The person is allowed a deduction for the unexpired amount for the following income year.

Link with subpart DA This section supplements the general permission.

The gen- eral limitations still apply, but not to the extent to which any relevant general limitation was overridden by a provision that initially allowed a deduction for the expenditure, whether in this Act or an earlier Act.
Deﬁned in this Act: amount, deduction, general limitation, general permission, income year, supplement Compare: 1994 No 164 s EF 1(1)(b) DB 42 Adjustment for deferred payment of employment income When this section applies This section applies when a person has, under section EA 4 (Deferred payment of employment income), an unpaid amount of expenditure on employment income 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 (1) (2) (3) 484 Reprinted as at 29 August 2011 Income Tax Act 2004 Part D s DB 43B 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, supplement Compare: 1994 No 164 s EF 1(1)(b) Change to accounting practice DB 43 Adjustment for change to accounting practice (1) (2) (3) When this section applies This section applies when a person has, under section EG 2(2) or (3) (Adjustment for changes to accounting practice), an amount owed by them or an amount owing to them as quanti- ﬁed in those subsections.
Amount, and timing, of deduction The person is allowed a deduction of the amount as quantiﬁed and allocated under section EG 2 (Adjustment for changes to accounting practice).

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: 1994 No 164 s EC 1 Portfolio investment entities Heading: inserted, on 1 October 2007, by section 21 of the Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81).
DB 43B Certain investors have deduction for portfolio investor allocated loss (1) When this section applies This section applies to an investor in a portfolio investor class of a portfolio tax rate entity for a portfolio calculation period of the entity when— the investor— (a) (i) is a zero-rated portfolio investor for the portfolio calculation period: 485 Part D s DB 43C Income Tax Act 2004 Reprinted as at 29 August 2011 (ii) has all or part of a portfolio investor exit period included in the portfolio calculation period and the entity makes payments of tax under section HL 21 (Payments of tax by portfolio tax rate en- tity making no election); and (b) the portfolio calculation period includes a portfolio al- location period for which the person is allocated an amount of portfolio investor allocated loss under sub- part HL (Portfolio investment entities).
(2) Deduction The investor has a deduction for an income year for the amount of portfolio investor allocated loss if— (a) the portfolio tax rate entity makes payments of tax under section HL 21 (Payments of tax by portfolio tax rate entity making no election) and the investor’s income year includes the end of the portfolio tax rate entity’s income year: the portfolio tax rate entity makes payments of tax under section HL 23 (Payments of tax by portfolio tax rate en- tity choosing to make payments when investor leaves) and the investor’s income year includes the end of the tax year in which the portfolio calculation period oc- curs.
(b) Deﬁned in this Act: deduction, income year, investor, portfolio allocation period, portfolio calculation period, portfolio investor allocated loss, portfolio investor class, portfolio tax rate entity, tax, tax year, zero-rated portfolio entity Section DB 43B: substituted, on 1 October 2007, by section 11 of the Taxation (KiwiSaver and Company Tax Rate Amendments) Act 2007 (2007 No 19).
Section DB 43B: inserted, on 1 October 2007, by section 21 of the Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81).

Section DB 43B(2)(a): substituted (with effect from 1 October 2007), on 19 December 2007, by section 34 of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
DB 43C Certain fees charged by portfolio tax rate entities to investors not allowed as deductions When this section applies This section applies to an investor in a portfolio investor class of a portfolio tax rate entity when— (1) 486 Reprinted as at 29 August 2011 Income Tax Act 2004 Part D s DB 44 (2) (3) (a) (b) the investor incurs fees in relation to the investor’s port- folio investor interest; and the amount of the fees is included in the calculation of the entity’s portfolio entity tax liability under section HL 20 (Portfolio entity tax liability and rebates of port- folio tax rate entity for period) for the investor, the port- folio investor class, and a portfolio calculation period.
No deduction The investor is denied a deduction for the amount of the fees.

Link with subpart DA This section overrides the general permission.

Deﬁned in this Act: deduction, general permission, investor, portfolio calcula- tion period, portfolio entity tax liability, portfolio investment entity, portfolio investor class Section DB 43C: inserted, on 1 October 2007, by section 12 of the Taxation (KiwiSaver and Company Tax Rate Amendments) Act 2007 (2007 No 19).
Exempt income This heading was inserted, as from 1 October 2005, by section 180 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111).
DB 44 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 is allowed a deduction of— the amount of the expenditure incurred by the company (a) in deriving the dividend, if the company is not a conduit tax relief company: the amount calculated using the following formula, if the company is a conduit tax relief company: (b) expenditure x (1 -- non-resident shareholding) (2) Deﬁnition of items in formula In the formula,— (a) (b) expenditure is the amount of the expenditure incurred by the company in deriving the dividend: non-resident shareholding is the fraction of the com- pany’s shareholders that are non-residents, calculated under section NH 7(2) and NH 7(4).
487 Part D s DB 45 Income Tax Act 2004 Reprinted as at 29 August 2011 (3) 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, conduit tax relief company, deduction, dividend, exempt income, exempt income limitation, general limitation, general permis- sion, non-resident, shareholder Section DB 44 was inserted, as from 1 October 2005, by section 180 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111).
Use of motor vehicle under certain arrangements This heading was inserted, as from 1 April 2006, by section 45(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) with application for expenditure incurred as from 1 April 2006.
DB 45 Expenditure incurred in operating motor vehicle under agreement or arrangement affected by section CX 6B Deduction (1) A party to an agreement or arrangement referred to in section CX 6B (Employer or associated person treated as having right to use vehicle under arrangement) is allowed a deduction for expenditure or depreciation loss incurred in operating a motor vehicle during a period for which an employer or associated person is treated under that section as having a right to use the vehicle.
Link with subpart DA This section overrides the private limitation and exempt in- come limitation.

The general permission must still be satisﬁed and the other general limitations still apply.
Deﬁned in this Act: arrangement, deduction, depreciation loss, exempt income limitation, FBT rules, general limitation, general permission, lease, loss, motor vehicle Section DB 45 was inserted, as from 1 April 2006, by section 45(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) with application for expenditure incurred as from 1 April 2006.
Section DB 45 was substituted, as from 1 April 2006, by section 22(1) Tax- ation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) with application for expenditure or depreciation loss incurred on or after 1 April 2006.

(2) 488 Reprinted as at 29 August 2011 Income Tax Act 2004 Part D s DB 46 Emissions trading scheme Heading: added, on 26 September 2008, by section 61 of the Climate Change Response (Emissions Trading) Amendment Act 2008 (2008 No 85).
DB 46 Acquisition of ETS units (1) (2) (3) When this section applies This section applies when a person acquires an ETS unit.

No expenditure or loss on issue of forest land units The person is treated as incurring no expenditure or loss on the acquisition, if the acquisition is on issue of a forest land unit.
Deduction: acquisition from another person The person is allowed a deduction for expenditure or loss in- curred on acquiring the ETS unit from another person, if it is not the issue of a forest land unit.
Deduction: acquisition of Kyoto unit on conversion of New Zealand unit (4) Despite subsection (3), if a person converts a New Zealand unit to a Kyoto unit under the Climate Change Response Act 2002, the person is allowed a deduction for an amount of expenditure on the acquisition of the Kyoto unit that is— (a) not more than the cost, if any, to the person of the New Zealand unit; and not less than the cost, if any, to the person of the New Zealand unit.
(b) (5) Link with subpart DA The link between this section and subpart DA (General rules) is as follows: (a) subsections (2) and (4)(a) override the general permis- sion: subsection (3) overrides the capital limitation.

The other general limitations still apply: subsection (4)(b) supplements the general permission and overrides the capital limitation.

The other general limitations still apply.


(b) (c) Deﬁned in this Act: capital limitation, , convert, ETS unit, forest land unit, general limitation, , general permission, , Kyoto unit, loss, , New Zealand unit Section DB 46: added, on 26 September 2008, by section 61 of the Climate Change Response (Emissions Trading) Amendment Act 2008 (2008 No 85).
489 Part D s DB 46B Income Tax Act 2004 Reprinted as at 29 August 2011 DB 46B Liabilities for emissions (1) (2) (3) When this section applies This section applies when a person incurs a liability under the Climate Change Response Act 2002 for emissions relating to post-1989 forest land or pre-1990 forest land.

No deduction The person is denied a deduction for the liability.

Link with subpart DA Subsection (2) overrides the general permission.
Deﬁned in this Act: amount, deduction, general permission, post-1989 forest land, pre-1990 forest land Section DB 46B: inserted (with effect on 1 January 2008), on 6 October 2009, by section 758 of the Taxation (International Taxation, Life Insurance, and Re- medial Matters) Act 2009 (2009 No 34).
DB 47 Surrender of pre-1990 forest land units for post-1989 forest land deforestation (1) (2) When this section applies This section applies when a person surrenders a pre-1990 for- est land unit under the Climate Change Response Act 2002 to meet a liability to surrender units in relation to post-1989 for- est land.
Treated as disposal and reacquisition The person is treated as having disposed of the pre-1990 forest land unit to an unrelated person and as having then reacquired it, in each case, immediately before the surrender and for an amount equal to the unit’s market value at the time.

Deﬁned in this Act: amount, post-1989 forest land, pre-1990 forest land unit, surrender Section DB 47: added, on 26 September 2008, by section 61 of the Climate Change Response (Emissions Trading) Amendment Act 2008 (2008 No 85).
Subpart DC—Employee or contractor expenditure Contents DC 1 Lump sum payments on retirement DC 2 Pension payments to former employees 490 Page 491 492 Reprinted as at 29 August 2011 Income Tax Act 2004 Part D s DC 1 Pension payments to former partners Payments to working partners DC 3 DC 4 DC 5 Contributions to employees’ beneﬁt funds DC 6 Contributions to employees’ superannuation schemes DC 7 Attribution of personal services DC 8 Restrictive covenants or exit inducements DC 9 Sale of business: transferred employment income obligations DC 10 Transfers of employment income obligations to associates DC 11 Loans to employees under share purchase schemes DC 12 Criteria for approval of share purchase schemes: before period of restriction ends DC 13 Criteria for approval of share purchase schemes: when period of restriction ends DC 14 Some deﬁnitions 494 496 497 497 498 498 499 501 501 502 504 506 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) 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 9(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.

491 Part D s DC 2 Income Tax Act 2004 Reprinted as at 29 August 2011 (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, business, capital limitation, deduction, employee, employment income, general limitation, general permission, income year, sup- plement Compare: 1994 No 164 s DF 5 Subsection (2)(a) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting the expression “:” for the expression “; or”.
DC 2 Pension payments to former employees When subsection (2) applies Subsection (2) applies when— (a) (b) (c) (d) a person, other than a close company, carries on a busi- ness; and a former employee has retired from their employment in the business or their employment has ended through redundancy or similar circumstances; and they are paid a pension in consideration of their past services in the business; and they or their spouse, civil union partner or de facto part- ner has a right to receive the pension under a deed for a ﬁxed period or for life or, in the case of the spouse, civil union partner or de facto partner, until the spouse, civil union partner or de facto partner enters a new marriage, civil union partner 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 (c) (1) (2) (3) 492 Reprinted as at 29 August 2011 Income Tax Act 2004 Part D s DC 2 (d) (e) (f) they have retired from the employment or their employ- ment has ended through redundancy or similar circum- stances; and they are paid a pension in consideration of their past services in the business; and they or their spouse, civil union partner or de facto part- ner has a right to receive the pension under a deed for a ﬁxed period or for life or, in the case of the spouse, civil union partner or de facto partner, until the spouse, civil union partner or de facto partner enters a new marriage, civil union or de facto relationship.
(4) (5) 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 FF 17(1) Section FF 17(1) (Pensions) expands 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, rela- tive, shareholder, supplement Compare: 1994 No 164 s DF 4 Subsection (1)(d) was amended, as from 26 April 2005, by section 3(1) Income Tax Amendment Act 2005 (2005 No 11) by substituting “spouse or civil union partner” for “spouse” in each place it occurs.
Subsection (1)(d) was amended, as from 26 April 2005, by section 3(1) Income Tax Amendment Act 2005 (2005 No 11) by substituting “enters a new marriage or civil union” for “remarries”.

Subsection (1)(d) was amended, as from 1 April 2007, by section 3(2) Income Tax Amendment Act 2005 (2005 No 11) by substituting “spouse, civil union 493 Part D s DC 3 Income Tax Act 2004 Reprinted as at 29 August 2011 partner or de facto partner” for “spouse or civil union partner” in each place it occurs.
Subsection (1)(d) was amended, as from 1 April 2007, by section 3(2) Income Tax Amendment Act 2005 (2005 No 11) by substituting “enters a new marriage, civil union partner or de facto relationship” for “enters a new marriage or civil union”.

Subsection (2) was amended, as from 26 April 2005, by section 3(1) Income Tax Amendment Act 2005 (2005 No 11) by substituting “spouse or civil union partner” for “spouse”.
Subsection (2) was amended, as from 1 April 2007, by section 3(2) Income Tax Amendment Act 2005 (2005 No 11) by substituting “spouse, civil union partner or de facto partner” for “spouse or civil union partner”.

Subsection (3)(f) was amended, as from 26 April 2005, by section 3(1) Income Tax Amendment Act 2005 (2005 No 11) by substituting “spouse or civil union partner” for “spouse” in each place it occurs.
Subsection (3)(f) was amended, as from 26 April 2005, by section 3(1) Income Tax Amendment Act 2005 (2005 No 11) by substituting “enters a new marriage or civil union” for “remarries”.

Subsection (3)(f) was amended, as from 1 April 2007, by section 3(2) Income Tax Amendment Act 2005 (2005 No 11) by substituting “spouse, civil union partner or de facto partner” for “spouse or civil union partner” in each place it occurs.
Subsection (3)(f) was amended, as from 1 April 2007, by section 3(2) Income Tax Amendment Act 2005 (2005 No 11) by substituting “enters a new marriage, civil union or de facto relationship” for “enters a new marriage or civil union”.

Subsection (4) was amended, as from 26 April 2005, by section 3(1) Income Tax Amendment Act 2005 (2005 No 11) by substituting “spouse or civil union partner” for “spouse”.
Subsection (4) was amended, as from 1 April 2007, by section 3(2) Income Tax Amendment Act 2005 (2005 No 11) by substituting “spouse, civil union partner or de facto partner” for “spouse or civil union partner”.

DC 3 Pension payments to former partners 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.
(1) (2) 494 Reprinted as at 29 August 2011 Income Tax Act 2004 Part D s DC 3 (3) (4) 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 (old partnership) carried on the same business as that now carried on either by the partnership that is pay- ing the pension or by the person in business who is pay- ing 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) 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, share, supplement Compare: 1994 No 164 ss DF 8A, DF 8B Subsection (3) before paragraph (a) was amended, as from 26 April 2005, by section 3(1) Income Tax Amendment Act 2005 (2005 No 11) by substituting “spouse or civil union partner” for “spouse”.
Subsection (3) before paragraph (a) was amended, as from 1 April 2007, by section 3(2) Income Tax Amendment Act 2005 (2005 No 11) by substituting “spouse, civil union partner or de facto partner” for “spouse or civil union part- ner”.

Subsection (3)(c) was amended, as from 26 April 2005, by section 3(1) Income Tax Amendment Act 2005 (2005 No 11) by substituting “spouse or civil union partner” for “spouse” in each place it occurs.
Subsection (3)(c) was amended, as from 26 April 2005, by section 3(1) Income Tax Amendment Act 2005 (2005 No 11) by substituting “enters a new marriage or civil union” for “remarries”.

Subsection (3)(c) was amended, as from 1 April 2007, by section 3(2) Income Tax Amendment Act 2005 (2005 No 11) by substituting “spouse, civil union 495 Part D s DC 4 Income Tax Act 2004 Reprinted as at 29 August 2011 partner or de facto partner” for “spouse or civil union partner” in each place it occurs.
Subsection (3)(c) was amended, as from 1 April 2007, by section 3(2) Income Tax Amendment Act 2005 (2005 No 11) by substituting “enters a new marriage, civil union or de facto relationship” for “enters a new marriage or civil union”.
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) Exclusion This section does not apply to a partnership that is engaged wholly or mainly in investing money or in holding, or deal- ing in, shares, securities, investments, or estates or interests in land.

Amount of deduction The amount of the deduction is limited to the amount of the payment authorised by the contract of service and any bonus, whether or not the payment of a bonus is authorised by the contract.
Relationship with section GD 3 This section is overridden by section GD 3 (Payment of exces- sive salary or wages, or allocation of excessive share of proﬁts or losses, to relative employed by or in partnership with tax- payer).
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 (b) (2) (3) (4) (5) 496 Reprinted as at 29 August 2011 Income Tax Act 2004 Part D s DC 6 (6) (c) (d) is entered into by all the partners in the partnership; and is in writing.
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, share, supplement Compare: 1994 No 164 s DF 8 DC 5 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, superannuation scheme, supplement Compare: 1994 No 164 s DF 2 DC 6 Contributions to employees’ superannuation schemes Deduction (1) An employer is allowed a deduction for a contribution to an employees’ superannuation scheme.
Exclusion (1B) The employer is denied a deduction for a contribution, to the extent of the amount of the tax credit under section KJ 6 (Tax credits relating to employers contributing to KiwiSaver schemes and complying superannuation funds) for the PAYE period to which the contribution relates.

(2) Timing of deduction The deduction is allocated to the income year in which the employer makes the contribution.
497 Part D s DC 7 Income Tax Act 2004 Reprinted as at 29 August 2011 (3) (4) Relationship with section EJ 19 Subsection (2) is overridden by section EJ 19 (Contributions to employees’ superannuation schemes).

Link with subpart DA This section overrides the capital limitation.

The general per- mission must still be satisﬁed and the other general limitations still apply.
Deﬁned in this Act: capital limitation, deduction, employee, employer, general limitation, general permission, income year, superannuation scheme Compare: 1994 No 164 s DF 3(1) Section DC 6(1B) heading: inserted, on 1 April 2008, by section 5 of the Tax- ation (KiwiSaver) Act 2007 (2007 No 110).

Section DC 6(1B): inserted, on 1 April 2008, by section 5 of the Taxation (Kiwi- Saver) Act 2007 (2007 No 110).
DC 7 Attribution of personal services (1) (2) (3) (4) When this section applies This section applies when, under sections GC 14B to GC 14E (which relate to the attribution rule), a person is required to attribute an amount to another person.

Deduction The person required to attribute the amount is allowed a de- duction for the amount attributed.

Timing of deduction The deduction is allocated to the income year in which the amount is attributed to the other 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: 1994 No 164 ss DJ 19, EO 6 DC 8 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).
498 Reprinted as at 29 August 2011 Income Tax Act 2004 Part D s DC 9 (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 (Restrictive covenants) or CE 10 (Exit inducements), 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: 1994 No 164 s DJ 20 DC 9 Sale of business: transferred employment income obligations (1) (2) When this section applies This section applies when— (a) (b) (c) a person (seller) sells a business, or a part of a business, to another person (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 a part of the amount that remains contingent on the employee continuing in employment or any similar factor; and the seller is treated under section EA 4(4) (Deferred payment of employment income) as having paid the amount of the provision at the time of sale.
(b) 499 Part D s DC 9 Income Tax Act 2004 Reprinted as at 29 August 2011 (3) 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 section EA 4(5) (Deferred payment of employment in- come) applies.
(b) Deduction: Buyer’s payment exceeding provision (3B) The buyer is allowed a deduction for any part of the amount of employment income that the buyer pays and that exceeds the provision made by the seller for that 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) and (3B) override the capital limitation.
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, supplement, time of the sale Compare: 1994 No 164 s DF 10 Section DC 9(2)(a): amended (with effect from 1 April 2005), on 19 December 2007, by section 35(1) of the Taxation (Business Taxation and Remedial Mat- ters) Act 2007 (2007 No 109).
Section DC 9(2)(b): amended (with effect from 1 April 2005), on 19 December 2007, by section 35(2) of the Taxation (Business Taxation and Remedial Mat- ters) Act 2007 (2007 No 109).

Section DC 9(3): substituted (with effect from 1 April 2005), on 19 December 2007, by section 35(3) of the Taxation (Business Taxation and Remedial Mat- ters) Act 2007 (2007 No 109).
Section DC 9(3B) heading: inserted (with effect from 1 April 2005), on 19 De- cember 2007, by section 35(3) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section DC 9(3B): inserted (with effect from 1 April 2005), on 19 December 2007, by section 35(3) of the Taxation (Business Taxation and Remedial Mat- ters) Act 2007 (2007 No 109).
(4) 500 Reprinted as at 29 August 2011 Income Tax Act 2004 Part D s DC 11 Subsection (4)(a) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting the expression “:” for the expression “; and”.

Section DC 9(4)(b): amended (with effect from 1 April 2005), on 19 December 2007, by section 35(4) of the Taxation (Business Taxation and Remedial Mat- ters) Act 2007 (2007 No 109).
DC 10 Transfers of employment income obligations to associates (1) (2) (3) When this section applies This section applies when— (a) (b) (c) (d) an employee of a person (person A) becomes an em- ployee of another person (person B); and person A and person B are associated persons at the time; and person B assumes person A’s obligation to pay an amount of employment income to the employee; and the employee’s becoming an employee of person B does not result from the sale by person A of a business, or a part of a business, to person B.
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, de- duction, employee, employment income, general limitation, general permission Compare: 1994 No 164 s DF 11 DC 11 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: 501 Part D s DC 12 Income Tax Act 2004 Reprinted as at 29 August 2011 (a) (b) the scheme must have the Commissioner’s approval, which must be given if the scheme meets all the criteria set out in sections DC 12 and DC 13; and the deduction is allowed only for the 5 years after the date of the loan.
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.
Group of companies If the employing company is part of a group of companies, and the share purchase scheme involves shares issued by another company in the group, the shares are treated as if they were issued by the employing company.

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, share, share purchase scheme, supplement, year Compare: 1994 No 164 s DF 7(1) (2) (3) (4) DC 12 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) 502 Reprinted as at 29 August 2011 Income Tax Act 2004 Part D s DC 12 (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) 503 Part D s DC 13 Income Tax Act 2004 Reprinted as at 29 August 2011 (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 a dividend to the repayment of any 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 13(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 13(4) and (5) then apply.
Deﬁned in this Act: amount, Commissioner, company, dividend, employee, interest, notice, period of restriction, share, share purchase scheme, trustee, year Compare: 1994 No 164 s DF 7(2)(a)-(h), (j), (k) Section DC 12(5)(d): substituted (with effect on 1 April 2005), on 6 October 2009, by section 759(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
DC 13 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- striction ends, that the Commissioner applies in determining whether or not to approve the scheme.
(1) 504 Reprinted as at 29 August 2011 Income Tax Act 2004 Part D s DC 13 (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 one 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 em- ployee 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, period of restriction, share, share purchase scheme, trustee Compare: 1994 No 164 s DF 7(2)(i) 505 Part D s DC 14 Income Tax Act 2004 Reprinted as at 29 August 2011 DC 14 Some deﬁnitions Deﬁnitions In this section, and in sections DC 11 to DC 13,— employee — (a) means a person employed by a company; and (b) does not include— (i) (ii) (iii) a director of the company; or a person who, with any associated person, holds 10% or more of the issued capital of the com- pany; or a company, a local authority, a public authority, or an unincorporated body of persons employing company, for an employee, means the company that employs the employee normal retiring age means,— (a) for an employee other than one to whom paragraph (b) applies, no less than 60 years of age: for a female employee who is entitled under a contract of employment entered into before 1 April 1978 with the employing company to retire before 60 years of age, no less than 55 years of age: for any employee, an age that is earlier than the age referred to in paragraph (a) or (b) and that the Com- missioner considers reasonable given the nature of the employment or the general terms of employment in the business or occupation of the employee (b) (c) normal retiring age: paragraphs (a) and (b) of this deﬁnition were amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscel- laneous Provisions) Act 2004 (2004 No 111) by substituting the expression “:” for the expression “; and”.
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.
(1) 506 Reprinted as at 29 August 2011 Income Tax Act 2004 Part D s DC 14 (2) (3) (4) Meaning of period of restriction In this section, and in sections DC 12 and DC 13,— (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 if this subsection did not exist.
Deﬁned in this Act: associated person, company, director, employee, employ- ing company, group of companies, group of persons, local authority, normal re- tiring age, period of restriction, public authority, share, share purchase scheme, trustee, year Compare: 1994 No 164 s DF 7(3) 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 Page 508 508 510 510 507 Part D s DD 1 Income Tax Act 2004 Reprinted as at 29 August 2011 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 FBT rules DD 10 Interpretation: reimbursement and apportionment DD 11 Some deﬁnitions 512 513 513 513 513 514 514 DD 1 Entertainment expenditure generally (1) (2) (3) (4) 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 speciﬁed in section DD 2, except for 50% of the amount that they would have been allowed if this subsection had not existed.

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: 1994 No 164 s DG 1 DD 2 Limitation rule 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) cultural, sporting, or other recreational events: (1) (2) 508 Reprinted as at 29 August 2011 Income Tax Act 2004 Part D s DD 2 (ii) activities taking place off the person’s business premises; and 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.
(b) (c) (3) (4) (5) (6) Holiday accommodation The limitation rule— (a) (b) (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 (c) 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.
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) (7) Meaning of expenditure Expenditure includes,— (a) in subsections (2) to (4),— 509 Part D s DD 3 Income Tax Act 2004 Reprinted as at 29 August 2011 (i) (ii) (iii) 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 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.
(b) Deﬁned in this Act: amount, business, business premises, deduction, depreci- ation loss, expenditure, limitation rule Compare: 1994 No 164 s DG 1(1), (3), schedule 6A, part A, cls 1-4, part B, cl 4(a) Subsection (2)(a)(i) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting the expression “:” for the expression “; or”.
Subsection (6)(a) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting the expression “:” for the expression “; or”.

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: 1994 No 164 s DG 1(2) 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 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 (b) (1) 510 Reprinted as at 29 August 2011 Income Tax Act 2004 Part D s DD 4 (2) (3) (c) the food or drink is consumed at a celebration meal, party, reception, or other similar social function.
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 13B and CW 13C (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: 1994 No 164 schedule 6A, part B, cls 1-5 Section DD 4(3) heading: substituted (with effect on 1 April 2005), on 6 Octo- ber 2009, by section 760(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 2005), on 6 October 2009, by section 760(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Subsection (3)(a) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting the expression “:” for the expression “; or”.
Section DD 4 list of deﬁned terms amount: inserted (with effect on 1 April 2005), on 6 October 2009, by section 760(3) of the Taxation (International Tax- ation, Life Insurance, and Remedial Matters) Act 2009 (2009 No34).
511 Part D s DD 5 Income Tax Act 2004 Reprinted as at 29 August 2011 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 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: 1994 No 164 schedule 6A, part B, cls 6, 8, 10, 12 (1) (2) (3) (4) 512 Reprinted as at 29 August 2011 Income Tax Act 2004 Part D s DD 9 Subsections (1)(b)(i) and (ii), (2)(a) were amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting the expression “:” for the expression “; or”.
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: 1994 No 164 schedule 6A, part B, cls 9, 11 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: 1994 No 164 schedule 6A, part B, cl 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: 1994 No 164 schedule 6A, part B, cls 13, 14 DD 9 Relationship with FBT rules Sections DD 2 to DD 8 override the FBT rules.
However, the FBT rules, as applied by section CX 25 (Entertainment), 513 Part D s DD 10 Income Tax Act 2004 Reprinted as at 29 August 2011 override sections DD 2 to DD 8 if an employee 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: 1994 No 164 s CI 1(r) Paragraph (a) was amended, as from 21 December 2004, by section 270 Taxa- tion (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting the expression “:” for the expression “; or”.
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 13, CW 13B, and CW 13C (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 Compare: 1994 No 164 s DG 1(3), (4) Section DD 10(a): amended (with effect on 1 April 2005), on 6 October 2009, by section 761 of the Taxation (International Taxation, Life Insurance, and Re- medial Matters) Act 2009 (2009 No 34).

Paragraph (a) was amended, as from 21 December 2004, by section 270 Taxa- tion (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting the expression “:” for the expression “; and”.
DD 11 Some deﬁnitions In this subpart,— business includes any recurring income-earning activity business contacts — (a) includes, for a person,— (i) their clients, customers, shareholders, other ﬁ- nanciers, and suppliers: 514 Reprinted as at 29 August 2011 Income Tax Act 2004 Part D s DD 11 (ii) the clients, customers, shareholders, other ﬁ- nanciers, and suppliers of an associated person: if the person is in partnership, does not include other partners in the partnership (b) business contacts: paragraph (a)(i) and (ii) of this deﬁnition was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscel- laneous Provisions) Act 2004 (2004 No 111) by substituting the expression “:” for the expression “; and”.
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.

business premises: paragraph (a) of this deﬁnition was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting the expression “:” for the expression “; and”.
Deﬁned in this Act: associated person, business, business contacts, business premises, shareholder Compare: 1994 No 164 schedule 6A business, business contacts, business premises 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 Page 516 516 519 519 520 520 521 521 522 523 523 515 Part D s DE 1 Income Tax Act 2004 Reprinted as at 29 August 2011 DE 12 Mileage rate method 524 Mileage rates Introductory provisions DE 1 What this subpart does (1) (2) Apportions motor vehicle expenditure This subpart sets out the rules for determining the proportion of business use of a motor vehicle to its total use when a person uses a motor vehicle partly for business purposes and partly for other purposes.
Exclusions This subpart does not apply— (a) (b) to a company: to a person whose only income is income from employ- ment: to a motor vehicle that is used only— (i) (ii) for the purpose of deriving income; or for a purpose that constitutes a fringe beneﬁt.
(c) Deﬁned in this Act: business purposes, business use, company, fringe beneﬁt, income, income from employment, motor vehicle Compare: 1994 No 164 s DH 1 Subsection (2)(a) and (b) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting the expression “:” for the expression “; or”.
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 x business proportion (2) 516 Reprinted as at 29 August 2011 Income Tax Act 2004 Part D s DE 2 (3) (4) (5) (6) Deﬁnition of item in formula In the formula, business proportion is the proportion of busi- ness 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 (7), if that subsection applies to the depreciation loss; or using the formula in subsection (8C), if that subsection applies to the depreciation loss.
(b) (c) Calculation of deduction: depreciation loss generally The formula referred to in subsection (4)(a) is— standard calculation x business proportion Deﬁnition of items in formula In the formula,— (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.
(b) When subsection (7) applies (6B) Subsection (7) applies when— (a) (b) the depreciation loss results from a calculation made for the motor vehicle under section EE 41(2) (Effect of disposal or event); and the motor vehicle was, at any time during the period the person owned it, dealt with in subsection (5).
Calculation of deduction: depreciation loss on disposal The formula referred to in subsection (4)(b) is— (7) 517 Part D s DE 2 Income Tax Act 2004 Reprinted as at 29 August 2011 (8) Deﬁnition of items in formula In the formula,— (a) disposal depreciation loss is the amount resulting from a calculation made for the vehicle under section EE 41(2) (Effect of disposal or event): 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 48 to EE 50 (which relate to base value): adjusted tax value is the vehicle’s adjusted tax value on the date on which the disposal or event occurs.
(b) (c) (d) When subsection (8C) applies (8B) Subsection (8C) applies when— (a) (b) the depreciation loss results from a calculation made for the motor vehicle under section EE 41(2) (Effect of disposal or event); and the motor vehicle starts to have a business use in the same income year as the year in which the depreciation loss arose.
Calculation of deduction: depreciation loss on disposal in certain circumstances (8C) The formula referred to in subsection (4)(c) is— disposal depreciation loss × business proportion.
Deﬁnition of items in formula In the formula,— (a) disposal depreciation loss is the amount resulting from a calculation made for the motor vehicle under section EE 41(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.
(b) (8D) 518 Reprinted as at 29 August 2011 Income Tax Act 2004 Part D s DE 4 (9) 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: adjusted tax value, amount, business use, deduction, depre- ciation loss, general limitation, general permission, income year, motor vehicle, own, private limitation, supplement Compare: 1994 No 164 ss DH 1(3), EG 2(1)(d), EG 19(4) Subsection (1)(a) was amended, as from 3 April 2006, by section 46 Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by substituting “:” for “; or”.
Subsection (4)(a) was amended, as from 18 December 2006, by section 23(1) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) by substituting “paragraph (b) or (c)” for “paragraph (b)” with appli- cation as from the 2006-07 income year.

Subsection (4)(b) was substituted, as from 18 December 2006, by section 23(2) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) with application as from the 2006-07 income year.
Subsection (4)(c) was inserted, as from 18 December 2006, by section 23(2) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) with application as from the 2006-07 income year.

Subsection (6B) was inserted, as from 18 December 2006, by section 23(3) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) with application as from the 2006-07 income year.
Subsections (8B) to (8D) were inserted, as from 18 December 2006, by section 23(4) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) with application as from the 2006-07 income year.

DE 3 Methods for calculating proportion of business use The 3 methods that may be used to calculate the proportion of business use of a motor vehicle are— actual records (section DE 5): (a) (b) a logbook (sections DE 6 to DE 11): (c) mileage rates (section DE 12).
Deﬁned in this Act: business use, motor vehicle Compare: 1994 No 164 s DH 2 Paragraphs (a) and (b) were amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting the expression “:” for the expression “; or”.
DE 4 Default method for calculating proportion of business use When this section applies This section applies when— (1) 519 Part D s DE 5 Income Tax Act 2004 Reprinted as at 29 August 2011 (a) (b) (c) 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.
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: 1994 No 164 s DH 4 the proportion of actual business use of the vehicle; and 25% of the total use of the vehicle.
(2) 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 purposes, business use, Commissioner, logbook term, motor vehicle Compare: 1994 No 164 s DH 2 DE 6 Using logbook for test period Logbook A person may keep a logbook for a test period for the purpose of establishing the proportion of the business use of a motor vehicle for an income year (or part of an income year) that falls within a logbook term.
If a person uses a logbook as a method of establishing the proportion of business use, they must also record the total distance travelled in each income year (or part of an income year) that falls within a logbook term.
Deﬁned in this Act: business use, income year, logbook term, motor vehicle Compare: 1994 No 164 s DH 3(1) 520 Reprinted as at 29 August 2011 Income Tax Act 2004 Part D s DE 8 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 purposes, business use, Commissioner, logbook term, motor vehicle Compare: 1994 No 164 s DH 3(2) 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: the day that a person acquires the motor vehicle (unless the vehicle is a replacement vehicle, which is dealt with in section DE 11): the day immediately after the last day of the previous logbook term: a day that a person speciﬁes.
(b) (c) (d) 521 Part D s DE 9 Income Tax Act 2004 Reprinted as at 29 August 2011 (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: 1994 No 164 s DH 3(3) (b) (c) Subsections (2)(a) to (c) and (3)(a) to (c) were amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting the expression “:” for the expression “; or”.
DE 9 Inadequate logbook Non-representative logbook proportion If the Commissioner considers that the proportion of business use recorded in a logbook does not, or does no longer, repre- sent the average use of a motor vehicle for business purposes during an income year that falls within a logbook term, the Commissioner may,— (a) within the logbook term, direct a person to keep a fur- ther logbook and specify another 90 day period in the logbook term for keeping the logbook; or treat a person as not having kept a logbook that applies to the logbook term.
(b) Further logbook If the Commissioner directs a person to keep a further logbook, and the proportion of business use calculated under that log- book is less by at least 20% than the proportion under the ﬁrst logbook, the Commissioner may ﬁnd that the ﬁrst logbook— represented the average use of the motor vehicle for (a) business purposes for only part of the logbook term; or did not represent that use at all.
(b) (1) (2) 522 Reprinted as at 29 August 2011 Income Tax Act 2004 Part D s DE 11 (3) (4) 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 purposes, business use, Commissioner, income year, logbook term, motor vehicle Compare: 1994 No 164 s DH 3(6), (7) DE 10 Variance during logbook term If, in any month during a logbook term, the proportion of busi- ness use in that month is less by at least 20% than the propor- tion established by the logbook, and the proportion of business use recorded in the logbook no longer represents the average use of the motor vehicle for business purposes, the logbook term must end on the last day of that month.
Deﬁned in this Act: business purposes, business use, logbook term, motor ve- hicle Compare: 1994 No 164 s DH 3(4) DE 11 Replacement vehicles For the purpose of establishing the proportion of business use of a motor vehicle, a replacement vehicle is treated in the same way as the vehicle it replaces if— (a) the logbook is likely to be representative of the average travel for business purposes for the remainder of the logbook term; and from the date of replacement, a person keeps a record of the total distance travelled by the replacement vehicle for each income year (or part of an income year) of the remaining logbook term.
(b) Deﬁned in this Act: business purposes, business use, income year, logbook term, motor vehicle Compare: 1994 No 164 s DH 3(5) 523 Part D s DE 12 Income Tax Act 2004 Reprinted as at 29 August 2011 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 purposes, business use, Com- missioner, deduction, income year, motor vehicle Subpart DF—Government grants and compensation Heading: amended, on 1 July 2008, by section 36 of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
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 Payment by claimant receiving personal service rehabilitation payment DF 4 Page 524 526 527 527 DF 1 Government grants to businesses When subsection (2) applies Subsection (2) applies when— (1) 524 Reprinted as at 29 August 2011 Income Tax Act 2004 Part D s DF 1 (a) (b) (c) (d) (e) a payment is granted by a local authority or a public authority to a person for a business carried on by the person; and the payment is in the nature of a grant or subsidy, or is a grant-related suspensory loan, but is not otherwise a payment in the nature of an advance or loan; and the payment is made to the person for expenditure that they incur, other than in a way described in subsection (3); and the person would be allowed a deduction for the expend- iture if this section did not exist; and the payment is excluded income under section CX 41 (Government grants to businesses).
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 if this section did not exist.
When subsection (4) applies Subsection (4) applies when— (a) a payment is granted by a local authority or a public authority to a person for a business carried on by the person; and the payment is in the nature of a grant or subsidy, or is a grant-related suspensory loan, but is not otherwise a payment in the nature of an advance or loan; and the payment is made to the person for expenditure that they incur in acquiring, constructing, installing, or ex- tending an item of depreciable property; and the person owns the item; and the person is allowed a deduction for an amount of de- preciation loss for the item.
(b) (c) (d) (e) (2) (3) (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.

525 Part D s DF 2 Income Tax Act 2004 Reprinted as at 29 August 2011 (6) (7) Exclusion This section does not apply to a large budget screen production grant.
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, large budget screen production grant, local authority, public au- thority, time bar Compare: 1994 No 164 s DC 1 Subsection (1)(d) was amended, as from 3 April 2006, by section 48(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by substituting “exist; and” for the expression “exist.” with application as from the income year corresponding to the 2005–06 tax year.
Subsection (1)(e) was inserted, as from 3 April 2006, by section 48(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) with application as from the income year corresponding to the 2005–06 tax year.
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) (2) (3) 526 Reprinted as at 29 August 2011 Income Tax Act 2004 Part D s DF 4 (4) (5) 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, supplement Compare: 1994 No 164 s DC 3(1)-(3) 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 Compare: 1994 No 164 s DC 3(4) DF 4 Payment by claimant receiving personal service rehabilitation payment (1) (2) When this section applies This section applies when a person (the claimant) is paid a personal service rehabilitation payment for the claimant under the Injury Prevention, Rehabilitation, and Compensation Act 2001 for an income year, and the amount of the payment is assessable income.
Deduction The claimant is allowed a deduction for the income year of the amount given by subsection (3).

527 Income Tax Act 2004 Reprinted as at 29 August 2011 (3) Formula The amount of the deduction allowed under subsection (2) is calculated using the following formula: amount paid 1 – tax rate.
(4) (5) Deﬁnition of items in formula In the formula,— (a) amount paid is the amount paid by the claimant for an income year for a key aspect of social rehabilitation re- ferred to in the deﬁnition of personal service rehabilita- tion payment in section OB 1, to the extent to which the amount is less than the amount of personal service re- habilitation payments, after any deduction of tax under this Act, paid to the claimant for the income year: tax rate is the rate at which tax is deducted under this Act from personal service rehabilitation payments for the income year.
(b) Link with subpart DA This section supplements the general permission and overrides the capital limitation and private limitation for the amount de- scribed in subsection (2).

The other general limitations still apply.


Deﬁned in this Act: assessable income, capital limitation, general limitation, general permission, income year, payment, personal service rehabilitation pay- ment, private limitation Section DF 4: added, on 1 July 2008, by section 37 of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Subpart DN—Attributed losses from foreign equity Contents Attributed controlled foreign company 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 528 Page 529 529 530 530 Reprinted as at 29 August 2011 Income Tax Act 2004 Part D s DN 2 Foreign investment fund 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: not branch equivalent 531 532 537 537 method [Repealed] DN 9 Ring-fencing cap on deduction: branch equivalent method 537 Attributed controlled foreign company loss DN 1 Attributed controlled foreign company loss Deduction (1) A person is allowed a deduction for an attributed 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: 1994 No 164 s CG 1(a) DN 2 When attributed CFC loss arises 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 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) (c) (d) (e) 529 Part D s DN 3 Income Tax Act 2004 Reprinted as at 29 August 2011 (f) (g) the CFC has a branch equivalent loss for the accounting period, under section EX 21 (Branch equivalent income or loss: calculation rules); and the CFC is not an unqualiﬁed grey list CFC for the ac- counting period, under section EX 22 (Unqualiﬁed grey list CFCs).
Deﬁned in this Act: accounting period, attributed CFC loss, branch equiva- lent loss, CFC, foreign company, grey list, income interest, income year, New Zealand resident, transitional resident Compare: 1994 No 164 ss CG 6(1), CG 7(1), CG 13(1) Paragraph (d) was substituted, as from 1 October 2005, by section 50(1) Tax- ation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Pro- visions) Act 2006 (2006 No 3) with application for: a person who becomes a transitional resident as from 1 April 2006; and as from the income year corres- ponding to the 2005–06 tax year.
See section 50(3) and (4) of that Act as to the application of this amendment.

The list of deﬁned terms was amended, as from 1 October 2005, by section 50(2) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellan- eous Provisions) Act 2006 (2006 No 3) by inserting the words “transitional resident” with application for: a person who becomes a transitional resident as from 1 April 2006; and as from the income year corresponding to the 2005–06 tax year.
See section 50(3) and (4) of that Act as to the application of this amend- ment.

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 DN 4 Ring-fencing cap on deduction Amount of deduction The deduction that a person is allowed for an attributed CFC loss from a CFC in an income year is no more than the total of— (a) any attributed CFC income of the person for the income year from another CFC that is resident in the same coun- try as the ﬁrst CFC for the relevant accounting period; and any FIF income of the person for the income year cal- culated under the branch equivalent method from a FIF that is resident in the same country.
(b) (1) 530 Reprinted as at 29 August 2011 Income Tax Act 2004 Part D s DN 5 Income only once (2) When subsection (1) is applied to an attributed CFC loss, an amount of attributed CFC income or FIF income may be used only to the extent to which the income is not used when— (a) subsection (1) is applied to another attributed CFC loss; or section DN 9 is applied to a FIF loss.
(b) Relationship with sections IE 3 and IG 4 (3) Any excess not able to be deducted because of subsection (1) is an attributed CFC net loss able to be used under section IE 3 (Attributed CFC net losses) or IG 4 (Group of companies attributed CFC net losses).
Deﬁned in this Act: accounting period, amount, attributed CFC income, at- tributed CFC loss, attributed CFC net loss, branch equivalent method, CFC, deduction, FIF, FIF income, FIF loss, income year Compare: 1994 No 164 s DP 1 Foreign investment fund loss DN 5 Foreign investment fund loss Deduction (1) A person is allowed a deduction for a FIF loss.
Ring fencing rule for loss under branch equivalent method (1B) The deduction for a FIF loss calculated under the branch equivalent method is subject to the jurisdictional ring-fencing rule in section DN 9.

(2) Ring fencing rule for loss under branch equivalent method Link with subpart DA This section supplements the general permission and overrides the capital limitation.

The other general limitations still apply.


Deﬁned in this Act: branch equivalent method, calculation method, capital limi- tation, deduction, FIF loss, general limitation, general permission, supplement Compare: 1994 No 164 ss DP 2(1), DP 3(1) Subsection (1) and the preceding heading were substituted, as from 1 April 2007, by section 24(1) Taxation (Savings Investment and Miscellaneous Provi- sions) Act 2006 (2006 No 81).
See section 24(2) of that Act for the application of this amendment for income years beginning on or after 1 April 2007.

Subsection (1B) and the preceding heading were inserted, as from 1 April 2007, by section 24(1) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81).

See section 24(2) of that Act for the application of this amendment for income years beginning on or after 1 April 2007.
531 Part D s DN 6 Income Tax Act 2004 Reprinted as at 29 August 2011 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 4, 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 sections EX 30 (Attributing interests in FIFs) and EX 31 (Direct income 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) (iib) (iic) (iid) (iie) (iii) (iv) the CFC regime exemption in section EX 32 (CFC rules exemption): the grey list exemption in section EX 33 (Exemp- tions: direct income interests in FIF in grey list country): the exemptions limited by income years in sec- tion EX 33B (Exemptions limited by income years: shares in certain grey list companies): the exemption for shares in a listed Australian company in section EX 33C (Exemption: shares in listed Australian company): the exemption for units in certain Australian unit trusts in section EX 33D (Exemption; units in certain Australian unit trusts): the Australian superannuation fund exemption in section EX 33E (Australian superannuation fund exemption): the foreign exchange control exemption in sec- tion EX 34 (Foreign exchange control exemp- tion): the exemption for a non-resident or transitional resident, in section EX 35 (Income interest of non-resident or transitional resident): (b) (c) 532 Reprinted as at 29 August 2011 Income Tax Act 2004 Part D s DN 6 (v) (vi) the immigrant’s accrued superannuation entitle- ment exemption in section EX 36 (Immigrant’s accrued superannuation entitlement exemption): the annuity or pension exemption in section EX 37 (Non-resident’s pension or annuity exemp- tion); and (d) if the person is a natural person and not acting as a trustee, the person holds, at
 any time in the year when the person is a New Zealand resident, attributing inter- ests in FIFs for which the total of the following amounts is more than $50,000: (i) if subparagraph (ii) does not apply to the interest, the cost of the interest calculated under section EX 56 (Measurement of cost): if the person acquired the interest before 1 Janu- ary 2000 and chooses, for the year or an ear- lier year, that this subparagraph and section CQ 5(1)(d)(ii) (When FIF income arises) apply to all interests acquired before 1 January 2000, half of the market value of the interest on 1 April 2007; and (ii) (db) (e) (f) if the person is acting as a trustee of a trust that meets the requirements of subsection (4), the person holds, at any time in the year, attributing interests in FIFs for which the total of the following amounts is more than $50,000: if subparagraph (ii) does not apply to the interest, (i) the cost of the interest calculated under section EX 56 (Measurement of cost): if the person acquired the interest before 1 Janu- ary 2000 and chooses, for the year or an ear- lier year, that this subparagraph and section CQ 5(1)(d)(ii) apply to all interests acquired before 1 January 2000, half of the market value of the in- terest on 1 April 2007; and (ii) 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 533 Part D s DN 6 Income Tax Act 2004 Reprinted as at 29 August 2011 (1B) relevant accounting period under sections EX 38 to EX 45B (which relate to the calculation of FIF income or loss).
Treatment of deemed transaction under section EX 51, EX 53, or EX 54B If a person is treated under section EX 51(5) (Consequences of changes in method), EX 53 (Changes in application of FIF exemptions), or EX 54B (FIF rules ﬁrst applying to interest for income year beginning on or after 1 April 2007) as disposing of or acquiring rights in an income year, the disposal or acqui- sition is ignored for the purposes of subsection (1)(d) and (db).
Look-through calculation methods (2) Despite subsection (1), if the calculation method is the ac- counting proﬁts method or branch equivalent method,— (a) FIF loss arises in the income year only if the relevant accounting period of the FIF ends during the year; and the tests in subsection (1)(a), (b), (c), and (e) are applied on the basis that references in subsection (1)(a), (b), (c), and (e) to any time in the income year are read as references to any time in the relevant accounting period.
(b) Special rule: CFC with FIF interest (3) A person with an income interest of 10% or more in a CFC can also have a FIF loss in an income year under the special rule in section EX 46 (Additional FIF income or loss if CFC owns FIF), which applies when a CFC has an attributing interest in a FIF (whether or not the CFC is an unqualiﬁed grey list CFC under section EX 22 (Unqualiﬁed grey list CFCs)).
When application of subsection (1) affected by subsection (1)(db) Subsection (1)(db) applies to the trustee of a trust for an in- come year if— (a) 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 under section OD 7 (Deﬁning when 2 persons are asso- ciated persons); and (4) 534 Reprinted as at 29 August 2011 Income Tax Act 2004 Part D s DN 6 (b) (c) (d) (ii) is required by a court order to pay damages or compensation to the beneﬁciary: 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: the settlor of the trust is the Accident Compensation Corporation: 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.
Deﬁned in this Act: accounting period, accounting proﬁts method, amount, at- tributing interest, branch equivalent method, calculation method, CFC, FIF, FIF loss, foreign company, foreign superannuation scheme, grey list, income in- terest, income year, life insurance policy, New Zealand resident, non-resident, transitional resident, trustee Compare: 1994 No 164 ss CG 7(5), CG 15(1), (2), CG 16(2) Subsection (1)(a) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; and”.
Subsection (1)(a)(ii) was amended, as from 1 February 2004, by section 25(1) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) by substituting “non-resident; and” for “non-resident:”.

Subsection (1)(b) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; and”.
Subsection (1)(b) was amended, as from 1 February 2004, by section 25(2) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) by substituting “FIFs); and” for “FIFs):”.

Subsection (1)(c)(i) to (v) were amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; or”.
Subsection (1)(c)(ii) was amended, as from 1 April 2007, by section 25(3)(a) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) by substituting “(Exemptions: direct income interests in FIF in grey list country)” for “(Grey list exemption)”.

Subsection (1)(c)(iib) to (iie) was inserted, as from 1 April 2007, by section 25(3)(b) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81).
Subsection (1)(c)(iv) was substituted, as from 1 October 2005, by section 51(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) with application for: a person who becomes a transitional resident as from 1 April 2006; and as from the income year cor- responding to the 2005–06 tax year.
535 Part D s DN 6 Income Tax Act 2004 Reprinted as at 29 August 2011 Subsection (1)(c)(vi) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; and”.

Subsection (1)(c)(vi) was amended, as from 1 February 2004, by section 25(4) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) by substituting “exemption); and” for “exemption):”.
Subsection (1)(d) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; and”.
Subsection (1)(d) was substituted, as from 1 October 2005, by section 51(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) with application for: a person who becomes a transitional resident as from 1 April 2006; and as from the income year cor- responding to the 2005–06 tax year.

See section 51(4) and (5) of that Act for the application of this amendment.
Subsection (1)(d) was amended, as from 1 February 2004, by section 25(5) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) by substituting “$50,000; and” for “$50,000:”.

Subsection (1)(d) was substituted, as from 1 April 2007, by section 25(6) Tax- ation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81).

See section 25(10) of that Act for the application of this amendment for income years beginning on or after 1 April 2007.
Section DN 6(1)(d): amended (with effect from 1 April 2007), on 19 Decem- ber 2007, by section 38(1)(a) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Subsection (1)(db) was inserted, as from 1 April 2007, by section 25(6) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81).

See section 25(10) of that Act for the application of this amendment for income years beginning on or after 1 April 2007.
Section DN 6(1)(db): amended (with effect from 1 April 2007), on 19 Decem- ber 2007, by section 38(1)(b) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Subsection (1)(e) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; and”.
Subsection (1)(e) was amended, as from 1 February 2004, by section 25(7) Tax- ation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) by substituting “time; and” for “time:”.
Subsection (1)(e) was substituted, as from 1 October 2005, by section 51(2) Tax- ation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Pro- visions) Act 2006 (2006 No 3) with application for: a person who becomes a transitional resident as from 1 April 2006; and as from the income year corres- ponding to the 2005–06 tax year.

See section 51(4) and (5) of that Act for the application of this amendment.
Subsection (1)(f) was amended, as from 1 April 2007, by section 25(8) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) by substituting “EX 45B” for “EX 45”.

See section 25(10) of that Act for the 536 Reprinted as at 29 August 2011 Income Tax Act 2004 Part D s DN 9 application of this amendment for income years beginning on or after 1 April 2007.
Section DN 6(1B) heading: inserted (with effect from 1 April 2007), on 19 De- cember 2007, by section 38(2) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section DN 6(1B): inserted (with effect from 1 April 2007), on 19 December 2007, by section 38(2) of the Taxation (Business Taxation and Remedial Mat- ters) Act 2007 (2007 No 109).
Subsection (4) and the preceding heading were inserted, as from 1 April 2007, by section 25(9) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81).

See section 25(10) of that Act for the application of this amendment for income years beginning on or after 1 April 2007.
The list of deﬁned terms was amended, as from 1 October 2005, by section 51(3) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellan- eous Provisions) Act 2006 (2006 No 3) by inserting “transitional resident” with application for: a person who becomes a transitional resident as from 1 April 2006; and as from the income year corresponding to the 2005–06 tax year.

See section 51(4) and (5) of that Act as to the application of this amendment.
DN 7 Calculation of FIF loss The amount of a FIF loss is calculated, using the relevant cal- culation method, under sections EX 38 to EX 49 (which relate to the calculation of FIF income or loss).

Deﬁned in this Act: amount, calculation method, FIF loss Section DN 7 was amended, as from 1 October 2005, by section 181 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting the expression “EX 38” for “EX 42”.
DN 8 Ring-fencing cap on deduction: not branch equivalent method [Repealed] Section DN 8 was repealed, as from 1 April 2007, by section 26(1) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81).

See section 26(2) of that Act for the application of this amendment for income years beginning on or after 1 April 2007.
DN 9 Ring-fencing cap on deduction: branch equivalent method (1) Amount of deduction If a person has a FIF loss that is calculated under the branch equivalent method, the deduction the person is allowed for the loss in an income year is no more than the total of— 537 Income Tax Act 2004 Reprinted as at 29 August 2011 (a) (b) any attributed CFC income of the person for the income year from a CFC that is resident in the same country as the FIF for the relevant accounting period of the CFC; and any FIF income of the person for the income year that is calculated under the branch equivalent method from another FIF resident in the same country.
Income only once (2) When subsection (1) is applied to a FIF loss, an amount of attributed CFC income or FIF income may be used only to the extent to which the income is not used when applying— (a) (b) subsection (1) to another FIF loss; or section DN 4 to an attributed CFC loss.

Relationship with section IE 4 (3) Any excess not able to be deducted because of subsection (1) is a FIF net loss able to be used under section IE 4 (FIF net losses).
Deﬁned in this Act: accounting period, amount, attributed CFC income, at- tributed CFC loss, branch equivalent method, CFC, deduction, FIF, FIF loss, FIF net loss, income year Compare: 1994 No 164 s DP 3 Subpart DO—Farming and aquacultural business expenditure Contents Farming DO 1 Enhancements to land, except trees DO 2 Erosion and shelter plantings DO 3 Trees on farms DO 4 DO 4B Expenditure on land: planting of listed horticultural Improvements to farm land plants DO 4C Expenditure on land: horticultural replacement planting DO 4D Accounting for expenditure on listed horticultural plants under sections DO 4B and DO 4C DO 4E Some deﬁnitions DO 5 Farming or horticulture expenditure of lessor or sublessor DO 5B Improvement destroyed or made useless 538 Page 539 540 540 541 543 546 548 549 549 550 Reprinted as at 29 August 2011 Income Tax Act 2004 Part D s DO 1 DO 6 DO 7 Improvements to aquacultural business Improvement destroyed or made useless 551 553 Aquaculture Farming DO 1 Enhancements to land, except trees 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) (b) (c) (d) (e) (f) (g) the destruction of weeds or plants detrimental to the land: the destruction of animal pests detrimental to the land: the repair of ﬂood or erosion damage to the land: the destruction of scrub, stumps, or undergrowth on the land: the clearing or removing from the land of scrub, stumps, or undergrowth: the construction on the land of fences for farming or agricultural purposes, including buying wire or wire netting for the purpose of making new or existing fences rabbit-proof: the regrassing and fertilising of all types of pasture, if the expenditure is not incurred in the course of a signiﬁ- cant capital activity.
(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 Compare: 1994 No 164 s DO 3(a)-(d), (g) Subsection (1)(a) to (e) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting the expression “:” for the expression “; or”.
Subsection (1)(f) was amended, as from 3 April 2006, by section 52(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by substituting the expression “rabbit-proof:” for the 539 Part D s DO 2 Income Tax Act 2004 Reprinted as at 29 August 2011 expression “rabbit-proof.” with application to expenditure incurred as from 1 April 2005.
Subsection (1)(g) was inserted, as from 3 April 2006, by section 52(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) with application to expenditure incurred as from 1 April 2005.

DO 2 Erosion and shelter plantings (1) (2) (3) When this section applies This section applies when a person carries on a farming or agricultural business on land in New Zealand, whether or not the business is the principal business carried on on the land.
Deduction The person is allowed a deduction for expenditure that they incur in planting or maintaining trees, whether or not on the land, for the purpose of— (a) (b) preventing or combating erosion of the land; or providing shelter to the land.

Link with subpart DA This section overrides the capital limitation.

The general per- mission must still be satisﬁed and the other general limitations still apply.
Deﬁned in this Act: business, capital limitation, deduction, general limitation, general permission, New Zealand Compare: 1994 No 164 s DO 3(e), (f) DO 3 Trees on farms When this section applies This section applies when— (a) (b) (c) a person carries on, on land in New Zealand, a farming or agricultural business that is the principal business 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 (ii) (1) 540 Reprinted as at 29 August 2011 Income Tax Act 2004 Part D s DO 4 (iii) trees planted under a forestry encouragement agreement under the Forestry Encouragement Act 1962.
(2) (3) Deduction The person is allowed the following deductions: (a) in an income year in which the person incurs expend- iture on planting trees on the land, they are allowed a deduction of the lesser of $7,500 and the expenditure that they incur; and in an income year in which the person incurs expend- iture on maintaining trees on the land, they are allowed a deduction of the lesser of $7,500 and the expenditure that they incur.

(b) Link with subpart DA This section overrides the capital limitation.
The general per- mission must still be satisﬁed and the other general limitations still apply.
Deﬁned in this Act: business, capital limitation, deduction, general limitation, general permission, income year, New Zealand Compare: 1994 No 164 s DO 7(1), (2)(e) DO 4 Improvements to farm land (1) When this section applies This section applies when— (a) a person carries on a farming or agricultural business on land in New Zealand; and an improvement described in schedule 7, part A (Ex- penditure on farming, aquacultural, and forestry im- provements) has been made to the land; and the expenditure on the improvement is not expenditure to which sections DO 4B to DO 4D apply.
(b) (c) 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 541 Part D s DO 4 Income Tax Act 2004 Reprinted as at 29 August 2011 (d) (e) (f) it is incurred in the 1995-96 income year or in a later income year, not including the income year in which the person disposes of the land.
(The income year referred to in this paragraph is 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.
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) Amount, and timing, of deduction The amount of the deduction is calculated using the formula— schedule 7 percentage x diminished value Deﬁnition of items in formula In the formula,— (a) schedule 7 percentage is the percentage set out op- posite the description of the improvement in schedule 7, part A (Expenditure on farming, aquacultural, and forestry improvements): diminished value is the diminished value of the im- provement.
(b) (4) (5) Amount, and timing, for obsolete vines or trees (6) When non-listed horticultural plants described in schedule 7, part A, item 8 (Expenditure on farming, aquacultural, and forestry improvements) have ceased to exist, or to be used in deriving income, on or after 16 December 1991,— 542 Reprinted as at 29 August 2011 Income Tax Act 2004 Part D s DO 4B (7) (8) (a) (b) (c) subsection (4) does not apply; and the amount of the deduction is the diminished value of the non-listed horticultural plants at the time they ceased to exist or to be used in deriving income; and the deduction is allocated to the income year in which the non-listed horticultural plants ceased to exist or to be used in deriving income.
Link with subpart DA This section overrides the capital limitation.

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

Order in Council to amend schedule 7 The Governor-General may from time to time by Order in Council make regulations amending schedule 7 to vary the cat- egories of improvements and percentages of diminished value of those improvements 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, own Compare: 1994 No 164 s DO 4(1)-(3)(b), (4) Subsection (1)(b) was amended, as from 1 October 2005, by section 182(1) Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “land; and” for the word “land.” with application as from income years corresponding to the 2005–06 tax year.
Subsection (1)(c) was inserted, as from 1 October 2005, by section 182(1) Tax- ation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) with application as from income years corresponding to the 2005–06 tax year.
Subsection (6) was amended, as from 1 October 2005, by section 182(2) Tax- ation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “non-listed horticultural plants” for “vines or trees” with ap- plication as from income years corresponding to the 2005–06 tax year.
Subsection (8) was inserted, as from 1 October 2005, by section 53(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) with application as from the income year corresponding to the 2005–06 tax year.
DO 4B Expenditure on land: planting of listed horticultural plants Application of section This section applies if— (1) 543 Part D s DO 4B Income Tax Act 2004 Reprinted as at 29 August 2011 (a) (b) a person carries on a farming or agricultural business (including a horticultural business) on land in New Zealand; and the land has been developed by the planting of listed horticultural plants on the land.
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 not allowed 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: 1.2 x rate x diminished value.
Deﬁnition of items in formula In the formula— (a) rate is the percentage rate determined for the type 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 4C 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 4C for the income year for the expenditure incurred in replacing the listed horticultural plant— (a) the person is allowed a deduction: (2) (3) (4) (5) (6) 544 Reprinted as at 29 August 2011 Income Tax Act 2004 Part D s DO 4B (b) (c) the amount of the deduction is the diminished value of the expenditure on the listed horticultural plant at the time that the listed horticultural plant ceases to exist or to be used in deriving assessable income: the deduction is allocated to the income year in which the listed horticultural plant ceases to exist or to be used in deriving income.
(7) Treatment of expenditure on replaced plant if deduction under section DO 4C 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 a deduction under section DO 4C 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 elect the method of making the addition by applying the method in a return of income for the income year.
(b) (c) (8) Link with subpart DA This section overrides the general permission and the capital limitation.

The other general limitations still apply.

Deﬁned in this Act: assessable income, business, capital limitation, deduction, diminished value, general limitation, general permission, income year, listed horticultural plant, planting, return of income Section DO 4B was inserted, as from 1 October 2005, by section 183 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111).
545 Part D s DO 4C Income Tax Act 2004 Reprinted as at 29 August 2011 DO 4C Expenditure on land: horticultural replacement planting Application of section This section applies to a person who carries on a horticultural business on land in New Zealand and who, in an income year (called the current income year)— (a) plants, or causes to be planted, on the land a listed horti- cultural plant as a replacement plant: regrafts, or causes to be regrafted, a listed horticultural plant on the land as a replacement plant.
(b) Deduction The person is allowed a deduction of an amount given by 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 elects 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 has had no deduction under this section for 1 or both of the 2 income years preceding the current income year, the amount of the deduction under subsection (2) is calculated using the formula— Deﬁnition of items in formula In the formula— (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) (1) (2) (3) (4) 546 Reprinted as at 29 August 2011 Income Tax Act 2004 Part D s DO 4C (5) Amount of deduction if deduction in both of 2 preceding income years If the person has had a deduction under this section for a plant- ing for both of the 2 income years preceding the current in- come year, the amount of the deduction under subsection (2) is the lesser of— (a) the amount that is calculated using the formula in sub- section (6): the amount that is calculated using the formula in sub- section (8).
(b) Formula for ﬁrst amount The ﬁrst amount is calculated using the formula (6) (7) Deﬁnition of items in formula In the formula— (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) (9) Deﬁnition of items in formula In the formula— (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) 547 Part D s DO 4D Income Tax Act 2004 Reprinted as at 29 August 2011 Timing of deduction (10) The deduction is allocated to the current income year.

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

The other general limitations still apply.


Deﬁned in this Act: assessable income, business, capital limitation, deduction, diminished value, general limitation, general permission, income year, listed horticultural plant, planting, replaced area fraction, replacement plant, return of income Section DO 4C was inserted, as from 1 October 2005, by section 183 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111).
DO 4D Accounting for expenditure on listed horticultural plants under sections DO 4B and DO 4C Separate accounting for additional listed horticultural plants if deduction under section DO 4C (1) A person to whom section DO 4B applies must, for an income year and for later income years for which subsection (2) does not apply, account separately under sections DO 4B and DO 4C for listed horticultural plants if— (a) the person has had a deduction under section DO 4C 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 4C (2) A person may, despite subsection (1), account under sections DO 4B and DO 4C 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 4C for both of the 2 income years preceding the income year.
Deﬁned in this Act: deduction, income year, listed horticultural plant, planting, replacement plant Section DO 4D was inserted, as from 1 October 2005, by section 183 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111).
548 Reprinted as at 29 August 2011 Income Tax Act 2004 Part D s DO 5 DO 4E Some deﬁnitions In this section and sections DO 4B to DO 4D— 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 4B and DO 4C, for the income year, separately from any other listed horticultural plants that are involved in the business of the person (b) plot means the land occupied by the listed horticultural plants in a planting replaced area fraction for a planting and an income year means the amount calculated using the formula— where— replacement area is the area, at the end of the income year, of the part of the plot on which listed horticultural plants in the planting are planted or regrafted during the income year as replacement plants plot area is the total area, at the end of the income year, of the plot.
Deﬁned in this Act: business, deduction, income year, listed horticultural plant, planting, plot, replaced area fraction, replacement plant Section DO 4E was inserted, as from 1 October 2005, by section 183 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111).
DO 5 Farming or horticulture expenditure of lessor or sublessor (1) 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) 549 Part D s DO 5B Income Tax Act 2004 Reprinted as at 29 August 2011 (2) (i) incurs expenditure relating to the land for which they are allowed a deduction under any of section DO 1 or DO 2 or DO 4 or DO 4B or DO 4C; or is allowed a deduction under section DO 4(2) or DO 4B(2) or DO 4C for expenditure incurred by another person relating to the land.
(ii) Relationship with section DO 1 or DO 2 or DO 4 or DO 4B or DO 4C Section DO 1 or DO 2 or DO 4 or DO 4B or DO 4C, whichever is applicable to the person, applies as if the person were per- sonally carrying on a farming or agricultural business on the land at the time they incur the expenditure or are allowed the deduction.
Deﬁned in this Act: business, deduction, estate, lease, leasehold estate, New Zealand, own, term of the lease Compare: 1994 No 164 s DO 6 The heading was amended, as from 1 October 2005, by section 184(1) Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by inserting the words “or horticulture” after the word “Farming”.
Subsection (1)(c)(i) was amended, as from 1 October 2005, by section 184(2) Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by inserting the words “or DO 4B or DO 4C” after the expression “DO 4”.

Subsection (1)(c)(i) was amended, as from 1 October 2005, by section 184(3) Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by inserting the words “or DO 4B(2) or DO 4C” after the expression “DO 4(2)”.
Subsection (2) was amended, as from 1 October 2005, by section 184(4) Tax- ation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by inserting the words “or DO 4B or DO 4C” after the expression “DO 4”.

Subsection (2) was amended, as from 1 October 2005, by section 184(5) Tax- ation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by inserting the words “or DO 4B or DO 4C” after the expression “DO 4”.
DO 5B Improvement destroyed or made useless When this section applies This section applies if, 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 7 (Ex- penditure on farming, aquacultural, and forestry im- provements) has been made for the purposes of the busi- ness; and (1) 550 Reprinted as at 29 August 2011 Income Tax Act 2004 Part D s DO 6 (2) (3) (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 4 or DO 5 for expenditure on the improvement if the improvement had not been de- stroyed or irreparably damaged and made useless; and the damage occurs in an income year that corresponds to the 2005-06 or a subsequent tax year; and the damage is caused other than as a result of the action or failure to act of the person, an agent of the person, or an associated person.
Deduction: diminished value of expenditure The person is allowed a deduction of the amount of the di- minished value, for the income year, of the expenditure on the improvement.

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

The other general limitations still apply.


Deﬁned in this Act: business, capital limitation, deduction, diminished value, general limitation, general permission, income, income year Section DO 5B was inserted, as from 1 October 2005, by section 185 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) with application as from income years corresponding to the 2005–06 tax year.
The heading to section DO 5B was amended, as from 3 April 2006, by section 54(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellan- eous Provisions) Act 2006 (2006 No 3) by omitting “by qualifying event”.

Subsection (1) (excluding the heading) was substituted, as from 3 April 2006, by section 54(2) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).
The list of deﬁned terms was amended, as from 3 April 2006, by section 54(3) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by omitting “qualifying event”.
Aquaculture DO 6 Improvements to aquacultural business (1) When this section applies This section applies when— (a) a person carries on an aquacultural business in New Zealand; and 551 Part D s DO 6 Income Tax Act 2004 Reprinted as at 29 August 2011 (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 parts B to F of schedule 7 (Expenditure on farming, aquacultural, and forestry improvements) is made for the purposes 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 referred to in this paragraph is 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) Amount, and timing, of deduction The amount of the deduction is calculated using the formula— schedule 7 percentage x diminished value (4) 552 Reprinted as at 29 August 2011 Income Tax Act 2004 Part D s DO 7 (5) (6) Deﬁnition of items in formula In the formula,— (a) schedule 7 percentage is the percentage set out opposite the description of the improvement in any of parts B to F of schedule 7 (Expenditure on farming, aquacultural, and forestry improvements): diminished value is the diminished value of the im- provement.
(b) Link with subpart DA This section overrides the capital limitation.

The general per- mission must still be satisﬁed and the other general limitations still apply.
Deﬁned in this Act: amount, business, capital limitation, deduction, diminished value, general limitation, general permission, income year, New Zealand Compare: 1994 No 164 ss DO 5(1)-(3)(b), OB 1 aquaculture DO 7 Improvement destroyed or made useless (1) When this section applies This section applies if, in an income year of a person,— (a) the person carries on an aquacultural business in New Zealand— (i) (ii) that satisﬁes section DO 6(1)(b); and for the purposes of which an improvement de- scribed in schedule 7 (Expenditure on farming, aquacultural, and forestry improvements) has been made; and (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 6 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 or a subsequent 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.
553 Income Tax Act 2004 Reprinted as at 29 August 2011 (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 Section DO 7 was inserted, as from 3 April 2006, by section 55 Taxation (De- preciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).
Subpart DP—Forestry expenditure Contents Expenditure of forestry business DP 1 Plant or machinery DP 2 Improvements to forestry land DP 3 DP 3B Improvement destroyed or made useless DP 4 DP 5 DP 6 DP 7 Forestry encouragement agreement: deductions Forestry encouragement agreement: no deduction Land contouring: no deduction Forestry business on land bought from Crown, Maori owners, or holding company: no deduction DP 8 Cost of acquiring timber: forestry business on land bought from Crown, Maori owners, or holding company DP 8B Treaty of Waitangi claim settlements: rights to take timber DP 9 Cost of acquiring timber or right to take timber: other cases DP 10 Cost of timber Page 554 556 557 558 559 560 561 561 562 563 563 564 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— 554 Reprinted as at 29 August 2011 Income Tax Act 2004 Part D s DP 1 (a) (b) (c) (d) (e) (f) (g) (h) administrative overheads, rates, rent, insurance pre- miums, or other expenses of the same kinds: 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).

(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: business, capital limitation, deduction, forestry business, general limitation, general permission, interest, New Zealand, revenue account property, standing timber, timber Compare: 1994 No 164 s DL 1(2)-(4), (7), (12), (13)(e) Subsection (1)(a) to (e), (f)(ii), (g) and (h)(ii) was amended, as from 21 Decem- ber 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provi- 555 Part D s DP 2 Income Tax Act 2004 Reprinted as at 29 August 2011 sions) Act 2004 (2004 No 111) by substituting the expression “:” for the ex- pression “; or”.
Section DP 1 list of deﬁned terms forestry business: inserted (with effect on 1 April 2005), on 7 December 2009, by section 163 of the Taxation (Conse- quential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
DP 2 Plant or machinery (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: 1994 No 164 s DL 1(5), (8) Section DP 2 list of deﬁned terms forestry business: inserted (with effect on 1 April 2005), on 7 December 2009, by section 163 of the Taxation (Conse- quential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
(1) (2) (3) (4) 556 Reprinted as at 29 August 2011 Income Tax Act 2004 Part D s DP 3 DP 3 Improvements to forestry land (1) When this section applies This section applies when— (a) (b) a person carries on a forestry business on land in New Zealand; and an improvement described in schedule 7, part G (Ex- penditure on farming, aquacultural, and forestry im- provements) 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 referred to in this paragraph is 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 7 percentage x diminished value Deﬁnition of items in formula In the formula,— (4) (5) 557 Part D s DP 3B Income Tax Act 2004 Reprinted as at 29 August 2011 (6) (a) (b) schedule 7 percentage is the percentage set out op- posite the description of the improvement in schedule 7, part G (Expenditure on farming, aquacultural, and forestry improvements): 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, forestry business, general limitation, general permission, income year, New Zealand, own Compare: 1994 No 164 s DL 2(1)-(3)(b) Section DP 3 list of deﬁned terms forestry business: inserted (with effect on 1 April 2005), on 7 December 2009, by section 163 of the Taxation (Conse- quential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
DP 3B Improvement destroyed or made useless When this section applies This section applies if, 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 or a subsequent 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.

(1) (2) 558 Reprinted as at 29 August 2011 Income Tax Act 2004 Part D s DP 4 (3) 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 Section DP 3B was inserted, as from 1 October 2005, by section 186 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) with application as from income years corresponding to the 2005–06 tax year.
The heading to section DP 3B was amended, as from 3 April 2006, by section 56(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellan- eous Provisions) Act 2006 (2006 No 3) by omitting “by qualifying event”.

Subsection (1)(b) was substituted, as from 3 April 2006, by section 56(2) Taxa- tion (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provi- sions) Act 2006 (2006 No 3).
Section DP 3B list of deﬁned terms forestry business: inserted (with effect on 1 April 2005), on 7 December 2009, by section 163 of the Taxation (Conse- quential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).

The list of deﬁned terms was amended, as from 3 April 2006, by section 56(3) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by omitting “qualifying event”.
DP 4 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) 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) planting or maintaining trees; or (b) (c) (ii) meeting administrative overheads, rates, rent, insurance premiums, or other expenses of the same kinds; or 559 Part D s DP 5 Income Tax Act 2004 Reprinted as at 29 August 2011 (3) (4) (iii) paying interest on money borrowed for the pur- pose of developing the trees and employed as capital in developing the trees.
Deduction: advance The person is allowed a deduction for expenditure that they incur in— (a) making a payment of interest for an advance made under the agreement: (b) making a payment reducing the principal of an advance made under the agreement.

Link with subpart DA This section overrides the capital limitation.

The general per- mission must still be satisﬁed and the other general limitations still apply.
Deﬁned in this Act: capital limitation, deduction, general limitation, general permission, interest Compare: 1994 No 164 s DL 6(1) Subsection (3)(a) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; or”.
DP 5 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) Link with subpart DA This section overrides the general permission.
Deﬁned in this Act: amount, deduction, exempt income, general permission Compare: 1994 No 164 s DL 6(2)(b) (2) 560 Reprinted as at 29 August 2011 Income Tax Act 2004 Part D s DP 7 DP 6 Land contouring: no deduction No deduction (1) A person who derives income under section CB 22 (Disposal of timber or right to take timber) or CB 23 (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: 1994 No 164 s DL 1(9) DP 7 Forestry business on land bought from 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 (Forestry companies and Maori investment companies).
(3) Relationship with sections FC 2, FC 2B, and FZ 2 Sections FC 2 (Interest on debentures issued in substitution for shares) and FZ 2 (Amounts owing under convertible notes deemed to be share capital and holders deemed to be share- holders) and section FC 2B (Stapled debt securities) do not apply to a qualifying debenture.

561 (b) (b) Part D s DP 8 Income Tax Act 2004 Reprinted as at 29 August 2011 (4) 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, qualifying debenture Compare: 1994 No 164 s DL 5(1)(b), (c) Section DP 7(3) heading: amended (with effect on 25 February 2008), on 6 Oc- tober 2009, by section 762(1) of the Taxation (International Taxation, Life In- surance, and Remedial Matters) Act 2009 (2009 No 34).
Section DP 7(3): amended (with effect on 25 February 2008), on 6 October 2009, by section 762(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section DP 7 list of deﬁned terms forestry business: inserted (with effect on 1 April 2005), on 7 December 2009, by section 163 of the Taxation (Conse- quential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
DP 8 Cost of acquiring timber: forestry business on land bought from Crown, Maori owners, or holding company When this section applies This section applies when a forestry company buys land with standing timber on it from a seller who is the Crown, the Maori owners, or a holding company of the forestry company.
Sellers of Maori land For the purposes of subsection (1),— (a) land sold to the forestry company by the Maori Trustee or by a trustee for a Maori owner is treated as if it had been sold by the beneﬁcial owners: land sold to the forestry company by a Maori incorpor- ation is treated as if it had been sold by the members of the incorporation.
(b) Cost of acquiring timber The cost to the forestry company of acquiring the timber is the lesser of— (a) the cost of the timber to the seller at the date of the sale; and the amount described in section CB 23(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: 1994 No 164 s DL 5(1)(d)(ii), (iii) (1) (2) (3) 562 Reprinted as at 29 August 2011 Income Tax Act 2004 Part D s DP 9 Subsection (2)(a) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; and”.
Subsection (3)(a) was amended, as from 1 October 2005, by section 187 Tax- ation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “cost of the timber” for “cost of timber”.

Section DP 8 list of deﬁned terms forestry business: inserted (with effect on 1 April 2005), on 7 December 2009, by section 163 of the Taxation (Conse- quential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
DP 8B Treaty of Waitangi claim settlements: rights to take timber (1) (2) 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.
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 8B: inserted (with effect on 1 April 2005), on 29 August 2011, by section 195 of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
DP 9 Cost of acquiring timber or right to take timber: other cases (1) Acquiring land with standing timber For a person acquiring land with standing timber on it in a dis- posal to which section CB 23 (Disposal of land with standing timber) applies, the cost of acquiring the timber is the amount that is, under section CB 23, income of the person disposing of the land.
563 Part D s DP 10 Income Tax Act 2004 Reprinted as at 29 August 2011 (2) Recharacterisation or avoidance For a person acquiring timber or a right to take timber in a dis- posal or distribution to which section FB 4 (Income derived from disposal of trading stock together with other assets of business) or FF 7 (Disposal of timber under matrimonial agree- ment) or GD 1 (Sale of trading stock for inadequate consider- ation) or GD 2 (Distribution of trading stock to shareholders of company) applies, the cost of acquiring the timber or the cost of acquiring a right to take timber is the amount treated as— the price paid or realised under section FB 4 (Income (a) derived from disposal of trading stock together with other assets of business); or the consideration under section FF 7 (Disposal of timber under matrimonial agreement); or the price realised under section GD 1 (Sale of trading stock for inadequate consideration); or the price realised under section GD 2 (Distribution of trading stock to shareholders of company).
(d) (b) (c) Deﬁned in this Act: amount, dispose, income, right to take timber, standing timber, timber Compare: 1994 No 164 ss CJ 1(2)(e)(ii), OB 1 cost DP 10 Cost of timber When this section applies This section applies when a person— (a) derives an amount on the disposal of timber and the amount is income of the person under section CB 22 (Disposal of timber or right to take timber) or CB 23 (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— (a) 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 (1) (2) (3) 564 Reprinted as at 29 August 2011 Income Tax Act 2004 Part D s DP 10 (b) 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 22 would be exempt income under section CW 1B (Treaty of Waitangi claim settlements: rights to take timber) but for section CW 1B(3).

(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, business, capital limitation, cost of timber, deduc- tion, dispose, exempt income, general permission, income year, timber, trading stock Section DP 10: substituted (with effect on 1 April 2005), on 7 December 2009, by section 155(1) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
Subsection (1)(b) was substituted, as from 1 October 2005, by section 20(1) Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) with application for expenditure incurred by a person in an income year starting on or after 10 June 2005.

Section DP 10(4B): inserted (with effect on 1 April 2005), on 29 August 2011, by section 196(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section DP 10 list of deﬁned terms exempt income: inserted (with effect on 1 April 2005), on 29 August 2011, by section 196(2) of the Taxation (Tax Ad- ministration and Remedial Matters) Act 2011 (2011 No 63).
Subpart DQ—Income equalisation schemes and environmental restoration accounts scheme This heading was amended, as from 1 October 2005, by section 21 Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) by inserting the words “and environmental restoration accounts scheme” with ap- plication as from the 2005–06 income year.
565 Income Tax Act 2004 Reprinted as at 29 August 2011 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 566 566 567 567 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 tax year described in section EH 7(3) (Deduction of deposit).

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, main income equalisation scheme, person, supple- ment, tax year Compare: 1994 No 164 s EI 3 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 42(2) (De- duction of deposit).
(2) Timing of deduction The deduction is allocated to the tax year described in section EH 42(3) (Deduction of deposit).

566 Reprinted as at 29 August 2011 Income Tax Act 2004 Part D s DQ 4 (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, person, supplement, tax year Compare: 1994 No 164 s EI 13 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 69(2) (De- duction of deposit).
(2) (3) Timing of deduction The deduction is allocated to the tax year described in section EH 69(3) (Deduction of deposit).

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, person, supplement, tax year, thinning operations income equalisation scheme Compare: 1994 No 164 ss EI 3, EI 17(2) DQ 4 Environmental restoration accounts scheme Deduction for payment (1) A person is allowed a deduction of the amount given by sec- tion EK 7 (Deduction for payment) if the person has made a payment to the Commissioner for an income year under sec- tion EK 2 (Persons who may make payment to environmental restoration account) that is not refunded under section EK 9 (Refund of payment if excess, lacking details).
Timing of deduction (2) A deduction under subsection (1) is allocated to the income year given by section EK 7 (Deduction for payment).
567 Income Tax Act 2004 Reprinted as at 29 August 2011 Deduction for transfer (3) A person is allowed a deduction for an income year of the amount given by section EK 8 (Deduction for transfer) if in the income year the person receives— (a) a transfer under section EK 15 (Transfer on request) that is treated under section EK 15(4) 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 given by section EK 8 (Deduction for transfer).

(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.
Section DQ 4 was inserted, as from 1 October 2005, by section 22(1) Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) with application for expenditure incurred by a person in an income year starting on or after 10 June 2005.
Subpart DR—Life insurance business expenditure Contents DR 1 Mortality proﬁt formula: negative result DR 2 Disposal of property DR 3 Speciﬁc deductions denied to life insurers and fully reinsured persons Page 568 569 570 DR 1 Mortality proﬁt formula: negative result When this section applies This section applies when— (1) 568 Reprinted as at 29 August 2011 Income Tax Act 2004 Part D s DR 2 (a) (b) a life insurer follows the steps in section EY 25(2) (Mor- tality proﬁt: when life insurers providing life insurance at start of income year) or EY 26(2) (Mortality proﬁt: when life insurers not providing life insurance at start of income year) for an income year and gets a negative result; and the negative result is not treated as zero because 1 of the exceptions in section EY 32(2) to (4) (Mortality proﬁt formula: individual result may be negative only in some cases) applies.
Deduction The life insurer is allowed a deduction of the amount quantiﬁed in section EY 33(2) (Mortality proﬁt formula: negative result).

Timing of deduction The deduction is allocated to the income year described in sec- tion EY 33(3) (Mortality proﬁt formula: negative result).

Link with subpart DA This section supplements the general permission.

The general limitations still apply.


Deﬁned in this Act: amount, deduction, general limitation, general permission, income year, life insurer, mortality proﬁt formula, supplement Compare: 1994 No 164 s DK 3A (2) (3) (4) DR 2 Disposal of property (1) (2) When this section applies This section applies when a life insurer disposes of any prop- erty of their life insurance business.
Exclusions This section does not apply when the property is— (a) a share to which section DB 18 (Share losses) applies; or a ﬁnancial arrangement; or property for whose cost the life insurer has already been allowed a deduction, other than for an amount of depre- ciation loss.

(b) (c) (3) Deduction The life insurer is allowed a deduction of the amount quantiﬁed in section EY 46(2) (Deductions for disposal of property).
569 Part D s DR 3 Income Tax Act 2004 Reprinted as at 29 August 2011 (4) (5) Timing of deduction The deduction is allocated to the income year described in sec- tion EY 46(3) (Deductions for disposal of 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, business, capital limitation, deduction, depreci- ation loss, ﬁnancial arrangement, general limitation, general permission, in- come year, life insurance, life insurer, property, share, supplement Compare: 1994 No 164 s DK 3B(1), (2) Subsection (4) was amended, as from 1 April 2005, by section 57(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by substituting the expression “section EY 46(3)” for the expression “section EY 46(6)” with application as from the income year corresponding to the 2005–06 tax year.
DR 3 Speciﬁc deductions denied to life insurers and fully reinsured persons No deduction (1) A life insurer is denied a deduction for— (a) (b) (c) (d) a claim payable by the life insurer under a life insurance policy; or expenditure or loss incurred by the life insurer in deriv- ing policyholder income; or a bonus or other discretionary amount added to the ac- tuarial reserves; or a premium payable by the life insurer under a life rein- surance policy.
Inclusion This section applies to a person who is carrying on a business of providing life insurance but who is treated as not carrying on a business of providing life insurance because they have full reinsurance.

Link with subpart DA This section overrides the general permission.
Deﬁned in this Act: actuarial reserves, amount, business, claim, deduction, full reinsurance, general permission, life insurance, life insurance policy, life in- surer, life reinsurance policy, loss, pay, policyholder income, premium Compare: 1994 No 164 ss DK 3, DK 3D (2) (3) 570 Reprinted as at 29 August 2011 Income Tax Act 2004 Part D s DS 1 Subpart DS—Film industry expenditure Contents DS 1 Acquiring ﬁlm rights DS 2 DS 2B Expenditure in acquiring ﬁlm, or ﬁlm right, intended for Film production expenditure disposal DS 3 Clawback of deductions for ﬁlm reimbursement schemes DS 4 Meaning of ﬁlm reimbursement scheme Page 571 572 574 575 576 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 ac- quired).
(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 any other provision of this Act except under section DS 2B.
571 Part D s DS 2 Income Tax Act 2004 Reprinted as at 29 August 2011 (5) 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, completed, deduction, ﬁlm, ﬁlm pro- duction expenditure, ﬁlm right, general limitation, general permission, New Zealand Compare: 1994 No 164 s EO 3(1)-(5), (7), (9) Section DS 1(2)(c): amended (with effect from 1 April 2005), on 19 December 2007, by section 39(1) of the Taxation (Business Taxation and Remedial Mat- ters) Act 2007 (2007 No 109).
Section DS 1(2)(d): added (with effect from 1 April 2005), on 19 December 2007, by section 39(1) of the Taxation (Business Taxation and Remedial Mat- ters) Act 2007 (2007 No 109).

Section DS 1(4): amended (with effect from 1 April 2005), on 19 December 2007, by section 39(2) of the Taxation (Business Taxation and Remedial Mat- ters) 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) 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) (2) 572 Reprinted as at 29 August 2011 Income Tax Act 2004 Part D s DS 2 (3) (4) Exclusion This section does not apply to ﬁlm production expenditure if— the ﬁlm is produced mainly for broadcast in New (a) Zealand by a person who operates a television station, a television network, or a cable television system: the ﬁlm is intended to be shown as an advertisement: section DS 2B applies to the ﬁlm production expend- iture.
(b) (c) Timing of deduction The deduction is allocated under— (a) section EJ 7 (Film production expenditure for New Zealand ﬁlms having no large budget screen production grant) or EJ 8 (Film production expenditure for other ﬁlms having no large budget screen production grant) if the ﬁlm is not one for which a large budget screen production grant is made; or section EJ 4 (Expenditure incurred in acquiring ﬁlm rights in feature ﬁlms) or EJ 5 (Expenditure incurred in acquiring ﬁlm rights in ﬁlms other than feature ﬁlms) if the ﬁlm is one for which a large budget screen produc- tion grant is made.
(b) No other deduction (5) No other deduction for ﬁlm production expenditure is allowed under any other provision of this Act except under section DS 2B.

(6) 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: capital limitation, completed, deduction, ﬁlm, ﬁlm produc- tion expenditure, ﬁlm right, general limitation, general permission, large budget screen production grant, New Zealand, supplement Compare: 1994 No 164 s EO 4(1)-(5) 573 Part D s DS 2B Income Tax Act 2004 Reprinted as at 29 August 2011 Subsection (1)(b)(i) and (ii) was amended, as from 21 December 2004, by sec- tion 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting the expression “:” for the expression “; or”.
Section DS 2(3) heading: substituted (with effect from 1 April 2005), on 19 December 2007, by section 40(1) of the Taxation (Business Taxation and Re- medial Matters) Act 2007 (2007 No 109).

Section DS 2(3): substituted (with effect from 1 April 2005), on 19 December 2007, by section 40(1) of the Taxation (Business Taxation and Remedial Mat- ters) Act 2007 (2007 No 109).
Section DS 2(4) heading: substituted (with effect from 1 April 2005), on 19 December 2007, by section 40(1) of the Taxation (Business Taxation and Re- medial Matters) Act 2007 (2007 No 109).

Section DS 2(4): substituted (with effect from 1 April 2005), on 19 December 2007, by section 40(1) of the Taxation (Business Taxation and Remedial Mat- ters) Act 2007 (2007 No 109).
Section DS 2(5): amended (with effect from 1 April 2005), on 19 December 2007, by section 40(2) of the Taxation (Business Taxation and Remedial Mat- ters) Act 2007 (2007 No 109).

DS 2B Expenditure in acquiring ﬁlm, or ﬁlm right, intended for disposal Deduction (1) A person is allowed a deduction for ﬁlm production expend- iture or expenditure incurred in acquiring a ﬁlm right if, when the person incurs the expenditure, the person intends to dis- pose of the ﬁlm or ﬁlm right.
Timing of deduction The deduction is allocated under section EA 2 (Other revenue account property).

Link with subpart DA This section overrides the capital limitation.

The general per- mission must still be satisﬁed and the other general limitations still apply.
Deﬁned in this Act: capital limitation, deduction, ﬁlm, ﬁlm production expend- iture, ﬁlm right, general limitation, general permission Section DS 2B: inserted (with effect from 1 April 2005), on 19 December 2007, by section 41(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
(2) (3) 574 Reprinted as at 29 August 2011 Income Tax Act 2004 Part D s DS 3 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 if this section did not exist.
(b) Order of reduction (2) Deductions must be reduced in the same order as they have been allowed or would be allowed.
(3) (4) 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— the person has been allowed under section DS 1 (i) or DS 2; or the person would be allowed under section DS 1 or DS 2 if this section did not exist: (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.
(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.
575 Part D s DS 4 Income Tax Act 2004 Reprinted as at 29 August 2011 (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: 1994 No 164 ss EO 4A(2)-(5), EO 4B DS 4 Meaning of ﬁlm reimbursement scheme 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 if section DS 3 did not exist: 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 associated person may meet the obligation by disposing of property.
(b) (c) 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.
(1) (2) (3) (4) 576 Reprinted as at 29 August 2011 Income Tax Act 2004 Part D s DS 4 (5) Associated persons For the purposes of subsection (3), a shareholder in a loss at- tributing qualifying company and the company are associated persons, in addition to the associated persons described in sec- tion OD 7 (Deﬁning when 2 persons are associated persons) or OD 8(3) (Further deﬁnitions of associated persons).
Deﬁned in this Act: amount, arrangement, associated person, deduction, ﬁlm income, ﬁlm reimbursement scheme, ﬁlm right, income, loss attributing quali- fying company, shareholder Compare: 1994 No 164 s EO 4A(2), (6), (7) Subsection (2)(a) and (b)(i) was amended, as from 21 December 2004, by sec- tion 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting the expression “:” for the expression “; or”.
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 licences 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 Page 578 579 579 582 582 582 583 583 584 584 585 586 587 588 588 589 590 577 Part D s DT 1A Income Tax Act 2004 Reprinted as at 29 August 2011 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 590 591 591 591 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, expenditure and loss for an income year to the extent to which it is— (a) (b) (c) petroleum exploration expenditure: petroleum development expenditure: residual expenditure.
Basis for allocation of deductions If, but for this subsection, an amount that relates to petroleum mining operations undertaken outside New Zealand would be allocated to an income year (the current year), including an amount carried forward and allocated to the current year, the amount that is allocated to the current year is no more than the amount of the person’s income derived for the current year from all petroleum mining operations undertaken outside New Zealand.
Excess allocations: carrying forward and re-instating next year (3) Any excess not able to be allocated to the current year because of the basis for allocation described in subsection (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 section IF 1 (Net losses may be 578 Reprinted as at 29 August 2011 Income Tax Act 2004 Part D s DT 2 offset against future net income) would not have allowed the excess to be carried forward to that next income year, treating the excess as a net loss for the current year.
Deﬁned in this Act: deduction, income year, net loss, New Zealand, petroleum development expenditure, petroleum exploration expenditure, petroleum min- ing operation, residual expenditure Section DT 1A: inserted (with effect on 4 March 2008), on 6 October 2009, by section 763(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section DT 1A(4): amended (with effect on 4 March 2008), on 7 December 2009, by section 156 of the Taxation (Consequential Rate Alignment and Re- medial Matters) Act 2009 (2009 No 63).

DT 1 Petroleum exploration expenditure Deduction (1) A person is allowed a deduction for petroleum exploration ex- (2) (3) 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: 1994 No 164 ss DM 1(1), (2)(a), DM 1A(1) DT 2 Arrangement for petroleum exploration expenditure and sale of property (1) What this section applies to This section applies to a person and an arrangement if— (a) the person may incur expenditure under the arrange- ment and would be allowed a deduction for the expend- iture under section DT 1; and the person or a person associated with them 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 (b) 579 Part D s DT 2 Income Tax Act 2004 Reprinted as at 29 August 2011 (c) (iii) in meeting an obligation of the person or the as- sociated person arising from a right given by the arrangement; and 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 previous income years for the ex- penditure described in subsection (1)(a) are reduced so that the total of those deductions is equal to the greater of zero and the amount calculated using the formula— previous expenditure – consideration.
Deﬁnition of items in formulas In the formulas in subsections (2) and (3),— (a) (b) (c) 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 previous income years under section DT 1(1): (2) (3) (4) 580 Reprinted as at 29 August 2011 Income Tax Act 2004 Part D s DT 2 (d) previous expenditure is the amount of expenditure for which a person would be allowed a deduction in previ- ous income years under section DT 1(1).
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).

(5B) Meaning of associated person In this section, associated person has the meaning given in sec- tion OD 7 or OD 8(3) (which relate to the meaning of associ- ated person).
(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.

(8) (9) 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: 1994 No 164 ss DM 1A, DM 1B Section DT 2(1)(c)(ii): substituted (with effect on 1 December 2007), on 6 Oc- tober 2009, by section 764(1) of the Taxation (International Taxation, Life In- surance, and Remedial Matters) Act 2009 (2009 No 34).
Section DT 2(1)(c)(iii): substituted (with effect on 1 December 2007), on 6 Oc- tober 2009, by section 764(1) of the Taxation (International Taxation, Life In- surance, and Remedial Matters) Act 2009 (2009 No 34).

Section DT 2(5B) heading: inserted (with effect on 1 April 2005), on 6 October 2009, by section 764(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section DT 2(5B): inserted (with effect on 1 April 2005), on 6 October 2009, by section 764(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
581 Part D s DT 3 Income Tax Act 2004 Reprinted as at 29 August 2011 DT 3 Acquisition of licences and permits The consideration that a person pays to acquire a prospecting licence, a prospecting permit for petroleum, or an exploration permit for petroleum from a petroleum miner is treated as pet- roleum exploration expenditure incurred in the income year in which the petroleum miner disposes of the licence or permit to the person.
Deﬁned in this Act: consideration, dispose, exploration permit, income year, petroleum exploration expenditure, petroleum miner, prospecting licence, prospecting permit Compare: 1994 No 164 s DM 3(1) 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, petroleum exploration expenditure, petroleum miner Compare: 1994 No 164 s DM 3(2) 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.
Timing of deduction For an income year, an amount of the deduction is allocated to that year, as provided by— (a) section EJ 11 (Petroleum development expenditure: de- fault allocation rule); or section EJ 11B (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).
(2) (3) 582 Reprinted as at 29 August 2011 Income Tax Act 2004 Part D s DT 7 (4) Link with subpart DA This section supplements the general permission and overrides the capital limitation.

The other general limitations still apply.


Deﬁned in this Act: capital limitation, deduction, general limitation, general permission, petroleum development expenditure, petroleum miner, supplement Compare: 1994 No 164 s DM 1(1), (2)(b) Section DT 5(1) heading: substituted (with effect on 1 April 2008), on 6 October 2009, by section 765(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 765(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 765(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 765(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,— (a) petroleum is produced in commercial quantities on a continuing basis under a petroleum permit that is the one being bought; or petroleum is produced in commercial quantities on a continuing basis under a petroleum permit that applies to the permit area in which an asset of the kind described in section CT 7(1)(b) or (c) (Meaning of petroleum min- ing asset) is to be used; or an application for a mining permit for the permit area has been made by a person entitled to a mining permit under section 32(3) of the Crown Minerals Act 1991.
(b) (c) Deﬁned in this Act: permit area, petroleum, petroleum development expend- iture, petroleum permit, petroleum mining asset Compare: 1994 No 164 s DM 1(8) DT 7 Exploratory well expenditure When this section applies This section applies when— (1) 583 Part D s DT 8 Income Tax Act 2004 Reprinted as at 29 August 2011 (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: 1994 No 164 s DM 1(9)(b) DT 8 Acquisition of certain petroleum mining assets The consideration that a person pays to acquire a petroleum mining asset, other than a prospecting licence, a prospecting permit for petroleum, or an exploration permit for petroleum, from a petroleum miner is treated as petroleum development expenditure incurred in the income year in which the petrol- eum miner disposes of the petroleum mining asset to the per- son.
Deﬁned in this Act: consideration, dispose, exploration permit, income year, petroleum, petroleum development expenditure, petroleum miner, petroleum mining asset, prospecting licence, prospecting permit Compare: 1994 No 164 s DM 3(1) 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 (1) 584 Reprinted as at 29 August 2011 (b) Income Tax Act 2004 Part D s DT 10 section EJ 14(2) (Disposal of petroleum mining asset to associate) prevents the miner from taking the full amount of a deduction allocated under section EJ 11 or EJ 11B (which relate to petroleum development ex- penditure) to the income year in which the miner dis- poses of the asset.
(2) (3) No deduction The miner is denied a deduction for the amount that section EJ 15(2) (Partnership interests and disposal of part of asset) 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: 1994 No 164 s DM 1(6) Section DT 9(1)(b): substituted (with effect on 1 April 2008), on 6 October 2009, by section 766(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section DT 9(2): substituted (with effect on 1 April 2005), on 29 August 2011 (applying for the 2005–06 and later income years), by section 197(2) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
DT 10 Disposal of petroleum mining asset outside association (1) (2) (3) 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) 585 Part D s DT 11 Income Tax Act 2004 Reprinted as at 29 August 2011 (4) (5) (6) (7) (b) (c) a person who does not hold the asset for the miner; or a person who does not hold the asset for a person asso- 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: 1994 No 164 s DM 1(7)(a) 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 (1) (2) 586 Reprinted as at 29 August 2011 Income Tax Act 2004 Part D s DT 12 (3) (4) (5) (6) (b) for various purposes, 1 of which is, as a more than merely incidental purpose, the miner being allowed a deduction under this section.

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: 1994 No 164 s DM 1(7)(b) Other expenditure DT 12 Damage to assets Deduction (1) A petroleum miner is allowed a deduction for the cost of re- pairing a damaged asset of the kind described in section CT 7(1)(b) or (c) (Meaning of petroleum mining asset).
(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: 1994 No 164 s DM 5 587 Part D s DT 13 Income Tax Act 2004 Reprinted as at 29 August 2011 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: 1994 No 164 s DM 6 DT 14 Farm-out arrangements When this section applies This section applies when a farm-in party under a farm-out ar- rangement incurs farm-in expenditure that, if it were incurred by the farm-out party, would be petroleum development ex- penditure, exploratory well expenditure, or prospecting ex- penditure.
Treatment of farm-in expenditure The farm-in expenditure is treated as if it were petroleum development expenditure, exploratory well expenditure, or prospecting expenditure, as applicable.

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

(1) (2) (3) (4) 588 Reprinted as at 29 August 2011 Income Tax Act 2004 Part D s DT 15 (5) Link with subpart DA This section supplements the general permission and overrides the capital limitation.

The other general limitations still apply.
Deﬁned in this Act: capital limitation, deduction, exploratory well expenditure, farm-in expenditure, farm-in party, farm-out arrangement, general limitation, general permission, petroleum development expenditure, prospecting expend- iture, supplement Compare: 1994 No 164 s DM 4(1) DT 15 Persons associated with petroleum miner (1) (2) (3) (4) (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 a prospecting licence or a mining licence; and the associated person— (i) undertakes petroleum mining operations in the licence area of the prospecting licence or mining licence; 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).

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, gen- eral permission, income, mining licence, petroleum miner, petroleum mining operations, prospecting licence Compare: 1994 No 164 s DK 2 589 Part D s DT 16 Income Tax Act 2004 Reprinted as at 29 August 2011 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: 1994 No 164 ss DM 1(1), DM 2 General provisions DT 17 Attribution of expenditure Petroleum permit (1) A deduction for expenditure incurred to acquire a petroleum permit is attributable to the permit area of the petroleum per- mit.
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.

Relationship with this subpart and sections GC 12 and IH 3 This section applies for the purposes of this subpart, sections GC 12 (Petroleum mining) and IH 3 (Loss carry back by pet- roleum miners), and section 91 of the Tax Administration Act 1994.
Deﬁned in this Act: permit area, petroleum permit Compare: 1994 No 164 s DM 1(4) (3) 590 Reprinted as at 29 August 2011 Income Tax Act 2004 Part D s DT 20 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: 1994 No 164 s OB 1 petroleum permit 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: 1994 No 164 ss DM 9, DM 10 (b) Paragraph (a) was amended, as from 21 December 2004, by section 270 Taxa- tion (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting the expression “:” for the expression “; and”.
DT 20 Petroleum mining operations outside New Zealand This subpart applies, with any necessary modiﬁcations, to a petroleum miner undertaking petroleum mining operations that are— (a) outside New Zealand and undertaken through a branch or a controlled foreign company; and substantially the same as the petroleum mining activ- ities governed by this subpart.
(b) Deﬁned in this Act: controlled foreign company, New Zealand, petroleum miner, petroleum mining operations Compare: 1994 No 164 s DM 7(1) 591 Income Tax Act 2004 Reprinted as at 29 August 2011 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 592 593 595 596 597 598 599 600 601 602 603 604 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.
Amount of deduction The amount of the deduction is the amount determined under section DU 2.

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

(2) (3) 592 Reprinted as at 29 August 2011 Income Tax Act 2004 Part D s DU 2 (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, capital limitation, deduction, general limitation, general permission, mining company, mining development expenditure, mining exploration expenditure, supplement Compare: 1994 No 164 s DN 1(5) DU 2 Mining exploration expenditure or mining development expenditure on acquisition of asset (1) (2) (3) 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 one described in any of subsections (3) to (6), the consideration that the company incurs 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 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 593 Part D s DU 2 Income Tax Act 2004 Reprinted as at 29 August 2011 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) 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 within which the mining company is re- quired 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— 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 consider- ation that is in cash.
(b) (c) (d) (i) (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: 1994 No 164 s DN 1(10)-(12) Subsection (2)(a) to (c) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting the expression “:” for the expression “; and”.
(4) (5) (6) 594 (1) (2) (3) Reprinted as at 29 August 2011 Income Tax Act 2004 Part D s DU 3 DU 3 Replacing or repairing asset When subsections (2) to (4) apply Subsections (2) to (4) apply 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 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.
(5) When subsections (7) and (8) apply Subsections (7) and (8) apply when— (a) a mining company complies with section CU 6(2) (Compensation and scrap payment: use to replace or repair asset); 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.
595 (b) (c) (b) (c) (d) Part D s DU 4 Income Tax Act 2004 Reprinted as at 29 August 2011 (6) (7) (8) (9) Deduction The company is allowed a deduction for the excess.

Limitation on calculation of excess amount The expenditure incurred after the last day of the period must not be taken into account to determine the existence or amount of an excess amount for the purposes of subsection (1)(c).
Mining expenditure The expenditure incurred after the last day of the period must be taken into account in the mining expenditure item of the formula in section DU 7(5).

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

The other general limitations still apply.
Deﬁned in this Act: amount, capital limitation, Commissioner, deduction, gen- eral limitation, general permission, mining company, supplement Compare: 1994 No 164 s DN 1(14)(c)(i), (d), (h) DU 4 Income appropriated to expenditure When this section applies This section applies when— (a) a mining company appropriates an amount of income to mining exploration expenditure or mining development expenditure; and the company makes the appropriation within 2 months after the end of an income year or within a longer time allowed 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) (1) (2) 596 Reprinted as at 29 August 2011 Income Tax Act 2004 Part D s DU 5 (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: 1994 No 164 s DN 1(6) DU 5 Non-mining asset used to derive income from mining (1) (2) (3) 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) 597 Part D s DU 6 Income Tax Act 2004 Reprinted as at 29 August 2011 (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: 1994 No 164 s DN 1(15)(a) DU 6 Depreciation When this section applies: ﬁrst case This section applies when— (a) a mining company acquires an asset by incurring— (i) mining exploration expenditure or mining devel- opment expenditure; or the exploration expenditure or development expenditure referred to in section DZ 12(2)(a) (Mineral mining: 1954 to 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.
(1) (2) (3) 598 Reprinted as at 29 August 2011 Income Tax Act 2004 Part D s DU 7 (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 Compare: 1994 No 164 s DN 1(7)(a)(ii), (c), (8)(c), (14)(c)(ii) 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,— (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— 599 Part D s DU 8 Income Tax Act 2004 Reprinted as at 29 August 2011 mining expenditure – income from mining.
(5) Deﬁnition of items in formula In the formula,— (a) mining expenditure is an amount consisting of— (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: 1994 No 164 ss DN 1(3), OB 1 mining outgoing excess DU 8 Meaning of asset for sections DU 1 to DU 7 Mining company’s share or interest in asset Sections DU 1 to DU 7 apply to a share or interest that a mining company has in an asset— (a) to the extent to which the mining company acquired the share or interest by incurring— (i) mining exploration expenditure or mining devel- opment expenditure: the exploration expenditure or development expenditure referred to in section DZ 12(2)(a) (Mineral mining: 1954 to 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 For the purposes of sections DU 1 to DU 7, a partner’s share or interest in each asset of the partnership is the same as the partner’s interest in the totality of the assets of the partnership.
Replaced or repaired asset For the purposes of sections DU 1 to DU 7,— (1) (2) (3) 600 Reprinted as at 29 August 2011 Income Tax Act 2004 Part D s DU 9 (a) (b) an asset that a mining company acquires by incurring expenditure in replacing or repairing the asset is the same asset as the one that was lost, destroyed, or dam- aged; and part of an asset that a mining company acquires by in- curring expenditure in repairing the asset is part of the asset that was damaged.
Deﬁned in this Act: asset, income from mining, mining company, mining de- velopment expenditure, mining exploration expenditure Compare: 1994 No 164 s DN 1(14)(f), (16), (17) Subsection (1)(a)(i) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting the expression “:” for the expression “; or”.
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 to 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.
(4) Meaning of prescribed amount Prescribed amount means 50% of the amount by which the income that the resident mining operator derives in a tax year, other than from its mining operations or associated mining op- erations, is more than the total of the expenditure and losses, for which it is allowed deductions, that it incurs in the tax year in deriving the income.
601 Part D s DU 10 Income Tax Act 2004 Reprinted as at 29 August 2011 (5) Relationship with sections IE 1, IF 1, and IH 1 Expenditure or loss of a resident mining operator for which it would be allowed a deduction in an income year if subsec- tion (3) did not exist is a net loss of the operator in the income year for the purposes of sections IE 1 (Net losses may be off- set against future net income), IF 1 (Net losses may be offset against future net income), and IH 1 (Losses of mining com- panies and petroleum miners).
Deﬁned in this Act: amount, associated mining operations, deduction, income, income year, loss, mining company, mining operations, mining outgoing ex- cess, net loss, prescribed amount, resident mining operator Compare: 1994 No 164 ss DN 4(2), (3), (5), (7), OB 1 prescribed amount DU 10 Application of sections to non-resident mining operators Sections of this subpart applying to non-resident mining operators Sections DU 1 to DU 6 and IH 4(2) and (3) (Companies en- gaged in exploring for, searching for, or mining certain min- erals) apply, with any necessary modiﬁcations, to non-resi- dent mining operators as if non-resident mining operators were mining companies, income from mining were income from a mining venture, mining 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.
(1) (2) (3) (4) 602 Reprinted as at 29 August 2011 Income Tax Act 2004 Part D s DU 11 (5) Additional modiﬁcation of section DU 6 For the purposes of subsection (1), section DU 6(1)(a)(ii) ap- plies as described in section DZ 12(2)(b) (Mineral mining: 1954 to 2005).
Deﬁned in this Act: associated mining operations, income, income from min- ing, mining company, mining operations, mining venture, non-resident mining operator Compare: 1994 No 164 s DN 5(2)(a), (c) 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: 1994 No 164 s DN 2(1) Subsection (2)(a)(ii) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting the expression “:” for the expression “; and”.
603 Part D s DU 12 Income Tax Act 2004 Reprinted as at 29 August 2011 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.
(b) (c) Exclusions The following are not included within the words “an amount written off a loan it made to the mining company” in subsec- tion (1): (a) an amount of interest that the holding company writes off; or an amount of a loan to the extent to which a mining holding company makes the loan from its reinvestment proﬁt; or an amount of a loan made on or after 1 October 1978 to the extent to which the loan— (i) is made to obtain an unfair advantage for tax pur- poses; and is excessive, having regard to previous loans made by the holding company and any other circumstances.
(ii) (b) Amount of deduction The deduction is no more than the lesser of— (a) 50% of the amount that, if this section did not exist, 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 tax year in which the amount is written off.

(2) (3) (4) 604 Reprinted as at 29 August 2011 Income Tax Act 2004 Part D s DU 12 (5) (6) Reduction of amount The amount calculated under subsection (3) is reduced in the circumstances described in section DZ 12(4) (Mineral mining: 1954 to 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, interest, loan, mining company, min- ing development expenditure, mining exploration expenditure, net income, pre- scribed proportion, reinvestment proﬁt, supplement, tax, tax year Compare: 1994 No 164 s DN 3(1), (3), (10) Section DU 12(3)(a): amended (with effect on 1 April 2005), on 6 October 2009, by section 767(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 2005), on 6 October 2009, by section 767(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 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 10B Distribution to member of co-operative company, excluded from being dividend DV 11 Maori authorities: donations DV 12 Group companies Page 606 606 608 609 611 613 614 614 615 615 616 617 618 605 Part D s DV 1 Income Tax Act 2004 Reprinted as at 29 August 2011 DV 13 Amalgamated company: expenditure on improvements 618 for farming, horticultural, aquacultural, and forestry businesses 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: 1994 No 164 s DI 3(1) DV 2 Transfer of expenditure to master fund When this section applies This section applies when— (a) a superannuation fund (member superannuation fund) invests some or all of its funds in another super- annuation fund (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).
(1) 606 Reprinted as at 29 August 2011 Income Tax Act 2004 Part D s DV 2 (2) (3) (4) 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 within 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.
(6) (7) (8) When expenditure incurred The expenditure is treated as being incurred by the master superannuation fund in the same income year as that in which it was incurred by the member superannuation fund.

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.
607 Part D s DV 3 Income Tax Act 2004 Reprinted as at 29 August 2011 (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) (ii) it supplements the general permission: 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 permis- sion, income year, notice, return of income, superannuation fund, supplement Compare: 1994 No 164 s DI 3(2), (8), (9)(a) Subsection (10)(a)(i) to (iii) was amended, as from 21 December 2004, by sec- tion 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting the expression “:” for the expression “; and”.
DV 3 Formula for calculating maximum deduction (1) (2) (3) Formula The formula referred to in section DV 2(8) is— taxable income – non-resident withholding 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 if sections DV 2 to DV 4 did not exist.
Non-resident withholding income (4) Non-resident withholding income is the total of any amounts of non-resident withholding income of any of the kinds to which section NG 4 (Non-resident withholding tax to be min- imum tax in certain cases) applies derived by the master super- 608 Reprinted as at 29 August 2011 Income Tax Act 2004 Part D s DV 4 annuation fund in the tax year in which the expenditure is in- curred.
Deﬁned in this Act: amount, deduction, non-resident withholding income, superannuation fund, tax year, taxable income Compare: 1994 No 164 s DI 3(2)(d) 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) (1A) For the avoidance of doubt, section 144 of the KiwiSaver Act 2006 applies to a registered superannuation scheme that con- verts to a KiwiSaver scheme for the purpose of determining if subsection (1)(c) applies.
(2) Surplus carried forward The member superannuation fund carries the surplus expend- iture forward to the next tax year and takes the following steps: it gets the combined expenditure by adding the surplus (a) expenditure to the expenditure (if any) incurred by it in the tax year that it chooses to treat as being incurred by the master superannuation fund: it calculates the maximum deduction for the tax year, using the formula in section DV 3: if the combined expenditure is the same as or less than the maximum deduction, it— (b) (c) 609 Part D s DV 4 Income Tax Act 2004 Reprinted as at 29 August 2011 (d) (i) treats the surplus expenditure as expenditure in- curred by the master superannuation fund in de- riving assessable income in the tax year; and applies subsections (4) to (7): (ii) if the combined expenditure is more than the maximum deduction, it— (i) carries forward the new surplus expenditure to the next tax year; and applies subsection (3).
(ii) Surplus dealt with until gone The member superannuation fund repeats the steps in subsec- tion (2) for the following tax years until all surplus expenditure is deducted.

Deduction allowed to master superannuation fund Expenditure treated under subsection (2)(c)(i) as incurred by the master superannuation fund in deriving income is allowed as a deduction in the tax year in which it is so treated.

The amount of the deduction is limited by subsection (5).
Amount of deduction The maximum amount of a deduction under subsection (4) is the maximum deduction for the tax 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 tax year in which the member superannuation fund in- curred it.

Link with subpart DA The link between this section and subpart DA (General rules) is as follows: (a) subsection (4) supplements the general permission and overrides the capital limitation.
The other general limi- tations still apply: (3) (4) (5) (6) (7) (8) 610 Reprinted as at 29 August 2011 Income Tax Act 2004 Part D s DV 5 subsection (6) overrides the general permission.

(b) Deﬁned in this Act: amount, assessable income, capital limitation, deduction, general limitation, general permission, income, superannuation fund, supple- ment, tax year Compare: 1994 No 164 s DI 3(3)-(9) Subsection (1A) was inserted, as from 1 December 2006, by section 231 Kiwi- Saver Act 2006 (2006 No 40).
See section 232 of that Act as to the transitional provision requiring all KiwiSaver contributions to be paid to the Commissioner in the ﬁrst 3 months.

See clause 2(2) KiwiSaver Act Commencement Order 2006 (SR 2006/357).

Subsection (2)(a), (b), and (c)(ii) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting the expression “:” for the expression “; and”.
Subsection (8)(a) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting the expression “:” for the expression “; and”.
Other entities DV 5 Investment funds: transfer of expenditure to master funds (1) (2) When this section applies This section applies when— (a) a group investment fund that derives category A income, a qualifying unit trust, or a superannuation fund (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 tax 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 611 Part D s DV 5 Income Tax Act 2004 Reprinted as at 29 August 2011 (b) set out in subpart EW (Financial arrangements rules); and not including— (i) expenditure on any other ﬁnancial arrangement; or expenditure on revenue account property.
(ii) 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 net loss in the tax year, with the net 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.
(b) (c) Tax year in which investment stops In the tax 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 an avail- able net loss.

(b) When expenditure incurred The expenditure is treated as being incurred by the master fund in the tax 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) (3) (4) (5) (6) 612 Reprinted as at 29 August 2011 Income Tax Act 2004 Part D s DV 6 (7) (8) (9) 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.
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, available net loss, capital limitation, category A income, Commissioner, deduction, ﬁnancial arrangement, general limitation, general permission, group investment fund, master fund, net loss, qualifying unit trust, return of income, revenue account property, superannuation fund, supplement, tax year Compare: 1994 No 164 ss DI 3B(1)-(6), (9), DI 3C(2)-(4) Subsection (10)(a) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting the expression “:” for the expression “; and”.
DV 6 Formula for calculating maximum deduction Formula used to calculate maximum deduction The formula referred to in section DV 5(6) is— taxable income – non-resident withholding income.

Deﬁnition of items in formula The items in the formula are deﬁned in subsections (3) and (4).
(1) (2) 613 Part D s DV 7 Income Tax Act 2004 Reprinted as at 29 August 2011 (3) 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 if sections DV 5 to DV 7 did not exist.
Non-resident withholding income (4) Non-resident withholding income is the total of any amounts of non-resident withholding income of any of the kinds to which section NG 4 (Non-resident withholding tax to be min- imum tax in certain cases) applies derived by the master fund in the tax year in which the expenditure is incurred.
Deﬁned in this Act: amount, deduction, master fund, non-resident withholding income, tax year, taxable income Compare: 1994 No 164 s DI 3C(1) DV 7 Carry forward of expenditure (1) (2) Member fund carrying expenditure forward For the purposes of section DV 5, if a member fund incurs more expenditure than the member fund and the master fund agree can be transferred, the member fund may carry forward the expenditure for transfer in a later tax year.
Expenditure as available net loss If the member fund carries forward expenditure in a tax year, the member fund may treat some or all of the expenditure as an available net loss.
Deﬁned in this Act: available net loss, master fund, tax year Compare: 1994 No 164 s DI 3B(7), (8) DV 8 Non-proﬁt organisations When this section applies This section applies when an incorporated or unincorporated organisation— (a) does not have the purpose of making a proﬁt for a pro- prietor, member, or shareholder; and has a constitution that prohibits a distribution of prop- erty in any form to a member, proprietor, or shareholder.
(b) Amount of deduction The organisation is allowed a deduction for the lesser of— (a) $1,000; and (1) (2) 614 Reprinted as at 29 August 2011 Income Tax Act 2004 Part D s DV 10 (3) (b) the amount that would be the organisation’s net income if this section did not exist.

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: 1994 No 164 s DJ 17 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 a tax year, beneﬁciary income of beneﬁciaries of the trust in the tax 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, supplement, tax year, trustee, trustee income Compare: 1994 No 164 ss DI 5, DI 6 Subsection (3)(a) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting the expression “:” for the expression “; and”.
DV 10 Building societies Deduction (1) A building society is allowed a deduction for— (a) (b) expenditure incurred on money borrowed by way of withdrawable shares: interest and other ﬁnancial charges incurred in provid- ing money that is used to provide an interest-free loan to a person who holds a terminating share: 615 Part D s DV 10B Income Tax Act 2004 Reprinted as at 29 August 2011 (2) (3) (4) (c) 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, termin- ating share, withdrawable share Compare: 1994 No 164 s DI 1(1) Subsection (1)(a) (b) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting the expression “:” for the expression “; and”.
DV 10B 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 24B (Distribution to member of co-operative company based on member’s transactions) from being a dividend.
Amount of deduction The amount of the deduction is the amount of the distribution that is excluded by section CD 24B from being a dividend.

(2) 616 Reprinted as at 29 August 2011 Income Tax Act 2004 Part D s DV 11 (3) (4) Timing of deduction The deduction for the distribution is allocated to the income year for which the distribution is made.

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 Section DV 10B was inserted, as from 3 April 2006, by section 58(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) with application as from the income year corresponding to the 2005–06 tax year.
DV 11 Maori authorities: donations Deduction (1) A Maori authority is allowed a deduction for— (2) (3) (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 gift of money that it makes to a society, institution, association, organisation, trust, or fund of any of the kinds described in section KC 5(1) (Rebate in respect of gifts of money).
Amount of deduction The deduction for the total of all donations and gifts made in a tax year is limited to the amount that would be the Maori authority’s net income in the tax year if this section did not exist.

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, Maori authority, net income, supplement, tax year Compare: 1994 No 164 s DI 2 Subsection (1)(a) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting the expression “:” for the expression “; and”.
Section DV 11(2): amended, on 19 December 2007, by section 42(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
617 Part D s DV 12 Income Tax Act 2004 Reprinted as at 29 August 2011 DV 12 Group companies When this section applies This section applies when,— (a) (b) (c) in a tax year, a company (company A) that is a member 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 tax 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, general limitation, general permission, income, supplement, tax year, wholly-owned group of companies Compare: 1994 No 164 s DI 4 DV 13 Amalgamated company: expenditure on improvements for farming, horticultural, aquacultural, and forestry businesses When this section applies This section applies when— (a) (b) (c) an amalgamating company ceases to exist because of a qualifying 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 (Improvements to farm land), DO 4B (Expenditure on land: planting of listed horticultural plants), DO 4C (Expenditure on land: horticultural replacement planting), or DO 6 (Im- (1) (2) (3) (1) 618 Reprinted as at 29 August 2011 Income Tax Act 2004 Part D s DV 13 provements to aquacultural business) or DP 3 (Improve- ments to forestry land) for the land or business if the amalgamation 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 (Im- provements to farm land), DO 4B (Expenditure on land: plant- ing of listed horticultural plants), DO 4C (Expenditure on land: horticultural replacement planting), or DO 6 (Improvements to aquacultural business) or DP 3 (Improvements to forestry land).
(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, qualifying amalgamation, supplement Compare: 1994 No 164 ss DL 7, DO 8 The heading was amended, as from 1 October 2005, by section 188(1) Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by inserting the word “horticultural,” after the word “farming,”.
Subsection (1) was amended, as from 1 October 2005, by section 188(2) Tax- ation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by inserting the words “DO 4B (Expenditure on land: planting of listed horti- cultural plants), DO 4C (Expenditure on land: horticultural replacement plant- ing),” before the words “or DO 6”.
Subsection (2) was amended, as from 1 October 2005, by section 188(3) Tax- ation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by inserting the words “DO 4B (Expenditure on land: planting of listed horti- cultural plants), DO 4C (Expenditure on land: horticultural replacement plant- ing),” before the words “or DO 6”.
Subpart DW—Expenditure speciﬁc to certain industries Contents DW 1 Airport operators DW 2 Bloodstock racing Page 620 620 619 Part D s DW 1 Income Tax Act 2004 Reprinted as at 29 August 2011 DW 3 Deduction for general insurance outstanding claims 621 reserve 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 to the agreement that has been allocated or distributed to any party.
(2) (3) Meaning of expenditure In subsection (1), expenditure includes a provision that is treated as expenditure or loss in the nature of interest under section OC 1(2)(h) (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: 1994 No 164 s DK 4 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) 620 Reprinted as at 29 August 2011 Income Tax Act 2004 Part D s DW 3 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) (4) Link with subpart DA This section overrides the general permission.
Deﬁned in this Act: bloodstock, business, deduction, general permission, in- come, loss Compare: 1994 No 164 s DO 1 DW 3 Deduction for general insurance outstanding claims reserve (1) (2) (3) (4) When this section applies This section applies for— (a) (b) an insurer who uses IFRS 4, Appendix D for general insurance contracts; and general insurance contracts, excluding contracts having premiums to which section FC 14 (Non-resident general insurers’ income) applies.
No deduction on account of claims For an insurer’s general insurance contracts, the insurer is not allowed a deduction relating to the insurer’s outstanding claims liability or for a claim’s expenditure or loss, except as provided by this section.

Formula for insurer’s OCR deduction For an income year (the current year), an insurer is allowed a deduction for the amount by which zero is less than the amount calculated using the formula— opening outstanding claims reserve closing outstanding claims reserve.
Deﬁnition of items in formula In the formula,— 621 Income Tax Act 2004 Reprinted as at 29 August 2011 (a) opening outstanding claims reserve is— (i) (ii) the amount of the insurer’s closing outstanding claims reserve for the income year before the cur- rent year (the prior year); or the amount of the insurer’s reserve for outstand- ing claims liability, calculated at the end of the prior year, using the basis the insurer used for tax purposes in that prior year, if the current year is the ﬁrst year that this section applies to the in- surer: (5) (6) (b) closing outstanding claims reserve is the amount of the insurer’s outstanding claims reserve, calculated at the end of the current year.
Deduction for payments of current claims The insurer is allowed a deduction for the amount of expend- iture or loss of a claim paid to an insured under a general in- surance contract.

Link with subpart DA This section supplements the general permission.

The general limitations still apply.


Deﬁned in this Act: amount, deduction, general insurance contract, general limitation, general permission, IFRS 4, income year, insurer, life insurer, out- standing claims reserve Section DW 3: added (with effect on 1 April 2006), on 6 October 2009, by section 768(1) of the Taxation (International Taxation, Life Insurance, and Re- medial Matters) Act 2009 (2009 No 34).
Subpart DX—Other expenditure Contents Page 622 DX 1 Testamentary annuities DX 1 Testamentary annuities 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) (1) 622 Reprinted as at 29 August 2011 (ii) (2) (3) (4) (5) Income Tax Act 2004 Part D s DX 1 (b) (c) (b) because of a court order under the Family 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.
Amount of deduction The deduction is limited in a tax year to the amount that would be the net income of the owner for the tax year if the owner’s only income in the tax 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) 623 Income Tax Act 2004 Reprinted as at 29 August 2011 (6) 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, net income, private limitation, supplement, tax year Compare: 1994 No 164 s DD 2 Subsection (3)(a) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting the expression “:” for the expression “; and”.
Subpart DY—Deductions under Parts F to I Contents DY 1 Amounts that are deductions under Parts to be rewritten DY 2 Amounts that are not deductions under Parts to be rewritten Page 624 625 DY 1 Amounts that are deductions under Parts to be rewritten Deduction (1) An amount of expenditure or loss is allowed as a deduction if it is allowed as a deduction under a provision in any of Parts F to I.
General permission and general limitations (2) A provision in any of Parts F to I may, without expressly stating so, supplement the general permission or override any 1 or more of— (a) (b) (c) (d) (e) (f) (g) Deﬁned in this Act: amount, capital limitation, deduction, employment limi- tation, exempt income limitation, general limitation, general permission, loss, non-residents’ foreign-sourced income limitation, private limitation, supple- ment, withholding tax limitation the general permission; or the capital limitation; or the private limitation; or the exempt income limitation; or the employment limitation; or the withholding tax limitation; or the non-residents’ foreign-sourced income limitation.
624 Reprinted as at 29 August 2011 Income Tax Act 2004 Part D s DY 2 DY 2 Amounts that are not deductions under Parts to be rewritten No deduction (1) An amount of expenditure or loss is denied as a deduction if it is denied as a deduction under a provision in any of Parts F to I.

General permission (2) A provision in any of Parts F to I may, without expressly stat- ing so, override the general permission or any provision that supplements the general permission.
Deﬁned in this Act: amount, deduction, general permission, loss, supplement Compare: 1994 No 164 s BD 2(2)(f) 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 1 DZ 3 October 1990 to 15 December 1991 DZ 4 Expenditure on abandoned exploratory well before 16 DZ 5 DZ 6 DZ 7 December 1991 Farm-out arrangements for petroleum mining before 16 December 1991 Partnership interests and disposal of part of asset before 16 December 1991 Petroleum mining operations outside New Zealand before 16 December 1991 DZ 8 Buying patent rights before 1 April 1993 Premium paid on land leased before 1 April 1993 DZ 9 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 to 2005 DZ 13 Enhancements to land unamortised at end of 2004-05 year DZ 14 Patent applications before 1 April 2005 DZ 15 Geothermal wells between 31 March 2003 and 17 May 2006 DZ 16 Expenditure on improvements to aquacultural business before 1995-96 income year Page 626 626 628 629 630 632 632 632 633 633 634 636 638 638 639 640 625 Part D s DZ 1 Income Tax Act 2004 Reprinted as at 29 August 2011 DZ 17 Expenditure on improvements to forestry land before 641 1995-96 income year 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, matrimonial agreement, supplement Compare: 1994 No 164 s DJ 16 Subsection (1) was amended, as from 26 April 2005, by section 3(1) Income Tax Amendment Act 2005 (2005 No 11) by substituting “relationship agreement” for “matrimonial agreement”.
DZ 2 Life insurers acquiring property before 1 April 1988 When this section applies This section applies when— (a) (b) 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) (1) 626 Reprinted as at 29 August 2011 Income Tax Act 2004 Part D s DZ 2 (2) (3) (c) (d) (e) the life insurer, as part of the business, acquired property before 1 April 1988; and the life insurer, as part of the business, disposes of the property; and either— (i) the life insurer has not already been allowed a de- duction for the property, whether under section DR 2 (Disposal of property) or any other provi- sion; or the life insurer has been allowed a deduction for the property, but only for an amount of depreci- ation loss or because of the application of the old ﬁnancial arrangements rules or the ﬁnancial ar- rangements rules; and (ii) (f) section DR 2 (Disposal of property) does not apply to the disposal.
Deduction The life insurer is allowed a deduction for the amount quanti- ﬁed in section EZ 1 (Life insurers acquiring property before 1 April 1988).
Meaning of superannuation policy Superannuation policy means a life insurance policy— (a) that— (i) is vested in a superannuation fund that was or was treated as being a superannuation category 1 scheme on or before 17 December 1987, not in- cluding a scheme that was classiﬁed by the Gov- ernment Actuary as a personal pension super- 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.
627 Part D s DZ 3 Income Tax Act 2004 Reprinted as at 29 August 2011 (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, 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 insurer, old ﬁnancial arrangements rules, property, superannuation category 1 scheme, superannuation fund, superannuation policy, superannuation scheme Compare: 1994 No 164 ss DK 3C, OB 1 superannuation policy 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 min- ing development expenditure incurred by them on or after 1 October 1990 and before or on 15 December 1991.
This sub- section is overridden by subsection (2).

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

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.
(2) (3) (4) 628 Reprinted as at 29 August 2011 Income Tax Act 2004 Part D s DZ 4 (5) 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: 1994 No 164 s DM 1(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— (a) the miner seals and abandons the well before commer- cial production from the well starts; and the expenditure has not been deducted in any previous income year.
(b) (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 a mining licence over the area containing 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, ex- ploratory well, general limitation, general permission, income year, mining li- cence, petroleum miner, petroleum mining operations, seal and abandonment Compare: 1994 No 164 ss DM 1(5)(c), OB 1 seal and abandonment 629 Part D s DZ 5 Income Tax Act 2004 Reprinted as at 29 August 2011 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 previous income year.
The deduction is allowed under section DT 1 (Petroleum exploration expenditure) or DT 5 (Petroleum development expenditure).
Deduction: excess expenditure incurred on or after 16 December 1991 (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 (Petroleum exploration expenditure) or DT 5 to DT 7 (which relate to petroleum development expend- iture) and quantiﬁed and allocated under whichever of sections EJ 11 to EJ 14 (which relate to petroleum 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) the petroleum permit to which the farm-out ar- rangement relates; and (b) (4) 630 Reprinted as at 29 August 2011 Income Tax Act 2004 Part D s DZ 5 (5) (6) (7) (ii) a licence-speciﬁc asset or permit-speciﬁc asset held for conducting petroleum mining operations under the petroleum permit.
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— residual expenditure; and (a) expenditure incurred on or before the date on which the (b) application for a prospecting licence or prospecting per- mit for petroleum was submitted for the relevant licence area; and expenditure that is neither petroleum exploration ex- penditure nor petroleum development expenditure.
(c) Some deﬁnitions In subsections (2) to (5), excess expenditure, farm-out arrangement, licence-speciﬁc assets, permit-speciﬁc asset, transferee, and transferor have the same meanings as in section 214D of the Income Tax Act 1976 immediately before its repeal by section 15 of the Income Tax Amendment Act (No 5) 1992.

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, exploratory well expenditure, farm-out arrangement, general limitation, general permission, income year, licence-speciﬁc assets, permit-speciﬁc asset, petrol- eum, petroleum development expenditure, petroleum exploration expenditure, petroleum mining operations, petroleum permit, prospecting licence, prospect- ing permit, residual expenditure, supplement, transferee, transferor Compare: 1994 No 164 s DM 4(2), (3) 631 Part D s DZ 6 Income Tax Act 2004 Reprinted as at 29 August 2011 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: 1994 No 164 ss DM 9, DM 10 (b) Section DZ 6 was amended, as from 1 October 2005, by section 189 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting the expression “DZ 3” for the expression “DZ 2”.
Paragraph (a) was amended, as from 21 December 2004, by section 270 Taxa- tion (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting the expression “:” for the expression “; and”.
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: 1994 No 164 s DM 7(1) Section DZ 7 was amended, as from 1 October 2005, by section 190 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting the expression “DZ 3” for the expression “DZ 2”.
DZ 8 Buying patent rights before 1 April 1993 When this section applies This section applies when a person buys patent rights before 1 April 1993 and uses them in deriving their income.

In this sec- tion, if the person dies after incurring expenditure on buying the rights, references to the person include their personal rep- (1) 632 Reprinted as at 29 August 2011 Income Tax Act 2004 Part D s DZ 10 (2) (3) resentative, a trustee of their estate, and a beneﬁciary of their estate.
Deduction The person is allowed a deduction of the amount quantiﬁed in section EZ 5(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: 1994 No 164 s EZ 5(1), (3), (4) DZ 9 Premium paid on land leased before 1 April 1993 (1) (2) (3) When this section applies This section applies when a person (person A) leases land that they use in deriving their income and a grant or renewal of the lease occurs before 1 April 1993.
Deduction Person A is allowed a deduction of the amount quantiﬁed in section EZ 6(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: 1994 No 164 s EZ 6 DZ 10 General insurance with risk period straddling 1 July 1993 (1) 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 (b) 633 Part D s DZ 11 Income Tax Act 2004 Reprinted as at 29 August 2011 (2) (3) (c) the contract covers a period of risk starting before 1 July 1993 and ending after 1 July 1993.
No deduction (with exception) The company is denied a deduction for an amount payable under the contract unless the event giving rise to the payment occurs on or after 1 July 1993.

Link with subpart DA This section overrides the general permission.
Deﬁned in this Act: amount, business, company, deduction, general insurance, general permission, insurance contract, New Zealand, pay, payment Compare: 1994 No 164 s CZ 6(c)(i), (ii), (vi) DZ 11 Film reimbursement scheme on or before 30 June 2001 Film reimbursement scheme Section DS 3 (Clawback of deductions for ﬁlm reimbursement schemes) does not apply to a deduction for expenditure that relates to a ﬁlm and is incurred by a person (person A) under a ﬁlm reimbursement scheme if— (a) the scheme is entered into on or before 30 June 2001; and the ﬁlm has, under section EJ 6 (Certiﬁcation of New Zealand ﬁlms),— (i) (ii) a ﬁnal certiﬁcate that it is a New Zealand ﬁlm; or a provisional certiﬁcate, not obtained by the pro- vision of materially incorrect information to the New Zealand Film Commission, that it is a New Zealand ﬁlm; and the ﬁlm had not been completed before 7 July 1999; and before 7 July 1999,— (i) 1 or more contracts had been entered into for the supply of goods or services in New Zealand in relation to the ﬁlm; and at least $1,000,000 of expenditure had been in- curred under the contract or contracts; and on or before 1 November 1999, a person who entered into a contract referred to in paragraph (d)(i) gave no- tice to the Commissioner that the requirements in para- graphs (c) and (d) were met; and (ii) (b) (c) (d) (e) (1) 634 Reprinted as at 29 August 2011 Income Tax Act 2004 Part D s DZ 11 (f) 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) all expenditure incurred by person A under the scheme; and a return on each amount of
 expenditure that is equivalent to the return on 5 year government stock measured on the date that the scheme is entered into; and (ii) (h) if the expenditure is incurred on depreciable intangible property of a kind listed in schedule 17 (Depreciable intangible property), the expenditure is an amount paid to person B in the circumstances described in subsection (2).
(2) Circumstances for purposes of subsection (1)(h) For the purposes of subsection (1)(h), the circumstances are that— (a) (b) the amount paid is income of person B; or at all times in the tax year in which the payment is made, person B— (i) (ii) (iii) is resident in a country or territory speciﬁed in schedule 3, 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 terri- tory speciﬁed in schedule 3, part B (International tax rules: grey list countries).
635 Part D s DZ 12 Income Tax Act 2004 Reprinted as at 29 August 2011 (3) (4) Some deﬁnitions In this section,— government stock means stock issued under Part 6 of the Public Finance Act 1989 physical cost of production means the expenditure incurred in producing a ﬁlm, whether incurred in New Zealand or else- where, other than expenditure incurred— (a) (b) in marketing or selling the ﬁlm; and on depreciable intangible property of a kind listed in schedule 17 (Depreciable intangible property).
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, physical cost of pro- duction, tax year, year Compare: 1994 No 164 s EO 4A(2A), (2B), (8) DZ 12 Mineral mining: 1954 to 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) (ii) 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 (iii) (iv) section DN 1(5) of the Income Tax Act 1994; and 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.
(ii) (iii) (iv) (b) (1) 636 Reprinted as at 29 August 2011 Income Tax Act 2004 Part D s DZ 12 (2) (3) (4) Sections CU 11(1)(a)(ii) and DU 6(1)(a)(ii) For the purposes of sections CU 11(1)(a)(ii) (Meaning of as- set for sections CU 3 to CU 10) and DU 6(1)(a)(ii) (Depreci- ation),— (a) for a mining company, the expenditure is that referred to in section 27(3)(a) of the Land and Income Tax Amend- ment Act 1971; and for a resident mining operator or a non-resident mining operator,— (i) (b) the expenditure, for section CU 11(1)(a)(ii), is that referred to in paragraph (i) of item “a” of the formula in section 31(3) of the Land and Income Tax Amendment Act (No 2) 1972; and the asset, for section DU 6(1)(a)(ii), is that re- ferred to in paragraph (i) of item “a” of the for- mula in section 31(3) of the Land and Income Tax Amendment Act (No 2) 1972.
(ii) Section DU 12 This subsection applies if section DU 12 (Amount written off by holding company) would have applied to a loan by a com- pany to another company made on or before 31 March 1979 if the Income Tax Amendment Act 1979 had not been enacted.

The section applies, as far as applicable, to such a loan as if section 45 of the Income Tax Amendment Act 1979 were the only provision of it that had been enacted.
Section DU 12(5) For the purposes of section DU 12(5) (Amount written off by holding company), 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 per- son was allowed a deduction under section 159 of the Income Tax Act 1976, the part of the amount calculated under sec- tion 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, resident mining oper- ator Compare: 1994 No 164 ss DN 1(13)(a), DN 3(3), (11), DN 4(5), (7) 637 Part D s DZ 13 Income Tax Act 2004 Reprinted as at 29 August 2011 DZ 13 Enhancements to land unamortised at end of 2004-05 year (1) (2) (3) When this section applies This section applies when— (a) a person is allowed under section DO 4(1) of the Income Tax Act 1994 a deduction of an amount given by section DO 4(3)(a) or (c) of that Act for expenditure incurred in carrying on a farming or agricultural business on land in New Zealand; and at the end of the 2004-05 income year, part of the expenditure (unamortised balance) remains to be allowed as a deduction in later income years (c) (b) Deduction can be claimed under sections DO 1 to DO 3 The person is allowed a deduction for the unamortised balance of expenditure in the income year in which the expenditure is of beneﬁt to the business.
Link with subpart DA This section supplements the general permission and overrides the capital limitation.

The other general limitations still apply.

Deﬁned in this Act: capital limitation, deduction, general limitation, general permission, income year, supplement Subsection (1)(a) was substituted, as from 1 April 2005, by section 23(1) Taxa- tion (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) with application as from the 2005–06 income year.
Subsection (1)(b) was amended, as from 1 April 2005, by section 23(2) Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) by substituting “allowed as a deduction in later income years” for “claimed as a deduction in later income years; and” with application as from the 2005–06 income year.
Subsection (1)(c) was repealed, as from 1 April 2005, by section 23(3) Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) with application as from the 2005–06 income year.

Subsection (2) was substituted, as from 1 April 2005, by section 23(4) Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) with application as from the 2005–06 income year.
DZ 14 Patent applications before 1 April 2005 When this section applies This section applies if— (1) 638 Reprinted as at 29 August 2011 Income Tax Act 2004 Part D s DZ 15 (a) (b) (c) (d) a patent is granted to a person in their 2005–06 or later income year; and the patent is granted in relation to a patent application owned by the person; and the patent application, with a complete speciﬁcation, was ﬁrst lodged with the Intellectual Property Ofﬁce of New Zealand or a similar ofﬁce in another jurisdiction before 1 April 2005; and a deduction for expenditure on the patent application is not allowed 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— Deﬁnition of items in formula In the formula,— (a) cost means the cost to the person of the patent applica- tion: (b) months of ownership means the number of whole cal- endar months for which the person owns the patent ap- plication.

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 Sections DZ 14 to DZ 17 were inserted, as from 1 April 2005, by section 27(1) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) with application as from the 2005-06 income year.

See section 27(2) of that Act for the application.
(2) (3) (4) DZ 15 Geothermal wells between 31 March 2003 and 17 May 2006 When this section applies This section applies to a person’s geothermal well, if— (1) 639 Part D s DZ 16 Income Tax Act 2004 Reprinted as at 29 August 2011 (a) (b) the well’s geothermal energy proving period ends be- tween 31 March 2003 and 17 May 2006; and the well is— (i) both started and completed between 31 March 2003 and 17 May 2006: acquired between 31 March 2003 and 17 May 2006; and (ii) (2) (3) (c) a deduction for expenditure on the well is not allowed under any provision except this one.
Deduction The person is allowed, in the income year in which the well’s geothermal energy proving period ends, 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 Sections DZ 14 to DZ 17 were inserted, as from 1 April 2005, by section 27(1) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) with application as from the 2005-06 income year.

See section 27(2) of that Act for the application.
DZ 16 Expenditure on improvements to aquacultural business before 1995-96 income year When this section applies This section applies to a person and an income year and ex- penditure— (a) incurred before the 1995-96 income year in making an improvement for the purposes of an aquacultural busi- ness; and for which the person would be allowed under section DO 6 (Improvements and aquacultural business) a de- duction in the income year if the expenditure had been incurred in the 1995-96 income year or a later income year.
(b) (1) 640 Reprinted as at 29 August 2011 Income Tax Act 2004 Part D s DZ 17 (2) (3) (4) (5) Deduction The person is allowed a deduction in the income year for the expenditure.

Amount of deduction The amount of the deduction is calculated using the formula— 125% x 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 any of schedule 7, parts B to F, column 2 (Expenditure on farming, aqua- cultural, and forestry improvements): diminished value means the diminished value of the improvement.

(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 Sections DZ 14 to DZ 17 were inserted, as from 1 April 2005, by section 27(1) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) with application as from the 2005-06 income year.

See section 27(2) of that Act for the application.
DZ 17 Expenditure on improvements to forestry land before 1995-96 income year (1) When this section applies This section applies to a person and an income year and ex- penditure— (a) incurred before the 1995-96 income year in making an improvement on land; and for which the person would be allowed under section DP 3 (Improvements to forestry land) a deduction in the income year if the expenditure had been incurred in the 1995-96 income year or a later income year.
(b) (2) Deduction The person is allowed a deduction in the income year for the expenditure.

641 (3) (4) (5) Income Tax Act 2004 Reprinted as at 29 August 2011 Amount of deduction The amount of the deduction is calculated using the formula— 125% x 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 7, part G, column 2 (Expenditure on farming, aquacultural, and forestry improvements): diminished value means the diminished value of the improvement.

(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 Sections DZ 14 to DZ 17 were inserted, as from 1 April 2005, by section 27(1) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) with application as from the 2005-06 income year.

See section 27(2) of that Act for the application.
Part E Timing and quantifying rules Contents 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 Page 665 666 667 669 673 673 642 Reprinted as at 29 August 2011 Income Tax Act 2004 Part D s DZ 17 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 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 $5,000 Low value trading stock Subpart EC—Valuation of livestock Introductory provisions Livestock valuation methods EC 1 Application of this subpart EC 2 Valuation of livestock EC 3 EC 4 Value of livestock on death of person [Repealed] EC 5 EC 5B Transfer of livestock because of self-assessed adverse Transfers of livestock within wholly-owned groups event Valuation of speciﬁed livestock EC 6 Application of sections EC 7 to EC 27 EC 7 Valuation methods 675 675 676 677 678 679 680 681 681 682 683 684 684 684 684 685 686 687 688 688 689 691 692 692 693
 693 694 695 695 643 Income Tax Act 2004 Reprinted as at 29 August 2011 EC 8 Restrictions on use of herd scheme EC 9 Restrictions on use of national standard cost scheme EC 10 Restrictions on use of cost price method EC 11 Restrictions on making of elections EC 12 Interests in livestock EC 13 Changes in partnership interests Herd scheme EC 14 Herd scheme EC 15 Determining national average market values EC 16 Valuation under herd scheme EC 17 Herd value ratio EC 18 Inaccurate herd value ratio EC 19 Chatham Islands adjustment to herd value EC 20 Herd livestock disposed of before values determined EC 21 Herd livestock on death before values determined National standard cost scheme EC 22 National standard cost scheme EC 23 Determining national standard costs EC 24 Methods for determining costs using national standard cost scheme EC 25 Cost price, replacement price, or market value EC 26 Bailee’s treatment of livestock Other methods 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 Reprinted as at 29 August 2011 Income Tax Act 2004 Part D s DZ 17 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 2 Transfers of certain excepted ﬁnancial arrangements within wholly-owned groups 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?
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 717 717 718 719 721 722 722 723 723 724 724 727 729 733 735 736 736 737 738 739 740 741 743 743 744 645 Income Tax Act 2004 Reprinted as at 29 August 2011 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 24B Depreciation loss for plant variety rights application upon grant of rights in 2005–06 or later income year Depreciation rates EE 25 Setting of economic depreciation rate EE 25B Economic rate for certain depreciable property EE 25C Economic rate for buildings EE 25D Economic rate for certain aircraft and motor vehicles EE 25E Economic rate for plant, equipment, or building, with high residual value 746 746 747 747 749 750 750 751 751 753 754 754 755 756 757 758 760 761 EE 26 Annual rate for item acquired in person’s 1995-96 or later 762 income year EE 26B Election in respect of certain depreciable property acquired on or after 1 April 2005 EE 27 Annual rate for ﬁxed life intangible property EE 27B Annual rate for patent granted in 2005–06 or later income year EE 27C Annual rate for patent applications lodged with complete
 speciﬁcations on or after 1 April 2005 [Repealed] EE 27D Annual rate for patents: applications lodged with complete speciﬁcations on or after 1 April 2005 [Repealed] EE 27E Annual rate for plant variety rights [Repealed] EE 28 Special rate or provisional rate 763 764 765 767 767 767 767 646 Reprinted as at 29 August 2011 Income Tax Act 2004 Part D s DZ 17 EE 29 Using economic rate or provisional rate instead of special 768 rate Improvements, items of low value, or items no longer used EE 30 Improvements EE 31 Items of low value EE 32 Items no longer used 769 771 773 Transfers of depreciable property: associated persons and non-qualifying amalgamations EE 33 Transfer of depreciable property on or after 24 September 774 1997 EE 34 Transfer of depreciable property in non-qualifying amalgamation on or after 14 May 2002 EE 35 Transfer of radiocommunications licence right on or after 24 September 1997 EE 36 Transfer of depreciable intangible property on or after 1 July 1997 Disposals and similar events EE 37 Application of sections EE 41 to EE 44 EE 38 Consideration for purposes of section EE 37 EE 39 Items for purposes of section EE 37 EE 40 Events for purposes of section EE 37 EE 41 Effect of disposal or event EE 42 Amount of depreciation recovery income when item partly used for business EE 43 Amount of depreciation recovery income when lost or stolen items recovered EE 44 Amount of depreciation recovery income when compensation received EE 44B Unused geothermal well brought into use EE 45 Cost: GST Interpretation provisions Adjusted tax value EE 46 Meaning of adjusted tax value EE 47 Formula EE 48 Base value in section EE 47 when none of sections EE 49, EE 50, and EZ 21(1) applies EE 49 Base value in section EE 47 when no previous deduction 778 780 781 781 782 786 786 788 790 791 792 792 793 794 794 795 796 647 Income Tax Act 2004 Reprinted as at 29 August 2011 EE 50 Base value in section EE 47 when property is petroleum-related depreciable property EE 51 Total
 deductions in section EE 47 Deﬁnitions EE 52 Meaning of annual rate EE 53 Meaning of depreciable intangible property EE 54 Meaning of estimated useful life EE 55 Meaning of excluded depreciable property EE 56 Meaning of maximum pooling value EE 57 Meaning of poolable property EE 58 Other deﬁnitions Subpart EF—Taxes and levies Fringe beneﬁt tax Speciﬁed superannuation contribution withholding tax EF 1 EF 2 EF 3 ACC levies and premiums EF 4 Use of money interest payable by Commissioner EF 5 Use of money interest payable by person EF 6 Different tax years Subpart EG—Recognition of accounting treatment EG 1 Election to use balance date used in foreign country EG 2 Adjustment for changes to accounting practice EG 3 Allocation of income, deductions, and credits by portfolio tax rate entity Subpart EH—Income equalisation schemes Introductory provisions EH 1 EH 2 Income equalisation schemes Income Equalisation Reserve Account Main income equalisation scheme Application EH 3 Persons to whom main income equalisation scheme applies Deposits and accounts EH 4 Main deposit EH 5 Main income equalisation account Interest Interest on deposits in main income equalisation account EH 6 797 798 801 803 804 804 805 806 806 809 809 810 812 813 814 815 818 819 823 824 825 825 827 828 648 Reprinted as at 29 August 2011 Income Tax Act 2004 Part D s DZ 17 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 829 829 829 830 830 EH 12 Application for refund by person, trustee of estate, Ofﬁcial 830 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 Rebate of income tax EH 30 When person entitled to rebate of income tax EH 31 Kind and amount of refund that entitles person to rebate of income tax EH 32 Kind of person entitled to rebate of income tax EH 33 Amount of rebate of income tax Deﬁnitions EH 34 Meaning of income from forestry 831 831 832 833 834 834 835 836 836 837 838 838 839 839 839 839 840 840 840 841 841 842 649 Income Tax Act 2004 Reprinted as at 29 August 2011 EH 35 Meaning of main maximum deposit EH 36 Meaning of self-assessed adverse event [Repealed] EH 37 Other deﬁnitions 842 844 844 Adverse event income equalisation scheme Application EH 38 Persons to whom adverse event income equalisation 846 scheme applies Deposits and accounts EH 39 Adverse event deposit EH 40 Adverse event income equalisation account 846 847 EH 41 Interest on deposits in adverse event income equalisation 848 Interest account Deduction EH 42 Deduction of deposit Refunds: automatic EH 43 Refund of excess deposit EH 44 Income does not include excess deposit Refunds: on application 848 849 849 EH 45 Application for refund by person, trustee of estate, Ofﬁcial 849 Assignee, or liquidator EH 46 Refund on request EH 47 Income when refund given on request EH 48 Refund on retirement EH 49 Income when refund given on retirement, and election to allocate amount to earlier year EH 50 Refund on death EH 51 Income when refund given on death EH 52 Income when refund given on death, and election to allocate amount to earlier year EH 53 Income when refund given on
 death, and election to allocate amount to later year or years EH 54 Refund on bankruptcy EH 55 Income when refund given on bankruptcy EH 56 Refund on liquidation EH 57 Income when refund given on liquidation EH 58 Amendment of assessment Refunds: general provisions 650 850 850 851 851 852 852 853 853 855 855 855 856 856 Reprinted as at 29 August 2011 Income Tax Act 2004 Part D s DZ 17 EH 59 Minimum refund EH 60 Deposits from which refunds come EH 61 Transfer of deposit Transfers Deﬁnitions EH 62 Meaning of adverse event maximum deposit EH 63 Meaning of self-assessed adverse event [Repealed] EH 64 Other deﬁnitions 856 856 857 857 859 859 Thinning operations income equalisation scheme Application EH 65 Persons to whom thinning operations income equalisation 860 scheme applies Deposits and accounts EH 66 Thinning operations deposit EH 67 Thinning operations income equalisation account EH 68 Interest on deposits in thinning operations income equalisation account Interest Deductions EH 69 Deduction of deposit Refunds: automatic EH 70 Refund of excess deposit EH 71 Income does not include excess deposit Refunds: on application EH 72 Application for refund by person or liquidator EH 73 Refund on request EH 74 Income when refund given on request EH 75 Refund for development or recovery EH 76 Income when refund given for development or recovery EH 77 Refund on liquidation EH 78 Income when refund given on liquidation Refunds: general provisions, and rebate of income tax EH 79 Sections of main income equalisation scheme that apply to thinning operations income equalisation scheme EH 80 Meaning of thinning operations maximum deposit Deﬁnitions 861 862 863 864 864 865 865 865 866 866 867 868 869 869 869 651 Income Tax Act 2004 Reprinted as at 29 August 2011 EH 81 Other 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 Assigning or granting copyright EI 3 EI 3B Spreading income from patent rights Land 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 Crown EI 4 EI 5 EI 6 EI 7 Shareholder-employees EI 8 Matching rule for employment income of shareholderemployee Subpart EJ—Spreading of speciﬁc expenditure Farming and forestry Spreading backward of deductions for costs of timber Spreading forward of deductions for repairs to ﬁshing boats Spreading forward of fertiliser expenditure Films Expenditure incurred in acquiring ﬁlm rights in feature ﬁlms Expenditure incurred in acquiring ﬁlm rights in ﬁlms other than feature ﬁlms Certiﬁcation of New Zealand ﬁlms Film production expenditure for New Zealand ﬁlms having no large budget screen production grant Film production expenditure for other ﬁlms having no large budget screen production grant Leases Personal property lease payments EJ 1 EJ 2 EJ 3 EJ 4 EJ 5 EJ 6 EJ 7 EJ 8 EJ 9 652 870 872 872 873 875 875 876 877 877 879 881 881 882 884 886 887 888 889 890 Reprinted as at 29 August 2011 Income Tax Act 2004 Part D s DZ 17 EJ 10 Amount paid by lessee for non-compliance with covenant 891 for repair EJ 11 Petroleum development expenditure: default allocation Petroleum mining rule EJ 11B Petroleum development expenditure: reserve depletion method EJ 12 Relinquishing petroleum permit EJ 12B Dry well drilled EJ 12C Well not producing EJ 13 Disposal of petroleum mining asset EJ 14 Disposal of petroleum mining asset to associate EJ 15 Partnership interests and disposal of part of asset EJ 16 Petroleum mining operations outside New Zealand EJ 17 Meaning of offshore development [Repealed] EJ 18 Meaning of petroleum mining development Deﬁnitions EJ 19 Contributions to employees’ superannuation schemes Superannuation contributions Research, development, and resulting market development 892 892 894 895 895 896 897
 897 898 898 898 899 EJ 20 Deductions for market development—product of research, 900 development EJ 21 Allocation of deductions for research, development, and 900 resulting market development Subpart EK—Environmental restoration accounts EK 1 Environmental Restoration Funds Account EK 2 Persons who may make payment to environmental restoration account Payments to environmental restoration account EK 3 EK 4 Environmental restoration account EK 5 Details to be provided with payment to environmental restoration account Interest on payments to environmental restoration account EK 6 EK 7 Deduction for payment EK 8 Deduction for transfer EK 9 Refund of payment if excess, lacking details EK 10 Certain refunds not income EK 11 Application for refund 903 903 904 905 906 907 907 908 909 910 910 653 Income Tax Act 2004 Reprinted as at 29 August 2011 EK 12 Refund if request or excess balance EK 13 Income when refund given on request EK 14 Application for transfer EK 15 Transfer on request EK 16 Transfer on death, bankruptcy, or liquidation EK 17 Minimum refund or transfer EK 18 Payments from which refunds come EK 19 Environmental restoration account of amalgamating company EK 20 Environmental restoration account of member of consolidated group EK 21 Commissioner may require notice in electronic format EK 22 Meaning of maximum payment EK 23 Other deﬁnitions Subpart EW—Financial arrangements rules Introductory provisions EW 1 What this subpart does EW 2 Relationship of ﬁnancial arrangements rules with other provisions Meaning of ﬁnancial arrangement and excepted ﬁnancial arrangement EW 3 What is a ﬁnancial arrangement?
EW 4 What is not a ﬁnancial arrangement?

EW 5 What is an excepted ﬁnancial arrangement?
EW 6 Relationship between ﬁnancial arrangements and excepted ﬁnancial arrangements EW 7 Change from private or domestic purpose EW 8 Election to treat certain excepted ﬁnancial arrangements as ﬁnancial arrangements Application of ﬁnancial arrangements rules EW 9 Persons to whom ﬁnancial arrangements rules apply EW 10 Financial arrangements to which ﬁnancial arrangements rules apply EW 11 What ﬁnancial arrangements rules do not apply to Calculation and allocation of income and expenditure over ﬁnancial arrangement’s term EW 12 When use of spreading method required EW 13 When use of spreading method not required EW 14 What spreading methods do EW 15 What is included when spreading methods used 654 911 913 913 914 915 916 916 917 918 918 919 920 924 925 926 927 928 933 933 934 934 935 937 937 937 938 939 Reprinted as at 29 August 2011 Income Tax Act 2004 Part D s DZ 17 EW 15B IFRS taxpayer method EW 15C IFRS method EW 15D Determination alternatives to IFRS EW 15E Expected value method and equity-free fair value method EW 16 Yield to maturity method or alternative EW 17 Straight-line method EW 18 Market valuation method EW 19 Choice among YTM or alternative, SL, and MV 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 EW 25 Consistency of use of straight-line method and market valuation method 941 944 946 948 950 951 952 953 954 955 956 957 958 959 EW 25B Consistency of use of speciﬁc individual methods under 960 IFRS taxpayer 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 961 963 964 964 967 968 EW 32 Consideration for agreement for sale and purchase of 971 property or services, hire purchase agreement, speciﬁed lease, 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 972 973 974 655 Income Tax Act 2004 Reprinted as at 29 August 2011 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 treated as paid to person on distribution in kind [Repealed] EW 40 Consideration affected by unfavourable factors Consideration treated as paid by person EW 41 Consideration when person exits from rules: accrued obligation EW 42 Consideration when person enters rules: accrued entitlement EW 43 Consideration when acquisition for no, or inadequate, consideration 974 975 977 977 977 978 979 981 EW 44 Consideration treated as paid by person on distribution in 981 kind [Repealed] EW 45 Consideration when debt sold at discount to associate of debtor EW 46 Consideration when debt forgiven for natural love and affection EW 47 Consideration when debtor released from obligation EW 47B Consideration when debtor released as condition of new start grant Consideration when legal defeasance has occurred EW 48 Legal defeasance 982 982 983 984 986 Consideration when change from fair value method under IFRS method EW 48B Consideration when change from fair value method 987 under IFRS method Consideration when anti-avoidance provision applies EW 49 Anti-avoidance provisions Income and deduction provisions speciﬁcally related to ﬁnancial arrangements EW 50 Income and deduction when debt sold at discount to associate of debtor EW 51 Income when debt forgiven to trustee 988 988 989 656 Reprinted
 as at 29 August 2011 Income Tax Act 2004 Part D s DZ 17 EW 52 Deduction for security payment Treatment of original share acquired under ﬁnancial arrangement EW 52B 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 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 Subpart EX—Controlled foreign company and foreign investment fund rules Controlled foreign company rules When is a company a controlled foreign company?
EX 1 Meaning of CFC 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 991 992 993 995 995 995 996 998 1000 1000 1001 1002 1003 1008 1009 1010 1010 1011 1012 1013 1014 1015 1016 657 Income Tax Act 2004 Reprinted as at 29 August 2011 EX 11 Options and similar rights in certain cases EX 12 Reduction of total income interests EX 13 Income interests of partners Ten percent threshold and variations in income interest level EX 14 Attribution: 10% threshold EX 15 Associates and 10% threshold EX 16 Income interests for certain purposes EX 17 Income interest if variations within period Calculation of attributed CFC income or loss EX 18 Formula for calculating attributed CFC income or loss EX 19 Taxable distribution from non-qualifying trust EX 20 Reduction in attributed CFC loss 1017 1018 1019 1019 1019 1020 1021 1022 1022 1023 Calculation of branch equivalent income or loss EX 21 Branch equivalent income or loss: calculation rules 1024 Grey list exemption EX 22 Unqualiﬁed grey list CFCs EX 23 Tax concession grey list CFCs Residence of companies EX 24 Residence in grey list country EX 25 Companies moving to or from New Zealand EX 26 Change of CFC’s balance date Change of CFC’s balance date Ownership measurement concession EX 27 Use of quarterly measurement Anti-avoidance rule: stapled stock EX 28 Anti-avoidance rule: stapled stock Foreign investment fund rules What is a foreign investment fund?
EX 29 Meaning of FIF Attributing interests in FIFs EX 30 Attributing interests in FIFs EX 31 Direct income interests in FIFs EX 32 CFC rules exemption EX 33 Exemptions: direct income interests in FIF in grey list country 658 1033 1033 1034 1035 1036 1037 1038 1038 1039 1039 1041 1041 Reprinted as at 29 August 2011 Income Tax Act 2004 Part D s DZ 17 EX 33B Exemptions limited by income years: shares in certain 1046 grey list companies EX 33C Exemption: shares in listed Australian company EX 33D Exemption: units in certain Australian unit trusts EX 33E Australian superannuation fund exemption EX 34 Foreign exchange control exemption EX 35 Income interest of non-resident or transitional resident EX 36 New resident’s accrued superannuation entitlement exemption EX 37 Non-resident’s pension or annuity exemption Calculation of FIF income or loss EX 38 Six calculation methods EX 39 Exclusion of amounts of death beneﬁt EX 40 Limits on choice of calculation methods EX 40B Use of particular calculation methods required EX 41 Default calculation method EX 42 Accounting proﬁts method EX 43 Branch equivalent method EX 44 Comparative value method EX 44B Fair dividend rate method EX 44C Fair dividend rate method: usual method EX 44D Fair dividend rate method: method for unit valuers and persons valuing interests daily EX 44E Fair dividend rate method and cost method: calculating items in formulas for periods affected by share reorganisations EX 45 Deemed rate of return method Additional FIF income or loss if CFC owns FIF EX 45B Cost method EX 46 Additional FIF income or loss if CFC owns FIF 1048 1050 1052 1053 1053 1054 1057 1058 1059 1060 1066 1067 1068 1070 1073 1076 1077 1082 1088 1090 1094 1100 Relationship with other provisions in Act EX 47 Codes: comparative value method, deemed rate of return 1102 method, fair dividend rate method, and cost method EX 48 Top-up FIF income: deemed rate of return method EX 49 Top-up FIF income: 1 April 1993 uplift interests Changing calculation method EX 50 Limits on changes of method EX 51
 Consequences of changes in method 1104 1105 1106 1109 659 Income Tax Act 2004 Reprinted as at 29 August 2011 Cases of entry into and exit from FIF rules EX 52 Migration of persons holding FIF interests EX 53 Changes in application of FIF exemptions EX 54 FIFs migrating from New Zealand EX 54B FIF rules ﬁrst applying to interest for income year beginning on or after 1 April 2007 EX 55 Death of persons holding FIF interests [Repealed] EX 56 Measurement of cost Measurement of cost EX 57 Change of FIF’s balance date Change of FIF’s balance date Market value rules EX 58 Market value of life policy and superannuation entitlements EX 59 Non-market transactions in FIF interests Commissioner’s default assessment power EX 60 Commissioner’s default assessment power Subpart EY—Life insurance rules EY 1 What this subpart does EY 2 Matters to which this subpart relates EY 3 Meaning of actuarial reserves EY 4 Actuarial reserves: calculation EY 5 Actuarial reserves: actuary’s declaration EY 6 Actuarial reserves: powers of Commissioner EY 7 Meaning of claim EY 8 Meaning of life insurance EY 9 Meaning of life insurance policy EY 10 Meaning of life insurer EY 11 Meaning of life reinsurance EY 12 Meaning of life reinsurance policy EY 13 Life insurance and life reinsurance: how sections relate Premium loading EY 14 How premium loading is calculated EY 15 Premium loading: when life insurers providing life insurance at start of income year 1112 1115 1119 1120 1122 1122 1124 1126 1127 1127 1130 1131 1132 1132 1133 1134 1134 1136 1137 1137 1138 1140 1140 1140 1141 EY 16 Premium loading: when life insurers not providing life 1142 insurance at start of income year EY 17 Premium loading formulas 1142 660 Reprinted as at 29 August 2011 Income Tax Act 2004 Part D s DZ 17 EY 18 Premium loading formulas: when life insurers not providing life insurance at start of income year EY 19 Premium loading formulas: option when more than 1 1143 1144 life insured EY 20 Premium loading formula (life): when
 annuity payable 1145 on death EY 21 Premium loading formulas: when annuity payable on 1145 survival to date or age speciﬁed in policy EY 22 Premium loading formula (life): when partial reinsurance 1146 exists EY 23 Premium loading formulas: individual result may never 1146 be negative Mortality proﬁt EY 24 How mortality proﬁt is calculated EY 25 Mortality proﬁt: when life insurers providing life insurance at start of income year EY 26 Mortality proﬁt: when life insurers not providing life insurance at start of income year EY 27 Mortality proﬁt formula EY 28 Mortality proﬁt formula: when life insurers not providing 1147 1147 1148 1148 1150 life insurance at start of income year EY 29 Mortality proﬁt formula: option when more than 1 life 1150 insured EY 30 Mortality proﬁt formula: when annuity payable on death EY 31 Mortality proﬁt formula: when partial reinsurance exists EY 32 Mortality proﬁt formula: individual result may be negative only in some cases EY 33 Mortality proﬁt formula: negative result Discontinuance proﬁt EY 34 How discontinuance proﬁt is calculated EY 35 Discontinuance proﬁt for income year EY 36 Discontinuance proﬁt formula (existing policies) EY 37 Discontinuance proﬁt formula (new policies) EY 38 Discontinuance proﬁt formula (existing policies): when partial reinsurance exists EY 39 Discontinuance proﬁt formula (new policies): when partial reinsurance exists EY 40 Discontinuance proﬁt formulas: individual result may never be negative Policyholder income EY 41 How policyholder income is calculated 1151 1152 1152 1153 1153 1154 1154 1155 1156 1156 1157 1157 661 Income Tax Act 2004 Reprinted as at 29 August 2011 EY 42 Policyholder income formula EY 42B Policyholder income formula: FDR adjustment EY 42C Policyholder income formula: PILF adjustment EY 43 Policyholder income formula: when partial reinsurance exists EY 44 Policyholder income formula: when life insurance business transferred Disposal of property EY 45 Income from disposal of property EY 46
 Deductions for disposal of property Non-resident life insurers 1157 1159 1161 1163 1164 1165 1166 EY 47 Non-resident life insurers with life insurance policies in 1166 New Zealand EY 48 Non-resident life insurer may become resident 1167 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 1171 1172 income years EZ 3 Petroleum mining Petroleum development expenditure from 1 October 1990 to 15 December 1991 1173 Livestock EZ 4 Valuation of livestock bailed or leased as at 2 September 1174 1992 EZ 4B Reduction: bloodstock not previously used for breeding 1175 in New Zealand: pre-1 August 2006 EZ 4C Reduction: broodmare previously used for breeding in 1177 New Zealand: pre-1 August 2006 Patent rights EZ 5 Buying patent rights before 1 April 1993 Leases of land EZ 6 Premium paid on land leased before 1 April 1993 Foreign investment fund rules FIF interests held on 1 April 1993 [Repealed] EZ 7 1178 1179 1180 662 Reprinted as at 29 August 2011 Income Tax Act 2004 Part D s DZ 17 EZ 8 EZ 9 Depreciation Pool method for items accounted for by globo method for 1992-93 income year Pool items accounted for by globo method for 1992-93 income year EZ 10 Amounts of depreciation recovery income and depreciation loss for part business use in or before 1992-93 income year EZ 11 Amount of depreciation loss for item acquired from associated person on or before 23 September 1997 EZ 12 Annual rate for item acquired on or after 1 April 1993 and before end of person’s 1994-95 income year EZ 13 Pre-1993 depreciation rate EZ 14 Annual rate for excluded depreciable property: 1992-93 tax year EZ 15 Amount of depreciation loss for plant or machinery additional to section EZ 14 amount EZ 16 Additional amount of depreciation loss: between 16 December 1991 and 1 April 1994 EZ 17 Section EZ 16 amount of depreciation loss when items transferred between companies in wholly-owned group
 before 1 April 1993 1180 1180 1181 1181 1183 1183 1185 1187 1188 1189 EZ 18 Section EZ 16 amount of depreciation loss when person 1190 previously exempt from tax acquires item EZ 19 Adjusted tax value for software acquired before 1 April 1191 1993 EZ 20 Sections EE 38 and EE 40: permanent removal: allowance 1191 before 1 April 1995 EZ 21 Base value and total deductions in section EE 47: before 1 1192 April 1995 EZ 21B Economic rate for plant or equipment acquired before 1 1193 April 2005 and buildings acquired before 19 May 2005 Deﬁnitions EZ 22 Meaning of new asset EZ 23 Meaning of New Zealand-new asset EZ 24 Meaning of qualifying capital value EZ 25 Meaning of qualifying improvement EZ 26 Meaning of qualifying asset Accident insurance 1194 1196 1197 1198 1199 EZ 27 Private insurers under Accident Insurance Act 1998 1200 663 Income Tax Act 2004 Reprinted as at 29 August 2011 EZ 28 Base premium for 1998-99 premium year under Accident 1201 Insurance Act 1998 CFC and FIF rules EZ 29 Disclosure restrictions on grey list CFCs before 2011–12 1202 Old ﬁnancial arrangements rules EZ 30 Application of old ﬁnancial arrangements rules EZ 31 Election to apply ﬁnancial arrangements rules in subpart 1204 1204 EW EZ 32 Accruals in relation to income and expenditure in respect 1204 of ﬁnancial arrangements EZ 33 Excepted ﬁnancial arrangement that is part of ﬁnancial 1211 arrangement EZ 34 Cash basis holder EZ 35 Income and expenditure where ﬁnancial arrangement redeemed or disposed of EZ 36 Forgiveness of debt EZ 37 Accrued income written off EZ 38 Sale of debt to associate of debtor EZ 39 Post facto adjustment EZ 40 Variable principal debt instruments EZ 41 Relationship with rest of Act EZ 42 Application of old ﬁnancial arrangements rules EZ 43 Election to treat short term trade credit as ﬁnancial arrangement EZ 44 Election to continue to treat certain excepted ﬁnancial arrangements as ﬁnancial arrangements EZ 45 Deﬁnitions EZ 46 Determination of core acquisition price where
 consideration for property denominated in foreign currency EZ 47 Rules for non-market transactions EZ 48 Transitional adjustment when changing to ﬁnancial arrangements rules EZ 49 References to new rules include old rules EZ 50 Transitional rule for IFRS ﬁnancial reporting method EZ 51 Transitional rule for ﬁnancial reporting method EZ 52 Transitional rule for changes from the fair value method 1211 1217 1222 1223 1224 1225 1227 1227 1228 1229 1230 1230 1244 1245 1246 1248 1249 1249 1250 664 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EA 1 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 665 666 667 669 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 40 (3) When a person has any of those kinds of property at the start of an income year, they are allowed a deduction for its value in the income year under section DB 40 (Adjustment for open- 665 Part E s EA 2 Income Tax Act 2004 Reprinted as at 29 August 2011 (4) 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, revenue account property, share-lending right, share sup- plier, trading stock Compare: 1994 No 164 s EE 2(2), (4) Subsection (1)(a) and (b) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; and”.
Subsection (1)(c) was amended, as from 1 July 2006, by section 59(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by substituting “arrangements):” for “arrangements).”.

Subsection (1)(d) was inserted, as from 1 July 2006, by section 59(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).
The list of deﬁned terms was amended, as from 1 July 2006, by section 59(2)(a) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by inserting “original share”..

The list of deﬁned terms was amended, as from 1 July 2006, by section 59(2)(b) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by inserting “share-lending right”..
The list of deﬁned terms was amended, as from 1 July 2006, by section 59(2)(c) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by inserting “share supplier”.. EA 2 Other revenue account property (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: (d) (c) (1) 666 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EA 3 (e) (f) (g) property that arises as a result of petroleum develop- ment expenditure or petroleum exploration expenditure to which sections EJ 11 to EJ 18 (which relate to petrol- eum mining) apply: a speciﬁed lease or a lease to which section EJ 9 (Per- sonal property lease payments) applies: a ﬁnancial arrangement valued under subpart EW (Fi- nancial arrangements rules).
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 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, petroleum development expenditure, petroleum exploration expenditure, revenue account property, speciﬁed lease, trading stock Compare: 1994 No 164 s EF 2(1), (2) Subsection (1)(a) to (f) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; or”.
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): (c) 667 Part E s EA 3 Income Tax Act 2004 Reprinted as at 29 August 2011 (d) (e) (f) (g) (h) an excepted ﬁnancial arrangement valued under subpart ED (Valuation of excepted ﬁnancial arrangements): a ﬁlm or a ﬁlm right to which sections EJ 4 to EJ 8 (which relate to ﬁlms) apply: property that arises as a result of petroleum develop- ment expenditure or petroleum exploration expenditure to which sections EJ 11 to EJ 18 (which relate to petrol- eum mining) apply: a speciﬁed lease or a lease to which section EJ 9 (Per- sonal property lease payments) applies: a ﬁnancial arrangement valued under subpart EW (Fi- nancial arrangements rules).
(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 41 (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.
668 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EA 4 (7) (8) Allowances reimbursing employees In the case of expenditure subject to sections CW 13, CW 13B, CW 13C, and CW 14 (which relate to expenditure, reimburse- ment, and allowances of employees), this section applies on the basis that the relevant services were performed in the in- come year in which the employee’s expenditure is expected to occur.
Commissioner’s discretionary relief The Commissioner may excuse a person from complying with this section under section 91AAC of the Tax Administration Act 1994.
Deﬁned in this Act: amount, Commissioner, deduction, employee, ﬁlm, ﬁlm right, goods, income, income year, revenue account property, services Compare: 1994 No 164 s EF 1(1)-(4), (5)(a), (b), (d), (5A) Subsection (2)(a) to (g) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; or”.
Subsection (4) (except the heading) was substituted, as from 1 October 2005, by section 191 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111).

Section EA 3(7): amended (with effect on 1 April 2005), on 6 October 2009, by section 769 of the Taxation (International Taxation, Life Insurance, and Re- medial Matters) Act 2009 (2009 No 34).
Subsection (8) was amended, as from 21 December 2004, by section 270 Tax- ation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “91AAC” for “91AAA”.
EA 4 Deferred payment of employment income (1) When this section applies This section applies when— (a) (b) a person is allowed a deduction in an income year for an amount of expenditure on employment income; and the person has not paid the amount at the end of— (i) (ii) the 63rd day after the end of the income year; or the period described in subsection (3), for employment income paid to a shareholder-em- ployee.
Unpaid amount The unpaid amount is— (2) 669 Part E s EA 4 Income Tax Act 2004 Reprinted as at 29 August 2011 (a) (b) 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 42 (Ad- justment for deferred payment of employment income).
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 (seller) who sells a business, or a part of a business, to another person (buyer) is treated as paying, at the time of the sale, an amount of employ- ment income of an employee working in the business 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; 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 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, (3) (4) (5) 670 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EA 4 (b) (c) despite subsection (2)(a) and section CH 3 (Adjustment for deferred payment of employment income); 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 42 (Adjust- ment for deferred payment of employment income); and the buyer may be allowed a deduction under section DC 9(3) (Sale of business: transferred employment income obligations).
(6) (7) No sale: obligations transferred to associates If section DC 10 (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 (Adjustment for deferred payment of employment income); 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 42 (Ad- justment for deferred payment of employment income); and the transferee (person B) may be allowed a deduction under section DC 10 (Transfers of employment income obligations to associates).
(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, return of income, shareholder-employee, time of the sale Compare: 1994 No 164 ss DF 11(3), EF 1(5)(c), (6), (6A), EF 1A 671 Income Tax Act 2004 Reprinted as at 29 August 2011 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 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 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 $5,000 Low value trading stock Page 673 673 675 675 676 677 678 679 680 681 681 682 683 684 684 684 684 685 686 687 688 688 689 672 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EB 2 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: 1994 No 164 s EE 1 EB 2 Meaning of trading stock (1) (2) Meaning In the provisions referred to in paragraph (a) of the deﬁnition of trading stock in section OB 1 (Deﬁnitions), trading stock means property that a person who owns or carries 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 FC 10(2) (Taxation of hire pur- chase agreements); and is an asset of a business that the lessor carries on.
(ii) (3) Exclusions Trading stock does not include— (a) (b) land: depreciable property: 673 Part E s EB 2 Income Tax Act 2004 Reprinted as at 29 August 2011 (c) (d) (db) (e) (f) 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 44C (Proceeds from disposal of certain shares by portfolio investment entities or New Zealand Superannuation Fund) applies to the income of the person from a disposal of the excepted ﬁnancial ar- rangement: 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: an ETS unit.
(g) (h) Deﬁned in this Act: business, depreciable property, excepted ﬁnancial arrange- ment, ﬁnancial arrangement, hire purchase agreement, land, lessor, life insurer, trading stock Compare: 1994 No 164 ss DK 3E, EE 4, OB 1 trading stock Subsection (2)(a)(i) and (ii) was amended, as from 21 December 2004, by sec- tion 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; and”.
Subsection (2)(b) and (c) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; and”.

Subsection (3)(a) to (f) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; or”.
Section EB 2(3)(db): amended, on 1 October 2007, by section 13 of the Taxation (KiwiSaver and Company Tax Rate Amendments) Act 2007 (2007 No 19).

Section EB 2(3)(db): inserted, on 1 October 2007, by section 28 of the Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81).

Section EB 2(3)(g): amended, on 26 September 2008, by section 62 of the Climate Change Response (Emissions Trading) Amendment Act 2008 (2008 No 85).
Section EB 2(3)(h): added, on 26 September 2008, by section 62 of the Climate Change Response (Emissions Trading) Amendment Act 2008 (2008 No 85).

674 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EB 4 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.
(2) 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 40 (Adjust- ment for opening values of trading stock, livestock, and excepted ﬁnancial arrangements).
(b) 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: 1994 No 164 s EE 2(1), (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.
675 Part E s EB 5 Income Tax Act 2004 Reprinted as at 29 August 2011 (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: 1994 No 164 s EE 3(1) Subsection (1)(a) to (c) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; and”.
EB 5 Transfers of trading stock within wholly-owned groups When this section applies This section applies in an income year to trading stock held by a company that is a member of a wholly-owned group of companies, when— (a) (b) (c) (d) (e) 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 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 members 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 closing stock at the cost of the trading stock to company A.

When company stops being member of group If the companies stop being members of the same wholly- owned group, company B is treated as disposing of and reac- (1) (2) (3) 676 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EB 6 quiring the trading stock for its market value at the time.
If the market value of the trading stock cannot be determined separ- ately 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: 1994 No 164 s EE 15 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, unless subsection (1B) applies.
Valuation at cost: agricultural produce (1B) Despite subsection (1), a person who uses NZIAS 41 for their trading stock in their ﬁnancial statements must— value their closing stock at cost; and (a) include and allocate costs so that the value of their clos- (b) ing stock is not materially different from the value of the closing stock obtained by applying NZIAS 2 ignor- ing paragraph 20 of NZIAS 2.
Whether valuation correct For the purposes of subsection (1), the person has not com- plied with generally accepted accounting practice if the value of closing stock is materially different from the value obtained by applying, to the closing stock, NZIAS 2 or an equivalent standard issued in its place.
Deﬁnitions In this section, NZIAS 41 means New Zealand Equivalent to International Accounting Standard 41, approved by the Ac- counting Standards Review Board and 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: 1994 No 164 s EE 5(1), (2) (2) (3) 677 Part E s EB 7 Income Tax Act 2004 Reprinted as at 29 August 2011 Section EB 6(1): amended (with effect from 1 April 2007), on 19 December 2007, by section 43(1) of the Taxation (Business Taxation and Remedial Mat- ters) Act 2007 (2007 No 109).
Section EB 6(1B) heading: inserted (with effect from 1 April 2007), on 19 De- cember 2007, by section 43(2) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section EB 6(1B): inserted (with effect from 1 April 2007), on 19 December 2007, by section 43(2) of the Taxation (Business Taxation and Remedial Mat- ters) Act 2007 (2007 No 109).
Section EB 6(2): amended (with effect from 1 April 2007), on 19 December 2007, by section 43(3) of the Taxation (Business Taxation and Remedial Mat- ters) Act 2007 (2007 No 109).

Section EB 6(3) heading: added (with effect from 1 April 2007), on 19 Decem- ber 2007, by section 43(4) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EB 6(3): added (with effect from 1 April 2007), on 19 December 2007, by section 43(4) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section EB 6 list of deﬁned terms NZIAS 2: inserted (with effect from 1 April 2007), on 19 December 2007, by section 43(5) of the Taxation (Business Taxa- tion and Remedial Matters) Act 2007 (2007 No 109).
Section EB 6 list of deﬁned terms NZIAS 41: inserted (with effect from 1 April 2007), on 19 December 2007, by section 43(5) of the Taxation (Business Taxa- tion and Remedial Matters) Act 2007 (2007 No 109).

EB 7 Cost allocation: cost-ﬂow method 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.

(1) (2) (3) (4) 678 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EB 8 (5) 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: 1994 No 164 ss EE 5(5), (6), EE 6(1), (2) EB 8 Cost allocation: budgeted method or standard cost method (1) (2) 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— (i) (ii) is not a low-turnover trader to whom section EB 17(3) applies.
a budgeted method; or a standard cost method; and (b) (c) (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: 1994 No 164 s EE 5(3) 679 Part E s EB 9 Income Tax Act 2004 Reprinted as at 29 August 2011 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 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— (5) (6) (7) 680 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EB 11 (a) (b) 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.
Deﬁned in this Act: closing stock, cost, ﬁnancial statements, income year, NZIAS 2, trading stock, turnover Compare: 1994 No 164 ss EE 8, EE 10 Section EB 9(3)(a): amended (with effect from 1 April 2007), on 19 December 2007, by section 44(1) of the Taxation (Business Taxation and Remedial Mat- ters) Act 2007 (2007 No 109).
Section EB 9 list of deﬁned terms NZIAS 2: inserted (with effect from 1 April 2007), on 19 December 2007, by section 44(2) of the Taxation (Business Taxa- tion 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.
(2) 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 (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: 1994 No 164 s EE 11(1)-(3) 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.
681 Part E s EB 12 Income Tax Act 2004 Reprinted as at 29 August 2011 (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 8 or EB 15 to (a) EB 18; or discounted selling price, as described in section EB 9 or EB 19; or replacement price, as described in section EB 10 or EB 20.
(b) (c) Deﬁned in this Act: amount, business, closing stock, cost, ﬁnancial statements, trading stock Compare: 1994 No 164 ss EE 3(1), EE 12 Subsection (3)(a) to (c) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; and”.
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 682 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EB 13 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: 1994 No 164 s EE 16(1) Section EB 12: amended (with effect from 1 April 2007), on 19 December 2007, by section 45(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section EB 12 list of deﬁned terms NZIAS 8: inserted (with effect from 1 April 2007), on 19 December 2007, by section 45(2) of the Taxation (Business Taxa- tion 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.
(2) (3) Meaning of low-turnover trader In this subpart, low-turnover trader means a person who carries on a business when, in an income year, the total of the turnover of the business and the turnover of associated persons, as de- ﬁned in section OD 8(1)(a) or (b) (Further deﬁnitions of asso- ciated persons), is no more than the greater of— (a) (b) $3,000,000; and the sum speciﬁed by the Governor-General by Order in Council.
Increase in speciﬁed sum The Governor-General may make an Order in Council increas- ing the sum speciﬁed in subsection (2)(a).
Deﬁned in this Act: associated person, business, closing stock, income year, low-turnover trader, turnover Compare: 1994 No 164 ss EE 20, OB 1 small taxpayer 683 Part E s EB 14 Income Tax Act 2004 Reprinted as at 29 August 2011 EB 14 Low-turnover valuation methods The low-turnover valuation methods are— cost for low-turnover traders; and discounted selling price for low-turnover traders; and replacement price for low-turnover traders; and (a) (b) (c) (d) market selling value for low-turnover traders.
Deﬁned in this Act: cost, low-turnover trader 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: 1994 No 164 s EE 5(7) 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) apply to a low-turnover trader.

Deﬁned in this Act: cost, low-turnover trader Compare: 1994 No 164 s EE 5(5), (6) EB 17 Costs: manufactured or produced stock of low-turnover traders 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) Costs to be included In determining the value of the low-turnover trader must include the following costs of pro- duction: their closing stock, (1) (2) 684 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EB 18 (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: 1994 No 164 ss EE 5(3), EE 7(1), (2) Subsection (2)(a) to (f) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; and”.
(3) EB 18 Costs: other stock of low-turnover traders (1) (2) When this section applies This section applies when a low-turnover trader— (a) acquires trading stock other than by manufacture or pro- duction; and determines the value of their closing stock at cost.
(b) Costs to be included In determining the value of low-turnover trader must include the following costs: (a) the purchase price; and their closing stock, the 685 Part E s EB 19 Income Tax Act 2004 Reprinted as at 29 August 2011 (b) any direct transport and insurance costs that they incur in bringing the stock to the place and condition in which they have it.
Deﬁned in this Act: closing stock, cost, low-turnover trader, trading stock Compare: 1994 No 164 s EE 7(3) 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.
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 include all costs that sections EB 16 to EB 18 require to be included.
(b) (c) 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.
(3) (4) (5) 686 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EB 20 (6) 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: 1994 No 164 ss EE 8-EE 10, EE 21 Section EB 19(4)(a): amended (with effect from 1 April 2007), on 19 Decem- ber 2007, by section 46(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EB 19 list of deﬁned terms NZIAS 2: inserted (with effect from 1 April 2007), on 19 December 2007, pursuant to section 46(2) of the Taxation (Busi- ness 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.

(3) Establishing replacement price The replacement price is— (a) the market value of the trading stock on the last day of the income year; or the last price that the low-turnover trader paid during the income year to acquire equivalent trading stock.
(b) Deﬁned in this Act: ﬁnancial statements, income year, low-turnover trader, trad- ing stock Compare: 1994 No 164 s EE 11 687 Part E s EB 21 Income Tax Act 2004 Reprinted as at 29 August 2011 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) apply to a low-turnover trader.
Deﬁned in this Act: closing stock, cost, income year, low-turnover trader Compare: 1994 No 164 ss EE 3(2), EE 12, EE 16(3) 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 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 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.
(b) (c) (d) (e) 688 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EB 23 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.

(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 subsection (3) must keep sufﬁcient details of the change, and the reasons for the change, under section 22 of the Tax Administration Act 1994.
Deﬁned in this Act: closing stock, cost, generally accepted accounting practice, income tax liability, income year, low-turnover trader, NZIAS 8, trading stock Compare: 1994 No 164 ss EE 6(3), EE 16(2)-(5) Section EB 22(1): amended (with effect from 1 April 2007), on 19 December 2007, by section 47(1) of the Taxation (Business Taxation and Remedial Mat- ters) Act 2007 (2007 No 109).
Section EB 22 list of deﬁned terms NZIAS 8: inserted (with effect from 1 April 2007), on 19 December 2007, by section 47(2) of the Taxation (Business Taxa- tion and Remedial Matters) Act 2007 (2007 No 109).
Low value trading stock EB 23 Valuing closing stock under $5,000 (1) (2) 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 $5,000.

(b) 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: 1994 No 164 s EE 2A 689 Income Tax Act 2004 Reprinted as at 29 August 2011 Subpart EC—Valuation of livestock Contents Introductory provisions Livestock valuation methods EC 1 Application of this subpart EC 2 Valuation of livestock EC 3 EC 4 Value of livestock on death of person [Repealed] EC 5 EC 5B Transfer of livestock because of self-assessed adverse Transfers of livestock within wholly-owned groups event Valuation of speciﬁed livestock EC 6 Application of sections EC 7 to EC 27 EC 7 Valuation methods EC 8 Restrictions on use of herd scheme EC 9 Restrictions on use of national standard cost scheme EC 10 Restrictions on use of cost price method EC 11 Restrictions on making of elections EC 12 Interests in livestock EC 13 Changes in partnership interests Herd scheme EC 14 Herd scheme EC 15 Determining national average market values EC 16 Valuation under herd scheme EC 17 Herd value ratio EC 18 Inaccurate herd value ratio EC 19 Chatham Islands adjustment to herd value EC 20 Herd livestock disposed of before values determined EC 21 Herd livestock on death before values determined National standard cost scheme EC 22 National standard cost scheme EC 23 Determining national standard costs EC 24 Methods for determining costs using national standard cost scheme EC 25 Cost price, replacement price, or market value EC 26 Bailee’s treatment of livestock Other methods 690 Page 691 692 692 693 693 694 695 695 696 696 698 699 700 701 702 703 703 704 705 706 706 707 707 708 708 709 710 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EC 1 EC 27 Some deﬁnitions Deﬁnitions Valuation of non-speciﬁed livestock EC 28 Application of sections EC 29 to EC 31 EC 29 Determining standard values EC 30 Closing value methods EC 31 Enhanced production Valuation of high-priced livestock EC 32 Application of sections EC 33 to EC 37 EC 33 Determining depreciation percentages EC 34 General rule EC 35 Livestock reaching national
 average market value and livestock no longer used for breeding EC 36 Immature livestock and recently bought livestock EC 37 Bailment Valuation of bloodstock EC 38 Application of sections EC 39 to EC 48 EC 39 First income year in breeding business EC 40 Later income years in breeding business EC 41 Reduction: bloodstock not previously used for breeding in New Zealand other than as shuttle stallions EC 42 Reduction: bloodstock previously used for breeding in New Zealand EC 43 Accident, birth deformity, or infertility EC 44 Other bloodstock EC 45 Residual value of bloodstock EC 46 Use of bloodstock for racing EC 47 Change of use of bloodstock in course of business EC 48 Replacement breeding stock 711 711 711 712 712 713 714 714 715 717 717 717 717 718 719 721 722 722 723 723 724 724 Introductory provisions EC 1 Application of this subpart What this subpart does This subpart sets out the rules for valuing livestock not used in a dealing business.
Groups of livestock For the purposes of this subpart, livestock is divided into— (1) (2) 691 Part E s EC 2 Income Tax Act 2004 Reprinted as at 29 August 2011 speciﬁed livestock: non-speciﬁed livestock: high-priced livestock: bloodstock.
(a) (b) (c) (d) Deﬁned in this Act: bloodstock, business, high-priced livestock, non-speciﬁed livestock, speciﬁed livestock Compare: 1994 No 164 s EE 2(1) Subsection (2)(a) to (c) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; and”.
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 40 (Adjustment for opening values of trading stock, livestock, and excepted ﬁnancial arrangements).
(b) Deﬁned in this Act: income year Compare: 1994 No 164 s EL 1(1) EC 3 Livestock valuation methods 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.

(1) (2) 692 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EC 5 (3) (4) 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: 1994 No 164 s EL 1(1) EC 4 Value of livestock on death of person [Repealed] Section EC 4 was repealed, as from 1 October 2005, by section 24 Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) with application as from the 2005–06 income year.
EC 5 Transfers of livestock within wholly-owned groups (1) When this section applies This section applies in an income year to livestock held by a company that is a member of a wholly-owned group of com- panies, 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 members 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 (ii) 693 Part E s EC 5B Income Tax Act 2004 Reprinted as at 29 August 2011 (2) (3) would occur if the income years ended on the same date.
Choice of treatment Company B may choose to value the livestock at the cost of the livestock to company A.

When company stops being member of group If the companies stop being members of the same wholly- owned group, company B is treated as disposing of and reac- quiring 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 acquired 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: 1994 No 164 s EE 15 EC 5B Transfer of livestock because of self-assessed adverse event 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, otherwise.
Treatment by recipient The recipient must treat the livestock as having on the day of the transfer of the livestock— (a) no value, if the livestock is donated to the recipient: (1) (2) (3) 694 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EC 7 (b) the value of the consideration provided by the recipient, otherwise.
Deﬁned in this Act: market value, self-assessed adverse event Section EC 5B was inserted, as from 3 April 2006, by section 60(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) with application for transfers of livestock as from the income year corresponding to the 2005–06 tax year.

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: 1994 No 164 s EL 1(1)(d) EC 7 Valuation methods (1) Methods The methods available for valuing speciﬁed livestock are— (a) (b) the herd scheme described in sections EC 14 to EC 21: the national standard cost scheme described in sections EC 22 to EC 24: 1 of the cost price, replacement price, or market value methods described in section EC 25: the method described in section EC 26.
(c) (d) Person chooses (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) 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.

695 Part E s EC 8 Income Tax Act 2004 Reprinted as at 29 August 2011 (5) Restrictions Restrictions apply to the use of valuation methods, as de- scribed in sections EC 8 to EC 10, and the making of elections, as described in section EC 11.
Deﬁned in this Act: Commissioner, cost price, herd scheme, income year, na- tional standard cost scheme, return of income, speciﬁed livestock Compare: 1994 No 164 s EL 2(1), (8) Subsection (1)(a) to (c) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; and”.
EC 8 Restrictions on use of herd scheme Herd scheme: ﬁrst restriction on use of other method (1) A valuation method other than the herd scheme is not available to a person, in an income year, for animals of a class for which they use the herd scheme if the animals remaining to be valued under the herd scheme would be reduced to a number smaller than the number of any animals of the class that the person valued under the herd scheme at the end of the previous income year.
Herd scheme: second restriction on use of other method (2) A person who values livestock of a particular type under the herd scheme must value all male breeding stock of that type under the herd scheme in an income year if, in the income year, they also value any livestock of that type under the national standard cost scheme or under the cost price method.
Deﬁned in this Act: class, cost price, herd scheme, income year, national stand- ard cost scheme, type Compare: 1994 No 164 ss EL 2(2)(d), (e), EL 5(4), (5) 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.
(1) 696 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EC 9 (2) (3) (4) (5) National standard cost scheme: second restriction on use of scheme The national standard cost scheme is not available to a person to value speciﬁed livestock if, in the income year before the income year in which their election under section EC 7(2) is to apply, they have valued speciﬁed livestock under the cost price method, and have not given at least 2 income years’ notice in the way described in section EC 11 to the Commissioner of their election to value speciﬁed livestock under the national standard cost scheme.
National standard cost scheme: third restriction on use of scheme The national standard cost scheme is not available to a per- son to value a type of speciﬁed livestock in an income year if they have made speciﬁed livestock available to another person under a proﬁt-sharing arrangement and, in the income year, the other person (or another person has also made livestock of the type available under the proﬁt-sharing arrangement) values any livestock of the type under the cost price method.
National standard cost scheme: fourth restriction on use of scheme The national standard cost scheme is not available to a person to value speciﬁed livestock in an income year if— (a) they have bailed the livestock to another person under a long-term bailment not made under a proﬁt-sharing arrangement; or they have leased the livestock to another person under a long-term bailment not made under a proﬁt-sharing arrangement.
(b) National standard cost scheme: ﬁfth restriction on use of scheme The national standard cost scheme is not available to a person to value speciﬁed livestock in an income year if a determin- 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: 1994 No 164 ss EL 2(2)(a), (c), (f), (g), EL 4(2), (3), EL 7(2), (4)(a) 697 Part E s EC 10 Income Tax Act 2004 Reprinted as at 29 August 2011 EC 10 Restrictions on use of cost price method Cost price method: ﬁrst restriction on use of method The cost price method is not available to a person to value speciﬁed livestock in an income year if the person values other speciﬁed livestock in the income year under the national stand- ard cost scheme.
Cost price method: second restriction on use of method The cost price method is not available to a person to value speciﬁed livestock if, in the income year before the income year in which their election under section EC 7(2) is to apply, they have valued speciﬁed livestock under the national stand- ard cost scheme and have not given 2 income years’ notice in the way described in section EC 11 to the Commissioner of their election to value speciﬁed livestock under the cost price method.
Cost price method: third restriction on use of method The cost price method is not available to a person to value spe- ciﬁed livestock in an income year if they have bailed or leased their speciﬁed livestock to another person, unless the livestock is bailed or leased under a proﬁt-sharing arrangement.
Cost price method: fourth restriction on use of method The cost price method is not available to a person to value speciﬁed livestock in an income year if they have bailed or leased their speciﬁed livestock to another person— (a) (b) under a long-term bailment; or under a short-term bailment made between associated persons in which the consideration paid to the bailee is not a fair market value.
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 (1) (2) (3) (4) (5) 698 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EC 11 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: 1994 No 164 ss EL 2(2)(b), (f), (g), EL 3(2), (3), EL 7(3), (4)(a) EC 11 Restrictions on making of elections (1) (2) (3) Forms of notice This section speciﬁes the 2 forms of notice that a person must give to the Commissioner and when each must be used.
When a person notiﬁes the Commissioner of an election under this section, the election is irrevocable in the ﬁrst income year in which it applies.

When notice in same year required For the elections described in this subsection, a person must give notice by the date of ﬁling their return of income for the income year in which the election is ﬁrst to apply.
The elec- tions are— (a) an election to value livestock of a particular type under the herd scheme, as described in section EC 14; and an election to adopt a herd value ratio or the Chatham Islands adjustment to the herd value ratio for livestock of any type when the income year is the ﬁrst income year in which the particular livestock is valued under the herd scheme, as described in sections EC 17 to EC 19.
(b) When 2 years’ notice required For the elections described in this subsection, a person must give notice by the date of ﬁling their return of income for an income year that is at least 2 income years before the income year in which the election is ﬁrst to apply.
The elections are— an election to stop valuing speciﬁed livestock of a par- (a) ticular type under the herd scheme, except when the per- son continues to value some livestock of that type under 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- (b) 699 Part E s EC 12 Income Tax Act 2004 Reprinted as at 29 August 2011 (c) (d) 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.
Information for notices of election (4) A notice of election must state— (a) (b) (c) (d) the income year in which the election is ﬁrst to apply; and the type, class, or other description of the applicable livestock; and the existing and proposed methods of valuing the ap- plicable livestock; and for an election to use a herd value ratio or recalculated herd value ratio under section EC 17,— (i) (ii) the value assessed under section EC 17(4) of an average animal of each applicable class of live- stock; and the date on which the valuation of each animal was made; and the name and address of the valuer.
Deﬁned in this Act: class, Commissioner, cost price, herd scheme, herd value ratio, income year, national standard cost scheme, notice, notify, return of in- come, speciﬁed livestock, type Compare: 1994 No 164 s EL 2(3)-(5) (iii) 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.
700 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EC 13 (2) (3) (4) 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) Proﬁt-sharing arrangements If the method used in an income year to calculate the value of livestock under a proﬁt-sharing arrangement is the national standard cost scheme or the cost price method, all the follow- ing are treated as the single owner of the livestock: the person who owns the livestock; and (a) the person who has the use of the livestock; and (b) any other person who has made livestock of the same (c) type available to the person referred to in paragraph (b) under a proﬁt-sharing arrangement.
Partnerships interests For the purpose of an election under this section, a person’s interest in a partnership that owns livestock is treated separ- ately from any other interest that the person has in livestock.

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

The person is not required to choose the same valuation method in both cases.
Deﬁned in this Act: cost price, income year, lease, national standard cost scheme, proﬁt-sharing arrangement, speciﬁed livestock, type Compare: 1994 No 164 ss EL 2(6), EL 7(4)(b) EC 13 Changes in partnership interests (1) When this section applies This section applies when— (a) a partnership owns speciﬁed livestock (old partnership); and a new partnership is formed (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 (b) (c) 701 Part E s EC 14 Income Tax Act 2004 Reprinted as at 29 August 2011 (2) 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: 1994 No 164 s EL 1(2) 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.
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: 1994 No 164 s EL 2(4) 702 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EC 16 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 8, 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: 1994 No 164 s EL 8 EC 16 Valuation under herd scheme (1) (2) (3) 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 has not chosen to value the livestock by a different method for the income year.
(b) (c) 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 40(3) (Adjustment for open- 703 Part E s EC 17 Income Tax Act 2004 Reprinted as at 29 August 2011 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: 1994 No 164 s EL 5(1), (2) Section EC 16(3): amended (with effect on 1 April 2005), on 29 August 2011 (applying for the 2005–06 and later income years), by section 198(1) of the Taxation (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 adjustment to the herd value ratio is dealt with in section EC 19.
When herd value ratio applies (3) When a person adopts a herd value ratio for livestock of a particular type, the ratio applies in the income year speciﬁed in the notice and in later income years until— (a) (b) (c) the income year in which it is superseded by a recalcu- lation of the ratio; or the income year in which the person stops valuing, under an election, livestock of that type under the herd scheme; or the income year following 2 consecutive income years in which the person has not valued livestock of that type under the herd scheme.
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 (4) 704 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EC 18 (5) that is closest to the day on which the national average market values are set.
Calculation of herd value ratio The herd value ratio for livestock of a particular type is calcu- lated by using the formula in subsection (6) and rounding the result of the calculation to the nearest of the following ﬁgures: 0.9, 1.0, 1.1, 1.2, 1.3.
Formula The formula is— (6) (7) Deﬁnition of items in formula In the formula,— (a) (b) (c) 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: 1994 No 164 s EL 6(1)-(3), (5) 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 705 Part E s EC 19 Income Tax Act 2004 Reprinted as at 29 August 2011 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: 1994 No 164 s EL 6(4) 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) (3) Setting adjustment The Commissioner must set and may vary from time to time the level of Chatham Islands adjustment to the herd value ratio that applies in an income year.
Deﬁned in this Act: Commissioner, herd livestock, herd scheme, herd value, herd value ratio, income year, livestock on the Chatham Islands, notice, type Compare: 1994 No 164 s EL 6(6), (7) EC 20 Herd livestock disposed of before values determined When this section applies This section applies when, in an income year, a person— stops deriving income from speciﬁed livestock; and (a) disposes of herd livestock before the 1 February that (b) precedes the determination of the national average mar- ket values for the income year; and (1) 706 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EC 22 (2) (c) gives notice to the Commissioner before that 1 February that they choose that this section applies to the valuation of the herd livestock.
Value of herd livestock The value of herd livestock that is disposed of is either the herd value of the livestock for the previous income year or, if the person has adopted a herd value ratio, the herd value multiplied by the herd value ratio applying in the previous income year.
Deﬁned in this Act: Commissioner, herd livestock, herd value, herd value ratio, income, income year, national average market value, notice, speciﬁed livestock Compare: 1994 No 164 s EL 5(6) EC 21 Herd livestock on death before values determined (1) (2) When this section applies This section applies when— (a) (b) a person dies; and herd livestock owned by the person is disposed of before the 1 February that precedes the determination of the national average market values for the income year in which the person dies; and the person’s return of income to the date of death is ﬁled before the national average market values for the income year are determined.
(c) Value of herd livestock The value of herd livestock that is disposed of is either the herd value of the livestock for the previous income year or, if the person has adopted a herd value ratio, the herd value multiplied by the ratio applying in the previous income year.
Deﬁned in this Act: herd livestock, herd value, herd value ratio, income year, national average market value, return of income Compare: 1994 No 164 s EL 5(6) 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.
707 Part E s EC 23 Income Tax Act 2004 Reprinted as at 29 August 2011 (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: 1994 No 164 s EL 4(1) EC 23 Determining national standard costs (1) (2) Determination of costs The Commissioner must determine national standard costs for each category of speciﬁed livestock in schedule 9 (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: 1994 No 164 s EL 3A(1) EC 24 Methods for determining costs using national standard cost scheme Determination of methods for calculation of cost The Commissioner must determine the methods for calculat- ing the cost of livestock listed in schedule 9, 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— (1) (2) 708 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EC 25 (a) (b) (c) the number of homebred livestock that a person has on hand at any time in an income year, applying to the number the relevant national standard costs determined under section EC 23: in addition to paragraph (a), the number in each cat- egory of livestock listed in schedule 9, column 2 (Cat- egories of livestock for which national standard costs to be declared) that a person has on hand at any time in an income year, applying to the number the relevant na- tional standard costs determined under section EC 23: the number of livestock bought, applying to the number the purchase costs associated with the livestock.
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: 1994 No 164 s EL 4(4), (5) Subsection (2)(a) and (b) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; and”.
Subsection (3) was amended, as from 21 December 2004, by section 270 Tax- ation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “91AAD” for “91AB”.

(3) 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, or under the replacement price method, or under the market value method.
(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 709 Part E s EC 26 Income Tax Act 2004 Reprinted as at 29 August 2011 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: 1994 No 164 ss EL 3(1), (4), EL 7(2) 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.
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.

(1) (2) (3) (4) 710 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EC 29 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, speciﬁed livestock Compare: 1994 No 164 s EL 7(1) 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: 1994 No 164 s EL 7(2), (3)(b) 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 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.

711 Part E s EC 30 Income Tax Act 2004 Reprinted as at 29 August 2011 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: 1994 No 164 s EL 9(3) 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: 1994 No 164 ss EL 1(1)(c), EL 9(1) Paragraphs (a) to (c) were amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; or”.
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) (1) 712 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EC 32 (2) Closing value The closing value of the livestock bought is,— (a) for the income year in which the livestock was bought, its standard value plus two-thirds of the difference be- tween the cost price of the livestock and the standard value: for the following income year, its standard value plus one-third of the difference between the cost price of the livestock and the standard value: for other income years, its standard value.
(c) Deﬁned in this Act: cost price, income, income year, non-speciﬁed livestock, standard value Compare: 1994 No 164 s EL 9(2), (4) (b) Subsection (2)(a) and (b) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; and”.
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: 1994 No 164 s EL 10(6) 713 Part E s EC 33 Income Tax Act 2004 Reprinted as at 29 August 2011 EC 33 Determining depreciation percentages (1) (2) (3) Determined by Commissioner The Commissioner must determine a depreciation percent- age for an income year for each type, class, or category of high-priced livestock.
Purpose The percentage represents the average percentage decline in the value of livestock of the type, class, or category.

Factors The Commissioner must take into account— (a) the average cost of livestock of the type, class, or cat- egory; and the estimated useful life of the livestock; and the average estimated residual market value of the live- stock.
(b) (c) Deﬁned in this Act: class, Commissioner, depreciation percentage, estimated residual market value, estimated useful life, high-priced livestock, income year, type Compare: 1994 No 164 ss EL 10(5), OB 1 assigned percentage 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 x depreciation percentage.
Diminishing value method (3) When a person has chosen to use the diminishing value method, the reduction is calculated as follows: 714 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EC 35 (a) (b) 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.
Meaning of diminishing value equivalent (4) (5) In this section, diminishing value equivalent, for a depre- ciation percentage, means the diminishing value depreciation rate in schedule 11, column 1 (Banded rates of depreciation) to which the amount in column 2 equal to the depreciation percentage is the straight-line equivalent.
Two qualiﬁcations are— (a) if no amount in column 2 is equal to the depreciation percentage, the amount closest to it is taken; and if 2 amounts in column 2 are equidistant from the de- preciation percentage, the depreciation percentage is rounded down.

(b) Exclusions This section does not apply in the cases described in section 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: 1994 No 164 ss EL 10(1), OB 1 speciﬁed writedown, diminishing value equivalent Subsection (3)(a) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; and”.
EC 35 Livestock reaching national average market value and livestock no longer used for breeding (1) 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.
715 Part E s EC 35 Income Tax Act 2004 Reprinted as at 29 August 2011 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 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.
(c) Valuation in later income years In later income years, the animal that was high-priced live- stock is treated as the person’s speciﬁed livestock and is valued under the valuation method the person chooses for speciﬁed livestock of the type to which the animal belongs.
Entry into herd scheme in later income years This subsection applies if, in a later income year (year A), the person values any speciﬁed livestock of the same type as the 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: 1994 No 164 s EL 10(3), (4) (2) (3) (4) (5) 716 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EC 39 EC 36 Immature livestock and recently bought livestock (1) (2) (3) Immature livestock This section applies to high-priced livestock that is less than 1 year old at the end of the income year in which it is bought.
Recently bought livestock This section also applies to high-priced livestock that is bought within 6 months of the end of an income year and, during that time,— (a) is not used for insemination, in the case of male live- stock; and is not used for the collection of semen; and does not give birth; and does not have ova removed.

(b) (c) (d) Closing value The closing value of the high-priced livestock at the end of the income year is its cost price.
Deﬁned in this Act: cost price, high-priced livestock, income year, year Compare: 1994 No 164 s EL 10(2) 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: 1994 No 164 s EL 7(1), (3)(b) 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 EC 39 First income year in breeding business (1) 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 717 Part E s EC 40 Income Tax Act 2004 Reprinted as at 29 August 2011 (b) (c) 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.
(2) (3) (4) Special group of broodmares to which this section applies This section also applies to a broodmare that is 2 years of age or older at the end of a person’s ﬁrst income year after 1 April 2001 in which the person— (a) ﬁrst uses the broodmare for breeding in their breeding business; or ﬁrst forms the intention of using the broodmare for breeding in their breeding business; or buys the broodmare, with the intention of using it for breeding in their breeding business.
(b) (c) Closing value The closing value of the bloodstock at the end of the ﬁrst in- come year is its cost price minus the reduction applying in that income year.

Determination of reduction The reduction that applies is determined under section EC 41, EC 42, EZ 4B, or EZ 4C.
Deﬁned in this Act: bloodstock, broodmare, business, cost price, income year, year Compare: 1994 No 164 s EM 1(1)(a), (ab) Subsection (4) was amended, as from 1 August 2006, by section 61 Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by substituting “section EC 41, EC 42, EZ 4B, or EZ 4C” for “section EC 41 or EC 42”.
EC 40 Later income years in breeding business 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.
(1) (2) 718 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EC 41 (3) (4) 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 4B, or EZ 4C.
Deﬁned in this Act: bloodstock, cost price, income year Compare: 1994 No 164 s EM 1(1)(b), (ba) Subsection (4) was amended, as from 1 August 2006, by section 62 Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by substituting “section EC 41, EC 42, EZ 4B, or EZ 4C” for “section EC 41 or EC 42”.
EC 41 Reduction: bloodstock not previously used for breeding in New Zealand other than as shuttle stallions (1) Bloodstock to which this section applies This section applies to bloodstock that— (a) was not used for breeding in New Zealand before 16 December 1991; and before a person (person A) acquired it, was not used for breeding in New Zealand by any other person.
(b) Further bloodstock to which this section applies (1B) This section also applies to bloodstock that, before person A acquired it, was used by another person for breeding in New Zealand if— (a) (b) (c) the other person transferred the bloodstock to person A under a matrimonial agreement to which section FF 12 (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 719 Part E s EC 41 Income Tax Act 2004 Reprinted as at 29 August 2011 (iii) not subject to a reduction under this section.
(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) (5) (6) (7) (8) 720 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— 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 subject matter This section is overridden by section EZ 4B.
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: 1994 No 164 s EM 1(4), (5) Section EC 41 heading: amended, on 19 December 2007, by section 48(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EC 41(1)(b): substituted, on 19 December 2007, by section 48(2) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EC 42 Section EC 41(1B) heading: inserted, on 19 December 2007, by section 48(3) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EC 41(1B): inserted, on 19 December 2007, by section 48(3) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Subsection (2) was amended, as from 1 August 2006, by section 63(a) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by substituting “50%” for “25%”.
Subsection (3) was amended, as from 1 August 2006, by section 63(b) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by substituting “75%” for “37.5%” in both places it appears.

Subsections (4) and (5) were repealed, as from 1 August 2006, by section 63(c) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).
Subsection (6) formula was amended, as from 1 August 2006, by section 63(d) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by substituting “9” for “11”.

Subsection (8) and the heading above subsection (8) were inserted, as from 1 August 2006, by section 63(e) Taxation (Depreciation, Payment Dates Align- ment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).
EC 42 Reduction: bloodstock previously used for breeding in New Zealand (1) (2) (3) (4) (5) 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— Deﬁnition of item in formula In the formula, age of broodmare is— (a) 8 years of age; or 721 Part E s EC 43 Income Tax Act 2004 Reprinted as at 29 August 2011 (6) (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 subject matter This section is overridden by section EZ 4C.

Deﬁned in this Act: bloodstock, broodmare, cost price, income year, stallion, year Compare: 1994 No 164 s EM 1(4), (5) Subsections (2) and (3) were repealed, as from 1 August 2006, by section 64(a) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).
Subsection (4) formula was amended, as from 1 August 2006, by section 64(b) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by substituting “9” for “11”.

Subsection (6) and the heading above subsection (6) were inserted, as from 1 August 2006, by section 64(c) Taxation (Depreciation, Payment Dates Align- ment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).
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: 1994 No 164 s EM 1(2) 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: 1994 No 164 s EM 1(1)(c) 722 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EC 46 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: 1994 No 164 s EM 1(3) 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 otherwise than under subsection (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: 1994 No 164 s EM 2(1)-(5) 723 Part E s EC 47 Income Tax Act 2004 Reprinted as at 29 August 2011 EC 47 Change of use of bloodstock in course of business (1) (2) Use outside business If a bloodstock owner who is in the business of breeding blood- stock for sale starts to use bloodstock other than in the course of the business, they are treated as having disposed of the bloodstock.
The disposal is treated as having occurred at mar- ket value on the day on which they changed the use of the bloodstock.

Use in business If a bloodstock owner who is in the business of breeding blood- stock for sale has been using bloodstock for other purposes, and they start to use the bloodstock in the course of the busi- ness, the bloodstock is treated as having been bought by the bloodstock owner.
The purchase is treated as having occurred at market value on the day on which the bloodstock owner changed the use of the bloodstock.
Deﬁned in this Act: bloodstock, business Compare: 1994 No 164 s EM 2(6), (7) EC 48 Replacement breeding stock When this section applies This section applies when— a bloodstock owner— (a) (i) disposes of bloodstock (breeding stock) that they had previously used for breeding in the course of a business of breeding bloodstock for sale; and buys replacement bloodstock (replacement breeding stock) within the time limits set out in subsections (6) and (7); or (ii) (b) a bloodstock owner— (i) receives a payment of insurance, indemnity, or compensation for the loss or death of, or per- manent injury to, bloodstock (breeding stock) that they had previously used for breeding in the course of a business of breeding bloodstock for sale or that they had bought for use in the busi- ness; and (1) 724 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EC 48 (2) (3) (4) (5) (6) (7) (ii) replacement bloodstock (replacement buys breeding stock) within the time limits set out in subsections (6) and (7).
Amount determined The bloodstock owner may apply to the Commissioner to de- termine the amount that the bloodstock owner has applied in buying replacement breeding stock.

Maximum amount The amount must not be more than the net gain calculated using the formula— gross proceeds – value of breeding stock.
Deﬁnition of items in formula In the formula,— (a) gross proceeds is— (i) (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 725 Income Tax Act 2004 Reprinted as at 29 August 2011 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 (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 Compare: 1994 No 164 s EM 3 Subsection (1)(a)(ii) was amended, as from 1 April 2005, by section 65(1) Tax- ation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provi- sions) Act 2006 (2006 No 3) by substituting “buys” for “applies the proceeds in buying” with application as from the income year corresponding to the 2005–06 tax year.
Subsection (1)(b)(ii) was amended, as from 1 April 2005, by section 65(2) Tax- ation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provi- sions) Act 2006 (2006 No 3) by substituting “buys” for “applies the payment in buying” with application as from the income year corresponding to the 2005–06 tax year.
Subsection (2) was amended, as from 1 April 2005, by section 65(3) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by repealing the words “of the proceeds of sale under subsection (1)(a) or payment under subsection (1)(b)” with application as from the income year corresponding to the 2005–06 tax yearr.
Subpart ED—Valuation of excepted ﬁnancial arrangements Contents ED 1 Valuation of excepted ﬁnancial arrangements ED 2 Transfers of certain excepted ﬁnancial arrangements within wholly-owned groups Page 727 729 726 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s ED 1 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 (1B) 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 (1D).
Valuation method for share acquired by share supplier under share-lending arrangement (1C) 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 (ID).
Amount (1D) For subsections (1B) and (1C), 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.

(2) 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.
Persons complying with generally accepted accounting practice (3) 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 (4) A person who does not comply with generally accepted ac- counting practice— 727 Part E s ED 1 Income Tax Act 2004 Reprinted as at 29 August 2011 (a) must be consistent from 1 income year to the next in their choice of 1 of the cost-ﬂow methods described in subsection (2); and (b) may change their cost-ﬂow method if— (i) (ii) the change is justiﬁed by sound commercial rea- sons.

(The advancement, deferral, or reduction of an income tax liability is not a sound commer- cial reason.
); or the change is required by another provision in this subpart; and (c) must keep sufﬁcient details of any such change, and the reasons for it, under section 22 of the Tax Administration Act 1994.

(5) 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 (5B) A replacement ETS unit has a closing value of zero for each income year.
(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 40 (Adjustment for opening values of trading stock, livestock, and excepted ﬁnancial arrangements).
Deﬁned in this Act: excepted ﬁnancial arrangement, generally accepted ac- counting practice, identical share, income tax liability, income year, NZIAS 8, original share, replacement ETS unitrevenue account property, share-lend- ing arrangement, share-lending right, share supplier, share user Compare: 1994 No 164 ss EE 3(3), EE 13, EE 16 The heading to subsection (1) was substituted, as from 1 July 2006, by section 66(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellan- eous Provisions) Act 2006 (2006 No 3).
(6) 728 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s ED 2 Subsections (1B) to (1D) were inserted, as from 1 July 2006, by section 66(2) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).

Section ED 1(3): amended (with effect from 1 April 2007), on 19 December 2007, by section 49(1) of the Taxation (Business Taxation and Remedial Mat- ters) Act 2007 (2007 No 109).
Section ED 1(5B) heading: inserted, on 26 September 2008, by section 63(1) of the Climate Change Response (Emissions Trading) Amendment Act 2008 (2008 No 85).

Section ED 1(5B): inserted, on 26 September 2008, by section 63(1) of the Climate Change Response (Emissions Trading) Amendment Act 2008 (2008 No 85).
Section ED 1 list of deﬁned terms NZIAS 8: inserted (with effect from 1 April 2007), on 19 December 2007, by section 49(2) of the Taxation (Business Taxa- tion and Remedial Matters) Act 2007 (2007 No 109).

Section ED 1 list of deﬁned terms replacement ETS unit: inserted, on 26 September 2008, by section 63(2) of the Climate Change Response (Emissions Trading) Amendment Act 2008 (2008 No 85).
The list of deﬁned terms was amended, as from 1 July 2006, by section 66(3)(a) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by inserting “identical share”..

The list of deﬁned terms was amended, as from 1 July 2006, by section 66(3)(b) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by inserting “original share”..
The list of deﬁned terms was amended, as from 1 July 2006, by section 66(3)(c) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by inserting “share-lending arrangement”..

The list of deﬁned terms was amended, as from 1 July 2006, by section 66(3)(d) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by inserting “share-lending right”..
The list of deﬁned terms was amended, as from 1 July 2006, by section 66(3)(e) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by inserting “share supplier”..
The list of deﬁned terms was amended, as from 1 July 2006, by section 66(3)(f) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by inserting “share user”.. ED 2 Transfers of certain excepted ﬁnancial arrangements within wholly-owned groups (1) When this section applies This section applies when— (a) a company in a wholly-owned group of companies (company A) transfers to another company in the same group (company B) an excepted ﬁnancial arrangement that is revenue account property of company A; and 729 Income Tax Act 2004 Reprinted as at 29 August 2011 (ab) (b) (c) 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.
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 member of group If company B stops being a member of the wholly-owned group, the company is treated as disposing of and reacquir- ing the excepted ﬁnancial arrangement at its market value at the time the company stops being a member of the group.
(2) (3) 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: 1994 No 164 s EE 14 Subsection (1)(ab) was inserted, as from 1 July 2006, by section 67 Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).
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?

730 Page 733 735 736 736 737 738 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s ED 2 EE 7 What is not depreciable property?
EE 8 Election that property not be depreciable How amounts of depreciation loss and depreciation recovery income are calculated EE 9 Description of elements of calculation EE 10 Calculation rule: item temporarily not available EE 11 Calculation rule: income year in which item disposed of EE 12 Depreciation methods Methods Amount of depreciation loss under diminishing value method or straight-line method EE 13 Application of sections EE 14 to EE 19 EE 14 Diminishing value or straight-line method: calculating amount of depreciation loss EE 15 Amount of adjusted tax value EE 16 Amount resulting from standard calculation EE 17 Amount resulting from petroleum-related depreciable property calculation EE 18 Cost: change from diminishing value to straight-line method EE 19 Cost: ﬁxed life intangible property Amount of depreciation loss under pool method EE 20 Application of sections EE 21 to EE 24 EE 21 Pool method: calculating amount of depreciation loss EE 22 Cases affecting pool EE 23 Combined pools EE 24 Property ceasing to qualify for pool EE 24B Depreciation loss for plant variety rights application upon grant of rights in 2005–06 or later income year Depreciation rates EE 25 Setting of economic depreciation rate EE 25B Economic rate for certain depreciable property EE 25C Economic rate for buildings EE 25D Economic rate for certain aircraft and motor vehicles EE 25E Economic rate for plant, equipment, or building, with high residual value 739 740 741 743 743 744 746 746 747 747 749 750 750 751 751 753 754 754 755 756 757 758 760 761 EE 26 Annual rate for item acquired in person’s 1995-96 or later 762 income year 731 Income Tax Act 2004 Reprinted as at 29 August 2011 EE 26B Election in respect of certain depreciable property acquired on or after 1 April 2005 EE 27 Annual rate for ﬁxed life intangible property EE 27B Annual rate for patent granted in 2005–06 or later income year EE 27C Annual rate for patent applications lodged with complete speciﬁcations on or after 1 April 2005 [Repealed] EE 27D Annual rate for
 patents: applications lodged with complete speciﬁcations on or after 1 April 2005 [Repealed] EE 27E Annual rate for plant variety rights [Repealed] EE 28 Special rate or provisional rate EE 29 Using economic rate or provisional rate instead of special rate Improvements, items of low value, or items no longer used EE 30 Improvements EE 31 Items of low value EE 32 Items no longer used 763 764 765 767 767 767 767 768 769 771 773 Transfers of depreciable property: associated persons and non-qualifying amalgamations EE 33 Transfer of depreciable property on or after 24 September 774 1997 EE 34 Transfer of depreciable property in non-qualifying 778 amalgamation on or after 14 May 2002 EE 35 Transfer of radiocommunications licence right on or after 780 24 September 1997 EE 36 Transfer of depreciable intangible property on or after 1 781 July 1997 Disposals and similar events EE 37 Application of sections EE 41 to EE 44 EE 38 Consideration for purposes of section EE 37 EE 39 Items for purposes of section EE 37 EE 40 Events for purposes of section EE 37 EE 41 Effect of disposal or event EE 42 Amount of depreciation recovery income when item partly used for business EE 43 Amount of depreciation recovery income when lost or stolen items recovered EE 44 Amount of depreciation recovery income when compensation received 781 782 786 786 788 790 791 792 732 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EE 1 EE 44B Unused geothermal well brought into use EE 45 Cost: GST Interpretation provisions Adjusted tax value EE 46 Meaning of adjusted tax value EE 47 Formula EE 48 Base value in section EE 47 when none of sections EE 49, EE 50, and EZ 21(1) applies EE 49 Base value in section EE 47 when no previous deduction EE 50 Base value in section EE 47 when property is petroleum-related depreciable property EE 51 Total deductions in section EE 47 Deﬁnitions EE 52 Meaning of annual rate EE 53 Meaning of depreciable intangible property EE 54 Meaning of estimated useful life EE
 55 Meaning of excluded depreciable property EE 56 Meaning of maximum pooling value EE 57 Meaning of poolable property EE 58 Other deﬁnitions Introductory provision EE 1 What this subpart does 792 793 794 794 795 796 797 798 801 803 804 804 805 806 806 (1) Quantiﬁes 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 733 (b) (c) (d) (b) Part E s EE 1 Income Tax Act 2004 Reprinted as at 29 August 2011 (b) (c) (d) 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 40 occurs; and the amount of depreciation recovery income is calcu- lated for the person, the item, and the income year under any of sections EE 22(5), EE 31(4), EE 41(1), EE 42(2), EE 43(3), and EE 44(3).
(4) Amounts of loss incurred and income derived To avoid doubt,— (a) an amount of depreciation loss is treated as being in- curred in the income year for which it is calculated; and an amount of depreciation recovery income is treated as being derived in the income year for which it is calcu- lated.
Choice for allocation of deduction for depreciation loss—property used for research, development, market development (4B) 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 20 (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— 734 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EE 2 (5) (a) (b) to an income year after the income year for which the person has the depreciation loss; and in the way required by section EJ 21 (Allocation of deductions for research, development, resulting market development).
Partial income-producing use Subpart DE (Motor vehicle expenditure) and section FB 7 (De- preciation: partial income-producing use) contain rules for calculating the amount of deduction available 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 gen- eral 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: 1994 No 164 s EG 1(1) Subsection (4B) was inserted, as from 1 October 2005, by section 68(1) Taxa- tion (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provi- sions) Act 2006 (2006 No 3) with application as from the income year corres- ponding to the 2005–06 tax year The list of deﬁned terms was amended, as from 1 October 2005, by section 68(2)(a) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscel- laneous Provisions) Act 2006 (2006 No 3) by inserting “development” with application as from the income year corresponding to the 2005–06 tax year.
The list of deﬁned terms was amended, as from 1 October 2005, by section 68(2)(b) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscel- laneous Provisions) Act 2006 (2006 No 3) by inserting “research” with appli- cation as from the income year corresponding to the 2005–06 tax year.
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: 1994 No 164 s EG 19(8) 735 Part E s EE 3 Income Tax Act 2004 Reprinted as at 29 August 2011 EE 3 Ownership of goods subject to reservation of title (1) (2) (3) When this section applies This section applies when— (a) a person (buyer) enters into an unconditional contract 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) Buyer treated as owner The buyer is treated as owning, and the seller is treated as not owning, the item from the later of the following times: (a) (b) the time at which the buyer enters into the contract; and the time at which the buyer takes possession of the item.
Buyer ceases to be treated as owner Subsection (2) ceases to apply when 1 of the following occurs: (a) (b) Deﬁned in this Act: depreciable property, hire purchase agreement, hire pur- chase asset, own Compare: 1994 No 164 s EG 1B title to the item passes to the buyer; or the seller repossesses the item.
EE 4 Ownership of lessee’s improvements: lessee When this section applies This section applies when— (a) a lessee of land incurs expenditure during the period during which the land is leased to the lessee in erecting a ﬁxture on the land or making an improvement to the land; and the lessor owns the ﬁxture or improvement.
(b) The following apply to the ownership of the ﬁxture or improve- ment: (1) (2) 736 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EE 5 (a) (b) in the period during which the land is leased to the lessee,— (i) 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 (ii) (iii) 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: 1994 No 164 s EG 1A(1)-(3) EE 5 Ownership of lessee’s improvements: other person (1) (2) 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.
(b) (c) (d) 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 737 Part E s EE 6 Income Tax Act 2004 Reprinted as at 29 August 2011 (b) (c) 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, term of the lease Compare: 1994 No 164 s EG 1A(4) (3) 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.

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— (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 (4) 738 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EE 7 to be available for use in carrying on a business for the purpose of deriving assessable income.
Deﬁned in this Act: assessable income, business, depreciable intangible property, depreciable property, property, geothermal energy proving period, geothermal well Compare: 1994 No 164 s OB 1 depreciable property Subsection (1) was amended, as from 17 May 2006, by section 29(1) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) by substituting “Subsections (2) to (4)” for “Subsections (2) and (3)” with appli- cation to a geothermal well for the 2006–07 and later income years, if the well is completed or acquired on or after 1 April 2003.
Subsection (4) was inserted, as from 17 May 2006, by section 29(2) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) with application to a geothermal well for the 2006–07 and later income years, if the well is completed or acquired on or after 1 April 2003.
The list of deﬁned terms was amended, as from 17 May 2006, by section 29(3) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) by adding “geothermal energy proving period” and “geothermal well” with application to a geothermal well for the 2006–07 and later income years, if the well is completed or acquired on or after 1 April 2003.

EE 7 What is not depreciable property?
The following property is not depreciable property: (a) land, although buildings, ﬁxtures, and the improve- ments listed in schedule 16 (Depreciable land improve- ments) 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: property that will not decline in value, as far as its owner is concerned, because, when they dispose of it, they have a right to be compensated for any decline in its value: property that its owner chooses, under section EE 8, to treat as not depreciable: property that its owner chooses, under section EE 31, to deal with under that section: property for whose cost a person other than the prop- erty’s owner is allowed a deduction: (b) (c) (d) (e) (f) (g) (h) (i) 739 Part E s EE 8 Income Tax Act 2004 Reprinted as at 29 August 2011 (j) property for whose cost a person is allowed a deduc- tion under a provision of this Act outside this subpart or under a provision of an earlier Act, except for an asset to which section DU 6(4) (Depreciation) applies.
Deﬁned in this Act: deduction, depreciable property, dispose, excepted ﬁnan- cial arrangement, ﬁnancial arrangement, own, property, trading stock Compare: 1994 No 164 s OB 1depreciable property Paragraphs (a) to (i) were amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; or”.
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) (b) the use of the item changes; and before the use changes, the person was denied a deduc- tion for an amount of depreciation loss for the item; and after the use changes, in the absence of the election, the person would have been allowed a deduction for an amount of depreciation loss for the item.
(c) 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) 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 740 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EE 9 (c) 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 40 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— (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: 1994 No 164 s EG 16A How amounts of depreciation loss and depreciation recovery income are calculated EE 9 Description of elements of calculation (1) 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 (b) 741 Part E s EE 9 Income Tax Act 2004 Reprinted as at 29 August 2011 (c) the pool method, which is dealt with in sections EE 20 to EE 24.

Depreciation rates Sections EE 25 to EE 29 deal with the rates of depreciation.
The rates are— (a) the economic rate, which is dealt with in section EE 25; and the annual rate, which is dealt with in sections EE 26 and EE 27; and a special rate or a provisional rate, both of which are dealt with in sections EE 28 and EE 29.
(b) (c) Improvements, low value items, and items no longer used Sections EE 30 to EE 32 deal with the cases of— (a) an improvement made to an item of depreciable prop- erty; and an item of depreciable property that is of low value; and an item of depreciable property that is no longer used.

(b) (c) Transfers Sections EE 33 to EE 36 deal with the transfer of items of de- preciable property in non-qualifying amalgamations and be- tween associated persons.
Disposals and similar events Sections EE 37 to EE 44 deal with disposals of property and events that involve property and are similar to disposal.

Interpretation provisions Sections EE 45 to EE 58 deal with the following interpretation matters: (a) (b) section EE 45 deals with the effect of GST on cost; and sections EE 46 to EE 51 deal with the meaning of ad- justed tax value ; and sections EE 52 to EE 58 contain deﬁnitions.
(c) Relationship with sections EZ 8 to EZ 26 Sections EZ 8 to EZ 26 (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 (2) (3) (4) (5) (6) (7) 742 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EE 11 method, dispose, economic rate, GST, improvement, pool method, property, provisional rate, special rate, straight-line method Compare: 1994 No 164 s EG 3 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: 1994 No 164 s EG 2(2A) 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.
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 41(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 FB 7(6)) (Depreciation: partial income-producing use) for a disposal or event to which the section applies.
743 Part E s EE 12 Income Tax Act 2004 Reprinted as at 29 August 2011 Exclusion: recent acquisition of item partly used for business (6) A person has the amount of depreciation loss calculated under section FB 7(9) (Depreciation: partial income-producing use) for a disposal or event to which the subsection applies.
Deﬁned in this Act: adjusted tax value, amount, business, depreciable property, depreciation loss, dispose, income year, petroleum-related depreciable property Compare: 1994 No 164 s EG 1(2) Subsection (5) was amended, as from 1 April 2005, by section 26 Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) by substituting “section” for “subsection” with application as from the 2005–06 income year.
Subsection (5) was amended, as from 1 October 2005, by section 192 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “FB 7(6) (Depreciation: partial income-producing use)” for “EE 42” with application as from the 2005–06 income year.

Subsection (6) was inserted, as from 18 December 2006, by section 30(1) Tax- ation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) with application as from the 2005–06 income year.
Methods EE 12 Depreciation methods Meaning of depreciation method (1) Depreciation method means— (a) (b) (c) a method that a person may use to calculate an amount of depreciation loss: a rate determined by the Commissioner under section 91AAF or 91AAG of the Tax Administration Act 1994: a maximum pooling value determined by the Commis- sioner under section 91AAL of that Act.
Methods described The depreciation methods are— (a) the diminishing value method, which— (i) may be used for any item of depreciable property except one referred to in subparagraph (ii) or (iii); and (ii) must not be used for an item of ﬁxed life intan- gible property: (iii) must not be used for an item of property in the circumstances described in section EZ 8 (Pool (2) 744 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EE 12 (b) (c) method for items accounted for by globo method for 1992-93 income year); and 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 circumstances described in section EZ 8 (Pool method for items accounted for by globo method for 1992-93 income year).
Person chooses (3) A person chooses which of the depreciation methods they will use for each item of depreciable property they own.

(4) (5) (6) How person chooses The person chooses the method by using the chosen method for the item in their return of income for the income year for which they make the election.
Diminishing value or straight-line method ﬁxed for income year If the person chooses the diminishing value method or the straight-line method, they must use the method for the item and the income year and must not change the election for the income year.
Pool method ﬁxed for income year and later income years If the person chooses the pool method, they must use the method for the item and the income year and must not change the election for— (a) (b) the income year; or a later income year in which the item is still poolable property that they own.
Deﬁned in this Act: amount, depreciable property, depreciation loss, depre- ciation method, diminishing value method, ﬁxed life intangible property, in- 745 Part E s EE 13 Income Tax Act 2004 Reprinted as at 29 August 2011 come year, own, pool method, poolable property, property, return of income, straight-line method Compare: 1994 No 164 s EG 3(1)-(4) Subsection (1) was amended, as from 1 October 2005, by section 25 Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) by substituting “loss, and includes a rate determined by the Commissioner under section 91AAF, 91AAG, or 91AAL of the Tax Administration Act 1994.” for “loss.” with application as from the 2005–06 income year.
Subsection (1) was substituted, as from 1 April 2005, by section 31(1) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) with application as from the 2005–06 income year.

Subsection (2)(a)(ii) and (b)(ii) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; and”.
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 EE 14 Diminishing value or straight-line method: calculating amount of depreciation loss Most depreciable property The amount of depreciation loss that the person has for an income year for an item of depreciable property is the lesser of the amounts dealt with in sections EE 15 and EE 16.
Exclusion: petroleum-related depreciable property The amount of depreciation loss that the person has for an in- come year for an item of petroleum-related depreciable prop- erty is the lesser of the amounts dealt with in sections EE 15 and EE 17.
Deﬁned in this Act: amount, depreciable property, depreciation loss, income year, petroleum-related depreciable property Compare: 1994 No 164 s EG 2(1) (1) (2) 746 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EE 16 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: 1994 No 164 s EG 2(1)(c) 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— 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,— (i) (ii) if subparagraph (ii) does not apply, the item’s to the person excluding expenditure for cost which the person is allowed a deduction under a provision of this Act outside this subpart (vari- ations to cost are in sections EE 18 and EE 19): if the item is a patent or plant variety rights and the person has been allowed a deduction for de- 747 Part E s EE 16 Income Tax Act 2004 Reprinted as at 29 August 2011 preciation loss for the patent application or plant variety rights application relating to the item, the item’s adjusted tax value at the start of the month in which the person acquires the item (a variation to cost is in section 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 (or whole calendar months in the case of a patent application) in the income 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 (or whole months in the case of a patent application) 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.
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: 1994 No 164 s EG 2(1)(a) Subsection (4)(a) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; and”.
Subsection (4)(b) was substituted, as from 1 October 2005, by section 32(1) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) with application to an item that is a patent or plant variety rights, if the item is acquired by a person in their 2005–06 or later income year.
Subsection (5)(b) was amended, as from 1 October 2005, by section 32(2) Tax- ation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) by inserting “(or whole calendar months in the case of a patent applica- tion)” after “part calendar months” with application to a patent application, if the patent application, with a complete speciﬁcation, is ﬁrst lodged with the Intellectual Property Ofﬁce of New Zealand or a similar ofﬁce in another juris- diction on or after 1 April 2005.
748 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EE 17 Subsection (6) was amended, as from 1 October 2005, by section 32(3) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) by inserting “(or whole months in the case of a patent application)” after “part months” with application to a patent application, if the patent application, with a complete speciﬁcation, is ﬁrst lodged with the Intellectual Property Ofﬁce of New Zealand or a similar ofﬁce in another jurisdiction on or after 1 April 2005.
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— 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 (A variation to cost is in item’s cost to the person.

section EE 18.)
section EE 18.)

Days (5) Days is the number of whole or part days in the income year on which— (a) the person owns the item; and 749 Part E s EE 18 Income Tax Act 2004 Reprinted as at 29 August 2011 (b) 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: 1994 No 164 s EG 2(1)(b) Subsection (4)(a) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; and”.
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: 1994 No 164 s EG 3(6) EE 19 Cost: ﬁxed life intangible property 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— (1) (2) 750 Reprinted as at 29 August 2011 (a) Income Tax Act 2004 Part E s EE 21 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: 1994 No 164 s EG 2(3) 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 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— 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) (i) 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,— the lower of the rates, if there are 2 items in the pool; or 751 Part E s EE 21 Income Tax Act 2004 Reprinted as at 29 August 2011 (ii) the lowest of the rates, if there are 3 or more items in the pool.
(5) (6) Starting adjusted tax value Starting adjusted tax value is— (a) the pool’s adjusted tax value at the start of the income year, increased as applicable by the amount referred to in section EE 22(2)(b); or zero, if the pool did not exist at the start of the income year.

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

(b) Months (7) Months, for a person,— (a) is the number of whole or part months in their income year: (b) may be more or less than 12.
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: 1994 No 164 ss EG 2(2), EG 11(1), (2) Section EE 21(5) heading: substituted (with effect on 1 April 2005), on 6 Oc- tober 2009, by section 770(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 2005), on 6 October 2009, by section 770(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 2005), on 6 Oc- tober 2009, by section 770(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 2005), on 6 October 2009, by section 770(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

(8) 752 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EE 22 Section EE 21(7) heading: substituted (with effect on 1 April 2005), on 6 Oc- tober 2009, by section 770(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 2005), on 6 October 2009, by section 770(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section EE 21(8) heading: repealed (with effect on 1 April 2005), on 6 October 2009, pursuant to section 770(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 2005), on 6 October 2009, by section 770(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

EE 22 Cases affecting pool (1) (2) (3) (4) 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) Item disposed of If a person disposes of an item included in a pool, any con- sideration they derive from the disposal is subtracted from the adjusted tax value of the pool in which the item was included on the date of the disposal.
All items disposed of If, on the last day of an income year, the adjusted tax value of a person’s pool is positive but the person has disposed of all items that were in the pool,— (a) the amount of depreciation loss that the person has for the pool for the income year is the pool’s adjusted tax value; and 753 Part E s EE 23 Income Tax Act 2004 Reprinted as at 29 August 2011 (b) on the ﬁrst day of the following income year, the pool’s adjusted tax value is zero.
(5) (6) 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 9 Section EZ 9 (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: 1994 No 164 s EG 11(3)-(4A) 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.
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 (c) each of the constituent pools ceases to exist.
Deﬁned in this Act: adjusted tax value, income year, pool, pool method Compare: 1994 No 164 s EG 11(5) 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 section EE 754 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EE 24B 57(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: 1994 No 164 s EG 11(8) they disposed of it for its market value; and they immediately reacquired it for its market value.
EE 24B Depreciation loss for plant variety rights application upon grant of rights in 2005–06 or later income year (1) When this section applies This section applies if— (a) plant variety rights are granted to a person in their 2005–06 or later income year; and the plant variety rights are granted in relation to a plant variety rights application owned by the person; and a deduction for expenditure is not allowed under another provision.
(b) (c) Calculation of deduction (2) A person is allowed a deduction for the income year in which the plant variety rights are granted, for expenditure on the plant variety rights application, calculated using the formula— (3) Deﬁnition of items in formula In the formula,— (a) cost means the cost to the person of the plant variety rights application: (c) (b) months of ownership means the number of whole cal- endar months for which the person owns the plant var- iety rights application: depreciation months means 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 755 Part E s EE 25 Income Tax Act 2004 Reprinted as at 29 August 2011 Section EE 24B was inserted, as from 1 October 2005, by section 33 Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81).
Depreciation rates EE 25 Setting of economic depreciation rate Relevant provisions The economic depreciation rate that applies to a kind of item of depreciable property is set under— (a) (b) (c) (d) (e) section EE 25B, for items that— (i) are not buildings, ﬁxed life intangible property, excluded depreciable property, or property for which an economic rate is given by section EE 25D or set under section EE 25E; and (ii) are acquired on or after 1 April 2005: section EE 25C, for items that are buildings and— (i) (ii) are acquired on or after 19 May 2005; and do not have an economic depreciation rate set under section EZ 21B: section EE 25D, for certain aircraft and motor vehicles acquired on or after 1 April 2005: section EE 25E, for items that— (i) have an estimated residual market value greater than 13.5% of cost: (ii) would, in the absence of section EE 25E, have an economic depreciation rate set under section EE 25B or EE 25C: section EZ 21B (Economic rate for plant or equipment acquired before 1 April 2005 and buildings acquired before 19 May 2005) 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 21B or a corresponding provision.
(ii) (iii) (1) 756 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EE 25B 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) Relationship with subject matter: election under section EE 26B Subsection (1)(a), (c), and (d) are overridden by section EE 26B.
Deﬁned in this Act: depreciable property, economic rate, estimated residual market value, excluded depreciable property, ﬁxed life intangible property Subsection (2)(b) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “91AAF” for “91AD”.
Section EE 25 was substituted, as from 3 April 2006, by section 69(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) with application as from the income year corresponding to the 2005–06 tax year.

Subsection (3) was substituted, as from 3 April 2006, by section 34(1) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) with application as from the 2005–06 income year.
EE 25B Economic rate for certain depreciable property (1) (2) (3) (4) 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 given by section EE 25D or set under sec- tion EE 25E.
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 91AAFof the Tax Administration Act 1994.
Procedure for setting economic rate To set the diminishing value rate for a kind of item of depre- ciable property, the Commissioner— 757 Part E s EE 25C Income Tax Act 2004 Reprinted as at 29 August 2011 (a) (b) (c) gets 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 speci- ﬁed in schedule 11B, column 1 (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) (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: Commissioner, depreciable property, diminishing value rate, economic rate, estimated useful life, excluded depreciable property, ﬁxed life intangible property Sections EE 25B to EE 25E were inserted, as from 3 April 2006, by section 70(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellan- eous Provisions) Act 2006 (2006 No 3) with application as from the income year corresponding to the 2005–06 tax year.
EE 25C Economic rate for buildings What this section is about This section is about setting the economic depreciation rate that applies to a kind of item of depreciable property that is a building and for which an economic rate is not set under section EE 25E or EZ 21B.

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 91AAFof the Tax Administration Act 1994.
(1) (2) 758 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EE 25C (3) (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 speci- ﬁed in schedule 11B, column 4 (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) (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 type of the building determined under section EZ 21B (Eco- nomic rate for plant or equipment acquired before 1 April 2005 and buildings acquired before 19 May 2005).
Deﬁned in this Act: Commissioner, depreciable property, diminishing value rate, economic rate, estimated useful life, excluded depreciable property, ﬁxed life intangible property Sections EE 25B to EE 25E were inserted, as from 3 April 2006, by section 70(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellan- eous Provisions) Act 2006 (2006 No 3) with application as from the income year corresponding to the 2005–06 tax year.
759 Part E s EE 25D Income Tax Act 2004 Reprinted as at 29 August 2011 EE 25D Economic rate for certain aircraft and motor vehicles 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) (cb) (d) 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 ex- clusively 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— (a) (b) is not available for hire: is available for hire for a hire period of more than 1 month: is a taxi: is a minibus.
(c) (d) Deﬁned in this Act: diminishing value rate, economic rate, international aircraft, minibus, straight-line rate Sections EE 25B to EE 25E were inserted, as from 3 April 2006, by section 70(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellan- eous Provisions) Act 2006 (2006 No 3) with application as from the income year corresponding to the 2005–06 tax year.
Subsection (2)(cb) was inserted, as from 3 April 2006, by section 35(1) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) with application as from the 2005-06 income year.
Subsection (3) was amended, as from 3 April 2006, by section 35(2) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) by substituting “that is designed exclusively or mainly to carry persons, and has seats for no more than 12 persons,” for “having seats for no more than 12 per- sons” with application as from the 2005-06 income year.
(1) (2) (3) 760 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EE 25E EE 25E Economic rate for plant, equipment, or building, with high residual value (1) (2) (3) 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 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) (b) (c) 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) 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 speci- ﬁed in schedule 11, column 1 (Banded rates of depreci- ation); and sets the same rate for some or all of the kinds of items of depreciable property that are similar to one another, if the Commissioner thinks it is appropriate to do so having regard to— (i) (ii) the rate calculated for each kind; and the reduction in compliance costs that is likely to be achieved.
Formula The formula is— (4) 761 Part E s EE 26 Income Tax Act 2004 Reprinted as at 29 August 2011 (5) Deﬁnition of item in formula In the formula,— (a) residual value is the greater of— (i) (b) estimated residual market value, which is deﬁned in section EE 58: 13.5% of cost: (ii) cost is the cost of items of the kind to which the formula is applied: estimated useful life is deﬁned in section EE 54.
(c) Deﬁned in this Act: Commissioner, depreciable property, diminishing value rate, economic rate, estimated residual market value, estimated useful life, ex- cluded depreciable property, ﬁxed life intangible property Sections EE 25B to EE 25E were inserted, as from 3 April 2006, by section 70(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellan- eous Provisions) Act 2006 (2006 No 3) with application as from the income year corresponding to the 2005–06 tax year.
Subsection (1) (except the heading) was substituted, as from 3 April 2006, by section 36(1) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) with application as from the 2005-06 income year.

Section EE 25E(1)(b): substituted (with effect on 1 April 2005), on 6 October 2009, by section 771(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
EE 26 Annual rate for item acquired in person’s 1995-96 or later income year What this section is about This section is about the annual rate that applies to an item of depreciable property that a person acquires, other than under section FCB 3 (Emigrating company treated as disposing of property and immediately reacquiring property), in their 1995-96 income year or a later income year (not including ﬁxed life intangible property or excluded depreciable prop- erty, for which rates are set in sections EE 27 and EZ 14 (Annual rate for excluded depreciable property: 1992-93 tax year)).
Rate The rate is 1 of the following: (1) (2) 762 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EE 26B (a) (b) (c) the item’s economic rate, special rate, or provisional rate, for an item not described in either paragraph (b) or (c): the item’s economic rate, special rate, or provisional rate multiplied by 1.2, for an item that— (i) has not been used or held for use in New Zealand as an item of depreciable property before the date on which the person acquires it; and is not a building; and is not a used imported motorcar; 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.
Deﬁned in this Act: acquire, annual rate, depreciable property, diminishing value rate, economic rate, excluded depreciable property, ﬁxed life intangible property, income year, international aircraft, New Zealand, straight-line rate Compare: 1994 No 164 ss EG 6, EG 7 Subsection (1) was amended, as from 3 April 2006, by section 71(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by inserting “, other than under section FCB 3 (Emi- grating company treated as disposing of property and immediately reacquiring property),” after “a person acquires” with application as from the income year corresponding to the 2005–06 tax year.
Section EE 26(2)(a): substituted (with effect on 1 April 2005), on 6 October 2009, by section 772(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Subsection (2)(a) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; or”.
Section EE 26(2)(b): amended (with effect on 1 April 2005), on 6 October 2009, by section 772(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Subsection (2)(b)(iv) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; or”.
EE 26B Election in respect of certain depreciable property acquired on or after 1 April 2005 (1) When this section applies This section applies if a person acquired an item of depreciable property that is not a building— (a) on or after 1 April 2005; and 763 Part E s EE 27 Income Tax Act 2004 Reprinted as at 29 August 2011 (2) (3) (b) 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 21B The person may elect to calculate the depreciation loss for the item of depreciable property for income years corresponding to the 2005–06 and subsequent tax years in accordance with the economic depreciation rate determined for the type of item under section EZ 21B (Economic rate for plant or equipment acquired before 1 April 2005 and buildings acquired before 19 May 2005).
Election to be made in return of income The person must make an election under subsection (2) in the person’s return of income for the 2005-06 tax year.

Deﬁned in this Act: depreciable property, depreciation loss, economic depreci- ation rate, income year, return of income, tax year.
Section EE 26B was inserted, as from 3 April 2006, by section 72(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) with application as from the income year corresponding to the 2005–06 tax year.
EE 27 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 14 (Annual rate for excluded depreciable property: 1992-93 tax year): a patent for which a rate is set in section EE 27B.
(c) (b) Rate The rate is the rate calculated using the formula— (2) Deﬁnition of item in formula In the formula, legal life is,— (3) 764 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EE 27B (4) (a) (b) 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.
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: 1994 No 164 s EG 8 Subsection (1) was amended, as from 1 October 2005, by section 27 Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) by substituting “, not including—” for “(not including an item of excluded de- preciable property, for which a rate is set in section EZ 14 (Annual rate for excluded depreciable property: 1992-93 tax year)).” with application as from the 2005–06 income year.
Subsection (1)(a) to (c) was inserted, as from 1 October 2005, by section 27 Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) with application as from the 2005–06 income year.

Subsection (1)(b) was substituted, as from 1 October 2005, by section 37(1) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) with application to a patent, if the patent is acquired by a person as from their 2005–06 income year.
Subsection (1)(c) was repealed, as from 1 October 2005, by section 37(2) Tax- ation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) with application to a patent, if the patent is acquired by a person as from their 2005–06 income year.

EE 27B Annual rate for patent granted in 2005–06 or later income year When this section applies This section applies to an item that is a patent, if the patent is acquired by a person in their 2005–06 or later income year.
Rate The rate is calculated using the formula— (1) (2) 765 Part E s EE 27B Income Tax Act 2004 Reprinted as at 29 August 2011 Deﬁnition of item in formula In the formula, legal life is— (a) (b) (c) (d) 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, if section EE 19 applies to the patent; or the patent’s remaining legal life from the time at which the person acquires the patent, if— (i) (ii) section EE 19 does not apply to the patent; and the person has not been allowed a deduction for depreciation loss for the patent application relat- ing to the patent; or (iii) the remaining legal life of the patent application relating to the patent from the start of the income year in which the person acquires the patent application, if— (i) (ii) section EE 19 does not apply to the patent; and the person has been allowed a deduction for de- preciation loss for the patent application; and section EE 19 has not applied to the patent appli- cation while the person has owned it; or the remaining legal life of the patent application relating to the patent from the start of the income year in which the person acquires the patent, if— (i) (ii) section EE 19 does not apply to the patent; and the person has been allowed a deduction for de- preciation loss for the patent application; and section EE 19 has applied to the patent applica- tion while the person has owned it.
(iii) 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, deduction, depreciation loss, income year, legal life Sections EE 27B to EE27E were inserted, as from 1 October 2005, by section 28 Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) with application as from the 2005–06 income year.
Section EE 27B was substituted, as from 1 October 2005, by section 38 Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81).
(3) (4) 766 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EE 28 EE 27C Annual rate for patent applications lodged with complete speciﬁcations on or after 1 April 2005 [Repealed] Sections EE 27B to EE27E were inserted, as from 1 October 2005, by section 28 Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) with application as from the 2005–06 income year.
Sections EE 27C to EE27E were repealed, as from 1 October 2005, by section 38 Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81).

EE 27D Annual rate for patents: applications lodged with complete speciﬁcations on or after 1 April 2005 [Repealed] Sections EE 27B to EE27E were inserted, as from 1 October 2005, by section 28 Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) with application as from the 2005–06 income year.
Sections EE 27C to EE27E were repealed, as from 1 October 2005, by section 38 Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81).

EE 27E Annual rate for plant variety rights [Repealed] Sections EE 27B to EE27E were inserted, as from 1 October 2005, by section 28 Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) with application as from the 2005–06 income year.
Sections EE 27C to EE27E were repealed, as from 1 October 2005, by section 38 Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81).

EE 28 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.
No special rate for excluded depreciable property (2) A special rate may not be set for an item of excluded depre- ciable property.

No provisional rate for ﬁxed life intangible property or excluded depreciable property (3) A provisional rate may not be set for an item of ﬁxed life in- tangible property or an item of excluded depreciable property.
767 Part E s EE 29 Income Tax Act 2004 Reprinted as at 29 August 2011 (4) Exception This section is subject to section FC 8I(8) (Adjustment re- quired for certain operating leases entered before 20 June 2007).

Deﬁned in this Act: depreciable property, excluded depreciable property, ﬁxed life intangible property, provisional rate, special rate.
Section EE 28 was amended, as from 21 December 2004, by section 270 Tax- ation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “91AAG to 91AAJ” for “91AE to 91AH”.

Section EE 28 was substituted, as from 1 October 2005, by section 29 Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) with application as from the 2005–06 income year.
Section EE 28(4) heading: added (with effect from 20 June 2007), on 19 De- cember 2007, by section 50 of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section EE 28(4): added (with effect from 20 June 2007), on 19 December 2007, by section 50 of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
EE 29 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).
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 (d) (e) (2) 768 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EE 30 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: 1994 No 164 s EG 10(10), (11) Improvements, items of low value, or items no longer used EE 30 Improvements (1) (2) (3) (4) (5) 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) Following income years For income years following the income year in which the per- son makes the improvement,— (a) a person who uses the diminishing value method or the straight-line method for the item that was improved may choose to apply subsection (4) or (5): a person who uses the pool method for the item that was improved must apply subsections (6) and (7).
(b) 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 769 Part E s EE 30 Income Tax Act 2004 Reprinted as at 29 August 2011 made the improvement, in which they use the improvement or have it available for use: (a) if they use the diminishing value method for the item, add the improvement’s adjusted tax value at the start of the income year to the item’s adjusted tax value at the start of the income year: if they use the straight-line method for the item,— (i) add the improvement’s adjusted tax value at the start of the income year to the item’s adjusted tax value at the start of the income year; and add the improvement’s cost to the item’s cost.
(ii) (b) (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, depreciable property, diminishing value method, improvement, income year, maximum pooling value, pool, pool method, straight-line method Subsection (3)(a) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; and”.
Subsection (5)(a) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; or”.
770 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EE 31 EE 31 Items of low value (1) When this section applies This section applies for an item of property that a person ac- quires, in an income year, if— (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 (1B); 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 when 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 (1B): 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 (1B).
(ii) Threshold value for item (1B) The threshold value for an item is— (a) (b) $200, if the item is acquired before 19 May 2005: $500, if the item is acquired on or after 19 May 2005.

(2) 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.
771 Part E s EE 31 Income Tax Act 2004 Reprinted as at 29 August 2011 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 (2).
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 (2), 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 (6) applies when— (a) a person has been allowed a deduction on a claim under subsection (2) 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: 1994 No 164 ss EG 16, OB 1 low value property Subsection (1) was substituted (excluding the heading), as from 19 May 2005, by section 73(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) with application as from the income year corresponding to the 2005–06 tax year.
Subsection (1B) was inserted, as from 19 May 2005, by section 73(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) with application as from the income year corresponding to the 2005–06 tax year.
(3) (4) (5) (6) (7) 772 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EE 32 EE 32 Items no longer used (1) 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 satisﬁes subsection (1B); and has not been depreciated using the pool method.
(b) (c) Buildings (1B) This section applies to a building that satisﬁes subsection (1)(a) and (c) if— (a) (b) the building has been irreparably damaged and rendered useless for the purpose of deriving income; and the damage occurs— (i) (ii) in the 2005-06 or a subsequent 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 (iii) (2) (3) (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- ing on a business for the purpose of deriving assessable income; and (b) 773 Part E s EE 33 Income Tax Act 2004 Reprinted as at 29 August 2011 (4) (5) (c) the costs of disposing of the item would be more than any consideration they could derive from disposing of it.
Amount The amount of depreciation loss is the item’s adjusted tax value at the start of the income year.

Adjusted tax value at end of year The item’s adjusted tax value at the end of the income year is zero.
Deﬁned in this Act: adjusted tax value, amount, assessable income, associated person, business, depreciable property, depreciation loss, dispose, income year, pool method Compare: 1994 No 164 s EG 12(1)-(3), (5), (6) Subsection (1) was substituted, as from 1 October 2005, by section 30 Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) with application as from the 2005–06 income year.
Subsection (1)(a) was substituted, as from 17 May 2006, by section 39(1) Taxa- tion (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) with application to a geothermal well for the 2006–07 and later income years, if the well is completed or acquired on or after 1 April 2003.

Subsection (1B) was inserted, as from 1 October 2005, by section 30 Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) with application as from the 2005–06 income year.
Transfers of depreciable property: associated persons and non-qualifying amalgamations This heading was substituted for the heading “Transfers of depreciable prop- erty: ﬁrst, non-qualifying amalgamations and, second, associated persons”, as from 1 April 2005, by section 40(1) Taxation (Savings Investment and Mis- cellaneous Provisions) Act 2006 (2006 No 81) with application as from the 2005-06 income year.
EE 33 Transfer of depreciable property on or after 24 September 1997 When this section applies This section applies when, on or after 24 September 1997, a person (person A) acquires, directly or indirectly, an item of property from an associated person to whom 1 of the para- graphs in subsection (2) applies.

The income year referred to in the paragraphs is the income year of the associated person.
(1) 774 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EE 33 (2) Associated person The associated person must be a person to whom 1 of the fol- lowing paragraphs applies: (a) (b) (c) (d) (e) (f) (g) (h) 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: the associated person would have been allowed a deduc- tion for an amount of depreciation loss for the item for the income year in which person A acquired it, if sec- tion EE 11(1) had not applied: the associated person was allowed a deduction for an amount of depreciation loss for the item for the income year before the income year in which person A acquired it: the associated person has been allowed a deduction for the item under section DZ 9 (Premium paid on land leased before 1 April 1993) for the income year in which person A acquired it: the associated person has been allowed a deduction for the item under section section DZ 9 for the income year before the income year in which person A acquired it: the associated person would have been allowed a deduc- tion for an amount of depreciation loss for the item for the income year in which person A acquired it, if the associated person had incurred a cost for the item for which the person was denied any other deduction and if section EE 11(1) had not applied: the associated person would have been allowed a deduc- tion for an amount of depreciation loss for the item for the income year before the income year in which per- son A acquired it, if the associated person had incurred a cost for the item for which the person was denied any other deduction: the associated person would have been allowed a de- duction for the item under section section DZ 9 for the income year in which person A acquired it, if the asso- ciated person had incurred a cost for the item for which the person was denied any other deduction: 775 Part E s EE 33 Income Tax Act 2004 Reprinted as at 29 August 2011 (i) (j) the associated person
 would have been allowed a de- duction for the item under section section DZ 9 for the income year before the income year in which person A acquired it, if the associated person had incurred a cost for the item for which the person was denied any other deduction: the associated person would have been a person to whom any of paragraphs (a) to (i) applied, if the asso- ciated person had not made an election under section EE 8.
Cost of item to person A For the purpose 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 49 applies for the associated person and the item, the lesser of— (i) (ii) the cost of the item to person A: the item’s market value when the associated per- son starts to use it, or to have it available for use, for the purpose of deriving assessable income or carrying on a business for the purpose of deriving assessable income; or (b) if section EE 49 does not apply for the associated person and the item, the lesser of— (i) (ii) the cost of the item to person A: the cost of the item to the associated person.
Exclusions Subsection (3) does not apply— (a) if— (i) (ii) 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 pur- poses of determining the amount of depreciation loss that person A has for the item: (b) if the cost to person A is income of the associated per- son, other than under section EE 41(1): (3) (4) 776 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EE 33 (c) if person A acquires the item under a relationship agree- ment or a matrimonial agreement to which section FF 16 (Depreciable property) applies.
(5) (6) Rate The annual rate that person A applies to the item must be 1 of the following (not including an item of ﬁxed life intangible property, for which the rate is set in section EE 27): (a) if person A uses the same depreciation method for the item as that used by the associated person for it, the annual rate that person A applies to it must not be more than the annual rate that the associated person applied to it: if person A uses a depreciation method for the item dif- ferent from the method that the associated person used for it, the annual rate that person A applies to it must not be more than a rate equivalent to the rate that the as- sociated person applied to it, as determined by schedule 10 (Straight-line equivalents of diminishing value rates of depreciation).
(b) Relationship with section EE 34 and subpart FI This section— (a) (b) is overridden by section EE 34: does not apply to a bequest of property, if it is prop- erty to which subpart FI (Effect of certain disposals and resulting acquisitions) applies and the property is dis- posed 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, matrimonial agreement, property, relationship agreement Compare: 1994 No 164 s EG 17(1)–(5), (8) Sections EE 33 and EE 34 were substituted, as from 1 April 2005, by section 40(1) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) with application as from the 2005-06 income year.
Subsection (3)(a)(ii) was substituted, as from 18 December 2006, by section 41(1) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) with application as from the 2006-07 income year.
777 Part E s EE 34 Income Tax Act 2004 Reprinted as at 29 August 2011 EE 34 Transfer of depreciable property in non-qualifying amalgamation 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 acquiring of the item is part of an amalgamation that is not a qualifying amal- gamation; 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 FE 5(1)(b) (Transfer of property or obligations under ﬁnancial arrangements deemed to be at market value) as having acquired the property from the amalgamating company; and 1 of the paragraphs in section EE 33(2) applies to the amalgamating company, as an associated person of the amalgamated company, when the amalgamated com- pany is treated as person A under that section.
(b) (c) 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 49 applies for the amalgamating company and the item, the lesser of— (i) (ii) the value given by section FE 5; 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 (b) if section EE 49 does not apply for the amalgamating company and the item, the lesser of— (i) (ii) the value given by section FE 5; and the cost of the item to the amalgamating com- pany.
(1) (2) 778 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EE 34 (3) (4) Exclusions Subsection (2) does not apply— (a) if— (i) (ii) 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 com- pany for the purposes of determining the amount of depreciation loss that it has for the item; or (b) if the cost to the amalgamated company is income of the amalgamating company, other than under section EE 41(1).
Rate The annual rate that the amalgamated company applies to the item must be 1 of the following (not including an item of ﬁxed life intangible property, for which the rate is set in section EE 27): (a) if the amalgamated company uses the same depreciation method for the item as that used by the amalgamating company for it, the annual rate that the amalgamated company applies to it must not be more than the annual rate that the amalgamating company applied to it; or the amalgamated company uses a depreciation if method for the item different from the method that the amalgamating company used for it, the annual rate that the amalgamated company applies to it must not be more than a rate equivalent to the rate that the amalgamating company applied to it, as determined by schedule 10 (Straight-line equivalents of diminishing value rates of depreciation).
(b) Deﬁned in this Act: acquire, amalgamated company, amalgamating company, amalgamation, amount, annual rate, assessable income, business, Commis- sioner, depreciable intangible property, depreciation loss, depreciation method, ﬁxed life intangible property, income, matrimonial agreement, property, qualifying amalgamation, relationship agreement Compare: 1994 No 164 ss EG 17(3B), FE 5(2) Subsection (2)(a) to (i) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; or”.
779 Part E s EE 35 Income Tax Act 2004 Reprinted as at 29 August 2011 Subsection (4)(a)(ii) and (b) was amended, as from 21 December 2004, by sec- tion 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; or”.

Subsection (4)(c) was amended, as from 26 April 2005, by section 3(1) Income Tax Amendment Act 2005 (2005 No 11) by substituting “relationship agree- ment” for “matrimonial agreement”.
Subsection (5)(a) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; or”.

Subsection (6) was inserted, as from 1 October 2005, by section 31 Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) with application as from the 2005–06 income year.
Sections EE 33 and EE 34 were substituted, as from 1 April 2005, by section 40 Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) with application as from the 2005-06 income year.

Subsection (2)(a)(ii) was substituted, as from 18 December 2006, by section 42(1) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) with application as from the 2006-07 income year.
EE 35 Transfer of radiocommunications licence right on or after 24 September 1997 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: 1994 No 164 s EG 17(6), (8) (1) (2) (3) 780 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EE 37 EE 36 Transfer of depreciable intangible property on or after 1 July 1997 (1) (2) When this section applies This section applies when, on or after 1 July 1997, a person (person A) acquires, directly or indirectly, from an associated person an item of depreciable intangible property that— (a) was not depreciable property of the associated person because it was not of a kind listed in schedule 17 (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.
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: 1994 No 164 s EG 17(7) Disposals and similar events EE 37 Application of sections EE 41 to EE 44 (1) When sections apply Sections EE 41 to EE 44 apply when a person derives consid- eration from the disposal of an item or from an event involving an item, if— (a) the consideration is consideration of a kind described in section EE 38; and either— (i) (b) the item is an item of a kind described in section EE 39; or the event is an event of a kind described in section EE 40.
(ii) Exclusion Sections EE 41 to EE 44 do not apply— (2) 781 Part E s EE 38 Income Tax Act 2004 Reprinted as at 29 August 2011 (a) when a person disposes of an item of intangible property as part of an arrangement to replace it with an item of the same kind: (b) when a person’s patent application has concluded be- cause a patent is granted to the person in relation to the patent application: when a person’s geothermal well becomes unavailable for use under section EE 6(4) because the geothermal energy proving period has ended.
(c) Deﬁned in this Act: arrangement, consideration, dispose, geothermal energy proving period, geothermal well, property Compare: 1994 No 164 s EG 19(9)(b) Subsection (2) was substituted, as from 1 October 2005, by section 43(1) Tax- ation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) with application to a patent application for the 2005–06 and later income years; and with application to a geothermal well for the 2006–07 and later in- come years, if the well is completed or acquired on or after 1 April 2003.
See section 43(3) and (4) of that Act for the application.

The list of deﬁned terms was amended, as from 17 May 2006, by section 39(2) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) by inserting “geothermal energy proving period” with application to a geothermal well for the 2006–07 and later income years, if the well is com- pleted or acquired on or after 1 April 2003.

See section 39(3) of that Act for the application.


The list of deﬁned terms was amended, as from 1 October 2005, by section 43(2) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) by inserting “geothermal energy proving period” and “geother- mal well” with application to a geothermal well for the 2006–07 and later in- come years, if the well is completed or acquired on or after 1 April 2003.

See section 43(4) of that Act for the application.


EE 38 Consideration for purposes of section EE 37 General rule: amount derived For the purposes of section EE 37, the consideration is the amount that the person derives, minus any amount that they incur in deriving it.
Two qualiﬁcations are— (a) if the person is a registered person, the amount that the person derives does not include any GST charged on a taxable supply they make: any amount that they incur does not include an amount for which the person is allowed a deduction, other than a deduction for an amount of depreciation loss, under a provision of this Act outside this subpart.

(b) (1) 782 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EE 38 This subsection is overridden by subsections (2) to (8).
Amount derived may be nil or negative (1B) For the purposes of section EE 37, an amount that a person derives as consideration may be nil or a negative amount.

(2) Other than market value If the person derives a consideration that is not the item’s mar- ket value, the consideration for the purposes of section EE 37 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: this subsection does not apply in a case described in any of subsections (3) to (8).

(b) (c) Link with subpart FI (2B) Subsection (2) does not apply to a disposal of property to which any of sections FI 4 and FI 5 applies.
(3) (4) Change of use or location of use The consideration that a person derives from the event de- scribed in section EE 40(2) is the item’s market value.

Two qualiﬁcations are— (a) if the person makes a taxable supply, market value means the market value minus any GST that would be charged on the supply: this subsection does not apply to a transfer under a re- lationship agreement.
(b) Loss or theft The consideration that a person derives from the event de- scribed in section EE 40(3) is the amount of insurance, indem- nity, or compensation they receive for the loss or theft (amount A).

If the person is a registered person, amount A does not in- clude the amount (if any) of GST charged on amount A to the extent to which amount A is treated as being consideration re- ceived for a supply of services by the registered person under section 5(13) of the Goods and Services Tax Act 1985.
783 Part E s EE 38 Income Tax Act 2004 Reprinted as at 29 August 2011 (5) (6) Irreparable damage The consideration that a person derives from the event de- scribed in section EE 40(4) is the amount of insurance, in- demnity, or compensation they receive for the irreparable dam- age (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 regis- tered person under section 5(13) of the Goods and Services Tax Act 1985.

Repossession The consideration that a person derives from the event de- scribed in section EE 40(5) is the item’s cost minus the net amount paid.
Two qualiﬁcations are— (a) if the person is a registered person, the consideration that the person derives does not include any GST charged on a taxable supply they make: net amount paid means the amount paid by the buyer to the seller for the item under the contract minus any amount refunded by the seller to the buyer.
(b) Unused geothermal well brought into use (6B) The consideration that a person derives from the event de- scribed in section EE 40(5B) is the amount of the deduction for depreciation loss allowed under section EE 32(4).

Other items The consideration that a person derives from the disposal of an item along with any other item, or from the occurrence of an event involving an item that also involves other items, is the item’s market value.
Two qualiﬁcations are— (a) if the person makes a taxable supply, market value means the market value minus any GST that would be charged on the supply: this subsection does not apply to a transfer under a re- lationship agreement.
(b) Item leaving New Zealand permanently The consideration that a person derives from the event referred to in section EE 40(10) is described in section EZ 20(1) (Sec- (7) (8) 784 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EE 38 tions EE 38 and EE 40: permanent removal: allowance before 1 April 1995).
Deﬁned in this Act: amount, consideration, deduction, depreciation loss, dis- pose, GST, GST charged, matrimonial agreement, New Zealand, registered per- son, services, taxable supply Compare: 1994 No 164 ss ED 4(6)(a), (c), (d), EG 19(6A), (7), (10)(b)-(10B) Subsection (1)(a) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; and”.
Subsection (1B) was inserted, as from 3 April 2006, by section 74(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) with application as from the income year corresponding to the 2005–06 tax year.

Subsection (2)(a) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; and”.
Subsection (2)(b) was amended, as from 26 April 2005, by section 3(1) Income Tax Amendment Act 2005 (2005 No 11) by substituting “relationship agree- ment” for “matrimonial agreement”.

Subsection (2)(b) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; and”.
Subsection (2B) was inserted, as from 1 October 2005, by section 32 Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) with application as from the 2005–06 income year.

Subsection (3)(a) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; and”.
Subsection (3)(b) was amended, as from 26 April 2005, by section 3(1) Income Tax Amendment Act 2005 (2005 No 11) by substituting “relationship agree- ment” for “matrimonial agreement”.

Subsection (6)(a) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; and”.
Subsection (6B) was inserted, as from 17 May 2006, by section 44(1) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) with application to a geothermal well for the 2006–07 and later income years, if the well is completed or acquired on or after 1 April 2003.

Subsection (7)(a) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for n “; and”.
Subsection (7)(b) was amended, as from 26 April 2005, by section 3(1) Income Tax Amendment Act 2005 (2005 No 11) by substituting “relationship agree- ment” for “matrimonial agreement”.
785 Part E s EE 39 Income Tax Act 2004 Reprinted as at 29 August 2011 EE 39 Items for purposes of section EE 37 (1) (2) Items to which sections EE 41 to EE 44 apply For the purposes of section EE 37, an item of property to which sections EE 41 to EE 44 apply is an item of depreciable prop- erty that a person owns, including— (a) an item for which the person has been allowed a deduc- tion for an amount of depreciation loss they have had under section EE 32; and an item to which section CZ 11 (Recovery of deductions for software acquired before 1 April 1993) applies.
(b) Exclusions Sections EE 41 to EE 44 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: 1994 No 164 ss EG 12(4), EG 19(1) EE 40 Events for purposes of section EE 37 Events to which sections EE 41 to EE 44 apply For the purposes of section EE 37, this section describes the events to which sections EE 41 to EE 44 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 occurring on the ﬁrst day of the next income year.
(1) (2) 786 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EE 40 (3) (4) (5) Loss or theft The second event is the loss or theft of an item of property, if the item is not recovered in the income year in which the loss or theft occurs.

Irreparable damage The third event is the irreparable damage of an item of prop- erty.
Repossession The fourth event is the seller’s repossession of an item of prop- erty to which section EE 3 applies because the buyer wholly or partly fails to pay the consideration.

The event is treated as occurring on the date on which the item is repossessed.
Unused geothermal well brought into use (5B) The ﬁfth event is, for a person’s geothermal well that is un- available for use under section EE 6(4) because the geothermal energy proving period has ended, the start of the person’s— (a) using the well in deriving assessable income or carrying on a business for the purposes of deriving assessable income: having the well available for use in deriving assessable income or carrying on a business for the purposes of deriving assessable income.
(b) (6) (7) (8) (9) 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) 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.

787 Part E s EE 41 Income Tax Act 2004 Reprinted as at 29 August 2011 Item leaving New Zealand permanently (10) The ninth event is described in section EZ 20(2) (Sections EE 38 and EE 40: 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, property Compare: 1994 No 164 s EG 19(9), (10A) Subsection (5B) was inserted, as from 17 May 2006, by section 45(1) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) with application to a geothermal well for the 2006–07 and later income years, if the well is completed or acquired on or after 1 April 2003.
Subsection (6) was amended, as from 17 May 2006, by section 45(2) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) by substituting “sixth” for “ﬁfth” with application to a geothermal well for the 2006–07 and later income years, if the well is completed or acquired on or after 1 April 2003.
Subsection (7) was repealed, as from 1 October 2005, by section 33 Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) with application as from the 2005–06 income year.
The list of deﬁned terms was amended, as from 17 May 2006, by section 45(3) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) by inserting “assessable income”, “business”, “geothermal energy proving period” and “geothermal well” with application to a geothermal well for the 2006–07 and later income years, if the well is completed or acquired on or after 1 April 2003.
EE 41 Effect of disposal or event Amount of depreciation recovery income For the purposes of section EE 37, if the consideration is more than the item’s adjusted tax value on the date on which the dis- posal or the event occurs, the lesser of the following amounts is the amount of depreciation recovery income derived by the person for the income year in which the disposal or the event occurs: (a) the amount by which the consideration is more than the item’s adjusted tax value on the date on which the dis- posal or the event occurs; and the total of the amounts of depreciation loss for which the person has been allowed deductions for the item in- cluding, for an item to which section CZ 11 (Recov- ery of deductions for software acquired before 1 April 1993) applies, any deduction allowed for its acquisition.
(b) (1) 788 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EE 41 (2) (3) Amount of depreciation loss For the purposes of section EE 37, if the consideration is less than the item’s adjusted tax value on the date on which the disposal or the event occurs, the person has an amount of de- preciation loss, for the income year in which the disposal or the event occurs, that is the amount by which the consideration is less than the item’s adjusted tax value on that date.
(b) When this section does not apply Subsection (2) does not apply if the item is a building unless— the building has been irreparably damaged and rendered (a) useless for the purpose of deriving income; and the damage occurs— (i) (ii) in the 2005-06 or a subsequent 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 (iii) (c) the damage is caused other than as a result of the action or failure to act of the person, an agent of the person, or an associated person.
Deﬁned in this Act: acquire, adjusted tax value, amount, consideration, deduc- tion, depreciation loss, depreciation recovery income, dispose, income, income year, Compare: 1994 No 164 s EG 19(2), (3) Subsection (2) was amended, as from 1 October 2005, by section 193(1) Taxa- tion (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “This subsection does not apply if the item is a building unless the item has been destroyed or rendered useless for the purpose of deriving income as a result of an event that is a qualifying event for the purpose of paragraph (a) or (b) of the deﬁnition of that term.” for “This subsection does not apply if the item is a building.” with application as from the 2005–06 income year.
Subsection (2) was amended, as from 1 October 2005, by section 34(1) Taxa- tion (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) by repealing the words “This subsection does not apply if the item is a building unless the item has been destroyed or rendered useless for the purpose of deriv- ing income as a result of an event that is a qualifying event for the purpose of paragraph (a) or (b) of the deﬁnition of that term.” with application as from the 2005–06 income year.
Subsection (3) was inserted, as from 1 October 2005, by section 34(1) Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) with application as from the 2005–06 income year.
789 Part E s EE 42 Income Tax Act 2004 Reprinted as at 29 August 2011 Subsection (3) was amended, as from 1 October 2005, by section 75(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by substituting “Subsection (2)” for “This section” with application as from the income year corresponding to the 2005–06 tax year.
Section EE 41 deﬁned words was amended, as from 1 October 2005, by sec- tion 193(2) Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “income, income year, qualifying event” for “in- come year” with application as from the 2005–06 income year.
The list of deﬁned terms was amended, as from 1 October 2005, by section 34(2) Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) by repealing the words “qualifying event” with application as from the 2005–06 income year.
EE 42 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 39; 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 10 (Amounts of depreciation recovery income and depreciation loss for part business use in or be- fore 1992-93 income year); or section FB 7 (Depreciation: partial income-pro- ducing use).
(iii) (2) Depreciation recovery income If the consideration referred to in section EE 37 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) Deﬁnition of items in formula The items in the formula are deﬁned in subsections (5) to (8).
(4) 790 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EE 43 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 48 to EE 50.

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 41(1).
Deﬁned in this Act: adjusted tax value, amount, business, deduction, depreci- ation loss, depreciation recovery income, income year, own, property Compare: 1994 No 164 s EG 19(4) EE 43 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 40(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 41(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— 791 Part E s EE 44 Income Tax Act 2004 Reprinted as at 29 August 2011 (a) (b) the income year in which the item is lost or stolen, if the person chooses that year; or the income year in which the item is recovered, in any other case.
Deﬁned in this Act: adjusted tax value, amount, deduction, depreciation loss, depreciation recovery income, income year, own, property Compare: 1994 No 164 s EG 19(6B) EE 44 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 39), 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: 1994 No 164 s EG 19(5), (6) EE 44B 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 40(5B) applies.
792 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EE 45 (2) Person treated as acquiring geothermal well The person is treated as having acquired the geothermal well, on the day the event occurs, for the cost of the well under this subpart before the event occurs.
Deﬁned in this Act: geothermal well Section EE 44B was inserted, as from 17 May 2006, by section 46(1) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) with application to a geothermal well for the 2006-07 and later income years, if the well is completed or acquired on or after 1 April 2003.
Interpretation provisions EE 45 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 subsection (3).


Cost reduced: input tax This subsection applies to an item that was not acquired or produced for the principal purpose of making taxable supplies but is applied in an income year principally for that purpose.

The item’s cost is reduced by subtracting a proportion of the amount (if any) calculated under sections 21F and 21G, and deductible under section 20(3)(e), of the Goods and Services Tax Act 1985.
The proportion is the proportion of the amount that arises from the application of the item in the income year principally for the purpose of making taxable supplies.

Cost increased: output tax This subsection applies to an item that was acquired or pro- duced for the principal purpose of making taxable supplies but is applied in an income year other than for that purpose.
The item’s cost is increased by adding the amount (if any) of out- put tax charged in the income year for the supply of the item 793 Part E s EE 46 Income Tax Act 2004 Reprinted as at 29 August 2011 because section 21 of the Goods and Services Tax Act 1985 applies to the supply.
Deﬁned in this Act: amount, depreciable property, depreciation loss, depreci- ation recovery income, GST, income year, input tax, output tax, taxable supply Compare: 1994 No 164 s ED 4(4), (6)(b) Adjusted tax value EE 46 Meaning of adjusted tax value (1) Adjusted tax value means,— (a) for an item of depreciable property, the amount calcu- lated using the formula in section EE 47: for a pool, the total adjusted tax value determined under section EE 21.” “(b) (2) Exception This section is subject to section FC 8I(7) (Adjustment re- quired for certain operating leases entered before 20 June 2007).
Deﬁned in this Act: adjusted tax value, amount, depreciable property, pool Compare: 1994 No 164 s OB 1 adjusted tax value Paragraph (a) was amended, as from 21 December 2004, by section 270 Taxa- tion (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; and”.

Section EE 46(1)(b): substituted (with effect on 1 April 2005), on 6 October 2009, by section 773(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EE 46(2) heading: added (with effect from 20 June 2007), on 19 De- cember 2007, by section 51 of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section EE 46(2): added (with effect from 20 June 2007), on 19 December 2007, by section 51 of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

EE 47 Formula Formula The formula referred to in section EE 46 is— base value – total deductions.
Deﬁnition of items in formula In the formula,— (1) (2) 794 Reprinted as at 29 August 2011 (a) Income Tax Act 2004 Part E s EE 48 base value has the applicable one of the meanings in sections EE 48, EE 49, EE 50, and EZ 21(1) (Base value and total deductions in section EE 47: before 1 April 1995): total deductions is deﬁned in section EE 51.
(b) Compare: 1994 No 164 s OB 1 adjusted tax value EE 48 Base value in section EE 47 when none of sections EE 49, EE 50, and EZ 21(1) applies When this section applies This section applies when none of sections EE 49, EE 50, and EZ 21(1) (Base value and total deductions in section EE 47: 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 31(2) or EE 41(2) or the corresponding provision of the Income Tax Act 1994: 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 1994: 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 In- come Tax Act 1994: expenditure— (i) is not excluded from it if it is described in section EZ 21(2)(a) (Base value and total deductions in section EE 47: before 1 April 1995): (b) (c) (d) 795 Part E s EE 49 Income Tax Act 2004 Reprinted as at 29 August 2011 (ii) is excluded from it if it is described in section EZ 21(2)(b) (Base value and total deductions in section EE 47: before 1 April 1995).
Deﬁned in this Act: amount, deduction, depreciation loss Compare: 1994 No 164 s OB 1adjusted tax value (a)(i) Subsection (3)(a) to (c) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; and”.

Subsection (3)(d)(i) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; and”.
EE 49 Base value in section EE 47 when no previous deduction (c) (d) (e) 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 21(3) (Base value and total deductions in section EE 47: before 1 April 1995).
(ii) (1) 796 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EE 50 (2) Base value Base value is the item’s market value at the time the person starts to use it, or to have it available for use, for the purpose of deriving assessable income or carrying on a business for the purpose of deriving assessable income.
Deﬁned in this Act: acquire, amount, assessable income, business, deduction, depreciation loss, income year, petroleum-related depreciable property Compare: 1994 No 164 s OB 1adjusted tax value (a)(iii) Subsection (2) was substituted, as from 18 December 2006, by section 47(1) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) with application as from the 2006-07 income year.
EE 50 Base value in section EE 47 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 21(1) (Base value and total deductions in (a) section EE 47: 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.
797 Part E s EE 51 Income Tax Act 2004 Reprinted as at 29 August 2011 (4) (5) 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.
(b) Cost and expenditure In this section, cost and expenditure are qualiﬁed as follows: expenditure is excluded from them if it is expenditure (a) for which a person has been allowed a deduction for an amount of depreciation loss they have had under section EE 31(2) or EE 41(2) or the corresponding provision of the Income Tax Act 1994: 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 1994: 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 In- come Tax Act 1994: 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 1994 if that Act had applied.
(d) (c) Deﬁned in this Act: acquire, amount, associated person, deduction, depreciation loss, own, petroleum-related depreciable property Compare: 1994 No 164 s OB 1adjusted tax value (a)(iv) Subsection (5)(a) to (c) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; and”.
EE 51 Total deductions in section EE 47 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 24B.
(1) 798 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EE 51 (2) (3) First amount for purposes of subsection (1) The amount is all amounts that 1 or more of the following pro- visions has required to be subtracted from the item’s adjusted tax value since the start of the 1993-94 income year: (a) (b) (c) section EE 44(2): section EG 19(5) of the Income Tax Act 1994: the provision described in section EZ 21(4) (Base value and total deductions in section EE 47: before 1 April 1995).
Second amount for purposes of subsection (1) The amount is all deductions for amounts of depreciation loss, calculated using the method described in subsection (4), that, in the period described in subsection (5),— (a) (ii) the person was allowed for the item and for,— (i) if the item is a patent, 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 44B(2), 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 mothballed assets (3B) Subsection (3)(b) does not apply in relation to an amount of depreciation loss for an item that has been withdrawn from use in deriving assessable income or carrying on a business for the purpose 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 32.
(4) 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.
799 Part E s EE 51 Income Tax Act 2004 Reprinted as at 29 August 2011 Period The period ends with the end of the income year before the income year in which the particular time occurs, and starts with,— (a) (ii) (iii) for an item to which section EE 48 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 acquired under section EE 44B(2), the earliest date on which the person acquired the geothermal well, under section 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 49 applies,— (i) 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 pur- pose of deriving assessable income or carrying on business for the purpose of deriving assess- able income; or if the item is a patent and the person acquired the patent application in relation to which the item was granted, the start of the month in which the person acquired the patent application; or for an item to which section EE 50 applies, the date on which person A or the relevant associated person acquired the item; or for an item to which section EZ 21(1) (Base value and total deductions in section EE 47: before 1 April 1995) applies, the end of the 1992-93 income year.
(ii) (b) (c) (d) 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: 1994 No 164 s OB 1adjusted tax value (a) ’ad’ Subsection (1)(b) was amended, as from 1 October 2005, by section 48(1) Tax- ation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) by substituting “subsection (3); and” for “subsection (3).” with application (a) to a patent, if the patent is acquired by a person in their 2005–06 or later in- (5) 800 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EE 52 come year; and (b) to a geothermal well for the 2006–07 and later income years, if the well is completed or acquired on or after 1 April 2003.
Subsection (1)(c) was inserted, as from 18 December 2006, by section 48(1) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) with application (a) to a patent, if the patent is acquired by a person in their 2005–06 or later income year, and (b) to a geothermal well for the 2006–07 and later income years, if the well is completed or acquired on or after 1 April 2003.
Subsection (2)(a) and (b) were amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; or”.
Subsection (3)(a) was substituted, as from 18 December 2006, by section 48(2) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) with application (a) to a patent, if the patent is acquired by a person in their 2005–06 or later income year, and (b) to a geothermal well for the 2006–07 and later income years, if the well is completed or acquired on or after 1 April 2003.
Section EE 51(3B) heading: inserted (with effect on 1 April 2005), on 7 Septem- ber 2010 (applying for the 2005–06 and later income years), by section 199(1) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
Section EE 51(3B): inserted (with effect on 1 April 2005), on 7 September 2010 (applying for the 2005–06 and later income years), by section 199(1) of the Tax- ation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remed- ial Matters) Act 2010 (2010 No 109).
Subsection (5)(a) to (d) was substituted, as from 18 December 2006, by section 48(3) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) with application (a) to a patent, if the patent is acquired by a person in their 2005–06 or later income year, and (b) to a geothermal well for the 2006–07 and later income years, if the well is completed or acquired on or after 1 April 2003.
The list of deﬁned terms was amended, as from 18 December 2006, by section 48(4) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) by inserting “geothermal well” with application to a geothermal well for the 2006–07 and later income years, if the well is completed or acquired on or after 1 April 2003.

Deﬁnitions EE 52 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 (6).

801 Part E s EE 52 Income Tax Act 2004 Reprinted as at 29 August 2011 (2) (3) (4) 1995-96 income year or later The rate is the rate set by section EE 26(2)(a) or (b) if both the following apply to the item: (a) the person acquires it in their 1995-96 income year or a later income year; and the item is not dealt with in any of subsections (3) to (6).
(b) 1995-96 income year or later: international aircraft The rate is the rate set by section EE 26(2)(c) if the item is an international aircraft that the person acquires in their 1995-96 income year or a later income year.

Fixed life intangible property The rate is the rate set by section EE 27 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.
Patents, applications: complete speciﬁcation before 1 April 2005 (4B) The rate is the rate set by section EE 27B if the item is a patent and section EE 27B applies to the item and the person.
Patent applications: lodged with complete speciﬁcation on or after 1 April 2005 Patents: application lodged with complete speciﬁcation on or after 1 April 2005 Plant variety rights 1994-95 income year The rate is the rate set by section EZ 12 (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) (4C) (4D) (4E) (5) 802 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EE 53 (6) (7) Excluded depreciable property The rate is the rate set by section EZ 14 (Annual rate for ex- cluded depreciable property: 1992-93 tax year) if the item is an item of excluded depreciable property.

Exception This section is subject to section FC 8I(8) (Adjustment re- quired for certain operating leases entered before 20 June 2007).
Deﬁned in this Act: acquire, annual rate, depreciable property, excluded depre- ciable property, ﬁxed life intangible property, income year, international air- craft, own Compare: 1994 No 164 s OB 1annual depreciation rate Subsections (4B) to (4E) were inserted, as from 1 October 2005, by section 35 Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) with application as from the 2005–06 income year.
Subsections (4C) to (4E) were repealed, as from 1 October 2005, by section 49 Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81).

Section EE 52(7) heading: added (with effect from 20 June 2007), on 19 De- cember 2007, by section 52 of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EE 52(7): added (with effect from 20 June 2007), on 19 December 2007, by section 52 of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

EE 53 Meaning of depreciable intangible property Meaning (1) Depreciable intangible property means the property listed in schedule 17 (Depreciable intangible property).
(2) Criteria for listing in schedule 17 For property to be listed in schedule 17 (Depreciable intangible property), the criteria are as follows: it must be intangible; and (a) it must have a ﬁnite useful life that can be estimated (b) with a reasonable degree of certainty on the date of its acquisition.
803 Part E s EE 54 Income Tax Act 2004 Reprinted as at 29 August 2011 (3) Schedule 17 prevails Property that is listed in schedule 17 (Depreciable intangible property) is depreciable intangible property even if the criteria are not met.
Deﬁned in this Act: acquire, depreciable intangible property, property Compare: 1994 No 164 s OB 1depreciable intangible property EE 54 Meaning of estimated useful life (1) (2) Meaning for item of depreciable property (not 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: 1994 No 164 s OB 1estimated useful life EE 55 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 (b) (1) 804 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EE 56 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.
(c) (d) (e) Exclusion Excluded depreciable property does not include property to which both the following apply (a) (b) it existed at the end of the 1992-93 income year; and the Commissioner allowed it to be accounted for in that income year using the standard value method, the replacement value method, or the annual revaluation method.
Deﬁned in this Act: Commissioner, depreciable property, excluded depreciable property, income year, New Zealand, property, qualifying improvement, quali- fying asset, trading stock Compare: 1994 No 164 s OB 1excluded depreciable property (2) EE 56 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: 1994 No 164 s OB 1maximum pooling value Subsection (1)(b) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “91AAL” for “91AJ”.
(2) 805 Part E s EE 57 Income Tax Act 2004 Reprinted as at 29 August 2011 EE 57 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, business, Commissioner, depreciable property, fringe beneﬁt tax, income year, maximum pooling value, own, poolable property Compare: 1994 No 164 s OB 1poolable property EE 58 Other deﬁnitions In this Act,— depreciation method means a method described in section EE 12 diminishing value method means the method of calculating an amount of depreciation loss for an item of depreciable prop- 806 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EE 58 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 25B to EE 25E economic rate: this deﬁnition was amended, as from 3 April 2006, by section 76(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellan- eous Provisions) Act 2006 (2006 No 3) by substituting “sections EE 25B to EE 25E” for “section EE 25” with application as from the income year corres- ponding to the 2005–06 tax year.
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: 807 Part E s EE 58 Income Tax Act 2004 Reprinted as at 29 August 2011 (b) (c) 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: 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) legal life: this deﬁnition was substituted, as from 1 October 2005, by section 50(1) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) with application as from the 2005-06 income year.
See section 50(2) of that Act for the application of this amendment.
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 28 special rate means a special rate as described in section EE 28 straight-line method means the method of calculating an amount of depreciation loss for an item of depreciable prop- erty by subtracting, in each income year, a constant percentage of the item’s cost, to its owner, from the item’s adjusted tax value straight-line rate means the rate that a person using the straight-line method applies to an item of depreciable prop- erty.
Deﬁned in this Act: acquire, adjusted tax value, amount, depreciable intan- gible property, depreciable property, depreciation loss, depreciation method, diminishing value method, diminishing value rate, economic rate, estimated re- 808 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EF 2 sidual market value, estimated useful life, ﬁxed life intangible property, im- provement, income year, international aircraft, legal life, New Zealand, own, petroleum, petroleum-related depreciable property, pool, pool method, prop- erty, provisional rate, special rate, straight-line method, straight-line rate Compare: 1994 No 164 s OB 1 basic economic depreciation rate, capital improvement, diminishing value method, estimated residual market value, ﬁxed life intangible property, international aircraft, legal life, pool, pool method, schedule depreciable property, straight-line method Subpart EF—Taxes and levies Contents Fringe beneﬁt tax Speciﬁed superannuation contribution withholding tax EF 1 EF 2 EF 3 ACC 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 Page 809 809 810 812 813 814 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 Compare: 1994 No 164 s ED 2 EF 2 Speciﬁed superannuation contribution withholding tax Speciﬁed superannuation contribution withholding tax for which a deduction is allowed may be deducted only in the income year in which the speciﬁed superannuation contribu- tions to which the tax relates are made, whether or not the tax actually becomes due and payable in the income year.
Deﬁned in this Act: deduction, income year, speciﬁed superannuation contri- bution, speciﬁed superannuation contribution withholding tax Compare: 1994 No 164 s ED 3 809 Part E s EF 3 Income Tax Act 2004 Reprinted as at 29 August 2011 EF 3 ACC levies and premiums Timing of deduction (1) A deduction that an employer or self-employed person is al- lowed for an 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 13, part A, column H (Dates for payment of provisional tax) is treated as if it were due and payable on the relevant date in schedule 13, part A, column G for the person’s corresponding income year.
References to dates in schedule 13 For the purposes of subsection (3), references to the date in schedule 13, part A, columns G and H (which refer to months only and not days) are references to the day in the relevant month that is ﬁxed by the following: (a) the deﬁnition of instalment date in section OB 1 (Def- initions); and sections MB 1(3), and MB 19 to 23 (which relate to provisional tax instalments in transitional years), and MC 1 (Payment of terminal tax).
(b) Meaning of ACC levy or premium In this section, ACC levy or premium means any of the fol- lowing levies, premiums, or penalties: the following levy or premium: (a) (i) a levy to fund the Work Account under section 168 of the Injury Prevention, Rehabilitation, and Compensation Act 2001; or (2) (3) (4) (5) 810 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EF 3 (ii) an employer’s premium to fund the Employers’ Account under section 281B of the Accident In- surance Act 1998: a Residual Claims levy under— Prevention, the section (i) Rehabilitation, and Compensation Act 2001; or section 304 of the Accident Insurance Act 1998: Injury 193 of (ii) the following levy or premium: (i) a levy to fund the Work Account under sec- tion 168B or 211 of the Injury Prevention, Rehabilitation, and Compensation Act 2001; or a premium to fund the Self-Employed Work Ac- count under section 300 of the Accident Insur- ance Act 1998: (ii) (ii) the following levy or premium: (i) a levy to fund the Earners’ Account under section 219(1) of the Injury Prevention, Rehabilitation, and Compensation Act 2001; or a premium to fund the Earners’ Account under section 283(1) of the Accident Insurance Act 1998: the following levy: (i) an Earners’ Account Residual levy under section 219(2) of the Injury Prevention, Rehabilitation, and Compensation Act 2001; or an Earners’ Account levy under section 283(2) of the Accident Insurance Act 1998: (ii) a levy to meet the costs of the Regulator under section 236 of the Accident Insurance Act 1998: a contribution to the Insolvent Insurers Fund under sec- tion 246 or 247 of the Accident Insurance Act 1998: a levy or penalty payable to the Non-Compliers Fund under section 263 of the Accident Insurance Act 1998: a base premium under sections 466 to 470 of the Acci- dent Insurance Act 1998.
(b) (c) (d) (e) (f) (g) (h) (i) Deﬁned in this Act: ACC levy or premium, Commissioner, deduction, em- ployer, income year, time bar Compare: 1994 No 164 ss ED 1-ED 1B 811 Part E s EF 4 Income Tax Act 2004 Reprinted as at 29 August 2011 Section EF 3(3): amended, on 1 October 2007, by section 77(1) of the Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).
Section EF 3(4): substituted, on 1 October 2007, by section 77(2) of the Taxa- tion (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provi- sions) Act 2006 (2006 No 3).

Subsection (5)(a)(i) was amended, as from 1 April 2007, by section 13(2) Injury Prevention, Rehabilitation, and Compensation Amendment Act 2007 (2007 No 8) by substituting “Work Account” for “Employers’ Account”.

See sections 14 to 16 of that Act for the transitional provisions.
Subsection (5)(a)(ii), (b)(ii), (c)(ii), (d)(ii), and (e)(ii) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; or”.

Subsection (5)(c)(i) was amended, as from 1 April 2007, by section 13(2) Injury Prevention, Rehabilitation, and Compensation Amendment Act 2007 (2007 No 8) by substituting “Work Account under section 168B” for “Self-Employed Work Account under section 202”.
See sections 14 to 16 of that Act for the transitional provisions.

Subsection (5)(f) to (h) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; or”.

Section EF 3 list of deﬁned terms ﬁrst instalment date: omitted, on 1 October 2007, by section 77(3) of the Taxation (Depreciation, Payment Dates Align- ment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).
Section EF 3 list of deﬁned terms second instalment date: omitted, on 1 Octo- ber 2007, by section 77(3) of the Taxation (Depreciation, Payment Dates Align- ment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).

Section EF 3 list of deﬁned terms third instalment date: omitted, on 1 Octo- ber 2007, by section 77(3) of the Taxation (Depreciation, Payment Dates Align- ment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).
EF 4 Use of money interest payable by Commissioner Timing of income Income that is interest payable by the Commissioner to a per- son under Part 7 of the Tax Administration Act 1994 is allo- cated to the income year in which the Commissioner pays the interest.

This subsection is overridden by subsections (2) and (3).
Interest paid in same year as liability arises If the Commissioner pays the interest in the same tax year as that to which the original assessment relates, the income that is interest is allocated to the following income year.
(1) (2) 812 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EF 5 (3) (4) Effect of amended assessment If the Commissioner amends the person’s assessment, income that is interest payable (or overpaid interest repayable) by the Commissioner as a result of the amended assessment is allo- cated to the income year following the income year in which the Commissioner issues the notice of amended assessment.
Amended assessment in same year if the Commissioner For the purposes of subsection (3), amends the person’s assessment more than once in a tax year, only the last amended assessment is taken into account.
Deﬁned in this Act: assessment, Commissioner, income, income year, interest, notice, pay, tax year Compare: 1994 No 164 ss ED 6(2), (3), ED 7(1)(b), (c), (2) 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 al- located to the income year in which the person’s original as- sessment is made.

This subsection is overridden by subsection (2).


(2) (3) (4) Assessment made in same year as liability arises If the original assessment is made in the same tax year as that to which the income tax liability relates, the deduction is allo- cated to the following income year.
Effect of amended assessment If the Commissioner amends the person’s assessment, a deduc- tion for interest payable (or overpaid interest repayable) to the Commissioner as a result of the amended assessment is allo- cated to the income year following the income year in which the Commissioner issues the notice of amended assessment.

This subsection does not apply in the circumstances described in subsection (4).
Terminal amended assessment If the Commissioner amends the person’s assessment, a de- duction for interest payable (or overpaid interest repayable) to the Commissioner as a result of the amended assessment is al- located to the income year in which the Commissioner issues 813 Part E s EF 6 Income Tax Act 2004 Reprinted as at 29 August 2011 the notice of amended assessment, in the following circum- stances: (a) the person dies, goes into liquidation, or otherwise ceases to exist before the income year following that in which the Commissioner issues the notice of amended assessment; and the person would have been allowed a deduction for the interest payable or repayable if it had been incurred in the income year in which the Commissioner issues the notice of amended assessment; and the person’s executor or other representative asks the Commissioner.
(b) (c) (5) Amended assessment in same year For the purposes of subsection (4), if the Commissioner amends the person’s assessment more than once in a tax year, only the last amended assessment is taken into account.
Deﬁned in this Act: assessment, Commissioner, deduction, income tax liability, interest, income year, liquidation, notice, pay, tax year Compare: 1994 No 164 ss ED 6(1), (3), ED 7(1)(a), (d), (2), (3) EF 6 Different tax years Sections EF 4 and EF 5 apply even though the income tax liability giving rise to the obligation to pay interest, and the period for the interest payment, may fall wholly or partly in a different tax year from that in which the obligation to pay interest arises under those sections.
Deﬁned in this Act: income tax liability, interest, pay, payment, tax year Compare: 1994 No 164 s ED 8 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 credits by portfolio tax rate entity Page 815 818 819 814 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EG 1 EG 1 Election to use balance date used in foreign country (1) (2) (3) (4) When this section applies This section applies when— (a) (b) (c) (d) a person has foreign source income or foreign expend- iture that is taken into account in determining the in- come tax (not merely the withholding tax) payable by them in a foreign country or territory; and the foreign source income or foreign expenditure has been included in 1 of their income tax returns in the country or territory; and the annual income tax balance date that is relevant for them for the income tax return in the country or territory falls in a period that is an income year for them; and if the person did not make an election under this sec- tion,— (i) the foreign source income would be allocated to their previous income year; or the foreign expenditure would be a deduction al- located to the previous income year if the only 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 815 Part E s EG 1 Income Tax Act 2004 Reprinted as at 29 August 2011 (b) (c) (d) (e) dividends, unless the Commissioner agrees in writing and the person is not a company; or attributed CFC income; or FIF income or income derived from an attributing inter- est; 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) 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 (7) (8) 816 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EG 1 (b) (c) the risk to the revenue if the Commissioner agrees to the election; and any other factors the Commissioner considers relevant.
(9) (10) 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 is not derived from New Zealand and that is not exempt income.
Deﬁned in this Act: annual income tax balance date, assessable income, at- tributed CFC income, attributing interest, Commissioner, company, deduction, derived from New Zealand, dividend, exempt income, FIF income, ﬁnancial ar- rangements rules, foreign expenditure, foreign source income, income, income year, net income, resident in New Zealand, return of income, tax year Compare: 1994 No 164 s EP 1 817 Part E s EG 2 Income Tax Act 2004 Reprinted as at 29 August 2011 EG 2 Adjustment for changes to accounting practice (b) (b) When this section applies This section applies in an income year (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 previous 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 previous income years is allowed as a deduction in the year of change.
Some deﬁnitions In this section,— accrual accounting method means a method of accounting that is regarded as accrual accounting under generally accepted accounting practice 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: 1994 No 164 s EC 1 (1) (2) (3) (4) 818 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EG 3 EG 3 Allocation of income, deductions, and credits by portfolio tax rate entity (1) (2) When this section applies This section applies for the calculation of a portfolio tax rate entity’s liability for income tax for a tax year.
Allocation shown in accounts Income and deductions of the portfolio tax rate entity are allo- cated— (a) to portfolio allocation periods as— (i) reﬂected in the entity’s valuations of portfolio in- vestor interests, if the entity makes such valu- ations; or shown in the entity’s ﬁnancial statements, if sub- paragraph (i) does not apply: (ii) (b) to portfolio investor classes and investors as— (i) reﬂected in the entity’s valuations of portfolio in- vestor interests, if the entity makes such valu- ations; or shown in the entity’s ﬁnancial statements, if sub- paragraph (i) does not apply.
(ii) Credits (3) A credit received by a portfolio tax rate entity is allocated to the portfolio allocation period under subsection (2) of the income to which the credit relates.

Deﬁned in this Act: deduction, income, income tax, investor, portfolio alloca- tion period, portfolio investor class, portfolio tax rate entity, tax year Section EG 3: added, on 1 October 2007, by section 51 of the Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81).
Section EG 3 heading: amended, on 19 December 2007, by section 53(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section EG 3(3) heading: added, on 19 December 2007, by section 53(2) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section EG 3(3): added, on 19 December 2007, by section 53(2) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
819 Income Tax Act 2004 Reprinted as at 29 August 2011 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 Refunds: on application Page 823 824 825 825 827 828 829 829 829 830 830 EH 12 Application for refund by person, trustee of estate, Ofﬁcial 830 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 831 831 832 833 834 834 835 836 836 820 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EG 3 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 Rebate of income tax EH 30 When person entitled to rebate of income tax EH 31 Kind and amount of refund that entitles person to rebate of income tax EH 32 Kind of person entitled to rebate of income tax EH 33 Amount of rebate of income tax Deﬁnitions EH 34 Meaning of income from forestry EH 35 Meaning of main
 maximum deposit EH 36 Meaning of self-assessed adverse event [Repealed] EH 37 Other deﬁnitions Adverse event income equalisation scheme Application 837 838 838 839 839 839 839 840 840 840 841 841 842 842 844 844 EH 38 Persons to whom adverse event income equalisation 846 scheme applies Deposits and accounts EH 39 Adverse event deposit EH 40 Adverse event income equalisation account 846 847 EH 41 Interest on deposits in adverse event income equalisation 848 Interest account Deduction EH 42 Deduction of deposit Refunds: automatic EH 43 Refund of excess deposit EH 44 Income does not include excess deposit 848 849 849 821 Income Tax Act 2004 Reprinted as at 29 August 2011 EH 45 Application for refund by person, trustee of estate, Ofﬁcial 849 Refunds: on application Assignee, or liquidator EH 46 Refund on request EH 47 Income when refund given on request EH 48 Refund on retirement EH 49 Income when refund given on retirement, and election to allocate amount to earlier year EH 50 Refund on death EH 51 Income when refund given on death EH 52 Income when refund given on death, and election to allocate amount to earlier year EH 53 Income when refund given on death, and election to allocate amount to later year or years EH 54 Refund on bankruptcy EH 55 Income when refund given on bankruptcy EH 56 Refund on liquidation EH 57 Income when refund given on liquidation Refunds: general provisions EH 58 Amendment of assessment EH 59 Minimum refund EH 60 Deposits from which refunds come EH 61 Transfer of deposit Transfers Deﬁnitions EH 62 Meaning of adverse event maximum deposit EH 63 Meaning of self-assessed adverse event [Repealed] EH 64 Other deﬁnitions 850 850 851 851 852 852 853 853 855 855 855 856 856 856 856 857 857 859 859 Thinning operations income equalisation scheme Application EH 65 Persons to whom thinning operations income equalisation 860 scheme applies Deposits and accounts EH 66 Thinning operations deposit EH 67 Thinning operations income equalisation account EH 68
 Interest on deposits in thinning operations income equalisation account Interest 861 862 863 822 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EH 1 Deductions EH 69 Deduction of deposit Refunds: automatic EH 70 Refund of excess deposit EH 71 Income does not include excess deposit Refunds: on application EH 72 Application for refund by person or liquidator EH 73 Refund on request EH 74 Income when refund given on request EH 75 Refund for development or recovery EH 76 Income when refund given for development or recovery EH 77 Refund on liquidation EH 78 Income when refund given on liquidation Refunds: general provisions, and rebate of income tax EH 79 Sections of main income equalisation scheme that apply to thinning operations income equalisation scheme EH 80 Meaning of thinning operations maximum deposit EH 81 Other deﬁnitions Deﬁnitions 864 864 865 865 865 866 866 867 868 869 869 869 870 Introductory provisions EH 1 Income equalisation schemes Description (1) An income equalisation scheme allows a person to reduce their income for a tax year by making a deposit with the Commis- sioner.
(2) Three schemes The 3 income equalisation schemes are— (a) the main income equalisation scheme, described in sections EH 3 to EH 37: the adverse event income equalisation scheme, de- scribed in sections EH 38 to EH 64: the thinning operations income equalisation scheme, described in sections EH 65 to EH 81.
(b) (c) 823 Part E s EH 2 Income Tax Act 2004 Reprinted as at 29 August 2011 (3) Meaning of terms Terms used in the 3 schemes are deﬁned as follows: (a) (b) (c) terms used speciﬁcally in the main income equalisation scheme are deﬁned in sections EH 34 to EH 37: terms used speciﬁcally in the adverse event income equalisation scheme are deﬁned in sections EH 62 to EH 64: terms used speciﬁcally in the thinning operations in- come equalisation scheme are deﬁned in sections EH 80 and EH 81.
Deﬁned in this Act: adverse event income equalisation scheme, Commissioner, deposit, income, main income equalisation scheme, person, tax year, thinning operations income equalisation scheme Subsection (2)(a) and (b) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; and”.
Subsection (3)(a) and (b) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; and”.

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) (b) must be paid into the Income Equalisation Reserve Ac- is public money; and count.
Deﬁned in this Act: Commissioner, deposit, person Compare: 1994 No 164 s EI 1(2) (1) (2) 824 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EH 4 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: 1994 No 164 s EI 1(1) 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 a tax year as follows: (a) a farmer may make a payment for the farmer’s farming or agricultural business: a ﬁsher may make a payment for the ﬁsher’s ﬁshing business: a forester may make a payment for the forester’s income from forestry.
(b) (c) 825 Part E s EH 4 Income Tax Act 2004 Reprinted as at 29 August 2011 Upper limit of deposit (2) A person must not make, for a tax 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 a tax 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 tax year; and the person’s main maximum deposit for the tax year.
(ii) Time of making deposit (4) A person makes a deposit for a tax year by— (a) making the deposit during the tax year; or (b) doing both the following: (i) making the deposit during the speciﬁed period for the tax year; and at the time of making it, giving the Commissioner notice that the deposit is for the tax 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 tax 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 tax year.
(ii) (ii) Limit on making deposit If a refund has been made to a person for a tax year under section EH 13 or EH 15, the person may later make a deposit for that tax year only if the Commissioner is satisﬁed, before the deposit is made, that all the refund has been used to develop or expand a farmer’s business (if the person is a farmer) or a ﬁshing business (if the person is a ﬁsher) or the means by (5) 826 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EH 5 which a forester derives income from forestry (if the person is a forester).
Deﬁned in this Act: business, Commissioner, deposit, farmer, ﬁsher, ﬁshing business, forester, income from forestry, main deposit, main income equalisa- tion account, main maximum deposit, notice, person, speciﬁed period, tax year Compare: 1994 No 164 ss EI 1(3), EI 3 Subsection (1)(a) and (b) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; and”.
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 FI 3 (Date on which disposal and resulting ac- quisition treated as occurring), amounts entered 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) 827 Part E s EH 6 Income Tax Act 2004 Reprinted as at 29 August 2011 (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: 1994 No 164 s EI 1(2), (5) Subsection (4) was amended, as from 1 October 2005, by section 36 Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) by substituting “Despite section FI 3 (Date on which disposal and resulting acqui- sition treated as occurring), amounts” for “Amounts” with application as from the 2005–06 income year.
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.

Rate The interest rate is 3% a year.


Deﬁned in this Act: deposit, interest, main income equalisation account, pay, year Compare: 1994 No 164 s EI 2 (6) 828 Reprinted as at 29 August 2011 Income Tax Act 2004 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) (b) the total of the person’s deposits for the tax year; and their main maximum deposit for the tax year.

Timing of deduction The person is allowed the deduction in the tax year.
Deﬁned in this Act: amount, deduction, deposit, main maximum deposit, per- son, tax year Compare: 1994 No 164 s EI 3 Refunds: automatic EH 8 Refund of excess deposit (1) (2) When this section applies This section applies when a person’s deposits for a tax year are more than their main maximum deposit for the tax 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: Commissioner, date the deposit ends, deposit, main maxi- mum deposit, person, tax year Compare: 1994 No 164 s EI 1(4) EH 9 Income does not include excess deposit A refund under section EH 8 is excluded income under section CX 43 (Income equalisation schemes).
Deﬁned in this Act: excluded income Compare: 1994 No 164 s EI 1(4) 829 Part E s EH 10 Income Tax Act 2004 Reprinted as at 29 August 2011 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 tax 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: Commissioner, deposit, main income equalisation account, person, tax year, year Compare: 1994 No 164 s EI 9 EH 11 Income when refund given at end of 5 years A refund under section EH 10 is income, under section CB 24 (Income equalisation schemes), derived by the person in the tax year in which the refund is given.
Deﬁned in this Act: income, person, tax year Compare: 1994 No 164 s EI 9 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 or 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) 830 Reprinted as at 29 August 2011 Income Tax Act 2004 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: 1994 No 164 ss EI 4(1), EI 5(1), EI 6(1), EI 7(1), EI 8(1), EI 9 Subsection (1)(a) to (c) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; and”.
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: 1994 No 164 s EI 4(1), (2) EH 14 Income when refund given on request Year of income (1) A refund under section EH 13 is income, under section CB 24 (Income equalisation schemes), derived by the person in the tax year in which the Commissioner receives 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 a tax year or, if the Commis- sioner 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 tax year to which the speciﬁed period or the longer period relates.
(b) 831 Part E s EH 15 Income Tax Act 2004 Reprinted as at 29 August 2011 (3) Different year of income The refund is income, under section CB 24 (Income equalisa- tion schemes), in the tax year to which the speciﬁed period or the longer period relates.
Deﬁned in this Act: Commissioner, income, person, speciﬁed period, tax year Compare: 1994 No 164 s EI 4(5) 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- assessed adverse event: to avoid them suffering serious hardship: (b) (1) (2) (3) 832 Reprinted as at 29 August 2011 Income Tax Act 2004 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: 1994 No 164 s EI 4(3), (4) Subsection (1)(a) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; or”.
Subsection (3)(a) and (b) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; or”.

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 24 (Income equalisation schemes), derived by the person in the tax year in which the Commissioner receives 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 a tax year or, if the Commis- sioner 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 tax year to which the speciﬁed period or the longer period relates.
(b) 833 Part E s EH 17 Income Tax Act 2004 Reprinted as at 29 August 2011 (3) Different year of income The refund is income, under section CB 24 (Income equalisa- tion schemes), in the tax year to which the speciﬁed period or the longer period relates.
Deﬁned in this Act: Commissioner, income, person, speciﬁed period, tax year Compare: 1994 No 164 s EI 4(5) 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, date the deposit ends, company, farmer, ﬁsher, ﬁshing business, main income equalisation account, person, trustee Compare: 1994 No 164 s EI 5(1) 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 24 (Income equalisation schemes), derived by the person in the tax 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 a tax 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 tax year.
(b) 834 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EH 19 (3) Different year of income The amount allocated by the person to the earlier tax year is income, under section CB 24 (Income equalisation schemes), derived by them in the tax 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 in which they retire: a further time allowed by the Commissioner in a case or class of cases.
(b) Deﬁned in this Act: amount, Commissioner, deposit, income, notice, person, return of income, tax year Compare: 1994 No 164 s EI 5(1), (2) Subsection (4)(a) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; or”.

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 FI 3 (Date on which disposal and resulting ac- quisition treated as occurring), the Commissioner 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 ac- count.

Section EH 28 overrides this subsection.
Deﬁned in this Act: amount, Commissioner, date the deposit ends, main income equalisation account, person, trustee Compare: 1994 No 164 s EI 6(1) Subsection (2) was amended, as from 1 October 2005, by section 37 Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) by substituting “Despite section FI 3 (Date on which disposal and resulting acqui- sition treated as occurring), the Commissioner” for “The Commissioner” with application as from the 2005–06 income year.
835 Part E s EH 20 Income Tax Act 2004 Reprinted as at 29 August 2011 EH 20 Income when refund given on death Year of income (1) A refund under section EH 19 is income, under section CB 24 (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 subsection (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: 1994 No 164 s EI 6(1) 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 a tax year earlier than the tax year in which the per- son dies; and the trustee of the person’s estate chooses to allocate some or all of the deposit to the earlier tax year.
(b) Different year of income The amount allocated by the trustee to the earlier tax year is income, under section CB 24 (Income equalisation schemes), derived by the person in the tax 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: amount, Commissioner, deposit, income, notice, person, return of income, tax year, trustee Compare: 1994 No 164 s EI 6(1), (2) 836 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EH 22 Subsection (3)(a) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; or”.
EH 22 Income when refund given on death, and election to allocate amount to later year or years (1) (2) 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 a tax year or years after that date.
Tax year or years referred to in subsection (1)(b) The tax 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 tax year for which a de- posit or a part of a deposit was made, if the amount that the trustee allocates to a later tax 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 tax year remains in the person’s main income equalisation account until— (a) it is refunded to the trustee in the tax 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 tax year is income, under section CB 24 (Income equalisation schemes), derived by the person in the tax year.
How election made (5) A trustee makes an election under this section by a notice that— (a) speciﬁes— (i) each amount allocated to a later tax year; and 837 Part E s EH 23 Income Tax Act 2004 Reprinted as at 29 August 2011 (ii) the tax year to which each amount is allocated; and (b) is given to the Commissioner within 1 of the following times: (i) the time within which the trustee is required to ﬁle a return of the person’s income for the period to the date of the person’s death: a further time allowed by the Commissioner in a case or class of cases.
(ii) Deﬁned in this Act: amount, Commissioner, deposit, income, main income equalisation account, notice, person, return of income, tax year, trustee, year Compare: 1994 No 164 s EI 6(1), (2) Subsection (5)(b)(i) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; or”.
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: 1994 No 164 s EI 7(1) EH 24 Income when refund given on bankruptcy A refund under section EH 23 is income, under section CB 24 (Income equalisation schemes), derived by the person imme- diately before the bankruptcy starts.
Deﬁned in this Act: income, person Compare: 1994 No 164 s EI 7(2) 838 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EH 28 EH 25 Refund on liquidation (1) (2) 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: 1994 No 164 s EI 8(1) EH 26 Income when refund given on liquidation A refund under section EH 25 is income, under section CB 24 (Income equalisation schemes), derived by the person imme- diately before the liquidation starts.
Deﬁned in this Act: income, liquidation, person Compare: 1994 No 164 s EI 8(2) 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: 1994 No 164 ss EI 5(3), EI 6(3) 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) $200; and 839 Part E s EH 29 Income Tax Act 2004 Reprinted as at 29 August 2011 (b) 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: 1994 No 164 s EI 10(2) 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: 1994 No 164 s EI 10(1) Rebate of income tax EH 30 When person entitled to rebate of income tax A person who is given a refund is entitled to a rebate of income tax if— (a) the refund is of the kind and amount described in section EH 31; and the person is of the kind described in section EH 32.
(b) Deﬁned in this Act: amount, income tax, person Compare: 1994 No 164 s EI 10(3) EH 31 Kind and amount of refund that entitles person to rebate of income tax Kind (1) A refund that entitles a person to a rebate of income tax is one to which both the following apply: (a) the refund is given under any of sections EH 10, EH 13, EH 15, EH 17, EH 19, EH 22(3), EH 23, and EH 25; and the refund does not come from a deposit made for the tax year in which the refund is given; if the refund comes in part from a deposit made for the tax year in which the refund is given and in part from a deposit made for some other tax year, the refund that entitles the person to a rebate of income tax is the part coming from the deposit for some other tax year.
(b) 840 Reprinted as at 29 August 2011 Amount Income Tax Act 2004 Part E s EH 33 (2) Once a refund qualiﬁes under subsection (1) as a refund that entitles a person to a rebate of income tax, 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 previous tax years by sub- tracting the deposit or deposits or parts of deposits from which the refund comes.
(b) Deﬁned in this Act: amount, deposit, income, income tax, person, tax year Compare: 1994 No 164 s EI 10(3), (5) EH 32 Kind of person entitled to rebate of income tax (b) (c) A person in the following circumstances is entitled to a rebate of income tax: (a) the person’s income in the tax year in question includes a refund of the kind described in section EH 31(1) and of the amount described in section EH 31(2); and because of the refund, the person’s income tax liability for the tax year is increased; and the amount by which the person’s income tax liability for the tax year is increased because of the refund (extra tax) is more than the total of the amounts by which the person’s income tax liability for a previous tax year or years was decreased because of the subtraction of the deposit or deposits or parts of deposits from which the refund comes (tax saving).
Deﬁned in this Act: amount, deposit, income, income tax, income tax liability, person, tax year Compare: 1994 No 164 s EI 10(3), (4) EH 33 Amount of rebate of income tax The amount of a rebate of income tax to which a person is entitled under section EH 30 is the amount by which the extra 841 Part E s EH 34 Income Tax Act 2004 Reprinted as at 29 August 2011 tax, as described 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 Compare: 1994 No 164 s EI 10(3) EH 34 Meaning of income from forestry Deﬁnitions Income (1) (2) (3) Income from forestry means income derived from either or both of the sales described in subsection (2) in the circum- stances described in subsection (3).

Sales The sales are— (a) (b) the sale of timber: the sale of a right to cut or remove timber.
Circumstances The circumstances are— (a) the income is derived by a person who is the owner of land in New Zealand on which timber is grown, not including a person whose interest in the land is that of a licensee; and the timber the subject of the sale is standing or cut or fallen timber in its natural state grown on the land.
Deﬁned in this Act: income, income from forestry, New Zealand, own, person, timber Compare: 1994 No 164 s OB 1 gross income from forestry (b) Subsection (2)(a) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; or”.
EH 35 Meaning of main maximum deposit Meaning Main maximum deposit means the maximum deposit that this section says a person may make to their main income equalisation account for a tax year.
(1) 842 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EH 35 Meaning of amount (2) (3) (4) (5) (6) In subsections (3) to (5), amount means an amount calculated without applying— (a) any provision allocating income derived or expenditure incurred to a tax year other than the tax 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 if— (i) the farmer derived income only from the farming or agricultural business in the tax year; and the farmer did not make a payment under section EH 39 for the farming or agricultural business for the tax year.
(ii) Maximum deposit of ﬁsher The maximum deposit that a ﬁsher may make is an amount equal to the net income that the ﬁsher would have in the tax year if the ﬁsher derived income only from the ﬁshing business in the tax 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 if the forester derived only income from forestry in the tax 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 a tax year or for every tax year is— (a) an amount calculated in the manner speciﬁed in the order; or 843 Part E s EH 36 Income Tax Act 2004 Reprinted as at 29 August 2011 an unlimited amount.
(b) Deﬁned in this Act: amount, business, deposit, farmer, ﬁsher, ﬁshing business, forester, income, main income equalisation account, main maximum deposit, net income, person, tax year Compare: 1994 No 164 s OB 1 maximum deposit(a) EH 36 Meaning of self-assessed adverse event [Repealed] Subsection (2)(a) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; or”.
Section EH 36 was repealed, as from 3 April 2006, by section 78(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) with application as from the income year corresponding to the 2005–06 tax year.
EH 37 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 tax year for which the deposit was made, when section EH 10 applies: the date on which the Commissioner receives the ap- plication for the refund, when section EH 13 or EH 15 applies: the date of the person’s retirement, when section EH 17 applies: the date of the person’s death, when section EH 19 ap- plies: the date on which the Commissioner receives notice of the adjudication, when section EH 23 applies: the date on which the Commissioner receives notice of the liquidation, when section EH 25 applies (b) (c) (d) (e) (f) (g) date the deposit ends: paragraphs (a) to (f) of this deﬁnition were amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscel- laneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; and”.
deposit — (a) means a main deposit; and 844 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EH 37 (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) ﬁshing business: paragraphs (a) and (b) of this deﬁnition were amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; and”.
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.
speciﬁed period: this deﬁnition was amended, as from 1 April 2005, by section 38 Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) by substituting “accounting year that corresponds to the tax year” for “tax year” in the 3 places in paragraphs (a) and (b) in which it appears with application as from the 2005–06 income year.
(b) Deﬁned in this Act: business, Commissioner, date the deposit ends, deposit, ﬁshing business, interest, liquidation, main deposit, main income equalisation account, main income equalisation scheme, person, return of income, speciﬁed period, tax year, year Compare: 1994 No 164 s OB 1 ﬁshing, speciﬁed period 845 Part E s EH 38 Income Tax Act 2004 Reprinted as at 29 August 2011 Adverse event income equalisation scheme Application EH 38 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 a tax 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: adverse event income equalisation scheme, business, New Zealand, person, self-assessed adverse event, tax year Compare: 1994 No 164 s EI 11(1) Deposits and accounts EH 39 Adverse event deposit Deposit for adverse event (1) A person may make a payment to the Commissioner for entry in their adverse event income equalisation account for a tax 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 a tax year, deposits that in total are more than their adverse event maximum deposit for the tax year.

Lower limit of deposit (3) A person must not make, for a tax 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 tax year and their adverse event maximum deposit for the tax year.
846 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EH 40 Time of making deposit (4) A person makes a deposit for a tax year by— (a) making the deposit during the tax year; or (b) making the deposit during the month after the end of the tax year.
Deﬁned in this Act: adverse event deposit, adverse event income equalisation account, adverse event maximum deposit, Commissioner, deposit, person, self- assessed adverse event, tax year Compare: 1994 No 164 s EI 11(1), (3) EH 40 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 41.
(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) 847 Part E s EH 41 Income Tax Act 2004 Reprinted as at 29 August 2011 (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 43, EH 46, EH 48, EH 50, EH 54, and EH 56.
Deﬁned in this Act: adverse event income equalisation account, amount, Com- missioner, deposit, interest, liquidation, pay, person Compare: 1994 No 164 s EI 11(2), (5) Interest EH 41 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 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: 1994 No 164 s EI 12 EH 42 Deduction of deposit Deduction When this section applies This section applies when a person is allowed a deduction income equalisation under section DQ 2 (Adverse event scheme).
(1) 848 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EH 45 (2) (3) Amount of deduction The amount of the deduction is the lesser of— (a) (b) the total of their deposits for the tax year; and their adverse event maximum deposit for the tax year.

Timing of deduction The person is allowed the deduction in the tax year.
Deﬁned in this Act: adverse event maximum deposit, amount, deduction, de- posit, person, tax year Compare: 1994 No 164 s EI 13 Refunds: automatic EH 43 Refund of excess deposit (1) (2) When this section applies This section applies when a person’s deposits for a tax year are more than their adverse event maximum deposit for the tax 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: adverse event maximum deposit, Commissioner, date the deposit ends, deposit, person, tax year Compare: 1994 No 164 s EI 11(4) EH 44 Income does not include excess deposit A refund under section EH 43 is excluded income under sec- tion CX 43 (Income equalisation schemes).
Deﬁned in this Act: excluded income Refunds: on application EH 45 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) the person may apply under section EH 46 or EH 48: 849 Part E s EH 46 Income Tax Act 2004 Reprinted as at 29 August 2011 (b) (c) (d) the trustee of the person’s estate may apply under sec- tion EH 50: the Ofﬁcial Assignee having charge of the person’s es- tate may apply under section EH 54: the liquidator appointed for the person may apply under section EH 56.
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: 1994 No 164 s EI 14(1) Subsection (1)(a) to (c) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; and”.
EH 46 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 48, EH 50, EH 54, and EH 56 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: 1994 No 164 s EI 14(1) EH 47 Income when refund given on request A refund under section EH 46 is income, under section CB 24 (Income equalisation schemes), derived by the person in the tax year in which the Commissioner receives the application for the refund.
Deﬁned in this Act: Commissioner, income, person, tax year Compare: 1994 No 164 s EI 14(2) 850 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EH 49 EH 48 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: 1994 No 164 ss EI 5(1), EI 15 EH 49 Income when refund given on retirement, and election to allocate amount to earlier year Year of income (1) A refund under section EH 48 is income, under section CB 24 (Income equalisation schemes), derived by the person in the tax 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 a tax 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 tax year.

(b) (3) Different year of income The amount allocated by the person to the earlier tax year is income, under section CB 24 (Income equalisation schemes), derived by them in the tax 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 in which they retire: 851 Part E s EH 50 Income Tax Act 2004 Reprinted as at 29 August 2011 (b) a further time allowed by the Commissioner in a case or class of cases.
Deﬁned in this Act: amount, Commissioner, deposit, income, notice, person, return of income, tax year Compare: 1994 No 164 ss EI 5(1), (2), EI 15 Subsection (4)(a) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; or”.

EH 50 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 FI 3 (Date on which disposal and resulting ac- quisition treated as occurring), the Commissioner 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: 1994 No 164 ss EI 6(1), EI 15 Subsection (2) was amended, as from 1 October 2005, by section 39 Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) by substituting “Despite section FI 3 (Date on which disposal and resulting acqui- sition treated as occurring), the Commissioner” for “The Commissioner” with application as from the 2005–06 income year.
EH 51 Income when refund given on death Year of income (1) A refund under section EH 50 is income, under section CB 24 (Income equalisation schemes), derived by the person imme- diately before their death.

When year of income may be different (2) However, section EH 52 or EH 53 applies instead of subsection (1) if the circumstances described in section EH 52(1) or EH 53(1) apply in the person’s case.
Deﬁned in this Act: income, person Compare: 1994 No 164 ss EI 6(1), EI 15 852 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EH 53 EH 52 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 50 includes a deposit made for a tax year earlier than the tax year in which the per- son dies; and the trustee of the person’s estate chooses to allocate some or all of the deposit to the earlier tax year.
(b) Different year of income The amount allocated by the trustee to the earlier tax year is income, under section CB 24 (Income equalisation schemes), derived by the person in the tax 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: amount, Commissioner, deposit, income, notice, person, return, tax year, trustee Compare: 1994 No 164 ss EI 6, EI 15 Subsection (3)(a) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; or”.
EH 53 Income when refund given on death, and election to allocate amount to later year or years (1) When this section applies This section applies when— (a) (b) the trustee does not make an election under section EH 52; 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 a tax year or years after that date.
853 Part E s EH 53 Income Tax Act 2004 Reprinted as at 29 August 2011 (2) Tax year or years for purposes of subsection (1)(b) For the purposes of subsection (1)(b), the tax 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 tax year for which a deposit or a part of a deposit was made, if the amount that the trustee allocates to a later year or years includes the deposit or part of it.
Amount allocated remains in account (3) An amount allocated by the trustee to a later tax year remains in the person’s adverse event income equalisation account until it is refunded to the trustee in the tax year to which it is allocated.

Different year of income (4) An amount allocated by the trustee to a later tax year is income, under section CB 24 (Income equalisation schemes), derived by the person in the tax 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 tax year; and the tax year to which each amount is allocated; 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: adverse event income equalisation account, amount, Com- missioner, deposit, income, notice, person, return, tax year, trustee, year Compare: 1994 No 164 ss EI 6, EI 15 Subsection (5)(b)(i) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; or”.
854 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EH 56 EH 54 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: 1994 No 164 ss EI 7, EI 15 EH 55 Income when refund given on bankruptcy A refund under section EH 54 is income, under section CB 24 (Income equalisation schemes), derived by the person imme- diately before the bankruptcy starts.
Deﬁned in this Act: income, person Compare: 1994 No 164 ss EI 7, EI 15 EH 56 Refund on liquidation (1) (2) When this section applies This section applies when a person— (a) (b) has an adverse event income equalisation account; and is put into liquidation.

Refund The Commissioner must refund to the liquidator appointed for the person the amount that, on the date the deposit ends, is in the person’s adverse event income equalisation account.
Deﬁned in this Act: adverse event income equalisation account, amount, Com- missioner, date the deposit ends, liquidation, person Compare: 1994 No 164 ss EI 8, EI 15 855 Part E s EH 57 Income Tax Act 2004 Reprinted as at 29 August 2011 EH 57 Income when refund given on liquidation A refund under section EH 56 is income, under section CB 24 (Income equalisation schemes), derived by the person imme- diately before the liquidation starts.
Deﬁned in this Act: income, liquidation, person Compare: 1994 No 164 ss EI 8, EI 15 Refunds: general provisions EH 58 Amendment of assessment Despite the time bar, the Commissioner may amend an assess- ment at any time in order to give effect to any of sections EH 49, EH 52, and EH 53.
Deﬁned in this Act: assessment, Commissioner, time bar Compare: 1994 No 164 ss EI 5(3), EI 6(3), EI 15 EH 59 Minimum refund The Commissioner must not give a refund under any of sec- tions EH 46, EH 48, EH 50, EH 54, and EH 56 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: 1994 No 164 s EI 16(2) EH 60 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: 1994 No 164 ss EI 10(1), EI 15, EI 16(1) 856 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EH 62 EH 61 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: 1994 No 164 s EI 14(3), (4) Subsection (2)(a) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; and”.
Deﬁnitions EH 62 Meaning of adverse event maximum deposit Meaning (1) Adverse event maximum deposit means the maximum deposit that this section says a person may make to their adverse event income equalisation account for a tax year.
857 Part E s EH 62 Income Tax Act 2004 Reprinted as at 29 August 2011 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 if, because of the self-assessed adverse event,— (a) the only income derived by the person in the tax year were income from their selling the livestock; and the only amount for which the person was allowed a deduction in the tax 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 a tax year other than the tax 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 FF 9 to FF 11 (which relate to livestock).
(b) Cost of livestock sold: person having livestock of class sold at end of previous tax year This subsection applies when, at the end of the tax year before the tax year in which the livestock is sold, the person had live- stock of the class that is sold in which the livestock would, if unsold, have been included at the end of the tax year in which it is sold.
Under this subsection, the cost of livestock sold is determined using the previous tax year’s closing value for the class of livestock in which the livestock sold would have been included.

Cost of livestock sold: other cases This subsection applies when subsection (4) does not.
Under this subsection, the cost of livestock sold is calculated using the formula— Deﬁnition of items in formula In the formula,— (2) (3) (4) (5) (6) 858 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EH 64 (a) (b) (c) (d) number at start means the number of livestock of the class sold that the person has at the start of the tax year in which the livestock is sold: number bought means the number of livestock of the class sold that the person buys in the tax year in which the livestock is sold, before the sale: price means the average purchase price of the number bought: value means the opening value of the number at the start, determined without applying section EC 16(2) (Valuation under herd scheme).
Deﬁned in this Act: adverse event income equalisation account, adverse event maximum deposit, amount, deduction, deposit, income, net income, person, self-assessed adverse event, tax year Compare: 1994 No 164 s OB 1 maximum deposit (b) EH 63 Meaning of self-assessed adverse event [Repealed] Subsection (2)(a) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; or”.
Section EH 63 was repealed, as from 3 April 2006, by section 79(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) with application as from the income year corresponding to the 2005–06 tax year.
EH 64 Other deﬁnitions In the adverse event income equalisation scheme,— adverse event deposit means a payment made to the Commis- sioner under section EH 39(1) adverse event income equalisation account, for a person, means the account that the Commissioner keeps in the person’s name under section EH 40 date the deposit ends means— (a) the date on which the refund is calculated, when section EH 43 applies: the date on which the Commissioner receives the appli- cations for the refund, when section EH 46 applies: the date of the person’s retirement, when section EH 48 applies: (b) (c) 859 Part E s EH 65 Income Tax Act 2004 Reprinted as at 29 August 2011 (d) (e) (f) (g) the date of the person’s death, when section EH 50 ap- plies: the date on which the Commissioner receives notice of the adjudication, when section EH 54 applies: the date on which the Commissioner receives notice of the liquidation, when section EH 56 applies: the date on which the Commissioner transfers the de- posit, when section EH 61(1) applies date the deposit ends: paragraphs (a) to (f) of this deﬁnition were amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscel- laneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; and”.
deposit — (a) means an adverse event deposit; and (b) includes, for the purposes of sections EH 41(2) and (3) and EH 45 to EH 61, interest that is added to an adverse event deposit under section EH 41(4) speciﬁed period, for a person’s tax year, means the shorter of— (a) (b) the period of 6 months after the end of the tax year; and the period from the end of 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 tax year.
Deﬁned in this Act: adverse event deposit, adverse event income equalisation account, adverse event income equalisation scheme, Commissioner, date the deposit ends, deposit, interest, liquidation, person, return of income, speciﬁed period, tax year Compare: 1994 No 164 s OB 1adverse event income equalisation account Thinning operations income equalisation scheme Application EH 65 Persons to whom thinning operations income equalisation scheme applies Person described The thinning operations income equalisation scheme applies to a company that, in a tax year,— (a) carries on a forestry business on land in New Zealand; and (1) 860 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EH 66 (2) (b) derives income from carrying out thinning operations on the land.
Meaning of person for thinning operations income equalisation scheme In the thinning operations income equalisation scheme, person means a person described in subsection (1).
Deﬁned in this Act: business, company, forestry business, income, New Zealand, person, thinning operations, thinning operations income equalisation scheme, tax year Compare: 1994 No 164 s EI 17(1) Section EH 65 list of deﬁned terms forestry business: inserted (with effect on 1 April 2005), on 7 December 2009, by section 163 of the Taxation (Conse- quential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
Deposits and accounts EH 66 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 a tax year in which they derive income from carrying out thin- ning operations.

Upper limit of deposit (2) A person must not make, for a tax year, deposits that in total are more than their thinning operations maximum deposit for the tax year.
Lower limit of deposit (3) A person must not make, for a tax 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 tax year and their thinning operations maximum deposit for the tax year.
Time of making deposit (4) A person makes a deposit for a tax year by— (a) making the deposit during the tax year; or (b) doing both the following: (i) making the deposit during the speciﬁed period for the tax year; and 861 Part E s EH 67 Income Tax Act 2004 Reprinted as at 29 August 2011 (ii) at the time of making it, giving the Commissioner notice that the deposit is for the tax 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 tax 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 tax year.
(ii) (5) Limit on making deposit If a refund has been made to a person for a tax year under section EH 73 or EH 75, the person may later make a deposit for the tax 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: business, Commissioner, deposit, income, notice, person, speciﬁed period, tax year, thinning operations, thinning operations deposit, thin- ning operations income equalisation account, thinning operations maximum de- posit Compare: 1994 No 164 ss EI 1(1), (3), EI 17(1), (2) EH 67 Thinning operations income equalisation account Person’s account The Commissioner must keep a thinning operations income equalisation account in the name of every person that makes a deposit with the Commissioner.
Deposits in accounts Every deposit a person makes with the Commissioner must be entered in their thinning operations income equalisation ac- count.

Amounts in accounts The only amounts that may be entered in a person’s thinning operations income equalisation account are— (a) deposits made by the person with the Commissioner; and interest paid under section EH 68.
(b) (1) (2) (3) 862 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EH 68 Amounts not available to others (4) Despite section FI 3 (Date on which disposal and resulting acquisition treated as occurring), amounts entered in a per- son’s thinning operations 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 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 70, EH 73, EH 75, and EH 77.
Deﬁned in this Act: amount, Commissioner, deposit, interest, liquidation, pay, person, thinning operations income equalisation account Compare: 1994 No 164 ss EI 1(2), (5), EI 17(2), (3) Subsection (4) was amended, as from 1 October 2005, by section 40 Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) by substituting “Despite section FI 3 (Date on which disposal and resulting acqui- sition treated as occurring), amounts” for “Amounts” with application as from the 2005–06 income year.
EH 68 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.

(2) (3) 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.

863 Part E s EH 69 Income Tax Act 2004 Reprinted as at 29 August 2011 (4) 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 (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: 1994 No 164 ss EI 2, EI 17(2) EH 69 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) (b) the total of the person’s deposits for the tax year; and their thinning operations maximum deposit for the tax year.

Timing of deduction The person is allowed the deduction in the tax year.
Deﬁned in this Act: amount, deduction, deposit, person, tax year, thinning op- erations maximum deposit Compare: 1994 No 164 ss EI 3, EI 17(2) Refunds: automatic EH 70 Refund of excess deposit When this section applies This section applies when a person’s deposits for a tax year are more than their thinning operations maximum deposit for the tax year.
(1) 864 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EH 73 (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: Commissioner, date the deposit ends, deposit, person, tax year, thinning operations maximum deposit Compare: 1994 No 164 ss EI 1(4), EI 17(2) EH 71 Income does not include excess deposit A refund under section EH 70 is excluded income under sec- tion CX 43 (Income equalisation schemes).
Deﬁned in this Act: excluded income Compare: 1994 No 164 ss EI 1(4), EI 17(2) Refunds: on application EH 72 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 73 or EH 75: the liquidator appointed for the person may apply under section EH 77.
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: 1994 No 164 ss EI 4(1), (2), EI 17(2) Subsection (1)(a) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; and”.
EH 73 Refund on request (1) 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 865 Part E s EH 74 Income Tax Act 2004 Reprinted as at 29 August 2011 (2) equalisation account, and neither section EH 75 nor EH 77 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 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: 1994 No 164 ss EI 4(1), (2), EI 17(2) EH 74 Income when refund given on request Year of income (1) A refund under section EH 73 is income, under section CB 24 (Income equalisation schemes), derived by the person in the tax year in which the Commissioner receives 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 a tax year or, if the Commis- sioner 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 tax year to which the speciﬁed period or the longer period relates.
(b) (3) Different year of income The refund is income, under section CB 24 (Income equalisa- tion schemes), in the tax year to which the speciﬁed period or the longer period relates.
Deﬁned in this Act: Commissioner, income, person, speciﬁed period, tax year Compare: 1994 No 164 ss EI 4(5), EI 17(2) EH 75 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 thinning operations income equal- (1) 866 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EH 76 (2) (3) (4) isation account for the purpose of enabling them to undertake, 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: 1994 No 164 ss EI 4(3), (4), EI 17(2) Subsection (3)(a) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; or”.
Section EH 75 list of deﬁned terms forestry business: inserted (with effect on 1 April 2005), on 7 December 2009, by section 163 of the Taxation (Conse- quential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
EH 76 Income when refund given for development or recovery Year of income (1) A refund under section EH 75 is income, under section CB 24 (Income equalisation schemes), derived by the person in the 867 Part E s EH 77 Income Tax Act 2004 Reprinted as at 29 August 2011 tax year in which the Commissioner receives 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 a tax year or, if the Commis- sioner 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 tax year to which the speciﬁed period or the longer period relates.
(b) (3) Different year of income The refund is income, under section CB 24 (Income equalisa- tion schemes), derived in the tax year to which the speciﬁed period or the longer period relates.

Deﬁned in this Act: Commissioner, income, person, speciﬁed period, tax year Compare: 1994 No 164 ss EI 4(5), EI 17(2) EH 77 Refund on liquidation 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: 1994 No 164 ss EI 8(1), EI 17(2) (1) (2) 868 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EH 80 EH 78 Income when refund given on liquidation A refund under section EH 77 is income, under section CB 24 (Income equalisation schemes), derived by the person imme- diately before the liquidation starts.
Deﬁned in this Act: income, liquidation, person Compare: 1994 No 164 ss EI 8(2), EI 17(2) Refunds: general provisions, and rebate of income tax EH 79 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: 1994 No 164 s EI 17(2) EH 80 Meaning of thinning operations maximum deposit Deﬁnitions (1) (2) (3) Meaning Thinning operations maximum deposit means the maxi- mum deposit that this section says a person may make to their thinning operations income equalisation account for a tax year.
Maximum deposit The maximum deposit that a person may make is an amount equal to the income derived by them during the tax 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 a tax year other than the tax year in which the income was in fact derived or the expenditure was in fact incurred: 869 Part E s EH 81 Income Tax Act 2004 Reprinted as at 29 August 2011 (b) any provision of any of the income equalisation schemes referred to in section EH 1(2).
Deﬁned in this Act: amount, business, deposit, forestry business, income, per- son, tax year, thinning operations, thinning operations income equalisation ac- count, thinning operations maximum deposit Compare: 1994 No 164 s OB 1maximum deposit (a) Subsection (3)(a) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; or”.
Section EH 80 list of deﬁned terms forestry business: inserted (with effect on 1 April 2005), on 7 December 2009, by section 163 of the Taxation (Conse- quential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
EH 81 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 70 applies: the date on which the Commissioner receives the ap- plication for the refund, when section EH 73 or EH 75 applies: the date on which the Commissioner receives notice of the liquidation, when section EH 77 applies (b) (c) date the deposit ends: paragraphs (a) and (b) of this deﬁnition were amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Mis- cellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; and”.
deposit — (a) means a thinning operations deposit; and (b) includes, for the purposes of sections EH 68(2) to (4) and EH 72 to EH 79, interest that is added to a thinning operations deposit under section EH 68(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 (b) 870 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EH 81 speciﬁed period: this deﬁnition was amended, as from 1 April 2005, by section 41 Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) by substituting “accounting year that corresponds to the tax year” for “tax year” in the 3 places in paragraphs (a) and (b) in which it appears with application as from the 2005–06 income 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 66(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 67.
Deﬁned in this Act: Commissioner, date the deposit ends, interest, liquidation, person, return of income, speciﬁed period, tax year, thinning operations, thin- ning operations deposit, thinning operations income equalisation account, thin- ning operations income equalisation scheme Compare: 1994 No 164 ss EI 17(4), OB 1speciﬁed period (a) 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 Assigning or granting copyright EI 3 EI 3B Spreading income from patent rights Land 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 Crown EI 4 EI 5 EI 6 EI 7 Page 872 872 873 875 875 876 877 877 871 Part E s EI 1 Income Tax Act 2004 Reprinted as at 29 August 2011 Shareholder-employees EI 8 Matching rule for employment income of 879 shareholderemployee Farming and forestry EI 1 Spreading backward of income from timber (1) (2) When this section applies This section applies when a person derives income under sec- tion CB 22 (Disposal of timber or right to take timber) or CB 23 (Disposal of land with standing timber).
Timing of income The person may allocate the income between the income year in which they derive it and any 1 or more of the previous 3 income years.

Application (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: 1994 No 164 s EJ 1(1) Inﬂation-indexed instruments EI 2 Interest from inﬂation-indexed instruments When this section applies This section applies when— (a) (b) (c) (d) an amount of money lent is outstanding at the end of the lender’s current income year; and an amount is payable to the lender for the money lent, in a future income year of the lender; and the amount payable is determined by a ﬁxed 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— (1) 872 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EI 3 (i) (ii) 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.
(2) Increase treated as credited If the difference is an increase, the increase is treated as having been credited in account and capitalised by the borrower for the beneﬁt of the lender on— (a) the day following the day on which the level of the rele- vant index at the end of the lender’s current income year becomes public knowledge; or if the level of the relevant index is not calculated for the end of the lender’s current income year, the last date before the end of the income year for which the level is calculated.
(b) This subsection is overridden by subsection (3).

Increase not treated as credited (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 a previous income year of the lender.
Deﬁned in this Act: amount, income year, interest, money lent, New Zealand, pay Compare: 1994 No 164 s EB 4 Subsection (3)(a) and (b) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; or”.
Intellectual property EI 3 Assigning or granting copyright (1) When this section applies This section applies when a person— (a) is the author of a literary, dramatic, musical, or artistic work; and 873 Part E s EI 3 Income Tax Act 2004 Reprinted as at 29 August 2011 (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 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 pub- (2) (3) (4) (5) (6) 874 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EI 4 lished, performed, or exhibited lump sum payment includes an advance on account of royalties.
Deﬁned in this Act: author, Commissioner, ﬁrst publication, income, income year, lump sum payment, royalty, tax year, year Compare: 1994 No 164 s EN 3(1)-(3), (5), (6) EI 3B Spreading income from patent rights (1) (2) When this section applies This section applies when a person derives income under sec- tion CB 26 (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: Commissioner, income, income year, patent rights Section EI 3B was inserted, as from 18 December 2006, by section 52(1) Tax- ation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) with application as from the 2007-08 income year.

Land EI 4 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.
(4) Notice The following provisions apply to an allocation for the pur- poses of subsection (2): 875 Part E s EI 5 Income Tax Act 2004 Reprinted as at 29 August 2011 (a) (b) (c) 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.
Relationship with sections CC 2 and EI 5 This section overrides section CC 2(2) (Non-compliance with covenant for repair) and is overridden by section EI 5.
Deﬁned in this Act: amount, Commissioner, income, income year, notice, re- turn of income Compare: 1994 No 164 s EN 1(2)-(4), (8) (6) EI 5 Amount paid for non-compliance: when lessor ceases to own land When this section applies This section applies when a lessor— (a) (b) allocates income under section EI 4 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 4 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: 1994 No 164 s EN 1(5), (7), (8) (1) (2) (3) 876 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EI 7 EI 6 Leases: income derived in anticipation When this section applies (1) 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.
(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, tax year Compare: 1994 No 164 s EB 2 Subsection (3)(a) and (b) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; and”.
Subsection (3)(b) was substituted, as from 1 April 2005, by section 80(1) Taxa- tion (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provi- sions) Act 2006 (2006 No 3) with application as from the income year corres- ponding to the 2005–06 tax year.

EI 7 Disposal of land to Crown (1) When this section applies This section applies when a person derives income from dis- posing of any of their land to the Crown.
877 Part E s EI 7 Income Tax Act 2004 Reprinted as at 29 August 2011 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.
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 a previous income year.
Deﬁned in this Act: amount, Commissioner, deduction, income, income tax liability, income year, tax year, year Compare: 1994 No 164 s EN 4 (b) Subsection (4)(a) to (c) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; and”.
Subsection (5)(a) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; and”.
(2) (3) (4) (5) 878 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EI 8 Shareholder-employees EI 8 Matching rule for employment income of shareholderemployee (1) (2) (3) 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).
Allocation otherwise when ceases being 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: 1994 No 164 s EB 1(3), (4) Subpart EJ—Spreading of speciﬁc expenditure Contents Farming and forestry EJ 1 EJ 2 EJ 3 EJ 4 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 Page 881 881 882 884 879 Income Tax Act 2004 Reprinted as at 29 August 2011 EJ 5 EJ 6 EJ 7 EJ 8 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 screen production grant Film production expenditure for other ﬁlms having no large budget screen production grant Leases Personal property lease payments EJ 9 EJ 10 Amount paid by lessee for non-compliance with covenant for repair EJ 11 Petroleum development expenditure: default allocation Petroleum mining rule EJ 11B Petroleum development expenditure: reserve depletion method EJ 12 Relinquishing petroleum permit EJ 12B Dry well drilled EJ 12C Well not producing EJ 13 Disposal of petroleum mining asset EJ 14 Disposal of petroleum mining asset to associate EJ 15 Partnership interests and disposal of part of asset EJ 16 Petroleum mining operations outside New Zealand EJ 17 Meaning of offshore development [Repealed] EJ 18 Meaning of petroleum mining development Deﬁnitions EJ 19 Contributions to employees’ superannuation schemes Superannuation contributions Research, development, and resulting market development 886 887 888 889 890 891 892 892 894 895 895 896 897 897 898 898 898 899 EJ 20 Deductions for market development—product of research, 900 development EJ 21 Allocation of deductions for research, development, and 900 resulting market development 880 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EJ 2 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 22 (Disposal of timber or right to take timber) or CB 23 (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: 1994 No 164 s EJ 1(2) EJ 2 Spreading forward of deductions for repairs to ﬁshing boats (1) (2) (3) 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 10 of the Maritime Transport Act 1994 to the equipment, hull, or machinery of a ﬁshing boat used wholly for the purposes of the business.
When subsection (3) applies Subsection (3) applies when the person does not cease to carry on the business before the end of the fourth tax year following the tax year in which the expenditure is incurred.
Business not ceasing within 4 years The person may do 1 of the following to the total amount of expenditure allowed as a deduction: (a) deduct it in the income year in which the expenditure is incurred; or allocate it to any 1 of the 4 income years following the income year in which the expenditure is incurred, and deduct it in that income year; or allocate parts of it over some or all of the 4 income years following the income year in which the expenditure is (b) (c) 881 Part E s EJ 3 Income Tax Act 2004 Reprinted as at 29 August 2011 (4) (5) (d) 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.
When subsection (5) applies Subsection (5) applies when the person ceases to carry on the business before the end of the fourth tax year following the tax year in which the expenditure is incurred.
Business ceasing within 4 years The person may do 1 of the following to the total amount of expenditure allowed as a deduction: (a) deduct it, or any part of it that has not already been deducted, in the income year in which the person ceases to carry on the business; or allocate it, or any part of it that has not already been deducted, equally to the income year in which it is in- curred and the following income years in which the per- son continues to carry on the business.
(b) (6) Some deﬁnitions In this section,— ﬁshing boat— (a) means a boat registered as a ﬁshing boat under Part 4 of (b) the Fisheries Act 1983; and includes a small boat belonging to any boat that is so registered ﬁshing business means a business of catching or taking ﬁsh, including crustaceans and shellﬁsh, for the purposes of sale.
Deﬁned in this Act: amount, business, deduction, ﬁshing boat, ﬁshing business, income year, New Zealand, tax year Compare: 1994 No 164 s DO 2 EJ 3 Spreading forward of fertiliser expenditure When this section applies This section applies when— (a) a person carries on a farming or agricultural business on land in New Zealand; and (1) 882 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EJ 3 (2) (3) (4) (5) (b) (c) 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.
Timing of deduction: if election made The person may choose to allocate the expenditure by allocat- ing some or all of it, in the proportions they choose, to any 1 or more of the 4 income years following the income year in which they incur the expenditure.
Timing of deduction: if election not made The person is allowed a deduction in the fourth income year following the income year in which they incur the expenditure for any part of the expenditure— (a) for which they do not claim a deduction in the income year in which they incur the expenditure; or that they do not allocate under subsection (2).
(b) Timing of deduction: business ceasing within 4 years If the person ceases to carry on the business before the end of the fourth income year following the income year in which they incurred the expenditure, they must choose 1 of the fol- 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: 883 Part E s EJ 4 Income Tax Act 2004 Reprinted as at 29 August 2011 (b) (c) (d) 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.
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: 1994 No 164 s EK 1 Subsection (5)(a) to (c) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; and”.
Films EJ 4 Expenditure incurred in acquiring ﬁlm rights in feature 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 under section DS 1 (Acquiring ﬁlm rights): the deduction is under section DS 2 (Film production expenditure) and the ﬁlm is one for which a large budget screen production grant is made.
(b) Timing of deduction: retention of ﬁlm right If the person has the ﬁlm right at the end of an income year, the deduction that is allocated to the income year is the lesser of— (a) the greater of— (i) an apportioned amount of the deduction, calcu- lated for the income year under subsection (3); and (2) 884 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EJ 4 (3) (4) (5) (6) (ii) the amount of ﬁlm income derived in the income year; and (b) the remaining deduction.
Calculation of apportioned amount The apportioned amount is calculated for the income year us- ing the formula— Deﬁnition of items in formula In the formula,— (a) (b) completed months is the number of months in the in- come year (including a part of a month) for which the ﬁlm is completed: non-completed months is 24, reduced by the number of complete months in the period that— (i) starts on the ﬁrst day of the month in which the ﬁlm is completed; and 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 a previous income year.
Deﬁned in this Act: amount, completed, deduction, feature ﬁlm, ﬁlm, ﬁlm in- come, ﬁlm right, income year, remaining deduction Compare: 1994 No 164 ss EO 3(4), (6), (9), OB 1 residual value Section EJ 4(1) heading: substituted (with effect from 1 April 2005), on 19 De- cember 2007, by section 54(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EJ 4(1): substituted (with effect from 1 April 2005), on 19 December 2007, by section 54(1) of the Taxation (Business Taxation and Remedial Mat- ters) Act 2007 (2007 No 109).
885 Part E s EJ 5 Income Tax Act 2004 Reprinted as at 29 August 2011 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 under section DS 1 (Acquiring ﬁlm rights): the deduction is under section DS 2 (Film production expenditure) and the ﬁlm is one for which a large budget screen production grant is made.
(b) Timing of deduction: retention of ﬁlm right If the person has the ﬁlm right at the end of an income year,— the deduction that is allocated to the income year 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 a previous income year.
Deﬁned in this Act: amount, completed, deduction, feature ﬁlm, ﬁlm, ﬁlm in- come, ﬁlm right, income year, remaining deduction Compare: 1994 No 164 s EO 3(5), (6) Section EJ 5(1) heading: substituted (with effect from 1 April 2005), on 19 De- cember 2007, by section 55(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
(2) (3) (4) 886 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EJ 6 Section EJ 5(1): substituted (with effect from 1 April 2005), on 19 December 2007, by section 55(1) of the Taxation (Business Taxation and Remedial Mat- ters) Act 2007 (2007 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.
(4) (5) Notice of certiﬁcate to Commissioner The New Zealand Film Commission must send a copy of the provisional certiﬁcate or the ﬁnal certiﬁcate to the Commis- sioner immediately after issuing it.
Revocation of certiﬁcate The New Zealand Film Commission may revoke a provisional certiﬁcate or a ﬁnal certiﬁcate if the Commission is satisﬁed that the certiﬁcate should not remain in force, whether because an incorrect statement was made in the provision of informa- tion for the purpose of obtaining a certiﬁcate or for any other reason.

Effect of revocation (6) A revoked certiﬁcate is void from the time the certiﬁcate was issued.
887 Part E s EJ 7 Income Tax Act 2004 Reprinted as at 29 August 2011 (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: 1994 No 164 s EO 4(9)-(11), (13) Subsection (2)(a) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; or”.
EJ 7 Film production expenditure for New Zealand ﬁlms having no large budget screen production 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 screen pro- duction 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, New Zealand Compare: 1994 No 164 s EO 4(4), (6) Section EJ 7 heading: substituted (with effect from 1 April 2005), on 19 De- cember 2007, by section 56(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EJ 7(1) heading: substituted (with effect from 1 April 2005), on 19 De- cember 2007, by section 56(2) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section EJ 7(1): substituted (with effect from 1 April 2005), on 19 December 2007, by section 56(2) of the Taxation (Business Taxation and Remedial Mat- ters) Act 2007 (2007 No 109).
888 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EJ 8 EJ 8 Film production expenditure for other ﬁlms having no large budget screen production 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 screen pro- duction grant is made; and the ﬁlm does not have a ﬁnal certiﬁcate under section EJ 6.
(b) (2) (3) (4) Timing of deduction: up to completion of ﬁlm If the person has a ﬁlm right at the end of the income year in which the ﬁlm is completed, the deduction for ﬁlm production expenditure incurred in or before the income year is allocated as follows: (a) to the income year in which the ﬁlm is completed,— (i) (ii) 50% of the deduction; or if the ﬁlm income derived in the income year is more than 50% of the deduction, the lesser of the amount of ﬁlm income and the total amount of the deduction; and (b) to the next income year, the remaining deduction.
Timing of deduction: after completion of ﬁlm If the person has a ﬁlm right in an income year after the ﬁlm is completed, a deduction for ﬁlm production expenditure in- curred after the ﬁlm is completed is allocated to the income year in which it is incurred.
Timing of deduction: disposal of ﬁlm right If the person disposes of a ﬁlm right in the income year in which the ﬁlm is completed, and does not have a ﬁlm right in the ﬁlm at the end of the income year, the remaining deduction is allocated to the income year.
889 Part E s EJ 9 Income Tax Act 2004 Reprinted as at 29 August 2011 (5) 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 a previous income year.
Deﬁned in this Act: amount, completed, deduction, ﬁlm, ﬁlm income, ﬁlm pro- duction expenditure, ﬁlm right, income year, New Zealand, remaining deduc- tion Compare: 1994 No 164 s EO 4(5)-(7) Section EJ 8 heading: substituted, on 19 December 2007, by section 57(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section EJ 8(1) heading: substituted, on 19 December 2007, by section 57(2) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EJ 8(1): substituted, on 19 December 2007, by section 57(2) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

EJ 9 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— Deﬁnition of items in formula In the formula,— (a) part of term means the part of the term of the lease that falls within the income year: term of the lease is deﬁned in section OB 1 (Deﬁni- tions): (b) (1) (2) (3) (4) 890 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EJ 10 (c) total of payments means the total amount of the personal property lease payments.
Deﬁned in this Act: ﬁnance lease, income year, lease, lessee, personal property lease asset, personal property lease payment, speciﬁed lease, term of the lease Compare: 1994, No 164 ss EO 2, EO 2A EJ 10 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 15 (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: 1994 No 164 s EO 5(2), (3) 891 Part E s EJ 11 Income Tax Act 2004 Reprinted as at 29 August 2011 Petroleum mining EJ 11 Petroleum development expenditure: default allocation rule (1) (2) (3) When this section applies This section applies when a petroleum miner’s petroleum de- velopment expenditure that relates to petroleum mining devel- opments in a permit area is incurred on or after 1 April 2008, if section EJ 11B 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 12 to EJ 14 override subsection (2).
Sections DT 7, DT 8, DT 10, DT 11, DT 16, and IH 3 (which relate to petroleum miners) override this section.

Deﬁned in this Act: amount, deduction, income year, permit, petroleum devel- opment expenditure, petroleum miner, petroleum mining development Section EJ 11: substituted (with effect on 1 April 2008), on 6 October 2009, by section 774(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
EJ 11B Petroleum development expenditure: reserve depletion method (1) When this section applies This section applies when a petroleum miner’s petroleum de- velopment expenditure that relates to petroleum mining devel- opments in a permit area, if 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.
892 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EJ 11B (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 of petroleum produced from the petroleum mining development for the in- come year, expressed in barrels of oil equivalent.
(8) Probable reserves Probable reserves is the amount of the reserves of petroleum for the petroleum mining 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, expressed in barrels of oil equivalent.

893 Part E s EJ 12 Income Tax Act 2004 Reprinted as at 29 August 2011 (9) Relationship with other petroleum mining provisions Sections EJ 12 to EJ 14 override subsection (2).
Sections DT 7, DT 8, DT 10, DT 11, DT 16, and IH 3 (which relate to petroleum miners) override this section.

Deﬁned in this Act: amount, deduction, income year, permit area, petroleum development expenditure, petroleum miner, petroleum mining development Section EJ 11B: inserted (with effect on 1 April 2008), on 6 October 2009, by section 774(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
EJ 12 Relinquishing petroleum 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 11(2) or EJ 11B(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: 1994 No 164 s DM 1(5)(a) Section EJ 12(2)(b): substituted (with effect on 1 April 2008), on 6 October 2009, by section 775(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
(1) (2) (3) 894 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EJ 12C EJ 12B 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 11 or EJ 11B.
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 12B: inserted (with effect on 1 April 2008), on 6 October 2009, by section 776(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
EJ 12C 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 EJ 11B for the petroleum development expenditure described in para- graph (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 EJ 11B.
895 (b) (b) (c) Part E s EJ 13 Income Tax Act 2004 Reprinted as at 29 August 2011 (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 12C: inserted (with effect on 1 April 2008), on 6 October 2009, by section 776(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
EJ 13 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 11 or EJ 11B to the income year in which the miner disposes of the asset or to an earlier income year.
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 14 This section is overridden by section EJ 14.
Deﬁned in this Act: amount, deduction, dispose, income, income year, petrol- eum miner, petroleum mining asset Compare: 1994 No 164 s DM 1(5)(b) (1) (2) (3) (4) 896 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EJ 15 Section EJ 13(2)(b): substituted (with effect on 1April 2008), on 6 October 2009, by section 777(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
EJ 14 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 13 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: 1994 No 164 s DM 1(6) Subsection (1)(a) and (b) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; or”.
EJ 15 Partnership interests and disposal of part of asset In sections EJ 11 to EJ 14, unless the context requires other- wise,— (a) a partner is treated as having a share or interest in a pet- roleum permit or other property of a partnership to the extent of their interest in the income of the partnership: references to the disposal of an asset apply equally to the disposal of part of an asset.
Deﬁned in this Act: dispose, income, petroleum permit Compare: 1994 No 164 ss DM 9, DM 10 (b) Paragraph (a) was amended, as from 21 December 2004, by section 270 Taxa- tion (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; and”.
897 Part E s EJ 16 Income Tax Act 2004 Reprinted as at 29 August 2011 EJ 16 Petroleum mining operations outside New Zealand Sections EJ 11 to EJ 18 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 sections EJ 11 to EJ 18.
(b) Deﬁned in this Act: controlled foreign company, New Zealand, petroleum miner, petroleum mining operations Compare: 1994 No 164 s DM 7(1) EJ 17 Meaning of offshore development Deﬁnitions [Repealed] Section EJ 17: repealed (with effect on 1 April 2008), on 6 October 2009, by section 778(1) of the Taxation (International Taxation, Life Insurance, and Re- medial Matters) Act 2009 (2009 No 34).
Subsection (2)(a) to (c) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; or”.

EJ 18 Meaning of petroleum mining development Meaning In sections EJ 11 and EJ 11B, 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) processing, storing, or transmitting petroleum before its (c) dispatch to a buyer, consumer, processor, reﬁnery, or user: removal or restoration operations.
(d) Activities: exclusions The activities do not include further treatment to which all the following apply: (1) (2) (3) 898 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EJ 19 (a) (b) it occurs after the well stream has been separated and stabilized 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 Section EJ 18: substituted (with effect on 1 April 2008), on 6 October 2009, by section 778(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Subsection (2)(a) to (c) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; or”.
Superannuation contributions EJ 19 Contributions to employees’ superannuation schemes (1) (2) (3) 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 6 (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.
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: 1994 No 164 ss DF 3(1), EO 1 899 Part E s EJ 20 Income Tax Act 2004 Reprinted as at 29 August 2011 Research, development, and resulting market development This heading was inserted, as from 1 October 2005, by section 81(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) with application as from the income year corresponding to the 2005–06 tax year.
EJ 20 Deductions for market development—product of research, development (1) (2) When this section applies This section applies if a person is allowed a deduction for ex- penditure 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 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 21.
(b) Deﬁned in this Act: assessable income, deduction, development, income year, research Sections EJ 20 and EJ 21 were inserted, as from 1 October 2005, by section 81(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellan- eous Provisions) Act 2006 (2006 No 3) with application as from the income year corresponding to the 2005–06 tax year.
EJ 21 Allocation of deductions for research, development, and resulting market development When this section applies This section applies if a person has— (a) a deduction, for expenditure incurred on research or de- velopment, that the person chooses to allocate under section DB 26(6B) (Research or development): a deduction, for depreciation losses for an item used for research or development, that the person chooses (b) (1) 900 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EJ 21 (c) to allocate under section EE 1(4B) (What this subpart does): a deduction, for expenditure incurred on market devel- opment for a product that has resulted from expenditure incurred on research or development, that the person chooses to allocate under section EJ 20(2).
(2) (3) (4) Timing of deduction The person must allocate the deduction to an income year— (a) in which the person derives assessable income that the person would not have derived but for— (i) expenditure that gives rise to a deduction that may be allocated under this section: the use or disposal of an item for which the per- son has a depreciation loss that may be allocated under this section: (ii) (b) to which the person would be permitted by Part I (Treat- ment of net losses) to carry forward a net loss for the in- come 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 the 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 income years 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 the 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— (i) arise in other income years from which a net loss may be carried forward under Part 1 to the current year; and (b) 901 Income Tax Act 2004 Reprinted as at 29 August 2011 (ii) have not been allocated to income years before the current year.
Deﬁned in this Act: assessable income, deduction, depreciation losses, devel- opment, income year, research Sections EJ 20 and EJ 21 were inserted, as from 1 October 2005, by section 81(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellan- eous Provisions) Act 2006 (2006 No 3) with application as from the income year corresponding to the 2005–06 tax year.
Subsection (3) was substituted, as from 18 December 2006, by section 53(1) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) with application as from the income year corresponding to the 2005–06 tax year.

Subsection (4) was inserted, as from 18 December 2006, by section 53(1) Tax- ation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) with application as from the income year corresponding to the 2005–06 tax year.
Subpart EK—Environmental restoration accounts Subpart EK (sections EK 1 to EK 23) was inserted, as from 1 October 2005, by section 42(1) Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) with application for expenditure incurred by a person in an income year starting on or after 10 June 2005.
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 902 Page 903 903 904 905 906 907 907 908 909 910 910 911 913 913 914 915 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EK 2 EK 17 Minimum refund or transfer EK 18 Payments from which refunds come EK 19 Environmental restoration account of amalgamating company EK 20 Environmental restoration account of member of consolidated group EK 21 Commissioner may require notice in electronic format EK 22 Meaning of maximum payment EK 23 Other deﬁnitions 916 916 917 918 918 919 920 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 Subpart EK (sections EK 1 to EK 23) was inserted, as from 1 October 2005, by section 42(1) Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) with application for expenditure incurred by a person in an income year starting on or after 10 June 2005.
EK 2 Persons who may make payment to environmental restoration account Business required to restore environment 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 6B applies; and 903 Part E s EK 3 Income Tax Act 2004 Reprinted as at 29 August 2011 (ii) is of a type listed in schedule 6B, part B (Expend- iture in avoiding, remedying, or mitigating detri- mental effects of discharge of contaminant); and is of a type not listed in schedule 6B, part C; and (c) makes a provision for such expenditure in ﬁnancial (iii) statements that are— (i) (ii) prepared for external reporting purposes; and audited by an accountant who is a chartered ac- countant or has equivalent professional qualiﬁca- tions; and given by the accountant a standard audit opinion, without qualiﬁcations on matters relating to the effect of this subpart.
(iii) Deﬁned in this Act: business, Commissioner, environmental restoration ac- count, income year, revenue account property Subpart EK (sections EK 1 to EK 23) was inserted, as from 1 October 2005, by section 42(1) Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) with application for expenditure incurred by a person in an income year starting on or after 10 June 2005.
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 Subpart EK (sections EK 1 to EK 23) was inserted, as from 1 October 2005, by section 42(1) Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) with application for expenditure incurred by a person in an income year starting on or after 10 June 2005.
904 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EK 4 EK 4 Environmental restoration account (1) (2) (3) 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— (a) payments made by the person to the Commissioner under section EK 2: transfers made to the account under subsection (6): interest paid under section EK 6.
(b) (c) Amounts not available to others (4) Amounts entered in a person’s environmental restoration ac- count may not, while they are in the account,— be assigned or charged in any way: (a) pass by operation of law to, or into the custody or (b) control of, someone else, except when the person is bankrupt or has been put into liquidation: 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: be assets for the payment of the debts or liabilities of a dead person’s estate.
(d) (c) 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— 905 Part E s EK 5 Income Tax Act 2004 Reprinted as at 29 August 2011 (a) (b) (c) to an environmental restoration account of a person to whom the amount has been transferred under section EK 15 or EK 16(3)(b): to the department that is at the time responsible for the administration of the Environment Act 1986, if the amount has been transferred under section EK 16(3)(a): to an environmental restoration account of an amalga- mated company to which the amount has been trans- ferred under section EK 19.
Commissioner may close empty account The Commissioner may close an environmental restoration ac- count of a person if the amount in the environmental restora- tion account is zero.
Deﬁned in this Act: amalgamating company, amount, Commissioner, environ- mental restoration account, interest, liquidation Subpart EK (sections EK 1 to EK 23) was inserted, as from 1 October 2005, by section 42(1) Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) with application for expenditure incurred by a person in an income year starting on or after 10 June 2005.
(7) EK 5 Details to be provided with payment to environmental restoration account (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) 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 Subpart EK (sections EK 1 to EK 23) was inserted, as from 1 October 2005, by section 42(1) Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) with application for expenditure incurred by a person in an income year starting on or after 10 June 2005.
906 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EK 7 EK 6 Interest on payments to environmental restoration account (1) (2) (3) Interest payable Interest is payable by the Commissioner on— (a) a payment under section EK 2 to an environmental restoration account: an amount that is treated under section EK 15, EK 16, or EK 19 as being a payment to an environmental restora- tion account.
(b) Period Interest is computed with daily rests from the day after the date of the payment until the day before the date on which the payment is included in a refund under section EK 12 or in a transfer under section EK 15, EK 16, or EK 19.
Date to which interest accrues Interest that has accrued on a payment is payable to the person who has the environmental restoration account on the earlier of— (a) (b) 31 March in each year: the day on which the payment is included in a refund under section EK 12 or in a transfer under section EK 15, EK 16, or EK 19.

(4) Rate The interest rate is 3% per year.


Deﬁned in this Act: Commissioner, environmental restoration account, interest, year Subpart EK (sections EK 1 to EK 23) was inserted, as from 1 October 2005, by section 42(1) Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) with application for expenditure incurred by a person in an income year starting on or after 10 June 2005.
Subsection (1)(b) was amended, as from 1 October 2005, by section 54(1) Tax- ation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) by substituting “section EK 15, EK 16, or EK 19” for “section EK 15 or EK 19” with application for expenditure incurred by a person in an income year starting on or after 10 June 2005.
EK 7 Deduction for payment (1) When this section applies This section applies if a person is allowed a deduction under section DQ 4 (Environmental restoration accounts scheme) for 907 Part E s EK 8 Income Tax Act 2004 Reprinted as at 29 August 2011 a payment to the person’s environmental restoration account under section EK 2.
Amount of deduction The amount of the deduction is calculated using the formula— (2) (3) (4) (5) (6) Deﬁnitions of items in formula The items in the formula are deﬁned in subsections (4) and (5).

Payment Payment is the lesser of— (a) the person’s payment to the Commissioner under sec- tion EK 2 for the income year; and the person’s maximum payment for the income year.
(b) Tax rate Tax rate is the highest rate of income tax on taxable income that— (a) (b) would apply to the person for the tax year if the person is stated in schedule 1; and 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, tax year, taxable income Subpart EK (sections EK 1 to EK 23) was inserted, as from 1 October 2005, by section 42(1) Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) with application for expenditure incurred by a person in an income year starting on or after 10 June 2005.
EK 8 Deduction for transfer When this section applies This section applies if a person is allowed a deduction under section DQ 4 (Environmental restoration accounts scheme) for a transfer to the person’s 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— (1) (2) 908 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EK 9 (3) (4) (5) (6) Deﬁnitions 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— (a) (b) would apply to the person for the tax year if the person is stated in schedule 1; and 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, tax year, taxable income Subpart EK (sections EK 1 to EK 23) was inserted, as from 1 October 2005, by section 42(1) Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) with application for expenditure incurred by a person in an income year starting on or after 10 June 2005.
EK 9 Refund of payment if excess, lacking details (1) When this section applies This section applies if 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: 909 Part E s EK 10 Income Tax Act 2004 Reprinted as at 29 August 2011 (b) the payment, if the payment is described by subsection (1)(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 Subpart EK (sections EK 1 to EK 23) was inserted, as from 1 October 2005, by section 42(1) Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) with application for expenditure incurred by a person in an income year starting on or after 10 June 2005.

EK 10 Certain refunds not income A refund under section EK 9 is excluded income under section CX 43B (Refund from environmental restoration account).
Deﬁned in this Act: excluded income Subpart EK (sections EK 1 to EK 23) was inserted, as from 1 October 2005, by section 42(1) Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) with application for expenditure incurred by a person in an income year starting on or after 10 June 2005.
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 type that is listed in schedule 6B, part B (Expenditure in avoiding, remedying, or mitigating detrimental effects of discharge of contaminant) and not in schedule 6B, 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 (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 (a) (b) (c) 910 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EK 12 state the amount of the refund that the applicant wants.
(d) Deﬁned in this Act: Commissioner, environmental restoration account, income year Subpart EK (sections EK 1 to EK 23) was inserted, as from 1 October 2005, by section 42(1) Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) with application for expenditure incurred by a person in an income year starting on or after 10 June 2005.
EK 12 Refund if request or excess balance (1) (2) When this section applies This section applies when— (a) a person wants a refund of some or all of the amount in the person’s environmental restoration account and none of sections EK 9, EK 15, EK 16, and EK 19 ap- plies: the amount in the person’s environmental restoration account exceeds the maximum account balance for an income year.
(b) Refund if request made The Commissioner must make a refund under this section to a person if— (a) the person applies for a refund and has incurred expend- iture— (i) (ii) (iii) of a type that is listed in schedule 6B, part B (Ex- penditure in avoiding, remedying, or mitigating detrimental effects of discharge of contaminant) and not in schedule 6B, 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.
911 Part E s EK 12 Income Tax Act 2004 Reprinted as at 29 August 2011 (3) Minimum amount of expenditure incurred The amount of expenditure incurred that corresponds to the amount of a refund is calculated using the formula— Deﬁnitions of items in formula The items in the formula are deﬁned in subsections (5) and (6).

(4) Amount (5) Amount is the amount of the refund.


Tax rate Tax rate is the highest rate of income tax on taxable income that— (a) (b) would apply to the person for the tax year if the person is stated in schedule 1; and had sufﬁcient taxable income.
Amount of refund if expenditure incurred If a person is entitled to a refund under subsection (2)(a), the amount that the Commissioner must refund to the person is the smallest of— (a) (b) the refund for which the person applies: the contents of the person’s environmental restoration account at the time of the refund: the refund corresponding to the person’s expenditure that satisﬁes 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) Section EK 17 overrides subsections (7) and (8) Section EK 17 overrides subsections (7) and (8).
Deﬁned in this Act: amount, Commissioner, environmental restoration account, income tax, income year, maximum account balance, tax year, taxable income (6) (7) (8) (9) 912 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EK 14 Subpart EK (sections EK 1 to EK 23) was inserted, as from 1 October 2005, by section 42(1) Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) with application for expenditure incurred by a person in an income year starting on or after 10 June 2005.
Section EK 12 heading was amended, as from 3 April 2006, by section 82 Tax- ation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Pro- visions) Act 2006 (2006 No 3) by adding “if request or excess balance” after “Refund”.

Subsection (8) was substituted, as from 1 October 2005, by section 55(1) Taxa- tion (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) with application for expenditure incurred by a person in an income year starting on or after 10 June 2005.
EK 13 Income when refund given on request A refund under section EK 12 is income, of the amount given by section CB 24B (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 Subpart EK (sections EK 1 to EK 23) was inserted, as from 1 October 2005, by section 42(1) Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) with application for expenditure incurred by a person in an income year starting on or after 10 June 2005.
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 Subpart EK (sections EK 1 to EK 23) was inserted, as from 1 October 2005, by section 42(1) Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) with application for expenditure incurred by a person in an income year starting on or after 10 June 2005.
913 Part E s EK 15 Income Tax Act 2004 Reprinted as at 29 August 2011 EK 15 Transfer on request (1) When this section applies This section applies if— (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 if transfer of obligations veriﬁed (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 the transfer, to the nominated person’s environmental restoration account.
(b) Commissioner to reverse transfer if not satisﬁed under subsection (3) If the nominated person does not satisfy the requirements of subsection (3) in relation to an amount, the Commissioner must transfer the amount to the environmental restoration ac- count of the person who made the application under subsection (1)(a).

Timing of reversal The transfer under subsection (4) is treated as taking place at the time of the original transfer under subsection (2).
Deﬁned in this Act: Commissioner, environmental restoration account (4) (5) 914 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EK 16 Subpart EK (sections EK 1 to EK 23) was inserted, as from 1 October 2005, by section 42(1) Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) with application for expenditure incurred by a person in an income year starting on or after 10 June 2005.
EK 16 Transfer on death, bankruptcy, or liquidation (1) (2) (3) (4) When this section applies This section applies if a person— (a) (b) has an environmental restoration account; and does one 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.
Commissioner to make transfer The Commissioner must transfer the amount referred to in sub- section (4) to an environmental restoration account of the per- son to whom the obligation has been transferred.
that Amount of transfer The Commissioner must transfer under subsection (3) the is in the person’s environmental restoration amount account— (a) on the date on which the person dies, if subsection (1)(b)(i) applies: on the date on which the person becomes bankrupt, if subsection (1)(b)(ii) applies: on the date on which the person is put into liquidation, if subsection (1)(b)(iii) applies.

(b) (c) Section EK 17 overrides subsection (4) Section EK 17 overrides subsection (4).
(5) 915 Part E s EK 17 Income Tax Act 2004 Reprinted as at 29 August 2011 Transfer to person treated as payment to account by person (5B) A transfer to the environmental account of a person under sub- section (3) is treated as being a payment by that person to their environmental account.
(6) Year of income The amount of a transfer under this section is income, under section CB 24B (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 Subpart EK (sections EK 1 to EK 23) was inserted, as from 1 October 2005, by section 42(1) Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) with application for expenditure incurred by a person in an income year starting on or after 10 June 2005.
Subsection (3) was substituted, as from 1 October 2005, by section 56(1) Tax- ation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81).

Subsection (5B) was inserted, as from 1 October 2005, by section 56(2) Taxa- tion (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) with application for expenditure incurred by a person in an income year starting on or after 10 June 2005.
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 Subpart EK (sections EK 1 to EK 23) was inserted, as from 1 October 2005, by section 42(1) Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) with application for expenditure incurred by a person in an income year starting on or after 10 June 2005.
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 916 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EK 19 the order in which the person made the payments into the ac- count.
Deﬁned in this Act: amount, environmental restoration account Subpart EK (sections EK 1 to EK 23) was inserted, as from 1 October 2005, by section 42(1) Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) with application for expenditure incurred by a person in an income year starting on or after 10 June 2005.
EK 19 Environmental restoration account of amalgamating company If an amalgamating company with an environmental restora- tion account ceases to exist because of 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 Subpart EK (sections EK 1 to EK 23) was inserted, as from 1 October 2005, by section 42(1) Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) with application for expenditure incurred by a person in an income year starting on or after 10 June 2005.
917 Part E s EK 20 Income Tax Act 2004 Reprinted as at 29 August 2011 EK 20 Environmental restoration account of member of consolidated group Member may have environmental restoration account (1) A member of a consolidated group may have an environmental restoration account.
(2) (3) (4) Nominated company for group may act on behalf of member The nominated company for the consolidated group may act on behalf of the member under this subpart to— (a) make payments, applications, and transfers: (b) receive refunds and transfers.

Use of consolidated ﬁnancial statements for group In making payments and applications under this subpart, the nominated company may rely on the audited consolidated ﬁ- nancial statements for the consolidated group.
Use of consolidated ﬁgures for liabilities anticipated and expenditure incurred If the nominated company relies on the audited consolidated ﬁ- nancial statements for the consolidated group, the consolidated ﬁgures for the anticipated liabilities and incurred expenditure of the consolidated group are attributed to the members on the basis of the individual obligations of the members to incur ex- penditure of a type listed in schedule 6B, part B (Expenditure in avoiding, remedying, or mitigating detrimental effects of discharge of contaminant) and not in schedule 6B, part C. Deﬁned in this Act: consolidated group, environmental restoration account, nominated company Subpart EK (sections EK 1 to EK 23) was inserted, as from 1 October 2005, by section 42(1) Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) with application for expenditure incurred by a person in an income year starting on or after 10 June 2005.
Subsection (2) other than the heading was substituted, as from 18 December 2006, by section 57(1) Taxation (Savings Investment and Miscellaneous Pro- visions) Act 2006 (2006 No 81) with application for expenditure incurred by a person in an income year starting on or after 10 June 2005.
EK 21 Commissioner may require notice in electronic format The Commissioner may require a person to provide a no- the tice under this subpart in an electronic format that 918 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EK 22 Commissioner prescribes under section 36BC of the Tax Administration Act 1994.
Deﬁned in this Act: Commissioner Subpart EK (sections EK 1 to EK 23) was inserted, as from 1 October 2005, by section 42(1) Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) with application for expenditure incurred by a person in an income year starting on or after 10 June 2005.
EK 22 Meaning of maximum payment (1) (2) (3) (4) Meaning of 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 ac- count exceeds the amount in the environmental restora- tion account at the end of the income year: the amount, if any, given for the person and the income year by subsection (3).
(b) Maximum payment for ﬁrst 5 years of environmental restoration funds scheme If a person has a maximum account balance for the 2005-06 income year that is more than zero, the amount given by this subsection 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 given by the formula— level increase + (year x 0.2 x initial level) – contents.
Deﬁnitions 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 exceeds 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: (b) 919 Part E s EK 23 Income Tax Act 2004 Reprinted as at 29 August 2011 (c) (d) 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.
Deﬁned in this Act: amount, business, environmental restoration account, in- come year, maximum payment Subpart EK (sections EK 1 to EK 23) was inserted, as from 1 October 2005, by section 42(1) Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) with application for expenditure incurred by a person in an income year starting on or after 10 June 2005.
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 satisfy section EK 2 for the in- come year, zero: if the person satisﬁes section EK 2 for the income year, the amount calculated using the formula— (b) provision x tax rate.
Deﬁnitions of items in formula In the formula in subsection (1)(b)— (a) provision is the provision in the person’s ﬁnancial state- ments for future expenditure that— (i) is of a type listed in schedule 6B, part B (Expend- iture in avoiding, remedying, or mitigating detri- mental effects of discharge of contaminant); and is not of a type listed in schedule 6B, part C: (ii) tax rate is the highest rate of income tax on taxable income that— (i) (ii) would apply to the person for the tax year if the is stated in schedule 1; and (b) 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.
(1) (2) (3) 920 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EK 23 Subpart EK (sections EK 1 to EK 23) was inserted, as from 1 October 2005, by section 42(1) Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) with application for expenditure incurred by a person in an income year starting on or after 10 June 2005.
Subpart EW—Financial arrangements rules Contents Introductory provisions EW 1 What this subpart does EW 2 Relationship of ﬁnancial arrangements rules with other provisions Meaning of ﬁnancial arrangement and excepted ﬁnancial arrangement EW 3 What is a ﬁnancial arrangement?

EW 4 What is not a ﬁnancial arrangement?

EW 5 What is an excepted ﬁnancial arrangement?
EW 6 Relationship between ﬁnancial arrangements and excepted ﬁnancial arrangements EW 7 Change from private or domestic purpose EW 8 Election to treat certain excepted ﬁnancial arrangements as ﬁnancial arrangements Application of ﬁnancial arrangements rules EW 9 Persons to whom ﬁnancial arrangements rules apply EW 10 Financial arrangements to which ﬁnancial arrangements rules apply EW 11 What ﬁnancial arrangements rules do not apply to Calculation and allocation of income and expenditure over ﬁnancial arrangement’s term EW 12 When use of spreading method required EW 13 When use of spreading method not required EW 14 What spreading methods do EW 15 What is included when spreading methods used EW 15B IFRS taxpayer method EW 15C IFRS method EW 15D Determination alternatives to IFRS EW 15E Expected value method and equity-free fair value method EW 16 Yield to maturity method or alternative Page 924 925 926 927 928 933 933 934 934 935 937 937 937 938 939 941 944 946 948 950 921 Income Tax Act 2004 Reprinted as at 29 August 2011 EW 17 Straight-line method EW 18 Market valuation method EW 19 Choice among YTM or alternative, SL, and MV 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 EW 25 Consistency of use of straight-line method and market valuation method 951 952 953 954 955 956 957 958 959 EW 25B Consistency of use of speciﬁc individual methods under 960 IFRS taxpayer 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 961 963 964
 964 967 968 EW 32 Consideration for agreement for sale and purchase of 971 property or services, hire purchase agreement, speciﬁed lease, 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 972 973 974 974 975 977 922 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EK 23 EW 39 Consideration treated as paid to person on distribution in kind [Repealed] EW 40 Consideration affected by unfavourable factors Consideration treated as paid by person EW 41 Consideration when person exits from rules: accrued obligation EW 42 Consideration when person enters rules: accrued entitlement EW 43 Consideration when acquisition for no, or inadequate, consideration EW 44 Consideration treated as paid by person on distribution in kind [Repealed] EW 45 Consideration when debt sold at discount to associate of debtor EW 46 Consideration when debt forgiven for natural love and affection EW 47 Consideration when debtor released from obligation EW 47B Consideration when debtor released as condition of new start grant Consideration when legal defeasance has occurred EW 48 Legal defeasance 977 977 978 979 981 981 982 982 983 984 986 Consideration when change from fair value method under IFRS method EW 48B Consideration when change from fair value method 987 under IFRS method Consideration when anti-avoidance provision applies EW 49 Anti-avoidance provisions Income and deduction provisions speciﬁcally related to ﬁnancial arrangements EW 50 Income and deduction when debt sold at discount to associate of debtor EW 51 Income when debt forgiven to trustee EW 52 Deduction for security payment Treatment of original share acquired
 under ﬁnancial arrangement EW 52B Share supplier under share-lending arrangement EW 53 Adjustment required One kind of avoidance 988 988 989 991 992 993 923 Part E s EW 1 Income Tax Act 2004 Reprinted as at 29 August 2011 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 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 995 995 995 996 998 1000 1000 1001 1002 1003 Introductory provisions EW 1 What this subpart does Financial arrangements rules This subpart contains most of the ﬁnancial arrangements rules.
Meaning of ﬁnancial arrangements rules Financial arrangements rules means— the sections in this subpart; and (a) sections CC 3 (Financial arrangements), DB 9 to DB (b) 12 (which relate to ﬁnancial arrangements adjustments), EZ 48 (Transitional adjustment when changing to ﬁ- nancial arrangements rules), FF 2 (Financial arrange- ments), GD 11 (Financial arrangements rules), and NG 16A (Variation in non-resident withholding tax deduc- tions to correct errors); and sections 90AA to 90AD of the Tax Administration Act 1994.
(c) Purposes of ﬁnancial arrangements rules The purposes of the ﬁnancial arrangements rules are— (a) to require the parties to a ﬁnancial arrangement to ac- crue over the term of the arrangement a fair and reason- able amount of income derived or expenditure incurred (1) (2) (3) 924 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EW 2 (b) (c) 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.
Deﬁned in this Act: amount, ﬁnancial arrangement, ﬁnancial arrangements rules, income Compare: 1994 No 164 ss EH 20, OB 1 accrual rules EW 2 Relationship of ﬁnancial arrangements rules with other provisions (1) (2) Financial arrangements rules override other provisions The ﬁnancial arrangements rules prevail over any other provi- sion in relation to the timing and quantifying of income and expenditure under a ﬁnancial arrangement to which the ﬁnan- cial arrangements rules apply, unless the other provision ex- pressly or by necessary implication requires otherwise.
(b) (c) 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 (Valuation of livestock): 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.
(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, 925 Part E s EW 3 Income Tax Act 2004 Reprinted as at 29 August 2011 petroleum development expenditure, petroleum exploration expenditure, rev- enue account property, trading stock Compare: 1994 No 164 s EH 26 Subsection (2)(a) to (h) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; or”.
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.
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) Excepted ﬁnancial arrangement ceasing to be excepted For sections EW 7 and EW 8,— (4) 926 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EW 4 (a) (b) 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.
Deﬁned in this Act: consideration, excepted ﬁnancial arrangement, ﬁnancial arrangement, legal defeasance, money Compare: 1994 No 164 ss EH 22, EH 24(2) Subsection (3)(a) to (c) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; and”.
Subsection (4)(a) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; and”.

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).

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: 1994 No 164 s EH 22(2)-(4) 927 Part E s EW 5 Income Tax Act 2004 Reprinted as at 29 August 2011 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 (23).
However,— (a) an arrangement described in any of subsections (16) to (18) may cease to be an excepted ﬁnancial arrangement through the operation of section EW 7: an arrangement described in any of subsections (19) to (23) may cease to be an excepted ﬁnancial arrangement for a party who makes an election under section EW 8.
(b) Annuity Each of the following is an excepted ﬁnancial arrangement: an annuity for a term contingent on human life: (a) an annuity for a term not contingent on human life to (b) which section EY 8(2)(c) (Meaning of life insurance) applies.
Bet (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 ETS unit is an excepted ﬁnancial arrangement.

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.

928 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EW 5 Insurance contract (8) An insurance contract 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.
Share-lending arrangement (11B) A share-lending arrangement is an excepted ﬁnancial arrange- ment.

Share or option (12) 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 (13) A speciﬁed preference share to which section FZ 1 (Deduction for dividends paid on certain preference shares) applies is an excepted ﬁnancial arrangement.

Superannuation (14) A membership of a superannuation scheme is an excepted ﬁ- nancial arrangement.

Warranty (15) A warranty for goods or services is an excepted ﬁnancial ar- rangement.
Certain arrangements to which transitional resident is party (15B) An arrangement to which a transitional resident is a party is an excepted ﬁnancial arrangement for the transitional resident if— 929 Part E s EW 5 Income Tax Act 2004 Reprinted as at 29 August 2011 (a) (b) 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.
Loan in foreign currency: private or domestic purpose (16) A loan to which all the following apply is an excepted ﬁnancial arrangement for the borrower: (a) (b) (c) the loan is in foreign currency; and the borrower is a cash basis person; and the borrower uses the loan for a private or a domestic purpose.
Option: private or domestic purpose (17) 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 (18) 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 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) the agreement requires settlement of the property, or performance of the services, to take place on (b) (c) 930 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EW 5 (ii) 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 (19) An agreement for the sale and purchase of property or services is an excepted ﬁnancial arrangement, except for a party who makes an election under section EW 8, if— (a) all a party’s sales or purchases under the agreement are prepaid; and for all the party’s agreements under which all sales and purchases are prepaid, the total value of prepayments, on every day in an income year, is $50,000 or less.
(b) Short-term agreement for the sale and purchase of property or services (20) A short-term 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.

Short-term option (21) A short-term option is an excepted ﬁnancial arrangement, ex- cept for a party who makes an election under section EW 8.
Travellers’ cheques (22) Travellers’ cheques are excepted ﬁnancial arrangements, ex- cept for a party who makes an election under section EW 8.

Variable principal debt instrument (23) 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 ser- vices, arrangement, bloodstock, cash basis person, ETS unitexcepted ﬁnan- cial arrangement, farmout arrangement, ﬁnance lease, group investment fund, hire purchase agreement, income year, insurance contract, lease, New Zealand, New Zealand resident, non-resident, property, share, share-lending arrange- ment, short-term agreement for the sale and purchase of property or services, 931 Part E s EW 5 Income Tax Act 2004 Reprinted as at 29 August 2011 short-term option, speciﬁed preference shares, superannuation scheme, transi- tional resident, variable principal debt instrument, withdrawable share Compare: 1994 No 164 s EH 24 Subsection (1)(a) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; and”.
Subsection (2)(a) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; and”.

Subsection (3)(a) and (b) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; and”.
Section EW 5(3B) heading: inserted, on 26 September 2008, by section 64(1) of the Climate Change Response (Emissions Trading) Amendment Act 2008 (2008 No 85).

Section EW 5(3B): inserted, on 26 September 2008, by section 64(1) of the Climate Change Response (Emissions Trading) Amendment Act 2008 (2008 No 85).

Subsection (11B) was inserted, as from 1 July 2006, by section 83(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).
Subsection (15B) was inserted, as from 1 October 2005, by section 83(2) Tax- ation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Pro- visions) Act 2006 (2006 No 3) with application for: a person who becomes a transitional resident as from 1 April 2006; and as from the income year corres- ponding to the 2005–06 tax year.

See section 83(4) and (5) of that Act as to the application of this amendment.
Section EW 5 list of deﬁned terms ETS unit: inserted, on 26 September 2008, by section 64(2) of the Climate Change Response (Emissions Trading) Amend- ment Act 2008 (2008 No 85).

The list of deﬁned terms was amended, as from 3 April 2006, by section 83(3)(a) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by inserting “New Zealand resident”.
The list of deﬁned terms was amended, as from 3 April 2006, by section 83(3)(b) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by inserting “non-resident”.

The list of deﬁned terms was amended, as from 3 April 2006, by section 83(3)(c) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by inserting “share-lending arrangement”.
The list of deﬁned terms was amended, as from 3 April 2006, by section 83(3)(d) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by inserting “transitional resident”.

932 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EW 7 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 (15) 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(16) to (23) 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: 1994 No 164 ss EH 22(4), EH 23 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 ex- cepted ﬁnancial arrangement described in any of section EW 5(16) to (18) 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 the person becomes a party to a ﬁnancial arrangement.
(b) Deﬁned in this Act: excepted ﬁnancial arrangement, ﬁnancial arrangement Compare: 1994 No 164 s EH 24(3) 933 Part E s EW 8 Income Tax Act 2004 Reprinted as at 29 August 2011 EW 8 Election to treat certain excepted ﬁnancial arrangements as ﬁnancial arrangements Election (1) A person may choose to treat as ﬁnancial arrangements all the excepted ﬁnancial arrangements to which the person is a party that are described in any of section EW 5(19) to (23).
Election for class of short-term agreements (2) A person may choose to treat a class of short-term agreements for the sale and purchase of property or services as ﬁnancial arrangements.

The person must identify the class by— (a) (b) (c) the currency that applies to the agreements; or the term of the agreements; or both the currency and the term.
(3) (4) (5) How election made The person makes an election by returning income derived or expenditure incurred under the chosen arrangements under the ﬁnancial arrangements rules in their return of income.

How election revoked The person revokes the election by giving notice to the Commissioner with their return of income and within the time that the return must be ﬁled under section 37 of the Tax Administration Act 1994.
Effect of revocation The revocation applies to ﬁnancial arrangements the person enters into after the income year in which the notice is given.
Deﬁned in this Act: Commissioner, excepted ﬁnancial arrangement, ﬁnancial arrangement, ﬁnancial arrangements rules, income, income year, notice, return of income, short-term agreement for the sale and purchase of property or ser- vices Compare: 1994 No 164 s EH 25 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 934 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EW 10 (2) (3) (4) the arrangement is one to which the rules apply under section EW 10.
This subsection is overridden by subsection (2).

Non-residents Subsection (1) applies to a person who is not resident in New Zealand only if subsection (3) or (4) applies.

Non-resident with New Zealand ﬁxed establishment Subsection (1) applies to a person who is not resident in New Zealand to the extent to which the person is a party to a ﬁnan- cial arrangement for the purpose of a business carried on by the person through a ﬁxed establishment in New Zealand.
Non-resident trustee for New Zealand settlor Subsection (1) applies to a person who is not resident in New Zealand if— (a) the person is a trustee for a settlor who is resident in New Zealand; and the trustee is not a person to whom section HH 4(3) and (6) (Trustee income) apply.
(b) Deﬁned in this Act: ﬁnancial arrangement, ﬁnancial arrangements rules, ﬁxed establishment, income, New Zealand, resident in New Zealand, trustee Compare: 1994 No 164 s EH 21(1), (3)-(5) EW 10 Financial arrangements to which ﬁnancial arrangements rules apply (1) (2) (3) Entered into on or after 20 May 1999 The ﬁnancial arrangements rules apply to a ﬁnancial arrange- ment that all its parties enter into on or after 20 May 1999.
Existing immediately before 20 May 1999 The ﬁnancial arrangements rules apply to a ﬁnancial arrange- ment existing immediately before 20 May 1999 to the extent to which a person becomes a party to the arrangement on or after 20 May 1999.
Rollover, extension, or advance on or after 20 May 1999 The ﬁnancial arrangements rules apply to a ﬁnancial arrange- ment that is rolled over or extended, or under which an advance is made, on or after 20 May 1999, under a binding contract en- tered into before 20 May 1999.
935 Part E s EW 10 Income Tax Act 2004 Reprinted as at 29 August 2011 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, matri- monial agreement Compare: 1994 No 164 s EH 19 The heading to subsection (5) was amended, as from 26 April 2005, by section 3(1) Income Tax Amendment Act 2005 (2005 No 11) by substituting “relation- ship agreement” for “matrimonial agreement”.

Subsection (5)(c) was amended, as from 26 April 2005, by section 3(1) Income Tax Amendment Act 2005 (2005 No 11) by substituting “relationship agree- ment” for “matrimonial agreement”.
The heading to subsection (6) was amended, as from 26 April 2005, by section 3(1) Income Tax Amendment Act 2005 (2005 No 11) by substituting “relation- ship agreement” for “matrimonial agreement”.

Subsection (6)(c) was amended, as from 26 April 2005, by section 3(1) Income Tax Amendment Act 2005 (2005 No 11) by substituting “relationship agree- ment” for “matrimonial agreement”.
936 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EW 13 EW 11 What ﬁnancial arrangements rules do not apply to The ﬁnancial arrangements rules do not apply to— (a) (b) (c) the calculation of resident withholding income: the calculation of non-resident withholding income: 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.
(d) Deﬁned in this Act: Commissioner, ﬁnancial arrangements rules, income tax, interest, non-resident withholding income, pay, resident withholding income Compare: 1994 No 164 s EH 21(2) Paragraphs (a) to (c) were amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; or”.
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: 1994 No 164 s EH 33(1) 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 ﬁ- nancial 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 manage compensation paid for personal injury under the Accident In- surance Act 1998, any of the former Acts (as deﬁned in section 13 of the Accident Insurance Act 1998), the Workers Com- 937 Part E s EW 14 Income Tax Act 2004 Reprinted as at 29 August 2011 pensation Act 1956, or a court order does not use any of the spreading methods for the ﬁnancial arrangement if— (a) (b) the trustee is a cash basis person; or the trustee would be a cash basis person if the trustee were a natural person.
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, spreading method, trustee Compare: 1994 No 164 s EH 33(1), (4) 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) the IFRS taxpayer method, to which sections EW 15B to EW 15E are relevant; 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.
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 (3) 938 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EW 15 expenditure incurred by the person in the income year.
(b) Deﬁned in this Act: amount, ﬁnancial arrangement, IFRS taxpayer method, income, income year, spreading method Compare: 1994 No 164 s EH 33 Section EW 14(2)(aa): inserted (with effect from 1 April 2007), on 19 Decem- ber 2007, by section 58(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EW 14(2)(e): substituted (with effect on 1 April 2007), on 6 October 2009, by section 779(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section EW 14(2)(e): repealed (with effect from 1 April 2007), on 19 Decem- ber 2007, by section 58(2) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EW 14 list of deﬁned terms IFRS taxpayer method: inserted (with ef- fect from 1 April 2007), on 19 December 2007, by section 58(3) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
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) non-contingent fees, if the relevant method is not the IFRS method described in section EW 15C: non-integral fees, if the relevant method is the IFRS method described in section EW 15C or the equity-free fair value method in section EW 15E; and (ii) (b) all consideration that has been paid, and all consider- ation that is or will be payable, by the person for or under the ﬁnancial arrangement, ignoring— (i) non-contingent fees, if the relevant method is not the IFRS method described in section EW 15C: non-integral fees, if the relevant method is the IFRS method described in section EW 15C or the equity-free fair value method in section EW 15E; and (ii) 939 Part E s EW 15 Income Tax Act 2004 Reprinted as at 29 August 2011 (c) (d) all amounts that have been remitted, and all amounts that are to be remitted, by the person under the ﬁnancial arrangement; and all amounts that would have been payable to the person under the ﬁnancial arrangement if the amounts had not been remitted by law.
Consideration in particular cases If any of sections EW 32 to EW 49 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, income, non- contingent fee, non-integral fee, spreading method Compare: 1994 No 164 ss EH 33(2), EH 48(1) Section EW 15(1)(a): amended (with effect from 1 April 2007), on 19 Decem- ber 2007, by section 59(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EW 15(1)(a)(i): added (with effect from 1 April 2007), on 19 Decem- ber 2007, by section 59(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section EW 15(1)(a)(ii): added (with effect from 1 April 2007), on 19 Decem- ber 2007, by section 59(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 2007), on 29 August 2011, by section 199(1) of the Taxation (Tax Administration and Remedial Mat- ters) Act 2011 (2011 No 63).

Section EW 15(1)(b): amended (with effect from 1 April 2007), on 19 Decem- ber 2007, by section 59(2) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EW 15(1)(b)(i): added (with effect from 1 April 2007), on 19 Decem- ber 2007, by section 59(2) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section EW 15(1)(b)(ii): added (with effect from 1 April 2007), on 19 Decem- ber 2007, by section 59(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 2007), on 29 August 2011, by section 199(2) of the Taxation (Tax Administration and Remedial Mat- ters) Act 2011 (2011 No 63).

Section EW 15 list of deﬁned terms non-integral fee: inserted (with effect from 1 April 2007), on 19 December 2007, by section 59(3) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
(2) 940 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EW 15B EW 15B IFRS taxpayer method (1) (2) Who this section applies to This section applies to a person who is a party to a ﬁnancial ar- rangement if the person uses IFRSs to prepare ﬁnancial state- ments and to report for ﬁnancial arrangements.

IFRS taxpayer method The person must use the IFRS taxpayer method, described in this section and in sections EW 15C to EW 15E.
Functional currency (2B) The IFRS taxpayer method must be applied using New Zealand dollars, even if another currency may be used as the functional currency under IFRSs.

Financial statements (2C) Unless the context otherwise requires, references to IFRSs in the IFRS taxpayer method are references to the IFRS rules used to prepare the person’s ﬁnancial statements.
(3) Compulsory use of some determinations The person must use 1 of the following methods for the ﬁnan- cial arrangement, if the terms of the relevant method allow,— Determination G5C: Mandatory conversion convertible (a) notes or a determination that succeeds it: (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 or a determination that succeeds it: (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 or a determination that succeeds it: an alternative method to 1 of those methods described in paragraphs (a) to (d), if that alternative— (i) has regard to the purposes of the ﬁnancial ar- rangements rules under section EW 1(3); and (e) 941 Part E s EW 15B Income Tax Act 2004 Reprinted as at 29 August 2011 (ii) (iii) is for ﬁnancial arrangements similar to those ar- rangements to which the methods described 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 those methods described in paragraphs (a) to (d).
(4) (b) Compulsory use of other methods for certain arrangements The person must use 1 of the methods in subsection (5) to allo- cate an amount to an income year for the ﬁnancial arrangement if— (a) the person is not required under subsection (3) to use a method for the ﬁnancial arrangement; and the ﬁnancial arrangement— (i) (ii) includes an excepted ﬁnancial arrangement: is treated by the person or the issuer of the ﬁ- nancial arrangement as an equity instrument in whole or in part under IFRSs: is, under NZIAS 17 and in the person’s ﬁnancial statements, classiﬁed as an operating lease: is an agreement for the sale and purchase of prop- erty or services; and (iib) (iii) (c) the terms of the relevant method allow.
(5) Methods for arrangements under subsection (4) The methods referred to in subsection (4) are— (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: an alternative method to 1 of those methods described in paragraphs (a) to (c), if that alternative— (i) has regard to the purposes of the ﬁnancial ar- rangements rules under section EW 1(3); and is for ﬁnancial arrangements similar to those ar- rangements to which the methods described in paragraphs (a) to (c) may apply; and results in the allocation to each income year of amounts that are not materially different from (ii) (iii) 942 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EW 15B those that would have been allocated using 1 of those methods described in paragraphs (a) to (c).
(6) (7) IFRS method and 3 alternatives If the person is not required under subsection (3) or (4) to use a method for the ﬁnancial arrangement, the person must use 1 of the following methods for the ﬁnancial arrangement: (a) (b) the IFRS method described in section EW 15C: a determination alternative to IFRS described in section EW 15D: the expected value method described in section EW 15E: the equity-free fair value method described in section EW 15E.
(c) (d) Equity instrument In this section, equity instrument has the same meaning as in NZIAS 32.

Deﬁned in this Act: equity instrument, ﬁnancial arrangement, ﬁnancial arrange- ments rules, ﬁnancial statements, IFRS, IFRS taxpayer method, income year, NZIAS 17, NZIAS 32 Section EW 15B: inserted (with effect from 1 April 2007), on 19 December 2007, by section 60(1) of the Taxation (Business Taxation and Remedial Mat- ters) Act 2007 (2007 No 109).
Section EW 15B(2B) heading: inserted (with effect on 1 April 2007), on 6 Oc- tober 2009, by section 780(1) of the Taxation (International Taxation, Life In- surance, and Remedial Matters) Act 2009 (2009 No 34).

Section EW 15B(2B): inserted (with effect on 1 April 2007), on 6 October 2009, by section 780(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EW 15B(2C) heading: inserted (with effect on 1 April 2007), on 6 Oc- tober 2009, by section 780(1) of the Taxation (International Taxation, Life In- surance, and Remedial Matters) Act 2009 (2009 No 34).

Section EW 15B(2C): inserted (with effect on 1 April 2007), on 6 October 2009, by section 780(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EW 15B(4)(b)(iib): inserted (with effect on 1 April 2007), on 6 October 2009, by section 780(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section EW 15B list of deﬁned terms NZIAS 17: inserted (with effect on 1 April 2007), on 6 October 2009, by section 780(3) of the Taxation (International Tax- ation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
943 Part E s EW 15C Income Tax Act 2004 Reprinted as at 29 August 2011 EW 15C IFRS method (1) (2) Who this section applies to This section applies to a person and a ﬁnancial arrangement if— (a) (b) section EW 15B(6) applies; and the person does not use section EW 15D or EW 15E.

IFRS method The person must allocate an amount to an income year for the ﬁnancial arrangement in accordance with IFRSs, as modiﬁed by subsection (3).
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) (b) 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) (ii) the IFRS method: 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.
Modiﬁcation of IFRS method (3) When a person applies the IFRS method, the following modi- ﬁcations are made to the method, if relevant: (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: 944 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EW 15C (b) an amount arising from the fair value method under IFRSs is allocated to an income year, even though the amount is allocated to equity reserves under IFRSs.
(4) Impaired credit adjustment In this section, impaired credit adjustment means,— (a) for a ﬁnancial arrangement accounted for using the fair value method, the movement in fair value due to the decline in credit quality of the arrangement: for a ﬁnancial arrangement not accounted for using the fair value method, credit impairment adjustments made under IFRSs.
(b) Deﬁned in this Act: amount, Commissioner, derivative instrument, fair value method, ﬁnancial arrangement, IFRS, impaired credit adjustment, income year, NZIAS 23 Section EW 15C: inserted (with effect from 1 April 2007), on 19 December 2007, by section 60(1) of the Taxation (Business Taxation and Remedial Mat- ters) Act 2007 (2007 No 109).
Section EW 15C(2B) heading: inserted (with effect on 1 April 2007), on 6 Oc- tober 2009, by section 781(1) of the Taxation (International Taxation, Life In- surance, and Remedial Matters) Act 2009 (2009 No 34).

Section EW 15C(2B): inserted (with effect on 1 April 2007), on 6 October 2009, by section 781(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EW 15C(2B)(b): substituted (with effect on 1 April 2007), on 29 Au- gust 2011, by section 200(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).

Section EW 15C(3)(a): substituted (with effect on 1 April 2007), on 6 October 2009, by section 781(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EW 15C(3)(ab): inserted (with effect on 1 April 2007), on 6 October 2009, by section 781(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section EW 15C list of deﬁned terms derivative instrument: inserted (with effect on 1 April 2007), on 6 October 2009, by section 781(4) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EW 15C list of deﬁned terms NZIAS 23: inserted (with effect on 1 April 2007), on 6 October 2009, by section 781(4) of the Taxation (International Tax- ation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
945 Part E s EW 15D Income Tax Act 2004 Reprinted as at 29 August 2011 EW 15D Determination alternatives to IFRS (1) Who this section applies to This section applies to a person and a ﬁnancial arrangement if— (a) (b) section EW 15B(6) applies; and the person chooses in a return of income to use a deter- mination alternative to IFRS for the ﬁnancial arrange- ment; and the terms of the relevant method, as modiﬁed by sub- section (3), allow the person to use it for the ﬁnancial arrangement; and the ﬁnancial arrangement–– (i) (c) (d) 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) (2) Determination alternatives to IFRS The person must use 1 of the following methods for the ﬁnan- cial arrangement, as modiﬁed by subsection (3) or (4): (a) Determination G9C: Financial arrangements that are denominated in a currency other than New Zealand dol- lars: an expected value approach or a determination that succeeds it: (c) (b) Determination G14B: Forward contracts for foreign ex- change and commodities: an expected value approach or a determination that succeeds it: Determination G27: Swaps or a determination that suc- ceeds it: a determination made by the Commissioner under sec- tion 90AC(1)(bb) of the Tax Administration Act 1994: an alternative method to 1 of those described in para- graphs (a) to (d), if that alternative— (i) has regard to the purposes of the ﬁnancial ar- rangements rules under section EW 1(3); and (d) (e) 946 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EW 15D (ii) (iii) is for ﬁnancial arrangements similar to those ar- rangements to which the methods described 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 those described in paragraphs (a) to (d).
Determination alternatives to IFRS: G9C and G14B modiﬁed (3) When a person applies a determination alternative to IFRS that is Determination G9C or Determination G14B, the following modiﬁcations are made to the relevant method: (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 members of a group of companies to which the person belongs make an election to use the determination alternative is treated as met if— (i) all members of the group of companies make an election on or before the 63rd day after the person enters into the relevant ﬁnancial arrangement, or they make the election within such further time as the Commissioner may allow; and the ﬁnancial arrangement is the ﬁrst ﬁnancial ar- rangement of the group of companies for which Determination G9C or Determination G14B may be used; and the election is in writing; and the election is for Determination G9C or Deter- mination G14B.
(ii) (iii) (iv) Deﬁned in this Act: amount, Commissioner, fair value method, ﬁnancial ar- rangement, ﬁnancial arrangements rules, forward contract, group of companies, IFRS Section EW 15D: inserted (with effect from 1 April 2007), on 19 December 2007, by section 60(1) of the Taxation (Business Taxation and Remedial Mat- ters) Act 2007 (2007 No 109).
Section EW 15D(1)(d): substituted (with effect on 1 April 2007), on 6 October 2009, by section 782(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

947 Part E s EW 15E Income Tax Act 2004 Reprinted as at 29 August 2011 Section EW 15D(1)(d)(ii): amended (with effect on 1 April 2007), on 7 Septem- ber 2010, by section 200(1) of the Taxation (Annual Rates, Trans-Tasman Sav- ings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
Section EW 15D(1)(d)(iii): added (with effect on 1 April 2007), on 7 September 2010, by section 200(1) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).

Section EW 15D(2): amended (with effect on 1 April 2007), on 6 October 2009, by section 782(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
EW 15E Expected value method and equity-free fair value method Who this section applies to This section applies to a person and a ﬁnancial arrangement if— (a) (b) section EW 15B(6) applies; 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) (ii) (iii) 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 the person is not in the business of dealing in the ﬁnan- cial arrangement; and the person has entered into the ﬁnancial arrangement in the ordinary course of their business; and the person and all companies in a group of compan- ies to which the person belongs have chosen to use the modiﬁed fair value method described in subsection (2) or the equity-free fair value method described in sub- section (3), and have notiﬁed the Commissioner at the time of ﬁling a return of income.
This paragraph may be ignored in whole or in part if the person carries on a (c) (d) (e) (f) (1) 948 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EW 15E business that is not of a substantially similar nature to other companies in the group, and–– (i) the person and the other parties to the ﬁnancial arrangement are not associated; or the person and the other parties to the ﬁnan- cial arrangement are associated and use the same method for the arrangement.
(ii) Expected value method (2) A person who has chosen under subsection (1)(f) to use the expected value method for the ﬁnancial arrangement must use a method that— (a) has the features of an expected value approach de- scribed in Determination G9C and Determination Gl4B ; and allocates a reasonable amount, having regard to the pur- poses of the ﬁnancial arrangements rules under section EW 1(3), for each income year over the ﬁnancial ar- rangement’s term.
(b) (3) (4) Equity-free fair value method If the person chooses under subsection (1)(f) to use the equity- free IFRS method for the ﬁnancial arrangement, the person must use a method that is the fair value method under sec- tion EW 15C.

However, an amount allocated to equity reserves under IFRSs must not be allocated to an income year.
Derivative instrument [Repealed] [Repealed] Deﬁned in this Act: amount, associated person, Commissioner, derivative instrument, fair value method, ﬁnancial arrangement, ﬁnancial arrangements rules, IFRS, IFRS taxpayer method, income year, NZIAS 39, tax year Section EW 15E: inserted (with effect from 1 April 2007), on 19 December 2007, by section 60(1) of the Taxation (Business Taxation and Remedial Mat- ters) Act 2007 (2007 No 109).
Section EW 15E(1)(c): substituted (with effect on 1 April 2007), on 6 October 2009, by section 783(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 2007), on 7 Septem- ber 2010, by section 201(1) of the Taxation (Annual Rates, Trans-Tasman Sav- ings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
949 Part E s EW 16 Income Tax Act 2004 Reprinted as at 29 August 2011 Section EW 15E(1)(c)(iii): added (with effect on 1 April 2007), on 7 September 2010, by section 201(1) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).

Section EW 15E(1)(f): substituted (with effect on 1 April 2007), on 6 October 2009, by section 783(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EW 15E(3): amended (with effect on 1 April 2007), on 6 October 2009, by section 783(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section EW 15E(4) heading: repealed (with effect on 1 April 2007), on 6 Oc- tober 2009, pursuant to section 783(4) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EW 15E(4): repealed (with effect on 1 April 2007), on 6 October 2009, by section 783(4) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section EW 15E list of deﬁned terms associated person: inserted (with effect on 1 April 2007), on 6 October 2009, by section 783(5) of the Taxation (Inter- national Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
EW 16 Yield to maturity method or alternative Who may use yield to maturity method (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 the IFRS taxpayer method by 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 the IFRS taxpayer method by 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) 950 Reprinted as at 29 August 2011 Income Tax Act 2004 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 taxpayer method, income year Compare: 1994 No 164 s EH 34 Section EW 16(1): amended (with effect from 1 April 2007), on 19 December 2007, by section 61(1) of the Taxation (Business Taxation and Remedial Mat- ters) Act 2007 (2007 No 109).

Section EW 16(2): amended (with effect from 1 April 2007), on 19 December 2007, by section 61(2) of the Taxation (Business Taxation and Remedial Mat- ters) Act 2007 (2007 No 109).
Section EW 16 list of deﬁned terms IFRS taxpayer method: inserted (with ef- fect from 1 April 2007), on 19 December 2007, by section 61(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 $1,500,000 or less on every day in the income year; and the person complies with section EW 25(1); and (b) the person is not required to use the IFRS taxpayer (c) method by section EW 15B.
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: for a variable principal debt the 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) 951 Part E s EW 18 Income Tax Act 2004 Reprinted as at 29 August 2011 (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 taxpayer method, income year, old ﬁnancial arrangements rules, variable principal debt instrument Compare: 1994 No 164 ss EH 35(1), (5), (6), EH 58 Section EW 17(1)(b): amended (with effect from 1 April 2007), on 19 Decem- ber 2007, by section 62(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EW 17(1)(c): added (with effect from 1 April 2007), on 19 December 2007, by section 62(1) of the Taxation (Business Taxation and Remedial Mat- ters) Act 2007 (2007 No 109).

Subsection (2)(b)(i) and (ii) was amended, as from 21 December 2004, by sec- tion 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; or”.
Section EW 17 list of deﬁned terms IFRS taxpayer method: inserted (with ef- fect from 1 April 2007), on 19 December 2007, by section 62(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) (b) (c) 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 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) 952 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EW 19 (2) (d) (e) (f) (g) the method conforms with commercially acceptable practice; and the person complies with section EW 25(4); and the method is also used by the person for ﬁnancial re- porting purposes for ﬁnancial arrangements that are the same as, or similar to, the arrangements (although sec- tion EW 23 may apply if the method is not used in this way); and the person is not required to use the IFRS taxpayer method by 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 taxpayer method Compare: 1994 No 164 s EH 36(1)-(3) Section EW 18(1)(f): amended (with effect from 1 April 2007), on 19 Decem- ber 2007, by section 63(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EW 18(1)(g): added (with effect from 1 April 2007), on 19 December 2007, by section 63(1) of the Taxation (Business Taxation and Remedial Mat- ters) Act 2007 (2007 No 109).

Section EW 18 list of deﬁned terms IFRS taxpayer method: inserted (with ef- fect from 1 April 2007), on 19 December 2007, by section 63(2) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
EW 19 Choice among YTM or alternative, SL, and MV spreading methods A person who is not required to use the IFRS taxpayer method and who may use the yield to maturity method or an alterna- tive, the straight-line method, or a market valuation 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 taxpayer method, spreading method Compare: 1994 No 164 ss EH 34(1), EH 35(1), (2), EH 36(3) Section EW 19 heading: amended (with effect from 1 April 2007), on 19 De- cember 2007, by section 64(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section EW 19: amended (with effect from 1 April 2007), on 19 December 2007, by section 64(2)(a) of the Taxation (Business Taxation and Remedial Mat- ters) Act 2007 (2007 No 109).
953 Part E s EW 20 Income Tax Act 2004 Reprinted as at 29 August 2011 Section EW 19 list of deﬁned terms IFRS taxpayer method: inserted (with effect from 1 April 2007), on 19 December 2007, by section 64(2)(b) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
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 the IFRS taxpayer method by 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) (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 the IFRS taxpayer method by 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 (bb) (c) (d) (e) 954 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EW 21 (f) those that would have been allocated using the deter- mination method; and the alternative is also used by the person for ﬁnancial reporting purposes for ﬁnancial arrangements that are the same as, or similar to, the arrangements (although section EW 23 may apply if the alternative is not used in this way).
Deﬁned in this Act: amount, Commissioner, ﬁnancial arrangement, IFRS tax- payer method Compare: 1994 No 164 ss EH 37, EH 38 Section EW 20(1)(b)(ii): amended (with effect from 1 April 2007), on 19 De- cember 2007, by section 65(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section EW 20(1)(c): added (with effect from 1 April 2007), on 19 December 2007, by section 65(1) of the Taxation (Business Taxation and Remedial Mat- ters) Act 2007 (2007 No 109).
Section EW 20(2)(bb): inserted (with effect from 1 April 2007), on 19 Decem- ber 2007, by section 65(2) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section EW 20 list of deﬁned terms IFRS taxpayer method: inserted (with ef- fect from 1 April 2007), on 19 December 2007, by section 65(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 (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 the IFRS taxpayer method by 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 955 (b) (c) (d) (e) Part E s EW 22 Income Tax Act 2004 Reprinted as at 29 August 2011 (f) 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, IFRS tax- payer method, income year (g) Section EW 21: substituted (with effect on 1 April 2007), on 6 October 2009, by section 784(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section EW 21: repealed (with effect from 1 April 2007), on 19 December 2007, by section 66(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
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: 1994 No 164 s EH 40 Section EW 22(c): amended (with effect on 1 April 2007), on 6 October 2009, by section 785(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section EW 22(c): amended (with effect from 1 April 2007), on 19 December 2007, by section 67(1) of the Taxation (Business Taxation and Remedial Mat- ters) Act 2007 (2007 No 109).
956 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EW 23 Section EW 22(d): repealed (with effect from 1 April 2007), on 19 December 2007, by section 67(2) of the Taxation (Business Taxation and Remedial Mat- ters) Act 2007 (2007 No 109).
EW 23 Failure to use method for ﬁnancial reporting purposes (1) (2) When this section applies This section applies when a person would be allowed to use a method but for the fact that the person does not comply with whichever is relevant of sections EW 16(2)(d), EW 18(1)(f), EW 20(2)(f) and EW 21(f).
Person treated as complying The person is treated as complying with whichever is relevant of sections EW 16(2)(d), EW 18(1)(f), EW 20(2)(f) and EW 21(f) if the method that the person uses for each ﬁnancial ar- rangement— (a) is used for the ﬁnancial arrangement, and each ﬁnancial arrangement that are 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) Relationship with subject matter: transitional rule for IFRS ﬁnancial reporting This section is modiﬁed by section EZ 50 (Transitional rule for IFRS ﬁnancial reporting method).
Deﬁned in this Act: Commissioner, ﬁnancial arrangement, ﬁnancial arrange- ments rules, income year, notice, tax avoidance Compare: 1994 No 164 s EH 42 957 Part E s EW 24 Income Tax Act 2004 Reprinted as at 29 August 2011 Section EW 23(1): amended (with effect on 1 April 2007), on 6 October 2009, by section 786(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EW 23(1): amended (with effect from 1 April 2007), on 19 December 2007, by section 68(1) of the Taxation (Business Taxation and Remedial Mat- ters) Act 2007 (2007 No 109).

Section EW 23(2): amended (with effect on 1 April 2007), on 6 October 2009, by section 786(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EW 23(2): amended (with effect from 1 April 2007), on 19 December 2007, by section 68(1) of the Taxation (Business Taxation and Remedial Mat- ters) Act 2007 (2007 No 109).

Section EW 23(4) heading: added (with effect from 1 April 2007), on 19 De- cember 2007, by section 68(2) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EW 23(4): added (with effect from 1 April 2007), on 19 December 2007, by section 68(2) of the Taxation (Business Taxation and Remedial Mat- ters) 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 taxpayer method (2B) Section EW 25B sets out a particular consistency requirement for the IFRS taxpayer method.

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 taxpayer method, income year, spreading method Compare: 1994 No 164 s EH 41 Section EW 24(2B) heading: inserted (with effect from 1 April 2007), on 19 December 2007, by section 69(1) of the Taxation (Business Taxation and Re- medial Matters) Act 2007 (2007 No 109).
(3) 958 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EW 25 Section EW 24(2B): inserted (with effect from 1 April 2007), on 19 December 2007, by section 69(1) of the Taxation (Business Taxation and Remedial Mat- ters) Act 2007 (2007 No 109).

Section EW 24 list of deﬁned terms IFRS taxpayer method: inserted (with ef- fect from 1 April 2007), on 19 December 2007, by section 69(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) 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 $1,500,000 Subsection (2) applies even if the total value of all the ﬁnancial arrangements to which the person is a party is over $1,500,000 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 26(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: 1994 No 164 ss EH 35(3), (4), EH 36(4), EH 58 959 Part E s EW 25B Income Tax Act 2004 Reprinted as at 29 August 2011 EW 25B Consistency of use of speciﬁc individual methods under IFRS taxpayer method Consistency for ﬁnancial arrangement (1) A person using a speciﬁc individual method under 1 of the 4 methods described in section EW 15B(6) must use that speciﬁc individual method for— (a) the remaining term of the ﬁnancial arrangement, until section EW 29 requires them to calculate a base price adjustment for the arrangement; and other ﬁnancial arrangements that are the same as, or similar to, the ﬁnancial arrangement, unless different accounting treatments under IFRSs are used for those ﬁnancial arrangements.
(b) (2) Exception: change allowed Subsection (1)(a) does not apply, and a change in speciﬁc in- dividual method under the IFRS taxpayer method is allowed, if— (a) the person may use the new speciﬁc individual method under the IFRS taxpayer method; and the accounting treatment for the relevant ﬁnancial ar- rangement under IFRSs is changed for the purposes of ﬁnancial reporting in the same income year as the change in speciﬁc individual method.
(b) Change allowed: spreading method adjustment (3) When a person changes their speciﬁc individual method under subsection (2), sections EW 26(3), (4), and EW 27 are treated as applying as if the person’s change in speciﬁc individual method were their change in spreading method under section EW 26(2).
Exception: no spreading method adjustment for change from fair value method (4) Despite subsection (3) of this section, sections EW 26(3), (4), and EW 27 are not treated as applying as described, if the old speciﬁc individual method changed from is the fair value method under the IFRS method described in section EW 15C.

Instead, section EW 29(13) applies.


Deﬁned in this Act: fair value method, ﬁnancial arrangement, IFRS, IFRS tax- payer method, income year 960 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EW 26 Section EW 25B: inserted (with effect from 1 April 2007), on 19 December 2007, by section 70(1) of the Taxation (Business Taxation and Remedial Mat- ters) Act 2007 (2007 No 109).
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 mar- ket value method if they change to a method that is not the IFRS taxpayer method, and the Commissioner has given writ- ten 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) (b) they must use the formula in section EW 27 to calculate a spreading method adjustment for the income year in which they change the method; and their only income or expenditure under the ﬁnancial ar- rangement for the income year to which the formula is applied is the spreading method adjustment.
Positive or negative spreading method adjustment (4) A spreading method adjustment calculated under section EW 27 is,— (a) (b) 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.
(5) Application of Tax Administration Act 1994 Section 22A(2) of the Tax Administration Act 1994 applies to a person to whom subsection (2) applies.
961 Part E s EW 26 Income Tax Act 2004 Reprinted as at 29 August 2011 Exception: fair value method (6) Despite subsection (3), that subsection, subsection (4), and section EW 27 do not apply to the extent to which the per- son’s spreading method change involves, for a ﬁnancial ar- rangement, a change from the fair value method under the IFRS method described in section EW 15C or a change from the market value method to the IFRS taxpayer method.

In- stead, section EW 29(13) applies.


Sound commercial reason In this section, sound commercial reason includes— (a) starting to use or ceasing to use IFRSs to prepare ﬁ- nancial statements at the same time as starting to use or ceasing to use the IFRS taxpayer method: starting to use, for the ﬁrst time, the IFRS taxpayer method for a ﬁnancial arrangement.
(b) Deﬁned in this Act: Commissioner, fair value method, ﬁnancial arrangement, ﬁnancial statements, IFRS, income, income tax liability, income year, sound commercial reason, spreading method Compare: 1994 No 164 ss EH 35(3)(b), EH 36(4), EH 43(1), (2), EH 44(3), (4) Section EW 26(1) heading: substituted (with effect on 1 April 2007), on 6 Oc- tober 2009, by section 787(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 2007), on 6 October 2009, by section 787(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 2007), on 6 October 2009, by section 787(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Subsection (4)(a) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; and”.

Section EW 26(6) heading: added (with effect from 1 April 2007), on 19 De- cember 2007, by section 71(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EW 26(6): added (with effect from 1 April 2007), on 19 December 2007, by section 71(1) of the Taxation (Business Taxation and Remedial Mat- ters) Act 2007 (2007 No 109).

Section EW 26(6): amended (with effect on 1 April 2007), on 6 October 2009, by section 787(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EW 26(7) heading: added (with effect from 1 April 2007), on 19 De- cember 2007, by section 71(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

(7) 962 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EW 27 Section EW 26(7): added (with effect from 1 April 2007), on 19 December 2007, by section 71(1) of the Taxation (Business Taxation and Remedial Mat- ters) Act 2007 (2007 No 109).
Section EW 26(7)(a): substituted (with effect on 1 April 2007), on 6 October 2009, by section 787(4) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section EW 26 list of deﬁned terms fair value method: inserted (with effect from 1 April 2007), on 19 December 2007, by section 71(2) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EW 26 list of deﬁned terms ﬁnancial statements: inserted (with effect from 1 April 2007), on 19 December 2007, by section 71(2) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section EW 26 list of deﬁned terms IFRS: inserted (with effect from 1 April 2007), on 19 December 2007, by section 71(2) of the Taxation (Business Taxa- tion and Remedial Matters) Act 2007 (2007 No 109).
Section EW 26 list of deﬁned terms sound commercial reason: inserted (with effect from 1 April 2007), on 19 December 2007, by section 71(2) of the Taxa- tion (Business Taxation and Remedial 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) (3) (4) (5) 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— income (new method) – expenditure (new method) – income (old method) + expenditure (old method).

Deﬁnition of items in formula The items in the formula are deﬁned in subsections (5) to (8).
Income (new method) Income (new method) is the amount that would have been in- come 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 963 Part E s EW 28 Income Tax Act 2004 Reprinted as at 29 August 2011 (6) (7) (8) 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 arrange- ment 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 in- come 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 previous income years.

Expenditure (old method) Expenditure (old method) is expenditure incurred by the per- son under the ﬁnancial arrangement in previous income years.
Deﬁned in this Act: amount, ﬁnancial arrangement, income, income year, spreading method Compare: 1994 No 164 s EH 44(1)-(3) 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 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).
964 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EW 29 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.

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 45(1) to (4).
965 Part E s EW 29 Income Tax Act 2004 Reprinted as at 29 August 2011 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.
Change from fair value method under IFRS method (13) A party to a ﬁnancial arrangement who, for the ﬁnancial ar- rangement, changes from the fair value method under the IFRS method described in section EW 15C to any other method or from the market value method to the IFRS taxpayer method must calculate a base price adjustment as at the date of the change.
[Repealed] Deﬁned in this Act: amount, associated person, business, consideration, fair value method, ﬁnancial arrangement, ﬁxed establishment, legal defeasance, ma- turity, New Zealand, New Zealand resident Compare: 1994 No 164 s EH 45 (13) Section EW 29(10): amended, on 3 December 2007, by section 445 of the In- solvency Act 2006 (2006 No 55).
966 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EW 30 First section EW 29(13) heading: added (with effect from 1 April 2007), on 19 December 2007, by section 72(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

First section EW 29(13): substituted (with effect on 1 April 2007), on 6 October 2009, by section 788(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
First section EW 29(13): added (with effect from 1 April 2007), on 19 Decem- ber 2007, by section 72(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Second subsection (13) was repealed, as from 1 October 2005, by section 43(a) Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) with application as from the 2005–06 income year.
Section EW 29 list of deﬁned terms fair value method: inserted (with effect from 1 April 2007), on 19 December 2007, by section 72(2) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

The list of deﬁned terms was amended, as from 1 October 2005, by section 43(b) Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) by substituting “New Zealand resident” for “New Zealand resident, trustee” with application as from the 2005–06 income year.
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) 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 967 (b) (b) Part E s EW 31 Income Tax Act 2004 Reprinted as at 29 August 2011 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: 1994 No 164 s EH 46 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).

(2) When formula applies The person calculates the base price adjustment for the income year in which section EW 29 applies to them.
Positive base price adjustment (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 incurred by the person under the ﬁnancial arrangement in pre- vious income years and for which a deduction was denied in those income years.
968 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EW 31 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 9 (Negative base price adjustment).
(5) (6) (7) (8) (9) Formula The formula is— consideration – income + expenditure + amount remitted.

Deﬁnition of items in formula The items in the formula are deﬁned in subsections (7) to (11).
Consideration Consideration is all consideration that has been paid, and all consideration that is or will be payable, to the person for or under the ﬁnancial arrangement, minus all consideration that has been paid, and all consideration that is or will be payable, by the person for or under the ﬁnancial arrangement.
For the purposes of this subsection, the following are ignored: (i) non-contingent fees, if the relevant method is not the IFRS method described in section EW 15C: non-integral fees, if the relevant method is the IFRS method described in section EW 15C.

(ii) Consideration in particular cases If any of sections EW 32 to EW 49 applies, the consideration referred to in subsection (7) is adjusted under the relevant sec- tion.
Income Income is— (a) income derived by the person under the ﬁnancial ar- rangement in previous income years; and dividends derived by the person from the release of the obligation to repay the amount lent; and income derived under section CF 2(2) and (3) (Remis- sion of speciﬁed suspensory loans).

(b) (c) 969 Part E s EW 31 Income Tax Act 2004 Reprinted as at 29 August 2011 Expenditure (10) Expenditure is expenditure incurred by the person under the ﬁnancial arrangement in previous 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, income, income year, non-contingent fee, non-integral fee Compare: 1994 No 164 ss EH 47, EH 48(1) by the person; or by law.
Section EW 31(4): amended (with effect on 1 April 2005), on 29 August 2011 (applying for the 2005–06 and later income years), by section 201(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).

Section EW 31(7): amended (with effect on 1 April 2007), on 6 October 2009, by section 789(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 2007), on 6 October 2009, by section 789(1)(b) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section EW 31(7): amended (with effect from 1 April 2007), on 19 December 2007, by section 73(1) of the Taxation (Business Taxation and Remedial Mat- ters) Act 2007 (2007 No 109).
Section EW 31(7)(i): added (with effect from 1 April 2007), on 19 December 2007, by section 73(1) of the Taxation (Business Taxation and Remedial Mat- ters) Act 2007 (2007 No 109).

Section EW 31(7)(ii): added (with effect from 1 April 2007), on 19 December 2007, by section 73(1) of the Taxation (Business Taxation and Remedial Mat- ters) Act 2007 (2007 No 109).
Section EW 31(9)(a): amended (with effect on 1 April 2005), on 6 October 2009, by section 789(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section EW 31 list of deﬁned terms non-integral fee: inserted (with effect from 1 April 2007), on 19 December 2007, by section 73(2) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
970 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EW 32 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 lease, or ﬁnance lease (1) (2) (3) (4) (5) 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) 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 971 Part E s EW 33 Income Tax Act 2004 Reprinted as at 29 August 2011 (6) (7) discounted values, of the amounts paid or payable on the date on which the ﬁrst right in the property is transferred or the services are provided, as determined by the Commissioner under a determination under section 90AC(1)(i) of the Tax Administration Act 1994.
Determined by Commissioner The value of the property or services is the amount determined by the Commissioner when either party to the arrangement applies to the Commissioner for a speciﬁc determination.

Both parties must use this amount.

Exclusion This section does not apply if the agreement, option, or lease has lapsed or does not proceed.
Deﬁned in this Act: agreement for the sale and purchase of property or ser- vices, amount, Commissioner, consideration, ﬁnance lease, ﬁnancial arrange- ment, hire purchase agreement, property, right, speciﬁed option Compare: 1994 No 164 s EH 48(2)-(4) Subsection (1) was amended, as from 1 April 2005, by section 58 Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) by substituting “property or services” for “property and services”.
Subsection (3)(a) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; and”.

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 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, personal property lease asset, lessor Compare: 1994 No 164 s EH 48(5) (1) (2) 972 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EW 34 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) (ii) 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 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 ﬁnal payment is to be made; or (b) 973 Part E s EW 35 Income Tax Act 2004 Reprinted as at 29 August 2011 (ii) 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 (c) 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, property, right, year Compare: 1994 No 164 s OB 7 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: 1994 No 164 s EH 26(2), (3) Consideration treated as paid to person EW 36 Consideration when person exits from rules: accrued entitlement 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: (ii) (i) the person ceases to be resident in New Zealand and is not a party to the arrangement for the pur- (1) 974 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EW 37 (iii) (iv) 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(16) to (18); and (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, resident in New Zealand Compare: 1994 No 164 ss EH 45(5)(a), EH 50(1), (2) Subsection (1)(b)(i) was repealed, as from 1 October 2005, by section 44 Taxa- tion (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) with application as from the 2005–06 income year.
(2) 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— (i) becomes a New Zealand resident who is not a transitional resident; and (b) 975 Part E s EW 37 Income Tax Act 2004 Reprinted as at 29 August 2011 (ii) 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: the person is a transitional resident for whom the ar- rangement ceases to be an excepted ﬁnancial arrange- ment described in section EW 5(15B): 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(15B): 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(16) to (18).
(c) (d) (e) 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, , transitional resident Compare: 1994 No 164 ss EH 24(3), EH 50(1A), (2) Subsection (1) (excluding the heading) was substituted, as from 1 October 2005, by section 84(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) with application for: a person who becomes a transitional resident as from 1 April 2006; and as from the in- come year corresponding to the 2005–06 tax year.
See section 84(3) and (4) of that Act as to the application of this amendment.

The list of deﬁned terms was amended, as from 1 October 2005, by section 84(2)(a) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscel- laneous Provisions) Act 2006 (2006 No 3) by inserting “New Zealand resident” with application for: a person who becomes a transitional resident as from 1 April 2006; and as from the income year corresponding to the 2005–06 tax year.
See section 84(3) and (4) of that Act as to the application of this amendment.

The list of deﬁned terms was amended, as from 1 October 2005, by section 84(2)(b) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscel- laneous Provisions) Act 2006 (2006 No 3) by inserting “non-resident” with application for: a person who becomes a transitional resident as from 1 April 2006; and as from the income year corresponding to the 2005–06 tax year.
See section 84(3) and (4) of that Act as to the application of this amendment.
The list of deﬁned terms was amended, as from 1 October 2005, by section 84(2)(c) Taxation (Depreciation, Payment Dates Alignment, FBT, and Mis- (2) 976 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EW 40 cellaneous Provisions) Act 2006 (2006 No 3) by omitting “resident in New Zealand” with application for: a person who becomes a transitional resident as from 1 April 2006; and as from the income year corresponding to the 2005–06 tax year.
See section 84(3) and (4) of that Act as to the application of this amend- ment.

The list of deﬁned terms was amended, as from 1 October 2005, by section 84(2)(d) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscel- laneous Provisions) Act 2006 (2006 No 3) by inserting “transitional resident” with application for: a person who becomes a transitional resident as from 1 April 2006; and as from the income year corresponding to the 2005–06 tax year.
See section 84(3) and (4) of that Act as to the application of this amendment.
EW 38 Consideration when disposal for no, or inadequate, consideration (1) 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 disposal of the accrued entitlement— (i) (ii) is not for monetary consideration; or 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 Compare: 1994 No 164 s EH 49(1) EW 39 Consideration treated as paid to person on distribution in kind [Repealed] Section EW 39 was repealed, as from 1 October 2005, by section 45 Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) with application as from the 2005–06 income year.
EW 40 Consideration affected by unfavourable factors When this section applies This section applies when— (1) 977 Part E s EW 41 Income Tax Act 2004 Reprinted as at 29 August 2011 (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) (2) (3) 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) 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 Compare: 1994 No 164 s EH 49(3)-(5) Consideration treated as paid by person EW 41 Consideration when person exits from rules: accrued obligation When this section applies This section applies when— (a) a person is a party to a ﬁnancial arrangement; and (1) 978 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EW 42 (b) 1 of the following situations arises: (ii) (iii) (iv) (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(16) to (18); and (2) (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, resident in New Zealand Compare: 1994 No 164 ss EH 45(5)(a), EH 50(1), (2) Subsection (1)(b)(i) was repealed, as from 1 October 2005, by section 46 Taxa- tion (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) with application as from the 2005–06 income year.
EW 42 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: 979 Part E s EW 42 Income Tax Act 2004 Reprinted as at 29 August 2011 (b) (c) (d) (e) the person is a non-resident who— (i) 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: (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(15B): 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(15B): 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(16) to (18).
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, , transitional resident Compare: 1994 No 164 ss EH 24(3)(c), EH 50(1A), (2) Section EW 42 compare note was substituted, as from 1 April 2005, by section 47 Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) with application as from the 2005–06 income year.
Subsection (1) (excluding the heading) was substituted, as from 1 October 2005, by section 85(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) with application for: a person who becomes a transitional resident as from 1 April 2006; and as from the in- come year corresponding to the 2005–06 tax year.

See section 85(3) and (4) of that Act as to the application of this amendment.
The list of deﬁned terms was amended, as from 1 October 2005, by section 85(2)(a) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscel- laneous Provisions) Act 2006 (2006 No 3) by inserting “New Zealand resident” with application for: a person who becomes a transitional resident as from 1 April 2006; and as from the income year corresponding to the 2005–06 tax year.

See section 85(3) and (4) of that Act as to the application of this amendment.
The list of deﬁned terms was amended, as from 1 October 2005, by section 85(2)(b) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscel- (2) 980 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EW 44 laneous Provisions) Act 2006 (2006 No 3) by inserting “non-resident” with application for: a person who becomes a transitional resident as from 1 April 2006; and as from the income year corresponding to the 2005–06 tax year.
See section 85(3) and (4) of that Act as to the application of this amendment.

The list of deﬁned terms was amended, as from 1 October 2005, by section 85(2)(c) Taxation (Depreciation, Payment Dates Alignment, FBT, and Mis- cellaneous Provisions) Act 2006 (2006 No 3) by omitting “resident in New Zealand” with application for: a person who becomes a transitional resident as from 1 April 2006; and as from the income year corresponding to the 2005–06 tax year.
See section 85(3) and (4) of that Act as to the application of this amend- ment.

The list of deﬁned terms was amended, as from 1 October 2005, by section 85(2)(d) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscel- laneous Provisions) Act 2006 (2006 No 3) by inserting “transitional resident” with application for: a person who becomes a transitional resident as from 1 April 2006; and as from the income year corresponding to the 2005–06 tax year.
See section 85(3) and (4) of that Act as to the application of this amendment.

EW 43 Consideration when acquisition for no, or inadequate, consideration (1) (2) When this section applies This section applies when— (a) a person becomes a party to a ﬁnancial arrangement; and the person acquires an entitlement under the arrange- ment— not for monetary consideration; or for a consideration that is less than the market value of the entitlement on the date of the acquisition.
(b) (i) (ii) 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 Compare: 1994 No 164 s EH 49(1) EW 44 Consideration treated as paid by person on distribution in kind [Repealed] Section EW 44 was repealed, as from 1 October 2005, by section 48 Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) with application as from the 2005–06 income year.
981 Part E s EW 45 Income Tax Act 2004 Reprinted as at 29 August 2011 EW 45 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.

Person associated (2) A person is associated with the debtor if the relationship be- tween the person and the debtor is described in section OD 8(3) (Further deﬁnitions of associated persons).
At a discount (3) A creditor sells a debt at a discount if the creditor sells it for 80% or less of the market value of the debt.

(4) 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) (5) 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 Compare: 1994 No 164 ss EH 48(6), EH 53 EW 46 Consideration when debt forgiven for natural love and affection When this section applies: ﬁrst case This section applies when— (a) (b) a person is a debtor; and the creditor is a natural person; and (1) 982 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EW 47 (c) the creditor forgives the debtor’s debt because of the natural love and affection the creditor has for the debtor.
(2) (3) (4) 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 34 (Charities: non-business income) or CW 35 (Charities: business income); and (ii) (c) (d) the creditor is a natural person; and the creditor forgives the debtor’s debt.
Two points about subsections (1) and (2) For the purposes of subsections (1) and (2),— (a) the debtor’s debt includes an amount accrued and un- paid at the time of the forgiveness; and the means by which the debt is forgiven, whether in a will or otherwise, is immaterial.

(b) 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 Compare: 1994 No 164 s EH 52(1) Subsection (2)(b)(i) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; or”.
EW 47 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) section 304 of the Insolvency Act 2006; or any of the Inland Revenue Acts; or 983 Part E s EW 47B Income Tax Act 2004 Reprinted as at 29 August 2011 (iii) 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 Compare: 1994 No 164 ss EH 51, EH 59 Section EW 47(1)(b)(i): amended, on 3 December 2007, by section 445 of the Insolvency Act 2006 (2006 No 55).
(3) (4) EW 47B Consideration when debtor released as condition of new start grant When this section applies This section applies if, 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 a qualifying event; and (b) (1) 984 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EW 47B (c) (d) 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 state of emergency that relates to the qualifying event; 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 state of emergency; and (ii) (e) in the absence of this section, the amount of the remitted liability would be income of the person.
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 under the formula— remitted amount - current loss - available 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: available loss is the available net losses that are avail- able 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 satisﬁes subsection (4).
(ii) (c) (d) (2) (3) (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 in respect of which the new start grant is paid or owns or has 985 Part E s EW 48 Income Tax Act 2004 Reprinted as at 29 August 2011 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 respect of— (i) (ii) is, for the income year in which the liability is remit- ted,— (i) (ii) a net loss of the associated person: an available net loss for the associated person; and is included in the calculation in subsection (3) to an extent that the Commissioner determines, having regard to the interests of the associated person that are separate from those of the person.
(5) Notice to associated person The Commissioner must give to the associated person a written notice of a determination under subsection (4)(d).

Deﬁned in this Act: business, deduction, diminished value, income, income year, qualifying event.

Section EW 47B was inserted, as from 1 October 2005, by section 194 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111).
Consideration when legal defeasance has occurred EW 48 Legal defeasance When this section applies This section applies when— (a) the obligations of a ﬁnancial arrangement were the sub- ject of a legal defeasance that required another person to meet the remaining obligations of the arrangement; and the person who has a right to receive money under the arrangement is now required by section EW 29 to cal- culate a base price adjustment for it.
(b) (1) 986 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EW 48B (2) 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: 1994 No 164 s EH 48(1), (7) Consideration when change from fair value method under IFRS method Heading: inserted (with effect from 1 April 2007), on 19 December 2007, by section 74(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
EW 48B Consideration when change from fair value method under IFRS method (1) Who this section applies to This section applies to a party to a ﬁnancial arrangement who, for the ﬁnancial arrangement,— (a) changes from the fair value method under the IFRS method described in section EW 15C to any other method; and (b) must calculate a base price adjustment as at the end of the ﬁrst income year for which the replacement method is used for the ﬁnancial arrangement, as provided by section EW 29(13).
(2) A person is treated as having been paid, at the end of the ﬁrst income year for which the replacement method is used for the ﬁnancial arrangement, an amount of consideration equal to the ﬁnancial arrangement’s market value on that date.

Deﬁned in this Act: amount, consideration, fair value method, ﬁnancial arrange- ment Section EW 48B: inserted (with effect from 1 April 2007), on 19 December 2007, by section 74(1) of the Taxation (Business Taxation and Remedial Mat- ters) Act 2007 (2007 No 109).
Section EW 48B(1)(b): amended (with effect on 1 April 2007), on 29 August 2011, by section 202(1) of the Taxation (Tax Administration and Remedial Mat- ters) Act 2011 (2011 No 63).

987 Part E s EW 49 Income Tax Act 2004 Reprinted as at 29 August 2011 Section EW 48B(2): amended (with effect on 1 April 2007), on 29 August 2011, by section 202(2) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Consideration when anti-avoidance provision applies EW 49 Anti-avoidance provisions (1) (2) When this section applies This section applies when it is necessary to determine the con- sideration that is paid to or by a person in a case to which any of the following provisions applies: (a) (b) section GD 11 (Financial arrangements rules); or section GD 13(3) (Cross-border arrangements between associated persons); or section GD 13(4) (Cross-border arrangements between associated persons).
(c) Consideration The consideration is the amount determined under the relevant provision.

Deﬁned in this Act: amount, consideration Compare: 1994 No 164 s EH 48(1) Income and deduction provisions speciﬁcally related to ﬁnancial arrangements EW 50 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.
Person associated (2) A person is associated with the debtor if the relationship be- tween the person and the debtor is described in section OD 8(3) (Further deﬁnitions of associated persons).

At a discount (3) A creditor sells a debt at a discount if the creditor sells it for 80% or less of the market value of the debt.
988 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EW 51 (4) (5) (6) 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 10(1) (Repayment of debt sold at discount to associate of debtor).
(b) Deﬁned in this Act: amount, associated person, deduction, income Compare: 1994 No 164 s EH 53 EW 51 Income when debt forgiven to trustee (1) 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 34 (Charities: non-business (ii) 989 Part E s EW 51 Income Tax Act 2004 Reprinted as at 29 August 2011 income) or CW 35 (Charities: business income); and (c) (d) (e) (f) the creditor is a natural person; and the creditor forgives the debtor’s debt; and a trustee of the trust makes a distribution, including a distribution of beneﬁciary income, to a beneﬁciary; and the beneﬁciary is— (i) not a natural person for whom the creditor has natural love and affection; and not an organisation or a trust whose income is exempt under section CW 34 (Charities: non- business income) or CW 35 (Charities: business income); 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 34 (Charities: non-business income) or CW 35 (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 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 34 (Charities: non-business income) or CW 35 (Charities: business income).
(ii) Two points about subsections (1) and (2) For the purposes of subsections (1) and (2),— (2) (3) 990 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EW 52 (a) (b) 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.
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, trustee Compare: 1994 No 164 s EH 52 (4) (5) (6) (7) EW 52 Deduction for security payment (1) (2) (3) When subsection (2) applies: loss generally Subsection (2) applies when a person is allowed a deduction under section DB 11(2) (Security payment).

Amount of deduction The person is allowed a deduction no greater than the amount of the security payment.
When subsection (4) applies: share loss Subsection (4) applies when a person is allowed a deduction under section DB 11(4) (Security payment).

991 Part E s EW 52B Income Tax Act 2004 Reprinted as at 29 August 2011 (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, security payment Compare: 1994 No 164 s EH 55 Treatment of original share acquired under ﬁnancial arrangement This heading was inserted, as from 1 July 2006, by section 86 Taxation (Depre- ciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).
EW 52B 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 (original 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) 992 Reprinted as at 29 August 2011 Income Tax Act 2004 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.

Section EW 52B was inserted, as from 1 July 2006, by section 86 Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).
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) 993 Part E s EW 53 Income Tax Act 2004 Reprinted as at 29 August 2011 First step The ﬁrst step the person takes is to calculate income or ex- penditure under the ﬁnancial arrangement for each income year using the yield to maturity method in the manner pre- scribed by the Commissioner in a determination under section 90AC(1)(a) of the Tax Administration Act 1994.
Consideration and amounts to be included at ﬁrst step The person must include the following amounts in the calcu- lation: (a) for every income year for which the calculation is made, as described in subsection (3), the consideration and amounts described in section EW 15 for the period start- ing on the date on which the person became a party to the ﬁnancial arrangement and ending on the last day of the income year for which the calculation is made; and 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, prescribed Compare: 1994 No 164 s EH 57 (4) (5) (6) 994 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EW 56 Application of ﬁnancial arrangements rules to cash basis persons EW 54 Meaning of cash basis person Who is cash basis person (1) A cash basis person is— (a) (b) a natural person who meets the criteria in section EW 56: a trustee of a deceased’s estate, whether or not a natural person, in the circumstances described in section EW 60.
Natural persons excluded by Commissioner (2) A natural 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, Commissioner, ﬁnancial arrangement, trustee Compare: 1994 No 164 ss EH 27, EH 29 Subsection (1)(a) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; and”.
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 (13) applies to them.
Deﬁned in this Act: cash basis person, ﬁnancial arrangement, spreading method Compare: 1994 No 164 ss EH 33(4)(a), EH 45(1) EW 56 Natural person Criteria for natural person as cash basis person (1) A natural person is a cash basis person for an income year if— 1 of the following applies in the person’s case for the income year: (a) 995 Part E s EW 57 Income Tax Act 2004 Reprinted as at 29 August 2011 section EW 57(1); or section EW 57(2); and (i) (ii) section EW 57(3) applies in the person’s case for the income year; and the person is not a trustee.
(b) (c) Financial arrangements, income, and expenditure relevant to application of criteria The calculations required by section EW 57(1) to (3) are done for the ﬁnancial arrangements, or the income and expenditure, described in section EW 58.

Increase in speciﬁed sums The Governor-General may make an Order in Council increas- ing a sum speciﬁed in any of section EW 57(1) to (3).
Deﬁned in this Act: cash basis person, ﬁnancial arrangement, income, income year, trustee Compare: 1994 No 164 ss EH 27, EH 58 (2) (3) EW 57 Thresholds Income and expenditure threshold For the purposes of section EW 56(1)(a)(i), this subsection ap- plies if the absolute value of the person’s income and expend- iture in the income year under all ﬁnancial arrangements to which the person is a party is $100,000 or less.
Absolute value threshold For the purposes of section EW 56(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) (1) (2) 996 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EW 57 (3) Deferral threshold For the purposes of section EW 56(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 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) (7) (8) Cash basis income Cash basis income is 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 arrangement and ending on the last day of the income year for which the calcu- lation is made.
Cash basis expenditure Cash basis expenditure is the amount that would have been ex- penditure incurred by the person under the ﬁnancial arrange- ment if the person had been a cash basis person in the period 997 Part E s EW 58 Income Tax Act 2004 Reprinted as at 29 August 2011 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) (b) 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.
(c) Deﬁned in this Act: absolute value, amount, cash basis person, Commissioner, ﬁnancial arrangement, ﬁxed principal ﬁnancial arrangement, income, income year, old ﬁnancial arrangements rules, spreading method, variable principal debt instrument Compare: 1994 No 164 s EH 27(1)-(5), (7) Subsection (2)(a) and (b) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; or”.
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 natural person is a party or, as the relevant subsection requires, to income and ex- penditure under such an arrangement, whether the ﬁnancial ar- rangements 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 (1) 998 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EW 58 (b) 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).
(2) (3) (4) Natural person who is partner This subsection applies when a partnership required to make a joint return of income under section 42(1) of the Tax Administration Act 1994 is a party to a ﬁnancial arrangement.
A natural person who is a partner in the partnership— (a) is a party to the arrangement to the extent of the part- ner’s share in the arrangement; and derives income or incurs expenditure under the arrange- ment to the extent of the partner’s share in the income or expenditure of the partnership.

(b) Natural person who is beneﬁciary of bare trust This subsection applies when the trustee of a bare trust is a party to a ﬁnancial arrangement.
A natural person who is a beneﬁciary of the bare trust— (a) is treated as a party to the arrangement to the extent of the beneﬁciary’s share of the beneﬁcial interest in the arrangement; and is treated as deriving income or incurring expenditure under the arrangement to the extent of the beneﬁciary’s share of the beneﬁcial interest in the arrangement.
(b) Natural person who is beneﬁciary of trust other than bare trust This subsection applies when a natural person is a beneﬁciary of a trust, other than a bare trust, whose trustee is a party to a ﬁnancial arrangement.
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.

(b) (5) Natural person who is trustee This subsection applies when a natural 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): 999 Part E s EW 59 Income Tax Act 2004 Reprinted as at 29 August 2011 (a) (b) (c) 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: 1994 No 164 ss EH 27(6), EH 28, EH 30 EW 59 Exclusion by Commissioner The Commissioner may treat a natural 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 that or any other person has structured and promoted the class to defer an income tax liability.
Deﬁned in this Act: cash basis person, Commissioner, ﬁnancial arrangement, income tax liability Compare: 1994 No 164 s EH 27(8) 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 56(1)(a) and (b).

Period The period is the income year in which the deceased dies and in each of the 4 following income years.
However, if at any time in those 5 income years the ﬁnancial arrangements in the de- ceased’s estate cease to meet the requirements of section EW 56(1)(a) and (b), the trustee ceases to be a cash basis person (2) (3) 1000 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EW 61 (4) for ﬁnancial arrangements in the estate and cannot again be a cash basis person for them.
Modiﬁcations to be read in For the purposes of this section, sections EW 54 to EW 56 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: 1994 No 164 s EH 29 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 Administration Act 1994.
1001 Part E s EW 62 Income Tax Act 2004 Reprinted as at 29 August 2011 (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: 1994 No 164 s EH 31 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.
1002 Reprinted as at 29 August 2011 Exclusion Income Tax Act 2004 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: 1994 No 164 ss EH 31(4), EH 32 Subsection (9)(a) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; and”.
EW 63 Cash basis adjustment formula Formula (1) A person calculates a cash basis adjustment using the for- mula— adjusted income – adjusted expenditure – previous income + previous expenditure.

Deﬁnition of items in formula The items in the formula are deﬁned in subsections (3) to (6).
(2) 1003 Part E s EW 63 Income Tax Act 2004 Reprinted as at 29 August 2011 Adjusted income (3) Adjusted income is,— (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.
(5) Previous income Previous income is income derived by the person under the ﬁnancial arrangement in previous income years.

1004 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EW 63 (6) Previous expenditure Previous expenditure is expenditure incurred by the person under the ﬁnancial arrangement in previous income years.
Deﬁned in this Act: amount, cash basis person, ﬁnancial arrangement, income, income year, spreading method Compare: 1994 No 164 s EH 32(4) Subpart EX—Controlled foreign company and foreign investment fund rules Contents Controlled foreign company rules When is a company a controlled foreign company?
EX 1 Meaning of CFC 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 Ten percent threshold and variations in income interest level EX 14 Attribution: 10% threshold EX 15 Associates and 10% threshold EX 16 Income interests for certain purposes EX 17 Income interest if variations within period Page 1008 1009 1010 1010 1011 1012 1013 1014 1015 1016 1017 1018 1019 1019 1019 1020 1021 Calculation of attributed CFC income or loss EX 18 Formula for calculating attributed CFC income or loss 1022 1005 Income Tax Act 2004 Reprinted as at 29 August 2011 EX 19 Taxable distribution from non-qualifying trust EX 20 Reduction in attributed CFC loss 1022 1023 Calculation of branch equivalent income or loss EX 21 Branch equivalent income or loss: calculation rules 1024 Grey list exemption EX 22 Unqualiﬁed grey list CFCs EX 23 Tax concession grey list CFCs Residence of companies EX 24 Residence in grey list country EX 25 Companies moving to or from New Zealand EX 26 Change of CFC’s balance date Change of CFC’s balance date Ownership measurement concession EX 27 Use of quarterly measurement Anti-avoidance rule: stapled stock EX 28 Anti-avoidance rule: stapled stock Foreign investment fund rules What is a foreign investment fund?
EX 29 Meaning of FIF Attributing interests in FIFs EX 30 Attributing interests in FIFs EX 31 Direct income interests in FIFs EX 32 CFC rules exemption EX 33 Exemptions: direct income interests in FIF in grey list country 1033 1033 1034 1035 1036 1037 1038 1038 1039 1039 1041 1041 EX 33B Exemptions limited by income years: shares in certain 1046 grey list companies EX 33C Exemption: shares in listed Australian company EX 33D Exemption: units in certain Australian unit trusts EX 33E Australian superannuation fund exemption EX 34 Foreign exchange control exemption EX 35 Income interest of non-resident or transitional resident EX 36 New resident’s accrued superannuation entitlement exemption EX 37 Non-resident’s pension or annuity exemption Calculation of FIF income or loss EX 38 Six calculation methods 1048 1050 1052 1053 1053 1054 1057 1058 1006 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EW 63 EX 39 Exclusion of amounts of death beneﬁt EX 40 Limits on choice of calculation methods EX 40B Use of particular calculation methods required EX 41 Default calculation method EX 42 Accounting proﬁts method EX 43 Branch equivalent method EX 44 Comparative value method EX 44B Fair dividend rate method EX 44C Fair dividend rate method: usual method EX 44D Fair dividend rate method: method for unit valuers and persons valuing interests daily EX 44E Fair dividend rate method and cost method: calculating items in formulas for periods affected by share reorganisations EX 45 Deemed rate of return method Additional FIF income or loss if CFC owns FIF EX 45B Cost method EX 46 Additional FIF income or loss if CFC owns FIF 1059 1060 1066 1067 1068 1070 1073 1076 1077 1082 1088 1090 1094 1100 Relationship with other provisions in Act EX 47 Codes: comparative value method, deemed rate of return 1102 method, fair dividend rate method, and cost method EX 48 Top-up FIF income: deemed rate of return method EX 49 Top-up FIF income: 1 April 1993 uplift interests Changing calculation method EX 50 Limits on changes of method EX 51
 Consequences of changes in method Cases of entry into and exit from FIF rules EX 52 Migration of persons holding FIF interests EX 53 Changes in application of FIF exemptions EX 54 FIFs migrating from New Zealand EX 54B FIF rules ﬁrst applying to interest for income year beginning on or after 1 April 2007 EX 55 Death of persons holding FIF interests [Repealed] EX 56 Measurement of cost Measurement of cost EX 57 Change of FIF’s balance date Change of FIF’s balance date 1104 1105 1106 1109 1112 1115 1119 1120 1122 1122 1124 1007 Part E s EX 1 Income Tax Act 2004 Reprinted as at 29 August 2011 Market value rules EX 58 Market value of life policy and superannuation entitlements EX 59 Non-market transactions in FIF interests Commissioner’s default assessment power EX 60 Commissioner’s default assessment power 1126 1127 1127 Controlled foreign company rules When is a company a controlled foreign company?
EX 1 Meaning of CFC Tests of control (1) A foreign company is a CFC if any of the following tests is met: (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) (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 (1B) Even if a test in subsection (1) is met, a foreign company is not a CFC if— (a) the foreign company is a foreign investment vehicle; and one of the New Zealand residents is— (b) 1008 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EX 2 (2) (i) (ii) (iii) a portfolio investment entity: an entity eligible to be a portfolio investment en- tity: a life insurance company.
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 (1B) does not apply at that time, the company is treated as a CFC for the whole of the accounting period.
Deﬁned in this Act: accounting period, associated person, CFC, company, con- trol, control interest, control interest category, foreign company, New Zealand resident, shareholder decision-making rights Compare: 1994 No 164 s CG 4(1) Subsection (1)(a) and (b)(iii) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; or”.
Section EX 1(1)(b)(i): substituted (with effect on 1 April 2005), on 7 September 2010, by section 202(1) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).

Section EX 1(1B): inserted, on 1 October 2007, by section 14(1) of the Taxation (KiwiSaver and Company Tax Rate Amendments) Act 2007 (2007 No 19).
Section EX 1(1B): amended (with effect from 1 October 2007), on 19 December 2007, by section 75 of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section EX 1(2): substituted, on 1 October 2007, by section 14(2) of the Taxa- tion (KiwiSaver and Company Tax Rate Amendments) Act 2007 (2007 No 19).
Calculation of person’s control interest EX 2 Four categories for calculating control interests Separate categories (1) Under section EX 5(1), a direct control interest in a foreign company can arise in each of 4 separate categories of rights.

(2) List of categories The 4 categories are— (a) (b) shareholding in the foreign company: shareholder decision-making rights for the foreign com- pany: rights to receive income from the foreign company: rights to receive distributions of the company’s net as- sets.
(c) (d) 1009 Part E s EX 3 Income Tax Act 2004 Reprinted as at 29 August 2011 (3) Detailed calculation rules In each category, more detailed calculation rules appear in sec- tion EX 5.

Four categories of control interests (4) Accordingly, the rules in section EX 3 for calculating control interests by totalling various direct and indirect control inter- ests and associated parties’ interests are applied on a category by category basis, by reference to those categories of direct control interest.
Deﬁned in this Act: associated person, control interest, direct control interest, foreign company, income, shareholder decision-making rights Subsection (2)(a) to (c) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; and”.
EX 3 Control interest: total of direct, indirect, and associated (b) person interests A New Zealand resident’s control interest in a foreign com- pany at any time is the total of the following for the relevant control interest category: (a) any direct control interest that the New Zealand resident holds in the company: any direct control interests in the company held by per- sons associated with the New Zealand resident: any indirect control interests that the New Zealand resi- dent holds in the company: any indirect control interests in the company held by persons associated with the New Zealand resident.
Deﬁned in this Act: associated person, control interest, control interest cat- egory, direct control interest, foreign company, New Zealand resident Compare: 1994 No 164 s CG 4(2) (d) (c) Paragraphs (a) to (c) were amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; and”.
EX 4 Limits to requirement to include associated person interests Non-resident relatives For the purposes of section EX 3, a New Zealand resident is associated with a non-resident relative only if the New Zealand (1) 1010 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EX 5 resident holds a direct control interest or indirect control inter- est in the foreign company.
No double counting (2) Despite section EX 3(b) and (d), for the purposes of deter- mining whether a foreign company is a CFC, a direct control interest or indirect control interest may be counted only once.
Deﬁned in this Act: associated person, CFC, control interest, direct control interest, foreign company, New Zealand resident, non-resident, relative Compare: 1994 No 164 s CG 4(3), (7) EX 5 Direct control interests Categories of direct control interests (1) A person has a direct control interest in a foreign company at any time if they hold— (a) (b) any of the shares in the foreign company: any of the shareholder decision-making rights for the company: a right to receive, or to control the application of, any of the income of the company for the accounting period in which the time falls: a right to receive, or to control the application of, any of the value of the net assets of the company, if they are distributed.
(c) (d) (2) Percentage of total is counted The direct control interest in each control interest category is the percentage of the total that the person holds.
Measurement of available subscribed capital (3) When the direct control interest in the category in subsection (1)(a) is calculated, the percentage is the total of the available subscribed capital per share calculated under the slice rule of the shares held as a percentage of the total available subscribed capital per share calculated under the slice rule of all shares in the company.
Varying decision-making rights (4) When the direct control interest in the category in subsection (1)(b) is calculated, if the percentage varies between the rights described in the different paragraphs of the deﬁnition of share- 1011 Part E s EX 6 Income Tax Act 2004 Reprinted as at 29 August 2011 holder decision-making rights in section OB 1 (Deﬁnitions), the highest percentage is taken.
Income distribution rights: assumptions (5) When the direct control interest in the category in subsection (b) (c) (1)(c) is calculated, it is assumed that— (a) the income is distributed on the last day of the account- ing period; and the person’s entitlement is unchanged during the period; and a payment of interest on a debenture subject to section FC 1 (Floating rate of interest on debentures) or FC 2 (Interest on debentures issued in substitution for shares) or FC 2B (Stapled debt securities) is a distribution of income.
Deﬁned in this Act: accounting period, available subscribed capital, control in- terest category, direct control interest, foreign company, income, interest, pay- ment, share, shareholder decision-making rights, slice rule Compare: 1994 No 164 ss CG 3(c), CG 4(4), CG 5(2) Subsection (1)(a) to (c) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; or”.
Subsection (4) was amended, as from 1 October 2005, by section 195 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by inserting “of shareholder decision-making rights” after the word “deﬁnition”.

Section EX 5(5)(c): amended (with effect on 25 February 2008), on 6 October 2009, by section 790 of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
EX 6 Direct control interests include options and similar rights (1) Entitlement to acquire or extinguish For the purposes of section EX 5, a person is treated as holding something if they are entitled to acquire it or extinguish it.
Entitlement arises in various ways (2) A person is entitled to acquire or extinguish something if the entitlement is absolute or contingent and whether the entitle- ment— (a) (b) (c) arises under a company’s constitution; or arises under the terms of an option; or arises under the terms of a convertible note; or 1012 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EX 7 (d) (e) arises under the terms of any arrangement substantially similar to any of those described in paragraphs (a) to (c); or arises in some other way.
Standard security arrangements (3) Despite subsections (1) and (2), a person is not treated as being entitled to acquire something if— (a) (b) the entitlement arises under a security arrangement; and the person acquired the security arrangement in a trans- action entered into on an arm’s length basis; and the security arrangement’s terms conform to generally accepted commercial practice.
(c) No double counting (4) Despite subsections (1) and (2), for the purpose of determining whether a foreign company is a CFC, each of the percentage holdings described in section EX 5 may be counted only once.
Deﬁned in this Act: arrangement, CFC, company, convertible note, direct con- trol interest, foreign company, security arrangement Compare: 1994 No 164 ss CG 3(b), CG 4(8) EX 7 Indirect control interests How indirect control interests arise (1) A person has an indirect control interest in a foreign company to the extent to which the rules in this section attribute to them some or all of the direct control interests held by a CFC in the foreign company.
Attribution of CFC’s direct interests (2) A CFC’s direct control interest in another foreign company is attributed under subsections (3) to (11).

(3) (4) Associates For the purposes of this section, the CFC is treated as also holding any direct control interests in the foreign company held by persons associated with the CFC.
Attribution to smallest controlling group Subsections (6) to (11) apply to attribute the CFC’s direct con- trol interests to the smallest controlling group, to ensure that the attribution exercise does not dilute recognition of a factual chain of control.
1013 Part E s EX 8 Income Tax Act 2004 Reprinted as at 29 August 2011 (5) (6) (7) (8) (9) Attribution on basis of respective income interests If the CFC’s direct control interests are attributed to more than 1 person, the direct control interests are divided in proportion to each group member’s respective income interest in the CFC.
One controlling group If there is only 1 group of New Zealand residents whose con- trol interests have caused the CFC to be a CFC under section EX 1, the CFC’s direct control interests are treated as being held by that group.

More than 1 group If there is more than 1 group whose control interests have caused the CFC to be a CFC under section EX 1, the CFC’s direct control interests are attributed to the smallest group.
Equal smallest groups If there are 2 or more groups that are equally the smallest, and 1 group has the greatest total control interests in the CFC, the attribution is to that group.

Equal smallest groups with equal greatest control interests If there are 2 or more smallest groups with equal greatest total control interests in the CFC, the attribution is made in full to each group.
No double counting (10) Despite subsection (9), for the purpose of determining whether a foreign company is a CFC, a direct control interest may be counted only once.

(11) Sequential application If a foreign company becomes a CFC under this section, this section is then applied to attribute its direct control interests.
Deﬁned in this Act: associated person, CFC, control, control interest, direct control interest, foreign company, income interest, New Zealand resident Compare: 1994 No 164 s CG 4(5), (6) Calculation of person’s income interest EX 8 Income interests: total of direct and indirect interests A person’s income interest in a CFC at any time is the total of the following: 1014 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EX 9 (a) (b) any direct income interest that the person holds in the CFC: any indirect income interest that the person holds in the CFC.
Deﬁned in this Act: CFC, direct income interest, income interest, indirect in- come interest Compare: 1994 No 164 s CG 5(1) Paragraph (a) was amended, as from 21 December 2004, by section 270 Taxa- tion (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; and”.
EX 9 Direct income interests Categories of direct income interest (1) A person has a direct income interest in a CFC at any time if they hold— (a) (b) any of the shares in the foreign company: any of the shareholder decision-making rights for the company: a right to receive, or to control the application of, any of the income of the company for the accounting period in which the time falls: a right to receive, or to control the application of, any of the value of the net assets of the company, if they are distributed.
(c) (d) (2) Percentage of total is counted The person’s direct income interest is the percentage of the total that the person holds.

Varying percentages (3) However, if the percentage varies between the different cat- egories, the person’s direct income interest is the highest.
Measurement of available subscribed capital (4) When the direct income interest in the category in subsection (1)(a) is calculated, the percentage is the total of the available subscribed capital per share calculated under the slice rule of the shares held as a percentage of the total available subscribed capital per share calculated under the slice rule of all shares in the company.
1015 Part E s EX 10 Income Tax Act 2004 Reprinted as at 29 August 2011 Varying decision-making rights (5) When the direct income interest in the category in subsection (1)(b) is calculated, if the percentage varies between the rights described in the different paragraphs of the deﬁnition of share- holder decision-making rights in section OB 1 (Deﬁnitions), the highest percentage is taken.
Income distribution rights: assumptions (6) When the direct income interest in the category in subsection (b) (c) (1)(c) is calculated, it is assumed that— (a) the income is distributed on the last day of the account- ing period; and the person’s entitlement is unchanged during the period; and a payment of interest on a debenture subject to section FC 1 (Floating rate of interest on debentures) or FC 2 (Interest on debentures issued in substitution for shares) or FC 2B (Stapled debt securities) is a distribution of income.
Deﬁned in this Act: accounting period, available subscribed capital, CFC, debentures, direct income interest, foreign company, income, interest, pay- ment, share, shareholder decision-making rights, slice rule Compare: 1994 No 164 ss CG 3(c), CG 5(2) Subsection (1)(a) to (c) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; or”.
Section EX 9(6)(c): amended (with effect on 25 February 2008), on 6 October 2009, by section 791 of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

EX 10 Indirect income interests Looking through CFCs If a person has a direct income interest in a CFC, and the ﬁrst CFC has a direct income interest in another CFC, the person has an indirect income interest in the other CFC.
Calculation of indirect income interest The indirect income interest is calculated by multiplying the person’s direct income interest in the ﬁrst CFC by the ﬁrst CFC’s direct income interest in the other CFC.
(1) (2) 1016 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EX 11 (3) Chains of CFCs If there are 2 or more CFCs in a chain of direct income inter- ests between the person and a CFC, the person has an indirect income interest in the CFC at the end of the chain that is calcu- lated by multiplying all the direct income interests in the chain.
Deﬁned in this Act: CFC, direct income interest, indirect income interest Compare: 1994 No 164 s CG 5(3) EX 11 Options and similar rights in certain cases (1) (2) (3) (4) Increase in income interest The rules in this section apply to increase a person’s income interest in a CFC (ﬁrst CFC) in some cases.
Entitlement to acquire This section applies if the person (or some other person, such as another CFC taken into account when calculating an indi- rect income interest of the person in the ﬁrst CFC) has at any time an entitlement (option) to acquire 1 of the things listed in section EX 9(1) in relation to the ﬁrst CFC but does not hold it.
Actual holder outside CFC rules attribution For this section to apply, the actual holder of the thing subject to the option must not be— another CFC: (a) a New Zealand resident, unless they are a New Zealand (b) resident whose income interest in the ﬁrst CFC for the accounting period in question is less than 10% under sections EX 14 to EX 17.
Terms of option indicating economic ownership For this section to apply, the option must have 1 of the follow- ing features: (a) if this section did not exist, the effect of the option would be to defeat the intent and application of sub- part CQ (Attributed income from foreign equity) or DN (Attributed losses from foreign equity) or this subpart, taking into account the economic beneﬁt that the person gets as a result of the CFC deriving income: 1017 Part E s EX 12 Income Tax Act 2004 Reprinted as at 29 August 2011 (5) (b) (c) the consideration payable for the exercise of the option is less than the market value of the thing acquired at the time of the acquisition: the holder of the option (or an associated person) has directly or indirectly funded or assisted the actual holder to acquire or hold the thing subject to the option.
Calculation as if option exercised If each requirement for this section to apply is met, the per- son’s income interest is calculated as if the option holder had exercised the option.
Deﬁned in this Act: accounting period, associated person, CFC, income, in- come interest, indirect income interest, New Zealand resident Compare: 1994 No 164 s CG 5(4) Subsection (3)(a) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; or”.
Section EX 11(3)(b): amended (with effect from 1 April 2005), on 19 Decem- ber 2007, by section 76(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Subsection (4)(a) and (b) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; or”.
EX 12 Reduction of total income interests (1) (2) Application of this section This section applies if the total income interests for a CFC for an accounting period would be more than 100% (because section EX 9(3) requires the highest percentage to be taken if varying percentage shareholder rights are held).
Proportional reduction Each person’s income interest for the period is reduced to the amount calculated using the formula— Deﬁned in this Act: accounting period, amount, CFC, income interest, share- holder Compare: 1994 No 164 s CG 9 1018 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EX 15 EX 13 Income interests of partners (1) When this section applies This section applies when a partnership holds rights that would be an income interest in a CFC if the partnership were an in- dividual.
Partners’ proportions (2) When income interests in the CFC are calculated, each partner is treated as holding a share of anything held by the partner- ship, in proportion to the partner’s interest in the partnership.
Deﬁned in this Act: CFC, income interest Compare: 1994 No 164 s CG 5(7) Ten percent threshold and variations in income interest level EX 14 Attribution: 10% threshold A person has attributed CFC income or attributed CFC loss from a CFC only if the person’s income interest in the CFC is 10% or more for the relevant accounting period.
Deﬁned in this Act: accounting period, attributed CFC income, attributed CFC loss, CFC, income interest Compare: 1994 No 164 s CG 6(1)(b) EX 15 Associates and 10% threshold (1) Associates included For the purpose of applying the 10% threshold in section EX 14, a person’s income interest in a CFC is increased by each income interest in the CFC, for the relevant accounting period, of a person associated with the person.
Exception (2) Despite subsection (1), the income interest of an associate is not counted if the associate is a CFC.

Deﬁned in this Act: accounting period, associated person, CFC, income interest Compare: 1994 No 164 s CG 6(2) Section EX 15(1): substituted (with effect from 1 April 2005), on 19 December 2007, by section 77(1) of the Taxation (Business Taxation and Remedial Mat- ters) Act 2007 (2007 No 109).
Subsection (1) was amended, as from 1 October 2005, by section 196 Taxa- tion (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) 1019 Part E s EX 16 Income Tax Act 2004 Reprinted as at 29 August 2011 by substituting “EX 46(1)(a)” for “EX 46(1)(b)” with application as from the 2005-06 income year.
Subsection (1) was amended, as from 1 April 2005, by section 59(1) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) by substituting “sections EX 32(b) and EX 46(1)(a)” for “section EX 46(1)(a)” with application as from the 2005-06 income year.
EX 16 Income interests for certain purposes When this section applies This section applies for the purposes of determining the at- tributed CFC income or loss of a person for a period if the person holds an income interest in the CFC on a day in the period.
Zero income interest For the purposes of calculating the attributed CFC income or loss of a person for a period, the person has an income interest in a CFC of zero on a day in the period if, on the day, the person is— (a) (b) a non-resident: a transitional resident.
Attribution not prevented This section does not override— (a) section CD 13 (Attributed repatriations from controlled foreign companies), which treats a dividend resulting from attributed repatriation as being derived while the person deriving it is a New Zealand resident; or section CQ 2(3) (When attributed CFC income arises), which treats any attributed CFC income as being de- rived while the person deriving it is a New Zealand resi- dent; or section CQ 5(4) (When FIF income arises), which treats any FIF income as being derived while the person de- riving it is a New Zealand resident.
(b) (c) Deﬁned in this Act: accounting period, attributed CFC income, attributed re- patriation, CFC, dividend, FIF income, income interest, New Zealand resident, non-resident, transitional resident Compare: 1994 No 164 ss CG 5(6), CG 7(6), CG 8(13), CG 16(5) The heading to section EX 16 was substituted, as from 1 October 2005, by sec- tion 87(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscel- laneous Provisions) Act 2006 (2006 No 3) with application for: a person who becomes a transitional resident as from 1 April 2006; and as from the income (1) (2) (3) 1020 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EX 17 year corresponding to the 2005–06 tax year.
See section 87(5) and (6) of that Act as to the application of this amendment.

Subsection (1) (excluding the heading) was substituted, as from 1 October 2005, by section 87(2) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) with application for: a person who becomes a transitional resident as from 1 April 2006; and as from the in- come year corresponding to the 2005–06 tax year.
See section 87(5) and (6) of that Act as to the application of this amendment.

Subsection (2) (excluding the heading) was substituted, as from 1 October 2005, by section 87(3) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) with application for: a person who becomes a transitional resident as from 1 April 2006; and as from the in- come year corresponding to the 2005–06 tax year.
See section 87(5) and (6) of that Act as to the application of this amendment.

The list of deﬁned terms was amended, as from 1 October 2005, by section 87(4) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellan- eous Provisions) Act 2006 (2006 No 3) by inserting “transitional resident” with application for: a person who becomes a transitional resident as from 1 April 2006; and as from the income year corresponding to the 2005–06 tax year.
See section 87(5) and (6) of that Act as to the application of this amendment.

EX 17 Income interest if variations within period (1) (2) When this section applies This section applies if a person’s income interest in a CFC, calculated under sections EX 8 to EX 16, varies between days in a period.

Weighted average The person’s income interest for the period is the total of the amounts for the period, each of which is calculated using the formula in subsection (3) for a day in the period.
Formula The formula is— (3) (4) Deﬁnition of items in formula In the formula,— (a) income interest for day is— (i) the income interest during the day, if the income interest does not vary during the day: the income interest at the start of the day, if the income interest varies during the day: (ii) 1021 Part E s EX 18 Income Tax Act 2004 Reprinted as at 29 August 2011 days in period is the number of days in the period.
(b) Deﬁned in this Act: CFC, income interest Subsection (4)(a) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; and”.

Section EX 17 was substituted, as from 1 October 2005, by section 88(1) Taxa- tion (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provi- sions) Act 2006 (2006 No 3) with application as from the income year corres- ponding to the 2005–06 tax year.
Calculation of attributed CFC income or loss EX 18 Formula for calculating attributed CFC income or loss If a person has attributed CFC income under section CQ 2 (When attributed CFC income arises) or an attributed CFC loss under section DN 2 (When attributed CFC loss arises), the amount of a person’s attributed CFC income or loss from a CFC for an accounting period is calculated using the for- mula— person’s income interest for accounting period x branch equivalent income or loss of CFC for accounting period.
Deﬁned in this Act: accounting period, amount, attributed CFC income, at- tributed CFC loss, branch equivalent income, CFC, income interest, loss Compare: 1994 No 164 s CG 7(2) EX 19 Taxable distribution from non-qualifying trust Application of this section This section applies if— (a) (b) a CFC derives a taxable distribution from a non-quali- fying trust in an accounting period; and a person has attributed CFC income or loss from the CFC for the period (or would have if the taxable dis- tribution were included in the CFC’s branch equivalent income).
Additional attributed CFC income The taxable distribution is excluded (under section EX 21(32)) when calculating the CFC’s branch equivalent income or loss, and instead the person has additional attributed CFC income.
(1) (2) 1022 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EX 20 (3) (4) Calculation of additional attributed CFC income The amount of the additional attributed CFC income is calcu- lated using the formula— person’s income interest in CFC for accounting period x taxable distribution.
Non-qualifying trust tax rate The person is liable for income tax on the additional attributed CFC income at the rate in schedule 1 (Basic rates of income tax and speciﬁed superannuation contribution withholding tax) that applies to amounts under section HH 3(4) (Income of beneﬁciaries).

Disclosure restrictions on grey list CFCs (5) No additional attributed CFC income arises under this section to the extent to which section EZ 29 (Disclosure restrictions on grey list CFCs before 2011–12) applies.
Deﬁned in this Act: accounting period, amount, attributed CFC income, branch equivalent income, CFC, income interest, income tax, loss, non-qualifying trust, taxable distribution Compare: 1994 No 164 ss CG 6(1)(c), CG 7(4) Subsection (5) was amended, as from 3 April 2006, by section 89(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by substituting “2011–12” for “2006–07” with applica- tion as from the income year corresponding to the 2006–07 tax year.
EX 20 Reduction in attributed CFC loss (1) (2) Application of this section: no economic loss This section applies if— (a) (b) a person has an amount of attributed CFC loss; and the person suffers no, or substantially no, corresponding economic loss, whether because of a call option, a put option, or any other reason.
Application of this section: attributed CFC loss excessive This section also applies if— (a) (b) a person has an amount of attributed CFC loss; and the amount is more than any corresponding economic loss of the person, whether because of the application of the rules for calculating the person’s income interest or for any other reason.
1023 Part E s EX 21 Income Tax Act 2004 Reprinted as at 29 August 2011 (3) Reduction to economic loss The attributed CFC loss is reduced to be equal to the economic loss (if any).
Deﬁned in this Act: amount, attributed CFC loss, income interest Compare: 1994 No 164 s CG 7(3) Calculation of branch equivalent income or loss EX 21 Branch equivalent income or loss: calculation rules (1) (2) Rules set out in this section For the purpose of calculating the attributed CFC income or loss of a person (taxpayer), the branch equivalent income or loss of the CFC for an accounting period is calculated under the rules in this section.
CFC treated as New Zealand resident The rules in this Act are applied as if the CFC were always a New Zealand resident, and— (a) the CFC’s branch equivalent income for the accounting period is equal to the CFC’s net income for the period; and the CFC’s branch equivalent loss for the accounting period is equal to the CFC’s net loss for the period.

(b) Modiﬁcations to rules (3) However, the rules in the Act are modiﬁed for the purposes of the calculation by the following subsections.
Conversion to New Zealand dollars The taxpayer must choose— (a) (b) for all the calculations to be done in New Zealand dol- lars; or for all the calculations to be done in the currency of the CFC’s ﬁnancial accounts.

If the CFC has no ﬁnancial accounts, the currency used is that of the CFC’s coun- try of residence.

The result is then converted into New Zealand dollars at the average of the close of trading spot exchange rates for the ﬁfteenth day of each com- plete month that falls in the period.
(4) 1024 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EX 21 Consent for change of currency (5) Having chosen a currency, the taxpayer must use the same currency for calculating branch equivalent income or loss for the CFC for each later consecutive accounting period, unless the Commissioner allows the taxpayer to choose again.
(6) Change for commercial purpose The Commissioner may consent to a change under subsection (5) only if satisﬁed that— (a) the taxpayer’s main purpose in changing is a commer- cial one.

(The reducing of tax is not a commercial pur- pose.

); and the change does not have an effect of defeating the intent and application of subpart CQ (Attributed income from foreign equity) or DN (Attributed losses from foreign equity) or this subpart.
(b) New Zealand currency for ﬁnancial arrangements (7) Despite subsections (4) to (6), New Zealand currency calcula- tions must be used to calculate that part of the branch equiva- lent income or loss attributable to ﬁnancial arrangements if— the total value of ﬁnancial arrangements to which the (a) CFC is a party is more than $1,000,000 at any time during the relevant accounting period (applying sec- tion EW 17(2)(b) (Straight-line method) to measure the values); or the CFC’s total net foreign exchange loss attributable to ﬁnancial arrangements, calculated under subsec- tions (4) to (6) for the accounting period, is more than $100,000.
(b) (8) Limit to subsection (7) Subsection (7) does not apply to a ﬁnancial arrangement if— (a) (b) it is a variable principal debt instrument; and all the rights and obligations of all the parties to the ﬁ- nancial arrangement are expressed in the currency cho- sen under subsection (4)(b); and no other party to the ﬁnancial arrangement is associated with the CFC; and (c) 1025 Part E s EX 21 Income Tax Act 2004 Reprinted as at 29 August 2011 (d) no person enters into the ﬁnancial arrangement under an arrangement that has a purpose of defeating the appli- cation of subsection (7).
Opening cost base: tangible assets: ﬁrst period If the taxpayer had no attributed CFC income or loss from the CFC for the previous accounting period, the taxpayer must choose whether to measure the cost base at the start of an ac- counting period of premises, plant, machinery, equipment, and trading stock of the CFC at— (a) historical cost minus any accumulated amounts of de- preciation loss, or another value used by the CFC as the starting value for the period for income tax calculations in the country in which the CFC is resident (but only if the value is below market value); or the starting value that would be used under this Act if the CFC had always been a New Zealand resident.
(b) Opening cost base: tangible assets: later periods If the taxpayer had attributed CFC income or loss from the CFC for the previous period, the cost base at the start of an accounting period of premises, plant, machinery, equipment, and trading stock of the CFC is the closing value at the end of the previous period used to calculate the income or loss.
Opening cost base: ﬁnancial arrangements: ﬁrst period If the taxpayer had no attributed CFC income or loss from the CFC for the previous accounting period, the taxpayer must choose to calculate the consideration under the ﬁnancial ar- rangements rules for a ﬁnancial arrangement at the start of an accounting period, at— (a) the market value of the ﬁnancial arrangement; or the absolute value calculated using the formula— (b) consideration paid to the CFC + expenditure – consideration paid by the CFC – income.
Deﬁnition of items in formula In the formula,— (a) consideration paid to the CFC is the consideration paid to the CFC for all periods before the accounting period: expenditure is expenditure that would have been in- curred under the ﬁnancial arrangements rules for all (b) (9) (10) (11) (12) 1026 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EX 21 (c) (d) periods before the accounting period if the CFC had been resident in New Zealand: consideration paid by the CFC is the consideration paid by the CFC for all periods before the accounting period: income is income that would have been derived under the ﬁnancial arrangements rules for all periods before the accounting period if the CFC had been resident in New Zealand.
Provisions that do not apply (13) The following provisions do not apply: (a) (b) (c) (d) (e) (f) (g) (h) (i) (j) (k) the consolidation rules: section CB 24 (Income equalisation schemes) and sub- parts DQ (Income equalisation schemes) and EH (In- come equalisation schemes): sections CD 34 to CD 41 (which relate to the CFC at- tributed repatriation calculation rules) or subpart CQ (Attributed income from foreign equity) or DN (At- tributed losses from foreign equity) or this subpart to the extent to which any of the sections or subparts would re- sult in attributed CFC income, attributed CFC loss, or attributed repatriation for the CFC: section CW 8 (Money lent to government of New Zealand): section CW 33(1) (Local and regional promotion bod- ies): sections DO 1 (Enhancements to land, except trees) and DO 2 (Erosion and shelter plantings): sections EW 9 (Persons to whom ﬁnancial arrange- ments rules apply) and EW 11(b) (What ﬁnancial arrangements rules do not apply to): subpart FG (Apportionment of interest costs): section GC 3 (Effect on continuity provisions of change in beneﬁciaries of trust): sections IE 1 (Net losses may be offset against future net income) and IF 1 (Net losses may be offset against future net income): sections IG 2 (Net loss offset between group compan- ies) and IG 3 (Special provisions in relation to group companies for 1991-92 tax year).
1027 Part E s EX 21 Income Tax Act 2004 Reprinted as at 29 August 2011 Business treated as if carried on in New Zealand (14) The following provisions apply as if the CFC’s business activ- ities were carried on in New Zealand: (a) sections CT 1 to CT 3, CT 5 to CT 7, CX 36, CX 37, CZ 8, DT 1 to DT 15, DT 17 to DT 19, and IH 3, which relate to petroleum mining: sections DO 4 to DO 4D, DO 6, DP 1 to DP 3, DP 7, and DP 10, which relate to farming, aquacultural, and forestry expenditure: section EZ 15 (Amount of depreciation loss for plant or machinery additional to section EZ 14 amount): the deﬁnitions in subpart OB (General deﬁnitions) that speciﬁcally apply for the purposes of those sections.
(b) (c) (d) Transfer pricing rules (15) Section GD 13 (Cross-border arrangements between associ- ated persons) applies only to a transaction that has a purpose or effect of defeating any of the jurisdictional ring-fencing rules for CFC losses and tax credits in sections DN 4 (Ringfenc- ing cap on deduction), IE 3 (Attributed CFC net losses), IG 4 (Group of companies attributed CFC net losses), LC 4 (For- eign tax credits: CFCs), and LC 5 (Group of companies CFC tax credits).
Also, when section GD 13 is applied, the relevant deﬁnitions of associated persons are those in both sections OD 7 (Deﬁning when 2 persons are associated persons) and OD 8(3) (Further deﬁnitions of associated persons).
Dividends generally (16) Sections CW 9 to CW 11 (which relate to exempt income from equity) and CZ 13 (Treatment of units and interests in unit trusts and group investment funds on issue as at 1 April 1996) do not apply and dividends are income that is not exempt in- come, unless subsection (17) applies.
Dividends: exempt income (17) Despite subsection (16), dividends are exempt income of the CFC if— (a) the dividends are derived by the CFC from another CFC and the taxpayer has a 10% or greater income interest (under sections EX 14 to EX 17) in the other CFC for an 1028 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EX 21 accounting period falling in the same relevant income year or the previous income year; or the dividends are from shares that are an attributing in- terest in a FIF of the CFC.
(b) Beneﬁts from money advanced (18) When section CC 7 (Consideration other than in money) is applied, the borrower is treated as if it carries on a business in New Zealand.

No tainting by association (19) Sections CB 7 to CB 11 (which relate to the disposal of land) and CV 1 (Group companies) do not apply to treat an amount derived by the CFC as income merely because of the activities of a person associated with the CFC if the associate is a non- resident.
Crown acquisition of land (20) The reference in section EI 7(1) (Disposal of land to Crown) to the Crown includes any relevant government outside New Zealand.
Amount of depreciation loss recovered (21) When sections EE 41 to EE 44 (which relate to disposals and similar events) are applied, the CFC is treated as having had a deduction for an amount of depreciation loss, and to have an adjusted tax value accordingly, if an amount of depreciation loss has been deducted when calculating the CFC’s branch equivalent income or loss for any period and the attributed CFC income or loss of any person.
GST and value-added taxes (22) When sections CX 1 (GST), DB 2 (GST), EE 38 (Consider- ation for purposes of section EE 37), EE 45 (Cost: GST), EZ 7 (FIF interests held on 1 April 1993), and EZ 16 (Additional amount of depreciation loss: between 16 December 1991 and 1 April 1994) are applied, references to output tax, input tax, or GST payable include a reference to the equivalent item aris- ing under the value-added tax or other tax rules of a country or territory outside New Zealand if the rules have a similar intent and application to the New Zealand GST rules.
1029 Part E s EX 21 Income Tax Act 2004 Reprinted as at 29 August 2011 Government grants to businesses (23) When section DF 1 (Government grants to businesses) is ap- plied, a reference to the New Zealand government includes a government outside New Zealand but, to the extent to which section DF 1 still does not apply to a grant or subsidy to the CFC from a government, the grant or subsidy is income of the CFC.
(24) Subvention payments If an amount is paid as consideration for the transfer of tax losses,— (a) (b) it is income if derived by the CFC; and it is a deduction if payable by the CFC but only if paid to a person resident in the same country as the CFC and if deductible under the taxation law of that country.
Life insurers (25) Subsection (26) applies if— (a) (b) the CFC itself carries on the business of providing life insurance; or shares in the CFC are held (directly or indirectly) by a foreign company (parent company, in subsection (26)) that carries on the business of providing life insurance and those shares have to be taken into account under sections EX 8 to EX 13 to calculate the taxpayer’s in- come interest in the CFC.
(26) Policyholders If the test in subsection (25) is met, the life insurance rules do not apply and the branch equivalent income or loss of the CFC is the amount actuarially determined to be part of the CFC’s proﬁt or loss to which shareholders (and not policyholders in either the CFC or the parent company) are entitled.
When subsection (26) does not apply (27) Despite subsection (25), subsection (26) does not apply if the Commissioner— (a) considers that the amount calculated is not a reasonable reﬂection of the part attributable to shareholders; or has requested and not received sufﬁcient information to enable the actuarial calculation to be reviewed.
(b) 1030 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EX 21 Mineral mining activities (28) Sections BC 7, CU 1 to CU 29, CX 38 to CX 40, CZ 2, CZ 4, DU 1 to DU 12, DZ 12, IH 4, and IH 5 (which relate to mineral mining) apply, with any necessary modiﬁcations, if the CFC carries on activities outside New Zealand that are substantially the same as the mineral mining activities to which those sec- tions apply.
Petroleum mining activities (29) Sections CT 1 to CT 3, CT 5, CX 36, CX 37, CZ 8, DT 1 to DT 15, DT 17 to DT 19, and IH 3 (which relate to petroleum mining) apply, with any necessary modiﬁcations, if the CFC carries on petroleum mining activities outside New Zealand that are substantially the same as the petroleum mining activ- ities to which those sections apply.
Finance leases and speciﬁed leases (30) A lease entered into by the CFC before the start of the ﬁrst ac- counting period in which the CFC is a CFC is neither a ﬁnance lease (subject to the ﬁnancial arrangements rules and sections FC 8A to FC 8H, which relate to ﬁnance leases) nor a speciﬁed lease (subject to sections FC 6 to FC 8, which relate to leases).

When subsection (30) does not apply (31) Subsection (30) does not apply if another party to the lease is either a CFC or a New Zealand resident.
(32) (33) Taxable distributions from non-qualifying trust If the CFC gets a taxable distribution from a non-qualifying trust— (a) section HH 3(4) (Income of beneﬁciaries) does not apply; and the taxable distribution is not taken into account in cal- culating the CFC’s branch equivalent income or loss; and section EX 19 applies.
(b) (c) CFCs with interest in FIFs If the CFC has rights in a FIF,— (a) the rights are not prevented from being an attributing interest of the CFC in a FIF merely because the notional New Zealand residence of the CFC under subsection (2) causes section EX 32 to apply; and 1031 Part E s EX 21 Income Tax Act 2004 Reprinted as at 29 August 2011 (b) (c) the CFC’s FIF income or loss is not taken into account in calculating the branch equivalent income; and section EX 46 applies.
Transitional treatment of cross-border reinsurance (34) Section CZ 12 (General insurance with risk period straddling 1 July 1993) applies as if the reference to New Zealand were a reference to the CFC’s country of residence.

Disclosure restrictions on grey list CFCs (35) A CFC has no amount of branch equivalent income or loss under this section for an accounting period to the extent to which section EZ 29 (Disclosure restrictions on grey list CFCs before 2011–12) applies.
Deﬁned in this Act: absolute value, accounting period, adjusted tax value, amount, arrangement, associated person, attributed CFC income, attributed CFC loss, attributed repatriation, attributing interest, branch equivalent income, branch equivalent loss, business, CFC, close of trading spot exchange rate, Commissioner, consideration, consolidation rules, deduction, depreciation loss, dividend, exempt income, FIF, FIF income, ﬁnance lease, ﬁnancial arrangement, ﬁnancial arrangements rules, foreign company, GST, GST payable, income, income interest, income tax, income year, input tax, lease, life insurance, life insurance rules, loss, mineral, net income, net loss, New Zealand, New Zealand resident, non-qualifying trust, non-resident, output tax, petroleum, resident in New Zealand, share, shareholder, speciﬁed lease, tax, taxable distribution, trading stock, variable principal debt instrument Compare: 1994 No 164 ss CG 6(1)(c), CG 11 Subsection (13)(a) to (j) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; or”.
Subsection (14)(a) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; and”.

Subsection (14)(b) was amended, as from 1 October 2005, by section 197 Tax- ation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by inserting “to DO 4D,” after the expression “DO 4” with application as from the 2005–06 income year.
Subsection (14)(b) and (c) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; and”.

Section EX 21(26): amended (with effect on 1 April 2005), on 7 December 2009, by section 157(1) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
Section EX 21(30): amended (with effect from 20 June 2007), on 19 December 2007, by section 78 of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
1032 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EX 23 Subsection (35) was amended, as from 3 April 2006, by section 90(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by substituting “2011–12” for “2006–07” with applica- tion as from the income year corresponding to the 2006–07 tax year.
Grey list exemption EX 22 Unqualiﬁed grey list CFCs Criteria (1) A CFC is an unqualiﬁed grey list CFC for an accounting period if— (a) (b) at all times in the accounting period it is resident in a country listed in schedule 3, part A (International tax rules: grey list countries); and in that country the CFC’s liability for income tax has not been reduced by applying any of the concessions listed in schedule 3, part B (International tax rules: grey list countries).
(2) (3) No attributed income or loss Sections CQ 2(1)(g) (When attributed CFC income arises) and DN 2(g) (When attributed CFC loss arises) provide that no attributed CFC income or attributed CFC loss arises from an unqualiﬁed grey list CFC.

CFCs with interest in FIFs: look-through approach This section does not prevent FIF income or loss arising under section EX 46, if an unqualiﬁed grey list CFC has an interest in a FIF.
Deﬁned in this Act: accounting period, attributed CFC income, attributed CFC loss, CFC, FIF, FIF income, grey list, income tax, loss Compare: 1994 No 164 s CG 13(1) Subsection (2) was amended, as from 1 April 2005, by section 60(1) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) by substituting “CQ 2(1)(g)” for “CQ 2(g)” with application as from the 2005-06 income year.
EX 23 Tax concession grey list CFCs Criteria (1) A CFC is a tax concession grey list CFC for an accounting period if— 1033 Part E s EX 24 Income Tax Act 2004 Reprinted as at 29 August 2011 (a) (b) at all times in the accounting period it is resident in a country listed in schedule 3, part A (International tax rules: grey list countries); and in that country the CFC’s liability for income tax has been reduced by applying any of the concessions listed in schedule 3, part B (International tax rules: grey list countries).
(2) Attribution using country’s tax rules In the case of a tax concession grey list CFC,— (a) section EX 21 does not apply for the accounting period; and (b) when section EX 18 is applied, the amount of branch equivalent income or loss for the period is equal to the net income or net loss calculated under the income tax law of the CFC’s country of residence but— (i) excluding any allowance for carrying forward prior period losses; and adjusted to exclude the beneﬁt of concessions listed in schedule 3, part B (International tax rules: grey list countries); and converted to New Zealand dollars under section EX 21(4)(b).
(ii) (iii) Deﬁned in this Act: accounting period, amount, branch equivalent income, CFC, grey list, income tax, loss, net income, net loss, New Zealand Compare: 1994 No 164 s CG 13(2) Residence of companies EX 24 Residence in grey list country Necessary liability to income tax For the purposes of this subpart and subparts CQ (Attributed income from foreign equity), DN (Attributed losses from for- eign equity), and LF (Underlying foreign tax credits), a CFC is resident in a country listed in schedule 3, part A (International tax rules: grey list countries) if— (a) the CFC is liable in the country to income tax on the CFC’s income because the CFC— is domiciled in the country: (i) is resident in the country: (ii) (1) 1034 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EX 25 (b) is incorporated in the country: (iii) (iv) has its place of management in the country: the CFC is organised under the laws of the country and the country— (i) imposes on persons holding income interests in the CFC the liability for income tax on the CFC’s income; and under the laws of the country, is the source of 80% or more of the income of the CFC.
(ii) (2) Relationship with section OE 2 This section overrides section OE 2 (Determination of resi- dence of company).

Deﬁned in this Act: CFC, grey list, income tax Compare: 1994 No 164 s CG 13(1)(a) Subsection (1)(a) to (c) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; or”.
Subsection (1) (excluding the heading) was substituted, as from 1 April 2006, by section 91(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) with application as from the income year corresponding to the 2006–07 tax year.
EX 25 Companies moving to or from New Zealand (1) (2) (3) Companies becoming foreign If a company becomes a foreign company, an accounting period of the company starts on the day when the company becomes a foreign company and the former accounting period ends on the previous day.
Companies ceasing to be foreign If a foreign company ceases to be a foreign company, an ac- counting period of the company starts on the day when the company ceases to be a foreign company and the former ac- counting period ends on the previous day.
Pro-rating If subsection (1) or (2) applies to shorten an accounting period of a CFC, a person with attributed CFC income or loss from the CFC for the period may choose to calculate the branch equivalent income or loss of the CFC— (a) using the results for the shortened period only; or 1035 Part E s EX 26 Income Tax Act 2004 Reprinted as at 29 August 2011 (b) by applying the pro-rating formula in subsection (4) to the results for the unshortened period.
(4) Formula The formula for calculating branch equivalent income or loss under subsection (3)(b) is— Deﬁned in this Act: accounting period, attributed CFC income, branch equiva- lent income, CFC, company, foreign company, loss, New Zealand Compare: 1994 No 164 s CG 12 Change of CFC’s balance date EX 26 Change of CFC’s balance date Application of this section This section applies if a person— (a) (b) has an income interest in a CFC; and has calculated attributed CFC income or loss or at- tributed repatriation from the CFC on the basis of 1 accounting year (old accounting year); and wants to change to use a different accounting year (new accounting year) for the calculations.
(c) Change requiring Commissioner’s consent The person may make the change only if the Commissioner agrees.
Commissioner’s reasons The Commissioner may consider any relevant factors when making the decision, including— (a) whether the change is sought because ownership of the CFC has changed: (b) whether the change is sought because of taxation or other legal requirements in a country where the CFC is resident or does business: whether the change is sought to achieve consistent bal- ance dates in a group of companies: (c) (d) whether the change would postpone liability to income tax on attributed CFC income or on attributed repatri- (1) (2) (3) 1036 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EX 27 (4) ation or to dividend withholding payment on attributed repatriation.
No transitional deferral If the new accounting year ends in a later income year than the year the old accounting year ends in, and that fact would result in an amount of attributed CFC income or attributed repatriation being derived in the later income year, the amount is not deferred to the later income year and instead is treated as derived in the previous income year.

However, this subsection applies only once, in the year of the transition.
Deﬁned in this Act: accounting year, amount, attributed CFC income, at- tributed repatriation, business, CFC, Commissioner, dividend withholding payment, group of companies, income interest, income tax, income year, loss Compare: 1994 No 164 s CG 10 Subsection (3)(a) to (c) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; and”.
Ownership measurement concession EX 27 Use of quarterly measurement (1) (2) Interests held at end of quarter In order to simplify the process of calculating a person’s con- trol interest or income interest in a foreign company, the per- son is treated as holding at all times during a quarter the same interest (including a zero interest) as the interest they hold at the end of the quarter.
Anti-avoidance The concession in subsection (1) is overridden by the anti- avoidance rules in sections GC 9 (Variations in control or in- come interests in foreign companies) and GC 10 (Attributed CFC income and FIF income: arrangements in respect of elec- tions).

Ignoring concession (3) A person may choose not to apply the concession in subsection (1) when calculating their attributed CFC income or loss from a foreign company.
Election (4) An election under subsection (3)— 1037 Part E s EX 28 Income Tax Act 2004 Reprinted as at 29 August 2011 (a) must be in the form required by the Commissioner; and is irrevocable; and (b) (c) applies in the income year in which it is made and later.
Deﬁned in this Act: attributed CFC income, Commissioner, control interest, foreign company, income interest, income year, loss, quarter Compare: 1994 No 164 s CG 3(e) Anti-avoidance rule: stapled stock EX 28 Anti-avoidance rule: stapled stock (1) When this section applies This section applies when— (a) a New Zealand resident holds rights (stapled rights) that give rise to an income interest or control interest in a foreign company; and the rights may, or may ordinarily, be disposed of only together with rights in another company; and the other company is a New Zealand resident or a CFC.
(b) (c) Stapled rights held by company (2) When each of subparts CQ (Attributed income from foreign equity) and DN (Attributed losses from foreign equity) and this subpart is applied, the stapled rights are held by the other company and not by the person.

Deﬁned in this Act: CFC, company, control interest, foreign company, income interest, New Zealand resident Compare: 1994 No 164 s CG 3(d) Foreign investment fund rules What is a foreign investment fund?
EX 29 Meaning of FIF A foreign investment fund, or FIF, is any of the following: (a) (b) (c) a foreign company: a foreign superannuation scheme: an insurer under a life insurance policy, but not if the policy is offered or entered into in New Zealand (in which case the insurer must comply with the life insur- ance rules in relation to the policy): 1038 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EX 31 (d) an entity described in schedule 4, part A (Foreign in- vestment funds).
Deﬁned in this Act: FIF, foreign company, foreign investment fund, foreign superannuation scheme, life insurance policy, life insurance rules, offered or entered into in New Zealand Paragraphs (a) to (c) were amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; or”.
Attributing interests in FIFs EX 30 Attributing interests in FIFs Three categories (1) A person has an attributing interest in a FIF if— (a) (b) the person holds rights in 1 of the categories of rights described in subsections (2) to (4); and none of the exemptions in sections EX 32 to EX 37 applies to those rights.
Category 1: direct income interest in foreign company The ﬁrst category is a direct income interest in a foreign com- pany, as deﬁned in section EX 31, or in an entity described in schedule 4, part A (Foreign investment funds).

Category 2: foreign superannuation scheme entitlement The second category is rights to beneﬁt from a foreign super- annuation scheme, as a beneﬁciary or a member.
Category 3: foreign life policy entitlement The third category is rights to beneﬁt from a life insurance policy in relation to which a FIF is the insurer.

Contingent rights The second and third categories include rights that are contin- gent or discretionary.
Deﬁned in this Act: attributing interest, direct income interest, FIF, foreign company, foreign superannuation scheme, life insurance policy Compare: 1994 No 164 ss CG 15(1), OB 1 entitlement of the person to beneﬁt (2) (3) (4) (5) EX 31 Direct income interests in FIFs Categories of direct income interest (1) A person has a direct income interest in a foreign company at any time if they hold— 1039 Part E s EX 31 Income Tax Act 2004 Reprinted as at 29 August 2011 (a) (b) (c) (d) any of the shares in the foreign company: any of the shareholder decision-making rights for the company: a right to receive (or to apply) any of the income of the company for the accounting period in which the time falls: a right to receive (or to apply) any of the value of the net assets of the company, if they are distributed.
(2) Percentage of total The person’s direct income interest is the percentage of the total that the person holds.

Varying percentages (3) However, if the percentage varies between the different cat- egories, the person’s direct income interest is the highest.
Measurement of available subscribed capital (4) When the direct income interest in the category in subsection (1)(a) is calculated, the percentage is the total of the available subscribed capital per share calculated under the slice rule of the shares held as a percentage of the total available subscribed capital per share calculated under the slice rule of all shares in the company.
Varying decision-making rights (5) When the direct income interest in the category in subsection (1)(b) is calculated, if the percentage varies between the rights described in the different paragraphs of the deﬁnition of share- holder decision-making rights in section OB 1 (Deﬁnitions), the highest percentage is taken.
Income distribution rights: assumptions (6) When the direct income interest in the category in subsection (1)(c) is calculated, it is assumed that— (a) the income is distributed on the last day of the account- ing period; and the person’s entitlement is unchanged during the period; and a payment of interest on a debenture subject to section FC 1 (Floating rate of interest on debentures) or FC 2 (Interest on debentures issued in substitution for shares) (b) (c) 1040 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EX 33 (7) or FC 2B (Stapled debt securities) is a distribution of income.
Meaning of company In this section, and in deﬁned terms referred to in this section, company includes an entity listed in schedule 4, part A (For- eign investment funds).
Deﬁned in this Act: accounting period, available subscribed capital, company, debentures, direct income interest, FIF, foreign company, income, interest, pay- ment, share, shareholder decision-making rights, slice rule Compare: 1994 No 164 ss CG 3(c), CG 5(2), CG 15(1)(a) Subsection (1)(a) to (c) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; or”.
Section EX 31(6)(c): amended (with effect on 25 February 2008), on 6 October 2009, by section 792 of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

EX 32 CFC rules exemption A person’s rights in a FIF at any time are not an attributing interest if— (a) (b) the FIF is a CFC at the time; and the person has an income interest of 10% or more in the CFC for the accounting period during which the time falls, under sections EX 14 to EX 17.
Deﬁned in this Act: accounting period, attributing interest, CFC, FIF, income interest Compare: 1994 No 164 s CG 15(2)(a) Section EX 32(b): amended (with effect from 1 April 2005), on 19 December 2007, by section 79(1) of the Taxation (Business Taxation and Remedial Mat- ters) Act 2007 (2007 No 109).
EX 33 Exemptions: direct income interests in FIF in grey list country Direct income interest of 10% or more (1) A person’s rights in a FIF in an income year are not an attribut- ing interest if, at all times in the year,— (a) the rights are a direct income interest of 10% or more; and the person is not a portfolio investment entity, a super- annuation scheme, a unit trust, a life insurer, or a group investment fund; and (b) 1041 Part E s EX 33 Income Tax Act 2004 Reprinted as at 29 August 2011 (c) (d) the FIF is not an entity described in schedule 4, part B (Foreign investment funds); and the FIF meets the requirements of subsection (2).
Further requirements under subsection (1) (2) A FIF meets the requirements of this subsection if— (a) (b) the FIF is a grey list company and a country listed in the grey list imposes on the FIF liability for income tax on the FIF’s income because the FIF— (i) (ii) (iii) (iv) there is a country listed in the grey list that— (i) is domiciled in the country: is resident in the country: is incorporated in the country: has its place of management in the country: is the country under whose laws the FIF is organ- ised; and imposes on persons holding income interests in the FIF liability for income tax on the FIF’s in- come; and under the laws of the country, is the source of 80% or more of the income of the FIF.
(ii) (iii) Shares acquired when FIF resident and unlisted company (3) A person’s rights in a 1-111 in an income year are not an at- tributing interest if— (a) (b) the rights are shares; and the FIF is a grey list company that is not an entity de- scribed in schedule 4 part B,; and the person has held shares in the company at all times after a time when— (i) (ii) the company was resident in New Zealand; and the shares were not listed on a recognised ex- change; and the company became a grey list company immediately after having, for 12 months or more,— (i) (ii) carried on a business in New Zealand; and had in New Zealand more than 50% of its assets and employees; and the year begins less than 10 years after the company became a grey list company; and (c) (d) (e) 1042 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EX 33 (f) (g) at all times in the year, the company has a ﬁxed estab- lishment in New Zealand; and the company through the ﬁxed establishment— (i) incurs in the year expenditure, other than interest, equal to or more than the lesser of $1,000,000 and 25% of the total expenditure, other than interest, incurred by the company in the year: at all times in the year, engages a number of full- time employees or contractors equal to or more than the lesser of 10 and 25% of the total number engaged by the company.
(ii) Shares acquired when FIF unlisted, FIF owns resident company (4) A person’s rights in a FIF in an income year are not an attribut- ing interest if— (a) (b) (c) (d) (e) (f) the rights are shares; and the FIF is a grey list company that is not an entity de- scribed in schedule 4, part B; and the person has held shares in the grey list company at all times after a time when the shares were not listed on a recognised exchange; and at all times in the year, the grey list company holds more than 50% of the voting interests in a company (the resi- dent company) resident in New Zealand that, for 12 months or more, has— (i) (ii) carried on a business in New Zealand; and had in New Zealand more than 50% of the resi- dent company’s assets and employees; and the year begins less than 10 years after the grey list com- pany ﬁrst held more than 50% of the voting interests in the resident company; and the resident company through a ﬁxed establishment in New Zealand— (i) incurs in the year expenditure, other than interest, equal to or more than the lesser of $1,000,000 and 25% of the total expenditure, other than interest, incurred by the company in the year: at all times in the year, engages a number of full- time employees or contractors equal to or more (ii) 1043 Part E s EX 33 Income Tax Act 2004 Reprinted as at 29 August 2011 than the lesser of 10 and 25% of the total number engaged by the company.
Shares acquired under venture investment agreement (4B) A person’s rights in a FIF that is a grey list company at a time in an income year are not an attributing interest at the time if the person ﬁrst acquires a share or option to buy a share in the company— (a) (b) under a venture investment agreement; and at the same time and on the same terms as an acquisition of an interest in the FIF by the Venture Investment Fund or a company owned by the Venture Investment Fund.
Shares acquired under share purchase agreement (5) A person’s rights in a FIF in an income year are not an attribut- ing interest if— (a) (b) (c) the person is a natural person; and the rights are shares; and the FIF is a grey list company that is not an entity de- scribed in schedule 4, part B; and at the time the person acquires the shares, the FIF— (i) (ii) employs the person: owns, directly or indirectly, the person’s em- ployer; and the person acquires the shares under a share purchase agreement; and the share purchase agreement includes a restriction on the disposal of the shares; and at the beginning of the year, the period of the restriction has not expired or has expired for a period of less than 6 months.
(d) (e) (f) (g) Exception: Categories 2 and 3 Subsections (1) to (5) do not apply if the rights of the person are those described in section EX 30(3) or (4).
Deﬁned in this Act: attributing interest, company, direct income interest, em- ployee, employer, FIF, ﬁxed establishment, grey list company, group invest- ment fund, income tax, income year, interest, life insurer, New Zealand resi- dent, non-resident, portfolio investment entity, recognised exchange, resident, share, share purchase agreement, superannuation scheme, unit trust, voting in- terest, year Subsection (1) (excluding the heading) was substituted, as from 1 April 2006, by section 92(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and (6) 1044 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EX 33 Miscellaneous Provisions) Act 2006 (2006 No 3) with application as from the income year corresponding to the 2006–07 tax year.
Subsections (1B) and (1C) were inserted, as from 1 April 2006, by section 92(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) with application as from the income year corresponding to the 2006–07 tax year.

Section EX 33 was substituted, as from 1 April 2007, by section 61(1) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81).
See section 61(2) of that Act for the application of this amendment for income years beginning on or after 1 April 2007.

Section EX 33(3)(c): amended (with effect from 1 April 2007), on 19 Decem- ber 2007, by section 80(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section EX 33(3)(d)(i): substituted (with effect from 1 April 2007), on 19 De- cember 2007, by section 80(2) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EX 33(3)(g)(i): substituted (with effect from 1 April 2007), on 19 De- cember 2007, by section 80(3) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section EX 33(3)(g)(ii): substituted (with effect from 1 April 2007), on 19 De- cember 2007, by section 80(3) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EX 33(4)(c): substituted (with effect from 1 April 2007), on 19 Decem- ber 2007, by section 80(4) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section EX 33(4)(d): substituted (with effect from 1 April 2007), on 19 Decem- ber 2007, by section 80(5) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EX 33(4)(d): amended (with effect on 1 April 2007), on 6 October 2009, by section 793(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section EX 33(4)(e): amended (with effect on 1 April 2007), on 6 October 2009, by section 793(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 33(4)(f)(i): substituted (with effect from 1 April 2007), on 19 De- cember 2007, by section 80(6) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section EX 33(4)(f)(ii): substituted (with effect from 1 April 2007), on 19 De- cember 2007, by section 80(6) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EX 33(4B) heading: inserted (with effect from 1 April 2007), on 19 December 2007, by section 80(7) of the Taxation (Business Taxation and Re- medial Matters) Act 2007 (2007 No 109).

Section EX 33(4B): inserted (with effect from 1 April 2007), on 19 December 2007, by section 80(7) of the Taxation (Business Taxation and Remedial Mat- ters) Act 2007 (2007 No 109).
1045 Part E s EX 33B Income Tax Act 2004 Reprinted as at 29 August 2011 Section EX 33(5)(f): substituted (with effect from 1 April 2007), on 19 Decem- ber 2007, by section 80(8) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section EX 33 list of deﬁned terms non-resident: inserted (with effect from 1 April 2007), on 19 December 2007, by section 80(9) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EX 33 list of deﬁned terms voting interest: amended (with effect on 1 April 2007), on 6 October 2009, by section 793(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
EX 33B Exemptions limited by income years: shares in certain grey list companies Exemption for shares in company meeting requirements for listing, shareholding and taxation (1) A person’s rights in a FIF are not an attributing interest in an income year beginning before 1 April 2012 if— (a) the rights are shares (the shares) in a grey list company (the company); and on 17 May 2006, the company— (i) (ii) (iii) (iv) (v) (ii) is not an entity described in schedule 4, part B (Foreign investment funds); and has more than 20 000 shareholders who have ad- dresses in New Zealand on the company’s share register in New Zealand; and has shareholders referred to in subparagraph (ii) who between them hold shares in the company carrying voting interests of more than 50%; and is liable to income tax in a country listed in the grey list; and has assets of which more than 50% in total value are shares in other companies carrying voting interests of more than 50%; and on 17 May 2006, the shares— (i) are listed on a recognised exchange in New Zealand; and are listed on a recognised exchange in a grey list country; and in the period of 30 days beginning from 18 December 2006, the company gives to the Commissioner the no- tice required by paragraph (b), as that paragraph read (b) (c) (d) 1046 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EX 33B before being substituted by section 81 of the Taxation (Business Taxation and Remedial Matters) Act 2007.
Exemption for shares in company meeting requirements for investment (2) A person’s rights in a FIF are not an attributing interest in an income year beginning before 1 April 2009 if— (a) the rights are shares (the shares) in a grey list company (the company); and on 17 May 2006, the company— (i) (b) (c) (d) (e) (ii) (iii) (iv) (v) (vi) is not an entity described in schedule 4, part B; and has shareholders of which more than 40% have addresses in New Zealand on the company’s share register in New Zealand; and has shareholders referred to in subparagraph (ii) who between them hold shares in the company carrying voting interests of more than 50%; and is liable to income tax in a country listed in the grey list; and has assets of which 50% or more in total value are shares in other companies each of which is resident in New Zealand; and has assets of which 90% or more in total value are shares in other companies each of which is resident in Australia or New Zealand and is listed on a recognised exchange in Australia or New Zealand; and on 17 May 2006, the shares— (i) are listed on a recognised exchange in New Zealand; and are listed on a recognised exchange in a grey list country; and (ii) in the period of 30 days beginning from 18 December 2006, the company gives to the Commissioner the no- tice required by paragraph (b), as that paragraph read before being substituted by section 81 of the Taxation (Business Taxation and Remedial Matters) Act 2007; and at all times in the year, the company— 1047 Part E s EX 33C Income Tax Act 2004 Reprinted as at 29 August 2011 (i) (ii) has assets of which 50% or more in total value are shares in other companies each of which is resident in New Zealand; and has assets of which 90% or more in total value are shares in other companies each of which is resident in Australia or New Zealand and is listed on a recognised exchange in Australia or New Zealand.
Exception: Election in tax return that exemption not apply (3) An exemption under subsection (1) or (2) does not apply for a person for an income year (the initial year), and for income years after the initial year, if the person completes a return of income for the initial year on the basis that the exemption does not apply for the person and the initial year.
Deﬁned in this Act: attributing interest, company, FIF, grey list, grey list com- pany, income, income tax, income year, New Zealand resident, recognised ex- change, resident, resident in Australia, share, shareholder, voting interest, year Sections EX 33B to EX 33D were inserted, as from 1 April 2007, by section 61(1) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81).
See section 61(2) of that Act for the application of this amend- ment for income years beginning on or after 1 April 2007.

Section EX 33B(1): substituted (with effect from 1 April 2007), on 19 Decem- ber 2007, by section 81(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section EX 33B(2): substituted (with effect from 1 April 2007), on 19 Decem- ber 2007, by section 81(2) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
EX 33C Exemption: shares in listed Australian company Exemption (1) A person’s rights in a FIF in an income year are not an attribut- ing interest if— (a) (b) the rights are a share; and the share is not a share that may not, or ordinarily may not, be disposed of unless together with rights in another company; and the FIF is a company that meets the requirements of subsection (2).
(c) Australian listed company on approved index The company must— (2) 1048 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EX 33C (a) (b) (c) (d) (e) at all times in the income year when the person holds a right in the company, be resident in Australia; and at all times in the income year when the person holds a right in the company, not be treated as resident in a country other than Australia under and for the purposes of an agreement that— (i) is between Australia and the other country; and (ii) would be a double tax agreement if negotiated between New Zealand and the other country; and have shares included in an index that is an approved in- dex under the ASX Market Rules, made under Chapter 7 of the Corporations Act 2001 (Aust),— (i) at the beginning of the income year, if subpara- graph (ii) does not apply; or (ii) when the person acquires the shares, if the person does not own shares in the company earlier in the income year; and at all times in the income year when the person holds a right in the company, not be an entity described in schedule 4, part B (Foreign investment funds); and at all times in the income year when the person holds a right in the company, be required under the Income Tax Assessment Act 1997 (Aust) and Income Tax Assess- ment Act 1936 (Aust) to maintain a franking account.
Deﬁned in this Act: attributing interest, company, double tax agreement, FIF, income year, resident in Australia, share, year Sections EX 33B to EX 33D were inserted, as from 1 April 2007, by section 61(1) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81).

See section 61(2) of that Act for the application of this amend- ment for income years beginning on or after 1 April 2007.
Section EX 33C: amended (with effect from 1 April 2007), on 19 December 2007, by section 82(1) of the Taxation (Business Taxation and Remedial Mat- ters) Act 2007 (2007 No 109).

Section EX 33C list of deﬁned terms direct income interest: omitted (with ef- fect from 1 April 2007), on 19 December 2007, by section 82(2) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EX 33C list of deﬁned terms income: omitted (with effect from 1 April 2007), on 19 December 2007, by section 82(2) of the Taxation (Business Taxa- tion and Remedial Matters) Act 2007 (2007 No 109).

Section EX 33C list of deﬁned terms income tax: omitted (with effect from 1 April 2007), on 19 December 2007, by section 82(2) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
1049 Part E s EX 33D Income Tax Act 2004 Reprinted as at 29 August 2011 EX 33D Exemption: units in certain Australian unit trusts Exemption (1) A person’s rights in a FIF in an income year are not an attribut- ing interest if— (a) (b) (c) (d) (e) the FIF is a unit trust; and the FIF is not an entity described in schedule 4, part B (Foreign investment funds); and at all times in the year when the person holds a right in the FIF, the unit trust is resident in Australia; and at all times in the year when the unit trust makes a distri- bution to investors, there is an RWT proxy under section NF 2AA (Election to be RWT proxy) for the unit trust and payments by the unit trust to the person; and the unit trust meets the requirements of— (i) subsection (2) relating to the assets of the unit trust that are shares (the held shares) being held by the unit trust at the end of the trust’s account- ing year (the trust’s year) ending in the per- son’s income year and having then a market value greater than or equal to the cost of the share for the unit trust: subsection (4) relating to the distributions by the unit trust during the trust’s year.
(ii) Requirements for unit trust’s assets that are shares (2) A unit trust meets the requirements of this subsection if the total market value of the held shares exceeds the total cost of the held shares by an amount that is less than or equal to 3 times the amount calculated using the formula— disposal proceeds - share costs.
Deﬁnition of items in formula In the formula in subsection (2),— (a) disposal proceeds is the total proceeds derived by the unit trust during the year from disposals of shares during the year: share costs is the total cost of the shares involved in the disposals referred to in paragraph (a).
(b) (3) 1050 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EX 33D Requirements for unit trust’s distributions (4) A unit trust meets the requirements of this subsection if the total amount of distributions by the unit trust during the trust’s year is equal to or more than the amount calculated using the formula— 0.7 0.3 × (closing - opening - contributions).
(5) (6) Deﬁnition of items in formula In the formula in subsection (4),— (a) closing is the amount by which, at the end of the trust’s year, the market value of the unit trust’s assets exceeds the market value of the unit trust’s liabilities: opening is the amount by which, at the beginning of the trust’s year, the market value of the unit trust’s assets exceeds the market value of the unit trust’s liabilities: contributions is the total amount of contributions by investors to the unit trust during the trust’s year.
(b) (c) Currency of amounts in subsections (2) to (5) In subsections (2) to (5), all amounts are expressed in the cur- rency used in the unit trust’s ﬁnancial accounts.

Deﬁned in this Act: accounting year, attributing interest, company, FIF, in- come, income year, New Zealand resident, resident in Australia, RWT proxy, share, unit trust, year Sections EX 33B to EX 33D were inserted, as from 1 April 2007, by section 61(1) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81).
See section 61(2) of that Act for the application of this amend- ment for income years beginning on or after 1 April 2007.

Section EX 33D(1)(c): substituted (with effect from 1 April 2007), on 19 De- cember 2007, by section 83(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section EX 33D(1)(d): substituted (with effect from 1 April 2007), on 19 De- cember 2007, by section 83(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EX 33D(1)(e): substituted (with effect from 1 April 2007), on 19 De- cember 2007, by section 83(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section EX 33D(2) heading: substituted (with effect from 1 April 2007), on 19 December 2007, by section 83(2) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EX 33D(2): substituted (with effect from 1 April 2007), on 19 Decem- ber 2007, by section 83(2) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

1051 Part E s EX 33E Income Tax Act 2004 Reprinted as at 29 August 2011 Section EX 33D(3) heading: substituted (with effect from 1 April 2007), on 19 December 2007, by section 83(2) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EX 33D(3): substituted (with effect from 1 April 2007), on 19 Decem- ber 2007, by section 83(2) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section EX 33D(4) heading: substituted (with effect from 1 April 2007), on 19 December 2007, by section 83(2) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EX 33D(4): substituted (with effect from 1 April 2007), on 19 Decem- ber 2007, by section 83(2) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section EX 33D(5) heading: added (with effect from 1 April 2007), on 19 De- cember 2007, by section 83(2) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EX 33D(5): added (with effect from 1 April 2007), on 19 December 2007, by section 83(2) of the Taxation (Business Taxation and Remedial Mat- ters) Act 2007 (2007 No 109).

Section EX 33D(6) heading: added (with effect from 1 April 2007), on 19 De- cember 2007, by section 83(2) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EX 33D(6): added (with effect from 1 April 2007), on 19 December 2007, by section 83(2) of the Taxation (Business Taxation and Remedial Mat- ters) Act 2007 (2007 No 109).

Section EX 33D list of deﬁned terms accounting year: inserted (with effect from 1 April 2007), on 19 December 2007, by section 83(3) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
EX 33E Australian superannuation fund exemption A person’s rights in a FIF are not an attributing interest if— (a) (b) the person is a natural person; and the FIF is a foreign superannuation scheme that is— an Australian approved deposit fund: (i) an Australian exempt public sector superannu- (ii) ation scheme: an Australian regulated superannuation fund: an Australian retirement savings account.
(iii) (iv) Deﬁned in this Act: attributing interest, Australian approved deposit fund, Aus- tralian exempt public sector superannuation scheme, Australian regulated super- annuation fund, Australian retirement savings account, 1114, foreign super- annuation scheme Section EX 33E was inserted, as from 1 April 2005, by section 62(1) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) with application as from the 2005-06 income year.
1052 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EX 35 EX 34 Foreign exchange control exemption A person’s rights in a FIF are not an attributing interest if and to the extent to which— (a) (b) the person is a natural person; and the person acquired the rights— (i) (ii) before ﬁrst becoming a New Zealand resident; or before exchange controls applying to the person and the interest were imposed by a foreign coun- try; or before 8.00 pm (New Zealand Standard Time) on 2 July 1992; and (iii) (c) the exchange controls prevent the person from deriving amounts from the rights, or from disposing of the rights, in New Zealand dollars (or consideration that is readily convertible into New Zealand dollars).
Deﬁned in this Act: amount, attributing interest, FIF, New Zealand, New Zealand resident Compare: 1994 No 164 s CG 15(2)(e) The list of provisions for comparison was amended, as from 1 April 2005, by section 93(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Mis- cellaneous Provisions) Act 2006 (2006 No 3) by substituting “CG 15(2)(e)” for “CG 15(2)(c), (e)” with application as from the income year corresponding to the 2005–06 tax year.
EX 35 Income interest of non-resident or transitional resident (1) Categories 2 and 3 Subsection (2) applies only to rights described in section EX 30(3) or (4).

Exemption for non-resident or transitional resident (2) A person’s rights in a FIF at any time are not an attributing interest if— (a) (b) (c) the person is a natural person; and the person acquires the rights when a non-resident or transitional resident; and at the time, the person is a non-resident or transitional resident.
Deﬁned in this Act: attributing interest, FIF, income year, New Zealand resi- dent, non-resident, transitional resident Compare: 1994 No 164 s CG 15(2)(f) 1053 Part E s EX 36 Income Tax Act 2004 Reprinted as at 29 August 2011 The heading to section EX 35 was substituted, as from 1 October 2005, by sec- tion 94(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscel- laneous Provisions) Act 2006 (2006 No 3) with application for: a person who becomes a transitional resident as from 1 April 2006; and as from the income year corresponding to the 2005–06 tax year.
See section 94(4) and (5) of that Act as to the application of this amendment.

Subsection (2) was substituted, as from 1 October 2005, by section 94(2) Tax- ation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Pro- visions) Act 2006 (2006 No 3) with application for: a person who becomes a transitional resident as from 1 April 2006; and as from the income year corres- ponding to the 2005–06 tax year.

See section 94(4) and (5) of that Act as to the application of this amendment.
The list of deﬁned terms was amended, as from 1 October 2005, by section 94(3) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellan- eous Provisions) Act 2006 (2006 No 3) by inserting “non-resident” and “tran- sitional resident” with application for: a person who becomes a transitional resident as from 1 April 2006; and as from the income year corresponding to the 2005–06 tax year.

See section 94(4) and (5) of that Act as to the application of this amendment.
EX 36 New resident’s accrued superannuation entitlement exemption Exemption The rights of a natural person to beneﬁt, as a beneﬁciary or a member, from a foreign superannuation scheme at any time are not an attributing interest in a FIF— (a) to the extent to which the requirements in subsections (2) to (4) are met at the time; and if the requirements in subsections (5) to (9) are met at the time.
(b) Rights accruing before or after becoming resident The rights must have accrued during a period— (a) (b) for which the person is not a New Zealand resident: for which the person is a New Zealand resident and that— (i) begins when the person becomes a New Zealand resident; and ends before the ﬁrst day of the ﬁfth income year following the income year in which the person becomes a New Zealand resident.
(ii) (1) (2) 1054 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EX 36 (3) (4) (5) (6) (7) Calculation of rights accruing The extent to which the rights have accrued during a period referred to in subsection (2) is calculated using the formula— closing value – opening value.

Deﬁnition of items in formula In the formula,— (a) (b) (b) closing value is the market value of the rights on the day that ends the period: opening value is the market value of the rights on the day that begins the period.
Employee scheme or self-employed Either— (a) the scheme must be one where the person’s rights can be acquired only through the person’s employment; or the person must be wholly or mainly self-employed, either when the person ﬁrst acquired the rights or at the relevant time for applying this section.
Contributions or beneﬁts: link to income The amount contributed to the scheme by or for the person must be calculated— (a) by some ﬁxed relationship to the person’s income from employment or self-employment; or to provide beneﬁts that bear a ﬁxed relationship to the person’s income from employment or self-employment, except to the extent to which the beneﬁts are adjusted by reference to an objective measure of inﬂation.
(b) Contributions by person, employer, or other scheme Contributions to the scheme for the person’s beneﬁt must be made only by or for— (a) (b) the person; or the person’s employer (or a person associated with the employer); or the representatives of another superannuation scheme— as a transfer of the person’s beneﬁt rights in the (i) other scheme; and if those beneﬁt rights would have qualiﬁed for the exemption in this section.
(ii) (c) 1055 Part E s EX 36 Income Tax Act 2004 Reprinted as at 29 August 2011 (8) Restricted rights to assign or cash in The person’s future beneﬁts under the scheme must not be able to be assigned, or exchanged for a current receipt of cash (or other property), except— (a) (b) if the person becomes physically incapacitated; or if the person is transferring the beneﬁt rights into an- other, similar, scheme; or when or after the person retires at normal retiring age; or if the person is assigning the beneﬁt rights to a spouse under a matrimonial agreement; or at the cost of a substantial decrease in the present value of the beneﬁts.
(c) (d) (e) Matrimonial property assignment (9) When the person has obtained the rights by their being as- signed under a matrimonial agreement, the exemption in this section applies if the assignor spouse would have been entitled to it.
Deﬁned in this Act: amount, associated person, attributing interest, employer, FIF, foreign superannuation scheme, income, income from employment, market value, matrimonial agreement, New Zealand resident, superannuation scheme Compare: 1994 No 164 ss CG 14(3), CG 15(2)(c), OB 1 interest in an em- ployment- related foreign superannuation scheme The heading to section EX 36 was amended, as from 1 October 2005, by section 95(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellan- eous Provisions) Act 2006 (2006 No 3) by substituting “New resident’s” for “Immigrant’s” with application for: a person who becomes a New Zealand resident as from 1 April 2006; and as from the income year corresponding to the 2005–06 tax year.
See section 95(5) and (6) of that Act as to the application of this amendment.

Subsection (1) was amended, as from 1 April 2005, by section 63(1) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) by substituting “in a FIF—” for “in a FIF to the extent to which the requirements in subsections (2) to (9) are met at the time.” with application as from the 2005-06 income year.
Subsection (1)(a) and (b) was inserted, as from 1 April 2005, by section 63(1) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) with application as from the 2005-06 income year.
Subsection (2) was substituted, as from 1 October 2005, by section 95(2) Tax- ation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Pro- visions) Act 2006 (2006 No 3) with application for: a person who becomes a New Zealand resident as from 1 April 2006; and as from the income year cor- responding to the 2005–06 tax year.

See section 95(5) and (6) of that Act as to the application of this amendment.
1056 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EX 37 Subsection (3) (excluding the heading) was substituted, as from 1 October 2005, by section 95(3) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) with application for: a person who becomes a New Zealand resident as from 1 April 2006; and as from the income year corresponding to the 2005–06 tax year.

See section 95(5) and (6) of that Act as to the application of this amendment.
Subsection (4)(a) and (b) were substituted, as from 1 October 2005, by section 95(4) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellan- eous Provisions) Act 2006 (2006 No 3) with application for: a person who be- comes a New Zealand resident as from 1 April 2006; and as from the income year corresponding to the 2005–06 tax year.

See section 95(5) and (6) of that Act as to the application of this amendment.
EX 37 Non-resident’s pension or annuity exemption (1) (2) (3) (4) Exemption The rights of a natural person to beneﬁt from a pension or annuity provided by a FIF are not an attributing interest if the requirements in subsections (2) and (3) are met.
when the person was not resident in New Zealand; or Relevant period of non-residence The person must have provided the consideration for acquiring the rights— (a) (b) when the person was resident in New Zealand but in the period ending 3 years after the end of the income year in which they last became a New Zealand resident; or when the person was resident in New Zealand but as a result of commuting or transferring their interest in a superannuation fund in anticipation of their ceasing to be a New Zealand resident.
(c) Restricted rights to assign or cash in The person’s future beneﬁts must not be able to be assigned, or exchanged for a current receipt of cash (or other property), except— (a) if the person is assigning the beneﬁt rights to a spouse under a matrimonial agreement; or at the cost of a substantial decrease in the present value of the beneﬁts.
(b) Elective exclusion of pre-1996-97 rights Subsection (1) does not apply if— (a) the rights were acquired before the 1996-97 income year; and 1057 Part E s EX 38 Income Tax Act 2004 Reprinted as at 29 August 2011 (b) the person chose to treat the rights as an interest in a for- eign investment fund for the 1996-97 and later income years by complying with the requirements in section CG 15(4) of the Income Tax Act 1994.
Deﬁned in this Act: attributing interest, FIF, foreign investment fund, income year, matrimonial agreement, New Zealand resident, non-resident, resident in New Zealand, superannuation fund, year Compare: 1994 No 164 ss CG 15(2)(g), (4), OB 1 qualifying private foreign annuity Calculation of FIF income or loss EX 38 Six calculation methods Use of 1 method If the tests in section CQ 5 (When FIF income arises) or DN 6 (When FIF loss arises) are met, the amount of a person’s FIF income or loss is calculated under— (a) (b) (c) (d) (e) (f) the accounting proﬁts method; or the branch equivalent method; or the comparative value method; or the deemed rate of return method; or the fair dividend rate method; or the cost method.
Choosing method The person must choose which calculation method applies by completing their return of income accordingly, but the choice is limited by sections EX 40, EX 40B, EX 41, and EX 50.
Deﬁned in this Act: accounting proﬁts method, amount, branch equivalent method, calculation method, comparative value method, cost method, deemed rate of return method, fair dividend rate method, FIF income, loss, return of income Compare: 1994 No 164 ss CG 16(1), CG 17(1) The heading to section EX 38 was substituted, as from 1 April 2007, by section 64(1) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81).
See section 64(5) of that Act as to the application of this amend- ment for income years beginning on or after 1 April 2007.

Subsection (1)(d) was amended, as from 1 April 2007, by section 64(2) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) by substituting “method; or” for “method.”.

See section 64(5) of that Act as to the application of this amendment for income years beginning on or after 1 April 2007.
Subsection (1)(e) and (f) was inserted, as from 1 April 2007, by section 64(2) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 (1) (2) 1058 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EX 39 No 81).

See section 64(5) of that Act as to the application of this amendment for income years beginning on or after 1 April 2007.
Subsection (2) was amended, as from 1 April 2007, by section 64(3) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) by inserting “EX 40B,” after “EX 40,”.

The list of deﬁned terms was amended, as from 18 December 2006, by section 64(4) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) by inserting “cost method” and “fair dividend rate method”.
See section 64(5) of that Act as to the application of this amendment for income years beginning on or after 1 April 2007.

EX 39 Exclusion of amounts of death beneﬁt No FIF income (1) When this section applies, a person is treated as not deriving FIF income to the extent to which the income arises solely from receiving a death beneﬁt under a life insurance policy.
(2) (3) Application of this section: contract before becoming resident This section applies if— (a) the person or the deceased (contracting party), when not a New Zealand resident, entered into a binding contract that gave rise to the beneﬁt; and at the time the contract was entered into, the contract- ing party either had not previously been a New Zealand resident or had not been a resident for at least the previ- ous 10 years; and the beneﬁt was not increased by a voluntary action taken after the contracting party became a resident.
(b) (c) Application of this section: pre-1992 contracts This section also applies if— (a) before 2 July 1992 the person or the contracting party entered into a binding contract giving rise to the beneﬁt; and the beneﬁt was not increased by a voluntary action taken on or after 2 July 1992.
(b) Deﬁned in this Act: amount, FIF income, life insurance policy, New Zealand resident, year Compare: 1994 No 164 s CG 16(7) 1059 Part E s EX 40 Income Tax Act 2004 Reprinted as at 29 August 2011 EX 40 Limits on choice of calculation methods (1) Same method for same FIF If a person has 2 or more attributing interests in the same FIF for the same period, the person must use the same calculation method for calculating FIF income or loss from each interest in that period, except to the extent to which— the interests are of different classes; and (a) this section prevents the same method being used.
(b) Accounting proﬁts method (2) A person may use the accounting proﬁts method for an ac- counting period to calculate FIF income or loss from an at- tributing interest in a FIF only if— (a) (b) the FIF is a company; and at all times during the accounting period when the FIF exists, interests in the FIF similar to the person’s at- tributing interest were— (i) quoted on the ofﬁcial list of a recognised ex- change; or offered widely by or for the FIF to the public in 1 or more countries; and (ii) (c) (d) the net after-tax accounting proﬁts or losses of the FIF for the accounting period are calculated under generally accepted accounting practice (or an equivalent standard for consistent and undistorted reporting of net proﬁts) of the country in which the FIF is resident; and the net after-tax accounting proﬁts or losses are detailed in ﬁnancial statements— (i) sent or made available to shareholders in the FIF; and readily available to interested members of the public; and audited by a chartered accountant (or accountant of equivalent professional standard in the country in which the FIF is resident); and for which such an accountant has given a stand- ard audit opinion, without qualiﬁcations, to the effect that the ﬁnancial statements represent the income and ﬁnancial position of the FIF to the (ii) (iii) (iv) 1060 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EX 40 (e) (f) (g) (h) (i) degree of validity normally required in the coun- try in which the FIF is resident; and the net after-tax accounting proﬁts or losses are calcu- lated, in any case in which the FIF has 1 or more sub- sidiaries, on a consolidated basis; and the net after-tax accounting proﬁts or losses include any extraordinary items; and the person has no reason to believe that the net after-tax accounting proﬁts or losses do not fairly represent the net after-tax proﬁts or losses of the FIF for the account- ing period; and the FIF is not an entity described in schedule 4, part C (Foreign investment funds); and the Commissioner has not
 concluded that the net after- tax accounting proﬁts or losses do not fairly represent the net after-tax proﬁts or losses of the FIF for the ac- counting period.
Branch equivalent method (3) A person may use the branch equivalent method to calculate FIF income or loss from an attributing interest in a FIF for an accounting period only if— (a) (b) the FIF is a company; and the person can provide to the Commissioner, if re- quested, sufﬁcient information to enable the Commis- sioner to check the calculations required by section EX 43.
Deemed rate of return method (4) A person may use the deemed rate of return method to calcu- late FIF income or loss from an attributing interest in a FIF for an income year only if any of the following apply: (a) it is not reasonably practicable for the person to use— the comparative value method, because the per- (i) son cannot determine the market value of the at- tributing interest at the end of the income year; or the accounting proﬁts method for any accounting period that falls wholly or partly in the year; or (ii) (b) the person is a natural person and at all times during the income year the total value of attributing interests in 1061 Part E s EX 40 Income Tax Act 2004 Reprinted as at 29 August 2011 FIFs held by the person is $250,000 or less, the value of each interest being— (i) its book value (calculated under section EX 45(7)) at the end of the previous income year, if the person held the interest then and used the deemed rate of return method to calculate FIF income for all attributing interests in the previous income year: its market value, in any other case; or (ii) the person is required by section EX 40B to use the method; or section EX 41 requires the person to use that method; or section EX 50 requires the person to continue using that method.
(bb) (c) (d) Deemed rate of return method: further limit (5) A person may not use the deemed rate of return method to calculate FIF income or loss for an income year from an at- tributing interest if— (a) the interest is a direct income interest in a foreign com- pany of less than 10%; and the person is not required by section EX 40B to use the deemed rate of return method for the interest.
(b) Comparative value method (6) A person may use the comparative value method to calculate FIF income or loss for an income year from an attributing in- terest that is a share in a foreign company only if— (a) (b) (c) (d) the person’s direct income interest in the FIF, increased for the purposes of this paragraph by each direct income interest of a person associated with the person, is 10% or more at any time in the income year: the attributing interest does not meet the requirements of subsection (8)(a): the person is a natural person: the person is the trustee of a trust that— (i) has no gifting settlor who is not a natural person or deceased person; and at all times in the income year, would be a quali- fying trust for a distribution made at the time; and (ii) 1062 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EX 40 (iii) (iv) is mainly for the beneﬁt of an organisation or trust with income that is exempt income under section CW 34 or CW 35 (which relate to the income of charities) or, at all times in the income year, mainly for the beneﬁt of a natural person for whom the gifting settlors of the trust have natural love and affection or had natural love and affection when alive; and is not a superannuation scheme.
Fair dividend rate method for share in foreign company (7) A person may use the fair dividend rate method to calculate FIF income or loss for an income year from an attributing in- terest that is a share in a foreign company only if the require- ments of subsection (8) are met and— (a) (b) the person is a portfolio investment entity, an entity eli- gible to be a portfolio investment entity, or a life insur- ance company and the FIF is a foreign investment ve- hicle: the person’s direct income interest in the FIF, increased for the purposes of this paragraph by each direct income interest of a person associated with the person, is less than 10%— (i) at any time in the income year, if the FIF is a grey list company; or at all times in the income year, if the FIF is not a grey list company.
(ii) (8) Fair dividend rate method: further requirements for share in foreign company The further requirements under this subsection for a share in a foreign company are— (a) the attributing interest is— (i) of a type that the Commissioner has determined under section 91AAO of the Tax Administration Act 1994 to be an interest for which the fair divi- dend rate method may be used: (ii) not of a type that is listed in subsection (9); and the person uses the comparative value method for no other attributing interest that is a share in a foreign com- pany and for which the person would be allowed, in the (b) 1063 Part E s EX 40 Income Tax Act 2004 Reprinted as at 29 August 2011 absence of this paragraph, to use the fair dividend rate method.
Fair dividend rate method: interests for which method not applicable (9) An attributing interest of a person (the investor) for which the Commissioner has not made a determination referred to in sub- section (8)(a)(i) does not meet the requirements of subsection (8) if the interest is— (a) (b) (c) (d) (e) of a type that the Commissioner has determined under section 91AAO of the Tax Administration Act 1994 to be an interest for which the fair dividend rate method may not be used: a ﬁxed rate share under section LF 2(3) (Granting of underlying foreign tax credit): a non-participating redeemable share: an interest in a non-resident having assets of which 80% or more by value consist of ﬁnancial arrangements de- nominated in New Zealand dollars: a share that involves an obligation— (i) of another person to provide to the investor an amount exceeding the issue price of the share; and that is direct to the investor or indirect through an arrangement; and that is non-contingent or subject to a contingency that is sufﬁciently remote to be immaterial.
(ii) (iii) Meaning of gifting settlor (9B) A gifting settlor, for a trust (the relevant trust), is a person who is— (a) a settlor, under section HH 1(1) (Interpretation) or para- graph (a)(i) of the deﬁnition of the term, of— (i) (ii) the relevant trust: a trust with a trustee who settles property on the relevant trust, directly or through the trustees of other trusts; and (b) not the trustee of a trust.
1064 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EX 40 Cost method for share in foreign company (10) A person may use the cost method to calculate FIF income for an income year from an attributing interest that is a share in a foreign company only if— (a) the person’s direct income interest in the FIF, increased for the purposes of this paragraph by each direct income interest of a person associated with the person, is less than 10%— (i) at any time in the income year, if the FIF is a grey list company; or at all times in the income year, if the FIF is not a grey list company; and (ii) (b) use of the fair dividend rate method is allowed but is not practical because the person cannot determine the market value of the attributing interest at the start of the income year except by an independent valuation.
Deﬁned in this Act: accounting period, accounting proﬁts method, attributing interest, branch equivalent method, calculation method, Commissioner, com- pany, comparative value method, cost method, deemed rate of return method, direct income interest, exempt income, fair dividend rate method, FIF, FIF in- come, generally accepted accounting practice, income, income year, loss, mar- ket value, qualifying trust, recognised exchange, superannuation scheme, share- holder, tax, trustee Compare: 1994 No 164 s CG 17(2)-(6) Subsection (4)(b)(i) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; or”.
Subsection (4)(bb) was inserted, as from 1 April 2007, by section 65(1) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81).

See section 65(4) of that Act for the application of this amendment for income years beginning on or after 1 April 2007.

Subsections (5) to (10) were inserted, as from 1 April 2007, by section 65(2) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81).
See section 65(4) of that Act for the application of this amendment for income years beginning on or after 1 April 2007.

Section EX 40(6)(b): substituted (with effect from 1 April 2007), on 19 Decem- ber 2007, by section 84(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section EX 40(6)(d): substituted (with effect from 1 April 2007), on 19 Decem- ber 2007, by section 84(2) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EX 40(8)(a): substituted (with effect from 1 April 2007), on 19 Decem- ber 2007, by section 84(3) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

1065 Part E s EX 40B Income Tax Act 2004 Reprinted as at 29 August 2011 Section EX 40(9) heading: substituted (with effect from 1 April 2007), on 19 December 2007, by section 84(4) of the Taxation (Business Taxation and Re- medial Matters) Act 2007 (2007 No 109).
Section EX 40(9): substituted (with effect from 1 April 2007), on 19 December 2007, by section 84(4) of the Taxation (Business Taxation and Remedial Mat- ters) Act 2007 (2007 No 109).

Section EX 40(9B) heading: inserted (with effect from 1 April 2007), on 19 December 2007, by section 84(4) of the Taxation (Business Taxation and Re- medial Matters) Act 2007 (2007 No 109).
Section EX 40(9B): inserted (with effect from 1 April 2007), on 19 December 2007, by section 84(4) of the Taxation (Business Taxation and Remedial Mat- ters) Act 2007 (2007 No 109).

The list of deﬁned terms was amended, as from 1 April 2007, by section 65(3) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) by inserting “cost method”, “direct income interest”, “exempt income”, “fair dividend rate method”, “income”, “qualifying trust”, “super- annuation scheme” and “trustee”.
EX 40B Use of particular calculation methods required A person who is not allowed to use the fair dividend rate method to calculate FIF income from an attributing interest in a FIF for an income year but would be allowed to use the method in the absence of section EX 40(8)(a)(ii) must calcu- late FIF income from the interest for the income year using— (a) (b) the comparative value method; or the deemed rate of return method, if use of the com- parative value method is not practical because the per- son cannot determine the market value of the attributing interest at the end of the income year.
Deﬁned in this Act: attributing interest, comparative value method, deemed rate of return method, fair dividend rate method, FIF, FIF income, income year Section EX 40B was inserted, as from 1 April 2007, by section 66(1) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81).

See section 66(2) of that Act for the application of this amendment for income years beginning on or after 1 April 2007.
Section EX 40B: amended (with effect from 1 April 2007), on 19 December 2007, by section 85 of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section EX 40B(b): substituted (with effect on 1April 2007), on 6 October 2009, by section 794(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
1066 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EX 41 EX 41 Default calculation method (1) (2) When this section applies This section applies when— (a) a person does not choose a calculation method to calcu- late FIF income or loss from an attributing interest for a period; and sections EX 40, EX 40B, and EX 50 do not have the effect of requiring a particular calculation method to be used.
(b) Default choice for direct income interests in FIF of less than 10% The person is treated as having chosen to use, for the period,— for a direct income interest in a foreign company of less (a) than 10% for which section EX 40(7) permits the use of the fair dividend rate method,— (i) the fair dividend rate method, if it is practical to use that method; or the cost method, if it is not practical to use the fair dividend rate method; or (ii) (b) for any other interest,— (i) (ii) the accounting proﬁts method, if section EX 40(2) allows the use of that method and it is practical to use that method; or the comparative value method, if subparagraph (i) does not apply and it is practical to use the comparative value method; or the deemed rate of return method, if subpara- graph (i) does not apply and it is not practical to use the comparative value method.
Deﬁned in this Act: accounting proﬁts method, attributing interest, calculation method, comparative value method, cost method, deemed rate of return method, fair dividend rate method, FIF income, loss Compare: 1994 No 164 s CG 17(7) (iii) Subection (1)(b) was amended, as from 1 April 2007, by section 67(1) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81 by inserting “, EX 40B,” after “EX 40”.
Subsection (2) was substituted, as from 1 April 2007, by section 67(2) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81.

See section 67(4) of that Act for the application of this amendment for income years beginning on or after 1 April 2007.

1067 Part E s EX 42 Income Tax Act 2004 Reprinted as at 29 August 2011 Section EX 41(2)(b)(ii): substituted, on 19 December 2007, by section 86 of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EX 41(2)(b)(iii): substituted, on 19 December 2007, by section 86 of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

The list of deﬁned terms was amended, as from 18 December 2006, by section 67(3) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) by inserting “cost method” and “fair dividend rate method”.

See section 67(4) of that Act for the application of this amendment for income years beginning on or after 1 April 2007.
EX 42 Accounting proﬁts method (1) Formula If a person is using the accounting proﬁts method to calculate FIF income or loss from an attributing interest in a FIF, the total FIF income or loss from all their attributing interests in the FIF for the relevant accounting period is calculated using the formula— (accounting proﬁts or losses – foreign tax) × income interest.

Deﬁnition of items in formula The items in the formula are deﬁned in subsections (3) and (4).
(2) Accounting proﬁts or losses (3) Accounting proﬁts or losses is the net after-tax accounting proﬁts or losses of the FIF for the accounting period.

(3B) Foreign tax is the total for the accounting period of income tax on the income of the FIF— (a) for which the person is liable under the laws of a country or territory outside New Zealand; and paid by the person in the accounting period.

(b) Income interest Income interest is the person’s income interest in the FIF for the accounting period.
The income interest is calculated under all the following CFC rules (applying as if the FIF were a CFC): (a) sections EX 8 to EX 11 and EX 13 (which, in general, describe how to calculate an income interest by totalling direct and indirect interests): (4) 1068 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EX 42 (b) (c) sections EX 16 and EX 17 (which describe how to deal with periods of non-residence and variations in owner- ship during an accounting period): section EX 27 (which describes a concession to allow ownership to be measured only on quarterly measure- ment dates), unless the person chooses to apply subsec- tion (5).
Election to measure on 31 March only For an income interest that the person has held for more than 12 months, the person may follow a simpliﬁed calculation process by choosing to be treated as holding, at all times in the income year, the same interest, including zero interest, that they held at the end of the income year.

The person makes the election by completing their return of income accordingly for the relevant income year.
(5) Election irrevocable (6) An election under subsection (5) is— (a) (b) irrevocable and applies to the person and all their at- tributing interests in the FIF in later years; and overridden by the anti-avoidance rules in sections GC 9 (Variations in control or income interests in foreign companies) and GC 10 (Attributed CFC income and FIF income: arrangements in respect of elections).
(7) Conversion to New Zealand dollars The person must choose, for the accounting period and each later accounting period and for all interests for which the per- son uses the accounting proﬁts method,— (a) for all the calculations to be done in the currency of the FIF’s ﬁnancial accounts, with the result then converted into New Zealand dollars at the average of the close of trading spot exchange rates for the ﬁfteenth day of each complete month that falls in the accounting period; or for all the calculations of the net after-tax accounting proﬁts or losses of the FIF to be done in New Zealand dollars.
(b) 1069 Part E s EX 43 Income Tax Act 2004 Reprinted as at 29 August 2011 (8) (9) Reduction in FIF loss to economic loss In the cases described in subsections (9) and (10), the amount of any FIF loss calculated under subsection (1) is reduced to be equal to the person’s corresponding economic loss (if any).
Application of subsection (8): no economic loss Subsection (8) applies if the person suffers no, or substantially no, economic loss corresponding to the FIF loss, whether be- cause of a call option, a put option, or any other reason.
Application of subsection (8): FIF loss excessive (10) Subsection (8) also applies if the amount of FIF loss is more than any corresponding economic loss suffered by the person, whether because of the application of the rules for calculating the person’s income interest or any other reason.
Deﬁned in this Act: accounting period, accounting proﬁts method, amount, at- tributing interest, CFC, close of trading spot exchange rate, FIF, FIF income, FIF loss, income interest, income year, loss, New Zealand, non-resident, quar- ter, return of income, tax, tax year Compare: 1994 No 164 ss CG 16(11)(a), (12), CG 20 Subsection (1) formula was substituted, as from 3 April 2006, by section 96(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) with application as from the income year corresponding to the 2006–07 tax year.
Subsection (3B) was inserted, as from 3 April 2006, by section 96(2) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) with application as from the income year corresponding to the 2006–07 tax year.

Subsection (4)(a) and (b) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; and”.
Section EX 42(5): substituted (with effect on 1 April 2005), on 7 December 2009, by section 158(1) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).

Subsection (7) the words before paragraph (a) were substituted, as from 1 April 2007, by section 68(1) Taxation (Savings Investment and Miscellaneous Provi- sions) Act 2006 (2006 No 81).

See section 68(2) of that Act for the application of this amendment for income years beginning on or after 1 April 2007.
EX 43 Branch equivalent method Formula If a person is using the branch equivalent method to calculate FIF income or loss from an attributing interest in a FIF, the total FIF income or loss from all their attributing interests in (1) 1070 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EX 43 (2) (3) (4) (5) the FIF for the relevant accounting period is calculated using the formula— branch equivalent income or loss x income interest.
Deﬁnition of items in formula The items in the formula are deﬁned in subsections (3) and (4).

Branch equivalent income or loss Branch equivalent income or loss is the branch equivalent in- come or loss of the FIF for the accounting period.

This is cal- culated by applying section EX 21 of the CFC rules— (a) as if the FIF were a CFC and the person were calculating their attributed CFC income or loss; and applying subsections (5) and (6).
(b) Income interest Income interest is the person’s income interest in the FIF for the accounting period.
The income interest is calculated under all the following CFC rules (applying as if the FIF were a CFC): (a) sections EX 8 to EX 11 and EX 13 (which, in general, describe how to calculate an income interest by totalling direct and indirect interests): sections EX 16 and EX 17 (which describe how to deal with periods of non-residence and variations in owner- ship during an accounting period): section EX 27 (which describes a concession to allow ownership to be measured only on quarterly measure- ment dates).
(b) (c) Taxable distributions If the FIF derives a taxable distribution from a non-qualifying trust in the accounting period,— (a) the taxable distribution is excluded when calculating the FIF’s branch equivalent income or loss (due to the com- bined effect of subsection (1) and section EX 21(32)); and the person has additional attributed CFC income calcu- lated by multiplying the taxable distribution by the per- son’s income interest in the FIF; and the person is liable for income tax on the additional at- tributed CFC income at the rate in schedule 1 (Basic (b) (c) 1071 Part E s EX 43 Income Tax Act 2004 Reprinted as at 29 August 2011 (6) (7) (8) (9) rates of income tax and speciﬁed superannuation con- tribution withholding tax) that applies to amounts under section HH 3(4) (Income of beneﬁciaries).
Calculation of additional FIF income or loss If the FIF itself has an income interest (calculated under sub- section (4)) in a foreign company for the accounting period, the person has additional FIF income or loss calculated using the formula— interest x FIF’s FIF income or loss.
Deﬁnition of items in formula In the formula,— (a) (b) interest is the person’s income interest in the FIF for the period: FIF’s FIF income or loss is the FIF’s FIF income or loss calculated under the rules in section EX 46(4) and (5), as if— (i) (ii) the FIF were the CFC referred to; and the FIF’s interest in the foreign company were an attributing interest, despite any application of section EX 32.
Application of CFC rules tax credit rules The rules in sections LC 4 (Foreign tax credits: CFCs) and LC 5 (Group of companies CFC tax credits) apply to allow the person to claim foreign tax credits but on the basis of the as- sumptions made in subsection (9).

The rules in those sections allow foreign tax credits relating to attributed CFC income but apply a jurisdictional ring-fencing approach to the use of tax credits.
Assumptions in reading tax credit rules Sections LC 4 (Foreign tax credits: CFCs) and LC 5 (Group of companies CFC tax credits) are applied as if— (a) (b) the FIF were a CFC; and the FIF income of the person from the FIF were at- tributed CFC income; and the person’s income interest (calculated under subsec- tion (4)) were their relevant income interest for the pur- poses of those sections; and (c) 1072 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EX 44 (d) any relevant person’s FIF income calculated under the branch equivalent method from a FIF that is resident in the relevant country were attributed CFC income.
Reduction in FIF loss to economic loss In the cases described in subsections (11) and (12), the amount of any FIF loss calculated under subsections (1) and (6) is re- duced to be equal to the person’s corresponding economic loss (if any).

(10) Application of subsection (10): no economic loss (11) Subsection (10) applies if the person suffers no, or substan- tially no, economic loss corresponding to the FIF loss, whether because of a call option, a put option, or any other reason.
Application of subsection (10): FIF loss excessive (12) Subsection (10) also applies if the amount of FIF loss is more than any corresponding economic loss suffered by the person, whether because of the application of the rules for calculating the person’s income interest or any other reason.
Deﬁned in this Act: accounting period, amount, attributed CFC income, at- tributing interest, branch equivalent income, branch equivalent method, CFC, FIF, FIF income, FIF loss, foreign company, income interest, income tax, loss, non-qualifying trust, non-resident, quarter, tax, taxable distribution Compare: 1994 No 164 s CG 21 Subsection (4)(a) and (b) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; and”.
EX 44 Comparative value method (1) (2) (3) Formula If a person is using the comparative value method to calculate FIF income or loss from an attributing interest in a FIF, the FIF income or loss from that interest for the relevant income year is calculated using the formula— (closing value + gains) – (opening value + costs).

Deﬁnition of items in formula The items in the formula are deﬁned in subsections (3) to (6).
Closing value Closing value is the market value of the person’s interest in the FIF at the end of the income year.

(The value is zero if the 1073 Part E s EX 44 Income Tax Act 2004 Reprinted as at 29 August 2011 person has disposed of the interest or is then applying another calculation method to it.)

Gains (4) Gains is the total of all amounts that the person derives during the income year from holding or disposing of the interest.
The amounts include any foreign withholding tax or other amount that the person is allowed as a credit under section LB 2 (Credit of tax for imputation credit) or LC 1 (Credits in respect of tax paid in country or territory outside New Zealand).

Opening value (5) Opening value is the market value of the person’s interest in the FIF at the end of the previous income year, calculated using the exchange rate applying under subsection (7) for that previous year.
The value is zero if the person did not hold the interest then or was then applying another calculation method to it.

Costs (6) Costs is the total for the income year of— (a) (b) all expenditure, if any, that the person incurs in acquir- ing or increasing the interest: income tax on the income of the FIF— (i) for which the person is liable under the laws of a country or territory outside New Zealand; and paid by the person in the income year.
(ii) Application of method to direct income interests of less than 10% (6B) Subsection (6C) applies to a person who calculates under sub- section (1) an amount of FIF income or loss for an attributing interest in a FIF (the minor attributing interest)— (a) that is a direct income interest in a foreign company of less than 10% at a time in the relevant income year; and that meets the requirements of section EX 40(8)(a).
(b) Reduction of total FIF loss from direct income interests of less than 10% If, in the absence of this subsection, the person would have under subsection (1) a total FIF loss for the income year from all the person’s minor attributing interests in FIFs, the total (6C) 1074 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EX 44 FIF loss for the income year for the person from the minor attributing interests is zero.
(7) Conversion of foreign currency amounts If an amount in a foreign currency is the market value of, or is derived from or incurred on, an interest during an income year, the person must choose that for the income year and each later income year and for all interests for which the person uses the comparative value method— (a) each foreign currency amount in the income year be converted into New Zealand dollars using the exchange rate on the day for which the market value is determined or on which the amount is derived or incurred; or all foreign currency amounts in the income year be con- verted into New Zealand dollars at the average of the close of trading spot exchange rates for the 15th day of each month that falls in the income year.
(b) Deﬁned in this Act: amount, attributing interest, calculation method, close of trading spot exchange rate, comparative value method, direct income interest, FIF, FIF income, FIF loss, foreign withholding tax, income year, loss, market value, New Zealand, tax Compare: 1994 No 164 ss CG 16(11)(b), (12), CG 18 Section EX 44(4): amended (with effect from 1 April 2007), on 19 December 2007, by section 87(1) of the Taxation (Business Taxation and Remedial Mat- ters) Act 2007 (2007 No 109).
Section EX 44(5): substituted (with effect on 1 April 2007), on 6 October 2009, by section 795 of the Taxation (International Taxation, Life Insurance, and Re- medial Matters) Act 2009 (2009 No 34).

Subsection (6) was amended, as from 1 April 2006, by section 97(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by substituting the deﬁnition of “costs” with application as from the income year corresponding to the 2006–07 tax year.
Subsections (6B) and (6C) were inserted, as from 1 April 2007, by section 69(1) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81).

See section 69(4) of that Act for the application of this amendment for income years beginning on or after 1 April 2007.

Section EX 44(6B)(b): substituted (with effect from 1 April 2007), on 19 De- cember 2007, by section 87(2) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Subsection (7) was substituted, as from 1 April 2007, by section 69(2) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81).

See section 69(4) of that Act for the application of this amendment for income years beginning on or after 1 April 2007.
The list of deﬁned terms was amended, as from 1 April 2007, by section 69(3) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 1075 Part E s EX 44B Income Tax Act 2004 Reprinted as at 29 August 2011 No 81) by inserting “direct income interest” and “FIF loss” See section 69(4) of that Act for the application of this amendment for income years beginning on or after 1 April 2007.
EX 44B Fair dividend rate method Alternative formulas used If a person is using the fair dividend rate method to calculate FIF income or loss from an attributing interest in a FIF, the calculation depends on whether the person is a unit trust or other entity (the unit valuer) that— (a) makes investments for the beneﬁt of other persons (the (b) (c) investors); and assigns each investor an interest in a proportion of the net returns from the investments; and determines the value of the investor’s interest for each of a number of periods (the unit valuation periods) making up the income year.
FIF income for person not unit valuer For a person who is not a unit valuer, the FIF income or loss for an income year from the attributing interests in FIFs for which the person uses the fair dividend rate method is the amount calculated for the income year using the method in— (a) (b) section EX 44C, if paragraph (b) does not apply; or section EX 44D, if the person— (i) determines the market value of the attributing in- terest for each period of a day in the income year; and chooses that this paragraph apply.
(ii) FIF income for unit valuer For a person who is a unit valuer, the FIF income for an income year from the attributing interests in FIFs for which the person uses the fair dividend rate method is the total of the amounts calculated for each unit valuation period in the income year using the method in section EX 44D.
FIF loss If a person is using the fair dividend rate method to calculate FIF income or loss from an attributing interest in a FIF, the FIF loss from the attributing interest for an income year is zero.
(1) (2) (3) (4) 1076 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EX 44C (5) Treatment of attributing interests subject to returning share transfer If an attributing interest in a FIF is an original share subject to a returning share transfer, for the purposes of a person using the fair dividend rate method to calculate FIF income or loss, the attributing interest is treated as being held by the share supplier.
Deﬁned in this Act: amount, attributing interest, fair dividend rate method, FIF, FIF income, FIF loss, income year, investor, loss, unit trust Sections EX 44B to EX 44E were inserted, as from 1 April 2007, by section 70(1) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81).

See section 70(2) of that Act for the application of this amend- ment for income years beginning on or after 1 April 2007.
Section EX 44B(2): substituted (with effect from 1 April 2007), on 19 Decem- ber 2007, by section 88(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section EX 44B(5) heading: added (with effect from 1 April 2007), on 19 De- cember 2007, by section 88(2) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EX 44B(5): added (with effect from 1 April 2007), on 19 December 2007, by section 88(2) of the Taxation (Business Taxation and Remedial Mat- ters) Act 2007 (2007 No 109).
EX 44C Fair dividend rate method: usual method FIF income If this section applies to a person who calculates FIF income from attributing interests in FIFs under the fair dividend rate method for an income year, the FIF income is the total of the amounts, each calculated for a FIF for the income year using the formula in subsection (2).

Formula The formula referred to in subsection (1) is— 0.05 x opening + quick sale adjustment.
Deﬁnition of items in formula The items in the formula are deﬁned in subsections (4) and (5).
(1) (2) (3) Opening (4) Opening is the total of the market values of the attributing interests in FIFs— (a) for which the person uses the fair dividend rate method; and 1077 Part E s EX 44C Income Tax Act 2004 Reprinted as at 29 August 2011 (b) (c) that the person holds at the beginning of the income year; and that are not, at the beginning of the income year, in- cluded in a direct income interest of 10% or more in a grey list company.
Exclusion for certain managed funds (4B) Subsection (4)(c) does not apply if— (a) (b) the person is a portfolio investment entity, an entity eli- gible to be a portfolio investment entity, or a life insur- ance company; and the FIF is a foreign investment vehicle.
Quick sale adjustment (5) Quick sale adjustment is— (a) (b) zero, if the person in the income year— (i) acquires or increases the attributing interest in no FIF for consideration: disposes of or reduces the attributing interest in no FIF after an acquisition or increase of the in- terest for consideration; or (ii) if paragraph (a) does not apply, the lesser of— (i) the amount (the peak holding adjustment) de- termined under subsection (6): the amount (the quick sale gains) determined under subsection (10B).
(ii) (6) (7) (8) Peak holding adjustment The peak holding adjustment is the total for the income year of the amounts calculated for each FIF using the formula in subsection (7).

Formula The formula referred to in subsection (6) is— 0.05 × quick sales × average cost.

Deﬁnition of items in formula The items in the formula are deﬁned in subsections (9) and (10).
Quick sales (9) Quick sales is,— 1078 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EX 44C (a) (b) if the person in the income year does not acquire or in- crease the attributing interest in the FIF for consider- ation or does not dispose of or reduce the attributing interest in the FIF after such an acquisition or increase, zero; or if paragraph (a) does not apply and no share reorganisa- tion occurs in the income year, the lesser of the follow- ing, determined in terms of the amount of the attribut- ing interest in the FIF (the interest size) that the person holds at a time in the income year: (i) the difference between the interest size that is the greatest for the income year and the interest size at the beginning of the income year: the difference between the interest size that is the greatest for the income year and the interest size at the end of the income year; or (ii) (c) if paragraph (a) does not apply and a share reorganisa- tion occurs in the income year, the amount calculated under section EX 44E for the income year.
Average cost (10) Average cost is,— (a) (b) (c) if the person in the income year does not acquire or in- crease the attributing interest in the FIF for consider- ation or does not dispose of or reduce the attributing interest in the FIF after such an acquisition or increase, zero; or if paragraph (a) does not apply and no share reorgan- isation occurs in the income year, the total amount of expenditure that the person incurs in acquiring or in- creasing during the income year the attributing interest in the FIF divided by the total for the income year of the increase in the attributing interest in the FIF for each ac- quisition or increase; or if paragraph (a) does not apply and a share reorganisa- tion occurs in the income year, the amount calculated under section EX 44E for the income year.
Quick sale gains (10B) The quick sale gains is the greater of zero and the total for the income year of amounts calculated, for each attributing 1079 Part E s EX 44C Income Tax Act 2004 Reprinted as at 29 August 2011 interest that is both acquired and disposed of in the income year, using the formula— return - (interest x average cost).
Deﬁnition of items in formula (10C) In the formula,— (a) (b) (c) return is the total amount derived by the person from holding or disposing of the interest: interest is the amount of the interest that is both ac- quired and disposed of in the income year: average cost is the total amount of expenditure that the person incurs during the income year in acquiring or in- creasing the attributing interest in the FIF divided by the total for the income year of the increase in the interest for each acquisition or increase.
(11) Conversion of foreign currency amounts If an amount in a foreign currency is the market value of, or is derived from or incurred on, an interest during an income year, the person must choose that for the income year and each later income year and for all interests for which the person uses the fair dividend rate method— (a) each foreign currency amount in the income year be converted into New Zealand dollars using the exchange rate on the day for which the market value is determined or on which the amount is derived or incurred; or all foreign currency amounts in the income year be con- verted into New Zealand dollars at the average of the close of trading spot exchange rates for the 15th day of each month that falls in the income year.
(b) Identifying attributing interests disposed of in income year (12) For the purpose of calculating the quick sale gains under sub- section (5)(b)(ii), attributing interests in a FIF are treated as being disposed of in the reverse order of their acquisition.
1080 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EX 44C (13) Treatment of deemed transaction under section EX 51 or EX 54B If a person is treated under section EX 51(5) or EX 54B as dis- posing of or acquiring a share in an income year, the disposal or acquisition is ignored for the purposes of subsection (5).
Deﬁned in this Act: amount, attributing interest, company, fair dividend rate method, FIF, FIF income, foreign investment vehicle, income year, investor, life insurance, market value, portfolio investment entity, share reorganisation Sections EX 44B to EX 44E were inserted, as from 1 April 2007, by section 70(1) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81).
See section 70(2) of that Act for the application of this amend- ment for income years beginning on or after 1 April 2007.

Section EX 44C(4)(b): amended (with effect from 1 April 2007), on 19 Decem- ber 2007, by section 89(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section EX 44C(4)(c): added (with effect from 1 April 2007), on 19 December 2007, by section 89(1) of the Taxation (Business Taxation and Remedial Mat- ters) Act 2007 (2007 No 109).
Section EX 44C(4B) heading: inserted (with effect on 1 April 2007), on 6 Oc- tober 2009, by section 796(1) of the Taxation (International Taxation, Life In- surance, and Remedial Matters) Act 2009 (2009 No 34).

Section EX 44C(4B): inserted (with effect on 1 April 2007), on 6 October 2009, by section 796(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 44C(5)(b)(ii): substituted (with effect from 1 April 2007), on 19 December 2007, by section 89(2) of the Taxation (Business Taxation and Re- medial Matters) Act 2007 (2007 No 109).

Section EX 44C(10)(b): amended (with effect from 1 April 2007), on 19 De- cember 2007, by section 89(3) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EX 44C(10B) heading: inserted (with effect from 1 April 2007), on 19 December 2007, by section 89(4) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section EX 44C(10B): inserted (with effect from 1 April 2007), on 19 Decem- ber 2007, by section 89(4) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EX 44C(10C) heading: inserted (with effect from 1 April 2007), on 19 December 2007, by section 89(4) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section EX 44C(10C): inserted (with effect from 1 April 2007), on 19 Decem- ber 2007, by section 89(4) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EX 44C(11): amended (with effect from 1 April 2007), on 19 Decem- ber 2007, by section 89(5) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

1081 Part E s EX 44D Income Tax Act 2004 Reprinted as at 29 August 2011 Section EX 44C(11)(a): amended (with effect from 1 April 2007), on 19 De- cember 2007, by section 89(6) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EX 44C(13) heading: added (with effect from 1 April 2007), on 19 De- cember 2007, by section 89(7) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section EX 44C(13): added (with effect from 1 April 2007), on 19 December 2007, by section 89(7) of the Taxation (Business Taxation and Remedial Mat- ters) Act 2007 (2007 No 109).
Section EX 44C list of deﬁned terms company: inserted (with effect on 1 April 2007), on 6 October 2009, by section 796(2) of the Taxation (International Tax- ation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section EX 44C list of deﬁned terms foreign investment vehicle: inserted (with effect on 1 April 2007), on 6 October 2009, by section 796(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 44C list of deﬁned terms life insurance: inserted (with effect on 1 April 2007), on 6 October 2009, by section 796(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section EX 44C list of deﬁned terms portfolio investment entity: inserted (with effect on 1 April 2007), on 6 October 2009, by section 796(2) of the Tax- ation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
EX 44D Fair dividend rate method: method for unit valuers and persons valuing interests daily (1) FIF income If this section applies to an entity or person (the entity) who calculates FIF income from attributing interests in FIFs under the fair dividend rate method, the FIF income of the entity from the interests is the total of the amounts calculated using the formula in subsection (2) for each period (the unit valuation period) of the income year for which the entity determines the value of the attributing interests or of investors’ interests in the entity.
Formula The formula for the entity is— (2) Deﬁnition of items in formula The items in the formula are deﬁned in subsections (4) to (7).
(3) 1082 Reprinted as at 29 August 2011 Opening Income Tax Act 2004 Part E s EX 44D (4) Opening is the total of the market values of the attributing interests in FIFs— (a) (b) (c) for which the entity uses the fair dividend rate method; and that the entity holds at the beginning of the unit valu- ation period; and that are not, at the beginning of the income year, in- cluded in a direct income interest of 10% or more in a grey list company.
Exclusion for certain managed funds (1)4B Subsection (4)(c) does not apply if— (a) (b) the person is a portfolio investment entity, an entity eli- gible to be a portfolio investment entity, or a life insur- ance company; and the FIF is a foreign investment vehicle.

Period Period is the number of days in the unit valuation period.

(5) Year (6) Year is the number of days in the income year.
Quick sale adjustment (7) Quick sale adjustment is— (a) (b) (c) zero, if the unit valuation period is 1 day; or zero, if the entity in the unit valuation period— (i) acquires or increases the attributing interest in no FIF for consideration: disposes of or reduces the attributing interest in no FIF after an acquisition or increase of the in- terest for consideration; or (ii) if paragraphs (a) and (b) do not apply, the lesser of— (i) the amount (the peak holding adjustment) de- termined under subsection (8): the amount (the quick sale gains) determined under subsection (12B).
(ii) (8) Peak holding adjustment The peak holding adjustment is the total for the unit valuation period of the amounts calculated for each FIF using the for- mula in subsection (9).

1083 Part E s EX 44D Income Tax Act 2004 Reprinted as at 29 August 2011 Formula The formula referred to in subsection (8) is— (9) 0.05 x quick sales × average cost.

Deﬁnition of items in formula (10) The items in the formula are deﬁned in subsections (11) and (12).
Quick sales (11) Quick sales is,— (a) (b) if the entity in the unit valuation period does not acquire or increase the attributing interest in the FIF for consid- eration or does not dispose of or reduce the attributing interest in the FIF after such an acquisition or increase, zero; or if paragraph (a) does not apply and no share reorgan- isation occurs in the unit valuation period, the lesser of the following, determined in terms of the amount of the attributing interest in the FIF (the interest size) that the entity holds at a time in the unit valuation period: (i) the difference between the interest size that is the greatest for the unit valuation period and the interest size at the beginning of the unit valuation period: the difference between the interest size that is the greatest for the unit valuation period and the in- terest size at the end of the unit valuation period; or (ii) (c) if paragraph (a) does not apply and a share reorgan- isation occurs in the unit valuation period, the amount calculated under section EX 44E for the unit valuation period.
Average cost (12) Average cost is,— (a) if the entity in the unit valuation period does not acquire or increase the attributing interest in the FIF for consid- eration or does not dispose of or reduce the attributing interest in the FIF after such an acquisition or increase, zero; or 1084 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EX 44D (b) (c) if paragraph (a) does not apply and no share reorganisa- tion occurs in the unit valuation period, the total amount of expenditure that the entity incurs in acquiring or in- creasing during the unit valuation period the attributing interest in the FIF divided by the total for the unit valu- ation period of the increase in the attributing interest in the FIF for each acquisition or increase; or if paragraph (a) does not apply and a share reorgan- isation occurs in the unit valuation period, the amount calculated under section EX 44E for the unit valuation period.
Quick sale gains (12B) The quick sale gains is the greater of zero and the total for the unit valuation period of amounts calculated, for each attribut- ing interest that is both acquired and disposed of in the unit valuation period, using the formula— return - (interest x average cost).
Deﬁnition of items in formula (12C) In the formula— (a) (b) (c) return is the total amount derived by the entity from holding or disposing of the interest: interest is the amount of the interest: average cost is the total amount of expenditure that the entity incurs during the unit valuation period in acquir- ing or increasing the attributing interest in the FIF di- vided by the total for the unit valuation period of the increase in the interest for each acquisition or increase.
Conversion of foreign currency amounts If an amount in a foreign currency is the market value of, or is derived from or incurred on, an interest during an income year, the entity must choose that for the income year and each later income year and for all interests for which the entity uses the fair dividend rate method— (a) each foreign currency amount in the income year be converted into New Zealand dollars using the exchange rate on the day for which the market value is determined or on which the amount is derived or incurred; or (13) 1085 Part E s EX 44D Income Tax Act 2004 Reprinted as at 29 August 2011 (b) all foreign currency amounts in the income year be con- verted into New Zealand dollars at the average of the close of trading spot exchange rates for the 15th day of each month that falls in the income year.
Identifying attributing interests disposed of in income year (14) For the purpose of calculating the quick sale gains under sub- section (7)(c)(ii), attributing interests in a FIF are treated as being disposed of in the reverse order of their acquisition.

Treatment of deemed transaction under section EX 54B If a person is treated under section EX 54B as disposing of or acquiring a share in an income year, the disposal or acquisition is ignored for the purposes of subsection (7).
Deﬁned in this Act: amount, attributing interest, company, close of trading spot exchange rate, company, fair dividend rate method, FIF, FIF income, foreign investment vehicle, income year, life insurance, market value, portfolio invest- ment entity Sections EX 44B to EX 44E were inserted, as from 1 April 2007, by section 70(1) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81).
See section 70(2) of that Act for the application of this amend- ment for income years beginning on or after 1 April 2007.

Section EX 44D heading: amended (with effect from 1 April 2007), on 19 De- cember 2007, by section 90(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section EX 44D(1) heading: substituted (with effect from 1 April 2007), on 19 December 2007, by section 90(2) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EX 44D(1): substituted (with effect from 1 April 2007), on 19 Decem- ber 2007, by section 90(2) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section EX 44D(4)(b): amended (with effect from 1 April 2007), on 19 Decem- ber 2007, by section 90(3) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EX 44D(4)(c): added (with effect from 1 April 2007), on 19 December 2007, by section 90(3) of the Taxation (Business Taxation and Remedial Mat- ters) Act 2007 (2007 No 109).

Section EX 44D(4B) heading: inserted (with effect on 1 April 2007), on 6 Oc- tober 2009, by section 797(1) of the Taxation (International Taxation, Life In- surance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 44D(4B): inserted (with effect on 1 April 2007), on 6 October 2009, by section 797(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section EX 44D(7)(c)(ii): substituted (with effect from 1 April 2007), on 19 December 2007, by section 90(4) of the Taxation (Business Taxation and Re- medial Matters) Act 2007 (2007 No 109).
(15) 1086 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EX 44D Section EX 44D(12)(b): amended (with effect from 1 April 2007), on 19 De- cember 2007, by section 90(5) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section EX 44D(12B) heading: inserted (with effect from 1 April 2007), on 19 December 2007, by section 90(6) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EX 44D(12B): inserted (with effect from 1 April 2007), on 19 Decem- ber 2007, by section 90(6) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section EX 44D(12C) heading: inserted (with effect from 1 April 2007), on 19 December 2007, by section 90(6) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EX 44D(12C): inserted (with effect from 1 April 2007), on 19 Decem- ber 2007, by section 90(6) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section EX 44D(13): amended (with effect from 1 April 2007), on 19 Decem- ber 2007, by section 90(7) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EX 44D(13)(a): amended (with effect from 1 April 2007), on 19 De- cember 2007, by section 90(8) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section EX 44D(15) heading: added (with effect from 1 April 2007), on 19 De- cember 2007, by section 90(9) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EX 44D(15): added (with effect from 1 April 2007), on 19 December 2007, by section 90(9) of the Taxation (Business Taxation and Remedial Mat- ters) Act 2007 (2007 No 109).

Section EX 44D list of deﬁned terms company: inserted (with effect on 1 April 2007), on 6 October 2009, by section 797(2) of the Taxation (International Tax- ation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 44D list of deﬁned terms foreign investment vehicle: inserted (with effect on 1 April 2007), on 6 October 2009, by section 797(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section EX 44D list of deﬁned terms life insurance: inserted (with effect on 1 April 2007), on 6 October 2009, by section 797(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 44D list of deﬁned terms portfolio investment entity: inserted (with effect on 1 April 2007), on 6 October 2009, by section 797(2) of the Tax- ation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
1087 Part E s EX 44E Income Tax Act 2004 Reprinted as at 29 August 2011 EX 44E Fair dividend rate method and cost method: calculating items in formulas for periods affected by share reorganisations Items and formulas This section provides for the calculation, for an income year or unit valuation period (the affected period) in which a share reorganisation occurs, of the following: (a) the item quick sales, for the purposes of the formulas in sections EX 44C(7), EX 44D(9), and EX 45B(2): the item average cost, for the purposes of the formulas in sections EX 44C(7), EX 44D(9), and EX 45B(2) and (7)(b): the item change, for the purposes of the formula in sec- tion EX 45B(7)(b).
(b) (c) Treatment of affected period in which share reorganisation occurs For the purposes of calculating the items for an affected period under this section,— (a) (ii) the affected period is treated as consisting of periods (the reorganisation periods) that do not overlap: each reorganisation period in the affected period— (i) begins with the beginning of the affected period or a share reorganisation in the affected period; and ends before the next later event that is a share reorganisation or the end of the affected period: the amount of the attributing interest in the FIF held by the person at any time (the comparison time) in a reorganisation period, is treated as corresponding to an amount (the equivalent interest size) equal to the amount of the attributing interest in the FIF that the person would hold at the end of the affected period if, after the comparison time, the person did not increase or reduce the attributing interest in the FIF except under share reorganisations occurring in the affected period: the amount of an acquisition or increase (the acquired interest) by the person of the attributing interest in the FIF, other than under a share reorganisation, is treated as (b) (c) (d) (1) (2) 1088 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EX 44E corresponding to an amount (the equivalent acquired interest) equal to the difference between— (i) the equivalent interest size for the time of the acquisition or increase; and the amount that would be the equivalent interest size for the time of the acquisition or increase if the person were not to have the acquired interest.
(ii) Quick sales (3) Under this section, the item quick sales for a person and an affected period is the lesser of the following: (a) the difference between the equivalent interest size that is the greatest for the affected period and the equivalent interest size for the beginning of the affected period: the difference between the equivalent interest size that is the greatest for the affected period and the equivalent interest size for the end of the affected period.
(b) Average cost (4) Under this section, the item average cost for a person and an affected period is the total amount of expenditure that the person incurs in acquiring or increasing during the affected period the attributing interest in the FIF divided by the total for the affected period of the equivalent acquired interest for each acquisition or increase.
Change (5) Under this section, the item change for a person and an af- fected period is the difference between the equivalent interest size for the beginning of the affected period and the equivalent interest size for the beginning of the period before the affected period.
(6) Conversion of foreign currency amounts If an amount in a foreign currency is incurred on an interest during an affected period, the person must use the method for converting the amount to New Zealand currency chosen under section EX 44C, EX 44D, or EX 45B by the person for the income year of the affected period.
Deﬁned in this Act: amount, attributing interest, FIF, income year Sections EX 44B to EX 44E were inserted, as from 1 April 2007, by section 70(1) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 1089 Part E s EX 45 Income Tax Act 2004 Reprinted as at 29 August 2011 (2006 No 81).

See section 70(2) of that Act for the application of this amend- ment for income years beginning on or after 1 April 2007.
Section EX 44E(4): amended (with effect from 1 April 2007), on 19 December 2007, by section 91 of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
EX 45 Deemed rate of return method (1) Formula changes if interest changes If a person is using the deemed rate of return method to cal- culate FIF income or loss from an attributing interest in a FIF for an income year, the FIF income or loss is calculated— (a) by the formula in subsection (3) (standard formula) if the person has held the interest unchanged throughout the income year; and by totalling the amounts calculated by the formula in subsection (5) (part-year formula) for each part of the income year during which the interest is unchanged, in any other case.
(b) When interest changes (2) A person’s attributing interest in a FIF changes during an in- come year if the person— (a) (b) acquires or increases the interest; or disposes of or reduces the interest (but merely receiving an annuity payment from the interest is not a disposal or reduction).

Standard formula The standard formula is— opening book value x deemed rate.
Deﬁnition of items in standard formula In the standard formula,— (a) opening book value is the book value of the interest at the end of the previous income year, calculated under subsection (7): deemed rate is the rate set by the Governor-General by Order in Council for this section for the relevant income year.
(b) Part-year formula The part-year formula is— (3) (4) (5) 1090 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EX 45 (6) (7) (8) Deﬁnition of items in part-year formula In the part-year formula,— (a) (b) (c) (d) (ii) opening book value is the book value (if any) of the interest at the end of the period before the part of the income year, calculated under subsection (7): costs is the total for the part of the income year of— (i) all expenditure, if any, that the person incurs in acquiring or increasing the interest: income tax on the income of the FIF for which the person is liable under the laws of a country or territory outside New Zealand and which is paid by the person in the part of the income year: deemed rate is the rate set by the Governor-General by Order in Council for this section for the relevant income year: days is the number of days in the part of the income year.
(For this purpose, an acquisition or increase is treated as occurring at the start of a day and a disposition or reduction is treated as occurring at the end of a day.)
Closing book value formula The book value, at the end of an income year or (in a case in which subsection (5) applies) a part of an income year, of an attributing interest of a person in a FIF under the deemed rate of return method is, unless subsection (9) applies, calculated using the formula (closing book value formula)— (opening book value + costs + deemed income + top-up amounts) – gains.
Deﬁnition of items in closing book value formula In the closing book value formula,— (a) opening book value is the book value (if any) of the interest at the end of the previous income year or the part of the income year, calculated under subsection (7): costs is the total for the income year or part of the in- come year of— (i) all expenditure, if any, that the person incurs in acquiring or increasing the interest: (b) 1091 Part E s EX 45 Income Tax Act 2004 Reprinted as at 29 August 2011 (c) (d) (e) (ii) income tax on the income of the FIF for which the person is liable under the laws of a country or territory outside New Zealand and which is paid by the person in the income year or part of the income year: deemed income is the FIF income from the interest for the year or the part of the income year calculated under subsection (3) or (5): top-up amounts is amounts (gains from holding or dis- posing of the interest) that are top-up FIF income in the year under section EX 48 or EX 49: gains is the total of all amounts that the person derives during the year or the part of the income year from hold- ing or disposing of the interest.
(The amounts include any foreign withholding tax or other tax that the per- son is allowed as a credit under section LC 1 (Credits in respect of tax paid in country or territory outside New Zealand).)

(9) (10) Closing book value zero if changing method The closing book value is always zero if the person is using a calculation method for the interest different from the deemed rate of return method at the end of the income year or, in a case to which subsection (5) applies, the part of the income year.
Top-up income if deemed rate inadequate If the closing book value of a person’s attributing interest in a FIF at the end of an income year or a part of an income year is below zero, the person has additional FIF income equal to the deﬁcit for the relevant income year.
When subsection (10) does not apply (11) Subsection (10) does not apply if— (a) (b) the person is a natural person; and at all times during the income year the total value of the person’s attributing interests in FIFs is $250,000 or less, the value of each interest being— (i) its book value (calculated under subsection (7)) at the end of the previous income year, if the person held the interest then and used the deemed rate 1092 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EX 45 of return method to calculate FIF income for all attributing interests in the previous income year: its market value, in any other case; and (ii) the deﬁcit in closing book value arises only because the person disposed of some or all of the interest; and the gain that the person derived from disposing of the interest or part-interest is not income (or is income only to the extent to which it gives rise to FIF income).
(c) (d) Top-up income if gains more than deemed income (12) A person calculating FIF income under the deemed rate of re- turn method can also have additional FIF income under section EX 48.
(13) FIF income reduced on disposal if deemed rate excessive If a person has disposed of the whole of an attributing interest in a FIF and the closing book value for the relevant income year or the part of the income year is more than zero, the excess is subtracted when the person’s FIF income under the deemed rate of return method for the income year is calculated.
When subsection (13) does not apply (14) Subsection (13) does not apply if— (a) (b) (c) the person is a natural person; and at all times during the income year the total value of at- tributing interests in FIFs held by the person is $250,000 or less, the value of each interest being— (i) its book value (calculated under subsection (7)) at the end of the previous income year, if the person held the interest then and used the deemed rate of return method to calculate FIF income for all attributing interests in the previous income year: its market value, in any other case; and (ii) the gain that the person derived from disposing of the interest or part-interest is not income (or is income only to the extent to which it gives rise to FIF income).
(15) Conversion of foreign currency amounts If an amount is derived from, or incurred on, the interest in a foreign currency during the income year, the person must choose, for the year and each later year and for all interests for which the person uses the deemed rate of return method,— 1093 Part E s EX 45B Income Tax Act 2004 Reprinted as at 29 August 2011 (a) (b) for each such foreign currency amount in the income year to be converted into New Zealand dollars using the exchange rate on the day the amount is derived or incurred; or for all such foreign currency amounts in the year to be converted into New Zealand dollars at the average of the close of trading spot exchange rates for the ﬁfteenth day of each complete month that falls in the income year.
Deﬁned in this Act: amount, attributing interest, calculation method, close of trading spot exchange rate, deemed rate of return method, FIF, FIF income, foreign withholding tax, income, income year, loss, market value, New Zealand, tax Compare: 1994 No 164 ss CG 16(11)(b), (12), CG 19(1)-(5) Subsection (6)(b) was amended, as from 1 April 2006, by section 98(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by substituting the deﬁnition of “costs” with application as from the income year corresponding to the 2006–07 tax year.
Subsection (8)(b) was amended, as from 1 April 2006, by section 98(2) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by substituting the deﬁnition of “costs” with application as from the income year corresponding to the 2006–07 tax year.

Subsection (11)(b)(i) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; or”.
Subsection (14)(b)(i) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; or”.

Subsection (15) the words before paragraph (a) were substituted, as from 1 April 2007, by section 71(1) Taxation (Savings Investment and Miscellaneous Provi- sions) Act 2006 (2006 No 81).

See section 71(2) of that Act for the application of this amendment for income years beginning on or after 1 April 2007.
Additional FIF income or loss if CFC owns FIF EX 45B Cost method FIF income from interest, disposal of interest If a person is using the cost method to calculate FIF income or loss from an attributing interest in a FIF,— (a) the FIF income from that interest for the relevant in- come year is the greater of zero and the amount calcu- lated using the formula in subsection (2): the FIF loss from that interest for the relevant income year is zero.
(b) (1) 1094 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EX 45B Formula The formula referred to in subsection (1) is— 0.05 × (opening value + (quick sales × average cost)).

Deﬁnition of items in formula The items in the formula are deﬁned in subsections (4) to (6).
(2) (3) Opening value (4) Opening value is— (a) (ab) (ac) (b) zero, if the relevant income year is the year in which the person acquires the interest; or the amount that is shown as the net asset value of the interest in audited ﬁnancial statements of the person for the relevant income year made available to the general public, if— (i) (ii) paragraph (a) does not apply; and the FIF makes available to the general public au- dited ﬁnancial statements for its accounting year ending in the relevant income year; and the person chooses that this paragraph apply; or (iii) the amount of the cost of the interest, if— (i) (ii) paragraphs (a) and (ab) do not apply; and the person acquires the interest in the 2005–06 or 2006–07 income year; and the interest was not an attributing interest for the income year before the relevant income year; or the amount of an independent valuation of the market value of the interest at the beginning of the relevant in- come year, if paragraphs (a), (ab), and (ac) do not apply and the person holds the interest at the beginning of the relevant income year and— (i) (iii) the interest was not an attributing interest for which the person has FIF income or loss for the income year before the relevant income year: the person has used the cost method for the inter- est for a period of 4 or more income years end- ing before the relevant income year and has not applied this paragraph to the interest for any of those income years; or (ii) (c) the amount calculated using the formula in subsection (7)(a), if paragraphs (a), (ab), (ac), and (b) do not apply 1095 Part E s EX 45B Income Tax Act 2004 Reprinted as at 29 August 2011 and the person’s attributing interest (the current open- ing interest) at the beginning of the relevant income year is the same as the person’s attributing interest (the preceding opening interest) at the beginning of the in- come year before the relevant income year; or the amount calculated using the formula in subsection (7)(b), if paragraphs (a), (ab), (ac), and (b) do not
 apply and the person’s current opening interest is more than the preceding opening interest; or the amount calculated using the formula in subsection (7)(c), if paragraphs (a), (ab), (ac), and (b) do not apply and the person’s current opening interest is less than the preceding opening interest.
(d) (e) Quick sales (5) Quick sales is,— (a) (b) if the person in the relevant income year does not ac- quire or increase the attributing interest in the FIF for consideration or does not dispose of or reduce the at- tributing interest in the FIF after such an acquisition or increase, zero; or if paragraph (a) does not apply and no share reorgan- isation occurs in the relevant income year, the lesser of the following, determined in terms of the amount of the attributing interest in the FIF (the interest size) that the person holds at a time in the relevant income year: (i) the difference between the interest size that is the greatest for the income year and the interest size at the beginning of the income year: the difference between the interest size that is the greatest for the income year and the interest size at the end of the income year; or (ii) (c) if paragraph (a) does not apply and a share reorganisa- tion occurs in the income year, the amount calculated under section EX 44C for the income year.
Average cost (6) Average cost is,— (a) if the person in the relevant income year does not ac- quire or increase the attributing interest in the FIF for consideration or does not dispose of or reduce the at- 1096 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EX 45B (b) (c) tributing interest in the FIF after such an acquisition or increase, zero; or if paragraph (a) does not apply and no share reorganisa- tion occurs in the relevant income year, the total amount of expenditure that the person incurs in acquiring or in- creasing during the relevant income year the attributing interest in the FIF divided by the total for the relevant income year of each increase in the attributing interest in the FIF for each acquisition or increase; or if paragraph (a) does not apply and a share reorganisa- tion occurs in the relevant income year, the amount cal- culated under section EX 44E for the relevant income year.
(7) Formulas for opening value In subsection (4),— (a) the ﬁrst formula is— (b) the second formula is— preceding + FIF income: preceding + FIF income + (change x average cost): (c) the third formula is— (8) (9) Deﬁnition of items in formulas The items in the formulas are deﬁned in subsections (9) to (14).

Preceding Preceding is the opening value for the income year before the relevant income year.
FIF income (10) FIF income is the FIF income under subsection (1) for the attributing interest for the income year before the relevant in- come year.
Change (11) Change is,— (a) if no share reorganisation occurs in the income year be- fore the relevant income year, the difference between the person’s attributing interest at the beginning of the relevant income year and the person’s attributing inter- 1097 Part E s EX 45B Income Tax Act 2004 Reprinted as at 29 August 2011 (b) est at the beginning of the income year before the rele- vant income year: if a share reorganisation occurs in the income year be- fore the relevant income year, the amount calculated under section EX 44E for the income year before the relevant income year.
Average cost (12) Average cost is,— (a) (b) (c) if the person in the income year before the relevant in- come year does not acquire or increase the attributing interest in the FIF for consideration or does not dispose of or reduce the attributing interest in the FIF after such an acquisition or increase, zero; or if paragraph (a) does not apply and no share reorgan- isation occurs in the income year before the relevant in- come year, the total amount of expenditure that the per- son incurs in acquiring or increasing during the income year before the relevant income year the attributing in- terest in the FIF divided by the total for the income year of the increase in the attributing interest in the FIF for each acquisition or increase; or if paragraph (a) does not apply and a share reorganisa- tion occurs in the income year before the relevant in- come year, the amount calculated under section EX 44E for the income year before the relevant income year.
Opening interest (13) Opening interest is the amount of the attributing interest at the beginning of the relevant income year.

Preceding interest (14) Preceding interest is the amount of the attributing interest at the beginning of the income year before the relevant income year.
Conversion of foreign currency amounts If an amount in a foreign currency is the market value of, or is incurred on, an interest during an income year, the person must choose that for the income year and each later income year and for all interests for which the person uses the cost method— (15) 1098 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EX 45B (a) (b) each foreign currency amount in the income year be converted into New Zealand dollars using the exchange rate on the day for which the market value is determined or on which the amount is incurred; or all foreign currency amounts in the income year be con- verted into New Zealand dollars at the average of the close of trading spot exchange rates for the 15th day of each month that falls in the income year.
Deﬁned in this Act: amount, attributing interest, calculation method, close of trading spot exchange rate, dividend, FIF, FIF income, foreign withholding tax, income year, loss, New Zealand, tax Section EX 45B was inserted, as from 1 April 2007, by section 72(1) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81).

See section 72(2) of that Act for the application of this amendment for income years beginning on or after 1 April 2007.
Section EX 45B(4)(ab): inserted (with effect from 1 April 2007), on 19 Decem- ber 2007, by section 92(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section EX 45B(4)(ac): inserted (with effect from 1 April 2007), on 19 Decem- ber 2007, by section 92(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EX 45B(4)(ac)(ii): amended (with effect on 1 April 2007), on 6 October 2009, by section 798(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section EX 45B(4)(ac)(iii): inserted (with effect on 1 April 2007), on 6 October 2009, by section 798(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 45B(4)(b): amended (with effect from 1 April 2007), on 19 Decem- ber 2007, by section 92(2) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section EX 45B(4)(b)(i): amended (with effect from 1 April 2007), on 19 De- cember 2007, by section 92(3) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EX 45B(4)(c): amended (with effect from 1 April 2007), on 19 Decem- ber 2007, by section 92(4) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section EX 45B(4)(d): amended (with effect from 1 April 2007), on 19 Decem- ber 2007, by section 92(5) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EX 45B(4)(e): amended (with effect from 1 April 2007), on 19 Decem- ber 2007, by section 92(6) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section EX 45B(6)(b): amended (with effect from 1 April 2007), on 19 Decem- ber 2007, by section 92(7) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
1099 Part E s EX 46 Income Tax Act 2004 Reprinted as at 29 August 2011 Section EX 45B(6)(c): amended (with effect from 1 April 2007), on 19 Decem- ber 2007, by section 92(8) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section EX 45B(11)(b): amended (with effect from 1 April 2007), on 19 De- cember 2007, by section 92(9) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EX 45B(12)(b): amended (with effect from 1 April 2007), on 19 De- cember 2007, by section 92(10) of the Taxation (Business Taxation and Remed- ial Matters) Act 2007 (2007 No 109).

Section EX 45B(12)(c): amended (with effect from 1 April 2007), on 19 De- cember 2007, by section 92(11) of the Taxation (Business Taxation and Remed- ial Matters) Act 2007 (2007 No 109).
Section EX 45B list of deﬁned terms attributing interest: amended (with ef- fect on 1 April 2007), on 6 October 2009, by section 798(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
EX 46 Additional FIF income or loss if CFC owns FIF Application of this section This section applies if— (a) (b) a person has an income interest of 10% or more in a CFC for an accounting period under sections EX 8 to EX 17; and because section EX 21(33) applies, FIF income and FIF loss is not taken into account in calculating the branch equivalent income or loss of the CFC for the period for the person.
Calculation of FIF income or loss The person instead has FIF income or loss, for the income year in which the period ends, calculated using the formula— income interest x CFC’s FIF income or loss.

Deﬁnition of items in formula In the formula,— (a) (b) income interest is the person’s income interest in the CFC for the period under sections EX 8 to EX 13: CFC’s FIF income or loss is the CFC’s FIF income or loss for the period calculated under subsections (4) and (5).
Application of FIF rules to choice of method The person must— (1) (2) (3) (4) 1100 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EX 46 (a) (b) (c) choose, under sections EX 38 to EX 41, the calculation method for calculating the CFC’s FIF income or loss; and otherwise apply the calculation rules in sections EX 38 to EX 49 as if the person directly held the attributing interest; and apply the FIF loss ring-fencing rules in section DN 9 (Ring-fencing cap on deduction: branch equivalent method) as if the person directly held the attributing interest.
Exclusion of policyholders’ entitlements (5) Despite subsection (4), the CFC’s FIF income or loss does not include any amount actuarially determined to be attributable to policyholders in the CFC or another company as a result of applying section EX 21(25) and (26) to the CFC.

(6) Unqualiﬁed grey list CFCs This section applies whether or not the CFC is an unqualiﬁed grey list CFC under section EX 22 for the period.
Disclosure restrictions on grey list CFCs (7) No FIF income or loss arises under this section to the extent to which section EZ 29 (Disclosure restrictions on grey list CFCs before 2011-12) applies.
Deﬁned in this Act: accounting period, amount, attributing interest, branch equivalent income, calculation method, CFC, company, FIF, FIF income, FIF loss, FIF rules, grey list, income interest, income year, loss Compare: 1994 No 164 ss CG 7(5), CG 11(25)(b), (c), CG 13(1) Subsection (4)(c) was substituted, as from 1 April 2007, by section 73(1) Tax- ation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81).
See section 73(2) of that Act for the application of this amendment for in- come years beginning on or after 1 April 2007.

Subsection (7) was amended, as from 3 April 2006, by section 99(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by substituting “2011-12” for “2006–07” with applica- tion as from the income year corresponding to the 2006–07 tax year.
1101 Part E s EX 47 Income Tax Act 2004 Reprinted as at 29 August 2011 Relationship with other provisions in Act EX 47 Codes: comparative value method, deemed rate of return method, fair dividend rate method, and cost method (1) When this section applies This section applies if a person holding an attributing interest in a FIF calculates the FIF income or loss from the interest for a period using— (a) (b) (c) (d) the comparative value method: the deemed rate of return method: the fair dividend rate method: the cost method.
Exclusion for interests in grey list companies (1B) Subsection (1)(c) does not apply if— (a) (b) the FIF is a grey list company; and the person holds a direct income interest of 10% or more in the FIF at the beginning of the income year in which the period falls.
Application of rule for certain managed funds (1C) Subsection (1B) does not apply if— (a) (b) the person is a portfolio investment entity, an entity eli- gible to be a portfolio investment entity, or a life insur- ance company; and the FIF is a foreign investment vehicle.
No income other than FIF income The person is treated as not having any income from the in- terest for the period other than FIF income and, in particular, any dividends derived in the period from the interest and any income gained from disposing of the interest in the period are disregarded.
No deductions other than FIF loss The person is denied a deduction for any amount incurred in the period on acquiring some or all of the interest, except to the extent to which the amount is taken into account under the relevant calculation method in calculating FIF income or loss for the period.
(2) (3) 1102 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EX 47 (4) Application of trading stock rules The interest is not trading stock in the period and accordingly subpart EB (Valuation of trading stock (including dealer’s live- stock)) does not apply.
Deﬁned in this Act: amount, attributing interest, calculation method, compara- tive value method, deduction, cost method, deemed rate of return method, direct income interest, dividend, fair dividend rate method, FIF, FIF income, FIF loss, foreign investment vehicle, income, life insurance, loss, portfolio investment entity, trading stock Compare: 1994 No 164 s CG 16(6) The heading to section EX 47 was substituted, as from 1 April 2007, by section 74(1) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81).
See section 74(4) of that Act for the application of this amend- ment for income years beginning on or after 1 April 2007.

Subsection (1) other than the heading was substituted, as from 1 April 2007, by section 74(2) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81).

See section 74(4) of that Act for the application of this amendment for income years beginning on or after 1 April 2007.
Section EX 47(1)(c): substituted (with effect on 19 December 2007), on 7 Sep- tember 2010, by section 203 of the Taxation (Annual Rates, Trans-Tasman Sav- ings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).

Section EX 47(1)(c): substituted (with effect on 1 April 2007), on 6 October 2009, by section 799(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 47(1)(c): substituted, on 19 December 2007, by section 93 of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section EX 47(1B) heading: inserted (with effect on 1 April 2007), on 6 October 2009, by section 799(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 47(1B): inserted (with effect on 1 April 2007), on 6 October 2009, by section 799(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section EX 47(1C) heading: inserted (with effect on 1 April 2007), on 6 October 2009, by section 799(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 47(1C): inserted (with effect on 1 April 2007), on 6 October 2009, by section 799(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section EX 47 list of deﬁned terms direct income interest: inserted (with ef- fect on 1 April 2007), on 6 October 2009, by section 799(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 47 list of deﬁned terms foreign investment vehicle: inserted (with effect on 1 April 2007), on 6 October 2009, by section 799(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
1103 Part E s EX 48 Income Tax Act 2004 Reprinted as at 29 August 2011 Section EX 47 list of deﬁned terms life insurance: inserted (with effect on 1 April 2007), on 6 October 2009, by section 799(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 47 list of deﬁned terms portfolio investment entity: inserted (with effect on 1 April 2007), on 6 October 2009, by section 799(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

The list of deﬁned terms was amended, as from 1 April 2007, by section 74(3) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) by inserting “cost method” and “fair dividend rate method”.
EX 48 Top-up FIF income: deemed rate of return method (1) (2) (3) When this section applies This section applies at any time when a person— (a) (b) has an attributing interest in a FIF for a period; and is calculating the FIF income or loss from the interest using the deemed rate of return method; and derives in the period, from holding or disposing of the interest, an amount that would have been income if sec- tion EX 47(2) had not applied.
(c) Formula The gain is FIF income to the extent to which the amount cal- culated using the following formula is positive: total income gains – total FIF income.
Deﬁnition of items in formula In the formula,— (a) total income gains is the total of amounts (including the amount in question) derived by the person until that time from holding or disposing of the interest that would have been income if section EX 47(2) had not applied: total FIF income is the total of FIF income (reduced by the total of any FIF losses) derived by the person from the interest until (and including) the relevant period.
(b) (4) Consequence of partial sales If the person disposes of part of the interest, this section ap- plies to the part disposed of and the part retained as if they were separate interests.

If this means that an apportionment is 1104 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EX 49 necessary, it must be done on the basis of the respective mar- ket values at the time the part interest is disposed of.
Deﬁned in this Act: amount, attributing interest, deemed rate of return method, FIF, FIF income, FIF loss, income, loss, market value Compare: 1994 No 164 s CG 22 EX 49 Top-up FIF income: 1 April 1993 uplift interests (1) (2) (3) When this section applies This section applies at any time if a person— (a) (b) (c) has an attributing interest in a FIF for a period; and held the interest on 2 July 1992; and calculated their FIF income from the interest in the period starting on 1 April 1993 under the comparative value method or the deemed rate of return method; and (d) was treated as having reacquired the interest on 1 April 1993 for an uplifted cost under section CG 23(1)(d) of the Income Tax Act 1994; and derives in the period, from holding or disposing of the interest, an amount that would have been income if sec- tion EX 47(2) had not applied.
(e) Formula The gain is FIF income to the extent to which the amount cal- culated using the following formula is positive: total income gains – total FIF income.
Deﬁnition of items in formula In the formula,— (a) total income gains is the total of amounts (including the amount in question) that the person derived until that time from holding or disposing of the interest that would have been income if section EX 47(2) had not applied: total FIF income is the total of FIF income (reduced by the total of any FIF losses) that the person derived from the interest until (and including) the relevant period.
(b) (4) Consequence of partial sales If the person disposes of part of the interest, this section ap- plies to the part disposed of and the part retained as if they were separate interests.

If this means that an apportionment is 1105 Part E s EX 50 Income Tax Act 2004 Reprinted as at 29 August 2011 necessary, it must be done on the basis of the respective mar- ket values at the time the part interest is disposed of.
Deﬁned in this Act: amount, attributing interest, comparative value method, deemed rate of return method, FIF, FIF income, FIF loss, income, market value Compare: 1994 No 164 s CG 22 Changing calculation method EX 50 Limits on changes of method No change unless allowed (1) Once a person uses a particular calculation method to calculate FIF income or loss for an attributing interest in a FIF for a particular period, they must use the same method for interests in the FIF for the next period unless they are allowed to change under subsections (2) to (8).
Change on practical grounds The person may change if it is not practical to continue with the same method because— (a) in the case of the accounting proﬁts method, section EX 40(2) prevents its continued use or it is impossible to obtain enough information to continue to use it: in the case of the branch equivalent method, it is impos- sible to obtain enough information to continue to use it: in the case of the comparative value method, it is im- possible to ﬁnd out the end-of-year market value of the interest: in the case of the deemed rate of return method, if the person was entitled to use that method only by falling under the $250,000 threshold in section EX 40(4)(b), the threshold is exceeded: in the case of the deemed rate of return method, if it was the default method under section EX 41, it ceases to be the default method.
in the case of the fair dividend rate method, it is im- possible to ﬁnd out the start-of-year market value of the interest except by an independent valuation: in the case of the cost method, if it was the default method under section EX 41, it ceases to be the default method.
(b) (c) (d) (e) (f) (g) (2) 1106 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EX 50 (3) (4) Choosing to change The person may also change by notice to the Commissioner if— (a) (b) the notice complies with subsection (4); and either— (i) the person is a natural person and the $250,000 threshold in subsection (5) is not exceeded; or the change is to, or from, the branch equivalent method and within subsections (6) and (7).
(ii) Notice of election The notice of an election to change under subsection (3) must— (a) (b) give the reasons for the change; and comply with the Commissioner’s notice requirements; and be given before the end of the ﬁrst income year or ac- counting period for which the change is to take effect, unless the Commissioner agrees to a retrospective no- tice; and in the case of a natural person relying on the $250,000 threshold test in subsection (3)(b)(i), be given before the end of the year or period that is before the one from the end of which the change takes effect.
(c) (d) Natural person: $250,000 threshold (5) A natural person may make an election under subsection (3) if the total market value of their attributing interests in FIFs is $250,000 or less at the end of the income year or accounting period before the year or period from the end of which the change takes effect.
Changing to or from branch equivalent method (6) A person may make an election under subsection (3) to change— (a) to the branch equivalent method if— (i) this is the ﬁrst time they have chosen to change to the branch equivalent method for an attributing interest in the FIF; or subsection (7) allows them to make another elec- tion: (ii) 1107 Part E s EX 50 Income Tax Act 2004 Reprinted as at 29 August 2011 (b) from the branch equivalent method if— (i) they are changing back to a calculation method that they used for attributing interests in the fund before they used the branch equivalent method; and this is the ﬁrst time they have chosen to change from the branch equivalent method, unless sub- section (7) allows them to make another election.
(ii) Repeated changes to or from branch equivalent method (7) A person may change more than once to, or from, the branch equivalent method if— (a) there has been a change in circumstances (such as a signiﬁcant change in shareholding) that signiﬁcantly changes their ability to obtain enough information to use the branch equivalent method; and altering their income tax liability is not the principal purpose or effect of the change.
Repeated changes between fair dividend rate method and comparative value method (8) A person may change more than once from the fair dividend rate method to the comparative value method and from the comparative value method to the fair dividend rate method if the person is a natural person or the trustee of a trust that— (a) has no gifting settlor who is not a natural person or de- ceased person; and at all times in the income year, would be a qualifying trust for a distribution made at the time; and is mainly for the beneﬁt of— (i) an organisation or trust with income that is ex- empt income under section CW 34 or CW 35 (which relate to the income of charities): at all times in the income year, a natural person for whom the gifting settlors of the trust have natural love and affection or had natural love and affection when alive; and is not a superannuation scheme.
(ii) (d) Deﬁned in this Act: accounting period, accounting proﬁts method, attributing interest, branch equivalent method, calculation method, Commissioner, com- parative value method, cost method, deemed rate of return method, exempt income, fair dividend rate method, FIF, FIF income, income tax liability, in- (b) (b) (c) 1108 Reprinted as at 29 August 2011 Income Tax Act 2004 Part E s EX 51 come year, loss, market value, notice, qualifying trust, settlor, superannuation scheme, trustee Compare: 1994 No 164 s CG 17(8)-(10) Section EX 50(1): amended (with effect from 1 April 2007), on 19 December 2007, by section 94(1) of the Taxation (Business Taxation and Remedial Mat- ters) Act 2007 (2007 No 109).
Subsection (2)(a) to (d) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; or”.

Subsection (2)(f) and (g) was inserted, as from 1 April 2007, by section 75(1) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81).

See section 75(4) of that Act for the application of this amendment for income years beginning on or after 1 April 2007.
Subsection (6)(a)(ii) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; or”.

Subsection (8) was inserted, as from 1 April 2007, by section 75(2) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81).

See section 75(4) of that Act for the application of this amendment for income years beginning on or after 1 April 2007.