Source document: https://docs-lawep.s3.us-east-2.amazonaws.com/1698754049739.pdf (New Zealand)
Deﬁned in this Act: accounting period, associated person, CFC, company, con- trol interest, control interest category, foreign company, foreign investment ve- hicle, life insurance, New Zealand resident, portfolio investment entity, share- holder decision-making right Compare: 2004 No 35 s EX 1 Section EX 1(1)(b)(i): substituted (with effect on 1 April 2008), on 7 September 2010, by section 42(1) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
Section EX 1(2): amended, on 1 April 2008, by section 381 of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

1133 Part E s EX 2 Income Tax Act 2007 Reprinted as at 30 August 2013 Section EX 1(2)(a): amended, on 1 April 2010 (applying for the 2010–11 and later income years), by section 149(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 1(2)(b)(ii): substituted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 149(2) of the Taxation (International Taxa- tion, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section EX 1 list of deﬁned terms control: repealed, on 1 April 2010, by sec- tion 594 of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
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) (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 right Compare: 2004 No 35 s EX 2 1134 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EX 3 EX 3 Control interest: total of direct, indirect, and associated person interests Calculation of control interest (1) 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.
(2) Avoidance arrangements: ﬁrst kind Section GB 7 (Arrangements involving CFC control interests) may apply to treat a control interest as being held by a group of New Zealand residents in equal proportions.
Avoidance arrangements: other kinds (3) Any of the following sections may apply to the calculation of a person’s control interest: (a) section GB 9 (Temporary disposals of direct control or income interests): section GB 10 (Temporary acquisitions of direct control or income interests): section GB 11 (Temporary increases in totals for control interest categories): section GB 12 (Temporary reductions in totals for con- trol interest categories): section GB 13 (When combination of changes reduces income): section GB 14 (When combination of changes increases loss).
(b) (c) (d) (b) (c) (d) (e) (f) Deﬁned in this Act: associated person, control interest, direct control interest, foreign company, New Zealand resident Compare: 2004 No 35 ss EX 3, GC 7, GC 9 1135 Part E s EX 4 Income Tax Act 2007 Reprinted as at 30 August 2013 EX 4 Limits to requirement to include associated person interests (1) 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 resident holds a direct control interest or indirect control inter- est in the foreign company.
No double counting (2) Despite section EX 3(1)(b) and (d), for the purposes of deter- mining whether a foreign company is a CFC, a direct control interest or indirect control interest may be counted only once.
Deﬁned in this Act: associated person, CFC, control interest, direct control interest, foreign company, New Zealand resident, non-resident, relative Compare: 2004 No 35 s EX 4 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.
1136 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EX 6 Varying decision-making rights (4) When the direct control interest in the category in subsection (1)(b) is calculated, if the percentage varies between the rights described in the different paragraphs of the deﬁnition of share- holder decision-making rights in section YA 1 (Deﬁnitions), the highest percentage is taken.
Income distribution rights: assumptions (5) When the direct control interest in the category in subsection (b) (c) (1)(c) is calculated, it is assumed that— (a) the income is distributed on the last day of the account- ing period; and the person’s entitlement is unchanged during the period; and a payment of interest on a debenture subject to section FA 2 (Recharacterisation of certain debentures), FA 2B (Stapled debt securities), or FZ 1 (Treatment of interest payable under debentures issued before certain date) is a distribution of income.
Deﬁned in this Act: accounting period, available subscribed capital, control interest category, direct control interest, foreign company, income, interest, pay, share, shareholder decision-making right, slice rule Compare: 2004 No 35 s EX 5 Section EX 5(5)(c): amended (with effect on 1 April 2008), on 6 October 2009, by section 150 of the Taxation (International Taxation, Life Insurance, and Re- medial Matters) Act 2009 (2009 No 34).
EX 6 Direct control interests include options and similar rights (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 1137 Part E s EX 7 Income Tax Act 2007 Reprinted as at 30 August 2013 (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: 2004 No 35 s EX 6 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).

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.
(3) (4) 1138 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EX 7 (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 interest, direct control interest, foreign company, income interest, New Zealand resident Compare: 2004 No 35 s EX 7 Section EX 7 list of deﬁned terms control: repealed, on 1 April 2010, by sec- tion 594 of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
1139 Part E s EX 8 Income Tax Act 2007 Reprinted as at 30 August 2013 Calculation of person’s income interest EX 8 Income interests: total of direct and indirect interests Calculation of income interest (1) A person’s income interest in a CFC at any time is the total of the following: (a) any direct income interest that the person holds in the CFC: any indirect income interest that the person holds in the CFC.
Avoidance arrangements (2) Any of the following sections may apply to the calculation of a person’s income interest: (a) section GB 9 (Temporary disposals of direct control or income interests): section GB 10 (Temporary acquisitions of direct control or income interests): section GB 11 (Temporary increases in totals for control interest categories): section GB 12 (Temporary reductions in totals for con- trol interest categories): section GB 13 (When combination of changes reduces income): section GB 14 (When combination of changes increases loss).
(b) (b) (c) (d) (e) (f) Deﬁned in this Act: CFC, control interest category, direct control interest, direct income interest, income, income interest, indirect income interest Compare: 2004 No 35 s EX 8 EX 9 Direct income interests 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: (c) 1140 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EX 9 (d) 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.
(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.
Varying decision-making rights (5) When the direct income interest in the category in subsection (1)(b) is calculated, if the percentage varies between the rights described in the different paragraphs of the deﬁnition of share- holder decision-making rights in section YA 1 (Deﬁnitions), the highest percentage is taken.
Income distribution rights: assumptions (6) When the direct income interest in the category in subsection (b) (c) (1)(c) is calculated, it is assumed that— (a) the income is distributed on the last day of the account- ing period; and the person’s entitlement is unchanged during the period; and a payment of interest on a debenture subject to section FA 2 (Recharacterisation of certain debentures), FA 2B (Stapled debt securities), or FZ 1 (Treatment of interest payable under debentures issued before certain date) is a distribution of income.
Deﬁned in this Act: accounting period, available subscribed capital, CFC, debentures direct income interest, foreign company, income, interest, pay, share, shareholder decision-making right, slice rule Compare: 2004 No 35 s EX 9 1141 Part E s EX 10 Income Tax Act 2007 Reprinted as at 30 August 2013 Section EX 9(6)(c): amended (with effect on 1 April 2008), on 6 October 2009, by section 151 of the Taxation (International Taxation, Life Insurance, and Re- medial Matters) Act 2009 (2009 No 34).
EX 10 Indirect income interests (1) (2) (3) 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.
Chains of CFCs If there are 2 or more CFCs in a chain of direct income inter- ests between the person and a CFC, the person has an indirect income interest in the CFC at the end of the chain that is calcu- lated by multiplying all the direct income interests in the chain.
Deﬁned in this Act: CFC, direct income interest, indirect income interest Compare: 2004 No 35 s EX 10 EX 11 Options and similar rights in certain cases Increase in income interest The rules in this section apply to increase a person’s income interest in a CFC (the ﬁrst CFC) in some cases.
Entitlement to acquire This section applies when the person, or some other person, such as another CFC taken into account when calculating an indirect income interest of the person in the ﬁrst CFC, has at any time an entitlement (the option) to acquire 1 of the things listed in section EX 9(1) in relation to the ﬁrst CFC but does not hold it.
Actual holder outside CFC rules attribution For this section to apply, the actual holder of the thing subject to the option must not be— another CFC: (a) a New Zealand resident, unless they are a New Zealand (b) resident whose income interest in the ﬁrst CFC for the (1) (2) (3) 1142 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EX 12 accounting period in question is less than 10% under sections EX 14 to EX 17.
(4) (5) Terms of option indicating economic ownership For this section to apply, the option must have 1 of the follow- ing features: (a) in the absence of this section, the effect of the option would be to defeat the intent and application of subpart CQ (Attributed income from foreign equity) or DN (At- tributed losses from foreign equity) or this subpart, tak- ing into account the economic beneﬁt that the person gets as a result of the CFC deriving income: 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.
(b) (c) Calculation as if option exercised If each requirement for this section to apply is met, the per- son’s income interest is calculated as if the option holder had exercised the option.

Deﬁned in this Act: accounting period, associated person, CFC, income, in- come interest, indirect income interest, New Zealand resident, pay Compare: 2004 No 35 s EX 11 Section EX 11(3)(b): amended, on 1 April 2008, by section 382 of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
EX 12 Reduction of total income interests (1) (2) Application of this section This section applies when the total income interests for a CFC for an accounting period would be more than 100%, because section EX 9(3) requires the highest percentage to be taken if varying percentage shareholder rights are held.
Proportional reduction Each person’s income interest for the period is reduced to the amount calculated using the formula— 1143 Part E s EX 13 Income Tax Act 2007 Reprinted as at 30 August 2013 100 income interest before reduction × total income interests before reduction.
Deﬁned in this Act: accounting period, amount, CFC, income interest, share- holder Compare: 2004 No 35 s EX 12 EX 13 Income interests of partners [Repealed] Section EX 13: repealed, on 1 April 2008, by section 14(1) of the Taxation (Limited Partnerships) Act 2008 (2008 No 2).
Ten percent threshold and variations in income interest level EX 14 Attribution: 10% threshold, not PIE Persons with attributed CFC income or loss (1) A person has attributed CFC income or loss from a CFC only if the person— (a) has an income interest in the CFC of 10% or more for the relevant accounting period; and is not a portfolio investment entity.
(b) Portfolio investment entity (2) A portfolio investment entity that would have attributed CFC income or loss from a CFC in the absence of subsection (1)(b) has FIF income or loss from the CFC under the FIF rules.
Deﬁned in this Act: accounting period, attributed CFC income, CFC, FIF in- come, FIF rules, income interest, loss, PIE, portfolio investment entity Section EX 14: replaced (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 18(1) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
EX 15 Associates and 10% threshold Associates included For the purpose of applying the 10% threshold in sections CD 45, CQ 2, EX 14, EX 21, EX 34, and EX 58, a person’s income interest in a CFC is increased by each income interest in the CFC, for the relevant accounting period, of a person as- sociated with the person.

(1) 1144 Reprinted as at 30 August 2013 Exception Income Tax Act 2007 Part E s EX 16 (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: 2004 No 35 s EX 15 Section EX 15(1): substituted, on 1 April 2008, by section 383 of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section EX 15(1): amended (with effect on 30 June 2009), on 6 October 2009, by section 152(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 15(1): amended (with effect on 1 April 2008), on 6 October 2009, by section 152(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

EX 16 Income interests for certain purposes (1) (2) (3) 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 21 (Attributed repatriations from controlled foreign companies), which treats a dividend resulting from attributed repatriation as being derived while the person deriving it is a New Zealand resident; or section CQ 2(3) (When attributed CFC income arises), which treats any attributed CFC income as being de- rived while the person deriving it is a New Zealand resi- dent; or section CQ 5(4) (When FIF income arises), which treats any foreign investment fund (FIF) income as being de- (b) (c) 1145 Part E s EX 17 Income Tax Act 2007 Reprinted as at 30 August 2013 rived while the person deriving it is a New Zealand resi- dent.
Deﬁned in this Act: accounting period, attributed CFC income, attributed re- patriation, CFC, dividend, FIF income, income interest, New Zealand resident, non-resident, transitional resident Compare: 2004 No 35 s EX 16 EX 17 Income interest if variations within period (1) (2) When this section applies This section applies when a person’s income interest in a CFC, calculated under sections EX 8 to EX 16, varies between days in a period.
Weighted average The person’s income interest for the period is the total of the amounts for the period, each of which is calculated using the formula in subsection (3) for a day in the period.

Formula The formula is— (3) income interest for day days in period.
(4) Deﬁnition of items in formula In the formula,— (a) income interest for day is— (i) (ii) the income interest during the day, if the income interest does not vary during the day: the income interest at the start of the day, if the income interest varies during the day: days in period is the number of days in the period.
(b) Deﬁned in this Act: CFC, income interest Compare: 2004 No 35 s EX 17 Calculation of attributed CFC income or loss EX 18A Scheme for ﬁnding person’s attributed CFC income or loss Formula and rules for calculation The attributed CFC income or loss of a person (an interest holder) holding an income interest in a CFC, for the purposes (1) 1146 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EX 18A of the general rules in sections CQ 2(1) and DN 2(1)(which relate to attributed CFC income or loss), is found for the CFC and an accounting period from— (a) the formula in section EX 18, which uses the interest holder’s income interest and the CFC’s net attributable CFC income or loss determined as described in subsec- tion (2): the interest holder’s additional CFC attributed income under section EX 19: the reduction in the interest holder’s attributed CFC loss under section EX 20.
(b) (c) Determination of attributed CFC income or loss from attributable CFC amount (2) An interest holder with an income interest of a fraction (the fraction) in a CFC with an attributable CFC amount under section EX 20B for an accounting period has under section EX 18, for the CFC and accounting period,— (a) (b) attributed CFC income or loss equal to the fraction of the CFC’s net attributable CFC income or loss under sections EX 20C to EX 20E and the rules in sections EX 21 and EX 24 to EX 27, if paragraph (b) does not apply: no attributed CFC income or attributed CFC loss, if the CFC is— (i) a non-attributing active CFC under section EX 21B, determined as described in subsection (3), for which the interest holder is not affected by an election under section EX 73: a non-attributing Australian CFC under section EX 22.
(ii) Non-attributing active CFCs (3) Whether a CFC is a non-attributing active CFC is determined under section EX 21B using— (a) a test in— (i) (ii) section EX 21D, if the interest holder does not use a test referred to in subparagraph (ii); or section EX 21E, if the CFC has accounts pre- pared to a standard meeting the requirements of section EX 21C and the interest holder chooses to 1147 Part E s EX 18 Income Tax Act 2007 Reprinted as at 30 August 2013 use a test in that section based on those accounts; and (b) the rules in sections EX 21 and EX 24 to EX 27.
Deﬁned in this Act: accounting period, attributable CFC amount, attributed CFC income, attributed CFC loss, CFC, non-attributing active CFC, non-at- tributing Australian CFC Section EX 18A: inserted (with effect on 30 June 2009), on 6 October 2009, by section 153(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 18A(2)(b)(i): amended (with effect on 30 June 2009), on 2 Novem- ber 2012 (applying for income years beginning on or after 1 July 2009), by sec- tion 40(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
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 × net attributable CFC income or loss of CFC for accounting period.
Deﬁned in this Act: accounting period, amount, attributed CFC income, at- tributed CFC loss, CFC, income interest, loss, net attributable CFC income Compare: 2004 No 35 s EX 18 Section EX 18 formula: amended (with effect on 30 June 2009), on 6 October 2009, by section 154(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 18 list of deﬁned terms branch equivalent income: repealed (with effect on 30 June 2009), on 6 October 2009, by section 154(2)(a) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section EX 18 list of deﬁned terms net attributable CFC income: inserted (with effect on 30 June 2009), on 6 October 2009, by section 154(2)(b) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
EX 19 Taxable distribution from non-complying trust Application of this section This section applies when— (1) 1148 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EX 19 (2) (3) (4) (5) (a) (b) a CFC derives a taxable distribution from a non-com- plying trust in an accounting period; and a person has attributed CFC income or loss from the CFC for the period, or would have if the taxable distri- bution were included in the CFC’s net attributable CFC income.
Additional attributed CFC income The taxable distribution is excluded under section EX 21(32) when calculating the CFC’s net attributable CFC income or loss, and instead the person has additional attributed CFC in- come.

Calculation of additional attributed CFC income The amount of the additional attributed CFC income is calcu- lated using the formula— person’s income interest in CFC for accounting period × taxable distribution.
Non-complying trust tax rate The person is liable for income tax on the additional attributed CFC income at the rate in schedule 1 (Basic tax rates: income tax, ESCT, RSCT, RWT, and attributed fringe beneﬁts) that applies to amounts under section HC 19 (Taxable distributions from non-complying trusts).
Disclosure restrictions on grey list CFCs [Repealed] [Repealed] Deﬁned in this Act: accounting period, amount, attributed CFC income, CFC, income interest, income tax, loss, net attributable CFC income, non-complying trust, taxable distribution Compare: 2004 No 35 s EX 19 Section EX 19(1)(b): amended (with effect on 30 June 2009), on 6 October 2009, by section 155(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 19(2): amended (with effect on 30 June 2009), on 6 October 2009, by section 155(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section EX 19(4): amended, on 1 April 2008, by section 384 of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EX 19(5) heading: repealed (with effect on 30 June 2009), on 6 October 2009, pursuant to section 155(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

1149 Part E s EX 20 Income Tax Act 2007 Reprinted as at 30 August 2013 Section EX 19(5): repealed (with effect on 30 June 2009), on 6 October 2009, by section 155(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 19 list of deﬁned terms branch equivalent income: repealed (with effect on 30 June 2009), on 6 October 2009, by section 155(4)(a) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section EX 19 list of deﬁned terms net attributable CFC income: inserted (with effect on 30 June 2009), on 6 October 2009, by section 155(4)(b) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
EX 20 Reduction in attributed CFC loss Application of this section: no economic loss This section applies when— (a) (b) a person has an amount of attributed CFC loss; and the person suffers no, or substantially no, corresponding economic loss, whether because of a call option, a put option, or any other reason.
Application of this section: attributed CFC loss excessive This section also applies if— (a) (b) a person has an amount of attributed CFC loss; and the amount is more than any corresponding economic loss of the person, whether because of the application of the rules for calculating the person’s income interest or for any other reason.

Reduction to economic loss The attributed CFC loss is reduced to be equal to the economic loss, if any.
Deﬁned in this Act: amount, attributed CFC loss, income interest Compare: 2004 No 35 s EX 20 Attributable CFC amount and net attributable CFC income or loss Heading: inserted (with effect on 30 June 2009), on 6 October 2009, by section 156(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
(1) (2) (3) 1150 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EX 20B EX 20B Attributable CFC amount Attributable CFC amount (1) Attributable CFC amount, for an accounting period and a CFC, means the amount calculated under the rules in section EX 21 using the formula— gross + arrangement.

(2) Deﬁnition of items in formula The items in the formula in subsection (1) are deﬁned in sub- sections (3) and (4).
Gross (3) Gross is the total amount of income derived in the accounting period by the CFC that is 1 or more of the following: (a) section EX 31: section EX 32: section EX 36: section EX 37: section EX 37B: section EX 39: a dividend that is paid in relation to rights that are a di- rect income interest in a foreign company, meet the re- quirements of neither section EX 34 nor section EX 35, and are excluded from being an attributing interest by— (i) (ii) (iii) (iv) (v) (vi) a dividend that is paid by a company resident in New Zealand to the extent to which the dividend is not fully imputed: an amount that is a deductible foreign equity distribu- tion or a distribution for ﬁxed-rate foreign equity: a royalty of a type referred to in subsection (5): rent of a type referred to in subsection (6): income from a business of insurance or from being an insurer: income from a life insurance policy of a type referred to in subsection (8): income from the supply of personal services of a type referred to in subsection (9): income from the disposal of revenue account property that is a share, other than a share referred to in subsec- tion (10): (b) (c) (d) (e) (f) (g) (h) (i) 1151 Part E s EX 20B Income Tax Act 2007 Reprinted as at 30 August 2013 (j) (k) (l) (m) (n) (o) (p) income from the disposal of revenue account property that is an option to acquire or dispose of a share: income from the disposal of revenue account property that is— (i) not a share, ﬁnancial arrangement, or life insur- ance policy; and used by the CFC with a purpose or effect of giv- ing rise to income of the CFC referred to in an- other paragraph of this subsection: (ii) income from a service, other than a telecommunications service, to the extent to which the service is physically performed in New Zealand: income from a service relating to the use of equipment to provide a telecommunications service, to the extent to which the equipment is at the time— (i) physically located outside any country or terri- tory; and owned by the CFC or by a FIF that is
 associated with the CFC; and not a mobile telephone handset or a radio receiver and transmitter for a ship or aircraft: (ii) (iii) income from a telecommunications service to the extent to which the service is physically performed in New Zealand and is not described in subsection (11): attributed PIE income that, for a CFC, is not excluded income under section CX 56 (Attributed income of cer- tain investors in multi-rate PIEs).
a dividend that is excluded by section CD 36(2) (For- eign investment fund income) from the effect of section CD 36(1).
Arrangement (4) Arrangement is the total for the CFC and the accounting period of amounts of income under section CC 3 (Financial arrangements) for— (a) an arrangement that— (i) is a ﬁnancial arrangement, or a short-term agree- ment for sale and purchase for which the CFC has made an election under section EW 8 (Election 1152 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EX 20B to treat certain excepted ﬁnancial arrangements as ﬁnancial arrangements); and is not a derivative instrument; and is not referred to in subsection (12): (ii) (iii) a derivative instrument— (i) (b) (ii) (iii) that is held in the course of a business of the CFC for the purpose of dealing with the derivative in- strument: that is not entered in the ordinary course of a business of the CFC: to the extent to which the income is from a hedg- ing relationship, of a type referred to in NZIAS 39, with income of the CFC referred to in sub- section (3) or paragraph (a) or with a transaction producing such income of the CFC.
Attributable CFC amount: royalties (5) A royalty derived by a CFC is included in an attributable CFC amount under subsection (3)(d) if none of the following are satisﬁed: (a) the CFC is regularly engaged in creating, developing, or adding value to property that produces royalties and the royalty is— (i) (ii) (iii) paid by a person who is not associated with the CFC under section YB 2 (Two companies); and from property that is not linked to New Zealand under subsection (13); and from property that the CFC has created or devel- oped or to which the CFC has added substantial value: (b) the CFC is regularly engaged in creating, developing, or adding value to property that produces royalties and the royalty is— (i) paid by a person who is associated with the CFC under section YB 2; and from property that is not linked to New Zealand under subsection (13); and from property that the CFC has created or devel- oped, or to which the CFC has added substantial value; and (ii) (iii) 1153 Part E s EX 20B Income Tax Act 2007 Reprinted as at 30 August 2013 (iv) an arm’s length amount determined under section GC 13 (Calculation of arm’s length amounts) for the arrangement between the CFC and the asso- ciated person: (c) (d) the royalty is— (i) (ii) the royalty is— (i) paid by a person who would be an associated non-attributing active CFC in the absence of this paragraph and subsections (7)(c) and (12)(a); and from property that is not linked to New Zealand under subsection (13): paid to the CFC by a person not associated with the CFC under section YB 2, or by a CFC asso- ciated with the CFC under section YB 2 that has received a royalty payment from such a person or a royalty payment arising from such a royalty payment; and from property owned by a New Zealand resident who is resident in no other country under all ap- plicable double tax agreements; and from property licensed to the CFC, or to a CFC associated with the CFC under section YB 2, (the licensee) by the New Zealand resident for an arm’s length amount determined under
 section GC 13 for the arrangement between the licensee and the New Zealand resident.
(ii) (iii) Attributable CFC amount: rent Rent derived by a CFC is included in an attributable CFC amount under subsection (3)(e) if the rent is not of a type re- ferred to in subsection (7) and is from— a lease or sublease of land: (a) a lease or sublease of personal property: (b) a licence to use intangible property: (c) a hire or bailment.
(d) Attributable CFC amount: exclusions from rent Rent derived by a CFC from a source referred to in subsection (6) is not included in an attributable CFC amount under sub- section (3)(e) if the rent is— (6) (7) 1154 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EX 20B (a) (b) (c) (d) (e) (f) (g) from land in a country or territory with which the CFC has a taxed CFC connection: from property other than land, to the extent to which the rent relates to the use of the property in a country or territory referred to in paragraph (a): paid by a person who would be an associated non-at- tributing active CFC in the absence of this paragraph and subsections (5)(c) and (12)(a): a payment under a hire purchase agreement: a payment under a ﬁnance lease: a royalty: a payment under a licence to use intangible property that— (i) (ii) would not be included in an attributable CFC amount under subsection (5) if treated as a roy- alty for the purposes of that subsection.
is not a royalty; and (8) Attributable CFC amount: income from life insurance contract Income from a life insurance policy is included in an at- tributable CFC amount under subsection (3)(g) if the income is not included in a calculation of FIF income or loss and is— a distribution, if the life insurance policy is not intended (a) to compensate the CFC for ﬁnancial losses arising from the death or extended incapacity of a speciﬁed employee or member involved in the CFC’s business: a distribution that is not intended to compensate the CFC for ﬁnancial losses arising from the death or ex- tended incapacity of a speciﬁed employee or member involved in the CFC’s business, if the life insurance pol- icy is intended to compensate the CFC for such losses: income from a disposal of the life insurance policy, if the policy is revenue account property.
(b) (c) (9) Attributable CFC amount: income from personal services Income derived by a CFC from the supply of personal services is included in an attributable CFC amount under subsection (3)(h) if the personal services are performed by another person (the working person) and— (a) the working person is a New Zealand resident; and 1155 Part E s EX 20B Income Tax Act 2007 Reprinted as at 30 August 2013 (b) (c) (d) (e) the personal services are not essential support for a product supplied by the CFC; and the working person is associated with the CFC under section YB 3 (Company and person other than com- pany) at the time the services are performed or is a rela- tive, at the beginning of the accounting period, of a per- son associated with the CFC under section YB 3; and 80% or more of the CFC’s total income in the account- ing period from supplying personal services is derived through personal services meeting the requirements of paragraph (a) performed by working persons meeting the requirements of paragraph (b); and to derive the income, the CFC uses a business struc- ture that requires depreciable property having, at the end of the accounting period, a total cost under sec- tion GB 28(7) (Interpretation of terms used in section GB 27) less than or equal to the greater of $75,000 and 25% of the CFC’s total income from personal services performed in the accounting period.
Exclusions from attributable CFC amount: shares Income derived by a CFC from the disposal of a share that is revenue account property is not included in an attributable CFC amount under subsection (3)(i) if the CFC’s FIF income or loss from the share in the period ending with the disposal is calculated using— (a) (b) (c) (d) the comparative value method: the deemed rate of return method: the fair dividend rate method: the cost method.
Exclusions from attributable CFC amount: telecommunications services in New Zealand Income of a CFC from a telecommunications service phys- ically performed in New Zealand is not included in an at- tributable CFC amount under subsection (3)(n) if— (a) the service is the transmission, emission, or reception of information between New Zealand and a country or territory with which the CFC has a taxed CFC connec- tion; and (10) (11) 1156 Reprinted as at 30 August 2013 (b) (c) (d) Income Tax Act 2007 Part E s EX 20B a network the CFC is Telecommunications 2004 (a network operator), or— (i) the (Interception Capability) Act operator under a group of persons has, for the whole of the CFC’s accounting period, voting interests and, if a market value circumstance exists, market value interests, of more than 50% in the CFC; and the group of persons also has, for the whole of the CFC’s accounting period, voting interests and, if a market value circumstance exists, market value interests, of more than 50% in a network oper- ator; and (ii) the service is performed by a person, other than the CFC, who— (i) is resident in New Zealand, and is resident in no other country under all applicable double tax agreements: has a ﬁxed establishment in New Zealand that is a permanent establishment under all applicable double tax agreements; and (ii) the service is performed by the person as part of a busi- ness in New Zealand of providing telecommunication services in New Zealand— (i) carried on through the person’s ﬁxed estab- lishment, if the person is not resident in New Zealand; and from which the person derives assessable income of more than $5,000,000 per annum.
(ii) (12) Exclusions from attributable CFC amount: income from ﬁnancial arrangements other than derivative instruments Income of a CFC from a ﬁnancial arrangement or excepted ﬁnancial arrangement that is referred to in subsection (4)(a)(i) is not included in an attributable CFC amount under subsection (4)(a) if the ﬁnancial arrangement or agreement is— (a) an agreement by the CFC to lend money to a person who would be an associated non-attributing active CFC in the absence of this paragraph and subsections (5)(c) and (7)(c): 1157 Part E s EX 20B Income Tax Act 2007 Reprinted as at 30 August 2013 (b) an agreement for the sale or purchase of property or services or a hire purchase agreement— (i) entered in the ordinary course of business by the CFC: for property or services produced or used by the CFC in business.
(ii) Royalties: property linked to New Zealand (13) Property giving rise to a royalty is linked to New Zealand at a time in an accounting period for the purposes of subsection (5) if the property meets the requirements of subsection (14) at a time in the period— beginning— (a) (i) at the time the property was created, if the prop- erty has not since met the requirements of sub- section (15); or from the time the property most recently met the requirements of subsection (15); and ending at the time in the accounting period.
(ii) (b) Situations creating link with New Zealand (14) Property owned by a CFC has a link with New Zealand if the property— (a) (b) has been owned by a New Zealand resident: has been owned by a non-resident for the purposes of a business carried on in New Zealand through a ﬁxed establishment in New Zealand: was created or developed in New Zealand: has had substantial value added in New Zealand: has been acquired by a person who had a deduction for expenditure or loss incurred in the acquisition: is based on knowledge acquired by a person who— (i) acquired the knowledge with a purpose or inten- tion of creating the property; and had a deduction for expenditure or loss incurred in the acquisition: (ii) is created or developed from activities, or from the ex- tension, continuation, development, or completion of activities, if the activities produced knowledge acquired by a person who had a deduction for expenditure or loss incurred in the acquisition.
(c) (d) (e) (f) (g) 1158 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EX 20B Situations breaking link with New Zealand (15) There is no link between property and New Zealand for a CFC when the property is owned by a non-resident who— (a) (b) is not a CFC and is not associated with the CFC; and is not associated with a person who has owned the prop- erty while it had a link with New Zealand.
Deﬁned in this Act: accounting period, agreement for the sale or purchase of property or services, associated, associated non-attributing active CFC, at- tributable CFC amount, attributable FIF income method, attributed PIE income, business, CFC, comparative value method, deductible foreign equity distribu- tion, deduction, deemed rate of return method, depreciable property, deriva- tive instrument, dividend, excluded income, exempt income, fair dividend rate method, ﬁnance lease, ﬁnancial arrangement, ﬁxed-rate foreign equity, fully imputed, general insurance, group of persons, hire purchase agreement, in- come, insurance contract, interest, land, life insurance, life insurance policy, loan, loss, market value circumstance, market value interest, money lent, New Zealand, New Zealand resident, non-attributing active CFC, non-resident, rein- surance contract, relative, resident in New Zealand, revenue account property, royalty, share, short-term agreement for sale and purchase, taxed CFC connec- tion, telecommunications service, voting interest Section EX 20B: inserted (with effect on 30 June 2009), on 6 October 2009, by section 156(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 20B(3)(a): amended (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 19(1) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).

Section EX 20B(3)(f): replaced (with effect on 30 June 2009), on 2 November 2012 (applying for income years beginning on or after 1 July 2009), by section 41(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section EX 20B(3)(m)(ii): replaced (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 19(2) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).

Section EX 20B(3)(n): amended, on 29 August 2011, by section 36(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section EX 20B(3)(o): added, on 29 August 2011, by section 36(1) of the Tax- ation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).

Section EX 20B(3)(p): inserted (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 19(3) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 20B(4) heading: substituted (with effect on 30 June 2009), on 7 De- cember 2009, by section 23(1) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).

1159 Part E s EX 20B Income Tax Act 2007 Reprinted as at 30 August 2013 Section EX 20B(4)(b)(iii): amended (with effect on 30 June 2009), on 7 De- cember 2009, by section 23(2) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
Section EX 20B(5)(a)(i): substituted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 157(1) of the Taxation (International Taxa- tion, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section EX 20B(5)(d)(i): replaced (with effect on 1 July 2009 and applying for income years beginning on or after that date), on 7 May 2012, by section 19(4) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 20B(5)(d)(ii): replaced (with effect on 1 July 2009 and applying for income years beginning on or after that date), on 7 May 2012, by section 19(4) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).

Section EX 20B(5)(d)(iii): replaced (with effect on 1 July 2009 and applying for income years beginning on or after that date), on 7 May 2012, by section 19(4) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 20B(7)(a): replaced (with effect on 1 July 2009 and applying for income years beginning on or after that date), on 7 May 2012, by section 19(5) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).

Section EX 20B(9)(c): substituted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 157(2) of the Taxation (International Taxa- tion, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 20B(11)(a): replaced (with effect on 1 July 2009 and applying for income years beginning on or after that date), on 7 May 2012, by section 19(6) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).

Section EX 20B(11)(b): substituted (with effect on 30 June 2009), on 7 Decem- ber 2009, by section 23(3) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
Section EX 20B(11)(b)(i): amended (with effect on 30 June 2009), on 7 Sep- tember 2010 (applying for the income years beginning on or after 1 July 2009), by section 43(1) of the Taxation (Annual Rates, Trans-Tasman Savings Porta- bility, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
Section EX 20B(11)(c): replaced (with effect on 1 July 2009 and applying for income years beginning on or after that date), on 7 May 2012, by section 19(7) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).

Section EX 20B(11)(d): replaced (with effect on 1 July 2009 and applying for income years beginning on or after that date), on 7 May 2012, by section 19(7) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 20B list of deﬁned terms attributable FIF income method: in- serted (with effect on 1 July 2011), on 7 May 2012, by section 19(8) of the Tax- ation (International Investment and Remedial Matters) Act 2012 (2012 No 34).

1160 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EX 20C inserted, on Section EX 20B list of deﬁned terms attributed PIE income: 29 August 2011, by section 36(2) of the Taxation (Tax Administration and Re- medial Matters) Act 2011 (2011 No 63).
Section EX 20B list of deﬁned terms excluded income: inserted, on 29 August 2011, by section 36(2) of the Taxation (Tax Administration and Remedial Mat- ters) Act 2011 (2011 No 63).

Section EX 20B list of deﬁned terms group of persons: inserted (with effect on 30 June 2009), on 7 December 2009, by section 126 of the Taxation (Con- sequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
Section EX 20B list of deﬁned terms market value circumstance: inserted (with effect on 30 June 2009), on 7 December 2009, by section 126 of the Tax- ation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).

Section EX 20B list of deﬁned terms market value interest: inserted (with effect on 30 June 2009), on 7 December 2009, by section 126 of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
Section EX 20B list of deﬁned terms taxed CFC connection: inserted (with effect on 1 July 2009), on 7 May 2012, by section 19(9) of the Taxation (Inter- national Investment and Remedial Matters) Act 2012 (2012 No 34).

Section EX 20B list of deﬁned terms voting interest: added (with effect on 30 June 2009), on 7 December 2009, by section 126 of the Taxation (Conse- quential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
EX 20C Net attributable CFC income or loss (1) CFC’s net attributable CFC income or loss For the purpose of calculating the attributed CFC income or loss for an accounting period of a person (the interest holder) with an income interest in a CFC,— (a) the CFC’s net attributable CFC income for the ac- counting period is the greater of zero and the amount calculated using the formula in subsection (2): the CFC’s net attributable CFC loss for the accounting period is— (i) the absolute value of the amount calculated using the formula in subsection (2), if that amount is less than zero: zero, if subparagraph (i) does not apply.
(ii) (b) (2) Formula for net attributable CFC income or loss The amount of a CFC’s net attributable CFC income or loss for an accounting period is calculated using the rules in section EX 21 and the formula— 1161 Part E s EX 20C Income Tax Act 2007 Reprinted as at 30 August 2013 attributable CFC – apportioned funding income – apportioned funding costs – other deductions.
Deﬁnition of items in formula In the formula in subsection (2),— (a) (b) (c) (d) attributable CFC is the CFC’s attributable CFC amount for the accounting period: apportioned funding income is,— (i) if the CFC is an entity carrying on a business of banking or insurance or is directly or indirectly controlled by such an entity, zero: if subparagraph (i) does not apply, the amount calculated using the formula— (ii) funding income × funding fraction × (1 – asset fraction): apportioned funding costs is the amount calculated using the formula— funding costs × funding fraction × cost fraction: other deductions is the amount of expenditure and loss incurred in the accounting period by the CFC to the ex- tent to which the expenditure and loss meets the require- ments of subsection (13).
Deﬁnition of items in formula The items in the formulas in subsection (3)(b)(ii) and (c) are deﬁned in subsections (5), (6), (8), (10), and (11).
Funding income Funding income is the total of the amounts in the accounting period that are included in the item attributable CFC and relate to a ﬁnancial arrangement— (a) (b) that provides funds for the CFC; and for which there is no reasonable expectation, when the CFC enters the ﬁnancial arrangement or when the terms of the ﬁnancial arrangement are changed, that the CFC will have from the ﬁnancial arrangement amounts that would be income for the CFC exceeding in total the amounts that would be deductions for the CFC, dur- ing— (i) the period that the CFC is a party to the ﬁnancial arrangement: (3) (4) (5) 1162 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EX 20C (ii) a period predictable in advance during which the CFC is a party to the ﬁnancial arrangement.
(6) (7) Funding fraction Funding fraction is equal to,— (a) (b) if the item funding in subsection (7)(a) is zero, 1; or if the item is being used to calculate the item appor- tioned funding costs and the interest holder chooses to rely on this paragraph, 1; or if neither of paragraphs (a) and (b) apply, the amount calculated using the formula— (c) funding – group funding funding.
Deﬁnition of items in formula In the formula in subsection (6),— (a) (ii) funding is the total of amounts, each of which is the outstanding balance for— (i) a ﬁnancial arrangement to which the CFC is a party and which provides funds for the CFC: a ﬁxed rate foreign equity, or share giving a right to a deductible foreign equity distribution, issued by the CFC and held by a company that is a New Zealand resident, a CFC, or a FIF for which the interest holder uses the attributable FIF income method: (b) group funding is the lesser of the item funding and the total of amounts, each of which is the outstanding balance for a ﬁnancial arrangement— (i) under which the CFC provides funds to another CFC associated with the CFC under section YB 2 (Two companies) or to a FIF for which the in- terest holder uses the attributable FIF income method and that is associated with the CFC under section YB 2); and that produces for the CFC an amount included in the item arrangement under section EX 20B(4).
(ii) Asset fraction (8) Asset fraction is the amount calculated using the formula— 1163 Part E s EX 20C Income Tax Act 2007 Reprinted as at 30 August 2013 attributable CFC’s assets – group funding total CFC’s assets – group funding.
(9) Deﬁnition of items in formula In the formula in subsection (8),— (a) attributable CFC’s assets is the total of amounts for the CFC’s assets, each of which is the value of an asset to the extent to which the asset is used for the purpose of deriving an attributable CFC amount and not used for the purpose of deriving an amount that is not an attributable CFC amount: group funding is— (i) (ii) zero, if subparagraph (ii) does not apply; or the amount of the item group funding referred to in subsection (7)(b), if subsection (6)(c) applies for the interest holder and the CFC: (c) total CFC’s assets is the total value of the CFC’s assets.
Funding costs (10) Funding costs is the total of amounts in the accounting period, each of which— (a) would be a deduction of the CFC relating to a ﬁnancial arrangement to which the CFC is a party and which provides funds for the CFC: is a distribution relating to ﬁxed-rate foreign equity or a deductible foreign equity distribution of the CFC and is paid by the CFC to a company resident in New Zealand, to another CFC, or to a FIF for which the interest holder uses the attributable FIF income method.
Cost fraction (11) Cost fraction is,— if the CFC is not excessively debt funded under section EX 20D, the amount of the item asset fraction referred to in subsection (8); or if the CFC is excessively debt funded under section EX 20D, the lesser of— (i) the amount of the item asset fraction referred to in subsection (8): the amount calculated under section EX 20D.
(b) (b) (a) (b) (ii) 1164 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EX 20C Determining debts and assets of CFC (12) For the items referred to in subsection (9), the debts and assets of the CFC are determined under sections FE 8 to FE 11 (which contain rules for determining the apportionment of interest) as if the CFC were— (a) (b) an excess debt outbound company; and the only member of the CFC’s New Zealand group.
Requirements for item other deductions (13) Amounts of expenditure or loss contribute to the item other deductions to the extent to which— (a) (ii) the amounts do not relate to a ﬁnancial arrangement or share and— (i) are incurred for the purpose of deriving an at- tributable CFC amount; and are not incurred for the purpose of deriving an amount that is not an attributable CFC amount; and are deductions of the CFC: (iii) the amounts relate to ﬁnancial arrangements or shares referred to in the deﬁnition of the item funding in sub- section (7)(a) and exceed in total the amount given by multiplying the items funding costs and funding frac- tion, used in calculating the item apportioned funding costs under subsection (3)(c): the amounts— (i) do not relate to ﬁnancial arrangements that pro- vide funds for the CFC; and relate to ﬁnancial arrangements referred to in sec- tion EX 20B(4).
(ii) (b) (c) Deﬁned in this Act: accounting period, attributable CFC amount, CFC, de- ductible foreign equity distribution, deduction, ﬁnancial arrangement, ﬁxed-rate foreign equity, generally accepted accounting practice, income interest, inter- est, loss, net attributable CFC income, net attributable CFC loss, share Section EX 20C: inserted (with effect on 30 June 2009), on 6 October 2009, by section 156(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 20C(2) formula: replaced (with effect on 30 June 2009), on 2 November 2012 (applying for income years beginning on or after 1 July 2009), by section 42(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
1165 Part E s EX 20C Income Tax Act 2007 Reprinted as at 30 August 2013 replaced (with effect on 30 June 2009), on Section EX 20C(3) heading: 2 November 2012 (applying for income years beginning on or after 1 July 2009), by section 42(2) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section EX 20C(3): replaced (with effect on 30 June 2009), on 2 November 2012 (applying for income years beginning on or after 1 July 2009), by section 42(2) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).

Section EX 20C(4) heading: replaced (with effect on 30 June 2009), on 2 November 2012 (applying for income years beginning on or after 1 July 2009), by section 42(2) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section EX 20C(4): replaced (with effect on 30 June 2009), on 2 November 2012 (applying for income years beginning on or after 1 July 2009), by section 42(2) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).

Section EX 20C(5) heading: replaced (with effect on 30 June 2009), on 2 November 2012 (applying for income years beginning on or after 1 July 2009), by section 42(2) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section EX 20C(5): replaced (with effect on 30 June 2009), on 2 November 2012 (applying for income years beginning on or after 1 July 2009), by section 42(2) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).

Section EX 20C(6) heading: replaced (with effect on 30 June 2009), on 2 November 2012 (applying for income years beginning on or after 1 July 2009), by section 42(2) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section EX 20C(6): replaced (with effect on 30 June 2009), on 2 November 2012 (applying for income years beginning on or after 1 July 2009), by section 42(2) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).

replaced (with effect on 30 June 2009), on Section EX 20C(7) heading: 2 November 2012 (applying for income years beginning on or after 1 July 2009), by section 42(2) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section EX 20C(7): replaced (with effect on 30 June 2009), on 2 November 2012 (applying for income years beginning on or after 1 July 2009), by section 42(2) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).

Section EX 20C(7)(a)(ii): amended (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 2 November 2012, by section 42(3) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section EX 20C(7)(b)(i): amended (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 2 November 2012, by section 42(4) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
1166 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EX 20C replaced (with effect on 30 June 2009), on Section EX 20C(8) heading: 2 November 2012 (applying for income years beginning on or after 1 July 2009), by section 42(2) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section EX 20C(8): replaced (with effect on 30 June 2009), on 2 November 2012 (applying for income years beginning on or after 1 July 2009), by section 42(2) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).

Section EX 20C(9) heading: replaced (with effect on 30 June 2009), on 2 November 2012 (applying for income years beginning on or after 1 July 2009), by section 42(2) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section EX 20C(9): replaced (with effect on 30 June 2009), on 2 November 2012 (applying for income years beginning on or after 1 July 2009), by section 42(2) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).

Section EX 20C(9B) heading: repealed (with effect on 30 June 2009), on 2 November 2012 (applying for income years beginning on or after 1 July 2009), by section 42(2) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section EX 20C(9B): repealed (with effect on 30 June 2009), on 2 November 2012 (applying for income years beginning on or after 1 July 2009), by section 42(2) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).

Section EX 20C(10) heading: replaced (with effect on 30 June 2009), on 2 November 2012 (applying for income years beginning on or after 1 July 2009), by section 42(2) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section EX 20C(10): replaced (with effect on 30 June 2009), on 2 November 2012 (applying for income years beginning on or after 1 July 2009), by section 42(2) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).

Section EX 20C(10)(b): amended (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 2 November 2012, by section 42(5) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section EX 20C(11) heading: replaced (with effect on 30 June 2009), on 2 November 2012 (applying for income years beginning on or after 1 July 2009), by section 42(2) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).

Section EX 20C(11): replaced (with effect on 30 June 2009), on 2 November 2012 (applying for income years beginning on or after 1 July 2009), by section 42(2) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section EX 20C(12): amended (with effect on 30 June 2009), on 2 November 2012 (applying for income years beginning on or after 1 July 2009), by section 42(6) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
1167 Part E s EX 20D Income Tax Act 2007 Reprinted as at 30 August 2013 inserted (with effect on 30 June 2009), on Section EX 20C(13) heading: 2 November 2012 (applying for income years beginning on or after 1 July 2009), by section 42(7) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section EX 20C(13): inserted (with effect on 30 June 2009), on 2 November 2012 (applying for income years beginning on or after 1 July 2009), by section 42(7) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
EX 20D Adjustment of cost fraction for excessively debt funded CFC (1) When this section applies This section applies for the purposes of the item (the CFC’s cost fraction) in section EX 20C(11) to a CFC that is exces- sively debt funded under subsection (2) in relation to a person (the interest holder) with an income interest in the CFC.
Excessive debt funding (2) A CFC is excessively debt funded under this section if— (a) (b) the amount (the CFC’s debt-asset ratio) calculated us- ing the formula in subsection (4) is more than 0.75; and the amount (the CFC’s relative debt-asset ratio) given by section EX 20E is more than 1.10.
Calculations for CFC For the purposes of subsections (4) to (8), the debts and assets of the CFC are determined under sections FE 8 to FE 11 (which contain rules for determining the apportionment of interest) as if the CFC were— (a) (b) an excess debt outbound company; and the only member of the CFC’s New Zealand group.

Formula for debt-asset ratio of CFC The formula for the CFC’s debt-asset ratio referred to in sub- section (2)(a) is— total CFC’s debts – group funding total CFC’s assets – group funding.
Deﬁnition of items in formula The items in the formula in subsection (4) are deﬁned in sub- sections (6) to (8).
(3) (4) (5) 1168 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EX 20D (6) Total CFC’s debts Total CFC’s debts is the total amount for the CFC and the accounting period, determined under generally accepted ac- counting practice, of the outstanding balances of— (a) ﬁnancial arrangements entered by the CFC, each of which— (i) (ii) provides funds to the CFC; and gives rise to an amount for which the CFC would have a deduction: (b) (c) ﬁxed-rate foreign equity that is issued by the CFC and held by a company that is a New Zealand resident, a CFC, or a FIF for which the interest holder uses the attributable FIF income method: shares issued by the CFC in relation to which the CFC makes deductible foreign equity distributions to a com- pany that is a New Zealand resident, a CFC, or a FIF for which the interest holder uses the attributable FIF income method.
Group funding (7) Group funding is— (a) (b) if paragraph (b) does not apply, zero; or if the interest holder chooses to rely on this paragraph and the item total CFC’s assets is greater than the item total CFC’s debts, the lesser of the item total CFC’s debts and the total amount of outstanding balances for ﬁnancial arrangements— (i) under which the CFC provides funds to another CFC that is associated with the CFC under sec- tion YB 2 (Two companies) or to a FIF for which the interest holder uses the attributable FIF in- come method and that is associated with the CFC under section YB 2; and (ii) which produce for the CFC an amount in- cluded in the item arrangement under section EX 20B(4).
(8) Total CFC’s assets Total CFC’s assets is the total value of the CFC’s assets de- termined under generally accepted accounting practice.
1169 Part E s EX 20D Income Tax Act 2007 Reprinted as at 30 August 2013 (9) Cost fraction for excessively debt funded CFC For a CFC that is excessively debt funded, the item cost frac- tion for the purposes of this section is the amount calculated using the formula in subsection (10) and determining the debts and assets of a CFC under sections FE 8 to FE 11 as if the CFC were— (a) (b) an excess debt outbound company; and the only member of the CFC’s New Zealand group.
Formula for cost fraction (10) The formula for the CFC’s cost fraction is— attributable foreign company assets total foreign company assets.

Deﬁnition of items in formula (11) The items in the formula in subsection (10) are deﬁned in sub- sections (12) and (13).
Attributable foreign company assets (12) Attributable foreign company assets is the total value of as- sets, consolidated under generally accepted accounting prac- tice for the accounting period, of all the interest holder’s CFCs and of all the FIFs for which the interest holder uses the at- tributable FIF income method, to the extent to which each as- set is— (a) used for the purpose of deriving an attributable CFC amount or an amount that is included in net attributable FIF income or loss; and not used for the purpose of deriving an amount other than an amount referred to in paragraph (a).
(b) Total foreign company assets (13) Total foreign company assets is the total value of assets, con- solidated under generally accepted accounting practice for the accounting period, of all the interest holder’s CFCs and of all the FIFs for which the interest holder uses the attributable FIF income method.
Deﬁned in this Act: accounting period, attributable FIF income method, CFC, deductible foreign equity distribution, deduction, excess debt outbound com- pany, ﬁnancial arrangement, ﬁxed-rate foreign equity, loss, net attributable FIF income, New Zealand resident 1170 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EX 20D Section EX 20D: inserted (with effect on 30 June 2009), on 6 October 2009, by section 156(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 20D heading: amended (with effect on 30 June 2009), on 2 Novem- ber 2012, by section 43(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).

Section EX 20D(1): amended (with effect on 30 June 2009), on 2 November 2012, by section 43(2) of the Taxation (Annual Rates, Returns Filing, and Re- medial Matters) Act 2012 (2012 No 88).
Section EX 20D(6)(b): replaced (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 21(1) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).

Section EX 20D(6)(c): replaced (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 21(1) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 20D(7)(b)(i): replaced (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 21(2) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).

Section EX 20D(7)(b)(ii): amended (with effect on 30 June 2009), on 7 Decem- ber 2009, by section 25(1) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
Section EX 20D(9) heading: amended (with effect on 30 June 2009), on 2 November 2012, by section 43(3) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).

Section EX 20D(9): amended (with effect on 30 June 2009), on 2 November 2012, by section 43(4) of the Taxation (Annual Rates, Returns Filing, and Re- medial Matters) Act 2012 (2012 No 88).
Section EX 20D(10) heading: amended (with effect on 30 June 2009), on 2 November 2012, by section 43(5) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).

Section EX 20D(10): replaced (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 2 November 2012, by section 43(7) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section EX 20D(10): amended (with effect on 30 June 2009), on 2 November 2012, by section 43(6) of the Taxation (Annual Rates, Returns Filing, and Re- medial Matters) Act 2012 (2012 No 88).

Section EX 20D(12) heading: replaced (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 21(4) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 20D(12): replaced (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 21(4) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
1171 Part E s EX 20E Income Tax Act 2007 Reprinted as at 30 August 2013 Section EX 20D(13) heading: replaced (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 21(4) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 20D(13): replaced (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 21(4) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).

Section EX 20D list of deﬁned terms attributable FIF income method: in- serted (with effect on 1 July 2011), on 7 May 2012, by section 21(5) of the Tax- ation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 20D list of deﬁned terms loss: inserted (with effect on 1 July 2011), on 7 May 2012, by section 21(5) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).

Section EX 20D list of deﬁned terms net attributable FIF income: inserted (with effect on 1 July 2011), on 7 May 2012, by section 21(5) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
EX 20E Relative debt-asset ratio for CFC What this section does This section determines the relative debt-asset ratio of a CFC for the purposes of section EX 20D(2)(b) by determining an amount (the group debt-asset ratio) for the CFC’s group and comparing that amount with the debt-asset ratio of the CFC determined under section EX 20D(4).
Members of CFC’s group and calculations for group For the purposes of subsections (3) to (8),— the members of a CFC’s group are— (a) (i) (ii) the CFC: if the interest holder is a company, the members of the worldwide group that the interest holder would have under sections FE 31B, FE 31C, and FE 32 (which relate to the determination of groups) if the interest holder were an excess debt outbound company: if the interest holder is a trustee, the members of the trustee’s worldwide group under section FE 3(1)(b) (Interest apportionment for individu- als): if the interest holder is a natural person, the person’s worldwide group referred to in section (iii) (iv) (1) (2) 1172 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EX 20E (b) FE 5(1C)(a) to (c) (Thresholds for application of interest apportionment rules): the debts and assets of the CFC’s group are determined under sections FE 8 to FE 11 and FE 18 (Measurement of debts and assets of worldwide group) as if the inter- est holder, if a company, were an excess debt outbound company.
Formula for CFC’s group debt-asset ratio The formula for the CFC’s group debt-asset ratio is— (3) total group debts total group assets.

(4) (5) Deﬁnition of items in formula The items in the formula in subsection (3) are deﬁned in sub- sections (5) and (6).
Total group debts Total group debts is the total amount, consolidated under gen- erally accepted accounting practice for the CFC’s group and the accounting period, of the outstanding balances of— (a) ﬁnancial arrangements entered by the group’s members, each of which— (i) (ii) provides funds to a group member; and gives rise to an amount for which a group mem- ber would have a deduction: (b) (c) ﬁxed-rate foreign equity issued by a member of the group and held by a company that is a New Zealand resident, a CFC, or a FIF for which the interest holder uses the attributable FIF income method: equity interests issued by a member of the group in re- lation to which the member makes deductible foreign equity distributions to a company that is a New Zealand resident, a CFC, or a FIF for which the interest holder uses the attributable FIF income method.
(6) Total group assets Total group assets is the total value, consolidated under gen- erally accepted accounting practice for the accounting period, of the assets of the CFC’s group.

1173 Part E s EX 21 Income Tax Act 2007 Reprinted as at 30 August 2013 Formula for CFC’s relative debt-asset ratio The formula for the CFC’s relative debt-asset ratio is— (7) CFC’s debt-asset ratio group debt-asset ratio.
(8) Deﬁnition of items in formula In the formula in subsection (7),— (a) CFC’s debt-asset ratio is the CFC’s debt-asset ratio under section EX 20D(4): group debt-asset ratio is the CFC’s group debt-asset ratio under subsection (3).
(b) Deﬁned in this Act: accounting period, attributable FIF income method, CFC, deductible foreign equity distribution, deduction, excess debt outbound com- pany, ﬁnancial arrangement, ﬁxed-rate foreign equity, New Zealand resident Section EX 20E: inserted (with effect on 30 June 2009), on 6 October 2009, by section 156(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 20E(5)(b): replaced (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 22(1) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).

Section EX 20E(5)(c): replaced (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 22(1) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 20E list of deﬁned terms attributable FIF income method: in- serted (with effect on 1 July 2011), on 7 May 2012, by section 22(2) of the Tax- ation (International Investment and Remedial Matters) Act 2012 (2012 No 34).

Calculation of branch equivalent income or loss [Repealed] Heading: repealed (with effect on 30 June 2009), on 6 October 2009, by sec- tion 160 of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
EX 21 Attributable CFC amount and net attributable CFC income or loss: calculation rules Calculation rules for CFC The rules in this section apply for the purposes of— (a) calculating the attributable CFC amount for a CFC under section EX 20B: (1) 1174 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EX 21 (b) (c) calculating the net attributable CFC income or loss for a CFC under section EX 20C: determining under section EX 21D whether a CFC is a non-attributing active CFC.
Calculation rules for test group of CFCs (1B) For the purpose of determining under section EX 21D whether a member of a group of CFCs is a non-attributing active CFC,— (a) the consolidated annual gross income of the group is calculated under the rules in this section; and the consolidated attributable CFC amount of the group is calculated under the rules in this section.

(b) (2) CFC treated as New Zealand resident The rules in this Act are applied as if the CFC were always a New Zealand resident.
Modiﬁcations to rules (3) However, the rules in the Act are modiﬁed for the purposes of the calculation by the following subsections.
(4) Conversion to New Zealand dollars The taxpayer must choose— (a) (b) for all the calculations to be done in New Zealand dol- lars; or for all the calculations to be done in the currency of the CFC’s ﬁnancial accounts; and if the CFC has no ﬁnan- cial accounts, the currency used is that of the CFC’s country of residence, the result being then converted into New Zealand dollars at the average of the close of trading spot exchange rates for the 15th day of each complete month that falls in the period.
Consent for change of currency (5) Having chosen a currency, the taxpayer must use the same currency for calculating attributable CFC amount and net at- tributable CFC income or loss attributable to the CFC for each later consecutive accounting period, unless the Commissioner allows the taxpayer to choose again.
(6) Change for commercial purpose The Commissioner may consent to a change under subsection (5) only if satisﬁed that— 1175 Part E s EX 21 Income Tax Act 2007 Reprinted as at 30 August 2013 (a) (b) the taxpayer’s main purpose in changing is a commer- cial one, and for this purpose, the reducing of tax is not a commercial purpose; and the change does not have an effect of defeating the intent and application of subpart CQ (Attributed income from foreign equity) or DN (Attributed losses from foreign equity) or this subpart.
New Zealand currency for ﬁnancial arrangements (7) Despite subsections (4) to (6), New Zealand currency calcu- lations must be used to calculate that part of the attributable CFC amount and net attributable CFC income or loss arising from ﬁnancial arrangements if— (a) the total value of ﬁnancial arrangements to which the CFC is a party is more than $1,000,000 at any time 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) Limit to subsection (7) Subsection (7) does not apply to a ﬁnancial arrangement if— (a) (b) it is a variable principal debt instrument; and all the rights and obligations of all the parties to the ﬁ- nancial arrangement are expressed in the currency cho- sen under subsection (4)(b); and no other party to the ﬁnancial arrangement is associated with the CFC; and no person enters into the ﬁnancial arrangement under an arrangement that has a purpose of defeating the appli- cation of subsection (7).
(c) (d) Opening cost base: tangible assets: ﬁrst period If the taxpayer had no attributed CFC income or loss from the CFC for the previous accounting period, the taxpayer must choose whether to measure the cost base at the start of an ac- counting period of premises, plant, machinery, equipment, and trading stock of the CFC at— (8) (9) 1176 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EX 21 (10) (11) (12) (a) (b) 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.
Opening cost base: tangible assets: later periods If the taxpayer had attributed CFC income or loss from the CFC for the previous period, the cost base at the start of an accounting period of premises, plant, machinery, equipment, and trading stock of the CFC is the closing value at the end of the previous period used to calculate the income or loss.
Opening cost base: ﬁnancial arrangements: ﬁrst period If the taxpayer had no attributed CFC income or loss from the CFC for the previous accounting period, the taxpayer must choose to calculate the consideration under the ﬁnancial ar- rangements rules for a ﬁnancial arrangement at the start of an accounting period, at— (a) (b) the market value of the ﬁnancial arrangement; or the absolute value calculated using the formula— consideration paid to the CFC + expenditure income.
consideration paid by the CFC 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 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 (b) (c) (d) 1177 Part E s EX 21 Income Tax Act 2007 Reprinted as at 30 August 2013 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) (db) (dc) (e) (f) (g) (h) (i) (j) the consolidation rules: section CB 27 (Income equalisation schemes) and sub- parts DQ (Income equalisation schemes and environ- mental restoration accounts schemes) and EH (Income equalisation schemes): sections CD 45 to CD 52 (which relate to the CFC 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 9 (Dividend derived from foreign com- pany): section CW 10 (Dividend within New Zealand wholly- owned group: section CW 40(1) (Local and regional promotion bod- ies): sections DO 1 (Enhancements to land) and DO 2 (Plant- ings for erosion, shelter, and water protection purposes): sections EW 9 (Persons to whom ﬁnancial arrange- ments rules apply) and EW 11(b) (What ﬁnancial arrangements rules do not apply to): subpart FE (Interest apportionment on thin capitalisa- tion): section GB 5 (Arrangements involving trust beneﬁciar- ies): sections IA 2 to IA 9, subpart IC, and sections IP 3 to IP 7, IZ 4, and IZ 5 (which relate to the use of tax losses).
Business treated as if carried on in New Zealand (14) The following provisions apply as if the CFC’s business activ- ities were carried on in New Zealand: 1178 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EX 21 (a) (b) (c) (d) sections CT 1 to CT 3, CT 5 to CT 7, CX 42, CX 43, CZ 8, DT 1 to DT 15, DT 17 to DT 19, and IS 5 (which relate to petroleum mining): sections DO 4 to DO 7, DO 12, DP 1 to DP 3, DP 8, and DP 11 (which relate to farming, aquacultural, and forestry expenditure): section EZ 16 (Amount of depreciation loss for plant or machinery additional to section EZ 15 amount): the deﬁnitions in subpart YA (General deﬁnitions) that speciﬁcally apply for the purposes of those sections.
Transfer pricing rules (15) Sections GC 6 to GC 14 (which relate to transfer pricing ar- rangements between associated persons) apply only to a trans- action that has a purpose or effect of defeating any of the jur- isdictional ring-fencing rules for CFC losses and tax credits in— (a) (b) section DN 4 (Ring-fencing cap on deduction): section IQ 2 (Ring-fencing cap on attributed CFC net losses): section IQ 4 (Group companies using attributed CFC net losses): sections LK 1 to LK 7 (which relate to foreign tax credits and CFCs).
(c) (d) Dividends (16) Dividends that are not part of the CFC’s attributable CFC amount are exempt income of the CFC.

Dividends: exempt income [Repealed] [Repealed] (17) Beneﬁts from money advanced (18) When section CC 7 (Consideration other than in money) is applied, the borrower is treated as if it carries on a business in New Zealand.
No tainting by association (19) Sections CB 9 to CB 13 (which relate to the disposal of land) and CV 1 (Group companies) do not apply to treat an amount derived by the CFC as income merely because of the activities 1179 Part E s EX 21 Income Tax Act 2007 Reprinted as at 30 August 2013 of a person associated with the CFC if the associate is a non- resident.
Crown acquisition of land (20) The reference in section EI 8(1) (Disposal of land to the Crown) to the Crown includes any relevant government out- side New Zealand.
Amount of depreciation loss recovered (21) When sections EE 48 to EE 52 (which relate to disposals and similar events) are applied, the CFC is treated as having had a deduction for an amount of depreciation loss, and to have an adjusted tax value accordingly, if an amount of depreciation loss has been deducted when calculating the CFC’s branch equivalent income or loss for any period and the attributed CFC income or loss of any person.
GST and value-added taxes (22) When sections CX 1 (Goods and services tax), DB 2 (Goods and services tax), EE 45 (Consideration for purposes of section EE 44), EE 54 (Cost: GST), and EZ 17 (Additional amount of depreciation loss: between 16 December 1991 and 1 April 1994) are applied, references to output tax, input tax, or goods and services tax (GST) payable include a reference to the equivalent item arising under the value-added tax or other tax rules of a country or territory outside New Zealand if the rules have a similar intent and application to the New Zealand GST rules.
Government grants to businesses (23) When section DF 1 (Government grants to businesses) is ap- plied, a reference to the New Zealand government includes a government outside New Zealand but, to the extent to which section DF 1 still does not apply to a grant or subsidy to the CFC from a government, the grant or subsidy is income of the CFC.
Subvention payments If an amount is paid as consideration for the transfer of tax losses,— (a) (b) it is income if derived by the CFC; and it is a deduction if— (24) 1180 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EX 21 (i) (ii) paid by the CFC to a person who is resident in the same country as the CFC and not a non-attribut- ing active CFC; and deductible under the taxation law of that country.
Life insurers (25) Subsection (26) applies if— (a) (b) the CFC itself carries on the business of providing life insurance; or shares in the CFC are held, directly or indirectly, by a foreign company (the parent company, in subsection (26)) that carries on the business of providing life in- surance and those shares have to be taken into account under sections EX 8 to EX 13 to calculate the taxpayer’s income interest in the CFC.
(26) Policyholders If the test in subsection (25) is met, the life insurance rules do not apply and the net attributable CFC income or loss of the CFC is the amount actuarially determined to be the part of the CFC’s net attributable CFC income or loss to which shareholders, and not policyholders in either the CFC or the parent company, are entitled.
When subsection (26) does not apply (27) Despite subsection (25), subsection (26) does not apply if the Commissioner— (a) considers that the amount calculated is not a reasonable reﬂection of the part attributable to shareholders; or has requested and not received sufﬁcient information to enable the actuarial calculation to be reviewed.
(b) Mineral mining activities (28) Sections BC 7, CU 1 to CU 29, CX 44 to CX 46, CZ 2, CZ 4, DU 1 to DU 12, DZ 12, IS 1 to IS 4 (which relate to mineral mining) apply, with any necessary modiﬁcations, if the CFC carries on activities outside New Zealand that are substantially the same as the mineral mining activities to which those sec- tions apply.
Petroleum mining activities (29) Sections CT 1 to CT 3, CT 5, CX 42, CX 43, CZ 8, DT 1 to DT 15, DT 17 to DT 19, and IS 5 (which relate to petroleum 1181 Part E s EX 21 Income Tax Act 2007 Reprinted as at 30 August 2013 mining) apply, with any necessary modiﬁcations, if the CFC carries on petroleum mining activities outside New Zealand that are substantially the same as the petroleum mining activ- ities to which those sections apply.
Finance leases and speciﬁed leases (30) A lease entered into by the CFC before the start of the ﬁrst ac- counting period in which the CFC is a CFC is neither a ﬁnance lease (subject to the ﬁnancial arrangements rules and sections FA 6 to FA 11, which relate to ﬁnance leases), nor a speciﬁed lease (subject to sections FZ 2 to FZ 4, which relate to leases).
When subsection (30) does not apply (31) Subsection (30) does not apply if another party to the lease is a New Zealand resident, a CFC, or a FIF for which the taxpayer uses the attributable FIF income method.
(32) (33) Taxable distributions from non-complying trust If the CFC gets a taxable distribution from a non-complying trust— (a) section HC 22 (Use of tax losses to reduce taxable dis- tributions from non-complying trusts) does not apply; and the taxable distribution is not taken into account in cal- culating the CFC’s net attributable CFC income or loss; and section EX 19 applies.
(b) (c) CFCs with interest in FIFs If the CFC has rights in a FIF,— (a) the rights are not prevented from being an attributing interest of the CFC in a FIF merely because the notional New Zealand residence of the CFC under subsection (2) causes section EX 34 to apply; and the CFC’s FIF income or loss is not taken into account in calculating the net attributable CFC income; and section EX 58 applies.
(b) (c) 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 1182 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EX 21 (35) [Repealed] [Repealed] Deﬁned in this Act: absolute value, accounting period, adjusted tax value, amount, annual gross income, arrangement, associated person, attributable CFC amount, attributed CFC income, attributed CFC loss, attributable FIF income method, attributed repatriation, attributing interest, branch equivalent loss, business, CFC, close of trading spot exchange rate, Commissioner, consideration, consolidation rules, deduction, depreciation loss, dividend, ex- empt 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 attributable CFC income, net attributable CFC loss, net income, net loss, New Zealand, New Zealand resident, non-attributing active CFC, non-complying trust, non-resident, output tax, pay, petroleum, resident in New Zealand, share, shareholder, speciﬁed lease, tax, taxable distribution, trading stock, variable principal debt instrument Compare: 2004 No 35 s EX 21 Section EX 21 heading: amended (with effect on 30 June 2009), on 6 October 2009, by section 161(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 21(1) heading: substituted (with effect on 30 June 2009), on 6 Oc- tober 2009, by section 161(2) of the Taxation (International Taxation, Life In- surance, and Remedial Matters) Act 2009 (2009 No 34).

Section EX 21(1): substituted (with effect on 30 June 2009), on 6 October 2009, by section 161(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 21(1B) heading: inserted (with effect on 30 June 2009), on 6 Octo- ber 2009, by section 161(2) of the Taxation (International Taxation, Life Insur- ance, and Remedial Matters) Act 2009 (2009 No 34).

Section EX 21(1B): inserted (with effect on 30 June 2009), on 6 October 2009, by section 161(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 21(2): substituted (with effect on 30 June 2009), on 6 October 2009, by section 161(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section EX 21(5): amended (with effect on 30 June 2009), on 6 October 2009, by section 161(4) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 21(7): amended (with effect on 30 June 2009), on 6 October 2009, by section 161(5) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section EX 21(13)(db): inserted (with effect on 30 June 2009), on 6 October 2009, by section 161(6) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 21(13)(dc): inserted (with effect on 30 June 2009), on 6 October 2009, by section 161(6) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

1183 Part E s EX 21 Income Tax Act 2007 Reprinted as at 30 August 2013 Section EX 21(13)(f): amended (with effect on 1 April 2011), on 17 July 2013, by section 51(a) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Section EX 21(13)(f): amended (with effect on 1 April 2011), on 17 July 2013, by section 51(b) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).

Section EX 21(15): amended, on 1 April 2010 (applying for the 2010–11 and later income years), by section 161(8) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 21(15): amended (with effect on 1 April 2008), on 6 October 2009, by section 161(7) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section EX 21(16) heading: substituted (with effect on 30 June 2009), on 6 October 2009, by section 161(9) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 21(16): substituted (with effect on 30 June 2009), on 6 October 2009, by section 161(9) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section EX 21(17) heading: repealed (with effect on 30 June 2009), on 6 Octo- ber 2009, by section 161(9) of the Taxation (International Taxation, Life Insur- ance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 21(17): repealed (with effect on 30 June 2009), on 6 October 2009, by section 161(9) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section EX 21(24)(b): substituted (with effect on 30 June 2009), on 6 October 2009, by section 161(10) of the Taxation (International Taxation, Life Insur- ance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 21(26): amended (with effect on 30 June 2009), on 6 October 2009, by section 161(11)(a) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section EX 21(26): amended (with effect on 30 June 2009), on 6 October 2009, by section 161(11)(b) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 21(26): amended (with effect on 1 April 2008), on 7 December 2009, by section 26(1) of the Taxation (Consequential Rate Alignment and Re- medial Matters) Act 2009 (2009 No 63).

Section EX 21(31): replaced (with effect on 1 July 2011 and applying for in- come years beginning on or after that date), on 7 May 2012, by section 23(1) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 21(32)(b): amended (with effect on 30 June 2009), on 6 October 2009, by section 161(12) of the Taxation (International Taxation, Life Insur- ance, and Remedial Matters) Act 2009 (2009 No 34).

Section EX 21(33)(b): amended (with effect on 30 June 2009), on 6 October 2009, by section 161(13) of the Taxation (International Taxation, Life Insur- ance, and Remedial Matters) Act 2009 (2009 No 34).
1184 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EX 21 Section EX 21(35) heading: repealed (with effect on 30 June 2009), on 6 Oc- tober 2009, pursuant to section 161(14) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section EX 21(35): repealed (with effect on 30 June 2009), on 6 October 2009, by section 161(14) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 21 list of deﬁned terms 1973 version provisions: repealed, on 1 April 2010, by section 594 of the Taxation (International Taxation, Life In- surance, and Remedial Matters) Act 2009 (2009 No 34).

Section EX 21 list of deﬁned terms 1988 version provisions: repealed, on 1 April 2010, by section 594 of the Taxation (International Taxation, Life In- surance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 21 list of deﬁned terms 1990 version provisions: repealed, on 1 April 2010, by section 594 of the Taxation (International Taxation, Life In- surance, and Remedial Matters) Act 2009 (2009 No 34).

Section EX 21 list of deﬁned terms annual gross income: inserted (with effect on 30 June 2009), on 6 October 2009, by section 161(16)(b) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 21 list of deﬁned terms attributable CFC amount: inserted (with effect on 30 June 2009), on 6 October 2009, by section 161(16)(b) of the Tax- ation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 21 list of deﬁned terms attributable FIF income method: inserted (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 23(2) of the Taxation (International In- vestment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 21 list of deﬁned terms branch equivalent income: repealed (with effect on 30 June 2009), on 6 October 2009, by section 161(16)(a) of the Tax- ation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section EX 21 list of deﬁned terms net attributable CFC income: inserted (with effect on 30 June 2009), on 6 October 2009, by section 161(16)(b) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 21 list of deﬁned terms net attributable CFC loss: inserted (with effect on 30 June 2009), on 6 October 2009, by section 161(16)(b) of the Tax- ation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section EX 21 list of deﬁned terms non-attributing active CFC: inserted (with effect on 30 June 2009), on 6 October 2009, by section 161(16)(b) of the Tax- ation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
1185 Part E s EX 21B Income Tax Act 2007 Reprinted as at 30 August 2013 Non-attributing active CFCs Heading: inserted (with effect on 30 June 2009), on 6 October 2009, by section 162(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
EX 21B Non-attributing active CFCs Non-attributing active CFC (1) Non-attributing active CFC, for an accounting period and a person (the interest holder), means a CFC— (a) for which the interest holder is not affected by an elec- tion under section EX 73 for the accounting period; and that meets the requirements of subsection (2) or (3), alone or as part of a test group of companies under sec- tion EX 21D or EX 21E.
(b) CFC meeting test in section EX 21D or EX 21E (2) A CFC is a non-attributing active CFC— (a) (b) under section EX 21D, if the CFC meets the require- ments of that section and paragraph (b) does not apply: under EX 21E, if— (i) the CFC meets the requirements of section EX 21C for the use of an applicable accounting standard in the application of EX 21E; and the person chooses to use the applicable account- ing standard in applying EX 21E; and the CFC meets the requirements of EX 21E.
(ii) (iii) Insurer meeting requirements of determination (3) A CFC that is an insurer meeting the requirements of a de- termination made by the Commissioner under section 91AAQ of the Tax Administration Act 1994 is a non-attributing active CFC.
Single test for each CFC In determining whether CFCs are non-attributing active CFCs for an accounting period under a test in section EX 21D or EX 21E, an interest holder must not use the result of a test applied to a test group that includes a CFC if the person uses for the period a result of the same or a different test applied to the CFC, alone or as part of a different test group.
Deﬁned in this Act: accounting period, CFC, group of companies, non-attribut- ing active CFC (4) 1186 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EX 21C Section EX 21B: inserted (with effect on 30 June 2009), on 6 October 2009, by section 162(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 21B(1): replaced (with effect on 30 June 2009), on 2 November 2012 (applying for income years beginning on or after 1 July 2009), by section 44(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).

Section EX 21B(4) heading: inserted (with effect on 1 July 2009 and applying for income years beginning on or after that date), on 7 May 2012, by section 24(1) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 21B(4): inserted (with effect on 1 July 2009 and applying for in- come years beginning on or after that date), on 7 May 2012, by section 24(1) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).

Section EX 21B list of deﬁned terms group of companies: inserted (with ef- fect on 30 June 2009), on 2 November 2012, by section 44(2) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Tests for non-attributing active CFCs Heading: inserted (with effect on 30 June 2009), on 6 October 2009, by section 162(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
EX 21C Applicable accounting standards for section EX 21E (1) (2) Applicable accounting standards In applying EX 21E to determine whether a CFC is a non-at- tributing active CFC for a person (the interest holder) with an interest in the CFC, the interest holder may use as an account- ing standard (the applicable accounting standard) 1 of the standards given by subsections (2) to (7) if section GB 15C (Arrangements related to accounting test for non-attributing active CFC) does not apply.
Generally accepted accounting practice with IFRS for CFC The interest holder may use generally accepted accounting practice in New Zealand including IFRSs and the framework for differential reporting for entities applying the New Zealand equivalents to the international ﬁnancial standards reporting regime (the generally accepted accounting practice with IFRS) for the CFC, if the interest holder or another person has accounts that— (a) include the accounts of the CFC; and 1187 Part E s EX 21C Income Tax Act 2007 Reprinted as at 30 August 2013 (b) comply with generally accepted accounting practice with IFRS; and (c) meet the audit requirements of subsection (8).
Generally accepted accounting practice with IFRS for test group The interest holder may use generally accepted accounting practice with IFRS for the CFC’s test group under section EX 21E(2), if the interest holder or another person has ac- counts that— (a) include the accounts of the members of the test group; and comply with generally accepted accounting practice with IFRS; and (b) (c) meet the audit requirements of subsection (8).
IFRSEs for CFC The interest holder may use IFRSEs for the CFC, if the interest holder or another person has accounts that— (a) include the accounts of the CFC; and comply with the relevant IFRSEs; and (b) (c) meet the audit requirements of subsection (8).
IFRSEs for test group The interest holder may use IFRSEs for the CFC’s test group under section EX 21E(2), if the interest holder or another per- son has accounts that— (a) include the accounts of the members of the test group; and (b) comply with the relevant IFRSEs; and (c) meet the audit requirements of subsection (8).
Generally accepted accounting practice without IFRS for CFC The interest holder may use generally accepted accounting practice in New Zealand for persons not required to use IFRS but required to comply with standards, other than IFRSs, ap- proved or issued under the Financial Reporting Act 1993 (the generally accepted accounting practice without IFRS) for the CFC, if the interest holder or another person is a company resident in New Zealand that— (3) (4) (5) (6) 1188 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EX 21C (a) (b) (c) (d) (e) (f) (g) has no revenue under Financial Reporting Standard 34 and Financial Reporting Standard 35; and is an issuer under section 4 of the Financial Reporting Act 1993 in neither of the current and preceding ac- counting periods; and is not required by section 19 of the Financial Reporting Act 1993 to ﬁle its accounts with the Registrar of Com- panies; and is not a large company under section 19A(1)(b) of the Financial Reporting Act 1993; and does not have accounts that are prepared and audited under generally accepted accounting practice with IFRS; and is not a subsidiary of a company having accounts that— include the accounts of the subsidiary; and (i) are prepared and audited, or required to be pre- (ii) pared, under generally accepted accounting prac- tice with IFRS; and has accounts that— (i) (ii) include the accounts of the CFC; and comply with generally accepted accounting prac- tice without IFRS; and (iii) meet the audit requirements of subsection (8).
(7) Generally accepted accounting practice without IFRS for CFC’s test group The interest holder may use generally accepted accounting practice without IFRS for the CFC’s test group under section EX 21D(1), if the interest holder or another person is a com- pany resident in New Zealand that— (a) has no revenue under Financial Reporting Standard 34 and Financial Reporting Standard 35; and is an issuer under section 4 of the Financial Reporting Act 1993 in neither of the current and preceding ac- counting periods; and is not required by section 19 of the Financial Reporting Act 1993 to ﬁle its accounts with the Registrar of Com- panies; and is not a large company under section 19A(1)(b) of the Financial Reporting Act 1993; and (b) (c) (d) 1189 Part E s EX 21C Income Tax Act 2007 Reprinted as at 30 August 2013 (e) (f) (g) does not have accounts that are prepared and audited under generally accepted accounting practice with IFRS; and is not a subsidiary of a company having accounts that— include the accounts of the subsidiary; and (i) are prepared and audited, or required to be pre- (ii) pared, under generally accepted accounting prac- tice with IFRS; and has accounts that— (i) include the accounts of the members of the CFC’s test group; and comply with generally accepted accounting prac- tice without IFRS; and (ii) (iii) meet the audit requirements of subsection (8).
Audit requirements (8) Accounts meet the audit requirements of this subsection if they— (a) (b) are audited by an accountant who is— (i) a chartered accountant or an accountant of equivalent professional standard in the country in which the accounts are prepared; and (ii) independent of the CFC and the person; and are given an unqualiﬁed opinion or an opinion of equivalent standard in the country in which the accounts are prepared.
Compliance with accounting standards For the purposes of subsections (2) to (7), accounts are treated as complying with the accounting standard relevant to the sub- section if— (a) the accounts state that they comply with the accounting standard; and the accounts meet the audit requirements of subsection (8); and the Commissioner does not have reasonable grounds to suspect— (i) fraudulent activity by the interest holder, the CFC, a company in the CFC’s test group, or the auditor: (b) (c) (9) 1190 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EX 21D (ii) (iii) preparation of the accounts with an intent to mis- lead: incompetence of the auditor.
Deﬁned in this Act: accounting period, annual gross income, associated, at- tributable CFC amount, CFC, company, generally accepted accounting prac- tice, IFRS, IFRSE, insurer, New Zealand resident, non-attributing active CFC, rent, royalty Section EX 21C: inserted (with effect on 30 June 2009), on 6 October 2009, by section 162(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 21C(6): amended, on 1 July 2011, by section 12 of the Financial Reporting Amendment Act 2011 (2011 No 22).

Section EX 21C(9)(c)(i): replaced (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 25(1) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 21C list of deﬁned terms company: inserted (with effect on 1 July 2011), on 7 May 2012, by section 25(2) of the Taxation (International Invest- ment and Remedial Matters) Act 2012 (2012 No 34).
EX 21D Non-attributing active CFC: default test CFC as part of test group (1) A person (the interest holder) with an interest in a CFC may choose to apply this section for the CFC as a member of a group (a test group) if the group consists of companies— (a) (b) (c) (d) each subject to the laws of the same country or territory and having a taxed CFC connection with the country or territory; and in each of which the interest holder holds an income interest of more than 50%; and each of which is required to use the same currency under section EX 21(4); and that are consolidated for the purposes of this section— using like tax treatments for like transactions and (i) for other events in similar circumstances; and eliminating in full all balances, transactions, in- come, and expenses arising between members of the test group.
(ii) Threshold ratio (2) A CFC is a non-attributing active CFC under section EX 21B(2)(a) for an accounting period and a person if the 1191 Part E s EX 21D Income Tax Act 2007 Reprinted as at 30 August 2013 amount calculated under subsection (3) using the formula in subsection (4)— (a) (b) is less than 0.05; and is not zero under subsection (3)(f).
Application of formula In using the formula in subsection (4)— (a) each item in the formula is determined— (i) for the CFC’s consolidated test group, if the in- terest holder chooses to apply the formula to the test group; or for the CFC, if subparagraph (i) does not apply; and (ii) (b) (c) (d) each item in the formula is determined for a test group after amounts included in the item are adjusted to re- move amounts corresponding to income interests not held by the interest holder; and a reference to a company that is associated is treated as being a reference to a company that is— (i) associated with a member of the CFC’s test group, although not a member of the CFC’s test group, if the interest holder chooses to apply the formula to the test group; or associated with the CFC, if subparagraph (i) does not apply; and (ii) a reference to a company that is in the same group of companies is treated as being a reference to a company that is— (i) in the same group of companies as a member of the CFC’s test group, although not a member of the CFC’s test group, if the interest holder chooses to apply the formula to the test group; or in the same group of companies as the CFC, if subparagraph (i) does not apply; and (ii) (e) (f) a numerator or denominator that is a negative number is treated as being zero; and the amount calculated using the formula is zero if the denominator is zero.
(3) 1192 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EX 21D (4) Formula The amount that determines whether the CFC is a non-attribut- ing active CFC is calculated using the formula— attributable attributable adjustments gross – gross adjustments.

Deﬁnition of items in formula The items in the formula are deﬁned in subsections (6) to (9).

(5) Attributable (6) Attributable is the attributable CFC amount for the account- ing period.
Attributable adjustments (7) Attributable adjustments is the total of amounts included in the item attributable, in subsection (6), that are— (a) (ii) if the interest holder chooses that this paragraph apply, income derived from the supply of personal services— included in an attributable CFC amount under (i) section EX 20B(3)(h); and not included in an attributable CFC amount under another paragraph of section EX 20B(3) and (4): if the interest holder chooses that this paragraph apply, the cost of revenue account property producing an amount (the included amount) included in the at- tributable CFC amount under section EX 20B(3)(k) to the extent, not exceeding the included amount, to which— (i) the cost is treated as a deduction of the CFC in the accounting period; and the deduction exceeds the amount of any income under subpart CH (Adjustments) relating to the deduction.
(b) (ii) Gross (8) Gross is the annual gross income for the accounting period in the absence of income under subpart CQ (Attributed income from foreign equity).
Gross adjustments (9) Gross adjustments is the total of the following amounts for the accounting period: 1193 Part E s EX 21E Income Tax Act 2007 Reprinted as at 30 August 2013 (a) (b) (c) (d) the amount of the item “attributable adjustments” in subsection (7): expenditure or loss that is included in the calculation of the attributable CFC amount under section EX 20B: income derived from a company that would meet the requirements of subsection (1)(a) to (c) for a member of a test group with the CFC: income from a supply that meets the requirements of section GB 15B (Supplies affecting default test for non- attributing active CFC).
Deﬁned in this Act: accounting period, annual gross income, associated non-at- tributing active CFC, attributable CFC amount, CFC, company, group of com- panies, income, interest, non-attributing active CFC, resident in New Zealand, royalty, taxed CFC connection Section EX 21D: inserted (with effect on 30 June 2009), on 6 October 2009, by section 162(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 21D(1)(a): replaced (with effect on 1 July 2009 and applying for income years beginning on or after that date), on 7 May 2012, by section 26(1) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).

Section EX 21D(7): amended (with effect on 30 June 2009), on 7 Septem- ber 2010, by section 44 of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
Section EX 21D(7)(b): amended (with effect on 30 June 2009), on 7 Decem- ber 2009, by section 27(1) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).

Section EX 21D list of deﬁned terms taxed CFC connection: inserted (with effect on 1 July 2009), on 7 May 2012, by section 26(2) of the Taxation (Inter- national Investment and Remedial Matters) Act 2012 (2012 No 34).
EX 21E Non-attributing active CFC: test based on accounting standard Applicable accounting standard (1) A person (the interest holder) who chooses to determine under this section whether a CFC is a non-attributing active CFC for the person for an accounting period must use an accounting standard (the applicable accounting standard) permitted by section EX 21C.
CFC as part of test group The interest holder may choose to apply this section for the CFC as a member of a group (a test group) if— (2) 1194 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EX 21E (a) (b) (c) (d) (e) the group consists of companies required under the ap- plicable accounting standard to consolidate, whether or not with companies that are not in the group; and each company is subject to the laws of the same country or territory and has a taxed CFC connection with the country or territory; and the interest holder holds an income interest of more than 50% in each company; and each company has the same functional currency; and there are audited and consolidated ﬁnancial statements that— (i) include the accounts of the companies in the group, whether or not with accounts of compan- ies that are not in the group; and comply with the applicable accounting standard.
(ii) Threshold ratio (3) A CFC is a non-attributing active CFC under section EX 21B(2)(b) for an accounting period and an interest holder if, under subsection (4),— (a) the amount calculated using the formula in subsection (5) is less than 0.05; and the amount calculated using the numerator in the for- mula in subsection (5) is equal to or more than zero; and the amount calculated using the denominator in the for- mula in subsection (5) is more than zero.
(b) (c) (4) Application of formula In using the formula in subsection (5),— each item in the formula is— (a) determined under (i) standard; and adjusted so that no amount is included in the item more than once; and the applicable accounting (ii) (b) each item in the formula is determined— (i) from amounts consolidated for the CFC’s test group under the applicable accounting standard, if the interest holder chooses to apply the formula to the test group; or 1195 Part E s EX 21E Income Tax Act 2007 Reprinted as at 30 August 2013 (ii) from amounts for the CFC, if subparagraph (i) does not apply; and each item in the formula is determined after adjustment of amounts included in the item by removing amounts corresponding to minority interests not held by the in- terest holder; and a reference to a company that is associated is treated as being a reference to a company that is— (i) associated with a member of the CFC’s test group, although not a member of the CFC’s test group, if the interest holder chooses to apply the formula to the test group; or associated with the CFC, if subparagraph (i) does not apply; and (ii) a reference to a company that is in the same group of companies is treated as being a reference to a company that is— (i) in the same group of companies as a member of the CFC’s test group, although not a member of the CFC’s test group, if the person chooses to apply the formula to the test group; or in the same group of companies as the CFC, if subparagraph (i) does not apply; and (ii) amounts determined for a CFC other than as part of a test group are— (i) determined in the functional currency of the CFC; and converted between currencies under the applic- able accounting standard, but ignoring exchange differences arising on a monetary item that forms part of a net investment of the CFC in a foreign operation; and (ii) amounts determined for a test group are— (i) converted from the functional currency of the CFC to the presentation currency of the consoli- dated accounts for the test group using the
 aver- age conversion rate for the accounting period; and (c) (d) (e) (f) (g) 1196 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EX 21E (ii) otherwise converted between currencies under the applicable accounting standard.
(5) Formula The amount that determines whether the CFC is a non-attribut- ing active CFC is calculated using the formula— reported passive + added passive – removed passive reported revenue + added revenue – removed revenue.

Deﬁnition of items in formula The items in the formula are deﬁned in subsections (7) to (12).
(6) Reported passive (f) (a) (b) (c) (d) (e) (7) Reported passive is the total amount of— income from a dividend: income from interest: income from a royalty: income from rent: income, other than rent or interest, from a ﬁnance lease or operating lease: income or loss from a ﬁnancial asset, other than a derivative as deﬁned in NZIAS 39 or a share that is not revenue account property, in the form of— (i) (ii) a change in the reported fair value of the asset: a gain or loss on the derecognition, as deﬁned in NZIAS 39, of the asset: (iii) a foreign exchange gain or loss on the asset: income or loss from a derivative instrument, as deﬁned in NZIAS 39, and included in the CFC’s statement of income— (i) (g) (ii) (iii) if the instrument is held in the course of a busi- ness of the CFC for the purpose of dealing with the derivative instrument: if the instrument is not entered in the ordinary course of a business of the CFC: to the extent to which the income or loss is from a hedging relationship, of a type referred to in NZIAS 39, with an amount that would change the numerator of the formula in subsection (5) or with a transaction producing such an amount of income or gain: 1197 Part E s EX 21E Income Tax Act 2007 Reprinted as at 30 August 2013 (h) income or gains from a business of insurance, including income or gains from property used to back insurance assets.
Added passive (8) Added passive is the total of amounts not included in the item reported passive for the accounting period that are 1 or more of the following: (a) income from a life insurance policy that is included in the attributable CFC amount for the accounting period under section EX 20B(3)(g): income from the disposal of revenue account property that is included in the attributable CFC amount for the accounting period under section EX 20B(3)(k), if the property is— (i) not a share, ﬁnancial arrangement, or life insur- ance policy; and used by the CFC in a way giving rise to income or gains that increase the numerator of the formula in subsection (5): (ii) income from a supply of services performed in New Zealand that is included in the attributable CFC amount for the accounting period under section EX 20B(3)(l): income from a supply of telecommunications services that is included in the attributable CFC amount for the accounting period under section EX 20B(3)(m) or (n): attributed PIE income that is included in the attributable CFC amount for the accounting period under section EX 20B(3)(o).
(b) (c) (d) (e) Removed passive (9) Removed passive is zero if the interest holder does not choose to include an amount for this item or is the total of amounts that are included in the item reported passive or added passive for the accounting period and are in a category included in categories chosen by the interest holder from the following: (a) a dividend that included in the attributable CFC amount for the accounting period under section EX 20B(3)(a) to (c): is not 1198 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EX 21E (b) (c) a royalty that would be included in the attributable CFC amount for the accounting period but for section EX 20B(5)(a) to (d): rent that would be included in the attributable CFC amount for the accounting period but for section EX 20B(7)(a) to (c): (d) (cb) gain or loss from a ﬁnancial asset that is a ﬁnan- cial arrangement or agreement referred to in section EX 20B(12): the cost of revenue account property producing an amount (the included amount) included in the at- tributable CFC amount under section EX 20B(3)(k) to the extent, not exceeding the included amount, to which— (i) the cost would be a deduction of the CFC in the accounting period if the CFC were a resident of New Zealand; and the deduction would exceed the amount of any income arising under subpart CH (Adjustments) relating to the deduction.
(ii) Reported revenue (10) Reported revenue is the total amount that is— (a) (ab) (b) (c) included under the applicable accounting standard in— operating revenue, if the applicable accounting (i) standard is generally accepted accounting prac- tice without IFRS; or revenue, if subparagraph (i) does not apply: (ii) income from rent: income, other than rent, from a ﬁnance lease or operat- ing lease: a gain or loss on a ﬁnancial asset, other than a deriva- tive as deﬁned in NZIAS 39 or a share not on revenue account, in the form of— (i) (ii) a change in the reported fair value of the asset: a gain or loss on the derecognition, as deﬁned in NZIAS 39, of the asset: a foreign exchange gain or loss on the asset: (iii) 1199 Part E s EX 21E Income Tax Act 2007 Reprinted as at 30 August 2013 (d) a gain or loss from a derivative instrument, as deﬁned in NZIAS 39, and included in the CFC’s statement of income— (i) (ii) (iii) if the derivative instrument is held in the course of a business of the CFC for the purpose of dealing with the derivative instrument: if the derivative instrument is not entered in the ordinary course of a business of the CFC: to the extent to which the gain or loss is from a hedging relationship, of a type referred to in NZIAS 39, with an amount that would change the denominator of the formula in subsection (5) or with a transaction producing such an amount of income or gain: (e) income or a gain from a business of insurance, including from property used to back insurance assets, if the ap- plicable accounting standard is not generally accepted accounting practice without IFRS.
Added revenue (11) Added revenue is zero if the interest holder does not choose to include an amount for this item or is the total of amounts that are not included in the item reported revenue for the ac- counting period and are either or both of the following: (a) (b) income from a life insurance policy that is included in the attributable CFC amount for the accounting period under section EX 20B(3)(g): income from the disposal of revenue account property that is included in the attributable CFC amount for the accounting period under section EX 20B(3)(k), if the property is— (i) not a share, ﬁnancial arrangement, or life insur- ance policy; and used by the CFC in a way giving rise to income or gains that increase the numerator of the formula in subsection (5).
(ii) Removed revenue (12) Removed revenue is the total of amounts that are included under the applicable accounting standard in the item reported 1200 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EX 21E revenue or added revenue for the accounting period and are 1 or more of the following: (a) (b) (c) (d) (e) (f) (g) an amount included in the item removed passive under subsection (9)(d): a dividend to the extent to which it is included in the item removed passive, under subsection (9)(a): income from a supply of personal services that is included in the item reported revenue, and in the at- tributable CFC amount for the accounting period under section EX 20B(3)(h): income or loss from a share that is not revenue account property under this Act in the form of— (i) (ii) a change in the reported fair value of the share: income or loss on the derecognition, as deﬁned in NZIAS 39, of the share: a foreign exchange gain or loss on the share: (iii) income derived from another CFC that— (i) is subject to the laws of the country or territory under which the CFC is liable to income tax on the CFC’s income because of the CFC’s domi- cile, residence, place of incorporation, or centre of management; and is liable to tax on its income in that country or territory because of its domicile, residence, place of incorporation, or centre of management; and could be consolidated with the CFC for the pur- poses of this section if appropriate audited ac- counts were prepared: (ii) (iii) if the applicable standard is generally accepted account- ing practice without IFRS, income from a liability, other than income derived in the normal course of business from a sale or supply of services, in the form of— (i) (ii) a reduction in the liability: a gain on the disposal or other derecognition of the liability: (iii) a foreign exchange gain on the liability: if the applicable standard is generally accepted account- ing practice without IFRS, income from an asset that is not a ﬁnancial asset under NZIAS 32 and not revenue 1201 Part
 E s EX 21E Income Tax Act 2007 Reprinted as at 30 August 2013 account property as deﬁned in section YA 1 (Deﬁni- tions) in the form of— (i) (ii) (iii) an increase in the fair value of the asset: a gain on the disposal of the asset: a foreign exchange gain on the asset.
(b) Compliance with accounting standards If accounts meet the requirements of section EX 21C for the relevant accounting standard— (a) the accounts are treated as complying with the relevant accounting standard for the purposes of subsection (2): amounts drawn from the accounts, or from information that is used to prepare the accounts and is consistent with them, are treated as complying with the relevant accounting standard for the purposes of subsection (4) if the Commissioner does not have reasonable grounds to suspect— (i) fraudulent activity by the interest holder, the CFC, a CFC in the CFC’s test group, or the auditor: preparation of the accounts with an intent to mis- lead: incompetence of the auditor.
(ii) (iii) Deﬁned in this Act: accounting period, associated non-attributing active CFC, attributable CFC amount, CFC, company, dividend, ﬁnancial arrangement, ﬁ- nance lease, group of companies, IFRS, income, life insurance policy, non-at- tributing active CFC, operating lease, premium, revenue account property, roy- alty, taxed CFC connection Section EX 21E: inserted (with effect on 30 June 2009), on 6 October 2009, by section 162(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 21E(2)(b): replaced (with effect on 1 July 2009 and applying for income years beginning on or after that date), on 7 May 2012, by section 27(1) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).

Section EX 21E(7)(g)(iii): amended (with effect on 30 June 2009), on 7 De- cember 2009, by section 28(1) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
Section EX 21E(8)(e): added, on 29 August 2011, by section 38 of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).

Section EX 21E(9)(cb): inserted (with effect on 1 July 2009 and applying for income years beginning on or after that date), on 7 May 2012, by section 27(2) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
(13) 1202 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EX 22 Section EX 21E(9)(d): amended (with effect on 30 June 2009), on 7 December 2009, by section 28(2) of the Taxation (Consequential Rate Alignment and Re- medial Matters) Act 2009 (2009 No 63).

Section EX 21E(10)(ab): inserted (with effect on 1 July 2009 and applying for income years beginning on or after that date), on 7 May 2012, by section 27(3) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 21E(10)(d)(iii): amended (with effect on 30 June 2009), on 7 De- cember 2009, by section 28(3) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).

Section EX 21E list of deﬁned terms taxed CFC connection: inserted (with effect on 1 July 2009), on 7 May 2012, by section 27(4) of the Taxation (Inter- national Investment and Remedial Matters) Act 2012 (2012 No 34).
Non-attributing Australian CFCs Heading: substituted (with effect on 30 June 2009), on 6 October 2009, by section 163(1) of the Taxation (International Taxation, Life Insurance, and Re- medial Matters) Act 2009 (2009 No 34).
EX 22 Non-attributing Australian CFCs Criteria (1) A CFC is a non-attributing Australian CFC for an account- ing period if— (a) (iii) at all times in the accounting period the CFC is— (i) (ii) resident in Australia; and under Australian law, subject to income tax on its income or treated as part of the head company of a consolidated group subject to income tax on its income; and treated as being resident in Australia under all agreements between the government of Australia and the governments of other countries or terri- tories that would be a double tax agreement if between the government of New Zealand and the government of the other country or territory; and the CFC’s liability for income tax has not been reduced by— (i) an exemption from income tax for income de- rived from business activities carried on outside Australia: (b) 1203 Part E s EX 23 Income Tax Act 2007 Reprinted as at 30 August 2013 (2) (3) (ii) a special allowance, relief, or exemption with re- spect to offshore banking units.
No attributed CFC income or loss Sections CQ 2(1)(i) (When attributed CFC income arises) and DN 2(1)(i) (When attributed CFC loss arises) provide that no attributed CFC income or attributed CFC loss arises from a non-attributing Australian CFC.

CFCs with interest in FIF: look-through approach This section does not prevent FIF income or FIF loss arising under section EX 58 from an interest of a non-attributing Aus- tralian CFC in a FIF.
Deﬁned in this Act: accounting period, attributed CFC income, attributed CFC loss, CFC, double tax agreement, FIF, FIF income, FIF loss, income tax, non- attributing Australian CFC, resident in Australia Section EX 22: substituted (with effect on 30 June 2009), on 6 October 2009, by section 163(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
EX 23 Tax concession grey list CFCs [Repealed] Section EX 23: repealed (with effect on 30 June 2009), on 6 October 2009, by section 164(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Change of residence of companies EX 24 Companies moving to or from New Zealand Companies becoming foreign If a company becomes a foreign company, an accounting period of the company starts on the day when the company becomes a foreign company and the former accounting period ends on the previous day.
Companies ceasing to be foreign If a foreign company ceases to be a foreign company, an ac- counting period of the company starts on the day when the 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 (1) (2) (3) 1204 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EX 25 the CFC for the period may choose to calculate the branch equivalent income or loss of the CFC— (a) (b) using the results for the shortened period only; or by applying the pro-rating formula in subsection (4) to the results for the unshortened period.
(4) Formula The formula for calculating branch equivalent income or loss under subsection (3)(b) is— unshortened period branch equivalent income or loss × days in shortened period days in unshortened period.
Deﬁned in this Act: accounting period, attributed CFC income, branch equiva- lent income, CFC, company, foreign company, loss, New Zealand Compare: 2004 No 35 s EX 25 Change of CFC’s balance date EX 25 Change of CFC’s balance date (1) (2) (3) Application of this section This section applies when a person— (a) (b) has an income interest in a CFC; and has calculated attributed CFC income or loss or at- tributed repatriation from the CFC on the basis of 1 accounting year (the old accounting year); and wants to change to use a different accounting year (the new accounting year) for the calculations.
(c) Change requiring Commissioner’s consent The person may make the change only if the Commissioner agrees.
Commissioner’s reasons The Commissioner may consider any relevant factors when making the decision, including— (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: 1205 Part E s EX 26 Income Tax Act 2007 Reprinted as at 30 August 2013 (4) (c) whether the change is sought to achieve consistent bal- ance dates in a group of companies: (d) whether the change would postpone liability to income tax on attributed CFC income or on attributed repatri- ation.
No transitional deferral If the new accounting year ends in a later income year than the year the old accounting year ends in, and that fact would result in an amount of attributed CFC income or attributed repatriation being derived in the later income year, the amount is not deferred to the later income year and instead is treated as derived in the previous income year.

However, this subsection applies only once, in the year of the transition.
Deﬁned in this Act: accounting year, amount, attributed CFC income, attributed repatriation, business, CFC, Commissioner, group of companies, income inter- est, income tax, income year, loss Compare: 2004 No 35 s EX 26 Section EX 25(3)(d): substituted (with effect on 30 June 2009), on 6 October 2009, by section 165(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 25 list of deﬁned terms FDP: repealed (with effect on 30 June 2009), on 6 October 2009, by section 165(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Ownership measurement concession EX 26 Use of quarterly measurement Interests held at end of quarter In order to simplify the process of calculating a person’s con- trol interest or income interest in a foreign company, the per- son is treated as holding at all times during a quarter the same interest, including a zero interest, as the interest they hold at the end of the quarter.
Anti-avoidance The concession in subsection (1) is overridden by the anti- avoidance rules in sections GB 9 to GB 16 (which relate to arrangements involving CFCs).

(1) (2) 1206 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EX 28 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)— (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: 2004 No 35 s EX 27 Anti-avoidance rule: stapled stock EX 27 Anti-avoidance rule: stapled stock (1) When this section applies This section applies when— (a) a New Zealand resident holds rights (the stapled rights) that give rise to an income interest or control interest in a foreign company; and the rights may, or may ordinarily, be disposed of only together with rights in another company; and the other company is a New Zealand resident or a CFC.
(b) (c) Stapled rights held by company (2) When each of subparts CQ (Attributed income from foreign equity) and DN (Attributed losses from foreign equity) and this subpart is applied, the stapled rights are held by the other company and not by the person.

Deﬁned in this Act: CFC, company, control interest, foreign company, income interest, New Zealand resident Compare: 2004 No 35 s EX 28 Foreign investment fund (FIF) rules What is a foreign investment fund?
EX 28 Meaning of FIF A foreign investment fund, or FIF, is any of the following (a) a foreign company: 1207 Part E s EX 29 Income Tax Act 2007 Reprinted as at 30 August 2013 (b) (c) (d) a foreign superannuation scheme: an insurer under a life insurance policy, but not if the policy is offered or entered into in New Zealand (in which case the insurer must comply with the life insur- ance rules in relation to the policy): an entity described in schedule 25, part A (Foreign in- vestment funds).
Deﬁned in this Act: FIF, foreign company, foreign investment fund, foreign superannuation scheme, life insurance policy, life insurance rules, offered or entered into in New Zealand Compare: 2004 No 35 s EX 29 Attributing interests in FIFs EX 29 Attributing interests in FIFs Three categories (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 31 to EX 43 applies to those rights.
Category 1: direct income interest in foreign company The ﬁrst category is a direct income interest, as deﬁned in sec- tion EX 30, in a foreign company or in an entity described in schedule 25, part A (Foreign investment funds).

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

Contingent rights The second and third categories include rights that are contin- gent or discretionary.
Deﬁned in this Act: attributing interest, direct income interest, FIF, foreign company, foreign superannuation scheme, life insurance policy Compare: 2004 No 35 s EX 30 Section EX 29(1)(b): amended (with effect on 1 April 2008), on 6 October 2009, by section 166 of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
(2) (3) (4) (5) 1208 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EX 30 EX 30 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— (a) (b) any of the shares in the foreign company: any of the shareholder decision-making rights for the company: a right to receive, or to apply, any of the income of the company for the accounting period in which the time falls: a right to receive, or to apply, any of the value of the net assets of the company, if they are distributed.
(c) (d) (2) 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 YA 1 (Deﬁnitions), the highest percentage is taken.
Income distribution rights: assumptions (6) When the direct income interest in the category in subsection (1)(c) is calculated, it is assumed that— (a) the income is distributed on the last day of the account- ing period; and the person’s entitlement is unchanged during the period; and (b) 1209 Part E s EX 31 Income Tax Act 2007 Reprinted as at 30 August 2013 (7) (8) (c) a payment of interest on a debenture subject to sec- tion FA 2 (Recharacterisation of certain debentures) or FA 2B (Stapled debt securities) is a distribution of in- come.
Meaning of company In this section, and in deﬁned terms referred to in this section, company includes an entity listed in schedule 25, part A (For- eign investment funds).

Partnerships In this section, if a partnership holds any rights, each partner is treated as holding a share of those rights in proportion to the partner’s interest in the partnership.
Deﬁned in this Act: accounting period, available subscribed capital, company, debentures, direct income interest, FIF, foreign company, income, interest, pay, share, shareholder decision-making right, slice rule Compare: 2004 No 35 s EX 31 Section EX 30(6)(c): amended (with effect on 1 April 2008), on 6 October 2009, by section 167 of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
EX 31 Exemption for ASX-listed Australian companies Exemption (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).
Australian listed company on approved index The company must— (a) at all times in the year when the person holds a right in the company, be resident in Australia; and at all times in the year when the person holds a right in the company, not be treated as resident in a country other than Australia under an agreement that— (i) is between Australia and that other country; and (c) (b) (2) 1210 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EX 31 (c) (d) (e) (ii) would be a double tax agreement if negotiated be- tween New Zealand and that other country; and have shares included in an index that is an approved index under the ASX Operating Rules— (i) at the beginning of an income year, if subpara- graphs (ii) and (iii) do not apply; or (iii) (ii) when the person acquires the shares, if the person does not own shares in the company earlier in the year; or at the beginning of the ﬁnal month of the preced- ing income year if, in the ﬁrst month of an income year, the shares are cancelled or transferred under a scheme of arrangement entered into under Part 5.1 of the Corporations Act 2001 (Aust); and at all times in the year when the person holds a right in the company, not be an entity described in schedule 25, part B (Foreign investment funds); and at all times in the year when the person holds a right in the company, be required under the Income Tax Assess- ment Act 1997 (Aust) and Income Tax Assessment Act 1936 (Aust) to maintain a franking account.
Deﬁned in this Act: attributing interest, cancellation, company, double tax agreement, FIF, income year, resident in Australia, resident in New Zealand, share, year Compare: 2004 No 35 s EX 33C Section EX 31(1) heading: inserted, on 1 April 2008, by section 385(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section EX 31(1): substituted, on 1 April 2008, by section 385(1) of the Taxa- tion (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EX 31(2) heading: inserted, on 1 April 2008, by section 385(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section EX 31(2): inserted, on 1 April 2008, by section 385(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section EX 31(2)(c): amended (with effect on 1 August 2010), on 2 November 2012, by section 45 of the Taxation (Annual Rates, Returns Filing, and Remed- ial Matters) Act 2012 (2012 No 88).
Section EX 31(2)(c)(i): amended (with effect on 1 April 2008), on 6 October 2009, by section 168(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section EX 31(2)(c)(ii): amended (with effect on 1 April 2008), on 6 October 2009, by section 168(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
1211 Part E s EX 32 Income Tax Act 2007 Reprinted as at 30 August 2013 Section EX 31(2)(c)(iii): added (with effect on 1 April 2008), on 6 October 2009, by section 168(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section EX 31 list of deﬁned terms cancellation: inserted (with effect on 1 April 2008), on 6 October 2009, by section 168(3) of the Taxation (International Tax- ation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 31 list of deﬁned terms direct income interest: repealed, on 1 April 2008, by section 385(2) of the Taxation (Business Taxation and Remedial Mat- ters) Act 2007 (2007 No 109).

Section EX 31 list of deﬁned terms income tax: repealed, on 1 April 2008, by section 385(2) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
EX 32 Exemption for Australian unit trusts with adequate turnover or distributions Exemption (1) A person’s rights in a FIF in an income year are not an attribut- ing interest if— (a) (b) (c) the rights are a direct income interest; and the FIF is a unit trust; and at all times in the year when the person holds a right in the unit trust, the unit trust is resident in Australia; and at all times in the year when the person holds a right in the unit trust, the unit trust is not treated as resident in a country other than Australia under an agreement that— (i) is between Australia and that other country; and (ii) would be a double tax agreement if negotiated be- tween New Zealand and that other country; and the unit trust is, at all times in the year, not an entity described in schedule 25, part B (Foreign investment funds); and at all times in the year when the unit trust makes a dis- tribution to investors, there is an RWT proxy under sec- tion 15N of the Tax Administration Act 1994 for the unit trust and payments by the unit trust to the person; and for the trust’s accounting year (the trust’s year) that ends in the person’s income year, the unit trust meets— the 25% minimum share turnover test in subsec- (i) tion (2): the 70% minimum distribution test in subsection (7).
(ii) (d) (e) (f) (g) 1212 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EX 32 (2) (3) (4) (5) (6) (7) (8) 25% minimum turnover test The 25% minimum turnover test requires that, for the trust’s year, the amount of total net realised gains calculated under subsection (3) must be 25% or more of the amount of total net unrealised gains at the end of the year calculated under subsection (5).
Calculation of total net realised gains The amount of total net realised gains is calculated using the formula— total disposal gain total cost.

 Deﬁnition of items in formula In the formula in subsection (3),— (a) total disposal gain is the total of amounts derived from disposal of shares by the unit trust during the trust’s year: total cost is the total cost to the unit trust of those shares.
(b) Calculation of total net unrealised gains The amount of total net unrealised gains is calculated using the formula— total proﬁtable shares total cost.
Deﬁnition of items in formula In the formula in subsection (5),— (a) total proﬁtable shares is the total of the market values of shares of the unit trust that are— (i) (ii) held at the end of the trust’s year; and have a market value greater than or equal to their cost to the unit trust: (b) total cost is the total cost to the unit trust of those shares.
70% minimum distribution test The 70% minimum distribution test requires that, for the trust’s year, the total amount of distributions by the unit trust during the trust’s year must be 70% or more of the total distributable gains for the trust’s year calculated under subsection (8).
Calculation of total distributable gains The amount of total distributable gains is calculated using the formula— 1213 Part E s EX 33 Income Tax Act 2007 Reprinted as at 30 August 2013 closing equity + distributions opening equity contributions.
(9) Deﬁnition of items in formula In the formula in subsection (8),— (a) closing equity is the amount by which, at the end of the trust’s year, the market value of the unit trust’s assets is more than the market value of the unit trust’s liabilities: distributions is the total amount of distributions to in- vestors by the unit trust during the trust’s year: opening equity is the amount by which, at the begin- ning of the trust’s year, the market value of the unit trust’s assets is more than the market value of the unit trust’s liabilities: contributions is the total amount of contributions by investors to the unit trust during the trust’s year.
(b) (c) (d) Currency (10) The calculations must be done in the currency of the unit trust’s ﬁnancial accounts.

Deﬁned in this Act: accounting year, attributing interest, company, direct in- come interest, FIF, income year, resident in Australia, resident in New Zealand, RWT proxy, share, unit trust, year Compare: 2004 No 35 s EX 33D Section EX 32: substituted, on 1 April 2008, by section 386 of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EX 32(1)(f): amended (with effect on 1 April 2008), on 7 December 2009, by section 29(1) of the Taxation (Consequential Rate Alignment and Re- medial Matters) Act 2009 (2009 No 63).

Section EX 32(9)(d): amended (with effect on 1 April 2008), on 6 October 2009, by section 169(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
EX 33 Exemption for Australian regulated superannuation savings A person’s rights in a FIF are not an attributing interest if— (a) (b) the person is a natural person; and the FIF is a foreign superannuation scheme that is— an Australian approved deposit fund: (i) an Australian exempt public sector superannu- (ii) ation scheme: an Australian regulated superannuation fund: (iii) 1214 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EX 35 (iv) an Australian retirement savings account.
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, FIF, foreign superannu- ation scheme Compare: 2004 No 35 s EX 33E EX 34 CFC rules exemption A person’s rights in a FIF at any time are not an attributing interest if— (a) (b) the FIF is a CFC at the time; and the person has, under sections EX 14 to EX 17, an in- come interest of 10% or more in the CFC for the ac- counting period during which the time falls; and the person is not a portfolio investment entity.
(c) Deﬁned in this Act: accounting period, attributing interest, CFC, FIF, income interest, portfolio investment entity Compare: 2004 No 35 s EX 32 Section EX 34(b): amended (with effect on 1 July 2011 and applying for in- come years beginning on or after that date), on 7 May 2012, by section 28(1) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 34(b): amended (with effect on 1 April 2008), on 6 October 2009, by section 170 of the Taxation (International Taxation, Life Insurance, and Re- medial Matters) Act 2009 (2009 No 34).

Section EX 34(c): inserted (with effect on 1 July 2011 and applying for in- come years beginning on or after that date), on 7 May 2012, by section 28(1) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 34 list of deﬁned terms portfolio investment entity: inserted (with effect on 1 July 2011), on 7 May 2012, by section 28(2) of the Taxation (Inter- national Investment and Remedial Matters) Act 2012 (2012 No 34).
EX 35 Exemption for interest in FIF resident in Australia A person’s rights in a FIF in an income year are not an attribut- ing interest if,— (a) at all times in the year, the item income interest calcu- lated under section EX 50(4) for the person and the FIF is 10% or more; and at all times in the year, the FIF is— (i) resident in Australia; and (b) 1215 Part E s EX 36 Income Tax Act 2007 Reprinted as at 30 August 2013 (ii) (iii) under Australian law, subject to income tax on its income or treated as part of the head company of a consolidated group subject to income tax on its income; and treated as being resident in Australia under all agreements between the Government of Aus- tralia and the governments of other territories that would be a double tax agreement if between the Government of New Zealand and the govern- ment of the other country or territory; and the FIF’s liability for income tax for the income year is not reduced by— (i) an exemption from income tax for income de- rived from business activities carried on outside Australia: a special allowance, relief, or exemption with re- spect to offshore banking units; and (ii) at all times in the year, the person is none of the follow- ing: (i) (ii) (iii) (iv) (v) a portfolio investment entity: a superannuation scheme: a unit trust: a life insurer: a group investment fund.
(c) (d) Deﬁned in this Act: attributing interest, direct income interest, double tax agree- ment, FIF, group investment fund, income tax, income year, life insurer, port- folio investment entity, resident in Australia, superannuation scheme, unit trust Section EX 35: replaced (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 29(1) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 35(a): replaced (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 2 November 2012, by section 46(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
EX 36 Venture capital company emigrating to grey list country: 10-year exemption A person’s rights in a FIF in an income year are not an attribut- ing interest if— (a) the rights are a direct income interest; and 1216 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EX 36 (b) (c) (d) (e) (f) (g) (h) the FIF is a grey list company; and the FIF is not an entity described in schedule 25, part B (Foreign investment funds); and the person has held shares in the company at all times after a time when— (i) (ii) the company was resident in New Zealand; and the shares were not listed on a recognised ex- change; and the company became a grey list company immediately after having, for 12 months or more,— (i) (ii) carried on business in New Zealand; and had in New Zealand more than 50% of its assets; and had in New Zealand more than 50% of its em- ployees; and (iii) the year begins less than 10 years after the company became a grey list company; and at all times in the year, the company has a ﬁxed estab- lishment in New Zealand; and the company through the ﬁxed establishment— (i) incurs in the year, expenditure other than interest of at least $1,000,000 or, if less than $1,000,000, at least 25% of the total expenditure, other than interest, incurred by the company in the year; and at all times in the year, engages at least 10 full- time employees or contractors or, if less than 10, at least 25% of the total number engaged by the company.
(ii) Deﬁned in this Act: attributing interest, company, direct income interest, em- ployee, FIF, ﬁxed establishment, grey list company, income year, interest, New Zealand resident, recognised exchange, share, year Compare: 2004 No 35 s EX 33(3) Section EX 36(d): amended, on 1 April 2008, by section 387(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EX 36(e)(i): substituted, on 1 April 2008, by section 387(2) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section EX 36(h)(i): substituted, on 1 April 2008, by section 387(3) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section EX 36(h)(ii): substituted, on 1 April 2008, by section 387(3) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
1217 Part E s EX 37 Income Tax Act 2007 Reprinted as at 30 August 2013 EX 37 Grey list company owning New Zealand venture capital (d) (e) (f) (g) company: 10-year exemption A person’s rights in a FIF in an income year are not an attribut- ing interest if— (a) (b) (c) the rights are a direct income interest; and the FIF is a grey list company; and the FIF is not an entity described in schedule 25, part B (Foreign investment funds); and the person has held shares in the grey list company at all times after a time when the shares were not listed on a recognised exchange; and at all times in the year, the grey list company holds more than 50% of the voting interests in a company resident in New Zealand (the resident company) that, for 12 months or more, has— (i) (ii) carried on a business in New Zealand; and had in New Zealand more than 50% of the resi- dent company’s assets; and had in New Zealand more than 50% of the resi- dent company’s employees; and (iii) 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, of at least $1,000,000 or, if less than $1,000,000, at least 25% of the total expenditure, other than interest, incurred by the company in the year: at all times in the year, engages at least 10 full- time employees or contractors or, if less than 10, at least 25% of the total number engaged by the company.
(ii) Deﬁned in this Act: attributing interest, company, direct income interest, em- ployee, FIF, ﬁxed establishment, grey list company, income year, interest, New Zealand resident, recognised exchange, share, voting interest, year Compare: 2004 No 35 s EX 33(4) Section EX 37(d): substituted, on 1 April 2008, by section 388(1) of the Taxa- tion (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
1218 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EX 38 Section EX 37(e): substituted, on 1 April 2008, by section 388(2) of the Taxa- tion (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section EX 37(e): amended (with effect on 1 April 2008), on 6 October 2009, by section 171(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 37(f): substituted (with effect on 1 April 2008), on 6 October 2009, by section 171(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section EX 37(g)(i): substituted, on 1 April 2008, by section 388(3) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section EX 37(g)(ii): substituted, on 1 April 2008, by section 388(3) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EX 37 list of deﬁned terms voting interest: inserted (with effect on 1 April 2008), on 6 October 2009, by section 171(3) of the Taxation (Inter- national Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
EX 37B Share in grey list company acquired under venture investment agreement A person’s rights in a FIF in an income year are not an attribut- ing interest if— (a) (b) the FIF is a grey list company; and the person ﬁrst acquires a share or option to buy a share in the company— (i) (ii) under a venture investment agreement; and at the same time and on the same terms as an acquisition of an interest in the FIF by the Ven- ture Investment Fund or a company owned by the Venture Investment Fund.
Deﬁned in this Act: attributing interest, company, FIF, grey list company, in- come year, share Compare: 2004 No 35 s EX 37(4B) Section EX 37B: inserted, on 1 April 2008, by section 389 of the Taxation (Busi- ness Taxation and Remedial Matters) Act 2007 (2007 No 109).
EX 38 Exemption for employee share purchase scheme of grey list company A person’s rights in a FIF in an income year are not an attribut- ing interest if— (a) (b) (c) the person is a natural person; and the rights are a direct income interest; and the FIF is a grey list company; and 1219 Part E s EX 39 Income Tax Act 2007 Reprinted as at 30 August 2013 (d) (e) (f) (g) (h) the FIF is not an entity described in schedule 25, part B (Foreign investment funds); and at the time the person acquires the shares, the FIF— (i) (ii) employs the person: owns, directly or indirectly, the person’s em- ployer; and the person acquires the shares under a share purchase agreement; and the share purchase agreement includes a restriction on the disposal of the shares; and at the beginning of the year, the period of the restric- tion— (i) (ii) has not expired: has expired for a period of less than 6 months.
Deﬁned in this Act: attributing interest, company, direct income interest, em- ployer, FIF, grey list company, share, share purchase agreement, year Compare: 2004 No 35 s EX 33(5) Section EX 38(g): substituted (with effect on 1 April 2008), on 6 October 2009, by section 172 of the Taxation (International Taxation, Life Insurance, and Re- medial Matters) Act 2009 (2009 No 34).
EX 39 Terminating exemption for grey list company with numerous New Zealand shareholders [Repealed] Section EX 39: repealed (with effect on 1 October 2011), on 2 November 2012 (applying for the 2012–13 and later income years), by section 47(1) of the Tax- ation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
EX 40 Foreign exchange control exemption A person’s rights in a FIF are not an attributing interest if and to the extent to which— (a) (b) the person is a natural person; and the person acquired the rights— (i) (ii) before ﬁrst becoming a New Zealand resident; or before exchange controls applying to the person and the interest were imposed by a foreign coun- try; or before 8.00 pm New Zealand Standard Time on 2 July 1992; and (iii) 1220 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EX 42 (c) the exchange controls prevent the person from deriving amounts from the rights, or from disposing of the rights, in New Zealand dollars, or consideration that is readily convertible into New Zealand dollars.
Deﬁned in this Act: amount, attributing interest, FIF, New Zealand, New Zealand resident Compare: 2004 No 35 s EX 34 EX 41 Income interest of non-resident or transitional resident (1) Categories 2 and 3 Subsection (2) applies only to rights described in section EX 29(3) or (4).
Exemption for non-resident or transitional resident (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: 2004 No 35 s EX 35 EX 42 New resident’s accrued superannuation entitlement exemption (1) Exemption The rights of a natural person to beneﬁt, as a beneﬁciary or a member, from a foreign superannuation scheme at any time are not an attributing interest in a FIF— (a) to the extent to which the requirements of subsection (2) are met at the time; and if the requirements of subsections (5) to (9) are met at the time.
(b) (2) Requirements for accrual of rights The rights must have accrued— (a) when the person is not a New Zealand resident: 1221 Part E s EX 42 Income Tax Act 2007 Reprinted as at 30 August 2013 (b) during a period for which the person is a New Zealand resident 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) (c) as a result of rights that satisfy paragraph (a) or (b).
Calculation of rights accruing [Repealed] [Repealed] Deﬁnition of items in formula [Repealed] [Repealed] Employee scheme or self-employed Either— (a) (b) the scheme must be one where the person’s rights can be acquired only through the person’s employment; or the person must be wholly or mainly self-employed, either when the person ﬁrst acquired the rights or at the relevant time for applying this section.
Contributions or beneﬁts: link to income The amount contributed to the scheme by or for the person must be calculated— (a) by some ﬁxed relationship to the person’s income from employment or self-employment; or to provide beneﬁts that bear a ﬁxed relationship to the person’s income from employment or self-employment, except to the extent to which the beneﬁts are adjusted by reference to an objective measure of inﬂation.
(b) Contributions by person, employer, or other scheme Contributions to the scheme for the person’s beneﬁt must be made only by or for— (a) (b) the person; or the person’s employer, or a person associated with the employer; or the representatives of another superannuation scheme— (3) (4) (5) (6) (7) (c) 1222 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EX 42 (i) (ii) as a transfer of the person’s beneﬁt rights in the other scheme; and if those beneﬁt rights would have qualiﬁed for the exemption in this section.
(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 relationship agreement; or at the cost of a substantial decrease in the present value of the beneﬁts.
(c) (d) (e) Relationship property assignment (9) When the person has obtained the rights by their being as- signed under a relationship agreement, the exemption in this section applies if the assignor spouse would have been entitled to it.
Deﬁned in this Act: amount, associated person, attributing interest, employer, FIF, foreign superannuation scheme, income, income from employment, market value, New Zealand resident, relationship agreement, superannuation scheme Compare: 2004 No 35 s EX 36 Section EX 42(1)(a): amended, on 7 May 2012, by section 30(1) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 42(2) heading: replaced, on 7 May 2012, by section 30(2) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).

Section EX 42(2): replaced, on 7 May 2012, by section 30(2) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).

Section EX 42(3) heading: repealed, on 7 May 2012, pursuant to section 30(3) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 42(3): repealed, on 7 May 2012, by section 30(3) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).

Section EX 42(4) heading: repealed, on 7 May 2012, pursuant to section 30(3) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
1223 Part E s EX 43 Income Tax Act 2007 Reprinted as at 30 August 2013 Section EX 42(4): repealed, on 7 May 2012, by section 30(3) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).

EX 43 Non-resident’s pension or annuity exemption Exemption The rights of a natural person to beneﬁt from a pension or annuity provided by a FIF are not an attributing interest if the requirements of subsections (2) and (3) are met.
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 relationship 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) (b) the rights were acquired before the 1996–97 income year; and the person chose to treat the rights as an interest in a for- eign investment fund for the 1996–97 income year and later income years by complying with the requirements of section CG 15(4) of the Income Tax Act 1994.
Deﬁned in this Act: attributing interest, FIF, foreign investment fund, income year, matrimonial agreement New Zealand resident, non-resident, relationship agreement, resident in New Zealand, superannuation fund, year Compare: 2004 No 35 s EX 37 (1) (2) (3) (4) 1224 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EX 44 Calculation of FIF income or loss EX 44 Five calculation methods (1) (2) Use of 1 method If the tests in section CQ 5 (When FIF income arises) or DN 6 (When FIF loss arises) are met, the amount of a person’s FIF income or loss is calculated under— (a) (b) (c) (d) (e) (f) [Repealed] the attributable FIF income method; or the comparative value method; or the deemed rate of return method; or the fair dividend rate method; or the cost method.
Choosing method The person must choose which calculation method applies by completing their return of income accordingly, but the choice is limited by sections EX 46, EX 47, EX 48, and EX 62.
Deﬁned in this Act: amount, attributable FIF income method, calculation method, comparative value method, cost method, deemed rate of return method, fair dividend rate, FIF income, loss, return of income Compare: 2004 No 35 s EX 38 Section EX 44 heading: amended (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 31(1) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 44(1)(a): repealed (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 31(2) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).

Section EX 44(1)(b): replaced (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 31(3) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 44 list of deﬁned terms accounting proﬁts method: repealed (with effect on 1 July 2011), on 7 May 2012, by section 31(4)(a) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).

Section EX 44 list of deﬁned terms attributable FIF income method: inserted (with effect on 1 July 2011), on 7 May 2012, by section 31(4)(b) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 44 list of deﬁned terms branch equivalent method: repealed (with effect on 1 July 2011), on 7 May 2012, by section 31(4)(a) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
1225 Part E s EX 45 Income Tax Act 2007 Reprinted as at 30 August 2013 EX 45 Exclusion of amounts of death beneﬁt No FIF income (1) When this section applies, a person is treated as not deriving FIF income to the extent to which the income arises solely from receiving a death beneﬁt under a life insurance policy.
(2) (3) Application of this section: contract before becoming resident This section applies if— (a) the person or the deceased (the contracting party), when not a New Zealand resident, entered into a bind- ing contract that gave rise to the beneﬁt; and at the time the contract was entered into, the contract- ing party either had not previously been a New Zealand resident or had not been a resident for at least the 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: 2004 No 35 s EX 39 EX 46 Limits on choice of calculation methods Same method for same FIF If a person has 2 or more attributing interests in the same FIF for the same period, the person must use the same calculation method for calculating FIF income or loss from each interest in that period, except to the extent to which— the interests are of different classes; and (a) this section prevents the same method being used.
(b) Accounting proﬁts method (1) 1226 Reprinted as at 30 August 2013 [Repealed] [Repealed] (2) Income Tax Act 2007 Part E s EX 46 Attributable FIF income method (3) A person may use the attributable FIF income method to cal- culate FIF income or loss from an attributing interest in a FIF for an accounting period only if the person can provide to the Commissioner, if requested, sufﬁcient information to enable the Commissioner to check the calculations required by sec- tion EX 50 and,— (a) (b) at all times in the accounting period,— the FIF is a company; and (i) the item “income interest” given by section (ii) EX 50(4) for the person and the FIF is 10% or more; and the person is not a portfolio investment entity: (iii) the FIF is a CFC and the person cannot determine the market value of the attributing interest at the beginning of the accounting period except by independent valu- ation and neither the person nor a person who has a di- rect income interest of 10% or more in the FIF is— (i) (ii) (iii) (iv) (v) (vi) a listed company: a group investment fund: a portfolio investment entity: a superannuation scheme: a unit trust: a trustee of a trust with a beneﬁciary described in 1 or more of subparagraphs (i) to (iv).
Deemed rate of return method: general rule [Repealed] [Repealed] (4) Deemed rate of return method (5) A person may use the deemed rate of return method to calcu- late FIF income or loss from an attributing interest in a FIF only if the person is required by section EX 47 to use the deemed rate of return method for the interest.
1227 Part E s EX 46 Income Tax Act 2007 Reprinted as at 30 August 2013 Comparative value method: shares in foreign companies (6) A person may use the comparative value method to calculate FIF income or loss from an attributing interest in a FIF that is a share in a foreign company for an income year only if— (a) (b) the person is a natural person: the person is the trustee of a trust that— (i) (ii) (iii) has no gifting settlor who is not a natural person or deceased person; and at all times in the income year, is a complying trust for a distribution made at the time; and is, at all times in the income year, mainly for the beneﬁt of a natural person for whom the gifting settlors of the trust have natural love and affection (or had natural love and affection when alive) or is mainly for the beneﬁt of an organisation or trust with income that is exempt income under section CW 41 or CW 42 (which relate to the income of charities); and is not a superannuation scheme: (c) (d) (iv) [Repealed] the share is a non-ordinary share described in subsection (10).
Fair dividend rate method: shares in foreign companies [Repealed] [Repealed] (7) Fair dividend rate method: exemption for shares in foreign companies (8) A person must not use the fair dividend rate method to calcu- late FIF income or loss from an attributing interest in a FIF that is a share in a foreign company for an income year if— (a) the share is a non-ordinary share described in subsection (10): the person chooses to use the comparative value method for another attributing interest that is a share in a foreign company and for which the person would be allowed, in the absence of this paragraph, to use the fair dividend rate method.
(b) 1228 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EX 46 Cost method for shares in foreign companies (9) A person may use the cost method to calculate FIF income or loss from an attributing interest in a FIF that is a share in a foreign company only if— (a) (b) [Repealed] 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.
Certain non-ordinary shares (10) For the purposes of subsections (6)(d) and (8)(a), a non-ordin- ary share in a foreign company is— (a) (b) (c) a ﬁxed-rate share: a non-participating redeemable share: an interest in a non-resident holding directly or indi- rectly assets of which 80% or more by value at a time in the income year— (i) consist of ﬁxed-rate foreign equities, or ﬁnancial arrangements providing funds to a person; and are denominated in New Zealand dollars or, under NZIAS 39, are hedged items having a value in New Zealand dollars governed by a hedging instrument that is highly effective: (ii) (cb) an interest in a non-resident if— (i) the non-resident holds directly or indirectly as- sets of which 80% or more by value at a time in the income year consist of ﬁxed-rate foreign equities or ﬁnancial arrangements providing funds to a person ignoring ﬁnancial arrangements between the non-resident and other members of a group of companies that it is a member of; and the non-resident is not listed on a recognised exchange or is listed on a recognised exchange but is a foreign PIE equivalent, ignoring section HL 10(4) (Further eligibility requirements relat- ing to investments) for the purposes of this sub- paragraph; and (ii) 1229 Part E s EX 46 Income Tax Act 2007 Reprinted as at 30 August 2013 (iii) the interest is, under NZIAS 39, a hedged item having a value in New Zealand dollars governed by a hedging instrument that is highly effective: (d) (e) (ii) a share that involves an obligation— (i) of another person to provide to the investor, di- rectly or indirectly through an arrangement, an amount that is more than the issue price of the share; and that is non-contingent or subject to a contingency that is sufﬁciently remote to be immaterial: a share of a kind that the Commissioner determines under section 91AAO of the Tax Administration Act 1994 to be an interest for which the fair dividend rate method is not available.
Commissioner’s determination overriding subsection (10)(a) to (d) (11) Subsection (10)(a) to (d) does not apply to a share if the Com- missioner determines under section 91AAO of the Tax Admin- istration Act 1994 that the share is an interest for which the fair dividend rate is available.
Meaning of gifting settlor (12) A gifting settlor, for a trust (the relevant trust), means a per- son who— (a) makes a transfer of value, by disposing of property, to the trustee of— (i) (ii) the relevant trust: a trust with a trustee who settles property on the relevant trust, directly or through the trustees of other trusts; and is not the trustee of a trust.
(b) Deﬁned in this Act: accounting period, accounting proﬁts method, amount, at- tributable FIF income method, attributing interest, calculation method, Com- missioner, company, comparative value method, complying trust, cost method, deemed rate of return method, direct income interest, exempt income, fair divi- dend rate method, FIF, FIF income, ﬁnancial arrangement, ﬁxed-rate foreign equity, foreign company, foreign PIE equivalent, generally accepted accounting practice, grey list company, income, income year, loss, market value, PIE, port- folio investment entity, recognised exchange, share, shareholder, superannu- ation scheme, tax, trustee Compare: 2004 No 35 s EX 40 1230 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EX 46 Section EX 46(2) heading: repealed (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, pursuant to section 32(1) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 46(2): repealed (with effect on 1 July 2011 and applying for in- come years beginning on or after that date), on 7 May 2012, by section 32(1) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).

Section EX 46(3) heading: replaced (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 32(2) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 46(3): replaced (with effect on 1 July 2011 and applying for in- come years beginning on or after that date), on 7 May 2012, by section 32(2) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).

Section EX 46(4) heading: repealed (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, pursuant to section 32(3) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 46(4): repealed (with effect on 1 July 2011 and applying for in- come years beginning on or after that date), on 7 May 2012, by section 32(3) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).

Section EX 46(5) heading: replaced (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 32(4) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 46(5): replaced (with effect on 1 July 2011 and applying for in- come years beginning on or after that date), on 7 May 2012, by section 32(4) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).

Section EX 46(6)(b): substituted, on 1 April 2008, by section 392(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EX 46(6)(b)(iii): amended (with effect on 1 April 2008), on 6 October 2009, by section 173(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section EX 46(6)(b)(iv): added (with effect on 1 April 2008), on 6 October 2009, by section 173(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 46(6)(c): repealed (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 32(5) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).

Section EX 46(6)(d): substituted (with effect on 1 April 2008), on 6 October 2009, by section 173(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
1231 Part E s EX 46 Income Tax Act 2007 Reprinted as at 30 August 2013 Section EX 46(7) heading: repealed (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, pursuant to section 32(6) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 46(7): repealed (with effect on 1 July 2011 and applying for in- come years beginning on or after that date), on 7 May 2012, by section 32(6) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).

Section EX 46(8): amended (with effect on 1 July 2011 and applying for in- come years beginning on or after that date), on 7 May 2012, by section 32(7) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 46(8)(a): substituted (with effect on 1 April 2008), on 6 October 2009, by section 173(5) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section EX 46(9)(a): repealed (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 32(8) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 46(10) heading: substituted (with effect on 1 April 2008), on 6 Oc- tober 2009, by section 173(6) of the Taxation (International Taxation, Life In- surance, and Remedial Matters) Act 2009 (2009 No 34).

Section EX 46(10): amended (with effect on 1 April 2008), on 6 October 2009, by section 173(7) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 46(10)(a): substituted (with effect on 30 June 2009), on 29 August 2011, by section 39(1) of the Taxation (Tax Administration and Remedial Mat- ters) Act 2011 (2011 No 63).

Section EX 46(10)(c): substituted, on 1 April 2008, by section 392(2) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EX 46(10)(c)(i): amended (with effect on 1 April 2009), on 7 Decem- ber 2009, by section 30 of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).

Section EX 46(10)(cb): inserted (with effect on 1 April 2009), on 6 October 2009, by section 173(9) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 46(10)(cb)(i): amended (with effect on 1 April 2009), on 7 Decem- ber 2009, by section 30 of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).

Section EX 46(10)(cb)(ii): amended, on 1 April 2010 (applying for the 2010–11 and later income years), by section 173(10) of the Taxation (International Tax- ation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 46(11) heading: amended, on 1 April 2008, by section 392(3) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section EX 46(11): amended, on 1 April 2008, by section 392(3) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
1232 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EX 47 Section EX 46(12) heading: added, on 1 April 2008, by section 392(4) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section EX 46(12): added, on 1 April 2008, by section 392(4) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EX 46 list of deﬁned terms attributable FIF income method: inserted (with effect on 1 July 2011), on 7 May 2012, by section 32(9)(b) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).

Section EX 46 list of deﬁned terms branch equivalent method: repealed (with effect on 1 July 2011), on 7 May 2012, by section 32(9)(a) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 46 list of deﬁned terms ﬁxed-rate foreign equity: inserted (with effect on 1 January 2009), on 6 October 2009, by section 173(13) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section EX 46 list of deﬁned terms foreign investment vehicle: repealed, on 1 April 2010, by section 173(12)(a) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 46 list of deﬁned terms foreign PIE: repealed (with effect on 1 April 2008), on 6 October 2009, by section 173(11)(a) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section EX 46 list of deﬁned terms foreign PIE equivalent: inserted, on 1 April 2010, by section 173(12)(b) of the Taxation (International Taxation, Life Insur- ance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 46 list of deﬁned terms PIE: inserted, on 1 April 2010, by section 173(12)(b) of the Taxation (International Taxation, Life Insurance, and Remed- ial Matters) Act 2009 (2009 No 34).
EX 47 Method required for certain non-ordinary shares A person must calculate FIF income or loss for an income year from an attributing interest that is a non-ordinary share described in section EX 46(10) using— the comparative value method; or (a) the deemed rate of return method, if use of the com- (b) parative value method is not practical because the per- son cannot determine the market value of the attributing interest at the end of the income year.
Deﬁned in this Act: attributing interest, comparative value method, deemed rate of return method, fair dividend rate method, FIF income, FIF loss, income year, market value, share Section EX 47: substituted (with effect on 1 April 2008), on 6 October 2009, by section 174 of the Taxation (International Taxation, Life Insurance, and Re- medial Matters) Act 2009 (2009 No 34).
1233 Part E s EX 48 Income Tax Act 2007 Reprinted as at 30 August 2013 EX 48 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 46, EX 47, and EX 62 do not have the effect of requiring a particular calculation method to be used.
(b) Default choice The person is treated as having chosen to use, for the period,— the fair dividend rate method if it is practical to use it; (a) and the cost method if it is not practical to use the fair divi- dend rate method.
(b) Deﬁned in this Act: attributing interest, calculation method, cost method, direct income interest, fair dividend rate method, FIF income, foreign company, loss Compare: 2004 No 35 s EX 41 Section EX 48(2) heading: replaced (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 33(1) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 48(2): replaced (with effect on 1 July 2011 and applying for in- come years beginning on or after that date), on 7 May 2012, by section 33(1) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).

Section EX 48 list of deﬁned terms accounting proﬁts method: repealed (with effect on 1 July 2011), on 7 May 2012, by section 33(2) of the Taxation (Inter- national Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 48 list of deﬁned terms comparative value method: repealed (with effect on 1 July 2011), on 7 May 2012, by section 33(2) of the Taxation (Inter- national Investment and Remedial Matters) Act 2012 (2012 No 34).

Section EX 48 list of deﬁned terms deemed rate of return method: repealed (with effect on 1 July 2011), on 7 May 2012, by section 33(2) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
EX 49 Accounting proﬁts method [Repealed] Section EX 49: repealed (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 34(1) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
1234 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EX 50 EX 50 Attributable FIF income method (1) Formula If a person is using the attributable FIF income method to calculate FIF income or loss from an attributing interest in a FIF, the total FIF income or loss from all their attributing inter- ests in the FIF for the relevant accounting period is calculated using the formula— net attributable FIF income or loss × income interest.
(2) Deﬁnition of items in formula The items in the formula in subsection (1) are deﬁned in sub- sections (3) and (4).

Net attributable FIF income or loss (3) Net attributable FIF income or loss is the amount for the FIF and the accounting period found by applying— (a) sections EX 18A to EX 21E, EX 24, and EX 25, as modiﬁed by subsection (4B), as if the FIF were a CFC and the person’s attributing interests in the FIF were income interests in the CFC; and subsections (5) and (6).
(b) (4) Income interest Income interest is the person’s income interest in the FIF for the accounting period.

The income interest is calculated under all the following CFC rules, applying as if the FIF were a CFC: (a) (b) (c) sections EX 8 to EX 11and EX 13: sections EX 16 and EX 17: section EX 26.
Modiﬁcations to method of calculating net attributable CFC income or loss (4B) The net attributable FIF income or loss of a FIF is calculated as if— (a) (b) (c) section EX 20B(5)(c)(i) required that the royalty be paid by a foreign company meeting the requirements of sec- tion EX 50(4C): section EX 20B(5)(d) were omitted: section EX 20B(7)(c) required that the rent be paid by a foreign company meeting the requirements of section EX 50(4C): 1235 Part E s EX 50 Income Tax Act 2007 Reprinted as at 30 August 2013 (d) (e) (f) (ii) (ii) section EX 20B(12)(a) required that the ﬁnancial ar- rangement or agreement be an agreement by the CFC to lend money to a foreign company meeting the require- ments of section EX 50(4C): section EX 21C(2)(a) required— (i) the interest holder or other person to have ac- counts that include the accounts of the CFC, including by proportionate consolidation under NZIAS 31: the interest holder or other person to have ac- counts that include dividends and net fair value changes in relation to the CFC under NZIAS 39, or include amounts recognised under the equity method in NZIAS 28 or NZIAS 31, and the CFC to have accounts that are prepared under United States generally accepted accounting principles and meet the requirements of section EX 21C(8) for accounts prepared under those principles in the United States of America: section EX 21C(3)(a) required— (i) the interest holder or other person to have ac- counts that include the accounts of the members of the test group, including by proportionate con- solidation under NZIAS 31: the interest holder or other person to have accounts that include dividends and net fair value changes in relation to the members under NZIAS 39, or include amounts recognised under the equity method in NZIAS 28 or NZIAS 31, and the members to have accounts that are pre- pared under United States generally accepted accounting principles and meet the requirements of section EX 21C(8) for accounts prepared under those principles in the United States of America: (g)
 section EX 21C(4)(a) required— (i) the interest holder or other person to have ac- counts that include the accounts of the CFC, in- 1236 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EX 50 (ii) cluding by proportionate consolidation under the IFRSE corresponding to NZIAS 31: the interest holder or other person to have ac- counts that include dividends and net fair value changes in relation to the CFC under the IFRSE corresponding to NZIAS 39, or include amounts recognised under the equity method in the IFRSE corresponding to NZIAS 28 or NZIAS 31, and the CFC to have accounts that are prepared under United States generally accepted accounting principles and meet the requirements of section EX 21C(8) for accounts prepared under those principles in the United States of America: (h) section EX 21C(5)(a) required— (i) (ii) the interest holder or other person to have ac- counts that include the accounts of the mem- bers of the test group, including by proportionate consolidation under the IFRSE corresponding to NZIAS 31: the interest holder or other person to have ac- counts that include dividends and net fair value changes in relation to the members under the IFRSE corresponding to NZIAS 39, or include amounts recognised under the equity method in the IFRSE corresponding to NZIAS 28 or NZIAS 31, and the members to have accounts that are prepared under United States generally accepted accounting principles and meet the requirements of section EX 21C(8) for accounts prepared under those principles in the United States of America: (i) (j) (k) (l) section EX 21D(1)(a) required that none of the other companies in the test group be a CFC: section EX 21D(1)(b) required that the CFC hold a vot- ing interest of more than 50% in each of the other com- panies in the test group: section EX 21D(3)(b) were omitted: section EX 21E(2)(b) required that none of the other companies in the test group be a CFC: 1237 Part E s EX 50 Income Tax Act 2007 Reprinted as at 30 August
 2013 (m) (n) (o) (p) (q) (r) (s) (t) section EX 21E(2)(c) required that the CFC hold a vot- ing interest of more than 50% in each of the other com- panies in the test group: section EX 21E(2)(d) were omitted: section EX 21E(4)(c) were omitted: the references in section EX 21E(7)(f) and (g) to “NZIAS 39” were to “whichever is appropriate of NZIAS 39, an equivalent IFRSE, and an equivalent standard or principle included in United States gener- ally accepted accounting principles”: section EX 21E(9)(a) required that an amount in the category be a dividend that is— (i) the not included in the attributable CFC amount for section accounting period under EX 20B(3)(a) to (c); and paid by a company other than 1 from which the person does not have additional FIF income or loss under subsection (6) because of the applica- tion of subsection (7B)(b): (ii) the references in section EX 21E(10)(c) and (d) to “NZIAS 39” were to “whichever is appropriate of NZIAS 39, an equivalent IFRSE, and an equivalent standard or principle included in United States gener- ally accepted accounting principles”: the references in section EX 21E(12)(d) to “NZIAS 39” were to “whichever is appropriate of NZIAS 39, an equivalent IFRSE, and an equivalent standard or prin- ciple included in United States generally accepted ac- counting principles”: the reference in section EX 21E(12)(g) to “NZIAS 32” were a reference to “whichever is appropriate of NZIAS 32, an equivalent IFRSE, and an equivalent standard or principle included in United States gener- ally accepted accounting principles”.
Requirements for foreign company making payments to FIF (4C) A foreign company making payments to a FIF meets the re- quirements of this subsection if— 1238 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EX 50 (a) (b) (c) (d) the person uses the attributable FIF income method for the foreign company or would be able to use that method in the absence of section EX 35; and the foreign company, if it were a CFC, would be a non- attributing active CFC under section EX 21B(2) in the absence of section EX 20B(5)(c)(i), (7)(c), and (12)(a); and a group of persons holds total voting interests of more than 50% in the FIF and in the foreign company; and the FIF and the foreign company each have a taxed FIF connection with the same country or territory.
(5) (6) (7) Taxable distributions If the FIF derives a taxable distribution from a non-complying trust in the accounting period,— (a) the taxable distribution is excluded when calculating the FIF’s net attributable FIF income or loss, due to the combined effect of subsection (1) and section EX 21(32); and the person has additional attributed CFC income calcu- lated by multiplying the taxable distribution by the per- son’s income interest in the FIF; and the person is liable for income tax on the additional at- tributed CFC income at the rate in schedule 1 (Basic tax rates: income tax, ESCT, RSCT, RWT, and attributed fringe beneﬁts) that applies to amounts under section HC 22 (Use of tax losses to reduce taxable distributions from non-complying trusts).
(b) (c) Calculation of additional FIF income or loss If the FIF itself has an income interest, calculated under sub- section (4), in a foreign company for the accounting period, the person has additional FIF income or loss calculated using the formula— interest × FIF’s FIF income or loss.
Deﬁnition of items in formula In the formula in subsection (6),— (a) interest is the person’s income interest in the FIF for the period: 1239 Part E s EX 50 Income Tax Act 2007 Reprinted as at 30 August 2013 (b) FIF’s FIF income or loss is the FIF’s FIF income or loss calculated under the rules in section EX 58(4) and (5), as if— (i) (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 34.
Exception to subsection (6) (7B) A person does not have additional FIF income or loss under subsection (6) from a FIF with an interest in a foreign company if— (a) the foreign company meets the test for a non-attributing active CFC under section EX 21B(2) and the person— (i) (ii) [Repealed] is able to include the foreign company in the same test group as the FIF under section EX 21D or EX 21E: (b) the FIF would meet the test for a non-attributing ac- tive CFC under section EX 21B(2)(b) if the items added passive and reported revenue under section EX 21E(5), (8), and (10) for the FIF included the amounts given by subsection (7C)(a)— (i) relating to the FIF’s interests in each member of a grouping of one or more foreign companies including the foreign company; and reported in the accounts of the FIF, or in the con- solidated accounts of the FIF’s test group under section EX 21E.
(ii) (c) [Repealed] Requirements for test under subsection (7B)(b) In determining whether a FIF would meet the requirements of subsection (7B)(b) for an accounting period,— (a) the amounts required to be included in the items are— amounts recognised in proﬁt and loss under the (i) equity method under whichever is appropriate of NZIAS 28, NZIAS 31, an equivalent IFRSE, and an equivalent standard or principle in the gener- ally accepted accounting principles in the United States of America: (7C) 1240 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EX 50 (ii) (iii) amounts recognised in proﬁt or loss under pro- portionate consolidation under whichever is ap- propriate of NZIAS 31, an equivalent IFRSE, and an equivalent standard or principle in the gener- ally accepted accounting principles in the United States of America: dividends and net fair value changes recognised in proﬁt or loss in relation to investments ac- counted for under whichever is appropriate of NZIAS 39, an equivalent IFRSE, and an equiva- lent standard or principle in the generally ac- cepted accounting principles in the United States of America; and (b) an interest holder must not use the result of the test ap- plied to the FIF and a foreign company as a member of a grouping of foreign companies if the interest holder uses for the period a result of the test applied to the FIF and a different grouping of foreign companies.
Application of CFC rules tax credit rules The rules in sections LK 1 to LK 7 (which relate to tax credits for attributed CFC income) apply to allow the person to claim foreign tax credits but on the basis of the assumptions made in subsection (9).

The rules in those sections allow foreign tax credits relating to attributed CFC income but apply a jurisdic- tional ring-fencing approach to the use of tax credits.
Assumptions in reading tax credit rules Sections LK 1 to LK 7 are applied as if— (a) (b) the FIF were a CFC; and the FIF income of the person from the FIF were at- tributed CFC income; and the person’s income interest, calculated under subsec- tion (4) were their relevant income interest for the pur- poses of those sections; and any relevant person’s FIF income calculated under the attributable FIF income method from a FIF that is resi- dent in the relevant country were attributed CFC in- come.
(c) (d) (8) (9) 1241 Part E s EX 50 Income Tax Act 2007 Reprinted as at 30 August 2013 (10) Reduction in FIF loss to economic loss In the cases described in subsections (11) and (12), the amount of any FIF loss calculated under subsections (1) and (6) is re- duced to be equal to the person’s corresponding economic loss, if any.
Application of subsection (10): no economic loss (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, attributable FIF income method, amount, attributed CFC income, attributing interest, CFC, FIF, FIF income, FIF loss, foreign company, income interest, income tax, loss, net attributable CFC income, net attributable FIF income, non-attributing active CFC, non-comply- ing trust, non-resident, NZIAS 28, NZIAS 31, NZIAS 39, quarter, tax, taxable distribution, taxed FIF relationship, voting interest Compare: 2004 No 35 s EX 43 Section EX 50 heading: replaced (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 35(1) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 50(1): amended (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 35(2)(a) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).

Section EX 50(1) formula: amended (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 35(2)(b) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 50(3) heading: replaced (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 35(3) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).

Section EX 50(3): replaced (with effect on 1 July 2011 and applying for in- come years beginning on or after that date), on 7 May 2012, by section 35(3) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 50(4B) heading: inserted (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 35(4) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
1242 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EX 50 Section EX 50(4B): inserted (with effect on 1 July 2011 and applying for in- come years beginning on or after that date), on 7 May 2012, by section 35(4) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 50(4C) heading: inserted (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 35(4) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).

Section EX 50(4C): inserted (with effect on 1 July 2011 and applying for in- come years beginning on or after that date), on 7 May 2012, by section 35(4) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 50(4C)(a): replaced (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 17 July 2013, by section 52(1) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Mat- ters) Act 2013 (2013 No 52).

Section EX 50(5)(a): amended (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 35(5) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 50(5)(c): amended, on 1 April 2008, by section 562 of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section EX 50(7B) heading: inserted (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 35(6) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 50(7B): inserted (with effect on 1 July 2011 and applying for in- come years beginning on or after that date), on 7 May 2012, by section 35(6) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).

Section EX 50(7B)(a)(i): repealed (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 2 November 2012, by section 48(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section EX 50(7B)(b): replaced (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 2 November 2012, by section 48(2) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).

Section EX 50(7B)(c): repealed (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 2 November 2012, by section 48(3) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section EX 50(7C) heading: inserted (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 2 November 2012, by sec- tion 48(4) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section EX 50(7C): inserted (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 2 November 2012, by section 48(4) of 1243 Part E s EX 51 Income Tax Act 2007 Reprinted as at 30 August 2013 the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section EX 50(9)(d): amended (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 35(7) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).

Section EX 50 list of deﬁned terms attributable FIF income method: inserted (with effect on 1 July 2011), on 7 May 2012, by section 35(8)(b) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 50 list of deﬁned terms branch equivalent income: repealed (with effect on 1 July 2011), on 7 May 2012, by section 35(8)(a) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).

Section EX 50 list of deﬁned terms branch equivalent method: repealed (with effect on 1 July 2011), on 7 May 2012, by section 35(8)(a) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 50 list of deﬁned terms net attributable CFC income: inserted (with effect on 1 July 2011), on 7 May 2012, by section 35(8)(b) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).

Section EX 50 list of deﬁned terms net attributable FIF income: inserted (with effect on 1 July 2011), on 7 May 2012, by section 35(8)(b) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 50 list of deﬁned terms non-attributing active CFC: inserted (with effect on 1 July 2011), on 7 May 2012, by section 35(8)(b) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).

Section EX 50 list of deﬁned terms NZIAS 28: inserted (with effect on 1 July 2011), on 7 May 2012, by section 35(8)(b) of the Taxation (International Invest- ment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 50 list of deﬁned terms NZIAS 31: inserted (with effect on 1 July 2011), on 7 May 2012, by section 35(8)(b) of the Taxation (International Invest- ment and Remedial Matters) Act 2012 (2012 No 34).

Section EX 50 list of deﬁned terms NZIAS 39: inserted (with effect on 1 July 2011), on 7 May 2012, by section 35(8)(b) of the Taxation (International Invest- ment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 50 list of deﬁned terms taxed FIF relationship: inserted (with effect on 1 July 2011), on 7 May 2012, by section 35(8)(b) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).

Section EX 50 list of deﬁned terms voting interest: inserted (with effect on 1 July 2011), on 7 May 2012, by section 35(8)(b) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
EX 51 Comparative value method Formula If a person is using the comparative value method to calcu- late FIF income or loss from an attributing interest in a FIF, the (1) 1244 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EX 51 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).
(2) Closing value (3) Closing value is the market value of the person’s interest in the FIF at the end of the income year.

The value is zero if the person has disposed of the interest or is then applying another calculation method to it.

Gains (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 LE 1 (Tax credits for imputation credits) or LJ 2 (Tax credits for foreign income tax).

Opening value (5) Opening value is the market value of the person’s interest in the FIF at the end of the previous income year, calculated using the exchange rate applying under section EX 57 for that previous year.
The value is zero if the person did not hold the interest then or was then applying another calculation method to it.

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) (7) Losses from some attributing interests not subject to rule Subsection (8) applies to a person who calculates under sub- section (1) an amount of FIF loss for an attributing interest in a FIF (the affected interest) that is not a non-ordinary share described in section EX 46(10).
1245 Part E s EX 52 Income Tax Act 2007 Reprinted as at 30 August 2013 (8) No total FIF loss from other attributing interests If, in the absence of this subsection, the person would have under subsection (1) a total FIF loss for the income year from all the person’s affected interests, the FIF loss for the income year for the person from each affected interest is reduced to the extent necessary for the total FIF loss from the affected interests to be zero.
Deﬁned in this Act: amount, attributing interest, calculation method, compara- tive value method, FIF, FIF income, FIF loss, foreign company, foreign with- holding tax, income year, loss, market value, pay, tax Compare: 2004 No 35 s EX 44 Section EX 51(4): amended, on 1 April 2008, by section 393 of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EX 51(5): substituted (with effect on 1 April 2008), on 6 October 2009, by section 176(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section EX 51(7) heading: substituted (with effect on 1 April 2009), on 6 Oc- tober 2009, by section 176(2) of the Taxation (International Taxation, Life In- surance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 51(7): replaced (with effect on 1 July 2011 and applying for in- come years beginning on or after that date), on 7 May 2012, by section 36(1) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).

Section EX 51(8) heading: substituted (with effect on 1 April 2009), on 6 Oc- tober 2009, by section 176(2) of the Taxation (International Taxation, Life In- surance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 51(8): substituted (with effect on 1 April 2009), on 6 October 2009, by section 176(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section EX 51 list of deﬁned terms direct income interest: repealed (with ef- fect on 1 July 2011), on 7 May 2012, by section 36(2) of the Taxation (Inter- national Investment and Remedial Matters) Act 2012 (2012 No 34).
EX 52 Fair dividend rate method: usual method When this section applies This section applies when a person— (a) calculates FIF income from an attributing interest in a FIF for an income year under the fair dividend rate method; and is neither— (i) a unit-valuing fund that is subject to section EX 53; nor (b) (1) 1246 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EX 52 (ii) another person that determines the market value of the attributing interest for each period of a day in the income year and that chooses to apply the method in section EX 53.
FIF income The person’s total FIF income for the income year from the attributing interests in FIFs (the FDR interests) for which the person uses the fair dividend rate method is calculated using the formula in subsection (3).

FIF income formula The formula is— (0.05 × opening value) + quick sale adjustment.

Deﬁnition of items in FIF income formula The items in the FIF income formula in subsection (3) are de- ﬁned in subsections (5) to (7).
(2) (3) (4) Opening value (5) Opening value is the total of the market values of the FDR interests that— (a) (b) the person holds at the start of the income year; and are not, at the beginning of the income year, included in a direct income interest of 10% or more in a FIF that, at the beginning of the year,— (i) meets the requirements of section EX 35(b)(i) to (iii); and does not have its liability for income tax reduced by an exemption, allowance, or relief referred to in section EX 35(c)(i) or (ii).
(ii) Exclusion for certain managed funds (5B) Subsection (5)(b) 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 PIE equivalent.
(6) When quick sale adjustment required The quick sale adjustment is required, and is not zero, only if the person, in the income year,— 1247 Part E s EX 52 Income Tax Act 2007 Reprinted as at 30 August 2013 (a) (b) acquires or increases an FDR interest to which this sec- tion applies; and later disposes of or reduces the FDR interest.
Quick sale adjustment (7) Quick sale adjustment is the lesser of— (a) (b) the total of the amounts (the peak holding method amount) calculated for each FDR interest using the for- mula in subsection (8): the total of the amounts (the quick sale gain amount) calculated for each FDR interest using the formula in subsection (12), treating a negative total as being zero.

Peak holding method amount formula The formula is— 0.05 × peak holding differential × average cost.
Deﬁnition of items in formula The items in the formula in subsection (8) are deﬁned in sub- sections (10) and (11).
(8) (9) Peak holding differential (10) Peak holding differential is,— (a) if no share reorganisation occurs in the income year, the lesser of— (i) the difference between the greatest shareholding in the year and the shareholding at the start of the year: the difference between the greatest shareholding in the year and the shareholding at the end of the year; or (ii) (b) if a share reorganisation occurs in the income year, the amount calculated under section EX 54 for the year.
Average cost (11) Average cost is— (a) if no share reorganisation occurs in the income year, the total amount of expenditure that the person incurs in acquiring or increasing during the income year the attributing interest in the FIF divided by the total for the year of the shareholding increase in the attributing interest in the FIF for each acquisition or increase; or 1248 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EX 52 (b) if a share reorganisation occurs in the income year, the amount calculated under section EX 54 for the year.
Quick sale gain amount formula (12) The formula, for each acquisition or increase in the attributing interest that is disposed of or reduced in the income year, is— gain (interest × average cost).
(13) Deﬁnition of items in formula In the formula in subsection (12),— (a) (b) (c) gain is the total amount that the person derives from holding or disposing of the acquisition or increase: interest is the amount of the shareholding acquisition or increase: average cost is,— (i) if no share reorganisation occurs in the income year, the total amount of expenditure that the per- son incurs in acquiring or increasing the attribut- ing interest in the FIF divided by the total for the income year of the shareholding increase in the interest for each acquisition or increase; or if a share reorganisation occurs in the income year, the amount calculated under section EX 54 for the year.
(ii) LIFO for identifying attributing interests disposed of (14) For the purposes of subsection (12), attributing interests in a FIF are treated as being disposed of in the reverse order of their acquisition (last in-ﬁrst out).

Treatment of transaction under section EX 63 or EX 67 (14B) For the purposes of subsection (7), if the person is treated as disposing of or acquiring an attributing interest in an income year under section EX 63(5) or EX 67, the disposal or acqui- sition is ignored.
Treatment of attributing interests subject to returning share transfer (14C) If an attributing interest in a FIF is an original share subject to a returning share transfer, for the purposes of a person us- ing the fair dividend rate method to calculate FIF income, the attributing interest is treated as held by the share supplier.
1249 Part E s EX 52 Income Tax Act 2007 Reprinted as at 30 August 2013 Meaning of shareholding In this section, shareholding means the number of shares or units in an attributing interest.
Deﬁned in this Act: amount, attributing interest, direct income interest, fair dividend rate method, FIF, FIF income, foreign PIE equivalent, income year, investor, life insurance, market value, original share, portfolio investment en- tity, returning share transfer, share, shareholding, share reorganisation, share supplier Compare: 2004 No 35 ss EX 44B(2), EX 44C Section EX 52(1)(a): amended (with effect on 1 April 2008), on 6 October 2009, by section 177(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 52(1)(b): substituted, on 1 April 2008, by section 394(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section EX 52(2): substituted (with effect on 1 April 2008), on 6 October 2009, by section 177(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 52(5): amended (with effect on 1 April 2008), on 6 October 2009, by section 177(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section EX 52(5): amended, on 1 April 2008, by section 394(2) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section EX 52(5)(a): added, on 1 April 2008, by section 394(2) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EX 52(5)(b): replaced (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 37(1) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).

Section EX 52(5B) heading: inserted (with effect on 1 April 2008), on 6 October 2009, by section 177(4) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 52(5B): inserted (with effect on 1 April 2008), on 6 October 2009, by section 177(4) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section EX 52(5B)(b): substituted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 177(5) of the Taxation (International Taxa- tion, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 52(6): substituted (with effect on 1 April 2008), on 6 October 2009, by section 177(6) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section EX 52(7)(a): substituted (with effect on 1 April 2008), on 6 October 2009, by section 177(7) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 52(7)(b): substituted (with effect on 1 April 2008), on 6 October 2009, by section 177(7) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

(15) 1250 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EX 52 Section EX 52(11)(a): amended, on 1 April 2008, by section 394(3) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EX 52(12) formula: amended, on 1 April 2008, by section 394(4) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section EX 52(13)(a): amended (with effect on 1 April 2008), on 6 October 2009, by section 177(8)(a) of the Taxation (International Taxation, Life Insur- ance, and Remedial Matters) Act 2009 (2009 No 34).

Section EX 52(13)(b): substituted, on 1 April 2008, by section 394(5) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EX 52(13)(c): substituted (with effect on 1 April 2008), on 29 August 2011 (applying for income years beginning on or after 1 April 2008), by sec- tion 40(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).

Section EX 52(14B) heading: inserted, on 1 April 2008, by section 394(6) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EX 52(14B): inserted, on 1 April 2008, by section 394(6) of the Taxa- tion (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section EX 52(14C) heading: inserted (with effect on 1 April 2008), on 6 Oc- tober 2009, by section 177(9) of the Taxation (International Taxation, Life In- surance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 52(14C): inserted (with effect on 1 April 2008), on 6 October 2009, by section 177(9) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section EX 52 list of deﬁned terms direct income interest: inserted (with effect on 1 July 2011), on 7 May 2012, by section 37(2) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 52 list of deﬁned terms foreign investment vehicle: repealed, on 1 April 2010, by section 177(11)(a) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section EX 52 list of deﬁned terms foreign PIE equivalent: inserted, on 1 April 2010, by section 177(11)(a) of the Taxation (International Taxation, Life Insur- ance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 52 list of deﬁned terms life insurance: inserted (with effect on 1 April 2008), on 6 October 2009, by section 177(10) of the Taxation (Inter- national Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section EX 52 list of deﬁned terms original share: inserted (with effect on 1 April 2008), on 6 October 2009, by section 177(10) of the Taxation (Inter- national Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 52 list of deﬁned terms portfolio investment entity: inserted (with effect on 1 April 2008), on 6 October 2009, by section 177(10) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 52 list of deﬁned terms returning share transfer: inserted (with effect on 1 April 2008), on 6 October 2009, by section 177(10) of the Taxation 1251 Part E s EX 53 Income Tax Act 2007 Reprinted as at 30 August 2013 (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 52 list of deﬁned terms share: inserted (with effect on 1 April 2008), on 6 October 2009, by section 177(10) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section EX 52 list of deﬁned terms share supplier: inserted (with effect on 1 April 2008), on 6 October 2009, by section 177(10) of the Taxation (Inter- national Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
EX 53 Fair dividend rate method for unit-valuing funds and others by choice (1) When this section applies: ﬁrst case This section applies when a person— (a) (b) calculates FIF income from an attributing interest in a FIF for an income year under the fair dividend rate method; and is a unit trust or other entity (the fund) that— (i) makes investments for the beneﬁts of other per- sons (the investors); and assigns each investor an interest (the unit) in a proportion of the net returns from the invest- ments; and determines the value of the investor’s units for each of a number of periods (the unit valuation periods) making up the income year.
(ii) (iii) When this section applies: second case (1B) This section applies also when a person— (a) (b) (c) calculates FIF income from an attributing interest in a FIF for an income year under the fair dividend rate method; and the person is not subject to subsection (1); and the person— (i) determines the market value of the attributing in- terest for each period of a day (the unit valuation period) in the income year; and chooses that this section applies.
(ii) FIF income The total FIF income for the income year of the fund or person (the interest holder) from the attributing interests in FIFs (the (2) 1252 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EX 53 FDR interests) for which the fund or person uses the fair divi- dend rate method is the total of the amounts calculated using the formula in subsection (3) for each unit valuation period.

Formula The formula is— (3) (0.05 × opening value × period year ) + quick sale adjustment.
(4) Deﬁnition of items in formula The items in the formula in subsection (3) are deﬁned in sub- sections (5) to (15).
Opening value (5) Opening value is the total of the market values of the FDR interests that— (a) (b) the interest holder holds at the start of the unit valuation period; and are not, at the beginning of the income year, included in a direct income interest of 10% or more in a FIF that, at the beginning of the year,— (i) meets the requirements of section EX 35(b)(i) to (iii); and does not have its liability for income tax reduced by an exemption, allowance, or relief referred to in section EX 35(c)(i) or (ii).
(ii) Exclusion for certain managed funds (5B) Subsection (5)(b) does not apply if— (a) (b) the interest holder is a portfolio investment entity, an entity eligible to be a portfolio investment entity, or a life insurance company; and the FIF is a foreign PIE equivalent.

Period Period is the number of days in the unit valuation period.

(6) Year (7) Year is the number of days in the income year.
(8) When quick sale adjustment required The quick sale adjustment is required, and is not zero, only if the interest holder has a unit valuation period of more than 1 day and, in the unit valuation period,— 1253 Part E s EX 53 Income Tax Act 2007 Reprinted as at 30 August 2013 (a) (b) acquires or increases an FDR interest to which this sec- tion applies; and later disposes of or reduces the FDR interest.
Quick sale adjustment (9) Quick sale adjustment is the lesser of— (a) (b) the total of the amounts (the peak holding method amount) calculated for each FDR interest using the for- mula in subsection (10): the total of the amounts (the quick sale gain amount) calculated for each FDR interest using the formula in subsection (14), treating a negative total as being zero.

Peak holding method amount formula (10) The formula is— 0.05 × peak holding differential × average cost.
Deﬁnition of items in formula (11) The items in the formula in subsection (10) are deﬁned in sub- sections (12) and (13).
Peak holding differential (12) Peak holding differential is,— (a) if no share reorganisation occurs in the unit valuation period, the lesser of— (i) the difference between the greatest shareholding in the period and the shareholding at the start of the period: the difference between the greatest shareholding in the period and the shareholding at the end of the period; or (ii) (b) if a share reorganisation occurs in the period, the amount calculated under section EX 54 for the period.
Average cost (13) Average cost is— (a) if no share reorganisation occurs in the unit valuation period, the total amount of expenditure that the inter- est holder incurs in acquiring or increasing during the period the attributing interest in the FIF divided by the total for the period of the shareholding increase in the attributing interest in the FIF for each acquisition or in- crease; or 1254 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EX 53 (b) the if a share reorganisation occurs in the period, amount calculated under section EX 54 for the period.
Quick sale gain amount formula (14) The formula, for each acquisition or increase in the attributing interest that is disposed of or reduced in the unit valuation period, is— gain (interest × average cost).
(15) Deﬁnition of items in formula In the formula in subsection (14),— (a) (b) (c) gain is the total amount that the interest holder derives from holding or disposing of the acquisition or increase: interest is the amount of the shareholding acquisition or increase: average cost is the total amount of expenditure that the interest holder incurs in acquiring or increasing the at- tributing interest in the FIF divided by the total for the period of the shareholding increase in the interest for each acquisition or increase.
LIFO for identifying attributing interests disposed of (16) For the purposes of subsection (14), attributing interests in a FIF are treated as being disposed of in the reverse order of their acquisition (last in-ﬁrst out).

Deemed transaction under section EX 67 ignored (16B) For the purposes of subsection (9), if the person is treated as disposing of or acquiring an attributing interest in an income year under section EX 67, the disposal or acquisition is ig- nored.
Treatment of attributing interests subject to returning share transfer (16C) If an attributing interest in a FIF is an original share subject to a returning share transfer, for the purposes of a person us- ing the fair dividend rate method to calculate FIF income, the attributing interest is treated as held by the share supplier.

(17) Meaning of shareholding In this section, shareholding means the number of shares or units in an attributing interest.
Deﬁned in this Act: amount, attributing interest, direct income interest, fair dividend rate method, FIF, FIF income, foreign PIE equivalent, income year, 1255 Part E s EX 53 Income Tax Act 2007 Reprinted as at 30 August 2013 investor, life insurance, market value, New Zealand, original share, portfolio investment entity, returning share transfer, share, share reorganisation, share supplier unit valuation period Compare: 2004 No 35 ss EX 44B(1), (3), EX 44D Section EX 53 heading: amended, on 1 April 2008, by section 395(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EX 53(1) heading: amended, on 1 April 2008, by section 395(2) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section EX 53(1)(a): amended (with effect on 1 April 2008), on 6 October 2009, by section 178(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section EX 53(1B) heading: inserted, on 1 April 2008, by section 395(3) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EX 53(1B): inserted, on 1 April 2008, by section 395(3) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section EX 53(1B)(a): amended (with effect on 1 April 2008), on 6 October 2009, by section 178(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 53(2): substituted (with effect on 1 April 2008), on 6 October 2009, by section 178(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section EX 53(5): amended (with effect on 1 April 2008), on 6 October 2009, by section 178(4) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 53(5): amended, on 1 April 2008, by section 395(5) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section EX 53(5)(a): added, on 1 April 2008, by section 395(5) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EX 53(5)(b): replaced (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 38(1) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).

Section EX 53(5B) heading: inserted (with effect on 1 April 2008), on 6 October 2009, by section 178(5) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 53(5B): inserted (with effect on 1 April 2008), on 6 October 2009, by section 178(5) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section EX 53(5B)(b): amended, on 1 April 2010 (applying for the 2010–11 and later income years), by section 178(6) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 53(8): substituted (with effect on 1 April 2008), on 6 October 2009, by section 178(7) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

1256 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EX 53 Section EX 53(9)(a): substituted (with effect on 1 April 2008), on 6 October 2009, by section 178(8) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 53(9)(b): substituted (with effect on 1 April 2008), on 6 October 2009, by section 178(8) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section EX 53(13)(a): amended, on 1 April 2008, by section 395(7) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section EX 53(14) formula: amended, on 1 April 2008, by section 395(8) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EX 53(15)(a): substituted, on 1 April 2008, by section 395(9) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section EX 53(15)(a): amended (with effect on 1 April 2008), on 6 October 2009, by section 178(9)(a) of the Taxation (International Taxation, Life Insur- ance, and Remedial Matters) Act 2009 (2009 No 34).

Section EX 53(15)(b): substituted, on 1 April 2008, by section 395(9) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EX 53(15)(c): amended (with effect on 1 April 2008), on 6 October 2009, by section 178(9)(b) of the Taxation (International Taxation, Life Insur- ance, and Remedial Matters) Act 2009 (2009 No 34).

Section EX 53(16B) heading: inserted, on 1 April 2008, by section 395(10) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section EX 53(16B): inserted, on 1 April 2008, by section 395(10) of the Tax- ation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EX 53(16C) heading: inserted (with effect on 1 April 2008), on 6 Oc- tober 2009, by section 178(10) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section EX 53(16C): inserted (with effect on 1 April 2008), on 6 October 2009, by section 178(10) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 53 list of deﬁned terms direct income interest: inserted (with effect on 1 July 2011), on 7 May 2012, by section 38(2) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).

Section EX 53 list of deﬁned terms foreign investment vehicle: repealed, on 1 April 2010, by section 178(12)(a) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 53 list of deﬁned terms foreign PIE equivalent: inserted, on 1 April 2010, by section 178(12)(b) of the Taxation (International Taxation, Life Insur- ance, and Remedial Matters) Act 2009 (2009 No 34).

Section EX 53 list of deﬁned terms life insurance: inserted (with effect on 1 April 2008), on 6 October 2009, by section 178(11) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
inserted (with effect Section EX 53 list of deﬁned terms original share: on 1 April 2008), on 6 October 2009, by section 178(11) of the Taxation 1257 Part E s EX 54 Income Tax Act 2007 Reprinted as at 30 August 2013 (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 53 list of deﬁned terms portfolio investment entity: inserted (with effect on 1 April 2008), on 6 October 2009, by section 178(11) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section EX 53 list of deﬁned terms returning share transfer: inserted (with effect on 1 April 2008), on 6 October 2009, by section 178(11) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 53 list of deﬁned terms share: inserted (with effect on 1 April 2008), on 6 October 2009, by section 178(11) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section EX 53 list of deﬁned terms share supplier: inserted (with effect on 1 April 2008), on 6 October 2009, by section 178(11) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
EX 54 Fair dividend rate method and cost method: when periods affected by share reorganisations Relevant items and formulas This section provides for the calculation, for an income year or unit valuation period (the affected period) in which a share reorganisation occurs, of the following: (a) the item peak holding differential for the purposes of the formulas in sections EX 52(8), EX 53(10), and EX 56(15): the item average cost for the purposes of the formulas in sections EX 52(8), EX 52(12), EX 53(10) and EX 56(5) and (15): the item increase for the purposes of the formula in section EX 56(5).
(b) (c) Identifying reorganisation periods For the purposes of calculating the items for an affected period under this section,— (a) the affected period is treated as consisting of periods (the reorganisation periods) that do not overlap: a reorganisation period— (i) begins with the start of the affected period and immediately before each share reorganisation in the affected period; and (b) (1) (2) 1258 (3) (4) Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EX 54 (ii) ends immediately before each share reorganisa- tion in the affected period and at the end of the affected period.
Identifying equivalent shareholdings For the purposes of calculating the items for an affected period under this section,— (a) (b) the amount of the attributing interest in the FIF held by the person at any time (the comparison time) in a re- organisation period, is treated as being the amount (the equivalent shareholding) of the attributing interest in the FIF that the person would hold at the end of the af- fected period if, after the comparison time, the person did not increase or reduce the attributing interest in the FIF except under share reorganisations occurring in the affected period: the amount of an acquisition or increase (the acquired shareholding) by the person of the attributing interest in the FIF other than under a share reorganisation is treated as being the amount (the equivalent acquired shareholding) equal to the difference between— (i) the equivalent shareholding for the time of the acquisition or increase; and the amount that would be the equivalent share- holding for the time of the acquisition or increase if the person were not to have the acquired share- holding.
(ii) Peak holding differential The item peak holding differential, for a person and an af- fected period, is the lesser of the following: (a) the difference between the equivalent shareholding that is the greatest for the affected period and the equivalent shareholding at the start of the affected period: the difference between the equivalent shareholding that is the greatest for the affected period and the equivalent shareholding at the end of the affected period.
(b) (5) Average cost The item average cost, for a person and an affected period, is the total amount of expenditure that the person incurs during 1259 Part E s EX 55 Income Tax Act 2007 Reprinted as at 30 August 2013 (6) the affected period in acquiring or increasing the attributing interest in the FIF divided by the total for the affected period of the equivalent acquired shareholding for each acquisition or increase.
Increase The item increase, for a person and an affected period, is the difference between the equivalent shareholding at the start of the affected period and the equivalent shareholding at the start of the period before the affected period.
Deﬁned in this Act: amount, attributing interest, FIF, income year, share re- organisation unit valuation period Compare: 2004 No 35 s EX 44E Section EX 54(1)(b): amended (with effect on 1 April 2008), on 29 August 2011 (applying for income years beginning on or after 1 April 2008), by section 41(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
EX 55 Deemed rate of return method (1) Formula changes if interest changes If a person is using the deemed rate of return method to calculate FIF income or loss from an attributing interest in a FIF for an income year, the FIF income or loss is calculated— by the formula in subsection (3) (the standard for- (a) mula) if the person has held the interest unchanged throughout the income year; and by totalling the amounts calculated by the formula in subsection (5) (the part-year formula) for each part of the income year during which the interest is unchanged, in any other case.
(b) When interest changes (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— (3) opening book value × deemed rate.
1260 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EX 55 (4) Deﬁnition of items in standard formula In the standard formula,— (a) opening book value is the book value of the interest at the end of the previous income year, calculated under subsection (7): deemed rate is the rate set by the Governor-General by Order in Council for this section for the relevant income year.

(b) Part-year formula The part-year formula is— (5) (opening book value + costs) × (deemed rate × days 365. )
(6) 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; and for this purpose, an acquisition or increase is treated as occurring at the start of a day, and a dispos- ition or reduction is treated as occurring at the end of a day.
(7) Closing book value formula The book value, at the end of an income year or, in a case in which subsection (5) applies, a part of an income year, of an attributing interest of a person in a FIF under the deemed rate of return method is, unless subsection (9) applies, calculated using the formula (the closing book value formula)— 1261 Part E s EX 55 Income Tax Act 2007 (opening book value + costs + deemed income + top-up amounts) (8) Deﬁnition of items in closing book value formula In the closing book value formula,— (a) Reprinted as at 30 August 2013 gains.
(b) (c) (d) (e) 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: 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: (ii) 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 60 or EX 61: gains is the total of all amounts that the person derives during the year or the part of the income year from hold- ing or disposing of the interest; the amounts including any foreign withholding tax or other amount that the person is allowed as a credit under section LE 1 (Tax credits for imputation credits) or LJ 2 (Tax credits for foreign income tax).
(9) 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.
(10) 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 1262 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EX 55 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) (c) (d) the person is a natural person; and at all times during the income year the total value of the person’s attributing interests in FIFs is $250,000 or less, the value of each interest being— (i) its book value, calculated under subsection (7), at the end of the previous income year, if the person held the interest then and used the deemed rate of return method to calculate FIF income for all attributing interests in the previous income year: its market value, in any other case; and (ii) the deﬁcit in closing book value arises only because the person disposed of some or all of the interest; and the gain that the person derived from disposing of the interest or part-interest is not income, or is income only to the extent to which it gives rise to FIF income.
Top-up income if gains more than deemed income (12) A person calculating FIF income under the deemed rate of re- turn method can also have additional FIF income under section EX 60.
(13) 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) 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 1263 Part E s EX 56 Income Tax Act 2007 Reprinted as at 30 August 2013 (c) 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.
Deﬁned in this Act: amount, attributing interest, calculation method, deemed rate of return method, FIF, FIF income, foreign withholding tax, income, in- come year, loss, market value, pay, tax Compare: 2004 No 35 s EX 45 Section EX 55(8)(e): amended (with effect on 1 April 2008), on 29 August 2011 (applying for the 2008–09 and later income years), by section 140(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
EX 56 Cost method (1) Cost method formula If a person is using the cost method to calculate FIF income or loss from an attributing interest in a FIF for an income year, the person’s total FIF income from their attributing interests in the FIF for the income year is calculated using the formula— (0.05 × opening value) + quick sale adjustment.

(2) Deﬁnition of items in formula The items in the formula in subsection (1) are deﬁned in sub- sections (3) to (18).
Opening value (3) Opening value is the total of the market values of the person’s attributing interests in the FIF, being— (a) zero, if the relevant income year is the year in which the person acquires an attributing interest in the FIF; or the amount that is shown as the net asset value of the interest in audited ﬁnancial statements of the person for the relevant income year made available to the general public, if— (i) (ii) paragraph (a) does not apply; and the FIF makes available to the general public au- dited ﬁnancial statements for its accounting year ending in the relevant income year; and the person chooses that this paragraph applies; or (iii) the amount of the cost of the interest, if— (ab) (ac) 1264 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EX 56 (iii) (i) (ii) paragraphs (a) and (ab) do not apply; and the person acquires the interest in the 2005–06 or 2006–07 income year; and the interest was not an attributing interest for the income year before the relevant income year; or.
the amount of an independent valuation of the market value of the interest at the start of the relevant income year, if paragraphs (a), (ab) and (ac) do not apply and the person holds the interest at the start of the relevant income year, and— (i) 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) the amount calculated using the formula in subsection (4), if paragraphs (a), (ab), (ac), and (b) do not apply and the person’s shareholding (the current opening share- holding) at the start of the relevant income year is the same as the person’s shareholding (the preceding open- ing shareholding) at the start of the preceding income year; or the amount calculated using the formula in subsection (5), if paragraphs (a), (ab), (ac), and (b) do not apply and the person’s current opening shareholding is more than the preceding opening shareholding; or the amount calculated using the formula in subsection (6), if paragraphs (a), (ab), (ac), and (b) do not apply and the person’s current opening shareholding is less than the preceding opening shareholding.
(b) (c) (d) (e) Opening value formula: no shareholding change The formula referred to in subsection (3)(c) is— 1.05 × preceding opening.

Opening value formula: shareholding increase The formula referred to in subsection (3)(d) is— (4) (5) 1265 Part E s EX 56 Income Tax Act 2007 Reprinted as at 30 August 2013 1.05 × preceding opening + (increase × average cost).
Opening value formula: shareholding decrease The formula referred to in subsection (3)(e) is— (6) opening shareholding preceding shareholding × 1.05 × preceding opening.

(7) (8) (9) (10) Deﬁnition of items in formulas The items in the formula in subsections (4) to (6) are deﬁned in subsections (8) to (13).

Preceding opening Preceding opening is the opening value for the income year before the relevant income year.
FIF income [Repealed] [Repealed] Increase Increase is,— (a) if no share reorganisation occurs in the preceding in- come year, the difference between the person’s share- holding at the start of the relevant income year and the person’s shareholding at the start of the preceding in- come year: if a share reorganisation occurs in the preceding income year, the amount calculated under section EX 54 for the preceding income year.
(b) Average cost (11) Average cost is,— (a) (b) if no share reorganisation occurs in the preceding in- come year, the total amount of expenditure that the per- son incurs in acquiring or increasing during the preced- ing income year the attributing interest in the FIF di- vided by the total for the preceding income year of the increase in the attributing interest in the FIF for each ac- quisition or increase; or if a share reorganisation occurs in the preceding income year, the amount calculated under section EX 54 for the preceding income year.
1266 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EX 56 Opening shareholding (12) Opening shareholding is the amount of the person’s share- holding at the start of the relevant income year.

Preceding shareholding (13) Preceding shareholding is the amount of the person’s share- holding at the start of the preceding income year.
When quick sale adjustment required (14) The quick sale adjustment is required only if, in the relevant income year, the person disposes of or reduces their attributing interest in the FIF after acquiring it or increasing it.

The quick sale adjustment is zero in any other case.

Quick sale adjustment (15) Quick sale adjustment is calculated using the formula— 0.05 × peak holding differential × average cost.
Deﬁnition of items in formula (16) The items in the formula in subsection (15) are deﬁned in sub- sections (17) and (18).
Peak holding differential (17) Peak holding differential is,— (a) if no share reorganisation occurs in the relevant income year, the lesser of— (i) the difference between the greatest shareholding in the year and the shareholding at the start of the year: the difference between the greatest shareholding in the year and the shareholding at the end of the year; or (ii) (b) if a share reorganisation occurs in the relevant income year, the amount calculated under section EX 54 for the year.
Average cost (18) Average cost is,— (a) if no share reorganisation occurs in the relevant income year, the total amount of expenditure that the person in- curs in acquiring or increasing during the relevant in- come year the attributing interest in the FIF divided by the total for the year of the shareholding increase in the 1267 Part E s EX 56 Income Tax Act 2007 Reprinted as at 30 August 2013 (b) attributing interest in the FIF for each acquisition or in- crease; or if a share reorganisation occurs in the relevant income year, the amount calculated under section EX 54 for the year.
Meaning of shareholding In this section, shareholding means the number of shares or units in an attributing interest.

Deﬁned in this Act: amount, attributing interest, cost method, FIF, FIF income, FIF loss, income year, market value, New Zealand, share reorganisation unit valuation period Compare: 2004 No 35 s EX 45B Section EX 56(3)(ab): inserted, on 1 April 2008, by section 396(1) of the Tax- ation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EX 56(3)(ac)(ii): amended (with effect on 1 April 2008), on 6 October 2009, by section 179(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section EX 56(3)(ac)(iii): added (with effect on 1 April 2008), on 6 October 2009, by section 179(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 56(3)(ac): inserted, on 1 April 2008, by section 396(1) of the Tax- ation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section EX 56(3)(b): amended, on 1 April 2008, by section 396(2) of the Tax- ation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section EX 56(3)(b)(i): amended, on 1 April 2008, by section 396(3) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EX 56(3)(c): amended, on 1 April 2008, by section 396(4) of the Tax- ation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section EX 56(3)(d): amended, on 1 April 2008, by section 396(5) of the Tax- ation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section EX 56(3)(e): amended, on 1 April 2008, by section 396(6) of the Tax- ation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EX 56(4) formula: substituted (with effect on 1 April 2008), on 6 Oc- tober 2009, by section 179(2) of the Taxation (International Taxation, Life In- surance, and Remedial Matters) Act 2009 (2009 No 34).

Section EX 56(5) formula: substituted (with effect on 1 April 2008), on 6 Oc- tober 2009, by section 179(3) of the Taxation (International Taxation, Life In- surance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 56(6) formula: substituted (with effect on 1 April 2008), on 6 Oc- tober 2009, by section 179(4) of the Taxation (International Taxation, Life In- surance, and Remedial Matters) Act 2009 (2009 No 34).

Section EX 56(9) heading: repealed (with effect on 1 April 2008), on 6 October 2009, pursuant to section 179(5) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
(19) 1268 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EX 57 Section EX 56(9): repealed (with effect on 1 April 2008), on 6 October 2009, by section 179(5) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section EX 56(11)(a): amended, on 1 April 2008, by section 396(7) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EX 56(15) formula: substituted (with effect on 1 April 2008), on 6 Oc- tober 2009, by section 179(6) of the Taxation (International Taxation, Life In- surance, and Remedial Matters) Act 2009 (2009 No 34).

Section EX 56(18)(a): amended, on 1 April 2008, by section 396(8) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EX 56 list of deﬁned terms close of trading spot exchange rate: re- pealed (with effect on 1 April 2008), on 6 October 2009, by section 179(7) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
EX 57 Conversion of foreign currency amounts: most methods (1) (2) When this section applies This section applies when— (a) (b) (b) an amount in a foreign currency is the market value of, or is derived from or incurred on, an attributing interest in a FIF that a person has in an income year; and the person is using one of the following calculation methods (the relevant method) to calculate their FIF income or loss from the interest for the income year: (i) (ii) (iii) (iv) the comparative value method: the fair dividend rate method: the deemed rate of return method: the cost method.
Choosing conversion rates The person must choose either that— (a) each foreign currency amount in the income year is con- verted into New Zealand dollars using the exchange rate on the day for which the market value is determined or on which the amount is derived or incurred; or all foreign currency amounts in the income year are con- verted into New Zealand dollars at the average of the close of trading spot exchange rates for the 15th day of each month that falls in the income year.
1269 Part E s EX 58 Income Tax Act 2007 Reprinted as at 30 August 2013 (3) Election applying method-wide and for future years The election by the person must be applied for all attributing interests for which they use the relevant method for the income year and each later income year.
Deﬁned in this Act: amount, attributing interest, calculation method, close of trading spot exchange rate, comparative value method, cost method, deemed rate of return method, fair dividend rate method, FIF income, FIF loss, income year, New Zealand Compare: 2004 No 35 ss EX 44(7), EX 44C(11), EX 44D(13), EX 45(15), EX 45B(17) EX 58 Additional FIF income or loss if CFC owns FIF Application of this section This section applies when— (a) (b) a person has an income interest of 10% or more in a CFC for an accounting period under sections EX 14 to EX 17; and because section EX 21(33) applies, FIF income and FIF loss is not taken into account in calculating the net at- tributable CFC income or loss of the CFC for the period for the person.
Calculation of FIF income or loss The person instead has FIF income or loss, for the income year in which the period ends, calculated using the formula— income interest × CFC’s FIF income or loss.

Deﬁnition of items in formula In the formula,— (a) income interest is the person’s income interest in the CFC for the period under sections EX 8 to EX 13: (b) CFC’s FIF income or loss is the CFC’s FIF income or loss for the period calculated under subsections (4) and (5).
Application of FIF rules to choice of method The person must— (a) choose, under sections EX 44 to EX 48, the calculation method for calculating the CFC’s FIF income or loss; and (1) (2) (3) (4) 1270 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EX 58 (b) (c) otherwise apply the calculation rules in sections EX 44 to EX 61 as if the person directly held the attributing interest; and apply the FIF loss ring-fencing rules in section DN 8 (Ring-fencing cap on deduction: attributable FIF in- come method) as if the person directly held the attribut- ing interest.
Exceptions (5) Despite subsection (4), the CFC’s FIF income or loss does not include an 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) (7) Non-attributing Australian CFCs This section applies whether or not the CFC is a non-attribut- ing Australian CFC under section EX 22 for the period.
Exclusion for insurance CFC meeting requirements of determination The CFC’s FIF income or loss does not include income from an income interest of less than 10% in a FIF if the CFC meets the requirements of a determination made by the Commis- sioner under section 91AAQ of the Tax Administration Act 1994.
Deﬁned in this Act: accounting period, amount, attributing interest, calculation method, CFC, company, FIF, FIF income, FIF loss, FIF rules, grey list, income interest, income year, loss Compare: 2004 No 35 s EX 46 Section EX 58(1)(a): amended (with effect on 1 April 2008), on 6 October 2009, by section 180(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 58(1)(b): amended (with effect on 1 July 2009 and applying for income years beginning on or after that date), on 7 May 2012, by section 39(1) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).

Section EX 58(4)(c): amended (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 39(2) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 58(5) heading: replaced (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 39(3) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
1271 Part E s EX 59 Income Tax Act 2007 Reprinted as at 30 August 2013 Section EX 58(5): replaced (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 2 November 2012, by section 49(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section EX 58(6) heading: substituted (with effect on 30 June 2009), on 6 Oc- tober 2009, by section 180(2) of the Taxation (International Taxation, Life In- surance, and Remedial Matters) Act 2009 (2009 No 34).

Section EX 58(6): substituted (with effect on 30 June 2009), on 6 October 2009, by section 180(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 58(7) heading: added (with effect on 30 June 2009), on 29 Au- gust 2011 (applying for income years beginning on or after 1 July 2009), by section 42(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).

Section EX 58(7): added (with effect on 30 June 2009), on 29 August 2011 (applying for income years beginning on or after 1 July 2009), by section 42(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section EX 58 list of deﬁned terms branch equivalent income: repealed (with effect on 1 July 2009), on 7 May 2012, by section 39(4) of the Taxation (Inter- national Investment and Remedial Matters) Act 2012 (2012 No 34).
Relationship with other provisions in Act EX 59 Codes: comparative value method, deemed rate of return method, fair dividend rate method, and cost method (1) When this section applies This section applies when a person has an attributing interest in a FIF and calculates their FIF income or loss from the interest for a period using— (a) (b) (c) (d) the comparative value method: the deemed rate of return method: the fair dividend rate method: the cost method.
Exclusion for interests in FIFs resident in Australia (1B) Subsection (1)(c) does not apply if the person’s interest in the company is included, at the beginning of the income year in which the payment is made, in a direct income interest of 10% or more in a FIF that, at the beginning of the income year,— (a) meets the requirements of section EX 35(b)(i) to (iii); and 1272 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EX 59 (b) does not have its liability for income tax reduced by an exemption, allowance, or relief referred to in section EX 35(c)(i) or (ii).
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 PIE equivalent.
No income other than FIF income The person is treated as not having any income from the in- terest for the period other than FIF income and, in particular, any dividends derived in the period from the interest and any income gained from disposing of the interest in the period are disregarded.
(2) Exception to subsection (2): fees rebate (2B) An amount derived by the person from the interest is not dis- (3) (4) regarded under subsection (2) if— (a) (b) the amount is a rebate of fees; and the person was allowed a deduction for the payment of the fees.
No deductions other than FIF loss The person is denied a deduction for any amount incurred in the period on acquiring some or all of the interest, except to the extent to which the amount is taken into account under the relevant calculation method in calculating FIF income or loss for the period.

Application of trading stock rules The interest is not trading stock in the period and accordingly subpart EB (Valuation of trading stock (including dealer’s live- stock)) does not apply.
Deﬁned in this Act: amount, attributing interest, calculation method, company, comparative value method, cost method, deduction, deemed rate of return method, direct income interest, dividend, fair dividend rate method, FIF, FIF income, FIF loss, foreign PIE equivalent, income, life insurance, loss, portfolio investment entity, trading stock Compare: 2004 No 35 s EX 47 1273 Part E s EX 59 Income Tax Act 2007 Reprinted as at 30 August 2013 Section EX 59(1)(c): substituted (with effect on 1 April 2008), on 6 October 2009, by section 181(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 59(1B) heading: replaced (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 40(1) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).

Section EX 59(1B): replaced (with effect on 1 July 2011 and applying for in- come years beginning on or after that date), on 7 May 2012, by section 40(1) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 59(1C) heading: inserted (with effect on 1 April 2008), on 6 October 2009, by section 181(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section EX 59(1C): inserted (with effect on 1 April 2008), on 6 October 2009, by section 181(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 59(1C)(b): substituted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 181(3) of the Taxation (International Taxa- tion, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section EX 59(2B) heading: inserted (with effect on 1 April 2009), on 6 October 2009, by section 181(4) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 59(2B): inserted (with effect on 1 April 2009), on 6 October 2009, by section 181(4) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section EX 59 list of deﬁned terms company: inserted (with effect on 1 April 2008), on 6 October 2009, by section 181(5) of the Taxation (International Tax- ation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 59 list of deﬁned terms direct income interest: inserted (with ef- fect on 1 April 2008), on 6 October 2009, by section 181(5) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section EX 59 list of deﬁned terms foreign investment vehicle: repealed, on 1 April 2010, by section 181(6)(a) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 59 list of deﬁned terms foreign PIE equivalent: inserted, on 1 April 2010, by section 181(6)(b) of the Taxation (International Taxation, Life Insur- ance, and Remedial Matters) Act 2009 (2009 No 34).

Section EX 59 list of deﬁned terms grey list company: repealed (with effect on 1 July 2011), on 7 May 2012, by section 40(2) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 59 list of deﬁned terms life insurance: inserted (with effect on 1 April 2008), on 6 October 2009, by section 181(5) of the Taxation (Inter- national Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
1274 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EX 60 Section EX 59 list of deﬁned terms portfolio investment entity: inserted (with effect on 1 April 2008), on 6 October 2009, by section 181(5) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
EX 60 Top-up FIF income: deemed rate of return method (1) (2) (3) (4) 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 59(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 59(2) had not applied: total FIF income is the total of FIF income, reduced by the total of any FIF losses, derived by the person from the interest until, and including, the relevant period.
(b) Consequence of partial sales If the person disposes of part of the interest, this section ap- plies to the part disposed of and the part retained as if they were separate interests.

If this means that an apportionment is necessary, it must be done on the basis of the respective mar- ket values at the time the part interest is disposed of.
Deﬁned in this Act: amount, attributing interest, deemed rate of return method, FIF, FIF income, FIF loss, income, loss, market value Compare: 2004 No 35 s EX 48 1275 Part E s EX 61 Income Tax Act 2007 Reprinted as at 30 August 2013 EX 61 Top-up FIF income: 1 April 1993 uplift interests 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 or EZ 7 of the Income Tax Act 2004; and derives in the period, from holding or disposing of the interest, an amount that would have been income if sec- tion EX 59(2) had not applied.
(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 59(2) had not applied: total FIF income is the total of FIF income, reduced by the total of any FIF losses, that the person derived from the interest until, and including, the relevant period.
(b) Consequence of partial sales If the person disposes of part of the interest, this section ap- plies to the part disposed of and the part retained as if they were separate interests.

If this means that an apportionment is necessary, it must be done on the basis of the respective mar- ket values at the time the part interest is disposed of.
Deﬁned in this Act: amount, attributing interest, comparative value method, deemed rate of return method, FIF, FIF income, FIF loss, income, market value Compare: 2004 No 35 s EX 49 (1) (2) (3) (4) 1276 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EX 62 Changing calculation method EX 62 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 (9).
(2) 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,— (i) (ii) section EX 46(2) is repealed: before the date of the repeal of section EX 46(2), that section prevents its continued use or it is impossible to obtain enough information to con- tinue to use it: (b) (c) (d) (e) (f) (g) in the case of the attributable FIF income method, sec- tion EX 46(3)(a) and (b) prevent its continued use or it is impossible to obtain enough information to continue to use it: in the case of the comparative value method,— (i) (ii) section EX 46(6) prevents its continued use: it is impossible to ﬁnd out the end-of-year market value of the interest: [Repealed] in the case of the deemed rate of return method, the per- son is required by section EX 47 to use the comparative value 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, section EX 46(9) pre- vents its continued use.
(3) Choosing to change The person may also change by notice to the Commissioner if— (a) the notice complies with subsection (4); and 1277 Part E s EX 62 Income Tax Act 2007 Reprinted as at 30 August 2013 (b) either— (i) (ii) 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 attributable FIF income method and within subsections (6) and (7).
(4) 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 the attributable FIF income method (6) A person may make an election under subsection (3) to change to or from the attributable FIF income method if— (a) (b) they are changing from the branch equivalent method: this is the ﬁrst time they have chosen to change to or from the attributable FIF income method for an attribut- ing interest in the FIF, other than under paragraph (a): subsection (7) allows them to make another election.
(c) Repeated changes to or from attributable FIF income method (7) A person may change more than once to, or from, the at- tributable FIF income method if— 1278 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EX 62 (a) (b) 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 attributable FIF income 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) (b) (c) has no gifting settlor who is not a natural person or de- ceased person; and at all times in the income year, is a complying trust for a distribution made at the time; and is— (i) at all times in the income year, mainly for the beneﬁt of a natural person for whom the gifting settlors of the trust have natural love and affec- tion, or had natural love and affection when alive: (ii) mainly for the beneﬁt of an organisation or trust with income that is exempt income under section CW 41 or CW 42 (which relate to the income of charities); and (d) is not a superannuation scheme.
Change to fair dividend rate method in return for 2008–09, 2009–10 tax year (9) A person may change to the fair dividend rate method from the branch equivalent method or the accounting proﬁts method in the person’s return of income for— (a) the 2008–09 tax year, if the person has not furnished a return for that tax year before the date on which the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 receives the Royal assent; or the 2009–10 tax year, if the person has furnished a re- turn for the 2008–09 tax year before the date on which that Act receives the Royal assent.
(b) 1279 Part E s EX 62 Income Tax Act 2007 Reprinted as at 30 August 2013 Change to fair dividend rate method for ﬁrst income year beginning on or after 1 July 2011 (10) A person may change to the fair dividend rate method from the accounting proﬁts method, the branch equivalent method, or the deemed rate of return method in the person’s return of income for the ﬁrst income year beginning on or after 1 July 2011.
Deﬁned in this Act: accounting period, accounting proﬁts method, attributable FIF income method, attributing interest, calculation method, Commissioner, comparative value method, complying trust, cost method, deemed rate of return method, exempt income, fair dividend rate method, FIF, FIF income, income tax liability, income year, loss, market value, notice, return, return of income, settlor, superannuation scheme, tax year, trustee Compare: 2004 No 35 s EX 50 Section EX 62(1): amended (with effect on 1 April 2008), on 6 October 2009, by section 182(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 62(2)(a): replaced (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 41(1) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).

Section EX 62(2)(b): replaced (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 41(2) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 62(2)(b): amended (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 2 November 2012, by section 50(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).

Section EX 62(2)(c): replaced (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 41(3) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 62(2)(d): repealed (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 41(4) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).

Section EX 62(2)(e): replaced (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 41(5) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 62(2)(g): replaced (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 41(6) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 62(3)(b)(ii): amended (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 41(7) of 1280 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EX 62 the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 62(6) heading: replaced (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 41(8) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).

Section EX 62(6): replaced (with effect on 1 July 2011 and applying for in- come years beginning on or after that date), on 7 May 2012, by section 41(8) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 62(7) heading: amended (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 41(9) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).

Section EX 62(7): amended (with effect on 1 July 2011 and applying for in- come years beginning on or after that date), on 7 May 2012, by section 41(9) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 62(7)(a): amended (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 41(9) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).

Section EX 62(8)(a): substituted, on 1 April 2008, by section 398 of the Taxa- tion (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EX 62(8)(b): substituted, on 1 April 2008, by section 398 of the Taxa- tion (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section EX 62(8)(c): substituted, on 1 April 2008, by section 398 of the Taxa- tion (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section EX 62(8)(d): substituted, on 1 April 2008, by section 398 of the Taxa- tion (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EX 62(9) heading: added (with effect on 1 April 2008), on 6 October 2009, by section 182(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section EX 62(9): added (with effect on 1 April 2008), on 6 October 2009, by section 182(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 62(10) heading: inserted (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 41(10) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).

Section EX 62(10): inserted (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 41(10) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 62 list of deﬁned terms attributable FIF income method: inserted (with effect on 1 July 2011), on 7 May 2012, by section 41(11)(b) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
1281 Part E s EX 63 Income Tax Act 2007 Reprinted as at 30 August 2013 Section EX 62 list of deﬁned terms branch equivalent method: repealed (with effect on 1 July 2011), on 7 May 2012, by section 41(11)(a) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 62 list of deﬁned terms return: inserted (with effect on 1 April 2008), on 6 October 2009, by section 182(3) of the Taxation (International Tax- ation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section EX 62 list of deﬁned terms return of income: inserted (with effect on 1 April 2008), on 6 October 2009, by section 182(3) of the Taxation (Inter- national Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 62 list of deﬁned terms tax year: inserted (with effect on 1 April 2008), on 6 October 2009, by section 182(3) of the Taxation (International Tax- ation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
EX 63 Consequences of changes in method Changes between cost-based methods and look-through methods Subsection (2) applies if a person holding an attributing inter- est in a FIF changes the calculation method for calculating FIF income or loss from the interest— (a) from 1 of the 4 cost-based calculation methods (the comparative value method, the deemed rate of return method, the fair dividend rate method, or the cost method) to the attributable FIF income method; or from a look-through calculation method (the at- tributable FIF income method, the accounting proﬁts method, or the branch equivalent method) to 1 of the 4 cost-based calculation methods.
(b) Treatment as sale for market value The person is treated as having— (a) disposed of the interest to an unrelated person imme- diately before the start of the ﬁrst accounting period to which the new method applies; and reacquired the interest at the start of the period; and received for the disposal and paid for the reacquisition an amount equal to the interest’s market value at the time.
(b) (c) Changes from comparative value method or fair dividend rate method to cost method or deemed rate of return method If a person holding an attributing interest in a FIF changes from either of the comparative value method and the fair dividend (1) (2) (3) 1282 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EX 63 rate method to either of the cost method and the deemed rate of return method for calculating FIF income or loss from the interest, the person is treated as having— (a) disposed of the interest to an unrelated person immedi- ately before the start of the ﬁrst income year to which the new method applies; and reacquired the interest at the start of the income year; and received for the disposal and paid for the reacquisition an amount equal to the interest’s market value at the time of the disposal.
(b) (c) (4) Changes from cost method or deemed rate of return method to comparative value method or fair dividend rate method If a person holding an attributing interest in a FIF changes from either of the cost method or the deemed rate of return method to either of the comparative value method or fair dividend rate method for calculating FIF income or loss from the interest, the person is treated as having— (a) disposed of the interest to an unrelated person immedi- ately before the start of the ﬁrst income year to which the new method applies; and reacquired the interest at the start of the income year; and received for the disposal and paid for the reacquisition an amount equal to,— (i) (b) (c) for a person changing from the cost method, what would have been the interest’s opening value under section EX 56 if the person had applied the cost method for the income year; or for a person changing from the deemed rate of return method, the interest’s closing book value under section EX 55(7) for the preceding income year.
(ii) (5) Changes between comparative value method and fair dividend rate method If a person holding an attributing interest in a FIF changes from either of the comparative value method and the fair dividend rate method to the other of the comparative value method and 1283 Part E s EX 63 Income Tax Act 2007 Reprinted as at 30 August 2013 the fair dividend rate method for calculating the FIF income or loss from the interest, the person is treated as having— (a) disposed of the interest to an unrelated person immedi- ately before the start of the ﬁrst income year to which the new method applies; and reacquired the interest at the start of the income year; and received for the disposal and paid for the reacquisition an amount equal to the market value of the interest at the time of the disposal.
(b) (c) Deﬁned in this Act: accounting period, accounting proﬁts method, amount, at- tributable FIF income method, attributing interest, branch equivalent method, calculation method, comparative value method, cost method, deemed rate of return method, fair dividend rate method, FIF, FIF income, income year, loss, market value, pay Compare: 2004 No 35 s EX 51 Section EX 63(1)(a): replaced (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 42(1) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 63(1)(b): replaced (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 42(1) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).

Section EX 63(2)(b): replaced (with effect on 1 July 2011 and applying for in- come years beginning on or after that date), on 17 July 2013, by section 53(1) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Section EX 63(3)(b): replaced (with effect on 1 July 2011 and applying for in- come years beginning on or after that date), on 17 July 2013, by section 53(2) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Section EX 63(4)(b): replaced (with effect on 1 July 2011 and applying for in- come years beginning on or after that date), on 17 July 2013, by section 53(3) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).

Section EX 63(5) heading: added, on 1 April 2008, by section 399 of the Tax- ation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EX 63(5): added, on 1 April 2008, by section 399 of the Taxation (Busi- ness Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section EX 63 list of deﬁned terms attributable FIF income method: inserted (with effect on 1 July 2011), on 7 May 2012, by section 42(2) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
1284 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EX 64 Cases of entry into and exit from FIF rules EX 64 Migration of persons holding FIF interests (1) (2) (3) Leaving New Zealand Subsection (2) applies if a person— (a) (b) (c) ceases to be resident in New Zealand; and holds an attributing interest in a FIF at the time; and for the period before the change of residence, calculates FIF income or loss from the interest using— the comparative value method: (i) the deemed rate of return method: (ii) the fair dividend rate method: (iii) the cost method.
(iv) Treatment as sale at market value The person is treated as— (a) having sold the interest immediately before the change of residence for an amount equal to its market value at the time; and not holding the interest when not resident in New Zealand, unless they become resident again and sub- sections (3) and (4) apply.
Coming to New Zealand Subsection (4) applies if a person— (a) (b) is a non-resident or a transitional resident; and becomes a New Zealand resident who is not a transi- tional resident; and holds an attributing interest in a FIF at the time; and for the period after the change of residence or status, calculates FIF income or loss from the interest using— (i) (ii) (iii) (iv) the comparative value method: the deemed rate of return method: the fair dividend rate method: the cost method.
(b) (c) (d) (4) Treatment as purchase at market value The person is treated as— (a) having bought the interest immediately after the change of residence or status for an amount equal to its market value at the time; and 1285 Part E s EX 64 Income Tax Act 2007 Reprinted as at 30 August 2013 (b) not holding it when the person is a transitional resident or not a New Zealand resident, unless they had previ- ously ceased being resident and subsections (1) and (2) applied.
Look-through calculation method: relevance of income interest rules Subsection (6) applies if a person— (a) ceases to be— (i) (ii) (iii) a New Zealand resident who is not a transitional resident, and becomes a non-resident: a non-resident, and becomes a New Zealand resi- dent who is not a transitional resident: a transitional resident, and becomes a New Zealand resident who is not a transitional resi- dent; and (b) (c) holds an attributing interest in a FIF at the time; and for the accounting period in which the change occurs, uses the attributable FIF income method to calculate FIF income or loss from the interest.
Income interest rules The income interest rule in section EX 16 is relevant to the calculation of the amount of FIF income or loss for the period.
Deﬁned in this Act: accounting period, amount, attributable FIF income method, attributing interest, calculation method, comparative value method, cost method, deemed rate of return method, fair dividend rate method, FIF, FIF income, FIF loss, income interest, loss, market value, New Zealand, New Zealand resident, non-resident, resident in New Zealand, transitional resident Compare: 2004 No 35 s EX 52 Section EX 64(5)(c): replaced (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 43(1) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 64 list of deﬁned terms accounting proﬁts method: repealed (with effect on 1 July 2011), on 7 May 2012, by section 43(2)(a) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).

Section EX 64 list of deﬁned terms attributable FIF income method: inserted (with effect on 1 July 2011), on 7 May 2012, by section 43(2)(b) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 64 list of deﬁned terms branch equivalent method: repealed (with effect on 1 July 2011), on 7 May 2012, by section 43(2)(a) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
(5) (6) 1286 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EX 65 EX 65 Changes in application of FIF exemptions (1) (2) (3) Exemptions ceasing to apply Subsections (2) to (4) apply if a person— (a) (b) holds rights in 1 of the categories of rights described in section EX 29(2) to (4); and either— (i) the rights become an attributing interest in a FIF because 1 of the exemptions in sections EX 31 to EX 43 ceases to apply; or the person starts having FIF income or loss from the rights because they incur a cost on an at- tributing interest in a FIF and exceed the $50,000 threshold in sections CQ 5(1)(d) or (e) (When FIF income arises) and DN 6(1)(d) or (e) (When FIF loss arises).
(ii) Market value for cost-based methods If the person uses the comparative value method, deemed rate of return method, the fair dividend rate method, or the cost method to calculate FIF income or loss from the rights for the period following the change, the person is treated as having— disposed of the rights to an unrelated person immedi- (a) ately before the change; and reacquired them immediately after the change; and received for the sale and paid for the repurchase an amount equal to their market value at the time.
(b) (c) Calculation of reduction in FIF income or loss If the change occurs during an accounting period of the FIF and the person uses the attributable FIF income method to cal- culate FIF income or loss from the rights for that period, the FIF income or loss is reduced by subtracting the amount cal- culated using the formula— FIF income or loss × days before change days in period.
Deﬁnition of items in formula In the formula in subsection (3),— (4) 1287 Part E s EX 65 Income Tax Act 2007 Reprinted as at 30 August 2013 (a) (b) (c) FIF income or loss is the FIF income or loss of the person from the rights for the period before allowing for the reduction: days before change is the number of complete days in the period before the change occurs: days in period is the number of days in the period.
Exemptions applying Subsections (6) to (8) apply if a person— (a) (b) holds an attributing interest in a FIF; and either— (i) (ii) the interest ceases to be an attributing interest in a FIF because 1 of the exemptions in sections EX 31 to EX 43 starts to apply; or the person ceases having FIF income or loss from the interest because they dispose of an attributing interest in a FIF and fall below the $50,000 threshold in sections CQ 5(1)(d) or (e) and DN 6(1)(d) or (e).
Market value for cost-based methods If the person uses the comparative value method, the deemed rate of return method, fair dividend rate method, or cost method to calculate FIF income or loss from the interest for the period before the change, the person is treated as having— disposed of the interest to an unrelated person immedi- (a) ately before the change; and reacquired it immediately after the change; and received for the sale and paid for the repurchase an amount equal to its market value at the time.
(b) (c) Calculation of reduction in FIF income or loss If the change occurs during an accounting period of the FIF and the person uses the attributable FIF income method to cal- culate FIF income or loss from the interest for that period, the FIF income or loss is reduced by subtracting the amount cal- culated using the formula— FIF income or loss × days after change days in period.
(5) (6) (7) 1288 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EX 66 (8) Deﬁnition of items in formula In the formula in subsection (7),— (a) (b) FIF income or loss is the FIF income or loss of the person from the interest for the period before allowing for the reduction: days after change is the number of complete days in the period after the change occurs: days in period is the number of days in the period.
(c) Deﬁned in this Act: accounting period, amount, attributable FIF income method, attributing interest, comparative value method, cost method, deemed rate of return method, fair dividend rate method, FIF, FIF income, loss, market value, pay Compare: 2004 No 35 s EX 53 Section EX 65(1)(b)(i): amended (with effect on 1 April 2008), on 6 October 2009, by section 183(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 65(3): amended (with effect on 1 July 2011 and applying for in- come years beginning on or after that date), on 7 May 2012, by section 44(1) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).

Section EX 65(5)(b)(i): amended (with effect on 1 April 2008), on 6 October 2009, by section 183(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 65(7): amended (with effect on 1 July 2011 and applying for in- come years beginning on or after that date), on 7 May 2012, by section 44(2) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).

Section EX 65 list of deﬁned terms accounting proﬁts method: repealed (with effect on 1 July 2011), on 7 May 2012, by section 44(3)(a) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 65 list of deﬁned terms attributable FIF income method: inserted (with effect on 1 July 2011), on 7 May 2012, by section 44(3)(b) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).

Section EX 65 list of deﬁned terms branch equivalent method: repealed (with effect on 1 July 2011), on 7 May 2012, by section 44(3)(a) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
EX 66 Entities emigrating from New Zealand When this section applies This section applies when a person holds rights that become an attributing interest in a FIF because an entity becomes a FIF.
Treatment as sale and repurchase The person is treated as having— (1) (2) 1289 Part E s EX 66 Income Tax Act 2007 Reprinted as at 30 August 2013 (a) (b) (c) disposed of the interest immediately before the change to an unrelated person; and repurchased it immediately after the change; and received for the sale and paid for the repurchase an amount equal to the market value of the interest at the end of the business day on which the change occurred.
Calculation of reduction in FIF income or loss If the change occurs during an accounting period of the FIF and the person uses the attributable FIF income method to calculate FIF income or loss from the rights for that period, section EX 24 does not apply and the FIF income or loss is reduced by subtracting the amount calculated using the for- mula— FIF income or loss × days before change days in period.
Deﬁnition of items in formula In the formula,— (a) (b) FIF income or loss is the FIF income or loss of the person from the rights for the period before allowing for the reduction: days before change is the number of complete days in the period before the change occurs: days in period is the number of days in the period.
(c) Deﬁned in this Act: accounting period, amount, attributable FIF income method, attributing interest, business, FIF, FIF income, loss, market value, New Zealand, pay Compare: 2004 No 35 s EX 54 Section EX 66(3): amended (with effect on 1 July 2011 and applying for in- come years beginning on or after that date), on 7 May 2012, by section 45(1) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 66 list of deﬁned terms accounting proﬁts method: repealed (with effect on 1 July 2011), on 7 May 2012, by section 45(2)(a) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).

Section EX 66 list of deﬁned terms attributable FIF income method: inserted (with effect on 1 July 2011), on 7 May 2012, by section 45(2)(b) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 66 list of deﬁned terms branch equivalent method: repealed (with effect on 1 July 2011), on 7 May 2012, by section 45(2)(a) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
(3) (4) 1290 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EX 66B EX 66B Entities ceasing to be FIFs (1) (2) (3) (4) When this section applies This section applies when a person holds rights that cease to be an attributing interest in a FIF because an entity ceases to be a FIF.
Treatment as sale and repurchase The person is treated as having,— (a) (b) (c) immediately before the change, disposed of the interest to an unrelated person; and immediately after the change, repurchased the interest; and received for the sale and paid for the repurchase an amount equal to the market value of the interest at the end of the business day on which the change occurred.
Calculation of reduction in FIF income or loss If the change occurs during an accounting period of the FIF and the person uses the attributable FIF income method to cal- culate FIF income or FIF loss from the rights for that period, section EX 24 does not apply and the FIF income or FIF loss is reduced by subtracting the amount calculated using the for- mula— FIF income or loss × days after change days in period.
Deﬁnition of items in formula In the formula,— (a) (b) FIF income or loss is the FIF income or FIF loss of the person from the rights for the period before allowing for the reduction: days after change is the number of complete days in the period after the change occurs: days in period is the number of days in the period.
(c) Deﬁned in this Act: accounting period, amount, attributable FIF income method, attributing interest, FIF, FIF income, FIF loss, market value, pay Section EX 66B: inserted (with effect on 1 April 2009), on 6 October 2009, by section 184(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 66B(3): amended (with effect on 1 July 2011 and applying for in- come years beginning on or after that date), on 7 May 2012, by section 46(1) of 1291 Part E s EX 67 Income Tax Act 2007 Reprinted as at 30 August 2013 the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 66B list of deﬁned terms accounting proﬁts method: repealed (with effect on 1 July 2011), on 7 May 2012, by section 46(2)(a) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).

Section EX 66B list of deﬁned terms attributable FIF income method: in- serted (with effect on 1 July 2011), on 7 May 2012, by section 46(2)(b) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 66B list of deﬁned terms branch equivalent method: repealed (with effect on 1 July 2011), on 7 May 2012, by section 46(2)(a) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
EX 67 FIF rules ﬁrst applying to interest on or after 1 April 2007 (1) (2) When this section applies This section applies when a person has rights in a FIF that— for the period ending on a day (the preceding day) (a) are— (i) (ii) not an attributing interest: an attributing interest for which the person does not have FIF income or loss: rights for which the person is a share supplier in a returning share transfer; and (iii) (b) for the period beginning on the day (the application day) following the preceding day are an attributing in- terest for which the person has FIF income or loss.
Treatment as disposal and acquisition The person is treated as having— (a) (b) (c) disposed of the interest immediately before the applica- tion day to an unrelated person; and reacquired it immediately at the start of the application day; and received for the disposal and paid for the reacquisition an amount equal to the market value of the interest at the time of the disposal.
Payment of tax liability arising from transition (3) A person who is liable to pay an amount of income tax (the amount of tax) because of the disposals in an income year, and related acquisitions, treated as occurring under this section— 1292 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EX 67 (a) may satisfy the liability by paying the Commissioner at least— (i) (ii) (iii) one third of the amount of tax in the income year following the income year in which the disposals are treated as occurring; and one half of the balance of the amount of tax re- maining owing after payment made under sub- paragraph (i), in the second income year follow- ing the income year in which the disposals are treated as occurring; and the balance of the amount of tax remaining ow- ing after payments made under subparagraphs (i) and (ii), in the third income year following the income year in which the disposals are treated as occurring: (b) is not liable to pay any penalty or interest for which the person would otherwise be liable for an inaccuracy in an estimate, or shortfall in the payment, of provisional tax to the extent to which the inaccuracy or shortfall arises because of the disposals.
Deﬁned in this Act: amount, attributing interest, Commissioner, FIF, FIF in- come, FIF loss, income tax, income year, loss, market value, New Zealand, pay, tax Compare: 2004 No 35 s EX 54B Section EX 67(1) heading: substituted, on 1 April 2008, by section 400(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section EX 67(1): substituted, on 1 April 2008, by section 400(1) of the Taxa- tion (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EX 67(3): amended, on 1 April 2008, by section 400(2)(a) of the Tax- ation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section EX 67(3)(a)(i): amended, on 1 April 2008, by section 400(2)(b) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section EX 67(3)(a)(ii): amended, on 1 April 2008, by section 400(2)(c) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EX 67(3)(a)(iii): amended, on 1 April 2008, by section 400(2)(d) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section EX 67(3)(b): amended, on 1 April 2008, by section 400(2)(e) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
1293 Part E s EX 67B Income Tax Act 2007 Reprinted as at 30 August 2013 EX 67B Revaluation of inherited interests in grey list companies (1) (2) (3) When this section applies This section applies when— (a) (b) (b) (c) a person inherited, before 1 April 2007, an interest in a FIF that was a grey list company when the interest was inherited; and the cost of the interest for the person is equal to zero.
Treatment as disposal and reacquisition The person is treated as having— (a) disposed of the interest immediately before this section applied to the person and the interest; and reacquired the interest as soon as this section applied to the person and the interest; and received for the disposal and paid for the reacquisition an amount equal to the market value of the interest at the time of the disposal.
Cost of inherited interest for purposes of tax liability For determining a tax liability of the person arising from the disposal, the cost of the interest for the person at the time of the inheritance is treated as being the lesser of— (a) the market value of the interest at the time of the inher- itance: the market value of the interest at the time of the dis- posal.
(b) Payment of tax liability arising from revaluation (4) A person who is liable to pay an amount of income tax (the amount of tax) because of a disposal in an income year, and related acquisition, treated as occurring under this section— (a) may satisfy the liability by paying to the Commis- sioner— (i) at least one third of the amount of tax in the in- come year following the income year in which the disposal is treated as occurring; and at least one half of the balance of the amount of tax remaining owing after payment made under subparagraph (i), in the second income year fol- lowing the income year in which the disposal is treated as occurring; and (ii) 1294 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EX 68 (iii) the balance of the amount of tax remaining ow- ing after payments made under subparagraphs (i) and (ii), in the third income year following the income year in which the disposal is treated as occurring: is not liable to pay any penalty or interest for which the person would otherwise be liable for an inaccuracy in an estimate, or shortfall in the payment, of provisional tax to the extent to which the inaccuracy or shortfall arises because of the disposals.
(b) Deﬁned in this Act: amount, Commissioner, dispose, FIF, grey list company, income tax, income year, market value, pay, provisional tax, tax Section EX 67B: inserted, on 7 May 2012, by section 47 of the Taxation (Inter- national Investment and Remedial Matters) Act 2012 (2012 No 34).
Measurement of cost EX 68 Measurement of cost (1) (2) When this section applies This section applies when the cost of a person’s attributing interest in a FIF is being measured for the purposes of— (a) the natural person $50,000 threshold in sections CQ 5(1)(d) or (e) (When FIF income arises) and DN 6(1)(d) or (e) (When FIF loss arises): the comparative value method: the deemed rate of return method: the fair dividend rate method: the cost method.
(b) (c) (d) (e) FIFO cost ﬂow identiﬁcation If sections EX 52(14) and EX 53(16) do not apply and it is not possible to speciﬁcally identify the cost of the interest be- cause of multiple acquisitions or dispositions or both by the person, the ﬁrst-in-ﬁrst-out (the FIFO) method of identifying cost ﬂows is applied.
Deﬁnition of items in formula 1295 Part E s EX 68 Income Tax Act 2007 Reprinted as at 30 August 2013 [Repealed] [Repealed] Share splits or similar If the person acquires the interest as the result of a share split, non-taxable bonus issue, or similar event, and the acquisition is not income for the person, subsections (5) and (6) apply.
Allocation of original cost The cost of the interest is a fair allocation, based on market values at the time of the split, of the cost of the original prop- erty that is split.
Allocation replacing original cost For the income year in which the split occurs and later,— (a) the cost allocated to the interest is no longer the cost of the original property that was split; and the person is treated as having incurred the allocated cost amount on acquiring the interest when the original property was acquired; and the person is treated as not incurring any other cost on the interest merely because the original property ceases to exist.
(b) (c) Non-monetary cost If any cost is incurred in kind and not in money, the amount of the cost is equal to the market value of the cost incurred in kind, measured as at the time incurred.
Exclusion of term life insurance element of premiums If the interest is rights to beneﬁt under a life insurance policy, the cost of the interest excludes a premium incurred in an ear- lier income year, or accounting period, to the extent to which the premium relates only to term life insurance for the previ- ous period and does not increase the policy’s surrender value.
Exclusion of holding costs The cost of the interest does not include any expenditure under the ﬁnancial arrangements rules or interest on money borrowed to acquire it, or other holding costs, incurred after its acquisition.
(3) (4) (5) (6) (7) (8) (9) 1296 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EX 68 Transitional rule: interests acquired before 1 January 2000 (10) Subsection (11) applies, for the purposes of the $50,000 threshold in sections CQ 5(1)(d) or (e) and DN 6(1)(d) or (e), if— (a) (b) the interest was acquired before 1 January 2000; and the person chooses, for the income year for which the relevant paragraph is applied or an earlier income year, that subsection (11) applies to all interests acquired be- fore 1 January 2000.
Cost treated as half 1 April 2007 value (11) Despite subsections (1) to (9), the cost of the interest is treated as equal to half the market value of the interest on 1 April 2007.
Optional transitional rule: interests excluded by section EX 39 until 2012–13 income year (12) For interests that were acquired by the person before 1 Janu- ary 2005 and excluded by section EX 39 from being attributing interests until the beginning of the 2012–13 income year, the person may choose to treat the cost of every interest as being the market value of the interest at the beginning of the 2012–13 income year, for the purposes of the $50,000 threshold in sec- tions CQ 5(1)(d) or (e) and DN 6(1)(d) or (e).
Deﬁned in this Act: accounting period, amount, attributing interest, compara- tive value method, cost method, deemed rate of return method, fair dividend rate method, FIF, ﬁnancial arrangements rules, income, income year, interest, life insurance, life insurance policy, market value, non-taxable bonus issue, pre- mium, share Compare: 2004 No 35 s EX 56 Section EX 68(2) heading: substituted, on 1 April 2008, by section 401 of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EX 68(2): substituted, on 1 April 2008, by section 401 of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section EX 68(3) heading: repealed, on 1 April 2008, by section 401 of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section EX 68(3): repealed, on 1 April 2008, by section 401 of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
inserted (with effect on 1 October 2011), on Section EX 68(12) heading: 2 November 2012 (applying for the 2012–13 and later income years), by section 51(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section EX 68(12): inserted (with effect on 1 October 2011), on 2 November 2012 (applying for the 2012–13 and later income years), by section 51(1) of the 1297 Part E s EX 69 Income Tax Act 2007 Reprinted as at 30 August 2013 Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Change of FIF’s balance date EX 69 Change of FIF’s balance date When this section applies This section applies when a person— (a) (b) has an attributing interest in a FIF; and calculates their FIF income or loss from the FIF using the attributable FIF income method; and has calculated FIF income or loss from the FIF on the basis of 1 accounting year (the old accounting year); and (c) (d) wants to change to use a different accounting year (the new accounting year) for the calculations.
Commissioner’s consent The person may make the change only if the Commissioner agrees.

Commissioner’s reasons The Commissioner may take into account any relevant factors when making the decision, including— (a) whether the change is sought because ownership of the FIF has changed; and (b) whether the change is sought because of taxation or other legal requirements in a country where the FIF is resident or does business; and whether the change would postpone liability to income tax on FIF income.
(c) New accounting year If the change is approved, the person may use the new account- ing year.

Limit on transitional deferral If, in order to make the transition, the transitional accounting period is more than 1 year and ends in a later income year than the old accounting year ends in, and that would result in an amount of FIF income being derived in the later income year, subsection (6) applies and section CQ 5(1)(g) (When FIF income arises) does not.
(1) (2) (3) (4) (5) 1298 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EX 70 (6) Income pro-rated over whole period For the transitional accounting period, the FIF income is di- vided by the number of days in the period and the resulting amount is FIF income of the person derived on each day in the period.
Deﬁned in this Act: accounting period, accounting year, amount, attributable FIF income method, attributing interest, business, Commissioner, FIF, FIF in- come, income tax, income year, loss, year Compare: 2004 No 35 s EX 57 Section EX 69(1)(b): amended (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 48(1) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 69 list of deﬁned terms accounting proﬁts method: repealed (with effect on 1 July 2011), on 7 May 2012, by section 48(2)(a) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).

Section EX 69 list of deﬁned terms attributable FIF income method: inserted (with effect on 1 July 2011), on 7 May 2012, by section 48(2)(b) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 69 list of deﬁned terms branch equivalent method: repealed (with effect on 1 July 2011), on 7 May 2012, by section 48(2)(a) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Market value rules EX 70 Market value of life policy and superannuation entitlements (1) (2) (3) When this section applies This section applies when, in order to calculate a person’s FIF income or loss, it is necessary to calculate the market value of a person’s rights to beneﬁt under a life insurance policy or as a beneﬁciary under a superannuation scheme.

Value of life insurance policy The market value of rights to beneﬁt under a life insurance policy is equal to their surrender value.
Limit to subsection (2) Subsection (2) applies only for the purpose of calculating the cost of a person’s rights to beneﬁt from a life insurance policy under— (a) (b) section EX 64(4); and section EX 65(2).
1299 Part E s EX 71 Income Tax Act 2007 Reprinted as at 30 August 2013 (4) Value of superannuation scheme entitlement The market value at any time of a person’s rights to beneﬁt under a superannuation scheme is equal to the total of costs incurred up to that time by or for the person on acquiring the rights if— (a) it is not reasonably practicable to calculate the actual market value; and they have not derived any material gain from the rights up to that time.
(b) Deﬁned in this Act: FIF income, life insurance policy, loss, market value, super- annuation scheme Compare: 2004 No 35 s EX 58 EX 71 Non-market transactions in FIF interests Section GC 4 (Disposals and acquisitions of FIF attributing interests) applies to acquisitions and dispositions of attribut- ing interests in FIFs when the comparative value method, the deemed rate of return method, the fair dividend rate method, or the cost method is used.
Deﬁned in this Act: attributing interest, comparative value method, cost method, deemed rate of return method, fair dividend rate method, FIF Compare: 2004 No 35 s EX 59 Commissioner’s default assessment power EX 72 Commissioner’s default assessment power When this section applies This section applies when— (a) a person has failed to disclose their control interest or income interest in a CFC or attributing interest in a FIF, under section 61 of the Tax Administration Act 1994: a person has failed to disclose information regarding their control interest or income interest in a CFC or at- tributing interest in a FIF, requested under section 17 of that Act: a person cannot obtain enough information to calculate their attributed CFC income or loss or FIF income or loss for a period.
(b) (c) (1) 1300 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EX 72 (2) Commissioner’s power The Commissioner may make an assessment of the amount of attributed CFC income or loss, FIF income or loss, or at- tributed repatriation for the relevant period.
Examples of methods (3) Without limiting the Commissioner’s discretion, the assess- ment may be based on any of the following: (a) the accounts of the CFC or FIF for the relevant period prepared for tax authorities, creditors, shareholders, or others: the application of a rate of presumed increase of 10% or more, compounded annually, to the CFC’s net at- tributable CFC income or to the FIF’s net attributable FIF income, for a previous period: the application of a rate of presumed increase of 10% or more, compounding annually, to the CFC’s or FIF’s ac- counting proﬁts as shown in its accounts for a previous period: an imputed rate of return on the market value of the interest at the start of the period: the actual gains or losses of the person in the period from holding or disposing of the interest: the change in the market value of the interest over the period.
(b) (c) (d) (e) (f) Deﬁned in this Act: amount, assessment, attributable FIF income method, at- tributed CFC income, attributing interest, CFC, Commissioner, control interest, FIF, FIF income, income interest, loss, market value, net attributable CFC in- come, net attributable FIF income, shareholder Compare: 2004 No 35 s EX 60 Section EX 72(1)(c): replaced (with effect on 1 July 2009 and applying for income years beginning on or after that date), on 7 May 2012, by section 49(1) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 72(3)(b): replaced (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 49(2) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).

Section EX 72 list of deﬁned terms attributed repatriation: repealed (with effect on 1 July 2011), on 7 May 2012, by section 49(3)(a) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
1301 Part E s EX 73 Income Tax Act 2007 Reprinted as at 30 August 2013 Section EX 72 list of deﬁned terms attributable FIF income method: inserted (with effect on 1 July 2011), on 7 May 2012, by section 49(3)(b) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 72 list of deﬁned terms branch equivalent income: repealed (with effect on 1 July 2011), on 7 May 2012, by section 49(3)(a) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).

Section EX 72 list of deﬁned terms net attributable CFC income: inserted (with effect on 1 July 2011), on 7 May 2012, by section 49(3)(b) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 72 list of deﬁned terms net attributable FIF income: inserted (with effect on 1 July 2011), on 7 May 2012, by section 49(3)(b) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).

Election relating to CFC or FIF Heading: inserted (with effect on 30 June 2009), on 2 November 2012, by sec- tion 52(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
EX 73 Election that CFC not non-attributing active CFC or FIF not non-attributing active FIF Election to have elective attributing CFC (1) A person (the interest holder) may elect by notice to the Com- missioner for each accounting period of the election, that— (a) a CFC of the interest holder, in which the interest holder has an income interest of 10% or more, not be a non- attributing active CFC for the interest holder: a FIF of the interest holder, for which the interest holder uses the attributable FIF income method, not be a non- attributing active FIF for the interest holder.
(b) (2) Exception The interest holder must not make an election under subsection (1) for a CFC or FIF that is— (a) an entity carrying on a business of banking or insurance or is directly or indirectly controlled by such an entity: a non-attributing Australian CFC.
(b) Period of election (3) An election under subsection (1) is made for all accounting periods— (a) for a CFC, ending in the interest holder’s income years beginning on or after 1 July 2009, if the notice— 1302 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EX 73 (b) (c) (i) speciﬁes that the election is made under this para- graph or for that period; and (ii) meets the requirements of subsection (4); or for a FIF, ending in the interest holder’s income years beginning on or after 1 July 2011, if the notice— (i) speciﬁes that the election is made under this para- graph or for that period; and (ii) meets the requirements of subsection (4); or beginning in the interest holder’s income years begin- ning after— (i) the date on which the notice is given to the Com- missioner; or another date agreed by the Commissioner.
(ii) Timing of retrospective election (4) A notice of election for a period given by subsection (3)(a) or (b) is not effective unless given to the Commissioner by the later of— (a) the end of the interest holder’s income year in which this subsection receives the Royal assent: a date allowed by the Commissioner.
(b) Currency of election (5) An election under subsection (1) remains effective until the beginning of the earliest income year— (a) (b) for which the election is revoked under subsection (6): in which the election ceases to be effective under sub- section (7).
(6) Revoking election The interest holder may revoke an election under subsection (1) if— (a) the interest holder gives notice of the revocation to the Commissioner before the beginning of the interest holder’s ﬁrst income year for which the notice is given; and the interest holder satisﬁes the Commissioner that— (i) expenditure or loss of a CFC included, while the election is effective, in net attributable CFC income or loss for the interest holder is ex- tremely unlikely to result after the revocation in (b) 1303 Part E s EX 73 Income Tax Act 2007 Reprinted as at 30 August 2013 an amount that would otherwise have been an attributable CFC amount for the CFC; and the revocation is not made for a purpose or effect of reducing a tax liability; and the Commissioner agrees to the revocation.
(ii) (c) Expiry of election (7) An election by the interest holder under subsection (1) ceases to be effective in an income year if the election is for— (a) a CFC that in the income year ceases to be a CFC in which the interest holder has an income interest of 10% or more, except if the CFC becomes at that time a FIF for which the interest holder uses the attributable FIF income method, in which case the election becomes ef- fective as if made for the FIF: a FIF that in the income year ceases to be a FIF for which the interest holder uses the attributable FIF in- come method, except if the FIF becomes at that time a CFC meeting the requirements of subsection (8), in which case the election becomes effective as if made for the CFC: a CFC or FIF that in the income year becomes an en- tity carrying on a business of banking or insurance or becomes directly or indirectly controlled by such an en- tity: a CFC that becomes a non-attributing Australian CFC in the income year.
(b) (c) (d) Requirements for CFC to be affected by FIF election For a CFC to be affected under subsection (7)(b) by an elec- tion,— (a) the interest holder must have an income interest of 10% or more in the CFC; and the CFC must not be a non-attributing Australian CFC.
(b) Effect of expiry or revocation of election If an election under subsection (1) ceases to be effective for a CFC or FIF,— (a) becoming effective for a FIF under subsection (7)(a) because the CFC becomes a FIF for which the interest holder uses the attributable FIF income method, the (8) (9) 1304 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EX 73 (b) (c) interest holder may carry forward under section IQ 1B (Losses carried forward to tax year) attributed CFC losses of the CFC to a later tax year as if they were FIF net losses that were attributed from the FIF when the CFC losses were attributed from the CFC: becoming effective for a CFC under subsection (7)(b) because the FIF becomes a CFC of the interest holder in which the interest holder has an income interest of 10% or more, the interest holder may carry forward under section IQ 1B the FIF net losses of the FIF as if they were attributed CFC losses that were attributed from the CFC when the FIF losses were attributed from the FIF: other than under paragraphs (a) and (b), the interest holder must not carry forward under section IQ 1B an attributed CFC loss from an elective attributing CFC, or a FIF net loss from an elective attributing FIF, to an in- come year for which the election for the CFC or FIF has ceased to be effective.
Further election (10) The interest holder may make a further election under subsec- tion (1) for a period given by subsection (3)(c) after an earlier election ceases to be effective, if— (a) (b) the interest holder gives notice of the election to the Commissioner before the beginning of the interest holder’s ﬁrst income year for which the notice is given; and the interest holder satisﬁes the Commissioner that— (i) the expiry of the earlier election was due to an oversight on the part of the interest holder or the CFC or FIF; and the interest holder gave notice of the further elec- tion within a reasonable time after the expiry; and the further election has no purpose or effect of allowing the attribution of deductions without the attribution of corresponding income; and (ii) (iii) (c) the Commissioner agrees to the election.
1305 Income Tax Act 2007 Reprinted as at 30 August 2013 Further election for entity by associate of original interest holder (11) An interest holder may not make an election under subsection (1) for a CFC or FIF for which an earlier election by a person associated with the interest holder has ceased to be effective, unless— (a) the interest holder gives notice of the proposed election to the Commissioner before the beginning of the inter- est holder’s ﬁrst income year for which the election is made; and the interest holder satisﬁes the Commissioner that the proposed election has no purpose or effect of allowing the attribution of deductions without the attribution of corresponding income; and the Commissioner agrees to the proposed election.
(b) (c) Form and means of notice to Commissioner (12) A notice to the Commissioner under this section must be given in the form and by the means prescribed by the Commissioner.
Deﬁned in this Act: attributable FIF income method, attributed CFC loss, CFC, Commissioner, elective attributing CFC, elective attributing FIF, FIF, income interest, income year, net attributable FIF loss, non-attributing active CFC, non- attributing active FIF, non-attributing Australian CFC, notice Section EX 73: inserted (with effect on 30 June 2009), on 2 November 2012 (applying for income years beginning on or after 1 July 2009), by section 52(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Subpart EY—Life insurance rules Contents Introductory provisions EY 1 What this subpart does EY 2 EY 3 EY 4 Apportionment of income of particular source or nature, Policyholder base Shareholder base and of tax credits Part-year tax calculations EY 5 EY 6 Actuarial advice and guidance EY 7 Meaning of claim EY 8 Meaning of life insurance 1306 Page 1309 1309 1311 1312 1312 1315 1315 1316 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EX 73 EY 9 Meaning of life insurance policy EY 10 Meaning of life insurer EY 11 Superannuation schemes providing life insurance EY 12 Meaning of life reinsurance EY 13 Meaning of life reinsurance policy EY 14 Life insurance and life reinsurance: how sections relate 1318 1318 1319 1322 1325 1325 Policyholder base Non-participation policies EY 15 Policyholder base income: non-participation policies EY 16 Policyholder base allowable deductions: non-participation 1326 1328 policies Proﬁt participation policies EY 17 Policyholder base income: proﬁt participation policies EY 18 Policyholder base allowable deductions: proﬁt 1329 1330 participation policies Shareholder base Non-participation policies EY 19 Shareholder base income: non-participation policies EY 20 Shareholder base allowable deductions: non-participation 1331 1332 policies Proﬁt participation policies EY 21 Shareholder base income: proﬁt participation policies EY 22 Shareholder base allowable deductions: proﬁt 1333 1335 participation policies Non-participation policies: reserves EY 23 Reserving amounts for life insurers: non-participation 1335 policies EY 24 Outstanding claims reserving amount: non-participation 1337 policies not annuities EY 25 Premium smoothing reserving amount: non-participation 1339 policies not annuities EY 26 Unearned premium reserving amount: non-participation 1341 policies not annuities EY 27 Capital guarantee reserving amount: non-participation 1342 policies not annuities Shareholder base other proﬁt: proﬁt participation policies EY 28 Shareholder base other proﬁt: proﬁt participation
 policies 1343 that are existing business 1307 Income Tax Act 2007 Reprinted as at 30 August 2013 EY 29 Shareholder base other proﬁt: proﬁt participation policies 1346 that are new business Transitional adjustments and annuities EY 30 Transitional adjustments: life risk EY 31 Annuities EY 32 Mortality proﬁt formula: when partial reinsurance 1349 1359 1360 exists [Repealed] EY 33 Mortality proﬁt formula: individual result may be negative 1360 only in some cases [Repealed] EY 34 Mortality proﬁt formula: negative result [Repealed] EY 35 How discontinuance proﬁt is calculated [Repealed] EY 36 Discontinuance proﬁt for income year [Repealed] EY 37 Discontinuance proﬁt formula (existing policies) [Repealed] EY 38 Discontinuance proﬁt formula (new policies) [Repealed] EY 39 Discontinuance proﬁt formula (existing policies): when partial reinsurance exists [Repealed] EY 40 Discontinuance proﬁt formula (new policies): when partial reinsurance exists [Repealed] EY 41 Discontinuance proﬁt formulas: individual result may never be negative [Repealed] EY 42 How policyholder income is calculated [Repealed] EY 43 Policyholder income formula [Repealed] EY 43B Policyholder income formula: FDR adjustment [Repealed] EY 43C Policyholder income formula: PILF adjustment [Repealed] 1360 1360 1361 1361 1361 1361 1361 1361 1362 1362 1362 1362 EY 44 Policyholder income formula: when partial reinsurance 1362 exists [Repealed] EY 45 Policyholder income formula: when life insurance business transferred [Repealed] EY 46 Income from disposal of property [Repealed] EY 47 Deductions for disposal of property [Repealed] 1362 1363 1363 Non-resident life insurers EY 48 Non-resident life insurers with life insurance policies in 1363 New Zealand EY 49 Non-resident life insurer becoming resident 1364 1308 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EY 2 Introductory provisions EY 1 What this subpart does (1) (2) (3) Two bases This subpart provides for the taxation of life insurers on 2 sep-
 arate bases, the policyholder base and the shareholder base.
Sections EY 2 and EY 3 describe the general apportionment of income and deductions between the 2 bases under this Part.

Section LA 8B (General rules particular to life insurers) pro- vides some general rules for tax credits relating to the 2 bases.

Parts L and O include tax credit rules and memorandum ac- count rules speciﬁc to the 2 bases.
Schedular policyholder base income and PIE schedular income Section EY 2 uses the assessable income in a life insurer’s policyholder base income, and the life insurer’s policyholder base allowable deductions, to calculate their schedular policy- holder base income.

A life insurer’s schedular income derived by their life fund PIE that is a multi-rate PIE is excluded from their schedular policyholder base income, along with deduc- tions for that income.
Counting once Income and deductions must be apportioned to either the pol- icyholder base or the shareholder base.

There is no double- counting.


Deﬁned in this Act: assessable income, deduction, income, life fund PIE, life insurance, life insurer, life reinsurance, memorandum account, multi-rate PIE, policyholder base, policyholder base income, schedular policyholder base in- come, shareholder base, tax credit Section EY 1: substituted, on 1 July 2010, by section 185(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
EY 2 Policyholder base Policyholder base income (1) A life insurer has policyholder base income,— (a) (b) (c) for savings product policies that are not proﬁt participa- tion policies, under section EY 15: for proﬁt participation policies, under section EY 17: under section EY 27(4).
1309 Part E s EY 2 Income Tax Act 2007 Reprinted as at 30 August 2013 Policyholder base allowable deductions (a) (2) A life insurer has policyholder base allowable deductions,— for savings product policies that are not proﬁt participa- tion policies, under section EY 16: for proﬁt participation policies, under section EY 18: under section EY 27(4): under section EZ 61 (Allowance for cancelled amount: spreading): under section LE 2B (Use of remaining credits by life insurer on policyholder base).
(b) (c) (d) (e) Schedular policyholder base income (3) A life insurer’s schedular policyholder base income is the amount given by subtracting their policyholder base allowable deductions for an income year, and any amount carried for- ward to the income year under subsection (5), from the assess- able income in their policyholder base income for the income year.
Cap on subtracting: ring-fencing policyholder base allowable deductions (4) Despite subsection (3), the total amount that is subtracted under subsection (3), including an amount carried forward to the current year under subsection (5), is no more than the amount of the assessable income in the life insurer’s policyholder base income for the income year.
Excess allocations: carrying forward and re-instating next year (5) Any excess not able to be subtracted in the current year be- cause of subsection (4) is carried forward to the next income year.

Exception (6) Despite subsections (3) to (5) a life insurer’s schedular income derived by their life fund PIE that is a multi-rate PIE is ex- cluded from their schedular policyholder base income, along with deductions for that income.
Deﬁned in this Act: amount, assessable income, income year, life fund PIE, life insurance, life insurer, multi-rate PIE, policyholder base allowable deduction, policyholder base income, proﬁt participation policy, savings product policy, schedular income, schedular policyholder base income 1310 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EY 3 Section EY 2: substituted, on 1 July 2010, by section 185(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
EY 3 Shareholder base Shareholder base income (1) A life insurer has shareholder base income,— (a) (b) (c) for policies that are not proﬁt participation policies, under section EY 19: see also subsection (3), for reserves: for proﬁt participation policies, under sections EY 21, EY 28, and EY 29: for annuities, under section EY 31.
Shareholder base allowable deductions (2) A life insurer has shareholder base allowable deductions,— (a) (b) (c) (d) for policies that are not proﬁt participation policies, under section EY 20: see also subsection (3), for reserves: for proﬁt participation policies, under sections EY 22 and EY 28: for the period and policies described in section EY 30, under that section: for annuities, under section EY 31.
Reserves (3) Under sections EY 23 to EY 27, a life insurer calculates reserv- ing amounts for life insurance policies, other than annuities, that have a life risk component and are not proﬁt participa- tion policies.

A reserving amount may be income included in their shareholder base income, or a deduction that is included in their shareholder base allowable deduction, as provided by the relevant sections.
Deﬁned in this Act: deduction, life insurance, life insurance policy, life in- surer, life risk, proﬁt participation policy, shareholder base allowable deduc- tion, shareholder base income Section EY 3: substituted, on 1 July 2010, by section 185(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
1311 Part E s EY 4 Income Tax Act 2007 Reprinted as at 30 August 2013 EY 4 Apportionment of income of particular source or nature, and of tax credits (1) (2) Default basis For a class of policies, income of a particular source or nature, and tax credits received, are apportioned between the policy- holder base and shareholder base— (a) in the same proportion as the policyholder base income relating to the particular source, nature, or credits bears to the life insurer’s total gross gains relating to the par- ticular source, nature, or credits, in the case of the pol- icyholder base: in the same proportion as the shareholder base income relating to the particular source, nature, or credits bears to the life insurer’s total gross gains relating to the par- ticular source, nature, or credits, in the case of the share- holder base.
(b) More equitable or reasonable basis For a class of policies, the life insurer may use a basis of ap- portionment that is different from the basis described in sub- section (1), if that basis results in an amount, actuarially deter- mined, that is more equitable and reasonable than an amount determined using the basis described in subsection (1).
Deﬁned in this Act: actuarially determined, amount, class of policies, income, life insurer, policyholder base, policyholder base income, shareholder base, shareholder base income, tax credit Section EY 4: substituted, on 1 July 2010, by section 185(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
EY 5 Part-year tax calculations Part-year tax calculations For their life insurance and for their general insurance con- tracts outstanding claims reserve, a life insurer does part-year tax calculations, described in subsection (2), if they do not have an early life regime application day and 1 July 2010 is not the ﬁrst day of their income year.
First year part-year calculations: description For calculating their income tax liability for the tax year that corresponds to the income year that includes 1 July 2010, (1) (2) 1312 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EY 5 where 1 July 2010 is not the ﬁrst day of the income year, the life insurer treats references, in the new life insurance rules and in the rules they replace, to an income year or a tax year as if they are references to 2 separate tax years and correspond- ing income years (the part-years) within that ﬁrst tax year, divided by 1 July 2010 (for example: a rule to calculate an amount of policyholder income for an income year under the replaced rules means the calculation is done for the relevant part-year before 1 July 2010.
A rule to calculate an opening reserve amount under sections EY 23 to EY 27 at the begin- ning of an income year under the new rules means the calcu- lation is done on 1 July 2010, at the beginning of the relevant part-year).

Part-year calculations: effect The part-year calculations may give rise to income and deduc- tions for the income year, but they do not create any part-year tax return obligations.

The 2 part-year calculations compose 1 income tax liability for 1 income year.
(3) Part-year calculations for transfers (4) Where a life insurer (the transferor) transfers life insurance business to another life insurer (the transferee), the transferor does a part-year calculation immediately before the transfer, as described in subsection (2), for each class of policy in the transferred business, but only for their part-year ending on the day the transfer occurs.
The transferee also does a part-year calculation for the transferred policies, as described in sub- section (2), but only for their part-year starting on the day the transfer occurs.
The transferee’s relevant opening part-year re- serve amounts under sections EY 23 to EY 27 equal the trans- feror’s relevant closing part-year reserve amounts immediately before the transfer, and if the life reinsurance associated with a class of policies is not assigned by the transferor to the trans- feree, those reserve amounts are calculated without subtracting relevant life reinsurance amounts.
(5) Part-year calculations for transfers: effect Transferor’s and transferee’s part-year calculations may give rise to income and deductions for the income year, but they do not create any part-year tax return obligations.
1313 Part E s EY 5 Income Tax Act 2007 Reprinted as at 30 August 2013 Part-year calculations: end of transitional adjustments If, for a life insurance policy, the transitional adjustment under section EY 30(7) is calculated for part of an income year, be- cause section EY 30 ceases to apply to the policy before the end of the income year, the life insurer does part-year tax cal- culations for the policy for the income year, as described in subsection (2), but the income year is divided by the day that section EY 30 ceases to apply.
The effect of the part-year cal- culations is described in subsection (3).
Part-year calculations: end of transitional adjustments [Repealed] [Repealed] Deﬁned in this Act: amount, class of policies, deduction, early life regime ap- plication day, income, income tax liability, income year, life insurance, life insurance policies, life insurer, life reinsurance, outstanding claims reserve Section EY 5: substituted, on 1 July 2010, by section 185(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EY 5(3) heading: amended (with effect on 1 July 2010), on 7 September 2010, by section 45(1) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).

Section EY 5(4): amended (with effect on 1 July 2010), on 2 November 2012, by section 53(a) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section EY 5(4): amended (with effect on 1 July 2010), on 2 November 2012, by section 53(b) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).

Section EY 5(4): amended (with effect on 1 July 2010), on 7 September 2010, by section 45(2) of the Taxation (Annual Rates, Trans-Tasman Savings Porta- bility, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
Section EY 5(6) heading: substituted (with effect on 1 July 2010), on 7 Septem- ber 2010, by section 45(3) of the Taxation (Annual Rates, Trans-Tasman Sav- ings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).

Section EY 5(6): substituted (with effect on 1 July 2010), on 7 September 2010, by section 45(3) of the Taxation (Annual Rates, Trans-Tasman Savings Porta- bility, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
Section EY 5(7) heading: repealed (with effect on 1 July 2010), on 7 September 2010, by section 45(3) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).

Section EY 5(7): repealed (with effect on 1 July 2010), on 7 September 2010, by section 45(3) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
(6) (7) 1314 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EY 7 EY 6 Actuarial advice and guidance The Commissioner may seek the advice of an actuary on any- thing that is required to be actuarially determined, or any re- lated matter.

Deﬁned in this Act: actuarially determined, actuary, Commissioner Section EY 6: substituted, on 1 July 2010, by section 186(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EY 6: amended, on 1 May 2011, by section 82 of the Financial Markets Authority Act 2011 (2011 No 5).
EY 7 Meaning of claim (1) (2) (3) Meaning in life insurance rules In the life insurance rules, claim— (a) means the amount that a life insurer is liable to pay under a life insurance policy because the contingency against which the life insured is covered under the pol- icy has occurred; subsections (2) to (5) expand on “the amount that a life insurer is liable to pay”: excludes a payment made by a life insurer on the trans- fer of some or all of its life insurance business: in the expression “claim arising”, does not have the meaning given to the word “claim” in paragraph (a) or (b).
(b) (c) Cash and non-cash beneﬁts For the purposes of subsection (1)(a), the amount that a life insurer is liable to pay includes— (a) (b) (c) (d) (e) (f) a payment on the death of a life insured: a payment on maturity: a payment of a cash bonus: a payment on the surrender of a policy: an annuity payment: a beneﬁt other than in cash.
Advance or amount in actuarial reserves For the purposes of subsection (1)(a), the amount that a life insurer is liable to pay does not include— (a) (b) an advance against the security of the policy; or a bonus or other discretionary amount added to the ac- tuarial reserves.
1315 Part E s EY 8 Income Tax Act 2007 Reprinted as at 30 August 2013 (4) (5) Amount before certain subtractions For the purposes of subsection (1)(a), the amount that a life insurer is liable to pay means the amount before the subtraction of the following amounts payable to the life insurer: (a) (b) (c) an advance against the security of the policy; and an unpaid premium for the policy; and interest on an amount referred to in paragraph (a) or (b).
Amount zero For the purposes of subsection (1)(a), the amount that a life insurer is liable to pay may be zero.

Deﬁned in this Act: actuarial reserves, amount, business, claim, interest, life insurance, life insurance policy, life insurance rules, life insured, life insurer, pay, premium Compare: 2004 No 35 s EY 7 Section EY 7(1)(b): amended, on 1 July 2010, by section 187(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
EY 8 Meaning of life insurance Meaning Life insurance means insurance under which— (a) person A (the life insurer) is liable to provide person B (the policyholder) with a beneﬁt described in subsec- tion (2); and the life insurer is entitled to receive consideration in return, either from the policyholder or from some other person.
Beneﬁts The beneﬁts are— (a) a beneﬁt whose payment is contingent on the death of 1 or more human beings, including an annuity whose term is contingent on human life; or a beneﬁt whose payment is contingent on the survival of 1 or more human beings to a date, or an age, speciﬁed as part of the insurance, including an annuity whose term is contingent on human life; or a beneﬁt that is an annuity whose term is not contingent on human life, if the life insurer enters into the arrange- (1) (2) 1316 (b) (b) (c) Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EY 8 ment to provide the annuity as part of their business of providing life insurance.
(3) (4) Exclusion: death beneﬁts provided under accident or medical insurance Life insurance does not include accident or medical insurance under which— (a) 1 or more beneﬁts are payable for the death of the person whose life is insured; and all the beneﬁts referred to in paragraph (a) are— (i) (b) payable if the death is caused by a speciﬁed cause named in the policy; or payable incidentally to the provision of accident or medical beneﬁts, if the death is caused by a speciﬁed cause named in the policy.
(ii) Exclusion: death beneﬁts provided by superannuation funds Life insurance does not include an arrangement in which— a superannuation fund is liable to pay, as a beneﬁt to a (a) beneﬁciary of the fund, a lump sum on— (i) the death of 1 or more human beings speciﬁed in the trust deed; or the survival of 1 or more human beings speciﬁed in the trust deed to a date, or an age, speciﬁed in the trust deed; and the lump sum is made up of— (i) (ii) (b) (ii) (iii) superannuation contributions made by or for the beneﬁciary; and allocated investment earnings attributable to con- tributions made by or for the beneﬁciary; and any other allocation from the proﬁts of the super- annuation fund attributable to contributions made by or for the beneﬁciary.
Deﬁned in this Act: arrangement, business, life insurance, life insurer, pay, superannuation contribution, superannuation fund Compare: 2004 No 35 s EY 8 1317 Part E s EY 9 Income Tax Act 2007 Reprinted as at 30 August 2013 EY 9 Meaning of life insurance policy Life insurance policy means a policy to the extent to which it states the terms under which life insurance is covered.
Deﬁned in this Act: life insurance, life insurance policy Compare: 2004 No 35 s EY 9 EY 10 Meaning of life insurer (1) Meaning Life insurer means a person carrying on a business of provid- ing life insurance.

Exclusion (2) A person carrying on a business of providing life insurance in an income year is treated as not carrying on a business of providing life insurance while the person has full reinsurance.
Inclusion (3) An association of persons, a body of persons, or a trustee is treated as carrying on a business of providing life insurance to the extent to which— (a) the association, body, or trustee provides life insurance; and the consideration for the provision is something other than natural love and affection.
(b) Parties to policies treated as being unrelated Every life insurance policy entered into by the association, body, or trustee as insurer is treated as entered into with an unrelated party, even if the life insurer and the policyholder are, for example,— (a) (b) an association and a member of the association; or a trustee and a beneﬁciary of the trust.
Relationship with subpart HE Subpart HE (Mutual associations) does not apply to the busi- ness of providing life insurance of the association, body, or trustee.
Deﬁned in this Act: business, full reinsurance, income year, life insurance, life insurance policy, life insurer, trustee Compare: 2004 No 35 s EY 10 (4) (5) 1318 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EY 11 EY 11 Superannuation schemes providing life insurance (1) Beneﬁts treated as life insurance The provision by a trustee of a superannuation scheme of a beneﬁt to a member or beneﬁciary of the scheme is treated as the provision of life insurance if the trustee provides life insurance to any member or beneﬁciary, unless subsection (2) applies.
Exemption for certain schemes (2) A trustee of a superannuation fund is treated as not carrying on the business of life insurance for an income year if the fund meets all the requirements of subsections (3) to (9) for the income year.

Fund must be registered (3) At all times in the income year, the fund must be registered under the Superannuation Schemes Act 1989.
Trustee cannot be a life insurance company (4) At all times in the income year, no trustee of the fund is a company carrying on the business of providing life insurance to which the Life Insurance Act 1908 applies.
Nature of funds (5) At all times in the income year, the fund must be 1 of the following kinds: (a) a fund established by an employer, or a group of em- ployers who are associated, to provide beneﬁts only to persons who are employees of, or related by employ- ment to, such an employer, or to another associated employer who agrees after the fund’s establishment to make contributions to it: a fund constituted under the Government Superannu- ation Fund Act 1956 that provides beneﬁts only to per- sons who are employees of, or related by employment to, an employer who agrees or is required to contribute, or on whose behalf contributions are made, to the fund: a fund constituted under the National Provident Fund Act 1950, the National Provident Fund Restructuring Act 1990, or the National Provident Fund Restructuring Amendment Act 1997 that has as its trustee the Board of Trustees of the National Provident Fund.
(b) (c) 1319 Part E s EY 11 Income Tax Act 2007 Reprinted as at 30 August 2013 Only certain fund beneﬁciaries allowed (6) At all times in the income year, each beneﬁciary of the fund must be— (a) a natural person that is an employee of or related by employment to an employer of the kind referred to in subsection (5)(a) or (b): a natural person that is a beneﬁciary of the fund, in the case of a fund referred to in subsection (5)(c) (which refers to funds related to the National Provident Fund): an employer of members of the fund, to the extent of the employer’s contingent interest in a fund surplus.
(b) (c) Signiﬁcant employer superannuation contributions required (7) At all times in the income year, each employer is required by the trust deed or Act constituting the fund to make or is mak- ing, or having made on their behalf, superannuation contribu- tions to provide to a signiﬁcant extent the fund beneﬁts, except to the extent to which subsection (10) applies.
(8) (9) No avoidance effect The fund must not have been established, and must not be being used at any time in the income year, in a way that has the effect of defeating the intent and application of the life insurance rules.

FMA approval required The trustee of the fund must have made a written application to the FMA for, and the FMA must have granted, approval that the fund is for the income year one that complies with subsections (3) to (8).
Exemptions to requirements of subsection (7) (10) Subsection (7) does not apply if— (a) (b) the FMA is satisﬁed that, for the income year, subsec- tion (7) would have been complied with but for the fund assets exceeding the accrued beneﬁts from the fund: the fund is one referred to in subsection (5)(c) (which refers to funds related to the National Provident Fund).
1320 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EY 11 Limited superannuation contributions disregarded for subsection (7) (11) For the purposes of subsection (7), superannuation contribu- tions that are merely nominal or that only meet the costs of administration and investment management are disregarded.
Notice by FMA (12) The FMA must notify the trustee of a superannuation fund as soon as practicable after determining that— (a) the fund complies with subsections (3) to (8) for an in- come year: the fund ceases to comply with the subsections for an income year.
(b) Objection under Superannuation Schemes Act (13) A person dissatisﬁed with the FMA’s decision may appeal against the decision under section 23 of the Superannuation Schemes Act 1989 and has no right of objection under the Tax Administration Act 1994.
(14) Meaning of related by employment In this section, a person is related by employment to an em- ployer if the person is— (a) a former employee, in the case of deferred beneﬁts re- lating to prior employment: a relative or dependent of an employee, in the case of beneﬁts arising from the employee’s or former em- ployee’s membership in the fund.
(b) Deﬁned in this Act: associated, company, employee, employer, income year, life insurance, life insurance rules, related by employment, relative, superannu- ation contribution, superannuation fund, superannuation scheme, trustee Compare: 2004 No 35 s GD 8(1), (3)–(8) Section EY 11(3): amended, on 1 May 2011, by section 82 of the Financial Markets Authority Act 2011 (2011 No 5).
Section EY 11(5) heading: substituted (with effect on 1 April 2010), on 21 De- cember 2010 (applying for the 2010–11 and later income years), by section 57(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).

Section EY 11(5): substituted (with effect on 1 April 2010), on 21 December 2010 (applying for the 2010–11 and later income years), by section 57(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section EY 11(7) heading: amended (with effect on 1 April 2008), on 6 October 2009, by section 188(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

1321 Part E s EY 12 Income Tax Act 2007 Reprinted as at 30 August 2013 Section EY 11(7): amended (with effect on 1 April 2008), on 6 October 2009, by section 188(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EY 11(9) heading: amended, on 1 May 2011, by section 85(1) of the Financial Markets Authority Act 2011 (2011 No 5).

Section EY 11(9): amended, on 1 May 2011, by section 85(1) of the Financial Markets Authority Act 2011 (2011 No 5).

Section EY 11(10)(a): amended, on 1 May 2011, by section 85(1) of the Finan- cial Markets Authority Act 2011 (2011 No 5).
Section EY 11(11) heading: amended (with effect on 1 April 2008), on 6 Octo- ber 2009, by section 188(2) of the Taxation (International Taxation, Life Insur- ance, and Remedial Matters) Act 2009 (2009 No 34).

Section EY 11(11): amended (with effect on 1 April 2008), on 6 October 2009, by section 188(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EY 11(12) heading: amended, on 1 May 2011, by section 85(1) of the Financial Markets Authority Act 2011 (2011 No 5).

Section EY 11(12): amended, on 1 May 2011, by section 85(1) of the Financial Markets Authority Act 2011 (2011 No 5).

Section EY 11(13): amended, on 1 May 2011, by section 82 of the Financial Markets Authority Act 2011 (2011 No 5).
Section EY 11 list of deﬁned terms superannuation contribution: inserted (with effect on 1 April 2008), on 6 October 2009, by section 188(3) of the Tax- ation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
EY 12 Meaning of life reinsurance (1) Meaning Life reinsurance— (a) means a contract of insurance between a life insurer and another person (person C) under which the life insurer is secured, fully or partially, against a risk by person C: does not include a contract that— (i) secures against ﬁnancial risk unless, in the con- tract, it is incidental to securing against life risk: is, or is part of, a tax avoidance arrangement.
(ii) (b) “Fully” and “partially” (1B) The words “fully” and “partially” describe the extent to which the life insurer is secured against life risk; they do not describe the term for which the reinsurance is provided.
Full reinsurance The life insurer has full reinsurance if all the following apply: (2) 1322 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EY 12 (a) (b) (c) (d) the life insurer offered or was offered or entered into a life insurance policy or policies,— (i) in the case of a life insurer resident in New Zealand, as part of their business of providing life insurance; or in the case of a life insurer not resident in New Zealand, as part of their New Zealand business; and (ii) the life insurer holds a life reinsurance policy or policies covering every life insurance policy described in para- graph (a); and the life insurer is fully secured against liability under the life insurance policy or policies by the life reinsurance policy or policies; and the life insurer offered or was offered or entered into the life reinsurance policy or policies in New Zealand.
(3) Partial reinsurance The life insurer has partial reinsurance if all the following apply: (a) the life insurer— (i) holds a life reinsurance policy or policies fully securing them against liability for 1 or some, but not all, of the life insurance policies described in paragraph (b); or holds a life reinsurance policy or policies for all the life insurance policies described in paragraph (b) but only partially securing them against liabil- ity; or holds a life reinsurance policy or policies par- tially securing them against liability for 1 or some, but not all, of the life insurance policies described in paragraph (b); and (ii) (iii) (b) the life insurer offered or was offered or entered into the life insurance policy or policies covered by the life reinsurance policy or policies,— (i) in the case of a life insurer resident in New Zealand, as part of their business of providing life insurance; or 1323 Part E s EY 12 Income Tax Act 2007 Reprinted as at 30 August 2013 (ii) in the case of a life insurer not resident in New Zealand, as part of their New Zealand business; and (c) the life insurer offered or was offered or entered into the life reinsurance policy or policies in New Zealand.
Exclusion: ﬁnancial arrangements and general insurance To the extent to which a contract is a ﬁnancial arrangement or is insurance that secures a life insurer against liability that arises from insurable events other than death or survival of a human being, that contract is not life reinsurance.
Other deﬁnitions In this Act,— life ﬁnancial reinsurance is a contract that may be life rein- surance under subsection (1)(a), but is not included under sub- section (1)(b) ﬁnancial risk— (a) means risk, whether or not speciﬁc to a party to the rele- vant arrangement relating to risk, that is contingent on a valuation or disposal of ﬁnancial arrangements, or con- tingent on proﬁtability or creditworthiness, or contin- gent on a variable such as future expenditure: does not include life risk (b) life reinsurer means a person in the position of person C. Relationship with subject matter Section EZ 62 (Reinsurance transition: life ﬁnancial reinsur- ance may be life reinsurance) overrides this section.
Deﬁned in this Act: business, ﬁnancial arrangement, ﬁnancial risk, full rein- surance, life ﬁnancial reinsurance, life insurance, life insurance policy, life in- surer, life reinsurance, life reinsurance policy, life reinsurer, New Zealand busi- ness, offered or was offered or entered into, partial reinsurance, resident in New Zealand Compare: 2004 No 35 s EY 11 Section EY 12(1) heading: substituted, on 1 July 2010, by section 189(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EY 12(1): substituted, on 1 July 2010, by section 189(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section EY 12(1B) heading: inserted, on 1 July 2010, by section 189(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
(4) (5) (6) 1324 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EY 14 Section EY 12(1B): inserted, on 1 July 2010, by section 189(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section EY 12(4) heading: substituted, on 1 July 2010, by section 189(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EY 12(4): substituted, on 1 July 2010, by section 189(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section EY 12(5) heading: added, on 1 July 2010, by section 189(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section EY 12(5): added, on 1 July 2010, by section 189(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EY 12(6) heading: added, on 1 July 2010, by section 189(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section EY 12(6): added, on 1 July 2010, by section 189(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EY 12 list of deﬁned terms ﬁnancial arrangement: inserted, on 1 July 2010, by section 189(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section EY 12 list of deﬁned terms ﬁnancial risk: inserted, on 1 July 2010, by section 189(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EY 12 list of deﬁned terms life ﬁnancial reinsurance: inserted, on 1 July 2010, by section 189(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

EY 13 Meaning of life reinsurance policy Life reinsurance policy means a policy to the extent to which it states the terms under which life reinsurance is covered.
Deﬁned in this Act: life reinsurance, life reinsurance policy Compare: 2004 No 35 s EY 12 EY 14 Life insurance and life reinsurance: how sections relate (1) (2) Life insurance deﬁnitions Sections EY 8 to EY 11 deﬁne terms relating to life insurance.

Life reinsurance deﬁnitions Sections EY 12 and EY 13 deﬁne terms relating to life rein- surance.
1325 Part E s EY 15 Income Tax Act 2007 Reprinted as at 30 August 2013 Life insurance term usually includes life reinsurance term (3) A reference in this Act to any of the terms deﬁned in sec- tions EY 8 to EY 11 includes the equivalent term in sections EY 12 and EY 13—for example, life insurer includes life reinsurer—unless the context requires otherwise.
Deﬁned in this Act: life insurance, life insurer, life reinsurance, life reinsurer Compare: 2004 No 35 s EY 13 Policyholder base Heading: inserted, on 1 July 2010, by section 190(1) of the Taxation (Inter- national Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Non-participation policies Heading: substituted, on 1 July 2010, by section 190(1) of the Taxation (Inter- national Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
EY 15 Policyholder base income: non-participation policies (1) What is included For an income year, a life insurer’s income is included as their policyholder base income if it relates to life insurance policies that are not proﬁt participation policies, and it— (a) does not relate to life risk components of premiums and claims: is investment income that— (i) (b) is included in investment income gains or losses in the ﬁnancial statements of the life insurer; and is not a premium; and is fairly attributable to savings product policies.
(ii) (iii) Certain income: basis of apportionment (2) Despite subsection (1), if an amount of investment income is included in a life insurer’s policyholder base income under subsection (1), but may also be shareholder base income under section EY 19, ignoring section EY 19(1)(d), then the invest- ment income is included in policyholder base income to the extent provided by the formula— 1326 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EY 15 income × average surrender value average savings assets.
(3) Deﬁnition of items in formula In the formula,— (a) (b) income is the income described in subsection (2): average surrender value is, for the savings product policies to which the income relates, the average sur- render value of the policies for the income year.
The life insurer may determine an equitable and reasonable basis for the measurement of the average: average savings assets is, for the savings product poli- cies to which the income relates, the average market value of assets held by the life insurer for the policies for the income year.

The life insurer may determine an equitable and reasonable basis for the measurement of the average.
(c) More equitable or reasonable basis of apportionment (4) Despite subsections (2) and (3), for investment income de- scribed in subsection (2), the life insurer may use a basis of apportionment that is different from the one described in sub- sections (2) and (3), if that basis results in an amount, actu- arially determined, that is more equitable and reasonable than an amount determined using the basis described in subsections (2) and (3).
Treatment of de minimis life risk component amounts (5) An amount of income relating to a policy that, but for this subsection, is an amount related to the life risk of a premium or life reinsurance claim, is treated as not relating to the relevant life risk component for the purposes of subsection (1), if— (a) the life insurer has actuarially determined that the life risk is 1% or less of the premium or life reinsurance claim; and chooses to apply this subsection for the policy.
(b) Deﬁned in this Act: actuarially determined, amount, claim, income, income year, life insurance policy, life insurer, life reinsurance, life risk, life risk com- ponent, market value, premium, policyholder base income, proﬁt participation policy, savings product policy, shareholder base income, surrender value 1327 Part E s EY 16 Income Tax Act 2007 Reprinted as at 30 August 2013 Section EY 15: substituted, on 1 July 2010, by section 190(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EY 15(5): amended, on 1 July 2010 (applying for income years begin- ning on or after 1 July 2010), by section 32(1) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
EY 16 Policyholder base allowable deductions: non-participation policies (1) What is included For an income year, a life insurer’s deduction that relates to life insurance policies that are not proﬁt participation policies is included as their policyholder allowable deduction to the extent to which it is incurred in relation to their policyholder base income under section EY 15.
Basis of apportionment (2) Despite subsection (1), if a deduction is included in a life in- surer’s policyholder base allowable deduction under subsec- tion (1), but may also be a shareholder base allowable deduc- tion under section EY 20, ignoring section EY 20(1)(d), the life insurer must use a basis of apportionment for the deduc- tion which is— (a) the same as in section EY 15(2) and (3)with necessary modiﬁcations; or is the same as in section EY 15(4) with necessary modi- ﬁcations.
(b) Deﬁned in this Act: deduction, income year, life insurance policy, life insurer, premium loading, premium loading formula, policyholder base allowable de- duction, policyholder base income, proﬁt participation policy, shareholder base allowable deduction Section EY 16: substituted, on 1 July 2010, by section 190(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Proﬁt participation policies Heading: inserted, on 1 July 2010, by section 190(1) of the Taxation (Inter- national Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
1328 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EY 17 EY 17 Policyholder base income: proﬁt participation policies What is included For an income year, a life insurer has policyholder base income to the extent to which they have an amount for proﬁt partici- pation policies calculated using the formula— asset base gross income × (1 retained earnings average future shareholder transfers average) + net transfers.
Deﬁnition of items in formula In the formula,— (a) (1) (2) (b) (c) asset base gross income is the amount of annual gross income that the life insurer would have for the policies’ asset base, if— (i) the life insurer is treated as having no assets other than the asset base; and amounts under sections EY 28 and EY 29 are ignored: (ii) retained earnings average is an actuarially determined amount that is the average of the following 2 propor- tions: (i) the proportion of the value of the policies’ asset base that is attributable to the life insurer’s share- holder’s retained earnings at the end of the year before the income year: the proportion of the value of the policies’ asset base that is attributable to the life insurer’s share- holder’s retained earnings at the end of the in- come year: (ii) future shareholder transfers average is an actuarially determined amount that is the average of the following 2 proportions: (i) the proportion of the value of the policies’ asset base that is attributable to the present value (net) of future transfers to the life insurer’s sharehold- ers for future bonus declarations that are able to be supported by the supporting asset base at the beginning of the income year: the proportion of the value of the policies’ asset base that is attributable to the present value (net) of future transfers to the life insurer’s sharehold- (ii) 1329 Part E s EY 18 Income Tax Act 2007 Reprinted as at 30 August 2013 ers for future bonus declarations that are able to be supported by the supporting asset base at the end of the income year: (d) net transfers is the amount transferred to the beneﬁt of policyholders from shareholders in relation to proﬁt participation policies.
(3) Meaning of supporting asset base Supporting asset base means the asset base for relevant poli- cies excluding— (a) the value of assets supporting the life insurer’s policy- holder unvested liabilities: the value of assets attributable to the life insurer’s share- holders.
(b) Deﬁned in this Act: actuarially determined, amount, annual gross income, asset base, income year, life insurer, policyholder base income, present value (net), proﬁt participation policy, supporting asset base Section EY 17: substituted, on 1 July 2010, by section 190(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EY 17(2)(b)(i): amended, on 1 July 2010, by section 33(1) of the Tax- ation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).

Section EY 17(2)(b)(ii): amended, on 1 July 2010, by section 33(2) of the Tax- ation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).

Section EY 17(2)(d): amended, on 1 July 2010, by section 33(3) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
Section EY 17(3)(a): amended, on 1 July 2010, by section 33(4) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
EY 18 Policyholder base allowable deductions: proﬁt participation policies For an income year, a life insurer has policyholder base allow- able deductions equal to the amount they would have, for proﬁt participation policies, under the formula in section EY 17(1), if— (a) the life insurer is treated as having no assets other than the asset base; and the item asset base gross income is treated as being the annual total deduction for the policies’ asset base; and (b) 1330 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EY 19 the item net transfers is ignored.
(c) Deﬁned in this Act: amount, annual total deduction, asset base, income year, life insurer, policyholder base allowable deduction, proﬁt participation policy Section EY 18: substituted, on 1 July 2010, by section 190(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section EY 18(b): amended, on 1 July 2010, by section 34(1) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
Section EY 18(c): added, on 1 July 2010, by section 34(1) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).

Shareholder base Heading: inserted, on 1 July 2010, by section 190(1) of the Taxation (Inter- national Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Non-participation policies Heading: inserted, on 1 July 2010, by section 190(1) of the Taxation (Inter- national Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
EY 19 Shareholder base income: non-participation policies (1) What is included For an income year, a life insurer’s income is included as their shareholder base income if it relates to life insurance policies that are not proﬁt participation policies, and it— (a) relates to life risk components of premiums and claims, other than for annuities, and is not described in para- graphs (b) to (d): relates to fees and commissions: relates to the life risk component of life reinsurance claims: is investment income that is not included as their pol- icyholder base income under section EY 15: is not otherwise accounted for in this subpart, for the income year.
(b) (c) (d) (e) Treatment of de minimis life risk component amounts (2) An amount of income relating to a policy that, but for this subsection, is an amount related to the life risk of a premium 1331 Part E s EY 20 Income Tax Act 2007 Reprinted as at 30 August 2013 or life reinsurance claim, is treated as not relating to the life risk component for the purposes of subsection (1), if— (a) the life insurer has actuarially determined that the life risk is 1% or less of the premium or life reinsurance claim; and chooses to apply section EY 15(5) for the policy.
(b) (3) No double-counting If an amount is included as shareholder base income under sections EY 23 to EY 29, it is not included under this section.
Deﬁned in this Act: actuarially determined, amount, claim, income year, life in- surer, life insurance policy, life reinsurance, life risk, life risk component, pol- icyholder base income, premium, proﬁt participation policy, shareholder base income Section EY 19: substituted, on 1 July 2010, by section 190(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EY 19(2): amended, on 1 July 2010 (applying for all income years be- ginning on or after 1 July 2010), by section 35(1) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
EY 20 Shareholder base allowable deductions: non-participation policies What is included For an income year, a life insurer’s deduction is included as their shareholder base allowable deduction if it relates to life insurance policies that are not proﬁt participation policies, and it— (a) relates to life risk components of premiums and claims, other than for annuities, and is not described in para- graphs (b) to (e): relates to fees and commissions: relates to the life risk component of life reinsurance pre- miums: is a deduction in relation to investment income that is not included as their policyholder base allowable deduc- tion under section EY 16: is a premium payback amount, and— (i) section EY 19 applies or has applied to include the original premium as shareholder base in- come; and (b) (c) (d) (e) (1) 1332 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EY 21 (2) (ii) section EY 30(7) does not apply or has not ap- plied to calculate a transitional amount for the original premium: (f) is not otherwise accounted for in this subpart, for the income year.
No double-counting If an amount is included as shareholder base allowable deduc- tion under sections EY 23 to EY 29, it is not included under this section.
Deﬁned in this Act: amount, claim, deduction, income year, life insurance pol- icy, life insurer, life reinsurance, life risk component, policyholder base allow- able deduction, premium, premium payback amount, proﬁt participation policy, shareholder base allowable deduction, shareholder base income Section EY 20: substituted, on 1 July 2010, by section 190(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Proﬁt participation policies Heading: inserted, on 1 July 2010, by section 190(1) of the Taxation (Inter- national Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

EY 21 Shareholder base income: proﬁt participation policies What is included For an income year, a life insurer has shareholder base income to the extent to which they have an amount for proﬁt partici- pation policies calculated using the formula— asset base gross income × (retained earnings average net transfers.
+ future shareholder transfers average) Deﬁnition of items in formula In the formula,— (a) asset base gross income is the amount of annual gross income that the life insurer would have for the proﬁt participation policies’ asset base, if— (i) the life insurer is treated as having no assets other than the asset base; and amounts under sections EY 28 and EY 29 are ignored: (ii) (1) (2) 1333 Part E s EY 21 Income Tax Act 2007 Reprinted as at 30 August 2013 (b) (c) retained earnings average is an actuarially determined amount that is the average of the following 2 propor- tions: (i) the proportion of the value of the policies’ asset base that is attributable to the life insurer’s share- holder’s retained earnings at the end of the year before the income year: the proportion of the value of the policies’ asset base that is attributable to the life insurer’s share- holder’s retained earnings at the end of the in- come year: (ii) future shareholder transfers average is an actuarially determined amount that is the average of the following 2 proportions: (i) the proportion of the value of the policies’ asset base that is attributable to the present value (net) of future transfers to the life insurer’s sharehold- ers for future bonus declarations that are able to be supported by the supporting asset base at the beginning of the income year: the proportion of the value of the policies’ asset base that is attributable to the present value (net) of future transfers to the life insurer’s sharehold- ers for future bonus declarations that are able to be supported by the supporting asset base at the end of the income year: (ii) (d) net transfers is the amount transferred to the beneﬁt of policyholders from shareholders in relation to proﬁt participation policies.
Deﬁned in this Act: actuarially determined, amount, annual gross income, asset base, income, income year, life insurer, present value (net), proﬁt participation policy, shareholder base income, supporting asset base Section EY 21: substituted, on 1 July 2010, by section 190(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EY 21(2)(b)(i): amended, on 1 July 2010, by section 36(1) of the Tax- ation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).

Section EY 21(2)(b)(ii): amended, on 1 July 2010, by section 36(2) of the Tax- ation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
1334 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EY 23 Section EY 21(2)(d): amended, on 1 July 2010, by section 36(3) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
EY 22 Shareholder base allowable deductions: proﬁt participation policies For an income year, a life insurer has shareholder base allow- able deductions equal to the amount they would have, for proﬁt participation policies, under the formula in section EY 21(1) if— (a) the life insurer is treated as having no assets other than the asset base; and the item asset base gross income is treated as being the annual total deduction for the policies’ asset base; and the item net transfers is ignored.
(c) Deﬁned in this Act: amount, annual total deduction, asset base, income year, life insurer, proﬁt participation policy, shareholder base allowable deduction (b) Section EY 22: substituted, on 1 July 2010, by section 190(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section EY 22(b): amended, on 1 July 2010, by section 37(1) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
Section EY 22(c): added, on 1 July 2010, by section 37(1) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).

Non-participation policies: reserves Heading: inserted, on 1 July 2010, by section 190(1) of the Taxation (Inter- national Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
EY 23 Reserving amounts for life insurers: non-participation policies (1) Reserves Sections EY 24 to EY 27 apply to calculate a life insurer’s reserving amounts for life insurance policies, other than an- nuities, that have a life risk component and that are not proﬁt participation policies.

Actuarial determination (2) All reserving amounts must be actuarially determined, for each class of policies.
1335 Part E s EY 23 Income Tax Act 2007 Reprinted as at 30 August 2013 (3) (4) Positive and negative amounts: shareholder base income or shareholder base allowable deduction If a reserving amount calculated under sections EY 24 to EY 27 is a positive amount, the life insurer has that amount If a as income included in their shareholder base income.
reserving amount calculated under sections EY 24 to EY 27 is a negative amount, the life insurer has that amount as a deduc- tion included in their shareholder base allowable deductions.

Which reserve can be used when?
For an income year, for a relevant class of policies, a life in- surer has a reserving amount described in— (a) section EY 24, for outstanding claims reserves (the out- standing claims reserving amount): section EY 25, for premium smoothing reserves (the premium smoothing reserving amount) if the life in- surer chooses to calculate a premium smoothing reserv- ing amount and the PSR periods for policies in the class of policies begins, continues or ends in the income year: section EY 26, for unearned premium reserves (the un- earned premium reserving amount), if the life insurer chooses to not calculate a premium smoothing reserv- ing amount: section EY 27, for capital guarantee reserves (the cap- ital guarantee reserving amount).
(b) (c) (d) Choice (5) Despite subsection (4)(b) and (c), a life insurer may not change between calculating a premium smoothing reserving amount and an unearned premium reserving amount for a class of poli- cies once the premium smoothing reserving amount is used for the class of policies.

If a policy in a class of policies does not meet the relevant requirements described in subsection (6), then a life insurer has an unearned premium reserving amount for that class of policy.
Meaning of PSR period PSR period means, for a policy in the relevant class of poli- cies, a period beginning, continuing or ending in the income year for which— (6) 1336 (1) (2) Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EY 24 (a) (b) premiums payable are level or substantially level, and the period is 1 or more years; or there is a material mismatch between the incidence of life risk components and the timing of premiums payable, and the period is 1 or more years.
Deﬁned in this Act: actuarially determined, amount, class of policies, deduc- tion, income year, life insurance policy, life insurer, life risk, life risk compo- nent, premium, proﬁt participation policy, PSR period, shareholder base allow- able deduction, shareholder base income Section EY 23: substituted, on 1 July 2010, by section 190(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
EY 24 Outstanding claims reserving amount: non-participation policies not annuities Calculation of reserving amount For an income year (the current year), a life insurer has an outstanding claims reserving amount for a class of policies calculated using the formula— opening outstanding claims reserve closing outstanding claims reserve.
Deﬁnition of items in formula In the formula in subsection (1),— (a) opening outstanding claims reserve is— (i) (ii) the amount of the life insurer’s closing outstand- ing claims reserve for the class of policies, for the income year before the current year (the prior year); or if the life insurer has no closing outstanding claims reserve for the prior year, the amount that would be the outstanding claims reserve for the class of policies, using subsections (3) and (4) with necessary modiﬁcations, calculated at the end of the prior year, but using a basis consistent with the one that the insurer used for tax pur- poses in that prior year (for example, if IBNR liability was not accounted for, for tax purposes, in the prior year, the opening balance calculation does not take into account IBNR liability): 1337 Part E s EY 24 Income Tax Act 2007 Reprinted as at 30 August 2013 (b) closing outstanding claims reserve is the amount of the life insurer’s outstanding claims reserve calculated under subsections (3) and (4) for the class of policies at the end of the current year.
Outstanding claims reserve calculation (3) A life insurer’s outstanding claims reserve is calculated for the relevant policies using the formula— life risk claims incurred + life risk claims reported + risk margin.
Deﬁnition of items in formula In the formula in subsection (3),— (a) life risk claims incurred is the actuarially determined estimate of present values (gross) for the life risk com- ponents of claims not yet reported to the life insurer be- fore the end of the current year, but the insured-against event has occurred.
The life risk components must take into account the probability of the claims being paid, and future expenses for administering the claims, but the present value (gross) of relevant life reinsurance claims must be subtracted from the total: life risk claims reported is the present values (gross) of the life risk components of claims reported but not yet paid.
The life risk components must take into ac- count the probability of the claims being paid, and fu- ture expenses for administering the claims, but the pre- sent values (gross) of relevant life reinsurance claims must be subtracted from the total: risk margin is the appropriate margin for the life risk components of claims described in paragraph (a) or (b), to the extent to which the margin is actuarially deter- mined, reﬂects the uncertainty of the estimates that arise from the use of the relevant best estimate assumptions, and is not already included in the life risk components of the claims.
(b) (c) Deﬁned in this Act: amount, best estimate assumptions, claim, class of policies, income year, life insurer, life reinsurance, life risk, life risk component, mortal- ity proﬁt, present value (gross) Section EY 24: substituted, on 1 July 2010, by section 190(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
(4) 1338 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EY 25 Section EY 24(2)(a)(ii): amended (with effect on 1 July 2010), on 21 December 2010, by section 58(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).

Section EY 24(2)(a)(ii): amended (with effect on 1 July 2010), on 7 September 2010, by section 46(1) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
EY 25 Premium smoothing reserving amount: non-participation policies not annuities Calculation of reserving amount For an income year (the current year), a life insurer has a pre- mium smoothing reserving amount for a class of policies, dur- ing the policies’ PSR periods, calculated using the formula— opening premium smoothing reserve closing premium smoothing reserve.
Deﬁnition of items in formula In the formula,— (a) (1) (2) (ii) opening premium smoothing reserve is— (i) the amount of the life insurer’s closing premium smoothing reserve for the class of policies, for the income year (the prior year) before the current year; or the amount that would be the premium smoothing reserve for the class of policies, using the prin- ciples in subsection (3) with necessary modiﬁca- tions, calculated at the end of the prior year, if the life insurer has no closing premium smooth- ing reserve for the prior year: (b) closing premium smoothing reserve is the amount of the life insurer’s premium smoothing reserve calculated under the principles in subsection (3) for the class of policies, calculated at the end of the current year.
Premium smoothing reserve calculation: principles (3) A premium smoothing reserve for policies in a class of poli- cies, during their PSR periods, is calculated using the follow- ing principles: (a) the premium smoothing reserve must allow the calcu- lation of a reserving amount for an income year, such that the reserving amount plus the life risk component 1339 Part E s EY 25 Income Tax Act 2007 Reprinted as at 30 August 2013 (b) of premiums for the policies for the income year must equal the expected life risk proportion: the life risk component of premiums plus reserving amount recognised for tax purposes during the policies’ PSR periods must equal the total life risk component of premiums recognised for ﬁnancial reporting purposes during the PSR periods.
Best estimate assumptions for PSR Closing and opening premium smoothing reserve amounts must be actuarially determined, using best estimate assump- tions.
Special grouping rule for the purposes of best estimate assumptions For the purposes of determining premium smoothing reserve amounts, life insurance policies may be grouped together if the policies have in common,— (a) substantially the same contractual terms and conditions, other than their PSR periods; and substantially the same assumptions for pricing their life risk.
(b) Meaning of expected life risk proportion In this section, expected life risk proportion means a pro- portion of the total life risk and life risk renewal expenses of premiums for life insurance policies in the relevant class dur- ing their PSR periods, where that proportion fairly reﬂects the life risk and an amount of life risk renewal expenses expected to be borne in that income year if the policies were still exist- ing at the earlier of— (a) the end of the income year: immediately before the end of the policies’ PSR period.
(b) Deﬁned in this Act: amount, actuarially determined, best estimate assumptions, class of policies, expected life risk proportion, income year, life insurance pol- icy, life insurer, life risk, life risk component, premium, PSR period Section EY 25: substituted, on 1 July 2010, by section 190(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EY 25(2)(a)(ii): amended (with effect on 1 July 2010), on 7 September 2010, by section 47(1) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
(4) (5) (6) 1340 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EY 26 EY 26 Unearned premium reserving amount: non-participation policies not annuities Calculation of reserving amount For an income year (the current year), a life insurer has an unearned premium reserving amount for a class of policies calculated using the formula— opening unearned premium reserve closing unearned premium reserve.
Deﬁnition of items in formula In the formula,— (a) (1) (2) (ii) opening unearned premium reserve is— (i) the amount of the life insurer’s closing unearned premium reserve for the class of policies, for the income year before the current year; or the amount that would be the unearned premium reserve for the class of policies, using subsection (3) with necessary modiﬁcations, calculated at the end of the prior year, if the life insurer has no closing unearned premium reserve for the income year before the current year: (b) closing unearned premium reserve is the amount of the life insurer’s unearned premium reserve under sub- section (3) for the class of policies, calculated at the end of the current year.
Unearned premium reserve (3) A life insurer’s unearned premium reserve is the amount of the premium in the current year or a prior year, for the relevant policies, that relates to life risk components and relevant costs, in income years after the current year, but subtracting relevant life reinsurance premiums.
Deﬁned in this Act: amount, class of policies, income year, life insurer, life reinsurance, life risk component Section EY 26: substituted, on 1 July 2010, by section 190(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section EY 26(2)(a)(ii): amended (with effect on 1 July 2010), on 7 September 2010, by section 48(1) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
1341 (1) (2) Part E s EY 27 Income Tax Act 2007 Reprinted as at 30 August 2013 EY 27 Capital guarantee reserving amount: non-participation policies not annuities Calculation of reserving amount For an income year (the current year), a life insurer has a reserving amount for a class of policies calculated using the formula— opening capital guarantee reserve closing capital guarantee reserve.
Deﬁnition of items in formula In the formula,— (a) opening capital guarantee reserve is— (i) (ii) the amount of the life insurer’s closing capital guarantee reserve for the class of policies, for the income year before the current year; or the amount that would be the capital guarantee reserve for the class of policies, using subsec- tion (3) with necessary modiﬁcations, calculated at the end of the income year before the current year, if the life insurer has no closing capital guar- antee reserve for the income year before the cur- rent year: (b) closing capital guarantee reserve is the amount of the life insurer’s capital guarantee reserve under subsection (3) for the class of policies, calculated at the end of the current year.
Capital guarantee reserve (3) A life insurer’s capital guarantee reserve is the net amount of credits and debits on account of a risk-linked provision for fu- ture obligations in relation to a guarantee, for the class of poli- cies, by the life insurer that capital invested will be returned or that a minimum return on capital will be paid.
Reﬂex in policyholder base For the current year, if the reserving amount under this sec- tion is positive, the life insurer has that amount as a deduction included in their policyholder base allowable deductions.

For the current year, if the reserving amount under this section is negative, the life insurer has that amount as income included in their policyholder base income.
(4) 1342 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EY 28 Reﬂex in policyholder base: exception (5) Despite subsection (4), for the current year, the life insurer does not have that amount as income included in their policy- holder base income to the extent to which the amount repre- sents payment on account of lost capital in the policyholder base.
Deﬁned in this Act: amount, class of policies, income year, life insurer, pay, policyholder base, policyholder base allowable deduction, policyholder base income Section EY 27: substituted, on 1 July 2010, by section 190(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EY 27(2)(a)(ii): amended (with effect on 1 July 2010), on 7 September 2010, by section 49(1) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).

Shareholder base other proﬁt: proﬁt participation policies Heading: inserted, on 1 July 2010, by section 190(1) of the Taxation (Inter- national Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
EY 28 Shareholder base other proﬁt: proﬁt participation policies that are existing business (1) (2) Calculation of income For an income year, a life insurer has an amount, for proﬁt par- ticipation policies that are existing business, that is calculated using the formula— other proﬁt × gate (1 + gate).
Deﬁnition of items in formula In the formula in subsection (1),— (a) (b) other proﬁt is the amount calculated for the income year under subsection (4): gate is the proportion of a policyholder’s share of proﬁts from the asset base that is used in the formula that calcu- lates a transfer to the beneﬁt of the life insurer’s share- holders from the proﬁts of the asset base, as described 1343 Part E s EY 28 Income Tax Act 2007 Reprinted as at 30 August 2013 in paragraph (a)(iii) of the deﬁnition of proﬁt partici- pation policy.
Formula: negative amounts and positive amounts If, for an income year, the formula in subsection (1) calculates a positive amount, that amount is included as income in the life insurer’s shareholder base income.

If it is a negative amount, then that amount is included as a deduction in the life insurer’s shareholder base allowable deductions.
Other proﬁt For the purposes of the item other proﬁt in subsection (2), an amount is calculated, for the income year (the current year) for proﬁt participation policies that are existing business, using the following formula: (claims claims estimate) estimated closing policy liabilities).
(premiums premiums estimate) (closing policy liabilities Deﬁnition of items in formula In the formula in subsection (4),— (a) premiums is the amount of premiums for policies for the current year, but subtracting relevant life reinsurance premiums: premiums estimate is the actuarially determined total amount of premiums that the life insurer expected, us- ing best estimate assumptions, to receive in the current year for policies that were in force at the start of the current year or are ﬁrst entered into in the current year, after subtracting the present value (net) of relevant life reinsurance premiums: claims is the amount of claims for the current year, after subtracting relevant life reinsurance claims: claims estimate is the actuarially determined total amount of claims that the life insurer expected, using best estimate assumptions, to receive in the current year for policies that were in force at the start of the current year or are ﬁrst entered into in the current year, after subtracting the present value (net) of relevant life reinsurance claims: closing policy liabilities is the total amount of policy li- abilities for policies determined at the end of the current (b) (c) (d) (e) (3) (4) (5) 1344 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EY 28 (6) (7) (8) (f) year for vested beneﬁts after the previous year’s bonus declaration: estimated closing policy liabilities is the total esti- mated policy liabilities at the end of the current year for policies in force at the start of the current year and expected to be in force at the end of the current year, tak- ing into account vested beneﬁts after the previous year’s bonus.
The estimated policy liabilities must not take into account any future bonus declarations, and must use best estimate assumptions.

Meaning of policy liabilities For the purposes of subsection (5), policy liabilities means, for a policy, an actuarially determined amount that is the pre- sent value (net) of future claims, plus the present value (net) of future expenditure or loss, plus the present value (net) of future tax payments, less the present value (net) of future pre- miums.
Relevant life reinsurance premiums and claims must be subtracted.

Basis of best estimate assumptions in actuarially determining items The same best estimate assumptions must be used for actuar- ially determining the items premiums estimate, claims esti- mate, and policy liabilities in this section.

The assumptions may be appropriate for the start of the year, or for the end of the year, but once the choice is made between start of the year and end of the year, that basis may not be changed.
Meaning of existing business For the purposes of this section and section EY 29, existing business means, for a policy, that it is— issued on or before 30 June 2009: (a) issued after 30 June 2009, if— (b) (i) issued on the same substantial and material terms, conditions, and bonus entitlements as proﬁt participation policies that the life insurer issued on or before 30 June 2009, ignoring any annual increase in life insurance cover that is less than 10% or less than annual percentage change in the consumer price index: 1345 Part E s EY 29 Income Tax Act 2007 Reprinted as at 30 August 2013 (ii) issued as the result of conversion rights in a pol- icy issued on or before 30 June 2009: (c) the replacement of another policy (the replaced policy) caused by a life insurer being sold, or selling or transfer- ring its rights and obligations under the replaced policy, and— (i) the replaced policy was existing business under this subsection; and the replaced policy and the policy have the same substantial and material terms, conditions, and bonus entitlements ignoring any annual increase in life insurance cover that is less than 10% or is less than the annual percentage change in the consumer price index.
(ii) Deﬁned in this Act: actuarially determined, amount, best estimate assumptions, claim, existing business, income year, life insurance, life insurance policy, life insurer, life reinsurance, premium, present value (net), proﬁt participation pol- icy Section EY 28: substituted, on 1 July 2010, by section 190(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EY 28(8) existing business paragraph (a): amended (with effect on 1 July 2010), on 2 November 2012, by section 54(1)(a) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).

Section EY 28(8) existing business paragraph (b)(ii): amended (with effect on 1 July 2010), on 2 November 2012, by section 54(1)(b) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section EY 28(8) existing business paragraph (c): inserted (with effect on 1 July 2010), on 2 November 2012, by section 54(2) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
EY 29 Shareholder base other proﬁt: proﬁt participation policies that are new business (1) Calculation of income For an income year, a life insurer has an amount, for proﬁt participation policies that are new business, that is calculated using the formula— other proﬁt × gate (1 + gate) previous negative amount.
Deﬁnition of items in formula In the formula in subsection (1),— (2) 1346 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EY 29 (a) (b) (c) other proﬁt is the amount calculated for the income year under subsections (5) to (9): gate is the proportion of a policyholder’s share of proﬁts from the asset base that is used in the formula that calcu- lates a transfer to the beneﬁt of the life insurer’s share- holders from the proﬁts of the asset base, as described in paragraph (a)(iii) of the deﬁnition of proﬁt partici- pation policy: previous negative amount is the amount from the pre- vious year described in subsections (3) and (4).
Formula: negative amounts and positive amounts If, for an income year, the formula in subsection (1) calcu- lates a positive amount, that amount is included as income in the life insurer’s shareholder base income.

If it is a negative amount, then that amount is not included as a deduction in the life insurer’s shareholder base allowable deductions, but see subsection (4).
Negative amounts: carry forward The amount by which the amount calculated using the formula in subsection (1) is less than zero is carried forward to the next income year, to be used under this section in the formula as the item previous negative amount in that next year.
Other proﬁt For the purposes of the item other proﬁt in subsection (2), an amount is calculated, for the income year (the current year) for proﬁt participation policies that are new business, using the following formula: (claims claims estimate) estimated closing policy liabilities).
(premiums premiums estimate) (closing policy liabilities Deﬁnition of items in formula In the formula in subsection (5),— (a) (b) premiums is the amount of premiums for policies for the current year, but subtracting relevant life reinsurance premiums: premiums estimate is the amount of valuation pre- miums that the life insurer expected, using best estimate assumptions, to receive in the current year for policies that are in force at the start of the current year, or are 1347 (3) (4) (5) (6) Part E s EY 29 Income Tax Act 2007 Reprinted as at 30 August 2013 (c) (d) (e) (f) ﬁrst entered into in the current year, after subtracting the present value (net) of relevant life reinsurance pre- miums: claims is the amount of claims for the current year, after subtracting relevant life reinsurance claims: claims estimate is the actuarially determined amount of claims that the life insurer expected, using best estimate assumptions, to receive in the current year for policies that are in force at the start of the current year, or are ﬁrst entered into in the current year, ignoring surrenders and after subtracting the present value (net) of relevant life reinsurance claims: closing policy liabilities is the amount of policy liabil- ities for policies determined at the end of the current year for vested beneﬁts after the previous year’s bonus declaration: estimated closing policy liabilities is the estimated policy liabilities at the end of the current year for policies in force at the start of the current year and expected to be in force at the end of the current year, taking into account vested beneﬁts after the previous year’s bonus.
The estimated policy liabilities must not take into account any future bonus declarations, and must use best estimate assumptions.
Meaning of valuation premiums In this section, valuation premiums means the amount of pre- miums payable for a policy, actuarially determined by refer- ence to the premium formula used when the policy was ﬁrst entered into, or, if the premium formula is unavailable, by ref- erence to mortality, expense, and other assumptions applic- able to premiums for similar policies at the beginning of the income year in which the policy was ﬁrst entered into.
The valuation premiums must not include any allowance for future bonus declarations or future shareholder proﬁts.

The amount of the valuation premium for a policy must not change, unless signiﬁcant changes to the policy justify changing the valuation premium.
(7) 1348 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EY 30 (8) (9) Meaning of policy liabilities In this section, policy liabilities means, for a policy, an ac- tuarially determined amount that is the present value (net) of future mortality and maturity claims, plus the present value (net) of future expenditure or loss, plus the present value (net) of future tax payments, less the present value (net) of future valuation premiums.
The amount of policy liabilities must not include any allowance for surrenders or the payment of surren- der values and relevant life reinsurance premiums and claims must be subtracted.

The minimum amount of policy liabilities for a policy is the current surrender value of the policy.
Basis of best estimate assumptions in actuarially determining items The same best estimate assumptions must be used for actuar- ially determining the items premiums estimate, claims esti- mate, and policy liabilities in this section.

The assumptions may be appropriate for the start of the year, or for the end of the year, but once the choice is made between start of the year and end of the year, the assumptions must not be changed.
Meaning of new business (10) For the purposes of this section, new business means, for a policy, that it is not existing business under section EY 28.
Deﬁned in this Act: actuarially determined, amount, best estimate assumptions, claim, existing business, income year, life insurance policy, life insurer, life reinsurance, new business, premium, present value (net), proﬁt participation policy, valuation premiums Section EY 29: substituted, on 1 July 2010, by section 190(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Transitional adjustments and annuities Heading: inserted, on 1 July 2010, by section 190(1) of the Taxation (Inter- national Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

EY 30 Transitional adjustments: life risk (1) When this section applies: treatment of old and new policies This section applies to life insurance policies described in sub- sections (2) to (4).
For the purposes of this section, a policy (the new policy) is treated as being issued at the same time as 1349 Part E s EY 30 Income Tax Act 2007 Reprinted as at 30 August 2013 another policy (the old policy) that the new policy replaces, if the replacement is caused by— (a) reinstating the old policy after either a lapse in premium payments or cancellation by the insured, if the new pol- icy comes into force within 90 days of the lapse or can- cellation, and the life insurer treats the new policy and old policy the same; or the life insurer being sold, or the life insurer selling or transferring its rights and obligations under the old policy.
(b) Separation of products into separate policies for purposes of transitional adjustment If a life insurance policy is comprised of 2 or more life insur- ance product types that are capable of being sold separately, and the life insurance cover amounts for each product type are separately identiﬁed in the policy, then each of the product types may be treated as a separate life insurance policy for the purposes of this section.
Life insurance policies This section applies to a life insurance policy, excluding an an- nuity, a multiple life policy through which the life insurer can look to the individual lives covered, credit card repayment in- surance, and a workplace group policy, if the policy is issued by the life insurer before the grandparenting start day or if the life insurer receives an application and a deposit in money be- fore the grandparenting start day for the policy which is issued after that day, and— (a) the life insurer has no policyholder base income or pol- icyholder base allowable deduction for the policy; and the policy meets the relevant requirements for the rele- vant period described in subsection (5)(a) to (c); and the amount of life insurance cover at the ﬁnish of a cover review period, or at the ﬁnish of any shorter period, if the life insurer chooses to measure within the cover re- view period, has not increased by more than the greater of 10% and the percentage change in the consumer price index for the relevant period, as compared to the amount of life insurance cover at the beginning of the relevant cover review period; and (b) (c) (1B) (2) 1350 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EY 30 (d) no new or replacement individual life is covered for a period beginning after the grandparenting start day.
(3) Multiple life policies This section applies to a multiple life policy through which the life insurer can look to either the individual lives covered or a relevant underlying life insurance policy, if the multiple life policy (the policy) is issued by the life insurer before the grandparenting start day or if the life insurer receives an appli- cation and a deposit in money before the grandparenting start day for the policy which is issued after that day, and— (a) (b) (c) (d) (e) the life insurer has no policyholder base income or pol- icyholder base allowable deduction for the policy; and the policy meets the requirements for the period de- scribed in subsection (5)(c), or, looking through to the individual lives covered or relevant underlying life in- surance policy, to the extent to which the policy meets the requirements for the period described in subsection (5)(a), (b), or (c); and to the extent to which, looking through to and in relation to the individual lives covered or relevant underlying policy,— (i) the cover was ﬁrst in place before the grandpar- enting start day: the multiple life policy is a life reinsurance policy that was ﬁrst in place before the grandparenting start day; and (ii) the substantial and material terms and conditions of the policy do not change on or after the grandparenting start day; and either— (i) to the extent to which, looking through to the in- dividual lives covered, the amount of life insur- ance cover at the ﬁnish of a cover review period, or at the ﬁnish of any shorter period if the life insurer chooses to measure within the cover re- view period, has not increased by more than the greater of 10% and the percentage change in the consumer price index for the relevant period, as compared to the amount of life insurance cover at 1351 Part E s EY 30 Income Tax Act 2007 Reprinted as at 30 August 2013 (ii) the beginning of the relevant cover review period; or in the case of a policy that is life reinsurance, to the extent to which a relevant underlying life insurance policy
 is, or would be ignoring section EY 10(2), one that this subsection or subsection (2) applies to.
Credit card repayment insurance and workplace group policies This section applies to a credit card repayment insurance and to a workplace group policy, if the policy is issued by the life insurer before the grandparenting start day or if the life in- surer receives an application and a deposit in money before the grandparenting start day, and— (a) the life insurer has no policyholder base income or pol- icyholder base allowable deduction for the policy; and the policy, if it is a credit card repayment insurance, meets the requirements for the period described in sub- section (5)(c), or, if it is a workplace group policy, meets the requirements for the period described in subsection (5)(d); and [Repealed] the substantial and material terms and conditions of the policy do not change on or after the grandparenting start day.
(b) (c) (d) Requirements and periods for which this section applies The following are the requirements and periods for the pur- poses of subsections (2)(b), (3)(b), and (4)(b), for a policy: (a) for a life insurance policy for which only 1 premium is ever payable, or for which the amount of each premium is the same, the period that— (i) (ii) starts on the grandparenting start day; and ﬁnishes on the day that the policy ceases to be in force: (b) for a life insurance policy for which the premium is set for a continuous period beginning before the grandpar- enting start day and for which the premium does not go up in that period (the continuous rate period) ignoring any increase directly linked to the percentage change in (4) (5) 1352 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EY 30 the consumer price index if that increase was the sub- ject of agreement before the grandparenting start day, the period that starts on the grandparenting start day and ends on the later of the following: (i) the day that is the last day of the continuous rate period: (ii) whichever day described in paragraph (c)(i) and (ii) is earlier: for a life insurance policy for which the premium may vary each year, the period that starts on the grandparent- ing start day and ends on the earlier of the following: (i) (ii) the day that the policy expires: the day that is before the 5 years anniversary of the grandparenting start day: for a life insurance policy for which the premium may vary each year, the period that starts on the grandparent- ing start day and ends on the earlier of the following: (i) (ii) the day that the policy expires: the day that is before the 3 years anniversary of the grandparenting start day.
(c) (d) When this section does not apply: life insurance cover increase for whole cover review period (5B) This section does not apply for a policy for the whole of an in- come year if a cover review period ﬁnishes in the year and, for that cover review period, there has been an increase in the amount of life insurance cover as described in subsection (2)(c) or (3)(e) and the life insurer has not made an election for measuring within the cover review period under those sub- sections.
When this section does not apply: continuity (5C) This section does not apply for a policy for any period after this section has ceased to apply for the policy.

(6) When this section does not apply: once-only opt out This section does not apply to a class of policies after the life insurer irrevocably chooses in a notice received by the Com- missioner that this section does not apply for the class.
1353 Part E s EY 30 Income Tax Act 2007 Reprinted as at 30 August 2013 Adjustment (7) A life insurer has an amount of shareholder base allowable de- duction for a policy calculated using the following formula, to the extent to which this section applies for the relevant income year for the policy— premiums total net reserving amounts (1.2 × expected death strain).
(8) Deﬁnition of items in formula In the formula,— (a) (b) (c) premiums is the life insurer’s total premiums for the income year or part of the income year, as applicable, for the policy, but subtracting relevant life reinsurance premiums: total net reserving amounts is the total of reserving amounts for the income year or part of the income year, as applicable, for the policy, under section EY 25 or EY 26 (as applicable), but treating amounts that are shareholder base income as negative amounts, and amounts that are shareholder base allowable deductions as positive amounts: expected death strain is the amount calculated under the expected death strain formula (life) in accordance with sections EZ 53 to EZ 60 (which relate to the tran- sitional adjustment for expected death strain) for the in- come year or part of the income year, as applicable, for the policy.
(9) Negative amounts If subsection (7) gives a negative amount for a policy, it is ignored for that policy.
Meaning of cover review period (10) Cover review period means— (a) (b) the relevant income year, if the life insurer has not cho- sen a different period under paragraph (b): a period of a year that has a starting and anniversary date that the life insurer irrevocably chooses, for a class of policies, in a return of income for the tax year corres- ponding to the income year in which the grandparenting start day is included.
1354 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EY 30 Meaning of credit card repayment insurance (11) Credit card repayment insurance means a life insurance pol- icy, if the beneﬁts of the cover are for the repayment of an out- standing debt balance of a credit card, or life reinsurance to the extent to which it reinsures such a life insurance policy.
Meaning of employer sponsored group policies [Repealed] [Repealed] (12) Meaning of grandparenting start day (13) Grandparenting start day means— (a) (b) 1 July 2010, if paragraph (b) does not apply: a life insurer’s early life regime application day, if the life insurer irrevocably chooses that day as their grand- parenting start day.
Meaning of multiple life policy (14) Multiple life policy— (b) (a) means a life insurance policy with multiple individuals’ life insurance cover grouped under it, if the group of individuals is identiﬁed in the policy: does not include— (i) (ii) (iii) a workplace group policy: credit card repayment insurance: life reinsurance to the extent to which it reinsures a workplace group policy or credit card repay- ment insurance.
Meaning of workplace group policy (15) Workplace group policy means a life insurance policy with multiple individuals’ life insurance cover grouped under it, or life reinsurance to the extent to which it reinsures such a life insurance policy, if— (a) the individuals under the policy are— (i) a group that includes, or consists of, a class of employees of an employer or group of employ- ers, and may include 1 or more of the employers or directors of the employers, and the policy is sponsored by the employers or by the trustees of a superannuation scheme: 1355 Part E s EY 30 Income Tax Act 2007 Reprinted as at 30 August 2013 (ii) members of a union registered under the Employ- ment Relations Act 2000 or members of an indus- try association, and the union or association is the sponsor of the policy: the spouses, civil union partners, and de facto partners of employees or members described in subparagraphs (i) and (ii); and (iii) (b) in the case of the sponsor being the employer,— (i) the employer is required to offer an employee who is a member of the relevant class the oppor- tunity to join the life insurance policy; and the life insurer and the employer have entered an agreement about who pays the premium.
(ii) Deﬁned in this Act: amount, Commissioner, cover review period, credit card repayment insurance, class of policies, early life regime application day, grand- parenting start day, group life master policy, income year, life insurance, life insurer, life reinsurance, pay, policyholder base allowable deduction, policy- holder base income, shareholder base allowable deduction, shareholder base income, workplace group policy Section EY 30: substituted, on 1 July 2010, by section 190(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EY 30(1)(a): replaced (with effect on 1 July 2010), on 2 November 2012, by section 55(1) of the Taxation (Annual Rates, Returns Filing, and Re- medial Matters) Act 2012 (2012 No 88).

Section EY 30(1)(a): replaced (with effect on 1 July 2010), on 2 November 2012, by section 55(1) of the Taxation (Annual Rates, Returns Filing, and Re- medial Matters) Act 2012 (2012 No 88).
Section EY 30(1)(b): amended (with effect on 1 July 2010), on 2 November 2012, by section 55(2) of the Taxation (Annual Rates, Returns Filing, and Re- medial Matters) Act 2012 (2012 No 88).

Section EY 30(1B) heading: inserted (with effect on 1 July 2010), on 7 Septem- ber 2010, by section 50(1) of the Taxation (Annual Rates, Trans-Tasman Sav- ings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
Section EY 30(1B): inserted (with effect on 1 July 2010), on 7 September 2010, by section 50(1) of the Taxation (Annual Rates, Trans-Tasman Savings Porta- bility, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).

Section EY 30(2): amended (with effect on 1 July 2010), on 7 September 2010, by section 50(2) of the Taxation (Annual Rates, Trans-Tasman Savings Porta- bility, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
Section EY 30(2): amended, on 1 July 2010, by section 38(1) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).

Section EY 30(2)(c): substituted (with effect on 1 July 2010), on 7 September 2010, by section 50(3) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
1356 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EY 30 Section EY 30(2)(d): added (with effect on 1 July 2010), on 7 September 2010, by section 50(3) of the Taxation (Annual Rates, Trans-Tasman Savings Porta- bility, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
Section EY 30(3) heading: substituted (with effect on 1 July 2010), on 7 Sep- tember 2010, by section 50(4)(a) of the Taxation (Annual Rates, Trans-Tas- man Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).

Section EY 30(3): amended (with effect on 1 July 2010), on 2 November 2012, by section 55(3)(a) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section EY 30(3): amended (with effect on 1 July 2010), on 7 September 2010, by section 50(4)(b) of the Taxation (Annual Rates, Trans-Tasman Savings Porta- bility, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).

Section EY 30(3)(b): amended (with effect on 1 July 2010), on 2 November 2012, by section 55(3)(b) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section EY 30(3)(b): amended (with effect on 1 July 2010), on 21 December 2010, by section 59(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).

Section EY 30(3)(b): amended (with effect on 1 July 2010), on 7 September 2010, by section 50(4)(c) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
Section EY 30(3)(b): amended, on 1 July 2010, by section 38(2) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).

Section EY 30(3)(c): replaced (with effect on 1 July 2010), on 2 November 2012, by section 55(4) of the Taxation (Annual Rates, Returns Filing, and Re- medial Matters) Act 2012 (2012 No 88).
Section EY 30(3)(e): substituted (with effect on 1 July 2010), on 21 December 2010, by section 59(2) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).

Section EY 30(4) heading: amended, on 1 July 2010, by section 38(3) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
Section EY 30(4): amended (with effect on 1 July 2010), on 7 September 2010, by section 50(6) of the Taxation (Annual Rates, Trans-Tasman Savings Porta- bility, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).

Section EY 30(4): amended, on 1 July 2010, by section 38(4) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
Section EY 30(4)(b): substituted, on 1 July 2010, by section 38(5) of the Tax- ation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).

Section EY 30(4)(c): repealed, on 1 July 2010, by section 38(5) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).

Section EY 30(5): amended, on 1 July 2010, by section 38(6) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
1357 Part E s EY 30 Income Tax Act 2007 Reprinted as at 30 August 2013 Section EY 30(5)(b): amended (with effect on 1 July 2010), on 7 September 2010, by section 50(7) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).

Section EY 30(5)(c)(ii): amended, on 1 July 2010, by section 38(7) of the Tax- ation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
Section EY 30(5)(d): added, on 1 July 2010, by section 38(7) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).

Section EY 30(5B) heading: inserted (with effect on 1 July 2010), on 7 Septem- ber 2010, by section 50(8) of the Taxation (Annual Rates, Trans-Tasman Sav- ings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
Section EY 30(5B): inserted (with effect on 1 July 2010), on 7 September 2010, by section 50(8) of the Taxation (Annual Rates, Trans-Tasman Savings Porta- bility, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).

Section EY 30(5C) heading: inserted (with effect on 1 July 2010), on 7 Septem- ber 2010, by section 50(8) of the Taxation (Annual Rates, Trans-Tasman Sav- ings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
Section EY 30(5C): inserted (with effect on 1 July 2010), on 7 September 2010, by section 50(8) of the Taxation (Annual Rates, Trans-Tasman Savings Porta- bility, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).

Section EY 30(7): amended (with effect on 1 July 2010), on 7 September 2010, by section 50(9) of the Taxation (Annual Rates, Trans-Tasman Savings Porta- bility, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
Section EY 30(8)(a): amended (with effect on 1 July 2010), on 7 September 2010, by section 50(10) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).

Section EY 30(8)(b): amended (with effect on 1 July 2010), on 21 December 2010, by section 59(3) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section EY 30(8)(b): amended (with effect on 1 July 2010), on 7 September 2010, by section 50(11) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).

Section EY 30(8)(c): amended (with effect on 1 July 2010), on 7 September 2010, by section 50(12) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
Section EY 30(11) heading: substituted, on 1 July 2010, by section 38(8) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).

Section EY 30(11): substituted, on 1 July 2010, by section 38(8) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
Section EY 30(11): amended (with effect on 1 July 2010), on 7 September 2010, by section 50(13) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).

Section EY 30(12) heading: repealed, on 1 July 2010, by section 38(9) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
1358 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EY 31 Section EY 30(12): repealed, on 1 July 2010, by section 38(9) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).

Section EY 30(14) heading: substituted (with effect on 1 July 2010), on 7 Sep- tember 2010, by section 50(14) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
Section EY 30(14): substituted (with effect on 1 July 2010), on 7 September 2010, by section 50(14) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).

Section EY 30(14): amended, on 1 July 2010, by section 38(10) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
Section EY 30(15) heading: added, on 1 July 2010, by section 38(11) of the Tax- ation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).

Section EY 30(15): substituted (with effect on 1 July 2010), on 7 September 2010, by section 50(15) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
Section EY 30 list of deﬁned terms employer sponsored group policy: re- pealed, on 1 July 2010, by section 126 of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).

Section EY 30 list of deﬁned terms pay: inserted (with effect on 1 July 2010), on 7 September 2010, by section 50(16) of the Taxation (Annual Rates, Trans- Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
Section EY 30 list of deﬁned terms workplace group policy: added, on 1 July 2010, by section 126 of the Taxation (Consequential Rate Alignment and Re- medial Matters) Act 2009 (2009 No 63).

EY 31 Annuities When this section applies This section applies when a life insurance policy is an annuity.

Adjustment For the income year, a life insurer has an amount calculated for the relevant annuities using the formula— (0.99 × expected death strain).
closing actuarial reserves Deﬁnition of items in formula In the formula,— (a) closing actuarial reserves is the life insurer’s closing actuarial reserves (active annuities), calculated in ac- cordance with section EZ 59(2) (Meaning of actuarial reserves): expected death strain is the amount calculated under the expected death strain formula (active annuities) in (b) (1) (2) (3) 1359 Part E s EY 32 Income Tax Act 2007 Reprinted as at 30 August 2013 (4) accordance with sections EZ 53 to EZ 60 (which relate to the transitional adjustment for expected death strain) for the income year.
Positive and negative amounts If the formula in subsection (2) gives a positive amount, the life insurer has that amount as income included in their share- holder base income.

If the formula in subsection (2) gives a negative amount, the life insurer has that amount as a deduc- tion included in their shareholder base allowable deductions.
Deﬁned in this Act: amount, income year, life insurance policy, life insurer, shareholder base allowable deduction, shareholder base income Section EY 31: substituted, on 1 July 2010, by section 190(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
EY 32 Mortality proﬁt formula: when partial reinsurance exists [Repealed] Section EY 32: repealed, on 1 July 2010, by section 190(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

EY 33 Mortality proﬁt formula: individual result may be negative only in some cases [Repealed] Section EY 33: repealed, on 1 July 2010, by section 190(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
EY 34 Mortality proﬁt formula: negative result [Repealed] Section EY 34: repealed, on 1 July 2010, by section 190(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

EY 35 How discontinuance proﬁt is calculated [Repealed] Section EY 35: repealed, on 1 July 2010, by section 190(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
1360 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EY 41 EY 36 Discontinuance proﬁt for income year [Repealed] Section EY 36: repealed, on 1 July 2010, by section 190(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
EY 37 Discontinuance proﬁt formula (existing policies) [Repealed] Section EY 37: repealed, on 1 July 2010, by section 190(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

EY 38 Discontinuance proﬁt formula (new policies) [Repealed] Section EY 38: repealed, on 1 July 2010, by section 190(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
EY 39 Discontinuance proﬁt formula (existing policies): when partial reinsurance exists [Repealed] Section EY 39: repealed, on 1 July 2010, by section 190(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
EY 40 Discontinuance proﬁt formula (new policies): when partial reinsurance exists [Repealed] Section EY 40: repealed, on 1 July 2010, by section 190(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

EY 41 Discontinuance proﬁt formulas: individual result may never be negative [Repealed] Section EY 41: repealed, on 1 July 2010, by section 190(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
1361 Part E s EY 42 Income Tax Act 2007 Reprinted as at 30 August 2013 EY 42 How policyholder income is calculated [Repealed] Section EY 42: repealed, on 1 July 2010, by section 190(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

EY 43 Policyholder income formula [Repealed] Section EY 43: repealed, on 1 July 2010, by section 190(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
EY 43B Policyholder income formula: FDR adjustment [Repealed] Section EY 43B: repealed, on 1 July 2010, by section 190(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

EY 43C Policyholder income formula: PILF adjustment [Repealed] Section EY 43C: repealed, on 1 July 2010, by section 190(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
EY 44 Policyholder income formula: when partial reinsurance exists [Repealed] Section EY 44: repealed, on 1 July 2010, by section 190(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

EY 45 Policyholder income formula: when life insurance business transferred [Repealed] Section EY 45: repealed, on 1 July 2010, by section 190(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
1362 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EY 48 EY 46 Income from disposal of property [Repealed] Section EY 46: repealed, on 1 July 2010, by section 190(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

EY 47 Deductions for disposal of property [Repealed] Section EY 47: repealed, on 1 July 2010, by section 190(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Non-resident life insurers EY 48 Non-resident life insurers with life insurance policies in New Zealand (1) (2) (3) When this section applies This section applies when a life insurer not resident in New Zealand offers or is offered or enters into life insurance poli- cies in New Zealand.

Income having source in New Zealand The life insurer’s income from the business of providing life insurance, as determined under this section, is income that has a source in New Zealand.
Shareholder base and policyholder base The life insurer’s income and deductions are apportioned be- tween their policyholder base or shareholder base under the provisions of this subpart to the extent to which the income or deductions relate to— (a) life insurance policies that the life insurer, as insurer, offered or was offered or entered into in New Zealand: life reinsurance policies held by the life insurer that re- late exclusively to life insurance policies described in paragraph (a).
(b) (4) Other income The life insurer’s income from the business of providing life insurance, other than under the provisions of this subpart, is 1363 Part E s EY 49 Income Tax Act 2007 Reprinted as at 30 August 2013 determined only in relation to the life insurer’s New Zealand business.
Deﬁned in this Act: business, discontinuance proﬁt formula, income, life insur- ance, life insurance policy, life insurer, life reinsurance policy, mortality proﬁt formula, New Zealand, New Zealand business, non-resident, offered or was of- fered or entered into, policyholder income formula, premium loading formula, resident in New Zealand, source in New Zealand Compare: 2004 No 35 s EY 47 Section EY 48(2) heading: substituted, on 21 December 2010, by section 60(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section EY 48(2): amended, on 21 December 2010, by section 60(2) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).

Section EY 48(3) heading: substituted, on 1 July 2010, by section 193(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section EY 48(3): substituted, on 1 July 2010, by section 193(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EY 48(4): amended, on 1 July 2010, by section 193(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section EY 48 list of deﬁned terms derived from New Zealand: repealed, on 21 December 2010, by section 60(3)(a) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section EY 48 list of deﬁned terms source in New Zealand: inserted, on 21 De- cember 2010, by section 60(3)(b) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).

EY 49 Non-resident life insurer becoming resident Non-resident life insurer may apply (1) A life insurer not resident in New Zealand may apply to be treated for its New Zealand business as resident in New Zealand on and after the ﬁrst day of a particular income year.
Application The life insurer applies by— (a) (b) completing a written application specifying the particu- lar income year; and giving the application to the Commissioner not less than 20 working days before the start of the particular income year.

Commissioner may grant The Commissioner may grant the application.
(2) (3) 1364 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EY 49 (4) (5) (6) Company resident in New Zealand If the application is granted, the life insurer’s New Zealand business is treated, on and after the ﬁrst day of the particular income year, as being carried on by a company resident in New Zealand in which the life insurer holds all the issued shares.
Life insurer agent for company The life insurer is treated as carrying on its New Zealand busi- ness as agent for the company and is liable, as agent for the company, to pay amounts payable to the Commissioner and to provide returns of income and other information required by the Commissioner.

Company and life insurer separate persons The life insurer and the company are treated as being separate persons in relation to the life insurer’s New Zealand business.
Deﬁned in this Act: agent, amount, Commissioner, company, income year, life insurer, New Zealand business, non-resident, pay, resident in New Zealand, return of income, share, working day Compare: 2004 No 35 s EY 48 Subpart EZ—Terminating provisions Contents Life insurance EZ 1 Life insurers acquiring property before 1 April 1988 EZ 2 Deductions for disposal of property: 1982–83 and 1989–90 income years EZ 3 Petroleum mining Petroleum development expenditure from 1 October 1990 to 15 December 1991 Page 1369 1371 1372 Livestock EZ 4 Valuation of livestock bailed or leased as at 2 September 1372 1992 EZ 5 Reduction: bloodstock not previously used for breeding 1374 in New Zealand: pre-1 August 2006 EZ 6 Reduction: broodmare previously used for breeding in 1376 New Zealand: pre-1 August 2006 1365 Income Tax Act 2007 Reprinted as at 30 August 2013 EZ 7 Buying patent rights before 1 April 1993 Patent rights EZ 8 Premium paid on land leased before 1 April 1993 Leases of land EZ 9 Pool method for items accounted for by globo method for 1992–93 income year Depreciation 1377 1378 1378 EZ 10 Pool items accounted for by globo method for 1992–93 1379 income year EZ 11 Amounts of depreciation recovery income and depreciation loss for part business use up to 2004–05 income year EZ 12 Amount of depreciation loss for item acquired from associated person on or before 23 September 1997 EZ 13 Annual rate for item acquired on or after 1 April 1993 and before end of person’s 1994–95 income year EZ 14 Pre-1993 depreciation rate EZ 15 Annual rate for excluded depreciable property: 1992–93 tax year EZ 16 Amount of depreciation loss for plant or machinery additional to section EZ 15 amount EZ 17 Additional amount of depreciation loss: between 16 December 1991 and 1 April 1994 EZ 18 Section EZ 17 amount of depreciation loss when items transferred between companies in wholly-owned group before 1 April 1993 1379 1380 1381 1382 1384 1386 1387 1388 EZ 19 Section EZ 17 amount of depreciation loss when person 1389 previously exempt from tax
 acquires item EZ 20 Adjusted tax value for software acquired before 1 April 1389 1993 EZ 21 Sections EE 45 and EE 47: permanent removal: allowance 1390 before 1 April 1995 EZ 22 Base value and total deductions in section EE 56: before 1391 1 April 1995 EZ 23 Economic rate for plant or equipment acquired before 1 April 2005 and buildings acquired before 19 May 2005 EZ 23B Property acquired after depreciable property affected by 1392 1393 Canterbury earthquakes EZ 23C Insurance for Canterbury earthquake damage of property: 1398 deemed sale and purchase 1366 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EY 49 EZ 23D Insurance for Canterbury earthquake damage of property: 1399 limit on depreciation recovery income EZ 23E Item treated as available for use if access restricted due 1400 to Canterbury earthquake EZ 23F Insurance for Canterbury earthquake damage causing disposal: optional timing rule for income, deductions 1400 EZ 23G Insurance for repairs of Canterbury earthquake damage: 1402 optional timing rule for income, deductions Deﬁnitions EZ 24 Meaning of new asset EZ 25 Meaning of New Zealand-new asset EZ 26 Meaning of qualifying capital value EZ 27 Meaning of qualifying improvement EZ 28 Meaning of qualifying asset Accident insurance 1404 1405 1406 1408 1409 EZ 29 Private insurers under Accident Insurance Act 1998 EZ 30 Base premium for 1998–99 premium year under Accident 1409 1410 Insurance Act 1998 Controlled foreign company and foreign investment fund rules EZ 31 Disclosure restrictions on grey list CFCs before 2011–12 [Repealed] EZ 32 Terminating exemption for grey list FIF investing in Australasian listed equities [Repealed] EZ 32B Transitional rule for IFRS reporting [Repealed] EZ 32C Treatment in section EX 20C of currency effects on CFC’s borrowing [Repealed] 1411 1411 1411 1412 EZ 32D Value of asset fraction: CFC with excessive debt funding 1412 and loan entered before 21 June 2012 EZ 32E Change in section EX 20B for income of CFC insurer:
 1413 interest on terminal tax Old ﬁnancial arrangements rules EZ 33 Application of old ﬁnancial arrangements rules EZ 34 Election to apply ﬁnancial arrangements rules in 1413 1414 subpart EW EZ 35 Accruals in relation to income and expenditure in respect 1414 of ﬁnancial arrangements EZ 36 Excepted ﬁnancial arrangement that is part of ﬁnancial 1421 arrangement EZ 37 Cash basis holder 1421 1367 Income Tax Act 2007 Reprinted as at 30 August 2013 EZ 38 Income and expenditure where ﬁnancial arrangement redeemed or disposed of EZ 39 Forgiveness of debt EZ 40 Accrued income written off EZ 41 Sale of debt to associate of debtor EZ 42 Post facto adjustment EZ 43 Variable principal debt instruments EZ 44 Relationship with rest of Act EZ 45 Application of old ﬁnancial arrangements rules EZ 46 Election to treat short term trade credit as ﬁnancial arrangement EZ 47 Election to continue to treat certain excepted ﬁnancial arrangements as ﬁnancial arrangements EZ 48 Deﬁnitions EZ 49 Determination of core acquisition price where consideration for property denominated in foreign currency EZ 50 Rules for non-market transactions EZ 51 Transitional adjustment when changing to ﬁnancial arrangements rules EZ 52 References to new rules include old rules EZ 52B Consistency of use of IFRS method: Determination G3 change allowed EZ 52C Change of spreading method: Determination G22 to Determination G22A 1426 1432 1433 1434 1435 1436 1437 1437 1439 1439 1440 1454 1455 1456 1458 1459 1460 EZ 52D Base price adjustment: ﬁnancial arrangements to which 1461 Determination G22 and Determination G22A applied Life insurance transitional adjustment: expected death strain Expected death strain formulas EZ 53 How expected death strain is calculated EZ 54 Expected death strain formulas EZ 55 Expected death strain formulas: option when more than 1 life insured EZ 56 Expected death strain formula (life): when annuity payable on death 1463 1463 1464 1465 EZ 57 Expected death strain formulas: when annuity
 payable on 1466 survival to date or age speciﬁed in policy EZ 58 Expected death strain formula (life): when partial 1466 reinsurance exists 1368 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EZ 1 Actuarial reserves EZ 59 Meaning of actuarial reserves EZ 60 Actuarial reserves: calculation Entry to new life insurance regime: transitional and miscellaneous provisions EZ 61 Allowance for cancelled amount: spreading EZ 62 Reinsurance transition: life ﬁnancial reinsurance may be life reinsurance EZ 63 Disposal and acquisition upon entry 1467 1468 1469 1471 1471 Restructuring under New Zealand Railways Corporation Restructuring Act 1990 EZ 64 New Zealand Railways Corporation restructure: purpose 1472 and initial amounts for tax purposes EZ 65 Expenditure or loss incurred, and amounts derived EZ 66 Prepayments EZ 67 Leased assets EZ 68 Deﬁnitions 1473 1474 1475 1475 EZ 1 Life insurers acquiring property before 1 April 1988 Life insurance (1) (2) (3) (4) When this section applies This section applies when section DZ 2 (Life insurers acquir- ing property before 1 April 1988) applies.
Amount of deduction The amount of the deduction is calculated using the formula— speciﬁc liability total liability × property sum.

Deﬁnition of items in formula The items in the formula are deﬁned in subsections (4) to (9).
Speciﬁc liability Speciﬁc liability is the amount in the life insurer’s total liabil- ity on the last day of the 1987–88 income year for the following matters covered by the life insurer’s Life Insurance Fund: (a) (b) superannuation policies; and pre-1983 mortgage repayment insurance policies; and 1369 Part E s EZ 1 Income Tax Act 2007 Reprinted as at 30 August 2013 (5) (6) (7) (8) (9) (c) annuities that have been granted.
Total liability Total liability is the life insurer’s liability for life insurance policies on the last day of the 1987–88 income year.

Property sum The property sum is calculated under whichever is relevant of subsections (7) to (9).
Property acquired before last day of 1982–83 income year For property acquired on or before the last day of the 1982–83 income year, the property sum is calculated by subtracting the speciﬁed base cost for 1983 income year property from the market value of the property on 1 April 1988.
Property acquired after end of 1982–83 income year: not ﬁnancial arrangement For property acquired after the end of the 1982–83 income year that is not a ﬁnancial arrangement, the property sum is calculated by subtracting the cost price or acquisition value of the property from the market value of the property on 1 April 1988.
Property acquired after end of 1982–83 income year: ﬁnancial arrangement For property acquired after the end of the 1982–83 income year that is a ﬁnancial arrangement, the property sum is the base price adjustment for the arrangement, calculated as if the ar- rangement had matured on 1 April 1988 but using the formula in section EW 31 (Base price adjustment formula).

Timing of deduction (10) The life insurer is allowed the deduction in the income year in which they dispose of the property.
Deﬁned in this Act: amount, deduction, ﬁnancial arrangement, income year, Life Insurance Fund, life insurance policy, life insurer, property, speciﬁed base cost for 1983 income year property, superannuation policy Compare: 2004 No 35 s EZ 1 1370 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EZ 2 EZ 2 Deductions for disposal of property: 1982–83 and 1989–90 income years (1) (2) Deduction For the purposes of this Act, for property to which both the following apply, the amount of the deduction is the market value of the property on the last day of the 1989–90 income year: (a) the property is land or buildings acquired on or before the last day of the 1989–90 income year; and the proﬁt from the property’s disposal on or before the last day of the 1989–90 income year, had it been dis- posed of then at a proﬁt, would have been a capital proﬁt or gain and not a proﬁt on disposal of an investment sub- ject to income tax under section 204 of the Income Tax Act 1976 (as that section was immediately before its re- peal and substitution by section 13(1) of the Income Tax Amendment Act (No 2) 1990).
(b) Deduction For the purposes of this Act, for property to which both the following apply, the amount of the deduction is the speciﬁed base cost for 1983 income year property: (a) the property was acquired on or before the last day of the 1982–83 income year; and subsection (1) does not apply to the property.
(b) Deﬁned in this Act: amount, deduction, income year, property, speciﬁed base cost for 1983 income year property Compare: 2004 No 35 s EZ 2 Section EZ 2(1) heading: substituted, on 1 July 2010, by section 194(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section EZ 2(1): amended, on 1 July 2010, by section 194(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EZ 2(2) heading: substituted, on 1 July 2010, by section 194(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section EZ 2(2): amended, on 1 July 2010, by section 194(4) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
1371 Part E s EZ 3 Income Tax Act 2007 Reprinted as at 30 August 2013 Petroleum mining EZ 3 Petroleum development expenditure from 1 October 1990 to 15 December 1991 (1) (2) (3) (4) Timing of deduction Expenditure that is allowed as a deduction under section DZ 3 (Petroleum mining: development expenditure from 1 Octo- ber 1990 to 15 December 1991) must be deducted in equal amounts over the 10 years starting with the later of— (a) the income year in which commercial production starts; and the income year in which the expenditure is incurred.
(b) Petroleum mining operations outside New Zealand This section applies with any necessary modiﬁcations to a pet- roleum miner who undertakes petroleum mining operations that are— (a) outside New Zealand and undertaken through a branch or a controlled foreign company; and substantially the same as the petroleum mining activ- ities governed by this Act.
(b) Partnership interests For the purposes of this section, a partner is treated as having a share or interest in a petroleum permit or other property of a partnership to the extent of their income interest in the part- nership.

Disposal of part of asset For the purposes of this section, references to the disposal of an asset apply equally to the disposal of part of an asset.
Deﬁned in this Act: amount, commercial production, controlled foreign com- pany, deduction, dispose, income year, New Zealand, petroleum, petroleum miner, petroleum mining operations, petroleum permit Compare: 2004 No 35 s EZ 3 EZ 4 Valuation of livestock bailed or leased as at 2 September Livestock 1992 When this section applies This section applies when— (1) 1372 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EZ 4 (a) (b) an owner of livestock valued a class of livestock for the 1991–92 income year under section 86 of the Income Tax Act 1976 (as that section was in force before its repeal by section 21 of the Income Tax Amendment Act (No 2) 1993); and either— (i) the livestock was, as at 2 September 1992, at the use of a person under a bailment, lease, or other agreement that the owner entered into on or be- fore that date, or was, on or before that date, live- stock that was subject to a binding contract to bail or lease the livestock to a person, or otherwise al- low them to use the livestock; or the class of livestock was not one that the owner had on hand in the previous income year, but was a class that, as at 2 September 1992, was at the use of a person under a bailment, lease, or other agreement that the owner entered into on or before that date.
(ii) (2) (3) (4) Rolling average value The owner may value the livestock at a value equal to 70% of the rolling average value of that class of livestock.

When subsection (2) applies Subsection (2) applies for the 1992–93 income year and any later income year in which the livestock continues to be bailed, leased, or otherwise used by the person under the bailment, lease, or other agreement.
Number of livestock valued The number of speciﬁed livestock of a class that may be valued under this section is the number that is the least of— (a) the number of livestock of the class bailed, leased, or otherwise used (or, for a binding contract entered into before 2 September 1992 but not yet applying, the num- ber of livestock of that class provided for in the con- tract); and the number of livestock of the class bailed, leased, or otherwise used as at the end of the 1992–93 income year; and (b) 1373 Part E s EZ 5 Income Tax Act 2007 Reprinted as at 30 August 2013 (5) (c) the lesser of the opening and closing number of stock of the class bailed, leased, or otherwise used in a later in- come year up to and including the income year in which the livestock is being valued.
Meaning of rolling average value In this section, rolling average value, for an income year and a class of speciﬁed livestock, means one-third of the sum of the national average market values set for that income year and each of the 2 previous income years for livestock of that class.
Deﬁned in this Act: class, income year, lease, national average market value, rolling average value, speciﬁed livestock Compare: 2004 No 35 s EZ 4 EZ 5 Reduction: bloodstock not previously used for breeding in New Zealand: pre-1 August 2006 Bloodstock to which this section applies This section applies to bloodstock that— (a) (b) (c) was not used for breeding in New Zealand before 16 De- cember 1991; and before a person (person A) acquired it, was not used for breeding in New Zealand by any other person, unless— the other person transferred the bloodstock to (i) to person A under a matrimonial agreement which section FB 18 (Bloodstock) applies; or the other person and person A were companies in the same wholly-owned group at the time person A acquired the bloodstock from the other person; and (ii) section EC 39(1) or (2) (First income year in breeding business) applies to,— (i) (ii) before 1 August 2006; or for an income year ending on or after 1 August 2006, if a requirement of paragraphs (a) to (c) of section EC 39(1) or (2) is ﬁrst met before 1 Au- gust 2006.
Stallion For the purposes of sections EC 39 and EC 40 (which relate to bloodstock), the reduction applying to the value of a stallion is (1) (2) 1374 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EZ 5 25% of the cost price of the stallion unless person A chooses to value the stallion by the reducing value method.
Stallion valued by reducing value method (3) When person A chooses to value the stallion by the reduc- ing value method, the reduction applying to the value of the stallion is 37.5% of its cost price in the ﬁrst income year and 37.5% of its opening value in each later income year.

Person A must give notice to the Commissioner of their election in their return of income for the ﬁrst income year.
(4) (5) (6) (7) Broodmare when ﬁrst used before 1 April 2001 For the purposes of sections EC 39 and EC 40, the reduction applying to the value of a broodmare is calculated using the formula— 1.25 × cost price of broodmare 15 age of broodmare.

Deﬁnition of item in formula In the formula in subsection (4), age of broodmare is— (a) (b) 12 years of age; or the actual age in years, if the broodmare is 11 years of age or less at the end of the income year.
Broodmare when ﬁrst used on or after 1 April 2001 but before 1 August 2006 For the purposes of sections EC 39 and EC 40, the reduction applying to the value of a broodmare to which section EC 39(2) applies is calculated using the formula— 1.25 × cost price of broodmare 11 age of broodmare.

Deﬁnition of item in formula In the formula in subsection (6), age of broodmare is— (a) (b) 8 years of age; or the actual age in years, if the broodmare is 7 years of age or less at the end of the income year.
Deﬁned in this Act: bloodstock, broodmare, Commissioner, company, cost price, income year, matrimonial agreement, New Zealand, notice, return of in- come, stallion, wholly-owned group, year Compare: 2004 No 35 s EZ 4B 1375 Part E s EZ 6 Income Tax Act 2007 Reprinted as at 30 August 2013 EZ 6 Reduction: broodmare previously used for breeding in New Zealand: pre-1 August 2006 (1) (2) (3) (4) Broodmare to which this section applies This section applies to a broodmare that section EC 39(1) or (2) (First income year in breeding business) applies to,— (a) (b) before 1 August 2006; or for an income year ending on or after 1 August 2006, if a requirement of paragraphs (a) to (c) of section EC 39(1) or (2) is ﬁrst met before 1 August 2006.
Broodmare when ﬁrst used before 1 April 2001 For the purposes of sections EC 39 and EC 40 (which relate to bloodstock), the reduction applying to the value of a brood- mare to which section EC 39(1) applies and sections EC 41 (Reduction: bloodstock not previously used for breeding in New Zealand) and EZ 5 do not apply is calculated using the formula— cost price of broodmare age of broodmare.
15 Deﬁnition of item in formula In the formula in subsection (2), age of broodmare is— (a) (b) 12 years of age; or the actual age in years, if the broodmare is 11 years of age or less at the end of the income year.
Broodmare when ﬁrst used on or after 1 April 2001 but before 1 August 2006 For the purposes of sections EC 39 and EC 40, the reduction applying to the value of a broodmare to which section EC 39(2) applies and sections EC 41 and EZ 5 do not apply is calculated using the formula— cost price of broodmare age of broodmare.
11 (5) Deﬁnition of item in formula In the formula in subsection (4), age of broodmare is— (a) 8 years of age; or 1376 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EZ 7 (b) the actual age in years, if the broodmare is 7 years of age or less at the end of the income year.
Deﬁned in this Act: broodmare, cost price, income year, year Compare: 2004 No 35 s EZ 4C EZ 7 Buying patent rights before 1 April 1993 Patent rights (1) (2) (3) (4) (5) When this section applies This section applies when section DZ 8 (Buying patent rights before 1 April 1993) applies.

Amount of deduction The amount of the deduction is the expenditure that the person has incurred in buying the patent rights.
Amount when patent rights expired or disposed of If, before the expiry of the patent rights, the rights have come to an end or have been disposed of, the person is allowed a deduction of an amount that bears to the total sum of the ex- penditure on the purchase of the rights the same proportion as the unexpired term of the rights when they came to an end or were disposed of bears to their unexpired term at the date of their purchase.
An amount that the person has otherwise been allowed as a deduction is not included.

Timing of deduction: subsection (2) The deduction referred to in subsection (2) is allocated to the income years in relation to which the term of the patent rights that is unexpired at the date of purchase applies.

Timing of deduction: subsection (3) The deduction referred to in subsection (3) is allocated to the income year in which the rights have come to an end or been disposed of.
Deﬁned in this Act: amount, deduction, income year, patent rights Compare: 2004 No 35 s EZ 5 1377 Part E s EZ 8 Income Tax Act 2007 Reprinted as at 30 August 2013 EZ 8 Premium paid on land leased before 1 April 1993 Leases of land (1) (2) (3) (4) (5) When this section applies This section applies when section DZ 9 (Premium paid on land leased before 1 April 1993) applies.

Amount of deduction The amount of the deduction is the premium paid on the grant or renewal of the lease.
If person A does not use the land for the whole of a tax year, the amount of the deduction is reduced proportionately.

Amount when lease or renewal granted to another person If the lease or the renewal of the lease is granted to another person, the deduction must not be more than the amount of the premium paid by person A on the acquisition of the lease.

Timing of deduction The deduction is allocated evenly to the income years in rela- tion to which the term of the lease applies.
Meaning of term of the lease In this section, term of the lease, for a lease of indeﬁnite du- ration, means the minimum period it has to run.
Deﬁned in this Act: amount, deduction, income year, lease, pay, premium, tax year, term of the lease Compare: 2004 No 35 s EZ 6 Depreciation EZ 9 Pool method for items accounted for by globo method for 1992–93 income year If a person chooses the pool method for an item of property of a kind described in section EE 66(3)(c) (Meaning of poolable property), they must also choose to treat as a single pool all such items of property they still own that they accounted for at the end of their 1992–93 income year within the same globo account.
Deﬁned in this Act: income year, pool, pool method Compare: 2004 No 35 s EZ 8 1378 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EZ 11 EZ 10 Pool items accounted for by globo method for 1992–93 income year (1) (2) Limit on amount of income If a person’s pool consists solely of items of depreciable property accounted for at the end of the person’s 1992–93 income year using, with the Commissioner’s permission, the globo accounting method, the amount of income under section EE 22(5)(a) (Cases affecting pool) is no more than the amount calculated using the formula— depreciation allowed income.
Deﬁnition of items in formula In the formula,— (a) depreciation allowed is the total of deductions for amounts of depreciation loss that the person has been allowed in all earlier income years for all items in the pool, including amounts allowed before the person’s 1993–94 income year under the globo accounting method: income is all amounts of EE 22(5)(a) in all previous income years.
income under section (b) Deﬁned in this Act: amount, Commissioner, depreciable property, depreciation loss, income year, pool Compare: 2004 No 35 s EZ 9 EZ 11 Amounts of depreciation recovery income and of purposes depreciation loss for part business use up to 2004–05 income year For and the EE 50(5)(b)(ii) (which relate to depreciation for partial income-producing use), the item is an item of property to which 1 or more of the following applies: (a) sections EE 49(1)(b)(ii) the item is, at any time during the period the person owns it, subject to section FB 7 of the Income Tax Act 2004: the item is, at any time during the period the person owns it, subject to section EG 2(1)(d) or (e) of the In- come Tax Act 1994: (b) 1379 Part E s EZ 12 Income Tax Act 2007 Reprinted as at 30 August 2013 (c) (d) the item is, at any time during the period the person owns it, subject to section 108A(1)(d) or (e) of the In- come Tax Act 1976: the item was, in the 1992–93 income year or an earlier income year, an item that the person did not use wholly in deriving assessable income or carrying on a business for the purpose of deriving assessable income and for which, consequently, the person was allowed a smaller deduction for depreciation under section 108 of the In- come Tax Act 1976 than they would have been allowed if they had used the item wholly for 1 of those purposes.
Deﬁned in this Act: assessable income, business, income year Compare: 2004 No 35 s EZ 10 EZ 12 Amount of depreciation loss for item acquired from associated person on or before 23 September 1997 (1) (2) When this section applies This section applies when, on or before 23 September 1997, a person (person A) acquires an item from an associated person entitled to a deduction for an amount of depreciation loss for it.
Exclusions This section does not apply— (a) (b) (c) if the item is acquired under a relationship agreement in circumstances to which section FB 21 (Depreciable property) applies; or if the item is listed in schedule 14 (Depreciable intan- gible property) and the price that person A pays is in- come of the associated person; or if the item is not listed in schedule 14 and the Com- missioner is of the opinion that the circumstances are such that a person should be allowed a deduction for an amount of depreciation loss for the item based on the actual price or other consideration given for it.
No greater amount of depreciation loss (3) Whether or not the associated person has been allowed a de- duction for an amount of depreciation loss, person A does not have a greater amount of depreciation loss for the item than 1380 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EZ 13 (4) (5) (6) that which the associated person would have had if the associ- ated person had kept the item.
Amount of depreciation loss dealt with under section EE 48 If the associated person has an amount of depreciation loss that has been dealt with under section EE 48 (Effect of disposal or event), person A has an amount of depreciation loss for the item based on the total of— (a) (b) all amounts dealt with under section EE 48; and the depreciated value of the item immediately before person A acquired it.
When subsection (6) applies and does not apply Subsection (6) applies when, on or before 23 September 1997, the holder of management rights created under the Radiocommunications Act 1989 grants a licence right under that Act to an associated person.

However, it 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.
Licence right price The price of the licence right is treated as being zero for the purposes of subpart EE (Depreciation).
Deﬁned in this Act: amount, associated person, Commissioner, depreciation loss, pay, relationship agreement Compare: 2004 No 35 s EZ 11 EZ 13 Annual rate for item acquired on or after 1 April 1993 and before end of person’s 1994–95 income year (1) (2) What this section is about This section is about the annual rate that applies to an item of depreciable property that a person acquires before the end of their 1994–95 income year (not including ﬁxed life intangible property or excluded depreciable property, for which rates are set in sections EE 33 (Annual rate for ﬁxed life intangible prop- erty) and EZ 15 respectively).
Rate The rate is— (a) the item’s economic rate, if the item is not a building that has an economic rate or provisional rate of more 1381 Part E s EZ 14 Income Tax Act 2007 Reprinted as at 30 August 2013 (b) (c) than 0% due to an estimated useful life of 50 years or more; or the pre-1993 depreciation rate described in section EZ 14, if the person chooses under that section; or 0%, for a building that has an economic rate or provi- sional rate of more than 0% due to an estimated useful life of 50 years or more.
Deﬁned in this Act: annual rate, building, depreciable property, economic rate, estimated useful life, excluded depreciable property, ﬁxed life intangible prop- erty, income year, provisional rate Compare: 2004 No 35 s EZ 12 Section EZ 13(2) heading: substituted, on 1 April 2011 (applying for the 2011–12 and later income years), by section 85(1) of the Taxation (Budget Measures) Act 2010 (2010 No 27).
Section EZ 13(2): substituted, on 1 April 2011 (applying for the 2011–12 and later income years), by section 85(1) of the Taxation (Budget Measures) Act 2010 (2010 No 27).

Section EZ 13 list of deﬁned terms building: inserted (with effect on 30 July 2009), on 28 May 2010, by section 84 of the Taxation (Budget Measures) Act 2010 (2010 No 27).
Section EZ 13 list of deﬁned terms estimated useful life: inserted, on 1 April 2011 (applying for the 2011–12 and later income years), by section 85(2) of the Taxation (Budget Measures) Act 2010 (2010 No 27).

Section EZ 13 list of deﬁned terms provisional rate: inserted, on 1 April 2011 (applying for the 2011–12 and later income years), by section 85(2) of the Tax- ation (Budget Measures) Act 2010 (2010 No 27).
EZ 14 Pre-1993 depreciation rate Scope of election (1) A person may choose the pre-1993 depreciation rate for all items, or any item, that they acquire before the end of their 1994–95 income year excluding buildings that have an eco- nomic rate or provisional rate of more than 0% due to an esti- mated useful life of 50 years or more.
How election made The election is made by applying the pre-1993 depreciation rate for the item to the item in the person’s return of income for the income year for which the election is made.

Election unchangeable The election must not be changed for the income year for which it is made.
(2) (3) 1382 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EZ 14 Moving from diminishing value to straight-line and vice versa (4) A person who chooses the pre-1993 depreciation rate has the following choices: (a) if the rate is a diminishing value rate, the person may instead use the straight-line rate by— (i) rounding the diminishing value rate to the nearest rate speciﬁed in schedule 10, column 1 (Straight- line equivalents of diminishing value rates of de- preciation); and taking the equivalent straight-line rate speciﬁed in column 2 of the schedule; or (ii) (b) if the rate is a straight-line rate, the person may instead use the diminishing value rate by— (i) rounding the straight-line rate to the nearest rate speciﬁed in schedule 10, column 2; and taking the equivalent diminishing value rate spe- ciﬁed in column 1 of the schedule.
(ii) (5) (6) (7) (8) Pre-1993 depreciation rate The pre-1993 depreciation rate is the rate calculated using the formula— section 108 rate + section 108A rate + section 113A rate.

Deﬁnition of items in formula The items in the formula are deﬁned in subsections (7) to (9).
Section 108 rate Section 108 rate is the rate of depreciation that the Commis- sioner allowed persons with a standard balance date to use for the 1992–93 tax year to calculate a deduction for depreciation under section 108 of the Income Tax Act 1976, as in force for the 1992–93 tax year, for property of the same kind as the item.
Section 108A rate Section 108A rate is the rate of additional deduction under section 108A of the Income Tax Act 1976, as in force for the 1992–93 tax year, for which the item was eligible for the 1992–93 tax year.

1383 Part E s EZ 15 Income Tax Act 2007 Reprinted as at 30 August 2013 (9) Section 113A rate Section 113A rate is the rate of supplementary deduction under section 113A of the Income Tax Act 1976 for which the item was eligible for the 1992–93 tax year.
Deﬁned in this Act: building, Commissioner, diminishing value rate, economic rate, estimated useful life, income year, provisional rate, return of income, standard balance date, straight-line rate, tax year Compare: 2004 No 35 s EZ 13 Section EZ 14(1): amended, on 1 April 2011 (applying for the 2011–12 and later income years), by section 86(1) of the Taxation (Budget Measures) Act 2010 (2010 No 27).
Section EZ 14 list of deﬁned terms building: inserted (with effect on 30 July 2009), on 28 May 2010, by section 84 of the Taxation (Budget Measures) Act 2010 (2010 No 27).

Section EZ 14 list of deﬁned terms economic rate: inserted, on 1 April 2011 (applying for the 2011–12 and later income years), by section 86(2) of the Tax- ation (Budget Measures) Act 2010 (2010 No 27).
Section EZ 14 list of deﬁned terms estimated useful life: inserted, on 1 April 2011 (applying for the 2011–12 and later income years), by section 86(2) of the Taxation (Budget Measures) Act 2010 (2010 No 27).

Section EZ 14 list of deﬁned terms provisional rate: inserted, on 1 April 2011 (applying for the 2011–12 and later income years), by section 86(2) of the Tax- ation (Budget Measures) Act 2010 (2010 No 27).
EZ 15 Annual rate for excluded depreciable property: 1992–93 tax year What this section is about This section is about the annual rate that applies to an item of excluded depreciable property.

Rate The rate is the section 108 rate, without adding the section 108A rate or the other sections rate.

The rates referred to in this subsection are described in subsections (3) to (5).
Section 108 rate Section 108 rate means the rate of depreciation that the Com- missioner allowed persons with a standard balance date to use for the 1992–93 tax year to calculate a deduction for depre- ciation under section 108 of the Income Tax Act 1976, as in force for the 1992–93 tax year, for property of the same kind as the item.
(1) (2) (3) 1384 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EZ 15 (4) Section 108A rate Section 108A rate means the rate of additional deduction under section 108A of the Income Tax Act 1976, as in force for the 1992–93 tax year, for which the item was eligible for the 1992–93 tax year.
Other sections rate (5) Other sections rate means a rate of additional or supplemen- tary deduction under section 113A or any other provision of the Income Tax Act 1976 for which the item was eligible for the 1992–93 tax year.
(6) Amount of depreciation loss under any other provision If a person has an additional amount of depreciation loss for an income year for an item of excluded depreciable property under section EZ 16 or EZ 17 or any other provision of this Act,— (a) the rate applicable to the item under subsection (2) may be adjusted to incorporate the additional amount of de- preciation loss in a manner prescribed or allowed by the Commissioner; and (b) when an adjusted rate is applied to the item, the person does not have a separate amount of depreciation loss for the item under section EZ 16 or EZ 17 or the other provision.
Changing rate (7) A person applying the rate in subsection (2) has the following choices: (a) if the rate is a diminishing value rate, the person may instead use the straight-line rate by— (i) rounding the diminishing value rate to the nearest rate speciﬁed in schedule 10, column 1 (Straight- line equivalents of diminishing value rates of de- preciation); and taking the equivalent straight-line rate speciﬁed in column 2 of the schedule; or (ii) (b) if the rate is a straight-line rate, the person may instead use the diminishing value rate by— (i) rounding the straight-line rate to the nearest rate speciﬁed in schedule 10, column 2; and 1385 Part E s EZ 16 Income Tax Act 2007 Reprinted as at 30 August 2013 (ii) taking the equivalent diminishing value rate spe- ciﬁed in column 1 of the schedule.
Deﬁned in this Act: annual rate, Commissioner, depreciation loss, diminishing value rate, excluded depreciable property, prescribed, standard balance date, straight-line rate, tax year Compare: 2004 No 35 s EZ 14 EZ 16 Amount of depreciation loss for plant or machinery additional to section EZ 15 amount (1) (2) When this section applies This section applies when a person carrying on a business in New Zealand incurs, wholly for the purpose of the business, capital expenditure in acquiring, installing, or extending plant or machinery that— (a) (b) is excluded depreciable property; and is— (i) plant or machinery that is normally in operation for an average of at least 16 hours each working day and is not normally in operation for 24 hours each working day: plant or machinery that is normally in operation for 24 hours each working day.
(ii) Exclusions This section does not apply to— (a) (b) (c) (d) (e) aluminium smelting plant or machinery: cars: petroleum reﬁning plant or machinery: ships, aircraft, or hovercraft: plant or machinery for which a deduction by way of a ﬁxed rate was denied under section 108 of the Income Tax Act 1976 for the 1992–93 income year or an earlier relevant income year: plant or machinery for which the Commissioner did not prescribe a differential rate for more than 1 shift operation when determining under section 108 of the Income Tax Act 1976 the rate of depreciation for the 1992–93 income year or an earlier relevant income year.
(f) 1386 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EZ 17 (3) (4) (5) Additional amount of depreciation loss The person has an amount of depreciation loss for the plant or machinery under this section in addition to any amounts of depreciation loss that they have for the plant or machinery under section EZ 15.
Relevant income years The person has the additional amount of depreciation loss in the ﬁrst, second, third, fourth, and ﬁfth income years in which the plant or machinery is used in deriving assessable income.
Rate The rate of the additional amount of depreciation loss is,— (a) for plant or machinery described in subsection (1)(b)(i), 3% of the diminishing value of the plant or machinery in each income year: for plant or machinery described in subsection (1)(b)(ii), 6% of the diminishing value of the plant or machinery in each income year.
(b) Deﬁned in this Act: amount, assessable income, business, car, Commissioner, depreciation loss, excluded depreciable property, income year, New Zealand, petroleum, working day Compare: 2004 No 35 s EZ 15 EZ 17 Additional amount of depreciation loss: between 16 December 1991 and 1 April 1994 (1) (2) (3) When this section applies This section applies when a person incurs expenditure of the kind described in subsection (2) in— (a) (b) the acquisition or installation of a qualifying asset; or the making of a qualifying improvement to an item the person owns.
Expenditure described The expenditure is expenditure of a capital nature, excluding any amount of input tax applying to the supply of the qualify- ing asset or qualifying improvement to the person.

Additional amount of depreciation loss The person has an amount of depreciation loss for the asset or item under this section in addition to any amount of depre- ciation loss they have for it under subpart EE (Depreciation) 1387 Part E s EZ 18 Income Tax Act 2007 Reprinted as at 30 August 2013 and section EZ 16.
This subsection is overridden by section EE 48(2) (Effect of disposal or event).
(4) Amount The additional amount of depreciation loss for an income year is 25% of the lesser of— (a) the amount of depreciation loss that the person has under subpart EE and section EZ 16 for the asset or item and for the income year; and the amount of depreciation loss that the person would have had under subpart EE and section EZ 16 for the asset or item and the income year had its value been equal to its qualifying capital value.
(b) Deﬁned in this Act: acquire, amount, depreciation loss, income year, qualifying capital value, qualifying asset, qualifying improvement Compare: 2004 No 35 s EZ 16 EZ 18 Section EZ 17 amount of depreciation loss when items transferred between companies in wholly-owned group before 1 April 1993 When this section applies This section applies when, before 1 April 1993, a company in a wholly-owned group of companies disposes of a qualifying asset, or an item to which the company has made a qualifying improvement, to another company in the same wholly-owned group.
Transferee has amount of depreciation loss The transferee company has an amount of depreciation loss under section EZ 17 for the period after the disposal as if the transferee company were the same person as the transferor company.
Amount The amount of depreciation loss that the transferor company has under section EZ 17 for the asset or item for the income year in which the disposal occurs must be subtracted when the amount of depreciation loss that the transferee company has under section EZ 17 for the income year is calculated.
(1) (2) (3) 1388 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EZ 20 (4) How deﬁnitions affected This section applies despite any limitations in the deﬁnitions of new asset, New Zealand-new asset, qualifying asset, quali- fying capital value, and qualifying improvement as to the identity of the person for whom an asset or item or improve- ment will be treated as a qualifying asset or qualifying im- provement.
Deﬁned in this Act: amount, company, depreciation loss, dispose, income year, new asset, New Zealand-new asset, qualifying asset, qualifying capital value, qualifying improvement, wholly-owned group of companies Compare: 2004 No 35 s EZ 17 EZ 19 Section EZ 17 amount of depreciation loss when person previously exempt from tax acquires item (1) (2) When this section applies This section applies when a person who has derived nothing but exempt income— (a) starts in an income year to derive income that is not exempt income; and (b) would have had an amount of depreciation loss under section EZ 17 for an item and an income year if the per- son had been deriving income that was not exempt in- come at the time they acquired the item to which section EZ 17 applies or made a qualifying improvement to the item to which section EZ 17 applies.
How qualifying capital value determined The item’s qualifying capital value is determined as if the per- son had had an amount of depreciation loss for the period dur- ing which they derived nothing but exempt income.
Deﬁned in this Act: amount, depreciation loss, exempt income, income, income year, qualifying capital value, qualifying improvement Compare: 2004 No 35 s EZ 18 EZ 20 Adjusted tax value 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: 1389 Part E s EZ 21 Income Tax Act 2007 Reprinted as at 30 August 2013 (a) (b) (c) the copyright in software: the right to use the copyright in software: the right to use software.
(2) Meaning of adjusted tax value The adjusted tax value of the item is its cost to the person minus all deductions that the person was allowed for it.
Deﬁned in this Act: acquire, adjusted tax value Compare: 2004 No 35 s EZ 19 EZ 21 Sections EE 45 and EE 47: permanent removal: allowance before 1 April 1995 Section EE 45(11) For the purposes of section EE 45(11) (Consideration for pur- poses of section EE 44), the consideration that a person derives from the event described in subsection (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 goods and services tax (GST) that would be charged on the supply; and this subsection does not apply to a transfer under a re- lationship agreement.
(b) Section EE 47(10) For the purposes of section EE 47(10) (Events for purposes of section EE 44), the ninth event is the cessation of use in New Zealand, and the taking out of New Zealand for use outside New Zealand, of an item of property for which a ﬁrst-year allowance has been granted under section 112(1) to (7) of the Income Tax Act 1976, except when the item— (a) (b) will, after its return to New Zealand, be used in or for has been taken out of New Zealand temporarily; and the purpose of a business in New Zealand.
Deﬁned in this Act: business, GST, New Zealand, relationship agreement, tax- able supply Compare: 2004 No 35 s EZ 20 (1) (2) 1390 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EZ 22 EZ 22 Base value and total deductions in section EE 56: before 1 April 1995 (1) (2) (3) (4) Base value in section EE 56 when section 108 of the Income Tax Act 1976 applies For the purposes of section EE 56 (Formula), this subsection applies when a person could have been allowed a deduction for depreciation for an item under section 108 of the Income Tax Act 1976 for the 1992–93 income year and they have owned the item continuously since the 1992–93 income year.
Base value is the amount at which the item was recorded in the per- son’s accounts for taxation purposes for the 1992–93 income year.
Section EE 57(3)(d) For the purposes of section EE 57(3)(d) (Base value in section EE 56 when none of sections EE 58, EE 59, and EZ 22(1) applies),— (a) the expenditure is expenditure for which a person has been allowed a deduction for depreciation under any of sections 108 to 108N or section 113A of the Income Tax Act 1976; or the expenditure is expenditure for which a person has been allowed a deduction for depreciation under any other provision of the Income Tax Act 1976.
(b) Section EE 58(1)(e)(ii) For the purposes of section EE 58(1)(e)(ii) (Base value in sec- tion EE 56 when no previous deduction), the item is one for which the person could not have been allowed a depreciation deduction under section 108 of the Income Tax Act 1976 for the 1992–93 income year.

Section EE 60(2)(c) For the purposes of section EE 60(2)(c) (Total deductions in section EE 56), the provision is section 117(5) of the Income Tax Act 1976.
Deﬁned in this Act: amount, income year Compare: 2004 No 35 s EZ 21 1391 Part E s EZ 23 Income Tax Act 2007 Reprinted as at 30 August 2013 EZ 23 Economic rate for plant or equipment acquired before 1 April 2005 and buildings acquired before 19 May 2005 (b) 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 items are— (i) (ii) (iii) plant or equipment acquired before 1 April 2005: buildings acquired before 19 May 2005: 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 de- preciation rate set under this section or a corres- ponding provision.
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 speciﬁed in schedule 12, column 1 (Old banded rates of depreci- ation); and sets the same rate for some or all of the kinds of items of depreciable property that are similar to one another, if the Commissioner thinks it is appropriate to do so having regard to— (i) (ii) the rate calculated for each kind; and the reduction in compliance costs that is likely to be achieved.
(1) (2) (3) 1392 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EZ 23B Formula The formula is— (4) 1 (( residual value cost ) 1 estimated useful life ).
(5) Deﬁnition of items in formula In the formula,— (a) residual value is the greater of— (i) estimated residual market value, which is deﬁned in section EE 67 (Other deﬁnitions): 13.5% of cost: (ii) cost is the cost of items of the kind to which the formula is applied: estimated useful life is deﬁned in section EE 63 (Mean- ing of estimated useful life).
(b) (c) Deﬁned in this Act: Commissioner, depreciable property, diminishing value rate, economic rate, estimated residual market value, estimated useful life, ex- cluded depreciable property, ﬁxed life intangible property Compare: 2004 No 35 s EZ 21B EZ 23B Property acquired after depreciable property affected by Canterbury earthquakes (1) When this section applies This section applies for a person and an income year (the cur- rent year) before the 2016–17 income year when the per- son,— (a) in or before the current year, receives insurance or compensation for items of depreciable property (the affected property) each of which, as a result of a Canterbury earthquake as that term is deﬁned in section 4 of the Canterbury Earthquake Recovery Act 2011, is affected by— (i) damage meeting the requirements of section EE 47(4) (Events for purposes of section EE 44); or a disposal and reacquisition under EZ 23C.
section (ii) 1393 Part E s EZ 23B Income Tax Act 2007 Reprinted as at 30 August 2013 (b) (c) (d) in the absence of this section, would have in or before the current year, from insurance or compensation for the items of affected property (the affected class) in 1 of the categories referred to in subsection (10)(b), total depre- ciation recovery income under section EE 48 (Effect of disposal or event) exceeding the total amount for the af- fected class of depreciation loss, treated as a positive amount, under section EE 48; and plans in the current year to acquire depreciable property (the replacement property) meeting the requirements of subsection (7); and gives written notice to the Commissioner under subsec- tion (9)— (i) (ii) specifying the affected property: linking, for the purposes of this section, each item of acquired replacement property with an af- fected class.
Depreciation recovery income and suspended recovery income The amount for the affected class of the excess referred to in subsection (1)(b) (the excess recovery) is not depreciation re- covery income except to the extent of the amount that— (a) remains after adjustment under subsection (3) or (6) (the suspended recovery income); and is attributed to an income year by subsection (8).
(b) Effect of acquiring item of replacement property if suspended recovery income from affected property not in pool If the person acquires an item of replacement property (the re- placement item) and links the replacement item with affected property for which the person does not use the pool method, the amount given by subsection (4)— (a) is treated as not being included in the amount of the person’s expenditure on the replacement item, for the purposes of determining— (i) under section EE 16(4) (Amount resulting from standard calculation) the item value or cost for the replacement item, if the person uses the di- minishing value method or straight-line method for the replacement item; or (2) (3) 1394 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EZ 23B (ii) under section EE 22 (Cases affecting pool) the cost of the replacement item, if the person uses the pool method for the replacement item; and (b) is a reduction in the amount of the suspended recovery income for the affected property.
(4) (5) (6) Amount of reduction: expenditure on replacement item and suspended recovery income The amount of the reduction under subsection (3)(a) or (b) for a replacement item and affected property for which the person does not use the pool method is— (a) zero, if the cost of the affected property equals or is less than the person’s total expenditure in acquiring, with or before the replacement item, other replacement prop- erty linked with the affected property; or the amount calculated using the formula— (b) limited replacement cost × excess affected cost.
Deﬁnition of items in formula In the formula,— (a) limited replacement cost is the lesser of the following: the amount by which the cost of the affected (i) property exceeds the total expenditure in acquir- ing, with or before the replacement item, other re- placement property linked with the affected prop- erty: the amount of the expenditure on the replacement item: (ii) (b) (c) excess is the excess recovery for the affected property: affected cost is the total cost for the person of the af- fected property.
Effect of acquiring item of replacement property if suspended recovery income from affected property in pool If the person acquires an item of replacement property (the re- placement item) and links the replacement item with affected property for which the person uses the pool method,— (a) the amount of the person’s expenditure on the replace- ment item is treated as being reduced, by the amount equal to the lesser of the amount of expenditure on the 1395 Part E s EZ 23B Income Tax Act 2007 Reprinted as at 30 August 2013 replacement item and the amount of suspended recovery income for the affected property after the acquisition of other replacement property with or before the replace- ment item, for the purposes of determining— (i) the adjusted tax value of the replacement item, if subparagraphs (ii) or (iii) do not apply; or the cost of the replacement item for the straight- line method, if that method is used to determine depreciation loss for the replacement item; and the adjusted tax value of the pool of the replace- ment item, if the person uses the pool method for the replacement item; and (ii) (iii) (b) the amount of the suspended recovery income for the affected property is reduced by the amount of the treated reduction under paragraph (a).
Requirements for replacement property (7) An item of replacement property for a person must— (a) (b) (c) (d) be depreciable property that is not depreciable intan- gible property; and be acquired in or before the person’s 2015–16 income year; and be included in the same category under subsection (10)(b) as the affected class with which the person links the item, if the affected class is described in subsection (10)(b)(i) or (ii); and be located in greater Christchurch as that term is deﬁned in section 4 of the Canterbury Earthquake Recovery Act 2011, if the item is a building, grandparented structure, or commercial ﬁt-out.
Amount of depreciation recovery income The person has, in an income year for affected property, an amount of depreciation recovery income equal to the amount of suspended recovery income for the affected property— (a) at the end of the income year, if that year is the 2015–16 income year and neither of paragraphs (b) and (c) apply earlier; or (b) when in the income year the person decides not to ac- quire more replacement property, if neither of para- graphs (a) and (c) apply earlier; or (8) 1396 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EZ 23B (c) when in the income year the person goes into liquidation or becomes bankrupt, if neither of paragraphs (a) and (b) apply earlier.
Notice of election for affected property (9) A person choosing to rely on this section to suspend in a cur- rent year the recognition of suspended recovery income from the insurance or compensation for affected property must give written notice to the Commissioner— (a) (b) for the earliest income year (the estimate year) in which the amount of the insurance or compensation for the affected property can be reasonably estimated, by the later of 31 January 2012 and the date on which the return of income is ﬁled for the estimate year; and if the current year is after the estimate year,— (i) for each income year between the estimate year and the current year, by the date on which the return of income is ﬁled for that income year; and for the current year, by the date on which the return of income is ﬁled for the current year.
(ii) Contents of notice of election (10) A notice under subsection (9) must— (a) (b) (c) (d) describe the items of affected property; and indicate in which of the following categories each item of affected property is included: (i) a building or grandparented structure not referred to in subparagraph (iii): commercial ﬁt-out not referred to in subpara- graph (iii): depreciable property for which the person uses the pool method: depreciable property not referred to in subpara- graphs (i) to (iii); and (ii) (iii) (iv) give details of each item of replacement property ac- quired in the current year and the affected class to which the person is linking the item; and give the amount of the expenditure on the replacement item and the reduction under subsection (3) or (6) of that expenditure for the purposes of determining adjusted tax value or depreciation loss; and 1397 Part E s EZ 23C Income Tax Act 2007 Reprinted as at 30 August 2013 (e) give the amount, for the affected class, of the suspended recovery income at the end of the current year.
Disposal of replacement property: reduction in cost treated as depreciation loss (11) For the purposes of section EE 48, the amount by which a per- son’s expenditure on a replacement item is treated as being reduced under subsection (3) or (6) is an amount of depreci- ation loss for the item for which the person has been allowed a deduction.

Relationship to subpart EE (12) This section overrides subpart EE (Depreciation).
Deﬁned in this Act: adjusted tax value, amount, assessable income, building, commercial building, commercial ﬁt-out, depreciable intangible property, de- preciable property, depreciation loss, depreciation recovery income, grandpar- ented structure, income year, liquidation, notice, pool, pool method, return of income, straight-line method Section EZ 23B: inserted (with effect on 4 September 2010), on 29 August 2011, by section 43 of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section EZ 23B(1)(a): replaced (with effect on 4 September 2010), on 2 November 2012 (applying for the 2010–11 to the 2015–16 income years), by section 56(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).

Section EZ 23B(2)(b): amended (with effect on 4 September 2010), on 2 November 2012, by section 56(2) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
EZ 23C Insurance for Canterbury earthquake damage of property: deemed sale and purchase When this section applies This section applies for a person and an item of depreciable property and an income year (the current year) before the 2016–17 income year when— (a) the item is damaged by a Canterbury earthquake as that term is deﬁned in section 4 of the Canterbury Earth- quake Recovery Act 2011; and the person is entitled to an amount of insurance or com- pensation for the damage to the item; and the item is assessed by the payer of the insurance or compensation (the insurer) as uneconomic to repair; and (b) (c) (1) 1398 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EZ 23D (d) the damage does not meet the requirements of section EE 47(4) (Events for purposes of section EE 44).
(2) (3) Deemed sale and repurchase of item The person is treated as, on the date of the Canterbury earth- quake,— (a) disposing of the item for the amount of insurance or compensation; and reacquiring the item for zero consideration.

(b) Relationship with section EE 52 This section overrides section EE 52 (Amount of depreciation recovery income when compensation received).
Deﬁned in this Act: amount, depreciable property, income year Section EZ 23C: inserted (with effect on 4 September 2010), on 2 November 2012 (applying for the 2010–11 to the 2015–16 income years), by section 57(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
EZ 23D Insurance for Canterbury earthquake damage of property: limit on depreciation recovery income (1) (2) When this section applies This section applies for a person and an item of depreciable property and an income year (the current year) before the 2016–17 income year when— (a) the item is damaged by a Canterbury earthquake as that term is deﬁned in section 4 of the Canterbury Earth- quake Recovery Act 2011; and the person is entitled to an amount of insurance or com- pensation for the damage to the item; and the damage does not meet the requirements of section EE 47(4) (Events for purposes of section EE 44); and section EZ 23C does not apply for the item.
(b) (c) (d) Limit on depreciation recovery income under section EE 52 If the person would derive depreciation recovery income under section EE 52 (Amount of depreciation recovery income when compensation received) in an income year for the item in the absence of this section, the person derives in the income year an amount of depreciation recovery income equal to the lesser of— 1399 Part E s EZ 23E Income Tax Act 2007 Reprinted as at 30 August 2013 (a) (b) the amount of depreciation recovery income under sec- tion EE 52 that the person would derive in the income year for the item in the absence of this section: the total of the amounts of depreciation loss for which the person has been allowed deductions for the item.
(3) Relationship with section EE 52 This section overrides section EE 52.

Deﬁned in this Act: amount, deduction, depreciable property, depreciation loss, depreciation recovery income, income year Section EZ 23D: inserted (with effect on 4 September 2010), on 2 November 2012 (applying for the 2010–11 to the 2015–16 income years), by section 58(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
EZ 23E Item treated as available for use if access restricted due to Canterbury earthquake An item of depreciable property is treated for an income year as being available for use while access to the item is affected by a restriction imposed due to the effects of a Canterbury earth- quake (as deﬁned in section 4 of the Canterbury Earthquake Recovery Act 2011), if— (a) the item was used or available for use immediately be- fore the restriction was imposed; and the item would be used or available for use in the ab- sence of the restriction; and the income year is the 2015–16 or an earlier income year.
(b) (c) Deﬁned in this Act: depreciable property, income year Section EZ 23E: inserted (with effect on 4 September 2010), on 2 November 2012 (applying for the 2010–11 to the 2015–16 income years), by section 59(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
EZ 23F Insurance for Canterbury earthquake damage causing disposal: optional timing rule for income, deductions (1) When this section applies This section applies for a person and an item of depreciable property when— 1400 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EZ 23F (a) (b) (c) (d) the item is damaged by a Canterbury earthquake as that term is deﬁned in section 4 of the Canterbury Earth- quake Recovery Act 2011; and the damage— (i) results in the item being affected by a disposal and reacquisition under section EZ 23C; or (ii) meets the requirements of section EE 47(4) (Events for purposes of section EE 44); and the person is entitled to an amount of insurance or com- pensation for the damage to the item; and the person chooses to apply this section for all items of depreciable property meeting the requirements of para- graphs (a) to (c).
(2) (3) Attribution of income from insurance and disposal If the amount of insurance or compensation for the damage (the insurance receipt) is derived or able to be reasonably es- timated before the end of the 2015–16 income year, the per- son’s income from the insurance receipt and the consideration derived from the disposal of the item is attributed to the earlier of— (a) (b) the 2015–16 income year: the ﬁrst income year in which— (i) the amount of the cost of disposing of the item (the disposal cost) is or has been incurred or able to be reasonably estimated; and the insurance receipt is or has been derived or able to be reasonably estimated; and the consideration from the disposal of the item is or has been derived or able to be reasonably estimated.
(ii) (iii) Attribution of deductions If the disposal cost is incurred or able to be reasonably esti- mated before the end of the 2015–16 income year, the person’s deductions for the disposal cost and for depreciation loss under section EE 48 (Effect of disposal or event) are attributed to the earlier of— (a) (b) the 2015–16 income year: the ﬁrst income year in which— 1401 Part E s EZ 23G Income Tax Act 2007 Reprinted as at 30 August 2013 (4) (i) (ii) (iii) the disposal cost is or has been incurred or able to be reasonably estimated; and the insurance receipt is or has been derived or able to be reasonably estimated; and the consideration from the disposal of the item is or has been derived or able to be reasonably estimated.
Relationship with other sections This section overrides sections EE 1, EE 22, and EE 48 (which state when depreciation loss and depreciation recovery income arise) in relation to the timing of the person’s— (a) income from the insurance receipt and consideration from the disposal of the item: (b) deductions for the disposal cost and depreciation loss.
Deﬁned in this Act: amount, building, deduction, grandparented structure, in- come, income year Section EZ 23F: inserted (with effect on 4 September 2010), on 2 November 2012 (applying for the 2010–11 to the 2015–16 income years), by section 60(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
EZ 23G Insurance for repairs of Canterbury earthquake damage: optional timing rule for income, deductions When this section applies This section applies for a person and an item of depreciable property when— (a) the item is damaged by a Canterbury earthquake as that term is deﬁned in section 4 of the Canterbury Earth- quake Recovery Act 2011; and the damage— (i) (b) does not result in the item being subject to a dis- posal and reacquisition under section EZ 23C; and does not meet the requirements of section EE 47(4) (Events for purposes of section EE 44); and (ii) (c) the person is entitled to an amount of insurance or com- pensation for the damage to the item; and (1) 1402 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EZ 23G (d) the person chooses to apply this section for all items of depreciable property meeting the requirements of para- graphs (a) to (c).
(2) (3) (4) Attribution of income from insurance If the amount of insurance or compensation for the damage (the insurance receipt) is derived or able to be reasonably es- timated before the end of the 2015–16 income year, the per- son’s income from the insurance receipt is attributed to the earlier of— (a) (b) the 2015–16 income year: the ﬁrst income year in which— (i) the amount of expenditure for total repair of the damage (the repair cost) is or has been incurred or able to be reasonably estimated; and the insurance receipt is or has been derived or able to be reasonably estimated.
(ii) Attribution of deductions for repairs If the repair cost is incurred or able to be reasonably estimated before the end of the 2015–16 income year, the person’s de- ductions for the repair cost are attributed to the earlier of— (a) (b) the 2015–16 income year: the ﬁrst income year in which— (i) the repair cost is or has been incurred or able to be reasonably estimated; and the insurance receipt is or has been derived or able to be reasonably estimated.
(ii) Relationship with other sections This section overrides sections CG 4, EE 22, and EE 52 (which provide for receipts of insurance or indemnity payments) in relation to the timing of the person’s— (a) (b) Deﬁned in this Act: amount, deduction, income, income year income from the insurance receipt: deductions for the repair cost.
Section EZ 23G: inserted (with effect on 4 September 2010), on 2 November 2012 (applying for the 2010–11 to the 2015–16 income years), by section 61(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).

1403 Part E s EZ 24 Income Tax Act 2007 Reprinted as at 30 August 2013 Deﬁnitions EZ 24 Meaning of new asset Meaning (1) New asset means an item of property that a person owns to which subsections (2) to (4) apply and to which subsection (5) does not apply.
Acquisition date The item is— (a) (b) (c) acquired by the person in the period starting on 16 De- cember 1991 and ending with the close of 31 March 1993, other than under a binding contract that they en- tered into before 16 December 1991; or acquired by the person in the period starting on 1 April 1993 and ending with the close of 31 March 1994, under a binding contract that they entered into in the period starting on 16 December 1991 and ending with the close of 31 March 1993; or one to which all the following apply: (i) it was acquired by the person before 16 Decem- ber 1991 as trading stock; and it was used by the person as a capital item for the ﬁrst time in the period starting on 16 Decem- ber 1991 and ending with the close of 31 March 1993; and it qualiﬁed for a deduction for depreciation under section 108 of the Income Tax Act 1976 in the period starting on 16 December 1991 and ending with the close of 31 March 1993.
(ii) (iii) Used before 1 April 1994 The item is used by the person before 1 April 1994.
Not used by anyone previously The item is— (a) not acquired by any other person before the date on which the person acquired it; and not used by any other person before the date on which the person acquired it; and not held for use by any other person before the date on which the person acquired it; and (b) (c) (2) (3) (4) 1404 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EZ 25 (d) not an item or part of an item that qualiﬁed for a deduc- tion for depreciation under the Income Tax Act 1976 for a period before the date on which the person acquired it.
Exclusion (a) (b) (5) A constructed item that a person owns is not a new asset if— its construction started before 16 December 1991 (but this paragraph does not apply to the extent to which the item is trading stock to which subsection (2)(c) applies); or its construction started on or after 16 December 1991 under a binding contract that the person entered into before 16 December 1991; or its construction was not completed before 1 April 1994; or the item was not ﬁrst used by the person before 1 April 1994.
(d) (c) Deﬁned in this Act: acquire, new asset, trading stock Compare: 2004 No 35 s EZ 22 EZ 25 Meaning of New Zealand-new asset Meaning (1) New Zealand-new asset means an item of property that a per- son owns to which subsections (2) to (5) apply.

(2) (3) Not new The item is not a new asset.
Date of acquisition The item is— (a) acquired by the person in the period starting on 16 De- cember 1991 and ending with the close of 31 March 1993, other than under a binding contract that they en- tered into before 16 December 1991; or acquired by the person in the period starting on 1 April 1993 and ending with the close of 31 March 1994, under a binding contract that they entered into in the period starting on 16 December 1991 and ending with the close of 31 March 1993; or one to which all the following apply: (b) (c) 1405 Part E s EZ 26 Income Tax Act 2007 Reprinted as at 30 August 2013 (i) (ii) (iii) it was acquired by the person before 16 Decem- ber 1991 as trading stock; and it was used by the person as a capital item for the ﬁrst time in the period starting on 16 Decem- ber 1991 and ending with the close of 31 March 1993; and it qualiﬁed for a deduction for depreciation under section 108 of the Income Tax Act 1976 in the period starting on 16 December 1991 and ending with the close of 31 March 1993.
Used before 1 April 1994 The item is used by the person before 1 April 1994.

Not used The item is— (a) (b) not used in New Zealand before the date on which the person acquired it; and not an item or part of an item that qualiﬁed for a deduc- tion for depreciation under the Income Tax Act 1976 for a period before the date on which the person acquired it.
(4) (5) Deﬁned in this Act: acquire, new asset, New Zealand, New Zealand-new asset, trading stock Compare: 2004 No 35 s EZ 23 EZ 26 Meaning of qualifying capital value Meaning (1) Qualifying capital value means, for an income year,— (a) (b) for a qualifying asset that a person owns, the amount calculated for the income year using the formula in sub- section (2); or for an item that a person owns that is not a qualifying asset but to which they have made a qualifying improve- ment, the amount calculated for the income year using the formula in subsection (7).
Formula The formula referred to in subsection (1)(a) is— (acquisition cost + improvement cost) item’s depreciation.

 (2) 1406 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EZ 26 (3) Deﬁnition of items in formula The items in the formula in subsection (2) are deﬁned in sub- sections (4) to (6).

Acquisition cost (4) Acquisition cost is the amount of capital expenditure the per- son incurs in acquiring the asset or item.
In the case of a con- structed item, the amount of capital expenditure is reduced by the amount of capital expenditure the person incurs on the con- struction on or after 1 April 1993, other than under a binding contract that the person entered into before 1 April 1993.

(5) (6) (7) (8) Improvement cost Improvement cost is the amount of capital expenditure, if any, the person incurs in making a qualifying improvement to the asset or item.
Item’s depreciation Item’s depreciation is the amount of depreciation loss for which the person has been allowed a deduction for the quali- fying capital value of the asset or item in earlier income years, not including an amount of depreciation loss calculated using the straight-line method.

Formula The formula referred to in subsection (1)(b) is— capital expenditure improvement’s depreciation.
Deﬁnition of items in formula The items in the formula in subsection (7) are deﬁned in sub- sections (9) and (10).

 Capital expenditure (9) Capital expenditure is the amount of capital expenditure the person incurs for the improvement.
(10) Improvement’s depreciation Improvement’s depreciation is the amount of depreciation loss for which the person has been allowed a deduction for the qualifying capital value of the improvement in earlier income 1407 Part E s EZ 27 Income Tax Act 2007 Reprinted as at 30 August 2013 years, not including an amount of depreciation loss calculated using the straight-line method.
Deﬁned in this Act: acquire, amount, depreciation loss, income year, qualifying asset, qualifying capital value, qualifying improvement, straight-line method Compare: 2004 No 35 s EZ 24 EZ 27 Meaning of qualifying improvement Meaning (1) Qualifying improvement, for a person’s income year, means an improvement of an item that the person owns, if all the following apply: (a) the person incurred the expenditure on the improve- ment— (i) (ii) in the period starting on 16 December 1991 and ending with the close of 31 March 1993, other than under a binding contract they entered into before 16 December 1991; or in the period starting on 1 April 1993 and ending with the close of 31 March 1994, under a binding contract they entered into in the period starting on 16 December 1991 and ending with the close of 31 March 1993; and (b) (c) the person used the item in its improved form before 1 April 1994; and the person is allowed a deduction for depreciation under the Income Tax Act 1976 for the improvement for the income year.
Exclusions (2) Qualifying improvement does not include— an improvement to a building; or an improvement requiring construction, if— (i) the construction started before 16 December 1991; or the construction started on or after 16 December 1991 under a binding contract that the person en- tered into before 16 December 1991; or the construction was not completed before 1 April 1994; or (ii) (iii) (a) (b) 1408 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EZ 29 (iv) the improvement was not ﬁrst used by the person before 1 April 1994.
Deﬁned in this Act: income year, qualifying improvement Compare: 2004 No 35 s EZ 25 EZ 28 Meaning of qualifying asset Qualifying asset means— (a) a new asset, other than a building, that a person owns in an income year and for which they are allowed a deduction for depreciation under the Income Tax Act 1976 for the income year; or a New Zealand-new asset, other than a building or a car, that a person owns in an income year and for which they are allowed a deduction for depreciation under the Income Tax Act 1976 for the income year.
(b) Deﬁned in this Act: car, income year, new asset, New Zealand-new asset, quali- fying asset Compare: 2004 No 35 s EZ 26 Accident insurance EZ 29 Private insurers under Accident Insurance Act 1998 (1) When this section applies This section applies when an insurer, as deﬁned in paragraph (a) of the deﬁnition of insurer in section 13 of the Accident Insurance Act 1998, has a reserve in a tax year to cover the following, all of which relate to events covered by the Accident Insurance Act 1998 occurring before the end of the tax year: claims that have been made with the insurer but have (a) not been settled before the end of the tax year; and claims that are expected to be made with the insurer in relation to events that the insurer knows about; and an estimate of claims that have not been reported to the insurer in relation to events that the insurer does not know about.
(b) (c) Adjustment to deduction (2) When the closing value of the reserve for a tax year is more than the opening value, the deduction that the insurer is al- 1409 Part E s EZ 30 Income Tax Act 2007 Reprinted as at 30 August 2013 lowed is adjusted by an amount equal to the amount calculated using the formula— closing value Adjustment to income opening value.
(3) When the opening value of the reserve for a tax year is more than the closing value, the income of the insurer is adjusted by an amount equal to the amount calculated using the formula— opening value closing value.
(4) Amount The reserve at the end of the tax year is— (a) an amount calculated by an actuary applying subsection (5) and adopted by the insurer for ﬁnancial reporting purposes; or if no such amount has been calculated, an amount deter- mined by the Commissioner, who may seek the advice of an actuary in determining it.
(b) Calculation or determination of reserve (5) A person calculating or determining the amount of a reserve under subsection (4) must ensure that the amount has regard to— (a) (b) (c) generally accepted accounting practice; and generally accepted actuarial practice; and the present value of expected future payments.

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

The general limitations still apply.


Deﬁned in this Act: actuary, amount, Commissioner, deduction, general limita- tion, general permission, generally accepted accounting practice, pay, supple- ment, tax year Compare: 2004 No 35 s EZ 27 Section EZ 29(4)(b): amended, on 1 May 2011, by section 82 of the Financial Markets Authority Act 2011 (2011 No 5).
EZ 30 Base premium for 1998–99 premium year under Accident Insurance Act 1998 Discount payment date (1) An amount of base premium for the 1998–99 premium year that is paid on or before the discount payment date is treated 1410 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EZ 32B (2) (3) as expenditure in the tax year in which the discount payment date falls if the discount payment date is before the date on the invoice that speciﬁes when payment is due.
This subsection overrides section EF 3(1) (Accident compensation levies and premiums).

Monthly instalment plan Interest payable on a base premium for the 1998–99 premium year under a monthly instalment plan is treated as being payable on the date that the interest is applied under regulation 8 of the Accident Insurance (Payment of Base Premiums) Regulations 1999.
Some deﬁnitions In this section, base premium for the 1998–99 premium year, discount payment date, and monthly instalment plan have the meanings given to them in the Accident Insurance (Payment of Base Premiums) Regulations 1999.
Deﬁned in this Act: amount, base premium for the 1998–99 premium year, discount payment date, interest, monthly instalment plan, pay, tax year Compare: 2004 No 35 s EZ 28 Controlled foreign company and foreign investment fund rules EZ 31 Disclosure restrictions on grey list CFCs before 2011–12 [Repealed] Section EZ 31: repealed (with effect on 30 June 2009), on 6 October 2009, by section 195(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
EZ 32 Terminating exemption for grey list FIF investing in Australasian listed equities [Repealed] Section EZ 32: repealed, on 2 November 2012, by section 62 of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).

EZ 32B Transitional rule for IFRS reporting [Repealed] Section EZ 32B: repealed (with effect on 1 April 2008), on 6 October 2009, by section 196 of the Taxation (International Taxation, Life Insurance, and Remed- ial Matters) Act 2009 (2009 No 34).
1411 Part E s EZ 32C Income Tax Act 2007 Reprinted as at 30 August 2013 EZ 32C Treatment in section EX 20C of currency effects on CFC’s borrowing [Repealed] Section EZ 32C: repealed (with effect on 30 June 2009), on 2 November 2012 (applying for income years beginning on or after 1 July 2009), by section 63(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
EZ 32D Value of asset fraction: CFC with excessive debt funding and loan entered before 21 June 2012 (1) (2) When this section applies This section applies when a CFC is excessively debt funded under section EX 20D (Adjustment of cost fraction for exces- sively debt funded CFC) and entered before 21 June 2012 a ﬁ- nancial arrangement (an old funding arrangement) that pro- vides funds for the CFC.
The amount of the item apportioned funding income for the CFC is the sum of— (a) an amount calculated using the formula in section EX 20C(3)(b)(ii) (Net attributable CFC income or loss) with— (i) a value for the item funding income that is the amount of funding income relating to the old funding arrangements of the CFC; and a value for the item asset fraction that is the amount of the item cost fraction calculated under section EX 20D(10): (ii) (b) an amount calculated using the formula in section EX 20C(3)(b)(ii) with a value for the item funding income that is the amount of funding income relating to ﬁnancial arrangements of the CFC that are not old funding arrangements.
(3) Relationship with section EX 20C This section overrides section EX 20C(3)(b)(ii).

Deﬁned in this Act: CFC, ﬁnancial arrangement Section EZ 32D: inserted (with effect on 30 June 2009), on 2 November 2012 (applying for income years beginning on or after 1 July 2009), by section 64(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
1412 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EZ 33 EZ 32E Change in section EX 20B for income of CFC insurer: interest on terminal tax (1) (2) (3) When section applies This section applies when a person has a liability for terminal tax (the resulting liability)— (a) for an income year beginning on or after 1 July 2009; and relating to a return of income provided to the Commis- sioner before the date on which the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (the amending Act) receives the Royal assent; and that the person would not have but for the replacement by the amending Act of section EX 20B(3)(f) (At- tributable CFC amount) coming into force on 1 July 2009.
(b) (c) No liability for interest for period The person is not liable to pay interest under Part 7 of the Tax Administration Act 1994 in relation to the resulting liability for the period beginning with 1 July 2009 and ending on the later of— (a) (b) 30 June 2012: a date ﬁxed by the Commissioner for the payment of the resulting liability.

Relationship with Tax Administration Act 1994 This section overrides Part 7 of the Tax Administration Act 1994.
Deﬁned in this Act: Commissioner, income year, return of income, tax position, terminal tax Section EZ 32E: inserted (with effect on 30 June 2009) on 2 November 2012 (applying for income years beginning on or after 1 July 2009), by section 65(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Old ﬁnancial arrangements rules EZ 33 Application of old ﬁnancial arrangements rules The old ﬁnancial arrangements rules apply to ﬁnancial ar- rangements entered into on or after the implementation date and before 20 May 1999.
Compare: 2004 No 35 s EZ 30 1413 Part E s EZ 34 Income Tax Act 2007 Reprinted as at 30 August 2013 EZ 34 Election to apply ﬁnancial arrangements rules in subpart EW Despite section EZ 33, a person may elect to apply the ﬁnan- cial arrangements rules by calculating a transitional adjust- ment under section EZ 51.
Compare: 2004 No 35 s EZ 31 EZ 35 Accruals in relation to income and expenditure in respect of ﬁnancial arrangements For the purpose of calculating the amount deemed to be in- come or expenditure of any person under subsections (2) to (7), regard must be had to,— (a) if the person is a holder in relation to the ﬁnancial ar- rangement,— (i) the amount of all consideration paid and to be paid to the person in relation to the ﬁnancial ar- rangement; and any amount remitted and to be remitted by the person in relation to the ﬁnancial arrangement; and the acquisition price of the ﬁnancial arrangement in relation to the person; and (ii) (iii) (b) if the person is an issuer in relation to the ﬁnancial ar- rangement,— (i) the amount of all consideration paid and to be paid by the person in relation to the ﬁnancial ar- rangement; and the acquisition price of the ﬁnancial arrangement in relation to the person.
(ii) Subject to this section, where any person is a holder or an is- suer of a ﬁnancial arrangement, the amount that is deemed to be income or expenditure of that person in respect of the ﬁnan- cial arrangement in any income year is an amount calculated using the yield to maturity method so as to result in the allo- cation to each income year of an amount that is fair and rea- sonable, and such amount so allocated to each income year is income deemed to be derived by or expenditure deemed to be (1) (2) 1414 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EZ 35 incurred by the person in respect of the ﬁnancial arrangement in the income year: provided that the Commissioner must accept an alternative method to the yield to maturity method, that has regard to the principles of accrual accounting, and— (a) (b) conforms with commercially acceptable practice; and except to the extent that the Commissioner may other- wise allow under subsection (8), is adopted by the per- son and is or will be consistently applied in respect of all such ﬁnancial arrangements for ﬁnancial reporting purposes; and results in the allocation to each income year of amounts that are not materially different from amounts that would be calculated but for this proviso.
(3) Notwithstanding subsection (2), but subject to the other provi- sions of this section, where in any income year the total value of all ﬁnancial arrangements of which a person is a holder or an issuer has on no day within that income year exceeded $1,500,000 or such greater amount as the Governor-General may by Order in Council declare for the purposes of this sec- tion,— (a) (c) the person may calculate income or expenditure for that income year in respect of those ﬁnancial arrangements by using the straight-line method so as to result in the allocation to that income year and subsequent income years of amounts that are fair and reasonable in respect of those arrangements; and (c) (b) where the straight-line method is used under paragraph (a), that method must be used by the person in respect of all ﬁnancial arrangements of which the person was the holder or issuer during that income year; and where the person has in accordance with this subsection calculated income or expenditure using the straight-line method in respect of a ﬁnancial arrangement for any in- come year, the person must, unless otherwise authorised in writing by the Commissioner, continue to use that method in respect of that ﬁnancial arrangement for any subsequent income year, until the maturity, remittance, sale, or other transfer of the arrangement, notwithstand- 1415 Part E s EZ 35 Income Tax Act 2007 Reprinted as at 30 August 2013 ing that the total value of all ﬁnancial arrangements of which the person is holder or issuer may at any time in any such subsequent income year exceed $1,500,000 or such other amount as may be declared for the purposes of this section,— and any amount calculated in respect of a ﬁnancial arrange- ment in accordance with this subsection is income deemed to be derived by or expenditure deemed to be incurred by the per- son in respect of the ﬁnancial arrangement for the relevant in- come year.
For the purposes of subsection (3), a person must take into account ﬁnancial arrangements to which subpart EW applies.
For the purposes of subsection (3),— (a) the value of any ﬁnancial arrangement to be taken into account in determining whether the total value of all ﬁ- nancial arrangements of which a person is the holder or issuer on any day exceeds $1,500,000 or such other amount as may be declared for the purposes of this sec- tion is,— (i) in the case of a ﬁxed principal ﬁnancial arrange- ment, the nominal or face value of the arrange- ment; and in the case of a variable principal debt instrument, the amount owing by or to the person under the arrangement on the relevant day; and in the case of a ﬁnancial arrangement to which subpart EW applies, the value determined under that subpart; and (ii) (iii) (b) in the ﬁrst income year for which income or expenditure is calculated under subsection (3) in respect of a ﬁnan- cial arrangement that— (i) was acquired or issued by the person in a previous income year; and continues to be held or issued by the person at the end of the ﬁrst income year for which income or expenditure is calculated under subsection (3),— the amount of income or expenditure of the person in respect of that ﬁnancial arrangement for that ﬁrst income year is an amount calculated in accordance with the following formula: (ii) (4) (5) 1416 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EZ 35 b a c + d where— a is the sum of all amounts that would have been income derived by the person in respect of the ﬁnancial arrange- ment if the straight-line method referred to in subsection (3) had been applied to the ﬁnancial arrangement from the date it was acquired or issued by the person until the end of that ﬁrst income year is the sum of all amounts that would have been expend- iture incurred by the person in respect of the ﬁnancial arrangement if the straight-line method referred to in subsection (3) had been applied to the ﬁnancial arrange- ment from the date it was acquired or issued by the per- son until the end of that ﬁrst income year is the sum of all amounts of income deemed to have
 been derived by the person in respect of the ﬁnancial arrangement before the commencement of that ﬁrst in- come year is the sum of all amounts deemed to have been expend- iture incurred by the person in respect of the ﬁnancial arrangement before the commencement of that ﬁrst in- come year;— b c d and any amount so calculated is, if a positive amount, deemed to be income derived by the person in that ﬁrst income year and, if a negative amount, deemed to be expenditure incurred by the person in that ﬁrst income year.
(6) Where it is not possible to calculate an amount to be deemed to be income or expenditure in respect of a ﬁnancial arrange- ment using the yield to maturity method as provided for in subsection (2) or (in a case to which subsection (3) applies) the straight-line method as provided for in subsection (3), the amount that is deemed to be income or expenditure of the per- son in any income year is an amount calculated by the per- son— (a) using the method, if any, prescribed by the Commis- sioner for the ﬁnancial arrangement in a determination 1417 Part E s EZ 35 Income Tax Act 2007 Reprinted as at 30 August 2013 made under section 90(1)(c) of the Tax Administration Act 1994: provided that the Commissioner must accept an alter- native method to the method prescribed in any such de- termination that has regard to the principles of accrual accounting, and— (i) conforms with commercially acceptable practice; and except to the extent that the Commissioner may otherwise allow under subsection (8), is adopted by the person and is or will be consistently ap- plied in respect of all such ﬁnancial arrangements for ﬁnancial reporting purposes; and results in the allocation to each income year of amounts that are not materially different from the amounts that would be calculated, but for this proviso; and (ii) (iii) (b) in the absence of any such determination, by applying a method that meets the requirements of subparagraphs (i) and (ii) of the proviso to paragraph (a) and that results in the allocation to each income year of an amount that, having regard to the tenor of subsection (2), is fair and reasonable;— and such amount of income or expenditure so allocated to each income year is income deemed to be derived or, as the case may be, expenditure deemed to be incurred by the person in the income year.
(7) Notwithstanding subsections (2) and (6), the Commissioner must accept an alternative method for calculating the amount to be deemed to be income or expenditure of the person, in respect of a ﬁnancial arrangement, to the methods provided for under subsections (2) and (6), if the alternative method has regard to market valuation, and— (a) (b) conforms with commercially acceptable practice; and except to the extent that the Commissioner may other- wise allow under subsection (8), is adopted by the per- son and is or will be consistently applied in respect of all such ﬁnancial arrangements for ﬁnancial reporting purposes; and 1418 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EZ 35 (c) (d) (e) either— (i) (ii) the business of the person comprises dealing in such ﬁnancial arrangements; or the ﬁnancial arrangement is a forward or future contract for foreign exchange, or a futures con- tract; and the market, the method, and the source of the informa- tion used to determine the market values have been ap- proved by the Commissioner under a determination is- sued under section 90(1)(e) of the Tax Administration Act 1994; and the person and any other person who is a holder (where the person is an issuer) or an issuer (where the person is a holder) of the ﬁnancial arrangement are not associated persons;— and such amount of income or expenditure so calculated is in- come deemed to be derived or, as the case may be, expenditure deemed to be incurred by the person in respect of the ﬁnancial arrangement in the income year: provided that where income or expenditure in respect of a ﬁ- nancial arrangement has been calculated by a person under this subsection, income or expenditure in respect of that ﬁnancial arrangement must, except as otherwise allowed under subsec- tion (8), continue to be calculated on that basis by that person until the maturity, remittance, sale, or other transfer of the ar- rangement.
(8) Where a method of calculating income or expenditure in re- spect of a ﬁnancial arrangement fails to meet the requirements of paragraph (b) of the proviso to subsection (2) or subpara- graph (ii) of the proviso to subsection (6)(a) or (7)(b) by virtue of the fact that the method is not or will not be consistently ap- plied by a person in respect of all such ﬁnancial arrangements for ﬁnancial reporting purposes, that method is nevertheless deemed to meet the relevant one of those provisions where the method— (a) appropriately reﬂects the dominant purpose for which the person acquired or issued the ﬁnancial arrangement (or each such arrangement); and 1419 Part E s EZ 35 Income Tax Act 2007 Reprinted as at 30 August 2013 (b) (c) (d) has been and will be consistently applied by the per- son in respect of the particular ﬁnancial arrangement (or each such ﬁnancial arrangement) for the purposes of the old ﬁnancial arrangements rules for every income year during its term (except to the extent that the Com- missioner approves or may approve a change in method under the circumstances or conditions speciﬁed in a de- termination under section 90(1)(f) of the Tax Adminis- tration Act 1994); and is not adopted for purposes that include the purpose of tax avoidance; and has been approved by the Commissioner for adoption in the circumstances applicable to the taxpayer either by notice to the taxpayer or in a determination issued under section 90 of the Tax Administration Act 1994.
(9) Subsections (2) to (7) do not apply— to a cash basis holder; or (a) in relation to a ﬁnancial arrangement and a person, in (b) any income year where section EZ 38 applies to that person and to that ﬁnancial arrangement; or in relation to a ﬁnancial arrangement where— (i) (c) the ﬁnancial arrangement is held by a trustee upon trust for the management of compensation paid for personal injury where that compensa- tion is paid under the Workers Compensation Act 1956 or the Accident Compensation Act 1972 or the Accident Compensation Act 1982 or the Ac- cident Rehabilitation and Compensation Insur- ance Act 1992 or the Accident Compensation Act 2001 or an order of court; and the trustee is, or if it were a natural person would be, a cash basis holder in respect of the ﬁnancial arrangement.
(ii) (10) For the purposes of this section, the Commissioner may deter- mine whether and to what extent any issuer or class of issuers is not required to comply with this section in relation to ex- penditure incurred or income derived in respect of any class of ﬁnancial arrangements, having regard to— 1420 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EZ 37 (a) (b) (c) the nature and amount of the expenditure incurred or in- come derived by the issuer or class of issuers in respect of ﬁnancial arrangements of that class; and the costs of the issuer or class of issuers in complying with this section in relation to the class of ﬁnancial ar- rangements; and whether, in respect of that issuer or class of issuers and that class of ﬁnancial arrangements, the applica- tion of the discretion given to the Commissioner under this subsection would result in a material difference in the amount of deductions or income allocated to any in- come year, in relation to the amount that would have been allocated had the discretion not been exercised.
(11) The Commissioner may at any time cancel any determination made in respect of any person or class of persons under sub- section (10).

Compare: 2004 No 35 s EZ 32 Section EZ 35(9)(c)(i): amended, on 21 December 2010, by section 189 of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
EZ 36 Excepted ﬁnancial arrangement that is part of ﬁnancial arrangement The amount of the income deemed to be derived or the expend- iture deemed to be incurred by a person in respect of a ﬁnan- cial arrangement under the old ﬁnancial arrangements rules does not include the amount of any income, gain or loss, or expenditure, that is solely attributable to an excepted ﬁnancial arrangement that is part of the ﬁnancial arrangement.
Compare: 2004 No 35 s EZ 33 EZ 37 Cash basis holder (1) Subject to this section, a natural person is a cash basis holder in respect of ﬁnancial arrangements held by that person in any income year, where— either— (a) (i) the income derived by that person in that income year in respect of those ﬁnancial arrangements, calculated in accordance with subpart EW or sec- tion EZ 35 or EZ 38, as the case may be, does 1421 Part E s EZ 37 Income Tax Act 2007 Reprinted as at 30 August 2013 (ii) not exceed $70,000 (or such greater amount as the Governor-General may by Order in Council declare); or the total value of ﬁnancial arrangements held by the person in the income year does not exceed at any time in the income year $600,000 (or such greater amount as the Governor-General may by Order in Council declare), the value in respect of each ﬁnancial arrangement being,— (A) in the case of a ﬁxed principal ﬁnancial arrangement, the greater of the acquisition price of the arrangement or the nominal or face value of the arrangement; and in the case of a variable principal debt in- strument, the amount of money owing to the person according to the arrangement; and in the case of a ﬁnancial arrangement to which subpart EW applies, the value de- termined under that subpart; and (B) (C) (b) the difference between the following amounts does not exceed $20,000 (or such greater amount as the Gov- ernor-General may by Order in Council declare): (i) the amount of income that would be calculated by the person for the income year— (A) using, at the option of the person, either the yield to maturity method or the straight- line method referred to in section EZ 35(3) (regardless of whether or not the person is entitled or has opted to use that method) or in accordance with subpart EW, as the case may be, or, where it is not possible to calculate an amount of income or expend- iture in respect of the ﬁnancial arrange- ments by using either of those methods, an alternative method approved by the Com- missioner; and under either section EW 31 or
 EZ 38— (B) 1422 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EZ 37 (ii) in respect of ﬁnancial arrangements held by the person at the end of the income year; and the amount of income that would be calculated by the person for the income year in respect of ﬁnancial arrangements held by the person at the end of the income year if the person were a cash basis holder.
(2) For the purposes of subsection (1), a person must take into account ﬁnancial arrangements to which subpart EW applies.
the Commis- (3) Notwithstanding anything in subsection (1), (4) sioner may,— (a) where the Commissioner is satisﬁed, having regard to the tenor of section EZ 35(2), that treatment of a class of ﬁnancial arrangements other than under section EZ 35 results in a fair and reasonable allocation of income or expenditure among income years, deem natural persons to be cash basis holders in respect of such ﬁnancial ar- rangements; and (b) where the Commissioner is satisﬁed that a class of ﬁ- nancial arrangements has been structured and promoted with the objective of postponing any liability to income tax which would have arisen had those ﬁnancial ar- rangements not been so structured, deem natural per- sons not to be cash basis holders in respect of such ﬁ- nancial arrangements.
In any income year where a person who was a cash basis holder in the previous income year ceases to be a cash basis holder, the person must take into account, in calculating income or deductions for the income year, an accruals basis adjustment, in respect of every ﬁnancial arrangement (other than arrange- ments that are already dealt with according to section EZ 35 or in respect of which the Commissioner has exercised the dis- cretion given under subsection (3)(a)) acquired in a previous income year and held by the person at the end of the income year equal to an amount calculated in accordance with the fol- lowing formula: where— b a c + d 1423 Part E s EZ 37 Income Tax Act 2007 Reprinted as at 30 August 2013 a b c d is the sum of all amounts which would have been in- come derived by the person in respect of the ﬁnancial arrangement from the date it was acquired to the end of the income year if the person had not been a cash basis holder at any time during that period is the sum of all amounts that would have been deduc- tions of the person in respect of the ﬁnancial arrange- ment from the date the ﬁnancial arrangement was ac- quired to the end of the income year if the person had not been a cash basis holder at any time during the period is the sum of all amounts of income of the person in re- spect of the ﬁnancial arrangement since it was acquired to the end of the previous income year is the sum of all amounts that have been deductions of the person in respect of the ﬁnancial arrangement since it was acquired to the end of the previous income year;— (5) and the person must not take into account in the income year any other amount in respect of any such ﬁnancial arrangement except those calculated under the accruals basis adjustment.
In any income year where a person who was not a cash basis holder in the previous income year becomes a cash basis in calculating holder, income or deductions for the income year, a cash basis adjust- ment, in respect of every ﬁnancial arrangement (other than arrangements already treated on a cash basis) acquired in a previous income year and held by the person at the end of the income year, equal to an amount calculated in accordance with the following formula: that person may take into account, b a c + d where— a is the sum of all amounts which would have been in- come derived by the person in respect of the ﬁnancial arrangement from the date it was acquired to the end of the income year if the person had been a cash basis holder in respect of the ﬁnancial arrangement for the whole of that period 1424 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EZ 37 b c d is the sum of all amounts which would have been deduc- tions of the person in respect of the ﬁnancial arrange- ment from the date the ﬁnancial arrangement was ac- quired to the end of the income year if the person had been a cash basis holder in respect of the ﬁnancial ar- rangement for the whole of the period is the sum of all amounts treated as income of the per- son in respect of the ﬁnancial arrangement since it was acquired to the end of the previous income year is the sum of all amounts that have been deductions of the person in respect of the ﬁnancial arrangement since it was acquired to the end of the previous income year;— and, where the cash basis adjustment has been taken into ac- count, the person must not take into account any other amount in respect of any such ﬁnancial arrangement in the income year except those calculated under the cash basis adjustment: provided that the person is deemed not to be a cash basis holder in relation to any ﬁnancial arrangement in respect of which the person does not take into account a cash basis adjustment.
The amount of the accruals basis adjustment or the cash basis adjustment in respect of any ﬁnancial arrangement and any income year is,— (a) where it is a positive amount, income deemed to be de- rived by the holder in the income year; and (b) where it is a negative amount, deemed to be a deduction of the holder in the income year.
For the purposes of subsection (1), but subject to subsections (8) and (9),— (a) all income in respect of ﬁnancial arrangements that is trustee income or beneﬁciary income under the trust rules is disregarded, as is the value of all such ﬁnancial arrangements producing such income; and no person who holds such ﬁnancial arrangements is a cash basis holder in relation to such ﬁnancial arrange- ments.
(b) (6) (7) (8) Subsection (7) does not apply to ﬁnancial arrangements held on a bare trust, or to income in respect of such ﬁnancial ar- 1425 Part E s EZ 38 Income Tax Act 2007 Reprinted as at 30 August 2013 rangements, and the ﬁnancial arrangements held and the in- come derived by the trustees is treated as being held or, as the case may be, derived by a beneﬁciary of the trust to the extent of the beneﬁciary’s share of the beneﬁcial interest in the ﬁnan- cial arrangement.
(9) Where a deceased person was at the time of his or her death a cash basis holder,— (a) nothing in subsection (7) or in any requirement under this section that a cash basis holder be a natural per- son, in respect of the income year in which the death occurred and in each of the 4 immediately succeeding income years, applies to prevent the trustee of the estate of the deceased person from being a cash basis holder for the purposes of this Act in respect of ﬁnancial ar- rangements issued or held by the estate, where the estate would otherwise qualify as a cash basis holder under this section; but if at any time during those income years the estate ceases to so otherwise qualify as a cash basis holder, it does not again qualify to become a cash basis holder by operation of paragraph (a);— (b) and for the purposes of subsections (4) and (5), any trustee of an estate who is a cash basis holder under this subsection is deemed to be the same person as the deceased cash basis holder.
[Repealed] Compare: 2004 No 35 s EZ 34 Section EZ 37(10): repealed, on 1 April 2008, by section 15(1) of the Taxation (Limited Partnerships) Act 2008 (2008 No 2).
(10) EZ 38 Income and expenditure where ﬁnancial arrangement redeemed or disposed of Subject to subsection (2), where, in relation to any person, a ﬁnancial arrangement matures or is remitted (other than by way of being written off as a bad debt), sold, or otherwise transferred by the person in any income year, the amount of the base price adjustment in relation to that income year, that person, and that ﬁnancial arrangement is an amount calculated in accordance with the following formula: (1) 1426 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EZ 38 where— a is,— (i) (ii) (b + c) a in the case of a holder, the sum of— (A) the amount of all consideration that has been paid, and all further consideration that has or will become payable, to the per- son; and any amounts that have been remitted by the person and that are not included in sub- subparagraph (A): in the case of an issuer, the sum of— (A) the amount of all consideration that has been paid, and all further consideration that has or will become payable, by the person; and the amount paid by the person associated with the issuer if the issuer is the debtor of a debt to which section EZ 41 applies— (B) (B) b c in relation to the ﬁnancial arrangement is the acquisition price of the ﬁnancial arrangement in relation to the person is,— (i) (ii) in the case of a holder, all amounts that are in- come derived, less the aggregate of amounts of expenditure deemed to be incurred under sec- tion EZ 35 or EZ 42 or deemed to be a deduc- tion under section EZ 37 by the person in respect of the ﬁnancial arrangement in all previous in- come years since the acquisition of the ﬁnancial arrangement; and in the case of an issuer, all amounts of expend- iture incurred in respect of the ﬁnancial arrange- ment in all previous income years since the issue of the ﬁnancial arrangement, less the aggregate of— (A) all amounts that are income deemed to be derived under section EZ 35 or EZ 37 or EZ 42 by the person in respect of the ﬁnan- 1427 Part E s EZ 38 Income
 Tax Act 2007 Reprinted as at 30 August 2013 (C) (B) cial arrangement in all previous income years since the issue of the ﬁnancial ar- rangement; and all amounts that are dividends derived by the person from the release of the obliga- tion to repay the amount lent; and all amounts that are income of the person under section CF 2 in respect of the ﬁnan- cial arrangement.
(2) Where, in relation to a ﬁnancial arrangement, a person is a cash basis holder, and the ﬁnancial arrangement matures or is remit- ted (other than by way of being written off as a bad debt), sold, or otherwise transferred by that person in any income year, the amount of the cash base price adjustment in relation to that in- come year, that person, and that ﬁnancial arrangement is an amount calculated in accordance with the following formula: (b + c) a where— a b c is the sum of all consideration derived in respect of the ﬁnancial arrangement by the person, and amounts re- mitted by the person is the acquisition price of the ﬁnancial arrangement is the sum of all amounts that are income derived by the person, less the aggregate of amounts of expenditure deemed to be incurred under sections EZ 35 and EZ 42 or deemed to be a deduction under section EZ 37.
Subject to subsection (5), the amount of the base price adjust- ment in relation to any ﬁnancial arrangement and any income year is,— (a) in relation to a holder,— (i) where it is a positive amount, deemed to be in- come derived by the holder in the income year; and (ii) where it is a negative amount, deemed to be a deduction of the holder in the income year: (b) in relation to an issuer,— (3) 1428 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EZ 38 (i) where it is a positive amount, deemed to be ex- penditure incurred by the issuer in the income year; and (ii) where it is a negative amount, deemed to be in- come derived by the issuer in the income year.
(4) Subject to subsection (5), the amount of the cash base price adjustment in relation to any ﬁnancial arrangement and any income year is,— (a) where it is a positive amount, deemed to be income de- rived by the cash basis holder in the income year; and (b) where it is a negative amount, deemed to be a deduction of the cash basis holder in the income year.
(5) Notwithstanding anything in section EZ 50(3), where a ﬁnan- cial arrangement is sold or otherwise transferred by a person for a consideration inﬂuenced by— (a) a decline in the creditworthiness of the issuer between the date of acquisition of the ﬁnancial arrangement by the holder and the date of sale or other transfer; or an increase in the possibility that the issuer may fail to meet any obligations under the ﬁnancial arrangement between the date of acquisition of the ﬁnancial arrange- ment by the holder and the date of sale or other transfer; or the occurrence of any event reducing or cancelling the obligations of an issuer under the ﬁnancial arrange- ment,— (b) (c) all amounts that would have been received but for the factors listed above are deemed, in calculating the base price adjust- ment or cash base price adjustment, to have become payable to the holder: provided that this subsection does not apply where the busi- ness of the holder comprises holding or dealing in ﬁnancial arrangements of that class, and the issuer of the ﬁnancial ar- rangement and the holder are not associated persons.
(6) Where— (a) a person has been released from the obligation to make payment of an amount— (i) under a ﬁnancial arrangement by operation of section 304 of the Insolvency Act 2006; or 1429 Part E s EZ 38 Income Tax Act 2007 Reprinted as at 30 August 2013 (ii) (iii) under any of the Inland Revenue Acts (and whether the relief arises through remission, waiver, or cancellation); or under a social assistance suspensory loan by virtue of that person satisfying the conditions referred to in subsection (8)(c)(ii); and (b) that amount would, but for this subsection, be taken into account in determining the income derived by or ex- penditure incurred by that person under the old ﬁnancial arrangements rules,— that amount is, for the purpose of determining the income de- rived by or expenditure incurred by that person, and notwith- standing the old ﬁnancial arrangements rules (other than this subsection), deemed to have been paid under that ﬁnancial ar- rangement when the obligation to make payment has been so released.
(7) Notwithstanding anything in this Act, where and to the extent that a person (in this subsection called the surety) suffers ex- penditure or a loss under a security arrangement and the ex- penditure or loss, in whole or in part, is due to— (a) (b) the actions of; or the occurrence, or failure to occur, of an event that was potentially or actually subject to the inﬂuence of— the surety or any person with whom the surety was, during the term of the security arrangement, an associated person, no deduction is allowed to the surety or any person in relation to the expenditure or loss.
In this section,— (a) the expression holder, in relation to a ﬁnancial arrange- ment, includes a person who ceases to be a holder of the ﬁnancial arrangement as provided in subsection (1) or (2); and the expression issuer, in relation to a ﬁnancial arrange- ment, includes a person who ceases to be an issuer of the ﬁnancial arrangement as provided in subsection (1); and the expression social assistance suspensory loan means a loan— (b) (c) (8) 1430 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EZ 38 (i) (ii) (iii) made by a department or instrument of the Ex- ecutive Government of New Zealand; and under whose terms the issuer’s liability may be remitted in whole or in part if the issuer satisﬁes conditions intended to promote a social policy objective of the Government of New Zealand; and of a kind that is declared by the Governor-Gen- eral by Order in Council to be a social assistance suspensory loan; and is deemed to be remitted (d) a ﬁnancial arrangement where— (i) (ii) (iii) (iv) the issuer has been discharged from making all remaining payments under that ﬁnancial arrange- ment without fully adequate consideration; or the issuer has been released from making all re- maining payments under that ﬁnancial arrange- ment by the operation of the Insolvency Act 2006 or the Companies Act 1955 or the Companies Act 1993 or the laws of any country or territory other than New Zealand, or by any deed or agreement of composition with its creditors; or all of the remaining payments under the ﬁnancial arrangement have become irrecoverable or unen- forceable by action through the lapse of time; or the ﬁnancial arrangement is a debt that is sold at a discount to a person associated with the debtor under the circumstances described in section EZ 41; and (e) where a person ceases to be a New Zealand resident any ﬁnancial arrangement in relation to which that person is an issuer or a holder is deemed, in relation to the person, to have been transferred for its market value at that date.
Compare: 2004 No 35 s EZ 35 Section EZ 38(6)(a)(iii): amended (with effect on 1 April 2008), on 6 October 2009, by section 197(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
1431 Part E s EZ 39 Income Tax Act 2007 Reprinted as at 30 August 2013 EZ 39 Forgiveness of debt (1) In determining the income or expenditure under the base price adjustment in section EZ 38, an amount owing under a debt, including an amount accrued and unpaid at the time of the for- giveness, is treated as paid when forgiven under the old ﬁnan- cial arrangements rules if— (a) the creditor is a natural person who forgives the debt, whether in a will or otherwise, because of the natural love and affection the creditor has for the debtor; or the creditor is a natural person who forgives the debt owing by a trust, whether in a will or otherwise, and the trust was established primarily to beneﬁt— (i) (b) (ii) (iii) a natural person for whom the creditor has natural love and affection; or an organisation or a trust whose income is exempt under section CW 41 or CW 42; or a natural person that meets paragraph (b)(i) and an organisation or a trust that meets paragraph (b)(ii).
(2) (3) Subsection (3) applies when a trustee makes a distribution, including a distribution of beneﬁciary income, to a beneﬁciary that is neither— (a) a natural person for whom the creditor has natural love and affection; nor an organisation or a trust whose income is exempt under section CW 41 or CW 42.
(b) Subsection (4) does not apply when a trustee of a trust (trust A) to which subsection (1)(b) applies makes a distribution to another trust (trust B) if— (a) trust B is a trust described in subparagraph (i), (ii), or (iii) of subsection (1)(b); and subsection (1)(b) would apply to trust B if, at the time the distribution is made, the creditor of trust A were a creditor of trust B, and the creditor had forgiven a debt owing by trust B.
(b) (4) A distribution to the beneﬁciary is income derived by the trustee— (a) in the income year in which the distribution is made; and 1432 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EZ 40 (5) (6) (7) (b) to the extent that the distribution is less than or equal to the total amount of debts forgiven by the creditor.

If subsection (4) applies, the income derived by the trustee is not income for the purposes of the beneﬁciary income deﬁn- ition.
For the purposes of subsection (4), the total amount of debts forgiven by the creditor is reduced by the amount of each dis- tribution that is income derived by the trustee.

Subsection (4) applies to a distribution made on or after 20 May 1999.
Compare: 2004 No 35 s EZ 36 EZ 40 Accrued income written off (1) A deduction is allowed to a person for an amount written off by the person as a bad debt in respect of a ﬁnancial arrangement where and to the extent that— (a) the person derives income in respect of the ﬁnancial arrangement under any of sections EZ 35, EZ 37(4), EZ 38, and EZ 42; and the amount written off is attributable to that income.
(b) (2) A deduction is allowed to a person for an amount written off by the person as a bad debt in respect of a ﬁnancial arrangement (not being an amount allowed as a deduction under subsection (1)) where— (a) the person— (i) carries on a business which comprises holding or dealing in such ﬁnancial arrangements; and is not associated with the person owing the amount written off; or (ii) (b) the ﬁnancial arrangement is a trade credit and the person carries on a business of dealing in the goods or services for which the trade credit is a debt.
(3) Where a person receives a security payment in relation to a loss and a deduction is denied to the person for the loss other than under this subsection, the person is allowed a deduction for the loss no greater than the amount of the security payment.

1433 Part E s EZ 41 Income Tax Act 2007 Reprinted as at 30 August 2013 (4) A deduction for bad debts is allowed under this section only where the requirements of section DB 31(1) and (5) have been met.
(5) A deduction for a share loss (within the meaning of section DB 24) is allowed under subsection (3) only where the require- ments of section DB 24 have been met.

Compare: 2004 No 35 s EZ 37 EZ 41 Sale of debt to associate of debtor (1) This section applies to a ﬁnancial arrangement that is a debt which is sold at a discount to a person associated with the debtor on or after 20 May 1999.
(2) A creditor is treated as having sold a debt at a discount if the debt is sold to a person associated under the 1988 version pro- visions with the debtor for 80% or less of the market value of the debt.
Subsection (4) applies to a debt that is sold if its market value was inﬂuenced by— (a) (3) the decline in the original debtor’s creditworthiness be- tween the date the debt was entered into and the date of sale; or an increase in the possibility that the original debtor would not pay an amount owing under the debt between the date the debt was entered into and the date of sale; or an event that occurred which reduced or cancelled the original debtor’s obligations under the debt.
(b) (c) For the purposes of subsection (2), a debt’s market value is de- termined as if its market value were not inﬂuenced by a factor listed in subsection (3)(a) to (c).

If a debt is sold at a discount to a person associated with the debtor, the associated person is treated as having provided the debtor with an interest free loan for the amount paid for the debt.
If the debtor subsequently 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) a deduction to the debtor; and (4) (5) (6) 1434 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EZ 42 income of the person associated with the debtor.
(b) Compare: 2004 No 35 s EZ 38 EZ 42 Post facto adjustment (1) A ﬁnancial arrangement is subject to the provisions of this section where— (a) any of the amount or amounts payable under the ﬁnan- cial arrangement are determined in the terms of the ﬁ- nancial arrangement, as to whole or part, at the discre- tion of either the issuer or the holder, or both of them, or at the discretion of any other person where either the issuer or the holder and the other person are associated persons; and the change in the amount or amounts payable under the ﬁnancial arrangement upon the exercise of a discretion as provided for in paragraph (a) does not reﬂect changes in economic, commodity, industrial, or ﬁnancial indices or banking or general commercial rates; and the making of such ﬁnancial arrangements is not gener- ally accepted commercial practice; and the effect of the arrangement is to defeat the intent and application of the old ﬁnancial arrangements rules.
(b) (c) (d) (2) Where a ﬁnancial arrangement is subject to the provisions of this section, both the holder and the issuer of the ﬁnancial ar- rangement are required to calculate a post facto adjustment in respect of the following income years: (a) the income year in which the person ceases to be a holder or an issuer, as the case may be, in respect of the ﬁnancial arrangement; and (b) where the person has not ceased to be a holder or an issuer of the ﬁnancial arrangement at the end of the ﬁfth income year following the income year of its issue or acquisition by the person, in that ﬁfth income year; and until the person ceases to be an issuer or a holder in re- spect of the ﬁnancial arrangement, in every ﬁfth income year succeeding the income year in which the post facto adjustment was last required to be made under this sec- tion.
(c) 1435 Part E s EZ 43 Income Tax Act 2007 Reprinted as at 30 August 2013 (3) In order to calculate the post facto adjustment, a person must,— (a) having regard to all amounts speciﬁed in section EZ 35(1) which have been paid or are payable, in respect of the ﬁnancial arrangement, since acquisition or issue of the ﬁnancial arrangement by the person to the end of the income year in which the post facto adjustment applies, calculate amounts of income or expenditure under the arrangement for each income year using the yield to maturity method as prescribed in a determination made by the Commissioner for the purposes of section EZ 35(2): provided that where the post facto adjustment is made at a time determined by subsection (2)(b) or (c), the person is, for the purpose of the post facto adjustment calcula- tion, deemed to have transferred the ﬁnancial arrange- ment for an amount equal to its market value on the last day of the income year; and recalculate the income tax liability for each income year using the amounts of income or expenditure calculated under paragraph (a) in substitution for the amounts of income or expenditure previously calculated in respect of the ﬁnancial arrangement for each income year.
(b) (4) Where a person has been required to calculate the post facto adjustment, the person is required to make a special return in respect of the post facto adjustment in the form required by the Commissioner, no later than the time at which that person is required to ﬁle an annual return for the income year in which the post facto adjustment is made.
(5) Despite the time bar, the Commissioner must amend the per- son’s assessment for the income years to which the post facto adjustment relates in accordance with the alterations to that income or expenditure as calculated by the post facto adjust- ment.
Compare: 2004 No 35 s EZ 39 EZ 43 Variable principal debt instruments For the purposes of the old ﬁnancial arrangements rules, where a person is a party to a variable principal debt instrument on the 1436 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EZ 45 implementation date, the person is deemed to have acquired or, as the case may be, issued it on that day for a consideration equal to the amount of money that would be payable to the holder on that day if the amount or amounts payable under the ﬁnancial arrangement were due and payable on that day.
Compare: 2004 No 35 s EZ 40 (2) EZ 44 Relationship with rest of Act (1) Notwithstanding any other provision in this Act, income or ex- penditure in an income year in respect of a ﬁnancial arrange- ment under the old ﬁnancial arrangements rules is calculated under those rules.
Expenditure incurred under the old ﬁnancial arrangements rules is not included in— (a) (b) (c) (d) (e) (f) (g) (h) the cost of trading stock, for small taxpayers: the cost of revenue account property: the cost of livestock: the cost of bloodstock: the cost of acquiring a ﬁlm or a ﬁlm right: ﬁlm production expenditure: the cost of timber: petroleum exploration expenditure or petroleum devel- opment expenditure.
(3) Where— (a) (b) property is transferred under a ﬁnancial arrangement; and the property or the consideration given for the property is relevant under any provision of this Act other than the old ﬁnancial arrangements rules for the purpose of determining any amount of income or deduction of a person,— the property is treated for the purpose of that provision as hav- ing been transferred under the ﬁnancial arrangement for an amount equal to the acquisition price of the property.
Compare: 2004 No 35 s EZ 41 EZ 45 Application of old ﬁnancial arrangements rules The old ﬁnancial arrangements rules do not apply— 1437 Part E s EZ 45 Income Tax Act 2007 Reprinted as at 30 August 2013 in relation to a person and a ﬁnancial arrangement, where the ﬁnancial arrangement was issued or acquired by the person before the implementation date for the ﬁnancial arrangement; or in relation to a ﬁnancial arrangement, where the issue, in the case of an issuer, or acquisition, in the case of a holder, of the ﬁnancial arrangement is under a binding contract in existence before the implementation date in relation to that ﬁnancial arrangement: provided that this paragraph does not apply in relation to a rollover, extension, or advance provided for before the implementation date in relation to the ﬁnancial ar- rangement where the rollover, extension, or advance oc- curs on or after 1 April 1990; or in relation to a person and a ﬁnancial arrangement, where the person acquired the ﬁnancial arrangement in accordance with a relationship agreement and the transferor, in relation to the ﬁnancial arrangement, was a person to whom paragraph (a) or (b) applied; or in relation to a ﬁnancial arrangement, where the issue, in the case of an issuer, or acquisition, in the case of a holder, of the ﬁnancial arrangement is under and in terms of a rollover, extension, or advance provided for before the implementation date in relation to the ﬁnan- cial arrangement and the rollover, extension, or advance occurs before 1 April 1990; or to the determination of— (i) income of or expenditure incurred by a person not resident in New Zealand in relation to a ﬁnancial arrangement where and to the extent that the ﬁ- nancial arrangement does not relate to a business carried on by that person through a ﬁxed estab- lishment in New Zealand; or non-resident passive income; or (ii) in relation to a ﬁnancial arrangement to the extent that the income or expenditure incurred by a person in re- spect of the ﬁnancial arrangement consists of interest
 payable to or by the Commissioner under Part 7 of the Tax Administration Act 1994, being interest payable in (a) (b) (c) (d) (e) (f) 1438 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EZ 47 relation to the income tax liability of the taxpayer in re- spect of the 1994–95 income year or any subsequent in- come year.
Compare: 2004 No 35 s EZ 42 EZ 46 Election to treat short term trade credit as ﬁnancial (1) arrangement For the purposes of the old ﬁnancial arrangements rules, a tax- payer may elect by notice given in accordance with subsection (2) to treat short term trade credits speciﬁed in subsection (4) as ﬁnancial arrangements.
(2) Notice of an election under subsection (1) in relation to an income year must be given to the Commissioner within the time within which a vendor or a purchaser is required under section 37 of the Tax Administration Act 1994 to furnish a return of income for the income year to which the election is to apply.
(3) An election by the taxpayer under subsection (1) may be re- voked by notice given to the Commissioner during any income year and the revocation applies only to short term trade credits created on or after the commencement of the subsequent in- come year.
(4) An election under subsection (1) may be made in respect of— (a) (b) all short term trade credits of the taxpayer; or 1 or more classes of short term trade credits of the tax- payer that the taxpayer deﬁnes by reference either— (i) to the particular currency in which the short term trade credit is denominated; or to the term of the short term trade credit; or to both the term and the particular currency in which the short term trade credit is denominated.
(ii) (iii) Compare: 2004 No 35 s EZ 43 EZ 47 Election to continue to treat certain excepted ﬁnancial arrangements as ﬁnancial arrangements (1) A person may elect to continue to treat all excepted ﬁnancial arrangements under any of paragraphs (p), (q), (r), (s), (t), (u), and (v) of the deﬁnition of excepted ﬁnancial arrangement as ﬁnancial arrangements if the person is a holder or an issuer 1439 Part E s EZ 48 Income Tax Act 2007 Reprinted as at 30 August 2013 of an arrangement that was entered into on or after the person’s last balance date and before 20 May 1999.
(2) A person elects to treat their excepted ﬁnancial arrangements as ﬁnancial arrangements by returning income derived and ex- penditure incurred from the elected arrangements under the old ﬁnancial arrangements rules in their return of income.
(3) A ﬁnancial arrangement that is an excepted ﬁnancial arrange- ment under any of paragraphs (p), (q), (r), (s), (t), (u), and (v) of the deﬁnition of excepted ﬁnancial arrangement is not an excepted ﬁnancial arrangement for the holder or issuer who elects to treat it as a ﬁnancial arrangement under subsection (1).
Compare: 2004 No 35 s EZ 44 EZ 48 Deﬁnitions For the purposes of the old ﬁnancial arrangements rules, each of the following terms has the meaning given to it, despite any other meaning given to the term in section YA 1 for any other purpose and unless the context otherwise requires: acquisition price,— (a) in relation to a ﬁnancial arrangement and a holder of the ﬁnancial arrangement, means an amount calculated in accordance with the following formula: y z where— y z is the core acquisition price of the ﬁnancial ar- rangement is the smaller of— (i) the amount of consideration provided in relation to the ﬁnancial arrangement by the holder that is not contingent on the im- plementation of the ﬁnancial arrangement; and an amount equal to 2% of the core acqui- sition price of the ﬁnancial arrangement; and (ii) 1440 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EZ 48 (b) in relation to a ﬁnancial arrangement and an issuer of the ﬁnancial arrangement, means an amount calculated in accordance with the following formula: y + z where— y z is the core acquisition price of the ﬁnancial ar- rangement is the smaller of— (i) the amount of consideration provided in relation to the ﬁnancial arrangement by the issuer that is not contingent on the im- plementation of the ﬁnancial arrangement; and an amount equal to 2% of the core acqui- sition price of the ﬁnancial arrangement (ii) agreement for the sale and purchase of property, in relation to a person, means a ﬁnancial arrangement that is an agreement (whether conditional or unconditional) entered into by the per- son to purchase or otherwise acquire or sell or otherwise dis- pose of property; but does not include an option, a speciﬁed option, or a futures contract amount of all consideration, in the deﬁnition of core acqui- sition price, in relation to a person and to an agreement for the sale and purchase of property or a speciﬁed option, where all or part of the consideration provided to the holder is property, means the aggregate of the amount
 calculated in respect of that property in the manner provided in subparagraph (i) or (ii) of item “w” in paragraph (c) of the deﬁnition of core acquisition price and any consideration provided to the holder in relation to the ﬁnancial arrangement, other than the property provided to the holder core acquisition price, in relation to a ﬁnancial arrangement, means,— (a) where section EZ 50 applies, the amount determined under that section; and (b) where the ﬁnancial arrangement is a trade credit, an amount calculated in accordance with the following for- mula: 1441 Part E s EZ 48 Income Tax Act 2007 Reprinted as at 30 August 2013 where— u is— (i) (ii) (iii) u + v the cash price of the goods or services to which the trade credit relates (referred to in this item and item “v” as the speciﬁed goods or services), as determined by sec- tion 5 of the Credit Contracts and Con- sumer Finance Act 2003; or if subparagraph (i) is not applicable, the lowest price at which the speciﬁed goods or services could be purchased under a short term trade credit; or if subparagraphs (i) and (ii) are not applic- able, the discounted value of the amounts payable for the speciﬁed goods or ser- vices, as determined under a determination made by the Commissioner under section 90(1)(h) of the Tax Administration Act 1994 v is,— (i) (ii) in relation to a holder of the ﬁnancial ar- rangement, the amount of all consideration provided by the holder in relation to the ﬁ- nancial arrangement, other than the speci- ﬁed goods or services; or in relation to an issuer of the ﬁnancial ar- rangement, the amount of all consideration provided to the issuer in relation to the ﬁ- nancial arrangement, other than the speci- ﬁed goods or services; and where the ﬁnancial arrangement is an agreement for the sale and purchase of property (not being an agreement for the sale and purchase of property that has lapsed or otherwise does not proceed) or a speciﬁed option (not being a speciﬁed option that has lapsed or
 otherwise does not proceed), an amount calculated in accordance with the following formula: w + x (c) 1442 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EZ 48 where— w is— (i) (ii) x is,— (i) (ii) the lowest price (determined in accord- ance with section EZ 49, if the consid- eration payable under the relevant ﬁnan- cial arrangement is denominated in a for- eign currency) that the parties would have agreed upon for the property that is the subject of the agreement for the sale and purchase of property or the speciﬁed op- tion (referred to in this item and item “x” as the speciﬁed property) at the time at which the agreement for the sale and pur- chase of property was entered into or the speciﬁed option was granted on the basis of payment in full at the time at which the ﬁrst right in the speciﬁed property is to be transferred; or if subparagraph (i) is not applicable, the discounted value of the amounts payable for the speciﬁed property as determined under a determination made by the Com- missioner under section 90(1)(h) of the Tax Administration Act 1994 in relation to the holder of the ﬁnancial ar- rangement, the amount of all consideration provided by the holder in relation to the ﬁ- nancial arrangement other than the speci- ﬁed property; or in relation to an issuer of the ﬁnancial ar- rangement, the amount of all consideration provided to the issuer in relation to the ﬁ- nancial arrangement other than the speci- ﬁed property; and (d) where the ﬁnancial arrangement is a hire purchase agreement and the holder is the ﬁrst holder in relation to the hire purchase agreement, either— 1443 Part E s EZ 48 Income Tax Act 2007 Reprinted as at 30 August 2013 (i) an amount calculated in accordance with the fol- lowing formula: a + b + c where— a is— (A) (B) the cash price of the hire purchase asset (as cash price is deﬁned in section 5 of the Credit Contracts and Consumer Finance Act 2003); or if subsubparagraph (A) of this item is not applicable, the lowest
 price at which the hire purchase asset could be purchased under a short term trade credit at the time of com- mencement of the hire purchase agreement b c is the amount of all expenditure or loss in- curred by the holder in preparing and in- stalling the hire purchase asset for use to the extent to which any such expenditure or loss is not taken into account in deter- mining the amount of item “a” is,— (A) in relation to the holder, the amount of all consideration provided by the holder in relation to the hire pur- chase agreement, other than the hire purchase asset and the expenditure or loss referred to in item “b”; or in relation to the issuer, the amount of all consideration provided to the issuer in relation to the hire pur- chase agreement, other than the hire purchase asset and the expenditure or loss referred to in item “b”; or (B) (ii) if subparagraph (i) is not applicable, or if either the holder or the issuer in relation to the hire pur- chase agreement applies to the Commissioner for 1444 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EZ 48 a speciﬁc determination, an amount calculated in accordance with the following formula: d + e where— d is— (A) the discounted value of all hire pur- chase payments payable under the hire purchase agreement, as deter- mined under a determination made by the Commissioner under section 90(1)(i) of the Tax Administration Act 1994; or (B) where either the holder or the is- suer in relation to the hire purchase agreement applies to the Commis- sioner for a speciﬁc determination, an amount determined by the Com- missioner in relation to that applica- tion (and the amount so determined applies for both the holder and the issuer to the exclusion of any de- termination made in respect of that hire purchase agreement under sub- subparagraph (A) of this item) e is,— (A) (B) in relation to the holder, the amount of all consideration provided by the holder in relation to the hire purchase agreement, other than the hire
 purchase asset and any expend- iture or loss incurred by the holder in preparing and installing the hire purchase asset for use; or in relation to the issuer, the amount of all consideration provided to the issuer in relation to the hire pur- chase agreement, other than the hire purchase asset and any expenditure or loss incurred by the holder in 1445 Part E s EZ 48 Income Tax Act 2007 Reprinted as at 30 August 2013 preparing and installing the hire purchase asset for use; and (e) (b) (ii) where none of paragraphs (a) to (d) applies to a ﬁnancial arrangement,— (i) in relation to a holder of the ﬁnancial arrange- ment, the value of all consideration provided by the holder in relation to the ﬁnancial arrange- ment; or in relation to an issuer of the ﬁnancial arrange- ment, the value of all consideration provided to the issuer in relation to the ﬁnancial arrangement excepted ﬁnancial arrangement, other than an arrangement listed in paragraphs (p), (q), (r), (s), (t), (u), and (v) that a taxpayer has treated as a ﬁnancial arrangement in a return of income already ﬁled, means any of the following arrangements an annuity for a term contingent upon human life or an (a) annuity for a term not contingent on human life to which section EY 8(2)(c) applies: an insurance contract or membership of a superannu- ation scheme: a debenture to which section FA 2 applies: a short term trade credit, unless the purchaser or vendor has elected in accordance with section EZ 46 to treat the short term trade credit as a ﬁnancial arrangement to which the old ﬁnancial arrangements rules apply: a speciﬁed preference share to which section FZ 1 of the Income Tax Act 2004 applies: in relation to a holder or an issuer, shares, other than withdrawable shares, or an option to buy shares, other than withdrawable shares, where those shares were or that option was acquired or issued by the person before 8.00 pm New Zealand Standard Time on 18 June 1987: in relation to a holder or an issuer, shares,
 other than withdrawable shares, or an option to acquire or to sell or otherwise dispose of shares, other than withdraw- able shares, where those shares were or that option was acquired or issued by the person after 8.00 pm New Zealand Standard Time on 18 June 1987: a lease: (c) (d) (h) (g) (e) (f) 1446 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EZ 48 (i) (j) (k) (l) (m) (n) (o) (p) (q) (r) (s) (t) (u) (v) a bet on any— (i) (ii) (iii) race, as deﬁned in section 5 of the Racing Act 2003; or sporting event under a sports-betting system ad- ministered under Part 6 of the Racing Act 2003; or gambling, including a New Zealand lottery, as those terms are deﬁned in section 4(1) of the Gambling Act 2003: in relation to an issuer or a holder, an option to acquire or to sell or otherwise dispose of property (other than an interest in a ﬁnancial arrangement) where the option was issued or acquired by the person after 8.00 pm New Zealand Standard Time on 18 June 1987 for private or domestic purposes only: a short term agreement for the sale and purchase of property: a short term option: a private or domestic agreement for the sale and pur- chase of property: a farm-out arrangement: a hire purchase agreement, as deﬁned in section YA 1, but including an agreement that would be a hire pur- chase agreement but for the exclusion in paragraph (f) of the deﬁnition of that term, entered into before 1 April 1993, or any assignment of such an agreement: a loan that is interest free, repayable on demand, and denominated in New Zealand dollars, for the lender of the loan only: an employment contract: an interest in a group investment fund: an interest in a partnership or a joint venture: travellers’ cheques: a warranty for goods or services: a hire purchase agreement for livestock or bloodstock entered into on or after 1 April 1993 ﬁnancial arrangement means— (a) any debt or debt instrument; and 1447 Part E s EZ 48 Income Tax Act 2007 Reprinted as at 30 August 2013 (b) (c)
 any arrangement (whether or not such arrangement in- cludes an arrangement that is a debt or debt instrument, or an excepted ﬁnancial arrangement) whereby a per- son obtains money in consideration for a promise by any person to provide money to any person at some future time or times, or upon the occurrence or non-occurrence of some future event or events (including the giving of, or failure to give, notice); and any arrangement which is of a substantially similar na- ture (including, without restricting the generality of the preceding provisions of this subparagraph, sell-back and buy-back arrangements, debt defeasances, and assignments of income);— but does not include any excepted ﬁnancial arrangement that is not part of a ﬁnancial arrangement ﬁxed principal ﬁnancial arrangement means any ﬁnancial arrangement other than a variable principal debt instrument forward contract, in the deﬁnitions of holder and implemen- tation date, includes, but is not limited to, a forward contract for— (a) (b) (c) (d) but does not include an agreement for the sale and purchase of property or a speciﬁed option holder— (a) means,— (i) foreign exchange: commodities: ﬁnancial arrangements: excepted ﬁnancial arrangements;— in relation to— (A) an agreement for the sale and purchase of property; or (B) a forward contract or a futures contract,— a person who is a vendor in relation to the ﬁnan- cial arrangement: in relation to an option to purchase or otherwise acquire property, a person who is a grantor of the option: (ii) 1448 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EZ 48 (iii) (iv) (v) in relation to an option to sell or otherwise dis- pose of property, a person who is a grantee of the option: in relation to a hire purchase agreement, the lessor: in relation to any other ﬁnancial arrangement, a person who, if the amount or amounts payable under the ﬁnancial arrangement were due and payable at that time, would be entitled to receive, or would receive a pecuniary
 beneﬁt from, pay- ment of the amount or amounts so payable or any part of them;— (b) and hold has a corresponding meaning; and is further deﬁned in section EZ 38(8) for the purposes of that section implementation date means,— (a) in the case of— (i) (ii) (iii) (iv) (v) foreign exchange: commodities: ﬁnancial arrangements: excepted ﬁnancial arrangements; and forward or future contracts, including, but not limited to, contracts for— (A) (B) (C) (D) futures contracts; and trade credits; and annuities; and agreements for the sale and purchase of property; and convertible notes,— (vi) 8.00 pm New Zealand Standard Time on 23 October 1986; and in the case of debt defeasances and assignments of in- come, 20 December 1986; and in the case of variable principal debt 1 April 1987; and in the case of a ﬁnancial arrangement under which— (i) the monetary obligations of the parties are ex- pressed in New Zealand currency; and instruments, (b) (c) (d) 1449 Part E s EZ 48 Income Tax Act 2007 Reprinted as at 30 August 2013 (ii) (iii) it is contemplated that the holder may, upon de- mand or call, require the return of sums advanced to the issuer; and it is not contemplated that the holder may ad- vance further sums to the issuer upon demand or call under the ﬁnancial arrangement,— (e) 1 April 1987; and in every other case, 8.30 pm New Zealand Standard Time on 31 July 1986 issuer,— (a) (b) in relation to a ﬁnancial arrangement at any time, means a person who is a party to the ﬁnancial arrangement and is not a holder in relation to the ﬁnancial arrangement; and is further deﬁned in section EZ 38(8) for the purposes of that section maturity, in relation to a ﬁnancial arrangement, means the date on which the last payment contingent upon the ﬁnancial arrangement is made, and matures has a corresponding mean- ing: provided that where a ﬁnancial arrangement has not matured and where the amount which has not been paid is immate- rial and the ﬁnancial arrangement has been structured to
 avoid the application of section EZ 38, the ﬁnancial arrangement is deemed to have matured in paragraph (b) of the deﬁnition of ﬁnancial money, arrangement and in the deﬁnition of security payment, in- cludes money’s worth, whether or not convertible into money, and the right to money, including the deferral or cancellation of any obligation to pay money whether in whole or in part private or domestic agreement for the sale and purchase of property, in the deﬁnition of excepted ﬁnancial arrange- ment, in relation to any person, means an agreement for the sale and purchase of property or a speciﬁed option where— (a) the agreement was entered into by that person or the speciﬁed option was granted to or by that person for private or domestic purposes; and the subject-matter of the agreement or speciﬁed option is— (b) 1450 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EZ 48 (i) (ii) real property, the purchase price of which is less than $750,000; or any other property, the purchase price of which is less than $250,000; and (c) settlement is required to take place within 365 days after the day on which the agreement was entered into or the speciﬁed option granted property,— (a) (b) in the deﬁnition of speciﬁed base cost for 1983 income year property and in the life insurance rules, includes any real or personal property; and in paragraph (a) of the deﬁnition of holder and para- graph (c) of the deﬁnition of lease and in the deﬁnitions of agreement for the sale and purchase of property, amount of all consideration, core acquisition price, excepted ﬁnancial arrangement, private or domes- tic agreement for the sale and purchase of property, right in the speciﬁed property, short term agreement for the sale and purchase of property, short term op- tion, and speciﬁed option, means— (i) any capital asset that is not foreign exchange or a ﬁnancial arrangement; and trading stock; and consumable aids; and property to be purchased or otherwise acquired or sold or
 otherwise disposed of for private or domestic purposes only (ii) (iii) (iv) right in the speciﬁed property, in the deﬁnition of core ac- quisition price, means— (a) (b) the right to possession of the property; or the right to any income or the right to control or inﬂu- ence the disposition of income derived from the prop- erty; or the right, directly or indirectly, to exercise, or to in- ﬂuence any other person in the exercise of, any deci- sion-making in respect of the property; or any other right of a substantially similar nature: (c) (d) 1451 Part E s EZ 48 Income Tax Act 2007 Reprinted as at 30 August 2013 provided that the mere right to enforce any agreement for the sale and purchase of property or any speciﬁed option does not of itself constitute a right in the speciﬁed property secured arrangement, in the deﬁnitions of security arrange- ment and security payment, means an arrangement against which the failure to perform is secured by a ﬁnancial arrange- ment security arrangement, in the deﬁnition of security payment, means a ﬁnancial arrangement that secures the holder against failure of any person to perform their obligations under a se- cured arrangement security payment means money received by the holder of a security arrangement to the extent that the money is received in relation to a loss incurred due to the failure of performance of the secured arrangement and the value of the money is income of the holder short term agreement for the sale and purchase of prop- erty means an agreement for the sale and purchase of property where— (a) the property is real property and settlement is required to take place within 93 days of the day on which the agreement was entered into; or the property is not real property and settlement is re- quired to take place within 63 days of the day on which the agreement was entered into (b) short-term option, in the deﬁnition of excepted ﬁnancial ar- rangement, means a speciﬁed option where— (a) the subject-matter of the
 option is real property and settlement is required to take place within 93 days of the day on which the option was granted; or the subject-matter of the option is not real property and settlement is required to take place within 63 days of the day on which the option was granted (b) short term trade credit, in the deﬁnitions of core acquisition price, excepted ﬁnancial arrangement, and trade credit, 1452 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EZ 48 means any debt for goods or services where payment is re- quired by the vendor— (a) within 63 days after the supply of the goods or services; or because the supply of the goods or services is continu- ous and the vendor renders periodic invoices for the goods or services, within 63 days after the date of an invoice rendered for those goods or services (b) social assistance suspensory loan is deﬁned in section EZ 38(8)(c) for the purposes of that section speciﬁed option means an option to purchase or otherwise ac- quire or sell or otherwise dispose of property, and the agree- ment for the sale and purchase of property, if any, entered into as a result of the exercise of the option is deemed to be part of the option trade credit, in the deﬁnitions of core acquisition price and implementation date, means any debt for goods or services, but does not include a short term trade credit trading stock, in paragraph (b) of the deﬁnition of property, means— (a) any thing acquired for the purposes of manufacture, sale, or exchange: livestock: any other real or personal property where the business of the person by whom it is sold or disposed of comprises dealing in such property or the property was acquired by the person for the purpose of sale or other disposal: any land, any amount derived from the sale or other disposal of which would be income to which any of sections CB 6 to CB 23 applies: anything in respect of which expenditure is incurred and which, if possession were taken, would fall within any of
 paragraphs (a) to (d);— (b) (c) (d) (e) but does not include any ﬁnancial arrangement variable principal debt instrument means a bank deposit ac- count or other ﬁnancial arrangement where it is contemplated that the holder may— (a) advance further sums to the issuer; or 1453 Part E s EZ 49 Income Tax Act 2007 Reprinted as at 30 August 2013 (b) where the rights and obligations of the person under the ﬁnancial arrangement are expressed in a currency other than New Zealand currency, require the return of sums advanced to the issuer— in either case upon demand or call, and where all such sums form part of that bank deposit account or other instrument.
Compare: 2004 No 35 s EZ 45 EZ 49 Determination of core acquisition price where (1) consideration for property denominated in foreign currency For the purposes of paragraph (c) of the deﬁnition of core ac- quisition price in section EZ 48, if the consideration payable under the relevant ﬁnancial arrangement for the speciﬁed prop- erty is denominated in a foreign currency, the lowest price re- ferred to in that paragraph must be the lowest price the parties would have agreed upon in that foreign currency converted into New Zealand dollars using, at the option of the taxpayer,— (a) the rate, on the day on which the ﬁnancial arrange- ment was entered into (in this section referred to as the contract date), available to the taxpayer from a New Zealand registered bank for the exchange of New Zealand dollars for that foreign currency on the day on which the ﬁrst right in the speciﬁed property is to be transferred (in this section referred to as the rights date); or if the period between the rights date and the day on which ﬁnal payment is to be made under the ﬁnancial ar- rangement (in this section referred to as the settlement date) is not greater than 5 years, the rate, on the con- tract date, available to the taxpayer from a New Zealand registered bank for the exchange of New Zealand dol- lars for that foreign currency on the settlement date; or an exchange rate approved by the Commissioner for adoption under this subsection in the circumstances ap- plicable to the taxpayer in a determination issued under section 90(1)(k) of the Tax Administration Act 1994.
(b) (c) (2) The rate adopted by a taxpayer in relation to a ﬁnancial ar- rangement under subsection (1) must be consistently applied 1454 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EZ 50 (3) (4) by that taxpayer in respect of that particular ﬁnancial arrange- ment for the purposes of the old ﬁnancial arrangements rules for every income year during its term.
If the terms of the ﬁnancial arrangement referred to in subsec- tion (1) are such that the actual rights date is uncertain as at the contract date, then the rights date is for the purposes of sub- section (1) the date on which it is reasonably expected by the parties at the time of entering into the ﬁnancial arrangement that the ﬁrst right in the speciﬁed property will be transferred.
If the terms of the ﬁnancial arrangement referred to in subsec- tion (1) are such that the actual settlement date is uncertain as at the contract date, then the settlement date is for the purposes of subsection (1) the date on which it is reasonably expected by the parties at the time of entering into the ﬁnancial arrange- ment that ﬁnal payment will be made.
Compare: 2004 No 35 s EZ 46 EZ 50 Rules for non-market transactions (1) Where the Commissioner, having regard to any connection be- tween the parties to the issue or transfer of a ﬁnancial arrange- ment and to any other relevant circumstances, is satisﬁed that the parties were dealing with each other in relation to the issue or transfer in a manner that has the effect of defeating the in- tent and application of the old ﬁnancial arrangements rules, the Commissioner may, under section EZ 35 or EZ 37 or EZ 38 or EZ 42, deem the consideration for the issue or transfer to be equal to the consideration that might reasonably be expected for the issue or transfer if the parties to the issue or transfer were independent parties dealing at arm’s length with each other in relation to the issue or transfer.
If at any time a person not resident in New Zealand— (a) (2) commences to hold, whether temporarily or otherwise, a ﬁnancial arrangement, for the purposes of a busi- ness carried on through a ﬁxed establishment in New Zealand, the person is deemed to have acquired the ﬁnancial arrangement at that time; or ceases to hold, whether temporarily or otherwise, a ﬁ- nancial arrangement for the purposes of a business car- ried on through a ﬁxed establishment in New Zealand, (b) 1455 Part E s EZ 51 Income Tax Act 2007 Reprinted as at 30 August 2013 (c) the person is deemed to have disposed of the ﬁnancial arrangement at that time; or being a holder or an issuer of a ﬁnancial arrangement, becomes a New Zealand resident, the person is deemed to acquire or to issue the ﬁnancial arrangement at the time at which the person becomes a New Zealand resi- dent;— and that acquisition or that disposal is deemed to have been made for a consideration equal to the consideration that might reasonably be expected for the acquisition or disposal if the acquisition or disposal had been made at arm’s length.
(3) A ﬁnancial arrangement is treated as having been sold and purchased or transferred and realised at its market value on the date of its sale or transfer if the sale or transfer, including a transfer by way of distribution to shareholders, is not for consideration in money or is for a consideration that is less than the market value of the ﬁnancial arrangement.

The market value of a ﬁnancial arrangement is the market value for both seller and purchaser or transferor and transferee.
Compare: 2004 No 35 s EZ 47 (4) EZ 51 Transitional adjustment when changing to ﬁnancial arrangements rules (1) A person may elect to apply the ﬁnancial arrangements rules to a ﬁnancial arrangement to which the old ﬁnancial arrange- ments rules apply.

(2) A person who makes an election must apply the ﬁnancial ar- rangements rules to all ﬁnancial arrangements to which the person is a holder or an issuer.
(3) Despite subsections (1) and (2), a person must apply section EZ 38 if that section applies to a ﬁnancial arrangement in the income year in which the election is made.

(4) Once an election is made, the ﬁnancial arrangement is subject to the ﬁnancial arrangements rules and is treated in the same way as a ﬁnancial arrangement that was entered into on or after 20 May 1999.
1456 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EZ 51 (5) A person who makes an election must calculate a transitional adjustment for the income year of election and return the re- sulting income or expenditure.
The transitional adjustment is calculated using the formula— income (ﬁnancial arrangements rules) expenditure (ﬁnancial arrangements rules) income (old ﬁnancial arrangements rules) (6) + expenditure (old ﬁnancial arrangements rules) where— income (ﬁnancial arrangements rules) is the total amount of income that would be derived by the person from the ﬁnancial arrangement if the ﬁnancial arrangements rules were applied to the ﬁnancial arrangement for the period beginning on the date the person acquires the arrangement and ending on the last day of the income year in which this calculation is made expenditure (ﬁnancial arrangements rules) is the total amount of expenditure that would be incurred by the person under the ﬁnancial arrangement if the ﬁnancial arrangements rules were applied to the ﬁnancial arrangement for the period beginning on the date the person acquires the arrangement and ending on the last day of the income year in which this calculation is made income (old ﬁnancial arrangements rules) is the total amount of income of the person from the ﬁnancial arrange- ment in all income years before the income year in which this calculation is made expenditure (old ﬁnancial arrangements rules) is the total amount of expenditure incurred by the person under the ﬁnan- cial arrangement in all income years before the income year in which this calculation is made.
The result of the transitional adjustment is,— (a) if a positive amount, income derived by the person in the income year; and if a negative amount, expenditure incurred by the person in the income year.
(b) (7) (8) In the income year in which the transitional adjustment is made to a ﬁnancial arrangement, a person must take into account 1457 Part E s EZ 52 Income Tax Act 2007 Reprinted as at 30 August 2013 only the income derived or the expenditure incurred as a result of the adjustment for the ﬁnancial arrangement.
(9) Despite subsections (2) to (8), a person is treated as transfer- ring a ﬁnancial arrangement at market value at the end of the income year of election and must calculate a base price adjust- ment under section EZ 38 if— (a) (b) (c) the ﬁnancial arrangement is an arrangement to which the old ﬁnancial arrangements rules apply; and the ﬁnancial arrangement were entered into on or after 20 May 1999 and would not have been subject to the ﬁnancial arrangements rules; and the person elects to apply the ﬁnancial arrangements rules to a ﬁnancial arrangement to which the old ﬁnan- cial arrangements rules apply.
Compare: 2004 No 35 s EZ 48 EZ 52 References to new rules include old rules (1) Subsection (2) applies if— (a) (c) (b) (d) the old ﬁnancial arrangement rules apply to a ﬁnancial arrangement (old ﬁnancial arrangement); and a taxation law in this Act (rewritten law) refers only to, or applies only to, a ﬁnancial arrangement to which the ﬁnancial arrangements rules apply; and the rewritten law is in neither subpart EW nor sections EZ 33 to EZ 51; and the rewritten law corresponds to and replaces, with or without amendments, a taxation law that applied to the old ﬁnancial arrangement before 20 May 1999.
The rewritten law applies to the old ﬁnancial arrangement as if the rewritten law referred to, or applied to, a ﬁnancial arrange- ment to which the old ﬁnancial arrangements rules apply.

Subsection (2) does not apply to— (a) a deﬁnition, or parts of a deﬁnition, in section YA 1 if that deﬁnition or part refers to section EZ 48; or section GB 21, because the former taxation law to which it corresponds has been re-enacted as section EZ 50.
(b) (2) (3) (4) Section FM 8(3)(b)(ii) applies to a ﬁnancial arrangement to which the old ﬁnancial arrangements rules apply as if— 1458 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EZ 52B (a) (b) the reference to section EW 31 were to section EZ 38; and the words “ﬁnancial arrangements rules” read “old ﬁ- nancial arrangements rules”.
Compare: 2004 No 35 s EZ 49 EZ 52B Consistency of use of IFRS method: Determination G3 change allowed (1) (2) When this section applies This section applies to a ﬁnancial arrangement of a person— for the 2009–10 income year, unless paragraph (b) or (a) (c) applies: for the 2008–09 or the 2009–10 income year (a retro- spective year) if— (i) (b) (ii) the ﬁnancial arrangement is subject to a creditor workout in a retrospective year; and the person notiﬁes the Commissioner in writing of their election to apply this section to the ﬁnan- cial arrangement for a retrospective year: for an income year after the 2009–10 income year, if— the ﬁnancial arrangement is subject to a creditor (i) workout in the relevant income year; and the person notiﬁes the Commissioner in writing of their election to apply this section to the ﬁnan- cial arrangement for the relevant income year be- fore the last day for ﬁling a return of income for that income year.
(ii) (c) Exception modiﬁed For the purposes of the exception in section EW 25B(2) (Con- sistency of use of IFRS method), the person may change a method for IFRS for the ﬁnancial arrangement if— (a) the method they change to or from is Determination G3 under section EW 15E(2)(aa) (Determination alterna- tives) or an alternative to Determination G3 under sec- tion EW 15E(2)(e) (What is included when spreading methods used); and that method is available to them to use.
(b) Deﬁned in this Act: creditor workout, ﬁnancial arrangement, IFRS, income year 1459 Part E s EZ 52C Income Tax Act 2007 Reprinted as at 30 August 2013 Section EZ 52B: added (with effect on 1 April 2008), on 6 October 2009, by section 198 of the Taxation (International Taxation, Life Insurance, and Remed- ial Matters) Act 2009 (2009 No 34).
Section EZ 52B(2)(a): amended (with effect on 1 April 2008), on 7 December 2009, by section 40 of the Taxation (Consequential Rate Alignment and Re- medial Matters) Act 2009 (2009 No 63).
EZ 52C Change of spreading method: Determination G22 to Determination G22A (1) How and when this section applies This section does not alter or affect a person’s tax position in relation to Determination G22: Optional convertible notes denominated in New Zealand dollars convertible at the option of the holder or the person’s litigation of their tax position in relation to Determination G22.

It does not alter or affect the Commissioner’s assessment of, or litigation of, that tax position.
It applies after Determination G22 has applied for a person’s ﬁnancial arrangement, and only if, for the ﬁnancial arrangement,— (a) Determination G22A: Optional convertible notes de- nominated in New Zealand dollars did not apply while Determination G22 applied, because of the application of section 90AE of the Tax Administration Act 1994, or the application of Determination G22A, clause 3(1)(b); and (b) Determination G22A starts applying immediately after— (i) section 90AE of the Tax Administration Act 1994 stops applying; or (ii) Determination G22A, clause 3(1)(b) stops apply- ing.
Spreading method adjustment (2) Despite sections EW 26 and EW 27 (which relate to changes of spreading method), the person must not calculate a spread- ing method adjustment under section EW 27 for the change of spreading method, for the ﬁnancial arrangement, from Deter- mination G22 to Determination G22A.
1460 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EZ 52D (3) Part years under Determinations instead of spreading method adjustment In the income year in which subsection (2) applies, for the ﬁ- nancial arrangement, Determination G22 applies for the part- year before the change to Determination G22A, and Determin- ation G22A applies for the part-year after the change from De- termination G22.
Deﬁned in this Act: amount, assessment, ﬁnancial arrangement, spreading method Section EZ 52C: inserted, on 26 September 2010, by section 51 of the Taxa- tion (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remed- ial Matters) Act 2010 (2010 No 109).
EZ 52D Base price adjustment: ﬁnancial arrangements to which Determination G22 and Determination G22A applied (1) (2) (3) How and when this section applies This section does not alter or affect a person’s tax position in relation to Determination G22 or the person’s litigation of their tax position in relation to Determination G22.

It does not alter or affect the Commissioner’s assessment of, or litigation of, that tax position.
It applies after Determination G22 has applied for a person’s ﬁnancial arrangement, and only if, for the ﬁnancial arrangement,— (a) (b) Determination G22A applies when the person is re- quired to calculate a base price adjustment for the ﬁnancial arrangement.

section EZ 52C applied; and Consideration adjustment For the ﬁnancial arrangement, the consideration referred to in section EW 31(7) (Base price adjustment formula) is adjusted in accordance with subsections (3) to (6).
Issuer If the person is the issuer of the ﬁnancial arrangement, an amount calculated under subsections (5) and (6) is added to all consideration that has been paid, and all consideration that is or will be payable, by the issuer for or under the ﬁnancial arrangement.
1461 Part E s EZ 52D Income Tax Act 2007 Reprinted as at 30 August 2013 Holder If the person is a holder of the ﬁnancial arrangement, an amount, referrable to the person’s holding, calculated under subsections (5) and (6) is added to all consideration that has been paid, and all consideration that is or will be payable, to the holder for or under the ﬁnancial arrangement.

Calculation For the purposes of subsections (3) and (4) the amount is cal- culated using the following formula: X Z.
Deﬁnition of items in formula In the formula,— (a) X is, for the ﬁnancial arrangement, an amount equal to the item s in Determination G22, clause 6(1), if that item were calculated in accordance with that Determination at the time immediately before the change of spreading method described in section EZ 52C(2): Z is, for the ﬁnancial arrangement, an amount equal to the item s in Determination G22, clause 6(1), if that item were calculated in accordance with that Determination at the time when it ﬁrst applied.
(b) Deﬁned in this Act: amount, consideration, ﬁnancial arrangement Section EZ 52D: inserted, on 26 September 2010, by section 51 of the Taxa- tion (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remed- ial Matters) Act 2010 (2010 No 109).

Life insurance transitional adjustment: expected death strain Heading: inserted, on 1 July 2010, by section 199(1) of the Taxation (Inter- national Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Expected death strain formulas Heading: inserted, on 1 July 2010, by section 199(1) of the Taxation (Inter- national Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
(4) (5) (6) 1462 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EZ 54 EZ 53 How expected death strain is calculated (1) (2) (3) Calculation of expected death strain: steps For an income year, the life insurer calculates their expected death strain by following these steps: (a) ﬁrst, use the relevant expected death strain formula to calculate an amount for each life insured under each life insurance policy existing at the start of the income year (see: subsections (2) and (3) for guidance on the relevant expected death strain formula): second, for each such life insurance policy, add together the amounts for the lives insured under it: third, add together the totals reached under paragraph (b).
(b) (c) Expected death strain formula (life) Section EZ 54(1) sets out the expected death strain formula (life).

This is the formula a life insurer uses for an income year, to calculate an amount for a life insured under a life insurance policy, except to the extent to which an annuity is being paid under the policy at some time in the income year.

Expected death strain formula (active annuities) Section EZ 54(2) sets out the expected death strain formula (active annuities).
This is the formula a life insurer uses for an income year, to calculate an amount for a life insured under a life insurance policy, to the extent to which an annuity is being paid under the policy at some time in the income year.

Deﬁned in this Act: business, income year, life insurance, life insurance policy, life insured, life insurer, pay Section EZ 53: inserted, on 1 July 2010, by section 199(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
EZ 54 Expected death strain formulas Expected death strain formula (life) The expected death strain formula (life) is— (1) claim probability × (opening sum assured opening actuarial reserves).

 Expected death strain formula (active annuities) The expected death strain formula (active annuities) is— (2) 1463 Part E s EZ 55 Income Tax Act 2007 Reprinted as at 30 August 2013 claim probability × opening actuarial reserves.
Deﬁnition of items in formulas The items in the formulas are deﬁned in subsections (4) to (6).

(3) Claim probability (4) Claim probability is the probability of a claim arising under the policy for the life insured’s death in the income year.

It is determined at the start of the income year using the same mortality assumptions as are used to calculate the life insurer’s actuarial reserves at the start of the income year.

It is expressed as a decimal.


Variations to claim probability are in sections EZ 55(2) and EZ 57(2).

Opening sum assured (5) Opening sum assured is the claim that would be payable under the policy for the life insured’s death in the income year or, if no such claim would be payable, the claim that would be payable under the policy for the life insured’s survival to the relevant date or age speciﬁed in the policy.

It is determined at the start of the income year.

It may be zero.
It may be zero.

Variations to opening sum assured are in sections EZ 56(2), EZ 57(3), and EZ 58(2).

Opening actuarial reserves (6) Opening actuarial reserves is the amount in the life insurer’s actuarial reserves for the life insured under the policy.

It is determined at the start of the income year.


Deﬁned in this Act: actuarial reserves, amount, claim, income year, life insured, life insurer, pay Section EZ 54: inserted, on 1 July 2010, by section 199(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

EZ 55 Expected death strain formulas: option when more than 1 life insured (1) When this section applies This section applies when a life insurance policy covers more than 1 life insured.
1464 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EZ 56 (2) (3) Claim probability In using the relevant expected death strain formula, the life insurer may use as claim probability a common factor for all the lives insured under the policy.

Features of common factor The common factor must be a reasonable approximation of the average probability of a claim arising under the policy for each life insured’s death in the income year.
It must be weighted as necessary to take account of— (a) differing claims for individual lives insured under the policy; and differing amounts in the life insurer’s actuarial reserves for individual lives insured under the policy.
(b) Deﬁned in this Act: actuarial reserves, amount, claim, income year, life insur- ance policy, life insured, life insurer inserted, on 1 July 2010, by section 199(1) of the Taxation Section EZ 55: (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
EZ 56 Expected death strain formula (life): when annuity payable on death (1) (2) When this section applies This section applies when, and to the extent to which, a life insurance policy provides for the payment of an annuity the start of which is contingent on the life insured’s death.

Opening sum assured In using the expected death strain formula (life), the life insurer uses as opening sum assured the present value (net) of the annuity.
The present value (net) is determined— at the start of the income year; and (a) on the assumption that the life insured died at the start (b) of the income year; and using the same assumptions and bases of calculation as are used to calculate the life insurer’s actuarial reserves for the income year.
(c) Deﬁned in this Act: actuarial reserves, income year, life insurance policy, life insured, life insurer, payment, present value (net) inserted, on 1 July 2010, by section 199(1) of the Taxation Section EZ 56: (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
1465 Part E s EZ 57 Income Tax Act 2007 Reprinted as at 30 August 2013 EZ 57 Expected death strain formulas: when annuity payable on survival to date or age speciﬁed in policy (1) (2) (3) When this section applies This section applies when, and to the extent to which, a life insurance policy provides for the payment of an annuity the start of which is contingent on the life insured’s survival to the relevant date or age speciﬁed in the policy.
Claim probability In using the relevant expected death strain formula, the life insurer must use claim probability as deﬁned in section EZ 54(4), without regard to the fact that the payment of the annuity is not contingent on the life insured’s death.

Opening sum assured In using the expected death strain formula (life), the life insurer must use as opening sum assured the present value (net) of the annuity.
The present value (net) is determined— (a) (b) at the relevant date or age speciﬁed in the policy; and on the assumption that the life insured survived to the date or age; and using the same assumptions and bases of calculation as are used to calculate the life insurer’s actuarial reserves for the income year.
(c) Deﬁned in this Act: actuarial reserves, income year, life insurance policy, life insured, life insurer, pay, payment, present value (net) Section EZ 57: inserted, on 1 July 2010, by section 199(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

EZ 58 Expected death strain formula (life): when partial reinsurance exists When this section applies This section applies when a life insurer has partial life reinsur- ance.
Opening sum assured In using the expected death strain formula (life), the life insurer must reduce opening sum assured by the claim receivable by the life insurer under the life reinsurance policy for the contin- (1) (2) 1466 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EZ 59 gency against which the life insured is covered under the life insurance policy.
Deﬁned in this Act: claim, life insurance policy, life insured, life insurer, life reinsurance policy, partial reinsurance inserted, on 1 July 2010, by section 199(1) of the Taxation Section EZ 58: (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Actuarial reserves Heading: inserted, on 1 July 2010, by section 199(1) of the Taxation (Inter- national Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
EZ 59 Meaning of actuarial reserves (1) (2) Actuarial reserves generally For the purposes of sections EZ 53 to EZ 58, actuarial re- serves means a life insurer’s reserves as calculated under sec- tion EZ 60.
Closing actuarial reserves for annuities For the purposes of the item closing actuarial reserves in sec- tion EY 31(3) (Annuities), closing actuarial reserves (active annuities) means a life insurer’s opening actuarial reserves under section EZ 54(6) for a life insurance policy, to the ex- tent to which an annuity is being paid under the policy where the life insured dies in the income year for which the formula in section EY 31 is applied.
Where the life insured survives to the end of that income year, the closing actuarial reserves (active annuities) is zero.

Link between actuarial reserves and life insurer (3) Actuarial reserves, for a life insurer at any time, means the life insurer’s actuarial reserves at that time.
Deﬁned in this Act: actuarial reserves, life insurance policy, life insurer Section EZ 59: inserted, on 1 July 2010, by section 199(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

1467 Part E s EZ 60 Income Tax Act 2007 Reprinted as at 30 August 2013 EZ 60 Actuarial reserves: calculation (1) (2) (3) Calculation by actuary The life insurer’s actuarial reserves must be actuarially deter- mined.
All reserves or 1 or more amounts The actuary may calculate— (a) (b) the actuarial reserves for all the life insurance policies for which the life insurer is the insurer; or the amount in the life insurer’s actuarial reserves for 1 or more life insurance policies for which the life insurer is the insurer.
Interest, mortality, and other assumptions and bases of calculation The actuary must do the calculation using interest, mortality, and other assumptions and bases of calculation that— (a) are based on the same principles as those used in the actuarial advice on which the following are calculated: the level of surplus funds available to the life in- (i) surer for allotment or payment to shareholders or policyholders; or the level of surplus funds available to the life in- surer, if a superannuation scheme, for allotment to objects of the scheme other than the object of providing for members’ beneﬁts; and (ii) (b) (c) are likely to produce a reasonable estimation of the fu- ture experience of the life insurer in relation to life in- surance policies of which the life insurer is the insurer, having regard to the past experience of the life insurer in relation to life insurance policies of which the life in- surer was the insurer; and conform with commercially acceptable practice.
(4) Reserves for policy never negative The amount in the actuarial reserves for a life insurance policy must never be negative.

1468 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EZ 61 (5) (6) (7) Reserves for all policies never less than total of surrender values The actuarial reserves at any time must not be less than the total of the surrender values of all the life insurance policies they cover at that time.
Reserves for policies same at end of one, and start of next, income year The amount in the actuarial reserves for life insurance policies at the start of an income year is the same as the amount in the actuarial reserves for the life insurance policies at the end of the previous income year.
Effect of partial reinsurance The actuarial reserves of a life insurer who has partial life rein- surance must be reduced by an amount that the actuary respon- sible for actuarial control of the life insurer considers appropri- ate having regard to the nature of the life reinsurance policies.
Deﬁned in this Act: actuarial reserves, actuary, amount, income year, life insur- ance policy, life insurer, life reinsurance policy, partial reinsurance, payment, shareholder, superannuation scheme Section EZ 60: inserted, on 1 July 2010, by section 199(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Entry to new life insurance regime: transitional and miscellaneous provisions Heading: inserted, on 1 July 2010, by section 199(1) of the Taxation (Inter- national Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
EZ 61 Allowance for cancelled amount: spreading (1) Policyholder base allowable deduction For an income year that includes 1 July 2010 and later income years, a life insurer may choose, by a notice received by the Commissioner on or before the last day for furnishing a return of income for the relevant income year or within such further time as the Commissioner may allow, that an amount (the de- duction amount) is included as their policyholder base allow- able deduction for the income year, if— (a) the life insurer has no taxable income, other than in rela- tion to its policyholder base, for the tax year correspond- 1469 Part E s EZ 61 Income Tax Act 2007 Reprinted as at 30 August 2013 (b) ing to the income year, and no taxable income, other than in relation to its policyholder base, for every earlier tax year going back to, and including, the tax year that corresponds with the income year that includes 1 July 2010; and the deduction amount is stated in the notice and it is equal to or less than the least of the following: (i) the available tax loss for the tax year that corres- ponds with the income year, before applying this section; and the available concession amount for the income year, described in subsection (2); and the amount that would be the life insurer’s schedular policyholder base income for the in- come year, before applying this section for the year.
(ii) (iii) Available concession amount For the purposes of subsection (1), the available concession amount for the income year is a positive amount calculated using the formula— base concession amount used.
Deﬁnition of items in formula In the formula,— (a) base concession amount is the lesser of the following: the cancelled amount described in section IT 1 (i) (Cancellation of life insurer’s policyholder net losses); and the amount of available tax loss for the tax year that corresponds with the income year that in- cludes 1 July 2010, before applying this section for the year: (ii) (b) used is the total amount of policyholder base allowable deductions that have arisen under this section for in- come years before the income year.
Deﬁned in this Act: amount, Commissioner, income year, life insurer, net loss, policyholder base, policyholder base allowable deduction, return of income, schedular policyholder base income, tax loss, tax year, taxable income inserted, on 1 July 2010, by section 199(1) of the Taxation Section EZ 61: (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
(2) (3) 1470 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EZ 63 EZ 62 Reinsurance transition: life ﬁnancial reinsurance may (1) be life reinsurance If a life contract that is entered into before a life insurer’s rein- surance grandparenting start day would be a contract for life ﬁ- nancial reinsurance but for this section, then it is treated as life reinsurance, instead of life ﬁnancial reinsurance, for the period starting on the reinsurance grandparenting start day, and end- ing on the earlier of,— (a) the last day of the term of the contract, as that term is stated in the contract before the reinsurance grandpar- enting start day; and the day 5 years after the reinsurance grandparenting start day.
(b) Meaning of reinsurance grandparenting start day (2) Reinsurance grandparenting start day means— (a) (b) 1 July 2010, if the life insurer does not have an early life regime application day; or a life insurer’s early life regime application day, if the life insurer has an early life regime application day.
Deﬁned in this Act: early life regime application day, income year, life ﬁnancial reinsurance, life insurer, life reinsurance, reinsurance grandparenting start day Section EZ 62: inserted, on 1 July 2010, by section 199(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
EZ 63 Disposal and acquisition upon entry (1) (2) When this section applies This section applies for a life insurer immediately before a day (the application day) that is— (a) 1 July 2010, if the life insurer does not have an early life regime application day; or their early life regime application day, if the life insurer does have an early life regime application day.
(b) Disposal and acquisition upon entry Immediately before the application day, all of the property of a life insurer that supports actuarial reserves for the purposes of the policyholder income formula in section EY 43 (Policy- holder income formula) is treated as disposed of, for market 1471 Part E s EZ 64 Income Tax Act 2007 Reprinted as at 30 August 2013 (3) value consideration, re-acquired from that person for the same consideration.
to a third person, and immediately Exclusion Property that is an interest in a PIE that is not a listed PIE is excluded from the disposal and re-acquisition described in subsection (2).

Deﬁned in this Act: actuarial reserves, amount, dispose, early life regime ap- plication day, income year, life insurer, listed PIE, market value, PIE Section EZ 63: added, on 30 June 2010, by section 200 of the Taxation (Inter- national Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EZ 63 list of deﬁned terms portfolio-listed company: repealed (with effect on 30 June 2010), on 2 November 2012, by section 66 of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).

Restructuring under New Zealand Railways Corporation Restructuring Act 1990 Heading: inserted (with effect on 31 December 2012), on 17 July 2013, by sec- tion 54 of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
EZ 64 New Zealand Railways Corporation restructure: purpose and initial amounts for tax purposes Purpose The purpose of this section, sections CW 65, EZ 65 to EZ 67, and YC 18C (which relate to the New Zealand Railways Cor- poration restructure) is to ensure that the Railways vesting gives rise to no tax consequences other than those necessary to account for the vesting of the Railways assets and liabilities from a public authority to a state enterprise.
The treatments of KiwiRail Holdings Limited, New Zealand Railways Corpor- ation, and associated companies in those sections also applies for the purposes of the Tax Administration Act 1994.
Depreciation For a Railways asset that is depreciable property, KiwiRail Holdings Limited calculates, on and after 31 December 2012, depreciation recovery income and deductions for amounts of depreciation loss as if KiwiRail Holdings Limited had ac- quired the asset on 31 December 2012 for the amount recorded (1) (2) 1472 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EZ 65 in a schedule prepared by KiwiRail Holdings Limited for the purposes of this section.
Financial arrangements: consideration (3) KiwiRail Holdings Limited is treated as–– (a) (b) paying an amount of consideration, for a Railways as- set that is a ﬁnancial arrangement, equal to the amount recorded in KiwiRail Holdings Limited’s ﬁnancial ac- counts for that arrangement on 31 December 2012: being paid an amount of consideration, for a Railways liability that is a ﬁnancial arrangement, equal to the amount recorded in KiwiRail Holdings Limited’s ﬁ- nancial accounts for that arrangement on 31 December 2012.
Financial arrangements: overrides Sections EW 38, EW 42, and GB 21 (which relate to ﬁnancial arrangements) do not apply for the Railways vesting.
Deﬁned in this Act: amount, assessable income, associate, company, consider- ation, depreciation loss, depreciable property, depreciation recovery income, ﬁ- nancial arrangement, pay, public authority, Railways assets and liabilities, Rail- ways vesting, state enterprise Section EZ 64: inserted (with effect on 31 December 2012), on 17 July 2013, by section 54 of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
(4) EZ 65 Expenditure or loss incurred, and amounts derived Expenditure or loss incurred, and amounts derived (1) KiwiRail Holdings Limited and New Zealand Railways Cor- poration are treated as the same person for the period prior to and including 31 December 2012 for the purpose of determin- ing the following: (a) whether a deduction is allowed for an amount of expenditure or loss incurred by KiwiRail Holdings Limited in connection with the Railways assets or liabilities: the amount of any deduction of KiwiRail Holdings Limited in connection with the Railways assets or liabilities: whether an amount derived by KiwiRail Holdings Limited in connection with the Railways assets or liabilities is income: (b) (c) 1473 Part E s EZ 66 Income Tax Act 2007 Reprinted as at 30 August 2013 (2) (d) the amount of any income of KiwiRail Holdings Limited in connection with the Railways assets or liabilities.
Treatment of New Zealand Railways Corporation For the purposes of subsection (1), New Zealand Railways Corporation is treated as if it was a company that was not a public authority.

Deﬁned in this Act: amount, company, deduction, income, public authority, Railways assets and liabilities Section EZ 65: inserted (with effect on 31 December 2012), on 17 July 2013, by section 54 of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
EZ 66 Prepayments Deduction (1) KiwiRail Holdings Limited has, for the 2012–13 income year, a deduction under section DB 50 (Adjustment for pre- payments) for an unexpired portion that is connected with a Railways asset or liability, as described in subsection (2).
Unexpired portion For the purposes of subsection (1), the unexpired portion is the unexpired portion that New Zealand Railways Corporation would have had by applying section EA 3(4) to (7) (Prepay- ments) on 30 December 2012 to an amount of expenditure in- curred by New Zealand Railways Corporation in connection with a Railways asset or liability, treating–– (a) (b) New Zealand Railways Corporation as a taxpayer with a deduction for the expenditure, if that expenditure is described in section EA 3(1).
30 December 2012 as the end of an income year; and Future application of section EA 3 For the 2012–13 income year and later income years, section EA 3 applies to KiwiRail Holdings Limited as if it had been allowed a deduction for expenditure to which subsection (1) applies.
Deﬁned in this Act: deduction, income year, Railways asset, Railways liability, taxpayer (2) (3) 1474 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EZ 68 Section EZ 66: inserted (with effect on 31 December 2012), on 17 July 2013, by section 54 of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
EZ 67 Leased assets Allocation of expenditure (1) KiwiRail Holdings Limited calculates, for the 2012–13 in- come year, an expenditure allocation under section EJ 10 (Per- sonal property lease payments) for a personal property lease payment that is connected with a Railways asset or liability as if 31 December were the start of the 2012–13 income year.
(2) Future application of section EJ 10 For the 2013–14 income year and later income years, section EJ 10 applies to KiwiRail Holdings Limited as if, for the period up to and including 31 December 2012, New Zealand Rail- ways Corporation and KiwiRail Holdings Limited were the same person.
Deﬁned in this Act: deduction, income year, personal property lease payment, Railways assets and liabilities Section EZ 67: inserted (with effect on 31 December 2012), on 17 July 2013, by section 54 of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
EZ 68 Deﬁnitions In sections EZ 64 to EZ 67,–– asset–– (a) means property of any kind, whether or not situated in New Zealand, whether tangible or intangible, real or personal, corporeal or incorporeal, and whether or not subject to rights; and includes–– (i) (b) land, including legal and equitable rights of oc- cupation of land or buildings: buildings, vehicles, plant equipment, machinery, ﬁxtures and ﬁttings, and legal and equitable rights in them: choses in action and money: (ii) (iii) 1475 Part E s EZ 68 Income Tax Act 2007 Reprinted as at 30 August 2013 (iv) (v) (vi) legal and equitable rights of any kind, and appli- cations, objections, submissions, and appeals in respect of those rights: intellectual property and applications pending for intellectual property: goodwill, and any business undertaking legal and equitable rights includes all rights, powers, privil- eges, interests, leases, licences, approvals, consents, designa- tions, permissions, dispensations, authorisations, beneﬁts, de- fences, immunities, claims, and equities of any kind, whether arising from, accruing under, created or evidenced by, or the subject of, an instrument or otherwise, and whether liquidated or unliquidated, actual, contingent, or prospective liabilities means liabilities, debts, charges, duties, and obli- gations of every description, whether present or future, actual or contingent, and whether payable or to be observed or per- formed in New Zealand or elsewhere Railways assets and liabilities means assets and liabilities, or parts of assets and liabilities, as the case may be, speciﬁed in an Order in Council made under the New Zealand Railways Corporation Restructuring Act 1990, and Railways assets and Railways liabilities have corresponding meanings Railways vesting means the vesting of the Railways assets and liabilities in KiwiRail Holdings Limited on 31 December 2012 in accordance with the New Zealand Railways Corporation Restructuring Act 1990.
Deﬁned in this Act: asset, land, legal and equitable rights, liabilities, New Zealand, Railways assets and liabilities, Railways vesting Section EZ 68: inserted (with effect on 31 December 2012), on 17 July 2013, by section 54 of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
1476 Reprinted as at 30 August 2013 Income Tax Act 2007 Part E s EZ 68 Part F Recharacterisation of certain transactions Subpart FA—Recharacterisation of certain commercial arrangements Contents Introductory provision FA 1 What this subpart does Debentures and shares FA 2 Recharacterisation of certain debentures FA 2B Stapled debt securities FA 3 Recharacterisation of certain dividends: recovery of cost of shares held on revenue account FA 4 Recharacterisation of shareholder’s base: company repurchasing share Page 1478 1478 1481 1483 1483 FA 5 Assets acquired and disposed of after deduction of 1485 Leases payments under lease Finance leases FA 6 Recharacterisation of amounts derived under ﬁnance leases FA 7 Determining amount of loan FA 8 Deductibility of expenditure under ﬁnance lease FA 9 Treatment when lease ends: lessee acquiring asset FA 10 Treatment when lease ends: lessor acquiring asset FA 11 Adjustments for leases that become ﬁnance leases FA 11B Adjustments for certain operating leases 1486 1487 1487 1488 1489 1490 1491 FA 12 Recharacterisation of amounts derived under hire purchase 1493 Hire purchase agreements agreements FA 13 Agreements recharacterised as sale with ﬁnance provided FA 14 Deductibility of expenditure or loss under hire purchase agreement FA 15 Treatment when agreement ends: seller acquiring 1493 1494 1494 property FA 16 Treatment when agreement ends: when seller is cash basis 1496 person 1477 Part F s FA 1 Income Tax Act 2007 Reprinted as at 30 August 2013 FA 17 Treatment when agreement ends: when buyer is cash basis person FA 18 Treatment of amounts paid in income years after agreement ends 1497 1497 Introductory provision FA 1 What this subpart does This subpart alters the tax treatment of certain commercial ar- rangements by— (a) recharacterising either their nature or that of the amounts derived under the arrangements; and providing rules for the treatment of the parties to the arrangement.
(b) Deﬁned in this Act: amount, arrangement, tax Debentures and shares FA 2 Recharacterisation of certain debentures Treatment of debenture and interest (1) A proﬁt-related debenture or a substituting debenture is treated for tax purposes as a share described in paragraph (b) of the deﬁnition of share in section YA 1 (Deﬁnitions), and the in- terest payable under the debenture is treated as a dividend.
No deduction (2) A company issuing either a proﬁt-related debenture or a sub- stituting debenture is denied a deduction under section DB 10 (Interest or expenditure connected to proﬁt-related or substi- tuting debentures) for— (a) (b) interest payable under the debenture; or expenditure or loss incurred in connection with the debenture; or expenditure or loss incurred in borrowing the money secured by or owing under the debenture.
(c) When interest ﬁxed to certain rates or indices 1478 Reprinted as at 30 August 2013 [Repealed] [Repealed] (3) Income Tax Act 2007 Part F s FA 2 Proﬁt-related debenture (4) A proﬁt-related debenture— (a) means a debenture with a rate of interest that is set from time to time by reference to— (i) the dividend payable by the company issuing the debenture; or the proﬁts of the company issuing the debenture, however measured: (ii) (5) (b) (c) does not include a debenture under which the interest payable is determined by a ﬁxed relationship to— (i) (ii) (iii) banking rates; or general commercial rates; or economic, commodity, industrial, or ﬁnancial in- dices, but the application of this subparagraph is subject to section FZ 1(3) (Treatment of interest payable under debentures issued before certain date): does not include a debenture treated as a share under section FA 2B (Stapled debt securities).
Substituting debenture Substituting debenture— (a) means a debenture issued by a company to a share- holder or class of shareholders of the company when the amount of the debenture is determined by reference to 1 or more of the following aspects of the shares in the company or another company held by the shareholder or class of shareholder at the time the debenture is issued or at an earlier time: (i) (ii) the number of shares: the available subscribed capital of the relevant company calculated under the slice rule set out in section CD 23 (Ordering rule and slice rule): some other reference to the shares: (iii) includes a debenture issued to a shareholder or a class of shareholder when the amount of the debenture is deter- mined by reference to 1 or more aspects of the shares as described in paragraph (a) held by the shareholder in a (b) 1479 Part F s FA 2 Income Tax Act 2007 Reprinted as at 30 August 2013 company other than that issuing the debenture, whether or not the company is being, or has been, liquidated: does not include a debenture that is a convertible note: does not include a debenture treated as a share under section FA 2B.
(c) (d) Shares or available subscribed capital in another company [Repealed] [Repealed] Amount of debenture For the purposes of subsection (5), the amount of the deben- ture means the principal sum secured by or owing under the debenture.

Terminating provisions For the treatment of debentures issued before 8 pm New Zealand standard time on 23 October 1986, see section FZ 1.
Relationship with agency rules Section HD 14 (Companies issuing debentures) does not apply to a proﬁt-related debenture described in this section, or to an amount paid or payable under it.
Deﬁned in this Act: amount, available subscribed capital, company, convertible note, debenture, deduction, dividend, interest, liquidation, loss, pay, proﬁt-re- lated debenture, share, shareholder, slice rule, substituting debenture, tax Compare: 2004 No 35 ss FC 1, FC 2 Section FA 2(3) heading: repealed (with effect on 1 April 2008), on 6 October 2009, pursuant to section 201(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section FA 2(3): repealed (with effect on 1 April 2008), on 6 October 2009, by section 201(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section FA 2(4): substituted (with effect on 1 April 2008), on 6 October 2009, by section 201(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section FA 2(4)(b)(iii): amended (with effect on 1 April 2008), on 6 October 2009, by section 201(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section FA 2(4)(c): added (with effect on 1 April 2008), on 6 October 2009, by section 201(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section FA 2(5): substituted (with effect on 1 April 2008), on 6 October 2009, by section 201(4) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

(6) (7) (8) (9) 1480 Reprinted as at 30 August 2013 Income Tax Act 2007 Part F s FA 2B Section FA 2(5)(c): amended (with effect on 1 April 2008), on 6 October 2009, by section 201(5) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section FA 2(5)(d): added (with effect on 1 April 2008), on 6 October 2009, by section 201(5) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section FA 2(6) heading: repealed (with effect on 1 April 2008), on 6 October 2009, pursuant to section 201(6) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section FA 2(6): repealed (with effect on 1 April 2008), on 6 October 2009, by section 201(6) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section FA 2(7): substituted (with effect on 1 April 2008), on 6 October 2009, by section 201(7) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
FA 2B Stapled debt securities (1) (2) When subsection (2) applies Subsection (2) applies when— (a) (b) a company has issued a debt security; and the debt security is stapled to a share in the company or to a share in another company; and the share is not a ﬁxed-rate share.
(c) Stapled debt treated as equity The stapled debt security is treated as a share issued by the company and— (a) interest payable under the stapled debt security is treated as a dividend; and section DB 10B (Interest or expenditure connected to stapled debt security) may deny deductions for expend- iture or loss related to the security.
(b) Stapled securities aggregated (3) A stapled debt security and a share to which it is stapled are treated as a single share for the purposes of applying— (a) the deﬁnition of non-participating redeemable share in section CD 22(9) (Returns of capital: off-market share cancellations); and [Repealed] the deﬁnitions, in section YA 1 (Deﬁnitions), of— (i) ﬁxed-rate foreign equity; and (b) (c) 1481 Part F s FA 2B Income Tax Act 2007 Reprinted as at 30 August 2013 (ii) ﬁxed-rate share, except for the purposes of sub- section (1)(c).
Meaning of debt security In this section, debt security means a ﬁnancial arrangement if— (a) the ﬁnancial arrangement provides funds to the com- pany; and the ﬁnancial arrangement gives rise to an amount for which the company would have a deduction but for this section; and the amount does not arise only from either a movement in a currency exchange rate or a non-contingent fee.
(b) (c) Meaning of stapled In this section, a debt security is stapled to a share if— (a) the debt security can, or ordinarily can, be disposed of only together with the share; and the arrangement that requires the debt security and the share to be disposed of together is an arrangement to which the company that issued the debt security or the company that issued the share is a party.
(b) Exclusion: small company shareholder agreements This section does not apply if the debt security is stapled to the share using a shareholder agreement for a company that is not a widely-held company.

Exclusion: stapling before 25 February 2008 This section does not apply if the debt security was stapled to the share before 25 February 2008.
Deﬁned in this Act: amount, associated person, company, debt security, deduc- tion, dividend, ﬁnancial arrangement, ﬁxed-rate share, interest, non-contingent fee, share, shareholder agreement, stapled, widely-held company Section FA 2B: inserted (with effect on 1 April 2008), on 6 October 2009, by section 202(1) of the Taxation (International Taxation, Life Insurance, and Re- medial Matters) Act 2009 (2009 No 34).
Section FA 2B(3)(b): repealed (with effect on 30 June 2009), on 6 October 2009, by section 202(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
(4) (5) (6) (7) 1482 Reprinted as at 30 August 2013 Income Tax Act 2007 Part F s FA 4 FA 3 Recharacterisation of certain dividends: recovery of cost of shares held on revenue account (1) (2) When this section applies This section applies to the amount of a dividend derived from shares that are revenue account property of a person when— the payment of the dividend realises or recovers the (a) price the person paid for the shares; and the payment is made at the person’s control or direction, or is part of a scheme that includes the acquisition of the shares and the payment of the dividend.
(b) Treatment of amount derived The dividend is treated as an amount derived on a sale of the shares to the extent to which the actual amount realised by the person on the disposal of the shares is less than the cost to the person of acquiring the shares.

Dividend (3) Despite subsection (2), a dividend taken into account under this section remains a dividend derived by the person in the income year.
Deﬁned in this Act: amount, dividend, income year, pay, revenue account prop- erty, share Compare: 2004 No 35 s FC 3 Section FA 3 list of deﬁned terms control: repealed, on 1 April 2010, by sec- tion 594 of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
FA 4 Recharacterisation of shareholder’s base: company repurchasing share (1) When this section applies This section applies to a shareholder in a company in relation to an off-market cancellation of shares by the company under section CD 22 (Returns of capital: off-market share cancella- tions) when— (a) the shareholder holds the share as revenue account prop- erty; and after the cancellation, they continue to hold some shares of the same class.
(b) 1483 Part F s FA 4 Income Tax Act 2007 Reprinted as at 30 August 2013 (2) (3) When whole amount treated as dividend If the whole of the amount that the shareholder receives for the cancellation is treated as a dividend, the following paragraphs apply: (a) the shareholder is not regarded as having disposed of the cancelled share, except for the purpose of determining whether they have derived a dividend; and the amount is added to the cost of the shareholder’s re- maining shares of the same class under subsection (6).
(b) Below market value of shares If subsection (2) does not apply, and the amount paid by the company is less than the market value of the shares at the time when notice is ﬁrst given of the cancellation either by the shareholder or the company, the following paragraphs apply: an amount calculated using the formula in subsection (a) (4) is added to the cost of the shareholder’s remaining shares of the same class under subsection (6); and the amount is excluded from the cost of the share being cancelled so that the shareholder is denied a deduction under section DB 25 (Cancellation of shares held as rev- enue account property) for the amount unless the share is trading stock of the shareholder; and sections GC 1 and GC 2 (which relate to the disposal of trading stock for inadequate consideration) does not apply.
(b) (c) Formula The formula referred to in subsection (3)(a) is— (4) share cost (cost pre-cancellation × amount from cancellation ) market value.
Deﬁnition of items in formula In the formula,— (a) share cost is the cost of the cancelled share to the share- holder: cost pre-cancellation is the total cost to the shareholder of all their shares of the same class immediately before the cancellation: amount from cancellation is the amount derived by the shareholder from the company for the cancellation: (b) (c) (5) 1484 Reprinted as at 30 August 2013 Income Tax Act 2007 Part F s FA 5 (6) (7) (d) market value is the total market value of all the share- holder’s shares of the same class immediately before the cancellation.
When subsection (7) applies Subsection (7) applies at a time after the cancellation when the cost of the remaining shares is taken into account under subpart EB (Valuation of trading stock (including dealer’s livestock)), or otherwise.

Adding amount to cost of shares The amount referred to in subsection (2)(b) or (3)(a) must be fairly divided among, and added to, the cost of the share- holder’s remaining shares of the same class.
Deﬁned in this Act: amount, company, deduction, dividend, market value, notice, off-market cancellation, revenue account property, share, shareholder, shares of the same class, trading stock Compare: 2004 No 35 s FC 4 Leases FA 5 Assets acquired and disposed of after deduction of payments under lease (1) plant, machinery, or other equipment; or a motor vehicle; or a temporary building; and When this section applies This section applies when a person (the lessee)— leases, rents, or hires an asset that is— (a) (i) (ii) (iii) is allowed a deduction for the rental payments; and acquires the asset and later disposes of it; and the consideration derived on the disposal is not income of the lessee under a provision of this Act other than this section.
(b) (c) (d) (2) Income If the consideration derived by the lessee for the asset is more than the cost of its acquisition, the excess is income of the lessee under section CG 7 (Recoveries after deduction of pay- ments under lease).

Subsection (3) overrides this subsection.


1485 Part F s FA 6 Income Tax Act 2007 Reprinted as at 30 August 2013 (3) (4) (5) (6) (7) Adjustment to income If the total amount of the deductions referred to in subsection (1)(b) is less than or equal to the excess, the amount of income under subsection (2) is the total amount of the deductions.

Apportionment If the asset is disposed of together with other assets, the total consideration must be apportioned to reﬂect the respective market values of the assets.
Disposal below market value If the asset is disposed of without consideration or for a con- sideration that is less than market value at the date of disposal, the asset is treated as having been disposed of at its market value.

Associated persons acquiring asset Subsection (2) also applies if a person associated with the lessee acquires the asset, whether from the lessee or not, and disposes of it for an amount that is more than the amount paid to acquire it.
Association is determined at the time of acquisi- tion by the associated person.

The lesser of the excess and the total amount of the lessee’s deductions is treated as income of the lessee.

Transfers on settlement of relationship property In this section,— (a) subsection (1)(c) does not apply to an acquisition on a settlement of relationship property: subsection (5) does not apply to a disposal on a settle- ment of relationship property.
(b) Deﬁned in this Act: amount, associated person, deduction, income, lease, lessee, market value, pay, settlement of relationship property, temporary building Compare: 2004 No 35 s FC 5 Finance leases FA 6 Recharacterisation of amounts derived under ﬁnance leases When a personal property lease asset is leased under a ﬁnance lease, the lease is treated as a sale of the lease asset by the 1486 Reprinted as at 30 August 2013 Income Tax Act 2007 Part F s FA 8 lessor to the lessee on the date on which the term of the lease starts, and— (a) the lessor is treated as giving a loan to the lessee for the lease asset; and the lessee is treated as using the loan to buy the lease asset; and subpart EE (Depreciation), the ﬁnancial arrangements rules, and the other provisions of this Act apply to the arrangement as recharacterised.
(b) (c) Deﬁned in this Act: ﬁnance lease, ﬁnancial arrangements rules, lessee, lessor, loan, personal property lease asset, term of the lease Compare: 2004 No 35 ss FC 8A(1), FC 8F, FC 8G FA 7 Determining amount of loan (1) (2) Value to lessor For a lessor under a ﬁnance lease, the amount of the loan is de- termined under section EW 32 (Consideration for agreement for sale and purchase of property or services, hire purchase agreement, speciﬁed option, or ﬁnance lease).
Value to lessee For a lessee under a ﬁnance lease, the amount of the loan is determined under sections EW 32 and EW 33 (which relate to the value of consideration under the ﬁnancial arrangements rules).
Deﬁned in this Act: amount, ﬁnance lease, lessee, lessor Compare: 2004 No 35 ss FC 8A(2), (3),OB 1 “consideration”, “lessee’s ac- quisition cost”, “lessor’s disposition value” FA 8 Deductibility of expenditure under ﬁnance lease (1) Lessee treated as owner The lessee under a ﬁnance lease is treated as the owner of the personal property lease asset for the purposes of subpart EE (Depreciation).
1487 Part F s FA 9 Income Tax Act 2007 Reprinted as at 30 August 2013 (2) Lessor not treated as owner The lessor under a ﬁnance lease is not treated as the owner of the personal property lease asset for the purposes of subpart EE.
Deﬁned in this Act: ﬁnance lease, lessee, lessor, personal property lease asset Compare: 2004 No 35 s FC 8B(1) FA 9 Treatment when lease ends: lessee acquiring asset Acquisition treated as sale (1) When a lessee under a ﬁnance lease acquires the personal property lease asset by the date on which the term of the lease ends, the acquisition is treated as the same sale that is treated as occurring under section FA 6.
When lessee or associated person acquires lease asset and later disposes of it If a lessee under a ﬁnance lease, or a person associated with them, acquires the lease asset and later disposes of it for an amount that is more than the consideration they paid for it, the excess is income of the lessee under section CC 11 (Lessee acquiring lease asset on expiry of term of lease).
Allocation and association For the purposes of subsection (2),— (a) the excess is income of the lessee in the income year in which the lessee or associated person disposes of the asset: association is determined at the time of acquisition by the associated person.

(b) Exception Subsection (2) does not apply if the consideration derived on the disposal is income of the lessee or an associated person under a provision of this Act other than this section.
Deﬁned in this Act: amount, associated person, ﬁnance lease, income, income year, lessee, personal property lease asset, term of the lease Compare: 2004 No 35 ss FC 8B(2), FC 8E (2) (3) (4) 1488 Reprinted as at 30 August 2013 Income Tax Act 2007 Part F s FA 10 FA 10 Treatment when lease ends: lessor acquiring asset (1) (2) (3) (4) (5) (6) When this section applies This section applies when a ﬁnance lease ends by the date on which its term ends.
Acquisition by lessor at end of lease If the lessee does not acquire the personal property lease as- set by the date on which the term of the lease ends, the lessor is treated as having acquired it on that date at its guaranteed residual value.

If there is no guaranteed residual value, the consideration is treated as zero.

In this section, the consider- ation is called the notional sale price.
Further sale, assignment, or lease Subsections (4) and (5) apply when the lessor sells, assigns, or leases the lease asset to another person under another ﬁnance lease on or after the date on which the term of the original lease ends.
When consideration more than notional sale price If the consideration is more than the notional sale price,— (a) to the extent to which it is paid by the lessor to the lessee under the original ﬁnance lease, the notional sale price is increased by the amount of the difference; and to the extent to which it is not paid by the lessor to the lessee under the original ﬁnance lease, the amount of the difference is income of the lessor under section CC 12 (Lessor acquiring lease asset on expiry of term of lease) in the income year in which the original lease term ends.
(b) When consideration less than notional sale price If the consideration is less than the notional sale price, and the lessee is required to pay the amount of the deﬁcit to the lessor, the notional sale price is reduced by that amount.
Acquisition by lessor when lease ends early If the lease is terminated before the end of its term and the lessee does not acquire the lease asset, the lessor is treated as acquiring it for an amount calculated using the formula— outstanding balance Deﬁnition of items in formula In the formula,— (7) release payment.
1489 Part F s FA 11 Income Tax Act 2007 Reprinted as at 30 August 2013 (a) (b) outstanding balance is the amount of the outstanding balance of the loan on the date on which the lease is terminated: release payment is the amount the lessee paid to be released from their obligations under the lease.

Relationship with section EE 45 Subsections (2) to (6) override section EE 45 (Consideration for purposes of section EE 44).
Deﬁned in this Act: amount, ﬁnance lease, guaranteed residual value, income, lease, lessee, lessor, loan, notional sale price, outstanding balance, pay, personal property lease asset, term of the lease Compare: 2004 No 35 ss FC 8B(3), FC 8C, FC 8D (8) FA 11 Adjustments for leases that become ﬁnance leases When this section applies This section applies when a lease is entered into on or after 20 May 1999 and— (a) the lease is a consecutive or a successive lease— (i) that is treated as 1 lease under the deﬁnition of lease; and (ii) with a term of the lease that the lessor and lessee do not contemplate, at the start of the term, will be more than 75% of the personal property lease asset’s estimated useful life; and (iii) with a term of the lease that is more than 75% of the asset’s estimated useful life: (b) the lease is an operating lease that becomes a ﬁnance lease under paragraph (c) of the deﬁnition of ﬁnance lease.
Adjustment required The lessor and lessee must each adjust their income and ex- penditure calculated for the lease by including an adjustment in a return of income for the tax year corresponding to the in- come year in which the lease becomes a ﬁnance lease.
Amount of adjustment The amount of the adjustment is calculated for the relevant per- son in relation to the period described in subsection (5) using the formula— (1) (2) (3) 1490 Reprinted as at 30 August 2013 Income Tax Act 2007 Part F s FA 11B (4) (5) (6) (7) ﬁnance income ﬁnance expenditure unadjusted income + unadjusted expenditure.
Deﬁnition of items in formula In the formula,— (a) ﬁnance income is the income that would have been de- rived by the person under the lease if the lease were a ﬁnance lease for the period: ﬁnance expenditure is the expenditure that would have been incurred by the person under the lease if the lease were a ﬁnance lease for the period: unadjusted income is the income derived by the person under the lease: unadjusted expenditure is the expenditure incurred by the person under the lease.
(b) (c) (d) Adjustment period The period starts on the date on which the lease starts and ends on the last day of the income year in which the lease becomes a ﬁnance lease.

Adjustment positive If the adjustment is positive, the amount is income of the rele- vant person under section CH 6 (Adjustments for certain ﬁ- nance and operating leases).
Adjustment negative If the adjustment is negative, the amount is a deduction of the relevant person under section DB 51B (Adjustments for leases that become ﬁnance leases).
Deﬁned in this Act: amount, estimated useful life, ﬁnance lease, income, in- come year, lease, lessee, lessor, operating lease, personal property lease asset, return of income, tax year, term of the lease Compare: 2004 No 35 s FC 8H Section FA 11: substituted, on 1 April 2008, by section 406 of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
FA 11B Adjustments for certain operating leases (1) When this section applies This section applies when a lease is an operating lease that— is entered into on or after 20 May 1999 and before (a) 20 June 2007; and 1491 Part F s FA 11B Income Tax Act 2007 Reprinted as at 30 August 2013 (b) (c) (d) is an arrangement, or part of an arrangement that, on 20 June 2007, meets the requirements of paragraph (c)(i) to (iii) of the deﬁnition of ﬁnance lease; and has a term of the lease ending after the end of the income year in which 20 June 2007 falls (the adjustment year); and does not meet the requirements of section FA 11(1) be- fore the end of the income year after the adjustment year.
Adjustment required The lessor must adjust their income and expenditure calculated for the lease asset by including an adjustment in a return of income for the tax year corresponding to the income year after the adjustment year.

Amount of adjustment The amount of the adjustment is calculated using the for- mula— total depreciation losses 6.
Deﬁnition of item in formula In the formula, total depreciation losses is the total amount of depreciation loss for the lease asset for which the lessor is allowed a deduction in the period that begins with the start of the term of the lease and ends with the end of the adjustment year.

Income The amount of the adjustment is income of the lessor under the lease under section CH 6 (Adjustments for certain ﬁnance and operating leases) in the income year after the adjustment year.
Adjusted tax value The adjusted tax value of the lease asset at the beginning of the income year after the adjustment year is the total of the amount of the adjustment and the adjusted tax value that the lease asset would have in the absence of this section.
Depreciation loss For an income year beginning after 20 June 2007 in which the lease is an operating lease, the amount of depreciation loss al- (2) (3) (4) (5) (6) (7) 1492 Reprinted as at 30 August 2013 Income Tax Act 2007 Part F s FA 13 lowed for the lease asset other than under section EE 48 (Ef- fect of disposal or event) is ﬁve-sixths of the amount of de- preciation loss that would be allowed for the lease asset in the absence of this subsection.
Deﬁned in this Act: adjusted tax value, amount, arrangement, deduction, depre- ciation loss, ﬁnance lease, income, income year, lease, lessee, lessor, operating lease, return of income, tax year, term of the lease Compare: 2004 No 35 s FC 8I Section FA 11B: inserted, on 1 April 2008, by section 406 of the Taxation (Busi- ness Taxation and Remedial Matters) Act 2007 (2007 No 109).
Hire purchase agreements FA 12 Recharacterisation of amounts derived under hire purchase agreements When a person (the seller) provides personal property other than livestock or bloodstock to another person (the buyer) under a hire purchase agreement, the agreement is treated as a sale by the seller to the buyer on the date on which the term of the agreement starts, and— (a) the seller is treated as giving a loan to the buyer for the property; and the buyer is treated as using the loan to buy the property; and subpart EE (Depreciation), the ﬁnancial arrangements rules, and the other provisions of this Act apply to the agreement as recharacterised.
(b) (c) Deﬁned in this Act: amount, bloodstock, ﬁnancial arrangements rules, hire pur- chase agreement, loan Compare: 2004 No 35 ss FC 9, FC 10 FA 13 Agreements recharacterised as sale with ﬁnance provided (1) (2) Value to seller For a seller under a hire purchase agreement, the amount of the loan is determined under section EW 32 (Consideration for agreement for sale and purchase of property or services, hire purchase agreement, speciﬁed option, or ﬁnance lease).
Value to buyer For a buyer under a hire purchase agreement, the amount to the buyer is determined under sections EW 32 and EW 33 1493 Part F s FA 14 Income Tax Act 2007 Reprinted as at 30 August 2013 (which relate to the value of consideration under the ﬁnancial arrangements rules).
Deﬁned in this Act: amount, hire purchase agreement, loan Compare: 2004 No 35 ss FC 10(1)(a), OB 1 “consideration”, “lessee’s acqui- sition cost”, “lessor’s disposition value” FA 14 Deductibility of expenditure or loss under hire purchase agreement (1) (2) (3) (4) Buyer treated as owner The buyer in section FA 12 is treated as the owner of the prop- erty for the purposes of subpart EE (Depreciation).
Seller not treated as owner The seller in section FA 12 is not treated as the owner of the property for the purposes of subpart EE.

Discounted or bad debts Subsection (4) applies if the seller takes an amount calculated under section FA 15 into account as the cost of trading stock or in the calculation of their net income for an income year.
No deduction for seller The seller is denied a deduction under section DB 14 or DB 31 (which relate to debts sold at a discount and bad debts) for an amount owing under the hire purchase agreement.
Deﬁned in this Act: amount, deduction, hire purchase agreement, income year, net income, trading stock Compare: 2004 No 35 s FC 10(1)(c), (5)(c) FA 15 Treatment when agreement ends: seller acquiring property When this section applies This section applies, subject to sections FA 16 and FA 17, when— (a) a hire purchase agreement described in section FA 12 ends by the date on which its term ends or after that date; and the buyer does not acquire ownership of the property; and a person associated with the buyer does not acquire ownership of the property.
(b) (c) (1) 1494 Reprinted as at 30 August 2013 Income Tax Act 2007 Part F s FA 15 (2) (3) (4) Sale of property The seller is treated as buying the property from the buyer for an amount equal to the outstanding balance calculated under subsection (3), and the buyer is treated as selling the property to the seller for that amount.

The date of the sale is the date the agreement ends.
Outstanding balance The outstanding balance is the amount calculated using the formula— net balance due on termination buyer’s termination payment + seller’s termination payment.
Deﬁnition of items in formula In the formula,— (a) (b) (c) net balance due on termination is the net balance due under the hire purchase agreement on the date the agree- ment ends less any costs and expenses referred to in sec- tion 31(2)(c) and (d) of the Credit (Repossession) Act 1997: buyer’s termination payment is the sum of the follow- ing amounts, as applicable: (i) an amount paid by the buyer, or an associated per- son, to the seller, or an associated person, under the agreement; and an amount paid as a consequence of the ending of the agreement; and an amount required to be taken into account by the buyer under the base price adjustment in sec- tion EW 31 (Base price adjustment formula) or in item “a” of the formula in section EZ 38(1) (In- come and expenditure where ﬁnancial arrange- ment redeemed or disposed of): (ii) (iii) seller’s termination payment is the sum of the follow- ing amounts, as applicable: (i) an amount paid by the seller, or an associated per- son, to the buyer, or an associated person, under the agreement; and an amount paid as a consequence of the ending of the agreement; and (ii) 1495 Part F s FA 16 Income Tax Act 2007 Reprinted as at 30 August 2013 (iii) an amount required to be taken into account by the buyer under the base price adjustment in sec- tion EW 31 or by the seller in item “b” or “c” of the formula in section EZ 38(1) or (2).
(5) Base price adjustment For the purposes of section EW 31, the outstanding balance is taken into account as the consideration paid by the buyer to the seller under the hire purchase agreement.
Deﬁned in this Act: amount, associated person, hire purchase agreement, out- standing balance Compare: 2004 No 35 ss FC 10(2), (5)(a), OB 1 “lessee’s outstanding balance”, “lessor’s outstanding balance”, “net balance due” FA 16 Treatment when agreement ends: when seller is cash basis person When this section applies This section applies for the purposes of section FA 15 when the seller is a cash basis person.
Reduction The amount treated as the seller’s purchase price in section FA 15(2) is reduced by an amount for accrued but unpaid in- terest on the hire purchase agreement calculated using the for- mula— accrual income income.
Deﬁnition of items in formula In the formula,— (a) accrual income is the amount of income that would have been derived under 1 of the spreading methods for payments under the hire purchase agreement if— the seller were not a cash basis person; and (i) section EW 31 (Base price adjustment formula) (ii) did not apply to the seller and the agreement in the income year when the agreement ends: income is the amount of the seller’s income from pay- ments received under the hire purchase agreement.
Deﬁned in this Act: amount, cash basis person, hire purchase agreement, in- come, income year, interest, pay, spreading method Compare: 2004 No 35 s FC 10(3) (b) (1) (2) (3) 1496 Reprinted as at 30 August 2013 Income Tax Act 2007 Part F s FA 18 FA 17 Treatment when agreement ends: when buyer is cash basis person (1) (2) (3) When this section applies This section applies for the purposes of section FA 15 when the buyer is a cash basis person.
Reduction The amount treated as the buyer’s sale price in section FA 15(2) is reduced by an amount for accrued but unpaid interest on the hire purchase agreement calculated using the formula— prepaid expenditure expenditure.
Deﬁnition of items in formula In the formula,— (a) prepaid expenditure is the amount of prepaid ex- penditure that would have been incurred under 1 of the spreading methods for payments under the hire purchase agreement if— (i) (ii) the buyer were not a cash basis person; and section EW 31 (Base price adjustment formula) did not apply to the buyer and the agreement in the income year when the agreement ends: expenditure is the amount of expenditure incurred by the buyer and treated as interest under the hire purchase agreement.
(b) Deﬁned in this Act: amount, cash basis person, hire purchase agreement, in- come year, interest, pay, prepaid expenditure, spreading method Compare: 2004 No 35 s FC 10(4) FA 18 Treatment of amounts paid in income years after agreement ends (1) (2) When this section applies This section applies when an amount that is liable to be paid under a hire purchase agreement is paid in an income year that is later than the income year in which the agreement ends.
Liability under agreement If the buyer is liable to pay the amount under the terms of the agreement to the seller, the amount is income of the seller 1497 (3) (4) Income Tax Act 2007 Reprinted as at 30 August 2013 under section CC 13(2) (Amounts paid in income years after hire purchase agreement ends).
Payment after end of agreement If the seller pays the amount to the buyer under the agreement and, consequent on the ending of the agreement, the amount was not taken into account, the amount is treated as— (a) expenditure incurred by the seller in the income year in which the amount is paid; and income of the buyer under section CC 13(3), if they have been allowed a deduction in relation to the property under the agreement in the income year in which the amount is paid.
(b) Associated persons In this section, the seller or the buyer includes a person asso- ciated with them.
Deﬁned in this Act: amount, associated person, deduction, hire purchase agree- ment, income, income year, pay Compare: 2004 No 35 s FC 10(5)(d)–(f) Subpart FB—Transfers of relationship property Contents FB 1 What this subpart does FB 2 FB 3 Personal property Land acquired for certain purposes or under certain conditions Land under scheme for major development or division Timber or right to take timber Land with standing timber Patent applications and patent rights Financial arrangements rules FB 4 FB 5 Disposal of land FB 6 FB 7 FB 8 FB 9 FB 10 Continuity provisions: shares and options FB 10B Look-through companies FB 11 Pension payments to former employees FB 12 Pension payments to former partners FB 13 Trading stock FB 14 Speciﬁed livestock 1498 Page 1499 1500 1500 1501 1502 1502 1503 1503 1504 1504 1504 1505 1505 1506 1507 Reprinted as at 30 August 2013 Income Tax Act 2007 Part F s FB 1 FB 15 Speciﬁed livestock valued under herd scheme FB 16 Non-speciﬁed livestock FB 17 High-priced livestock FB 18 Bloodstock FB 19 Leased assets FB 20 Mining assets FB 21 Depreciable property 1507 1508 1509 1510 1510 1511 1513 FB 1 What this subpart does (1) (2) When this subpart applies This subpart sets out the tax treatment when property is trans- ferred on a settlement of relationship property.
General treatment of parties to agreement The tax consequences for the transferee on a settlement of re- lationship property are the same as if the transferor had con- tinued to hold the property.

Meaning of settlement of relationship property (3) A settlement of relationship property means a transaction between parties to a relationship agreement that creates a dis- posal and acquisition of property under this subpart.
(4) Look-through interests For the purposes of this subpart, property includes a look- through interest for a look-through company.

Deﬁned in this Act: look-through company, look-through interest, relationship agreement, settlement of relationship property, tax Section FB 1(4) heading: added, on 1 April 2011 (applying for income years beginning on or after 1 April 2011), by section 61(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section FB 1(4): added, on 1 April 2011 (applying for income years beginning on or after 1 April 2011), by section 61(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).

Section FB 1 list of deﬁned terms look-through company: inserted, on 1 April 2011, by section 61(2) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section FB 1 list of deﬁned terms look-through interest: inserted, on 1 April 2011, by section 61(2) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
1499 Part F s FB 2 Income Tax Act 2007 Reprinted as at 30 August 2013 FB 2 Personal property (1) (2) (3) When this section applies This section applies for the purposes of sections CB 4 (Per- sonal property acquired for purpose of disposal) and CB 5 (Business of dealing in personal property) when personal property, or an interest in personal property, is transferred on a settlement of relationship property.
Transfer at cost The transfer is treated as a disposal and acquisition of the prop- erty for an amount that equals the cost of the property or, as applicable, the interest in the property, to the transferor.

Further disposal treated as dealing If, after the transfer, the transferee disposes of the property, they are treated in relation to the disposal as carrying on a business of dealing in the property.
Deﬁned in this Act: amount, business, settlement of relationship property Compare: 2004 No 35 s FF 4 FB 3 Land acquired for certain purposes or under certain conditions When this section applies This section applies for the purposes of sections CB 6 to CB 12, CB 14, CB 17, CB 20, and CB 23 (which relate to the disposal of land) and Part D (Deductions) when land was acquired for a purpose set out in or under the conditions set out in any of those sections, and the land is transferred on a settlement of relationship property.
Transfer at cost The transfer is treated as a disposal and acquisition for an amount that equals the total cost of the land to the transferor at the date of transfer.

Date of acquisition The transferee is treated as having acquired the land on the date it was acquired by the transferor.

(1) (2) (3) 1500 Reprinted as at 30 August 2013 Income Tax Act 2007 Part F s FB 4 (4) Further disposal For the tax consequences if the transferee disposes of the land, see section FB 5.
Deﬁned in this Act: amount, date of transfer, dispose, land, settlement of rela- tionship property, tax Compare: 2004 No 35 s FF 6(1)(a) FB 4 Land under scheme for major development or division (1) (2) (3) (4) When this section applies This section applies for the purposes of section CB 13 (Dis- posal: amount from major development or division and not al- ready in income) and Part D (Deductions) when land is trans- ferred on a settlement of relationship property.
Transfer at market value plus expenditure If the transferor has already begun an undertaking or scheme of the kind referred to in section CB 13, the transfer is treated as a disposal by them for an amount that equals the sum of— the market value of the land on the date on which they (a) began the undertaking or scheme: the expenditure that they have incurred in carrying on the undertaking or scheme before the date of transfer.
(b) Expenditure incurred by transferee For the purposes of subsection (2), the transferee is treated as having incurred expenditure in— (a) acquiring the land of an amount equal to the market value referred to in subsection (2)(a); and carrying on the undertaking or scheme of an amount equal to the expenditure in subsection (2)(b).
(b) When scheme not begun at date of transfer If no undertaking or scheme as described in subsection (2) has begun at the date of transfer, the transferee is treated as having acquired the land for an amount that equals the total cost of the land to the transferor at the date of transfer.

1501 Part F s FB 5 Income Tax Act 2007 Reprinted as at 30 August 2013 (5) Further disposal For the tax consequences if the transferee disposes of the land, see section FB 5.
Deﬁned in this Act: amount, date of transfer, dispose, land, market value, settle- ment of relationship property, tax Compare: 2004 No 35 s FF 6(1)(b) FB 5 Disposal of land (1) (2) (3) When this section applies This section applies for the purposes of sections FB 3 and FB 4 when the transferor and the transferee are not associated per- sons.
Persons treated as associated If the transferee disposes of the land, section CB 15 (Transac- tions between associated persons) applies as if the transferor and the transferee were associated persons.

Land disposed of by mortgagee If a mortgagee disposes of land because the transferee defaults under the mortgage, the disposal is treated as a disposal of land.
Deﬁned in this Act: associated person, dispose, land, mortgage Compare: 2004 No 35 s FF 6(1)(a)(iv), (b)(iv), (2) FB 6 Timber or right to take timber When this section applies This section applies for the purposes of section CB 24 (Dis- posal of timber or right to take timber) when timber, or a right to take timber, is transferred on a settlement of relationship property.
Transfer at cost of timber at date of transfer The transfer is treated as if— (a) (b) it were a disposal and acquisition for consideration; and the amount of consideration were equal to the total cost of timber, or the right to take timber, to the transferor at the date of transfer.
Deﬁned in this Act: amount, cost of timber, date of transfer, right to take timber, settlement of relationship property, timber Compare: 2004 No 35 s FF 7(1), (2) (1) (2) 1502 Reprinted as at 30 August 2013 Income Tax Act 2007 Part F s FB 8 FB 7 Land with standing timber (1) (2) When this section applies This section applies for the purposes of section CB 25 (Dis- posal of land with standing timber) when— (a) land with standing timber on it is transferred on a settle- ment of relationship property; and the standing timber does not consist of ornamental or in- cidental trees, as evidenced by a certiﬁcate given under section 44C of the Tax Administration Act 1994.
(b) Transfer at cost of timber at date of transfer The transfer is treated as if— (a) (b) it were a disposal and acquisition for consideration; and the amount of consideration were equal to the total cost of timber to the transferor at the date of transfer.
Deﬁned in this Act: amount, cost of timber, date of transfer, land, settlement of relationship property, standing timber, timber Compare: 2004 No 35 s FF 7(3), (4) FB 8 Patent applications and patent rights (1) (2) When this section applies This section applies for the purposes of sections CB 30 and DB 38 to DB 40 (which relate to patent applications and patent rights) when a patent application with complete speciﬁcations or a patent right is transferred on a settlement of relationship property.
Transfer: part of expenditure or cost of rights The transfer is treated as a disposal and acquisition for an amount that equals, as applicable,— (a) expenditure referred to in section DB 38 (Patent rights: devising patented inventions) for which the transferor is denied a deduction; or the cost of the applications or rights referred to in sec- tion DB 39 (Patent rights acquired before 1 April 1993) for which the transferor is denied a deduction.
Deﬁned in this Act: amount, deduction, patent rights, settlement of relationship property Compare: 2004 No 35 s FF 8 (b) 1503 Part F s FB 9 Income Tax Act 2007 Reprinted as at 30 August 2013 FB 9 Financial arrangements rules The ﬁnancial arrangements rules do not apply to a ﬁnancial arrangement transferred on a settlement of relationship prop- erty if the ﬁnancial arrangement meets the criteria set out in section EW 10(6) (Financial arrangements to which ﬁnancial arrangements rules apply).
For the application of the old ﬁ- nancial arrangements rules, see section EZ 45(c) (Application of old ﬁnancial arrangements rules).

Deﬁned in this Act: ﬁnancial arrangement, ﬁnancial arrangements rules, old ﬁnancial arrangement rules, settlement of relationship property Compare: 2004 No 35 s FF 2 Section FB 9: amended (with effect on 1 April 2008), on 6 October 2009, by section 203(1) of the Taxation (International Taxation, Life Insurance, and Re- medial Matters) Act 2009 (2009 No 34).
FB 10 Continuity provisions: shares and options (1) (2) When this section applies This section applies to modify sections YC 2 to YC 6 (which relate to voting interests and market value interests) for the purposes of the application of the continuity provisions when a share, or option over a share, is transferred on a settlement of relationship property.
Transferee treated as holding share or option The transferee is treated as having acquired the share or option on the date it was acquired by the transferor, and to have held it at all times up to the date of transfer.
Deﬁned in this Act: continuity provisions, date of transfer, option, settlement of relationship property, share Compare: 2004 No 35 s FF 1 FB 10B Look-through companies (1) When this section applies This section applies for the purposes of sections HB 4 to HB 10 (which relate to transfers of interests) when a look-through in- terest for a look-through company is transferred on a settle- ment of relationship property.
1504 Reprinted as at 30 August 2013 Income Tax Act 2007 Part F s FB 12 (2) Transferee treated as holding interest The transferee is treated as having acquired the look-through interest on the date it was acquired by the transferor, and to have held it at all times up to the date of transfer.
Deﬁned in this Act: date of transfer, look-through company, look-through in- terest, settlement of relationship property Section FB 10B: inserted, on 1 April 2011 (applying for income years beginning on or after 1 April 2011), by section 62(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
FB 11 Pension payments to former employees (1) (2) When this section applies This section applies for the purposes of section DC 2 (Pension payments to former employees) when a person is entitled to the payment of a pension from a former employer, and because of a settlement of relationship property, the employer pays some or all of the amount of the pension to another person.
Deduction for employer Section DC 2(1) and (2) applies to the amount paid as if it were the payment of a pension to the former employee.
Deﬁned in this Act: amount, deduction, employee, employer, pay, settlement of relationship property Compare: 2004 No 35 s FF 17(1) FB 12 Pension payments to former partners (1) (2) When this section applies This section applies for the purposes of section DC 3 (Pension payments to former partners) when a person is entitled to the payment of a pension from a partner in a partnership or from any person, and because of a settlement of relationship prop- erty, the partnership, partner, or person pays some or all of the amount of the pension to another person.
Deduction for partner Section DC 3 applies to the amount paid as if it were the pay- ment of a pension to the former partner.
Deﬁned in this Act: amount, deduction, pay, settlement of relationship property Compare: 2004 No 35 s FF 17(2), (3) 1505 Part F s FB 13 Income Tax Act 2007 Reprinted as at 30 August 2013 FB 13 Trading stock When this section applies This section applies for the purposes of subpart EB (Valuation of trading stock (including dealer’s livestock)) when trading stock is transferred on a settlement of relationship property.
When transferor holds and uses trading stock in business If the transferor used trading stock in carrying on a business and held the trading stock at the start of the year of transfer, the transfer is treated as a disposal by the transferor and an acquisition by the transferee for an amount equal to the greater of— (a) the value of the trading stock under section EB 3 (Valu- ation of trading stock) for the transferor at the end of the income year before the year of transfer; or the value of the trading stock under section EB 3 for the transferee at the end of the year of transfer.
(b) When transferor acquires and uses trading stock in business If the transferor used the trading stock in carrying on a busi- ness and acquired the trading stock during the year of transfer, the transfer is treated as a disposal by the transferor and an ac- quisition by the transferee for an amount equal to the cost of the trading stock to the transferor.
When transferor has not used trading stock in business If the transferor did not use the trading stock in the carrying on of a business, the transfer is treated as a disposal by the trans- feror and acquisition by the transferee for an amount equal to the cost of the trading stock to the transferor.
When transferee disposes of trading stock If, after a transfer under subsection (2) or (3), the trading stock was not used by the transferee in the carrying on of a business and they dispose of the trading stock at any time, the disposal is treated as a disposal of trading stock used by the transferee in the carrying on of a business.
Speciﬁed livestock in dealing operation For the purposes of subsection (2), trading stock does not in- clude speciﬁed livestock unless it is used in a dealing operation and sections FB 14 and FB 17 apply.

(1) (2) (3) (4) (5) (6) 1506 Reprinted as at 30 August 2013 Income Tax Act 2007 Part F s FB 15 (7) Relationship with sections GC 1 and GC 2 This section overrides sections GC 1 and GC 2 (which relate to the disposal of trading stock for inadequate consideration).
Deﬁned in this Act: amount, business, consideration, income year, settlement of relationship property, speciﬁed livestock, trading stock, year of transfer Compare: 2004 No 35 s FF 13 FB 14 Speciﬁed livestock (1) (2) (3) When this section applies This section applies for the purposes of sections EC 6 to EC 26 (which relate to the valuation of speciﬁed livestock) when— speciﬁed livestock is transferred on a settlement of re- (a) lationship property; and the transferor used the livestock in the carrying on of a business other than a business of dealing in livestock, and held the livestock at the start of the year of transfer; and the value of the livestock is not determined under the herd scheme, see section FB 15.
(b) (c) Transfer at amount determined under subparts EA and EC The transfer is treated as a disposal and acquisition for an amount equal to the value that the transferor determined under subpart EC (Valuation of livestock) and took into account in section EA 1 (Trading stock, livestock, and excepted ﬁnancial arrangements) at the end of the income year before the year of transfer.
Relationship with sections GC 1 and GC 2 This section overrides sections GC 1 and GC 2 (which relate to the disposal of trading stock for inadequate consideration).
Deﬁned in this Act: amount, business, herd scheme, income year, settlement of relationship property, speciﬁed livestock, year of transfer Compare: 2004 No 35 s FF 13(1)(a)(i), (3) FB 15 Speciﬁed livestock valued under herd scheme If speciﬁed livestock is transferred on a settlement of relation- ship property and the speciﬁed livestock is valued under the 1507 Part F s FB 16 Income Tax Act 2007 Reprinted as at 30 August 2013 herd scheme by the transferor, then sections EC 4B and EC 4C apply.
Deﬁned in this Act: herd scheme, settlement of relationship property, speciﬁed livestock Section FB 15: replaced (with effect on 28 March 2012), on 17 July 2013, by section 55 of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
FB 16 Non-speciﬁed livestock When subsections (2) to (4) apply Subsections (2) to (4) apply for the purposes of section EC 31 (Enhanced production) in an income year when— (a) non-speciﬁed livestock is transferred on a settlement of relationship property; and because of the transfer, the transferee starts to derive, or once again derives, income from non-speciﬁed live- stock.
(b) Transferee not starting to derive income The transferee is treated as not starting to derive, or once again deriving income from non-speciﬁed livestock.

However, the transfer is taken into account in working out whether any later acquisition by the transferee of non-speciﬁed livestock means that they start to derive, or once again derive, income from non-speciﬁed livestock.
When subsection (4) applies Subsection (4) applies when the transferee uses the non-speci- ﬁed livestock in deriving income and was not, before the trans- fer, deriving income from non-speciﬁed livestock.

Livestock being written down to standard value If the year of transfer falls in the ﬁrst or second year of the 3-year period referred to in section EC 31(1)(b), the transferee must apply section EC 31(2) as if they were the transferor and the transfer had not taken place.
Transferee not acquiring land for production For the purposes of section EC 31(1)(a)(ii) and (iii), if land is transferred on a settlement of relationship property, the trans- (1) (2) (3) (4) (5) 1508 Reprinted as at 30 August 2013 Income Tax Act 2007 Part F s FB 17 feree is treated as having acquired the land on the date it was acquired by the transferor.
Deﬁned in this Act: income, income year, land, non-speciﬁed livestock, settle- ment of relationship property, standard value, year of transfer Compare: 2004 No 35 s FF 10 FB 17 High-priced livestock (1) (2) (3) (4) When this section applies This section applies for the purposes of sections EC 32 to EC 37 (which relate to the valuation of high-priced livestock) when high-priced livestock is transferred on a settlement of re- lationship property.
Transfer at cost The transfer is treated as a disposal and acquisition for an amount equal to the cost of the livestock to the transferor.

The transferee is treated as having acquired the livestock on the day it was acquired by the transferor.
Straight-line method of valuation In determining the value of the livestock at the end of the year of transfer, the transferee must take into account the amount referred to in subsection (2) reduced by the depreciation per- centage of its cost price under section EC 34(2) (General rule).

Subsection (4) overrides this subsection.


When diminishing value chosen If the transferor had chosen to apply the diminishing value method to the valuation of the livestock, the transferee is treated as also having made that choice, and the reduction is calculated under section EC 34(3).
But if the transferor had not chosen to apply the diminishing value method, the transferee may make a choice between the methods set out in section EC 34(2) and (3) only if the livestock was acquired by the transferor in the year of transfer.
Deﬁned in this Act: amount, cost price, depreciation percentage, diminish- ing value method, high-priced livestock, settlement of relationship property, straight-line method, year of transfer Compare: 2004 No 35 s FF 11 1509 Part F s FB 18 Income Tax Act 2007 Reprinted as at 30 August 2013 FB 18 Bloodstock (1) (2) When this section applies This section applies for the purposes of section EC 41 (Re- duction: bloodstock not previously used for breeding in New Zealand) when bloodstock is transferred on a settlement of re- lationship property.
Use for breeding purposes in New Zealand If the bloodstock has been used for breeding purposes in New Zealand by the transferor, then for valuation purposes by the transferee and the amount of reduction applying to the value of an animal, the bloodstock is treated as not having been used for breeding purposes in New Zealand by the transferor.
Deﬁned in this Act: amount, bloodstock, New Zealand, settlement of relation- ship property Compare: 2004 No 35 s FF 12 FB 19 Leased assets When this section applies This section applies when— (a) a person leases, rents, or hires plant, machinery, or other equipment, including a motor vehicle or a temporary building; and they are allowed a deduction in an income year for an amount paid under the agreement to lease, rent, or hire; and they acquire the lease asset at any time, or a person associated with them acquires the asset; and either they, or the associated person, transfer the asset on a settlement of relationship property.
(b) (c) (d) Income when transferee disposes of asset If the transferee disposes of the asset for an amount that is more than the transfer amount, they are treated as deriving income as described in section FA 5 (Assets acquired and disposed of after deduction of payments under lease) in the income year of the disposal of the asset equal to the lesser of— (a) the amount by which the amount derived on disposal is more than the transfer amount; or (1) (2) 1510 Reprinted as at 30 August 2013 Income Tax Act 2007 Part F s FB 20 (b) the sum of the amounts for which the transferor has been allowed a deduction.
(3) Transfer amount In this section, the transfer amount is the amount that equals, as applicable,— (a) the adjusted tax value of the asset at the start of the year of transfer; or if the asset was acquired by the transferor or the asso- ciated person during the year of transfer, the base value of the asset.
(b) Deﬁned in this Act: adjusted tax value, amount, associated person, deduction, income, income year, lease, pay, settlement of relationship property, temporary building, transfer amount, year of transfer Compare: 2004 No 35 s FF 14 FB 20 Mining assets (1) (2) When this section applies This section applies when a resident mining operator transfers on a settlement of relationship property an asset that they used immediately before the transfer in deriving assessable income from mining.
Transfer at cost, reduced value, or reduced expenditure The transfer is treated as a disposal and acquisition for an amount equal to the least of— (a) the amount of expenditure incurred by the transferor in acquiring the asset: (c) (b) when the transferor has been allowed a deduction for an amount of depreciation loss in relation to the asset, the adjusted tax value at the start of the year of transfer: when the asset has been acquired as a result of min- ing exploration expenditure or mining development expenditure incurred by the transferor for which they have been allowed a deduction under sections DU 1 and DU 9(1) (which relate to mineral mining expenditure), the amount of expenditure not allowed as a deduction under those provisions.
1511 Part F s FB 20 Income Tax Act 2007 Reprinted as at 30 August 2013 Transferee’s expenditure The transferee is treated as having incurred expenditure in ac- quiring the asset equal to the amount determined under sub- section (2).
When transferee not a resident mining operator Subsections (5) and (6) apply when— (a) the transferor is treated as having disposed of the asset for an amount determined under subsection (2)(c); and the transferee is not a resident mining operator at and after the date of transfer.
(b) Treatment of disposal and transferee If the transferee disposes of the asset, they are treated as a resident mining operator in relation to the disposal, and the disposal is treated as a sale to which sections CU 3, CU 12(1), DU 2, and DU 9(1) (which relate to mining) apply.
Consideration for disposal For the purposes of subsection (5), and sections CU 1 to CU 11, DU 1 to DU 8, IA 7(7), IS 1 to IS 4, and IS 6 (which relate to mining and mining companies’ tax losses), the con- sideration for the disposal is the amount by which the amount derived on the disposal under subsection (5) is more than the amount determined under subsection (2)(c).
When transferee is resident mining operator If the transferee is, at and after the date of transfer, a resident mining operator, and the transferor is treated as having dis- posed of the asset for an amount determined under subsection (2)(c), then for the purposes of sections CU 3, CU 10, DU 2, and DU 6, the transferee is treated as having acquired the asset as a result of mining exploration expenditure or mining devel- opment expenditure incurred by the transferee.
Deﬁned in this Act: adjusted tax value, amount, assessable income, date of transfer, deduction, depreciation loss, income from mining, mining develop- ment expenditure, mining exploration expenditure, resident mining operator, settlement of relationship property, year of transfer Compare: 2004 No 35 s FF 19 (3) (4) (5) (6) (7) 1512 Reprinted as at 30 August 2013 Income Tax Act 2007 Part F s FB 21 FB 21 Depreciable property (1) (2) (3) (4) (5) (6) When this section applies This section applies when a person who is allowed a deduc- tion for an amount of depreciation loss for an item of property transfers the item on a settlement of relationship property.
Persons to whom section does not apply This section does not apply if the person is a resident mining operator to whom section FB 20 applies.

Transfer at cost or adjusted tax value The transfer is treated as a disposal and acquisition for an amount equal to, as applicable,— (a) if the transferor acquired the item in the year of transfer, the cost of the item to them; or in any other case, the adjusted tax value of the item measured at the start of the year of transfer.
(b) Treatment of transferee In relation to amounts of depreciation loss for the item, the transferee— (a) has an amount of depreciation loss for the item from the date of transfer, whether or not the transferor has in fact had an amount of depreciation loss: is treated as having had an amount of depreciation loss equal to all amounts of depreciation loss that the trans- feror had for the item in income years before the year of transfer: does not have a greater amount of depreciation loss than that which the transferor would have had if they had kept the item.
(b) (c) When item is building If the item is a building, the transferee’s amount of depreci- ation loss must be determined having regard to the original cost of the building to the transferor.

Activities in year of transfer If the item has been acquired, erected, installed, altered, ex- tended, improved, or attached by the transferor in the year of transfer, the item is treated as if it were acquired, erected, in- stalled, altered, extended, improved, or attached by the trans- feree in the income year.
1513 Income Tax Act 2007 Reprinted as at 30 August 2013 (7) Conditions applying to item For the purposes of determining the rate that applies to the item under section EE 31(2)(b) or EZ 23(4) (which relate to depreciation rates for new assets), if either of the following conditions applied to the item when the transferor acquired or erected it, the condition is treated as applying to the item at the date of transfer: (a) the item had not previously been used by a person, or acquired or held by a person for their use; and if the item is a building or part of a building, it had not previously been occupied.
(b) Deﬁned in this Act: acquire, adjusted tax value, amount, date of transfer, de- duction, depreciable property, depreciation loss, dispose, income year, resident mining operator, settlement of relationship property, year of transfer Compare: 2004 No 35 ss FF 15, FF 16 Subpart FC—Distribution, transmission, and gifts of property Contents Introductory provisions FC 1 What this subpart does FC 2 Transfer at market value Exceptions for property transferred on death of person Property transferred to spouse, civil union partner, or de facto partner Property transferred to charities or to close relatives and others Land transferred to close relatives Forestry assets transferred to close relatives Transfer of prepaid property Transfer of certain ﬁnancial arrangements FC 3 FC 4 FC 5 FC 6 FC 7 FC 8 Page 1515 1516 1517 1517 1518 1519 1519 1520 1514 (1) (2) Reprinted as at 30 August 2013 Income Tax Act 2007 Part F s FC 1 Introductory provisions FC 1 What this subpart does Types of distributions and gifts This subpart provides a value for property that is disposed of under the following transactions: (a) (b) (c) (d) (e) (f) the transfer of a person’s estate to an executor or admin- istrator on the death of the person: the transfer of property on a distribution by an executor, administrator, or trustee of a deceased person’s estate to a beneﬁciary who is beneﬁcially entitled to receive the property under the will or the rules governing intestacy: the transfer of property on a distribution by a trustee of a trust to a beneﬁciary of the trust: the transfer of property on a distribution in kind by a company in a transfer of value caused by a shareholding in the company under section CD 6 (When is a transfer caused by a shareholding relationship?
): the transfer of property on the making of a gift: the transfer of property on a settlement by the trustee of a trust on the trustee of another trust, if authorised under— (i) a trust instrument as a power of advancement or resettlement: section 41 of the Trustee Act 1956 as the payment of money or the application of property.
(ii) Some deﬁnitions In this subpart,— close relative, in relation to a transfer from a person’s estate, means— (a) a surviving spouse, civil union partner, or de facto part- ner of the deceased person: a person who is within the second degree of relationship to the deceased person (b) property includes a look-through interest for a look-through company tax-base property means— (a) revenue account property: 1515 Part F s FC 2 Income Tax Act 2007 Reprinted as at 30 August 2013 (b) (c) (d) an attributing interest in a foreign investment fund (FIF): a ﬁnancial arrangement other than an arrangement for which the deceased person, or their trustee, was a cash basis person: an item for which a deduction for an amount of depre- ciation loss arises.
Deﬁned in this Act: amount, attributing interest, cash basis person, company, deduction, de facto partner, depreciation loss, FIF, ﬁnancial arrangement, look- through company, look-through interest, revenue account property, settlement, transfer of value, trustee Compare: 2004 No 35 s FI 1 Section FC 1(2) property: inserted, on 1 April 2011 (applying for income years beginning on or after 1 April 2011), by section 63(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section FC 1 list of deﬁned terms look-through company: inserted, on 1 April 2011, by section 63(2) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).

Section FC 1 list of deﬁned terms look-through interest: inserted, on 1 April 2011, by section 63(2) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
FC 2 Transfer at market value Market value The transfer of property under section FC 1(1) is treated as a disposal by the transferor and an acquisition by the transferee at the market value of the item for the transferor.

The disposal is treated as occurring on the date of the transaction.

Date of transfer of estate of deceased person For property referred to in section FC 1(1)(a), the disposal and acquisition is treated as occurring immediately before the death of the person.
Exceptions to general rule Sections FC 3 to FC 6 override this section.

Deﬁned in this Act: dispose, market value Compare: 2004 No 35 ss FI 2, FI 3 Section FC 2(2): substituted (with effect on 1 April 2008), on 6 October 2009, by section 204 of the Taxation (International Taxation, Life Insurance, and Re- medial Matters) Act 2009 (2009 No 34).

Section FC 2(3): amended, on 2 November 2012, by section 67 of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
(1) (2) (3) 1516 Reprinted as at 30 August 2013 Income Tax Act 2007 Part F s FC 4 Exceptions for property transferred on death of person FC 3 Property transferred to spouse, civil union partner, or de facto partner (1) (2) When this section applies This section applies in the circumstances described in section FC 1(1)(a) or (b) when property is transferred on a person’s death to the surviving spouse, civil union partner, or de facto partner of the deceased person.
However, this section does not apply if— (a) (b) the property is tax-base property; and a person who is not a close relative of the deceased per- son is beneﬁcially entitled under the will or intestacy to other property that is tax-base property.
Disposal to spouse or partner The transfer of property to the surviving spouse, civil union partner, or de facto partner of the deceased person, includ- ing any intervening transfer to an executor or administrator, is treated as a transfer of property under a settlement of rela- tionship property under subpart FB (Transfers of relationship property).
Deﬁned in this Act: close relative, de facto partner, settlement of relationship property, tax-base property Compare: 2004 No 35 s FI 4 FC 4 Property transferred to charities or to close relatives and others (1) When this section applies This section applies in the circumstances described in section FC 1(1)(b) when tax-base property is transferred on a person’s death when the only beneﬁciaries of the deceased person are— (a) (b) a close relative of the deceased person: a person exempt under section CW 43 (Charitable be- quests).
(2) Treated as transfer under settlement of relationship property The transfer is treated as a transfer of property on a settlement of relationship property for the purposes of subpart FB (Trans- 1517 Part F s FC 5 Income Tax Act 2007 Reprinted as at 30 August 2013 (c) fers of relationship property) if the following requirements are met: (a) (b) no life interest in the property is created; and no trust over the property is created, other than a trust to execute the will and administer the estate; and while the administration of the estate is continuing, the net income of the estate is distributed to the extent al- lowed— (i) under the will or the rules governing intestacy; and by the trustee’s legal obligations.
Deﬁned in this Act: close relative, net income, settlement of relationship prop- erty, tax-base property, trustee Compare: 2004 No 35 s FI 5 (ii) Section FC 4(1): substituted, on 6 October 2009, by section 205(2) of the Tax- ation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section FC 4(2): amended, on 6 October 2009, by section 205(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section FC 4 list of deﬁned terms tax-base property: repealed (with effect on 1 April 2008), on 6 October 2009, by section 205(4) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

FC 5 Land transferred to close relatives What this section applies to This section applies in the circumstances described in section FC 1(1)(a) or (b) when land is transferred on a person’s death to a close relative of the person.
Land Sections CB 9 to CB 11 and CB 14 (which relate to the dis- posal of land) do not apply to the transfer of land, including any intervening transfer to an executor or administrator that, if it had been disposed of by the deceased person, would have resulted in income under any of those sections.
Cost of land If the land is transferred to a person who disposes of it within 10 years of its acquisition by the deceased person, and the (1) (2) (3) 1518 Reprinted as at 30 August 2013 Income Tax Act 2007 Part F s FC 7 person derives income under any of sections CB 9 to CB 11 and CB 14, the cost of land to the person is— (a) (b) the cost of the land incurred by the deceased person; and all other expenditure incurred by both the person and the deceased person that relate to the land for which no deduction has been allowed.
Deﬁned in this Act: close relative, deduction, dispose, income, land, year Compare: 2004 No 35 s FI 7 FC 6 Forestry assets transferred to close relatives (1) What this section applies to This section applies in the circumstances described in section FC 1(1)(a) or (b) when forestry assets are transferred on a per- son’s death to a close relative of the person.
Forestry assets (2) A transfer of a forestry asset, including any intervening trans- fer to an executor or administrator, is treated as a transfer of property on a settlement of relationship property for the pur- poses of subpart FB (Transfers of relationship property).

(3) Meaning of forestry assets In this section, forestry assets means timber, standing timber, or a right to take timber.
Deﬁned in this Act: close relative, forestry assets, right to take timber, settle- ment of relationship property, standing timber, timber Compare: 2004 No 35 s FI 6 FC 7 Transfer of prepaid property (1) What this section applies to This section applies, in the circumstances described in section FC 1(1)(a) or (b), to a transfer of property on a person’s death for which the deceased person has, in the year of transfer, an unexpired portion of expenditure under section EA 3 (Prepay- ments).
1519 Part F s FC 8 Income Tax Act 2007 Reprinted as at 30 August 2013 (2) Unexpired prepayments If section EA 3 applies to the property transferred, the property must be valued under section EA 3(4) to (7), as if the date of transfer were the end of an income year.
Deﬁned in this Act: income year, year Compare: 2004 No 35 s FI 8 FC 8 Transfer of certain ﬁnancial arrangements (1) (2) What this section applies to This section applies, in the circumstances described in section FC 1(1)(a) or (b), to a transfer of a ﬁnancial arrangement on a person’s death.
Financial arrangements: cash basis person If the deceased person was a cash basis person and the trustee of the deceased person’s estate is a cash basis person under section EW 60(1) (Trustee of deceased’s estate), the property must be valued at cost.
Deﬁned in this Act: cash basis person, ﬁnancial arrangement, trustee Compare: 2004 No 35 s FI 11 Subpart FE—Interest apportionment on thin capitalisation Contents Introductory provisions FE 1 What this subpart does FE 2 When this subpart applies FE 3 FE 4 Interest apportionment for individuals Some deﬁnitions Interest apportionment rules Thresholds for application of interest apportionment rules FE 5 FE 6 Apportionment of interest by excess debt entity FE 6B Alternative apportionment of interest by some excess debt entities FE 7 Apportionment of interest by reporting bank FE 8 Measurement dates FE 9 Elections FE 10 Currency 1520 Page 1522 1524 1527 1529 1530 1537 1541 1542 1543 1544 1545 Reprinted as at 30 August 2013 Income Tax Act 2007 Part F s FC 8 FE 11 Temporary increases or decreases in value 1546 Calculations FE 12 Calculation of debt percentages FE 12B Calculations for group for test and apportionment using 1546 1548 interest-income ratio FE 13 Financial arrangements entered into with persons outside 1549 group Debt percentage of New Zealand group FE 14 Consolidation of debts and assets FE 15 Total group debt FE 16 Total group assets Debt percentage of worldwide group FE 17 Consolidation of debts and assets FE 18 Measurement of debts and assets of worldwide group New Zealand banking group FE 19 Banking group’s equity threshold FE 20 Financial value and regulatory value FE 21 Banking group’s New Zealand net equity FE 22 Notional offshore investment FE 23 Banking group’s funding debt FE 24 Regulations Determining membership of groups New Zealand group FE 25 New Zealand group for excess debt entity that is a company FE 26 Identifying New Zealand parent FE 27 Establishing companies under parent’s control FE 28 Identifying members of New Zealand group FE 29 Combining New Zealand groups owned by natural persons and trustees 1551 1553 1555 1558 1558 1560 1561 1562 1567 1568 1569 1570 1571 1575 1576 1578 FE 30 Ownership interests in companies outside New Zealand 1579 group Worldwide group FE 31 Worldwide group
 for corporate excess debt entity if not 1581 excess debt outbound company FE 31B Worldwide group for excess debt outbound companies FE 31C CFCs in worldwide group for natural persons or trustees 1583 1584 described in section FE 2(1)(g) 1521 Part F s FE 1 Income Tax Act 2007 Reprinted as at 30 August 2013 FE 32 Joint venture parties New Zealand banking group FE 33 New Zealand banking group FE 34 Identifying ultimate parent FE 35 Persons who may be excluded from banking groups FE 36 Identifying members of New Zealand banking group in usual case 1585 1585 1586 1586 1588 FE 36B Identifying members of New Zealand banking group: 1590 Crown-owned, no interest apportionment FE 37 Reporting bank for New Zealand banking group Measuring ownership interests in companies FE 38 Measuring ownership interests in companies FE 39 Direct ownership interests FE 40 Tiered ownership interests FE 41 Treatment of associated persons’ interests 1591 1591 1592 1592 1593 Introductory provisions FE 1 What this subpart does Interest apportionment This subpart applies— (a) to apportion certain interest expenditure between in- come having a source in New Zealand and other in- come for a New Zealand taxpayer who has a dispropor- tionately high level of debt funding in relation to their worldwide interest expenditure and who— (i) (ii) is controlled by a single non-resident: is a person (an outbound entity) with an income interest in a CFC or with an interest in a FIF that satisﬁes the requirements of section EX 35 (Ex- emption for interest in FIF resident in Australia) or for which the person uses the attributable FIF income method: is a New Zealand resident who controls an out- bound entity; and (iii) (b) to prescribe an acceptable level of equity for a foreign- owned bank for the application of the interest apportion- ment rules.
(1) 1522 Reprinted as at 30 August 2013 Income Tax Act 2007 Part F s FE 1 (2) Structure of subpart This subpart sets out— (a) the persons to whom the interest apportionment rules may apply: the thresholds for the application of the rules: the consequences of application of the rules: how to calculate the debt percentages of a New Zealand group and a worldwide group: how to calculate a reporting bank’s New Zealand equity threshold, net equity, and funding debt: how to determine the membership of a New Zealand group, a worldwide group, and a New Zealand banking group: how to measure ownership interests in companies for the purposes of this subpart.
(b) (c) (d) (e) (f) (g) Deﬁned in this Act: attributable FIF income method, CFC, FIF, income, income interest, interest, New Zealand, New Zealand banking group, non-resident, re- porting bank, source in New Zealand, taxpayer Compare: 2004 No 35 s FG 1 Section FE 1(1)(a): replaced (with effect on 1 July 2011 and applying for in- come years beginning on or after that date), on 7 May 2012, by section 50(1) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section FE 1 list of deﬁned terms attributable FIF income method: inserted (with effect on 1 July 2011), on 7 May 2012, by section 50(2) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).

Section FE 1 list of deﬁned terms CFC: inserted (with effect on 30 June 2009), on 6 October 2009, by section 206(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section FE 1 list of deﬁned terms control: repealed, on 1 April 2010, by sec- tion 594 of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section FE 1 list of deﬁned terms FIF: inserted (with effect on 1 July 2011), on 7 May 2012, by section 50(2) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section FE 1 list of deﬁned terms income derived from New Zealand: re- pealed, on 21 December 2010, by section 64(2)(a) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).

Section FE 1 list of deﬁned terms income interest: inserted (with effect on 30 June 2009), on 6 October 2009, by section 206(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
1523 Part F s FE 2 Income Tax Act 2007 Reprinted as at 30 August 2013 Section FE 1 list of deﬁned terms source in New Zealand: inserted, on 21 De- cember 2010, by section 64(2)(b) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
FE 2 When this subpart applies (1) Persons to whom interest apportionment rules may apply The interest apportionment rules in sections FE 6 and FE 7 may apply to the following persons if, at a time in an income year, they are: (a) (b) a non-resident who is not a company: a non-resident company unless the company is 1 in which— (i) (ii) a person resident in New Zealand has a direct ownership interest of 50% or more; and no non-resident has a direct ownership interest of 50% or more, when added to any direct owner- ship interests of all persons associated with them: a company that is resident in New Zealand if a non- resident has— (i) an ownership interest in the company of 50% or more: (ii) control of the company by any other means: the trustee of a non-complying trust settled by a non- resident if the value of the settlements made by them, including the value of all settlements made by a person associated with them, are 50% or more of the value of the settlements made on the trust: a company that is resident in New Zealand and has— (i) (ii) an income interest in a CFC: an interest in a FIF that satisﬁes the requirements of section EX 35 (Exemption for interest in FIF resident in Australia): an interest in a FIF for which the person uses the attributable FIF income method: (iii) a company that is resident in New Zealand and has— (i) an ownership interest in a company described in paragraph (e) of 50% or more: control of a company described in paragraph (e) by any other means: (c) (d) (e) (f) (ii) 1524 Reprinted as at 30 August 2013 (g) Income Tax Act 2007 Part F s FE 2 a natural person, or a trustee of a trust settled by a New Zealand resident, if the natural person or trustee is resi- dent in New Zealand and has— (i) (ib) an income interest in a CFC: an interest in a FIF that satisﬁes the requirements of section EX 35: an interest in a FIF for which the person uses the attributable FIF income method: an ownership interest in a company described in paragraph (e) or (f) of 50% or more: control of a company
 described in paragraph (e) or (f) by any other means.
(ic) (ii) (iii) Ownership interests (2) Ownership interests in a company are determined under sec- tions FE 38 to FE 41.

(3) (4) (5) Treatment of foreign companies For the purposes of this section, a company resident in New Zealand is treated as being a non-resident company if it is treated under a double tax agreement as not being resident in New Zealand.
Associated persons For the purposes of subsection (1)(b)(ii), a non-resident who does not have a direct or an indirect ownership interest in a company and a relative resident in New Zealand are not asso- ciated persons in relation to the company.
New Zealand banking group of Crown-owned registered bank If the members of the New Zealand banking group of a regis- tered bank are given by section FE 36B, the interests held by a member of the group for the purposes of subsection (1)(e) and (f) do not include interests held by an associated person who is not a member of the group.
Deﬁned in this Act: associated person, attributable FIF income method, CFC, company, FIF, income interest, income year, interest, New Zealand, New Zealand banking group, non-complying trust, non-resident, non-resident company, relative, resident in New Zealand, settlement, trustee Compare: 2004 No 35 s FG 2(1), (6), (8) Section FE 2(1)(d): amended (with effect on 30 June 2009), on 6 October 2009, by section 207(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
1525 Part F s FE 2 Income Tax Act 2007 Reprinted as at 30 August 2013 Section FE 2(1)(e): replaced (with effect on 1 July 2011 and applying for in- come years beginning on or after that date), on 7 May 2012, by section 51(1) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).

Section FE 2(1)(f): added (with effect on 30 June 2009), on 6 October 2009, by section 207(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section FE 2(1)(g): added (with effect on 30 June 2009), on 6 October 2009, by section 207(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section FE 2(1)(g)(ib): inserted (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 51(2) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section FE 2(1)(g)(ic): inserted (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 51(2) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).

Section FE 2(5) heading: inserted (with effect on 1 July 2009 and applying for income years beginning on or after that date), on 7 May 2012, by section 51(3) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section FE 2(5): inserted (with effect on 1 July 2009 and applying for income years beginning on or after that date), on 7 May 2012, by section 51(3) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).

Section FE 2 list of deﬁned terms attributable FIF income method: inserted (with effect on 1 July 2011), on 7 May 2012, by section 51(4) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section FE 2 list of deﬁned terms CFC: inserted (with effect on 30 June 2009), on 6 October 2009, by section 207(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section FE 2 list of deﬁned terms control: repealed, on 1 April 2010, by sec- tion 594 of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section FE 2 list of deﬁned terms FIF: inserted (with effect on 1 July 2011), on 7 May 2012, by section 51(4) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).

Section FE 2 list of deﬁned terms income interest: inserted (with effect on 30 June 2009), on 6 October 2009, by section 207(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section FE 2 list of deﬁned terms New Zealand banking group: inserted (with effect on 1 July 2009), on 7 May 2012, by section 51(5) of the Taxation (Inter- national Investment and Remedial Matters) Act 2012 (2012 No 34).
1526 Reprinted as at 30 August 2013 Income Tax Act 2007 Part F s FE 3 FE 3 Interest apportionment for individuals (1) (2) Natural persons and trustees: inbound, not described in section FE 2(1)(g) This subpart applies to a natural person or trustee not described in section FE 2(1)(g) with the following modiﬁcations: (a) the New Zealand group of the natural person or trustee is made up of the natural person or trustee and all asso- ciated persons who— (i) (ii) are resident in New Zealand; or are carrying on business in New Zealand through a ﬁxed establishment in New Zealand; or derive income, other than non-resident passive income, that has a source in New Zealand and for which relief from New Zealand tax under a double tax agreement is unavailable: (iii) (b) (c) the worldwide group of the trustee is made up of the trustee and— (i) (ii) the trustee’s New Zealand group; and all non-residents who are associated with the trustee or a member of the trustee’s New Zealand group: in the calculation of the amount of the natural person’s total assets, private and domestic assets are excluded.
Natural persons and trustees: outbound, described in section FE 2(1)(g) This subpart applies to a natural person or trustee described in section FE 2(1)(g) with the following modiﬁcations: (a) the New Zealand group of the natural person or trustee is made up of the natural person or trustee and all asso- ciated persons who are not excess debt outbound com- panies and are not included in a New Zealand group of an excess debt outbound company, and who— are resident in New Zealand; or (i) are carrying on business in New Zealand through (ii) a ﬁxed establishment in New Zealand; or derive income, other than non-resident passive income, that has a source in New Zealand and for which relief from New Zealand tax under a double tax agreement is unavailable: (iii) 1527 Part F s FE 3 Income Tax Act 2007 Reprinted as at 30 August 2013 (b) the worldwide group of the trustee is made up of the trustee and— (i) (ii) the trustee’s New Zealand group; and all CFCs in which the trustee or a member of the trustee’s New Zealand group has an income interest; and all FIFs in which the trustee or a member of the trustee’s New Zealand group has an interest that meets the requirements of section EX 35 (Ex- emption for interest in FIF resident in Australia); and all FIFs in which the trustee or a member of the trustee’s New Zealand group has an interest for which the person uses the attributable FIF income method: (iii) (iv) (c) in the calculation of the amount of the natural person’s total assets, private and domestic assets are excluded.
Deﬁned in this Act: attributable FIF income method, amount, associated per- son, business, CFC, double tax agreement, FIF, ﬁxed establishment, generally accepted accounting practice, group of companies, income, income interest, natural person, New Zealand, New Zealand tax, non-resident passive income, resident in New Zealand, source in New Zealand, total group assets, total group debt, trustee Section FE 3: substituted (with effect on 30 June 2009), on 6 October 2009, by section 208(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section FE 3(1)(a)(iii): replaced (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 52(1) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).

Section FE 3(2)(a)(iii): replaced (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 52(2) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section FE 3(2)(b)(ii): amended (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 52(3) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).

Section FE 3(2)(b)(iii): inserted (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 52(3) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section FE 3(2)(b)(iv): inserted (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 52(3) of 1528 Reprinted as at 30 August 2013 Income Tax Act 2007 Part F s FE 4 the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section FE 3 list of deﬁned terms attributable FIF income method: inserted (with effect on 1 July 2011), on 7 May 2012, by section 52(4) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).

Section FE 3 list of deﬁned terms FIF: inserted (with effect on 1 July 2011), on 7 May 2012, by section 52(4) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section FE 3 list of deﬁned terms income: inserted (with effect on 1 July 2011), on 7 May 2012, by section 52(4) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).

Section FE 3 list of deﬁned terms New Zealand tax: inserted (with effect on 1 July 2011), on 7 May 2012, by section 52(4) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section FE 3 list of deﬁned terms non-resident passive income: inserted (with effect on 1 July 2011), on 7 May 2012, by section 52(4) of the Taxation (Inter- national Investment and Remedial Matters) Act 2012 (2012 No 34).
FE 4 Some deﬁnitions In this subpart,— excess debt entity for an income year is a person who— (a) meets the requirements of section FE 2 in the income (b) (c) year; and is not, at any time in the income year, a reporting bank for a New Zealand banking group, or part of a New Zealand banking group; and is not a natural person other than a person acting as a trustee excess debt outbound company for an income year is an excess debt entity that meets the requirements of section FE 2(1)(e) or (f), and none of the requirements of section FE 2(1)(a) to (d) natural person for an income year is a natural person who— (a) meets the requirements of section FE 2 in the income year; and is a person who is not acting as a trustee (b) reporting bank for a New Zealand banking group is a person who— (a) meets the requirements of section FE 2; and 1529 Part F s FE 5 Income Tax Act 2007 Reprinted as at 30 August 2013 is the person determined under section FE 37.
(b) Deﬁned in this Act: excess debt entity, income year, natural person, New Zealand, New Zealand banking group, reporting bank, trustee Section FE 4 excess debt outbound company: inserted (with effect on 30 June 2009), on 6 October 2009, by section 209(1) of the Taxation (International Tax- ation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section FE 4 reporting bank: substituted (with effect on 1 April 2008), on 6 October 2009, by section 209(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

repealed (with effect Section FE 4 list of deﬁned terms registered bank: on 1 April 2008), on 6 October 2009, by section 209(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Interest apportionment rules FE 5 Thresholds for application of interest apportionment rules Threshold for excess debt entity (1) An excess debt entity must apportion its interest expenditure for an income year under section FE 6 if,— (a) the excess debt entity is not a trustee and not an excess debt outbound company, or is a trustee who is not de- scribed in section FE 2(1)(g), and— (i) the debt percentage of its New Zealand group for the income year is more than 60%; and for a company or a trustee, the debt percentage of its New Zealand group for the income year is more than 110% of the debt percentage of the worldwide group; or (ii) (b) the excess debt entity is an excess debt outbound company, or is a trustee who is described in section FE 2(1)(g), and— (i) the debt percentage of its New Zealand group for the income year is more than 75%; and for a company or a trustee, the debt percentage of its New Zealand group for the income year is more than 110% of the debt percentage of the worldwide group.
(ii) Exceptions for excess debt outbound companies (1B) Despite subsection (1), an excess debt outbound company and a natural person or trustee who is described in section 1530 Reprinted as at 30 August 2013 Income Tax Act 2007 Part F s FE 5 FE 2(1)(g) do not have to apportion interest expenditure for an income year under section FE 6 if, for the income year,— the ratio of the total group assets measured under sec- (a) tion FE 16 for its New Zealand group to the total group assets measured under section FE 18 for its worldwide group is 90% or greater: the company or person is eligible to choose, and chooses, under subsection (1BB) to use the threshold test in subsection (1D): [Repealed] (ab) (b) Eligibility for optional threshold, apportionment method (1BB) A company or person referred to in subsection (1B) that would otherwise be required to make an apportionment under section FE 6 may choose instead to be subject to the threshold in subsection (1D) and to the apportionment method in section FE 6B only if— (a) (b) (c) (d) (e) for each of the New Zealand group and the worldwide group, the amount (the adjusted net proﬁt) given by subsection (1BC) is greater than zero; and for the New Zealand group, the deductions for inter- est allowed to the group under sections DB 6 to DB 9 (which relate to deductions for interest) exceed the in- come of the group that is interest; and for the worldwide group, treating the members as resi- dents for the purposes of this paragraph, the deductions for interest allowed to the group under sections DB 6 to DB 9 exceed the income of the group that is interest; and for the worldwide group, the amount of the total group debt, calculated for the income year as if for the pur- poses of determining the group’s debt percentage under section FE 12, is equal to or more than 75% of the amount of total group assets, not including goodwill; and for the worldwide group, the proportion of the total group debt, calculated as for paragraph (d), for which the lender is not associated with the group
 under sub- part YB (Associated persons) is equal to or more than 80%.
1531 Part F s FE 5 Income Tax Act 2007 Reprinted as at 30 August 2013 Formula for adjusted net proﬁt (1BC) The adjusted net proﬁt for a group is the amount calculated using the formula— net – attributed + net interest + depreciation + amortisation.
Deﬁnition of items in formula (1BD) In the formula in subsection (1BC),— (a) (b) (c) (d) (e) net is the net proﬁt or loss of the group before tax using generally accepted accounting practice, treating a net loss as a negative amount: attributed, for the worldwide group, is zero and, for the New Zealand group, is the income— (i) under generally accepted accounting practice from an interest in a FIF or CFC described in section FE 2(1)(e) to (g); and included in the calculation of the item net proﬁt or loss and not included in the calculation of the item net interest: (ii) net interest is the deductions for interest allowed to the group under sections DB 6 to DB 9 from a ﬁnancial arrangement providing funds to the group, treating the members as residents for the purpose of calculating this item for a worldwide group, reduced by the income of the group from a ﬁnancial arrangement on arm’s-length terms providing funds to a person who meets the re- quirements of section FE 13(3): depreciation is the depreciation for the group using generally accepted accounting practice: amortisation is the amortisation for the group using generally accepted accounting practice.
Natural persons’ worldwide group total assets (1C) For the purposes of subsection (1B)(a), the total group assets of a natural person’s worldwide group under section FE 18 are measured on the basis that the natural person is an excess debt entity that has a worldwide group made up of— (a) (b) the natural person; and the natural person’s New Zealand group; and 1532 Reprinted as at 30 August 2013 Income Tax Act 2007 Part F s FE 5 (c) (d) (e) all CFCs in which the natural person or a member of the natural person’s New Zealand group has an income interest: all FIFs in which the natural person or a member of the natural person’s New Zealand group has an interest that meets the requirements of section EX 35 (Exemption for interest in FIF resident in Australia); and all FIFs in which the natural person or a member of the natural person’s New Zealand group has an inter- est for which the natural person or member uses the at- tributable FIF income method.
Elective threshold for excess debt entity (1D) A company or person that chooses to be subject to the thresh- old test in this subsection must apportion the interest expend- iture for the income year under section FE 6B except if the ratio (the interest-income ratio) given by subsection (1E) for the company or person’s New Zealand group is equal to or less than the lesser of— (a) 110% of the interest-income ratio for the company or person’s worldwide group: 50%.
(b) Formula for group’s interest-income ratio (1E) The interest-income ratio for a group is calculated using the formula— net interest adjusted net proﬁt.
(1F) Deﬁnition of items in formula In the formula in subsection (1E),— (a) net interest is the deductions for interest allowed to the group under sections DB 6 to DB 9 from a ﬁnancial arrangement providing funds to the group, treating the members as residents for the purpose of calculating this item for a worldwide group, reduced by the income of the group from a ﬁnancial arrangement on arm’s-length terms providing funds to a person who meets the re- quirements of section FE 13(3): 1533 Part F s FE 5 Income Tax Act 2007 Reprinted as at 30 August 2013 (b) adjusted net proﬁt is the amount given for the group by subsection (1BC).
Threshold for reporting bank (2) A reporting bank must apportion its interest expenditure for an income year under section FE 7 if— (a) the New Zealand net equity of its New Zealand banking group for a tax year is less than its equity threshold; and its group funding debt for the corresponding tax year is more than zero.
(b) Threshold for natural person (3) A natural person must apportion their interest expenditure for an income year under section FE 6 if,— (a) they are not described in section FE 2(1)(g), and the debt percentage of their New Zealand group for the income year is more than 60%; or they are described in section FE 2(1)(g), and the debt percentage of their New Zealand group for the income year is more than 75%.
(b) Debt percentages The debt percentage of a New Zealand group is calculated under sections FE 14 to FE 16.

The debt percentage of a world- wide group is calculated under sections FE 17 and FE 18.
(b) Equity threshold, net equity, group funding debt The calculations that a reporting bank must make for the pur- poses of section FE 7 are set out as follows: (a) for the banking group’s equity threshold, see section FE 19: for the banking group’s New Zealand net equity, see section FE 21: (c) for the banking group’s funding debt, see section FE 23.
Deﬁned in this Act: attributable FIF income method, CFC, company, excess debt entity, excess debt outbound company, group funding debt, income inter- est, income year, interest, natural person, New Zealand, New Zealand banking group, New Zealand net equity, non-resident passive income, reporting bank, tax year, total group assets, trustee Compare: 2004 No 35 s FG 3 Section FE 5(1): substituted, on 1 April 2011 (applying for the 2011–12 and later income years), by section 87(1) of the Taxation (Budget Measures) Act 2010 (2010 No 27).
(4) (5) 1534 Reprinted as at 30 August 2013 Income Tax Act 2007 Part F s FE 5 Section FE 5(1B) heading: inserted (with effect on 30 June 2009), on 6 October 2009, by section 210(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section FE 5(1B): inserted (with effect on 30 June 2009), on 6 October 2009, by section 210(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section FE 5(1B)(ab): inserted (with effect on 1 July 2009 and applying for income years beginning on or after that date), on 7 May 2012, by section 53(1) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).

Section FE 5(1B)(b): repealed (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 53(2) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section FE 5(1BB) heading: inserted (with effect on 1 July 2009 and applying for income years beginning on or after that date), on 7 May 2012, by section 53(3) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).

Section FE 5(1BB): inserted (with effect on 1 July 2009 and applying for in- come years beginning on or after that date), on 7 May 2012, by section 53(3) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section FE 5(1BC) heading: inserted (with effect on 1 July 2009 and applying for income years beginning on or after that date), on 7 May 2012, by section 53(3) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).

Section FE 5(1BC): inserted (with effect on 1 July 2009 and applying for in- come years beginning on or after that date), on 7 May 2012, by section 53(3) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section FE 5(1BD) heading: inserted (with effect on 1 July 2009 and applying for income years beginning on or after that date), on 7 May 2012, by section 53(3) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).

Section FE 5(1BD): inserted (with effect on 1 July 2009 and applying for in- come years beginning on or after that date), on 7 May 2012, by section 53(3) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section FE 5(1C) heading: inserted (with effect on 30 June 2009), on 6 October 2009, by section 210(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section FE 5(1C): inserted (with effect on 30 June 2009), on 6 October 2009, by section 210(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section FE 5(1C)(c): amended (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 53(4) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
1535 Part F s FE 5 Income Tax Act 2007 Reprinted as at 30 August 2013 inserted (with effect on 1 July 2011 and applying for Section FE 5(1C)(d): income years beginning on or after that date), on 7 May 2012, by section 53(4) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section FE 5(1C)(e): inserted (with effect on 1 July 2011 and applying for in- come years beginning on or after that date), on 7 May 2012, by section 53(4) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).

Section FE 5(1D) heading: inserted (with effect on 1 July 2009 and applying for income years beginning on or after that date), on 7 May 2012, by section 53(5) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section FE 5(1D): inserted (with effect on 1 July 2009 and applying for in- come years beginning on or after that date), on 7 May 2012, by section 53(5) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).

Section FE 5(1E) heading: inserted (with effect on 1 July 2009 and applying for income years beginning on or after that date), on 7 May 2012, by section 53(5) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section FE 5(1E): inserted (with effect on 1 July 2009 and applying for in- come years beginning on or after that date), on 7 May 2012, by section 53(5) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).

Section FE 5(1F) heading: inserted (with effect on 1 July 2009 and applying for income years beginning on or after that date), on 7 May 2012, by section 53(5) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section FE 5(1F): inserted (with effect on 1 July 2009 and applying for in- come years beginning on or after that date), on 7 May 2012, by section 53(5) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).

Section FE 5(3): substituted, on 1 April 2011 (applying for the 2011–12 and later income years), by section 87(2) of the Taxation (Budget Measures) Act 2010 (2010 No 27).
Section FE 5 list of deﬁned terms attributable FIF income method: inserted (with effect on 1 July 2011), on 7 May 2012, by section 53(6) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).

Section FE 5 list of deﬁned terms CFC: inserted (with effect on 30 June 2009), on 6 October 2009, by section 210(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section FE 5 list of deﬁned terms excess debt outbound company: inserted (with effect on 30 June 2009), on 6 October 2009, by section 210(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
inserted (with effect Section FE 5 list of deﬁned terms income interest: on 30 June 2009), on 6 October 2009, by section 210(2) of the Taxation 1536 Reprinted as at 30 August 2013 Income Tax Act 2007 Part F s FE 6 (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section FE 5 list of deﬁned terms non-resident passive income: inserted (with effect on 1 July 2011), on 7 May 2012, by section 53(6) of the Taxation (Inter- national Investment and Remedial Matters) Act 2012 (2012 No 34).

Section FE 5 list of deﬁned terms total group assets: inserted (with effect on 30 June 2009), on 6 October 2009, by section 210(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
FE 6 Apportionment of interest by excess debt entity (1) (2) (3) Who this section applies to This section applies to an excess debt entity or a natural person if section FE 5 requires the entity or person to apportion their interest expenditure for an income year under this section.

A natural person is treated as an excess debt entity for the pur- poses of this section other than in the item threshold amount.
Formula The excess debt entity is treated under section CH 9 (Interest apportionment: excess debt entity) as deriving in the income year an amount of income calculated for the income year using the formula— (total deduction + FRD – adjust) × total debt – concession × group debt percentage – threshold amount total debt group debt percentage.
Items in formula In the formula,— (a) total deduction is the whole amount of the excess debt entity’s deduction for interest allowed under any of sec- tions DB 6 to DB 8 (which relate to deductions for in- terest expenditure) less— (i) the total amount allowed in relation to interest payable to a company that is a member of the entity’s New Zealand group under sections FE 3 and FE 28, but this does not include an amount referred to in subparagraph (ii); and the total amount allowed in relation to interest payable under a ﬁnancial arrangement excluded (ii) 1537 Part F s FE 6 Income Tax Act 2007 Reprinted as at 30 August 2013 from the total group debt of its New Zealand group under section FE 15: (ab) FRD is the total amount of dividends paid by the ex- cess debt entity in relation to ﬁxed-rate foreign equity or ﬁxed-rate shares— (i) (ii) issued by the entity; and held by a person resident in New Zealand who is not a company that is a member of the entity’s New Zealand group: adjust is— (i) (ii) (iii) zero, if the excess debt entity is not an excess debt outbound company or a natural person or trustee described in section FE 2(1)(g); or the amount (the group ﬁnance cost) that is the total amount for the New Zealand group found by calculating for each member of the New Zealand group the total amount (the member ﬁnance cost) of the items total deduction and FRD for the member, if the group ﬁnance cost is $1,000,000 or less and subparagraph (i) does not apply; or the amount found by multiplying the amount by which $2,000,000 exceeds the group ﬁnance cost by the ratio obtained by dividing the member ﬁ- nance cost for the excess debt entity by the group ﬁnance cost, if the group ﬁnance cost is more than $1,000,000 and less than $2,000,000 and sub- paragraph (i) does not apply; or zero, if the group ﬁnance cost is $2,000,000 or more and subparagraph (i) does not apply: total debt is the total amount of the debt of the excess debt entity’s New Zealand group for the income year as calculated under section FE 15, before
 allowing for a reduction under section FE 13: concession is any reduction allowed under section FE 13 in the total group debt of the excess debt entity’s New Zealand group for the income year, averaged when section FE 8(1)(a) or (b) applies: (iv) (ac) (b) (c) 1538 Reprinted as at 30 August 2013 Income Tax Act 2007 Part F s FE 6 (d) (e) group debt percentage is the debt percentage of the excess debt entity’s New Zealand group for the income year: threshold amount is, as applicable,— (i) if the excess debt entity is not a trustee and not an excess debt outbound company, or is a trustee who is not described in section FE 2(1)(g), the greater of 60% and 110% of the debt percentage of their worldwide group: if the person is a natural person who is not de- scribed in section FE 2(1)(g), 60%: if the excess debt entity is an excess debt out- bound company, or is a trustee who is described in section FE 2(1)(g), the greater of 75% and 110% of the debt percentage of their worldwide group: if the person is a natural person who is described in section FE 2(1)(g), 75%.
(ii) (iii) (iv) (4) (5) Alternative calculation If a company that is in the same wholly-owned group of com- panies as the excess debt entity has a deduction for interest under any of sections DB 6 to DB 8, the company may choose to be treated as deriving the income that the excess debt entity would otherwise, under subsection (2), be treated as deriving for the income year.

The amount of income is not calculated using the formula in subsection (2) but is limited as set out in subsection (5).
Limitation on election amount The amount of income for which the company may make the election under subsection (4) must not be more than the total amount of deductions that the company has for interest for the income year, having taken into account any other income that the company chooses to treat itself as deriving under subsec- tion (4).
Deﬁned in this Act: amount, company, deduction, excess debt entity, excess debt outbound company, ﬁnancial arrangement, ﬁxed-rate foreign equity, ﬁxed- rate share, income, income year, interest, natural person, New Zealand, pay, total group debt, trustee, wholly owned group of companies Compare: 2004 No 35 s FG 8 1539 Part F s FE 6 Income Tax Act 2007 Reprinted as at 30 August 2013 Section FE 6(1) heading: substituted (with effect on 30 June 2009), on 6 October 2009, by section 211(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section FE 6(1): substituted (with effect on 30 June 2009), on 6 October 2009, by section 211(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section FE 6(2) formula: amended (with effect on 30 June 2009), on 6 October 2009, by section 211(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section FE 6(3)(a): amended (with effect on 1 April 2008), on 6 October 2009, by section 211(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section FE 6(3)(a)(i): amended (with effect on 1 April 2008), on 29 August 2011, by section 45(1) of the Taxation (Tax Administration and Remedial Mat- ters) Act 2011 (2011 No 63).
Section FE 6(3)(ab): inserted (with effect on 30 June 2009), on 6 October 2009, by section 211(4) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section FE 6(3)(ac): inserted (with effect on 30 June 2009), on 6 October 2009, by section 211(4) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section FE 6(3)(ac)(ii): substituted (with effect on 23 November 2010), on 29 August 2011, by section 45(2) of the Taxation (Tax Administration and Re- medial Matters) Act 2011 (2011 No 63).

Section FE 6(3)(ac)(iii): substituted (with effect on 23 November 2010), on 29 August 2011, by section 45(2) of the Taxation (Tax Administration and Re- medial Matters) Act 2011 (2011 No 63).
Section FE 6(3)(ac)(iv): substituted (with effect on 23 November 2010), on 29 August 2011, by section 45(2) of the Taxation (Tax Administration and Re- medial Matters) Act 2011 (2011 No 63).

Section FE 6(3)(e): substituted, on 1 April 2011 (applying for the 2011–12 and later income years), by section 88(1) of the Taxation (Budget Measures) Act 2010 (2010 No 27).
Section FE 6(4) heading: added (with effect on 1 April 2008), on 29 August 2011 (applying for the 2008–09 and later income years), by section 45(3) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).

Section FE 6(4): added (with effect on 1 April 2008), on 29 August 2011 (ap- plying for the 2008–09 and later income years), by section 45(3) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section FE 6(5) heading: added (with effect on 1 April 2008), on 29 August 2011 (applying for the 2008–09 and later income years), by section 45(3) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).

Section FE 6(5): added (with effect on 1 April 2008), on 29 August 2011 (ap- plying for the 2008–09 and later income years), by section 45(3) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
1540 Reprinted as at 30 August 2013 Income Tax Act 2007 Part F s FE 6B Section FE 6 list of deﬁned terms excess debt outbound company: inserted, on 1 April 2011 (applying for the 2011–12 and later income years), by section 88(2) of the Taxation (Budget Measures) Act 2010 (2010 No 27).
Section FE 6 list of deﬁned terms ﬁxed-rate foreign equity: inserted (with effect on 30 June 2009), on 6 October 2009, by section 211(5) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section FE 6 list of deﬁned terms ﬁxed-rate share: inserted (with effect on 30 June 2009), on 6 October 2009, by section 211(5) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section FE 6 list of deﬁned terms wholly owned group of companies: added (with effect on 1 April 2008), on 29 August 2011 by section 45(4) of the Taxa- tion (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).

FE 6B Alternative apportionment of interest by some excess debt entities (1) (2) (3) Who this section applies to This section applies to a company or person that is required by section FE 5(1D) to apportion its interest expenditure for an income year under this section.
Formula The company or person is treated under section CH 9 (Inter- est apportionment: excess debt entity) as deriving from New Zealand in the income year an amount of income calculated for the income year using the formula— net interest × NZ group ratio – threshold ratio NZ group ratio.
Deﬁnition of items in formula In the formula,— (a) net interest is the deductions for interest allowed to the company or person under sections DB 6 to DB 9 (which relate to deductions for interest) from a ﬁnancial arrangement providing funds to the company or person, reduced by the income of the company or person from a ﬁnancial arrangement on arm’s-length terms providing funds to a person who meets the requirements of section FE 13(3): 1541 Part F s FE 7 Income Tax Act 2007 Reprinted as at 30 August 2013 (c) (b) NZ group ratio is the interest-income ratio given by section FE 5(1E) for the New Zealand group of the com- pany or person: threshold ratio is the lesser of— (i) (ii) 50%: 110% of the interest-income ratio given by sec- tion FE 5(1E) for the worldwide group of the company or person.
Deﬁned in this Act: company, deduction, income, income year, interest, New Zealand Section FE 6B: inserted (with effect on 1 July 2009 and applying for income years beginning on or after that date), on 7 May 2012, by section 54(1) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).

Section FE 6B(3)(a): amended (with effect on 1 July 2009), on 2 November 2012, by section 68 of the Taxation (Annual Rates, Returns Filing, and Remed- ial Matters) Act 2012 (2012 No 88).
FE 7 Apportionment of interest by reporting bank When this section applies This section applies to a reporting bank if, at the relevant meas- urement date referred to in section FE 8(3),— (a) the New Zealand net equity of its New Zealand banking group for an income year is less than its equity threshold under section FE 19; and its group funding debt for the corresponding tax year is more than zero.
(b) Income The reporting bank is treated as deriving an amount of income under section CH 10 (Interest apportionment: reporting bank) calculated using the formula— amount of threshold × interest expenditure group funding debt × days in period days in year.
Deﬁnition of items in formula In the formula,— (a) amount below threshold is the amount by which the New Zealand net equity for the New Zealand banking group is less than the equity threshold under section FE 19: (1) (2) (3) 1542 Reprinted as at 30 August 2013 (b) Income Tax Act 2007 Part F s FE 8 interest expenditure is the ﬁnancial value for the New Zealand banking group of interest expenditure measured under generally accepted accounting practice that is incurred— (i) by a member of the New Zealand banking group in the income year; and other than in relation to a share that contributes to the item total interest in the formula in sec- tion FE 23, or is a deduction referred to in the deﬁnition of the item interest deductions in that section: (ii) (4) (c) (d) (e) days in period is the number of days in the relevant measurement period: group funding debt is the group funding debt for the New Zealand banking group for the corresponding tax year: days in year is the number of days in the income year.
Apportionment of income to part-years If an amount of income described in subsection (2) must be apportioned under this Act to a part of an income year, the amount of income for a measurement period is attributed to the part of the income year in which the measurement period falls.
Deﬁned in this Act: amount, deduction, ﬁnancial value, generally accepted ac- counting practice, group funding debt, income, income year, interest, meas- urement period, New Zealand, New Zealand banking group, New Zealand net equity, reporting bank, share, tax year Compare: 2004 No 35 s FG 8B FE 8 Measurement dates Daily, 3-monthly, or annual basis for excess debt entity (1) An excess debt entity must measure the amount of total group debt and total group assets of its New Zealand group for an income year using 1 of the following methods: (a) the average amount at the end of each day of the income year; or the average amount at the end of each 3-month period in the income year; or the amount at the end of the income year.
(b) (c) 1543 Part F s FE 9 Income Tax Act 2007 Reprinted as at 30 August 2013 (2) Different balance dates For the purposes of subsection (1), if the members of the en- tity’s New Zealand group do not have the same balance date, the alternatives in subsection (1) apply as if the entity has the same balance date as that of the New Zealand parent.
Daily, monthly, or quarterly for reporting bank (3) A reporting bank must measure both the equity threshold and the net equity of its New Zealand banking group for an income year on 1 of the following dates: (a) (b) each day of the income year; or the last day of each calendar month of the income year; or if the reporting bank does not choose either paragraph (a) or (b), the last day of each quarter of an income year.
(c) (4) Change in identity of reporting bank If the identity of the reporting bank changes, the ﬁrst measure- ment period for the new reporting bank begins on the day after the last measurement date of the former reporting bank.
Deﬁned in this Act: amount, excess debt entity, income year, New Zealand, New Zealand banking group, quarter, reporting bank, total group assets, total group debt Compare: 2004 No 35 ss FG 4(5), (6), FG 8E Section FE 8(4): amended (with effect on 1 April 2008), on 2 November 2012 (applying for the 2008–09 and later income years) by section 69(1) of the Tax- ation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
FE 9 Elections Return of income (1) An election or choice under this subpart is made by providing a return of income for the relevant income year.

Measurement date (2) A choice of measurement date under section FE 8 may be changed after a notice of assessment for an income year is re- ceived from the Commissioner.
Control threshold, enlarged New Zealand group (3) A choice of control threshold under section FE 27, or an election to include certain other companies in a New Zealand group under section FE 30 by a person other than an excess 1544 Reprinted as at 30 August 2013 Income Tax Act 2007 Part F s FE 10 debt entity is made by providing notice to the Commissioner with the return of income for the relevant income year.
Deﬁned in this Act: assessment, Commissioner, company, excess debt entity, income year, New Zealand, notice, return of income Compare: 2004 No 35 s FG 10 Section FE 9 list of deﬁned terms control: repealed, on 1 April 2010, by sec- tion 594 of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
FE 10 Currency (1) (2) (3) Calculations In this subpart, the following values must be calculated in New Zealand currency: (a) an amount of total group debt and an amount of total group assets of a New Zealand group or of a worldwide group: a ﬁnancial arrangement or risk-weighted exposure.
(b) Currency conversions for excess debt entity If the value referred to in subsection (1) is denominated in a foreign currency, an excess debt entity must convert the value to New Zealand currency at— (a) the close of trading spot exchange rate for the foreign currency on the relevant measurement date under sec- tion FE 8; or the forward exchange rate that applies on the ﬁrst day of the income year for the relevant measurement date under section FE 8.
(b) Currency conversions for reporting bank If the value referred to in subsection (1) is denominated in a foreign currency, a reporting bank must convert the value to New Zealand currency at the close of trading spot exchange rate for the foreign currency on the relevant measurement date under section FE 8.
Deﬁned in this Act: amount, close of trading spot exchange rate, excess debt entity, ﬁnancial arrangement, income year, New Zealand, reporting bank, total group assets, total group debt Compare: 2004 No 35 ss FG 4(7), FG 5(6), FG 7, FG 8I 1545 Part F s FE 11 Income Tax Act 2007 Reprinted as at 30 August 2013 FE 11 Temporary increases or decreases in value A temporary increase or decrease in a value applying in this subpart must be excluded from a calculation made under this subpart if— (a) the increase or decrease has, or would have, a purpose or effect of defeating the intent and application of this subpart; or the change is produced by an arrangement that has an effect of defeating the intent and application of this sub- part.
(b) Deﬁned in this Act: arrangement Compare: 2004 No 35 ss FG 4(8), FG 5(7), FG 8J Calculations FE 12 Calculation of debt percentages Requirement for New Zealand group (1) An excess debt entity must calculate the debt percentage of its New Zealand group under the rules set out in sections FE 14 to FE 16.

A natural person or an excess debt entity must calculate their debt percentage under the rules set out in sections FE 13 to FE 16 and FE 18.
(2) Requirement for worldwide group If the debt percentage of the New Zealand group is, as applic- able, more than 60% as described in section FE 5(1)(a), or more than 75% as described in section FE 5(1)(b), then the entity must calculate the debt percentage of their worldwide group under the rules set out in sections FE 17 and FE 18.
Debt percentage of group (3) A debt percentage of a group is found by dividing the amount of total group debt by the amount of total group assets of the group for an income year or accounting year, as applicable.

The amounts are calculated on a consolidated basis.

Total group debt and total group assets for an income year or ac- counting year are deﬁned in— (a) (b) sections FE 15 and FE 16 for a New Zealand group; and section FE 18 for a worldwide group.
1546 Reprinted as at 30 August 2013 Income Tax Act 2007 Part F s FE 12 (4) (5) (6) (7) Membership of company’s New Zealand group For an excess debt entity that is a company, the New Zealand group is made up of all companies, traced tier by tier, that are identiﬁed as within the control threshold of the New Zealand parent, see section FE 27.
Section FE 25 provides the process for determining who is a member of a group based on the iden- tiﬁcation of a New Zealand parent and the establishment of the control threshold.
Membership of company’s worldwide group For an excess debt entity that is a company, the worldwide group is made up of all companies included as members of the worldwide group under— (a) sections FE 31 and FE 32, for an excess debt entity that is not an excess debt outbound company: sections FE 31B to FE 32, for an excess debt outbound company.
(b) Natural persons: membership of New Zealand groups For a natural person, the membership of the New Zealand group is determined as described in section FE 3(1) and (2), as applicable.

Trustees: membership of New Zealand and worldwide groups For a trustee, the memberships of the New Zealand group and the worldwide group are determined as described in section FE 3(1) and (2), as applicable.
Deﬁned in this Act: accounting year, amount, company, excess debt entity, excess debt outbound company, income year, natural person, New Zealand, non-resident, total group assets, total group debt, trustee, ultimate parent Compare: 2004 No 35 ss FG 3, FG 4(1), FG 5(1) Section FE 12(1): amended (with effect on 1 April 2008), on 29 August 2011 (applying for the 2008–09 and later income years), by section 46(1) of the Tax- ation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section FE 12(1): amended (with effect on 30 June 2009), on 6 October 2009, by section 212(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section FE 12(2): amended, on 1 April 2011 (applying for the 2011–12 and later income years), by section 89(1) of the Taxation (Budget Measures) Act 2010 (2010 No 27).
Section FE 12(2): amended (with effect on 30 June 2009), on 6 October 2009, by section 212(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

1547 Part F s FE 12B Income Tax Act 2007 Reprinted as at 30 August 2013 Section FE 12(5) heading: substituted (with effect on 30 June 2009), on 6 Oc- tober 2009, by section 212(3) of the Taxation (International Taxation, Life In- surance, and Remedial Matters) Act 2009 (2009 No 34).
Section FE 12(5): substituted (with effect on 30 June 2009), on 6 October 2009, by section 212(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section FE 12(6) heading: substituted (with effect on 30 June 2009), on 6 Oc- tober 2009, by section 212(4) of the Taxation (International Taxation, Life In- surance, and Remedial Matters) Act 2009 (2009 No 34).
Section FE 12(6): substituted (with effect on 30 June 2009), on 6 October 2009, by section 212(4) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section FE 12(7) heading: added (with effect on 30 June 2009), on 6 October 2009, by section 212(4) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section FE 12(7): added (with effect on 30 June 2009), on 6 October 2009, by section 212(4) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section FE 12 list of deﬁned terms control: repealed, on 1 April 2010, by sec- tion 594 of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section FE 12 list of deﬁned terms excess debt outbound company: inserted (with effect on 30 June 2009), on 6 October 2009, by section 212(5) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
FE 12B Calculations for group for test and apportionment using interest-income ratio Application of rules The rules in this section apply to the calculation, for an en- tity’s New Zealand group or worldwide group, of the follow- ing amounts: (a) deductions for interest allowed to the group under sec- tions DB 6 to DB 9 (which relate to deductions for in- terest), for the purposes of section FE 5(1BB): the income of the group that is interest, for the purposes of section FE 5(1BB): the items in the formula for adjusted net proﬁt in section FE 5(1BC): the items in the formula for interest-income ratio in sec- tion FE 5(1E).
(b) (c) (d) (1) 1548 Reprinted as at 30 August 2013 Income Tax Act 2007 Part F s FE 13 Generally accepted accounting practice for consolidation (2) An amount calculated under these rules for an entity’s group must be calculated under generally accepted accounting prac- tice for the consolidation of companies for the purposes of eliminating intra-group income, expenses, transactions, and balances.
(3) Non-resident member of New Zealand group If a member of a New Zealand group is not resident in New Zealand, the amounts for the member are not included in a consolidation except to the extent that the amounts relate to— the carrying on of business in New Zealand through a (a) ﬁxed establishment in New Zealand: the derivation of income, other than non-resident pas- sive income, that has a source in New Zealand and for which relief from New Zealand tax under a double tax agreement is unavailable.
(b) Deﬁned in this Act: business, deduction, double tax agreement, ﬁxed establish- ment, generally accepted accounting practice, income, interest, New Zealand, New Zealand tax, non-resident passive income, resident in New Zealand, source in New Zealand Section FE 12B: inserted (with effect on 1 July 2009 and applying for income years beginning on or after that date), on 7 May 2012, by section 55(1) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section FE 12B(3)(b): replaced (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 55(2) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).

Section FE 12B list of deﬁned terms non-resident passive income: inserted (with effect on 1 July 2011), on 7 May 2012, by section 55(3) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
FE 13 Financial arrangements entered into with persons outside group (1) When this section applies This section applies when a natural person, a member of a nat- ural person’s New Zealand group, an excess debt entity, or a member of an entity’s New Zealand group or worldwide group, enters into a ﬁnancial arrangement with another per- son (person A) as described in this section and the ﬁnancial arrangement— 1549 Part F s FE 13 Income Tax Act 2007 Reprinted as at 30 August 2013 provides funds to person A; and (a) (b) would otherwise be included in the calculation of the debt percentage of the natural person, excess debt entity, New Zealand group, or worldwide group.
Reduction In the calculation of the debt percentage of the New Zealand group and a worldwide group, the amount of total group debt and total group assets is reduced by the outstanding balance of the ﬁnancial arrangement.
Debt percentage of New Zealand group In the calculation of the debt percentage of a New Zealand group, the reduction applies if the consideration for the ﬁnan- cial arrangement is at arm’s length, and person A is 1 of the following: (a) a non-resident who is not carrying on business through a ﬁxed establishment in New Zealand and derives— (i) income that does not have a source in New Zealand: income with a source in New Zealand, all of which is non-resident passive income or has re- lief from New Zealand tax available under a dou- ble tax agreement; or (ii) (b) (c) a person who is not associated with the excess debt en- tity; or a person who is associated with the excess debt entity but— (i) (ii) is not a member of the New Zealand group; and is a person to whom this subpart may apply under section FE 2.
Debt percentage of worldwide group In the calculation of the debt percentage of a worldwide group, the reduction applies if person A is not associated with the excess debt entity.
Deﬁned in this Act: amount, associated person, business, double tax agree- ment, excess debt entity, ﬁnancial arrangement, ﬁxed establishment, natural person, New Zealand, non-resident, non-resident passive income, source in New Zealand, total group assets, total group debt Compare: 2004 No 35 s FG 6 (2) (3) (4) 1550 Reprinted as at 30 August 2013 Income Tax Act 2007 Part F s FE 14 Section FE 13(1): substituted (with effect on 30 June 2009), on 6 October 2009, by section 213(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section FE 13(2): amended (with effect on 30 June 2009), on 6 October 2009, by section 213(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section FE 13(3)(a): replaced (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 56(1) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section FE 13 list of deﬁned terms double tax agreement: inserted (with ef- fect on 30 June 2009), on 6 October 2009, by section 213(4) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section FE 13 list of deﬁned terms non-resident passive income: inserted (with effect on 1 July 2011), on 7 May 2012, by section 56(2) of the Taxation (Inter- national Investment and Remedial Matters) Act 2012 (2012 No 34).
Section FE 13 list of deﬁned terms source in New Zealand: inserted (with effect on 30 June 2009), on 6 October 2009, by section 213(4) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Debt percentage of New Zealand group FE 14 Consolidation of debts and assets (1) (2) Company calculation For an excess debt entity that is a company, the debt percent- age of a New Zealand group is calculated under generally ac- cepted accounting practice for the consolidation of companies for the purposes of eliminating intra-group balances by con- solidating the debts and assets of the members of the entity’s New Zealand group.
Natural persons’ and trustees’ calculation For a natural person and an excess debt entity that is a trustee, the debt percentage of a New Zealand group is calculated under generally accepted accounting practice for the con- solidation of companies for the purposes of eliminating intra-group balances by consolidating the debts and assets for the group.
(3) When member not resident If a member of a New Zealand group is not resident in New Zealand, the assets and debts of the member are included in a 1551 Part F s FE 14 Income Tax Act 2007 Reprinted as at 30 August 2013 consolidation only to the extent to which the assets and debts are for the group member to— (a) carry on business in New Zealand through a ﬁxed estab- lishment in New Zealand: derive income, other than non-resident passive income, that has a source in New Zealand and for which relief from New Zealand tax under a double tax agreement is unavailable.
(b) (b) (c) Treatment of speciﬁed leases and particular interest expenditure In this subpart, in the determination of total group debt and total group assets and the calculation of an amount for which a deduction is denied,— (a) a speciﬁed lease under section FZ 2 (Effect of speciﬁed lease on lessor and lessee) is treated as a ﬁnancial ar- rangement that provides funds to the issuer; and expenditure incurred by the lessee under a speciﬁed lease for which a deduction is allowed under section BD 2 (Deductions) is treated as an amount of interest to which any of sections DB 6 to DB 8 (which relate to deductions for interest expenditure) applies; and interest that is allowed as a deduction under either of the following sections is treated as an amount of interest to which any of sections DB 6 to DB 8 applies, if not already allowed under those sections: (i) (ii) section DP 1(1)(b) (Expenditure of forestry busi- ness): section DV 10(1)(a) or (b) (Building societies).
Deﬁned in this Act: amount, associated person, business, company, deduction, double tax agreement, excess debt entity, ﬁnancial arrangement, ﬁxed estab- lishment, generally accepted accounting practice, interest, issuer, lessee, New Zealand, non-resident passive income, resident in New Zealand, source in New Zealand, speciﬁed lease, tax, total group assets, total group debt, trustee Compare: 2004 No 35 ss FG 4(9), (15), (17), FG 9 Section FE 14(2) heading: substituted (with effect on 30 June 2009), on 6 Oc- tober 2009, by section 214(1) of the Taxation (International Taxation, Life In- surance, and Remedial Matters) Act 2009 (2009 No 34).
Section FE 14(2): substituted (with effect on 30 June 2009), on 6 October 2009, by section 214(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

(4) 1552 Reprinted as at 30 August 2013 Income Tax Act 2007 Part F s FE 15 Section FE 14(3) heading: substituted (with effect on 30 June 2009), on 6 Oc- tober 2009, by section 214(1) of the Taxation (International Taxation, Life In- surance, and Remedial Matters) Act 2009 (2009 No 34).
Section FE 14(3): substituted (with effect on 30 June 2009), on 6 October 2009, by section 214(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section FE 14(3)(b): replaced (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 57(1) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section FE 14 list of deﬁned terms double tax agreement: inserted (with ef- fect on 30 June 2009), on 6 October 2009, by section 214(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section FE 14 list of deﬁned terms non-resident passive income: inserted (with effect on 1 July 2011), on 7 May 2012, by section 57(2) of the Taxation (Inter- national Investment and Remedial Matters) Act 2012 (2012 No 34).
Section FE 14 list of deﬁned terms source in New Zealand: inserted (with effect on 30 June 2009), on 6 October 2009, by section 214(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section FE 14 list of deﬁned terms tax: inserted (with effect on 1 July 2011), on 7 May 2012, by section 57(2) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
FE 15 Total group debt (1) Meaning In this subpart, for a New Zealand group, total group debt means the sum of the outstanding balances of— (a) ﬁnancial arrangements entered into by a natural person, or an excess debt entity, or another member of the New Zealand group, if the ﬁnancial arrangement— (i) provides funds to the natural person, the entity, or another member of the group; and gives rise to an amount for which the natural per- son, the entity, or another member of the group, would have a deduction: (ii) (b) (c) ﬁxed-rate foreign equity or ﬁxed-rate shares that are— issued by the entity or another member of the (i) New Zealand group; and held by a person resident in New Zealand: (ii) stapled debt securities— 1553 Part F s FE 15 Income Tax Act 2007 Reprinted as at 30 August 2013 (i) (ii) (iii) issued by the entity or another member of the New Zealand group; and held by a person resident in New Zealand; and stapled to shares other than shares of a company that is a proportional-stapling company.
Exchange rate ﬂuctuations Subsection (1)(a)(ii) does not include a deduction for an amount that arises only from movement in currency exchange rates.

Section 90A Tax Administration Act 1994 For a determination on whether a ﬁnancial arrangement pro- vides funds, see section 90A of the Tax Administration Act 1994.
Deﬁned in this Act: amount, deduction, excess debt entity, ﬁnancial arrange- ment, ﬁxed-rate foreign equity, natural person, New Zealand, proportional-sta- pling company, resident in New Zealand, stapled, stapled debt security Compare: 2004 No 35 s FG 4(2) Section FE 15(1) heading: substituted (with effect on 30 June 2009), on 6 Oc- tober 2009, by section 215(2) of the Taxation (International Taxation, Life In- surance, and Remedial Matters) Act 2009 (2009 No 34).
Section FE 15(1): substituted (with effect on 30 June 2009), on 6 October 2009, by section 215(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section FE 15(2) heading: substituted (with effect on 30 June 2009), on 6 Oc- tober 2009, by section 215(2) of the Taxation (International Taxation, Life In- surance, and Remedial Matters) Act 2009 (2009 No 34).
Section FE 15(2): substituted (with effect on 30 June 2009), on 6 October 2009, by section 215(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section FE 15 list of deﬁned terms ﬁxed-rate foreign equity: inserted (with effect on 30 June 2009), on 6 October 2009, by section 215(4) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section FE 15 list of deﬁned terms proportional-stapling company: inserted (with effect on 1 April 2008), on 6 October 2009, by section 215(3) of the Tax- ation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section FE 15 list of deﬁned terms resident in New Zealand: inserted (with effect on 1 April 2008), on 6 October 2009, by section 215(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section FE 15 list of deﬁned terms stapled: inserted (with effect on 1 April 2008), on 6 October 2009, by section 215(3) of the Taxation (International Tax- ation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
(2) (3) 1554 Reprinted as at 30 August 2013 Income Tax Act 2007 Part F s FE 16 Section FE 15 list of deﬁned terms stapled debt security: inserted (with ef- fect on 1 April 2008), on 6 October 2009, by section 215(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
FE 16 Total group assets (1) Meaning In this subpart, for a New Zealand group, total group assets for an income year means the total assets of a natural person, or an excess debt entity, or another member of the New Zealand group, measured under the following paragraphs, as applicable or as the person or entity chooses: (a) the value of the assets shown in the ﬁnancial statements of the entity’s New Zealand group; or the net current value of the assets; or (b) (c) market value, for trading stock that is valued at market value in calculating the person or entity’s income tax liability for the income year, or that of a member of the group; or adjusted tax value of a personal property lease asset at the start of the income year, in the case of a speciﬁed lease or a ﬁnance lease that is not recognised as an asset under generally accepted accounting practice; or if allowed under generally accepted accounting prac- tice, a combination of the ﬁnancial statement values and net current values.
(d) (e) (1B) CFC investments excluded If the excess debt entity or another member of the New Zealand group has an investment in a CFC in which the entity or mem- ber has an income interest, or an investment in a FIF in which the entity or member has an interest meeting the requirements of section EX 35 (Exemption for interest for FIF resident in Australia) or for which the person uses the attributable FIF in- come method, the value of the total group assets calculated and measured under this section does not include the value of the investment, except— (a) to the extent to which— 1555 Part F s FE 16 Income Tax Act 2007 Reprinted as at 30 August 2013 (i) (ii) the value of the investment represents the out- standing balances of ﬁnancial arrangements to which section FE 13 applies: the CFC or FIF derives income, other than non- resident passive income, that has a source in New Zealand and for which relief from New Zealand tax under a double tax agreement is unavailable: that the value of the total group assets is treated as being $1 if the value would otherwise be zero as a result of this subsection.
(b) When member not resident If the excess debt entity or another member of a New Zealand group is not resident in New Zealand, the assets of the entity or member are included in the calculation and measurement of total group assets under this section only to the extent to which the assets are for the entity or member to— (a) carry on business in New Zealand through a ﬁxed estab- lishment in New Zealand: derive income, other than non-resident passive income, that has a source in New Zealand and for which relief from New Zealand tax under a double tax agreement is unavailable.
(b) Generally accepted accounting practice The amount of total group assets must be calculated under gen- erally accepted accounting practice, with the exception of the values referred to in subsection (1)(c) or (d).
Deﬁned in this Act: adjusted tax value, amount, attributable FIF income method, CFC, double tax agreement, excess debt entity, FIF, ﬁnance lease, generally accepted accounting practice, income interest, income tax liability, income year, lease, market value, natural person, New Zealand, non-resident passive income, personal property lease asset, source in New Zealand, speciﬁed lease, tax, trading stock Compare: 2004 No 35 s FG 4(3), (4) Section FE 16(1B) heading: inserted (with effect on 30 June 2009), on 6 October 2009, by section 216(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section FE 16(1B): inserted (with effect on 30 June 2009), on 6 October 2009, by section 216(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section FE 16(1B): amended (with effect on 1 July 2011 and applying for in- come years beginning on or after that date), on 7 May 2012, by section 58(1) of (1C) (2) 1556 Reprinted as at 30 August 2013 Income Tax Act 2007 Part F s FE 16 the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section FE 16(1B)(a)(ii): replaced (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 58(2) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).

Section FE 16(1C) heading: inserted (with effect on 30 June 2009), on 6 October 2009, by section 216(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section FE 16(1C): inserted (with effect on 30 June 2009), on 6 October 2009, by section 216(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section FE 16(1C)(b): replaced (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 58(3) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section FE 16 list of deﬁned terms attributable FIF income method: inserted (with effect on 1 July 2011), on 7 May 2012, by section 58(4) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).

Section FE 16 list of deﬁned terms CFC: inserted (with effect on 30 June 2009), on 6 October 2009, by section 216(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section FE 16 list of deﬁned terms double tax agreement: inserted (with ef- fect on 30 June 2009), on 6 October 2009, by section 216(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section FE 16 list of deﬁned terms FIF: inserted (with effect on 1 July 2011), on 7 May 2012, by section 58(4) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section FE 16 list of deﬁned terms income interest: inserted (with effect on 30 June 2009), on 6 October 2009, by section 216(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section FE 16 list of deﬁned terms non-resident passive income: inserted (with effect on 1 July 2011), on 7 May 2012, by section 58(4) of the Taxation (Inter- national Investment and Remedial Matters) Act 2012 (2012 No 34).
inserted (with Section FE 16 list of deﬁned terms source in New Zealand: effect on 30 June 2009), on 6 October 2009, by section 216(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section FE 16 list of deﬁned terms tax: inserted (with effect on 1 July 2011), on 7 May 2012, by section 58(4) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
1557 Part F s FE 17 Income Tax Act 2007 Reprinted as at 30 August 2013 Debt percentage of worldwide group FE 17 Consolidation of debts and assets For an excess debt entity that is a company, the debt percentage of a worldwide group is calculated under generally accepted accounting practice for the consolidation of companies for the purposes of eliminating intra-group balances by consolidating the debts and assets of the members of the entity’s worldwide group using— (a) a ﬁnancial standard used in the country in which the entity’s ultimate non-resident parent company resides, as described in section FE 18(1)(a), if applicable; or generally accepted accounting practice.
(b) Deﬁned in this Act: company, excess debt entity, generally accepted accounting practice, non-resident company, ultimate parent Compare: 2004 No 35 s FG 5(2), (10) FE 18 Measurement of debts and assets of worldwide group Standards applying The amount of total group debt and the amount of total group assets of the worldwide group of an excess debt entity is cal- culated— (a) using a standard that is equivalent to generally accepted accounting practice for consistent and non-distorting ﬁ- nancial reporting; and in accordance with the ﬁnancial reporting standards of the country where the worldwide group’s consolidated ﬁnancial accounts are prepared.
(b) Date of measurement The amount of total group debt and the amount of total group assets of the worldwide group of an excess debt entity for an income year are measured using— (a) the average amount at the end of each day of the income year; or the average amount at the end of each 3-month period in the income year; or the amount as at the worldwide group’s balance date that immediately precedes the income year.
(b) (c) (1) (2) 1558 Reprinted as at 30 August 2013 Income Tax Act 2007 Part F s FE 18 Measurement of amounts (3) Despite subsection (1), an excess debt entity must measure the amount of total group debt by applying section FE 15 as if it referred to a deduction that would be allowed if the entity, or another group member, were resident in New Zealand.
(4) (5) Commissioner’s estimate If an excess debt entity is unable to calculate the debt percent- age of their worldwide group for an income year, they may ask the Commissioner to estimate the percentage under this sub- part.

The estimate is then treated as the percentage applying for the purposes of this subpart.
Default percentage The debt percentage of the worldwide group of an excess debt entity is treated as,— (a) 54.5454%, if the excess debt entity is not a trustee and not an excess debt outbound company, or is a trustee who is not described in section FE 2(1)(g), and— (i) the entity is unable to calculate the percentage and does not ask the Commissioner to make an estimate under subsection (4): the Commissioner cannot reasonably estimate the debt percentage under subsection (4): no member of the entity’s worldwide group, other than the entity, is not resident in New Zealand; or (ii) (iii) (b) 68.1818%, if the excess debt entity is an excess debt outbound company, or is a trustee who is described in section FE 2(1)(g), and— (i) the entity is unable to calculate the percentage and does not ask the Commissioner to make an estimate under subsection (4): the Commissioner cannot reasonably estimate the debt percentage under subsection (4): (ii) 1559 Part F s FE 19 Income Tax Act 2007 Reprinted as at 30 August 2013 (iii) no member of the entity’s worldwide group, other than the entity, is not resident in New Zealand.
Deﬁned in this Act: amount, Commissioner, deduction, excess debt entity, gen- erally accepted accounting practice, income year, resident in New Zealand, total group assets, total group debt Compare: 2004 No 35 s FG 5(2)–(5), (12), (13) Section FE 18(1): amended (with effect on 30 June 2009), on 6 October 2009, by section 217(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section FE 18(2) heading: substituted (with effect on 30 June 2009), on 6 Oc- tober 2009, by section 217(2) of the Taxation (International Taxation, Life In- surance, and Remedial Matters) Act 2009 (2009 No 34).

Section FE 18(2): substituted (with effect on 30 June 2009), on 6 October 2009, by section 217(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section FE 18(3) heading: substituted (with effect on 30 June 2009), on 6 Oc- tober 2009, by section 217(2) of the Taxation (International Taxation, Life In- surance, and Remedial Matters) Act 2009 (2009 No 34).

Section FE 18(3): substituted (with effect on 30 June 2009), on 6 October 2009, by section 217(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section FE 18(4): amended (with effect on 30 June 2009), on 6 October 2009, by section 217(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section FE 18(5): substituted, on 1 April 2011 (applying for the 2011–12 and later income years), by section 90(1) of the Taxation (Budget Measures) Act 2010 (2010 No 27).
Section FE 18 list of deﬁned terms natural person: repealed (with effect on 30 June 2009), on 6 October 2009, by section 217(5) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
New Zealand banking group FE 19 Banking group’s equity threshold Requirement for New Zealand banking group: formula (1) A reporting bank must calculate the equity threshold of its New Zealand banking group for a tax year using the formula— 0.06 × (risk-weighted exposures – deductions from equity value).
Deﬁnition of items in formula In the formula,— (2) 1560 Reprinted as at 30 August 2013 (a) Income Tax Act 2007 Part F s FE 20 (ii) (iii) risk-weighted exposures is the sum of the following values: (i) for an asset included in a balance sheet, the regu- latory value of the asset: for an exposure not included in a balance sheet, the regulatory value of the exposure: for an amount of goodwill that is not taken into intangible assets in account in adjustment 4: determining the New Zealand net equity of the group under section FE 21, the ﬁnancial value of the goodwill: (3) (b) deductions from equity value is the total amount of the regulatory values of adjustments 1 to 10 referred to in section FE 21.
Assets of ﬁxed establishments For the purposes of this section, the assets of a ﬁxed establish- ment include those treated as assets of the ﬁxed establishment under generally accepted accounting practice.
Deﬁned in this Act: amount, ﬁnancial value, ﬁxed establishment, generally accepted accounting practice, New Zealand banking group, New Zealand net equity, regulatory value, reporting bank, tax year Compare: 2004 No 35 s FG 8H Section FE 19(1) formula: replaced (with effect on 1 April 2012), on 2 Novem- ber 2012 (applying for measurement dates under section FE 8(3) of the Income Tax Act 2007 for periods beginning on or after 1 April 2012), by section 70(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
FE 20 Financial value and regulatory value (1) Financial value In sections FE 19, and FE 21 to FE 23, the ﬁnancial value of an item for a New Zealand banking group at a time is the amount recorded for the item in the group’s ﬁnancial statements that— (a) (b) (c) relate to the time; and are prepared for external reporting purposes; and are consistent with generally accepted accounting prac- tice for the consolidation of a group of companies for the purposes of eliminating intra-group balances.
1561 Part F s FE 21 Income Tax Act 2007 Reprinted as at 30 August 2013 (2) Regulatory value In section FE 19, the regulatory value of an item for a New Zealand banking group at a time is the total risk-weighted value for the item for the purposes of the Capital Adequacy Framework issued by the Reserve Bank of New Zealand act- ing in the prudential supervision of registered banks under the Reserve Bank of New Zealand Act 1989.
Deﬁned in this Act: amount, ﬁnancial value, generally accepted accounting practice, group of companies, issue, New Zealand, New Zealand banking group, registered bank, regulatory value Compare: 2004 No 35 s FG 8F FE 21 Banking group’s New Zealand net equity Formula (1) A reporting bank must calculate the New Zealand net equity of its New Zealand banking group for an income year using the formula— equity value adjustments 1 to 11.
Deﬁnition of items in formula The items in the formula are deﬁned in subsections (3) to (14).
Equity value Equity value is the total ﬁnancial value of— (a) (b) the shareholders’ equity for the group; and the branch equity relating to ﬁxed establishments of the group; and any shares issued by a member of the group whose value is not included under paragraph (a) or (b); and any ﬁnancial arrangement that is a loan or provision of funds— (i) (c) (d) that is not taken into account in calculating the group’s funding debt for the tax year correspond- ing to the income year; and that is made by a non-resident who is not a mem- ber of the New Zealand banking group or associ- ated with a member of the group; and that is made to a member of the group; and that does not give rise to interest expenditure other than as a result of a ﬂuctuation in the value (ii) (iii) (iv) (2) (3) 1562 Reprinted as at 30 August 2013 Income Tax Act 2007 Part F s FE 21 of a currency of a country relative to the value of a currency of another country; and (v) whose value is not included under paragraph (a) (vi) or (b); and that does not relate to a supply of goods or ser- vices; and an instrument speciﬁed by the Governor-General by Order in Council under section FE 24 as included in equity value, but excluding an instrument speciﬁed under that section as not being an item of equity value.
(e) Fixed-rate shares (4) Adjustment 1 is the ﬁnancial value of ﬁxed-rate foreign equi- ties or ﬁxed-rate shares that are— (a) issued by a member of the group on or after 1 Janu- ary 2005, or before that date if the measurement period starts on or after 1 January 2010; and owned by a person resident in New Zealand; and included in equity value under subsection (3).
(b) (c) Stapled debt securities (4B) Adjustment 1A is the ﬁnancial value of stapled debt securities that are— (a) (b) (c) owned by a person resident in New Zealand; and included in equity value under subsection (3); and stapled to shares other than shares of a company that is a proportional-stapling company.
Tax debts (5) Adjustment 2 is the ﬁnancial value of a tax debt that is a ﬁ- nancial arrangement— (a) (b) included in equity value under subsection (3)(a) to (c); and in relation to which a member of the group is allowed a deduction for the corresponding tax year for interest to which any of sections DB 6 to DB 8 (which relate to interest expenditure) applies.
Policyholder liabilities and retained proﬁts (6) Adjustment 3 is the ﬁnancial value of unvested policyholder beneﬁt liabilities and policyholder retained proﬁts included in equity value under subsection (3).
1563 Part F s FE 21 Income Tax Act 2007 Reprinted as at 30 August 2013 Intangible assets (7) Adjustment 4 is the ﬁnancial value of intangible assets, but does not include the value of— (a) (ii) the goodwill of a business that is not a banking, ﬁnan- cing, leasing, or life insurance business— (i) acquired from a person who, at the time of ac- quisition, is not associated with a member of the group; or relating to an entity that is acquired from a per- son who is not associated with a member of the group: a ﬁlm or ﬁlm right: property that is depreciable property or is expected to become depreciable property.
(b) (c) Capital gains (8) Adjustment 5 is the total amount of capital gain arising for the 2004–05 income year or a later income year from a transfer of an intangible asset between a member of the group and a person who is associated with a member of the group.

Asset revaluation reserves (9) Adjustment 6 is the ﬁnancial value of revaluation reserves included in equity value under subsection (3).
Future tax beneﬁts (10) Adjustment 7 is the ﬁnancial value of net future tax beneﬁts included in equity value under subsection (3) that arise from— a tax loss for the tax year corresponding to the income (a) year referred to in subsection (1): a loss balance carried forward from an earlier tax year: a timing or temporary difference to the extent to which the item giving rise to the difference would contribute to the amount of a tax loss for the tax year corresponding to the income year referred to in subsection (1) if allowed as a deduction.
(b) (c) Prudential deductions (11) Adjustment 8 is the ﬁnancial value of a credit enhancement or advance that is, for the purposes of the Capital Adequacy Framework described in section FE 20(2),— 1564 Reprinted as at 30 August 2013 Income Tax Act 2007 Part F s FE 21 (a) (b) a credit enhancement that a member of the group pro- vides to— (i) an associated funds management and securitisa- tion scheme of a non-member: an afﬁliated insurance group that is a non-mem- ber when the credit has not been expensed: an advance by a member of the group of a capital nature to a connected person who is a non-member.
(ii) Offshore assets (12) Adjustment 9 is the ﬁnancial value of shares in a non-resident company that— (a) (b) (c) are held by a member or potential member of the group; and are not interests in a foreign investment fund (FIF) for which the FIF income or FIF loss is calculated using the comparative value method, the deemed rate of re- turn method, the fair dividend rate method, or the cost method; and are not shares in a grey list company that— (i) are listed on the ofﬁcial list of a recognised ex- change; and are revenue account property; and (ii) (iii) would not be a sufﬁcient interest in the company if the class of shares were the only class of share issued by the company.
Cross holdings (13) Adjustment 10 is the ﬁnancial value of— (a) (b) interests included in equity value under subsection (3) held by a person who— (i) is not a member of the group because of an ex- clusion under section FE 35; and is resident in New Zealand or holds the interest through a ﬁxed establishment in New Zealand: (ii) shares in or loans (other than on an arm’s length basis) to a person who is not a member of the group because of an exclusion under section FE 35.
1565 Part F s FE 21 Income Tax Act 2007 Reprinted as at 30 August 2013 Notional offshore investments (14) Adjustment 11 is the amount of notional offshore investment for the group for the income year under section FE 22.

Components of adjustment items counted once (15) For the purposes of this section, if a component of an item described in adjustments 1 to 10 is a component of 1 or more other adjustment items, the value of the component is counted once only at its highest value.
Deﬁned in this Act: amount, associated person, business, company, compara- tive value method, cost method, CTR credit, deduction, deemed rate of return method, depreciable property, direct voting interest, dividend, fair dividend rate method, FIF, FIF income, FIF loss, ﬁlm, ﬁlm right, ﬁnancial arrangement, ﬁ- nancial value, ﬁxed establishment, ﬁxed-rate share, grey list company, group funding debt, income year, interest, loan, loss balance, measurement period, New Zealand, New Zealand banking group, New Zealand net equity, non-resi- dent, non-resident company, notional offshore investment amount, pay, propor- tional-stapling company, recognised exchange, reporting bank, resident in New Zealand, revenue account property, share, shareholder, stapled, stapled debt se- curity, tax, tax loss Compare: 2004 No 35 s FG 8G(1)–(3) Section FE 21(3)(d)(ii): substituted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 218(2) of the Taxation (International Taxa- tion, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section FE 21(4): amended (with effect on 30 June 2009), on 6 October 2009, by section 218(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section FE 21(4B) heading: inserted (with effect on 1 April 2008), on 6 October 2009, by section 218(4) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section FE 21(4B): inserted (with effect on 1 April 2008), on 6 October 2009, by section 218(4) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section FE 21(7)(a)(i): substituted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 218(6) of the Taxation (International Taxa- tion, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section FE 21(7)(a)(ii): substituted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 218(6) of the Taxation (International Taxa- tion, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section FE 21(8): substituted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 218(8) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section FE 21(12)(a): replaced (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 59(1) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
1566 Reprinted as at 30 August 2013 Income Tax Act 2007 Part F s FE 22 Section FE 21 list of deﬁned terms 1973 version provisions: repealed, on 1 April 2010, by section 594 of the Taxation (International Taxation, Life In- surance, and Remedial Matters) Act 2009 (2009 No 34).

Section FE 21 list of deﬁned terms 1988 version provisions: repealed, on 1 April 2010, by section 594 of the Taxation (International Taxation, Life In- surance, and Remedial Matters) Act 2009 (2009 No 34).
Section FE 21 list of deﬁned terms 1990 version provisions: repealed, on 1 April 2010, by section 594 of the Taxation (International Taxation, Life In- surance, and Remedial Matters) Act 2009 (2009 No 34).

Section FE 21 list of deﬁned terms proportional-stapling company: inserted (with effect on 1 April 2008), on 6 October 2009, by section 218(9) of the Tax- ation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section FE 21 list of deﬁned terms stapled: inserted (with effect on 1 April 2008), on 6 October 2009, by section 218(9) of the Taxation (International Tax- ation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section FE 21 list of deﬁned terms stapled debt security: inserted (with ef- fect on 1 April 2008), on 6 October 2009, by section 218(9) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
FE 22 Notional offshore investment (1) (2) (3) When this section applies This section applies for the purposes of section FE 21(14) to determine an amount of notional offshore investment for a New Zealand banking group for an income year.

Formula The amount of notional offshore investment is calculated using the formula— (foreign tax credits threshold) × 12 tax rate × interest rate of return × months.
Deﬁnition of items in formula In the formula,— (a) foreign tax credits is the total amount of foreign tax credits for the tax year corresponding to the income year claimed as a credit against the income tax liability for the tax year of a member of the group or a person ex- cluded from the group under section FE 35 that does not arise from— (i) (ii) attributed CFC income or from FIF income; or income derived before 1 July 2005.
1567 Part F s FE 23 Income Tax Act 2007 Reprinted as at 30 August 2013 (b) (c) (d) threshold is— (i) the amount set by the Governor-General by Order in Council as the threshold amount for the pur- poses of this subsection; or $416,667 multiplied by the number of months beginning on or after 1 July 2005 in the income year that includes that date, if no threshold is set under subparagraph (i): $5,000,000 if no threshold amount is set under subparagraph (i) or (ii): (ii) (iii) tax rate is the rate of tax for companies set out in sched- income tax, ule 1, part A, clause 2 (Basic tax rates: ESCT, RSCT, RWT, and attributed fringe beneﬁts) for the tax year corresponding to the income year referred to in subsection (1): interest rate of return is— (i) the percentage amount set by the Governor-Gen- eral by Order in Council as the interest rate of return for the purposes of this subsection; or 7%, if no interest rate of return is set under sub- paragraph (i): (ii) (e) months is the number of months beginning on or after 1 July 2005 in the corresponding income year.
Deﬁned in this Act: amount, attributed CFC income, corresponding income year, FIF income, income, income tax liability, income year, interest, New Zealand banking group, notional offshore investment amount, tax year Compare: 2004 No 35 s FG 8G(4) Section FE 22(3)(c): amended, on 1 April 2008, by section 562 of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
FE 23 Banking group’s funding debt Formula (1) A reporting bank must calculate the funding debt of its New Zealand banking group for a tax year using the formula— total interest + interest deductions days in quarter.
shares Deﬁnition of items in formula In the formula,— (2) 1568 Reprinted as at 30 August 2013 Income Tax Act 2007 Part F s FE 24 (a) (b) total interest is the ﬁnancial value of the total interest- bearing debt for the group, measured on the last day of a quarter in the reporting bank’s corresponding income year: interest deductions is the ﬁnancial value not included in paragraph (a) of a ﬁnancial arrangement in relation to which the group has a deduction for interest to which any of sections DB 6 to DB 8 (which relate to interest expenditure) applies, other than as a consequence of a ﬂuctuation in the value of a currency of a country relative to the value of a currency of another country: shares is the ﬁnancial value of shares included in para- graph (a), measured on the last day of a quarter in the reporting bank’s corresponding income year: days in quarter is the number of days in a quarter in the reporting bank’s corresponding income year.
Deﬁned in this Act: corresponding income year, deduction, ﬁnancial arrange- ment, ﬁnancial value, interest, New Zealand banking group, quarter, reporting bank, share, tax year Compare: 2004 No 35 s FG 8B(3) (d) (c) FE 24 Regulations (1) (2) When this section applies This section applies for the purposes of sections FE 21 and FE 22.
Speciﬁcations The Governor-General may, from time to time, by Order in Council— (a) specify a type of instrument that is included in equity value under section FE 21(3): specify a type of instrument that is not included in equity value under section FE 21(3): set, replace, or repeal a ﬁgure for a threshold amount for a value of an instrument, or aggregate value of a type of instrument, held by a person or group of persons for the purposes of a speciﬁcation under paragraph (a) or (b): amend or delete a speciﬁcation under paragraphs (a) to (c): (b) (c) (d) 1569 Part F s FE 25 Income Tax Act 2007 Reprinted as at 30 August 2013 (e) (f) set, replace, or repeal a ﬁgure for the threshold amount for the purposes of the deﬁnition of threshold in section FE 22(3)(b)(i): set, replace, or repeal a ﬁgure for the deﬁnition of in- terest rate of return in section FE 22(3)(d)(i).
Application or effective date (3) An Order in Council under subsection (2) may— (a) (b) come into effect on or after 1 July 2005: apply for measurement periods and quarters that— (i) are in the 2005–06 income year or a later income year; and commence on or after 1 July 2005.
Deﬁned in this Act: amount, group of persons, income year, interest, measure- ment period, quarter Compare: 2004 No 35 s FG 8G(5), (6) (ii) Determining membership of groups New Zealand group FE 25 New Zealand group for excess debt entity that is a company Steps to determine membership The following steps are used to determine the membership of the New Zealand group of an excess debt entity that is a com- pany: (a) (b) identifying the New Zealand parent, see section FE 26: establishing the companies under the parent’s control, see section FE 27: identifying the members of the New Zealand group, see sections FE 28 and FE 29: if a non-resident has ownership interests in 2 or more New Zealand groups, establishing whether the groups may be combined into a single New Zealand group, see section FE 30.
(c) (d) (1) 1570 Reprinted as at 30 August 2013 Income Tax Act 2007 Part F s FE 26 (2) Entity as company Sections FE 26 to FE 30 apply only to an excess debt entity that is company.

However, section FE 30 does not apply to an excess debt outbound company.
Deﬁned in this Act: company, excess debt entity, excess debt outbound com- pany, New Zealand, non-resident Compare: 2004 No 35 s FG 4(10), (11) Section FE 25(2): amended (with effect on 30 June 2009), on 6 October 2009, by section 219(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section FE 25 list of deﬁned terms control: repealed, on 1 April 2010, by sec- tion 594 of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section FE 25 list of deﬁned terms excess debt outbound company: inserted (with effect on 30 June 2009), on 6 October 2009, by section 219(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
FE 26 Identifying New Zealand parent (1) (2) Identifying resident company The New Zealand parent of an excess debt entity is the entity identiﬁed in whichever is applicable of subsections (2) to (6).
Entity as parent The excess debt entity is treated as the New Zealand parent if— (a) (b) the entity is not resident in New Zealand; or the entity is resident in New Zealand, and— (i) (ii) a non-resident has a direct ownership interest in the entity of 50% or more, as determined under section FE 39; and no single non-resident who is carrying on busi- ness in New Zealand through a ﬁxed establish- ment in New Zealand or who derives income, other than non-resident passive income, that has a source in New Zealand and for which relief from New Zealand tax under a double tax agreement is unavailable has an ownership interest in the en- tity of 50% or more; or (c) the entity is an excess debt outbound company and no single company resident in New Zealand has an owner- ship interest in the entity of 50% or more.
1571 Part F s FE 26 Income Tax Act 2007 Reprinted as at 30 August 2013 (3) Top tier New Zealand resident company if not excess debt outbound company If subsection (2) does not apply, and the excess debt entity is not an excess debt outbound company, the entity’s New Zealand parent is the company (company A) that meets all the following requirements: (a) company A is either— (i) (ii) resident in New Zealand; or not resident in New Zealand but carrying on busi- ness in New Zealand through a ﬁxed establish- ment in New Zealand; or not resident in New Zealand but deriving income, other than non-resident passive income, that has a source in New Zealand and for which relief from New Zealand tax under a double tax agreement is unavailable; and (iii) (b) (c) (d) (e) company A has an ownership interest in the entity; and a non-resident has a direct ownership interest in com- pany A; and if company A is resident in New Zealand, a non-resident who has an ownership interest in the entity of 50% or more, also has an ownership interest in company A of 50% or more; and no company that meets the requirements of paragraphs (a) to (d) has a direct ownership interest in company A.
When parent controlled by non-resident (4) Despite subsection (3), if the interest apportionment rule in section FE 6 applies to the excess debt entity only through the application of section FE 2(1)(c)(ii), the entity’s New Zealand parent is the company (company B) that meets all the follow- ing requirements: (a) company B is either— (i) (ii) resident in New Zealand; or not resident in New Zealand but carrying on busi- ness in New Zealand through a ﬁxed establish- ment in New Zealand; or not resident in New Zealand but deriving income, other than non-resident passive income, that has a source in New Zealand and for which relief from (iii) 1572 Reprinted as at 30 August 2013 Income Tax Act 2007 Part F s FE 26 New Zealand tax under a double tax agreement is unavailable; and company B has an ownership interest in the entity; and if company B is resident in New Zealand, a non-resident who has control of the entity by any means, has control of company B by any means; and no company that meets the requirements of paragraphs (a) to (c) has a direct ownership interest in company B.
(b) (c) (d) (4B) (5) (6) (7) Top tier New Zealand resident company for excess debt outbound company If subsection (2) does not apply, and the excess debt entity is an excess debt outbound company, the entity’s New Zealand parent is the company (company C) that meets all the follow- ing requirements: (a) company C— (i) (ii) is resident in New Zealand; and has an ownership interest of 50% or more in the entity; and (b) no company that meets the requirements of paragraph (a)(i) and (ii) has a direct ownership interest in company C. Tie-breaker If more than 1 company is identiﬁed as New Zealand parent under subsection (3) or (4), the New Zealand parent is the company that has the highest value in ownership interests cal- culated by multiplying— (a) the total direct ownership interests in company A or company B of non-residents who also have ownership interests in the entity of 50% or more: the ownership interests of company A or company B in the entity.
(b) Entity as parent If subsection (2) does not apply, and no company meets the requirements of subsection (3), (4), or (4B), the excess debt entity is treated as the New Zealand parent.
Determining ownership interests in subsections (3) and (4) In subsections (3) to (4B), ownership interests are determined under sections FE 38 to FE 41, but for the purpose of iden- 1573 Part F s FE 26 Income Tax Act 2007 Reprinted as at 30 August 2013 tifying a New Zealand parent, the ownership interests of an associated person are ignored.
Deﬁned in this Act: associated person, business, company, double tax agree- ment, excess debt entity, excess debt outbound company, ﬁxed establishment, interest, New Zealand, non-resident, non-resident company, non-resident pas- sive income, resident in New Zealand, source in New Zealand, tax Compare: 2004 No 35 s FG 4(10) Section FE 26(2)(b)(ii): replaced (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 60(1) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section FE 26(2)(c): added (with effect on 30 June 2009), on 6 October 2009, by section 220(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section FE 26(3) heading: substituted (with effect on 30 June 2009), on 6 Oc- tober 2009, by section 220(3) of the Taxation (International Taxation, Life In- surance, and Remedial Matters) Act 2009 (2009 No 34).
Section FE 26(3): amended (with effect on 30 June 2009), on 6 October 2009, by section 220(4) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section FE 26(3)(a)(ii): amended (with effect on 30 June 2009), on 6 October 2009, by section 220(5) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section FE 26(3)(a)(iii): replaced (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 60(2) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).

Section FE 26(4)(a)(ii): amended (with effect on 30 June 2009), on 6 October 2009, by section 220(6) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section FE 26(4)(a)(iii): replaced (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 60(3) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).

Section FE 26(4B) heading: inserted (with effect on 30 June 2009), on 6 October 2009, by section 220(7) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section FE 26(4B): inserted (with effect on 30 June 2009), on 6 October 2009, by section 220(7) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section FE 26(6): substituted (with effect on 30 June 2009), on 6 October 2009, by section 220(8) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section FE 26(7): substituted (with effect on 30 June 2009), on 6 October 2009, by section 220(9) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

1574 Reprinted as at 30 August 2013 Income Tax Act 2007 Part F s FE 27 Section FE 26 list of deﬁned terms control: repealed, on 1 April 2010, by sec- tion 594 of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section FE 26 list of deﬁned terms double tax agreement: inserted (with ef- fect on 30 June 2009), on 6 October 2009, by section 220(10) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section FE 26 list of deﬁned terms excess debt outbound company: inserted (with effect on 30 June 2009), on 6 October 2009, by section 220(10) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section FE 26 list of deﬁned terms non-resident passive income: inserted (with effect on 1 July 2011), on 7 May 2012, by section 60(4) of the Taxation (Inter- national Investment and Remedial Matters) Act 2012 (2012 No 34).

inserted (with Section FE 26 list of deﬁned terms source in New Zealand: effect on 30 June 2009), on 6 October 2009, by section 220(10) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section FE 26 list of deﬁned terms tax: inserted (with effect on 1 July 2011), on 7 May 2012, by section 60(4) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).

FE 27 Establishing companies under parent’s control Choosing threshold (1) A control threshold that the New Zealand parent of an excess debt entity chooses under this section must apply consistently to all companies that are members of the group.
(2) (3) Percentages The New Zealand parent of an excess debt entity may choose as the relevant control threshold a percentage that is either— (a) more than 50%; or 66% or more.

(b) Threshold over 50% For a control threshold that is more than 50%, the company or companies treated as controlled by the New Zealand parent are those in which direct ownership interests of more than 50% are held collectively by either or both— the New Zealand parent; and (a) any other company included in the New Zealand group.
(b) (4) Threshold of 66% or more For a control threshold of 66% or more, the companies treated as controlled by the New Zealand parent are those in which 1575 Part F s FE 28 Income Tax Act 2007 Reprinted as at 30 August 2013 direct ownership interests of 66% or more are held collectively by any combination of— (a) (b) the New Zealand parent; and a non-resident if— (i) (ii) they have ownership interests of 50% or more in both the entity and the New Zealand parent; and a company included in the New Zealand group as a result of the control percentage would have been included in the group under section FE 28 through the application of the control test in sub- section (3), had the control percentage in that subsection been chosen; and (5) (6) (c) any other company or companies that are included in the New Zealand group under section FE 28 through the application of any of these paragraphs.
Default threshold of 66% If the New Zealand parent does not choose a control threshold under subsection (3) or (4), the control threshold applying to the New Zealand group is 66% or more.

Application to other companies of New Zealand parent The control threshold applying for an income year in relation to the entity and its New Zealand parent applies to any com- pany of the New Zealand parent.
Deﬁned in this Act: company, excess debt entity, income year, New Zealand, non-resident Compare: 2004 No 35 s FG 4(12)–(14B) Section FE 27 list of deﬁned terms control: repealed, on 1 April 2010, by sec- tion 594 of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
FE 28 Identifying members of New Zealand group New Zealand parent’s group (1) A New Zealand group is made up of an excess debt entity, the entity’s New Zealand parent, and a company— (a) that is— (i) (ii) resident in New Zealand: carrying on a business in New Zealand through a ﬁxed establishment in New Zealand: 1576 Reprinted as at 30 August 2013 Income Tax Act 2007 Part F s FE 28 (iii) deriving income, other than non-resident passive income, that has a source in New Zealand and for which relief from New Zealand tax under a double tax agreement is unavailable; and that is identiﬁed under section FE 27 as being under the control of the New Zealand parent; and that is not a member of the New Zealand banking group of a registered bank.
(b) (c) Special rule for some entity’s group (2) Despite subsection (1), if the excess debt entity is not an ex- cess debt outbound company and is not a company identi- ﬁed under section FE 27 as being under the control of the New Zealand parent because the threshold is not met, the New Zealand group is made up of the entity and a company— (a) that is— (i) (ii) (iii) resident in New Zealand: carrying on a business in New Zealand through a ﬁxed establishment in New Zealand: deriving income, other than non-resident passive income, that has a source in New Zealand and for which relief from New Zealand tax under a double tax agreement is unavailable; and (b) that is a company that— (i) (ii) would be identiﬁed under section FE 27 as being under the control of the entity if the entity were treated as the New Zealand parent; or if the entity is identiﬁed under section FE 27 as being under the control of another company (company A), would be identiﬁed under section FE 27 as under the control of company A if com- pany A were included in the New Zealand group and treated as the New Zealand parent; or (iii) would be identiﬁed under section FE 27 as under the control of a company (company B) included in the entity’s New Zealand group under subpara- graph (ii), if company B were treated as the New Zealand parent; or is not a member of the New Zealand banking group of a registered bank.
(iv) 1577 Part F s FE 29 Income Tax Act 2007 Reprinted as at 30 August 2013 Another special rule for some other entity’s group (3) Despite subsection (1), if the excess debt entity is an excess debt outbound company and is not a company identiﬁed under section FE 27 as being under the control of the New Zealand parent because the threshold is not met, the entity is included in the New Zealand group for the New Zealand parent if— (a) the entity is a company that meets the requirements of subsection (1)(a) and (c); and a member of the New Zealand group has a 50% or more ownership interest in the entity.
(b) Deﬁned in this Act: business, company, double tax agreement, excess debt en- tity, excess debt outbound company, ﬁxed establishment, New Zealand, New Zealand banking group, non-resident passive income, registered bank, resident in New Zealand, source in New Zealand, tax Section FE 28: substituted (with effect on 30 June 2009), on 6 October 2009, by section 221(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section FE 28(1)(a)(iii): replaced (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 61(1) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).

Section FE 28(2)(a)(iii): replaced (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 61(2) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section FE 28 list of deﬁned terms control: repealed, on 1 April 2010, by sec- tion 594 of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section FE 28 list of deﬁned terms non-resident passive income: inserted (with effect on 1 July 2011), on 7 May 2012, by section 61(3) of the Taxation (Inter- national Investment and Remedial Matters) Act 2012 (2012 No 34).
Section FE 28 list of deﬁned terms tax: inserted (with effect on 1 July 2011), on 7 May 2012, by section 61(3) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
FE 29 Combining New Zealand groups owned by natural persons and trustees When this section applies This section applies when a natural person or trustee described in section FE 2(1)(g) has— (a) a 50% or more ownership interest in a member of a New Zealand group (group 1) having a member that is an excess debt outbound company; and (1) 1578 Reprinted as at 30 August 2013 Income Tax Act 2007 Part F s FE 30 (b) a 50% or more ownership interest in a member of a dif- ferent New Zealand group (group 2) having a member that is an excess debt outbound company.
Groups combine (2) Group 1 and group 2 combine into 1 New Zealand group.

Deﬁned in this Act: excess debt outbound company, New Zealand Section FE 29: substituted (with effect on 30 June 2009), on 6 October 2009, by section 222(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
FE 30 Ownership interests in companies outside New Zealand group (1) When this section applies This section applies when— (a) (b) a New Zealand group is in existence; and a particular excess debt entity (company A) that is not an excess debt outbound company is outside the group; and company A is— (i) (ii) resident in New Zealand: carrying on business in New Zealand through a ﬁxed establishment in New Zealand: deriving income, other than non-resident passive income, that has a source in New Zealand and for which relief from New Zealand tax under a double tax agreement is unavailable; and a single non-resident has ownership interests of 50% or more in both— (i) (ii) the New Zealand group; and company A.
(iii) (c) (d) (2) Consistency in group membership The New Zealand parent of company A may choose to include the company in the New Zealand group if every company to be included in the enlarged group that is a New Zealand parent in the group makes the same election in relation to all other companies that are not in a New Zealand group with that parent before this section applies.
1579 Part F s FE 30 Income Tax Act 2007 Reprinted as at 30 August 2013 When company A cannot be part of group (3) Despite subsection (2), company A cannot be part of the New Zealand group if— (a) (b) (c) another company (company B) that is outside the group has a direct ownership in company A; and company B is— (i) (ii) resident in New Zealand: carrying on business in New Zealand through a ﬁxed establishment in New Zealand: deriving income, other than non-resident passive income, that has a source in New Zealand and for which relief from New Zealand tax under a double tax agreement is unavailable; and (iii) either— (i) (ii) a New Zealand parent in the group, after the ap- plication of subsection (2), has control of com- pany B under section FE 27(3); or the single non-resident has ownership interests of 50% or more in company B. Deﬁned in this Act: business, company, double tax agreement, excess debt en- tity, excess debt outbound company, ﬁxed establishment, New Zealand, non- resident, non-resident passive income, resident in New Zealand, source in New Zealand, tax Compare: 2004 No 35 s FG 4(14D) Section FE 30(1)(b): substituted (with effect on 30 June 2009), on 6 October 2009, by section 223(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section FE 30(1)(c): substituted (with effect on 30 June 2009), on 6 October 2009, by section 223(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section FE 30(1)(c)(iii): replaced (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 62(1) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section FE 30(3)(b): substituted (with effect on 30 June 2009), on 6 October 2009, by section 223(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section FE 30(3)(b)(iii): replaced (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 62(2) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section FE 30 list of deﬁned terms control: repealed, on 1 April 2010, by sec- tion 594 of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

1580 Reprinted as at 30 August 2013 Income Tax Act 2007 Part F s FE 31 Section FE 30 list of deﬁned terms double tax agreement: inserted (with ef- fect on 30 June 2009), on 6 October 2009, by section 223(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section FE 30 list of deﬁned terms excess debt outbound company: inserted (with effect on 30 June 2009), on 6 October 2009, by section 223(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section FE 30 list of deﬁned terms non-resident passive income: inserted (with effect on 1 July 2011), on 7 May 2012, by section 62(3) of the Taxation (Inter- national Investment and Remedial Matters) Act 2012 (2012 No 34).
Section FE 30 list of deﬁned terms source in New Zealand: inserted (with effect on 30 June 2009), on 6 October 2009, by section 223(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section FE 30 list of deﬁned terms tax: inserted (with effect on 1 July 2011), on 7 May 2012, by section 62(3) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Worldwide group FE 31 Worldwide group for corporate excess debt entity if not excess debt outbound company (1) Members of worldwide group For an income year, for an excess debt entity that is a com- pany and is not an excess debt outbound company, a world- wide group is made up of— the entity; and (a) the entity’s New Zealand group for the income year; and (b) the entity’s worldwide GAAP group, as described in (c) subsection (2); and the entity’s ultimate non-resident parent, as described in subsection (3); and the ultimate non-resident parent’s worldwide GAAP group, as described in subsection (4); and any non-resident that— (i) (ii) is not a company; and has ownership interests in the entity of 50% or more; and (d) (e) (f) (g) any person associated with the non-resident referred to in paragraph (f).
1581 Part F s FE 31 Income Tax Act 2007 Reprinted as at 30 August 2013 Worldwide GAAP group (2) An excess debt entity’s worldwide GAAP group is made up of all non-residents who are required to be included with the entity in the consolidated ﬁnancial statements under, as the entity chooses,— (a) (b) generally accepted accounting practice; or an equivalent standard for consistent and non-distorting ﬁnancial reporting that is— (i) set in the country where the ultimate non-resident parent of the parent, as described in subsection (3), resides; or applied when preparing the consolidated ﬁnan- cial statements of the international group of which the entity is part.
(ii) Ultimate non-resident parent (3) An excess debt entity’s ultimate non-resident parent is the (b) (c) company that meets the following requirements: (a) the company has ownership interests in the entity of 50% or more; and the company is not excluded from the entity’s world- wide group under section FE 32; and no other company has both— (i) an ownership interest in the entity of 50% or more: an ownership interest in the company referred to in paragraphs (a) and (b).
(ii) Ultimate non-resident parent’s worldwide GAAP group The ultimate non-resident parent’s worldwide GAAP group is made up of— (a) (b) the ultimate non-resident parent; and any non-resident who is required to be included with the ultimate non-resident parent in consolidated group accounts under, as the non-resident parent chooses,— (i) the standard referred to in subsection (2)(b)(i), if applicable; or generally accepted accounting practice.
(ii) (4) 1582 Reprinted as at 30 August 2013 Income Tax Act 2007 Part F s FE 31B (5) Measuring ownership interests In subsection (3), ownership interests are determined under sections FE 38 to FE 41.
Deﬁned in this Act: associated person, company, excess debt entity, excess debt outbound company, generally accepted accounting practice, income year, New Zealand, non-resident, ultimate parent Compare: 2004 No 35 s FG 5(8) Section FE 31 heading: substituted (with effect on 30 June 2009), on 6 October 2009, by section 224(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section FE 31(1): amended (with effect on 30 June 2009), on 6 October 2009, by section 224(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section FE 31(1)(a): substituted (with effect on 30 June 2009), on 6 October 2009, by section 224(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section FE 31 list of deﬁned terms excess debt outbound company: inserted (with effect on 30 June 2009), on 6 October 2009, by section 224(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
FE 31B Worldwide group for excess debt outbound companies (1) Members of worldwide group For an income year, a worldwide group for an excess debt outbound company is made up of— (a) (b) the company; and the company’s New Zealand group for the income year; and the company’s worldwide GAAP group, as described in subsection (2).
(c) Worldwide GAAP group (2) An excess debt outbound company’s worldwide GAAP group is made up of all non-residents who are required to be included with the company in consolidated ﬁnancial statements under generally accepted accounting practice.
Deﬁned in this Act: excess debt outbound company, generally accepted ac- counting practice, income year, non-resident Section FE 31B: inserted (with effect on 30 June 2009), on 6 October 2009, by section 225(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
1583 Part F s FE 31C Income Tax Act 2007 Reprinted as at 30 August 2013 FE 31C CFCs in worldwide group for natural persons or trustees described in section FE 2(1)(g) (b) When this section applies This section applies when a natural person or trustee described in section FE 2(1)(g) has— (a) in an entity not part of the worldwide a 50% or more ownership interest in an excess debt out- bound company that is a member of a worldwide group (worldwide group A); and an interest, group A, that is— (i) (ii) an income interest in a CFC: an interest in a FIF that meets the requirements of section EX 35 (Exemption for interest in FIF resident in Australia): an interest in a FIF for which the natural person or trustee uses the attributable FIF income method.
(iii) Transfer The CFC is part of the worldwide group A.

Ownership interests For the purposes of this section, ownership interests are deter- mined under sections FE 38 to FE 41.

Deﬁned in this Act: attributable FIF income method, CFC, excess debt out- bound company, FIF, income interest, New Zealand, non-resident Section FE 31C: inserted (with effect on 30 June 2009), on 6 October 2009, by section 225(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section FE 31C(1)(b): replaced (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 63(1) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).

Section FE 31C list of deﬁned terms attributable FIF income method: in- serted (with effect on 1 July 2011), on 7 May 2012, by section 63(2) of the Tax- ation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section FE 31C list of deﬁned terms FIF: inserted (with effect on 1 July 2011), on 7 May 2012, by section 63(2) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
(1) (2) (3) 1584 Reprinted as at 30 August 2013 Income Tax Act 2007 Part F s FE 33 FE 32 Joint venture parties (1) (2) (3) What this section applies to This section applies to a company (the joint venture com- pany) in a worldwide group under section FE 31 or FE 31B if— (a) a person (the excluded joint venturer) holds an owner- ship interest equal to 50% in the joint venture company; and 1 other person (the included joint venturer) in the worldwide group holds an ownership interest equal to 50% in the joint venture company; and but for the application of this section, the worldwide group includes every person who holds both an owner- ship interest equal to 50% in the joint venture company and— (i) who has an ownership interest in the included joint venturer; or in whom the included joint venture company has an ownership interest.
(ii) (b) (c) Exclusion of excluded joint venturer The joint venture company may choose to exclude the ex- cluded joint venturer from its worldwide group for an income year, despite sections FE 31 and FE 31B.

Ownership interests For the purposes of this section, ownership interests are deter- mined under sections FE 38 to FE 41.
Deﬁned in this Act: company, excess debt entity, income year Section FE 32: substituted (with effect on 30 June 2009), on 6 October 2009, by section 226(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
New Zealand banking group FE 33 New Zealand banking group The following steps are used to determine the membership of a New Zealand banking group: (a) identifying the ultimate parent of a registered bank, see section FE 34: 1585 Part F s FE 34 Income Tax Act 2007 Reprinted as at 30 August 2013 (b) (c) determining whether a person may be excluded from a banking group, see section FE 35: identifying a person and a ﬁxed establishment as a mem- ber of a banking group, see section FE 36.
Deﬁned in this Act: ﬁxed establishment, New Zealand banking group, regis- tered bank, ultimate parent FE 34 Identifying ultimate parent (1) Identifying company The ultimate parent is the company identiﬁed in subsection (2) or (3), as applicable.
Registered bank’s parent (2) An ultimate parent of a registered bank is a company— (a) (b) that has an ownership interest in the registered bank of 50% or more; and in which no other company that has an ownership inter- est in the registered bank of 50% or more has an own- ership interest.

Fixed establishment’s parent The ultimate parent of a registered bank’s ﬁxed establishment in New Zealand is the registered bank.
Ownership interests For the purposes of this section, ownership interests are deter- mined under sections FE 38 to FE 41.
Deﬁned in this Act: company, ﬁxed establishment, New Zealand, registered bank, ultimate parent Compare: 2004 No 35 s FG 8C(9), (10) (3) (4) FE 35 Persons who may be excluded from banking groups Reporting bank’s exclusions (1) A reporting bank may determine the members of its New Zealand banking group by excluding from the group a person or ﬁxed establishment described in subsections (2) to (5).
Life insurance providers (2) A reporting bank may choose to exclude from its New Zealand banking group a person or a ﬁxed establishment whose main activity is providing life insurance.
1586 Reprinted as at 30 August 2013 Income Tax Act 2007 Part F s FE 35 Entity owning life insurer or banker (3) A reporting bank may choose to exclude from its New Zealand banking group a person resident in New Zealand— (a) who has a voting interest of 100% in a person excluded under subsection (2); and (b) whose main activity is not banking, ﬁnancing, or leas- ing, or the ownership or control of an entity whose main activity is banking, ﬁnancing, or leasing.
Resident group company with other activities (4) A reporting bank may choose to exclude from its New Zealand banking group a person resident in New Zealand— (a) who is required under generally accepted accounting practice to be included in consolidated group accounts with a person or ﬁxed establishment excluded under subsection (2) or (3); and (b) whose main activity is not banking, ﬁnancing, or leas- ing, or the ownership or control of an entity whose main activity is banking, ﬁnancing, or leasing.
Fixed establishment with other activities (5) A reporting bank may choose to exclude from its New Zealand banking group a ﬁxed establishment of a non-resident if— (a) the non-resident has a voting interest of 100% in a per- son excluded under subsection (2); and the ﬁxed establishment has a main activity of ﬁnancing the person excluded under subsection (2); and the main activity of the ﬁxed establishment is not bank- ing, ﬁnancing, or leasing, or the ownership or control of an entity whose main activity is banking, ﬁnancing, or leasing.
(b) (c) Deﬁned in this Act: company, ﬁxed establishment, generally accepted account- ing practice, life insurance, New Zealand banking group, non-resident, report- ing bank, resident in New Zealand, voting interest Compare: 2004 No 35 s FG 8C(8) Section FE 35 list of deﬁned terms control: repealed, on 1 April 2010, by sec- tion 594 of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
1587 Part F s FE 36 Income Tax Act 2007 Reprinted as at 30 August 2013 FE 36 Identifying members of New Zealand banking group in usual case (1) (2) Entities included in group The New Zealand banking group of a registered bank to which section FE 36B does not apply includes the entities described in subsection (2), and may also include the entities described in subsections (3) to (6) if the conditions set out in those sub- sections are met.
Registered bank or ﬁxed establishment The banking group includes— (a) (b) the registered bank, if resident in New Zealand: the registered bank’s ﬁxed establishment, if the regis- tered bank is not resident in New Zealand.
Resident person in group with registered bank (3) A resident person is included in the banking group if— (a) (b) the person is part of the same group of companies as the registered bank: the following conditions under generally accepted ac- counting practice are met: (i) (ii) for a resident registered bank with no non-resi- dent ultimate parent, the consolidated group ac- counts include both the person and the registered bank, or would include both but for relevant ma- teriality thresholds; or registered bank with no for a non-resident the consolidated non-resident ultimate parent, group accounts would include the person and the registered bank if the bank were resident in New Zealand and the relevant materiality thresholds were met.
Resident in group with non-resident ultimate parent (4) A resident is included in the banking group if— (a) (b) the person is part of the same group of companies as a non-resident ultimate parent: under generally accepted accounting practice, the con- solidated group accounts would include the person and the ultimate parent if the ultimate parent were resident 1588 Reprinted as at 30 August 2013 Income Tax Act 2007 Part F s FE 36 in New Zealand and the relevant materiality thresholds were met.
Fixed establishment in group with registered bank (5) A ﬁxed establishment in New Zealand of a non-resident is in- cluded in the banking group separately from the non-resident if— (a) the ﬁxed establishment is part of the same group of companies as a non-resident registered bank with no non-resident ultimate parent: under generally accepted accounting practice, the con- solidated group accounts would include the ﬁxed estab- lishment and the registered bank if the registered bank were resident in New Zealand and the relevant materi- ality thresholds were met.
(b) Fixed establishment in group with non-resident ultimate parent (6) A ﬁxed establishment in New Zealand of a non-resident is in- cluded in the banking group separately from the non-resident if— (a) the ﬁxed establishment is part of the same group of com- panies as a non-resident ultimate parent: under generally accepted accounting practice, the con- solidated group accounts would include the ﬁxed estab- lishment and the ultimate parent if the ultimate parent were resident in New Zealand and the relevant materi- ality thresholds were met.
(b) Deﬁned in this Act: ﬁxed establishment, generally accepted accounting prac- tice, group of companies, New Zealand, New Zealand banking group, non-resi- dent, registered bank, resident in New Zealand, ultimate parent Compare: 2004 No 35 s FG 8C(1), (2), (4)–(7) Section FE 36 heading: amended (with effect on 1 July 2009 and applying for income years beginning on or after that date), on 7 May 2012, by section 64(1) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section FE 36(1): amended (with effect on 1 July 2009 and applying for in- come years beginning on or after that date), on 7 May 2012, by section 64(2) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).

Section FE 36(3): substituted (with effect on 1 April 2008), on 6 October 2009, by section 227(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
1589 Part F s FE 36B Income Tax Act 2007 Reprinted as at 30 August 2013 Section FE 36(4)(a): amended (with effect on 1 April 2008), on 6 October 2009, by section 227(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section FE 36(5)(a): amended (with effect on 1 April 2008), on 6 October 2009, by section 227(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section FE 36(6)(a): amended (with effect on 1 April 2008), on 6 October 2009, by section 227(4) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
FE 36B Identifying members of New Zealand banking group: Crown-owned, no interest apportionment (1) (2) Entities included in group The New Zealand banking group of a registered bank consists of the entities given by this section if— (a) Her Majesty the Queen in right of New Zealand has a voting interest of 100% in the registered bank; and in the absence of this paragraph and sections EX 15, FE 2(5), FE 38(b) and (d), and FE 41(1), none of the entities that would be part of the banking group under this section would be a person to whom the interest ap- portionment rules might apply under section FE 2.
(b) Registered bank and person with direct voting interest of 100% The banking group includes— the registered bank: (a) a person with a direct voting interest of 100% in the (b) registered bank.
Resident member of ﬁnancial reporting group under Financial Reporting Act 1993 (3) A resident person is included in the banking group if the per- son,— (a) under the Financial Reporting Act 1993, is a member of the ﬁnancial reporting group for which the registered bank is the reporting member: (b) would be a member of the ﬁnancial reporting group re- ferred to in paragraph (a) but for the relevant materiality thresholds.
Deﬁned in this Act: direct voting interest, New Zealand, New Zealand banking group, registered bank, resident 1590 Reprinted as at 30 August 2013 Income Tax Act 2007 Part F s FE 38 Section FE 36B: inserted (with effect on 1 July 2009 and applying for income years beginning on or after that date), on 7 May 2012, by section 65(1) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
FE 37 Reporting bank for New Zealand banking group (1) (2) (3) (4) When subsection (2) applies Subsection (2) applies on a day when a New Zealand banking group has either— (a) (b) a single registered bank, or no registered bank but a ﬁxed establishment of a single registered bank.

Registered bank The reporting bank for the day is the registered bank.
When subsection (4) applies Subsection (4) applies on a day when a New Zealand banking group has either— (a) more than 1 registered bank; or (b) no registered bank but ﬁxed establishments of more than 1 registered bank.
Notice or Commissioner’s appointment The reporting bank is— (a) the registered bank that ﬁrst notiﬁes the Commissioner of an election to be the reporting bank, if the Commis- sioner receives the notice within 6 months after the end of the income year in which the day occurs; or if paragraph (a) does not apply, the registered bank cho- sen by the Commissioner.
(b) Deﬁned in this Act: Commissioner, ﬁxed establishment, income year, New Zealand banking group, notice, registered bank, reporting bank Compare: 2004 No 35 s FG 8D Measuring ownership interests in companies FE 38 Measuring ownership interests in companies For the purposes of this subpart, a person’s ownership interest in a company is the total of the following percentages: (a) any direct ownership interests they hold in the company; and 1591 Part F s FE 39 Income Tax Act 2007 Reprinted as at 30 August 2013 (b) (c) (d) any direct ownership interests held in the company by an associated person; and any indirect ownership interests they hold in the com- pany; and any indirect ownership interests held in the company by an associated person.
Deﬁned in this Act: associated person, company Compare: 2004 No 35 s FG 2(2) FE 39 Direct ownership interests A person’s direct ownership interest in a company referred to in section FE 38 is equal to the highest percentage of shares or rights the person holds in the categories listed in section EX 5(1) (Direct control interests), applying the subsection as if the company were a foreign company.
Deﬁned in this Act: company, foreign company, share Compare: 2004 No 35 s FG 2(3) Section FE 39 list of deﬁned terms control: repealed, on 1 April 2010, by sec- tion 594 of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

FE 40 Tiered ownership interests (1) (2) When this section applies This section applies when a person has a direct ownership in- terest in a company (company A), and that company has an ownership interest in another company (company B).
When ownership interest less than 50% If the person’s direct ownership interest in company A is less than 50%, they are treated as holding an indirect ownership in- terest in company B.

The interest is calculated by multiplying the percentage that is the person’s direct ownership interest in company A by the percentage that is company A’s ownership in company B.
(3) When ownership interest more than 50% If the person’s direct ownership interest in company A is equal to or more than 50%, they are treated as holding an indirect 1592 Reprinted as at 30 August 2013 Income Tax Act 2007 Part F s FE 41 ownership interest in company B that is equal to company A’s ownership interest in company B. Deﬁned in this Act: company Compare: 2004 No 35 s FG 2(4) FE 41 Treatment of associated persons’ interests (1) (2) Aggregating ownership interests For the purposes of section FE 39, a person’s direct ownership interests include the direct ownership interests of a person as- sociated with them.
But if an aggregation of ownership inter- ests results in the same percentage shares or rights in a com- pany being counted more than once, the person’s ownership interest in the company must be adjusted to the extent neces- sary to avoid multiple counting.
Relative resident in New Zealand For the purposes of sections FE 38 to FE 40, a non-resident who does not have a direct or an indirect ownership interest in a company and a relative resident in New Zealand are not associated persons in relation to the company.
Deﬁned in this Act: associated person, company, New Zealand, non-resident, relative, resident in New Zealand, share Compare: 2004 No 35 s FG 2(4)–(6) Subpart FF—Interest apportionment for conduit investment [Repealed] Subpart FF: repealed (with effect on 30 June 2009), on 6 October 2009, by section 228(1) of the Taxation (International Taxation, Life Insurance, and Re- medial Matters) Act 2009 (2009 No 34).
Contents Introductory provisions [Repealed] FF 1 What this subpart does [Repealed] FF 2 When interest apportionment rule applies [Repealed] FF 3 Steps required to determine treatment of excessive interest expenditure [Repealed] Page 1594 1594 1595 1593 Part F s FF 1 Income Tax Act 2007 Reprinted as at 30 August 2013 Interest apportionment rule [Repealed] FF 4 Threshold for application of interest apportionment rule [Repealed] 1595 FF 5 Determination of excess amount of interest expenditure 1595 FF 6 FF 7 FF 8 FF 9 of group [Repealed] Conduit tax relief [Repealed] Surplus to foreign dividends [Repealed] Membership and debt percentages of foreign groups [Repealed] Identifying members of foreign groups [Repealed] Calculating debt percentage of New Zealand foreign groups [Repealed] FF 10 Calculating debt percentage of consolidated foreign groups [Repealed] FF 11 Changes in foreign group membership [Repealed] 1595 1595 1596 1596 1596 1596 Introductory provisions [Repealed] Heading: repealed (with effect on 30 June 2009), on 6 October 2009, by section 228(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
FF 1 What this subpart does [Repealed] Section FF 1: repealed (with effect on 30 June 2009), on 6 October 2009, by section 228(1) of the Taxation (International Taxation, Life Insurance, and Re- medial Matters) Act 2009 (2009 No 34).

FF 2 When interest apportionment rule applies [Repealed] Section FF 2: repealed (with effect on 30 June 2009), on 6 October 2009, by section 228(1) of the Taxation (International Taxation, Life Insurance, and Re- medial Matters) Act 2009 (2009 No 34).
1594 Reprinted as at 30 August 2013 Income Tax Act 2007 Part F s FF 7 FF 3 Steps required to determine treatment of excessive interest expenditure [Repealed] Section FF 3: repealed (with effect on 30 June 2009), on 6 October 2009, by section 228(1) of the Taxation (International Taxation, Life Insurance, and Re- medial Matters) Act 2009 (2009 No 34).
Interest apportionment rule [Repealed] Heading: repealed (with effect on 30 June 2009), on 6 October 2009, by section 228(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

FF 4 Threshold for application of interest apportionment rule [Repealed] Section FF 4: repealed (with effect on 30 June 2009), on 6 October 2009, by section 228(1) of the Taxation (International Taxation, Life Insurance, and Re- medial Matters) Act 2009 (2009 No 34).
Section FF 4(1)(a) (as it read immediately before repeal on 6 October 2009 and applying for the 2008–09 and later income years): amended (with effect on 1 April 2008), on 21 December 2010, by section 65(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
FF 5 Determination of excess amount of interest expenditure of group [Repealed] Compare: 2004 No 35 s FH 5 Section FF 5: repealed (with effect on 30 June 2009), on 6 October 2009, by section 228(1) of the Taxation (International Taxation, Life Insurance, and Re- medial Matters) Act 2009 (2009 No 34).
FF 6 Conduit tax relief [Repealed] Section FF 6: repealed (with effect on 30 June 2009), on 6 October 2009, by section 228(1) of the Taxation (International Taxation, Life Insurance, and Re- medial Matters) Act 2009 (2009 No 34).

FF 7 Surplus to foreign dividends [Repealed] Section FF 7: repealed (with effect on 30 June 2009), on 6 October 2009, by section 228(1) of the Taxation (International Taxation, Life Insurance, and Re- medial Matters) Act 2009 (2009 No 34).
1595 Part F s FF 8 Income Tax Act 2007 Reprinted as at 30 August 2013 Membership and debt percentages of foreign groups [Repealed] Heading: repealed (with effect on 30 June 2009), on 6 October 2009, by section 228(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
FF 8 Identifying members of foreign groups [Repealed] Section FF 8: repealed (with effect on 30 June 2009), on 6 October 2009, by section 228(1) of the Taxation (International Taxation, Life Insurance, and Re- medial Matters) Act 2009 (2009 No 34).
FF 9 Calculating debt percentage of New Zealand foreign groups [Repealed] Section FF 9: repealed (with effect on 30 June 2009), on 6 October 2009, by section 228(1) of the Taxation (International Taxation, Life Insurance, and Re- medial Matters) Act 2009 (2009 No 34).
FF 10 Calculating debt percentage of consolidated foreign groups [Repealed] Section FF 10: repealed (with effect on 30 June 2009), on 6 October 2009, by section 228(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
FF 11 Changes in foreign group membership [Repealed] Section FF 11: repealed (with effect on 30 June 2009), on 6 October 2009, by section 228(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Subpart FL—Emigration of resident companies Contents FL 1 What this subpart does FL 2 Treatment of emigrating companies and their shareholders Page 1597 1597 1596 Reprinted as at 30 August 2013 Income Tax Act 2007 Part F s FL 2 FL 1 What this subpart does (1) (2) When this subpart applies This subpart applies when a company that is a New Zealand resident (the emigrating company) stops being a New Zealand resident.
Tax effects For tax purposes, the effects on an emigrating company and its shareholders, when an emigrating company becomes non- resident reﬂect the effects that would have resulted if,— (a) immediately before the time of emigration,— (i) (ii) (iii) the emigrating company disposed of its property at market value; and the emigrating company went into liquidation; and the amount available for distribution on liquid- ation were distributed as dividends to sharehold- ers of the emigrating company to the extent to which the amount is more than the available sub- scribed capital and any capital gain of the com- pany; and (b) at the time of emigration, the emigrating company were reformed as a foreign company with— (i) the same ownership and business activities as those of the emigrating company immediately before the time of emigration; and the property of the emigrating company immedi- ately before the time of emigration, acquired at its market value at that time.
(ii) Deﬁned in this Act: amount, available subscribed capital, business, company, dividend, emigrating company, foreign company, liquidation, market value, New Zealand resident, non-resident, shareholder, tax, time of emigration Compare: 2004 No 35 s FCB 1 FL 2 Treatment of emigrating companies and their shareholders (1) When this section applies This section applies immediately before the time of emigration of an emigrating company.
1597 Income Tax Act 2007 Reprinted as at 30 August 2013 (2) (3) Treatment of company The company is treated as— (a) disposing of its property to a person, and reacquiring the property from the person, for consideration equal to the market value of the property at the time; and (b) making a distribution in money as a dividend to its shareholders of an amount that would be available for distribution at the time if the company were treated as going into liquidation.
Treatment of shareholder Each shareholder of the company is treated as being paid a dis- tribution in money as a dividend of the amount the shareholder would be entitled to at the time if the company were treated as going into liquidation.
Deﬁned in this Act: amount, dividend, emigrating company, liquidation, market value, pay, shareholder, time of emigration Compare: 2004 No 35 ss FCB 2, FCB 3 Subpart FM—Consolidated groups of companies Contents Introductory provisions FM 1 What this subpart applies to FM 2 Consolidation rules FM 3 Liability of consolidated groups and group companies FM 4 Limiting joint and several liability of group companies FM 5 Liability when company leaves consolidated group FM 6 Some general rules for treatment of consolidated groups Calculating taxable income for consolidated group returns Accounting generally FM 7 Treatment of amounts derived or expenditure incurred FM 8 Transactions between group companies: income FM 9 Amounts that are company’s income FM 10 Expenditure: intra-group transactions FM 11 Expenditure: nexus with income derivation Page 1600 1600 1601 1602 1603 1604 1606 1606 1607 1607 1608 1598 Reprinted as at 30 August 2013 Income Tax Act 2007 Part F s FL 2 FM 12 Expenditure when deduction would be denied to consolidated group FM 13 Capital expenditure FM 14 Part-year ﬁnancial statements Accounting for particular property FM 15 Amortising property and revenue account property FM 16 Land or business: certain farming or forestry expenditure FM 17 Trading stock FM 18 Financial arrangements: transfer from company A to company B 1609 1610 1610 1611 1613 1613 1614 FM 19 Financial arrangements: transfer for fair and reasonable 1615 consideration FM 20 Financial arrangements: transfer at market value FM 21 Property transfers when companies leave consolidated groups FM 22 Arrangements to avoid consolidation rules FM 23 Arrangements for disposal of shares Treatment of foreign dividends [Repealed] FM 24 General treatment of foreign dividends [Repealed] FM 25 Reduction in payments for foreign dividends [Repealed] FM 26 Using tax losses to pay FDP [Repealed] FM 27 Refunds of FDP FM 28 Refund when consolidated group has loss FM 29 Treatment of credit balance in consolidated group’s FDP account 1616 1616 1617 1617 1619 1619
 1619 1619 1620 1621 FM 30 Application of certain provisions to consolidated groups 1622 Membership of consolidated groups Eligibility and restrictions FM 31 Eligibility rules FM 32 Restriction on membership of consolidated groups FM 33 When membership is reduced FM 34 Nominated companies Nominated companies Forming, joining, or leaving consolidated groups FM 35 Forming consolidated group FM 36 Joining existing consolidated group FM 37 Leaving consolidated group 1624 1626 1626 1626 1627 1628 1628 1599 Part F s FM 1 Income Tax Act 2007 Reprinted as at 30 August 2013 When membership starts and stops FM 38 Notice requirements on forming or joining consolidated 1629 group FM 39 Choosing to leave consolidated group FM 40 Losing eligibility or entitlement to be part of consolidated group FM 41 No nominated company FM 42 When company liquidated 1630 1631 1632 1633 Introductory provisions FM 1 What this subpart applies to This subpart applies to eligible companies that are part of a wholly-owned group of companies that choose to form a con- solidated group of companies.
Deﬁned in this Act: company, consolidated group, wholly-owned group Compare: 2004 No 35 s FD 1 FM 2 Consolidation rules Purpose The consolidation rules are intended to ensure that, unless a provision of this Act expressly provides otherwise or the con- text requires another result, this Act applies to companies that are part of a consolidated group as if they were a single com- pany, including its treatment for the following purposes: (a) to determine whether a tax credit may be used to satisfy the income tax liability of a consolidated group for a tax year: (b) when a provision sets a limit or provides a threshold, and its application depends on whether or not something is more or less than the limit or threshold.
Meaning The consolidation rules means the following: (a) (b) this subpart: section GB 38 (When sections GB 35 to GB 37 apply to consolidated groups): subpart ID (Use of tax losses by consolidated groups): (c) (1) (2) 1600 Reprinted as at 30 August 2013 Income Tax Act 2007 Part F s FM 3 (f) (e) (d) sections LK 8 to LK 11 (which relate to tax credits of consolidated group companies): subpart OP (Memorandum accounts of consolidated groups): section RC 28 (Provisional tax rules and consolidated groups): (g) section 74 of the Tax Administration Act 1994.
Deﬁned in this Act: company, consolidated group, consolidation rules, income tax liability, tax credit, tax year Compare: 2004 No 35 ss FD 1, OB 1 “consolidation rules” Section FM 2(2)(g): substituted (with effect on 30 June 2009), on 6 October 2009, by section 229(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
FM 3 Liability of consolidated groups and group companies (1) (2) (3) Taxable income of consolidated group For the purposes of calculating the income tax liability for a tax year of a consolidated group under subpart BC (Calculating and satisfying income tax liabilities), the taxable income of a consolidated group for a tax year is the sum of the amounts cal- culated under subsection (2) for each company in the consoli- dated group for all or part of the corresponding income year.
Calculation for each company in consolidated group Each company that is part of a consolidated group for all or part of an income year must calculate the amount that would be its taxable income under subpart BC, as modiﬁed by this section and sections FM 4 to FM 13, for all or part of the income year in which the company is part of the consolidated group.
Returns and assessment by consolidated group The nominated company of a consolidated group must— (a) provide a single return of income for a tax year for the companies in the consolidated group in the correspond- ing income year under section 33 of the Tax Adminis- tration Act 1994; and (b) make an assessment under section 92 of the Tax Admin- istration Act 1994 of the amount of income tax payable by the consolidated group.
1601 Part F s FM 4 Income Tax Act 2007 Reprinted as at 30 August 2013 No separate returns or assessment (with exception) (4) A group company cannot make a separate assessment or re- turn for the tax year unless it is, for part of the corresponding income year, not part of the consolidated group.
(5) (6) (7) Joint and several liability Each company that is part of a consolidated group is jointly and severally liable for the amount of income tax assessed for the consolidated group in relation to its taxable income.
Individual liability The joint and several liability of each company that is part of a consolidated group is substituted for their individual income tax liability, but only to the extent— (a) of the income tax liability of the consolidated group for the period of the income year in which the company is in the consolidated group; and to which section FM 37 does not apply.
(b) Withholding and payment obligations of companies Each company that is part of a consolidated group is liable to comply with its obligations under the PAYE rules, the FBT rules, the ESCT rules, the RWT rules, and the NRWT rules.
Deﬁned in this Act: amount, assessment, company, consolidated group, corres- ponding income year, ESCT rules, FBT rules, income tax, income tax liability, income year, nominated company, NRWT rules, pay, PAYE rules, return of in- come, RWT rules, tax year, taxable income Compare: 2004 No 35 ss HB 1(1), HB 2(1), NB 1 FM 4 Limiting joint and several liability of group companies (1) When this section applies This section applies before the nominated company of a consolidated group makes an assessment for the consolidated group for a tax year.
Named companies bearing liability (2) Despite section FM 3(5), the nominated company may ask the Commissioner for approval for 1 or more named companies in the consolidated group to bear the consolidated group’s in- come tax liability for the tax year.
1602 Reprinted as at 30 August 2013 Income Tax Act 2007 Part F s FM 5 (3) (4) Approval by Commissioner The Commissioner must approve a request under subsection (2) unless limiting the liability to the named companies will signiﬁcantly prejudice the recovery, or likely recovery, of the income tax liability of the consolidated group for the tax year.
Liability limited to named companies For a tax year to which an approval referred to in subsection (3) relates,— (a) only a named company is liable for the income tax li- ability of the consolidated group, and if more than 1 company is named, the liability is joint and several: section RC 28 (Provisional tax rules and consolidated groups) does not apply to impose on a company other than a named company joint and several liability for provisional tax payable by the consolidated group.
(b) When named companies do not meet obligations (5) Despite subsection (4), the joint and several liability of a group company other than a named company is not extinguished to the extent to which— (a) (b) a named company does not meet their income tax liabil- ity under this section; and the Commissioner determines that the income tax liabil- ity of the consolidated group that is attributable to the taxable income of a company other than a named com- pany is to be recovered from the other company.
Deﬁned in this Act: assessment, Commissioner, company, consolidated group, income tax liability, nominated company, pay, provisional tax, tax year, taxable income Compare: 2004 No 35 s HB 1(3)–(5) FM 5 Liability when company leaves consolidated group (1) Company leaving consolidated group In an income year in which a company leaves a consolidated group, the company’s liability under section FM 3(5) is re- moved if all the following paragraphs apply: (a) if the assessment is made after the later of— (i) the date on which the company is treated as leav- ing the consolidated group; or 1603 Part F s FM 6 Income Tax Act 2007 Reprinted as at 30 August 2013 (b) (c) (ii) the date of the event that caused the company to be treated as leaving the consolidated group; and the amount assessed is more than an earlier assessment of the consolidated group for the income year; and the Commissioner considers that the removal of the li- ability will not signiﬁcantly prejudice the recovery, or likely recovery, of the amount of income tax assessed for the income year.
(2) Notifying company and consolidated group For the purposes of subsection (1)(c), the Commissioner must notify the company and the consolidated group if the discretion has been exercised.
Deﬁned in this Act: amount, assessment, Commissioner, company, consoli- dated group, income tax, income year, notify Compare: 2004 No 35 s HB 1(2) FM 6 Some general rules for treatment of consolidated groups (1) (2) References to income, tax losses, tax payable, and credits For the purposes of the consolidation rules, the following amounts are determined on the basis of a single assessment: (a) income, assessable income, net income, or taxable in- come of a consolidated group: a tax loss component, a tax loss, a loss balance, an at- tributed CFC net loss, or a FIF net loss of a consolidated group: tax payable by a consolidated group: a tax credit available to a consolidated group.
(b) (c) (d) Shares For the purposes of applying the consolidation rules to particu- lar provisions in this Act, the shares or options over shares of a consolidated group are treated as comprising all the shares or options over shares of the companies in the consolidated group at the relevant time.
Dividends (3) A dividend that 1 company that is part of a consolidated group pays to another group company continues to be taken into ac- count for the purposes of— the imputation rules: (a) 1604 Reprinted as at 30 August 2013 Income Tax Act 2007 Part F s FM 6 (4) (5) (b) (c) (d) (e) [Repealed] sections FM 8(3)(c), FM 27 to FM 30, GB 38, and OP 3 to OP 50 (which relate to dividends and consolidated groups): [Repealed] section 74 of the Tax Administration Act 1994. International tax rules The international tax rules apply, modiﬁed as necessary, as if the consolidated group were a single company.
Balance of imputation credit account Sections OA 3 (General rules for maintaining memorandum accounts) and YA 2(7) (Meaning of income tax varied) apply for the purposes of section GB 38, subpart OP, and section 74 of the Tax Administration Act 1994 as if the references to the imputation rules were references to sections OP 3 to OP 50.
Deﬁned in this Act: amount, assessable income, assessment, attributed CFC net loss, company, consolidated group, consolidation rules, dividend, FIF net loss, imputation credit account, imputation rules, income, income tax, international tax rules, loss balance, net income, pay, share, tax, tax credit, tax loss, tax loss component, taxable income Compare: 2004 No 35 ss FD 2, FD 11 Section FM 6(3)(b): repealed (with effect on 30 June 2009), on 6 October 2009, by section 230(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section FM 6(3)(c): substituted (with effect on 30 June 2009), on 6 October 2009, by section 230(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section FM 6(3)(c): amended (with effect on 1 July 2012), on 2 November 2012 (applying for income years beginning on or after 1 July 2012), by section 71(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section FM 6(3)(d): repealed, on 1 July 2012 (applying for income years be- ginning on or after that date), by section 66(1) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).

Section FM 6(3)(e): substituted (with effect on 30 June 2009), on 6 October 2009, by section 230(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section FM 6(5) heading: substituted (with effect on 30 June 2009), on 6 Oc- tober 2009, by section 230(5) of the Taxation (International Taxation, Life In- surance, and Remedial Matters) Act 2009 (2009 No 34).

Section FM 6(5): substituted (with effect on 30 June 2009), on 6 October 2009, by section 230(5) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
1605 Part F s FM 7 Income Tax Act 2007 Reprinted as at 30 August 2013 Section FM 6 list of deﬁned terms FDP account: repealed (with effect on 30 June 2009), on 6 October 2009, by section 230(6) of the Taxation (Inter- national Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section FM 6 list of deﬁned terms FDP rules: repealed (with effect on 30 June 2009), on 6 October 2009, by section 230(6) of the Taxation (International Tax- ation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Calculating taxable income for consolidated group returns Accounting generally FM 7 Treatment of amounts derived or expenditure incurred Sections FM 8 to FM 30 set out the treatment of certain amounts derived or expenditure incurred while a company is part of a consolidated group.
The treatment applies to the part of a company’s income year when the company is in the consolidated group.
Deﬁned in this Act: amount, company, consolidated group, income year Compare: 2004 No 35 s HB 2(1) FM 8 Transactions between group companies: income (1) (2) When this section applies This section applies when a company that is part of a consoli- dated group derives an amount of income from a transaction or arrangement with another company in the same consolidated group, and the amount would not be income if the consolidated group were 1 company.
Excluded income The amount is excluded income of the company under section CX 60 (Intra-group transactions).
Exclusion of certain amounts (3) Despite subsection (2), this section does not apply to— (a) (b) an amount arising from the disposal of the company’s trading stock; or an amount arising under section EW 31 (Base price ad- justment formula) from— (i) the disposal of a ﬁnancial arrangement to which the ﬁnancial arrangements rules apply; or 1606 Reprinted as at 30 August 2013 Income Tax Act 2007 Part F s FM 10 (c) (ii) the remission of a ﬁnancial arrangement to which the ﬁnancial arrangements rules apply, if the par- ties were not consolidated group companies for the whole term of the arrangement; or a dividend under section CD 4(1) (Transfers of value generally) between group companies arising from the release of an obligation to repay money lent before the companies are treated under section FM 35 as part of the consolidated group.
Deﬁned in this Act: amount, arrangement, company, consolidated group, divi- dend, excluded income, ﬁnancial arrangement, ﬁnancial arrangements rules, in- come, money lent, pay, trading stock Compare: 2004 No 35 s HB 2(1)(a) Section FM 8(3)(b)(ii): amended (with effect on 1 April 2008), on 2 November 2012 (applying for the 2008–09 and later income years, except for a tax position that is inconsistent with subsection (1) and is taken in a tax return ﬁled before 14 September 2011), by section 72(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
FM 9 Amounts that are company’s income (1) When this section applies This section applies when a company that is part of a consoli- dated group derives an amount that would not be income of the company in the absence of this section, but would be income of the consolidated group if it were 1 company either— (a) because of a purpose for which an item of property was acquired; or because a connection exists between the amount and the carrying on of a business by another consolidated group company; or for some other reason.
(b) (c) (2) Income The amount is income of the company under section CV 2 (Consolidated groups: income of company in group).
Deﬁned in this Act: amount, business, company, consolidated group, income Compare: 2004 No 35 s HB 2(1)(e) FM 10 Expenditure: intra-group transactions When this section applies This section applies when— (1) 1607 Part F s FM 11 Income Tax Act 2007 Reprinted as at 30 August 2013 (2) (a) (b) a company incurs expenditure or loss, or has an amount of depreciation loss, in a tax year or part of a tax year in which it is part of a consolidated group; and the company incurs the expenditure or loss through a payment or disposal to, or a transaction or arrangement with, another consolidated group company.
No deduction (with exception) If a deduction would not be allowed for the expenditure or loss if the consolidated group were 1 company, the company is denied a deduction under section DV 16 (Consolidated groups: intra-group transactions) unless the exceptions in section DV 16(2)(a) or (b) apply.
Deﬁned in this Act: amount, arrangement, company, consolidated group, de- duction, depreciation loss, loss, tax year Compare: 2004 No 35 s HB 2(1)(b) FM 11 Expenditure: nexus with income derivation When this section applies This section applies when a company incurs expenditure or loss or has an amount of depreciation loss in a tax year or part of a tax year in which it is part of a consolidated group that— is not expenditure or loss to which section FM 10 ap- (a) plies; and (b) would not be allowed as a deduction to the company in the absence of this section.
Deduction The company is allowed a deduction for the amount under sec- tion DV 17 (Consolidated groups: expenditure or loss incurred by group companies) if the consolidated group would be al- lowed a deduction for the amount, treating the group as if it were 1 company, because of a connection between— (a) the incurring of the expenditure or loss or amount of depreciation loss; and the deriving of assessable or excluded income, or the carrying on of a business by another company in the consolidated group.
(b) Deﬁned in this Act: amount, assessable income, business, company, consoli- dated group, deduction, depreciation loss, excluded income loss, tax year Compare: 2004 No 35 s HB 2(1)(c) (1) (2) 1608 Reprinted as at 30 August 2013 Income Tax Act 2007 Part F s FM 12 FM 12 Expenditure when deduction would be denied to consolidated group (1) (2) When this section applies This section applies when a company incurs expenditure or loss or an amount of depreciation loss in a tax year or part of a tax year in which it is part of a consolidated group that— (a) is not expenditure or loss to which section FM 10 ap- plies; and (b) would be allowed as a deduction to that company in the absence of this section.
No deduction (with exception) The company is denied a deduction for an amount under sec- tion DV 17 (Consolidated groups: expenditure or loss incurred by group companies) if the deduction would be denied to the consolidated group, treating the group as if it were 1 company, except to the extent to which the expenditure or loss or amount of depreciation loss is interest on money that the company has borrowed from a person that is not part of the consolidated group, and the company— (a) is allowed a deduction under section DB 7 (Interest: most companies need no nexus with income) or DB 8 (Interest: money borrowed to acquire shares in group companies): (b) would be allowed a deduction under section DB 7 or DB 8 because the company is treated as having used the money borrowed, to the extent of the actual acqui- sition cost, to acquire certain shares when, through in- terposed intra-group borrowings, the money borrowed was in fact used by another group company in acquir- ing the shares.
Deﬁned in this Act: amount, company, consolidated group, deduction, depre- ciation loss, interest, loss, share, tax year Compare: 2004 No 35 s HB 2(1)(d) Section FM 12(2): amended (with effect on 1 April 2008), on 7 September 2010 (applying for the 2008–09 and later income years), by section 52(1) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
1609 Part F s FM 13 Income Tax Act 2007 Reprinted as at 30 August 2013 FM 13 Capital expenditure (1) (2) When this section applies This section applies when a company that is part of a consoli- dated group incurs expenditure or loss that would, treating the consolidated group as if it were 1 company, be taken into ac- count in determining the cost of property but would not other- wise be taken into account in the absence of this section.
Amount taken into account The expenditure or loss is taken into account in determining the cost of property of companies in the consolidated group.

Deﬁned in this Act: company, consolidated group, loss Compare: 2004 No 35 s HB 2(2) FM 14 Part-year ﬁnancial statements When this section applies This section applies in an income year when— (a) a company joins or leaves a consolidated group during the income year; or a consolidated group is formed or ends its existence dur- ing the income year.
(b) Who must provide statements The following returns of income for the tax year must include part-year ﬁnancial statements under sections FM 38(5) and FM 40(4): (a) by the company when the ﬁnancial statements relate to a period in which the company is not in the consolidated group: by the consolidated group when the ﬁnancial statements relate to a period in which the company is in the consoli- dated group: by another consolidated group when the ﬁnancial state- ments relate to a period in which the company is in an- other consolidated group.
(b) (c) Detailed statements The part-year ﬁnancial statements must determine, as applic- able, the annual gross income, annual total deductions, income tax liability, or tax loss of the company in a fair and reasonable (1) (2) (3) 1610 Reprinted as at 30 August 2013 Income Tax Act 2007 Part F s FM 15 way.

For this purpose the relevant part of the income year is treated as a complete income year.
Deﬁned in this Act: annual gross income, annual total deduction, company, consolidated group, income tax liability, income year, return of income, tax loss, tax year Compare: 2004 No 35 s FD 9 Accounting for particular property FM 15 Amortising property and revenue account property (1) When this section applies This section applies— (a) when property is transferred from a company (company A) to another company (company B) and both compan- ies are in the same consolidated group at the time the transfer takes place, and the property transferred is— (i) (ii) amortising property; or revenue account property, but not trading stock or a ﬁnancial arrangement to which the ﬁnancial arrangements rules apply; and (b) to determine the income and deductions on a later disposal of property, or in relation to the depreciation or amortisation of the acquisition cost of the property under this Act.
(2) Acquisition by company B Company B is treated as acquiring the property on the date it was acquired by company A for the amount set out in subsec- tions (3) to (5).

Whole pool (3) When the property forms the whole of a pool of property that is depreciated by company A under sections EE 20 to EE 24 (which relate to depreciation loss calculated under the pool method), the amount in subsection (2) is the adjusted tax value of the pool immediately before the property is transferred to company B.
Part pool (4) When the property forms only part of a pool of property that is depreciated by company A under sections EE 20 to EE 24, the amount in subsection (2) is the lesser of— 1611 Part F s FM 15 Income Tax Act 2007 Reprinted as at 30 August 2013 (a) (b) the market value of the property transferred to company B; and the adjusted tax value of the whole of the pool immedi- ately before the property is transferred to company B.
Not pool property If subsections (3) and (4) do not apply, the amount in subsec- tion (2) is the sum of the following amounts of expenditure incurred by company A before the property is transferred to company B for which no deduction has been allowed other than by the depreciation or amortisation of the acquisition cost of the property under section EE 1, EZ 7, or EZ 8 (which relate to depreciation), or another amortisation provision of this Act: (a) (b) the original purchase price of the property: expenditure incurred— (i) (ii) in purchasing or improving the property; or in securing or improving company A’s legal rights to the property.
When subsection (7) applies Subsection (7) applies— (a) for the purposes of sections EE 46 to EE 52 (which relate to disposals and depreciation recovery income); and to property referred to in subsection (1)(b) other than pooled property; and in relation to an amount of depreciation loss or amort- isation of acquisition cost up to the time the property is transferred from company A to company B.
(b) (c) Pre-transfer deductions for depreciation loss and amortisation Company B is treated as allowed the pre-transfer deductions that company A is allowed for amounts of depreciation loss under section EZ 7 or EZ 8, or for an amount of expenditure or loss under another amortisation provision of this Act.
Deﬁned in this Act: acquire, adjusted tax value, amortising property, amount, company, consolidated group, deduction, depreciation loss, ﬁnancial arrange- ment, ﬁnancial arrangements rules, income, market value, other amortisation provision, pool, revenue account property, trading stock Compare: 2004 No 35 s FD 10(1), (2) (5) (6) (7) 1612 Reprinted as at 30 August 2013 Income Tax Act 2007 Part F s FM 17 FM 16 Land or business: certain farming or forestry expenditure (1) (2) When this section applies This section applies in an income year when 2 companies (company A and company B) are in the same consolidated group for the whole of the income year, and — (a) company A transfers land to company B, and company B holds the land for the remainder of the income year; or company A stops carrying on a business, and company B carries on the business for the remainder of the in- come year.
(b) Deductions for certain farming and forestry expenditure Company A is allowed a deduction under sections DO 4 to DO 6, and DO 12 (which relate to farming and aquaculture expenditure), or DP 3 (Improvements to forestry land) after the transfer or cessation of the business as if the transfer or cessation did not occur.
Deﬁned in this Act: business, company, consolidated group, deduction, income year, land Compare: 2004 No 35 s FD 10(3) FM 17 Trading stock (1) When this section applies This section applies in an income year in which a company (company A) transfers identiﬁable trading stock to another company (company B) when— (a) company A and company B are in the same consolidated group at the time of the transfer; and company A and company B choose to value the trading stock under subpart EB (Valuation of trading stock (in- cluding dealer’s livestock)) or at the cost to company A, as applicable; and the nominated company of the consolidated group noti- ﬁes the Commissioner within the time for providing the consolidated group’s return of income, or a later time if the Commissioner agrees.
(b) (c) 1613 Part F s FM 18 Income Tax Act 2007 Reprinted as at 30 August 2013 (2) (3) Trading stock held at start of income year If company A held the trading stock at the start of the income year, the consideration for the transfer is the value of the trad- ing stock at the start of the income year determined under sub- part EB.
Trading stock acquired If subsection (2) does not apply, the consideration for the trans- fer is the cost of the trading stock to company A. Deﬁned in this Act: Commissioner, company, consolidated group, income year, nominated company, notify, return of income, trading stock Compare: 2004 No 35 s FD 10(5) FM 18 Financial arrangements: transfer from company A to company B When this section applies This section applies in an income year in which a company (company A) transfers a ﬁnancial arrangement to which the ﬁnancial arrangements rules apply to another company (com- pany B) when— (a) company A and company B are in the same consolidated group for the whole of the income year; and the method of calculating income and expenditure from the ﬁnancial arrangement does not change after the transfer, and the consolidated group’s return of income is made on that basis; and neither company A nor company B is entitled to use under sections IA 4 and IA 5 (which relate to the use of loss balances by companies) a loss balance carried forward unless subpart ID (Use of tax losses by con- solidated groups) applies.
(b) (c) Treatment of companies In the year of transfer and in later income years,— (a) company A is treated as if it had never been a party to the ﬁnancial arrangement, and section EW 31 (Base price adjustment formula) does not apply: company B is treated as if it had taken all the actions that company A undertook before the transfer in enter- ing into the ﬁnancial arrangement, incurring expend- (b) (1) (2) 1614 Reprinted as at 30 August 2013 Income Tax Act 2007 Part F s FM 19 (3) iture and deriving income, and providing its return of income in relation to the ﬁnancial arrangement.
Relationship with sections EW 38 and GB 21 This section overrides sections EW 38 (Consideration when disposal for no, or inadequate, consideration) and GB 21 (Dealing that defeats intention of ﬁnancial arrangements rules).
Deﬁned in this Act: company, consolidated group, ﬁnancial arrangement, ﬁnan- cial arrangements rules, income, income year, loss balance, return of income Compare: 2004 No 35 s FD 10(4), (4A) FM 19 Financial arrangements: transfer for fair and reasonable consideration (1) (2) (3) When this section applies This section applies in an income year in which a company (company A) transfers a ﬁnancial arrangement to another company (company B) when— (a) company A and company B are in the same consolidated group at the time of the transfer; and section FM 18 does not apply to the transfer; and the method of calculating income and expenditure from the ﬁnancial arrangement does not change after the transfer, and the consolidated group’s return is made on this basis.
(b) (c) Consideration for transfer In calculating the base price adjustment, company A’s consid- eration for the transfer is a fair and reasonable amount of the income that would have been derived, or the expenditure that would have been incurred, by company A in the year of trans- fer if the transfer had not taken place.
Relationship with sections EW 38 and GB 21 This section overrides sections EW 38 (Consideration when disposal for no, or inadequate, consideration) and GB 21 (Dealing that defeats intention of ﬁnancial arrangements rules).
Deﬁned in this Act: amount, company, consolidated group, ﬁnancial arrange- ment, income, income year, return of income Compare: 2004 No 35 s FD 10(4), (4B) 1615 Part F s FM 20 Income Tax Act 2007 Reprinted as at 30 August 2013 FM 20 Financial arrangements: transfer at market value (1) (2) (3) When this section applies This section applies in an income year in which a company (company A) transfers a ﬁnancial arrangement to another company (company B) when— (a) company A and company B are in the same consolidated group at the time of the transfer; and neither section FM 18 nor FM 19 applies to the transfer.
(b) Consideration for transfer The consideration for the transfer is the market value of the ﬁnancial arrangement on the date of the transfer.

Relationship with sections EW 38 and GB 21 This section overrides sections EW 38 (Consideration when disposal for no, or inadequate, consideration) and GB 21 (Dealing that defeats intention of ﬁnancial arrangements rules).
Deﬁned in this Act: company, consolidated group, ﬁnancial arrangement, in- come year Compare: 2004 No 35 s FD 10(4), (4C) FM 21 Property transfers when companies leave consolidated groups When this section applies This section applies to the extent to which a transfer of prop- erty has not previously been taken into account in the calcula- tion of a consolidated group’s taxable income under sections FM 8 to FM 13, or FM 15 to FM 20 and FM 23 when— (a) a company leaves a consolidated group, but not through liquidation; and the company holds property that has at any time been transferred between companies in the same consoli- dated group; and sections FM 15, or FM 17 to FM 20 applied to the trans- fer of the property.
(b) (c) Disposal and acquisition at market value The company is treated as disposing of the property immedi- ately before it leaves the consolidated group to a person not (1) (2) 1616 Reprinted as at 30 August 2013 Income Tax Act 2007 Part F s FM 23 (3) associated with it, and reacquiring it at that time at its market value.
Market value at time of transfer If the item of property is part of or is absorbed into some other property, or its market value cannot be separately identiﬁed, the company is treated as disposing of and reacquiring the property at its market value at the time of the transfer under the relevant provision referred to in subsection (1)(c).

If the property is transferred more than once, the time of disposal and reacquisition is the date of the latest transfer at which its market value can be determined.
Deﬁned in this Act: associated person, company, consolidated group, liquid- ation, market value, taxable income Compare: 2004 No 35 s FD 10(6), (7) FM 22 Arrangements to avoid consolidation rules (1) (2) When this section applies This section applies when— (a) a company joins a consolidated group and at the time holds property that it later transfers to another group company; and sections FM 15 or FM 17 to FM 20 would otherwise apply to the transfer of the property; and after the transfer the company leaves the consolidated group, whether by liquidation or otherwise.
(b) (c) Arrangement to defeat consolidation rules If, in undertaking the activities, it could reasonably be con- cluded that the company was involved in an arrangement that had a purpose or effect of defeating the intent and applica- tion of the consolidation rules, the relevant provision does not apply to the transfer.
Deﬁned in this Act: arrangement, company, consolidated group, consolidation rules, liquidation Compare: 2004 No 35 s FD 10(9) FM 23 Arrangements for disposal of shares When this section applies This section applies when— (1) 1617 Part F s FM 23 Income Tax Act 2007 Reprinted as at 30 August 2013 (a) (b) (c) (d) 2 companies (company A and company B) are in the same consolidated group; and the value of company A’s net assets have been reduced as a result of a dividend, distribution, payment, arrange- ment, or transaction between company A and company B at the time the dividend is paid or the distribution, payment, arrangement, or transaction is made; and another company (company C) disposes of shares in company A for consideration that is less than the amount that would have been received in an arm’s length transaction had the reduction in the value of company A’s net assets not occurred; and if the disposal were by way of sale, the consideration from the sale would be included in company C’s in- come, other than income taken into account under sec- tion FM 3.
Arm’s length transaction on disposal of shares The disposal is treated as if it were a sale at arm’s length.

Income The amount that would have been received in an arm’s length transaction is income of company C under section CV 3 (Con- solidated groups: arrangement for disposal of shares).

Timing The time at which the consideration for the sale at arm’s length is determined is before the reduction in the value of company A’s net assets.
Relationship with sections FM 8 and FM 11 Subsection (2) does not apply to an amount of income taken into account under section FM 8 or FM 11.
Deﬁned in this Act: amount, arrangement, company, consolidated group, divi- dend, income, pay, share Compare: 2004 No 35 s FD 10(8) Treatment of foreign dividends [Repealed] Heading: repealed (with effect on 1 April 2009), on 6 October 2009, pursuant to section 231(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
(2) (3) (4) (5) 1618 Reprinted as at 30 August 2013 Income Tax Act 2007 Part F s FM 27 FM 24 General treatment of foreign dividends [Repealed] Section FM 24: repealed (with effect on 1 April 2009), on 6 October 2009, by section 231(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
FM 25 Reduction in payments for foreign dividends [Repealed] Section FM 25: repealed (with effect on 1 April 2009), on 6 October 2009, by section 231(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

FM 26 Using tax losses to pay FDP [Repealed] Section FM 26: repealed (with effect on 1 April 2009), on 6 October 2009, by section 231(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
FM 27 Refunds of FDP (1) (2) When this section applies This section applies when a company becomes entitled in a tax year to a refund of a FDP paid by it to the Commissioner in an earlier tax year in relation to a foreign dividend received when the company was part of a consolidated group.
Maximum amount of refund The refund must not be more than the amount set out in the following paragraphs, as applicable: (a) if the consolidated group has an FDP account at the time the entitlement arises, a credit balance in the group’s FDP account at the end of the tax year that is before the tax year in which the entitlement arises; or if the consolidated group does not have an FDP account at the time the entitlement arises, a credit balance in the group’s imputation credit account at the end of the tax year that is before the tax year in which the entitlement arises.
(b) (3) Treatment of excess If subsection (2) does not apply to some or all of the pay- ment because it is more than the applicable credit balance, the 1619 Part F s FM 28 Income Tax Act 2007 Reprinted as at 30 August 2013 (4) (5) (6) amount in excess is credited to FDP payable by the company for a tax year in which it is part of the consolidated group.
Earlier refunds of payments The credit balance referred to in subsection (3) is treated as re- duced by an earlier refund of FDP that is made in the tax year to the company or to another company in the same consoli- dated group at the time the dividend is paid or for the income year in which the refund is made.
Refunds of income tax Subsection (4) also applies in relation to a refund of income tax that is, under sections RM 13 to RM 17 (which relate to limit on refunds) no more than the credit balance described in subsection (2).

Relationship with section RM 18 This section overrides section RM 18 (Limits on refunds re- lated to foreign dividends).
However, section RM 18 does not limit a refund of FDP to a company that is part of a consoli- dated group at the time the dividend is paid to the extent to which this section would not have limited the refund.
Deﬁned in this Act: amount, Commissioner, company, consolidated group, FDP, FDP account, foreign dividend, imputation credit account, income tax, pay, tax year Compare: 2004 No 35 s NH 5(5), (6), (8) FM 28 Refund when consolidated group has loss When this section applies This section applies when— (a) a company has paid FDP to the Commissioner in an income year and, at the time the dividend was paid, the company was part of a consolidated group; and the group has a tax loss component for the tax year that corresponds to the income year that may be used under section IA 3 and subpart ID (which relate to the treat- ment of tax losses); and the nominated company of the consolidated group has ﬁled its return of income under section FM 3(3).
(b) (c) (1) 1620 Reprinted as at 30 August 2013 Income Tax Act 2007 Part F s FM 29 (2) (3) (4) (5) Applying for refund The company may apply to the Commissioner for a refund of the payment.

The maximum refund is the smallest of the following amounts: (a) (b) the amount of the payment paid in the income year: the amount of the tax loss component multiplied by the rate set out in subsection (4)(b): the credit balance of the group’s FDP account at the end of the tax year just ended.
(c) Tax loss component reduced The amount of the tax loss component is reduced by an amount calculated using the formula— amount of refund tax rate.

Deﬁnition of items in formula In the formula,— (a) (b) amount of refund is the amount of the refund paid to the company: tax rate is the basic rate of income tax set out in sched- ule 1, part A, clause 2 (Basic tax rates: income tax, ESCT, RSCT, RWT, and attributed fringe beneﬁts) for the tax year that corresponds to the income year.
Relationship with section RM 21 This section overrides section RM 21 (Refunds when loss bal- ances used to reduce net income).

Deﬁned in this Act: amount, Commissioner, company, consolidated group, FDP, FDP account, foreign dividend, income tax, income year, nominated com- pany, pay, return of income, tax loss component, tax year Compare: 2004 No 35 s NH 5(7) Section FM 28(4)(b): amended, on 1 April 2008, by section 562 of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
FM 29 Treatment of credit balance in consolidated group’s FDP account (1) When this section applies This section applies when a consolidated group has a credit balance in its FDP account at the end of a tax year.
1621 Part F s FM 30 Income Tax Act 2007 Reprinted as at 30 August 2013 (2) (3) Credit and debit The nominated company of the consolidated group may choose that some or all of the credit balance becomes— (a) a credit in the imputation credit account of the group, or of the imputation group to which the consolidated group companies belong; and a debit in the FDP account of the consolidated group.
(b) How election made The company makes the election by recording the debit in the consolidated group’s FDP account.

Deﬁned in this Act: consolidated group, FDP account, imputation credit ac- count, imputation group, nominated company, tax year Compare: 2004 No 35 s NH 6(6) FM 30 Application of certain provisions to consolidated groups When subsections (2) and (3) apply Subsections (2) and (3) apply when a consolidated group has a policyholder credit account and an FDP account.
Credit and debit balances The nominated company of the consolidated group may choose to have some or all of a credit balance in the FDP ac- count credited to its policyholder credit account by recording the credit and corresponding debit in its accounts.
Section OC 20: life insurance credit balance Section OC 20 (FDPA transfer to policyholder credit account) applies in relation to a consolidated group, modiﬁed as neces- sary, as if— (a) a reference to a company were a reference to the con- solidated group: a reference to a provision of this Act applying to a company were a reference to the equivalent of sections OA 2 to OA 4, OA 7, OA 8, OC 2, OC 21, OC 23(4), OC 28(7), OC 34(3), OP 1, OP 2, and OP 51 to OP 77 (which relate to FDP accounts) applying to a consoli- dated group.
(b) Section OC 27: FDP credits Section OC 27 (FDP credits attached to dividends) applies in relation to a consolidated group as if the reference to an FDPA (1) (2) (3) (4) 1622 Reprinted as at 30 August 2013 Income Tax Act 2007 Part F s FM 30 company includes a reference to a company if, at the time a foreign dividend is paid to it, the company is part of a consoli- dated group that maintains an FDP account.
(5) (6) (7) Sections OC 30 to OC 32, and others: liability for payments and penalties Sections OA 2(5) and OC 30 to OC 32 (which relate to further FDP), and 103, 104, 139B, 140C, 140D, and 181 of the Tax Administration Act 1994 apply, modiﬁed as necessary in rela- tion to a consolidated group and its FDP account as if— (a) (b) the group were a single company: a reference to a provision of this Act were a reference to the equivalent provision applying to a consolidated group: a reference to a liability of a company for further FDP, FDP penalty tax, and a late payment penalty were a reference to the joint and several liability for the pay- ment, tax, or penalty of each company that is part of the group at the time the payment, tax or penalty becomes payable.
(c) Section RA 19: amalgamations Section RA 19 (Refunds of excess amounts or when amounts mistakenly paid) applies, modiﬁed as necessary, from the time of amalgamation when a consolidated group ends its existence on a resident’s restricted amalgamation that involves all com- panies in the consolidated group, whether or not with a com- pany outside the consolidated group, in relation to tax paid by the consolidated group as if it and the amalgamated company were a single company.
Sections 30 and 68 of Tax Administration Act 1994: FDP accounts Sections 30 and 68 of the Tax Administration Act 1994 apply, modiﬁed as necessary, in relation to a consolidated group as if a reference to an FDPA company were a reference to a com- pany that is part of a consolidated group that maintains an FDP account.
Deﬁned in this Act: amalgamated company, amalgamation, company, consoli- dated group, FDP account, FDP penalty tax, FDPA company, foreign dividend, 1623 Part F s FM 31 Income Tax Act 2007 Reprinted as at 30 August 2013 further FDP, nominated company, pay, policyholder credit account, resident’s restricted amalgamation, tax Compare: 2004 No 35 ss NH 4(9), NH 6(1), (2), (5), (7) Membership of consolidated groups Eligibility and restrictions FM 31 Eligibility rules When company eligible (1) A company is eligible to form, join, and continue as part of a consolidated group at a particular time if, at the time,— (a) (b) (c) it is resident in New Zealand; and it is not a foreign company; and it is not a company that derives only exempt income, except exempt income under sections CW 9 and CW 10 (which relate to income from equity); and it is incorporated in New Zealand or carrying on a busi- ness in New Zealand through a ﬁxed establishment; and it is not, by the law of another country or territory, li- able to income tax in that country or territory through domicile, residence, or place of incorporation; and when subsection (2) or (4) applies, it meets the relevant conditions; and subsection (6) does not apply to it.
(d) (e) (f) (g) Restriction when company of certain type (2) Despite subsection (1), if a company that is part of a consoli- dated group is 1 of the following types of company, all com- panies in the consolidated group at the time must be the same type as that company: (a) (b) a qualifying company: a mining company.
(3) Grandparented consolidated companies The requirements of subsection (1)(d) and (e) do not apply to determine whether a grandparented consolidated company— is eligible to form or join a consolidated group: (a) continues as part of the consolidated group.
(b) Non-standard balance date (4) Despite subsection (1), if a company that is part of a con- solidated group has a non-standard balance date, all compan- 1624 Reprinted as at 30 August 2013 Income Tax Act 2007 Part F s FM 31 ies in the consolidated group at the time must have the same non-standard balance date.
LAQCs [Repealed] [Repealed] (5) Anti-avoidance measure (6) A company is not eligible to be part of a consolidated group if, for a purpose of enabling a company to be part of a consoli- dated group so as to defeat the intent and application of the consolidation rules, the company’s shares— (a) are subject to an arrangement, or to a series of related or connected arrangements; or have rights attaching to them extinguished or altered directly or indirectly by any means.
(b) Deﬁned in this Act: arrangement, business, company, consolidated group, consolidation rules, exempt income, ﬁxed establishment, foreign company, grandparented consolidated company, income, income tax, mining company, New Zealand, non-standard balance date, qualifying company, resident in New Zealand, share Compare: 2004 No 35 ss FD 3(b)–(e), OB 1 “eligible company” Section FM 31(1): substituted (with effect on 1 April 2008), on 6 October 2009, by section 232(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section FM 31(1)(c): amended (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 67(1) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).

Section FM 31(1)(g): amended, on 17 July 2013, by section 56 of the Taxa- tion (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Section FM 31(3): substituted (with effect on 1 April 2008), on 6 October 2009, by section 232(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section FM 31(5) heading: repealed, on 17 July 2013, pursuant to section 172 of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Section FM 31(5): repealed, on 17 July 2013, by section 172 of the Taxa- tion (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).

Section FM 31 list of deﬁned terms income tax: inserted (with effect on 1 April 2008), on 6 October 2009, by section 232(3) of the Taxation (International Tax- ation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
1625 Part F s FM 32 Income Tax Act 2007 Reprinted as at 30 August 2013 Section FM 31 list of deﬁned terms LAQC: repealed, on 17 July 2013, by sec- tion 172 of the Taxation (Livestock Valuation, Assets Expenditure, and Remed- ial Matters) Act 2013 (2013 No 52).

FM 32 Restriction on membership of consolidated groups A company is not eligible to be in more than 1 consolidated group at a particular time.
If circumstances arise in which a company would, apart from this section, be treated at a par- ticular time as in more than 1 consolidated group, then— (a) the company is treated as in the consolidated group of which it was ﬁrst part; or if the company is in 2 or more consolidated groups sim- ultaneously, the Commissioner may specify its consoli- dated group, having regard to all the circumstances of the case.
(b) Deﬁned in this Act: Commissioner, company, consolidated group Compare: 2004 No 35 s FD 5 FM 33 When membership is reduced A consolidated group continues to exist if the number of group companies is reduced to 1 company, but if the consolidated group has no company at any time, the consolidated group no longer exists.
Deﬁned in this Act: company, consolidated group Compare: 2004 No 35 s FD 8(9) Nominated companies FM 34 Nominated companies Group company at the time The nominated company of a consolidated group at any time must be in the consolidated group at the time.

Agent For the purposes of this Act and the Tax Administration Act 1994, a nominated company of a consolidated group is, at a time, the agent of the consolidated group and of each company that is in the consolidated group at the time.
(1) (2) 1626 Reprinted as at 30 August 2013 Income Tax Act 2007 Part F s FM 35 Changing nominated company (3) A nominated company may notify the Commissioner that it is, at a particular date, no longer to continue as the agent for the consolidated group, and that another company is to become the nominated company for the consolidated group.
When notice takes effect (4) A notice referred to in subsection (3) takes effect— (a) (b) on the date the Commissioner receives the notice; or on a later date set out in the notice.

(5) Replacing nominated company If the nominated company of a consolidated group is liqui- dated, the other companies in the consolidated group may choose a replacement.
The replacement company— (a) becomes the nominated company of the consolidated group from the date of liquidation; and (b) must notify the Commissioner of its selection as nom- inated company within 20 working days after the date of liquidation, or a longer period if the Commissioner agrees.
Deﬁned in this Act: agent, Commissioner, company, consolidated group, li- quidation, nominated company, notice, notify, working day Compare: 2004 No 35 ss FD 6, FD 8(5) proviso Forming, joining, or leaving consolidated groups FM 35 Forming consolidated group (1) (2) Election Two or more companies may choose to form a consolidated group of companies if the companies are, at the time,— a wholly-owned group of companies; and (a) eligible under section FM 31.
(b) Notifying Commissioner The Commissioner must be notiﬁed of an election under sub- section (1).

For the purposes of section FM 3(5), the notice must state that each company that is part of the consolidated group acknowledges their joint and several liability for the amount of income tax assessed for the consolidated group.
1627 Part F s FM 36 Income Tax Act 2007 Reprinted as at 30 August 2013 Nominated company (3) A notice under subsection (2) must nominate 1 of the com- panies in the consolidated group as its agent.

The company is called the nominated company.


Deﬁned in this Act: agent, amount, assessment, Commissioner, company, con- solidated group, income tax, nominated company, notice, notify, wholly-owned group Compare: 2004 No 35 ss FD 3(a), FD 4(1), (2) FM 36 Joining existing consolidated group (1) (2) (3) When this section applies This section applies when 2 or more companies have formed a consolidated group and the consolidated group has not ended its existence.
Eligible for and entitled to membership If a company is eligible under section FM 31 and entitled to join the consolidated group, it may choose to join the consoli- dated group by notifying the Commissioner.

Joint and several liability The company providing the notiﬁcation referred to in subsec- tion (2) must agree in the notice to be jointly and severally liable under section FM 3(5) for income tax payable by the consolidated group.
Deﬁned in this Act: Commissioner, company, consolidated group, income tax, notice, notify, pay Compare: 2004 No 35 s FD 7(1), (2) FM 37 Leaving consolidated group A company leaves a consolidated group if— (a) it chooses to leave the consolidated group and notiﬁes the Commissioner of its election, see section FM 39; or it no longer meets the eligibility criteria set out in sec- tion FM 31, see section FM 40; or when it is not a nominated company, it is no longer en- titled to be in the same consolidated group as the nom- inated company, see section FM 40; or (b) (c) 1628 Reprinted as at 30 August 2013 Income Tax Act 2007 Part F s FM 38 (d) it is part of a consolidated group that no longer has a nominated company, see section FM 41.
Deﬁned in this Act: Commissioner, company, consolidated group, nominated company, notify Compare: 2004 No 35 s FD 8(1) When membership starts and stops FM 38 Notice requirements on forming or joining consolidated group (1) When this section applies This section applies when— (a) 2 or more companies choose to form a consolidated group under section FM 35; or a company chooses to join an existing consolidated group under section FM 36.
(b) Condition (2) Despite subsection (1), this section applies only if a company forming or joining a consolidated group remains entitled to be in the consolidated group either at the start of the relevant income year or for the notice period, as applicable.

(3) (4) Setting out income year in notice For a notice given to the Commissioner within the notice period in an income year, the company may provide that the election applies for the income year.
The company is treated as in the consolidated group from the start of the income year.

When notice does not specify income year If the notice referred to in subsection (3) does not specify an in- come year, the company is treated as in the consolidated group from the start of the income year following that in which the Commissioner receives the notice.
Setting out entitlement date in notice (5) Despite subsections (3) and (4), if a company becomes eligible to join a consolidated group during an income year, and the notice is given to the Commissioner within the notice period, the company may provide that the election applies from the date they ﬁrst became entitled to make an election.
The com- pany is treated as in the consolidated group from that date, 1629 Part F s FM 39 Income Tax Act 2007 Reprinted as at 30 August 2013 and part-year ﬁnancial statements under section FM 14 are re- quired.
(6) (7) Notice period In this section, notice period means 1 of the following: (a) (b) 63 working days after the start of an income year; or if the company joining, or the companies forming, the consolidated group in the income year are incorporated or formed in the same income year, 63 working days after the latest incorporation or formation; or if the company or companies become entitled to make an election during an income year, 63 working days from the date they ﬁrst became entitled; or an extended period if the Commissioner agrees that the notice could not reasonably have been provided within the 63-day period.
(c) (d) Anti-avoidance measure Subsection (5) does not apply if it would be reasonable to con- clude that an arrangement has been entered into for a purpose of enabling the company to meet the requirements of the sub- section so as to defeat the intent and application of the con- solidation rules.
Deﬁned in this Act: arrangement, Commissioner, company, consolidated group, consolidation rules, income year, notice, notice period, working day Compare: 2004 No 35 ss FD 4(3)–(8), FD 7(3)–(8) FM 39 Choosing to leave consolidated group (1) When this section applies This section applies when a company chooses to leave a con- solidated group and notiﬁes the Commissioner of its election.
Deferring leaving date (2) When the company notiﬁes the Commissioner of its election, it may defer the date on which it leaves the consolidated group to the ﬁrst day of the next income year.

However, unless sub- sections (3) and (4) apply, if the company does not defer the leaving date, it is treated as no longer in the consolidated group from the start of the income year in which the Commissioner receives the notice.
1630 Reprinted as at 30 August 2013 Income Tax Act 2007 Part F s FM 40 First income year: deferral (3) Despite subsection (2), if a company leaves a consolidated group in the same income year in which it joins the group, and defers the leaving date in the notice, it is treated as leaving the consolidated group from the start of the income year after the income year in which the Commissioner receives the notice.

Sections FM 40 and FM 41 override this subsection.


First income year: no deferral (4) Despite subsection (2), if a company leaves a consolidated group in the same income year in which it joins the consoli- dated group, and does not defer the leaving date in the notice, it is treated as leaving the consolidated group on the date it joined the group.
Deﬁned in this Act: Commissioner, company, consolidated group, income year, notice, notify Compare: 2004 No 35 s FD 8(2) Section FM 39(3): amended (with effect on 1 April 2008), on 29 August 2011 (applying for the 2008–09 and later income years), by section 140(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
FM 40 Losing eligibility or entitlement to be part of consolidated group (1) When this section applies This section applies when a company is no longer eligible to be part of a consolidated group or, if it is not the nominated company, when it is no longer entitled to be in the same con- solidated group as the nominated company.
Effective date (2) Unless subsections (3) or (4) apply, the company is treated as leaving the consolidated group from the start of the income year in which the relevant event occurs, making it no longer— eligible to be part of the consolidated group; or (a) if it is not the nominated company, entitled to be in the (b) same consolidated group as the nominated company.
First income year (3) Despite subsection (2), if a company becomes no longer eli- gible or entitled to be in the consolidated group in the same income year in which it joined the group, the company is 1631 Part F s FM 41 Income Tax Act 2007 Reprinted as at 30 August 2013 treated as leaving the consolidated group on the day it joined the group.
Notifying date (4) Despite subsections (2) and (3), the company may notify the Commissioner that it is leaving the consolidated group from the date on which its eligibility or its entitlement ended.
For the notice to be effective, the company must— (a) provide the notice within 20 working days after the date on which the company’s eligibility or entitlement ended, although the Commissioner may agree to extend this period if it is reasonable to do so in the circum- stances; and provide part-year ﬁnancial statements under section FM 14.
(b) Anti-avoidance measure (5) A notice under this section is not valid if it is made in connec- tion with an arrangement entered into for a purpose of enabling the company to leave a consolidated group so as to defeat the intent and application of the consolidation rules.

When this subsection applies, the company is treated as leaving the con- solidated group on the date on which its eligibility or entitle- ment ended.
Deﬁned in this Act: arrangement, Commissioner, company, consolidated group, consolidation rules, income year, nominated company, notice, notify, working day Compare: 2004 No 35 s FD 8(3), (4), (6), (7) FM 41 No nominated company If, during an income year, no nominated company exists for a consolidated group and no company that is part of the consolidated group is notiﬁed as a replacement under section FM 34(3), all companies in the consolidated group are treated as having left the consolidated group with effect from the start of the income year.
Section FM 34(5) overrides this section.
Deﬁned in this Act: company, consolidated group, income year, nominated company, notify Compare: 2004 No 35 s FD 8(5) 1632 Reprinted as at 30 August 2013 Income Tax Act 2007 Part F s FN 1 FM 42 When company liquidated If a company is no longer part of a consolidated group because it has been liquidated,— (a) the company is not treated as leaving the consolidated group from the start of the income year of the liquid- ation under sections FM 39 and FM 40: part-year ﬁnancial statements are not required under section FM 40(4)(b).
(b) Deﬁned in this Act: company, consolidated group, income year, liquidation Compare: 2004 No 35 s FD 8(8) Subpart FN—Imputation groups of companies Contents FN 1 When this subpart applies Imputation rules FN 2 Liabilities of companies in imputation group FN 3 Eligibility rules FN 4 FN 5 Imputation groups with reduced numbers FN 6 Nominated companies FN 7 FN 8 Forming imputation groups Trans-Tasman imputation groups and resident imputation subgroups Joining existing imputation group FN 9 FN 10 When membership of imputation group ends FN 11 Company choosing to leave imputation group FN 12 Company no longer eligible or entitled to membership FN 13 Imputation group with no nominated company FN 14 Effect of liquidation of company Page 1633 1634 1634 1635 1636 1637 1638 1639 1639 1640 1640 1641 1642 1642 FN 1 When this subpart applies This subpart applies when 2 or more companies that are part of a wholly-owned group of companies form an imputation group to enable a company in the imputation group to pay an imputed 1633 Part F s FN 2 Income Tax Act 2007 Reprinted as at 30 August 2013 dividend when another company in the imputation group has a credit for New Zealand tax paid.
Deﬁned in this Act: company, dividend, imputation group, New Zealand tax, pay, wholly-owned group of companies FN 2 Imputation rules The imputation rules means the following: (a) (b) (c) this subpart: section CD 15 (Tax credits linked to dividends): sections GB 34 to GB 37 (which relate to tax avoidance and imputation): subparts LE and LF, and sections LO 1 to LO 3 (which relate to tax credits): subpart OB (Imputation credit accounts (ICA)): sections OP 1 to OP 50 (which relate to imputation credits and consolidated groups): subpart OZ (Terminating provisions): sections RM 13 to RM 17, RM 32, and RZ 6 (which relate to limits on refunds): section YA 2(7)(b) (Meaning of income tax varied): sections 29, 64, 67, 69, 70, 78D, 97, 101, 139B, 140B, 140D(1) and (2), and 180 of the Tax Administration Act 1994.
(d) (e) (f) (g) (h) (i) (j) Deﬁned in this Act: imputation rules Compare: 2004 No 35 s OB 1 “imputation rules” Section FN 2(i): amended (with effect on 1 April 2008), on 6 October 2009, by section 233 of the Taxation (International Taxation, Life Insurance, and Re- medial Matters) Act 2009 (2009 No 34).
FN 3 Liabilities of companies in imputation group A company that is part of an imputation group is jointly and severally liable for further income tax, civil penalties, and in- terest under Part 7 of the Tax Administration Act 1994 arising from the operation of the imputation credit account of the im- putation group.
Deﬁned in this Act: company, further income tax, imputation credit account, imputation group Compare: 2004 No 35 s FDA 4 1634 Reprinted as at 30 August 2013 Income Tax Act 2007 Part F s FN 4 FN 4 Eligibility rules When company eligible (1) A company is eligible to be part of an imputation group at a particular time if, at the time,— (a) it is resident in New Zealand or resident in Australia; and it is part of the same wholly-owned group of companies; and it is not treated under a double tax agreement as resident in a country other than New Zealand or Australia, as applicable, for the purposes of taxation in the relevant country; and it is required to maintain an imputation credit account under section OB 1 (General rules for companies with imputation credit accounts), or chooses to maintain an account under section OB 2 (Australian companies with imputation credit accounts); and if it is a company that is part of a consolidated group, it meets the criteria set out in subsection (2); and if it is a qualifying company or a mining company, it meets the condition set out in subsection (3); and subsection (5) does not apply to it.
Consolidated group companies (2) A company that is part of a consolidated group is eligible to be part of an imputation group at a particular time if, at the time,— (a) all companies in the consolidated group meet the cri- teria set out in subsection (1) and are part of the imput- ation group; and for an imputation group that includes or will include companies from more than 1 consolidated group, the companies in the consolidated groups are part of a sin- gle wholly-owned group of companies from the earliest date on which a credit arose and remains uncancelled in the imputation credit account of a consolidated group or an imputation group, all of whose members are, or would be, in the imputation group.
(b) (c) (d) (e) (f) (g) (b) 1635 Part F s FN 5 Income Tax Act 2007 Reprinted as at 30 August 2013 Restriction when company of certain type (3) Despite subsections (1) and (2), if a company that is part of an imputation group is 1 of the following types of company, all companies in the imputation group at the time must be the same type as that company: (a) (b) a qualifying company; or a mining company.
LAQCs [Repealed] [Repealed] (4) Anti-avoidance measure (5) A company is not eligible to be part of an imputation group if, for a purpose of enabling a company to be part of an im- putation group so as to defeat the intent and application of the imputation rules, the company’s shares— (a) are subject to an arrangement or to a series of related or connected arrangements; or have rights attaching to them extinguished or altered, either directly or indirectly, by any means.
(b) Deﬁned in this Act: arrangement, company, consolidated group, double tax agreement, imputation credit account, imputation group, imputation rules, min- ing company, New Zealand, qualifying company, resident in Australia, resident in New Zealand, wholly-owned group Compare: 2004 No 35 s FDA 1 Section FN 4(1)(g): amended, on 17 July 2013, by section 57 of the Taxa- tion (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Section FN 4(4) heading: repealed, on 17 July 2013, pursuant to section 172 of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).

Section FN 4(4): repealed, on 17 July 2013, by section 172 of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Section FN 4 list of deﬁned terms LAQC: repealed, on 17 July 2013, by section 172 of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).

FN 5 Imputation groups with reduced numbers An imputation group continues to exist if the number of group companies is reduced to 1 company, but if an imputation group 1636 Reprinted as at 30 August 2013 Income Tax Act 2007 Part F s FN 6 has no company at any time, the imputation group no longer exists.
Deﬁned in this Act: company, imputation group Compare: 2004 No 35 s FDA 3(2), (4) FN 6 Nominated companies (1) (2) (3) Group company at the time The nominated company of an imputation group at any time must be part of the imputation group at the time.
Trans-Tasman imputation groups For a trans-Tasman imputation group, the nominated com- pany— (a) must not be an Australian imputation credit account (b) (ICA) company: is the nominated company for the resident imputation subgroup associated with the trans-Tasman imputation group.

Agent For the purposes of the imputation rules, a nominated company is, at a time, the agent of the imputation group and of each company that is part of the imputation group at the time.
Changing nominated company (4) A nominated company may notify the Commissioner that it is, at a particular date, no longer to continue as the agent for the imputation group, and that another company is to become the nominated company.

When notice takes effect (5) A notice under subsection (4) has effect 30 days after the date on which the Commissioner receives it.
(6) Replacing nominated company If a nominated company of an imputation group is liquidated, the other companies in the imputation group may choose a replacement.
The replacement company— (a) becomes the nominated company from the date of the liquidation, on complying with paragraph (b); and 1637 Part F s FN 7 Income Tax Act 2007 Reprinted as at 30 August 2013 (b) must notify the Commissioner of its selection as nom- inated company within 30 days after the date of the li- quidation, or by a later date if the Commissioner agrees.
Deﬁned in this Act: agent, Australian ICA company, Commissioner, company, imputation group, liquidation, nominated company, notice, notify, resident im- putation subgroup, trans-Tasman imputation group Compare: 2004 No 35 ss FDA 5, FDA 6(6) FN 7 Forming imputation groups (1) (2) Election Two or more companies may choose to form an imputation group of companies if the companies are, at the time,— a wholly-owned group of companies; and (a) eligible under section FN 4.
(b) Notifying Commissioner The Commissioner must be notiﬁed of an election under sub- section (1).

Nominated company (3) A notice under subsection (2) must nominate 1 of the com- panies in the imputation group as its agent for the purposes of the imputation rules.

In this subpart, the company is called the nominated company.
Consolidated group companies (4) A nominated company of a consolidated group may notify the Commissioner that, having met the eligibility criteria in sec- tion FN 4, all the group companies have chosen— (a) to form an imputation group with eligible companies that are not part of the consolidated group; or to join an existing imputation group.

(b) Effective date (5) A notice under subsection (1) or (4) has effect from the start of the tax year in which the Commissioner receives the notice.
Deﬁned in this Act: agent, Commissioner, company, consolidated group, im- putation group, imputation rules, nominated company, notice, notify, tax year, wholly-owned group Compare: 2004 No 35 s FDA 2 1638 Reprinted as at 30 August 2013 Income Tax Act 2007 Part F s FN 9 FN 8 Trans-Tasman imputation groups and resident imputation subgroups (1) Trans-Tasman imputation group If at least 1 company in an imputation group is an Australian ICA company, and at least 1 company in the imputation group is not an Australian ICA company, the imputation group is a trans-Tasman imputation group.
Resident imputation subgroup (2) A company in a trans-Tasman imputation group that is not an Australian ICA company is treated as a resident imputation subgroup of the trans-Tasman imputation group and is associ- ated with that group.

Single company (3) A resident imputation subgroup continues while a company in the trans-Tasman imputation group that is not an Australian ICA company remains in existence.
Deﬁned in this Act: Australian ICA company, Commissioner, company, im- putation group, notify, resident imputation subgroup, trans-Tasman imputation group Compare: 2004 No 35 ss FDA 3(1), (3), OB 1 “resident imputation subgroup”, “trans-Tasman imputation group” Section FN 8(2): substituted (with effect on 1 April 2008), on 6 October 2009, by section 234(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section FN 8(3) heading: substituted (with effect on 1 April 2008), on 6 October 2009, by section 234(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section FN 8(3): substituted (with effect on 1 April 2008), on 6 October 2009, by section 234(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
FN 9 Joining existing imputation group Generally (1) A company that is eligible under section FN 4(1) may join an imputation group by notifying the Commissioner.

(2) Consolidated groups If the companies that are part of a consolidated group are eli- gible under section FN 4(2), the nominated company of the consolidated group may notify the Commissioner that all the 1639 Part F s FN 10 Income Tax Act 2007 Reprinted as at 30 August 2013 (3) companies in the consolidated group are to join an imputation group.
Joint and several liability The companies referred to in subsections (1) and (2) must agree in the notice to be jointly and severally liable under sec- tion FN 3 for any further income tax, civil penalties, and in- terest under Part 7 of the Tax Administration Act 1994 arising from the operation of the imputation credit account of the im- putation group.

Effective date (4) A notice under subsection (1) has effect from the start of the tax year in which the Commissioner receives the notice.
Deﬁned in this Act: Commissioner, company, consolidated group, further in- come tax, imputation credit account, imputation group, nominated company, notice, notify, tax year Compare: 2004 No 35 ss FDA 2(1)–(3), (5), FDA 4 Section FN 9(2): amended (with effect on 1 April 2008), on 29 August 2011 (applying for the 2008–09 and later income years), by section 140(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
FN 10 When membership of imputation group ends A company stops being part of an imputation group if— (a) the company chooses to leave the imputation group and notiﬁes the Commissioner, see section FN 11; or the company no longer meets the eligibility criteria set out in section FN 4, see section FN 12; or the company is not a nominated company and is no longer entitled to be part of the same imputation group as the nominated company, see section FN 12; or the company is in an imputation group that no longer has a nominated company, see section FN 13.
(b) (c) (d) Deﬁned in this Act: Commissioner, company, imputation group, nominated company, notify Compare: 2004 No 35 s FDA 6(1) FN 11 Company choosing to leave imputation group When this section applies This section applies when a company chooses to leave an im- putation group and notiﬁes the Commissioner of its election.
(1) 1640 Reprinted as at 30 August 2013 Income Tax Act 2007 Part F s FN 12 Effective date (2) When the company notiﬁes the Commissioner of its election, it may set out in the notice a date from which it is no longer to be treated as part of the imputation group.

However, unless subsection (3) applies, if the company does not set out a date in the notice, it is treated as no longer part of the imputation group from the start of the tax year in which the Commissioner receives the notice.
First tax year (3) Despite subsection (2), if a company leaves an imputation group in the same tax year in which it joined the imputation group, it is treated as leaving the imputation group on the date when it became part of the imputation group, and not from the start of the tax year.
Deﬁned in this Act: Commissioner, company, imputation group, notice, notify, tax year Compare: 2004 No 35 s FDA 6(2) FN 12 Company no longer eligible or entitled to membership (1) When this section applies This section applies when a company is no longer eligible to be part of an imputation group or, if it is not the nominated company, when it is no longer entitled to be part of the same imputation group as the nominated company.
Effective date (2) Unless subsections (3) or (4) apply, the company is treated as no longer part of the imputation group from the start of the tax year in which the relevant event occurs, making it no longer— (a) (b) eligible to be part of the imputation group; or if it is not the nominated company, entitled to be part of the same imputation group as the nominated company.
Notifying date (3) Despite subsection (2), the company may notify the Commis- sioner that it is no longer to be treated as part of the imputation group from the date on which its eligibility or its entitlement ended.
The company must provide the notice within 30 days after the date on which the company’s eligibility or entitle- 1641 Part F s FN 13 Income Tax Act 2007 Reprinted as at 30 August 2013 ment ended, although the Commissioner may agree to extend this period if it is reasonable to do so in the circumstances.
First tax year (4) Despite subsections (2) and (3), if a company leaves an imput- ation group in the same tax year in which it became part of the imputation group, the company is treated as leaving the group on the date when it became part of the imputation group, and not at the start of the tax year.
Anti-avoidance measure (5) A notice under this section is not valid if it is made in connec- tion with an arrangement entered into for a purpose of enabling the company to leave an imputation group so as to defeat the intent and application of the imputation rules.

When this sub- section applies, the company is treated as leaving the imput- ation group on the date on which its eligibility or entitlement ended.
Deﬁned in this Act: arrangement, Commissioner, company, imputation group, imputation rules, nominated company, notice, notify, tax year Compare: 2004 No 35 s FDA 6(3), (4), (7), (8) FN 13 Imputation group with no nominated company If, during a tax year, no nominated company exists for an imputation group and no replacement is made under section FN 6(6), all companies in the imputation group are treated as having left the imputation group with effect from the start of the tax year.
Deﬁned in this Act: company, imputation group, nominated company, tax year Compare: 2004 No 35 s FDA 6(5) FN 14 Effect of liquidation of company If a company is no longer part of an imputation group because it is liquidated, sections FN 11 and FN 12 do not apply to treat the company as leaving the imputation group from the start of the income year in which the liquidation occurred.
Deﬁned in this Act: company, imputation group, income year, liquidation Compare: 2004 No 35 s FDA 6(9) 1642 Reprinted as at 30 August 2013 Income Tax Act 2007 Part F s FN 14 Subpart FO—Amalgamation of companies Contents Introductory provisions FO 1 What this subpart does FO 2 Amalgamation rules FO 3 Resident’s restricted amalgamations FO 4 Rights and obligations of amalgamated companies FO 5 Amalgamations and remitted liabilities Treatment of shares, income, expenditure, and bad debts FO 6 Cancellation of shares FO 7 FO 8 Bad debts and expenditure or loss on resident’s restricted Income derived after amalgamation amalgamation FO 9 Unexpired portion of prepaid expenditure Property passing to amalgamated company on amalgamation FO 10 When property passes on resident’s restricted amalgamation FO 11 When property passes on amalgamation other than resident’s restricted amalgamation FO 12 Financial arrangements: resident’s restricted amalgamation, companies in wholly-owned group FO 13 Financial arrangements: resident’s restricted amalgamation, calculation method unchanged FO 14 Financial arrangements: resident’s restricted amalgamation, other cases FO 15 Financial arrangements: amalgamation other than resident’s restricted amalgamation FO 16 Amortising property FO 17 Land Treatment of ﬁnancial arrangements between amalgamating companies Page 1644 1644 1644 1646 1647 1647 1647 1648 1648 1649 1650 1651 1652 1653 1653 1654 1655 FO 18 When amalgamating companies are parties to ﬁnancial 1656 arrangement FO 19 Calculation of outstanding accrued balance: consideration 1658 for discharge 1643 Part F s FO 1 Income Tax Act 2007 Reprinted as at 30 August 2013 FO 20 Calculation of outstanding accrued balance: amounts 1659 remitted Introductory provisions FO 1 What this subpart does This subpart sets out the rules that provide for some tax con- sequences when companies amalgamate.
In general, the rules provide roll-over relief when a resident’s restricted amalgam- ation occurs.
Deﬁned in this Act: amalgamation, company, resident’s restricted amalgam- ation, tax Compare: 2004 No 35 s FE 1(1)(a), (b) FO 2 Amalgamation rules The amalgamation rules means the following: (a) (b) this subpart: sections CD 35, CD 43(23) and (24), and CD 44(8) (which relate to the treatment of dividends): sections DB 8(3) to (5), DV 14 and DV 15 (which relate to the treatment of deductions when an amalgamating company ends its existence on a resident’s restricted amalgamation): sections IA 9, IE 2 to IE 5, and IQ 1 (which relate to tax losses): sections LK 12 to LK 15 (which relate to tax credits): sections OA 9, OB 24, OB 53 (which relate to memo- randum accounts): sections RA 20, RC 33, RD 46, and RD 49 (which relate to tax payments): sections 75 and 76 of the Tax Administration Act 1994.
(c) (d) (e) (f) (g) (h) Deﬁned in this Act: amalgamation rules Compare: 2004 No 35 s FE 1(2) FO 3 Resident’s restricted amalgamations What is a resident’s restricted amalgamation?
In the amalgamation rules, an amalgamation is a resident’s restricted amalgamation if, at the time of the amalgamation, (1) 1644 Reprinted as at 30 August 2013 Income Tax Act 2007 Part F s FO 3 each of the amalgamating companies and the amalgamated company— (a) (b) is resident in New Zealand; and is not treated under, and for the purposes of, a double tax agreement as resident in another country; and is not a company that derives only exempt income, ex- cept income exempt under sections CW 9 and CW 10 (which relate to income from equity); and if the amalgamated company is a qualifying company, it meets the condition in subsection (2); and [Repealed] (c) (d) (e) (2) (3) (4) (5) Qualifying companies If the amalgamated company is a qualifying company immedi- ately after the amalgamation, each of the amalgamating com- panies must be a qualifying company at the time of the amal- gamation.
LAQCs [Repealed] [Repealed] Companies deriving exempt income For the purposes of subsection (1)(c), a company that derives only exempt income includes a local authority that is not a council-controlled organisation.

Companies opting out Even if they meet the requirements of subsection (1), the com- panies may choose that the amalgamation will not be treated as a resident’s restricted amalgamation by notifying the Com- missioner in the way set out in section 75 of the Tax Admin- istration Act 1994.
Deﬁned in this Act: amalgamated company, amalgamating company, amalgam- ation, amalgamation rules, Commissioner, company, council-controlled organ- isation, double tax agreement, exempt income, local authority, New Zealand, notify, qualifying company, resident in New Zealand, resident’s restricted amal- gamation Compare: 2004 No 35 s OB 1 “qualifying amalgamation” Section FO 3(1)(c): amended (with effect on 1 July 2011 and applying for in- come years beginning on or after that date), on 7 May 2012, by section 68(1) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
1645 Part F s FO 4 Income Tax Act 2007 Reprinted as at 30 August 2013 Section FO 3(1)(e): repealed, on 17 July 2013, by section 172 of the Taxa- tion (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).

Section FO 3(3) heading: repealed, on 17 July 2013, pursuant to section 172 of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Section FO 3(3): repealed, on 17 July 2013, by section 172 of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).

Section FO 3 list of deﬁned terms LAQC: repealed, on 17 July 2013, by section 172 of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
FO 4 Rights and obligations of amalgamated companies When this section applies This section applies when an amalgamating company ends its existence on amalgamation.
Amalgamated company assuming rights, obligations, and liabilities For the tax year corresponding to the income year of amal- gamation and all earlier tax years, the amalgamated company, under section 209G of the Companies Act 1955 or section 225 of the Companies Act 1993, or under this section in the case of an amalgamation of building societies,— (a) must comply with the obligations of the amalgamating company under the Inland Revenue Acts; and (b) must meet the liabilities of the amalgamating company (c) under the Inland Revenue Acts; and is entitled to the rights, powers, and privileges of the amalgamating company under the Inland Revenue Acts.
Relationship with Companies Act 1993 The amalgamation rules apply despite anything to the contrary in section 225(d) of the Companies Act 1993.

Deﬁned in this Act: amalgamated company, amalgamating company, amalgam- ation, amalgamation rules, income year, Inland Revenue Acts, tax year Compare: 2004 No 35 ss FE 1(1)(c), FE 8 Section FO 4(2): amended (with effect on 30 September 2010), on 29 August 2011, by section 47 of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
(1) (2) (3) 1646 Reprinted as at 30 August 2013 Income Tax Act 2007 Part F s FO 7 FO 5 Amalgamations and remitted liabilities Sections CG 2 (Remitted amounts) and DB 47 (Payments for remitted amounts) do not apply merely because an amalga- mated company succeeds to a liability of an amalgamating company on an amalgamation.
Deﬁned in this Act: amalgamated company, amalgamating company, amalgam- ation, amount Compare: 2004 No 35 s FE 9 Treatment of shares, income, expenditure, and bad debts FO 6 Cancellation of shares If an amalgamating company (company A) holds shares in another amalgamating company (company B), and the shares are cancelled on the amalgamation, company A is treated as having disposed of the shares in company B immediately be- fore the amalgamation for an amount equal to the cost of the shares to company A. Deﬁned in this Act: amalgamating company, amalgamation, cancellation, share Compare: 2004 No 35 s FE 2 FO 7 Income derived after amalgamation (1) (2) When this section applies This section applies when an amalgamating company ends its existence on amalgamation, and an amount is derived by the amalgamated company after the amalgamation as a result of something that the amalgamating company did or did not do.
Income of amalgamated company The amount is income of the amalgamated company under section CV 4 (Amalgamated companies: amount derived after amalgamation) if it would have been income of the amalgam- ating company but for the amalgamation.
Deﬁned in this Act: amalgamated company, amalgamating company, amalgam- ation, amount, income Compare: 2004 No 35 s FE 4(b) 1647 Part F s FO 8 Income Tax Act 2007 Reprinted as at 30 August 2013 FO 8 Bad debts and expenditure or loss on resident’s restricted amalgamation (1) (2) When this section applies This section applies when an amalgamating company ends its existence on a resident’s restricted amalgamation, and the amalgamated company at any time— (a) writes off as bad the amount of a debt that it acquires from the amalgamating company at the time of the amalgamation; or incurs an amount of expenditure or loss, including an amount of depreciation loss, as a result of something that the amalgamating company did or did not do.
(b) Deduction of amalgamated company The amalgamated company is allowed a deduction under sec- tion DV 15(2) (Amalgamated companies: property passing on resident’s restricted amalgamation) for the amount if— (a) the amalgamating company would have been allowed the deduction but for the amalgamation; and the amalgamated company is not otherwise allowed the deduction.
(b) Deﬁned in this Act: amalgamated company, amalgamating company, amount, deduction, depreciation loss, loss, resident’s restricted amalgamation Compare: 2004 No 35 s FE 3 FO 9 Unexpired portion of prepaid expenditure If an amalgamating company ends its existence on amalgam- ation, the unexpired portion under section EA 3 (Prepayments) of an amount of expenditure of the amalgamating company for the income year of amalgamation is treated as the amalga- mated company’s unexpired amount of the expenditure.
Deﬁned in this Act: amalgamated company, amalgamating company, amalgam- ation, amount, income year, prepaid expenditure Compare: 2004 No 35 s FE 4(a) 1648 Reprinted as at 30 August 2013 Income Tax Act 2007 Part F s FO 10 Property passing to amalgamated company on amalgamation FO 10 When property passes on resident’s restricted amalgamation (1) When this section applies This section applies when property belonging to an amalgam- ating company becomes the property of the amalgamated com- pany on a resident’s restricted amalgamation.
What this section does not apply to (2) Despite subsection (1), this section— (a) (b) does not apply to property that is a ﬁnancial arrange- ment, see sections FO 12 to FO 15: is subject to the rules for— (i) (ii) amortising property in section FO 16: land in section FO 17.

Property passing The amalgamating company is treated as having disposed of the property immediately before the amalgamation.
The pass- ing of ownership is treated as a disposal of the property by the amalgamating company and an acquisition of the property by the amalgamated company.
Timing and consideration (3) (4) Unless subsections (5) or (6) apply, the amalgamated company is treated as having acquired the property on the date on which the amalgamating company acquired it for an amount that is the sum of— (a) (b) the price paid for the property; and any expenditure incurred in buying or improving the property; and any expenditure incurred in securing or improving the amalgamating company’s legal rights to the property.
(c) (5) Trading stock If the property is trading stock for both the amalgamating com- pany and the amalgamated company, the consideration for the disposal and acquisition is taken as the value of the trading stock to the amalgamating company determined under subpart EB (Valuation of trading stock (including dealer’s livestock)) at the time of the amalgamation.
1649 Part F s FO 11 Income Tax Act 2007 Reprinted as at 30 August 2013 (6) Revenue account property If the property is revenue account property of the amalgamat- ing company but not revenue account property of the amalga- mated company, the consideration for the disposal and acqui- sition is taken as the market value of the property at the time of the amalgamation.
But this subsection does not apply to land that is revenue account property merely because of the 10-year rule in sections CB 9 to CB 11and CB 14 (which relate to the disposal of land), in which case section FO 17(3) may apply.
Depreciation loss (7) An amalgamating company is allowed a deduction under sec- tion DV 15(3) (Amalgamated companies: property passing on resident’s restricted amalgamation) for an amount of depreci- ation loss for property transferred to the amalgamated com- pany for the period beginning on the ﬁrst day of the income year of amalgamation and ending on the day before the date of the amalgamation.
Deﬁned in this Act: amalgamated company, amalgamating company, amortis- ing property, amount, deduction, ﬁnancial arrangement, income year, land, mar- ket value, resident’s restricted amalgamation, revenue account property, trading stock Compare: 2004 No 35 ss FE 6(1)–(3B), FE 6A FO 11 When property passes on amalgamation other than resident’s restricted amalgamation Disposal and acquisition If property belonging to an amalgamating company becomes the property of the amalgamated company on an amalgamation that is not a resident’s restricted amalgamation,— (a) the amalgamating company is treated as having dis- posed of the property for an amount equal to the market value of the property at the time of the amalgamation; and the amalgamated company is treated as having acquired the property at that market value.
(b) Relationship with section EE 41 Section EE 41 (Transfer of depreciable property on certain amalgamations on or after 14 May 2002) overrides this sec- (1) (2) 1650 Reprinted as at 30 August 2013 Income Tax Act 2007 Part F s FO 12 tion for the purposes of determining the cost of an item to an amalgamated company, unless the context requires otherwise.
Deﬁned in this Act: amalgamated company, amalgamating company, amalgam- ation, amount, market value, resident’s restricted amalgamation Compare: 2004 No 35 s FE 5 FO 12 Financial arrangements: resident’s restricted amalgamation, companies in wholly-owned group (1) When this section applies This section applies, despite sections EW 42 and GB 21 (which relate to non-market transfers of ﬁnancial arrangements) in an income year in which the obligations that an amalgamat- ing company has under a ﬁnancial arrangement pass to the amalgamated company on a resident’s restricted amalgam- ation when,— (a) (b) (c) (d) the ﬁnancial arrangements rules apply to the ﬁnancial arrangement; and for the whole of the income year before the amalgam- ation, the amalgamating company and the amalgamated company were part of the same wholly-owned group of companies; and the method of calculating income and expenditure from the ﬁnancial arrangement does not change after the amalgamation, and the amalgamated company’s return of income for the corresponding tax year is made on this basis; and sections IA 3 to IA 6 and subpart ID (which relate to tax losses of companies and consolidated groups) do not apply to allow the amalgamating company to carry a loss balance forward from an earlier tax year for use in the tax year corresponding to the income year unless section IE 2 (Treatment of tax losses by amalgamating company) applies when the tax losses are those of the consolidated group.
(2) Amalgamated company’s election The amalgamated company may choose to apply subsections (3) and (4) in their return of income for the corresponding tax year.

1651 Part F s FO 13 Income Tax Act 2007 Reprinted as at 30 August 2013 (3) (4) Treatment of amalgamating company The amalgamating company is treated as if it had never been party to the ﬁnancial arrangement.
Section EW 31 (Base price adjustment formula) does not apply, in relation to the transfer of the ﬁnancial arrangement or the obligations under it.

the date the company entered into the arrangement; and the consideration paid; and the income derived; and the expenditure incurred; and the returns of income provided.
Treatment of amalgamated company The amalgamated company is treated as if it had taken the place of the amalgamating company in relation to the ﬁnancial arrangement in terms of— (a) (b) (c) (d) (e) Deﬁned in this Act: amalgamated company, amalgamating company, consider- ation, consolidated group, corresponding income year, ﬁnancial arrangement, ﬁnancial arrangements rules, income, income year, loss balance, resident’s re- stricted amalgamation, return of income, tax loss, tax year, wholly-owned group of companies Compare: 2004 No 35 ss FE 6(5), (6), FE 7(1)(a), (2) FO 13 Financial arrangements: resident’s restricted amalgamation, calculation method unchanged When this section applies This section applies, despite sections EW 42 and GB 21 (which relate to non-market transfers of ﬁnancial arrangements) in an income year in which the obligations that an amalgamat- ing company has under a ﬁnancial arrangement pass to the amalgamated company on a resident’s restricted amalgam- ation when— (a) the method of calculating income and expenditure from the ﬁnancial arrangement does not change after the amalgamation; and section FO 12 does not apply.
(b) Calculating base price adjustment The amalgamating company is treated as having disposed of the ﬁnancial arrangement.

In calculating the base price adjust- ment, the consideration is the amount that would fairly and reasonably represent the income or expenditure that the amal- (1) (2) 1652 Reprinted as at 30 August 2013 Income Tax Act 2007 Part F s FO 15 gamating company would have derived or would have incurred in the income year if the amalgamation had not taken place.
Deﬁned in this Act: amalgamated company, amalgamating company, amal- gamation, consideration, dispose, ﬁnancial arrangement, income, income year, resident’s restricted amalgamation Compare: 2004 No 35 ss FE 6(5), (7), FE 7(1)(b), (3) FO 14 Financial arrangements: resident’s restricted amalgamation, other cases (1) (2) When this section applies This section applies in an income year in which a ﬁnancial ar- rangement belonging to an amalgamating company passes to the amalgamated company on a resident’s restricted amalgam- ation when sections FO 12 and FO 13 do not apply.
Market value The amalgamating company is treated as having disposed of the ﬁnancial arrangement.

The consideration for the disposal is the market value of the ﬁnancial arrangement on the date the amalgamated company acquires it.
Deﬁned in this Act: amalgamated company, amalgamating company, consid- eration, ﬁnancial arrangement, income year, market value, resident’s restricted amalgamation Compare: 2004 No 35 ss FE 6(5), (8), FE 7(1)(b), (4) FO 15 Financial arrangements: amalgamation other than resident’s restricted amalgamation (1) (2) When this section applies This section applies when an obligation that an amalgamating company has in relation to a ﬁnancial arrangement passes to the amalgamated company on an amalgamation that is not a resident’s restricted amalgamation.
Market value for amalgamating company The amalgamating company is treated as having disposed of the ﬁnancial arrangement or relieved itself of the obligations immediately before the amalgamation.

The consideration for the disposal is the market price for assuming the obligations at the time of the amalgamation.
1653 Part F s FO 16 Income Tax Act 2007 Reprinted as at 30 August 2013 (3) Market value for amalgamated company The amalgamated company is treated as having acquired the ﬁnancial arrangement or assumed the obligations immediately after the amalgamation.

The consideration for the acquisition is the market value of the property at the time of the amalgam- ation.
Deﬁned in this Act: amalgamated company, amalgamating company, amalgam- ation, consideration, ﬁnancial arrangement, market value, resident’s restricted amalgamation Compare: 2004 No 35 s FE 5 FO 16 Amortising property (1) When this section applies This section applies in an income year in which amortising property belonging to an amalgamating company passes to the amalgamated company on a resident’s restricted amalgam- ation.
The passing of ownership is treated as a disposal of the property by the amalgamating company and an acquisition by the amalgamated company.

Treatment of amalgamating company (1B) The amalgamating company is treated as neither deriving in- come nor having a deduction under sections EE 24 to EE 53 (which relate to disposals of depreciable property) as a result of the deemed disposal.
Value: all pool property If the amortising property forms the whole of a pool of prop- erty of the amalgamating company that is depreciated under sections EE 20 to EE 24 (which relate to depreciation under the pool method), the consideration for the disposal and ac- quisition is taken as the adjusted tax value of the pool imme- diately before the amalgamation.
Value: part pool property If the amortising property forms part of a pool of property of the amalgamating company that is depreciated under sections EE 20 to EE 24, the consideration for the disposal and acqui- sition is taken as the lesser of— (a) (b) the market value of the property; or the adjusted tax value of the pool immediately before the amalgamation.
(2) (3) 1654 Reprinted as at 30 August 2013 Income Tax Act 2007 Part F s FO 17 (4) Deductions for depreciation loss If the amortising property is other than pool property of the amalgamating company, the amalgamated company is treated as having been allowed the deduction that the amalgamating company would have had for an amount of depreciation loss, or a deduction under any other amortisation provision of this Act, relating to the property.
Deﬁned in this Act: acquire, adjusted tax value, amalgamated company, amal- gamating company, amortising property, amount, deduction, depreciation loss, dispose, income year, market value, other amortisation provision, pool, resi- dent’s restricted amalgamation Compare: 2004 No 35 s FE 6(1), (4) Section FO 16(1B) heading: inserted (with effect on 1 April 2008), on 6 October 2009, by section 235(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section FO 16(1B): inserted (with effect on 1 April 2008), on 6 October 2009, by section 235(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

FO 17 Land (1) (2) (3) When this section applies This section applies when land belonging to an amalgamating company passes to the amalgamated company on a resident’s restricted amalgamation.
Disposal at market value If the land is not revenue account property of the amalgamat- ing company, but the disposal of the land would give rise to income for the amalgamated company under any of sections CB 6 to CB 14 (which relate to the disposal of land), the amal- gamating company is treated as having disposed of the land to the amalgamated company at the market value of the land at the date of the amalgamation.
Disposal of land within 10-year period If the land is, or may be, revenue account property of the amal- gamating company because of the 10-year rule in any of sec- tions CB 9 to CB 11and CB 14, and the amalgamated com- pany disposes of the land within the 10-year period after the amalgamating company acquired it, an amount derived from 1655 Part F s FO 18 Income Tax Act 2007 Reprinted as at 30 August 2013 the disposal is income of the amalgamated company under whichever is applicable of sections CB 6 to CB 14.
Deﬁned in this Act: amalgamated company, amalgamating company, amount, income, land, resident’s restricted amalgamation, revenue account property Compare: 2004 No 35 s FE 6(3A), (3B) Treatment of ﬁnancial arrangements between amalgamating companies FO 18 When amalgamating companies are parties to ﬁnancial arrangement When this section applies This section applies when amalgamating companies are par- ties to a ﬁnancial arrangement that exists on the date of the amalgamation of the companies.
Financial arrangement discharged The ﬁnancial arrangement is, for the purposes of section EW 31 (Base price adjustment formula), treated as having been discharged immediately before the amalgamation.
The consideration for the discharge is as follows: (a) on a resident’s restricted amalgamation,— (i) (ii) (iii) if the amalgamating company is solvent, the con- sideration is the accrued balance for the ﬁnancial arrangement: if the amalgamating company is insolvent but is likely to be able to meet its obligations under the ﬁnancial arrangement, the consideration is the accrued balance for the ﬁnancial arrangement: if the amalgamating company is insolvent and is unlikely to be able to meet its obligations under the ﬁnancial arrangement, the consideration is the market value of the ﬁnancial arrangement on the date of the amalgamation: (b) on an amalgamation other than a resident’s restricted amalgamation, the consideration is the market value of the ﬁnancial arrangement on the date of the amalgam- ation.
(1) (2) 1656 Reprinted as at 30 August 2013 Income Tax Act 2007 Part F s FO 18 (3) (4) (5) (6) (7) When subsection (4) applies Subsection (4) applies when an amalgamating company that is the borrower under the ﬁnancial arrangement— (a) (b) is solvent; or is insolvent but is likely to be able to meet its obligations under the ﬁnancial arrangement.
No remission The other party to the ﬁnancial arrangement is not regarded as remitting an amount in excess of the consideration treated as paid for the discharge under subsection (2)(a)(i) or (ii) or (b), as applicable, merely by virtue of the discharge.

When subsection (6) applies Subsection (6) applies when an amalgamating company that is the borrower under the ﬁnancial arrangement is insolvent and is unlikely to meet its ﬁnancial obligations under the ﬁnancial arrangement.
Market value treated as paid For the purposes of section EW 31, the ﬁnancial arrangement is treated as discharged immediately before the amalgamation and the market value of the ﬁnancial arrangement is treated as being paid by the amalgamating company to the other party to the ﬁnancial arrangement.
Amount remitted For the purposes of subsection (6), the other party to the ﬁnan- cial arrangement is treated as having remitted an amount equal to the excess over market value of the outstanding accrued bal- ance for the ﬁnancial arrangement, see section FO 20.
Deﬁned in this Act: amalgamated company, amalgamating company, amalgam- ation, amount, company, consideration, ﬁnancial arrangement, market value, pay, resident’s restricted amalgamation Compare: 2004 No 35 s FE 10(1)–(5), (6)(c) Section FO 18(2) heading: substituted (with effect on 1 April 2008), on 21 De- cember 2010 (applying for the 2008–09 and later income years), by section 66(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section FO 18(2): substituted (with effect on 1 April 2008), on 21 December 2010 (applying for the 2008–09 and later income years), by section 66(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).

Section FO 18(3) heading: substituted (with effect on 1 April 2008), on 21 De- cember 2010 (applying for the 2008–09 and later income years), by section 66(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
1657 Part F s FO 19 Income Tax Act 2007 Reprinted as at 30 August 2013 Section FO 18(3): substituted (with effect on 1 April 2008), on 21 December 2010 (applying for the 2008–09 and later income years), by section 66(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section FO 18(4) heading: substituted (with effect on 1 April 2008), on 21 De- cember 2010 (applying for the 2008–09 and later income years), by section 66(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).

Section FO 18(4): substituted (with effect on 1 April 2008), on 21 December 2010 (applying for the 2008–09 and later income years), by section 66(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section FO 18(5) heading: added (with effect on 1 April 2008), on 21 December 2010 (applying for the 2008–09 and later income years), by section 66(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).

Section FO 18(5): added (with effect on 1 April 2008), on 21 December 2010 (applying for the 2008–09 and later income years), by section 66(1) of the Tax- ation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section FO 18(6) heading: added (with effect on 1 April 2008), on 21 December 2010 (applying for the 2008–09 and later income years), by section 66(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).

Section FO 18(6): added (with effect on 1 April 2008), on 21 December 2010 (applying for the 2008–09 and later income years), by section 66(1) of the Tax- ation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section FO 18(7) heading: added (with effect on 1 April 2008), on 21 December 2010 (applying for the 2008–09 and later income years), by section 66(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).

Section FO 18(7): added (with effect on 1 April 2008), on 21 December 2010 (applying for the 2008–09 and later income years), by section 66(1) of the Tax- ation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section FO 18 list of deﬁned terms pay: inserted (with effect on 1 April 2008), on 21 December 2010, by section 66(2) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).

FO 19 Calculation of outstanding accrued balance: consideration for discharge (1) Formula In section FO 18(2)(a), the outstanding accrued balance is cal- culated using the formula— consideration + prior expenditure + expenditure accrued in year income accrued in year consideration paid.
Deﬁnition of items in formula In the formula,— (a) consideration is the consideration paid to the amalgam- ating company under the ﬁnancial arrangement: (2) 1658 Reprinted as at 30 August 2013 Income Tax Act 2007 Part F s FO 20 (b) (c) prior expenditure is the expenditure that the amalgam- ating company incurs less the income that it derives from the ﬁnancial arrangement calculated under either a spreading method or section EW 53 (Adjustment re- quired) in all income years other than the current in- come year from the time the ﬁnancial arrangement was entered into: expenditure accrued in year is the expenditure that the amalgamating company accrues from the ﬁnancial arrangement for the period from the ﬁrst day of the in- come year in which the amalgamation occurs to the date of the amalgamation, calculated either— (i) if the amalgamating company was party to the ﬁnancial arrangement in an earlier income year, using the spreading method it used to calculate income and expenditure under the ﬁnancial ar- rangement in the income year; or using a spreading method that the amalgamating company chooses, if the method could have been used if the income year had ended immediately before the amalgamation: (ii) (d) (e) income accrued in year is the income that the amal- gamating company accrues from the ﬁnancial arrange- ment for the period described in paragraph (c) and cal- culated as described in that paragraph: consideration paid is the consideration that the amal- gamating company pays for the ﬁnancial arrangement before the date of the amalgamation.
Deﬁned in this Act: amalgamating company, amalgamation, consideration, ﬁ- nancial arrangement, income, income year, pay, spreading method Compare: 2004 No 35 s FE 10(6)(a) FO 20 Calculation of outstanding accrued balance: amounts remitted (1) Formula In section FO 18(3), the outstanding accrued balance is calcu- lated using the formula— consideration + prior income + income accrued in year consideration paid.
expenditure accrued in year 1659 Part F s FO 20 Income Tax Act 2007 Reprinted as at 30 August 2013 Deﬁnition of items in formula In the formula,— (a) (b) (c) consideration is the consideration paid by the party under the ﬁnancial arrangement: prior income is the income that the party derives less the expenditure that it incurs under the ﬁnancial ar- rangement calculated under either a spreading method or section EW 53 (Adjustment required) in all income years other than the current income year from the time the ﬁnancial arrangement was entered into: income accrued in year is the income that the party ac- crues from the ﬁnancial arrangement for the period from the ﬁrst day of the income year in which the amalgam- ation occurs to the date of the amalgamation, calculated either— (i) using the spreading method used to calculate income and expenditure under the ﬁnancial ar- rangement in the income year, if the party was a party to the ﬁnancial arrangement in an earlier income year; or using a spreading method that the party chooses, if the method could have been used if the income year had ended immediately before the amalgam- ation: (ii) (d) (e) expenditure accrued in year is the expenditure that the party accrues under the ﬁnancial arrangement for the period described in paragraph (c) and calculated as described in that paragraph: consideration paid is the consideration paid to the party under the ﬁnancial arrangement before the date of the amalgamation.
Deﬁned in this Act: amalgamation, consideration, ﬁnancial arrangement, in- come, income year, spreading method Compare: 2004 No 35 s FE 10(6)(b) (2) 1660 Reprinted as at 30 August 2013 Income Tax Act 2007 Part F s FZ 1 Subpart FZ—Terminating provisions Contents Debentures FZ 1 Treatment of interest payable under debentures issued before certain date Leases Effect of speciﬁed lease on lessor and lessee Income of lessor under speciﬁed lease FZ 2 FZ 3 FZ 4 Deductions under speciﬁed leases FZ 5 Commercial bills Relationship property Estate property FZ 6 Transitional valuation rule for estate property Earthquake-affected group property Page 1661 1662 1665 1666 1666 1667 FZ 7 Valuation of group assets: insurance proceeds from 1668 Canterbury earthquake Debentures FZ 1 Treatment of interest payable under debentures issued before certain date (1) When this section applies This section applies for the purposes of section FA 2 (Rechar- acterisation of certain debentures).
Proﬁt-related debentures (2) A debenture issued before 8 pm New Zealand standard time on 23 October 1986 is a proﬁt-related debenture if the rate of interest may be determined by reference to the dividend payable by the company issuing the debenture or in any other manner.

1661 Part F s FZ 2 Income Tax Act 2007 Reprinted as at 30 August 2013 (3) Fixed rates of interest Section FA 2(2) applies to a proﬁt-related debenture issued before 8 pm New Zealand standard time on 23 October 1986.
Deﬁned in this Act: company, debentures, dividend, interest, pay, proﬁt-related debenture Compare: 2004 No 35 s FC 1 Section FZ 1(3): amended (with effect on 1 April 2008), on 6 October 2009, by section 236 of the Taxation (International Taxation, Life Insurance, and Re- medial Matters) Act 2009 (2009 No 34).
Leases FZ 2 Effect of speciﬁed lease on lessor and lessee (1) Lease treated as sale The leasing of a personal property lease asset under a speci- ﬁed lease is treated as a sale of the asset, made at the start of the term of the lease, by the lessor to the lessee.

The lessee is treated as having incurred, through the sale, capital expend- iture of an amount equal to the cost price of the asset.
Loan applied to ﬁnance acquisition of asset (2) A lessor under a speciﬁed lease is treated as having advanced to the lessee a loan of an amount equal to the cost price of the personal property lease asset.

The lessee is treated as having applied the loan in the ﬁnancing of the acquisition of the asset.

No deduction (3) A lessor under a speciﬁed lease is denied a deduction under section DZ 14(2) (Deductions under speciﬁed leases) for an amount of depreciation loss for the personal property lease asset.
Asset sold to lessor (4) At the end of the term of a speciﬁed lease, if the personal property lease asset is not acquired by the lessee under the terms of the lease or in the exercise of an option under the lease, the asset is treated as sold at the end of the term of the lease to the lessor for— (a) an amount equal to the guaranteed residual value, if any, set out for the asset in the lease; or if no guaranteed residual value is set out in the lease, no consideration.
(b) 1662 Reprinted as at 30 August 2013 Income Tax Act 2007 Part F s FZ 2 (5) (6) Treatment when lease terminated If a speciﬁed lease is terminated before the term of the lease ends, whether by cancellation, surrender, or otherwise,— (a) the personal property lease asset relating to the lease is treated as sold on the date of the termination to the lessor by the lessee at a price equal to the amount by which the amount of the outstanding balance, at the time of ter- mination, of a loan advance by the lessor to the lessee is more than the amount or the sum of the amounts payable by the lessee to the lessor in consideration for the re- lease by the lessor of the lessee from the obligations of the lessee under the lease: despite paragraph (a), if, in relation to the amount of the outstanding balance and the amount or the sum of the amounts payable by the lessee to the lessor, no excess arises, the asset is treated as having been sold for no consideration: if the value of the consideration payable by the lessee to the lessor in relation to the termination is more than the amount of the outstanding balance, at the time of ter- mination, of a loan advanced by the lessor to the lessee, an amount equal to the amount of the excess is treated as income derived by the lessor in the income year in which the lease is terminated.
(b) (c) Subsequent sale, assignment, or lease If, on or after the end of the term of a speciﬁed lease, the per- sonal property lease asset relating to the lease is sold, assigned, or leased under a speciﬁed lease by the lessor to another per- son, and the value of the consideration on the sale, assignment, or lease— (a) is more than the amount determined for the ﬁrst speci- ﬁed lease under subsection (4), the amount determined is increased by a further amount that is equal to the part, if any, of the excess paid by the lessor to the lessee: is less than the amount determined for the ﬁrst speci- ﬁed lease under subsection (4)(a), and the lessee is re- quired to make a further payment to the lessor equal to the difference between the guaranteed residual value for the lease value, and the value of the consideration, the (b) 1663 Part F s FZ 2 Income Tax Act 2007 Reprinted as at 30 August 2013 amount determined is reduced by the amount of the fur- ther payment.
Consideration more than amount determined under subsection (4) (7) Despite subsection (6), if the value of the consideration on the sale, assignment, or lease is more than the amount de- termined under subsection (4), the part, if any, of the excess that is not paid to the lessee is treated as income under section CZ 20 (Disposal of personal property lease asset under speci- ﬁed lease).
Associated persons If the lessee under a speciﬁed lease, or another person who is associated with the lessee, at any time acquires the personal property lease asset, and disposes of the asset, and the value of the consideration for the disposal is more than the value of the consideration for which the lessee or other person acquired it, an amount equal to the excess is income under section CZ 20.
Meaning of outstanding balance In this section, and in section FZ 3, outstanding balance means the amount calculated using the formula— (loans advanced + interest payable) instalments.
Deﬁnition of items in formula In the formula,— (a) loans advanced is the total amount of all loans ad- vanced under the lease by the lessor for the period— starting on the date that the lease started; and (i) ending on the date immediately before the start (ii) of the instalment period: (b) (c) interest payable is the total amount of interest payable for each loan for the period— (i) (ii) starting on the date that the lease started; and ending on the date immediately before the start of the instalment period: instalments is the total amount of all instalments paid by the lessee in the period— (i) starting on the date that the lease started; and (8) (9) (10) 1664 Reprinted as at 30 August 2013 Income Tax Act 2007 Part F s FZ 3 (ii) ending on the date immediately before the start of the instalment period.
Deﬁned in this Act: amount, associated person, cost price, deduction, depreci- ation loss, guaranteed residual value, income, income year, instalment, lessee, lessor, loan, outstanding balance, pay, personal property lease asset, speciﬁed lease, term of the lease Compare: 2004 No 35 s FC 6(2)–(8) FZ 3 Income of lessor under speciﬁed lease (1) (2) Interest The income of a lessor derived under a speciﬁed lease is treated as interest.
Treatment of amount derived The amount of interest derived under subsection (1) is treated as— (a) during the term of the lease, derived during the initial period and each instalment period, an amount that is calculated either,— (i) (ii) on the outstanding balance for the initial period, and each instalment period, at such a rate and in such a manner that the aggregate of all of the amounts so calculated is equal to the amount ﬁrst mentioned in paragraph (b); or for the initial period and each instalment period, under such other method commonly applied in commercial usage as, having regard to the term of the lease and to the frequency of the personal property lease payments, results in the allocation to that initial period and to each instalment period of an amount that is fair and reasonable and re- sults in the sum of all amounts so allocated being equal to the amount ﬁrst mentioned in paragraph (b): (b) in relation to the term of the lease, an amount that is equal to the sum of the personal property lease pay- ments under the speciﬁed lease and the amount of the guaranteed residual value, if any, under the speciﬁed lease, reduced by the cost price of the personal prop- erty lease asset.
1665 Part F s FZ 4 Income Tax Act 2007 Reprinted as at 30 August 2013 (3) (4) Calculation for income year The interest derived by a lessor is, for an income year, treated as an amount equal to the sum of the amounts calculated under subsection (2)(a) as calculated for the initial period, if any, and each instalment period that ends in the income year.
Some deﬁnitions In this section,— initial period means the period— (a) (b) starting on the date of the start of a lease; and ending just before the start of the instalment period that follows the start of the lease instalment period means the period— (a) starting on the day on which an instalment is payable; and ending with the day just before the day on which the next instalment is payable.
(b) Deﬁned in this Act: amount, guaranteed residual value, income, income year, initial period, instalment, instalment period, interest, lessor, outstanding bal- ance, pay, personal property lease asset, personal property lease payment, spe- ciﬁed lease, term of the lease Compare: 2004 No 35 s FC 7 FZ 4 Deductions under speciﬁed leases A lessee under a speciﬁed lease is denied a deduction for ex- penditure incurred by them under the lease except to the ex- tent described in section DZ 14(3) (Deductions under speci- ﬁed leases).
Deﬁned in this Act: deduction, lessee, speciﬁed lease Compare: 2004 No 35 s FC 8 Relationship property FZ 5 Commercial bills (1) When this section applies This section applies for the purposes of section CZ 6 (Com- mercial bills before 31 July 1986) when a commercial bill is transferred under a settlement of relationship property.
1666 Reprinted as at 30 August 2013 Income Tax Act 2007 Part F s FZ 6 (2) Transfer at cost The transfer is treated as a disposal by the transferor and an acquisition by the transferee for an amount that equals the cost of the bill to the transferor.
Deﬁned in this Act: amount, commercial bill, settlement of relationship prop- erty Compare: 2004 No 35 s FF 5 FZ 6 Transitional valuation rule for estate property Estate property (1) (2) What this section applies to This section applies to property transferred under section FC 1(1)(a) (What this subpart does) either on a person’s death or on a distribution by an executor, administrator, or trustee of an estate, if— (a) the death or distribution occurred before 1 October 2005; and in the tax year in which the property passes, all bene- ﬁciaries of the deceased person are resident in New Zealand, and no income of a beneﬁciary is exempt in- come under section CW 43 (Charitable bequests).
(b) Market value or value under settlement of relationship property The valuation of the transferred property for tax purposes for the corresponding income year in which the death or distribu- tion occurred is measured as a transfer occurring immediately before the death of the person, or at the date of distribution, as applicable, at— (a) market value; or (b) a value under subpart FB (Transfers of relationship property) for property of the type; or a value under subsection (4).
(c) (3) Returns of income For the purposes of providing a return of income for the deceased person, beneﬁciary, and estate, a value determined under subsection (2) is treated as correct.

1667 Part F s FZ 7 Income Tax Act 2007 Reprinted as at 30 August 2013 Requirements of other provisions (4) Despite subsection (3), if this Act, the Income Tax Act 2004, or Income Tax Act 1994, requires the use of a market value for an item of property, that value must be used in the return of income.
Deﬁned in this Act: corresponding income year, exempt income, income, mar- ket value, New Zealand, property, resident in New Zealand, return of income, tax year, trustee Compare: 2004 No 35 ss FI 9, FI 10 Earthquake-affected group property Heading: inserted (with effect on 4 September 2010), on 2 November 2012 (ap- plying for income years ending after 4 September 2010 and before the 2016–17 income year), by section 73(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
FZ 7 Valuation of group assets: insurance proceeds from Canterbury earthquake (1) (2) When this section applies This section applies for the purposes of sections FE 16 and FE 18 (which relate to the valuation of the assets of a person’s New Zealand group and worldwide group) and a person if— an asset of the person’s New Zealand group is damaged (a) as a result of a Canterbury earthquake, as that term is deﬁned in section 4 of the Canterbury Earthquake Re- covery Act 2011; and the asset is impaired, or derecognised, under generally accepted accounting practice as a result of the damage; and insurance for the damage is recognised at a later date under generally accepted accounting practice.
(b) (c) Optional treatment of insurance The person may choose to include an amount of the insurance, corresponding to the amount of the impairment or the derecog- nised value of the asset, in the value of the total group assets of the person’s New Zealand group during the period— (a) beginning with the impairment or derecognition of the asset; and ending before the earlier of— (i) the recognition of the amount of insurance: (b) 1668 Reprinted as at 30 August 2013 Income Tax Act 2007 Part F s FZ 7 (ii) the beginning of the 2016–17 income year.
(3) Corresponding treatment for worldwide group If a person includes an amount under subsection (2) in the value of the total group assets of the person’s New Zealand group for a period, the person must include the amount in the value of the total group assets of the person’s worldwide group for the period.
Notice to Commissioner (4) A person choosing to apply subsection (2) for an income year must give to the Commissioner— (a) notice that the person has applied this section for the income year; and the amount of income that would arise under section CH 9 (Interest apportionment: excess debt entity) for the income year in the absence of this section; and the amount of income that arises under section CH 9 for the income year after the application of this section; and further information required by the Commissioner.
(b) (c) (d) (5) Form and timing of notice The information required by subsection (4) must be given— (a) in the form and by the means prescribed by the Com- missioner; and no later than the later of 30 November 2012 and the day by which the person is required to make a return of income for the corresponding tax year.
(b) Deﬁned in this Act: Commissioner, generally accepted accounting practice, income year, return of income, total group assets Section FZ 7: inserted (with effect on 4 September 2010), on 2 November 2012 (applying for income years ending after 4 September 2010 and before the 2016–17 income year), by section 73(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
1669 Income Tax Act 2007 Reprinted as at 30 August 2013 Part G Avoidance and non-market transactions Subpart GA—Avoidance: general Contents GA 1 Commissioner’s power to adjust GA 2 Commissioner’s power to adjust: fringe beneﬁt tax Page 1670 1671 GA 1 Commissioner’s power to adjust (1) (2) (3) When this section applies This section applies if an arrangement is void under section BG 1 (Tax avoidance).
Commissioner’s general power The Commissioner may adjust the taxable income of a person affected by the arrangement in a way the Commissioner thinks appropriate, in order to counteract a tax advantage obtained by the person from or under the arrangement.

Commissioner’s speciﬁc power over tax credits The Commissioner may— (a) disallow some or all of a tax credit of a person affected by the arrangement; or allow another person to beneﬁt from some or all of the tax credit.
(b) Commissioner’s identiﬁcation of hypothetical situation (4) When applying subsections (2) and (3), the Commissioner may have regard to 1 or more of the amounts listed in sub- section (5) which, in the Commissioner’s opinion, had the ar- rangement not occurred, the person— (a) (b) would in all likelihood have had; or (c) might be expected to have had.
would have had; or Reconstructed amounts The amounts referred to in subsection (4) are— an amount of income of the person: (a) an amount of deduction of the person: (b) (5) 1670 Reprinted as at 30 August 2013 Income Tax Act 2007 Part G s GA 2 (c) (d) an amount of tax loss of the person: an amount of tax credit of the person.
No double counting (6) When applying subsection (2), if the Commissioner includes an amount of income or deduction in calculating the taxable income of the person, it must not be included in calculating the taxable income of another person.

(7) Meaning of tax credit In this section, tax credit means a reduction in the tax a person must pay because of— (a) a credit allowed for a payment by the person of an amount of tax or of another item; or another type of beneﬁt.
(b) Deﬁned in this Act: amount, arrangement, Commissioner, deduction, tax, tax credit, tax loss, taxable income Compare: 2004 No 35 s GB 1(1)–(2C) GA 2 Commissioner’s power to adjust: fringe beneﬁt tax (1) (2) When this section applies This section applies if— (a) an arrangement is void under section BG 1 (Tax avoid- ance); and the arrangement fringe beneﬁt tax (FBT).
involves altering the incidence of (b) Commissioner’s power in relation to excluded income The Commissioner may adjust the excluded income under sec- tion CX 3 (Excluded income) of a person affected by the ar- rangement in a way the Commissioner thinks appropriate, in order to counteract a tax advantage obtained by the person from or under the arrangement.
Commissioner’s identiﬁcation of hypothetical situation (3) When applying subsection (2), the Commissioner may have regard to 1 or more of the amounts listed in subsection (4) which, in the Commissioner’s opinion, had the arrangement not occurred, the person— (a) would have had; or (b) would in all likelihood have had; or (c) might be expected to have had.
1671 Income Tax Act 2007 Reprinted as at 30 August 2013 (4) (5) Reconstructed amounts The amounts referred to in subsection (3) are— (a) (b) an amount of excluded income of the person: an amount of excluded income of the person, if the per- son had been allowed the beneﬁt of an amount of ex- cluded income derived by another person as a result of the arrangement.
No double counting If the Commissioner includes an amount of excluded income in calculating the taxable income of the person, it must not be included in calculating the taxable income of another person.
Deﬁned in this Act: amount, arrangement, Commissioner, excluded income, FBT, fringe beneﬁt tax, taxable income Compare: 2004 No 35 s GC 17B Subpart GB—Avoidance: speciﬁc Contents Arrangements involving dividend stripping GB 1 Arrangements involving dividend stripping Arrangements involving transfer pricing GB 2 Arrangements involving transfer pricing Arrangements involving tax losses GB 3 Arrangements for carrying forward loss balances: companies GB 4 Arrangements for grouping tax losses: companies Arrangements to defeat continuity provisions GB 5 Arrangements involving trust beneﬁciaries Arrangements involving qualifying companies GB 6 Arrangements involving qualifying companies Arrangements involving controlled foreign companies GB 7 Arrangements involving CFC control interests GB 8 Arrangements involving attributed repatriation from CFCs GB 9 Temporary disposals of direct control or income interests GB 10 Temporary acquisitions of direct control or income Page 1675 1676 1676 1677 1678 1678 1679 1679 1680 1681 interests 1672 Reprinted as at 30 August 2013 Income Tax Act 2007 Part G s GA 2 GB 11 Temporary increases in totals for control interest categories GB 12 Temporary reductions in totals for control interest categories GB 13 When combination of changes reduces income GB 14 When combination of changes increases loss GB 15 CFC income or loss: arrangements related to quarterly 1682 1683 1684 1685 1686 measurement GB 15B Supplies affecting default test for non-attributing active 1686 CFC GB 15C Arrangements related to accounting test for 1687 non-attributing active CFC Arrangements involving foreign investment funds GB 16 FIF income or loss: arrangements for measurement day 1688 concessions Arrangements involving ﬁlm rights GB 17 Excessive amounts for ﬁlm rights or production 1688 expenditure GB 18 Arrangements to acquire ﬁlm rights or incur production 1689 expenditure GB 19 When ﬁlm production expenditure payments delayed or 1690 contingent Arrangements involving petroleum mining GB 20 Arrangements involving
 petroleum mining 1691 Arrangements involving ﬁnancial arrangements GB 21 Dealing that defeats intention of ﬁnancial arrangements 1693 rules Arrangements involving trust beneﬁciary income GB 22 Arrangements involving trust beneﬁciary income Excessive remuneration GB 23 Excessive remuneration to relatives GB 24 Exemption for genuine contracts GB 25 Close company remuneration to shareholders, directors, or relatives GB 25B Excessive effective look-through interests 1694 1694 1696 1697 1698 Arrangements involving repatriation of commercial bills GB 26 Arrangements involving repatriation of commercial bills 1699 1673 Income Tax Act 2007 Reprinted as at 30 August 2013 Attribution rule for income from personal services GB 27 Attribution rule for income from personal services GB 28 Interpretation of terms used in section GB 27 GB 29 Attribution rule: calculation 1700 1703 1705 Arrangements involving restrictive covenants GB 30 Arrangements to avoid taxation of restrictive covenant 1708 payments Arrangements involving fringe beneﬁt tax GB 31 FBT arrangements: general GB 32 Beneﬁts provided to employee’s associates Arrangements involving depreciation loss GB 33 Arrangements involving depreciation loss Arrangements involving imputation rules GB 34 ICA arrangements for carrying amounts forward GB 35 Imputation arrangements to obtain tax advantage GB 36 Reconstruction of imputation arrangements to obtain tax advantage GB 37 Arrangements for payment of dividend by other companies GB 38 When sections GB 35 to GB 37 apply to consolidated groups Arrangements involving foreign dividends GB 39 FDP arrangements: general [Repealed] GB 40 BETA arrangements for carrying amounts forward [Repealed] GB 41 FDPA arrangements for carrying amounts forward 1709 1710 1711 1712 1712 1714 1715 1716 1717 1717 1717 Arrangements involving Maori authority credits GB 42 Maori authority credit arrangements to obtain tax 1718 advantage GB 43 Reconstruction of Maori authority credit arrangements to 1719
 obtain tax advantage Arrangements involving tax credits for families GB 44 Arrangements involving tax credits for families Arrangements involving money not at risk GB 45 Arrangements involving money not at risk GB 46 Deferral of surplus deductions from arrangements GB 47 Calculation rules for sections GB 45 and GB 46 1720 1721 1723 1725 1674 Reprinted as at 30 August 2013 Income Tax Act 2007 Part G s GB 1 GB 48 Deﬁned terms for sections GB 45 and GB 46 Arrangements involving returning share transfers GB 49 Arrangements involving returning share transfers Arrangements involving partners GB 50 Arrangements involving partners 1726 1728 1728 Arrangements involving dividend stripping GB 1 Arrangements involving dividend stripping (1) When this section applies This section applies when— (a) (b) (c) a person disposes of shares in a company in an income year; and the disposal is part of a tax avoidance arrangement; and some or all of the consideration that the person derives from the disposal is in substitution for a dividend in an income year.
When amount substitutes for dividend (2) An amount derived by the person is in substitution for a divi- dend if it is equivalent to or substitutes for a dividend that, but for the arrangement, the person— (a) would have derived; or (b) would in all likelihood have derived; or (c) might be expected to have derived.

(3) Substitute treated as dividend The amount derived in substitution for a dividend is treated as a dividend derived by the person in the income year in which the disposal occurs.
Deﬁned in this Act: arrangement, company, dispose, dividend, income year, tax avoidance arrangement Compare: 2004 No 35 s GB 1(3) 1675 Part G s GB 2 Income Tax Act 2007 Reprinted as at 30 August 2013 Arrangements involving transfer pricing GB 2 Arrangements involving transfer pricing (1) When this section applies This section applies in relation to a person if an arrangement has a purpose or effect of defeating the intent and application of— (a) (b) section GC 7 (Excess amount payable by person): section GC 8 (Insufﬁcient amount receivable by per- son): section GC 9 (Compensating arrangement: person pay- ing less than arm’s length amount): section GC 10 (Compensating arrangement: person re- ceiving more than arm’s length amount).
(c) (d) Possible examples (2) Without limiting the generality of subsection (1), the following collateral arrangements may result in that purpose or effect: (a) a collateral arrangement with an associated person who is a non-resident: a market-sharing arrangement: an arrangement not to enter a market: a back-to-back supply arrangement: an income-sharing arrangement.
(b) (c) (d) (e) (3) Application of sections GC 7 to GC 10 Section GC 7, GC 8, GC 9, or GC 10, as applicable, applies to require the substitution of an arm’s length amount of consid- eration, despite section GC 6(2) and (3) (Purpose of rules and nature of arrangements).
Deﬁned in this Act: arrangement, associated person, non-resident Compare: 2004 No 35 s GC 1 Arrangements involving tax losses GB 3 Arrangements for carrying forward loss balances: companies When this section applies This section applies when— (a) a share in a company (the loss company) or another company has been subject to an arrangement, includ- (1) 1676 Reprinted as at 30 August 2013 Income Tax Act 2007 Part G s GB 4 (b) (c) ing an arrangement directly or indirectly altering rights attached to the shares; and the arrangement allows the loss company to meet the re- quirements of section IA 5 (Restrictions on companies’ loss balances carried forward); and a purpose of the arrangement is to defeat the intent and application of sections IA 5 and IP 3 (Continuity breach: tax loss components of companies carried forward).
(2) Company treated as not meeting requirements The loss company is treated as not meeting the requirements of section IA 5 in relation to the share.
Deﬁned in this Act: arrangement, company, loss balance, share Compare: 2004 No 35 s GC 2 GB 4 Arrangements for grouping tax losses: companies (1) (2) When this section applies This section applies when— (a) a share in a company (the offset company) or another company has been subject to an arrangement, including an arrangement directly or indirectly altering rights at- tached to the shares; and the arrangement allows the offset company to meet the requirements of subparts IC and IP, and section IZ 7 (which relate to the use of tax losses by group compan- ies), as applicable; and a purpose of the arrangement is to defeat the intent and application of those provisions.
(b) (c) Company treated as not meeting requirements The offset company is treated as not meeting the requirements of subparts IC and IP and section IZ 7, as applicable, in relation to the share.
Deﬁned in this Act: arrangement, company, share, tax loss Compare: 2004 No 35 s GC 4 1677 Part G s GB 5 Income Tax Act 2007 Reprinted as at 30 August 2013 Arrangements to defeat continuity provisions GB 5 Arrangements involving trust beneﬁciaries (1) (2) (3) When this section applies This section applies when— (a) a share in a company or option over a share in a company is held by a trustee; and a change occurs in the beneﬁciaries of the trust; and a purpose or effect of the change is to defeat the intent and application of a continuity provision.
(b) (c) Trustee treated as disposing of share or option The trustee is treated as having disposed of the share or option to an unrelated person at the time of the change in beneﬁciar- ies, and as having reacquired it immediately afterwards.

Limited application of subsection (2) Subsection (2) applies only for the purposes of the application of the rules in sections YC 2 (Voting interests) and YC 3 (Mar- ket value interests) in the case of the continuity provisions.
Deﬁned in this Act: company, continuity provisions, dispose, option, share, trustee Compare: 2004 No 35 s GC 3 Arrangements involving qualifying companies GB 6 Arrangements involving qualifying companies When this section applies This section applies when— (a) (b) (c) a share in a company has been subject to an arrangement at a time; and the arrangement allows the company or another com- pany (the relevant company) to be a qualifying com- pany at the time; and a purpose of the arrangement is to defeat the intent and application of subpart HA (Qualifying companies (QC)).
(1) 1678 Reprinted as at 30 August 2013 Income Tax Act 2007 Part G s GB 8 (2) Company treated as not qualifying company The relevant company is treated as not being a qualifying com- pany at that time.

Deﬁned in this Act: arrangement, company, qualifying company, share Compare: 2004 No 35 s GC 5 Section GB 6(1)(c): amended, on 17 July 2013, by section 172 of the Taxa- tion (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Arrangements involving controlled foreign companies GB 7 Arrangements involving CFC control interests (1) (2) When this section applies This section applies when— (a) 2 or more persons who are New Zealand residents enter into an arrangement; and under the arrangement, a control interest in a foreign company is held by another person; and a purpose of the arrangement is to prevent the foreign company being a controlled foreign company (CFC).
(b) (c) Interest treated as held by residents The control interest is treated as being held by the New Zealand residents in equal proportions, for the purposes of determining whether the company is a CFC.
Deﬁned in this Act: arrangement, CFC, control interest, foreign company, New Zealand resident Compare: 2004 No 35 s GC 7 GB 8 Arrangements involving attributed repatriation from CFCs (1) When this section applies This section applies when— (a) a CFC enters into a loan, security, or other type of ar- rangement (the CFC arrangement) with another per- son; and the CFC arrangement does not directly result in a person having an attributed repatriation from the CFC; and (b) 1679 Part G s GB 9 Income Tax Act 2007 Reprinted as at 30 August 2013 (c) (d) (e) the CFC arrangement has the purpose or effect of allow- ing a person (the investor) to enter into a loan or other arrangement (the investor arrangement); and the investor arrangement would, if it had been made by the CFC, have resulted in a person having some at- tributed repatriation from the CFC; and the purpose or effect of the arrangement is to defeat the intent and application of section CD 45 (When does a person have attributed repatriation from a controlled foreign company?).
(2) Investor arrangement treated as made by CFC For the purposes of applying section CD 45, the investor ar- rangement is treated as having been made by the CFC and not the investor.
Deﬁned in this Act: arrangement, attributed repatriation, CFC Compare: 2004 No 35 s GC 8 GB 9 Temporary disposals of direct control or income interests When this section applies This section applies when,— (a) before the end of a quarter, a person (the disposer), di- rectly or indirectly disposes of a direct control interest or direct income interest in a foreign company (the dis- posal); and the disposal is not to a New Zealand resident who, im- mediately after the disposal, has an income interest of 10% or more in the foreign company from which at- tributed CFC income or attributed repatriation is de- rived; and within 183 days after the disposal, the disposer directly or indirectly acquires a direct control interest or direct income interest in the foreign company (the reacquisi- tion); and the disposal has the effect of reducing attributed CFC income or attributed repatriation of— (i) (ii) (iii) the disposer; or an associated person of the disposer; or if the disposer is a CFC, a person holding an in- come interest in the disposer; and (b) (c) (d) (1) 1680 Reprinted as at 30 August 2013 Income Tax Act 2007 Part G s GB 10 (2) (e) the disposal and reacquisition are part of an arrange- ment that has an effect of defeating the intent and appli- cation of the international tax rules.
Treatment of disposal The disposal is treated as not having occurred, when the per- son’s control interest or income interest in the foreign com- pany at the end of the quarter is calculated, to the extent to which the reacquisition reverses the disposal.
Deﬁned in this Act: arrangement, associated person, attributed CFC income, at- tributed repatriation, CFC, control interest, direct control interest, direct income interest, foreign company, income interest, international tax rules, quarter Compare: 2004 No 35 s GC 9(1), (4), (7) GB 10 Temporary acquisitions of direct control or income interests (1) When this section applies This section applies when,— (a) (b) (c) (d) (e) before the end of a quarter, a person (the acquirer), di- rectly or indirectly acquires a direct control interest or direct income interest in a foreign company (the acqui- sition); and the acquisition is not from a New Zealand resident who, immediately before the acquisition, has an income inter- est of 10% or more in the foreign company from which an attributed CFC loss is incurred; and within 183 days after the acquisition, the acquirer di- rectly or indirectly disposes of a direct control interest or direct income interest in the foreign company (the disposal); and the acquisition has the effect of increasing an attributed CFC loss of— (i) (ii) (iii) the acquirer; or an associated person of the acquirer; or if the acquirer is a CFC, a person holding an in- come interest in the acquirer; and the acquisition and disposal are part of an arrangement that has an effect of defeating the intent and application of the international tax rules.
1681 Part G s GB 11 Income Tax Act 2007 Reprinted as at 30 August 2013 (2) Treatment of acquisition The acquisition is treated as not having occurred, when the person’s control interest or income interest in the foreign com- pany at the end of the quarter is calculated, to the extent to which the disposal reverses the acquisition.
Deﬁned in this Act: arrangement, associated person, attributed CFC loss, CFC, control interest, direct control interest, direct income interest, foreign company, income interest, international tax rules, quarter Compare: 2004 No 35 s GC 9(1), (4), (7) GB 11 Temporary increases in totals for control interest categories When this section applies This section applies when,— (a) (b) (c) (d) before the end of a quarter, an increase occurs in the total of direct control interests in a foreign company in any of the control interest categories (the total in- crease); and the total increase results in a person (the interest holder) having a reduced income interest or control interest in a foreign company (the interest reduction); and within 365 days after the total increase, a reduction oc- curs in the total for the control interest category (the total reduction); and the interest reduction has the effect of reducing at- tributed CFC income or attributed repatriation of— (i) (ii) (iii) the interest holder; or an associated person of the interest holder; or if the interest holder is a CFC, another person holding an income interest in the interest holder; and (e) the total increase and total reduction are part of an ar- rangement that has an effect of defeating the intent and application of the international tax rules.
Treatment of interest reduction The interest reduction is treated as not having occurred, when the interest holder’s control interest or income interest in the foreign company at the end of the quarter is calculated, to the (1) (2) 1682 Reprinted as at 30 August 2013 Income Tax Act 2007 Part G s GB 12 extent to which the total reduction reverses the interest reduc- tion.
Deﬁned in this Act: arrangement, associated person, attributed CFC income, attributed repatriation, CFC, control interest, control interest category, direct control interest, foreign company, income interest, international tax rules, quar- ter Compare: 2004 No 35 s GC 9(2), (7) GB 12 Temporary reductions in totals for control interest categories (1) When this section applies This section applies when,— (a) before the end of a quarter, a reduction in the total of direct control interests in a foreign company occurs in a control interest category (the total reduction); and the total reduction results in a person (the interest holder) having an increased income interest or control interest in a foreign company (the interest increase); and within 365 days after the total reduction, an increase occurs in the total for the control interest category (the total increase); and the interest increase has the effect of increasing an at- tributed CFC loss of— (i) (ii) (iii) the interest holder; or an associated person of the interest holder; or another person holding an income interest in the interest holder, if the interest holder is a CFC; and the total reduction and total increase are part of an ar- rangement which has an effect of defeating the intent and application of the international tax rules.
(b) (c) (d) (e) (2) Treatment of interest increase The interest increase is treated as not having occurred, when the interest holder’s control interest or income interest in the foreign company at the end of the quarter is calculated, to the extent to which the total increase reverses the interest increase.
Deﬁned in this Act: arrangement, associated person, attributed CFC loss, CFC, control interest, control interest category, direct control interest, foreign com- pany, income interest, international tax rules, quarter Compare: 2004 No 35 s GC 9(2), (7) 1683 Part G s GB 13 Income Tax Act 2007 Reprinted as at 30 August 2013 GB 13 When combination of changes reduces income When this section applies This section applies when— (a) (ii) before the end of a quarter, either— (i) a person directly or indirectly disposes of a direct control interest or direct income interest in a for- eign company (the disposal); or an increase occurs in the total of direct control interests in a foreign company in any of the con- trol interest categories (the total increase); and in the case of the disposal, the disposal is not to a New Zealand resident who, immediately after the disposal, has an income interest of 10% or more in the foreign company from which they derive attributed CFC in- come or attributed repatriation; and in the case of the disposal, within 365 days after the disposal, a reduction occurs in the total of direct control interests in the foreign company in any of the control interest categories (the total reduction); and in the case of the total increase, within 365 days after the total increase, a person directly or indirectly acquires a direct control interest or direct income interest in the foreign company (the reacquisition); and the disposal or total increase has the effect of reducing attributed CFC income or attributed repatriation of— (i) (ii) (iii) the person (the interest holder); or an associated person of the interest holder; or if the interest holder is a CFC, a person holding an income interest in the interest holder; and the disposal and total reduction or total increase and reacquisition are part of an arrangement that has an ef- fect of defeating the intent and application of the inter- national tax rules.
(b) (c) (d) (e) (f) Treatment of disposal or total increase The disposal or total increase is treated as not having occurred, when the interest holder’s control interest or income interest in the foreign company at the end of the quarter is calculated, to the extent to which the total reduction or reacquisition has the effect of reversing the effect of the disposal or total increase (1) (2) 1684 Reprinted as at 30 August 2013 Income Tax Act 2007 Part G s GB 14 on the level of the interest holder’s control interest or income interest.
Deﬁned in this Act: arrangement, associated person, attributed CFC income, attributed repatriation, CFC, control interest, control interest category, direct control interest, direct income interest, foreign company, income interest, inter- national tax rules, quarter Compare: 2004 No 35 s GC 9(3), (4), (7) GB 14 When combination of changes increases loss (1) When this section applies This section applies when,— (a) (ii) before the end of a quarter, either— (i) a person directly or indirectly acquires a direct control interest or direct income interest in a for- eign company (the acquisition); or a decrease occurs in the total of direct control interests in a foreign company in any of the con- trol interest categories (the total decrease); and in the case of the acquisition, the acquisition is not from a New Zealand resident who, immediately before the acquisition, has an income interest of 10% or more in the foreign company from which they have an attributed CFC loss; and in the case of the acquisition, within 365 days after the acquisition, an increase occurs in the total of direct con- trol interests in the foreign company in any of the con- trol interest categories (the total increase); and in the case of the total reduction, within 365 days after the total reduction, a person directly or indirectly dis- poses of a direct control interest or direct income inter- est in the foreign company (the disposal); and the acquisition or total reduction has the effect of reduc- ing an attributed CFC loss of— (i) (ii) (iii) the person (the interest holder); or an associated person of the interest holder; or if the interest holder is a CFC, a person holding an income interest in the interest holder; and (b) (c) (d) (e) (f) the acquisition and total increase or total reduction and disposal are part of an arrangement that has an effect of 1685 Part G s GB 15 Income Tax Act 2007 Reprinted as at 30 August 2013 (2) defeating the intent and application of the international tax rules.
Treatment of acquisition or total reduction The acquisition or total reduction is treated as not having oc- curred, when the interest holder’s control interest or income interest in the foreign company at the end of the quarter is cal- culated, to the extent to which the total increase or disposal has the effect of reversing the effect of the acquisition or total reduction on the level of the interest holder’s control interest or income interest.
Deﬁned in this Act: arrangement, associated person, attributed CFC loss, CFC, control interest, control interest category, direct control interest, direct income interest, foreign company, income interest, international tax rules, quarter Compare: 2004 No 35 s GC 9(3), (4), (7) GB 15 CFC income or loss: arrangements related to quarterly measurement (1) (2) When this section applies This section applies when— (a) an income interest in a CFC is transferred by a person to an associated person; and the associated persons make an arrangement for making or not making an election under section EX 26(3) (Use of quarterly measurement); and the arrangement has an effect of defeating the intent and application of the international tax rules.
(b) (c) Treatment of election The Commissioner may treat the election as having been made or not made, as applicable, to the extent appropriate to prevent the effect of the arrangement.
Deﬁned in this Act: arrangement, associated person, CFC, Commissioner, in- come interest, international tax rules Compare: 2004 No 35 s GC 10 GB 15B Supplies affecting default test for non-attributing active CFC When this section applies This section applies when a CFC makes a supply— (1) 1686 Reprinted as at 30 August 2013 Income Tax Act 2007 Part G s GB 15C (a) to a person who would not meet the requirements of sec- tion EX 21D(1)(a) to (c) (Non-attributing active CFC: default test) for the person to be a member of a test group, under that section, with the CFC; and (b) with the purpose of increasing the amount given by the denominator in the formula in section EX 21D(4) for the CFC.
(2) Income from supply included in gross adjustment The income from the supply is included in the item gross ad- justments in section EX 21D(9)(d).

Deﬁned in this Act: CFC Section GB 15B: inserted (with effect on 30 June 2009), on 6 October 2009, by section 237(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
GB 15C Arrangements related to accounting test for non-attributing active CFC (1) When this section applies This section applies when a person (the party) enters an ar- rangement having a purpose, that is more than incidental, of enabling a CFC to meet the requirements of section EX 21E (Non-attributing active CFC: test based on accounting stand- ard) when the CFC would not meet the requirements of sec- tion EX 21D (Non-attributing active CFC: default test) to be a non-attributing active CFC.
CFC not non-attributing active CFC The CFC is not a non-attributing active CFC.

(2) Person not non-attributing active CFC if type of ﬁnancial arrangement involved (3) A party who is a CFC associated with the CFC is not a non- attributing active CFC if— (a) (b) the arrangement involves a ﬁnancial arrangement pro- ducing a foreign exchange loss for the CFC; and the foreign exchange loss decreases for the CFC the amount of the numerator in the formula in section EX 21E(5).
Deﬁned in this Act: arrangement, associated, CFC, ﬁnancial arrangement, loss, non-attributing active CFC 1687 Part G s GB 16 Income Tax Act 2007 Reprinted as at 30 August 2013 Section GB 15C: inserted (with effect on 30 June 2009), on 6 October 2009, by section 237(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Arrangements involving foreign investment funds GB 16 FIF income or loss: arrangements for measurement day concessions (1) (2) When this section applies This section applies when— (a) an attributing interest in a foreign investment fund (FIF) is transferred by a person to an associated person; and the associated persons make an arrangement for making or not making— (i) an election under section EX 26(3) (Use of quar- terly measurement); or [Repealed] a combination of those elections; and (ii) (iii) the arrangement has an effect of defeating the intent and application of the international tax rules.
(b) (c) Treatment of election The Commissioner may treat an election as having been made or not made, as applicable, to the extent appropriate to prevent the effect of the arrangement.
Deﬁned in this Act: arrangement, associated person, attributing interest, FIF, Commissioner, international tax rules Compare: 2004 No 35 s GC 10 Section GB 16(1)(b)(ii): repealed (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 69(1) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Arrangements involving ﬁlm rights GB 17 Excessive amounts for ﬁlm rights or production expenditure When this section applies This section applies when— (a) a person (the buyer) is allowed a deduction under— (1) 1688 Reprinted as at 30 August 2013 Income Tax Act 2007 Part G s GB 18 (i) (ii) section DS 1 (Acquiring ﬁlm rights) for expend- iture incurred in acquiring a ﬁlm right; or section DS 2 (Film production expenditure) for expenditure incurred in acquiring goods or ser- vices in relation to a ﬁlm; and the Commissioner considers that the buyer and the per- son from whom the ﬁlm right, goods, or services were acquired (the seller) were not dealing with each other at arm’s length; and the amount of expenditure incurred by the buyer is more than the market value of the ﬁlm right, goods, or ser- vices at the time they were acquired.
(b) (c) Deduction reduced to market value The deduction is reduced to an amount equal to the market value.

Application to shares in ﬁlm rights If the buyer acquires only a share in a ﬁlm right, this section applies only to the part of the total market value of the ﬁlm right that is attributable to that share.
Deﬁned in this Act: Commissioner, deduction, ﬁlm production expenditure, ﬁlm right Compare: 2004 No 35 ss GC 11A, GD 12 Section GB 17(1)(b): amended (with effect on 1 April 2008), on 29 August 2011 (applying for the 2008–09 and later income years), by section 140(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
(2) (3) GB 18 Arrangements to acquire ﬁlm rights or incur production expenditure (1) When this section applies This section applies if the Commissioner considers that 2 per- sons have made arrangements so that any of the following sec- tions applies more favourably in relation to a person in an in- come year than would have applied without the arrangements: (a) (b) (c) section DS 1 (Acquiring ﬁlm rights): section DS 2 (Film production expenditure): section EJ 4 (Expenditure incurred in acquiring ﬁlm rights in feature ﬁlms): section EJ 5 (Expenditure incurred in acquiring ﬁlm rights in ﬁlms other than feature ﬁlms): (d) 1689 Part G s GB 19 Income Tax Act 2007 Reprinted as at 30 August 2013 (2) (3) (e) (f) section EJ 7 (Film production expenditure for New Zealand ﬁlms): section EJ 8 (Film production expenditure for ﬁlms other than New Zealand ﬁlms).
Deduction reduced The deduction allowed to the person under section DS 1 or DS 2 is reduced to the amount that the Commissioner con- siders would have been allowed had the arrangements not oc- curred.

Allocation The deduction allocated under section EJ 4, EJ 5, EJ 7, or EJ 8 is allocated to the income year to which the Commissioner considers it would have been allocated had the arrangements not occurred.
Deﬁned in this Act: arrangement, Commissioner, deduction, ﬁlm production expenditure, ﬁlm right, income year Compare: 2004 No 35 ss GC 11B, GD 12B GB 19 When ﬁlm production expenditure payments delayed or contingent When this section applies This section applies when— (a) (b) a person (the payer) is liable to pay any of the costs of goods or services applied in producing a ﬁlm: either— (i) the payment of the costs is deferred under an agreement between the provider of the goods or services and another person, and the period of de- ferral is excessive; or the payment is contingent.
(ii) Costs incurred when paid For the purposes of sections DS 2, EJ 7, and EJ 8 (which relate to ﬁlm production expenditure), the payer is treated as incur- ring the costs at the time of payment.
Deﬁned in this Act: ﬁlm, ﬁlm production expenditure Compare: 2004 No 35 s GD 12A (1) (2) 1690 Reprinted as at 30 August 2013 Income Tax Act 2007 Part G s GB 20 Arrangements involving petroleum mining GB 20 Arrangements involving petroleum mining (1) (2) When this section applies This section applies if the requirements of both of the follow- ing paragraphs are met: (a) an arrangement includes— (i) (ii) a disposal of a petroleum mining asset; or the incurring of petroleum exploration expend- iture; or a farm-out arrangement: (iii) the arrangement has a purpose or effect of tax avoid- ance.
(b) Applying section GA 1 The Commissioner may apply section GA 1 (Commissioner’s power to adjust) to adjust the taxable income of a person af- fected by the arrangement so as to counteract a tax advantage obtained by the person.

Examples (3) Without limiting the generality of subsection (1), arrange- ments having the effect of tax avoidance include the arrange- ments described in subsections (4) to (8).
Person acquiring asset relieved or compensated (4) An arrangement has the effect of tax avoidance if it involves the disposal of a petroleum mining asset and it is probable that, at the time the arrangement is entered into, the person acquiring the petroleum mining asset— (a) will, through a related arrangement, not have to suffer some or all of the expenditure of acquiring the petrol- eum mining asset; or (b) will be effectively compensated in some way for some or all of the expenditure.
Person incurring expenditure relieved or compensated (5) An arrangement has the effect of tax avoidance if it involves the incurring of petroleum exploration expenditure and it is probable that, at the time the arrangement is entered into, the person who is to incur the petroleum exploration expend- iture— 1691 Part G s GB 20 Income Tax Act 2007 Reprinted as at 30 August 2013 (a) will, through a related arrangement, not have to suffer some or all of the petroleum exploration expenditure; or (b) will be effectively compensated in some way for some or all of the petroleum exploration expenditure.
Farm-in party relieved or compensated (6) An arrangement has the effect of tax avoidance if it involves a farm-out arrangement and it is probable that, at the time the arrangement is entered into,— (a) the farm-in party will, through a related arrangement, not have to suffer some or all of the farm-in expenditure attributable to the proportionate interest acquired by the farm-in party under the farm-out arrangement; or the farm-in party or an associated person will be effect- ively compensated in some way for some or all of the farm-in expenditure.
(b) Disposal of asset to associated person for over-value (7) An arrangement has the effect of tax avoidance if it involves a petroleum miner disposing of a petroleum mining asset to an associated person for a purpose of ensuring that the associated person has a greater deduction than would have been allowed if the asset had been disposed of for its market value.
Farm-out arrangement with associated person for overvalue (8) An arrangement has the effect of tax avoidance if it involves a petroleum miner entering into a farm-out arrangement with an associated person for a purpose of ensuring that the asso- ciated person has a greater deduction than would have been allowed if the farm-out arrangement had been entered into on substantially the same terms as those on which it would have been entered into with a person who is not associated.
Miners operating offshore This section applies, with the necessary modiﬁcations, to a petroleum miner who undertakes petroleum mining operations that are— (a) outside New Zealand and undertaken through a branch or CFC; and substantially the same as the petroleum mining activ- ities governed by this Act.
(b) (9) 1692 Reprinted as at 30 August 2013 Income Tax Act 2007 Part G s GB 21 Treatment of partners (10) For the purposes of this section, a partner is treated as having a share or interest in a petroleum permit or other property of a partnership to the extent of their income interest in the part- nership.

Disposal of part of asset (11) For the purposes of this section, references to the disposal of an asset apply equally to the disposal of part of an asset.
Deﬁned in this Act: arrangement, associated person, CFC, deduction, dispose, farm-in expenditure, farm-out arrangement, New Zealand, petroleum explor- ation expenditure, petroleum miner, petroleum mining asset, petroleum permit, tax avoidance, taxable income Compare: 2004 No 35 s GC 12 Arrangements involving ﬁnancial arrangements GB 21 Dealing that defeats intention of ﬁnancial arrangements rules (1) (2) When this section applies This section applies if the Commissioner considers that the parties to a ﬁnancial arrangement were dealing with each other in a way that defeats the intention of the ﬁnancial arrangements rules at the time the ﬁnancial arrangement was— entered into or otherwise acquired; or (a) varied; or (b) disposed of.
(c) Alteration of consideration The Commissioner may treat the relevant transaction as hav- ing occurred for the consideration that parties dealing at arm’s length would have agreed on.
Deﬁned in this Act: Commissioner, ﬁnancial arrangement, ﬁnancial arrange- ments rules Compare: 2004 No 35 s GD 11 1693 Part G s GB 22 Income Tax Act 2007 Reprinted as at 30 August 2013 Arrangements involving trust beneﬁciary income GB 22 Arrangements involving trust beneﬁciary income (1) (2) When this section applies This section applies when— (a) an arrangement involves a trustee transferring property, or providing services or other beneﬁts, to a person other than a beneﬁciary of the trust; and the arrangement has the effect of defeating the intent and application of sections HC 17 to HC 23 (which re- late to the income of beneﬁciaries) in relation to the beneﬁciary; and the trust is not a Maori authority.
(b) (c) Application of sections HC 17 to HC 23 The beneﬁciary is treated, for the purposes of sections HC 17 to HC 23, as receiving the property or enjoying the services or beneﬁts.
Deﬁned in this Act: arrangement, Maori authority, trustee Compare: 2004 No 35 s GC 14 Excessive remuneration GB 23 Excessive remuneration to relatives When this section applies: ﬁrst case This section applies when— (a) (b) a person carries on a business or undertaking; and the person employs or engages a relative or, in a case in which the person is a company but not a close company, a relative of a director or shareholder of the company, to perform services for the business or undertaking; and the Commissioner considers that the income payable to the relative for the services is excessive; and the exemption in section GB 24 does not apply.
(c) (d) When this section applies: second case This section also applies when— (a) a person carries on a business in partnership or has an effective look-through interest for a look-through com- pany; and (1) (2) 1694 Reprinted as at 30 August 2013 Income Tax Act 2007 Part G s GB 23 (b) (c) (d) the partnership or look-through company employs or engages a relative of the person or, in a case in which the person is a company, a relative of a director or share- holder in the company, to perform services for the busi- ness; and the Commissioner considers that the income payable to the relative for the services is excessive; and the exemption in section GB 24 does not apply.
(3) (4) When this section applies: third case This section also applies when— (a) (b) a person carries on a business in partnership; and another partner in the partnership is— a relative of the person; or (i) if the person is a company, a relative of a director (ii) or shareholder in the company; or a company in which a relative of the person is a director or shareholder; and (iii) (c) (d) the Commissioner considers that the other partner’s share of partnership proﬁt or losses is excessive; and the exemption in section GB 24 does not apply.
Allocation of income or losses For the purposes of this Act, the Commissioner may allocate the income or losses of the business or undertaking among the parties to the contract or partnership as the Commissioner considers reasonable, without taking into account an amount provided to the relative or other partner.

Treatment of amount allocated (5) An amount the Commissioner allocates to 1 person is treated as not belonging to another person.
(6) Matters for Commissioner’s consideration The Commissioner may take into account each of the follow- ing matters when applying this section: (a) the nature and extent of the services rendered by the relative: the value of the contributions made by the respective partners, by way of services, capital, or otherwise: any other relevant matters.
(b) (c) 1695 Part G s GB 24 Income Tax Act 2007 Reprinted as at 30 August 2013 (7) Treatment of amount allocated back to company If an amount provided by a company to a relative of a director or shareholder for services is allocated to the company under subsection (4), it is treated as a dividend paid by the company and derived by the relative.
Deﬁned in this Act: close company, company, director, dividend, effective look-through interest, income, look-through company, relative, shareholder Compare: 2004 No 35 s GD 3(1), (2) Section GB 23(2)(a): amended, on 1 April 2011 (applying for income years beginning on or after 1 April 2011), by section 67(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section GB 23(2)(b): amended, on 1 April 2011 (applying for income years beginning on or after 1 April 2011), by section 67(2) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).

Section GB 23 list of deﬁned terms effective look-through interest: inserted, on 1 April 2011, by section 67(3) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section GB 23 list of deﬁned terms look-through company: inserted, on 1 April 2011, by section 67(3) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).

GB 24 Exemption for genuine contracts (1) When section GB 23 does not apply Section GB 23 does not apply if the relevant contract of em- ployment, engagement, or partnership is a genuine contract.
When contracts genuine (2) A contract is treated as a genuine contract if— (a) (b) (c) (d) (e) (f) the contract is in writing; and the contract is signed by all the parties to it; and in the case of a contract of employment or engagement, each person employed or engaged under the contract is 20 years or older on the date of signing the contract; and in the case of a contract of partnership, each partner is 20 years or older on the date of signing the contract; and the contract is binding for at least 3 years, except for the reasons set out in sections 36 and 38 of the Partnership Act 1908; and in the case of a contract of employment or engagement, each person employed or engaged has real control over their income under the contract; and 1696 Reprinted as at 30 August 2013 (g) Income Tax Act 2007 Part G s GB 25 in the case of a contract of partnership, each partner has— (i) real control over their share of proﬁts under the contract; and real liability for their share of losses under the contract; and (ii) (h) no part of the income or share of proﬁts derived by the relative, or company of which the relative is a shareholder or director, is either a disposition without fully adequate consideration in money or money’s worth passing to the person making the disposition or a disposition that any part of does not have fully adequate consideration in money or money’s worth passing to the person making the disposition.
Deﬁned in this Act: director, income, loss, shareholder, year Compare: 2004 No 35 s GD 3(4), (5) Section GB 24(2)(h): replaced (with effect on 1 October 2011), on 17 July 2013, by section 58 of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
GB 25 Close company remuneration to shareholders, directors, or relatives (1) (2) (3) When this section applies This section applies when— (a) a close company provides remuneration for services to a person (the service provider) who is— (i) (ii) a shareholder or director of the company; or a relative of a shareholder or director of the com- pany; and (b) (c) the Commissioner considers that the amount provided is excessive; and the exemption in subsection (3) does not apply.
Excess treated as dividend For the purposes of this Act, the excess is treated as a dividend paid by the company and derived by the service provider.
Exemption: residents working full-time This section does not apply when— (a) the service provider is an adult employed substantially full-time in the business of the company; and 1697 Part G s GB 25B Income Tax Act 2007 Reprinted as at 30 August 2013 (c) (b) the service provider participates in the management or administration of the company; and the amount provided to the service provider was not inﬂuenced by their relationship with a shareholder or director; and (d) the service provider is a New Zealand resident.
Deﬁned in this Act: close company, Commissioner, company, director, divi- dend, New Zealand resident, shareholder Compare: 2004 No 35 s GD 5 Section GB 25(3)(b): amended (with effect on 1 April 2008), on 7 September 2010 (applying for the 2008–09 and later income years), by section 53(1) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
GB 25B Excessive effective look-through interests (1) When this section applies This section applies to the extent to which, for an income year,— (a) a person (an owner) has an effective look-through in- terest for a look-through company (the LTC); and for the LTC, 2 or more owners are relatives, 1 of whom is under 20 years old (the relevant relative); and the Commissioner considers that the income arising from the application of section HB 1 (Look-through companies are transparent) for the relevant relative is excessive.
(b) (c) Reallocation of effective look-through interests (2) Despite section HB 1, the effective look-through interests for the person are the interests that the Commissioner considers reasonable for the income year or part of the income year, as applicable, without taking into account an amount provided to the relevant relative.
Matters for Commissioner’s consideration The Commissioner may take into account each of the follow- ing matters when applying this section: (a) the nature and extent of services rendered by the rele- vant relative: the value of the contributions made by the respective owners, by way of services, capital, or otherwise: (b) (3) 1698 Reprinted as at 30 August 2013 Income Tax Act 2007 Part G s GB 26 any other relevant matters.
(c) Deﬁned in this Act: effective look-through interest, income year, look-through company, relative Section GB 25B: inserted, on 1 April 2011 (applying for income years beginning on or after 1 April 2011), by section 68(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Arrangements involving repatriation of commercial bills GB 26 Arrangements involving repatriation of commercial bills (1) When this section applies This section applies when— (a) a commercial bill has been issued by— (i) a New Zealand resident who does not use the money lent in a business carried on through a ﬁxed establishment outside New Zealand; or a non-resident who uses the money lent in a busi- ness carried on through a ﬁxed establishment in New Zealand; and (ii) (b) (c) (d) (e) a non-resident who holds the bill transfers it to another person (the New Zealand transferee); and the non-resident did not become a party to the bill for the purpose of carrying on a business through a ﬁxed establishment in New Zealand; and the New Zealand transferee is either— a New Zealand resident; or (i) a non-resident who becomes a party to the com- (ii) mercial bill for the purpose of carrying on a business through a ﬁxed establishment in New Zealand; and the transfer of the bill has the purpose of avoiding non- resident withholding tax (NRWT) or the approved is- suer levy.
(2) Income If the New Zealand transferee redeems the commercial bill, the redemption payment is income of the New Zealand transferee.

1699 Part G s GB 27 Income Tax Act 2007 Reprinted as at 30 August 2013 (3) New Zealand transferee treated as redeeming bill For the purposes of this section, the New Zealand transferee is treated as redeeming the bill on the scheduled redemption date even if it is not redeemed.
Deﬁned in this Act: approved issuer, commercial bill, ﬁxed establishment, in- come, money lent, New Zealand resident, non-resident, NRWT, redemption payment Compare: 2004 No 35 s GC 14A Attribution rule for income from personal services GB 27 Attribution rule for income from personal services Application of section GB 29 (1) An amount of income in an income year of a person (the as- sociated entity) is attributed to another person (the working person) under section GB 29 for the working person’s corres- ponding tax year if,— (a) during the income year, a third person (the buyer) pur- chases services from the associated entity, and the ser- vices are personally performed by the working person; and the working person is associated with the associated en- tity; and the threshold test in subsection (2) is met; and none of the exemptions in subsection (3) applies.
Threshold for application of attribution rule The attribution occurs only if— (a) 80% or more of the associated entity’s total income from personal services during the income year is de- rived from the sale of services to the buyer, a person as- sociated with the buyer, or a combination of them; and 80% or more of the associated entity’s income from per- sonal services during the income year is derived through services personally performed by the working person, a relative of the working person, or a combination of them; and the working person’s net income for the income year, assuming section GB 29 applies in relation to the asso- (b) (c) (d) (b) (c) (2) 1700 Reprinted as at 30 August 2013 Income Tax Act 2007 Part G s GB 27 (d) ciated entity and working person, is more than $70,000; and substantial business assets are not a necessary part of the business structure that is used to derive the total income referred to in paragraph (a).
(3) (4) Exemptions The attribution does not occur— (a) (b) (c) (d) (e) if both the associated entity and the working person are non-residents at all times during the associated entity’s income year: if the associated entity is a natural person and is neither a partner of a partnership nor a trustee of a trust: to the extent to which the services personally performed by the working person are essential support for a prod- uct supplied by the associated entity: if the total amount to be attributed to the working per- son, for the associated entity and the income year, is less than $5,000, unless this paragraph applies to pre- vent income being attributed to the working person for the income year in relation to another associated entity: if the associated entity is a CFC and the amount— (i) is an attributable CFC amount for the CFC under section EX 20B(3)(h) (Attributable CFC amount): gives rise to attributed CFC income under section CQ 2(2B) (When attributed CFC income arises) or attributed CFC loss under section DN 2(2) (When attributed CFC loss arises).
(ii) Treatment of certain dividends If a company that is required to attribute an amount to the working person under this section pays a dividend, sections HA 14 to HA 19 (which relate to qualifying companies) are treated as applying to the company and the dividend if the company— (a) has no net income for the tax year in which it pays the dividend other than income attributed under this section, ignoring interest income that is incidental to the com- pany’s business; and is not a qualifying company; and (b) 1701 Part G s GB 27 Income Tax Act 2007 Reprinted as at 30 August 2013 (c) chooses to have the dividend treated as if it were paid by a qualifying company.
Cancellation of notional imputation credits For the purposes of subsection (4), to the extent to which the dividend paid by the company would have had an imputation credit attached that arose under section OB 16 (ICA attribu- tion for personal services) in the absence of the election made under subsection (4)(c), the credit is treated as cancelled im- mediately before it would have been attached under sections HA 14 to HA 19 (which relate to dividends paid by qualifying companies).
Deﬁned in this Act: amount, associated person, attributable CFC amount, at- tributed CFC income, attributed CFC loss, business, CFC, company, dividend, imputation credit, income, income year, net income, non-resident, pay, quali- fying company, relative, tax year, trustee Compare: 2004 No 35 ss GC 14B, GC 14E, GC 14EB Section GB 27(2)(c): amended (with effect on 1 April 2008), on 6 October 2009, by section 238(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section GB 27(3)(d): amended (with effect on 30 June 2009), on 6 October 2009, by section 238(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section GB 27(3)(e): added (with effect on 30 June 2009), on 6 October 2009, by section 238(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section GB 27(4) heading: added, on 1 April 2008, by section 407(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section GB 27(4): added, on 1 April 2008, by section 407(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section GB 27(5) heading: added (with effect on 1 April 2008), on 7 Decem- ber 2009, by section 41(1) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
Section GB 27(5): added (with effect on 1 April 2008), on 7 December 2009, by section 41(1) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).

Section GB 27 list of deﬁned terms amount: inserted, on 1 April 2008, by section 407(2) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section GB 27 list of deﬁned terms attributable CFC amount: inserted (with effect on 30 June 2009), on 6 October 2009, by section 238(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section GB 27 list of deﬁned terms attributed CFC income: inserted (with effect on 30 June 2009), on 6 October 2009, by section 238(3) of the Taxation (5) 1702 Reprinted as at 30 August 2013 Income Tax Act 2007 Part G s GB 28 (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section GB 27 list of deﬁned terms attributed CFC loss: inserted (with ef- fect on 30 June 2009), on 6 October 2009, by section 238(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section GB 27 list of deﬁned terms business: inserted, on 1 April 2008, by section 407(2) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section GB 27 list of deﬁned terms CFC: inserted (with effect on 30 June 2009), on 6 October 2009, by section 238(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section GB 27 list of deﬁned terms company: inserted, on 1 April 2008, by section 407(2) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section GB 27 list of deﬁned terms dividend: inserted, on 1 April 2008, by section 407(2) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section GB 27 list of deﬁned terms imputation credit: inserted (with effect on 1 April 2008), on 7 December 2009, by section 126 of the Taxation (Conse- quential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
Section GB 27 list of deﬁned terms pay: inserted (with effect on 1 April 2008), on 7 December 2009, by section 126 of the Taxation (Consequential Rate Align- ment and Remedial Matters) Act 2009 (2009 No 63).

Section GB 27 list of deﬁned terms qualifying company: inserted, on 1 April 2008, by section 407(2) of the Taxation (Business Taxation and Remedial Mat- ters) Act 2007 (2007 No 109).
Section GB 27 compare note: amended, on 1 April 2008, by section 407(3) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

GB 28 Interpretation of terms used in section GB 27 When this section applies This section applies for the purposes of section GB 27.

(1) Associated persons (2) A person is treated as being associated with another person if they are associated at the time the services are personally performed by the working person.
(3) Non-associated buyers For the purposes of section GB 27(2)(a), a buyer is not treated as being associated with another buyer if either— both buyers are public authorities; or (a) 1703 Part G s GB 28 Income Tax Act 2007 Reprinted as at 30 August 2013 (b) the working person cannot be reasonably expected to know that a particular buyer is associated with another buyer, other than by making a speciﬁc enquiry.
Relatives For the purposes of section GB 27(2)(b), a person is a relative of the working person only if the person is a relative at the beginning of the relevant income year of the working person.

Fringe beneﬁts included For the purposes of section GB 27(2)(c), the working person’s annual gross income includes the taxable value of a fringe beneﬁt, as determined under sections RD 25 to RD 63 (which relate to fringe beneﬁt tax), provided or granted by a person associated with the working person.
Meaning of substantial business assets Substantial business assets means depreciable property that— (a) at the end of the associated entity’s corresponding in- come year, has a total cost of more than either— (i) (ii) $75,000; or 25% or more of the associated entity’s total in- come from services for the income year; and (b) is not for private use.
Assets subject to ﬁnance lease, hire purchase agreement, or speciﬁed lease For the purposes of subsection (6)(a), the cost of depreciable property includes— (a) the consideration provided to the lessee in the case of property subject to a ﬁnance lease or a hire purchase agreement, including expenditure or loss incurred by the lessee in preparing and installing the ﬁnance lease asset for use, unless the lessee is allowed a deduction for the expenditure or loss, other than a deduction for an amount of depreciation loss: the cost price, in the case of property subject to a speci- ﬁed lease.
(b) Private use of assets Subsection (6)(b) does not apply to depreciable property if 20% or less of the property’s use is for private use.
(4) (5) (6) (7) (8) 1704 Reprinted as at 30 August 2013 Income Tax Act 2007 Part G s GB 29 (9) Calculation of private proportion of use For the purposes of subsection (8), the percentage of a prop- erty’s use for private purposes for an income year is calculated according to— (a) the proportion that the number of days for which fringe beneﬁt tax is payable by the associated entity in relation to the property bears to the total number of days in the income year in which the property is owned by or is subject to a ﬁnance lease, hire purchase agreement, or speciﬁed lease, involving the associated entity, if the property is subject to the FBT rules: the proportion that the expenditure incurred in relation to the property, for which a deduction is denied to the associated entity, bears to all expenditure incurred by the associated entity in relation to the property in the income year, if the property is not subject to the FBT rules.
(b) Deﬁned in this Act: annual gross income, associated person, consideration, cost price, deduction, depreciable property, FBT rules, ﬁnance lease, fringe beneﬁt, fringe beneﬁt tax, hire purchase agreement, income, income year, public au- thority, relative, speciﬁed lease, substantial business asset Compare: 2004 No 35 s GC 14C Section GB 28(2): substituted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 239(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section GB 28 list of deﬁned terms 1973 version provisions: repealed, on 1 April 2010, by section 594 of the Taxation (International Taxation, Life In- surance, and Remedial Matters) Act 2009 (2009 No 34).

Section GB 28 list of deﬁned terms 1988 version provisions: repealed, on 1 April 2010, by section 594 of the Taxation (International Taxation, Life In- surance, and Remedial Matters) Act 2009 (2009 No 34).
Section GB 28 list of deﬁned terms 1990 version provisions: repealed, on 1 April 2010, by section 594 of the Taxation (International Taxation, Life In- surance, and Remedial Matters) Act 2009 (2009 No 34).
GB 29 Attribution rule: calculation Amount attributed (1) A working person is treated as deriving income in an income year equal to the least of the following amounts: (a) the associated entity’s net income for the corresponding tax year, calculated as if their only income were derived from personal services: 1705 Part G s GB 29 Income Tax Act 2007 Reprinted as at 30 August 2013 (b) (c) the associated entity’s net income for the corresponding tax year: if and to the extent to which the associated entity is a company or a trust that has a loss balance to be carried forward under section IA 4 (Using loss balances carried forward to tax year) arising from a business or a trad- ing activity of selling personal services, the associated entity’s net income for the corresponding tax year after subtracting the loss balance carried forward from an ear- lier corresponding tax year.
Calculation for trustee or partnership For the purposes of calculating the associated entity’s net in- come for the corresponding tax year in the application of sub- section (1),— (a) if the associated entity is a trustee of a trust, the trustees are treated as not having made a distribution of beneﬁ- ciary income out of the year’s income: if the associated entity is a partnership, the associated entity is treated as a taxpayer and section HG 2 (Part- nerships are transparent) does not apply: if the associated entity is a look-through company, the associated entity is treated as a taxpayer and section HB 1 (Look-through companies are transparent) does not apply.
(b) (c) Salary paid or fringe beneﬁts treated as deductions For the purposes of calculating the associated entity’s net in- come for the corresponding tax year in the application of sub- section (1),— (a) the associated entity is allowed a deduction for employ- ment income paid to the working person during the in- come year: the associated entity is allowed a deduction for the tax- able value of a fringe beneﬁt provided or granted by the associated entity to the working person during the in- come year, and for the fringe beneﬁt tax payable on the fringe beneﬁt.
(b) (2) (3) 1706 Reprinted as at 30 August 2013 Income Tax Act 2007 Part G s GB 29 (4) (5) (6) Reduction of attributable income for distributions For the purposes of calculating the associated entity’s net in- come for the corresponding tax year in the application of sub- section (1), the amount of net income of the associated entity for the corresponding tax year is reduced by— (a) in the case of a trustee of a trust, the amount of bene- ﬁciary income derived by the working person from the trust in the income year: in the case of a partnership, the share of proﬁts allocated by the partnership to the working person: in the case of a company, a dividend paid— (i) by the associated entity to the working person during the income year or before the end of 6 months after the end of the income year; and from income derived in the income year.
(ii) (b) (c) Attribution reduced by market value of administrative services If the associated entity is a partnership that receives admin- istrative services from another person related to their income from personal services and has not paid for the administrative services, the amount to be attributed to the working person is reduced by the market value of the administrative services pro- vided by the other person.
Reduction of beneﬁciary income when rule results in trust having tax loss If the associated entity is a trustee and the amount attributable would cause the associated entity to have a tax loss for the corresponding tax year, for the purposes of this Act,— (a) beneﬁciary income from the trust for the income year must be reduced to the extent to which the associated entity’s taxable income for the corresponding tax year is zero; and the reduction in beneﬁciary income must be divided among the beneﬁciaries other than the working per- son— (i) according to proportions determined by the trust’s trustees: if the trustees do not make the determination, ac- cording to the proportion that each beneﬁciary’s (ii) (b) 1707 Part G s GB 30 Income Tax Act 2007 Reprinted as at 30 August 2013 (7) beneﬁciary income bears to the total beneﬁciary income from the trust for the income year.
Attribution to more than 1 working person If the amount attributable is to be attributed to more than 1 working person, the share attributed to each working person must reﬂect the respective value of the services personally per- formed by each working person.
Deﬁned in this Act: beneﬁciary income, company, deduction, dividend, fringe beneﬁt, fringe beneﬁt tax, income, income year, look-through company, net income, taxpayer, tax loss, tax year, trustee Compare: 2004 No 35 s GC 14D Section GB 29(2)(b): amended, on 1 April 2011 (applying for income years beginning on or after 1 April 2011), by section 69(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section GB 29(2)(b): amended, on 1 April 2008, by section 16(1) of the Taxa- tion (Limited Partnerships) Act 2008 (2008 No 2).

Section GB 29(2)(c): added, on 1 April 2011 (applying for income years be- ginning on or after 1 April 2011), by section 69(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).

Section GB 29 list of deﬁned terms look-through company: inserted, on 1 April 2011, by section 69(2) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Arrangements involving restrictive covenants GB 30 Arrangements to avoid taxation of restrictive covenant payments When this section applies This section applies if a person enters into an arrangement that has an effect of avoiding section CE 9 (Restrictive covenants).
Treatment as restrictive covenant payment The Commissioner may treat— (a) an amount provided under the arrangement as an amount to which section CE 9(2) applies; and a person affected by the arrangement as the person who gave the undertaking referred to in section CE 9(1).
(b) (1) (2) 1708 Reprinted as at 30 August 2013 Example Income Tax Act 2007 Part G s GB 31 (3) An example of an arrangement that may be subject to this sec- tion is an arrangement that involves a collateral arrangement to dispose of property.
Deﬁned in this Act: arrangement, Commissioner Compare: 2004 No 35 s GC 14F Arrangements involving fringe beneﬁt tax GB 31 FBT arrangements: general (1) (2) (3) When this section applies This section applies when— (a) (b) 2 or more persons enter into an arrangement; and a purpose or effect of the arrangement is to defeat the intent and application of any of the FBT rules; and the purpose or effect is not merely incidental.
(c) FBT rules treated as applying For the purposes of the FBT rules, the Commissioner may treat— (a) a party to the arrangement (the provider) as the em- ployer of a person (the recipient) of whom the Com- missioner notiﬁes the provider: the recipient as the employee of the provider: a beneﬁt as being provided by the provider to the recipi- ent through the employment of the recipient.
(b) (c) Actual or likely beneﬁt The Commissioner may apply subsection (2)(c) only in the case of a beneﬁt that,— (a) (b) is in fact provided by the provider to the recipient; or had the arrangement not occurred, the recipient— (i) (ii) would in all likelihood have obtained; or (iii) might be expected to have obtained.
would have obtained; or 1709 Part G s GB 32 Income Tax Act 2007 Reprinted as at 30 August 2013 (4) Arrangements to reduce motor vehicle costs Schedule 5, clause 4(c) (Fringe beneﬁt values for motor ve- hicles) may apply to treat the cost of a motor vehicle as equal to its market value.
Deﬁned in this Act: arrangement, Commissioner, employee, employer, em- ployment, FBT rules Compare: 2004 No 35 ss GC 16(b), GC 17 GB 32 Beneﬁts provided to employee’s associates (1) (2) When this section applies This section applies when— (a) (b) (c) (d) (b) (c) (d) a beneﬁt is provided to a person who is associated with an employee of an employer; and the beneﬁt would be a fringe beneﬁt if provided to the employee; and the beneﬁt is provided either by the employer or by an- other person under an arrangement with the employer for providing the beneﬁt; and the exemptions in subsections (2) and (2B) do not apply.
Exemption for shareholder-employees and corporate associates Subsection (3) does not apply when— (a) the beneﬁt is provided by an employer that is a com- pany; and the employee is a shareholder in the company; and the person associated with the employee is a company; and the beneﬁt is not provided under an arrangement that has a purpose of providing the beneﬁt either— in place of employment income; or (i) free from fringe beneﬁt tax.
(ii) Exemption for LTCs and partnerships (2B) Subsection (3) does not apply when— (a) (b) the beneﬁt is provided by an employer that is— an LTC: (i) (ii) a partnership or limited partnership; and the person associated with the employee, described in subsection (1)(a), is— (i) an owner of the relevant LTC: 1710 Reprinted as at 30 August 2013 Income Tax Act 2007 Part G s GB 33 (3) (4) (ii) a partner of the relevant partnership or limited partnership.
Beneﬁt treated as provided to employee For the purposes of the FBT rules, the beneﬁt is treated as provided by the employer to the employee.

Application of section CX 18 Section CX 18 (Beneﬁts provided to associates of both em- ployees and shareholders) applies to determine when a beneﬁt provided to an associate of both an employee and a shareholder is treated as a fringe beneﬁt and not a dividend.
Deﬁned in this Act: arrangement, associated person, company, dividend, em- ployee, employer, employment income, FBT rules, fringe beneﬁt, fringe beneﬁt tax, limited partnership, LTC, partner, partnership Compare: 2004 No 35 s GC 15(1)–(3) Section GB 32(1)(d): amended, on 2 November 2012, by section 74(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section GB 32(2B) heading: inserted, on 2 November 2012, by section 74(2) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).

Section GB 32(2B): inserted, on 2 November 2012, by section 74(2) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section GB 32 list of deﬁned terms limited partnership: inserted, on 2 Novem- ber 2012, by section 74(3) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).

Section GB 32 list of deﬁned terms LTC: inserted, on 2 November 2012, by sec- tion 74(3) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section GB 32 list of deﬁned terms partner: inserted, on 2 November 2012, by section 74(3) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).

Section GB 32 list of deﬁned terms partnership: inserted, on 2 November 2012, by section 74(3) of the Taxation (Annual Rates, Returns Filing, and Re- medial Matters) Act 2012 (2012 No 88).
Arrangements involving depreciation loss GB 33 Arrangements involving depreciation loss (1) When this section applies This section applies when— (a) an asset of a person has been subject to an arrangement; and 1711 Part G s GB 34 Income Tax Act 2007 Reprinted as at 30 August 2013 (b) (c) the arrangement allows the person or another person to have a deduction for an amount of depreciation loss; and a purpose of the arrangement is to defeat the intent and application of this Act.
(2) No deduction The relevant person is denied the deduction.
Deﬁned in this Act: arrangement, Commissioner, deduction, depreciation loss Compare: 2004 No 35 s GC 6 Arrangements involving imputation rules GB 34 ICA arrangements for carrying amounts forward (1) When this section applies This section applies when— (a) a share in an imputation credit account (ICA) company or another company has been subject to an arrangement, including an arrangement directly or indirectly altering rights attached to the share; and the arrangement allows the ICA company to meet the requirements of section OB 41 (ICA debit for loss of shareholder continuity); and a purpose of the arrangement is to defeat the intent and application of section OB 41.
(b) (c) (2) Company treated as not meeting requirements The ICA company is treated as not meeting the requirements in relation to the share.

Deﬁned in this Act: arrangement, company, imputation credit account, share Compare: 2004 No 35 s GC 21 GB 35 Imputation arrangements to obtain tax advantage (1) When section GB 36 applies Section GB 36 applies if an arrangement to obtain a tax advan- tage arises as described in either subsection (2) or (3).
Share disposal or issue arrangements (2) An arrangement is an arrangement to obtain a tax advantage if— (a) 1712 the arrangement is for the disposal or issue of shares; and Reprinted as at 30 August 2013 Income Tax Act 2007 Part G s GB 35 (b) (c) (d) (e) a party to the arrangement might reasonably have ex- pected that a dividend would be paid in relation to the shares with an imputation credit or foreign dividend payment (FDP) credit attached; and a party might reasonably have expected that a party will, or will not, be able to obtain a tax advantage from the credit; and a purpose of the arrangement is that a party will obtain a tax advantage; and the purpose is not a merely incidental one.
Dividend or credit streaming arrangements (3) An arrangement is an arrangement to obtain a tax advantage if— (a) (b) (c) the arrangement relates to 1 or more distributions by a company, including bonus issues, during 1 or more tax years; and under the arrangement, the company streams— (i) (ii) (iii) (iv) the payment of dividends; or the attachment of imputation credits; or the attachment of FDP credits; or the attachment of both imputation credits and FDP credits; and the streaming will give a higher credit value to a person who will obtain a tax advantage from the higher credit value than to a person who will not or may reasonably be expected to obtain a lesser beneﬁt.
(4) Meaning of higher credit value For the purposes of subsection (3)(c), a dividend has a higher credit value than another dividend if any of the following ap- plies: (a) the dividend has an attached imputation credit and the other dividend does not: the imputation ratio of the dividend is higher than that of the other dividend: the dividend has an attached FDP credit and the other dividend does not: the FDP ratio of the dividend is higher than that of the other dividend: (b) (c) (d) 1713 Part G s GB 36 Income Tax Act 2007 Reprinted as at 30 August 2013 (e) (f) the dividend has attached both an imputation credit and an FDP credit and the other dividend does not have both types of credit attached: the combined imputation ratio and FDP ratio of the divi- dend is higher than that of the other dividend.
Deﬁned in this Act: arrangement, combined imputation and FDP ratio, divi- dend, FDP credit, FDP ratio, higher credit value, imputation credit, imputation ratio, share, tax advantage Compare: 2004 No 35 s GC 22(1), (2) GB 36 Reconstruction of imputation arrangements to obtain tax advantage Reconstruction of either type of arrangement In the case of a share disposal or issue arrangement described in section GB 35(2), or a streaming arrangement described in section GB 35(3), if the Commissioner decides this subsection should apply, the following paragraphs apply: (a) a person who would get a tax credit advantage from the arrangement is denied it: a company that would get an account advantage from the arrangement has a debit to its imputation credit ac- count or FDP account, as applicable, in the tax year in which the arrangement began.
(b) Reconstruction of streaming arrangement In the case of a streaming arrangement described in section GB 35(3) in which the company is the only party, or if the Commissioner decides this subsection should apply, the com- pany has a debit to its imputation credit account or FDP ac- count, as applicable, in the tax year in which the arrangement began.

Subsection (1) does not apply to the extent to which this subsection applies to the arrangement.
Amount of adjustment The amount of the credit or refund denied under subsection (1)(a) and the debit arising under subsection (1)(b) or (2) is in each case the amount of the imputation credit or FDP credit that the Commissioner determines is subject to the arrange- ment.
(1) (2) (3) 1714 Reprinted as at 30 August 2013 Income Tax Act 2007 Part G s GB 37 (4) (5) Commissioner’s powers of determination The Commissioner may make determinations for the purposes of this section under section 90AF of the Tax Administration Act 1994.
Some deﬁnitions In this section and section 90AF of the Tax Administration Act 1994,— account advantage means— (a) a credit arising to an imputation credit account under sections OB 4 to OB 29 (which relate to credits arising to imputation credit accounts); or a credit arising to an FDP account under sections OC 6 to OC 12 (which relate to credits arising to FDP ac- counts) (b) tax credit advantage means— (a) (b) (c) a tax credit allowed under section LE 1 (Tax credits for imputation credits); or a tax credit allowed under section LF 1 (Tax credits for FDP credits); or a refund of FDP obtained under section LF 8 (Credits for persons who are non-resident or who receive exempt income).
Deﬁned in this Act: account advantage, arrangement, Commissioner, company, FDP account, FDP credit, imputation credit, imputation credit account, notice, tax credit advantage, tax year Compare: 2004 No 35 s GC 22(4), (5), (9) GB 37 Arrangements for payment of dividend by other companies (1) When this section applies This section applies when— (a) (b) an arrangement is entered into in relation to a company (the ﬁrst company) and a shareholder in the ﬁrst com- pany; and the arrangement has a purpose of allowing a dividend to be paid by another company to any of the following parties (the payee): (i) the shareholder: 1715 Part G s GB 38 Income Tax Act 2007 Reprinted as at 30 August 2013 (ii) (iii) (iv) if the shareholder is a trustee in relation to the shareholding, a beneﬁciary of the trust: an associated person of the shareholder: an associated person of a beneﬁciary of the trust.
(2) (3) Direct or indirect payments The arrangement may include— (a) (b) the payee acquiring shares in the other company: a form of indirect payment of a dividend from the other company.

Dividend treated as paid by ﬁrst company For the purposes of the imputation rules, the dividend is treated as if it were paid by the ﬁrst company.
No imputation credit (4) Any imputation credit attached to the dividend paid by the other company— (a) is not included in the amount of the dividend derived by the payee; and is not treated as an imputation credit for the purposes of section LE 1 (Tax credits for imputation credits); and is a debit under section OB 30 (ICA payment of divi- dend) of the ﬁrst company.
(b) (c) Deﬁned in this Act: arrangement, associated person, company, dividend, im- putation credit, imputation credit account, share, shareholder, trustee Compare: 2004 No 35 s GC 23 GB 38 When sections GB 35 to GB 37 apply to consolidated groups Tax advantage arrangements Sections GB 35 and GB 36 apply, with the necessary modiﬁca- tions, in a case that involves accounts of a consolidated group as if— (a) (b) the consolidated group were a single company; and references to provisions of this Act were references to the equivalent provisions applicable to the equivalent accounts.
Arrangement for dividend from another company If a company is treated by section GB 37(3) as having paid a dividend, and is at the time of payment a member of a con- (1) (2) 1716 Reprinted as at 30 August 2013 Income Tax Act 2007 Part G s GB 41 solidated group, section GB 37 applies as if the reference to section OB 30 (ICA payment of dividend) were a reference to section OP 28 (Consolidated ICA payment of dividend).
Deﬁned in this Act: company, consolidated group, dividend Compare: 2004 No 35 s GC 24 Arrangements involving foreign dividends GB 39 FDP arrangements: general [Repealed] Section GB 39: repealed (with effect on 30 June 2009), on 6 October 2009, by section 240(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
GB 40 BETA arrangements for carrying amounts forward [Repealed] Section GB 40: repealed, on 1 July 2012 (applying for income years beginning on or after that date), by section 70(1) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
GB 41 FDPA arrangements for carrying amounts forward (1) When this section applies This section applies when— (a) a share in a foreign dividend payment account (FDPA) company or another company has been subject to an ar- rangement, including an arrangement directly or indi- rectly altering rights attached to the share; and the arrangement allows the FDPA company to meet the requirements of section OC 24 (FDPA debit for loss of shareholder continuity); and a purpose of the arrangement is to defeat the intent and application of section OC 24.
(b) (c) (2) Company treated as not meeting requirements The FDPA company is treated as not meeting the requirements of section OC 24 in relation to the share.
Deﬁned in this Act: arrangement, FDPA company, share Compare: 2004 No 35 s GC 27 1717 Part G s GB 42 Income Tax Act 2007 Reprinted as at 30 August 2013 Arrangements involving Maori authority credits GB 42 Maori authority credit arrangements to obtain tax advantage (1) When section GB 43 applies Section GB 43 applies if an arrangement to obtain a tax advan- tage arises as described in either subsection (2) or (3).
Arrangements for share disposal or issue (2) An arrangement is an arrangement to obtain a tax advantage if— (a) (b) (c) (d) (e) the arrangement is for the disposal or issue of a share in a Maori authority that is a company; and a party to the arrangement might reasonably have ex- pected that a taxable Maori authority distribution would be paid in relation to the share with a Maori authority credit attached; and a party might reasonably have expected that a party will or will not be able to obtain a tax advantage from the credit; and a purpose of the arrangement is that a party will obtain a tax advantage; and the purpose is not a merely incidental one.
Distribution or credit streaming arrangements (3) An arrangement is an arrangement to obtain a tax advantage if— (a) (b) (c) the arrangement is in relation to 1 or more taxable Maori authority distributions by a Maori authority during 1 or more tax years; and under the arrangement, the Maori authority streams— (i) (ii) the streaming will give a higher credit value to a member who will obtain a tax advantage from the higher credit value than to a member who will not or may reasonably be expected to obtain a lesser beneﬁt.
the distributions; or the attachment of Maori authority credits; and 1718 Reprinted as at 30 August 2013 Income Tax Act 2007 Part G s GB 43 Meaning of higher credit value (4) A taxable Maori authority distribution has a higher credit value than another distribution if either of the following ap- plies: (a) the distribution has a Maori authority credit and the other distribution does not: the Maori authority credit ratio under section OK 19(2) (Maori authority credits attached to distributions) of the distribution is higher than that of the other distribution.
Deﬁned in this Act: arrangement, Maori authority, Maori authority credit, mem- ber, share, tax advantage, taxable Maori authority distribution Compare: 2004 No 35 s GC 27A(1)–(3) (b) GB 43 Reconstruction of Maori authority credit arrangements to obtain tax advantage (1) (2) (3) Reconstruction of either type of arrangement In the case of an arrangement for a share disposal or issue as described in section GB 42(2) or a streaming arrangement as described in section GB 42(3), if the Commissioner decides this subsection should apply, the following paragraphs apply: a member who would get a tax credit advantage from (a) the arrangement is denied it: a Maori authority that would get both a tax credit ad- vantage and an account advantage from the arrangement has a debit to its Maori authority credit account in the tax year in which the arrangement began.
(b) Reconstruction of streaming arrangement In the case of a streaming arrangement as described in sec- tion GB 42(3) in which the Maori authority is the only party, or if the Commissioner decides this subsection should apply, the Maori authority has a debit to its Maori authority credit account in the tax year in which the arrangement began.

Sub- section (1) does not apply to the extent to which this subsection applies to the arrangement.
Amount of adjustment The amount of the credit denied under subsection (1)(a) and the debit arising under subsection (1)(b) or (2) is in each case the amount of the Maori authority credit that the Commis- sioner determines is subject to the arrangement.

1719 Part G s GB 44 Income Tax Act 2007 Reprinted as at 30 August 2013 (4) (5) Commissioner’s powers of determination The Commissioner may make determinations for the purposes of this section under section 90AG of the Tax Administration Act 1994.
Some deﬁnitions In this section and section 90AG of the Tax Administration Act 1994,— account advantage means a credit arising to a Maori authority credit account under sections OK 2 to OK 9 (which relate to credits arising to Maori authority credit accounts) tax credit advantage means a tax credit allowed under section LO 1 (Tax credits for Maori authority credits).
Deﬁned in this Act: account advantage, arrangement, Commissioner, Maori au- thority, Maori authority credit, Maori authority credit account, member, notice, tax credit advantage, tax year Compare: 2004 No 35 s GC 27A(5), (6), (10) Arrangements involving tax credits for families Heading: substituted, on 1 April 2008, by section 408(1) of the Taxation (Busi- ness Taxation and Remedial Matters) Act 2007 (2007 No 109).
GB 44 Arrangements involving tax credits for families When this section applies This section applies if both of the following paragraphs are met: (a) a person (the claimant) enters into an arrangement with another person: a purpose of the arrangement is that subparts MA to MF and MZ (which relate to tax credits for families) has a more favourable effect for the claimant than would otherwise have occurred.
(b) Credit reduced The claimant’s tax credit under subparts MA to MF and MZ is reduced to the amount that the Commissioner considers would have arisen had the arrangement not occurred.

Deﬁned in this Act: arrangement, Commissioner Compare: 2004 No 35 s GC 28 Section GB 44 heading: amended, on 1 April 2008, by section 408(2) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
(1) (2) 1720 Reprinted as at 30 August 2013 Income Tax Act 2007 Part G s GB 45 Arrangements involving money not at risk GB 45 Arrangements involving money not at risk Application of section GB 46 Section GB 46 can apply to an arrangement when— (a) (b) (c) (d) (e) a person sells or issues, or promotes the selling or is- suing of, the arrangement, whether or not for remuner- ation; and a person (the participant) who is a party to the arrange- ment or affected by it, considered together with their affected associates, has for an assessment period a total amount of deductions from the arrangement that is more than their total amount of assessable income from the ar- rangement, having regard to the rules in subsection (2); and as part of or for the purposes of the arrangement, the participant or an affected associate borrows a limited- recourse amount under a limited-recourse loan; and on the relevant balance date, the total of the limited-re- course amounts of the limited-recourse loans of the par- ticipant and affected associates is more than half of the total cost of their arrangement property on the relevant balance date; and on the relevant balance date, the total cost of their ar- rangement property is more than 142.85% of the total cost of the part of the property that is acceptable prop- erty.
Certain deductions or income disregarded For the purposes of subsection (1)(b), the following amounts are disregarded: (a) (b) (c) a deduction under section GB 46: [Repealed] an amount of income under section GB 46.
Some deﬁnitions In this section,— acceptable property is— (a) (b) (c) land: buildings: plant: 1721 (1) (2) (3) Part G s GB 45 Income Tax Act 2007 Reprinted as at 30 August 2013 (d) machinery: (e) (f) (g) shares in a listed company that in total represent a direct voting interest of 10% or less in the listed company: a share and an option that are acquired or created with an intention that the share or option will produce income that is employment income of a participant under sec- tion CE 1(1)(d) (Amounts derived in connection with employment): a share in a foreign company, if the proceeds of a dis- posal of the share would not be assessable income of the holder other than under the FIF rules arrangement property means property held as part of the ar- rangement by the participant and affected associates assessment period is any of— (a) the earliest income year (the ﬁrst income year) in which an interest in the arrangement was acquired by the participant or an affected associate of the partici- pant: the ﬁrst income year and the next income year: (b) (c) the ﬁrst income year and the next 2 income years relevant balance date means the balance date, or the latest balance date, of the participant and affected associates that ends the assessment period.
Deﬁned in this Act: acceptable property, affected associate, arrangement, ar- rangement property, assessable income, assessment period, deduction, direct voting interest, dispose, employment income, FIF rules, foreign company, in- come, income year, limited-recourse amount, limited-recourse loan, relevant balance date, share, shareholder, tax loss component Compare: 2004 No 35 s GC 29(1) Section GB 45(2)(b): repealed, on 17 July 2013, by section 172 of the Taxa- tion (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Section GB 45(3) acceptable property: amended (with effect on 1 April 2008), on 6 October 2009, by section 241 of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section GB 45 list of deﬁned terms LAQC: repealed, on 17 July 2013, by sec- tion 172 of the Taxation (Livestock Valuation, Assets Expenditure, and Remed- ial Matters) Act 2013 (2013 No 52).
1722 Reprinted as at 30 August 2013 Income Tax Act 2007 Part G s GB 46 GB 46 Deferral of surplus deductions from arrangements When this section applies This section applies when— (a) (1) (2) (3) (b) (c) (d) (e) (f) (b) an arrangement of the type described in section GB 45 is made; and a person (the participant) is a party to the arrangement or affected by it; and [Repealed] the participant has, for an income year, a total amount of deductions from the arrangement that is more than their total amount of assessable income from the ar- rangement, having regard to the rules in subsection (6); and the participant considered together with their affected associates has for the income year a total amount of de- ductions from the arrangement that is more than their total amount of assessable income from the arrange- ment, having regard to the rules in subsection (6); and on the balance date, or the latest balance date, of the participant and affected associates for the income year, the arrangement involves a limited-recourse loan in re- lation to which the participant or an affected associate of the participant is a borrower.
Income for participant The participant is treated as deriving in the income year an amount of assessable income calculated using the formula— participant’s excess deductions total individual excess deductions × total ineligible amount.
Deﬁnition of items in formula In the formula,— (a) participant’s excess deductions is the amount of ex- cess deductions of the participant for the income year described in subsection (1)(d): total individual excess deductions is the amount, for the income year, by which the total deductions from the arrangement are more than the total assessable income from the arrangement, having regard to the rules in sub- section (6), for the group that consists of— 1723 Part G s GB 46 Income Tax Act 2007 Reprinted as at 30 August 2013 (i) (ii) the participant; and each affected associate of the participant who has, for the income year, a total amount of de- ductions from the arrangement that is more than their total assessable income from the arrange- ment, having regard to the rules in subsection (6): (c) total ineligible amount is the lesser of— (i) (ii) the total individual excess deductions for the group and the income year as described in sub- section (1)(e); and the total limited-recourse amount that, on the bal- ance date or the latest balance date of the partici- pant and the affected associates, the participant and the affected associates have an undischarged obligation to repay as part of or for the purposes of the arrangement.
Matching deduction in following year (4) A participant who has an amount of assessable income for an income year under subsection (2) has a deduction of an equal amount for the following income year.
Obligation to repay limited-recourse amount not discharged For the purposes of subsections (1) and (3)(c)(ii), an obliga- tion to repay a limited recourse amount is not discharged by a transaction to the extent to which the transaction— (a) involves, as part of the arrangement, the use of— (i) a put or call option that is not a contract for the sale for future delivery of goods at market value: (ii) a contract of insurance or guarantee; and does not give rise to assessable income for the per- son who is the borrower of the limited-recourse amount under the limited-recourse loan.
(b) Some deductions included, some income excluded For the purposes of subsections (1)(d) and (e) and (3)(b),— (a) a deduction of a person includes— (i) a deduction under subsection (4); and (5) (6) 1724 Reprinted as at 30 August 2013 Income Tax Act 2007 Part G s GB 47 (b) [Repealed] (ii) income of a person excludes an amount of income aris- ing under subsection (2).
Deﬁned in this Act: arrangement, assessable income, associated person, deduc- tion, income year, limited-recourse amount, limited-recourse loan, tax loss Compare: 2004 No 35 s GC 31 Section GB 46(1)(c): repealed, on 17 July 2013, by section 172 of the Taxa- tion (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Section GB 46(1)(e): amended, on 17 July 2013, by section 172 of the Taxa- tion (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).

Section GB 46(3)(b)(ii): amended, on 17 July 2013, by section 172 of the Taxa- tion (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).

Section GB 46(6)(a)(ii): repealed, on 17 July 2013, by section 172 of the Taxa- tion (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Section GB 46 list of deﬁned terms LAQC: repealed, on 17 July 2013, by sec- tion 172 of the Taxation (Livestock Valuation, Assets Expenditure, and Remed- ial Matters) Act 2013 (2013 No 52).
GB 47 Calculation rules for sections GB 45 and GB 46 (1) (2) Consolidation of assessable income and deductions, and cost of property The deductions and assessable income from an arrangement for each person in a group of persons, and the cost of property that is held by each person in the group as part of the arrange- ment, are calculated on a basis of consolidation for the elim- ination of intra-group balances in accordance with generally accepted accounting practice.
Calculation of assessable income and deductions, and cost of property The deductions and assessable income from an arrangement for each person in a group of persons, and the cost of property that is held by each person in the group as part of the arrange- ment, are calculated using the proportionate method in accord- ance with generally accepted accounting practice for partner- ships, if the group is any of— (a) persons who are a partnership and the partners in a part- nership: 1725 Part G s GB 48 Income Tax Act 2007 Reprinted as at 30 August 2013 a joint venture and the partners in the joint venture.
[Repealed] (b) (c) Deﬁned in this Act: arrangement, assessable income, deduction, generally ac- cepted accounting practice, shareholder Compare: 2004 No 35 s GC 29(2), (3) Section GB 47(2)(c): repealed, on 17 July 2013, by section 172 of the Taxa- tion (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Section GB 47 list of deﬁned terms LAQC: repealed, on 17 July 2013, by sec- tion 172 of the Taxation (Livestock Valuation, Assets Expenditure, and Remed- ial Matters) Act 2013 (2013 No 52).

GB 48 Deﬁned terms for sections GB 45 and GB 46 (1) Affected associate For an arrangement, a person is an affected associate of an- other person if each person is a party to the arrangement or is affected by the arrangement, and— (a) (b) [Repealed] the persons are associated persons.
Limited-recourse amount (2) A limited-recourse amount, for a limited-recourse loan, means the total for the limited-recourse loan of the amounts for which the obligations of a borrower are affected in a way that is described in subsection (3)(c).
Limited-recourse loan (3) A limited recourse loan means a ﬁnancial arrangement that meets each of the following requirements: (a) (b) it is not an excepted ﬁnancial arrangement: it involves the provision of money by a person (the lender) to another person (the borrower): it has 1 or more of the following effects, or an effect which is substantially similar: (i) (c) relieving the borrower from the obligation to re- pay all or some of the money, whether the relief is contingent or not: requiring the borrower to make no repayment for a period of 10 or more years from the date on which the loan is made, other than repayments for the purpose of defeating the intent and appli- cation of section GB 46: (ii) 1726 Reprinted as at 30 August 2013 Income Tax Act 2007 Part G s GB 48 (iii) providing that the repayment of the money is in substance secured solely against assets that are employed in the arrangement: (d) if the lender is not an associated person of the borrower, the lender provides the money on terms that are not arm’s length and the lender is either— (i) not a person who regularly provides money to persons on arm’s length terms under arrange- ments that do not meet the requirements of para- graphs (a) to (c); or a person who is neither a New Zealand resident nor carrying on business in New Zealand through a ﬁxed establishment in New Zealand: (ii) (e) if the lender is an associated person of the borrower, the lender obtains the money under an arrangement that meets the requirements of paragraphs (a) to (c).
Deﬁned in this Act: affected associate, arrangement, associated person, excepted ﬁnancial arrangement, ﬁnancial arrangement, ﬁxed establishment, limited-recourse amount, listed company, money, limited-recourse loan, resident in New Zealand Compare: 2004 No 35 s GC 30 Section GB 48(1)(a): repealed, on 17 July 2013, by section 172 of the Taxa- tion (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Section GB 48(1)(b): substituted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 242(2) of the Taxation (International Taxa- tion, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section GB 48(3)(d): amended, on 1 April 2010 (applying for the 2010–11 and later income years), by section 242(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section GB 48(3)(e): amended, on 1 April 2010 (applying for the 2010–11 and later income years), by section 242(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section GB 48 list of deﬁned terms 1973 version provisions: repealed, on 1 April 2010, by section 594 of the Taxation (International Taxation, Life In- surance, and Remedial Matters) Act 2009 (2009 No 34).
Section GB 48 list of deﬁned terms 1988 version provisions: repealed, on 1 April 2010, by section 594 of the Taxation (International Taxation, Life In- surance, and Remedial Matters) Act 2009 (2009 No 34).

Section GB 48 list of deﬁned terms 1990 version provisions: repealed, on 1 April 2010, by section 594 of the Taxation (International Taxation, Life In- surance, and Remedial Matters) Act 2009 (2009 No 34).
1727 Part G s GB 49 Income Tax Act 2007 Reprinted as at 30 August 2013 Section GB 48 list of deﬁned terms LAQC: repealed, on 17 July 2013, by sec- tion 172 of the Taxation (Livestock Valuation, Assets Expenditure, and Remed- ial Matters) Act 2013 (2013 No 52).
Arrangements involving returning share transfers GB 49 Arrangements involving returning share transfers (1) (2) When this section applies This section applies when— (a) (b) a person enters into an arrangement; and an effect of the arrangement means that a requirement of the deﬁnition of returning share transfer is not met; and the effect of the arrangement is to defeat the intent and application of this Act.
(c) Arrangement treated as returning share transfer The Commissioner may treat— (a) (b) the arrangement as a returning share transfer; and a person affected by the arrangement as a share user or a share supplier, under the returning share transfer.
Deﬁned in this Act: arrangement, Commissioner, returning share transfer, share supplier, share user Compare: 2004 No 35 s GC 14G Arrangements involving partners Heading: added, on 1 April 2008, by section 17(1) of the Taxation (Limited Partnerships) Act 2008 (2008 No 2).
GB 50 Arrangements involving partners When this section applies This section applies when— (a) (b) (c) a partner of a partnership enters into an arrangement; and the arrangement involves an amount of consideration (the arrangement amount of consideration) that is not a market value amount of consideration; and the arrangement has a purpose or effect of defeating the intent and application of subpart HG (Joint venturers, partners, and partnerships).
(1) 1728 Reprinted as at 30 August 2013 Income Tax Act 2007 Part G s GB 50 Market value amount substituted (2) A market value amount of consideration is substituted for the arrangement amount of consideration.

Deﬁned in this Act: amount, arrangement, partner, partnership Section GB 50: added, on 1 April 2008, by section 17(1) of the Taxation (Limited Partnerships) Act 2008 (2008 No 2).
Subpart GC—Market value substituted Contents Disposals of trading stock or similar property GC 1 Disposals of trading stock at below market value GC 2 Disposals of timber rights or standing timber GC 3 Disposals by life insurers GC 3B Disposals of emissions units GC 4 Disposals and acquisitions of FIF attributing interests GC 4B Disposals of ETS units at below market value [Repealed] GC 5 Leases for inadequate rent Leases Transfer pricing arrangements Purpose of rules and nature of arrangements GC 6 GC 7 Excess amount payable by person GC 8 GC 9 Compensating arrangement: person paying less than Insufﬁcient amount receivable by person Page 1730 1731 1732 1732 1732 1733 1734 1735 1737 1737 1738 arm’s length amount GC 10 Compensating arrangement: person receiving more than 1739 arm’s length amount GC 11 Requests for matching treatment GC 12 Effect on person’s withholding obligations GC 13 Calculation of arm’s length amounts GC 14 Deﬁnitions for sections GC 6 to GC 13 1740 1742 1742 1743 1729 Part G s GC 1 Income Tax Act 2007 Reprinted as at 30 August 2013 Disposals of trading stock or similar property GC 1 Disposals of trading stock at below market value When this section applies This section applies when a person disposes of trading stock for— (a) (b) no consideration: an amount that is less than the market value of the trad- ing stock at the time of disposal.
Market value consideration The person is treated as deriving an amount equal to the market value of the trading stock at the time of disposal.

Market value expenditure If the person disposes of the trading stock to another person, an amount equal to the market value of the trading stock at the time of disposal is treated as expenditure incurred by the other person in acquiring the trading stock.

Shares in trading stock In this section, trading stock includes an interest in trading stock.
Exclusions This section does not apply to a disposal of trading stock— (a) (b) under a relationship agreement: by the person to another person who is not associated with them, for use by the other person in a farming, agricultural, or ﬁshing business that is affected by a self- assessed adverse event: under a share-lending arrangement, by a share user to a share supplier or by a share supplier to a share user.
(c) Deﬁned in this Act: amount, associated person, business, relationship agree- ment, self-assessed adverse event, share, share-lending arrangement, share sup- plier, share user, trading stock Compare: 2004 No 35 s GD 1(1), (3), (4) Section GC 1(4)(c): amended (with effect on 26 September 2008), on 6 October 2009, by section 243(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section GC 1(4)(d): added (with effect on 26 September 2008), on 6 October 2009, by section 243(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
(1) (2) (3) (4) (5) 1730 Reprinted as at 30 August 2013 Income Tax Act 2007 Part G s GC 2 inserted (with effect on Section GC 1 list of deﬁned terms emissions unit: 26 September 2008), on 6 October 2009, by section 243(2)(b) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section GC 1 list of deﬁned terms qualifying event: repealed (with effect on 26 September 2008), on 6 October 2009, by section 243(2)(a) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section GC 1 list of deﬁned terms surrender: inserted (with effect on 26 September 2008), on 6 October 2009, by section 243(2)(b) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section GC 1: substituted (with effect on 1 April 2008), on 7 September 2010, by section 54(1) of the Taxation (Annual Rates, Trans-Tasman Savings Porta- bility, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
GC 2 Disposals of timber rights or standing timber (1) (2) (3) When section GC 1 applies Section GC 1 applies to each of the following disposals as if it were a disposal of trading stock— (a) a grant of a right to take timber, other than in favour of the grantor: a disposal of standing timber as part of the disposal of the land on which it stands, other than a disposal subject to a right in favour of the seller to take timber.
(b) Exclusion Subsection (1) does not apply to a disposal of land with stand- ing timber if the disposal is within 1 of the exclusions in sec- tion CB 25(2) (Disposal of land with standing timber).

Limitation Section GC 1(4) does not apply if the disposal is of land with standing timber subject to a right to take timber.
Deﬁned in this Act: timber, trading stock Compare: 2004 No 35 s GD 1(2), (3A) Section GC 2(3): amended (with effect on 1 April 2008), on 7 September 2010 (applying for the 2008–09 and later income years), by section 55(1) of the Taxa- tion (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remed- ial Matters) Act 2010 (2010 No 109).
1731 Part G s GC 3 Income Tax Act 2007 Reprinted as at 30 August 2013 GC 3 Disposals by life insurers Section GC 1 applies to a life insurer that disposes of any prop- erty, other than a ﬁnancial arrangement, in the course of their business of life insurance, as if the property were trading stock.
Deﬁned in this Act: ﬁnancial arrangement, life insurance, life insurer, property, trading stock Compare: 2004 No 35 s GD 7 GC 3B Disposals of emissions units (1) (2) When section GC 1 applies Section GC 1 applies to a disposal of an emissions unit as if the emissions unit were trading stock.
Exclusions Section GC 1 does not apply to a disposal of an emissions unit if the disposal is— (a) the surrender of the unit under the Climate Change Response Act 2002: the transfer of the unit to the Crown under a forest sink covenant under section 67Y of the Forests Act 1949: the transfer of a forest land emissions unit— (i) (b) (c) (ii) (iii) from the person (the transferor) who receives the unit from the Crown; and to a person (the transferee) as a party to a forestry rights agreement as deﬁned in the Forestry Rights Registration Act 1983; and as required by a provision of the forestry rights agreement relating to the allocation of income or emissions units between the transferor and the transferee.
Deﬁned in this Act: disposal, emissions unit, trading stock Section GC 3B: inserted (with effect on 26 September 2008), on 7 September 2010 (applying for the 2008–09 and later income years), by section 56(1) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
GC 4 Disposals and acquisitions of FIF attributing interests When subsection (2) applies Subsection (2) applies if— (1) 1732 Reprinted as at 30 August 2013 Income Tax Act 2007 Part G s GC 4B (a) (b) (c) a person disposes of an attributing interest in a foreign investment fund (FIF); and they calculate their FIF income or loss from the interest for the period ending with the disposal using the com- parative value method, deemed rate of return method, the fair dividend rate method, or the cost method; and the consideration, if any, for the disposal is below the market value of the interest at the time.
Disposal treated as at market value The person is treated as having disposed of the interest for an amount equal to its market value at the time.
When subsection (4) applies Subsection (4) applies if— (a) (b) a person acquires an attributing interest in a FIF; and they calculate their FIF income or loss from the interest for the period after the acquisition using the compara- tive value method, deemed rate of return method, the fair dividend rate method, or the cost method; and the consideration, if any, for the acquisition is not equal to the market value of the interest at the time.
(c) Acquisition treated as at market value The person is treated as having acquired the interest for an amount equal to its market value at the time.
Deﬁned in this Act: attributing interest, comparative value method, cost method, deemed rate of return method, fair dividend rate method, FIF, FIF income, FIF loss Compare: 2004 No 35 s GD 14 (2) (3) (4) GC 4B Disposals of ETS units at below market value [Repealed] Section GC 4B: repealed (with effect on 26 September 2008), on 6 October 2009, by section 244 of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
1733 Part G s GC 5 Income Tax Act 2007 Reprinted as at 30 August 2013 GC 5 Leases for inadequate rent Leases (1) When this section applies This section applies in relation to leases of real and personal property if and to the extent to which— a property is leased; and (a) the lease is 1 of the types referred to in subsection (2); (b) and the lessee uses the property in deriving income; and no rent is payable, or the Commissioner considers that the rent is less than adequate.
(c) (d) When this section does not apply (1B) This section does not apply when the property is an asset to which subpart DG (Expenditure related to use of certain as- sets) applies.
Types of leases The following types of leases are subject to this section: (a) (b) (c) a lease by a company: a lease by a person to a relative or a related company: a lease by 2 or more persons to a relative or a related company of any of those persons: a lease by a partnership to a relative of a partner or a related company of the partnership.
(d) Lease treated as having adequate rent The lessee is treated as paying, and the lessor is treated as de- riving as income, an adequate rent determined by the Commis- sioner.

Timing The adequate rent is treated as— (a) paid on the rent payment dates set out in the lease, if any; and paid on a daily basis on each day of the lease term, if there are no rent payment dates; and income derived by the lessor on the date on which it is treated as being paid; and accruing on a daily basis.
(b) (c) (d) (2) (3) (4) 1734 Reprinted as at 30 August 2013 Income Tax Act 2007 Part G s GC 6 (5) Some deﬁnitions In this section,— lease means a tenancy of any duration, including a sublease or bailment related company means a company that is associated with— in the case of a single lessor, the lessor, 1 or more rela- (a) tives of the lessor, or a combination of them: in the case of multiple lessors, including a partnership, any of the lessors, 1 or more relatives of any of the lessors, or a combination of them (b) rent includes a premium or other consideration for the lease.
Deﬁned in this Act: asset, Commissioner, company, income, lease, related com- pany, relative, rent Compare: 2004 No 35 s GD 10 Section GC 5(1): amended (with effect on 1 April 2008), on 29 August 2011 (applying for the 2008–09 and later income years), by section 48(1) of the Tax- ation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section GC 5(1B) heading: inserted (with effect on 1 April 2013 and applying for the 2013–14 and later income years for an item of property referred to in section DG 3(2)(a)(i), and for the 2014–15 and later income years for an item of property referred to in section DG 3(2)(a)(ii) and (iii)), on 17 July 2013, by section 59(1) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Section GC 5(1B): inserted (with effect on 1 April 2013 and applying for the 2013–14 and later income years for an item of property referred to in section DG 3(2)(a)(i), and for the 2014–15 and later income years for an item of prop- erty referred to in section DG 3(2)(a)(ii) and (iii)), on 17 July 2013, by section 59(1) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Section GC 5(5) related company: amended, on 1 April 2010 (applying for the 2010–11 and later income years), by section 245(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section GC 5 list of deﬁned terms asset: inserted (with effect on 1 April 2013), on 17 July 2013, by section 59(2) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Transfer pricing arrangements GC 6 Purpose of rules and nature of arrangements (1) Purpose of rules The purpose of this section and sections GC 7 to GC 14 is to substitute an arm’s length consideration in the calculation of a person’s net income if the person’s net income is reduced 1735 Part G s GC 6 Income Tax Act 2007 Reprinted as at 30 August 2013 by the terms of a cross-border arrangement with an associated person for the acquisition or supply of goods, services, or any- thing else.
What is a transfer pricing arrangement?

(2) An arrangement is a transfer pricing arrangement if— (a) (b) (c) the arrangement involves the supply and acquisition of goods, services, money, other intangible property, or anything else; and the supplier and acquirer are associated persons; and the arrangement is a cross-border arrangement under subsection (3).
When arrangement is cross-border arrangement (3) An arrangement is a cross-border arrangement if the require- ments of any of the following paragraphs is met: (a) the supplier and acquirer are a New Zealand resident and non-resident, unless the requirements of both of the following subparagraphs are met: (i) the non-resident enters into the arrangement for the purposes of a business carried on by the non- resident in New Zealand through a ﬁxed estab- lishment in New Zealand: the New Zealand resident has not entered into the arrangement for the purposes of a business carried on by the New Zealand resident outside New Zealand: (ii) (b) (c) the supplier and acquirer are 2 New Zealand residents and either or both enter into the arrangement for the purposes of a business carried on by the person outside New Zealand: the supplier and acquirer are 2 non-residents, unless each enters into the arrangement for the purposes of a business carried on by the person in New Zealand through a ﬁxed establishment in New Zealand.
1736 Reprinted as at 30 August 2013 Income Tax Act 2007 Part G s GC 8 (4) Application of sections Section GC 7, GC 8, GC 9, or GC 10 can apply to an arrange- ment under section GB 2 (Arrangements involving transfer pricing).
Deﬁned in this Act: acquisition, arrangement, associated person, ﬁxed estab- lishment, net income, New Zealand, New Zealand resident, non-resident, sup- ply, transfer pricing arrangement Compare: 2004 No 35 s GD 13(1), (2) GC 7 Excess amount payable by person If the amount of consideration payable by a person (the tax- payer) under a transfer pricing arrangement is more than an arm’s length amount, an amount equal to the arm’s length amount is treated as the amount payable by the taxpayer for the purposes of the calculation of their income tax liability for a tax year.
Deﬁned in this Act: amount, arrangement, income tax liability, tax year, tax- payer, transfer pricing arrangement Compare: 2004 No 35 s GD 13(3) GC 8 Insufﬁcient amount receivable by person (1) (2) Amount receivable If the amount of consideration receivable by a person (the tax- payer) under a transfer pricing arrangement is less than an arm’s length amount, an amount equal to the arm’s length amount is treated as the amount receivable by the taxpayer for each of the following purposes: (a) the calculation of their income tax liability for a tax year: [Repealed] the determination of the obligation of another person to withhold under Part R (General collection rules) from the amount.
(b) (c) Non-resident’s exemption: deduction to payer This section does not apply when— (a) the taxpayer is neither resident in New Zealand nor en- tering into the arrangement for the purposes of a busi- ness carried on in New Zealand through a ﬁxed estab- lishment in New Zealand; and 1737 Part G s GC 9 Income Tax Act 2007 Reprinted as at 30 August 2013 (3) (b) (c) the amount receivable is a deduction of the other party or, in the case of an interest-free loan, would be a de- duction but for the application of subpart FE (Interest apportionment on thin capitalisation) if an arm’s length amount of interest were substituted; and the amount receivable is interest, royalties, or an insur- ance premium to which section YD 8 (Apportionment of premiums derived by non-resident general insurers) applies.
Non-resident’s exemption: ﬁxed-rate share dividend This section does not apply if both of the following require- ments are met: (a) the taxpayer is neither resident in New Zealand nor en- tering into the arrangement for the purposes of a busi- ness carried on in New Zealand through a ﬁxed estab- lishment in New Zealand: (b) the amount is a dividend receivable on a ﬁxed-rate share.
Deﬁned in this Act: amount, arrangement, deduction, dividend, ﬁxed establish- ment, ﬁxed-rate share, income tax liability, interest, resident in New Zealand, royalty, tax year, taxpayer, transfer pricing arrangement Compare: 2004 No 35 s GD 13(4), (5) Section GC 8(1)(b): repealed (with effect on 30 June 2009), on 6 October 2009, by section 246(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
GC 9 Compensating arrangement: person paying less than arm’s length amount When this section applies This section applies when— (a) (b) (c) is made for an income year under a person (the taxpayer) is a party to a transfer pricing arrangement with another person; and an adjustment either— (i) section GC 7 to an amount payable by the tax- payer under the transfer pricing arrangement; or section GC 8 to an amount receivable by the tax- payer under the transfer pricing arrangement; and an amount of consideration payable by the taxpayer in the same income year, or in the preceding or next in- come year, for an acquisition (the compensating acqui- (ii) (1) 1738 Reprinted as at 30 August 2013 Income Tax Act 2007 Part G s GC 10 (d) sition arrangement) from the same person is less than an arm’s length amount; and either— (i) the transfer pricing arrangement involves goods, services, money, other intangible property, or anything else of the same type as that acquired in the compensating acquisition arrangement; or the amount of consideration actually payable or receivable in the transfer pricing arrangement is set having regard to the amount of consideration payable under the compensating acquisition ar- rangement.
(ii) (2) Paying arm’s length amount For the purposes of calculating the taxpayer’s income tax li- ability, the amount paid by them in the compensating acquisi- tion arrangement is treated for the corresponding tax year as an amount equal to the arm’s length amount determined under section GC 13.
Deﬁned in this Act: acquisition, amount, arrangement, income tax liability, tax year, transfer pricing arrangement Compare: 2004 No 35 s GD 13(10) GC 10 Compensating arrangement: person receiving more than arm’s length amount (1) When this section applies This section applies when— (a) (b) (c) (d) a person (the taxpayer) is a party to a transfer pricing arrangement with another person; and an adjustment is made for a tax year under either— (i) section GC 7 to an amount payable by the tax- payer under the transfer pricing arrangement; or section GC 8 to an amount receivable by the tax- payer under the transfer pricing arrangement: (ii) an amount of consideration receivable by the taxpayer in the same tax year, or the preceding or next tax year, for a supply (the compensating supply arrangement) to the same person is more than an arm’s length amount: either— 1739 Part G s GC 11 Income Tax Act 2007 Reprinted as at 30 August 2013 (i) (ii) the transfer pricing arrangement involves goods, services, money, other intangible property, or anything else of the same type as that acquired in the compensating supply arrangement; or the amount of consideration actually payable or receivable in the transfer pricing arrangement is set having regard to the amount of consider- ation receivable under the compensating supply arrangement.
(2) Receiving arm’s length amount The amount received by the taxpayer in the compensating sup- ply arrangement is treated as being an amount equal to the arm’s length amount determined under section GC 13, for each of the following purposes: (a) the calculation of their income tax liability for a tax year: [Repealed] the determination of the obligation of another person to withhold under Part R (General collection rules) from the amount.
(b) (c) Deﬁned in this Act: amount, arrangement, income tax liability, supply, tax year, transfer pricing arrangement Compare: 2004 No 35 s GD 13(10) Section GC 10(2)(b): repealed (with effect on 30 June 2009), on 6 October 2009, by section 247(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
GC 11 Requests for matching treatment When this section applies This section applies when— (a) an arm’s length amount of consideration is substituted under section GC 7 or GC 8 in relation to a transfer pricing arrangement entered into by a person (the tax- payer); and the other party to the arrangement or, if the other party is a controlled foreign company (CFC), a person with an income interest in the CFC, applies to the Commis- sioner in writing within 6 months after an assessment (b) (1) 1740 Reprinted as at 30 August 2013 Income Tax Act 2007 Part G s GC 11 is made for the taxpayer which reﬂects the substitution; and the Commissioner considers it is fair and reasonable to apply subsection (2), having regard to an adjustment made under a double tax agreement or any other matter; and the Commissioner has notiﬁed the other party.
(c) (d) (2) (b) Substitution applying for other party The substitution applies for the purposes of the application of this Act to the other party— (a) excluding the determination of the extent to which the other party has derived or been paid a dividend; and including, when the other party is a CFC, the calculation of net attributable CFC income or net attributable CFC loss in relation to the other party, and the resultant cal- culation of the attributed CFC income or an attributed CFC loss or attributed CFC net loss of a person.
Deﬁned in this Act: amount, arrangement, assessment, attributed CFC income, attributed CFC loss, attributed CFC net loss, CFC, Commissioner, dividend, double tax agreement, income interest, net attributable CFC income, net at- tributable CFC loss, taxpayer, transfer pricing arrangement Compare: 2004 No 35 s GD 13(11) Section GC 11(2)(b): substituted (with effect on 30 June 2009), on 6 October 2009, by section 248(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section GC 11 list of deﬁned terms branch equivalent income: repealed (with effect on 30 June 2009), on 6 October 2009, by section 248(2)(a) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section GC 11 list of deﬁned terms branch equivalent loss: repealed (with effect on 30 June 2009), on 6 October 2009, by section 248(2)(a) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section GC 11 list of deﬁned terms net attributable CFC income: inserted (with effect on 30 June 2009), on 6 October 2009, by section 248(2)(b) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section GC 11 list of deﬁned terms net attributable CFC loss: inserted (with effect on 30 June 2009), on 6 October 2009, by section 248(2)(b) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
1741 Part G s GC 12 Income Tax Act 2007 Reprinted as at 30 August 2013 GC 12 Effect on person’s withholding obligations An adjustment under any of sections GC 7 to GC 10 has no effect on an obligation of the taxpayer to withhold under Part R (General collection rules) in relation to the amount other than to the extent to which section GC 11(2) applies.
Deﬁned in this Act: amount Section GC 12: substituted (with effect on 30 June 2009), on 6 October 2009, by section 249(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
GC 13 Calculation of arm’s length amounts Use of most reliable measure (1) An arm’s length amount of consideration must be determined by applying whichever 1 or a combination of the methods listed in subsection (2) produces the most reliable measure of the amount that completely independent parties would have agreed upon after real and fully adequate bargaining.
Five available methods The arm’s length amount of consideration must be calculated under any 1 or a combination of— (a) (b) (c) (d) (e) the comparable uncontrolled price method: the resale price method: the cost plus method: the proﬁt split method: the comparable proﬁts methods.
Criteria for choice and application of method The choice and application of a method or methods must be made having regard to each of the following factors: (a) the degree of comparability between the uncontrolled transactions used for comparison and the controlled transactions of the taxpayer: the completeness and accuracy of the data relied on: the reliability of all assumptions: the sensitivity of a result to possible deﬁciencies in the data and assumptions.
(b) (c) (d) Initial determination by the taxpayer The arm’s length amount of consideration is determined by the taxpayer under subsections (1) to (3), and the amount deter- (2) (3) (4) 1742 Reprinted as at 30 August 2013 Income Tax Act 2007 Part G s GC 14 mined is the arm’s length amount for the purposes of sections GC 7 to GC 11, unless either— (a) the Commissioner can demonstrate that another amount is a more reliable measure of the arm’s length amount; or the taxpayer has not co-operated with the Commis- sioner in the Commissioner’s administration of sections GC 6 to GC 14 in relation to the taxpayer, and the non-co-operation has materially affected the Commis- sioner in that administration.
(b) (5) Commissioner’s determination If subsection (4)(a) or (b) applies, the Commissioner deter- mines the amount under subsections (1) to (3) for the purposes of sections GC 7 to GC 11.
Deﬁned in this Act: amount, Commissioner Compare: 2004 No 35 s GD 13(6)–(9) GC 14 Deﬁnitions for sections GC 6 to GC 13 In sections GC 6 to GC 13,— acquisition— (a) (b) includes obtaining the availability of anything; but does not include the mere receipt or retention by a com- pany of consideration for the issue of a share, unless the share is a ﬁxed-rate share amount includes zero supply— (a) (b) includes making anything available; but does not include the mere payment, and subsequent con- tinuing making available, by a person to a company of consideration for the issue of a share, unless the share is a ﬁxed-rate share.
Deﬁned in this Act: acquisition, amount, company, ﬁxed-rate share, share, sup- ply Compare: 2004 No 35 s GD 13(13) 1743 Income Tax Act 2007 Reprinted as at 30 August 2013 Subpart GZ—Terminating provisions Contents GZ 1 Limitation on section GB 20: petroleum mining arrangements Page 1744 GZ 2 Arrangements involving cancellation of conduit tax relief 1744 credits [Repealed] GZ 3 Donations of trading stock for relief of Canterbury 1745 earthquakes GZ 1 Limitation on section GB 20: petroleum mining arrangements Section GB 20 (Arrangements involving petroleum mining) does not apply to an arrangement if— (a) the petroleum mining asset was disposed of before 1 July 1992: the petroleum exploration expenditure was incurred be- fore 1 July 1992: the farm-out arrangement was entered into before 16 December 1991.
(b) (c) Deﬁned in this Act: arrangement, dispose, farm-out arrangement, petroleum mining asset, petroleum mining expenditure Compare: 2004 No 35 s GD 12(1) GZ 2 Arrangements involving cancellation of conduit tax relief credits [Repealed] Section GZ 2: repealed (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 72(1) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section GZ 2(1)(b): replaced (with effect on 1 July 2009 and applying for in- come years beginning on or after that date), on 7 May 2012, by section 71(1) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).

Section GZ 2 list of deﬁned terms CTR group member: inserted (with effect on 1 July 2009), on 7 May 2012, by section 71(2) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
1744 Reprinted as at 30 August 2013 Income Tax Act 2007 Part G s GZ 3 Section GZ 2 list of deﬁned terms resident in New Zealand: inserted (with effect on 1 July 2009), on 7 May 2012, by section 71(2) of the Taxation (Inter- national Investment and Remedial Matters) Act 2012 (2012 No 34).
GZ 3 Donations of trading stock for relief of Canterbury earthquakes Section GC 1 (Disposals of trading stock at below market value) does not apply to the disposal of trading stock by a per- son to a person who is not an associated person— (a) for the purpose of relief from the adverse effects of a Canterbury earthquake, as deﬁned in section 4 of the Canterbury Earthquake Recovery Act 2011; and in the period beginning on 4 September 2010 and ending on 31 March 2012.
(b) Deﬁned in this Act: associated person, trading stock Section GZ 3: added (with effect on 4 September 2010), on 24 May 2011, by section 5 of the Taxation (Canterbury Earthquake Measures) Act 2011 (2011 No 24).

1745 Income Tax Act 2007 Reprinted as at 30 August 2013 Part H Taxation of certain entities Subpart HA—Qualifying companies (QC) Subpart HA heading: amended, on 17 July 2013, by section 172 of the Taxa- tion (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Contents Introductory provisions HA 1 What this subpart does HA 2 Meaning of qualifying company HA 3 Meaning of loss-attributing qualifying company [Repealed] HA 4 Conditions applying Qualifying company status HA 5 Elections to become qualifying company HA 6 Corporate requirements HA 7 Shareholding requirements HA 7B Grandparenting requirement HA 8 Shareholders’ personal liability HA 8B No CFC income interests or FIF direct income interests of 10% or more HA 9 Limit on foreign non-dividend income HA 10 Nature of LAQC shares [Repealed] HA 11 When requirements no longer met: qualifying companies HA 11B When requirements no longer met: LAQCs [Repealed] HA 12 Avoidance arrangements [Repealed] Treatment of proﬁts, dividends, and tax losses HA 13 Qualifying companies’ distributions HA 14 Dividends paid by qualifying companies HA 15 Fully imputed distributions HA 16 Dividends paid by qualifying companies to trustee shareholders HA 17 Dividends derived by qualifying companies HA 18 Treatment of dividends when qualifying company status ends HA 19 Credit accounts and dividend statements HA 20 Attribution of tax losses [Repealed] HA 21 Loss balances not carried forward HA 22 Group companies using tax losses 1746 Page 1748 1749 1749 1749 1750 1751 1752 1754 1754 1755 1756 1756 1756 1759 1759 1759 1759 1760 1762 1763 1763 1764 1765 1765 1766 Reprinted as at 30 August 2013 Income Tax Act 2007 Part G s GZ 3 HA 23 Treatment of tax losses on amalgamation 1766 Special tax matters for loss-attributing qualifying companies [Repealed] HA 24 Treatment of tax losses other than certain foreign losses [Repealed] HA 25 Treatment of certain foreign losses [Repealed] HA 26 Attribution when balance dates differ [Repealed] HA 27 Attribution when loss results in reduction in value of shares [Repealed] Elections: qualifying companies HA 28 Elections by trustee shareholders HA 29 Elections by majority shareholders HA 30 When elections take effect HA 31 Revocation of directors’ elections HA 32 Revocation of shareholders’ elections: by notice HA
 33 Revocation of shareholders’ elections: by event HA 33B Transitional rules for look-through companies, partnerships, and sole traderships HA 34 Period of grace following death of shareholder HA 35 Period of grace following revocation of election HA 36 Period of grace following revocation of joint election HA 37 Period of grace for new shareholder Elections: loss-attributing qualifying companies [Repealed] HA 38 Elections by directors and shareholders required [Repealed] HA 39 Revocation of elections [Repealed] Qualifying company election tax HA 40 Liability for qualifying company election tax HA 41 Calculating qualifying company election tax HA 42 Paying qualifying company election tax Effective interests in qualifying companies HA 43 Meaning of effective interest HA 44 Measuring effective interests 1767 1767 1767 1767 1767 1768 1768 1769 1770 1770 1771 1772 1772 1773 1773 1774 1774 1774 1775 1777 1777 1778 1747 Part H s HA 1 Income Tax Act 2007 Reprinted as at 30 August 2013 Introductory provisions HA 1 What this subpart does (1) Distributing proﬁts and attributing tax losses The rules in this subpart allow a company to choose, for taxa- tion purposes,— (a) to have a distribution of proﬁts to shareholders imputed or, to the extent not imputed, distributed as exempt in- come; and [Repealed] (b) Requirements for qualifying companies (2) A qualifying company must meet the requirements of sections HA 5 to HA 9, and must maintain the conditions set out in section HA 4.
(3) (4) (5) Requirements for loss-attributing qualifying companies [Repealed] [Repealed] Income year or part-year In this subpart, a reference to an income year includes a refer- ence to part of an income year.

Elections required For a company to be a qualifying company, all the directors of the company, and every shareholder in the company with legal capacity, must sign an election referred to in section HA 5.

An exception applies for a minority shareholder in the situation described in section HA 29.
Shareholder’s personal liability (6) A shareholder who makes an election referred to in subsection (5) must agree to take personal liability to the extent described in section HA 8.
Deﬁned in this Act: company, director, exempt income, income year, pay, qualifying company, share, shareholder, tax, tax loss Compare: 2004 No 35 ss HG 1(c), (d), HG 3(1), HG 4(1), HG 14 Section HA 1(1)(a): substituted (with effect on 1 April 2008), on 7 September 2010 (applying for the 2008–09 and later income years), by section 57(1) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
Section HA 1(1)(b): repealed, on 1 April 2011 (applying for income years be- ginning on or after 1 April 2011), by section 70(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).

1748 Reprinted as at 30 August 2013 Income Tax Act 2007 Part H s HA 4 Section HA 1(3) heading: repealed, on 17 July 2013, pursuant to section 172 of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Section HA 1(3): repealed, on 17 July 2013, by section 172 of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).

Section HA 1(5): amended, on 17 July 2013, by section 172 of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Section HA 1 list of deﬁned terms exempt income: inserted (with effect on 1 April 2008), on 7 September 2010, by section 57(2) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).

Section HA 1 list of deﬁned terms loss-attributing qualifying company: re- pealed, on 17 July 2013, by section 172 of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
HA 2 Meaning of qualifying company In this Act, a qualifying company means a company other than a unit trust that, for the whole of an income year, meets the requirements of sections HA 5 to HA 9.
Deﬁned in this Act: company, income year, qualifying company, unit trust Compare: 2004 No 35 s OB 3(1) HA 3 Meaning of loss-attributing qualifying company [Repealed] Section HA 3: repealed, on 1 April 2011 (applying for income years beginning on or after 1 April 2011), by section 71(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
HA 4 Conditions applying (1) (2) Becoming and continuing as qualifying company The requirements of sections HA 5 to HA 9 are preconditions of, and ongoing conditions for, qualifying companies.

For a company to become and to continue as a qualifying company, the requirements of those sections must be met.

Losing status Sections HA 11 and HA 12 apply in relation to a failure to maintain the requirements and avoidance arrangements.
1749 Part H s HA 5 Income Tax Act 2007 Reprinted as at 30 August 2013 (3) Avoidance Section GB 6 (Arrangements involving qualifying companies) may apply to treat a company as not being a qualifying com- pany.

Deﬁned in this Act: arrangement, company, qualifying company Compare: 2004 No 35 ss HG 7, HG 14(d) Section HA 4(1): amended, on 17 July 2013, by section 172 of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Section HA 4 list of deﬁned terms LAQC: repealed, on 17 July 2013, by section 172 of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Qualifying company status HA 5 Elections to become qualifying company Making elections (1) A company that meets the requirements of sections HA 6 to HA 9 may be a qualifying company only if all the directors of the company and every shareholder in the company with legal capacity, choose, before the start of the grandparenting income year, that the company is to become a qualifying company.
Every director and every shareholder with legal capacity must sign a notice of election and give it to the Commissioner.
Extension of time in some cases (1B) An election is treated as made before the start of the grandpar- enting income year for the purposes of subsection (1), if the relevant persons choose before the end of the time allowed by section 37 of the Tax Administration Act 1994 for providing a return for the company’s ﬁrst income year, and— (a) that income year is— the grandparenting income year; and (i) (ii) nominated under section HA 30(3); and the company has not previously been required to pro- vide a return of income.
(b) Elections remaining in effect The elections referred to in subsection (1) must remain in ef- fect and must not have been revoked before the end of the rele- vant income year.

(2) 1750 Reprinted as at 30 August 2013 Income Tax Act 2007 Part H s HA 6 (3) (4) (5) Director at time For the purposes of an election, a person is considered a dir- ector of a company if they hold the ofﬁce at the time the notice is provided.
Elections The elections referred to in this section are dealt with in sec- tions HA 28 to HA 39.

Meaning of grandparenting income year In this section, grandparenting income year means the in- come year before the ﬁrst income year that starts on or after 1 April 2011.
Deﬁned in this Act: Commissioner, company, director, grandparenting income year, income year, notice, qualifying company, shareholder Compare: 2004 No 35 ss HG 3(1), HG 4(1), HG 14(a), (b), OB 3(1)(f) Section HA 5(1): amended, on 17 July 2013, by section 172 of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Section HA 5(1): amended (with effect on 1 April 2010), on 21 December 2010 (applying for income years beginning on or after 1 April 2010), by section 72(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).

Section HA 5(1B) heading: inserted (with effect on 1 April 2010), on 21 De- cember 2010 (applying for income years beginning on or after 1 April 2010), by section 72(2) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section HA 5(1B): inserted (with effect on 1 April 2010), on 21 December 2010 (applying for income years beginning on or after 1 April 2010), by section 72(2) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).

Section HA 5(5) heading: added (with effect on 1 April 2010), on 21 December 2010 (applying for income years beginning on or after 1 April 2010), by section 72(3) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section HA 5(5): added (with effect on 1 April 2010), on 21 December 2010 (applying for income years beginning on or after 1 April 2010), by section 72(3) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).

Section HA 5 list of deﬁned terms grandparenting income year: inserted (with effect on 1 April 2010), on 21 December 2010, by section 72(4) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section HA 5 list of deﬁned terms LAQC: repealed, on 17 July 2013, by section 172 of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).

HA 6 Corporate requirements Requirements (1) A qualifying company must, in an income year,— 1751 Part H s HA 7 Income Tax Act 2007 Reprinted as at 30 August 2013 (a) (b) have 5 or fewer shareholders who meet the requirements of section HA 7; or be a ﬂat-owning company.
Exclusions (2) A company is not eligible to be a qualifying company if, at any time in an income year, it is— (a) (b) a company that is not resident in New Zealand; or a company that is resident in New Zealand but is treated under and for the purposes of a double tax agreement, as not resident in New Zealand; or [Repealed] (c) Deﬁned in this Act: company, double tax agreement, ﬂat-owning company, income year, qualifying company, resident in New Zealand, shareholder Compare: 2004 No 35 ss HG 1(a), (b), OB 1 “foreign company”, OB 3(1)(a), (b), (g) Section HA 6(2)(c): repealed, on 17 July 2013, by section 172 of the Taxa- tion (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Section HA 6 list of deﬁned terms LAQC: repealed, on 17 July 2013, by section 172 of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
HA 7 Shareholding requirements Natural persons, certain trustees, and qualifying companies (1) A shareholder in a qualifying company must be 1 of the fol- lowing: (a) (b) (c) a natural person other than a trustee; or a trustee of a trust, but only if subsection (2) applies in relation to dividends derived by the trustee; or another qualifying company.
Dividends derived by trustees For the purposes of subsection (1)(b), all dividends that the trustee of a trust derives from a qualifying company in an in- come year must be beneﬁciary income of 1 or more persons who are not trustees or companies other than qualifying com- panies.

However, this subsection does not apply to non-cash dividends other than taxable bonus issues.
(2) 1752 Reprinted as at 30 August 2013 Income Tax Act 2007 Part H s HA 7 Special shareholding rules (3) When the shares in a qualifying company that has 5 or fewer shareholders are held by relatives, other companies, and trustees, the following special rules apply: (a) (b) (c) if a shareholder in a qualifying company is connected within the ﬁrst degree of relationship to another share- holder in the company by either blood relationship, mar- riage, civil union or de facto relationship, or adoption, they are treated as a single shareholder, and this treat- ment continues while they remain a shareholder in the company despite any later death or dissolution: shares in a qualifying company that are held by another company are treated as held by the shareholders in that other company: if a shareholder in a qualifying company is a trustee, the shareholders are counted, without the trustee, as the larger of the following: (i) the group who signed the election as shareholder; or the group who derived beneﬁciary income from dividends from the qualifying company in the period between the ﬁrst day of the 1991–92 in- come year and the time of counting.
(ii) (4) Shareholder continuity requirements For the application of shareholder continuity requirements to the memorandum accounts of qualifying companies, see sec- tion OA 8(3B) (Shareholder continuity requirements).
Deﬁned in this Act: beneﬁciary income, company, dividend, income year, memorandum account, non-cash dividend, qualifying company, relative, share, shareholder, taxable bonus issue, trustee Compare: 2004 No 35 s OB 3(1)(c), (3) Section HA 7(4) heading: added (with effect on 1 April 2008), on 6 October 2009, by section 251(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section HA 7(4): added (with effect on 1 April 2008), on 6 October 2009, by section 251(1) of the Taxation (International Taxation, Life Insurance, and Re- medial Matters) Act 2009 (2009 No 34).

Section HA 7 list of deﬁned terms memorandum account: inserted (with ef- fect on 1 April 2008), on 6 October 2009, by section 251(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
1753 Part H s HA 7B Income Tax Act 2007 Reprinted as at 30 August 2013 HA 7B Grandparenting requirement A qualifying company must have been a qualifying company at the end of the income year before the ﬁrst income year that starts on or after 1 April 2011 and must not have amalgamated, on or after the date on which the Taxation (Annual Rates, Re- turns Filing, and Remedial Matters) Act 2012 receives the Royal assent, with another company that is not a qualifying company.
Deﬁned in this Act: amalgamation, income year, qualifying company Section HA 7B: inserted, on 1 April 2011 (applying for income years beginning on or after 1 April 2011), by section 73(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).

Section HA 7B: amended, on 2 November 2012, by section 75(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section HA 7B list of deﬁned terms amalgamation: inserted, on 2 November 2012, by section 75(2) of the Taxation (Annual Rates, Returns Filing, and Re- medial Matters) Act 2012 (2012 No 88).
HA 8 Shareholders’ personal liability Agreement required for election (1) A person making an election as shareholder as described in section HA 5 must agree for each income year in which the election is in effect, to take personal liability on the basis of their effective interest in the company— (a) for their share of the company’s income tax liability for the income year; and if the company has made an election as shareholder in another company, for any income tax payable in relation to that other company for the income year.
(b) Trustee shareholders (2) A person making an election as trustee under section HA 28 must agree to take personal liability under subsection (1), modiﬁed as follows: (a) the trustee together with 1 or more beneﬁciaries who have legal capacity must make the election; and the personal liability as trustee is limited to the extent of the net assets of the trust; and if the election is made for a majority shareholding under section HA 29, the personal liability includes the effect- ive interests of the minority shareholding.
(b) (c) 1754 Reprinted as at 30 August 2013 Income Tax Act 2007 Part H s HA 8B Majority shareholders (3) One or more persons whose effective interests in a company at a particular time add up to 50% or more, may make an elec- tion under section HA 29, agreeing to take personal liability described in subsection (1) in relation to the effective interests in the company of the minority shareholding.
(4) (5) Beneﬁciaries In subsection (1), the person includes a beneﬁciary who makes an election under section HA 28 or a person who assumes li- ability on their behalf.

Nature of liability In sections HA 13 to HA 27, when more than 1 person agrees to take personal liability as described in subsection (3) for a percentage of an income tax liability or for income tax payable in an income year, the liability is joint and several.
Deﬁned in this Act: company, effective interest, income tax, income tax liabil- ity, income year, pay, shareholder, trustee Compare: 2004 No 35 s HG 4(1)–(3) HA 8B No CFC income interests or FIF direct income interests of 10% or more A qualifying company must not have— income interests in a CFC: (a) interests in a FIF that are a direct income interest of 10% (b) or more.
Deﬁned in this Act: CFC, direct income interest, FIF, income interest, qualify- ing company Section HA 8B: inserted (with effect on 30 June 2009), on 6 October 2009, by section 252(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section HA 8B(b): amended (with effect on 1 July 2009 and applying for in- come years beginning on or after that date), on 7 May 2012, by section 73(1) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).

Section HA 8B list of deﬁned terms attributing interest: repealed (with effect on 30 June 2009), on 2 November 2012, by section 76 of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
1755 Part H s HA 9 Income Tax Act 2007 Reprinted as at 30 August 2013 HA 9 Limit on foreign non-dividend income (1) (2) Dollar limit The foreign non-dividend income of a qualifying company in an income year must be no more than $10,000 after subtracting the lesser of— (a) any income under section CC 3 (Financial arrange- ments); or 10% of the gross income of the company for the income year.
(b) Change in threshold The Governor-General may make an Order in Council increas- ing the sum set out in subsection (1).

The order may apply— from the start of the income year in which it is made; or (a) to amounts of income derived after the date on which (b) the order is made.
Deﬁned in this Act: amount, foreign non-dividend income, gross, income, in- come year, qualifying company Compare: 2004 No 35 s OB 3(1)(d), (4) Section HA 9(2): amended (with effect on 1 April 2008), on 6 October 2009, by section 253(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
HA 10 Nature of LAQC shares [Repealed] Section HA 10: repealed, on 1 April 2011 (applying for income years beginning on or after 1 April 2011), by section 74(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).

HA 11 When requirements no longer met: qualifying companies When this section applies This section applies when, through changed circumstances, a qualifying company no longer meets the requirements of sec- tions HA 5 to HA 9.
Status at end The company’s status as a qualifying company is ended, whether or not it is, or could be, known at the time the circumstances arise that the company no longer meets the requirements.

(1) (2) 1756 Reprinted as at 30 August 2013 Income Tax Act 2007 Part H s HA 11 (3) (4) Qualifying companies The company’s status as a qualifying company is treated as ended from the start of the income year in which the change of circumstances occurs.

Subsection (6) overrides this subsec- tion.
LAQCs [Repealed] [Repealed] Distribution of dividends (5) Despite subsection (1), a company’s status as a qualifying company is not ended merely because it does not comply with section HA 7(2) when— (a) all dividends that can, under general law, be distributed by the trustee are beneﬁciary income of a beneﬁciary other than— (i) (ii) a trustee beneﬁciary; or a beneﬁciary that is a company other than a quali- fying company; and (b) some of the dividends derived by the trustee from the qualifying company have vested or have been dis- tributed as beneﬁciary income of a beneﬁciary other than— (i) (ii) a trustee beneﬁciary; or a beneﬁciary that is a company other than a quali- fying company.
Deferring date (6) On an application by a qualifying company, the Commissioner may defer the date on which the company’s status ends to the start of a later income year if— (a) the company did not know, and could not reasonably be expected to have known, at the time the circumstances arose that it no longer met the requirements; and in the circumstances, it would be an unduly harsh or inappropriate outcome.
(b) (7) Examples for subsection (6)(a) Examples of the circumstances that may apply for the pur- poses of subsection (6)(a) are a reasonable expectation or be- lief that— 1757 Part H s HA 11 Income Tax Act 2007 Reprinted as at 30 August 2013 (a) (b) (c) the company would continue to meet the requirements through an extension under section HA 34, HA 35, or HA 37; or an amount of foreign non-dividend income that the company derives would not breach the threshold in section HA 9; or the dividends referred to in section HA 7(2) would be distributed as beneﬁciary income.
(b) Examples for subsection (6)(b) Examples of the circumstances that may apply for the purposes of subsection (6)(b) are— (a) the length of time between the start of the income year and the date of the change in circumstances: the length of time between the date of the change in circumstances and the date when the company knew, or could reasonably be expected to have known, that the requirements were not met: the kinds of transactions that the company made during the periods of time described in paragraphs (a) and (b).
Deﬁned in this Act: amount, beneﬁciary income, Commissioner, company, dividend, foreign non-dividend income, income year, qualifying company, trustee Compare: 2004 No 35 ss HG 7, HG 18, OB 3(3A) (c) Section HA 11 heading: substituted (with effect on 1 April 2008), on 7 Septem- ber 2010, by section 59(1) of the Taxation (Annual Rates, Trans-Tasman Sav- ings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
Section HA 11(4) heading: repealed (with effect on 1 April 2008), on 7 Sep- tember 2010 (applying for the 2008–09 and later income years), pursuant to section 59(2) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
Section HA 11(4): repealed (with effect on 1 April 2008), on 7 September 2010 (applying for the 2008–09 and later income years), by section 59(2) of the Taxa- tion (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remed- ial Matters) Act 2010 (2010 No 109).

Section HA 11(5): substituted (with effect on 1 April 2008), on 6 October 2009, by section 254(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section HA 11 list of deﬁned terms LAQC: repealed, on 17 July 2013, by sec- tion 172 of the Taxation (Livestock Valuation, Assets Expenditure, and Remed- ial Matters) Act 2013 (2013 No 52).

(8) 1758 Reprinted as at 30 August 2013 Income Tax Act 2007 Part H s HA 14 HA 11B When requirements no longer met: LAQCs [Repealed] Section HA 11B: repealed, on 17 July 2013, by section 172 of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
HA 12 Avoidance arrangements [Repealed] Section HA 12: repealed, on 17 July 2013, by section 172 of the Taxation (Live- stock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).

Treatment of proﬁts, dividends, and tax losses HA 13 Qualifying companies’ distributions A distribution that is a transfer of value to a shareholder of a qualifying company must be treated in the way set out in sections HA 14 to HA 18.
Deﬁned in this Act: qualifying company, shareholder, transfer of value Compare: 2004 No 35 s HG 1(c) HA 14 Dividends paid by qualifying companies (1) (2) (3) (4) When this section applies This section applies when a qualifying company pays a divi- dend to a person resident in New Zealand.

General treatment The dividend is exempt income of the person under section CW 15 (Dividends paid by qualifying companies) to the extent to which it is more than a fully imputed distribution.
When shareholder has non-standard balance date If the person has a non-standard balance date and the dividend is derived after the end of the tax year but before their balance date, the dividend is allocated to the day after the balance date.

No resident passive income The dividend does not constitute resident passive income.
Deﬁned in this Act: dividend, exempt income, fully imputed, non-standard bal- ance date, pay, qualifying company, resident in New Zealand, resident passive income, shareholder, tax year Compare: 2004 No 35 ss HG 9(1), HG 13(1) 1759 Part H s HA 15 Income Tax Act 2007 Reprinted as at 30 August 2013 Section HA 14(2): amended (with effect on 1 April 2008), on 6 October 2009, by section 255(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section HA 14 list of deﬁned terms fully imputed: inserted (with effect on 1 April 2008), on 6 October 2009, by section 255(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

HA 15 Fully imputed distributions (1) (2) (3) When this section applies This section applies when a qualifying company with an im- putation credit account or foreign dividend payment (FDP) ac- count pays a dividend.
However, this section does not apply to a non-cash dividend other than a taxable bonus issue.

Calculating amount of fully imputed distribution The amount of a fully imputed distribution is calculated using the formula— attached imputation credit + attached FDP credit tax rate.
Deﬁnition of items in formula In the formula in subsection (2),— (a) (b) (c) attached imputation credit is the amount determined under subsection (4), and the amount is zero if no im- putation credit is attached: attached FDP credit is the amount determined under subsection (5), and the amount is zero if no FDP credit is attached: tax rate is the basic rate of income tax set out in sched- ule 1, part A, clause 2 (Basic tax rates: income tax, ESCT, RSCT, RWT, and attributed fringe beneﬁts) at the time the shareholder derives the dividend, modiﬁed as applicable by section OZ 14 (Dividends from quali- fying companies).
ICA companies (4) A qualifying company that is an imputation credit account (ICA) company is treated as having attached an imputation credit to the dividend.
The amount of the imputation credit is the lesser of— 1760 Reprinted as at 30 August 2013 Income Tax Act 2007 Part H s HA 15 (a) (b) the maximum imputation credit that may be attached to the dividend under section OA 18 (Calculation of maximum permitted ratios) modiﬁed as applicable by section OZ 14; and an amount calculated using the formula in subsection (6).
FDPA companies (5) A qualifying company that is a foreign dividend payment ac- count (FDPA) company is treated as having attached a FDP credit to the dividend.

The amount of the FDP credit is the lesser of— (a) the maximum FDP credit that may be attached to the dividend under section OA 18, taking into account any imputation credit attached to the dividend under subsec- tion (4) modiﬁed as applicable by section OZ 14; and an amount calculated using the formula in subsection (6).
(b) Formula The formula referred to in subsections (4) and (5) is— (6) attached credits × amount of dividend amount paid before credits attached.
(7) Deﬁnition of items in formula In the formula in subsection (6),— (a) attached credits is the balance in the company’s im- putation credit account or FDP account, as applicable, on the last day of the tax year in which the dividend is paid before a debit is made for any imputation credits or FDP credits, as applicable, that are attached: amount of the dividend is the amount before any im- putation credits or FDP credits, as applicable, are at- tached: amount paid before credits attached is the total amount of dividends, excluding non-cash dividends other than taxable bonus issues, paid by the company during the tax year before any imputation credits or FDP credits, as applicable, are attached.
(b) (c) 1761 Part H s HA 16 Income Tax Act 2007 Reprinted as at 30 August 2013 Relationship with imputation rules and FDP rules (8) An imputation credit or an FDP credit may not be attached to a dividend by a qualifying company except under this section.

(9) Relationship with sections HA 14 and HA 16 If part of the dividend is exempt income under sections HA 14 and HA 16, an imputation credit or FDP credit is treated as attached to the part that is not exempt income.
Deﬁned in this Act: amount, dividend, exempt income, FDP, FDP account, FDP credit, FDP rules, FDPA company, ICA company, imputation credit, imputation credit account, imputation rules, income tax, income year, non-cash dividend, pay, qualifying company, resident in New Zealand, shareholder, taxable bonus issue, tax year Compare: 2004 No 35 s HG 13(1)–(4) Section HA 15(1): amended (with effect on 1 April 2008), on 6 October 2009, by section 256(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section HA 15(3)(c): amended, on 1 April 2008, by section 409(1) of the Tax- ation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section HA 15(3)(c): amended, on 1 April 2008, by section 562 of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section HA 15(4)(a): amended, on 1 April 2008, by section 409(2) of the Tax- ation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section HA 15(5)(a): amended, on 1 April 2008, by section 409(3) of the Tax- ation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section HA 15(9) heading: substituted (with effect on 1 April 2008), on 6 Oc- tober 2009, by section 256(2) of the Taxation (International Taxation, Life In- surance, and Remedial Matters) Act 2009 (2009 No 34).
Section HA 15(9): substituted (with effect on 1 April 2008), on 6 October 2009, by section 256(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
HA 16 Dividends paid by qualifying companies to trustee shareholders (1) When this section applies This section applies when a dividend referred to in section HA 14(2) is derived by a trustee to the extent to which the divi- dend is exempt income of the trustee under section CW 15(1) (Dividends paid by qualifying companies).
1762 Reprinted as at 30 August 2013 Income Tax Act 2007 Part H s HA 18 (2) Exempt income To the extent to which the dividend is also beneﬁciary income of a beneﬁciary resident in New Zealand, the dividend is ex- empt income of the beneﬁciary under section CW 15(2).
Deﬁned in this Act: dividend, exempt income, resident in New Zealand, trustee Compare: 2004 No 35 s HG 13(1)(a)(i), (1A) Section HA 16: substituted (with effect on 1 April 2008), on 6 October 2009, by section 257(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
HA 17 Dividends derived by qualifying companies (1) (2) What this section applies to This section applies to a dividend— (a) that a company derives after it becomes a qualifying company; and to which section CW 10 (Dividend within New Zealand wholly-owned group) applies.

(b) Dividend not exempt income The dividend is not exempt income under section CW 10, ex- cept to the extent to which section CW 9 (Dividend derived by company from overseas) applies to it.
Deﬁned in this Act: company, dividend, exempt income, qualifying company Compare: 2004 No 35 ss HG 10(a), HG 13(1)(aa) Section HA 17(1)(b): amended (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 74(1) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section HA 17(2): amended (with effect on 1 July 2011 and applying for in- come years beginning on or after that date), on 7 May 2012, by section 74(2) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).

HA 18 Treatment of dividends when qualifying company status ends (1) (2) When this section applies This section applies when a company’s status as a qualifying company ends under section HA 11(1).
Dividends distributed in tax year Section HA 15 applies to a dividend distributed in the period of a tax year from the ﬁrst day to the day before the date on 1763 Part H s HA 19 Income Tax Act 2007 Reprinted as at 30 August 2013 which the status ends.

References in that section to a tax year should be read as references to that period of the year.
Group companies: imputation credit accounts (3) On the day before the date on which the status ends, the company’s imputation credit account is debited under section OB 41 (ICA debit for loss of shareholder continuity) by the lesser of— (a) the balance of the credit account on that day after any credits are attached under section HA 15; and the largest debit to the credit account that would have arisen before that day if section OB 41 had applied.
(b) Group companies: FDP account (4) On the day before the date on which the status ends, the com- pany’s FDP account is debited under section OC 24 (FDPA debit for loss of shareholder continuity) by the lesser of— (a) the balance of the credit account on that day after any credits are attached under section HA 15; and the largest debit to the credit account that would have arisen before that day if section OC 24 had applied.
(b) Deﬁned in this Act: company, dividend, FDP account, imputation credit ac- count, qualifying company, tax year Compare: 2004 No 35 s HG 13(6) HA 19 Credit accounts and dividend statements When this section applies This section applies when a qualifying company pays a divi- dend that is treated either as a fully imputed distribution under section HA 15 or as exempt income under sections HA 14 and HA 16. Credit accounts For the purposes of sections OB 30 to OB 59 (which relate to imputation debits) and OC 13 to OC 26 (which relate to FDP debits), if an imputation credit or an FDP credit is at- tached to the dividend, the amount of the credit is debited to the company’s imputation credit account or FDP account, as applicable.
The debit arises on the day the company pays the dividend.
(1) (2) 1764 Reprinted as at 30 August 2013 Income Tax Act 2007 Part H s HA 21 (3) (4) (5) Dividend statements For all dividends, whether or not credits have been attached, the company must complete the following statements detail- ing the extent to which the dividends are assessable income or exempt income: (a) a company dividend statement under section 67(1) of the Tax Administration Act 1994; and a shareholder dividend statement under section 29 of that Act.
(b) Date for completing statements The company must complete the statements in subsection (3) by 31 May after the end of the tax year in which the dividends were paid.

Non-cash dividends In addition to the information required in a shareholder divi- dend statement, if a shareholder asks the company to include in the statement the amount of a non-cash dividend that the com- pany has paid them in the tax year, the company must provide the information.
Deﬁned in this Act: amount, assessable income, company dividend statement, dividend, exempt income, FDP account, FDP credit, fully imputed, imputation credit, imputation credit account, non-cash dividend, pay, qualifying company, shareholder, shareholder dividend statement, tax year Compare: 2004 No 35 s HG 13(5) Section HA 19(1): substituted (with effect on 1 April 2008), on 6 October 2009, by section 258(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
inserted (with effect Section HA 19 list of deﬁned terms fully imputed: on 1 April 2008), on 6 October 2009, by section 258(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

HA 20 Attribution of tax losses [Repealed] Section HA 20: repealed, on 1 April 2011 (applying for income years beginning on or after 1 April 2011), by section 74(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
HA 21 Loss balances not carried forward In an income year in which a company that is not a qualifying company becomes a qualifying company, subparts IA (Gen- 1765 Part H s HA 22 Income Tax Act 2007 Reprinted as at 30 August 2013 eral rules for tax losses) and IQ (Attributed controlled foreign company net losses and foreign investment fund net losses) do not apply to carry forward a loss balance of the company to the income year or to later income years.
Deﬁned in this Act: company, income year, loss balance, qualifying company Compare: 2004 No 35 s HG 11(3) Section HA 21: amended (with effect on 1 April 2008), on 7 December 2009, by section 42 of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).

HA 22 Group companies using tax losses (1) (2) When this section applies This section applies if a qualifying company is in the same group of companies as a company with a tax loss (company A).
When tax losses available The amount of company A’s tax loss is available to the quali- fying company to use under section IA 3(2) (Using tax losses in tax year) only if— (a) (b) company A is also a qualifying company; and the requirements of section IC 5 (Company B using company A’s tax loss) are met.
Deﬁned in this Act: amount, company, group of companies, qualifying com- pany, tax loss Compare: 2004 No 35 s HG 10(b) HA 23 Treatment of tax losses on amalgamation If a company that is not a qualifying company amalgamates with a qualifying company and ends its existence on the amal- gamation, subpart IA (General rules for tax losses) does not apply to carry forward the amalgamating company’s loss bal- ance from earlier income years either to the income year of the amalgamation or to later income years.
Deﬁned in this Act: amalgamating company, amalgamation, company, income year, loss balance, qualifying company, tax loss Compare: 2004 No 35 s HG 11(3A) Special tax matters for loss-attributing qualifying companies 1766 Reprinted as at 30 August 2013 Income Tax Act 2007 Part H s HA 28 [Repealed] Heading: repealed, on 1 April 2011 (applying for income years beginning on or after 1 April 2011), by section 74(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
HA 24 Treatment of tax losses other than certain foreign losses [Repealed] Section HA 24: repealed, on 1 April 2011 (applying for income years beginning on or after 1 April 2011), by section 74(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).

HA 25 Treatment of certain foreign losses [Repealed] Section HA 25: repealed, on 1 April 2011 (applying for income years beginning on or after 1 April 2011), by section 74(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
HA 26 Attribution when balance dates differ [Repealed] Section HA 26: repealed, on 1 April 2011 (applying for income years beginning on or after 1 April 2011), by section 74(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).

HA 27 Attribution when loss results in reduction in value of shares [Repealed] Section HA 27: repealed, on 1 April 2011 (applying for income years beginning on or after 1 April 2011), by section 74(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Elections: qualifying companies HA 28 Elections by trustee shareholders If a shareholder referred to in section HA 5 is acting as trustee, they must make an election together with— (a) 1 or more beneﬁciaries of the trust who are natural per- sons with legal capacity; or 1767 Part H s HA 29 Income Tax Act 2007 Reprinted as at 30 August 2013 (b) if no beneﬁciary has legal capacity, a natural person, who may also be the trustee, who assumes liability on behalf of beneﬁciaries.
Deﬁned in this Act: shareholder, trustee Compare: 2004 No 35 s HG 4(2)(a) HA 29 Elections by majority shareholders (1) (2) (3) When this section applies This section applies when 1 or more shareholders (the ma- jority) in a company have, at the time of making an election, effective interests in the company of 50% or more, and the ef- fective interest of 1 or more other shareholders (the minority) is less than 50%.
Majority assuming minority’s liability The majority may sign a notice of election advising the Com- missioner that the company is to become a qualifying com- pany.

The notice has effect only if the majority agree to an extension of their personal liability under section HA 8(3).

Minority treated as making election The minority is treated as having made an election under sec- tion HA 5 in relation to their shareholding in the company at the time the election is made.
Election additional (4) An election under this section may be made in addition to any other election a shareholder may make or have made under section HA 5.
Deﬁned in this Act: Commissioner, company, effective interest, notice, quali- fying company, shareholder Compare: 2004 No 35 s HG 4(3) HA 30 When elections take effect When election takes effect In a notice of election made under section HA 5, an income year later than the year of notice may be nominated as the year in which the election is to take effect and, if so, the election takes effect at the start of that income year.
If no income year is nominated in the notice, the election takes effect at the start of the income year after the year of notice.

(1) 1768 Reprinted as at 30 August 2013 Income Tax Act 2007 Part H s HA 31 (2) Shareholder’s election after company becomes qualifying company If a shareholder makes an election when the company is al- ready a qualifying company, the election takes effect when the Commissioner receives it.
Company’s ﬁrst income year (3) Despite subsection (1), if the company has not previously been required to provide a return of income, the ﬁrst income year of the company may be nominated as the year in which the election is to take effect, subject to section HA 5(1B).

The Commissioner must be advised of this decision in the notice of election to be received within the time allowed by section 37 of the Tax Administration Act 1994 for providing a return for the company’s ﬁrst income year.
Election in effect until revoked (4) An election remains in effect until revoked.

Deﬁned in this Act: Commissioner, company, income year, notice, qualifying company, return of income, shareholder Compare: 2004 No 35 ss HG 3(2), (3), HG 4(4) Section HA 30(3): amended (with effect on 1 April 2010), on 21 December 2010 (applying for income years beginning on or after 1 April 2010), by section 75(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
HA 31 Revocation of directors’ elections Revoking election (1) An election by directors under section HA 5 may be revoked only by a resolution of the board of directors.

The board must advise the Commissioner of the resolution by providing a no- tice of revocation.

(2) When revocation takes effect The revocation of an election takes effect at the start of the in- come year that the board nominates in the notice of revocation.
If the board has not nominated an income year, the revocation takes effect at the start of the income year in which the notice of revocation is provided.
Deﬁned in this Act: Commissioner, director, income year, notice Compare: 2004 No 35 s HG 3(4), (5) 1769 Part H s HA 32 Income Tax Act 2007 Reprinted as at 30 August 2013 HA 32 Revocation of shareholders’ elections: by notice Notice (1) A person who, as a shareholder in a company, has made an election under section HA 5, may revoke it by notifying both the company and the Commissioner.
(2) (3) (4) When revocation takes effect In the notice, the person may nominate an income year later than the year of notice as the income year in which revocation takes effect, and the revocation takes effect at the start of that income year.

If no income year is nominated, it takes effect at the start of the income year in which the Commissioner re- ceives the notice.
Measuring effective interests For measuring the effective interest in the company, as deﬁned in section HA 43 and measured under section HA 44, of the person revoking the election, the revocation takes effect— (a) when both the company and the Commissioner have received the notice; or on a later date nominated in the notice.

(b) Periods of grace and Commissioner’s power to defer Sections HA 11(6) and HA 34 to HA 37 override this section.
Deﬁned in this Act: Commissioner, company, effective interest, income year, notice, notify, shareholder Compare: 2004 No 35 s HG 5(1) HA 33 Revocation of shareholders’ elections: by event Event (1) An election by a person as shareholder under section HA 5 is revoked if an event described in the following paragraphs occurs: (a) (b) the person dies: the person disposes of all of their shares, unless they dispose of them to an existing shareholder in the com- pany for whom an election exists: if section HA 28(b) applies, or section HA 29 applies and the election is made in accordance with section HA 28(b), a beneﬁciary acquires legal capacity: if section HA 29 applies,— (c) (d) 1770 Reprinted as at 30 August 2013 Income Tax Act 2007 Part H s HA 33B (i) (ii) the effective interests of a minority shareholder increase to 50% or more; or the total effective interests of the majority share- holder or shareholders fall below 50%: (e) for an election made jointly by 2 or more persons, 1 per- son revokes the election or is treated as having revoked the election.
When revocation by event takes effect The revocation of an election under this section takes effect at the start of the income year in which the event occurred.

Periods of grace and Commissioner’s power to defer Sections HA 11(6) and HA 34 to HA 37 override this section.
Deﬁned in this Act: Commissioner, company, effective interest, income year, share, shareholder Compare: 2004 No 35 s HG 5(2) Section HA 33(1)(c): amended (with effect on 1 April 2008 and applying for the 2008–09 and later income years), on 17 July 2013, by section 60(1) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
(2) (3) HA 33B Transitional rules for look-through companies, partnerships, and sole traderships LTC election (1) All elections by shareholders under section HA 5 are revoked if, for the company and the relevant shareholders, a LTC elec- tion has been received by the Commissioner under section HB 13(3)(c) and (4) (LTC elections) for the ﬁrst or second in- come year that starts on or after 1 April 2011.
(2) When revocation takes effect The revocation of the elections under subsection (1) takes ef- fect at the beginning of the relevant income year.
Notice of intention (3) All elections by shareholders under section HA 5 are revoked if, for the company and the relevant shareholders, a notice of intention has been received by the Commissioner for the ﬁrst or second income year that starts on or after 1 April 2011 under section HZ 4B(7)(a) or HZ 4D(4)(a) (which relate to transi- tions to partnerships and sole traderships).
1771 Part H s HA 34 Income Tax Act 2007 Reprinted as at 30 August 2013 (4) When revocation takes effect The revocation of the elections under subsection (3) takes ef- fect at the beginning of the relevant income year.

Deﬁned in this Act: Commissioner, company, income year, shareholder Section HA 33B: inserted, on 1 April 2011 (applying for income years begin- ning on or after 1 April 2011), by section 76(1) of the Taxation (GST and Re- medial Matters) Act 2010 (2010 No 130).
HA 34 Period of grace following death of shareholder 12-month period (1) Despite section HA 33(1)(a), a company’s status as a quali- fying company does not end because a shareholder or another person has died if, within 12 months of the death of the per- son, the company meets the requirements of sections HA 5 to HA 9.
(2) Extension of time The Commissioner may extend the 12-month period referred to in subsection (1) on the application of the company, the per- sonal representative of the deceased person, or a person who is entitled as a shareholder to make an election under section HA 5.
Deﬁned in this Act: Commissioner, company, qualifying company, shareholder Compare: 2004 No 35 s HG 6(1) HA 35 Period of grace following revocation of election (1) When this section applies This section applies when a company has been a qualifying company but no longer meets the requirement of section HA 5 through revocation of a shareholder’s election under section HA 32 or HA 33.
But this section does not apply when— (a) the revocation is brought about by the death of a person; or a joint election is revoked.
(b) Revocation by notice (2) When section HA 32 applies, the company’s status as a quali- fying company does not end if, within 63 days of the date on which the company received the notice of revocation, a person 1772 Reprinted as at 30 August 2013 Income Tax Act 2007 Part H s HA 37 other than the shareholder who revoked the election makes an election relating to the whole of the relevant shareholding.
Revocation by event (3) When section HA 33 applies, the company’s status as a quali- fying company does not end if, within 63 days of the date when the event that gave rise to the revocation occurred, an election relating to the whole of the relevant shareholding is made or is in effect.

(4) Extension of time In subsections (2) and (3), the Commissioner may extend the 63-day period on the application of the company or a person who is entitled to make an election under section HA 5.
Deﬁned in this Act: Commissioner, company, notice, qualifying company, shareholder Compare: 2004 No 35 s HG 6(2)(a), (b) HA 36 Period of grace following revocation of joint election (1) (2) When this section applies This section applies when a company has been a qualifying company, but an election that shareholders have made jointly has been revoked through an event described in section HA 33.
Cause of revocation The company’s status as a qualifying company does not end if, within the relevant period in section HA 34(1) or HA 35(2) and (3), an election relating to the whole of the relevant share- holding is made.
Deﬁned in this Act: company, qualifying company, shareholder Compare: 2004 No 35 s HG 6(2)(c) HA 37 Period of grace for new shareholder (1) When this section applies This section applies when a company has been a qualifying company but fails to meet the requirement of section HA 5 when— (a) a person other than an existing shareholder acquires shares in the company; or an existing shareholder acquires legal capacity.
(b) 1773 Part H s HA 38 Income Tax Act 2007 Reprinted as at 30 August 2013 (2) (3) Period for making election The company’s status as a qualifying company does not end if, within 63 days of the date on which either the shares were acquired or the shareholder acquired legal capacity, an election relating to the whole of the relevant shareholding is made.
Extension of time The Commissioner may extend the 63-day period in subsec- tion (2) on the application of the company, the new share- holder, the existing shareholder, or a person who is entitled to make an election as shareholder under section HA 5.
Deﬁned in this Act: Commissioner, company, qualifying company, share, shareholder Compare: 2004 No 35 s HG 6(3) Elections: loss-attributing qualifying companies [Repealed] Heading: repealed, on 1 April 2011 (applying for income years beginning on or after 1 April 2011), by section 77(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
HA 38 Elections by directors and shareholders required [Repealed] Section 38: repealed, on 1 April 2011 (applying for income years beginning on or after 1 April 2011), by section 77(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).

HA 39 Revocation of elections [Repealed] Section 39: repealed, on 1 April 2011 (applying for income years beginning on or after 1 April 2011), by section 77(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Qualifying company election tax HA 40 Liability for qualifying company election tax Payment of tax (1) A company that becomes a qualifying company must pay a qualifying company election tax in relation to the change in 1774 Reprinted as at 30 August 2013 Income Tax Act 2007 Part H s HA 41 (2) status, of an amount calculated under section HA 41.

The date for payment is set out in section HA 42.


Payment on amalgamation If a company that is not a qualifying company amalgamates with a qualifying company and ends its existence on the amal- gamation, the amalgamated company must pay a qualifying company election tax under subsection (1).
Deﬁned in this Act: amalgamated company, amalgamation, amount, company, pay, qualifying company, qualifying company election tax Compare: 2004 No 35 s HG 11(1), (1A) HA 41 Calculating qualifying company election tax (1) Formula The amount of qualifying company election tax that a com- pany must pay under section HA 40 is calculated using the formula— ( dividends + balances assessable income balances tax rate ) × tax rate.
Deﬁnition of items in formula The items in the formula are deﬁned in subsections (3) to (6).
(2) Dividends (3) Dividends is the sum of the amounts that would be dividends if the company— (a) disposed of all its property, other than cash, to an unre- lated person at market value for cash; and (b) met all its liabilities at market value, excluding income tax payable through disposing of the property or meet- ing the liabilities; and was liquidated, with the amount of cash remaining be- ing distributed to its shareholders without imputation credits or FDP credits attached.
(c) Balances Balances is the sum of the following amounts: (a) (b) (c) the balance in the company’s imputation credit account: the balance in the company’s FDP account: an amount of income tax payable for an earlier income year but not paid before the relevant date, less refunds (4) 1775 Part H s HA 41 Income Tax Act 2007 Reprinted as at 30 August 2013 due for the earlier income year but paid after the relevant date.
[Repealed] (d) Assessable income (5) Assessable income is the total assessable income that the com- pany would derive by taking the actions described in subsec- tion (3)(a) and (b) less the amount of any deduction that the company would have for taking those actions.

Tax rate Tax rate is the basic rate of income tax set out in schedule 1, part A, clause 2 (Basic tax rates: income tax, ESCT, RSCT, RWT, and attributed fringe beneﬁts) for the relevant income year of the company.
Relevant date In subsections (3) to (5), the relevant date for measuring items in the formula is the date just before the company became a qualifying company or, as applicable, at the time the company ended its existence.
Income tax and refund For the purposes of subsection (4)(c),— (a) (b) (c) income tax payable is income tax that would, when paid, give rise to a credit in the company’s imputation credit account under sections OB 4 to OB 29 (which re- late to imputation credits): a refund of income tax due is the amount that would, when paid, give rise to a debit to the company’s im- putation credit account under section OB 30 to OB 59 (which relate to imputation debits): if the company pays income tax with a purpose or inten- tion of reducing the amount of election tax, the amount of credit in the imputation credit account is reduced by the amount of the credit arising from the company’s ac- tion, unless that purpose is merely incidental.
Deﬁned in this Act: amount, assessable income, company, deduction, dividend, FDP account, FDP credit, imputation credit, imputation credit account, income tax, income year, liquidation, pay, qualifying company, qualifying company election tax, shareholder Compare: 2004 No 35 s HG 11(1B), (2), (4) (6) (7) (8) 1776 Reprinted as at 30 August 2013 Income Tax Act 2007 Part H s HA 43 Section HA 41(4)(c): amended (with effect on 30 June 2009), on 6 October 2009, by section 259(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section HA 41(4)(d): repealed (with effect on 30 June 2009), on 6 October 2009, by section 259(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section HA 41(6): amended, on 1 April 2008, by section 562 of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section HA 41(8)(c): substituted (with effect on 30 June 2009), on 6 October 2009, by section 259(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section HA 41 list of deﬁned terms FDP: repealed (with effect on 30 June 2009), on 6 October 2009, by section 259(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
HA 42 Paying qualifying company election tax A company must pay a qualifying company election tax under section HA 40 to the Commissioner no later than the com- pany’s terminal tax date for the tax year corresponding to the income year in which the company chooses to become a quali- fying company.
Deﬁned in this Act: Commissioner, company, income year, pay, qualifying company, qualifying company election tax, terminal tax date Compare: 2004 No 35 s HG 12 Effective interests in qualifying companies HA 43 Meaning of effective interest (1) (2) What this section does This section deﬁnes an effective interest in a company, which is the measure of a person’s liability under section HA 8.
Effective interest Effective interest for a person and a company, at a particular time or for an income year, means— (a) the person’s voting interest in the company at the time or for the income year, unless paragraph (b) applies: if there is a market value circumstance for the company at the time or at some time during the income year, the average of— (i) the person’s voting interest in the company at the time or for the income year; and (b) 1777 Part H s HA 44 Income Tax Act 2007 Reprinted as at 30 August 2013 (ii) the person’s market value interest in the company at the time or for the income year.
Deﬁned in this Act: company, effective interest, income year, market value circumstance, market value interest, voting interest Compare: 2004 No 35 s OB 1 “effective interest” HA 44 Measuring effective interests Subpart YC (1) A person’s voting interest and market value interest in a com- pany is measured under subpart YC (Measurement of com- pany ownership).
If the person is a company, the voting inter- est and market value interest are measured at a particular time or for an income year under those sections as if— the person were not a company; and (a) sections YC 4 and YC 6 (which relate to corporate (b) shareholders and certain excluded securities) did not apply.
(2) (3) If interests vary during income year If a person’s voting interest or market value interest varies dur- ing an income year, the measure of their effective interest is the weighted average of their voting interest or market value inter- est, as applicable, for the income year.
If election made during income year If a shareholder makes an election under section HA 5 after the start of the income year, their voting interest and market value interest is measured from the earliest day in the income year when they became a shareholder in the company, even if the day is earlier than the date of the election.
Shareholders’ interests after revocation (4) A person who revokes an election under section HA 32 or HA 33 is treated as having no voting interest and no market value interest for the period of the income year after the revo- cation takes effect unless they make a later election for the same income year.

In this subsection, the person is a trustee when an election is made under section HA 28 by a person other than the trustee.
1778 Reprinted as at 30 August 2013 Income Tax Act 2007 Part H s HA 44 (5) (6) When majority shareholders’ liabilities excluded If a majority shareholder has made an election and agreed under sections HA 8 and HA 29 to take personal liability to the extent of a minority shareholder’s effective interest in the company, any effective interest for which the minority share- holder has agreed to be personally liable under section HA 8 is excluded in measuring the majority shareholder’s effective interest.
Minority shareholder’s liability after revocation If a majority shareholder’s election is revoked under section HA 32(1) or HA 33(1)(d), the effective interest of the minor- ity shareholder for which the majority shareholder is liable is treated as zero for the part of the income year that follows the day on which the revocation takes effect.
Deﬁned in this Act: company, effective interest, income year, market value interest, shareholder, trustee, voting interest Compare: 2004 No 35 s HG 2 Section HA 44(1): amended, on 2 November 2012, by section 77 of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Subpart HB—Look-through companies Subpart HB: inserted, on 1 April 2011 (applying for income years beginning on or after 1 April 2011, and for the purposes of the Commissioner receiving LTC elections, on and after 21 December 2010), by section 78(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Contents HB 1 Look-through companies are transparent HB 2 Previous income and expenditure or loss HB 3 Loss balances extinguished HB 4 General provisions relating to disposals HB 5 Disposal of owner’s interests HB 6 Disposal of trading stock HB 7 Disposal of depreciable property HB 8 Disposal of ﬁnancial arrangements and certain excepted ﬁnancial arrangements HB 9 Disposal of short-term agreements for sale and purchase HB 10 Disposal of livestock HB 11 Limitation on deductions by persons with interests in look-through companies Page 1780 1782 1783 1783 1784 1786 1787 1788 1790 1791 1791 1779 Part H s HB 1 Income Tax Act 2007 Reprinted as at 30 August 2013 HB 12 Limitation on deductions by owners of look-through companies: carry-forward HB 13 LTC elections 1796 1798 HB 1 Look-through companies are transparent (1) When this section applies This section applies for the purposes of this Act, other than the PAYE rules, the FBT rules, the NRWT rules, the RWT rules, the ESCT rules, and the RSCT rules, for a person in their capacity of owner of an effective look-through interest for a look-through company (the LTC), for an income year, if— (a) for the LTC, an LTC election described in section HB 13(1) and (2) has been received by the Commis- sioner under section HB 13(3) and (4) for the income year; and the LTC meets the requirements in the deﬁnition of look-through company at all times in the income year; and the election has not been revoked for the income year by an owner of a look-through interest for the LTC by notice received by the Commissioner before the start of the income year.
(b) (c) When this section applies: Commissioner’s discretion as to revocation (2) A revocation notice that is received by the Commissioner after the start of the income year is treated as received before the start of the income year if the Commissioner decides that ex- ceptional circumstances are the sole cause of the lateness.
When this section applies: revocation ignored (3) An owner’s revocation notice for the income year is ignored for the purposes of this section and section HB 13(4)(a) if the owner stops having a look-through interest in the LTC and the new owner reverses the revocation notice before the start of the income year by notice to the Commissioner.
Look-through for effective look-through interest For a person, unless the context requires otherwise,— (4) 1780 Reprinted as at 30 August 2013 Income Tax Act 2007 Part H s HB 1 (a) (b) (c) (d) the person is treated as carrying on an activity carried on by the LTC, and having a status, intention, and purpose of the LTC, and the LTC is treated as not carrying on the activity or having the status, intention, or purpose: the the person is treated as holding property that LTC holds, in proportion to the person’s effective look-through interest, and the LTC is treated as not holding the property: the person is treated as being party to an arrangement to which the LTC is a party, in proportion to the person’s effective look-through interest, and the LTC is treated as not being a party to the arrangement: the person is treated as doing a thing and being entitled to a thing that the LTC does or is entitled to, in propor- tion to the person’s effective look-through interest, and the LTC is treated as not doing the thing or being en- titled to the thing.
(5) Effective look-through interest For the purposes of this section, effective look-through in- terest means for a person and an LTC, treating the LTC as a company for the purposes of this subsection,— (a) a person’s average daily look-through interest for the company for the income year, if there is no market value circumstance for the LTC and paragraph (b) does not apply: a person’s look-through interest for the relevant time of look-through under subsection (4), if there is no market value circumstance for the LTC, and— (i) (b) the assessable income of the LTC, ignoring this subpart, is or will be $3,000,000 or more in a 12-month period including the relevant time of look-through, and the Commissioner has notiﬁed the LTC that look-through interests for the rele- vant time of look-through under subsection (4) must be used under this section: all persons with look-through interests have agreed to use their look-through interests for the relevant time of look-through: (ii) 1781 Part H s HB 2 Income Tax Act 2007 Reprinted as at 30 August 2013 (c) (d) if there is a market value circumstance for the LTC and paragraph (d) does not apply, the average of the follow- ing 2 amounts: (i) a person’s average daily look-through interest for the income year: a person’s average daily market value interest for the income year: (ii) if there is a market value circumstance for the LTC, and the assessable income and notiﬁcation requirements described in paragraph (b)(i) are met, the average of the following 2 amounts: (i) a person’s look-through interest for the time of look-through under subsection (4): a person’s market value interest for the time of look-through under subsection (4).
(ii) (6) Elections and methods Inland Revenue Act elections and methods relating to an LTC are chosen by the company ignoring subsection (4), and then subsection (4) applies so that the elections and methods are those of an owner of an effective look-through interest for the look-through company.
Deﬁned in this Act: arrangement, assessable income, Commissioner, com- pany, effective look-through interest, ESCT rules, FBT rules, income year, look-through company, look-through interest, market value circumstance, market value interest, NRWT rules, PAYE rules, RSCT rules, RWT rules Section HB 1: inserted, on 1 April 2011 (applying for income years beginning on or after 1 April 2011, and for the purposes of the Commissioner receiving LTC elections, on and after 21 December 2010), by section 78(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section HB 1(6) heading: inserted (with effect on 1 April 2011), on 2 November 2012, by section 78 of the Taxation (Annual Rates, Returns Filing, and Remed- ial Matters) Act 2012 (2012 No 88).

Section HB 1(6): inserted (with effect on 1 April 2011), on 2 November 2012, by section 78 of the Taxation (Annual Rates, Returns Filing, and Remedial Mat- ters) Act 2012 (2012 No 88).
HB 2 Previous income and expenditure or loss Despite a person who has an effective look-through interest for a look-through company (the LTC) not having an interest at the relevant time, the person may be treated as deriving income or incurring an expenditure or loss which the LTC derived or 1782 Reprinted as at 30 August 2013 Income Tax Act 2007 Part H s HB 4 incurred ignoring section HB 1, or would have derived or in- curred ignoring section HB 1 if it had not ceased to exist.
This section does not allow 2 deductions for 1 expenditure or loss, and may apply to income derived before the LTC becomes a look-through company.
Deﬁned in this Act: effective look-through interest, income, income year, look- through company Section HB 2: inserted, on 1 April 2011 (applying for income years beginning on or after 1 April 2011, and for the purposes of the Commissioner receiving LTC elections, on and after 21 December 2010), by section 78(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
HB 3 Loss balances extinguished Despite sections HB 1 and HB 2, a loss balance under Part I (Treatment of tax losses) is cancelled if the loss balance arose in relation to an income year when a company was not a look- through company, or when a company that amalgamates with a look-through company was not a look-through company.
Deﬁned in this Act: amalgamation, company, income year, look-through com- pany, loss balance Section HB 3: inserted, on 1 April 2011 (applying for income years beginning on or after 1 April 2011, and for the purposes of the Commissioner receiving LTC elections, on and after 21 December 2010), by section 78(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
HB 4 General provisions relating to disposals Relationship between disposal under this section, disposal safe harbours, and subpart FB This section overrides sections HB 5 to HB 9.

This section does not apply, and sections HB 5 to HB 9 do not apply, for disposals of owners’ interests under transactions to which subpart FB (Transfers of relationship property) applies or is treated as applying.
Election for speciﬁed livestock disposed of to new owner Section HB 10 applies for an entering owner if the entering owner furnishes a return of income that applies the section.
(1) (2) Permanent cessation (3) A person is treated as disposing of all of their owner’s interests for a look-through company to a single third party for a pay- ment equal to the interests’ market value, if the look-through 1783 Part H s HB 5 Income Tax Act 2007 Reprinted as at 30 August 2013 company ceases to exist as an entity through liquidation, court order, or otherwise.
Capital reduction (4) A person is treated as disposing of all of their owner’s interests for a look-through company to a single third party for a pay- ment equal to the interests’ market value to the extent to which an owner’s capital is reduced by a cancellation or a buy-back by the look-through company that is not pro rata for all owners.
Receipt upon permanent cessation (5) Anything received by an owner in relation to permanent cessa- tion or capital reduction, as described in subsection (3) or (4), is ignored.
Cessation due to revocation or otherwise (6) A person is treated as disposing of all of their owner’s interests for a look-through company to a single third party for a pay- ment equal to the interests’ market value, if the look-through company ceases to be a look-through company because of a revocation or otherwise, but excluding cessation as described in subsection (3).
The company is treated as acquiring all of the person’s interests immediately after the cessation, from the third party, for a payment equal to the interests’ market value, and for the purposes of section CB 15 (Transactions between associated persons), the person disposing of, and the company acquiring, the interests are treated as associated persons.
Deﬁned in this Act: associated person, dispose, look-through company, owner’s interests, pay, return of income Section HB 4: inserted, on 1 April 2011 (applying for income years beginning on or after 1 April 2011, and for the purposes of the Commissioner receiving LTC elections, on and after 21 December 2010), by section 78(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
HB 5 Disposal of owner’s interests When this section applies This section applies when a person (the exiting owner) dis- poses of some or all of their owner’s interests (the current interests) for a look-through company, if the amount calcu- lated using the formula is less than zero— disposal payment + previous payments (gross tax value liabilities) $50,000.
(1) 1784 Reprinted as at 30 August 2013 Income Tax Act 2007 Part H s HB 5 (2) (3) (4) Deﬁnition of items in formula In the formula,— (a) (b) (c) disposal payment is the total amount of consideration paid or payable to the exiting owner for the current inter- ests: previous payments is the total amount of consideration paid or payable to the exiting owner for other disposals of some or all of their owner’s interests (the other inter- ests) that have occurred in the year before the disposal of the current interests: gross tax value is the total of— (i) the value under this Act of the current interests and other interests at the time the relevant inter- est is disposed of, to the extent to which the inter- ests are revenue account property or depreciable property or ﬁnancial arrangements: the market value of the current interests and other interests at the time the relevant interest is dis- posed of, to the extent to which the interests are not revenue account property or depreciable property or ﬁnancial arrangements: (ii) (d) liabilities is the amount of liabilities under generally ac- cepted accounting practice at the time the relevant inter- est is disposed of, calculated by reference to the exiting owner’s ownership share for the relevant interest.
Exiting owner: excluded payment The disposal payment described in subsection (2)(a) is ex- cluded income of the exiting owner.

Exiting owner: no deduction The exiting owner is denied a deduction in relation to the cur- rent interests for the income year in which the disposal of the interests occurs and later income years to the extent to which the entering owner is allowed a deduction because of subsec- tion (6).
Entering owner: no deduction (5) An entering owner is denied a deduction for the disposal pay- ment described in subsection (2)(a).
1785 Part H s HB 6 Income Tax Act 2007 Reprinted as at 30 August 2013 (6) (7) Entering owner: stepping in For the purposes of calculating the income and deductions of an entering owner for the part of the income year after the disposal of the interests occurs and later income years (the post-disposal periods), the entering owner is treated for the post-disposal periods as if they had originally acquired and held the current interests, not the exiting owner.
However, this subsection does not apply to a deduction carried forward under section HB 12.

Relationship with section HB 4 Section HB 4 overrides this section.
Deﬁned in this Act: deduction, depreciable property, dispose, entering owner, excluded income, ﬁnancial arrangement, income tax liability, look-through company, owner’s interests, pay, return of income, revenue account property, year Section HB 5: inserted, on 1 April 2011 (applying for income years beginning on or after 1 April 2011, and for the purposes of the Commissioner receiving LTC elections, on and after 21 December 2010), by section 78(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
HB 6 Disposal of trading stock When this section applies This section applies when a person (the exiting owner) dis- poses of some or all of their owner’s interests for a look- through company, to the extent to which those interests include trading stock that is not livestock, and, for the income year of disposal, the total turnover of the look-through company, ig- noring section HB 1, is $3,000,000 or less.
Exiting owner: excluded payment The amount of consideration paid or payable to the exiting owner for the trading stock is excluded income of the exiting owner.

Exiting owner: no deduction The exiting owner is denied a deduction in relation to the trad- ing stock for the income year in which the disposal of the trad- ing stock occurs and later income years, to the extent to which the entering owner is allowed a deduction because of subsec- tion (5).
(1) (2) (3) 1786 Reprinted as at 30 August 2013 Income Tax Act 2007 Part H s HB 7 (4) (5) (6) Entering owner: no deduction The entering owner is denied a deduction for the amount of consideration paid or payable to the exiting owner for the trad- ing stock.

Entering owner: stepping in For the purposes of calculating the income tax liability of an entering owner, the entering owner is treated as if they had acquired and held the trading stock, not the exiting owner.
Relationship with section HB 4 Section HB 4 overrides this section.
Deﬁned in this Act: deduction, dispose, entering owner, excluded income, in- come tax liability, income year, look-through company, owner’s interests, pay, trading stock, turnover Section HB 6: inserted, on 1 April 2011 (applying for income years beginning on or after 1 April 2011, and for the purposes of the Commissioner receiving LTC elections, on and after 21 December 2010), by section 78(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
HB 7 Disposal of depreciable property (1) (2) (3) When this section applies This section applies when a person (the exiting owner) dis- poses of some or all of their owner’s interests for a look- through company, to the extent to which those interests include an item of depreciable property that is not depreciable intan- gible property, and the total cost of the item when it was ﬁrst acquired by the look-through company (whether or not it was at that time a look-through company) is $200,000 or less.
Exiting owner: excluded payment The amount of consideration paid or payable to the exiting owner for the depreciable property is excluded income of the exiting owner.

Exiting owner: no deduction The exiting owner is denied a deduction in relation to the de- preciable property for the income year in which the disposal of the depreciable property occurs and later income years, to the extent to which the entering owner is allowed a deduction because of subsection (5).
1787 Part H s HB 8 Income Tax Act 2007 Reprinted as at 30 August 2013 (4) (5) (6) Entering owner: no deduction The entering owner is denied a deduction for the amount of consideration paid or payable to the exiting owner for the de- preciable property.
Entering owner: stepping in For the purposes of calculating the income tax liability of an entering owner for the part of the income year after the disposal of the depreciable property occurs and later income years (the post-disposal periods), the entering owner is treated for the post-disposal periods as if they had originally acquired and held the depreciable property, not the exiting owner.

Relationship with section HB 4 Section HB 4 overrides this section.
Deﬁned in this Act: acquire, amount, deduction, depreciable intangible prop- erty, depreciable property, dispose, entering owner, excluded income, income tax liability, income year, look-through company, owner’s interests, pay Section HB 7: inserted, on 1 April 2011 (applying for income years beginning on or after 1 April 2011, and for the purposes of the Commissioner receiving LTC elections, on and after 21 December 2010), by section 78(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
HB 8 Disposal of ﬁnancial arrangements and certain excepted ﬁnancial arrangements When this section applies This section applies when a person (the exiting owner) dis- poses of some or all of their owner’s interests for a look- through company, to the extent to which those interests include a ﬁnancial arrangement or an excepted ﬁnancial arrangement described in section EW 5(10) (What is an excepted ﬁnancial arrangement?)
and, ignoring section HB 1,— (a) the purpose for which the ﬁnancial arrangement or excepted ﬁnancial arrangement was entered into was necessary and incidental to the business of the look-through company; and the look-through company does not have a business of holding ﬁnancial arrangements.
(b) Exiting owner: excluded payment The amount of consideration paid or payable to the exiting owner for the relevant ﬁnancial arrangement or excepted ﬁ- (1) (2) 1788 Reprinted as at 30 August 2013 Income Tax Act 2007 Part H s HB 8 (3) (4) (5) (6) nancial arrangement is excluded income of the exiting owner.
The exiting owner is, for the relevant ﬁnancial arrangement, a party that is not required to calculate a base price adjustment, despite section EW 29 (When calculation of base price adjust- ment required).

Exiting owner: no deduction The exiting owner is denied a deduction in relation to the rele- vant ﬁnancial arrangement or excepted ﬁnancial arrangement for the income year in which the disposal of the ﬁnancial ar- rangement or excepted ﬁnancial arrangement occurs and later income years.
Entering owner: no deduction The entering owner is denied a deduction for the amount of consideration paid or payable to the exiting owner for the rele- vant ﬁnancial arrangement or excepted ﬁnancial arrangement.
Entering owner: stepping in For the purposes of calculating the income tax liability of an entering owner for the part of the income year after the disposal of the relevant ﬁnancial arrangement or excepted ﬁnancial ar- rangement occurs and later income years (the post-disposal periods), the entering owner is treated for the post-disposal periods as if they had acquired and held the ﬁnancial arrange- ment or excepted ﬁnancial arrangement, not the exiting owner.
Relationship with section HB 4 Section HB 4 overrides this section.
Deﬁned in this Act: business, deduction, dispose, entering owner, excepted ﬁ- nancial arrangement, excluded income, ﬁnancial arrangement, income tax li- ability, income year, look-through company, owner’s interests, pay Section HB 8: inserted, on 1 April 2011 (applying for income years beginning on or after 1 April 2011, and for the purposes of the Commissioner receiving LTC elections, on and after 21 December 2010), by section 78(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section HB 8(1)(b): amended (with effect on 1 April 2011), on 2 November 2012, by section 79 of the Taxation (Annual Rates, Returns Filing, and Remed- ial Matters) Act 2012 (2012 No 88).
1789 Part H s HB 9 Income Tax Act 2007 Reprinted as at 30 August 2013 HB 9 Disposal of short-term agreements for sale and purchase When this section applies This section applies when a person (the exiting owner) dis- poses of some or all of their owner’s interests for a look- through company, to the extent to which those interests include a short-term agreement for sale and purchase.
Exiting owner: excluded payment The amount of consideration paid or payable to the exiting owner for the short-term agreement for sale and purchase is excluded income of the exiting owner.

Exiting owner: no deduction The exiting owner is denied a deduction in relation to the short-term agreement for sale and purchase, to the extent to which the entering owner is allowed a deduction because of subsection (5).
Entering owner: no deduction The entering owner is denied a deduction for the amount of consideration paid or payable to the exiting owner for the short-term agreement for sale and purchase.
Entering owner: stepping in For the purposes of calculating the income tax liability of an entering owner for the part of the income year after the disposal of the short-term agreement for sale and purchase occurs and later income years (the post-disposal periods), the entering owner is treated for the post-disposal periods as if they had originally acquired and held the short-term agreement for sale and purchase, not the exiting owner.

Relationship with section HB 4 Section HB 4 overrides this section.
Deﬁned in this Act: deduction, dispose, entering owner, excluded income, in- come tax liability, income year, look-through company, owner’s interests, pay, short-term agreement for sale and purchase Section HB 9: inserted, on 1 April 2011 (applying for income years beginning on or after 1 April 2011, and for the purposes of the Commissioner receiving LTC elections, on and after 21 December 2010), by section 78(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
(1) (2) (3) (4) (5) (6) 1790 Reprinted as at 30 August 2013 Income Tax Act 2007 Part H s HB 11 HB 10 Disposal of livestock (1) (2) When this section applies This section applies when a person disposes of some or all of their owner’s interests to an entering owner and section HB 4(2) applies, to the extent to which those interests include speciﬁed livestock and that speciﬁed livestock includes female breeding livestock and, for the income year, the owners use— the national standard cost scheme for speciﬁed live- (a) stock, described in section EC 22 (National standard cost scheme); or the cost price method for speciﬁed livestock, described in section EC 25 (Cost price, replacement price, or mar- ket value).
(b) Entering owner’s cost base Section EC 26B (Entering partners’ cost base) may apply to the entering owner for the purposes of determining the value of the speciﬁed livestock at the end of an income year for the purposes of section EC 2 (Valuation of livestock), treating the entering owner as an entering partner and making other neces- sary modiﬁcations to section EC 26B to give effect to the pur- pose of this section (for example, references in section EC 26B to “partners” should be modiﬁed to references to “owners” and references to “section HG 10” should be modiﬁed to refer- ences to “section HB 10”).
Deﬁned in this Act: amount, cost price, dispose, entering owner, entering partner, income year, look-through company, national standard cost scheme, owner’s interests, speciﬁed livestock Section HB 10: inserted, on 1 April 2011 (applying for income years beginning on or after 1 April 2011, and for the purposes of the Commissioner receiving LTC elections, on and after 21 December 2010), by section 78(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
HB 11 Limitation on deductions by persons with interests in look-through companies (1) When this section applies This section applies for a look-through company (the LTC) and an income year when, but for this section, a deduction by virtue of section HB 1 or HB 12(2) or (3) would be allowed to a person who has an effective look-through interest for the LTC.
1791 Part H s HB 11 Income Tax Act 2007 Reprinted as at 30 August 2013 (2) (3) (4) (5) No deduction The person is denied the deduction for an income year to the extent to which their look-through company deduction for the income year is greater than the amount (the owner’s basis) calculated using the formula in subsection (3) at the end of the income year.
Owner’s basis For the purposes of subsection (2), the amount that is the owner’s basis is calculated using the following formula: investments deductions distributions + income disallowed amount.

 Deﬁnition of items in formula The items in the formula are deﬁned in subsections (5) to (9).
Investments Investments is the total of— (a) the market value of a person’s shares in the LTC at the time that the person purchases or subscribes for them: amounts that the LTC is debtor for in relation to the person, including a loan to the LTC and a credit balance in a current account: the secured amounts, if not accounted for under para- graph (b) by the person or another person.
(b) (c) Distributions (6) Distributions is the market value of distributions to the per- son from the LTC, including loans made to the person from the LTC and payments to which section DC 3B (Payments to working owners) does not apply.
Income Income is the total of— (a) (ab) (b) income that the person has by virtue of section HB 1 in the income year and previous income years: if the person has FIF income or a FIF loss, an amount under subsection (7B): capital gain amounts under section CD 44(7)(a) (Avail- able capital distribution amount) that the person would have by virtue of section HB 1 in the income year and previous income years, if the person were treated as a (7) 1792 Reprinted as at 30 August 2013 Income Tax Act 2007 Part H s HB 11 (c) company for the purposes of section CD 44(7)(a), un- less the gain is accounted for under paragraph (a): assessable income that the person has in previous in- come years from goods and services they contributed to the LTC, if the income is not accounted for under sub- section (5) or paragraph (a) or (b) of this subsection.
Formula (7B) The amount described in subsection (7)(ab) is given by the fol- lowing formula, but if the calculation returns a negative num- ber, the amount is zero: dividend – FIF amount.
(7C) Deﬁnition of items in formula In the formula,— (a) (b) dividend is the amount that would, under section HB 1, be the person’s proportion of the dividend paid by a FIF to the LTC, if section CD 36(1) were ignored: FIF amount is— (i) (ii) zero, if subparagraph (ii) does not apply: the amount that is the person’s FIF income, for the relevant income year and FIF, if the person has such an amount.
Deductions (8) Deductions is the total of— (a) (b) (c) expenditure or loss in previous income years, to the extent to which the expenditure or loss is incurred by virtue of section HB 1 in the person deriving income by virtue of section HB 1, excluding any deductions denied in those previous years under this section: capital loss amounts under section CD 44(9) that the person would have by virtue of section HB 1 in the income year and previous income years, if the person is treated as a company for the purposes of section CD 44(9), unless the loss is accounted for under para- graph (a): deductions that the person is allowed in previous in- come years in relation to assessable income described in subsection (7)(c), if the deduction is not accounted 1793 Part H s HB 11 Income Tax Act 2007 Reprinted as at 30 August 2013 for under subsection (6) or paragraph (a) or (b) of this subsection.
Disallowed amount (9) Disallowed amount is the amount of investments, as deﬁned in subsection (5), made by the person within 60 days of the end of the income year, if those investments are or will be dis- tributed or reduced within 60 days of the end of the income year, but an amount of investment made by the person within 60 days of the end of the income year is not a disallowed amount if the total amount distributed or reduced within 60 days of the end of the income year is $10,000 or less.
Exclusion (10) This section does not deny a person (the exiting person) a deduction that is equal to or less than the amount of net income that the exiting person has for the amount paid or payable to the exiting person for the disposal of their owner’s interests, ignoring other transactions.

Relationship with subject matter (11) This section is modiﬁed by section HZ 4C (Qualifying com- panies: transition into look-through companies).
Some deﬁnitions In this section,— guarantor means— (a) a person (person A) who has an effective look-through interest for the LTC, if— (i) person A, ignoring section HB 1, secures the rele- vant debt by guarantee or indemnity: an owner’s associate of person A secures the rele- vant debt by guarantee or indemnity: (ii) (b) a person who is not described in paragraph (a)(i) and (ii) but who secures the relevant debt by guarantee or indemnity, if person A or an owner’s associate also se- cures the relevant debt as described in paragraph (a)(i) or (ii) look-through company deduction means, for the person and the income year, the amount of the deductions that the person would be allowed if they were treated as having only income and deductions arising from the application of this subpart (12) 1794 Reprinted as at 30 August 2013 Income Tax Act 2007 Part H s HB 11 owner’s associate means a person who does not have an ef- fective look-through interest for the LTC and who is— (a) a relative of a person who has an effective look-through interest for the LTC: a trustee who is associated in their capacity of trustee, with a person who has an effective look-through interest for the LTC (b) recourse property means property to which a creditor has re- course, to enforce a guarantee or indemnity for the relevant debt, if the guarantee or indemnity expressly provides recourse to only that property secured amounts means, for the person, the lesser of the fol- lowing applicable amounts: (a) the amount of the look-through company’s debt ignor- ing section HB 1 (the secured debt) for which the per- son is a guarantor, divided by the total number of guar- antors for the secured debt: the market value of the recourse property for the secured debt to the extent of the interest that the person and their owner’s associates have in it, net of higher-ranking calls whether actual, future or contingent, divided by the total number of guarantors described in paragraph (a) of the deﬁnition of guarantor who have an interest in the recourse
 property or have an owner’s associate with an interest in the recourse property.
(b) Deﬁned in this Act: amount, assessable income, associated person, company, deduction, dispose, dividend, effective look-through interest, FIF, FIF income, FIF loss, guarantor, look-through company, income year, look-through company deduction, loss, net income, net loss, owner’s associate, owner’s interests, pay, recourse property, secured amounts, share income, loan, Section HB 11: inserted, on 1 April 2011 (applying for income years beginning on or after 1 April 2011, and for the purposes of the Commissioner receiving LTC elections, on and after 21 December 2010), by section 78(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section HB 11(5)(c): amended (with effect on 1 April 2011), on 2 November 2012, by section 80(1) of the Taxation (Annual Rates, Returns Filing, and Re- medial Matters) Act 2012 (2012 No 88).

Section HB 11(7)(a): replaced (with effect on 1 April 2011), on 2 November 2012, by section 80(2) of the Taxation (Annual Rates, Returns Filing, and Re- medial Matters) Act 2012 (2012 No 88).
1795 Part H s HB 12 Income Tax Act 2007 Reprinted as at 30 August 2013 Section HB 11(7)(ab): inserted (with effect on 1 April 2011), on 2 November 2012, by section 80(2) of the Taxation (Annual Rates, Returns Filing, and Re- medial Matters) Act 2012 (2012 No 88).

Section HB 11(7B) heading: inserted (with effect on 1 April 2011), on 2 November 2012, by section 80(3) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section HB 11(7B): inserted (with effect on 1 April 2011), on 2 November 2012, by section 80(3) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).

inserted (with effect on 1 April 2011), on Section HB 11(7C) heading: 2 November 2012, by section 80(3) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section HB 11(7C): inserted (with effect on 1 April 2011), on 2 November 2012, by section 80(3) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).

Section HB 11(12) heading: replaced (with effect on 1 April 2011), on 2 November 2012, by section 80(4) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section HB 11(12): replaced (with effect on 1 April 2011), on 2 November 2012, by section 80(4) of the Taxation (Annual Rates, Returns Filing, and Re- medial Matters) Act 2012 (2012 No 88).

Section HB 11 list of deﬁned terms FIF loss: inserted (with effect on 1 April 2011), on 2 November 2012, by section 80(5) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section HB 11 list of deﬁned terms guarantor: inserted (with effect on 1 April 2011), on 2 November 2012, by section 80(5) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).

Section HB 11 list of deﬁned terms owner’s associate: inserted (with effect on 1 April 2011), on 2 November 2012, by section 80(5) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section HB 11 list of deﬁned terms recourse property: inserted (with effect on 1 April 2011), on 2 November 2012, by section 80(5) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).

HB 12 Limitation on deductions by owners of look-through companies: carry-forward (1) When this section applies This section applies when, for an income year, a person is denied a deduction under section HB 11.
Carry-forward: conditional on continued existence of look-through company and holding of effective look-through interest The person is allowed a deduction, for an amount for which the person is denied a deduction under section HB 11, for the (2) 1796 Reprinted as at 30 August 2013 Income Tax Act 2007 Part H s HB 12 income year (the later year) after the income year for which it is denied under section HB 11, unless— (a) the look-through company ceases to be a look-through company in the later year: the person ceases to have an effective look-through in- terest in the later year.
(b) (3) Carry-forward: resumption If a person would have been allowed a deduction for an amount but for the application of subsection (2)(a) or (b) for the later year, they are allowed a deduction for the amount for the ﬁrst income year after the later year in which either they resume an effective look-through interest for the look-through company, or the relevant company resumes being a look-through com- pany.
However, the amount of that deduction is reduced by the total amount allowed as a deduction under subsections (4) and (5).
Exception for deductions against continuing company dividends (4) Despite subsection (2), the person is allowed a deduction for the later year for an amount (the protected amount) for which they would have been allowed a deduction but for the applica- tion of subsection (2)(a) or (b) for the later year to the extent to which the protected amount is equal to or lesser than the divi- dends received by the person from the company for the later year.
(5) Further deductions against continuing company dividends For an income year after the later year, an amount equal to the protected amount reduced by the total of deductions allowed in income years before the income year under subsection (4) and this subsection, is allowed as a deduction for the person to the extent to which the amount is equal to or less than the dividends received by the person from the company for the income year.
Relationship with subject matter (6) A deduction allowed under this section, other than under sub- section (4) or (5), is subject to section HB 11, to the extent 1797 Part H s HB 13 Income Tax Act 2007 Reprinted as at 30 August 2013 to which that section applies to the deduction and the relevant person.
Deﬁned in this Act: amount, deduction, dividend, effective look-through inter- est, income year, look-through company Section HB 12: inserted, on 1 April 2011 (applying for income years beginning on or after 1 April 2011, and for the purposes of the Commissioner receiving LTC elections, on and after 21 December 2010), by section 78(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
HB 13 LTC elections LTC elections For the purposes of section HB 1, an LTC election (the elec- tion) is a notice that— (a) is signed and dated by a director of the company that becomes a look-through company (the LTC) or other agent with appropriate authority; and is in the form prescribed by the Commissioner; and speciﬁes an income year beginning on or after 1 April 2011 for which it may ﬁrst operate; and has attached to it notices— (i) signed and dated by all persons who, on the date of signing the election, own look-through inter- ests in the LTC; and evidence unanimous agreement of the owners in choosing to apply section HB 1.
(ii) (b) (c) (d) Legal incapacities If a person owns a look-through interest in the LTC, and either they are under 18 years old with a guardian or a contract they enter into could be unenforceable, cancelled, void, or void- able due to any legal incapacity other than age, the notice re- quirement in subsection (1)(d) is modiﬁed so as to require a guardian, person with power of attorney, or other legal rep- resentative to sign and date the written notice, instead of the person.
Time of receipt of LTC elections For the purposes of section HB 1, the election— (a) must be received by the Commissioner before the start of the income year speciﬁed in the election; or (1) (2) (3) 1798 Reprinted as at 30 August 2013 Income Tax Act 2007 Part H s HB 13 (b) (c) in the case of a company that has not previously been required to ﬁle a return of income for a year before the income year speciﬁed in the election, must be received by the Commissioner before the last day for ﬁling the return of income required by section 42B of the Tax Administration Act 1994 for the year speciﬁed in the election; or in the case of a company that was a qualifying com- pany that ﬁrst becomes a look-through company for the ﬁrst or second income year that starts on or after 1 April 2011, must be received by the Commissioner within 6 months of the start of the relevant transitional income year described in section HZ 4C(1) (Qualifying com- panies: transition into look-through companies).
(4) Income year for which LTC elections are treated as received For the purposes of section HB 1, the election is treated as received for the ﬁrst relevant income year described in sub- section (3) and for each income year after that one, except it is treated as not received by the Commissioner for an income year (the income year) and subsequent income years if— (a) the election has been revoked for the income year under section HB 1: the LTC does not meet the requirements in the deﬁnition of look-through company at all times in the income year: the income year is 1 of the 2 income years straight after an income year for which either the LTC ceases to be a look-through company or the relevant election for the LTC is revoked.
(b) (c) Commissioner’s discretion as to LTC elections (5) An election that is late or does not have each person signing and dating as required by subsection (1)(a) and (d) is treated as an election that has been received by the Commissioner for the income year under subsection (3) but subject to subsection (4), if all relevant persons sign and date it during the income year it may ﬁrst operate, and the Commissioner decides that excep- 1799 Income Tax Act 2007 Reprinted as at 30 August 2013 tional circumstances are the sole cause of the lateness or failure to sign and date.
Deﬁned in this Act: Commissioner, company, director, income year, look- through company, look-through interest, notice, qualifying company, return of income Section HB 13: inserted, on 1 April 2011 (applying for income years beginning on or after 1 April 2011, and for the purposes of the Commissioner receiving LTC elections, on and after 21 December 2010), by section 78(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section HB 13(5): amended (with effect on 1 April 2011), on 2 November 2012, by section 81 of the Taxation (Annual Rates, Returns Filing, and Remedial Mat- ters) Act 2012 (2012 No 88).
Subpart HC—Trusts Contents Introductory provisions HC 1 What this subpart does HC 2 Obligations of joint trustees for calculating income and providing returns HC 3 Multiple settlements HC 4 Corpus of trust Trust income HC 5 Amounts derived by trustees HC 6 Beneﬁciary income HC 7 Trustee income HC 8 Amounts received after person’s death Classiﬁcation of trusts HC 9 Classifying trusts HC 10 Complying trusts HC 11 Foreign trusts HC 12 Non-complying trusts HC 13 Charitable trusts Distributions from trusts HC 14 Distributions from trusts HC 15 Taxable distributions from non-complying and foreign trusts Page 1801 1803 1803 1803 1805 1805 1807 1807 1808 1808 1809 1809 1810 1810 1811 HC 16 Ordering rule for distributions from non-complying and 1813 foreign trusts 1800 Reprinted as at 30 August 2013 Income Tax Act 2007 Part H s HC 1 Tax treatment of amounts that beneﬁciaries derive from trusts HC 17 Amounts derived as beneﬁciary income HC 18 Taxable distributions from foreign trusts HC 19 Taxable distributions from non-complying trusts HC 20 Distributions from complying trusts HC 21 Distributions from community trusts HC 22 Use of tax losses to reduce taxable distributions from non-complying trusts HC 23 Temporary absences of beneﬁciaries Tax treatment of trustee income HC 24 Trustees’ obligations HC 25 Foreign-sourced amounts: non-resident trustees HC 26 Foreign-sourced amounts: resident trustees Settlors and their liabilities HC 27 Who is a settlor?
HC 28 Activities treated as those of settlor HC 29 Settlors’ liability to income tax 1815 1816 1816 1816 1817 1817 1818 1819 1820 1822 1823 1825 1826 Treatment of transition situations HC 30 Treatment of foreign trusts when settlor becomes resident 1827 Valuation of property, trading stock, and ﬁnancial arrangements HC 31 When existing trusts come into tax base Rate and payment of income tax HC 32 Liability of trustee as agent HC 33 Choosing to satisfy income tax liability of trustee HC 34 Taxable distributions from non-complying trusts HC 35 Beneﬁciary income of minors HC 36 Trusts and minor beneﬁciary rule HC 37 Testamentary trusts and minor beneﬁciary rule Introductory provisions HC 1 What this subpart does What this subpart does This subpart, together with the trust rules,— (1) 1829 1831 1831 1832 1832 1834 1836 1801 Part H s HC 1 Income Tax Act 2007 Reprinted as at 30 August 2013 (a) (b) (c) (d) (e) beneﬁciary income: a taxable distribution: provides for the taxation of distributions from trusts, for this purpose deﬁning— (i) (ii) provides for the taxation of trustee income: classiﬁes trusts into the following 3 categories for the purposes of determining the treatment of distributions that are not beneﬁciary income: complying trusts: (i) foreign trusts: (ii) (iii) non-complying trusts: determines who is a settlor, and sets out their income tax liability: sets out the treatment of trusts settled by persons be- coming resident in New Zealand.
(2) (3) (4) Excluded: certain funds and distributions The trust rules do not apply to— (a) (b) a unit trust: a group investment fund to the extent to which it is treated as a company under this Act: a Maori authority: a distribution under section HZ 1 (Distributions from trusts of pre-1989 tax reserves).

(c) (d) Disclosure requirements: non-resident trustees Section 59 of the Tax Administration Act 1994 requires the disclosure of a settlement on a trust with a non-resident trustee.
Avoidance arrangements Section GB 22 (Arrangements involving trust beneﬁciary in- come) may apply to treat a beneﬁciary as receiving property, or enjoying services or beneﬁts, in fact received, or enjoyed, by another person.
Superannuation funds entering trust rules (5) A superannuation scheme that is treated as a company because it is a unit trust and then becomes a superannuation fund is treated as— (a) liquidated under section CD 12 (Superannuation schemes entering trust rules) immediately before the date on which it becomes a superannuation fund; and 1802 Reprinted as at 30 August 2013 Income Tax Act 2007 Part H s HC 4 no longer a company.
(b) Deﬁned in this Act: arrangement, beneﬁciary income, company, complying trust, distribution, foreign trust, group investment fund, income tax liability, li- quidation, Maori authority, non-complying trust, non-resident, resident in New Zealand, settlement, settlor, superannuation fund, superannuation scheme, tax- able distribution, trust rules, trustee, trustee income, unit trust Compare: 2004 No 35 ss GC 14, HH 1(8), (9), HH 3(6), HH 4(8), Income Tax Amendment Act 1988 (No 5) s 9 HC 2 Obligations of joint trustees for calculating income and providing returns (1) (2) What this section applies to This section applies for the purposes of the obligations im- posed by section BB 2 (Main obligations) on 2 or more per- sons who derive income jointly as trustees of a trust.
Single person The trustees of the trust are treated in that capacity as if they were a notional single person, and are jointly and severally liable to satisfy the income tax liability of the notional single person.

They must— (a) (b) calculate the trust’s taxable income for a tax year; and for that tax year, provide a joint return of income for the trust under section 42(1)(a) of the Tax Administration Act 1994.
Deﬁned in this Act: income, income tax liability, return of income, tax year, taxable income, trustee Compare: 2004 No 35 s HD 1(1)(a) HC 3 Multiple settlements For the purposes of this subpart, if a settlement is made on a trust and further settlements are made on the same terms, a trustee of the trust may treat all the settlements as 1 trust.
Deﬁned in this Act: settlement, trustee Compare: 2004 No 35 s HH 1A HC 4 Corpus of trust (1) Meaning In the trust rules, corpus means an amount that is equal to the market value of a settlement of property on the trust measured 1803 Part H s HC 4 Income Tax Act 2007 Reprinted as at 30 August 2013 at the date of the settlement.

Subsection (2) overrides this subsection.


(2) Settlements excluded from corpus Corpus does not include an amount equal to the market value of the property settlements described in subsections (3) to (5).
Settlements on other trusts (3) A property settlement by a trustee of another trust is excluded from corpus to the extent to which, if the property were dis- tributed to a beneﬁciary of the other trust, and the beneﬁciary was resident in New Zealand, the distribution would be bene- ﬁciary income or a taxable distribution to that beneﬁciary.

Deductions (4) A property settlement for which the settlor is allowed a deduc- tion is excluded from corpus.
Income or dividend (5) A property settlement is excluded from corpus if, but for the fact of the settlement,— (a) (b) (c) it would be income of the settlor; or [Repealed] it would fall under paragraph (a) if the settlor were resi- dent in New Zealand at the time of the settlement.
Deﬁned in this Act: amount, beneﬁciary income, corpus, deduction, distribu- tion, dividend, income, resident in New Zealand, settlement, settlor, taxable distribution, trust rules, trustee Compare: 2004 No 35 s OB 1 “corpus” Section HC 4(5)(b): repealed (with effect on 30 June 2009), on 6 October 2009, by section 260(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section HC 4(5)(c): substituted (with effect on 30 June 2009), on 6 October 2009, by section 260(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section HC 4 list of deﬁned terms FDP: repealed (with effect on 30 June 2009), on 6 October 2009, by section 260(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
1804 Reprinted as at 30 August 2013 Income Tax Act 2007 Part H s HC 6 Trust income HC 5 Amounts derived by trustees Either beneﬁciary or trustee income (1) An amount of income derived in an income year by a trustee of a trust is either— (a) (b) beneﬁciary income under section HC 6; or trustee income under section HC 7.
(2) Statutory amounts treated as derived For the purposes of subsection (1) and sections HC 6 and HC 7, if the trustee is treated as having an amount of income in the income year under a provision in this Act and the amount is not derived under ordinary concepts, then the amount is treated as derived in the income year.
Deﬁned in this Act: amount, beneﬁciary income, income, income year, trustee, trustee income Compare: 2004 No 35 s OB 1 “beneﬁciary income”, “trustee income” HC 6 Beneﬁciary income Meaning (1) An amount of income derived in an income year by a trustee of a trust is beneﬁciary income to the extent to which— (a) it vests absolutely in interest in a beneﬁciary of the trust in the income year; or it is paid to a beneﬁciary of the trust in the income year or by the date after the end of the income year referred to in subsection (1B).
(b) Date by which income must be allocated (1B) The date referred to in subsection (1)(b) is the later of the fol- lowing: (a) (b) a date that falls within 6 months of the end of the income year; or the earlier of— (i) the date on which the trustee ﬁles the return of income for the income year; or the date by which the trustee must ﬁle a return for the income year under section 37 of the Tax Administration Act 1994.
(ii) 1805 Part H s HC 6 Income Tax Act 2007 Reprinted as at 30 August 2013 (2) Exclusions Beneﬁciary income does not include— (a) an amount of income derived by a trustee of a trust in an income year in which the trust is a superannuation fund; or an amount of income derived by a trustee that is income to which sections CC 3(2) (Financial arrangements) and EW 50 (Income when debt forgiven to trustee) apply.
(b) Deriving beneﬁciary income in same year (3) When an amount derived by a trustee in an income year is also beneﬁciary income, the beneﬁciary is treated as having derived the income in the same tax year as that corresponding to the trustee’s income year.
Deriving beneﬁciary income in same year as trustee [Repealed] [Repealed] Deﬁned in this Act: amount, beneﬁciary income, income, income year, pay, return of income, superannuation fund, tax year, trustee Compare: 2004 No 35 ss OB 1 “beneﬁciary income”, OF 2(3) Section HC 6(1)(b): substituted (with effect on 1 April 2009), on 7 December 2009, by section 43(1) of the Taxation (Consequential Rate Alignment and Re- medial Matters) Act 2009 (2009 No 63).
Section HC 6(1B) heading: inserted (with effect on 1 April 2009), on 7 Decem- ber 2009, by section 43(2) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).

Section HC 6(1B): inserted (with effect on 1 April 2009), on 7 December 2009, by section 43(2) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
Section HC 6(3) heading: substituted (with effect on 1 April 2009), on 7 De- cember 2009, by section 43(3) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).

Section HC 6(3): substituted (with effect on 1 April 2009), on 7 December 2009, by section 43(3) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
Section HC 6(4) heading: repealed (with effect on 1 April 2009), on 7 Decem- ber 2009, by section 43(3) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).

Section HC 6(4): repealed (with effect on 1 April 2009), on 7 December 2009, by section 43(3) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
Section HC 6 list of deﬁned terms non-standard income year: repealed (with effect on 1 April 2009), on 7 December 2009, by section 126 of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
(4) 1806 Reprinted as at 30 August 2013 Income Tax Act 2007 Part H s HC 8 Section HC 6 list of deﬁned terms return of income: inserted (with effect on 1 April 2009), on 7 December 2009, by section 126 of the Taxation (Consequen- tial Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).

HC 7 Trustee income (1) Meaning To the extent to which it is not beneﬁciary income, an amount of income derived by a trustee of a trust is trustee income.
Minors’ beneﬁciary income (2) An amount of beneﬁciary income to which section HC 35 ap- plies that is derived in an income year by a person who is a minor is treated as if it were trustee income for the purposes of— (a) (b) (c) determining the tax rate that applies; and paying the tax; and providing returns of income.
(3) Exclusions from corpus The amount that is the market value of a property settlement referred to in section HC 4(3) to (5) is treated as trustee income of the trustee of the recipient trust derived in the income year of settlement.
Deﬁned in this Act: amount, beneﬁciary income, corpus, income, income year, minor, pay, return of income, settlement, trustee, trustee income Compare: 2004 No 35 ss HH 1(7), HH 3A(1)(a), OB 1 “trustee income” Section HC 7(2): amended (with effect on 1 April 2008), on 6 October 2009, by section 261(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
HC 8 Amounts received after person’s death (1) When this section applies This section applies when a trustee of an estate of a deceased person receives an amount in an income year that is not income that the person derived during their lifetime, but would have been included in the person’s income had they been alive when it was received.
1807 Part H s HC 9 Income Tax Act 2007 Reprinted as at 30 August 2013 (2) Income The amount is treated under section CV 12 (Trustees: amounts received after person’s death) as income derived by the trustee in the income year.
Deﬁned in this Act: amount, income, income year, trustee Compare: 2004 No 35 s HH 8 Classiﬁcation of trusts HC 9 Classifying trusts A trust is classiﬁed at the time it makes a distribution as— (a) (b) (c) Deﬁned in this Act: complying trust, distribution, foreign trust, non-complying trust a complying trust under section HC 10: a foreign trust under section HC 11: a non-complying trust under section HC 12.
HC 10 Complying trusts Requirements for complying trusts (a) (1) A trust is a complying trust in relation to a distribution if— the following requirements are met for the life of the trust up to the time of distribution: (i) no trustee income derived includes an amount of non-resident passive income, or non-residents’ foreign-sourced income, or exempt income under section CW 54 (Foreign-sourced amounts derived by trustees); and the tax obligations relating to the trustee’s in- come tax liability have been satisﬁed for every tax year; or (ii) (b) it is a superannuation fund.
Foreign trust choosing to become complying trust (2) A foreign trust may become a complying trust to the extent set out in section HC 30 by— (a) an election being made under section HC 30(2)— (i) before the time of distribution; and (ii) within 12 months of the date on which the settlor referred to in section HC 30(1) becomes resident in New Zealand; and 1808 Reprinted as at 30 August 2013 Income Tax Act 2007 Part H s HC 12 (3) (4) (b) the requirements of subsection (1)(a) are met for trustee income derived after the election date.
Life of trust The life of the trust referred to in subsection (1)(a) includes every income year from the start of the income year in which a settlement was ﬁrst made on the trust up to the time of the distribution.

Complying trusts: meeting requirements For the purposes of subsection (1)(a),— (a) section HC 29(6) does not apply in determining whether the requirements are met: the requirements may be met by a person who has made an election under section HC 33.
(b) Deﬁned in this Act: amount, complying trust, distribution, exempt income, for- eign-sourced amount, foreign trust, income tax liability, income year, non-resi- dent passive income, non-residents’ foreign-sourced income, resident in New Zealand, settlement, settlor, superannuation fund, tax year, trustee, trustee in- come Compare: 2004 No 35 ss HH 2(2), HH 4(5) proviso, OB 1 “foreign trust”, “qualifying trust” HC 11 Foreign trusts A trust is a foreign trust in relation to a distribution if no settlor is resident in New Zealand at any time in the period that— (a) starts on the later of 17 December 1987 and the date on which a settlement was ﬁrst made on the trust; and ends on the date of distribution.
(b) Deﬁned in this Act: distribution, foreign trust, resident in New Zealand, settle- ment, settlor Compare: 2004 No 35 s OB 1 “foreign trust” HC 12 Non-complying trusts A trust is a non-complying trust in relation to a distribution if it is neither a complying trust nor a foreign trust.
Deﬁned in this Act: complying trust, distribution, foreign trust, non-complying trust Compare: 2004 No 35 s OB 1 “non-qualifying trust” 1809 Part H s HC 13 Income Tax Act 2007 Reprinted as at 30 August 2013 HC 13 Charitable trusts In the trust rules, a trust is a charitable trust in an income year if— (a) all income derived or accumulated by the trustee in that or in any earlier income year is held for charitable pur- poses; and any income derived by the trustee in the income year is exempt income under either section CW 41(1) (Char- ities: non-business income) or CW 42(1) (Charities: business income).
(b) Deﬁned in this Act: charitable purpose, charitable trust, exempt income, in- come, income year, trust rules, trustee Compare: 2004 No 35 s HH 1(5), (6) Distributions from trusts HC 14 Distributions from trusts Transfers of value (1) A trustee makes a distribution when the trustee transfers value to a person because the person is a beneﬁciary of the trust.
Transfers to other trusts included (2) Despite subsection (1), a settlement for the beneﬁt of a bene- ﬁciary is treated as a transfer of value only— (a) if the amount or the property being settled would have been beneﬁciary income of, or a taxable distribution to, a beneﬁciary, had it been distributed at the time to a beneﬁciary resident in New Zealand; or (b) when sections EW 50 or EZ 39 (which relate to forgive- ness of debt) applies, if the property being settled is an amount forgiven and treated as paid as described in sec- tion EW 44(1) or (2) (Consideration when debt forgiven for natural love and affection) or EZ 39(1).
When distribution made (3) A distribution is made when what is transferred— vests absolutely in interest in the person; or is paid to the person.

(a) (b) 1810 Reprinted as at 30 August 2013 Income Tax Act 2007 Part H s HC 15 Manner of distribution (4) A distribution may be made directly or indirectly, or by 1 trans- action or a number of transactions, whether related, connected, or otherwise.
(5) Nil value of beneﬁciary relationship The fact that a person is, or will become, a beneﬁciary of a trust does not constitute the giving or receiving of value.
Deﬁned in this Act: amount, beneﬁciary income, distribution, pay, resident in New Zealand, settlement, taxable distribution, transfer of value, trustee Compare: 2004 No 35 s OB 1 “distribution” HC 15 Taxable distributions from non-complying and foreign trusts (1) (2) (3) (4) When subsection (2) applies Subsection (2) applies for a trust that is a non-complying trust at the time a distribution to a beneﬁciary is made.
Taxable distributions: non-complying trusts The distribution is a taxable distribution to the extent to which it is not a distribution of— beneﬁciary income; or (a) a part of the corpus of the trust; or (b) a payment or a transaction that represents a distribution (c) of the corpus of the trust.

When subsection (4) applies Subsection (4) applies for a trust that is a foreign trust at the time a distribution to a beneﬁciary is made.
Taxable distributions: foreign trusts The distribution is a taxable distribution to the extent to which it is not a distribution of— beneﬁciary income; or (a) a part of the corpus of the trust; or (b) a proﬁt from the realisation of a capital asset or another (c) capital gain; or a payment or a transaction that represents a distribution of either the corpus of the trust referred to in paragraph (b) or a capital gain referred to in paragraph (c).
(d) Determining amount of gain For the purposes of subsection (4)(c),— (5) 1811 Part H s HC 15 Income Tax Act 2007 Reprinted as at 30 August 2013 (a) (b) the proﬁt does not include— (i) (ii) a gain that must be taken into account for the purposes of determining an income tax liability; or a capital gain derived by the trustee through a transaction or series of transactions between the trustee and a person associated with them: the amount of the proﬁt is determined after subtracting any capital loss that the trustee incurs in the income year in which the amount was derived.
Amounts not subject to ordering rule To the extent to which a distribution is made from a trust that is not a complying trust by disposing of property at less than market value or providing services to a beneﬁciary at less than market value, the distribution is a taxable distribution and is not subject to the ordering rule in section HC 16.
Inadequate records If the records of a trust that is not a complying trust do not al- low an accurate determination of the elements of a distribution under section HC 16, the distribution is a taxable distribution.
Deﬁned in this Act: amount, associated person, beneﬁciary income, complying trust, corpus, distribution, foreign trust, income tax liability, income year, non- complying trust, pay, superannuation fund, taxable distribution, trustee Compare: 2004 No 35 ss HH 6(2)(c), (3), OB 1 “taxable distribution” Section HC 15(5)(a)(ii): substituted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 262(2) of the Taxation (International Taxa- tion, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section HC 15 list of deﬁned terms 1973 version provisions: repealed, on 1 April 2010, by section 594 of the Taxation (International Taxation, Life In- surance, and Remedial Matters) Act 2009 (2009 No 34).

Section HC 15 list of deﬁned terms 1988 version provisions: repealed, on 1 April 2010, by section 594 of the Taxation (International Taxation, Life In- surance, and Remedial Matters) Act 2009 (2009 No 34).
Section HC 15 list of deﬁned terms 1990 version provisions: repealed, on 1 April 2010, by section 594 of the Taxation (International Taxation, Life In- surance, and Remedial Matters) Act 2009 (2009 No 34).
(6) (7) 1812 Reprinted as at 30 August 2013 Income Tax Act 2007 Part H s HC 16 HC 16 Ordering rule for distributions from non-complying and foreign trusts (1) (2) (3) (4) (b) (c) (d) (e) (b) When this section applies This section applies for the purposes of the trust rules when a trustee of a non-complying trust or a foreign trust makes a distribution in an income year to a beneﬁciary.

Subsections (6) and (7) override this subsection.
Order of elements of distribution The distribution is treated as consisting of the following elem- ents in the following order: (a) ﬁrst, an amount of income that the trustee derives in the income year: second, an amount of income, other than beneﬁciary income, that the trustee has derived in an earlier income year: third, an amount that the trustee derives in the income year from the realisation of a capital asset of the trust or another capital gain: fourth, an amount that the trustee has derived in an ear- lier income year from the realisation of a capital asset of the trust or another capital gain: last, the corpus of the trust.
Order and elements In subsection (2),— (a) an amount must not be treated as included in the distri- bution if the amount has been treated under this section as being included in an earlier or contemporaneous dis- tribution from the trust: the paragraphs are applied in order, and the next para- graph applies only to the extent to which the amount of the distribution is more than the cumulative amounts de- scribed in that paragraph and the preceding paragraphs.
Deductions and capital losses subtracted For the purposes of subsection (2),— (a) in paragraphs (a) and (b), the amount of income is deter- mined after subtracting the amount of a deduction that is taken into account in the income year in the calcula- 1813 Part H s HC 16 Income Tax Act 2007 Reprinted as at 30 August 2013 (b) tion of net or taxable income for the corresponding tax year: in paragraphs (c) and (d), the amount is determined after subtracting the amount of a capital loss that the trustee incurs in the income year.
Transactions that are not genuine In the determination of the elements of a distribution to a bene- ﬁciary (beneﬁciary A), no amount of income or capital gain derived by the trustee of the trust is treated as distributed to another beneﬁciary of the trust (beneﬁciary B) if the effect is that some or all of the distribution to beneﬁciary A would be treated as not being a taxable distribution, unless the distribu- tion to beneﬁciary B meets all the following requirements: (a) it is a genuine transaction entered into and carried out in good faith; and it places the amount beyond the possession and control of the trustee in their capacity as trustee; and it does not itself constitute a settlement.
(b) (c) Exclusions: terms of trust This section does not apply to the following distributions which are instead treated as consisting of the amount that reﬂects the terms of the trust or the terms of the exercise of the trustee’s discretion: (a) a distribution by the trustee of a complying trust which is treated as exempt income under section CW 53 (Dis- tributions from complying trusts), unless an election to pay income tax on trustee income has been made for the purposes of section HZ 2 (Trusts that may become com- plying trusts); or a distribution from a non-discretionary trust— (i) created by will or codicil, or by an order of court varying or modifying the provisions of a will or codicil; or created on an intestacy or partial intestacy; or on which no settlement has been made after 17 December 1987; or (ii) (iii) (b) (c) a distribution from a trust other than a non-complying trust that is settled by a natural person who makes an election under section HC 30(2).
(5) (6) 1814 Reprinted as at 30 August 2013 Income Tax Act 2007 Part H s HC 17 (7) (8) Exclusions: taxable distributions This section does not apply to a distribution described in sec- tion HC 15(6).

Meaning of non-discretionary trust In this section, a non-discretionary trust is a trust in relation to which the trustee has no discretion as to the source, nature, and amount of distributions to beneﬁciaries, including but not limited to the classiﬁcation of trust property as capital or in- come.
Deﬁned in this Act: amount, beneﬁciary income, complying trust, corpus, de- duction, distribution, exempt income, foreign trust, income, income tax, in- come year, net income, New Zealand resident, non-complying trust, non-dis- cretionary trust, settlement, tax year, taxable distribution, taxable income, trust rules, trustee, trustee income Compare: 2004 No 35 s HH 6(1), (2), (4) Tax treatment of amounts that beneﬁciaries derive from trusts HC 17 Amounts derived as beneﬁciary income Non-minor beneﬁciaries (1) An amount that a person derives in an income year as beneﬁ- ciary income is income of the person under section CV 13(a) (Amounts derived from trusts), except to the extent to which it is beneﬁciary income to which section HC 35 applies.
(2) Minor beneﬁciaries Subsection (1) does not apply to beneﬁciary income derived by a minor.

The beneﬁciary income is excluded income of the minor, and treated as trustee income under sections CX 58 (Amounts derived by minors from trusts) and HC 35.
Deﬁned in this Act: amount, beneﬁciary income, excluded income, income year, minor, trustee income Compare: 2004 No 35 ss HH 3(1), HH 3A(1)(b) 1815 Part H s HC 18 Income Tax Act 2007 Reprinted as at 30 August 2013 HC 18 Taxable distributions from foreign trusts An amount that a person derives in an income year as a taxable distribution from a foreign trust is income of the person under section CV 13(c) (Amounts derived from trusts).
Deﬁned in this Act: amount, foreign trust, income, income year, taxable distri- bution Compare: 2004 No 35 s HH 3(1) Section HC 18: amended (with effect on 1 April 2008), on 2 November 2012 (applying for the 2008–09 and later income years), by section 82(1) of the Tax- ation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
HC 19 Taxable distributions from non-complying trusts Excluded income (1) An amount that a person derives in an income year as a taxable distribution from a non-complying trust is excluded income of the person under section CX 59 (Taxable distributions from non-complying trusts).

Relationship with other provisions (2) Despite subsection (1), section BF 1(b) (Other obligations) ap- plies to impose income tax on the amount of the taxable dis- tribution.
Section HC 22 may apply to reduce the amount of the taxable distribution, and section HC 34 sets the rate of tax for the purposes of section BF 1(b).
Deﬁned in this Act: amount, excluded income, income tax, income year, non- complying trust, taxable distribution Compare: 2004 No 35 s HH 3(1), (4) HC 20 Distributions from complying trusts An amount that a person derives in an income year is exempt income of the person under section CW 53 (Distributions from complying trusts) if— (a) the amount is a distribution from a complying trust other than a community trust; and the amount is not beneﬁciary income.
(b) Deﬁned in this Act: amount, beneﬁciary income, community trust, complying trust, distribution, exempt income, income year Compare: 2004 No 35 s HH 3(5) 1816 Reprinted as at 30 August 2013 Income Tax Act 2007 Part H s HC 22 HC 21 Distributions from community trusts (1) (2) What this section applies to This section applies when a community trust distributes an amount other than beneﬁciary income to a person.
Exclusion Subsection (1) does not apply to the extent to which the amount represents— (a) income derived by the trustee in or before the 2003–04 income year: corpus of the trust: a capital gain of the trust: a distribution, settlement, or dividend made or paid to the trust in the 2004–05 or 2005–06 income year on the winding up of a trust or company, if— (i) (b) (c) (d) the community trust provided the corpus of the trust and the trust would have been run for charit- able purposes but for the distribution, settlement, or dividend: the company is wholly-owned by the community trust and would have been established and run ex- clusively for charitable purposes but for the dis- tribution, settlement, or dividend.
(ii) Income (3) Despite sections HC 15 and HC 20, the amount is income of the person under section CV 14 (Distributions from commu- nity trusts).
Deﬁned in this Act: amount, beneﬁciary income, charitable purpose, commu- nity trust, company, corpus, distribution, dividend, income, income year, pay, settlement, trustee, trustee income Compare: 2004 No 35 s HH 3(5A) Section HC 21(3): amended (with effect on 1 April 2008), on 6 October 2009, by section 263(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
HC 22 Use of tax losses to reduce taxable distributions from non-complying trusts When this section applies This section applies in an income year when a person— (1) 1817 Part H s HC 23 Income Tax Act 2007 Reprinted as at 30 August 2013 (2) (3) (4) (a) (b) has, for the corresponding tax year, a tax loss compo- nent or loss balance to which sections IA 2 to IA 10 (which relate to the use of tax losses) apply; and derives a taxable distribution from a non-complying trust to which section HC 19 applies.
Reducing taxable distribution The person may reduce the amount of the taxable distribution by an amount calculated using the formula— tax loss × tax rate distribution rate.
Deﬁnition of items in formula In the formula,— (a) tax loss is the amount of a tax loss component or loss balance that the person chooses to use: tax rate is the basic rate of income tax set out in sched- ule 1, part A, clause 3 (Basic tax rates: income tax, ESCT, RSCT, RWT, and attributed fringe beneﬁts): distribution rate is the basic rate of income tax set out in schedule 1, part A, clause 4.
(b) (c) Loss no longer available If a person takes an amount of a tax loss or a loss balance into account under this section, the amount cannot be subtracted from their net income for the corresponding tax year for the purposes of section IA 2(2) (Tax losses).
Deﬁned in this Act: amount, income tax, income year, loss balance, net income, non-complying trust, tax loss, tax loss component, tax year, taxable distribution Compare: 2004 No 35 s HH 3(4) Section HC 22(3)(b): amended, on 1 April 2008, by section 562 of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
HC 23 Temporary absences of beneﬁciaries When this section applies This section applies when— (a) a person who is a beneﬁciary of a trust and who is resi- dent in New Zealand stops being resident; and (b) within a period of 5 years from the date of the end of their residence, they become resident in New Zealand again.
(1) 1818 Reprinted as at 30 August 2013 Income Tax Act 2007 Part H s HC 24 (2) (3) Income derived during the period The person is treated as deriving income under section CV 15 (Amounts derived from trusts while person absent from New Zealand) to the extent to which they would have been treated as deriving an amount of beneﬁciary income or a taxable dis- tribution from a foreign trust or a non-complying trust if they had remained in New Zealand for the period of their absence.
Allocation The amount is treated as derived on the day on which the per- son becomes resident in New Zealand again.
Deﬁned in this Act: amount, beneﬁciary income, foreign trust, income, non- complying trust, resident in New Zealand, taxable distribution Compare: 2004 No 35 s HH 3(3) Tax treatment of trustee income HC 24 Trustees’ obligations Liability as individual for trustee income (1) A trustee must satisfy the income tax liability for their taxable income as if they were an individual beneﬁcially entitled to the trustee income.
(2) (3) (4) (5) No tax credits In determining the income tax liability, the trustee is not en- titled to have a tax credit under subparts LC and LD (which relate to tax credits for natural persons and for certain gifts).

Beneﬁciary income of minors Section HC 35 applies to treat beneﬁciary income derived by a minor as if it were trustee income.

Calculating trustees’ deductions Section DV 9(2) (Trusts) applies for the purposes of calculat- ing a trustee’s deductions.
Superannuation funds Sections CX 40, and DV 1 to DV 4 (which relate to superannu- ation funds) override this section.
Deﬁned in this Act: beneﬁciary income, cash basis person, deduction, income tax liability, minor, tax credit, taxable income, trustee, trustee income Compare: 2004 No 35 ss DV 9(2), HH 4(1), (2) Section HC 24(2) heading: replaced (with effect on 1 April 2009), on 2 Novem- ber 2012 (applying for the 2009–10 and later income years), by section 83(1) 1819 Part H s HC 25 Income Tax Act 2007 Reprinted as at 30 August 2013 of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section HC 24(2): replaced (with effect on 1 April 2009), on 2 November 2012 (applying for the 2009–10 and later income years), by section 83(1) of the Tax- ation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
HC 25 Foreign-sourced amounts: non-resident trustees (1) When this section applies This section applies when a non-resident trustee derives, as trustee income, in an income year a foreign-sourced amount that would be assessable income if derived by a person resident in New Zealand.
Trustee income (2) Despite section BD 1(4)(a), (b), and (5)(c) (Income, exempt income, excluded income, non-residents’ foreign-sourced in- come, and assessable income), the amount is assessable in- come of the trustee if, at any time in the income year,— (a) a settlor of the trust is a New Zealand resident who is not a transitional resident; or the trust is a superannuation fund; or the trust is a testamentary trust or an inter vivos trust, of which— (i) (ii) a trustee is resident in New Zealand; and a settlor died resident in New Zealand (whether or not they died in the income year).
First exception Subsection (2) does not apply if— (a) the trustee is resident outside New Zealand at all times in the income year; and no settlement has been made on the trust after 17 De- cember 1987 and, if an election has been made under section HZ 2 (Trusts that may become complying trusts), the election has not been made by the trustee.
Second exception Subsection (2) does not apply if— (a) the trustee is resident outside New Zealand at all times in the income year; and (b) (c) (b) (3) (4) 1820 Reprinted as at 30 August 2013 Income Tax Act 2007 Part H s HC 25 (b) when a settlement has been made on the trust after 17 December 1987, it was made only by a settlor who is not resident in New Zealand— (i) (ii) at the date of the settlement; and at any time between 17 December 1987 and the date of settlement.
(5) (6) Extent to which subsections (3) and (4) apply Subsections (3) and (4) do not— (a) affect a settlor’s income tax liability under the trust rules: apply to determine whether the tax obligations in rela- tion to the trustee’s income tax liability are met for the purposes of section HC 10(1)(a)(ii) and meeting the re- quirements for a complying trust.
(b) Treatment of non-resident trustee in other provisions For the purpose only of calculating the taxable income of a trustee referred to in subsection (2), and not otherwise, the trustee is treated as resident in New Zealand for the purposes of— (a) sections EW 9 and EW 11 (which relate to ﬁnancial arrangements): section LJ 2 (Tax credits for foreign income tax): section OE 1 (General rules for persons with branch equivalent tax accounts): the international tax rules.
(d) Deﬁned in this Act: amount, assessable income, complying trust, for- eign-sourced amount, income, income tax liability, income year, international tax rules, New Zealand, New Zealand resident, non-resident, resident in New Zealand, settlement, settlor, superannuation fund, taxable income, transitional resident, trust rules, trustee Compare: 2004 No 35 s HH 4(3), (3A), (6) provisos (b) (c) Section HC 25(6)(c): replaced, on 1 July 2012 (applying for income years be- ginning on or after that date), by section 75(1) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section HC 25(1): amended (with effect on 1 April 2008), on 2 November 2012 (applying for the 2008–09 and later income years), by section 84(1) of the Tax- ation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
1821 Part H s HC 26 Income Tax Act 2007 Reprinted as at 30 August 2013 HC 26 Foreign-sourced amounts: resident trustees Exempt income (1) A foreign-sourced amount that a New Zealand resident trustee derives in an income year is exempt income under section CW 54 (Foreign-sourced amounts derived by trustees) if— (a) no settlor of the trust is at any time in the income year a New Zealand resident who is not a transitional resident; and the trust is not— (i) (ii) a superannuation fund; or a testamentary trust or an inter vivos trust of which a settlor died resident in New Zealand (whether or not they died in the income year).
(b) When subsection (3) applies Subsection (3) applies for an income year to a resident foreign trustee of a foreign trust to which sections 22(2)(fb) and (m), and 59B of the Tax Administration Act 1994 applies.
When knowledge offence committed Subsection (1) does not apply if the trustee— (a) is not a qualifying resident foreign trustee for the in- come year; and is convicted of an offence under section 143A of the Tax Administration Act 1994; and has committed the offence in connection with informa- tion relating to the income year.

(b) (c) Exception Subsection (3) does not apply to an offence under section 143A(1)(b) of that Act if the information is supplied to the Commissioner after the conviction is entered.
Deﬁned in this Act: Commissioner, exempt income, foreign-sourced amount, foreign trust, income year, New Zealand resident, qualifying resident foreign trustee, resident foreign trustee, settlor, superannuation fund, transitional resi- dent, trustee Compare: 2004 No 35 s HH 4(3B), (3BB), (3BC) Section HC 26(4): amended (with effect on 1 April 2008), on 29 August 2011 (applying for the 2008–09 and later income years), by section 140(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
(2) (3) (4) 1822 Reprinted as at 30 August 2013 Income Tax Act 2007 Part H s HC 27 Settlors and their liabilities HC 27 Who is a settlor?
(1) When this section applies This section applies for the purposes of— (a) (b) (c) the trust rules; and the consolidation rules; and section CW 59 (New Zealand companies operating in Niue); and section MB 7 (Family scheme income of settlor of trust); and section YA 1 (Deﬁnitions), the deﬁnition of settlement; and subpart YB (Associated persons and nominees) as modiﬁed by section YB 10 (Who is a settlor?).
(cb) (d) (e) Meaning of settlor (2) A settlor of a trust is a person who, at any time,— (a) (b) (c) to the trust; or for the beneﬁt of the trust; or on terms of the trust: transfers value— (i) (ii) (iii) provides ﬁnancial assistance to the trust or for the bene- ﬁt of the trust with an obligation to pay on demand, and the right to demand is not exercised or is deferred: is treated as a settlor under section HC 28.
Trusts for retirement beneﬁts for employees (3) Despite subsection (2), a person resident in New Zealand who makes a settlement on a trust as an employer for the beneﬁt of 1 or more employees is not a settlor of the trust if the following circumstances apply: (a) the trust is established or created mainly to provide re- tirement beneﬁts to natural persons; and the trust is neither a foreign superannuation scheme nor a superannuation fund.
(b) Employee share purchase agreements (3B) Despite subsection (2), an employer is not a settlor for the purposes of the trust rules in relation to a payment made by them to the trustee of an employee share purchase agreement if— 1823 Part H s HC 27 Income Tax Act 2007 Reprinted as at 30 August 2013 (a) (b) some or all of the payment is used by the trustee to acquire shares under the terms of the employee share purchase agreement; and an amount that is less than or equal to the payment used by the trustee would be income of an employee under section CE 1(d).
Indirect settlement (4) A person may make the transfer or provision in subsection (2) directly or indirectly, or by 1 transaction or a number of transactions, whether connected or otherwise.

Nil value of beneﬁciary relationship The fact that a person is, or will become, a beneﬁciary of a trust does not constitute the giving or receiving of value.
Deﬁned in this Act: amount, assessable income, Commissioner, consolidation rules, employee, employer, foreign superannuation scheme, income, pay, resi- dent in New Zealand, settlor, share, share purchase agreement, superannuation fund, transfer of value, trust rules, trustee Compare: 2004 No 35 ss HH 1(10), OB 1 “settlor” Section HC 27(1)(cb): inserted, on 1 April 2011, by section 79 of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section HC 27(1)(e): substituted, on 1 April 2010, by section 264(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section HC 27(3): substituted (with effect on 1 April 2008), on 6 October 2009, by section 264(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section HC 27(3B) heading: inserted (with effect on 1 April 2008), on 7 De- cember 2009, by section 44(1) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).

Section HC 27(3B): inserted (with effect on 1 April 2008), on 7 December 2009, by section 44(1) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
Section HC 27 list of deﬁned terms amount: inserted (with effect on 1 April 2008), on 7 December 2009, by section 126 of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).

Section HC 27 list of deﬁned terms assessable income: inserted (with effect on 1 April 2008), on 7 December 2009, by section 126 of the Taxation (Conse- quential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
Section HC 27 list of deﬁned terms Commissioner: inserted (with effect on 1 April 2008), on 7 December 2009, by section 126 of the Taxation (Conse- quential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).

Section HC 27 list of deﬁned terms income: inserted (with effect on 1 April 2008), on 7 December 2009, by section 126 of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
(5) 1824 Reprinted as at 30 August 2013 Income Tax Act 2007 Part H s HC 28 Section HC 27 list of deﬁned terms share: inserted (with effect on 1 April 2008), on 7 December 2009, by section 126 of the Taxation (Consequential Rate Align- ment and Remedial Matters) Act 2009 (2009 No 63).

Section HC 27 list of deﬁned terms share purchase agreement: inserted (with effect on 1 April 2008), on 7 December 2009, by section 126 of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
Section HC 27 list of deﬁned terms trustee: inserted (with effect on 1 April 2008), on 7 December 2009, by section 126 of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).

HC 28 Activities treated as those of settlor (1) When this section applies This section applies for the purposes of the trust rules to de- scribe certain activities of a person that result in the person being treated as a settlor.
Avoidance (2) A person is treated as a settlor if, in relation to a trust,— (a) they act, refrain from acting, or enter into a transaction or a series of transactions; and (b) what is done or not done has the effect of defeating the intent and application of the trust rules.

Shareholders in controlled foreign companies (3) A person is treated as a settlor of a trust if a controlled foreign company (CFC) settles an amount on a trust, and the person has a control interest of 10% or more in the CFC.
Shareholders in companies (4) A person is treated as a settlor of a trust if— (a) (b) (c) a company settles an amount on the trust; and the company would have been a CFC at the date of settlement if it had been a foreign company at the time; and the person would be treated as having a control interest of 10% or more in the company, if the company had been a foreign company.
Second trusts (5) A person is treated as a settlor of a trust (the sub-trust) if— (a) they are a settlor of a trust (the head-trust); and 1825 Part H s HC 29 Income Tax Act 2007 Reprinted as at 30 August 2013 (b) a trustee of the head-trust settles an amount on the sub- trust, or makes a distribution to, or on terms of the sub- trust.
Control over trustee or settlor (6) A person is treated as a settlor of a trust if— (a) (b) they acquire, directly or indirectly, rights or powers in relation to a trustee or a settlor of the trust; and the acquisition has the purpose or effect of enabling them to require the trustee to treat them, or a nominee, as a beneﬁciary of the trust.
Deﬁned in this Act: amount, business, CFC, company, control interest, distri- bution, foreign company, nominee, settlement, settlor, shareholder, trust rules, trustee Compare: 2004 No 35 ss HH 1(1)–(4), (8), (10), OB 1 “settlor” HC 29 Settlors’ liability to income tax When this section applies This section applies to a person who makes a settlement to or for the beneﬁt of a trust after 17 December 1987, and the settlor is resident in New Zealand in an income year.
It applies whether or not they settled property on the trust on or before that date.

Subsections (3) and (4) override this subsection.

Liable as agent If a trustee of the trust derives trustee income in the income year, the settlor is liable as agent of the trustee for income tax payable by the trustee.

For a trust with more than 1 settlor, the liability is joint and several.

However, this subsection does not apply to income tax that the trustee is liable for as agent under section HC 32.
Exclusion: resident trustee This section does not apply if the trust has a resident trustee for the full income year or, if the ﬁrst settlement on the terms of the trust is made during the income year, from the day on which the settlement is made to the end of the income year.
Exclusion: trust types This section does not apply to the settlor of— (a) (b) a charitable trust; or a superannuation fund; or (1) (2) (3) (4) 1826 Reprinted as at 30 August 2013 Income Tax Act 2007 Part H s HC 30 (c) a trust to the extent to which trustee income is derived from the settlor’s remitting an amount under a ﬁnancial arrangement to which section EW 31 or EZ 38 (which relate to base price adjustments) applies.
(5) (6) (7) Exclusion: settlor not resident at time of settlement This section does not apply if the settlor is a natural person who, unless they make an election under section HC 33,— (a) is not resident in New Zealand at the time of any settle- ment on the trust; and had not after 17 December 1987 previously been resi- dent in New Zealand.
(b) Exclusion: other settlor more appropriately liable This section does not apply to the extent to which the settlor establishes, through full disclosure to the Commissioner of the settlements made, that another person who has settled property on the trust should be liable, having regard to the respective settlements made.
Limited effect of disclosure Subsection (6) does not apply to determine whether the tax obligations in relation to the trustee’s income tax liability are met for the purposes of section HC 10(1)(a)(ii) and meeting the requirements for a complying trust.
Deﬁned in this Act: agent, amount, charitable trust, Commissioner, comply- ing trust, ﬁnancial arrangement, income tax, income tax liability, income year, pay, resident in New Zealand, settlement, settlor, superannuation fund, trustee, trustee income Compare: 2004 No 35 s HH 4(4), (5) Treatment of transition situations HC 30 Treatment of foreign trusts when settlor becomes resident (1) What this section applies to This section applies for the purposes of section HC 15 and the deﬁnition of taxable distribution when— (a) a settlor of a trust is a natural person who on a day (the transition date)— (i) becomes resident in New Zealand and is not a transitional resident: 1827 Part H s HC 30 Income Tax Act 2007 Reprinted as at 30 August 2013 (b) (ii) stops being a transitional resident and continues to be a New Zealand resident; and the trust would be a foreign trust in relation to a distri- bution if a distribution were made immediately before the settlor became resident.
Choosing to satisfy tax liability (2) A settlor, trustee, or beneﬁciary of the trust may choose to sat- isfy the income tax liability of the trustee under section HC 33.

They must make the election by the election expiry date.
(3) (4) Tax consequences of making election If an election under subsection (2) is made, the trust is treated as follows: (a) as a foreign trust to the extent to which the distribution consists of an amount derived by the trustee before the date of the election: as a complying trust to the extent to which the distri- bution consists of an amount derived by the trustee on or after the date on which the election is made, if the requirements of section HC 10(1)(a) are met for the trustee income derived after the date of the election: as a non-complying trust if the election is made but the requirements of section HC 10(1)(a) are not met, for any distribution not within paragraph (a).
(b) (c) Tax consequences when no election made If an election under subsection (2) is not made, the trust is treated as follows: (a) as a foreign trust to the extent to which the distribution consists of an amount derived by the trustee before the date of the election: as a non-complying trust to the extent to which a distri- bution consists of an amount derived by the trustee on or after the election expiry date.
(b) (5) Election expiry date In this section, the election expiry date is the day that is the ﬁrst anniversary of the transition date.
1828 Reprinted as at 30 August 2013 Income Tax Act 2007 Part H s HC 31 (6) Calculating income derived before election or election expiry date For the purposes of subsections (3) and (4), the amount derived in the part of the income year before the person makes the election, or before the election expiry date, as applicable, is at the option of the person either— (a) (b) the amount actually derived in the part year; or an amount calculated using the formula— amount derived in income year of election × days before election date or election expiry date 365.
Deﬁned in this Act: amount, complying trust, distribution, election expiry date, foreign trust, income tax liability, income year, non-complying trust, resident in New Zealand, settlor, taxable distribution, transitional resident, trustee Compare: 2004 No 35 s HH 2 Valuation of property, trading stock, and ﬁnancial arrangements HC 31 When existing trusts come into tax base (1) (2) (3) When this section applies This section applies if, through a change in circumstances, an amount derived by a trustee of a trust on a day in an income year is assessable income when it would not have been assess- able income had it been derived before that day.
Examples of a change in circumstances are— (a) a non-resident settlor becomes resident in New Zealand, see section HC 30: a charitable trust loses its charitable status, see section HC 13.

(b) Person able to make choice The choice given in subsections (3) and (4) is to be made by the person who is liable to satisfy the income tax liability of the trustee.
Establishing cost of trust property For the purposes of this Act, the cost of premises, plant, equip- ment, and trading stock of the trust at the date of the change in circumstances is either— 1829 Part H s HC 31 Income Tax Act 2007 Reprinted as at 30 August 2013 (a) (b) the historical cost of the property or trading stock less accumulated depreciation loss, or other value, no higher than market value, that the trustee used at that date for income tax purposes in a country or territory in which the trustee is liable to pay income tax on trustee income; or the value that would be used at that date under this Act, calculated as if the trustee income derived by the trustee had always been assessable income.
Consideration for ﬁnancial arrangements For the purposes of this Act, the consideration for a ﬁnancial arrangement of the trust at the date of the change in circum- stances is either— (a) the market value of the ﬁnancial arrangement on that date; or the value calculated using the formula— (b) consideration paid to person + expenditure income.
consideration paid by person Deﬁnition of items in formula In the formula,— (a) consideration paid to person is the consideration that is paid to the person before the date: expenditure is the expenditure that would have been incurred under the ﬁnancial arrangements rules before the date: consideration paid by person is the consideration that is paid by the person before the date: income is the income that would have been derived under the ﬁnancial arrangements rules before the date.
(b) (c) (d) Non-resident passive income For the purposes of subsections (1) and (3)(b), assessable in- come does not include an amount derived only as non-resident passive income.
Deﬁned in this Act: amount, assessable income, business, charitable trust, consideration, depreciation loss, ﬁnancial arrangement, ﬁnancial arrangements rules, income, income tax, income tax liability, income year, non-resident, non-resident passive income, pay, resident in New Zealand, settlor, trading stock, trustee, trustee income Compare: 2004 No 35 s HH 5 (4) (5) (6) 1830 Reprinted as at 30 August 2013 Income Tax Act 2007 Part H s HC 33 Section HC 31(1)(a): amended (with effect on 1 April 2008), on 29 August 2011 (applying for the 2008–09 and later income years), by section 140(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section HC 31(1)(b): amended (with effect on 1 April 2008), on 29 August 2011 (applying for the 2008–09 and later income years), by section 140(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).

Rate and payment of income tax HC 32 Liability of trustee as agent (1) (2) (3) (4) When this section applies This section applies in an income year when a beneﬁciary of a trust derives an amount of beneﬁciary income or a taxable distribution.
Exclusion Subsection (1) does not apply to a person who derives an amount from a community trust.

Agency In their capacity as agent, the trustee must satisfy the income tax liability of the beneﬁciary for their beneﬁciary income and taxable distributions derived.

Relationship to other provisions Section HD 4(b) (Treatment of principals) overrides this sec- tion.
Deﬁned in this Act: agent, amount, beneﬁciary income, community trust, in- come tax liability, income year, taxable distribution, trustee Compare: 2004 No 35 ss HH 3(2), HK 3(1A) Section HC 32(2): amended (with effect on 1 April 2008), on 6 October 2009, by section 265(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
HC 33 Choosing to satisfy income tax liability of trustee Election to satisfy tax liability (1) A person who is a trustee, settlor, or beneﬁciary of a trust may choose to satisfy the income tax liability of the trustee of the trust.

(2) Liability of person making election The person making the election is liable for the income tax payable by the trustee, other than income tax that the trustee is liable for as agent.
1831 Part H s HC 34 Income Tax Act 2007 Reprinted as at 30 August 2013 (3) (4) Application of election The election under subsection (1) may apply either for an in- come year or from the date on which it is made.

It then applies for all following income years.

Time of providing election The person must notify the Commissioner of an election under subsection (1) within the time allowed for ﬁling a return of income for the income year.
If section HC 30 applies, they must give notiﬁcation by the election expiry date.
Deﬁned in this Act: agent, Commissioner, election expiry date, income tax, income tax liability, income year, notify, pay, return of income, settlor, trustee Compare: 2004 No 35 s HH 4(7) HC 34 Taxable distributions from non-complying trusts (1) (2) Rate of tax Income tax is imposed on a taxable distribution derived by a person in an income year from a non-complying trust under section BF 1(b) (Other obligations) at the basic rate set out in schedule 1, part A, clause 4 (Basic tax rates: income tax, ESCT, RSCT, RWT, and attributed fringe beneﬁts).
Due date The income tax is payable on the person’s payment date for terminal tax under section RA 13 (Payment dates for terminal tax) for the corresponding tax year.

Deﬁned in this Act: income tax, income year, non-complying trust, pay, taxable distribution, terminal tax Compare: 2004 No 35 s HH 3(4) Section HC 34(1): amended, on 1 April 2008, by section 562 of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
HC 35 Beneﬁciary income of minors When this section applies This section applies when a person who is a minor derives an amount of beneﬁciary income from a trust in an income year.

Subsection (4) and sections HC 36 and HC 37 override this subsection.
Treatment of amount derived The amount is— (1) (2) 1832 Reprinted as at 30 August 2013 Income Tax Act 2007 Part H s HC 35 (3) (4) (5) (a) (b) excluded income of the minor under section CX 58 (Amounts derived by minors from trusts): treated as trustee income for the purposes of determin- ing the rate of tax that applies, who pays the relevant tax, and who provides the return of income.
Meaning of minor For the purposes of this section, and sections HC 36, HC 37, LE 4, and LF 2 (which relate to the treatment of tax credits of beneﬁciary minors), a minor is a natural person resident in New Zealand who is under 16 years of age on the trust’s balance date for the income year.
Exclusions This section does not apply— (a) (b) if the total amount of beneﬁciary income that the minor derives from the trust in the income year is $1,000 or less; or to beneﬁciary income derived— (i) from a trust settled in the way described in section HC 36: from a testamentary trust described in section HC 37: from a Maori authority: directly from a group investment fund: by a person for whom a child disability allowance is paid under the Social Security Act 1964.
(ii) (iii) (iv) (v) Relationship with other provisions This section overrides sections HC 5, HC 18 to HC 20, HC 22, HC 23, and HC 32.
Deﬁned in this Act: amount, beneﬁciary income, excluded income, group investment fund, income year, Maori authority, minor, pay, resident in New Zealand, return of income, settlement, trustee, trustee income Compare: 2004 No 35 ss HH 3A–HH 3C, HH 3E, HH 3F(2), (2A) Section HC 35(4)(a): amended (with effect on 1 April 2008), on 6 October 2009, by section 266(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
1833 Part H s HC 36 Income Tax Act 2007 Reprinted as at 30 August 2013 HC 36 Trusts and minor beneﬁciary rule Trusts excluded from application of minor beneﬁciary rule Section HC 35(2) does not apply to an amount of beneﬁciary income derived by a minor if all settlements on the trust were made by— (a) a person who is neither a relative or a guardian of the minor, nor a person associated with a relative or a guardian; or a person who is a relative, guardian, or a person associ- ated with a relative or guardian, if— (i) (b) (ii) (iii) the settlor is acting as agent of the minor and has received the property from a person other than a relative, guardian, or their associate: the settlor is required by a court order to pay damages or compensation to the minor: the minor is a protected person, as deﬁned in sec- tion 2 of the Domestic Violence Act 1995, in re- lation to a protection order, and the settlement, whether made jointly with another person or not, is made before the protection order is made or during the time the order is in force.
When some settlements do not meet requirements Subsection (3) applies when more than 1 settlement is made on a trust, and 1 or more but not all settlements meet the re- quirements of subsection (1) or section HC 37(1).
Small additional settlements permitted Section HC 35(2) does not apply to an amount of beneﬁciary income derived by a minor if the only settlements that do not meet the requirements are made through— (a) the disposal for less than market value of property whose total value is no more than $5,000 at the end of the trust’s income year, valuing each settlement at the date of settlement; or providing ﬁnancial assistance for less than market value in the form of a loan whose total value is no more than $1,000 on any day in the trust’s income year.
(b) (1) (2) (3) 1834 Reprinted as at 30 August 2013 Income Tax Act 2007 Part H s HC 36 (4) (5) Exclusion if signiﬁcant services provided to trust Subsection (3) does not apply if services are provided to the trust by a relative, guardian, or associated person, unless those services are incidental to the operation of the trust.

Examples of incidental services are bookkeeping, accounting, or trustee services.
Some deﬁnitions In this section,— associated person or person associated does not include a person associated only under sections YB 4 and YB 5 (which relate to relatives who are treated as associated persons) ﬁnancial assistance may include assistance through a loan, guarantee, security, or in another way, and ﬁnancial assistance is treated as having been provided to, or for the beneﬁt of, a trust for less than market value if— (a) (b) the assistance is provided at below market rates; or an amount payable for the assistance is payable on de- mand and the right to demand is not exercised or is de- ferred (b) (c) guardian has the meaning set out in section 15 of the Care of Children Act 2004, and persons are connected by guardianship if 1 is the guardian of the other, but guardian does not include a guardian appointed under— (a) section 110(1)(a) to (d) of the Children, Young Persons, and their Families Act 1989; or section 31 of the Care of Children Act 2004; or section 53 of the Public Trust Ofﬁce Act 1957 by a court order; or section 7(4) of the Adoption Act 1955 (d) relative means a person referred to in paragraph (a) of the def- inition of relative in section YA 1 (Deﬁnitions) extended to include being in a marriage, civil union, or de facto relation- ship with a person connected to the other through adoption, as described in paragraph (a)(iv), or guardianship.
Deﬁned in this Act: agent, amount, associated person, beneﬁciary income, ﬁ- nancial assistance, guardian, income year, loan, minor, pay, relative, settlement, settlor Compare: 2004 No 35 ss HH 3C(1)(a)–(d), (2), (3), HH 3D, HH 3F(1), (2A)–(4) 1835 Part H s HC 37 Income Tax Act 2007 Reprinted as at 30 August 2013 Section HC 36(5) associated person or person associated: substituted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 267(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section HC 36(5) relative: amended, on 1 April 2010 (applying for the 2010–11 and later income years), by section 267(2) of the Taxation (International Taxa- tion, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
HC 37 Testamentary trusts and minor beneﬁciary rule (1) (2) Testamentary trusts not subject to minor beneﬁciary rule Section HC 35(2) does not apply to an amount of beneﬁciary income derived by a minor if all the settlements on the trust were made under a will, codicil, intestacy, or court variation and— (a) the minor is alive within 12 months of the date of the settlor’s death; or the minor has a brother, sister, half-brother, or half-sis- ter alive within 12 months of the date of the settlor’s death.
(b) Small additional settlements permitted Section HC 36(3) may apply to extend the application of this exemption.
Deﬁned in this Act: amount, beneﬁciary income, minor, settlement, settlor Compare: 2004 No 35 s HH 3C(1)(e) Subpart HD—Agents Contents Introductory provisions Joint liability of principal and agent for tax obligations HD 1 What this subpart does HD 2 HD 3 Agents’ duties and liabilities HD 4 Treatment of principals HD 5 Matters between principals and agents HD 6 When relationship effectively that of principal and agent HD 7 Rate and amount of tax Particular cases HD 8 Circumstances giving rise to agency HD 9 Guardians 1836 Page 1837 1838 1838 1839 1839 1840 1840 1841 1841 Reprinted as at 30 August 2013 Income Tax Act 2007 Part H s HD 1 HD 10 Mortgagees in possession HD 11 Nominated companies HD 12 Trusts HD 13 Unit trusts HD 14 Companies issuing debentures HD 15 Asset stripping of companies HD 16 Non-resident general insurers HD 17 Agent paying premiums to residents of Switzerland Absentees HD 18 Agency in relation to absentees generally HD 19 Persons receiving absentees’ income HD 20 Persons carrying on business for absentees HD 20B General partners and partners carrying on with or managing business involving absentees HD 21 Companies HD 22 Banking companies HD 23 Trustees of group investment funds HD 24 Shipping businesses HD 25 Persons remitting amounts outside New Zealand Non-residents HD 26 Agency in relation to non-residents generally HD 27 Employers HD 28 Government pensions and payments under superannuation schemes HD 29 Persons buying goods from overseas 1841 1841 1842 1842 1842 1844 1847 1848 1849 1849 1850 1850 1851 1851 1851 1852 1852 1852 1853 1853 1854 Introductory provisions HD 1 What this subpart does (1) (2) When this subpart applies This subpart sets out the circumstances in which a person is treated for the purposes of this Act and the Tax Administration Act 1994 as an agent of another person in relation to the tax obligations of that other person.
Provisions relating to agents The following provisions in other subparts of this Act set up certain agency relationships for income tax purposes, or pro- 1837 Part H s HD 2 Income Tax Act 2007 Reprinted as at 30 August 2013 vide certain tax consequences and requirements of an agency relationship: (a) section EY 49(5) (Non-resident life insurer becoming resident): sections FM 34(2) (Nominated companies): sections FN 6(3) (Nominated companies): section HA 8 (Shareholders’ personal liability): section HC 29(3) (Settlors’ liability to income tax): section HC 32 (Liability of trustee as agent): section LB 2 (Tax credits for provisional tax payments): section RA 9 (Treatment of amounts withheld as re- ceived): sections RE 4, RE 5, and RE 7 to RE 9 (which relate to requirements for agents or trustees to pay RWT): section RE 22 (When payment treated as non-resident passive income): section RF 4 (Non-resident passive income received by agents and others): section YA 1 (Deﬁnitions), the deﬁnition of offered or entered into in New Zealand.
(b) (c) (d) (e) (f) (g) (h) (i) (j) (k) (l) Deﬁned in this Act: agent, income tax, offered or entered into in New Zealand, tax Compare: 2004 No 35 s HK 1(1) HD 2 Joint liability of principal and agent for tax obligations A principal and an agent are jointly and severally liable for the tax obligations relating to the agency, and the Commissioner may issue an assessment for the same tax to both an agent and their principal.

The liability of 1 remains despite an assess- ment of the other.
Deﬁned in this Act: agent, assessment, Commissioner, tax Compare: 2004 No 35 ss HK 3(2), HK 7(1) HD 3 Agents’ duties and liabilities When this section applies This section applies for the purposes of sections HD 8 to HD 27 in relation to all income derived by a principal through a business carried on in New Zealand by an agent.
(1) 1838 Reprinted as at 30 August 2013 Income Tax Act 2007 Part H s HD 5 (2) Assessments, returns, and payment of tax The agent must— (a) make the assessments that their principal is required to (3) (4) make; and provide all returns required of their principal under the Tax Administration Act 1994; and satisfy their principal’s income tax liability.

(b) (c) Joint and several liability If 2 or more persons are liable as agents in relation to the same tax, the liability is joint and several.
Agent as separate person The agent is treated in that capacity as a separate person, and may claim in relation to the agency income only those tax credits or exemptions to which the principal is entitled.
Deﬁned in this Act: agent, assessment, business, income, income tax liability, New Zealand, return of income, tax, tax credit Compare: 2004 No 35 ss HK 1, HK 3(3), HK 7(1) HD 4 Treatment of principals Despite section HD 3,— (a) a principal remains liable for their tax obligations, and is not released from them merely through the existence of the agency; and if the Commissioner agrees, the principal and the agent may decide that the principal is to undertake the duties set out in section HD 3(2).
(b) Deﬁned in this Act: agent, Commissioner, tax Compare: 2004 No 35 s HK 3(1), (1A) HD 5 Matters between principals and agents (1) Assessment as authority The Commissioner’s assessment is, as between principal and agent, sufﬁcient authority for the payment of tax by the agent.
Recovering payment (2) On paying tax, an agent is entitled to be reimbursed by the principal, and may— (a) recover the amount from the principal; or 1839 Part H s HD 6 Income Tax Act 2007 Reprinted as at 30 August 2013 (3) (4) (b) subtract the amount from money held by the agent that belongs or is payable to the principal.
Retaining funds For the purposes of paying tax in relation to which an agent is or may become liable, the agent may retain from money that belongs or is payable to the principal an amount that is reasonably sufﬁcient to pay the tax.

This subsection applies at a time in an income year in which the tax is due or in a later income year.
Hardship The Commissioner may set a new due date for an agent to pay a tax liability if— the agent— (a) (i) is unable to pay the tax liability out of money that the agent holds that belongs to the principal; and has not paid away an amount after being assessed in relation to the agency; and (ii) (b) the enforcement of payment would cause hardship to the agent.
Deﬁned in this Act: agent, amount, assessment, Commissioner, income year, pay, tax Compare: 2004 No 35 ss HK 4–HK 6, HK 7(2) HD 6 When relationship effectively that of principal and agent If a person who is carrying on business in New Zealand is sufﬁciently under the control of another person in business, whether in New Zealand or elsewhere, so that the relationship between them is effectively that of principal and agent, the Commissioner may treat the ﬁrst business as the principal’s business carried on by the agent on behalf of the principal.
Deﬁned in this Act: agent, business, Commissioner, New Zealand Compare: 2004 No 35 s HK 8 Section HD 6 list of deﬁned terms control: repealed, on 1 April 2010, by sec- tion 594 of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
HD 7 Rate and amount of tax The rate of tax used to calculate an agent’s income tax liability is determined by reference to the taxable income of the prin- 1840 Reprinted as at 30 August 2013 Income Tax Act 2007 Part H s HD 11 cipal.

The amount of income tax payable is the amount deter- mined by the amount of agency income as a proportion of the taxable income of the principal.
Deﬁned in this Act: agent, amount, income tax, income tax liability, pay, tax- able income Compare: 2004 No 35 s HK 2 HD 8 Circumstances giving rise to agency Particular cases For the purposes of this Act and the Tax Administration Act 1994, a person is treated as an agent in relation to the income of another person to the extent described in the circumstances set out in sections HD 9 to HD 15.
Deﬁned in this Act: agent, income HD 9 Guardians A person (person A) is treated as an agent of another person (person B) if, as guardian, manager, or otherwise, person A receives, controls, or disposes of income that person B derives while under a legal disability.
Deﬁned in this Act: agent, income Compare: 2004 No 35 s HK 9 HD 10 Mortgagees in possession A person (person A) is treated as an agent of another per- son (person B) if, as mortgagee in possession of land or other property, person A derives income from the land or property on behalf or for the beneﬁt of person B as mortgagor.
Deﬁned in this Act: agent, income, land Compare: 2004 No 35 s HK 10 HD 11 Nominated companies Consolidated groups (1) A nominated company is treated under section FM 34(2) (Nominated companies) as the agent of a consolidated group, and of each company that is at the time a member of that group.
1841 Part H s HD 12 Income Tax Act 2007 Reprinted as at 30 August 2013 Imputation groups (2) A nominated company is treated under section FN 6(3) (Nom- inated companies) as the agent of an imputation group, and of each company that is at the time a member of that group.
Deﬁned in this Act: agent, company, consolidated group, imputation group, nominated company Compare: 2004 No 35 ss FD 6(1), FDA 5(3) HD 12 Trusts (1) (2) Beneﬁciary income and taxable distributions If a beneﬁciary of a trust, other than a beneﬁciary of a commu- nity trust, derives an amount of beneﬁciary income or taxable distribution in a tax year, the trustee of the trust is treated under section HC 32 (Liability of trustee as agent) as the agent of the beneﬁciary.
Settlors If a trustee of a trust, other than a charitable trust, derives trustee income in a tax year, and a settlor of the trust is resi- dent in New Zealand in the tax year, the settlor is treated under section HC 29 (Settlors’ liability to income tax) as the agent of the trustee for income tax payable by the trustee (but not for income tax that the trustee is liable for as agent).
Deﬁned in this Act: agent, amount, beneﬁciary income, charitable trust, com- munity trust, income tax, pay, resident in New Zealand, settlor, tax year, taxable distribution, trustee, trustee income Compare: 2004 No 35 ss HH 3(2), HH 3A(2), HH 4(4) HD 13 Unit trusts A trustee of a unit trust is treated as an agent of the unit trust in relation to income derived by the unit trust.
Deﬁned in this Act: agent, income, trustee, unit trust Compare: 2004 No 35 s HE 1 HD 14 Companies issuing debentures Agency (1) A company is treated as an agent of a person if— (a) (b) the company has issued a debenture; and the person, as a debenture holder, derives income from the debenture.
1842 Reprinted as at 30 August 2013 Income Tax Act 2007 Part H s HD 14 (2) Excluded debentures Subsection (1) does not apply to a debenture if— (a) (b) it is a proﬁt-related debenture or substituting debenture to which section FA 2 (Recharacterisation of certain debentures) applies or a stapled debt security to which section FA 2B (Stapled debt securities) applies; or it is issued to a New Zealand resident, and the company provides the Commissioner with a certiﬁed list contain- ing particulars of the debentures, the name and details of each person to whom a debenture has been issued, and details of the interest payments before an assessment is made in a tax year of the debenture holder.
Liability of persons named (3) A person named as a debenture holder in the list referred to in subsection (2)(b) is liable for income tax on income derived from the debenture.

Subsection (4) overrides this subsection.


Continuing liability until notiﬁcation (4) Despite section BB 2 (Main obligations), if a debenture holder disposes of a debenture, they remain liable for income tax un- less they notify the Commissioner of the disposal before an assessment is made in a tax year that takes into account the income derived from the debentures.

On notiﬁcation, the sub- sequent holder is liable in relation to the debentures, and the liability of the transferor is ended.
(5) (6) Recovery of tax paid If a person who formerly held a debenture pays income tax on taxable income that takes into account income derived by a subsequent holder, the income tax is treated as paid on behalf of the subsequent holder to the extent of the liability of the subsequent holder, and the person may recover that amount from them.
Matters not taken into account For the purposes of subsection (1), it does not matter whether the debenture is charged on the company’s property, nor whether a debenture holder is an absentee.
Deﬁned in this Act: absentee, agent, assessment, Commissioner, company, debenture, debenture holder, income, income tax, interest, New Zealand resi- 1843 Part H s HD 15 Income Tax Act 2007 Reprinted as at 30 August 2013 dent, notify, pay, proﬁt-related debenture, stapled debt security, tax, tax year, taxable income Compare: 2004 No 35 ss HK 12, HK 13 Section HD 14(2)(a): substituted (with effect on 1 April 2008), on 6 October 2009, by section 268(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section HD 14 list of deﬁned terms stapled debt security: inserted (with ef- fect on 1 April 2008), on 6 October 2009, by section 268(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
HD 15 Asset stripping of companies When this section applies This section applies when— (a) (b) (c) an arrangement has been entered into in relation to a company; and an effect of the arrangement is that the company cannot meet a tax liability (the tax obligation) whether existing at the time of the arrangement or arising after that time, for— (i) (ii) income tax: a civil penalty, as deﬁned in section 3(1) of the Tax Administration Act 1994: an amount payable under Part 7 of that Act; and (iii) it is reasonable to conclude that— (i) a purpose of the arrangement is to have the effect described in paragraph (b); and if a director of the company at the time of the ar- rangement made reasonable inquiries, they could have anticipated at the time that the income tax li- ability would, or would likely, be required to be met.
(ii) When this section does not apply This section does not apply to an arrangement if— (a) (b) the Commissioner is a party to the arrangement: the tax obligation is no more than an amount of income tax that arises as a direct result of the performance of the arrangement, and that obligation has been met: at the time of the arrangement, the company was under statutory management under the Reserve Bank of New (c) (1) (2) 1844 Reprinted as at 30 August 2013 Income Tax Act 2007 Part H s HD 15 Zealand Act 1989 or the Corporations (Investigation and Management) Act 1989.
Director’s liability (3) All persons who are directors of the company at the time the arrangement is entered into are treated as agents of the com- pany in relation to the tax obligation, and the liability is joint and several.
But a director has no liability if— (a) they do not derive a beneﬁt from the arrangement, and at the ﬁrst reasonable opportunity after becoming aware of the arrangement, or the aspects of the arrangement that cause this section to apply to it, they record for- mally their dissent in relation to the arrangement with the company and with the Commissioner; or they were not at the relevant time involved in the execu- tive management of the company and had no knowledge of the arrangement, or the aspects of the arrangement that cause this section to apply to it.
(b) Shareholder’s liability (4) A person who is a controlling shareholder or an interested shareholder at the time of the arrangement is treated as an agent of the company in relation to the tax obligation other than penalties and interest but, despite section HD 3(2), the li- ability is limited to the greater of— (a) the market value of the person’s direct and indirect shareholding in the company at the time of the arrange- ment; and the value of the beneﬁt that the person derives from the arrangement.
(b) Shareholder’s liability for penalties and interest (5) A person who is a controlling shareholder or an interested shareholder at the time of the arrangement is treated as an agent of the company in relation to penalties and interest in proportion to their liability for the tax obligation under sub- section (4).
(6) Company liquidations In order to give effect to this section, if a company has been liquidated, the Commissioner may at any time after the liquid- ation make an assessment of a company for an income tax li- 1845 Part H s HD 15 Income Tax Act 2007 Reprinted as at 30 August 2013 (7) ability of the company as if it had not been liquidated.

The time bar applies, but this subsection overrides other provisions in this Act and the Tax Administration Act 1994.
Agents for purposes of notiﬁcation or objection procedures In making an assessment under subsection (6), the Commis- sioner must nominate 1 or more persons as having the tax obli- gation set out in the assessment.

The nominated person or per- sons are treated as agents of the company in relation to any no- tiﬁcation or objection procedure concerning the assessment.
When liability does not arise (8) No liability arises under this section for a tax year in relation to which— (a) a company has provided returns within the time allowed by section 37 of the Tax Administration Act 1994 for providing returns for the tax year in which the company is liquidated; and the Commissioner has not issued a notice of assessment of the company for the tax year before the end of 4 years following the end of the tax year in which the company is liquidated.
(9) Some deﬁnitions In this section,— controlling shareholder, for a company, means— (a) a person whose voting interest or market value interest in the company at the time of the arrangement, together with any interests of an associated person, is 50% or more; and if the person or associated person is a company, the vot- ing interest or market value interest of the person or as- sociated person is calculated as if they were not a com- pany and as if sections YC 4 (Look-through rule for cor- porate shareholders) and YC 6 (Disregarding certain se- curities) did not apply (b) (b) director means,— (a) a person who occupies the position of director, whether or not the position has that title: for an entity that is treated as a company under this Act, a person who acts in the same or similar way as a dir- (b) 1846 Reprinted as at 30 August 2013 Income Tax Act 2007 Part H s HD 16 ector would if the entity were a company incorporated in New Zealand under the Companies Act 1993 interested shareholder means a person who, at the time the arrangement is entered into, has a voting interest or market value interest in the company, calculated in either case if the person is a company as if the person were not a company, and because of the size of the beneﬁt that the person derives from the arrangement, it is reasonable to conclude that the person is a party to the arrangement penalties and interest means a civil penalty or amount payable under Part 7 of the Tax Administration Act 1994 that is part of the tax obligation.
Deﬁned in this Act: agent, amount, arrangement, assessment, associated per- son, Commissioner, company, controlling shareholder, director, income tax, income tax liability, interested shareholder, liquidation, market value, market value interest, New Zealand, notice, notify, penalties and interest, return of in- come, tax, tax year, time bar, voting interest Compare: 2004 No 35 s HK 11 HD 16 Non-resident general insurers (1) (2) (3) (4) When this section applies This section applies when an insurer derives income under sec- tion CR 3 (Income of non-resident general insurer) to deter- mine who is liable to provide a return of income and pay in- come tax on the income.
Insurer To the extent to which the insurer provides the return and pays the income tax, no other person described in this section is liable to do so.

Person acting on insurer’s behalf To the extent to which a person on behalf of the insurer, in- cluding a broker or other agent who pays a premium on behalf of another person, provides the return and pays the income tax, no agent described in any of subsections (4) to (6) is liable to do so.
Agent paying premium or providing funds The person liable in the ﬁrst place as an agent is— (a) a person, including a broker or agent, who pays the pre- mium to the insurer or to some other person not carrying 1847 Part H s HD 17 Income Tax Act 2007 Reprinted as at 30 August 2013 (5) (6) (7) on a business in New Zealand through a ﬁxed establish- ment in New Zealand; or a person described in subsection (7)(b).
(b) Person paying premium The person liable in the second place as agent is a person who pays the premium, whether or not through a broker or agent.

Insured person The person liable in the third place as agent is the insured per- son.
Bank or building society If a premium is paid by a registered bank, as deﬁned in section 2 of the Reserve Bank of New Zealand Act 1989, or a building society on behalf of a person to the insurer or to some other person not carrying on a business in New Zealand through a ﬁxed establishment in New Zealand,— (a) the bank or building society is not an agent of the in- surer; and the person who provides the bank or building society with the funds from which the premium is paid is an agent of the insurer.
(b) Deﬁned in this Act: agent, building society, business, ﬁxed establishment, in- come, income tax, insured person, insurer, New Zealand, pay, premium, regis- tered bank, return of income Compare: 2004 No 35 s FC 16 HD 17 Agent paying premiums to residents of Switzerland When this section applies This section applies when— (a) (b) (c) an insurer derives income under section CR 3 (Income of non-resident general insurer); and an agent of the insurer under section HD 16 pays the premium to an insurer or to some other person not carry- ing on a business in New Zealand through a ﬁxed estab- lishment in New Zealand; and the insurer or other person is treated as being resident in Switzerland for the purposes of a double tax agree- ment between the government of New Zealand and the government of Switzerland.
(1) 1848 Reprinted as at 30 August 2013 Income Tax Act 2007 Part H s HD 19 (2) Disclosure The agent must disclose details of the payment of the premium to the Commissioner in the manner, if any, required by the Commissioner.
Deﬁned in this Act: agent, business, Commissioner, double tax agreement, ﬁxed establishment, income, insurer, New Zealand, pay, premium Compare: 2004 No 35 s FC 17 HD 18 Agency in relation to absentees generally Absentees (1) (2) What sections HD 19 to HD 25 do Sections HD 19 to HD 25 apply for the purposes of this Act to treat a person as an agent in relation to the income of an absentee when certain conditions are met and to the extent set out in the circumstances described in those sections.
The person must meet the tax obligations set out in section HD 3 in relation to the income to which the agency applies.
Meaning of absentee In this subpart, absentee means— (a) (b) (c) a natural person who is for the time being out of New Zealand: a foreign company, unless it has a ﬁxed and permanent place of business in New Zealand at which it carries on business in its own name: a foreign company when the Commissioner declares that it is an absentee for the purposes of this Act by giv- ing notice to the company, or its agent or representative in New Zealand.
Deﬁned in this Act: absentee, agent, business, Commissioner, company, foreign company, income, New Zealand, notice, tax Compare: 2004 No 35 ss HK 1, HK 16, OB 1 “absentee” HD 19 Persons receiving absentees’ income A person is treated as an agent if they receive, control, or dis- pose of income derived by a principal who is an absentee.
Deﬁned in this Act: absentee, agent, income Compare: 2004 No 35 s HK 20 1849 Part H s HD 20 Income Tax Act 2007 Reprinted as at 30 August 2013 Section HD 19 list of deﬁned terms control: repealed, on 1 April 2010, by sec- tion 594 of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
HD 20 Persons carrying on business for absentees A person is treated as an agent if they carry on in New Zealand a business for an absentee, whether or not the income is re- ceived by the agent.

Deﬁned in this Act: absentee, agent, business, income, New Zealand Section HD 20: substituted, on 1 April 2008, by section 18(1) of the Taxation (Limited Partnerships) Act 2008 (2008 No 2).
HD 20B General partners and partners carrying on with or managing business involving absentees Who this section applies to This section applies to a person who— (a) (b) in New Zealand carries on a business in a partnership that is not a limited partnership: is a general partner of a limited partnership that carries on a business in New Zealand ignoring section HG 2 (Partnerships are transparent).
Person treated as agent If the person carries on the business with an absentee or, as a general partner, is responsible for the management of a limited partnership in which a limited partner is an absentee, the per- son is treated as the agent of the relevant absentee in relation to the absentee’s partnership share of the partnership’s income under section HG 2.
Deﬁned in this Act: absentee, agent, business, general partner, income, limited partner, limited partnership, New Zealand, partnership, partnership share Section HD 20B: inserted, on 1 April 2008, by section 18(1) of the Taxation (Limited Partnerships) Act 2008 (2008 No 2).

Section HD 20B(1) heading: inserted (with effect on 1 April 2008), on 29 Au- gust 2011 (applying for the 2008–09 and later income years), by section 140(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section HD 20B(2) heading: inserted (with effect on 1 April 2008), on 29 Au- gust 2011 (applying for the 2008–09 and later income years), by section 140(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
(1) (2) 1850 Reprinted as at 30 August 2013 Income Tax Act 2007 Part H s HD 23 HD 21 Companies Paying dividends (1) A company incorporated in New Zealand is an agent of an ab- sentee to whom it pays or credits dividends as a shareholder, or as a holder of a debenture to which section FA 2 (Rechar- acterisation of certain debentures) applies.

(2) Relationship with NRWT rules Section RF 2(3) and (4) (Non-resident passive income) over- rides this section.
Deﬁned in this Act: absentee, agent, company, debenture, debenture holder, dividend, New Zealand, NRWT rules, pay, shareholder Compare: 2004 No 35 s HK 21 HD 22 Banking companies Receiving deposit in course of business activities (1) A person, including a banking or other company, or a local au- thority or public authority, is treated as an agent if in the course of their business activities, they receive or hold money as a de- posit and pay interest to an absentee on the money deposited by the absentee.
(2) (3) Threshold This section applies only if the interest paid on the deposit is more than $100.

Relationship with NRWT rules Section RF 2(3) and (4) (Non-resident passive income) over- rides this section.
Deﬁned in this Act: absentee, agent, banking company, business, company, interest, local authority, NRWT rules, pay, public authority Compare: 2004 No 35 s HK 23 HD 23 Trustees of group investment funds A person is treated as an agent if they are a trustee of a group investment fund and an absentee is an investor to whom a divi- dend is paid.
Deﬁned in this Act: absentee, agent, dividend, group investment fund, pay, trustee Compare: 2004 No 35 s HK 22 1851 Part H s HD 24 Income Tax Act 2007 Reprinted as at 30 August 2013 HD 24 Shipping businesses A person is treated as an agent if they are the master of a ship owned by or under charter to an absentee who carries on a business carrying goods or passengers.
Deﬁned in this Act: absentee, agent, business Compare: 2004 No 35 s HK 18(1) HD 25 Persons remitting amounts outside New Zealand Absentee landlords, mortgagors, or creditors (1) A person is treated as an agent if they are a tenant, mortgagor, or other person who remits an amount from New Zealand to an absentee who is their landlord, mortgagee, or creditor, when the amount is income derived by the absentee.
But this sub- section applies only after the Commissioner has notiﬁed the person that they are accountable as the absentee’s agent.

(2) When fund outside New Zealand If the amount referred to in subsection (1) is paid by or on ac- count of a person resident in New Zealand from a fund outside New Zealand, it is treated as an amount to which this section applies.
Deﬁned in this Act: absentee, agent, amount, Commissioner, income, New Zealand, notify, pay, resident in New Zealand Compare: 2004 No 35 s HK 19 HD 26 Agency in relation to non-residents generally Non-residents What sections HD 27 and HD 28 do Sections HD 27 and HD 28 apply for the purposes of this Act to treat a person as an agent in relation to the income of a non-resident taxpayer when certain conditions are met.
The person must meet the tax obligations set out in section HD 3 in relation to the income to which the agency applies.

Meaning of non-resident taxpayer In sections HD 27 and HD 28, a non-resident taxpayer means a person who— (a) is liable for income tax on employment income derived in New Zealand; and (1) (2) 1852 Reprinted as at 30 August 2013 Income Tax Act 2007 Part H s HD 28 (b) has no ﬁxed and permanent place to live in New Zealand.
Deﬁned in this Act: agent, employment income, income, income tax, New Zealand, non-resident, non-resident taxpayer, tax Compare: 2004 No 35 s HK 24(1), (4) HD 27 Employers Employment of non-resident persons (1) An employer who employs a non-resident person with an in- come tax liability is treated as an agent in relation to the em- ployment income derived in New Zealand by the non-resident person.
If the person does not meet their income tax liability, the employer must withhold the amount of income tax payable from their employment income and pay it to the Commissioner on the person’s behalf.

Employment by non-resident traders (2) A non-resident trader who employs a person in New Zealand is treated as an agent in relation to the person’s employment income.

If the trader has an agent in New Zealand, the agent must meet the trader’s obligations under section HD 3.
Deﬁned in this Act: agent, amount, Commissioner, employer, employment in- come, income tax, income tax liability, New Zealand, non-resident, non-resi- dent trader, pay Compare: 2004 No 35 ss HK 24(2), HK 25 HD 28 Government pensions and payments under superannuation schemes If a non-resident person who has an income tax liability derives a pension or annuity from the government of New Zealand or under an unregistered superannuation scheme established in New Zealand, the income tax payable must be withheld from 1 or more instalments of the pension or annuity and paid to the Commissioner on the person’s behalf.
Deﬁned in this Act: Commissioner, income tax, income tax liability, New Zealand, non-resident, pay, superannuation scheme Compare: 2004 No 35 s HK 24(3) 1853 Part H s HD 29 Income Tax Act 2007 Reprinted as at 30 August 2013 HD 29 Persons buying goods from overseas Who this section applies to This section applies, in relation to a purchase of goods, to— (a) (b) a person in New Zealand (person A); and person A’s principal who is resident in a country or ter- ritory outside New Zealand, and not resident in New Zealand (person B).
Treatment of persons buying goods If person A is instrumental in arranging the purchase of goods from person B, and the goods are either in New Zealand or are to be imported into New Zealand under the contract of purchase, person A and person B and the income are treated as follows: (a) person B is treated as carrying on a business in New Zealand; and person A is treated as person B’s agent in relation to the income derived from the business; and the income from the business is treated as having a source in New Zealand.
(b) (c) Exemption Person A is not liable as agent for the payment of income tax if the Commissioner is satisﬁed that in corresponding circum- stances in a country or territory outside New Zealand, person B, if resident in New Zealand, would not be liable for income tax in that country or territory.
Deﬁned in this Act: agent, business, Commissioner, income, income tax, New Zealand, pay, resident in New Zealand, source in New Zealand Compare: 2004 No 35 s HK 26 Section HD 29(2)(c): amended, on 21 December 2010, by section 80(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).

Section HD 29 list of deﬁned terms derived from New Zealand: repealed, on 21 December 2010, by section 80(2)(a) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section HD 29 list of deﬁned terms source in New Zealand: inserted, on 21 De- cember 2010, by section 80(2)(b) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
(1) (2) (3) 1854 Reprinted as at 30 August 2013 Income Tax Act 2007 Part H s HE 2 Subpart HE—Mutual associations Contents Income and deductions of mutual associations HE 1 HE 2 Classes of mutual transaction HE 3 Association rebates HE 4 Apportionment when transactions with members and non-members HE 5 Association rebates paid by shares or credit Page 1855 1855 1856 1857 1857 HE 1 Income and deductions of mutual associations (1) (2) Income and allocation The treatment of amounts derived by mutual associations and from mutual associations is dealt with in— (a) section CB 33 (Amounts derived by mutual associ- ations); and section CB 34 (Amounts derived by members from mu- tual associations).
(b) Deductions and allocation The treatment of association rebates that a mutual association pays to a member is dealt with in section DV 19 (Association rebates).
Deﬁned in this Act: amount, association, association rebate, member HE 2 Classes of mutual transaction (1) When mutual transactions arise In this subpart, and sections CB 33, CB 34, and DV 19 (which relate to income and deductions relating to mutual transac- tions), a mutual transaction arises when an association— (a) enters into a transaction with members of the associ- ation, or a transaction with members of the association and other persons; and the association takes the transaction into account in an income year in determining its net income or net loss under section BC 4 (Net income and net loss).
(b) 1855 Part H s HE 3 Income Tax Act 2007 Reprinted as at 30 August 2013 (2) Types of transaction For the purposes of subsection (1), a transaction between an association and its member includes 1 or more of the follow- ing: (a) the borrowing by the association of money from 1 or more members, to the extent to which the money is ap- plied as a loan to a member: the lending by the association of money to 1 or more members: for an association that is a statutory producer board other than a body that derives only exempt income— (i) (ii) a levy paid by 1 or more members: a produce transaction.
(b) (c) Deﬁned in this Act: association, exempt income, income year, levy, loan, mem- ber, mutual transaction, net income, net loss, pay, produce transactions, statu- tory producer board Compare: 2004 No 35 s HF 1(8) HE 3 Association rebates (1) Meaning In this subpart, and in sections CB 34 and DV 19 (which relate to income and deductions relating to mutual transactions), an association rebate means a payment by an association to a member that is made— (a) (b) through a distribution of proﬁts of the association: not later than 6 months after the end of the accounting year of the association in relation to which the payment is made.
Exclusion (2) An association rebate does not include— (a) (b) a cash distribution in relation to which the associ- ation has made an election under section OB 73(1) or OB 78(1) (which relate to imputation credits of statu- tory producer boards or co-operative companies); or a distribution described in section CD 26 (Capital dis- tributions on liquidation or emigration) or CD 33 (Pay- 1856 Reprinted as at 30 August 2013 Income Tax Act 2007 Part H s HE 5 ments corresponding to notional distributions of pro- ducer boards and co-operative companies).
Deﬁned in this Act: accounting year, association, association rebate, member, pay Compare: 2004 No 35 s HF 1(9) “rebate” HE 4 Apportionment when transactions with members and non-members (1) (2) When this section applies This section applies when an association takes into account transactions with both members and non-members.
Apportioning expenditure or loss In determining its net income or net loss for an income year under section BC 4 (Net income and net loss), the association must apportion the expenditure or loss that it incurs in the income year between those transactions with members, and those with persons who are not members.
Deﬁned in this Act: association, income year, loss, member, net income, net loss Compare: 2004 No 35 s HF 1(4) HE 5 Association rebates paid by shares or credit (1) (2) When this section applies This section applies when an association that enters into mu- tual transactions with members pays an association rebate to 1 or more members through— (a) issuing fully or partly paid-up shares in the association; or providing credit for all or part of an amount unpaid on shares in the association.
(b) Not bonus issue The amount, or the relevant part of it, is not treated as a bonus issue.

Deﬁned in this Act: amount, association, association rebate, bonus issue, mem- ber, mutual transaction, pay, share Compare: 2004 No 35 s HF 1(7) 1857 Income Tax Act 2007 Reprinted as at 30 August 2013 Subpart HF—Maori authorities Contents Introductory provisions HF 1 Maori authorities and the Maori authority rules HF 2 Who is eligible to be a Maori authority?
HF 3 Applying provisions to Maori authorities Maori authority distributions HF 4 What constitutes a Maori authority distribution?
HF 5 Notional distributions of co-operative companies HF 6 HF 7 HF 8 Tax treatment of Maori authority distributions Taxable Maori authority distributions Proportional allocation Changing status Table H1 Consequences of change in entity status for purposes of Maori authority rules HF 9 Treatment of companies and trusts that choose to apply this subpart HF 10 Market value calculations HF 11 Choosing to become Maori authority Page 1858 1859 1861 1862 1863 1863 1863 1864 1866 1866 1867 Introductory provisions HF 1 Maori authorities and the Maori authority rules Who is a Maori authority?
(1) A Maori authority is a person eligible under section HF 2 who has made an election under section HF 11.
Maori authority rules The Maori authority rules means the following: (a) (b) this subpart: sections GB 42 and GB 43 (which relate to Maori au- thority credit arrangements to obtain a tax advantage): sections LA 4, LA 6, LO 1, LO 4, and LO 5 (which relate to Maori authority credits): subpart OK (Maori authority credit accounts (MACA)): (c) (d) (2) 1858 Reprinted as at 30 August 2013 Income Tax Act 2007 Part H s HF 2 (e) (f) (g) section RM 22 to RM 27 (which relate to limits on re- funds of tax in relation to Maori authorities): schedule 1, part A, clause 6 (Basic tax rates: income tax, ESCT, RSCT, RWT, and attributed fringe beneﬁts): sections 31, 57, 68B, 69B, 70B, 97B, 140CB, 140DB, and 181B of the Tax Administration Act 1994.
Deﬁned in this Act: Maori authority, Maori authority rules Compare: 2004 No 35 s OB 1 “Maori authority”, “Maori authority rules” Section HF 1(2)(f): amended, on 1 April 2008, by section 562 of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

HF 2 Who is eligible to be a Maori authority?

What this section does This section sets out the persons eligible to choose under sec- tion HF 11 to become a Maori authority.
Companies The following are eligible to make an election: (a) (1) (2) (b) (c) (d) a company established by an order made under Te Ture Whenua Maori Act 1993 (the Maori Land Act 1993): a company that owns land that is subject to Te Ture Whenua Maori Act 1993 (the Maori Land Act 1993): a company that is— (i) established by a mandated iwi organisation to be an asset-holding company, as contemplated by section 12(1)(d) of the Maori Fisheries Act 2004: recognised by Te Ohu Kai Moana Trustee Limited as a mandated iwi organisation under section 13(1) of the Maori Fisheries Act 2004: (ii) a company that,— (i) on behalf of Maori claimants, receives and man- ages assets that are transferred by the Crown as part of the settlement of a claim under the Treaty of Waitangi; and is contemplated by the deed of settlement of the claim as performing the functions described in subparagraph (i).
(ii) Trusts The following are eligible to make an election: (3) 1859 Part H s HF 2 Income Tax Act 2007 Reprinted as at 30 August 2013 (a) (b) (c) (d) (e) the trustees of a trust established by an order made under Te Ture Whenua Maori Act 1993 (the Maori Land Act 1993): the trustees of a trust who own land that is subject to Te Ture Whenua Maori Act 1993 (the Maori Land Act 1993): the trustees of a trust that is recognised by Te Ohu Kai Moana Trustee Limited as a mandated iwi organisation under section 13(1) of the Maori Fisheries Act 2004: the trustees of trusts that are established by Te Ohu Kai Moana Trustee Limited as a mandated iwi organisation under sections 79 and 92 of the Maori Fisheries Act 2004: the trustees of a trust who,— (i) on behalf of Maori claimants, receive and man- age assets that are transferred by the Crown as part of the settlement of a claim under the Treaty of Waitangi; and are contemplated by the deed of settlement of the claim as performing the functions described in subparagraph (i).
(ii) (4) Maori Trustee The Maori Trustee in the Maori Trustee’s capacity as an agent for an owner of land that is subject to Te Ture Whenua Maori Act 1993 (the Maori Land Act 1993) is eligible to make an election.

Maori Trust Board (5) A Maori Trust Board, as deﬁned in section 2 of the Maori Trust Boards Act 1955, is eligible to make an election.
Crown Forestry Rental Trust The Crown Forestry Rental Trust, established by deed in ac- cordance with section 34 of the Crown Forest Assets Act 1989, is eligible to make an election.

Te Ohu Kai Moana Trustee Limited Te Ohu Kai Moana Trustee Limited, established under section 33 of the Maori Fisheries Act 2004, is eligible to make an election.
(6) (7) 1860 Reprinted as at 30 August 2013 Income Tax Act 2007 Part H s HF 3 Aotearoa Fisheries Limited (8) Aotearoa Fisheries Limited, established under section 60 of the Maori Fisheries Act 2004, is eligible to make an election.
Deﬁned in this Act: agent, company, Maori authority, trustee Compare: 2004 No 35 s HI 2 HF 3 Applying provisions to Maori authorities Relationship with provisions generally (1) A provision in the Maori authority rules overrides any other provision in this Act that may apply to a Maori authority unless a provision speciﬁcally provides otherwise.
Relationship with company rules (2) A Maori authority must not— (a) (b) (c) amalgamate with a company that is not a Maori author- ity; or be part of a consolidated group that includes a company that is not a Maori authority; or be a co-operative company if a shareholder is not a Maori authority.
Treatment of tax losses (3) Under section IA 6 (Restrictions on companies grouping tax (b) losses) and subpart IC (Grouping tax losses),— (a) a Maori authority may subtract from its net income some or all of a tax loss component or loss balance only of another Maori authority: a Maori authority may use some or all of its tax loss component or loss balance in relation to the net income only of another person who is a Maori authority.
Deﬁned in this Act: amalgamation, company, consolidated group, co-opera- tive company, loss balance, Maori authority, Maori authority rules, net income, shareholder, tax loss component Compare: 2004 No 35 s HI 1 1861 Part H s HF 4 Income Tax Act 2007 Reprinted as at 30 August 2013 Maori authority distributions HF 4 What constitutes a Maori authority distribution?
Transfer of value (1) A transfer of value from a Maori authority to a person is a Maori authority distribution if the cause of the transfer is the membership of the person in the Maori authority.
Distributions (2) A Maori authority distribution includes an amount advanced to a member by a Maori authority, to the extent to which the advance is not a genuine investment by the authority entered into but in effect a distribution of an amount that falls within sections BD 1(1) and CA 1(2) (which relate to amounts that are income).

Taxable bonus issues (3) A taxable bonus issue made by a Maori authority to a member is a taxable Maori authority distribution.
Exclusion: services (4) A Maori authority distribution does not include the provision of services to a person by a Maori authority.

Distributions with credits attached (5) A Maori authority distribution includes the amount of a Maori authority credit attached to it.

Dividends (6) A Maori authority distribution that, but for this subsection, would be a dividend for a member, is treated as not being a dividend except for the purposes of section CW 10 (Dividend within New Zealand wholly-owned group).
Value of distribution by reference to market values For the purposes of this section, if the transfer of value is— (a) the disposal of property to a member without consider- ation, or for a consideration that is less than the market value of the property, the value of the Maori authority distribution is the amount by which the market value of the property is more than the consideration; and the acquisition of property from a member for a consid- eration that is more than the market value of the prop- erty, the value of the Maori authority distribution is the (b) (7) 1862 Reprinted as at 30 August 2013 Income Tax Act 2007 Part H s HF 7 amount by which the market value is less than the con- sideration.
Deﬁned in this Act: amount, dividend, Maori authority, Maori authority credit, member, taxable bonus issue, taxable Maori authority distribution, transfer of value Compare: 2004 No 35 ss HI 4(1), (2), HI 5(4), HI 7 HF 5 Notional distributions of co-operative companies A Maori authority that is a co-operative company may make a notional distribution to a member under section OB 79 (Co- operative companies attaching imputation credits to notional distributions) as if a Maori authority credit were an imputation credit.
Deﬁned in this Act: co-operative company, imputation credit, Maori authority, Maori authority credit, member Compare: 2004 No 35 s HI 4(3) HF 6 Tax treatment of Maori authority distributions A Maori authority distribution to a member is— (a) a taxable Maori authority distribution; or a notional distribution: income of the member under section CV 11 (Maori au- thorities), if the amount is— (i) (ii) exempt income of the member under section CW 55 (Maori authority distributions), if paragraph (a) does not apply.
(b) Deﬁned in this Act: amount, exempt income, income, Maori authority, member, taxable Maori authority distribution Compare: 2004 No 35 s HI 5(1) HF 7 Taxable Maori authority distributions A Maori authority distribution is a taxable Maori authority distribution if the source is income of the Maori authority that is— (a) derived by the Maori authority in the 2004–05 income year or a later income year; and not exempt income of the Maori authority; and not a cash distribution made to a member in relation to a notional distribution for which the Maori authority has (b) (c) 1863 Part H s HF 8 Income Tax Act 2007 Reprinted as at 30 August 2013 made an election under section OB 82 (When and how co-operative company makes election).
Deﬁned in this Act: exempt income, income, income year, Maori authority, member, taxable Maori authority distribution Compare: 2004 No 35 s HI 5(2), (3) HF 8 Proportional allocation If a Maori authority distribution consists of a taxable Maori authority distribution and another amount, the Maori authority must allocate an equal proportion of each type of distribution to every member to whom the distribution is made.
Deﬁned in this Act: amount, Maori authority, member, taxable Maori authority distribution Compare: 2004 No 35 s HI 6 1864 Reprinted as at 30 August 2013 Income Tax Act 2007 Part H s HF 8 Changing status Table H1 Consequences of change in entity status for purposes of Maori authority rules Row Entity Changing to Consequences 1 Company Maori authority The company stops being an ICA company, and the rules relating to the ending of ICA company status apply Retained earnings, accumulated proﬁts, and capital reserves are treated as an amount from which a distribution that is not a taxable Maori authority distribution may be made Trustee income is treated as an amount from which a distribution that is not a taxable Maori authority distribution may be made The Maori authority may transfer a credit balance in the Maori authority credit account to the company’s imputation credit account, and section OK 18 applies to a debit balance in the Maori authority credit account Taxable income derived by the Maori authority in the 2003–04 or an earlier tax year is available subscribed capital Trust Maori authority Maori authority Company that is not a Maori authority 2 3 4 Maori authority Trust that is not a Maori authority Taxable income of the Maori Authority in the 2003–04 or an earlier tax year is treated as trustee income Row Entity Changing to Reverting to Consequences 5 6 Maori authority Company that is not a Maori authority Maori authority Maori authority Trust that is not a Maori authority Maori authority Market value calculations are required under section HF 10.
The company must apply row 1 Market value calculations are required under section HF 10.

The company must apply row 2 How to use this table Read columns from left to right according to the row that ﬁts the situation.

1865 Part H s HF 9 Income Tax Act 2007 Reprinted as at 30 August 2013 HF 9 Treatment of companies and trusts that choose to apply this subpart (1) (2) (3) (4) Company becoming Maori authority If a company becomes a Maori authority in a tax year, the company must apply table H1, row 1.
Trust becoming Maori authority If a trust becomes a Maori authority in a tax year, the trustee must apply table H1, row 2.

Maori authority becoming company If a Maori authority is a company that stops being a Maori authority in a tax year, it must apply table H1, row 3.

Maori authority becoming trust If a Maori authority is a trust that stops being a Maori authority in a tax year, the trustee must apply table H1, row 4.
Deﬁned in this Act: company, Maori authority, tax year, trustee Compare: 2004 No 35 s HI 8 HF 10 Market value calculations When this section applies This section applies to property of a company or a trust when the company or the trustees of the trust, having stopped being a Maori authority, reverts to being a Maori authority.
Treatment The company or the trustees, as applicable, are treated as— (a) disposing of the company’s property, or the trust’s prop- erty, immediately before becoming a Maori authority for a consideration that is the market value of the prop- erty on the date of disposal; and acquiring the property of the Maori authority for a con- sideration that is the market value of the property on the date of disposal referred to in paragraph (a).
(b) Market value for both In subsection (2), the market value of the property is the market value for both the company, or the trustees, as applicable, and the Maori authority.
(1) (2) (3) 1866 Reprinted as at 30 August 2013 Depreciation Income Tax Act 2007 Part H s HF 11 (4) Despite sections EE 55 to EE 60, and EZ 22 (which relate to depreciation), the cost to a Maori authority of property to which this section applies is the lesser of— (a) the market value of the property on the date it was ac- quired; and the original cost of the property to the company or the trust.
(b) Deﬁned in this Act: company, Maori authority, trustee Compare: 2004 No 35 s HI 9 HF 11 Choosing to become Maori authority Notice (1) A person who is eligible under section HF 2 may choose to become a Maori authority by notifying the Commissioner.

Acceptance notiﬁed (2) Having received a notice under subsection (1), the Commis- sioner must notify the person of the acceptance of the election.

The Commissioner must provide an acceptance date in the no- tice.
(3) When election takes effect The election takes effect on the ﬁrst day of— (a) the income year in which the person’s notice is given; or the next income year, if the person nominates that date in the notice.

(b) When election no longer effective (4) An election under this section stops having effect if the per- son— (a) notiﬁes the Commissioner that the election is cancelled, and the election no longer has effect from the date set out in the notice: stops being a Maori authority.
(b) Deﬁned in this Act: Commissioner, income year, Maori authority, notice, notify Compare: 2004 No 35 s HI 3 1867 Income Tax Act 2007 Reprinted as at 30 August 2013 Subpart HG—Joint venturers, partners, and partnerships Subpart HG: inserted, on 1 April 2008, by section 19(1) of the Taxation (Limited Partnerships) Act 2008 (2008 No 2).
Contents Joint venturers HG 1 Joint venturers Partners and partnerships HG 2 Partnerships are transparent HG 3 General provisions relating to disposals HG 4 Disposal upon ﬁnal dissolution HG 5 Disposal of partner’s interests HG 6 Disposal of trading stock HG 7 Disposal of depreciable property HG 8 Disposal of ﬁnancial arrangements and certain excepted ﬁnancial arrangements HG 9 Disposal of short-term agreements for sale and purchase HG 10 Disposal of livestock HG 11 Limitation on deductions by partners in limited partnerships HG 12 Limitation on deductions by partners in limited partnerships: carry-forward Page 1868 1869 1871 1872 1873 1875 1876 1877 1879 1880 1881 1887 Joint venturers Heading: inserted, on 1 April 2008, by section 19(1) of the Taxation (Limited Partnerships) Act 2008 (2008 No 2).
HG 1 Joint venturers When this section applies This section applies when 2 or more people derive income jointly or have deductions jointly, and they are not partners in the same partnership.

Separate shares Each person must calculate their net income for a tax year tak- ing into account their share of the joint income and deductions.
(1) (2) 1868 Reprinted as at 30 August 2013 Income Tax Act 2007 Part H s HG 2 (3) Exclusion This section does not apply to the income derived by and the deductions of an airport operator from activities that are activ- ities undertaken as an airport operator.

Deﬁned in this Act: airport operator, deduction, income, net income, partner, partnership, tax year Section HG 1: (Limited Partnerships) Act 2008 (2008 No 2).
inserted, on 1 April 2008, by section 19(1) of the Taxation Partners and partnerships Heading: inserted, on 1 April 2008, by section 19(1) of the Taxation (Limited Partnerships) Act 2008 (2008 No 2).
HG 2 Partnerships are transparent (1) Look-through in accordance with share For the purposes of a partner’s liabilities and obligations under this Act in their capacity of partner of a partnership, unless the context requires otherwise,— (a) the partner is treated as carrying on an activity carried on by the partnership, and having a status, intention, and purpose of the partnership, and the partnership is treated as not carrying on the activity or having the status, in- tention, or purpose: the partner is treated as holding property that a part- nership holds, in proportion to the partner’s partnership share, and the partnership is treated as not holding the property: the partner is treated as being party to an arrangement to which the partnership is a party, in proportion to the partner’s partnership share, and the partnership is treated as not being a party to the arrangement: the partner is treated as doing a thing and being entitled to a thing that the partnership does or is entitled to, in proportion to the partner’s partnership share, and the partnership is treated as not doing the thing or being entitled to the thing.
(b) (c) (d) No streaming (2) Despite subsection (1), for a partner in their capacity of partner of a partnership, the amount of income, tax credit, rebate, gain, 1869 Part H s HG 2 Income Tax Act 2007 Reprinted as at 30 August 2013 expenditure, or loss that they have from a particular source, or of a particular nature, is calculated by multiplying the total in- come, tax credit, rebate, gain, expenditure, or loss of the part- ners of the partnership from the particular source or of the par- ticular nature by the partner’s partnership share in the partner- ship’s income.
Expenditure or loss previously incurred (3) A partner of a partnership may be treated as incurring an ex- penditure or loss which the partnership incurs ignoring this section, despite the partner not being a partner at the time the expenditure or loss is incurred.

This subsection does not allow 2 deductions for 1 expenditure or loss.
Excluded amounts Subsection (2) does not apply to the following amounts: (a) expenditure or loss that relates to a person entering a partnership by acquiring partner’s interests disposed of by another partner, to the extent to which sections HG 5 to HG 10 do not apply to the partner’s interests: supplementary dividends, to the extent to which subpart LP (Tax credits for supplementary dividends) applies: [Repealed] imputation credits, to the extent to which section LE 6 (Partners in partnerships) applies: FDP credits, to the extent to which section LF 4 (Part- ners in partnerships) applies.
(b) (c) (d) (e) Deﬁned in this Act: arrangement, CTR additional dividend, FDP credit, im- putation credit, income, partner, partnership, partnership share, supplementary dividend, tax credit Section HG 2: (Limited Partnerships) Act 2008 (2008 No 2).
inserted, on 1 April 2008, by section 19(1) of the Taxation Section HG 2(4)(c): repealed (with effect on 1 July 2011 and applying for in- come years beginning on or after that date), on 7 May 2012, by section 76(1) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section HG 2 list of deﬁned terms rebate: repealed (with effect on 23 November 2010), on 17 July 2013, by section 61 of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).

(4) 1870 Reprinted as at 30 August 2013 Income Tax Act 2007 Part H s HG 3 HG 3 General provisions relating to disposals (1) (2) (3) Relationship between disposal upon dissolution and disposal safe harbours Section HG 4 overrides sections HG 5 to HG 10.
Election out of disposal safe harbours for small partnerships Sections HG 5 to HG 9 do not apply for the partners of a small partnership if the entering partner, the exiting partner, and the partnership, furnish returns of income that ignore the sections.

Election in for speciﬁed livestock disposed of to entering partner Section HG 10 applies for an entering partner if the entering partner furnishes a return of income that applies the section.
Deﬁned in this Act: entering partner, exiting partner, partner, partnership, return of income, small partnership Section HG 3: (Limited Partnerships) Act 2008 (2008 No 2).

inserted, on 1 April 2008, by section 19(1) of the Taxation Section HG 3(2): amended (with effect on 1 April 2008), on 6 October 2009, by section 269(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section HG 3(3) heading: substituted (with effect on 1 April 2008), on 6 Octo- ber 2009, by section 269(2) of the Taxation (International Taxation, Life Insur- ance, and Remedial Matters) Act 2009 (2009 No 34).

Section HG 3(3): substituted (with effect on 1 April 2008), on 6 October 2009, by section 269(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section HG 3 list of deﬁned terms entering partner: inserted (with effect on 1 April 2008), on 17 July 2013, by section 62 of the Taxation (Livestock Valu- ation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).

Section HG 3 list of deﬁned terms exiting partner: inserted (with effect on 1 April 2008), on 17 July 2013, by section 62 of the Taxation (Livestock Valu- ation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Section HG 3 list of deﬁned terms partner: inserted (with effect on 1 April 2008), on 17 July 2013, by section 62 of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).

Section HG 3 list of deﬁned terms partnership: inserted (with effect on 1 April 2008), on 17 July 2013, by section 62 of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Section HG 3 list of deﬁned terms return of income: inserted (with effect on 1 April 2008), on 17 July 2013, by section 62 of the Taxation (Livestock Valu- ation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).

Section HG 3 list of deﬁned terms small partnership: inserted (with effect on 1 April 2008), on 17 July 2013, by section 62 of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
1871 Part H s HG 4 Income Tax Act 2007 Reprinted as at 30 August 2013 HG 4 Disposal upon ﬁnal dissolution (1) When this section applies This section applies when a partnership is ﬁnally dissolved by agreement of the partners, court order, or otherwise, and the partnership’s business ignoring section HG 2 will not continue to be carried on in partnership.
Disposal and re-acquisition (2) A partner of the partnership is treated as disposing of all of their partner’s interests in the partnership, immediately before the dissolution, to a single third party for a payment equal to the interests’ market value.

The partner is treated as re-acquir- ing all of their partner’s interests immediately after the dissol- ution, from the third party for a payment equal to the interests’ market value.
Receipt upon dissolution (3) Anything received by a partner in relation to the ﬁnal dissol- ution of the partnership is ignored.

Exclusion: actual disposal to third party This section does not apply to the extent to which a partner of the partnership disposes of their partner’s interests in the partnership to persons who are not associated with them.

For the purposes of testing association, the partners’ partnership capacity is ignored.
Exclusion: partnerships of persons in marriage, civil union, or de facto relationships This section does not apply if— (a) immediately before the dissolution, there are only 2 partners of the partnership and they are married to each other, in a civil union together, or in a de facto relation- ship together; and the dissolution is caused by death of a partner, or the dis- solution relates to the settlement of relationship prop- erty; and on dissolution, all partner’s interests of 1 person are transferred, ignoring any intervening transfer to an ex- ecutor or administrator, to the other person; and the transfers of those partner’s interests are subject to provisions in subpart FB or FC (which relate to transfers (b) (c) (d) (4) (5) 1872 Reprinted as at 30 August 2013 Income Tax Act 2007 Part H s HG 5 of relationship property and gifts), and those provisions treat the transfers as disposals for amounts that are not the interests’ market values.
(6) Relationship with subject matter This section overrides sections HG 5 to HG 10.

Deﬁned in this Act: amount, associated person, dispose, partner, partner’s inter- ests, partnership, settlement of relationship property Section HG 4: substituted (with effect on 1 April 2008), on 6 October 2009, by section 270(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
HG 5 Disposal of partner’s interests When this section applies This section applies when a person (the exiting partner) dis- poses of some or all of their partner’s interests (the current interests) in a partnership, if the amount calculated using the following formula is less than zero: disposal payment + previous payments (gross tax value liabilities) $50,000.
(1) (2) Deﬁnition of items in formula In the formula,— (a) (b) (c) disposal payment is the total amount of consideration paid or payable to the exiting partner for the current interests: previous payments is the total amount of consideration paid or payable to the exiting partner for other dispos- als of some or all of their partner’s interests (the other interests) that have occurred in the year before the dis- posal of the current interests: gross tax value is the total of— (i) the value under this Act of the current interests and other interests at the time the relevant inter- est is disposed of, to the extent to which the inter- ests are revenue account property or depreciable property, or ﬁnancial arrangments: the market value of the current interests and other interests at the time the relevant interest is dis- posed of, to the extent to which the interests (ii) 1873 Part H s HG 5 Income Tax Act 2007 Reprinted as at 30 August 2013 (d) are not revenue account property or depreciable property or ﬁnancial arrangements: liabilities is the amount of liabilities under generally ac- cepted accounting practice at the time the relevant inter- est is disposed of, calculated by reference to the exiting partner’s partnership share for the relevant interest.
Exiting partner: excluded payment The disposal payment described in subsection (2)(a) is ex- cluded income of the exiting partner.

Exiting partner: no deduction The exiting partner is denied any deduction in relation to the current interests for the income year in which the disposal of the interests occurs and later income years to the extent to which the entering partner is allowed a deduction because of subsection (6).
(3) (4) Entering partner: no deduction (5) An entering partner is denied any deduction for the disposal payment described in subsection (2)(a).
Entering partner: stepping in For the purposes of calculating the income and deductions of an entering partner for the part of the income year after the disposal of the interests occurs and later income years (the post-disposal periods), the entering partner is treated for the post-disposal periods as if they had originally acquired and held the current interests, not the exiting partner.

However, this subsection does not apply to a deduction carried forward under section HG 12.
Exclusion by election This section does not apply for the partners of a small partner- ship if section HG 3(2) applies.

Relationship with section HG 4 Section HG 4 overrides this section.

Deﬁned in this Act: deduction, depreciable property, dispose, entering part- ner, excluded income, ﬁnancial arrangement, income tax liability, partner, part- ner’s interests, partnership, partnership share, return of income, revenue account property, year Section HG 5: (Limited Partnerships) Act 2008 (2008 No 2).
inserted, on 1 April 2008, by section 19(1) of the Taxation (6) (7) (8) 1874 Reprinted as at 30 August 2013 Income Tax Act 2007 Part H s HG 6 Section HG 5(2)(c): substituted (with effect on 1 April 2008), on 6 October 2009, by section 271(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section HG 5(7): amended (with effect on 1 April 2008), on 6 October 2009, by section 271(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section HG 5 list of deﬁned terms depreciable property: inserted (with ef- fect on 1 April 2008), on 6 October 2009, by section 271(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section HG 5 list of deﬁned terms ﬁnancial arrangement: inserted (with ef- fect on 1 April 2008), on 6 October 2009, by section 271(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section HG 5 list of deﬁned terms revenue account property: inserted (with effect on 1 April 2008), on 6 October 2009, by section 271(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
HG 6 Disposal of trading stock (1) (2) (3) (4) When this section applies This section applies when a person (the exiting partner) dis- poses of some or all of their partner’s interests in a partner- ship, to the extent to which those interests include trading stock that is not livestock, and, for the income year of disposal, the total turnover of the partnership, ignoring section HG 2, is $3,000,000 or less.
Exiting partner: excluded payment The amount of consideration paid or payable to the exiting partner for the trading stock is excluded income of the exiting partner.

Exiting partner: no deduction The exiting partner is denied any deduction in relation to the trading stock for the income year in which the disposal of the trading stock occurs and later income years, to the extent to which the entering partner is allowed a deduction because of subsection (5).
Entering partner: no deduction The entering partner is denied any deduction for the amount of consideration paid or payable to the exiting partner for the trading stock.

1875 Part H s HG 7 Income Tax Act 2007 Reprinted as at 30 August 2013 (5) (6) (7) Entering partner: stepping in For the purposes of calculating the income tax liability of an entering partner, the entering partner is treated as if they had acquired and held the trading stock, not the exiting partner.
Exclusion by election This section does not apply for the partners of a small partner- ship if section HG 3(2) applies.

Relationship with section HG 4 Section HG 4 overrides this section.

Deﬁned in this Act: deduction, dispose, entering partner, excluded income, in- come tax liability, partner, partner’s interests, partnership, small partnership, trading stock, turnover Section HG 6: (Limited Partnerships) Act 2008 (2008 No 2).
inserted, on 1 April 2008, by section 19(1) of the Taxation Section HG 6(6): amended (with effect on 1 April 2008), on 6 October 2009, by section 272(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
HG 7 Disposal of depreciable property When this section applies This section applies when a person (the exiting partner) dis- poses of some or all of their partner’s interests in a partnership, to the extent to which those interests include an item of depre- ciable property that is not depreciable intangible property, and the total cost of the item when it was ﬁrst acquired by the part- ners of the partnership is $200,000 or less.
Exiting partner: excluded payment The amount of consideration paid or payable to the exiting partner for the depreciable property is excluded income of the exiting partner.

Exiting partner: no deduction The exiting partner is denied any deduction in relation to the depreciable property for the income year in which the disposal of the depreciable property occurs and later income years, to the extent to which the entering partner is allowed a deduction because of subsection (5).
(1) (2) (3) 1876 Reprinted as at 30 August 2013 Income Tax Act 2007 Part H s HG 8 (4) (5) (6) (7) Entering partner: no deduction The entering partner is denied any deduction for the amount of consideration paid or payable to the exiting partner for the depreciable property.
Entering partner: stepping in For the purposes of calculating the income tax liability of an entering partner for the part of the income year after the dis- posal of the depreciable property occurs and later income years (the post-disposal periods), the entering partner is treated for the post-disposal periods as if they had originally acquired and held the depreciable property, not the exiting partner.
Exclusion by election This section does not apply for the partners of a small partner- ship if section HG 3(2) applies.

Relationship with section HG 4 Section HG 4 overrides this section.

Deﬁned in this Act: deduction, depreciable intangible property, depreciable property, dispose, entering partner, excluded income, income tax liability, part- ner, partner’s interests, partnership, small partnership Section HG 7: (Limited Partnerships) Act 2008 (2008 No 2).
inserted, on 1 April 2008, by section 19(1) of the Taxation Section HG 7(6): amended (with effect on 1 April 2008), on 6 October 2009, by section 273(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
HG 8 Disposal of ﬁnancial arrangements and certain excepted ﬁnancial arrangements (1) When this section applies This section applies when a person (the exiting partner) dis- poses of some or all of their partner’s interests in a partner- ship, to the extent to which those interests include a ﬁnancial arrangement or an excepted ﬁnancial arrangement described in section EW 5(10) (What is an excepted ﬁnancial arrange- ment?)
and, ignoring section HG 2— (a) the purpose for which the ﬁnancial arrangement or ex- cepted ﬁnancial arrangement was entered into was ne- cessary and incidental to the business of the partnership; and 1877 Part H s HG 8 Income Tax Act 2007 Reprinted as at 30 August 2013 (b) the partnership does not derive income from a business of holding ﬁnancial arrangements.
Exiting partner: excluded payment The amount of consideration paid or payable to the exiting partner for the relevant ﬁnancial arrangement or excepted ﬁ- nancial arrangement is excluded income of the exiting partner.

The exiting partner is, for the relevant ﬁnancial arrangement, a party that is not required to calculate a base price adjustment, despite section EW 29 (When calculation of base price adjust- ment required).
Exiting partner: no deduction The exiting partner is denied any deduction in relation to the relevant ﬁnancial arrangement or excepted ﬁnancial arrange- ment for the income year in which the disposal of the ﬁnan- cial arrangement or excepted ﬁnancial arrangement occurs and later income years.
Entering partner: no deduction The entering partner is denied any deduction for the amount of consideration paid or payable to the exiting partner for the relevant ﬁnancial arrangement or excepted ﬁnancial arrange- ment.
Entering partner: stepping in For the purposes of calculating the income tax liability of an entering partner for the part of the income year after the dis- posal of the relevant ﬁnancial arrangement or excepted ﬁnan- cial arrangement occurs and later income years (the post-dis- posal periods), the entering partner is treated for the post-dis- posal periods as if they had acquired and held the ﬁnancial ar- rangement or excepted ﬁnancial arrangement, not the exiting partner.
Exclusion by election This section does not apply for the partners of a small partner- ship if section HG 3(2) applies.

Relationship with section HG 4 Section HG 4 overrides this section.
Deﬁned in this Act: deduction, disposal entering partner, excepted ﬁnancial ar- rangement, excluded income, ﬁnancial arrangement, income tax liability, part- ner, partner’s interests, partnership, small partnership (2) (3) (4) (5) (6) (7) 1878 Reprinted as at 30 August 2013 Income Tax Act 2007 Part H s HG 9 Section HG 8: (Limited Partnerships) Act 2008 (2008 No 2).
inserted, on 1 April 2008, by section 19(1) of the Taxation Section HG 8(6): amended (with effect on 1 April 2008), on 6 October 2009, by section 274(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
HG 9 Disposal of short-term agreements for sale and purchase (1) (2) (3) (4) (5) When this section applies This section applies when a person (the exiting partner) dis- poses of some or all of their partner’s interests in a partner- ship, to the extent to which those interests include a short-term agreement for sale and purchase.
Exiting partner: excluded payment The amount of consideration paid or payable to the exiting partner for the short-term agreement for sale and purchase is excluded income of the exiting partner.

Exiting partner: no deduction The exiting partner is denied any deduction in relation to the short-term agreement for sale and purchase, to the extent to which the entering partner is allowed a deduction because of subsection (5).
Entering partner: no deduction The entering partner is denied any deduction for the amount of consideration paid or payable to the exiting partner for the short-term agreement for sale and purchase.
Entering partner: stepping in For the purposes of calculating the income tax liability of an entering partner for the part of the income year after the dis- posal of the short-term agreement for sale and purchase occurs and later income years (the post-disposal periods), the enter- ing partner is treated for the post-disposal periods as if they had originally acquired and held the short-term agreement for sale and purchase, not the exiting partner.
(6) Exclusion by election This section does not apply for the partners of a small partner- ship if section HG 3(2) applies.

1879 Part H s HG 10 Income Tax Act 2007 Reprinted as at 30 August 2013 (7) Relationship with section HG 4 Section HG 4 overrides this section.
Deﬁned in this Act: deduction, disposal entering partner, excluded income, in- come tax liability, partner, partner’s interests, partnership, short-term agree- ment for sale and purchase, small partnership Section HG 9: (Limited Partnerships) Act 2008 (2008 No 2).
inserted, on 1 April 2008, by section 19(1) of the Taxation Section HG 9 heading: amended (with effect on 1 April 2008), on 6 October 2009, by section 275(1)(a) of the Taxation (International Taxation, Life Insur- ance, and Remedial Matters) Act 2009 (2009 No 34).

Section HG 9(1): amended (with effect on 1 April 2008), on 6 October 2009, by section 275(1)(b) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section HG 9(2): amended (with effect on 1 April 2008), on 6 October 2009, by section 275(1)(c) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section HG 9(3): amended (with effect on 1 April 2008), on 6 October 2009, by section 275(1)(d) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section HG 9(4): amended (with effect on 1 April 2008), on 6 October 2009, by section 275(1)(e) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section HG 9(5): amended (with effect on 1 April 2008), on 6 October 2009, by section 275(1)(f) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section HG 9(6): amended (with effect on 1 April 2008), on 6 October 2009, by section 275(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section HG 9 list of deﬁned terms short-term agreement for sale and pur- chase: inserted (with effect on 1 April 2008), on 6 October 2009, by section 275(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section HG 9 list of deﬁned terms short-term agreement for the sale and purchase of property or services: repealed (with effect on 1 April 2008), on 6 October 2009, by section 275(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
HG 10 Disposal of livestock When this section applies This section applies when a person disposes of some or all of their partner’s interests to an entering partner and section HG 3(3) applies, to the extent to which those interests include speciﬁed livestock and that speciﬁed livestock includes female breeding livestock and, for the income year, the partners use— (1) 1880 Reprinted as at 30 August 2013 Income Tax Act 2007 Part H s HG 11 (2) (a) (b) the national standard cost scheme for speciﬁed live- stock, described in section EC 22 (National standard cost scheme); or the cost price method for speciﬁed livestock, described in section EC 25 (Cost price, replacement price, or mar- ket value).
Entering partner’s cost base Section EC 26B (Entering partners’ cost base) may apply to the entering partner for the purposes of determining the value of the speciﬁed livestock at the end of an income year for the purposes of section EC 2 (Valuation of livestock).
Deﬁned in this Act: amount, cost price, dispose, income year, national standard cost scheme, partner, partner’s interest, speciﬁed livestock Section HG 10: substituted (with effect on 1 April 2009), on 6 October 2009, by section 276(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
HG 11 Limitation on deductions by partners in limited partnerships (1) (2) When this section applies This section applies for a limited partnership and an income year when, but for this section, a deduction by virtue of section HG 2 or HG 12 is allowed to— (a) (b) a limited partner of the limited partnership: a general partner of the partnership who— (i) was a limited partner of the limited partnership within 60 days of the last day of the income year; and is or will be a limited partner of the limited part- nership within 60 days after the last day of the income year.
(ii) No deduction The partner is denied the deduction for an income year to the extent to which their limited partnership deduction for the in- come year is greater than the amount (the partner’s basis) calculated using the formula in subsection (3) on the last day of the income year.
1881 Part H s HG 11 Income Tax Act 2007 Reprinted as at 30 August 2013 (3) (4) (5) Partner’s basis For the purposes of subsection (2), the amount that is the part- ner’s basis is calculated using the following formula: investments deductions distributions + income disallowed amount.

 Deﬁnition of items in formula The items in the formula are deﬁned in subsections (5) to (9).
Investments Investments is the total of— (a) the market value of capital contributions made by the partner to the limited partnership at the time the relevant contribution is contributed or agreed to be contributed by them: the amount paid by the partner for the assignment of capital contributions to them: the secured amounts.
(b) (c) Distributions (6) Distributions is the total of— (a) (b) the market value of distributions to the partner from the limited partnership: the amount paid to the partner for the assignment of capital contributions by them.
Income Income is the total of— (a) (ab) (b) (c) income that the partner has by virtue of section HG 2 in the income year and previous income years: if the partner has FIF income or a FIF loss, an amount under subsection (7B): capital gain amounts under section CD 44(7)(a) (Avail- able capital distribution amount) that the partner would have by virtue of section HG 2 in the income year and previous income years, if the partner were treated as a company for the purposes of section CD 44(7)(a), un- less the gain is accounted for under paragraph (a): assessable income that the partner has in previous in- come years from goods and services they contributed to the limited partnership, if the income is not accounted (7) 1882 Reprinted as at 30 August 2013 Income Tax Act 2007 Part H s HG 11 for under subsection (5) or paragraph (a) or (b) of this subsection.
Formula (7B) The amount described in subsection (7)(ab) is given by the fol- lowing formula, but if the calculation returns a negative num- ber, the amount is zero: dividend – FIF amount.
(7C) Deﬁnition of items in formula In the formula,— (a) (b) dividend is the amount that would be the partner’s share of the dividend paid by a FIF to the limited partnership, if section CD 36(1) (Foreign investment fund income) were ignored: FIF amount is— (i) (ii) zero, if subparagraph (ii) does not apply: the amount that is the person’s FIF income, for the relevant income year and FIF, if the person has such an amount.
Deductions (8) Deductions is the total of— (a) (b) (c) expenditure or loss in previous income years, to the extent to which the expenditure or loss is incurred by virtue of section HG 2 in the partner deriving income by virtue of section HG 2, excluding any deductions de- nied in those previous years under this section: capital loss amounts under section CD 44(9) that the partner would have by virtue of section HG 2 in the income year and previous income years, if the part- ner is treated as a company for the purposes of section CD 44(9), unless the loss is accounted for under para- graph (a): deductions that the partner is allowed in previous in- come year in relation to assessable income described in subsection (7)(c), if the deduction is not accounted for under subsection (6) or paragraphs (a) or (b) of this sec- tion.
1883 Part H s HG 11 Income Tax Act 2007 Reprinted as at 30 August 2013 Disallowed amounts (9) Disallowed amount is the amount of investments, as deﬁned in subsection (5), made by the partner within 60 days of the last day of the income year, if those investments are or will be distributed or reduced within 60 days after the last day of the income year.
Exclusion (10) This section does not deny a partner (the exiting partner) a deduction that is equal to or less than the amount of net income that the exiting partner has for the amount paid or payable to the exiting partner for the disposal of their partner’s interests, ignoring other transactions.

Relationship with subject matter (11) This section is modiﬁed by sections HZ 3, HZ 4, and HZ 4B (which relate to transitions to limited partnerships).
Some deﬁnitions In this section,— capital contribution includes— (a) (b) a capital contribution for the purposes of the Limited Partnerships Act 2008: amounts that the limited partnership is debtor for in re- lation to the partner, including a loan to the limited part- nership and a credit balance in a current account guarantor means— a partner, if— (a) (i) the partner secures the relevant debt by guarantee or indemnity: the partner’s associate secures the relevant debt by guarantee or indemnity: (ii) (b) a person who is not described in paragraph (a)(i) and (ii) but who secures the relevant debt by guarantee or indemnity, if the partner or a partner’s associate also secures the relevant debt as described in paragraph (a)(i) or (ii) limited partnership deduction means, for the partner and the income year, the amount of any deductions that the partner would be allowed if the partner is treated as having no income (12) 1884 Reprinted as at 30 August 2013 Income Tax Act 2007 Part H s HG 11 or deductions other than those that arise by virtue of sections HG 2 and HG 12 partner’s associate means, for a partner, a person who is not a partner of the relevant limited partnership, and who is— (a) a relative of the partner, but excluding a person under section YA 1 (Deﬁnitions), deﬁnition of relative, para- graph (v): a company in the same wholly-owned group as the part- ner (b) recourse property means property to which a creditor has re- course, to enforce a guarantee or indemnity for the relevant debt, if the guarantee or indemnity expressly provides recourse to only that property secured amounts means, for the partner, the lesser of the fol- lowing applicable amounts— (a) the amount of the limited partnership’s debt ignoring section HG 2 (the secured debt) for which the partner is a guarantor, divided by the total number of guarantors for the secured debt: the market value of the recourse property for the secured debt to the extent of the interest that the partner and the partner’s associates have in it, net of
 higher-rank- ing calls whether actual, future, or contingent, divided by the total number of guarantors described in the deﬁn- ition of guarantor, paragraph (a), who have an interest in the recourse property or have a partner’s associate with an interest in the recourse property.
(b) Deﬁned in this Act: amount, capital contribution, deduction, dividends, entering partner, FIF, FIF income, FIF loss, guarantor, income, income year, limited partnership deduction, loan, net income, net loss, partner, partner’s associate, partnership, recourse property, secured amounts Section HG 11: inserted, on 1 April 2008, by section 19(1) of the Taxation (Limited Partnerships) Act 2008 (2008 No 2).
Section HG 11(7)(a): replaced (with effect on 1 April 2008), on 2 November 2012, by section 85(1) of the Taxation (Annual Rates, Returns Filing, and Re- medial Matters) Act 2012 (2012 No 88).

Section HG 11(7)(ab): inserted (with effect on 1 April 2008), on 2 November 2012, by section 85(1) of the Taxation (Annual Rates, Returns Filing, and Re- medial Matters) Act 2012 (2012 No 88).
1885 Part H s HG 11 Income Tax Act 2007 Reprinted as at 30 August 2013 inserted (with effect on 1 April 2008), on Section HG 11(7B) heading: 2 November 2012, by section 85(2) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).

Section HG 11(7B): inserted (with effect on 1 April 2008), on 2 November 2012, by section 85(2) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section HG 11(7C) heading: inserted (with effect on 1 April 2008), on 2 November 2012, by section 85(2) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).

Section HG 11(7C): inserted (with effect on 1 April 2008), on 2 November 2012, by section 85(2) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section HG 11(8)(b): amended (with effect on 1 April 2008), on 6 October 2009, by section 277 of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section HG 11(11): amended, on 1 April 2011 (applying for income years be- ginning on or after 1 April 2011), by section 81(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section HG 11(12) capital contribution: replaced (with effect on 1 April 2008), on 2 November 2012, by section 85(3) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).

Section HG 11(12) guarantor: inserted (with effect on 1 April 2012), on 2 November 2012, by section 85(4) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section HG 11(12) partner’s associate paragraph (a): amended (with effect on 1 April 2012), on 2 November 2012, by section 85(5) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).

Section HG 11(12) resource property: inserted (with effect on 1 April 2012), on 2 November 2012, by section 85(6) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section HG 11(12) secured amounts: replaced (with effect on 1 April 2012), on 2 November 2012, by section 85(6) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).

Section HG 11 list of deﬁned terms FIF loss: inserted (with effect on 1 April 2008), on 2 November 2012, by section 85(7) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section HG 11 list of deﬁned terms guarantor: inserted (with effect on 1 April 2012), on 2 November 2012, by section 85(8) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).

Section HG 11 list of deﬁned terms loan: inserted (with effect on 1 April 2008), on 2 November 2012, by section 85(9) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section HG 11 list of deﬁned terms recourse property: inserted (with effect on 1 April 2012), on 2 November 2012, by section 85(8) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
1886 Reprinted as at 30 August 2013 Income Tax Act 2007 Part H s HG 12 Section HG 11 list of deﬁned terms secured amounts: inserted (with effect on 1 April 2012), on 2 November 2012, by section 85(8) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
HG 12 Limitation on deductions by partners in limited partnerships: carry-forward (1) (2) (2B) (3) When this section applies This section applies when, for an income year, a partner is denied a deduction under section HG 11.
Carry-forward The partner is allowed a deduction, for an amount for which the partner is denied a deduction under section HG 11, for the income year (the later income year) after the one for which it is denied under section HG 11, unless— (a) the limited partnership ceases to be a limited partnership in the later year: the partner ceases to be a partner in the later year (b) Carry-forward: resumption If a person would have been allowed a deduction but for the application of subsection (2)(b) for the later year, they are al- lowed a deduction for the amount for the ﬁrst income year after the later year in which they resume being a partner in the limited partnership.
Relationship with subject matter The deduction allowed under this section is subject to section HG 11, to the extent to which that section applies to the de- duction and the relevant partner.

Deﬁned in this Act: amount, deduction, income year, limited partner Section HG 12: inserted, on 1 April 2008, by section 19(1) of the Taxation (Limited Partnerships) Act 2008 (2008 No 2).
Section HG 12(2): amended (with effect on 1 April 2008), on 21 December 2010, by section 82(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).

Section HG 12(2B) heading: inserted (with effect on 1 April 2008), on 21 De- cember 2010, by section 82(2) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).

Section HG 12(2B): inserted (with effect on 1 April 2008), on 21 December 2010, by section 82(2) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
1887 Income Tax Act 2007 Reprinted as at 30 August 2013 Subpart HL—Portfolio investment entities [Repealed] Subpart HL: repealed, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Contents Introductory provisions [Repealed] HL 1 HL 2 Intended effect on portfolio tax rate entities and investors [Repealed] Scheme of subpart [Repealed] Eligibility requirements: portfolio investment entities and foreign investment vehicles [Repealed] HL 3 Eligibility requirements for entities [Repealed] HL 4 Effect of failure to meet eligibility requirements for entities [Repealed] Foreign investment vehicles [Repealed] HL 5 HL 5B Meaning of investor and portfolio investor class [Repealed] HL 5C Income interest requirement [Repealed] HL 6 HL 7 Investor membership requirement [Repealed] Investor return adjustment requirement: portfolio tax rate entity [Repealed] Imputation credit distribution requirement: portfolio listed company [Repealed] Investor interest size requirement [Repealed] HL 9 HL 10 Further eligibility requirements relating to HL 8 Page 1890 1890 1891 1891 1891 1891 1891 1891 1892 1892 1892 1892 investments [Repealed] Becoming and ceasing to be portfolio investment entity [Repealed] HL 11 Election to become portfolio investment entity and 1892 cancellation of election [Repealed] HL 12 Unlisted company choosing to become portfolio listed 1893 company [Repealed] HL 13 Becoming portfolio investment entity [Repealed] HL 14 Tax consequences from transition [Repealed] HL 15 Ceasing to be portfolio investment entity [Repealed] 1893 1893 1893 1888 Reprinted as at 30 August 2013 Income Tax Act 2007 Part H s HG 12 Periods relevant to calculation of portfolio entity tax liability [Repealed] HL 16 Portfolio allocation period and portfolio calculation 1893 period [Repealed] Allocation of income in some cases [Repealed] HL 17 Treatment of income from interest when entitlement 1894 conditional or lacking [Repealed] HL 18 Certain new investors treated as part of existing portfolio 1894 investor class [Repealed] Calculating portfolio entity tax liability [Repealed] HL 19 Portfolio class net income and portfolio class net loss for 1894 portfolio allocation period [Repealed] HL 19B Treatment of certain provisions
 made by portfolio tax 1894 rate entity [Repealed] HL 20 Portfolio class taxable income and portfolio class taxable 1895 loss for portfolio allocation period [Repealed] HL 21 Portfolio entity tax liability and tax credits of portfolio tax 1895 rate entity for period [Repealed] Payment by portfolio tax rate entity of tax for tax year [Repealed] HL 22 Payments of tax by portfolio tax rate entity making no 1895 election [Repealed] HL 23 Payments of tax by portfolio tax rate entity choosing to 1895 pay provisional tax [Repealed] HL 24 Payments of tax by portfolio tax rate entity choosing to make payments when investor leaves [Repealed] HL 25 Optional payments of tax by portfolio tax rate 1896 1896 entities [Repealed] Results for investors [Repealed] HL 26 Portfolio investor allocated income and portfolio investor 1896 allocated loss [Repealed] HL 27 Treatment of portfolio investor allocated loss for 1896 zero-rated portfolio investors and investors with portfolio investor exit period [Repealed] 1889 Part H s HL 1 Income Tax Act 2007 Reprinted as at 30 August 2013 Tax credits for entity [Repealed] HL 28 Treatment of portfolio investor allocated loss for other 1897 investors [Repealed] HL 29 Credits received by portfolio tax rate entity or portfolio 1897 investor proxy [Repealed] Treatment of losses for entity [Repealed] HL 30 Portfolio entity formation loss [Repealed] HL 31 Portfolio class taxable income and portfolio class taxable loss for tax year [Repealed] HL 32 Treatment of portfolio class taxable loss and portfolio class land loss for tax year [Repealed] Portfolio investor proxies [Repealed] HL 33 Portfolio investor proxies [Repealed] 1897 1897 1897 1898 Introductory provisions [Repealed] Heading: repealed, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
HL 1 Intended effect on portfolio tax rate entities and investors [Repealed] Section HL 1: repealed, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
HL 2 Scheme of subpart [Repealed] Section HL 2: repealed, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Eligibility requirements: portfolio investment entities and foreign investment vehicles 1890 Reprinted as at 30 August 2013 Income Tax Act 2007 Part H s HL 6 [Repealed] Heading: repealed, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
HL 3 Eligibility requirements for entities [Repealed] Section HL 3: repealed, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
HL 4 Effect of failure to meet eligibility requirements for entities [Repealed] Section HL 4: repealed, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
HL 5 Foreign investment vehicles [Repealed] Section HL 5: repealed, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
HL 5B Meaning of investor and portfolio investor class [Repealed] Section HL 5B: repealed, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
HL 5C Income interest requirement [Repealed] Section HL 5C: repealed, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
HL 6 Investor membership requirement [Repealed] Section HL 6: repealed, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
1891 Part H s HL 7 Income Tax Act 2007 Reprinted as at 30 August 2013 HL 7 Investor return adjustment requirement: portfolio tax rate entity [Repealed] Section HL 7: repealed, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
HL 8 Imputation credit distribution requirement: portfolio listed company [Repealed] Section HL 8: repealed, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
HL 9 Investor interest size requirement [Repealed] Section HL 9: repealed, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
HL 10 Further eligibility requirements relating to investments [Repealed] Section HL 10: repealed, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Becoming and ceasing to be portfolio investment entity [Repealed] Heading: repealed, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
HL 11 Election to become portfolio investment entity and cancellation of election [Repealed] Section HL 11: repealed, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
1892 Reprinted as at 30 August 2013 Income Tax Act 2007 Part H s HL 16 HL 12 Unlisted company choosing to become portfolio listed company [Repealed] Section HL 12: repealed, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
HL 13 Becoming portfolio investment entity [Repealed] Section HL 13: repealed, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
HL 14 Tax consequences from transition [Repealed] Section HL 14: repealed, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
HL 15 Ceasing to be portfolio investment entity [Repealed] Section HL 15: repealed, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Periods relevant to calculation of portfolio entity tax liability [Repealed] Heading: repealed, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
HL 16 Portfolio allocation period and portfolio calculation period [Repealed] Section HL 16: repealed, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Allocation of income in some cases 1893 Part H s HL 17 Income Tax Act 2007 Reprinted as at 30 August 2013 [Repealed] Heading: repealed, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
HL 17 Treatment of income from interest when entitlement conditional or lacking [Repealed] Section HL 17: repealed, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
HL 18 Certain new investors treated as part of existing portfolio investor class [Repealed] Section HL 18: repealed, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Calculating portfolio entity tax liability [Repealed] Heading: repealed, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
HL 19 Portfolio class net income and portfolio class net loss for portfolio allocation period [Repealed] Section HL 19: repealed, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
HL 19B Treatment of certain provisions made by portfolio tax rate entity [Repealed] Section HL 19B: repealed, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
1894 Reprinted as at 30 August 2013 Income Tax Act 2007 Part H s HL 23 HL 20 Portfolio class taxable income and portfolio class taxable loss for portfolio allocation period [Repealed] Section HL 20: repealed, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
HL 21 Portfolio entity tax liability and tax credits of portfolio tax rate entity for period [Repealed] Section HL 21: repealed, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section HL 21: amended (with effect on 1 April 2008), on 2 November 2012 (applying for the 2008–09 and later income years), by section 86(1) of the Tax- ation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).

Section HL 21: amended (with effect on 1 April 2008), on 2 November 2012, by section 86(2) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Payment by portfolio tax rate entity of tax for tax year [Repealed] Heading: repealed, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
HL 22 Payments of tax by portfolio tax rate entity making no election [Repealed] Section HL 22: repealed, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
HL 23 Payments of tax by portfolio tax rate entity choosing to pay provisional tax [Repealed] Section HL 23: repealed, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
1895 Part H s HL 24 Income Tax Act 2007 Reprinted as at 30 August 2013 HL 24 Payments of tax by portfolio tax rate entity choosing to make payments when investor leaves [Repealed] Section HL 24: repealed, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
HL 25 Optional payments of tax by portfolio tax rate entities [Repealed] Section HL 25: repealed, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Results for investors [Repealed] Heading: repealed, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
HL 26 Portfolio investor allocated income and portfolio investor allocated loss [Repealed] Section HL 26: repealed, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
HL 27 Treatment of portfolio investor allocated loss for zero-rated portfolio investors and investors with portfolio investor exit period [Repealed] Section HL 27: repealed, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Tax credits for entity [Repealed] Heading: repealed, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
1896 Reprinted as at 30 August 2013 Income Tax Act 2007 Part H s HL 32 HL 28 Treatment of portfolio investor allocated loss for other investors [Repealed] Section HL 28: repealed, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
HL 29 Credits received by portfolio tax rate entity or portfolio investor proxy [Repealed] Section HL 29: repealed, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Treatment of losses for entity [Repealed] Heading: repealed, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

HL 30 Portfolio entity formation loss [Repealed] Section HL 30: repealed, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
HL 31 Portfolio class taxable income and portfolio class taxable loss for tax year [Repealed] Section HL 31: repealed, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
HL 32 Treatment of portfolio class taxable loss and portfolio class land loss for tax year [Repealed] Section HL 32: repealed, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Portfolio investor proxies 1897 Part H s HL 33 Income Tax Act 2007 Reprinted as at 30 August 2013 [Repealed] Heading: repealed, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
HL 33 Portfolio investor proxies [Repealed] Section HL 33: repealed, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Subpart HM—Portfolio investment entities Subpart HM: inserted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Contents Introductory provisions HM 1 Outline of subpart and relationship with other Parts HM 2 What is a portfolio investment entity?

HM 3 Foreign PIE equivalents HM 4 Who is an investor?

HM 5 What is an investor class?
HM 6 Intended effects for multi-rate PIEs and investors HM 6B Optional look-through rules for certain PIEs HM 7 Requirements Entry rules Requirements HM 8 Residence in New Zealand HM 9 Collective schemes HM 10 Exclusion: life insurance business HM 11 Investment types HM 12 Income types HM 13 Maximum shareholdings in investments HM 14 Minimum number of investors HM 15 Maximum investor interests HM 16 Associates combined HM 17 Same rights to all investment proceeds HM 18 Requirements for listed PIEs: unlisted companies HM 19 Requirements for listed PIEs: fully crediting distributions 1898 Page 1901 1905 1907 1908 1908 1910 1912 1913 1913 1914 1915 1915 1916 1918 1919 1920 1921 1921 1922 1923 Reprinted as at 30 August 2013 Income Tax Act 2007 Part H s HL 33 HM 19B Modiﬁed rules for foreign investment zero-rate PIEs HM 19C Modiﬁed rules for foreign investment variable-rate PIEs HM 20 Re-entering as PIE: 5-year rule Exceptions HM 21 Exceptions for certain investors HM 22 Exceptions for certain funds HM 23 Exceptions for foreign PIE equivalents Exit rules HM 24 Immediate loss of PIE status HM 25 When entity no longer meets investment or investor requirements HM 26 Starting life insurance business HM 27 When multi-rate PIE no longer meets investor interest adjustment requirements HM 28 When listed PIE no longer meets crediting requirement HM 29 Choosing to cancel status HM 30 When foreign PIE equivalent no longer meets requirements Rules for multi-rate PIEs Introductory provisions HM 31 Rules for multi-rate PIEs HM 32 Rules for and treatment of investors in multi-rate PIEs HM 33 Proxies for PIE investors Attributing income to investors HM 34 Attribution periods HM 35 Determining net amounts and taxable amounts HM 35B Treatment of certain provisions made by multi-rate PIEs HM 35C Determining amounts for notiﬁed foreign investors HM 36 Calculating amounts attributed to investors HM 37 When income cannot be attributed HM 38 When superannuation fund investor has conditional entitlement HM 39 New investors in existing
 investor classes HM 40 Deductions for attributed PIE losses for zero-rated and exiting investors Calculating and paying tax liability HM 41 Options for calculation and payment of tax HM 42 Exit calculation option 1924 1925 1925 1926 1927 1928 1928 1929 1930 1930 1930 1930 1931 1932 1933 1934 1935 1936 1938 1939 1941 1943 1944 1946 1946 1947 1948 1899 Income Tax Act 2007 Reprinted as at 30 August 2013 HM 42B Part-year tax calculations for PIEs under the exit calculation option for the 2010–11 tax year HM 43 Quarterly calculation option HM 44 Provisional tax calculation option HM 44B NRWT calculation option HM 45 Voluntary payments HM 46 Calculation process HM 47 Calculation of tax liability or tax credit of multi-rate PIEs 1949 1950 1951 1952 1955 1955 1956 HM 48 Adjustments to investor interests or to distributions 1958 Adjusting investors’ interests Using tax credits HM 49 Tax credits: when sections HM 50 to HM 55 apply HM 50 Attributing credits to investors HM 51 Use of foreign tax credits by PIEs HM 52 Use of foreign tax credits by zero-rated and certain exiting investors HM 53 Use of tax credits other than foreign tax credits by PIEs HM 54 Use of tax credits other than foreign tax credits by investors HM 55 Tax credits for losses Special rules for foreign investment PIEs HM 55C Modiﬁed source rules HM 55D Requirements for investors in foreign investment PIEs HM 55E Changes in status of investors in foreign investment PIEs HM 55F Treatment of income attributed to notiﬁed foreign investors HM 55FB Notiﬁed foreign investors and tax credits for supplementary dividends 1960 1960 1963 1964 1966 1967 1968 1968 1969 1971 1971 1972 HM 55G Allowable amounts and thresholds for income with New 1973 Zealand source HM 55H Treatment when certain requirements for foreign 1974 investment PIEs not met Prescribed and notiﬁed rates for investors in multi-rate PIEs HM 56 Prescribed investor rates: schedular rates HM 57 Prescribed investor rates for certain investors: 0% HM 57B
 Prescribed investor rates for new residents HM 58 Transition of rate for certain investors 1975 1976 1977 1977 1900 Reprinted as at 30 August 2013 Income Tax Act 2007 Part H s HM 1 HM 59 Prescribed investor rates for certain investors: 0% [Repealed] HM 60 Notiﬁed investor rates HM 61 Certain exiting investors zero-rated Exit levels and periods HM 62 Exit levels for investors HM 63 Exit periods Treatment of losses by PIEs Losses of certain multi-rate PIEs HM 64 Use of investor classes’ losses HM 65 Use of land losses of investor classes Formation losses HM 66 Formation losses carried forward to tax year HM 67 Formation losses carried forward to ﬁrst quarter HM 68 When formation losses carried forward are less than 5% of formation investment value 1978 1978 1981 1983 1983 1984 1985 1987 1987 1988 HM 69 When formation losses carried forward are 5% or more of 1988 formation investment value: 3-year spread HM 70 Maximum amount of formation losses allocated by multi-rate PIEs to investor classes Elections and consequences HM 71 Choosing to become PIE HM 71B Choosing to become foreign investment PIE HM 72 When elections take effect HM 73 Transition: provisional tax HM 74 Transition: entities with non-standard income years HM 75 Transition: treatment of shares held in certain companies HM 76 Transition: FDPA companies 1989 1990 1990 1991 1992 1993 1994 1995 Introductory provisions Heading: inserted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
HM 1 Outline of subpart and relationship with other Parts Subpart HM This subpart sets out— (1) 1901 Part H s HM 1 Income Tax Act 2007 Reprinted as at 30 August 2013 (a) the entry and exit rules for portfolio investment entities, see sections HM 7 to HM 30: (b) who an investor is, and what an investor class is, see (c) (d) (e) sections HM 4 and HM 5: what a multi-rate PIE must do in relation to its investors and its investments, see sections HM 31 to HM 63: the treatment of losses by PIEs, see sections HM 64 to HM 70: how an entity makes an election to become a PIE, and the consequences of making the election, see sections HM 71 to HM 76.
(2) (c) (e) (b) (d) Relationship with Parts C and D The following sections apply to portfolio investment entities: section CB 26 (Disposal of certain shares by portfolio (a) investment entities): section CP 1 (Attributed income of investors in multi- rate PIEs): section CX 55 (Proceeds from disposal of investment shares): section CX 56 (Attributed income of certain investors in multi-rate PIEs): section CX 56B (Distributions to investors in multi-rate PIEs): section CX 56C (Distributions to investors by listed PIEs): section CX 57 (Credits for investment fees): section DB 53 (Attributed PIE losses of certain in- vestors): section DB 54 (Treatment of credits for investment fees): section DB 54B (Expenditure incurred by foreign in- vestment PIEs): sections DV 2, DV 4, and DV 5 (which relate to transfers of expenditure to a master superannuation fund that is a PIE).
(g) (h) (ib) (f) (i) (j) Outline of provisions related to particular PIEs (2B) Certain PIEs either have special rules related to their activities or are affected by some particular rules.
These are set out below: 1902 Reprinted as at 30 August 2013 (a) (b) Income Tax Act 2007 Part H s HM 1 (ii) (iii) (iv) (v) (vi) (vii) (ii) (iii) (iv) (v) (vi) (vii) for a listed PIE, see the following: (i) section CX 56C (Distributions to investors by listed PIEs): section EZ 63 (Disposal and acquisition upon en- try): section HM 2(3), which relates to listed PIEs be- coming multi-rate PIEs: section HM 18, which describes how an unlisted company becomes a listed PIE: section HM 19, which relates to distributions of listed PIEs: section HM 21(4), for a transitional provision for investors in listed PIEs: section HM 28, for the consequences when a listed PIE does not meet a distributional require- ment: (viii) sections MB 1(5) and MB 11, which relate to family scheme income: for a life fund PIE, see the following: (i) section CX 55 (Proceeds from disposal of invest- ment shares): section DR 1(2) (Policyholder base allowable de- duction of life insurer): section EY 1(2) (What this subpart does): section EY 2(6) (Policyholder base): section HM 4, which is about who can be an investor: section HM 10, which excludes entities other than life fund PIEs carrying on a business of life insurance: section HM 17, for an additional entry rule for PIEs other than life fund PIEs: (viii) section HM 19, for an additional entry rule for (ix) (x) listed PIEs other than life fund PIEs: section HM 26, for an exit rule for entities other than life fund PIEs starting a life insurance busi- ness: section OB 35B (ICA debit for transfer from tax pooling account for policyholder base liability): 1903 Part H s HM 1 Income Tax Act 2007 Reprinted as at 30 August 2013 (xi) section OP 33B (Consolidated ICA debit for transfer from tax pooling account for policy- holder base liability): (v) (ii) (iv) (vi) (iii) (vii) for a foreign investment PIE, see the following: (i) section CX 56 (Attributed income of certain in- vestors in multi-rate PIEs): section CX 56B (Distributions to investors in multi-rate PIEs): section DB 54B (Expenditure incurred by
 foreign investment PIEs): section HM 6B, for the optional look-through treatment of income derived from other PIEs: section HM 19B, for the particular requirements for foreign investment zero-rate PIEs: section HM 19C, for the particular requirements for foreign investment variable-rate PIEs: section HM 35C, which is about the determin- ation of the income tax liability of a foreign in- vestment PIE and the calculation of attributed PIE income for a notiﬁed foreign investor: (viii) sections HM 41(4) and HM 44(1B), for restric- tions on the calculation method available to for- eign investment PIEs: section HM 44B, for an additional calculation method for foreign investment PIEs: section HM 47, which is about the calculation of the tax liability or tax credit of a foreign invest- ment PIE: sections HM 55C to HM 55H, for the special re- quirements for foreign investment PIEs and their investors: section HM 71B, for the election mechanism for foreign investment PIEs: (xii) (xi) (ix) (x) (xiii) schedule 6, tables 1 and 1B, for the prescribed tax rates for certain non-resident investors in foreign investment PIEs and the rates applying to certain sources of income attributed to investors: (c) 1904 Reprinted as at 30 August 2013 Income Tax Act 2007 Part H s HM 2 (3) (xiv) section 28D of the Tax Administration Act 1994, for the information required from notiﬁed foreign investors.
Relationship with subpart LS Subpart LS (Tax credits for multi-rate PIEs and investors) con- tains the rules relating to the amount and use of a tax credit arising under this subpart.
Deﬁned in this Act: amount, investor, investor class, multi-rate PIE, PIE, port- folio investment entity, tax credit Compare: 2007 No 97 ss HL 1, HL 2 Section HM 1: inserted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section HM 1(2)(ib): inserted, on 29 August 2011, by section 51(1) of the Tax- ation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section HM 1(2B) heading: inserted, on 29 August 2011, by section 51(2) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).

Section HM 1(2B): inserted, on 29 August 2011, by section 51(2) of the Taxa- tion (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).

HM 2 What is a portfolio investment entity?


Meaning (1) A portfolio investment entity (a PIE) is a company or fund that— (a) makes investments on behalf of 1 or more investors in the entity or in an investor class of the entity; and (b) meets and maintains the requirements for PIE status; (c) and chooses to become a PIE by notifying the Commis- sioner.
PIE types (2) An entity that chooses to become a PIE must be 1 of the fol- lowing types of entity: a multi-rate PIE: (a) a listed PIE: (b) a beneﬁt fund PIE: (c) a life fund PIE: (d) a foreign investment PIE that is either a foreign invest- (e) ment zero-rate PIE or a foreign investment variable-rate PIE.
1905 Part H s HM 2 Income Tax Act 2007 Reprinted as at 30 August 2013 Listed PIEs becoming multi-rate PIEs (3) Despite subsection (2), an entity that chooses to become a listed PIE may choose to become a multi-rate PIE if it meets the requirements of the entry rules set out in sections HM 7 to HM 30.

Foreign investment PIEs The provisions of the PIE rules as they relate to multi-rate PIEs apply in the same manner to foreign investment PIEs, unless a provision expressly states otherwise.
Deﬁned in this Act: beneﬁt fund PIE, Commissioner, company, foreign invest- ment PIE, foreign investment variable-rate PIE, foreign investment zero-rate PIE, investor, investor class, life fund PIE, listed PIE, multi-rate PIE, notify, PIE, portfolio investment entity Compare: 2007 No 97 s YA 1 “portfolio investment entity” Section HM 2: inserted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section HM 2(2)(d): amended, on 29 August 2011 (applying for the 2012–13 and later income years for a foreign investment variable-rate PIE and a notiﬁed foreign investor in the PIE), by section 52(1) of the Taxation (Tax Administra- tion and Remedial Matters) Act 2011 (2011 No 63).
Section HM 2(2)(e): added, on 29 August 2011 (applying for the 2012–13 and later income years for a foreign investment variable-rate PIE and a notiﬁed for- eign investor in the PIE), by section 52(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section HM 2(4) heading: added, on 29 August 2011 (applying for the 2012–13 and later income years for a foreign investment variable-rate PIE and a notiﬁed foreign investor in the PIE), by section 52(2) of the Taxation (Tax Administra- tion and Remedial Matters) Act 2011 (2011 No 63).
Section HM 2(4): added, on 29 August 2011 (applying for the 2012–13 and later income years for a foreign investment variable-rate PIE and a notiﬁed foreign investor in the PIE), by section 52(2) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).

Section HM 2 list of deﬁned terms foreign investment PIE: inserted, on 29 Au- gust 2011, by section 52(3) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section HM 2 list of deﬁned terms foreign investment variable-rate PIE: in- serted, on 29 August 2011, by section 52(3) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).

Section HM 2 list of deﬁned terms foreign investment zero-rate PIE: inserted, on 29 August 2011, by section 52(3) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
(4) 1906 Reprinted as at 30 August 2013 Income Tax Act 2007 Part H s HM 3 HM 3 Foreign PIE equivalents General deﬁnition (1) A foreign PIE equivalent means an entity that— (a) (b) is not resident in New Zealand; and is— (i) (ii) (iii) a company: a superannuation scheme: the trustee of a trust that would be a unit trust if it had more than 1 subscriber, purchaser, or con- tributor participating as beneﬁciaries under the trust; and (d) (c) meets the requirements relating to investment types, in- come sources, and maximum shareholding in invest- ments in sections HM 11 to HM 13; and has investors that would qualify as an investor class under section HM 14 taking into account the limitations under sections HM 21(1) and HM 22; and if it has investors who are resident in New Zealand, those investors meet the requirements relating to in- vestor interests in section HM 15 taking into account the limitations under sections HM 21(2) to (4) and HM 22.
(e) Australian managed investment trusts (2) A trust that is, for Australian tax purposes, a managed invest- ment trust under the Taxation Administration Act 1953 (Aus- tralia) is a foreign PIE equivalent if it meets the requirement in subsection (1)(a).
Deﬁned in this Act: company, investor, investor class, investor interest, resident in New Zealand, superannuation scheme, trustee, unit trust Compare: 2007 No 97 s HL 5(1) Section HM 3: inserted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section HM 3(1) heading: inserted (with effect on 2 November 2012), on 2 November 2012, by section 87(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).

Section HM 3(e): substituted (with effect on 1 April 2010), on 21 December 2010 (applying for the 2010–11 and later income years), by section 85(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
inserted (with effect on 2 November 2012), on Section HM 3(2) heading: 2 November 2012, by section 87(2) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).

1907 Part H s HM 4 Income Tax Act 2007 Reprinted as at 30 August 2013 Section HM 3(2): inserted (with effect on 2 November 2012), on 2 November 2012, by section 87(2) of the Taxation (Annual Rates, Returns Filing, and Re- medial Matters) Act 2012 (2012 No 88).

HM 4 Who is an investor?
(b) (c) An investor in a PIE or foreign PIE equivalent means— (a) for an entity that is a company, a shareholder in a com- pany: for a life fund PIE, a person whose beneﬁts under the relevant life insurance policy are directly linked to the value of investments held in the PIE: for an entity that is not a company or a life fund PIE, a person who is entitled to a proportion of the funds available for distribution by the entity— (i) (ii) under the rules of the entity or terms of the trust under which the entity is established; and as if the entity were a company and the person were a shareholder in the company.
Deﬁned in this Act: company, foreign PIE equivalent, investor, life fund PIE, life insurance policy, PIE, share, shareholder Compare: 2007 No 97 s HL 5B(1) Section HM 4: inserted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

HM 5 What is an investor class?


Meaning of investor class (1) An investor class of an entity means a group of 1 or more in- vestors in the entity that meet the requirements of subsections (2) to (4).

Entitlement to distributions Each investor in the group must have an entitlement to a distri- bution by the entity of proceeds from the entity’s investments that means the requirements of subsections (3) and (4) are met.

Same investments The investments must be the same for all investors in the group.
Similar proportionate entitlement Each investor’s interest in the investment as a proportion of the value of their entitlement must not differ from the average (2) (3) (4) 1908 Reprinted as at 30 August 2013 Income Tax Act 2007 Part H s HM 5 value for the group and the investment by 2.5% or more un- less— (a) the investment is an arrangement under which the PIE is assured of receiving sufﬁcient proceeds from the in- vestments to repay each investor in the group an amount contributed to it; and: the excess in any difference between the proportion for the investor and the average value for the group arises from differences between the notiﬁed investor rates of those investors in the group.
(b) (5) Supplementary dividends For the purposes of this section, the payment of a supple- mentary dividend that is attributed to a notiﬁed foreign in- vestor, or would be attributed to them in the absence of section HM 44B(2), is disregarded.
Deﬁned in this Act: arrangement, investor, investor class, notiﬁed investor rate, pay, supplementary dividend Compare: 2007 No 97 s HL 5B(2), (3) Section HM 5: inserted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section HM 5(4)(a): amended (with effect on 1 April 2010), on 21 December 2010 (applying for the 2010–11 and later income years), by section 86(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).

Section HM 5(4)(b): amended (with effect on 1 April 2010), on 29 August 2011 (applying for the 2010–11 and later income years), by section 53(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section HM 5(5) heading: inserted, on 1 April 2013 (applying for the 2013–14 and later income years), by section 88(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).

Section HM 5(5): inserted, on 1 April 2013 (applying for the 2013–14 and later income years), by section 88(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section HM 5 list of deﬁned terms investor interest: repealed (with effect on 1 April 2010), on 21 December 2010, by section 86(2) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).

Section HM 5 list of deﬁned terms notiﬁed investor rate: inserted (with effect on 1 April 2010), on 29 August 2011, by section 53(2)(a) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section HM 5 list of deﬁned terms notiﬁed tax rate: repealed (with effect on 1 April 2010), on 29 August 2011, by section 53(2)(b) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
1909 Part H s HM 6 Income Tax Act 2007 Reprinted as at 30 August 2013 inserted, on Section HM 5 list of deﬁned terms supplementary dividend: 1 April 2013 (applying for the 2013–14 and later income years), by section 88(2) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
HM 6 Intended effects for multi-rate PIEs and investors Intended effects for entity The intended effects for an entity that is using funds supplied by investors to make investments of certain types and that meets the requirements for multi-rate PIE status are that— (a) in relation to proceeds of the investments that are at- tributed to investors who are natural persons or certain trustees, the PIE has a tax liability— (i) (ii) calculated using a tax rate for each investor; and resembling the total tax liability the group of in- vestors would have if the investors were to make the investments separately: (ab) in relation to proceeds of the investments that are at- tributable to notiﬁed foreign investors in a foreign in- vestment PIE, the PIE has a tax liability— (i) calculated using a tax rate that is appropriate hav- ing regard to the income source and investment type; and resembling the tax liability of the investor if they were to make the investment directly: (ii) (b) (c) the PIE has no tax liability on proceeds of the invest- ments that are attributed to other investors: the PIE allocates to each investor amounts resembling the amounts that the investor would receive, after allow- ing for the tax paid by the PIE if making the investment separately.
Intended effects for investors The intended effects for an investor in the multi-rate PIE are that— (a) the investor has no tax liability on income arising from proceeds for which the PIE has a tax liability, unless— the investor has given the PIE a rate that is lower (i) than the correct rate: (1) (2) 1910 Reprinted as at 30 August 2013 Income Tax Act 2007 Part H s HM 6 (ii) the investor has been treated by a foreign in- vestment PIE as a notiﬁed foreign investor for a period in which they do not in fact meet the re- quirements of section HM 55D for notiﬁed for- eign investor status: the investor is liable for tax on any assessable income arising from proceeds for which the PIE has no tax li- ability: the investor receives on the investment in the PIE an economic return that the investor would receive after payment of tax liabilities if personally making invest- ments similar to those made by the PIE in which they have an investor interest.
(b) (c) Deﬁned in this Act: amount, assessable income, foreign investment PIE, in- vestor, investor interest, multi-rate PIE, notiﬁed foreign investor, pay, PIE, tax, trustee Compare: 2007 No 97 s HL 1(2)(a) Section HM 6: inserted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section HM 6(1)(a): amended (with effect on 1 April 2010), on 29 August 2011 (applying for the 2010–11 and later income years), by section 54(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).

Section HM 6(1)(ab): inserted, on 29 August 2011 (applying for the 2012–13 and later income years for a foreign investment variable-rate PIE and a notiﬁed foreign investor in the PIE), by section 54(2) of the Taxation (Tax Administra- tion and Remedial Matters) Act 2011 (2011 No 63).
Section HM 6(2)(a): substituted, on 29 August 2011 (applying for the 2012–13 and later income years for a foreign investment variable-rate PIE and a notiﬁed foreign investor in the PIE), by section 54(3) of the Taxation (Tax Administra- tion and Remedial Matters) Act 2011 (2011 No 63).

Section HM 6(2)(b): amended (with effect on 1 April 2010), on 21 December 2010 (applying for the 2010–11 and later income years), by section 87(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section HM 6 list of deﬁned terms foreign investment PIE: inserted, on 29 Au- gust 2011, by section 54(4) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).

Section HM 6 list of deﬁned terms notiﬁed foreign investor: inserted, on 29 August 2011, by section 54(4) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
1911 Part H s HM 6B Income Tax Act 2007 Reprinted as at 30 August 2013 HM 6B Optional look-through rules for certain PIEs (1) (2) (3) (4) When this section applies This section applies when a PIE (a retail PIE) is a zero-rated investor in another PIE (a wholesale PIE).
Look-through treatment The retail PIE may choose to apply a look-through approach in relation to its investor interest, treating the attributed PIE income or attributed PIE loss as consisting of— (a) the proportion of the assessable income derived by the wholesale PIE that corresponds to the investor interest; and the proportion of the expenditure or loss incurred by the wholesale PIE that corresponds to the investor interest.
(b) Sufﬁcient information held by PIE In choosing to apply this section, the retail PIE must have suf- ﬁcient information to enable it to account for the income, ex- penditure, or loss, and to discharge its tax obligations in rela- tion to those amounts.

Inter-PIE transactions In the application of subsections (1) to (3), any transaction or attribution between the wholesale PIE and retail PIE relating to the income or expenditure is ignored.
Foreign investment PIEs (5) When a retail PIE that is a foreign investment variable-rate PIE derives an amount allowable under section HM 55G through having an investor interest in a wholesale PIE that meets the requirements of section HM 19B(1), the retail PIE may treat the amount as a foreign-sourced amount.
Deﬁned in this Act: amount, assessable income, attributed PIE income, at- tributed PIE loss, foreign investment variable-rate PIE, foreign-sourced amount, investor interest, PIE Section HM 6B: replaced (with effect on 1 April 2012), on 2 November 2012 (applying for the 2012–13 and later income years), by section 89(1) of the Tax- ation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
1912 Reprinted as at 30 August 2013 Income Tax Act 2007 Part H s HM 8 Entry rules Heading: inserted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
HM 7 Requirements For an entity to be a PIE, it must— (a) meet the requirements of the entry rules in sections HM 8 to HM 10, HM 17, HM 18, and HM 20, as ap- plicable; and be 1 of the types of entity referred to in section HM 2(2); and choose under section HM 71 or HM 71B to become a PIE; and (b) (c) (d) maintain the requirements of the rules in sections HM 8 (e) to HM 20, as applicable; and not lose PIE status under the exit rules in sections HM 24 to HM 30.
Deﬁned in this Act: PIE Compare: 2007 No 97 ss HL 2(2), HL 15(1), (2) Section HM 7: inserted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section HM 7(c): amended, on 29 August 2011, by section 56 of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Requirements Heading: inserted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

HM 8 Residence in New Zealand (1) Requirements The entity must be— (a) (b) resident in New Zealand; and not treated under a double tax agreement as not resident in New Zealand.
1913 Part H s HM 9 Income Tax Act 2007 Reprinted as at 30 August 2013 (2) Foreign investment zero-rate PIEs Section HM 19B(2) modiﬁes this section.

Deﬁned in this Act: double tax agreement, resident in New Zealand Compare: 2007 No 97 s HL 3(10) Section HM 8: inserted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section HM 8(1) heading: inserted, on 29 August 2011, by section 57(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).

Section HM 8(2) heading: added, on 29 August 2011, by section 57(2) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).

Section HM 8(2): added, on 29 August 2011, by section 57(2) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
HM 9 Collective schemes The entity must be— (a) (b) (c) a company: a superannuation scheme: the trustee of a trust that would be a unit trust if there were more than 1 subscriber, purchaser, or contributor participating as beneﬁciaries under the trust: a separate identiﬁable fund forming part of a life insurer that holds investments subject to life insurance policies under which beneﬁts are directly linked to the value of the investments held in the fund: the trustees of a group investment fund in relation to in- come derived by them to the extent to which the income is not treated as income derived by a company under paragraph (a).
(d) (e) Deﬁned in this Act: company, life insurance policy, life insurer, superannuation scheme, trustee, unit trust Section HM 9: inserted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section HM 9(d): amended (with effect on 1 April 2010), on 21 December 2010 (applying for the 2010–11 and later income years), by section 88(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).

Section HM 9(e): added (with effect on 1 April 2010), on 21 December 2010 (applying for the 2010–11 and later income years), by section 88(1) of the Tax- ation (GST and Remedial Matters) Act 2010 (2010 No 130).
1914 Reprinted as at 30 August 2013 Income Tax Act 2007 Part H s HM 11 HM 10 Exclusion: life insurance business The entity must not carry on a business of life insurance unless it is a life fund PIE.

Deﬁned in this Act: life fund PIE, life insurance Compare: 2007 No 97 s HL 3(9) Section HM 10: inserted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
HM 11 Investment types (1) (2) (3) Types The entity’s investments, to the extent of 90% or more by value of its assets, must be— (a) (b) (c) (d) an interest in land: a ﬁnancial arrangement: an excepted ﬁnancial arrangement: a right or option in relation to property listed in para- graphs (a) to (c).

Foreign investment zero-rate PIEs [Repealed] [Repealed] Foreign investment variable-rate PIEs Section HM 19C(1) overrides subsection (1)(a) and modiﬁes subsection (1)(d).
Deﬁned in this Act: excepted ﬁnancial arrangement, ﬁnancial arrangement, land Compare: 2007 No 97 s HL 10(1) Section HM 11: inserted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section HM 11(1) heading: inserted, on 29 August 2011, by section 58(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section HM 11(2) heading: repealed (with effect on 29 August 2011), on 2 November 2012, pursuant to section 90(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).

Section HM 11(2): repealed (with effect on 29 August 2011), on 2 November 2012, by section 90(1) of the Taxation (Annual Rates, Returns Filing, and Re- medial Matters) Act 2012 (2012 No 88).
Section HM 11(3) heading: added, on 29 August 2011 (applying for the 2012–13 and later income years for a foreign investment variable-rate PIE and a notiﬁed foreign investor in the PIE), by section 58(3) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
1915 Part H s HM 12 Income Tax Act 2007 Reprinted as at 30 August 2013 Section HM 11(3): added, on 29 August 2011 (applying for the 2012–13 and later income years for a foreign investment variable-rate PIE and a notiﬁed for- eign investor in the PIE), by section 58(3) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section HM 11(3): amended (with effect on 29 August 2011), on 2 November 2012, by section 90(2) of the Taxation (Annual Rates, Returns Filing, and Re- medial Matters) Act 2012 (2012 No 88).
HM 12 Income types (1) Nature of income Income derived by the entity, to the extent of 90% or more, must— (a) (b) (iv) be derived from property referred to in section HM 11; and consist of the following: a dividend: (i) a replacement payment: (ii) an amount of income treated under subpart EW (iii) (Financial arrangements rules) as derived by the entity: an amount of income derived from a lease of land, but this subparagraph does not apply if the lessee under the lease is associated with the entity re- ceiving the amount: an amount derived from the disposal of property referred to in section HM 11: FIF income: (vi) (vii) attributed PIE income: (viii) a distribution from a superannuation fund: (ix) an amount of income under section CW 4 (An- nuities under life insurance policies) or CX 40 (Superannuation fund deriving amount from life insurance policy): a rebate on a management fee.
(x) (v) Foreign investment zero-rate PIEs Section HM 19B(1) overrides this section.

(2) 1916 Reprinted as at 30 August 2013 Income Tax Act 2007 Part H s HM 12 (3) Foreign investment variable-rate PIEs Section HM 19C(2) overrides subsection (1)(a) and (b)(v).
Deﬁned in this Act: amount, associated person, attributed PIE income, divi- dend, FIF income, income, land, lessee, replacement payment, superannuation fund Compare: 2007 No 97 s HL 10(2) Section HM 12: inserted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section HM 12 heading: amended (with effect on 1 April 2010), on 29 August 2011 (applying for the 2010–11 and later income years), by section 59(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).

Section HM 12(1) heading: inserted, on 29 August 2011, by section 59(3) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section HM 12(1)(b)(viii): amended (with effect on 1 April 2010), on 29 August 2011 (applying for the 2010–11 and later income years), by section 59(2) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).

Section HM 12(1)(b)(ix): added (with effect on 1 April 2010), on 29 August 2011 (applying for the 2010–11 and later income years), by section 59(2) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section HM 12(1)(b)(ix): amended (with effect on 1 April 2012), on 17 July 2013, by section 63 of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).

Section HM 12(1)(b)(x): inserted (with effect on 1 April 2012), on 17 July 2013, by section 63 of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Section HM 12(2) heading: added, on 29 August 2011, by section 59(4) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).

Section HM 12(2): added, on 29 August 2011, by section 59(4) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).

Section HM 12(2): amended (with effect on 29 August 2011), on 2 November 2012, by section 91 of the Taxation (Annual Rates, Returns Filing, and Remed- ial Matters) Act 2012 (2012 No 88).
Section HM 12(3) heading: added, on 29 August 2011 (applying for the 2012–13 and later income years for a foreign investment variable-rate PIE and a notiﬁed foreign investor in the PIE), by section 59(5) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section HM 12(3): added, on 29 August 2011 (applying for the 2012–13 and later income years for a foreign investment variable-rate PIE and a notiﬁed for- eign investor in the PIE), by section 59(5) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
1917 Part H s HM 13 Income Tax Act 2007 Reprinted as at 30 August 2013 HM 13 Maximum shareholdings in investments (1) (2) (3) (4) When this section applies This section applies when an entity has an investment consist- ing of shares in a company other than shares in— (a) (b) (c) a PIE, or an entity that qualiﬁes for PIE status: a foreign PIE equivalent: a land investment company.
Voting interests: companies other than unit trusts The investment must carry voting interests in the company of no more than 20%.

This subsection does not apply to a unit trust.

Subsection (5) overrides this subsection.

Investments in unit trusts For an investment in a unit trust, the investment must have a market value no more than 20% of the market value of all inter- ests in the unit trust.

Subsection (5) overrides this subsection.


Class requirements For each investment and each investor class of the entity, the percentage thresholds set out in subsections (2) and (3) apply to the investment by the class in the same way as they apply to the investment by the entity.

Subsection (5) overrides this subsection.


Exception for limited non-complying investments (5) Despite subsections (2) to (4), the 20% cap in those subsec- tions can be exceeded if the total market value of all invest- ments where the cap is exceeded is not more than 10% of the market value of the total investments of the entity or investor class.
Certain investments of foreign investment PIEs (6) Despite the exclusion in subsection (1)(a) and (c), if a foreign investment variable-rate PIE has an investment in a land in- vestment company resident in New Zealand or in an entity that qualiﬁes for PIE status, the investment must— (a) carry voting interests in the company or entity, as ap- plicable, of no more than 20%; or have a market value of no more than 20% of all interests in the entity, if the entity is a unit trust.
(b) 1918 Reprinted as at 30 August 2013 Income Tax Act 2007 Part H s HM 14 (7) Exceeding threshold Section HM 55H(4) and (5) apply in the case of a breach of subsection (6).
Deﬁned in this Act: company, foreign investment PIE, foreign PIE equivalent, investor class, land investment company, market value, PIE, resident in New Zealand, share, unit trust, voting interest Compare: 2007 No 97 s HL 10(3)–(5) Section HM 13: inserted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section HM 13(6) heading: added, on 29 August 2011 (applying for the 2012–13 and later income years for a foreign investment variable-rate PIE and a notiﬁed foreign investor in the PIE), by section 60(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section HM 13(6): added, on 29 August 2011 (applying for the 2012–13 and later income years for a foreign investment variable-rate PIE and a notiﬁed for- eign investor in the PIE), by section 60(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section HM 13(7) heading: added, on 29 August 2011 (applying for the 2012–13 and later income years for a foreign investment variable-rate PIE and a notiﬁed foreign investor in the PIE), by section 60(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section HM 13(7): added, on 29 August 2011 (applying for the 2012–13 and later income years for a foreign investment variable-rate PIE and a notiﬁed for- eign investor in the PIE), by section 60(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).

Section HM 13 list of deﬁned terms foreign investment PIE: inserted, on 29 August 2011, by section 60(2) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section HM 13 list of deﬁned terms resident in New Zealand: inserted, on 29 August 2011, by section 60(2) of the Taxation (Tax Administration and Re- medial Matters) Act 2011 (2011 No 63).

HM 14 Minimum number of investors (1) (2) Requirement for entities other than listed companies If the entity is not a listed PIE, each investor class must include 20 or more persons.
Requirements for listed PIEs For listed PIEs, if the entity is a company listed on a recog- nised exchange in New Zealand, it must have only 1 investor class of which each investor is a member.

Each investor inter- est must be a share traded on the exchange.

This subsection applies equally to an unlisted PIE that meets the requirements of section HM 18.

1919 Part H s HM 15 Income Tax Act 2007 Reprinted as at 30 August 2013 (3) Exceptions Sections HM 21(1) and HM 22 override subsection (1).
Deﬁned in this Act: company, investor, investor class, investor interest, listed company, listed PIE, New Zealand, recognised exchange, share Compare: 2007 No 97 s HL 6(1A), (1), (2), (4) Section HM 14: inserted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section HM 14(1): amended, on 2 November 2012, by section 92 of the Tax- ation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).

Section HM 14(2) heading: substituted, on 29 August 2011, by section 61(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).

Section HM 14(2): amended, on 29 August 2011, by section 61(2) of the Tax- ation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section HM 14(3): amended, on 1 April 2010 (applying for the 2010–11 and later income years), by section 46(1) of the Taxation (Consequential Rate Align- ment and Remedial Matters) Act 2009 (2009 No 63).

HM 15 Maximum investor interests Requirement for investors’ interests (1) An investor in an investor class must not hold more than 20% of the total investor interests in the class.

(2) Exceptions Sections HM 21(2) to (4) and HM 22 override this section.
Deﬁned in this Act: investor, investor class, investor interest Compare: 2007 No 97 s HL 9(1), (6) Section HM 15: inserted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section HM 15 heading: amended (with effect on 1 April 2010), on 21 Decem- ber 2010, by section 89(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section HM 15(1): amended (with effect on 1 April 2010), on 21 December 2010, by section 89(2) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).

Section HM 15(2): amended, on 1 April 2010 (applying for the 2010–11 and later income years), by section 47(1) of the Taxation (Consequential Rate Align- ment and Remedial Matters) Act 2009 (2009 No 63).
Section HM 15 list of deﬁned terms investor interest: inserted (with effect on 1 April 2010), on 21 December 2010, by section 89(3) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
1920 Reprinted as at 30 August 2013 Income Tax Act 2007 Part H s HM 17 HM 16 Associates combined For the purposes of sections HM 14 and HM 15, if a person is associated with an investor, the person and the investor are treated as 1 person, but only if both the person and the investor hold an investor interest of 5% or more.

Section HM 21(5) overrides this section.


Deﬁned in this Act: associated person, investor, investor interest Compare: 2007 No 97 s HL 9(6) Section HM 16: inserted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

HM 17 Same rights to all investment proceeds (1) What this section does This section is an additional entry rule for a PIE that is not a life fund PIE.
Same rights in relation to proceeds of investments (2) All investor interests in the entity that give rights in relation to proceeds from a portfolio investment must give the same rights in relation to all types of proceeds from the investment.

(3) (4) Exclusions This section does not apply if— (a) (b) the proceeds are category B income: for a single investor class, the only income that the class derives is income under section CC 3 (Financial ar- rangements).
Supplementary dividends For the purposes of this section, the payment of a supple- mentary dividend that is attributed to a notiﬁed foreign in- vestor, or would be attributed to them in the absence of section HM 44B(2), is disregarded.
Deﬁned in this Act: category B income, income, investor class, investor interest, life fund PIE, notiﬁed foreign investor, PIE, portfolio investment, supplemen- tary dividend Compare: 2007 No 97 s HL 5C Section HM 17: inserted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
1921 Part H s HM 18 Income Tax Act 2007 Reprinted as at 30 August 2013 Section HM 17(3) heading: replaced, on 2 November 2012, by section 93(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).

Section HM 17(3): replaced, on 2 November 2012, by section 93(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section HM 17(4) heading: inserted, on 1 April 2013 (applying for the 2013–14 and later income years), by section 93(2) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).

Section HM 17(4): inserted, on 1 April 2013 (applying for the 2013–14 and later income years), by section 93(2) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section HM 17 list of deﬁned terms income: inserted, on 2 November 2012, by section 93(3) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).

Section HM 17 list of deﬁned terms investor class: inserted, on 2 November 2012, by section 93(3) of the Taxation (Annual Rates, Returns Filing, and Re- medial Matters) Act 2012 (2012 No 88).
inserted, on Section HM 17 list of deﬁned terms notiﬁed foreign investor: 2 November 2012, by section 93(3) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).

Section HM 17 list of deﬁned terms supplementary dividend: inserted, on 2 November 2012, by section 93(3) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
HM 18 Requirements for listed PIEs: unlisted companies Choosing to become listed PIE (1) A company that is not listed on a recognised exchange in New Zealand may choose under section HM 71 to become a listed PIE if it— (a) (b) has 100 shareholders or more; and has resolved to become a company listed on a recog- nised exchange in New Zealand if it were to obtain the required consents; and has applied to the Securities Commission or the FMA for an exemption to disclose in a prospectus its intention to become a listed company; and satisﬁes the Commissioner that the company would apply to become a listed company if it were to obtain the required consents.
(c) (d) 1922 Reprinted as at 30 August 2013 Income Tax Act 2007 Part H s HM 19 (2) Two-year period If the company is not listed within 2 years of the election, it loses PIE status from the last day of that period.
Extension of period for listing (3) Despite subsection (2), a company does not lose PIE status at the end of the 2-year period if— (a) the requirements of subsec- the company has met tion (1)(b) and (c) before 2 July 2009; and a period of 4 years from the date on which the election takes effect has not expired.

(b) Further extension granted by Commissioner (4) Despite subsections (2) and (3), the Commissioner may grant a further extension of time if it is reasonable in the circum- stances.
Deﬁned in this Act: Commissioner, company, listed company, listed PIE, New Zealand, PIE, recognised exchange, shareholder Compare: 2007 No 97 s HL 12 Section HM 18: inserted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section HM 18(1)(c): amended, on 1 May 2011, by section 82 of the Financial Markets Authority Act 2011 (2011 No 5).
Section HM 18(3) heading: added, on 1 April 2010 (applying for the 2010–11 and later income years), by section 48(1) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).

Section HM 18(3): added, on 1 April 2010 (applying for the 2010–11 and later income years), by section 48(1) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
Section HM 18(4) heading: added, on 1 April 2010 (applying for the 2010–11 and later income years), by section 48(1) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).

Section HM 18(4): added, on 1 April 2010 (applying for the 2010–11 and later income years), by section 48(1) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
HM 19 Requirements for listed PIEs: fully crediting distributions (1) What this section does This section is an additional rule for an entity that is a listed PIE other than a life fund PIE.
1923 Part H s HM 19B Income Tax Act 2007 Reprinted as at 30 August 2013 Fully crediting distributions (2) When a listed PIE distributes an amount to an investor in an investor class, the distribution must be fully credited as described in section CD 43(26) (Available subscribed capital (ASC) amount) to the extent permitted by the imputation credits or FDP credits that the directors of the company determine are available.
(3) Relationship with section CX 56C For the treatment of imputation credits when a shareholder chooses to include the distribution as income in their return of income, see section CX 56C(2) (Distributions to investors by listed PIEs).
Deﬁned in this Act: amount, company, director, FDP credit, imputation credit, income, investor, investor class, life fund PIE, listed PIE, return of income, shareholder Compare: 2007 No 97 s HL 8 Section HM 19: inserted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
HM 19B Modiﬁed rules for foreign investment zero-rate PIEs Income (1) Despite section HM 12, the income derived by a foreign invest- ment zero-rate PIE must consist of no amount other than— (a) (b) a foreign-sourced amount: an amount allowable under section HM 55G, as mea- sured under section HM 55H.
Residence (2) A foreign investment zero-rate PIE is resident in New Zealand for the purposes of section HM 8 if it— (a) is a unit trust to which the Unit Trusts Act 1960 applies; and has a trustee who is resident in New Zealand.
(b) Deﬁned in this Act: amount, foreign investment zero-rate PIE, foreign- sourced amount, income, resident in New Zealand, trustee, unit trust Section HM 19B: inserted, on 29 August 2011, by section 62 of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
1924 Reprinted as at 30 August 2013 Income Tax Act 2007 Part H s HM 20 HM 19C Modiﬁed rules for foreign investment variable-rate PIEs Investment types (1) Despite section HM 11(1)(a) and (b), no investment of a for- eign investment variable-rate PIE may include an interest in land in New Zealand or a right or option in relation to land in New Zealand.
Income sources (2) Despite section HM 12(1)(a) and (b)(iv) and (v), the income derived by a foreign investment variable-rate PIE must not in- clude an amount derived from— an interest in land in New Zealand: (a) (b) the disposal of an interest in land in New Zealand.
Deﬁned in this Act: amount, foreign investment variable-rate PIE, interest, land, New Zealand Section HM 19C: inserted, on 29 August 2011 (applying for the 2012–13 and later income years for a foreign investment variable-rate PIE and a notiﬁed for- eign investor in the PIE), by section 63(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section HM 19C(1): amended (with effect on 29 August 2011), on 17 July 2013, by section 64 of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).

Section HM 19C(1): amended (with effect on 1 April 2012), on 2 November 2012 (applying for the 2012–13 and later income years), by section 94(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section HM 19C(2): amended (with effect on 1 April 2012), on 2 November 2012 (applying for the 2012–13 and later income years), by section 94(2) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).

HM 20 Re-entering as PIE: 5-year rule If an entity loses PIE status through the application of sections HM 24 to HM 29, it cannot choose to become a PIE again until 5 years have passed from the date of loss of status to the date on which a new election takes effect.
Deﬁned in this Act: PIE Compare: 2007 No 97 s HL 3(11) Section HM 20: inserted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
1925 Part H s HM 21 Income Tax Act 2007 Reprinted as at 30 August 2013 Exceptions Heading: inserted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
HM 21 Exceptions for certain investors Investor classes The rule for a minimum number of investors in section HM 14(1) does not apply if— (a) an investor class of the entity includes at least 1 investor listed in schedule 29, part A (Portfolio investment en- tities: listed investors): the only income that the investor derives is exempt in- come under section CW 41 or CW 42 (which relate to charities).
(b) Certain investors The rule for maximum investor interests in section HM 15(1) does not apply if the investor is— (a) (b) listed in schedule 29, part A or B: a person whose only income is exempt income under section CW 41 or CW 42.
Certain investors in listed PIEs [Repealed] [Repealed] Transitional provision for investors in listed PIEs Section HM 15 does not apply in the case of an investor in a listed PIE, other than an investor listed in schedule 29, parts A and B, that holds more than 20% but less than 40% of the total interests in the investor class and held more than 20% and less than 40% of the total interests at all times from 17 May 2006 to the relevant time.
Not combined associates Section HM 16 does not apply if either the associated person or the investor is an investor listed in schedule 29, parts A and B. Deﬁned in this Act: associated person, exempt income, income, investor, in- vestor class, listed PIE, PIE Compare: 2007 No 97 ss HL 6(4), HL 9 (1) (2) (3) (4) (5) 1926 Reprinted as at 30 August 2013 Income Tax Act 2007 Part H s HM 22 Section HM 21: inserted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section HM 21(1): substituted, on 29 August 2011, by section 64(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).

Section HM 21(2) heading: amended (with effect on 1 April 2010), on 21 De- cember 2010 (applying for the 2010–11 and later income years), by section 90(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section HM 21(2): substituted, on 29 August 2011, by section 64(2) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).

Section HM 21(3) heading: repealed (with effect on 1 April 2010), on 21 De- cember 2010 (applying for the 2010–11 and later income years), pursuant to sec- tion 90(3) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section HM 21(3): repealed (with effect on 1 April 2010), on 21 December 2010 (applying for the 2010–11 and later income years), by section 90(3) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).

Section HM 21 list of deﬁned terms exempt income: inserted, on 29 August 2011, by section 64(3) of the Taxation (Tax Administration and Remedial Mat- ters) Act 2011 (2011 No 63).
Section HM 21 list of deﬁned terms income: inserted, on 29 August 2011, by section 64(3) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).

HM 22 Exceptions for certain funds (1) (2) Public unit trust Sections HM 14(1) and HM 15 do not apply to an investor class of an entity if, treating the class as a unit trust, it would meet the requirements of 1 or more of paragraphs (a) and (c) to (e) of the deﬁnition of public unit trust.
Certain superannuation funds Sections HM 14(1) and HM 15 do not apply in the case of an investor class of an entity that is a fund, trust, or class listed listed in schedule 29, part B (Portfolio investment entities: investors).
Deﬁned in this Act: investor class, PIE, public unit trust, unit trust Compare: 2007 No 97 ss HL 6(3), HL 9(2) Section HM 22: inserted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section HM 22(1): amended (with effect on 1 April 2010), on 21 December 2010 (applying for the 2010–11 and later income years), by section 91(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
1927 Part H s HM 23 Income Tax Act 2007 Reprinted as at 30 August 2013 HM 23 Exceptions for foreign PIE equivalents (1) (2) Investor classes and investors’ interests If an investor in a PIE is a foreign PIE equivalent,— (a) the requirement for investor classes under section HM 14(1) is treated as met: no limitation on investor interests under section HM 15 applies in the case of that investor.
(b) Shareholding in investments If a PIE holds an investment in a foreign PIE equivalent, no maximum limit on shareholding in investments under section HM 13 applies to that investment.
Deﬁned in this Act: foreign PIE equivalent, investor, investor class, investor interest, PIE Compare: 2004 No 35 ss HL 9(4), HL 10(4) Section HM 23: inserted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section HM 23(1)(b): amended (with effect on 1 April 2010), on 21 December 2010, by section 92 of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Exit rules Heading: inserted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

HM 24 Immediate loss of PIE status An entity loses PIE status immediately if it does not meet— the residence requirements of section HM 8: (a) the requirements of section HM 9 about the nature of (b) the entity: the requirements of section HM 17concerning rights to investment proceeds.
(c) Deﬁned in this Act: PIE Section HM 24: replaced, on 2 November 2012, by section 95 of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
1928 Reprinted as at 30 August 2013 Income Tax Act 2007 Part H s HM 25 HM 25 When entity no longer meets investment or investor requirements Effect (1) An entity loses PIE status if,— (2) (3) (a) (b) on the last day of a quarter (the ﬁrst quarter),— (i) the entity no longer meets a requirement of sec- tions HM 11 to HM 13; or an investor class of the entity no longer meets a requirement of sections HM 13 to HM 15; and (ii) the failure to meet the requirements— (i) is signiﬁcant and is within the control of the en- tity: is not remedied by the last day of the next quarter (the second quarter).
(ii) Date of loss of status The date of loss of PIE status is— (a) when subsection (1)(b)(i) applies, the ﬁrst day of the second quarter: (b) when subsection (1)(b)(i) does not apply, the ﬁrst day of the third quarter.
Transitional quarters disregarded Subsection (1) does not apply if— (a) (b) the start of the ﬁrst quarter would be within 6 months plus 1 day of the date on which the entity becomes a PIE, or the investor class is formed; or the ﬁrst quarter ends within 3 months before an an- nouncement by the entity to its investors that it, or the relevant investor class, is winding up within 12 months of the announcement.
Deﬁned in this Act: investor class, PIE, quarter Compare: 2007 No 97 s HL 4(2) Section HM 25: inserted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section HM 25(2)(a): amended (with effect on 1 April 2010), on 29 August 2011 (applying for the 2010–11 and later income years), by section 65(1)(a) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section HM 25(2)(b): amended (with effect on 1 April 2010), on 29 August 2011 (applying for the 2010–11 and later income years), by section 65(1)(b) 1929 Part H s HM 26 Income Tax Act 2007 Reprinted as at 30 August 2013 of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section HM 25(3)(b): amended (with effect on 1 April 2010), on 7 September 2010 (applying for the 2010–11 and later income years), by section 67(1) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).

HM 26 Starting life insurance business An entity that is not a life fund PIE loses PIE status immedi- ately if it starts to carry on the business of life insurance.
Deﬁned in this Act: business, life fund PIE, life insurance, PIE Compare: 2004 No 35 s HL 4(1) Section HM 26: inserted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

HM 27 When multi-rate PIE no longer meets investor interest adjustment requirements A multi-rate PIE loses PIE status immediately if it fails to meet a requirement of section HM 48.
Deﬁned in this Act: investor interest, multi-rate PIE, PIE Compare: 2004 No 35 s HL 4(1) Section HM 27: inserted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

HM 28 When listed PIE no longer meets crediting requirement A listed PIE loses PIE status immediately if it fails to meet the requirements of section HM 19.
Deﬁned in this Act: listed PIE, PIE Compare: 2004 No 35 s HL 4(1) Section HM 28: inserted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

HM 29 Choosing to cancel status An entity loses PIE status if it chooses to cancel PIE status by notifying the Commissioner under section 31B of the Tax Ad- ministration Act 1994.
Section HM 72(3) applies to determine the date the election takes effect.

Deﬁned in this Act: Commissioner, notify, PIE 1930 Reprinted as at 30 August 2013 Income Tax Act 2007 Part H s HM 30 Section HM 29: inserted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
HM 30 When foreign PIE equivalent no longer meets requirements Commencing New Zealand residence Continued failure (1) A foreign PIE equivalent loses its status immediately if— it becomes resident in New Zealand: it is treated under a double tax agreement as resident in New Zealand.

(a) (b) (2) A foreign PIE equivalent loses its status if it no longer meets the requirements set out in section HM 3(b) to (e) at the end of 2 consecutive quarters.
The loss of status takes effect from the ﬁrst day of the third quarter.

Deﬁned in this Act: double tax agreement, foreign PIE equivalent, quarter, resi- dent in New Zealand Compare: 2007 No 97 s HL 5(2) Section HM 30: inserted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section HM 30(1): replaced, on 2 November 2012, by section 96(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).

Section HM 30 list of deﬁned terms double tax agreement: inserted, on 2 November 2012, by section 96(2) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Rules for multi-rate PIEs Heading: inserted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Introductory provisions Heading: inserted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
1931 Part H s HM 31 Income Tax Act 2007 Reprinted as at 30 August 2013 HM 31 Rules for multi-rate PIEs Rules (1) A multi-rate PIE must— (a) (b) (c) (d) attribute income arising from the proceeds of an invest- ment to an investor, and pay tax on the income based on the investor’s tax rates, see sections HM 34 to HM 40: calculate and pay its tax liability, choosing certain periods to do this, see sections HM 41 to HM 47: adjust investor interests of investors in the entity or dis- tributions from the entity to reﬂect an amount of tax paid, see section HM 48: use tax credits received to satisfy the entity’s tax li- ability, in some cases providing any surplus credits to certain investors by making an adjustment described in paragraph (c), see sections HM 49 to HM 55.
Foreign investment PIEs (1B) For the provisions relating to the treatment of notiﬁed foreign investors in foreign investment PIEs, see sections HM 2(4), HM 33, HM 35C, HM 44B, HM 47(2B), (4), and (6), HM 51, HM 53, HM 55C to HM 55H, HM 60, HM 61(2), HM 64(4), and HM 65(5).
Further provisions related to payment options, tax rates, and exit periods For the provisions relating to the options available to a multi- rate PIE for calculating and paying its tax liability, prescribed and notiﬁed investor rates for investors, and exit levels and periods, see sections HM 56 to HM 63.

Further provisions relating to use of losses For the provisions relating to the use of losses by multi-rate PIEs, see sections HM 64 to HM 70.
Deﬁned in this Act: exit level, exit period, foreign investment PIE, investor, investor interest, multi-rate PIE, notiﬁed foreign investor, notiﬁed investor rate, pay, prescribed investor rate, tax, tax credit Section HM 31: inserted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section HM 31(1)(a): amended, on 29 August 2011, by section 66(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).

(2) (3) 1932 Reprinted as at 30 August 2013 Income Tax Act 2007 Part H s HM 32 Section HM 31(1)(c): amended (with effect on 1 April 2010), on 21 December 2010, by section 93 of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section HM 31(1B) heading: inserted, on 29 August 2011, by section 66(2) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).

Section HM 31(1B): inserted, on 29 August 2011, by section 66(2) of the Tax- ation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).

Section HM 31 list of deﬁned terms foreign investment PIE: inserted, on 29 August 2011, by section 66(3) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section HM 31 list of deﬁned terms notiﬁed foreign investor: inserted, on 29 August 2011, by section 66(3) of the Taxation (Tax Administration and Re- medial Matters) Act 2011 (2011 No 63).

HM 32 Rules for and treatment of investors in multi-rate PIEs Tax rates (1) An investor in a multi-rate PIE must notify the PIE of a tax rate applying to their investment income or have a default rate apply, see sections HM 56 to HM 61.
Attributed income (2) An amount of income attributed by a multi-rate PIE to an in- vestor in the PIE is— (a) (b) income of the investor under section CP 1 (Attributed income of investors in multi-rate PIEs): for certain investors, excluded income of the investor under section CX 56 (Attributed income of certain in- vestors in multi-rate PIEs).
Notiﬁed foreign investors (3) An investor in a foreign investment PIE who notiﬁes the PIE under section HM 55D(2) of their wish to become a notiﬁed foreign investor is treated as having notiﬁed the PIE of a tax rate under subsection (1).
Deﬁned in this Act: amount, excluded income, foreign investment PIE, income, investor, multi-rate PIE, notiﬁed foreign investor, notify Section HM 32: inserted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section HM 32(3) heading: added, on 29 August 2011, by section 67(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
1933 Part H s HM 33 Income Tax Act 2007 Reprinted as at 30 August 2013 Section HM 32(3): replaced (with effect on 29 August 2011), on 2 November 2012, by section 97 of the Taxation (Annual Rates, Returns Filing, and Remed- ial Matters) Act 2012 (2012 No 88).

Section HM 32 list of deﬁned terms foreign investment PIE: inserted, on 29 August 2011, by section 67(2) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section HM 32 list of deﬁned terms notiﬁed foreign investor: inserted, on 29 August 2011, by section 67(2) of the Taxation (Tax Administration and Re- medial Matters) Act 2011 (2011 No 63).

HM 33 Proxies for PIE investors Proxies (1) An entity may become a proxy for an investor in a multi-rate PIE for an attribution period if the entity— (a) (b) holds an investor interest for the investor; and notiﬁes the PIE that it holds the interest as proxy.
Role The proxy must perform the duties set out in subsection (3) in relation to amounts attributed to them for the period as holder of the interest as if— (a) (b) the proxy were a multi-rate PIE; and the investor interest were an interest of the investor in the income of the proxy; and for a foreign investment PIE and a notiﬁed foreign in- vestor, the investor were a notiﬁed foreign investor in the proxy; and the amounts attributed and distributions received by the proxy were amounts of the proxy to which the investor is entitled as holder of the interest.
(bb) (c) Duties The proxy’s duties are to— (a) (b) attribute amounts to the investor for the period; and distribute amounts and credits to the investor for the period; and pay income tax on the investment income for the period; and adjust the investor interest of the investor or distribu- tions to the investor under section HM 48; and for a foreign investment PIE, collect information re- quired from the notiﬁed foreign investors and act gener- (c) (d) (db) (2) (3) 1934 Reprinted as at 30 August 2013 Income Tax Act 2007 Part H s HM 34 (e) (f) (g) ally on behalf of the PIE in relation to its notiﬁed foreign investors; and provide returns as required under section 57B of the Tax Administration Act 1994 to the Commissioner and any other information required by the Commissioner; and provide the investor with a notice under section 31C of that Act; and provide the PIE with information about the investor and investor interest that may be relevant to any eligibility requirements of the PIE.
Deﬁned in this Act: amount, attribution period, Commissioner, foreign invest- ment PIE, income, income tax, investor, investor interest, multi-rate PIE, noti- ﬁed foreign investor, notify, PIE Section HM 33: inserted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section HM 33(2)(bb): inserted, on 29 August 2011 (applying for the 2012–13 and later income years for a foreign investment variable-rate PIE and a notiﬁed foreign investor in the PIE), by section 68(1) of the Taxation (Tax Administra- tion and Remedial Matters) Act 2011 (2011 No 63).
Section HM 33(3)(db): inserted, on 29 August 2011 (applying for the 2012–13 and later income years for a foreign investment variable-rate PIE and a notiﬁed foreign investor in the PIE), by section 68(2) of the Taxation (Tax Administra- tion and Remedial Matters) Act 2011 (2011 No 63).

Section HM 33 list of deﬁned terms foreign investment PIE: inserted, on 29 August 2011, by section 68(3) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section HM 33 list of deﬁned terms notiﬁed foreign investor: inserted, on 29 August 2011, by section 68(3) of the Taxation (Tax Administration and Re- medial Matters) Act 2011 (2011 No 63).

Attributing income to investors Heading: inserted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
HM 34 Attribution periods A multi-rate PIE must use 1 of the following periods for at- tributing an amount for a tax year or an income year, as ap- plicable, to an investor and an investor class: (a) for an entity that uses the quarterly calculation option under section HM 43, but chooses the attribution period by notifying the Commissioner before the start of the 1935 Part H s HM 35 Income Tax Act 2007 Reprinted as at 30 August 2013 tax year or on choosing to become a PIE, a day, a month, or a quarter; or for an entity that chooses under section HM 44 to pay provisional tax and chooses the attribution period by no- tifying the Commissioner before the start of the income year or on choosing to become a PIE, a day, a month, a quarter, or an income year; or for an entity that does not make a choice under para- graphs (a) and (b), a day.
(b) (c) Deﬁned in this Act: amount, attribution period, Commissioner, income year, investor, investor class, multi-rate PIE, PIE, provisional tax, tax year Compare: 2007 No 97 s HL 16(2) Section HM 34: inserted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section HM 34: amended (with effect on 1 April 2010), on 2 November 2012 (applying for the 2010–11 and later income years), by section 98(1) of the Tax- ation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).

Section HM 34(b): amended (with effect on 1 April 2010), on 2 November 2012 (applying for the 2010–11 and later income years), by section 98(2) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section HM 34 list of deﬁned terms income year: inserted (with effect on 1 April 2010), on 2 November 2012, by section 98(3) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).

HM 35 Determining net amounts and taxable amounts What this section applies to This section applies for the purposes of a calculation under section HM 36(2).
Net amounts The net amount for an investor class of a multi-rate PIE for an attribution period is calculated using the formula— assessable income – deductions.
Deﬁnition of items in formula In the formula in subsection (2),— (a) assessable income is the total amount of the PIE’s as- sessable income attributed to the class for the attribution period in the manner referred to in subsection (8), in- (1) (2) (3) 1936 Reprinted as at 30 August 2013 Income Tax Act 2007 Part H s HM 35 (4) (5) (6) (b) cluding any tax credits received for the income but not including the amount of any supplementary dividends: deductions is the total amount of the PIE’s expenditure or loss for which the PIE is allowed a deduction that is— (i) incurred by the PIE in deriving the assessable income referred to in paragraph (a); and attributed to the class for the attribution period.
(ii) Net income or net loss If the result of the formula is positive, the amount is net in- come of the class for the period.

If the result of the formula is negative, the amount is a net loss of the class for the period.

Taxable amounts The taxable amount for an investor class of a multi-rate PIE for an attribution period is calculated using the formula— net income – net loss – other loss used.
Deﬁnition of items in formula In the formula in subsection (5),— (a) (b) (c) net income is the amount of the PIE’s net income re- ferred to in subsection (4): net loss is the amount of the PIE’s net loss referred to in subsection (4): other loss used is the lesser of the following amounts: the total amount for the class of formation loss (i) that is attributable for the attribution period under sections HM 66 to HM 70 and any amount of land loss under section HM 65 that has not been used for an earlier period: the total amount of net income referred to in para- graph (a).
(ii) (7) (8) Taxable income or tax loss If the result of the formula is positive, the amount is taxable income of the class for the period.

If the result of the formula is negative, the amount is a tax loss of the class for the period.
Use of valuations or ﬁnancial statements Income and deductions of the multi-rate PIE are allocated to investors and investor classes for attribution periods as— 1937 Part H s HM 35B Income Tax Act 2007 Reprinted as at 30 August 2013 (a) (b) reﬂected in the PIE’s valuation of investor interests, if the PIE makes these valuations: shown in the PIE’s ﬁnancial statements, if the PIE does not makes the valuations referred to in paragraph (a).
Deﬁned in this Act: amount, assessable income, attribution period, deduction, formation loss, income, investor class, investor interest, land loss, multi-rate PIE, net income, net loss, PIE, tax loss, taxable income Compare: 2007 No 97 ss EG 3, HL 19, HL 20 Section HM 35: inserted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section HM 35(3)(a): substituted (with effect on 1 April 2010), on 21 December 2010 (applying for the 2010–11 and later income years), by section 94(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).

Section HM 35(3)(a): amended, on 1 April 2013 (applying for the 2013–14 and later income years), by section 99(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section HM 35(8)(a): amended (with effect on 1 April 2010), on 21 December 2010 (applying for the 2010–11 and later income years), by section 94(2) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
HM 35B Treatment of certain provisions made by multi-rate PIEs When this section applies This section applies for the purposes of section HM 35 when— (a) a multi-rate PIE— (i) (ii) makes a provision for future expenditure or loss; is likely to have future income: and (b) the amount— (i) is reﬂected in the PIE’s valuation of investor interests; or if subparagraph (i) does not apply, is shown in its ﬁnancial statements.
(ii) Future amounts For the purposes of determining a net amount under section HM 35(2) for an attribution period, a multi-rate PIE may take account of an amount of future income or future expenditure or loss that is— (a) for future income, an amount that, when derived, would be assessable income under section HM 35(3)(a): (1) (2) 1938 Reprinted as at 30 August 2013 (b) Income Tax Act 2007 Part H s HM 35C for future expenditure or loss,— (i) an expense likely to be incurred by the PIE in the tax year in which the attribution period falls, or within 93 days after the end of the tax year; and an amount that, when incurred, would be a de- duction under section HM 35(3)(b).
(ii) (3) Reasonable estimation For the purposes of subsection (2), the PIE must make a rea- sonable estimate of the amount and must be able to demon- strate, if required, the reasonableness of the estimation by— (a) explaining why and when the income is likely to be de- rived or the expense is likely to be incurred, as applic- able; and providing the calculation method and actual calcula- tions used to determine the amount, with details show- ing why the method is appropriate.
(b) Credit impairment provisions (4) A multi-rate PIE may take account of a credit impairment pro- vision under this section but only if the provision is counted as a credit impairment provision under NZIAS 39.

However, the time limit set out in subsection (2)(b)(i) does not apply in relation to a credit impairment provision.
Deﬁned in this Act: amount, attribution period, deduction, income, investor interest, multi-rate PIE, NZIAS 39, tax year Section HM 35B: inserted (with effect on 1 April 2010), on 21 December 2010, by section 95(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).

Section HM 35B(1)(b)(i): amended (with effect on 1 April 2010), on 2 Novem- ber 2012, by section 100 of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
HM 35C Determining amounts for notiﬁed foreign investors (1) When this section applies This section applies for the purposes of sections HM 35 to HM 47 when a foreign investment PIE determines its income tax liability and calculates an amount of attributed PIE income for a notiﬁed foreign investor in the PIE.
1939 Part H s HM 35C Income Tax Act 2007 Reprinted as at 30 August 2013 Single class of investors For the purposes of the calculations, the PIE must treat its no- tiﬁed foreign investors as a single notional investor class.
Taxable amounts In section HM 35(5), in relation to an investor class that is made up of notiﬁed foreign investors, the taxable amount for an attribution period is equal to the assessable income of the PIE for the period for each particular income source and in- vestment type of income of the class.
Attributed amounts For the purposes of section HM 36, in the calculation of an amount attributed to a notiﬁed foreign investor,— (a) the item loss in the formula in subsection (2) is treated as zero: the item expenses in the formula in subsection (2) is treated as zero: the item credits for fees in the formula in subsection (2) is treated as zero: if the result given by the formula is negative, the result is treated as zero.
(b) (c) (d) Treatment of certain transitional residents For the purposes of this section, a transitional resident who has chosen under section HM 55D(9) to use the speciﬁed pre- scribed investor rate is treated as if they were a notiﬁed foreign investor.
When subsection (7) applies Subsection (7) applies for the purposes of section HM 35 for a notiﬁed foreign investor (a qualifying investor) in a for- eign investment PIE who meets the requirements of section LP 2(1)(a) (Tax credits for supplementary dividends).

It over- rides subsections (2) and (3), and for the purposes of the calcu- lation of amounts attributed to them, the qualifying investors are treated as a separate class.
Assessable income and supplementary dividends For the purposes of section HM 35(3)(a), the assessable in- come of the PIE is the total amount of the PIE’s assessable income attributed to the class of qualifying investors for the (2) (3) (4) (5) (6) (7) 1940 Reprinted as at 30 August 2013 Income Tax Act 2007 Part H s HM 36 attribution period, including any supplementary dividends to which the qualifying investors are entitled.
Deﬁned in this Act: amount, assessable income, attributed PIE income, attribu- tion period, foreign investment PIE, income tax liability, investor class, notiﬁed foreign investor, prescribed investor rate, taxable amount, transitional resident Section HM 35C: inserted, on 29 August 2011 (applying for the 2012–13 and later income years for a foreign investment variable-rate PIE and a notiﬁed for- eign investor in the PIE), by section 69(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
inserted, on 1 April 2013 (applying for the Section HM 35C(5) heading: 2013–14 and later income years), by section 101(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).

Section HM 35C(5): inserted, on 1 April 2013 (applying for the 2013–14 and later income years), by section 101(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section HM 35C(6) heading: inserted, on 1 April 2013 (applying for the 2013–14 and later income years), by section 101(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).

Section HM 35C(6): inserted, on 1 April 2013 (applying for the 2013–14 and later income years), by section 101(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section HM 35C(7) heading: inserted, on 1 April 2013 (applying for the 2013–14 and later income years), by section 101(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).

Section HM 35C(7): inserted, on 1 April 2013 (applying for the 2013–14 and later income years), by section 101(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section HM 35C list of deﬁned terms prescribed investor rate: inserted, on 1 April 2013, by section 101(2) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).

Section HM 35C list of deﬁned terms transitional resident: inserted, on 1 April 2013, by section 101(2) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
HM 36 Calculating amounts attributed to investors (1) Calculating amount The amount of attributed PIE income or attributed PIE loss for an income year for an investor in a multi-rate PIE is the total of the amounts calculated using the formula in subsection (2) for— (a) (b) (c) each attribution period in the income year; and each day in the attribution period; and each investor class to which the investor belongs on the day.
1941 Part H s HM 36 Income Tax Act 2007 Reprinted as at 30 August 2013 Formula The formula is— (2) percentage × (income days in period loss) (expenses credits for fees).
(3) Deﬁnition of items in formula In the formula,— (a) (b) (c) (d) (e) percentage is the percentage of the investor’s entitle- ment to a distribution by the PIE to the investor class: income is the amount of taxable income determined under section HM 35(5) and (7) for the period: loss is the amount of tax loss determined under section HM 35(5) and (7) for the period: days in period is the number of days in the period: expenses is the total amount for the day in the period of— (i) fees for management or administration services paid from or charged to the account of the in- vestor as a member of the investor class when the services are ongoing for the investor class: expenditure of the investor as a member of the investor class and transferred under subpart DV (Expenditure speciﬁc to certain entities) to the PIE: (ii) (f) credits for fees is the amount of the credit for the fee paid or credited by the PIE to the account of the in- vestor as a member of the investor class on the day in the period.
Treatment of attributed loss for PIEs paying provisional tax (4) Despite subsection (3), an investor in a multi-rate PIE that chooses under section HM 44 to pay provisional tax has no attributed PIE loss.

1942 Reprinted as at 30 August 2013 Income Tax Act 2007 Part H s HM 37 (5) When derived or incurred The investor is treated as deriving the attributed PIE income or incurring the attributed PIE loss in the income year of the investor in which the end of the PIE’s income year falls.
Deﬁned in this Act: amount, attributed PIE income, attributed PIE loss, attribu- tion period, income, income year, investor, investor class, multi-rate PIE, pay, PIE, provisional tax, tax loss, taxable income Compare: 2007 No 97 s HL 26 Section HM 36: inserted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section HM 36(1): amended, on 29 August 2011, by section 70(1) of the Tax- ation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).

Section HM 36(3)(e)(i): substituted, on 29 August 2011, by section 70(2) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).

Section HM 36 list of deﬁned terms pay: inserted, on 29 August 2011, by sec- tion 70(3) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
HM 37 When income cannot be attributed (1) (2) (3) When this section applies This section applies when a multi-rate PIE has income or prop- erty in which no investor has an interest, or income or property in which no person has a conditional entitlement under section HM 38.

Sole investor The PIE is treated for the purposes of sections HM 35 and HM 36 (which relate to the calculation of amounts attributable to investors) as the sole investor in an investor class having an interest in the income or property.
Exception for foreign investment PIE In the application, under subsection (2), of section HM 36 to a foreign investment PIE, the item deductions in the formula in section HM 35(2) for the investor class consisting of the PIE is treated as being the amount calculated using the formula— other than notiﬁed interests total interests × unadjusted item.
Deﬁnition of items in formula In the formula,— (4) 1943 Part H s HM 38 Income Tax Act 2007 Reprinted as at 30 August 2013 (a) (b) (c) other than notiﬁed interests is the value of investor interests in the PIE held at the end of the attribution period by investors other than notiﬁed foreign investors: total interests is the total value of investor interests in the PIE at the end of the attribution period: unadjusted item is the value of the item deductions that would be calculated for the investor class in the absence of subsection (3).
Deﬁned in this Act: income, investor, investor class, multi-rate PIE Compare: 2007 No 97 s HL 17(1) Section HM 37: inserted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section HM 37(2): replaced (with effect on 1 April 2012), on 17 July 2013, by section 65(1) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Section HM 37(3) heading: inserted (with effect on 1 April 2012), on 17 July 2013, by section 65(2) of the Taxation (Livestock Valuation, Assets Expend- iture, and Remedial Matters) Act 2013 (2013 No 52).

Section HM 37(3): inserted (with effect on 1 April 2012), on 17 July 2013, by section 65(2) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Section HM 37(4) heading: inserted (with effect on 1 April 2012), on 17 July 2013, by section 65(2) of the Taxation (Livestock Valuation, Assets Expend- iture, and Remedial Matters) Act 2013 (2013 No 52).

Section HM 37(4): inserted (with effect on 1 April 2012), on 17 July 2013, by section 65(2) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Section HM 37 list of deﬁned terms investor interest: repealed, on 1 April 2011, by section 68(2) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
HM 38 When superannuation fund investor has conditional entitlement When this section applies This section applies for the purposes of section HM 37 in re- lation to an attribution period when a person has a conditional entitlement to an investor interest in a multi-rate PIE that is a superannuation fund that meets the requirements of subsection (4) in income or property of the PIE.
(1) 1944 Reprinted as at 30 August 2013 Income Tax Act 2007 Part H s HM 38 (2) Attribution The investor interest is treated as held by the person for the attribution period.
When conditional entitlement exists (3) A person is treated as having a conditional entitlement to an investor interest if— (a) (b) the investor interest is bought by or for the person’s employer; and the person and the employer have agreed that the person will have an unconditional entitlement to the interest at the end of a vesting period that— (i) starts on the date when a contribution to the fund is made; and ends on the date when the employee becomes unconditionally entitled to the investor interest to which the contribution relates; and (ii) (bb) (c) (d) the vesting period is within 5 years of its end as de- scribed in paragraph (b)(ii); and the agreement exists before the attribution period; and the vesting period ends after the attribution period.
(4) Modiﬁcations to certain vesting periods For the purposes of subsection (3)(b),— (a) for a PIE that exists on 17 May 2006, a vesting period longer than 5 years is allowed but the vesting period must not be longer than the longest vesting period al- lowed by the PIE at that date for an interest created on that date: for a PIE that does not exist on 17 May 2006, but the investor interest has been transferred to it by a super- annuation scheme in existence on that date without sig- niﬁcant change to the interest, a vesting period of any length is allowed.
(b) Deﬁned in this Act: attribution period, employer, income, investor interest, multi-rate PIE, PIE, superannuation fund, superannuation scheme Compare: 2007 No 97 s HL 17(2) Section HM 38: inserted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
1945 Part H s HM 39 Income Tax Act 2007 Reprinted as at 30 August 2013 Section HM 38(3)(b): replaced, on 1 April 2012 (applying for the 2012–13 and later income years), by section 71(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).

Section HM 38(3)(bb): inserted, on 1 April 2012 (applying for the 2012–13 and later income years), by section 71(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
HM 39 New investors in existing investor classes (1) (2) When this section applies This section applies when a person is a new investor in an existing investor class of a multi-rate PIE but, at the time of investing, the PIE holds insufﬁcient investments for the person to qualify as an investor in the class.
Person treated as investor The PIE may treat the person as an investor in the class if the PIE acquires sufﬁcient investments as described in section HM 11 as soon after the investor’s acquisition of the interests as is practicable.
Deﬁned in this Act: investor, investor class, multi-rate PIE, PIE Compare: 2007 No 97 s HL 18 Section HM 39: inserted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
HM 40 Deductions for attributed PIE losses for zero-rated and exiting investors (b) When this section applies This section applies to an investor in a multi-rate PIE when— an amount of attributed PIE loss is attributed under sec- (a) tion HM 36 to the investor for an attribution period in a tax year; and either— (i) (ii) the investor is a zero-rated investor; or the PIE calculates its tax liability using the quar- terly calculation option under section HM 43 and the amount is attributed to an exiting investor to whom section HM 61 applies.
(1) 1946 Reprinted as at 30 August 2013 Income Tax Act 2007 Part H s HM 41 (2) Deduction In the investor’s income year in which the end of the PIE’s income year falls, the investor is allowed a deduction under section DB 53 (Attributed PIE losses of certain investors).

The amount of the deduction is equal to the amount attributed for the income year or exit period.
Deﬁned in this Act: amount, attributed PIE loss, attribution period, deduction, exit period, income year, investor, multi-rate PIE, PIE, tax year, zero-rated in- vestor Compare: 2007 No 97 s HL 27 Section HM 40: inserted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Calculating and paying tax liability Heading: inserted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
HM 41 Options for calculation and payment of tax (1) (2) (3) Available options The options available to a multi-rate PIE for calculating and paying its income tax liability are— (a) the payment of tax calculated under the exit calculation option, see section HM 42; or the payment of tax calculated under the quarterly calcu- lation option, see section HM 43; or the payment of provisional tax and terminal tax calcu- lated on an income-year basis, see section HM 44.
(b) (c) Default option The PIE must use the default option under subsection (1)(b) unless it chooses an option under subsection (1)(a) or (c) by notifying the Commissioner.

Income tax liability The income tax liability of the PIE for the tax year is equal to the total amount calculated under the relevant method for periods in the tax year or, in the case of the provisional tax calculation option under section HM 44, for the PIE’s income year corresponding to the tax year.
1947 Part H s HM 42 Income Tax Act 2007 Reprinted as at 30 August 2013 Foreign investment PIEs (4) Despite subsection (1)(c), a multi-rate PIE that chooses under section HM 71B to become a foreign investment PIE must not use the provisional tax calculation option in section HM 44 to calculate its income tax liability.
Deﬁned in this Act: amount, Commissioner, income tax liability, income year, multi-rate PIE, notify, pay, PIE, provisional tax, tax year, terminal tax Compare: 2007 No 97 ss HL 16(3), HL 22–HL 24 Section HM 41: inserted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section HM 41(4) heading: added, on 29 August 2011 (applying for the 2012–13 and later income years for a foreign investment variable-rate PIE and a notiﬁed foreign investor in the PIE), by section 72(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section HM 41(4): added, on 29 August 2011 (applying for the 2012–13 and later income years for a foreign investment variable-rate PIE and a notiﬁed for- eign investor in the PIE), by section 72(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).

HM 42 Exit calculation option (1) (2) (3) When this section applies This section applies when a multi-rate PIE chooses for a tax year to calculate its income tax liability for exiting investors and remaining investors.
The PIE must notify the Commis- sioner under section 31B of the Tax Administration Act 1994 of this election.

Calculation for exiting investors For an investor whose interest has reached the exit level dur- ing the tax year, the PIE must calculate its income tax liabil- ity under section HM 47 for the investor and the relevant exit period.

The exit level and exit periods are determined under sections HM 62 and HM 63.
Calculations for investors for non-exit periods For investors and periods in the income year other than exit periods, the PIE must calculate its income tax liability under section HM 47 for the relevant period.
Payment to Commissioner The PIE must pay to the Commissioner— (4) 1948 Reprinted as at 30 August 2013 Income Tax Act 2007 Part H s HM 42B (a) (b) the amount of income tax liability for an exiting investor for the exit period— (i) within 1 month after the end of the month of withdrawal; or if the month of withdrawal is November, by the following 15 January; and (ii) the rest of the PIE’s income tax liability for the tax year within 1 month after the end of the tax year for remain- ing investors in the PIE at the end of the tax year, after allowing for any payment under paragraph (a) or any voluntary payment under section HM 45.
(5) Provisional tax rules The PIE is not required to pay provisional tax under subpart RC (Provisional tax) for the tax year.
Deﬁned in this Act: amount, Commissioner, exit level, exit period, income tax liability, income year, investor, multi-rate PIE, pay, PIE, provisional tax, tax year Compare: 2007 No 97 s HL 24(1)–(4) Section HM 42: inserted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
HM 42B Part-year tax calculations for PIEs under the exit calculation option for the 2010–11 tax year (1) (2) When this section applies This section applies to a PIE for the 2010–11 tax year if section HM 42 applies to the PIE for that year and the PIE chooses to apply this section by ﬁling a return under section 57B(5) or (7) of the Tax Administration Act 1994 in accordance with this section.
Part-year tax calculations: description For calculating their income tax liability for the 2010–11 tax year, the PIE treats references to an income year or a tax year as if they are references to 2 separate tax years and corresponding income years within that tax year, divided by 1 October 2010 (for example: an amount of income attributed to a date before 1 October 2010 is included in the ﬁrst part-year and taxed using the notiﬁed investor rate advised before 1 October 2010.
A notiﬁed investor rate advised on or after 1 October 2010 is 1949 Part H s HM 43 Income Tax Act 2007 Reprinted as at 30 August 2013 (3) applied only to the amount of income attributed to the second part-year).
Part-year tax calculations: effect The part-year calculations may give rise to income and deduc- tions for the income year and they do create part-year tax return obligations, except that the requirement for returns under sec- tion 57B(7)(a) of the Tax Administration Act 1994 and for no- tice in relation to investors or proxies under section 31C(4) of that Act can be met by sending returns or notices on a full-year or part-year basis.
The 2 part-year calculations create 2 in- come tax liabilities for 2 part-years.

Foreign tax credits: special rule (4) Despite subsections (2) and (3), tax credits under subpart LJ (Tax credits for foreign income tax) may be used in accordance with section HM 51 in either part-year, if they are attributable to the ﬁrst part-year.
Deﬁned in this Act: deduction, income, income tax liability, income year, no- tiﬁed investor rate, PIE, tax credit, tax year Section HM 42B: inserted, on 1 October 2010, by section 69 of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
HM 43 Quarterly calculation option Quarterly calculation (1) A multi-rate PIE that does not choose to calculate and pay its income tax liability under the exit calculation or provisional tax calculation options, must calculate its tax liability for each quarter of the tax year using the formula set out in section HM 47.

The notice requirements are set out in section 31B of the Tax Administration Act 1994.
Quarterly payment The PIE must pay to the Commissioner the amount of its in- come tax liability for the quarter within 1 month of the end of the quarter.

Exiting investors: zero-rated If the investor interest of an investor in the PIE has reached the exit level, they are treated under section HM 61 as zero-rated for the exit period which includes a grace period of 5 working (2) (3) 1950 Reprinted as at 30 August 2013 Income Tax Act 2007 Part H s HM 44 (4) (5) days after the end of the quarter.
This subsection does not apply if the PIE voluntarily chooses to pay an amount under section HM 45.

Exiting investors: remaining value to Commissioner If the investor interest of an investor at the end of an exit period is more than zero, the PIE must pay an amount equal to the value of the interest to the Commissioner at the same time as the payment referred to in subsection (2).

Provisional tax rules The PIE is not required to pay provisional tax under subpart RC (Provisional tax) for the tax year.
Deﬁned in this Act: amount, Commissioner, exit level, exit period, income tax liability, investor interest, multi-rate PIE, notice, pay, PIE, provisional tax, quar- ter, tax year, working day Compare: 2007 No 97 s HL 22 Section HM 43: inserted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section HM 43(3): amended, on 2 November 2012, by section 102(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).

Section HM 43(3): amended (with effect on 1 April 2010), on 21 December 2010 (applying for the 2010–11 and later income years), by section 97(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section HM 43(4): amended (with effect on 1 April 2010), on 21 December 2010 (applying for the 2010–11 and later income years), by section 97(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).

Section HM 43 list of deﬁned terms zero-rated investor: repealed, on 2 November 2012, by section 102(2) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
HM 44 Provisional tax calculation option (1) When this section applies This section applies when a multi-rate PIE chooses to calcu- late its income tax liability on an income year basis and pay provisional tax by notifying the Commissioner before the start of the income year or when choosing to become a PIE.

Notiﬁ- cation regarding the type of PIE and attribution period is made under section 31B of the Tax Administration Act 1994.
1951 Part H s HM 44B Income Tax Act 2007 Reprinted as at 30 August 2013 When this section does not apply (1B) Despite subsection (1), a multi-rate PIE that chooses under section HM 71B to become a foreign investment PIE must not apply this section to calculate and pay its income tax liability.
(2) (3) Application of subparts RB and RC The PIE must calculate its tax liability for the income year corresponding to the tax year under section HM 47 and pay provisional tax for the tax year as required by subpart RC (Pro- visional tax) and terminal tax for the tax year as required by subpart RB (Terminal tax).

Treatment of losses If the calculation of the liability results in a negative amount, the loss must be carried forward to a later tax year, and section HM 64 does not apply.
Deﬁned in this Act: foreign investment PIE, income tax liability, income year, multi-rate PIE, notify, pay, PIE, provisional tax, tax year Compare: 2007 No 97 s HL 23(1), (2) Section HM 44: inserted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section HM 44(1B) heading: inserted, on 29 August 2011, by section 73(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).

Section HM 44(1B): inserted, on 29 August 2011, by section 73(1) of the Tax- ation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).

Section HM 44 list of deﬁned terms foreign investment PIE: inserted, on 29 August 2011, by section 73(2) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
HM 44B NRWT calculation option When this section applies This section applies when— (a) a foreign investment PIE— (i) (ii) derives a dividend that is not fully imputed from a company resident in New Zealand; and pays an amount that represents some or all of the amount of the dividend to a notiﬁed foreign investor in the PIE by the date on which the PIE is required to pay its income tax liability under section HM 42 or HM 43, as applicable; and (1) 1952 Reprinted as at 30 August 2013 Income Tax Act 2007 Part H s HM 44B (b) the PIE chooses to calculate and pay the tax liability in relation to the amount under subpart RF (Withholding tax on non-resident passive income).
When this section also applies: supplementary dividends (1B) This section also applies when— a foreign investment PIE— (i) (a) derives a dividend with imputation credits at- tached from a company resident in New Zealand together with a related supplementary dividend; and has, as an investor, a notiﬁed foreign investor who meets the requirements of section LP 2(1)(a) (Tax credits for supplementary dividends); and pays the investor an amount that represents the total amount of the dividend and supplementary dividend that would be attributed to the investor in the absence of subsection (2); and pays the amount by the date on which the PIE is required to pay its income tax liability under section HM 42 or HM 43, as applicable; and (ii) (iii) (iv) (2) (3) (b) the PIE chooses to calculate and pay the tax liability in relation to the amount under subpart RF.
Excluding amount from calculation In determining the net amount for notiﬁed foreign investors under sections HM 35 and HM 36, to the extent to which the amount represents either an unimputed portion of the dividend, or a dividend together with a related supplementary dividend, as applicable, the amount is not included in— (a) (b) the item assessable income in section HM 35(3): the item income in section HM 36(3).
Non-resident passive income The NRWT rules apply to the amount paid to the extent to which the amount represents either an unimputed portion of the dividend, or a dividend together with a related supplemen- tary dividend, as applicable.

1953 Part H s HM 44B Income Tax Act 2007 Reprinted as at 30 August 2013 Relationship with section CX 56B (4) Despite section CX 56B (Distributions to investors in multi- rate PIEs), the amount is not excluded income of the notiﬁed foreign investor.
Relationship with section HM 35(8) (5) When a foreign investment PIE derives a dividend and related supplementary dividend as described in subsection (1B), the allocation rule set out in section HM 35(8) does not apply.

The dividend and related supplementary dividend are treated as having been allocated on the date on which ownership of the shares determines a legal entitlement to the dividend.
Deﬁned in this Act: amount, company, dividend, excluded income, foreign in- vestment PIE, imputation credit, income tax liability, multi-rate PIE, non-resi- dent passive income, notiﬁed foreign investor, NRWT rules, pay, resident in New Zealand, supplementary dividend Section HM 44B: inserted, on 29 August 2011 (applying for the 2012–13 and later income years for a foreign investment variable-rate PIE and a notiﬁed for- eign investor in the PIE), by section 74(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section HM 44B(1B) heading: inserted, on 1 April 2013 (applying for the 2013–14 and later income years), by section 103(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).

Section HM 44B(1B): inserted, on 1 April 2013 (applying for the 2013–14 and later income years), by section 103(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section HM 44B(2): amended, on 1 April 2013 (applying for the 2013–14 and later income years), by section 103(2) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).

Section HM 44B(3): amended, on 1 April 2013 (applying for the 2013–14 and later income years), by section 103(3) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section HM 44B(5) heading: inserted, on 1 April 2013 (applying for the 2013–14 and later income years), by section 103(4) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).

Section HM 44B(5): inserted, on 1 April 2013 (applying for the 2013–14 and later income years), by section 103(4) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section HM 44B list of deﬁned terms supplementary dividend: inserted, on 1 April 2013, by section 103(5) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).

1954 Reprinted as at 30 August 2013 Income Tax Act 2007 Part H s HM 46 HM 45 Voluntary payments (1) (2) (3) When this section applies This section applies when a multi-rate PIE pays an amount of tax under section HM 42 or HM 43.
Voluntary payment The PIE may pay an amount of income tax to the Commis- sioner that represents an amount of its tax liability for the in- vestor as a member of an investor class for the tax year.
Time of payment The payment must be made— (a) within 1 month after, as applicable,— (i) (ii) for calculation and payment of tax under the quarterly calculation option, the end of the quar- ter; or for the calculation and payment of tax under the exit calculation option, the month in which the tax liability for the investor referred to in subsec- tion (2) is calculated; or if the month is November, by the following 15 January.
(b) Deﬁned in this Act: amount, Commissioner, income tax, investor, investor class, investor interest, multi-rate PIE, pay, PIE, quarter, tax year Compare: 2007 No 97 s HL 25 Section HM 45: inserted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section HM 45(1): amended, on 29 August 2011, by section 75(1) of the Tax- ation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).

Section HM 45(3)(a)(ii): amended, on 29 August 2011, by section 75(2) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).

Section HM 45 list of deﬁned terms tax year: added, on 29 August 2011, by section 75(3) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
HM 46 Calculation process To calculate its tax liability, a multi-rate PIE must— (a) determine the net amount for each investor class of the PIE: determine the taxable amount for each investor class of the PIE: (b) 1955 Part H s HM 47 Income Tax Act 2007 Reprinted as at 30 August 2013 (c) calculate its tax liability for each investor in an investor class for each day of an attribution period.
Deﬁned in this Act: amount, attribution period, investor, investor class, multi- rate PIE, PIE Compare: 2007 No 97 ss HL 19, HL 20 Section HM 46: inserted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
HM 47 Calculation of tax liability or tax credit of multi-rate PIEs (1) (2) What this section does This section quantiﬁes the amount of the tax liability or tax credit of a multi-rate PIE for a calculation period.
Calculating amount The amount of the PIE’s tax liability or tax credit is the sum of the amounts calculated using the formula in subsection (3) for— (a) each investor class in which the investor has an investor interest: each investor in an investor class: each attribution period in the calculation period: each day in an attribution period.
(b) (c) (d) Notiﬁed foreign investors (2B) For the purposes of subsection (2), for a notiﬁed foreign in- vestor in a foreign investment PIE, the amount of the PIE’s tax liability for each investor is the sum of the amounts calculated using the formula in subsection (3) for the amount attributed to the investor for each particular income source and investment type.

Formula The formula is— rate × amount.
Deﬁnition of items in formula In the formula,— (a) rate is— (3) (4) 1956 Reprinted as at 30 August 2013 Income Tax Act 2007 Part H s HM 47 (5) (6) (i) (ib) (ii) the tax rate under section HM 58 or HM 60, as applicable, that relates to the investor for each day for the period; or the tax rates applying under schedule 6, table 1B (Prescribed rates: PIE investments and retire- ment scheme contributions) for an amount at- tributed to a notiﬁed foreign investor in relation to each income source and investment type; or 28%, if the PIE is treated as the sole investor under section HM 37: (b) amount is the amount calculated under sections HM 36(1) and (2) and HM 37, as applicable, for the investor.
Result of formula: tax liability or tax credit If the result of the formula in subsection (3) is positive, the amount is the PIE’s tax liability for the calculation period.

If the result is negative, the amount is a tax credit of the PIE under section LS 1 (Tax credits for multi-rate PIEs), see sec- tion HM 55.

However, a tax credit does not arise under section LS 1 for a multi-rate PIE that chooses to use the provisional tax calculation option.
Negative result and foreign investment PIEs If the result of the formula in subsection (3) is negative and the multi-rate PIE has chosen under section HM 71B to become a foreign investment PIE, no tax credit arises in relation to an amount attributed to an investor in the PIE who is, at the time of attribution, a notiﬁed foreign investor.
Deﬁned in this Act: amount, attribution period, calculation period, foreign in- vestment PIE, investor, investor class, investor interest, multi-rate PIE, notiﬁed foreign investor, PIE, tax credit Compare: 2007 No 97 ss EG 3, HL 21 Section HM 47: inserted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section HM 47(2)(a): amended (with effect on 1 April 2010), on 21 December 2010 (applying for the 2010–11 and later income years), by section 98(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).

Section HM 47(2B) heading: inserted, on 29 August 2011 (applying for the 2012–13 and later income years for a foreign investment variable-rate PIE and a notiﬁed foreign investor in the PIE), by section 76(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
1957 Part H s HM 48 Income Tax Act 2007 Reprinted as at 30 August 2013 Section HM 47(2B): inserted, on 29 August 2011 (applying for the 2012–13 and later income years for a foreign investment variable-rate PIE and a notiﬁed foreign investor in the PIE), by section 76(1) of the Taxation (Tax Administra- tion and Remedial Matters) Act 2011 (2011 No 63).

Section HM 47(4)(a)(i): amended, on 1 October 2010, by section 6(1) of the Taxation (Budget Measures) Act 2010 (2010 No 27).
Section HM 47(4)(a)(ib): inserted, on 29 August 2011 (applying for the 2012–13 and later income years for a foreign investment variable-rate PIE and a notiﬁed foreign investor in the PIE), by section 76(2) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).

Section HM 47(4)(a)(ii): amended, on 1 October 2010, by section 6(2) of the Taxation (Budget Measures) Act 2010 (2010 No 27).
Section HM 47(6) heading: added, on 29 August 2011 (applying for the 2012–13 and later income years for a foreign investment variable-rate PIE and a notiﬁed foreign investor in the PIE), by section 76(3) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section HM 47(6): added, on 29 August 2011 (applying for the 2012–13 and later income years for a foreign investment variable-rate PIE and a notiﬁed for- eign investor in the PIE), by section 76(3) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).

Section HM 47 list of deﬁned terms foreign investment PIE: inserted, on 29 August 2011, by section 76(4) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section HM 47 list of deﬁned terms notiﬁed foreign investor: inserted, on 29 August 2011, by section 76(4) of the Taxation (Tax Administration and Re- medial Matters) Act 2011 (2011 No 63).

Adjusting investors’ interests Heading: inserted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
HM 48 Adjustments to investor interests or to distributions Adjustment (1) When a multi-rate PIE pays a tax liability or receives a tax credit under section LS 1 (Tax credits for multi-rate PIEs) in relation to an investor, it must make an adjustment to the in- vestor interest of the investor to reﬂect the rate applying under section HM 60 or HM 61.
The PIE may choose to adjust— (a) the investor interest of the investor in an investor class; or the amount of a distribution paid to the investor; or the amount of a payment required from the investor to satisfy the PIE’s tax liability.

(b) (c) 1958 Reprinted as at 30 August 2013 Income Tax Act 2007 Part H s HM 48 (2) Investor’s choice The PIE may offer the choice made under subsection (1) to the investor.
Date of adjustment (3) An adjustment under subsection (1)(a) must be made— (a) (b) (c) for the quarterly calculation option, within 2 months of the end of the quarter; or for the exit calculation option, within 2 months of the end of the tax year; or for 3 months of the end of the income year.
tax calculation option, within the provisional Extending time limits (4) On application by a multi-rate PIE, the Commissioner may ex- tend a time limit imposed under subsection (3) if it is reason- able in the circumstances.
Deﬁned in this Act: amount, income year, investor, investor interest, multi-rate PIE, pay, PIE, provisional tax, quarter, tax year Compare: 2007 No 97 s HL 7 Section HM 48: inserted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section HM 48 heading: amended (with effect on 1 April 2010), on 21 Decem- ber 2010 (applying for the 2010–11 and later income years), by section 99(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).

Section HM 48(1): amended (with effect on 1 April 2010), on 21 December 2010 (applying for the 2010–11 and later income years), by section 99(2) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section HM 48(1)(a): amended (with effect on 1 April 2010), on 21 December 2010 (applying for the 2010–11 and later income years), by section 99(3) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).

Section HM 48 list of deﬁned terms prescribed investor rate: repealed (with effect on 1 April 2010), on 7 December 2009, by section 126 of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
Using tax credits Heading: inserted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
1959 Part H s HM 49 Income Tax Act 2007 Reprinted as at 30 August 2013 HM 49 Tax credits: when sections HM 50 to HM 55 apply (1) (2) (3) When sections apply Sections HM 50 to HM 55 apply in relation to the tax credits of a multi-rate PIE or proxy for an investor in a multi-rate PIE that has not chosen to calculate its income tax liability under section HM 44 using the provisional tax calculation option.
Limitation The entity must not, other than under sections HM 51 to HM 55,— (a) use the tax credit to reduce the liability of the entity for income tax or to obtain a refund of income tax: attach the tax credit to a distribution or transfer the tax credit to another person.

(b) Relationship with Part L Sections HM 51 to HM 55 override Part L (Tax credits and other credits) other than subpart LS (Tax credits for multi-rate PIEs and investors).
Deﬁned in this Act: income tax, income tax liability, investor, multi-rate PIE, provisional tax, tax credit Compare: 2007 No 97 s HL 29(1), (2) Section HM 49: inserted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
HM 50 Attributing credits to investors (1) (2) When this section applies This section applies when a multi-rate PIE has a tax credit other than a tax credit under subpart LS (Tax credits for multi- rate PIEs and investors).

Attributing amount to investor The amount of the credit attributable to an investor in an in- vestor class of the PIE for an attribution period is calculated using the formula in subsection (3).
The amount attributed to the investor is the total of the amounts calculated for each in- vestment of the PIE and each day in the attribution period.

Calculation of amount The formula is— (3) 1960 Reprinted as at 30 August 2013 Income Tax Act 2007 Part H s HM 50 credit × class’s percentage × investor’s percentage days in period.
(4) (5) Deﬁnition of items in formula In the formula,— (a) credit is the amount of the credit the PIE has in relation to the investment that gives rise to the credit: class’s percentage is the percentage of the proceeds from the investment to which the investor class is en- titled, including related tax credits: investor’s percentage is the percentage to which the investor is entitled of a distribution by the PIE to the investor class: days in period is the number of days in the attribution period.
(b) (c) (d) Supplementary dividends and foreign investment PIEs For the purposes of this section and for a payment of a dividend and related supplementary dividend to a foreign investment PIE, the dividend is treated as if it were divided into separate dividends as follows: (a) a dividend of an amount that represents the part to which the notiﬁed foreign investors in the PIE who meet the requirements of section LP 2(1)(a) (Tax credits for sup- plementary dividends) are entitled; and a dividend of an amount that represents the remaining part to which all investors other than those referred to in paragraph (a) are entitled.
(b) (6) Imputation credits: ﬁrst part The imputation credits for the dividend referred to in subsec- tion (5)(a) are treated as attached to that part as if it were a separate dividend.

1961 Part H s HM 50 Income Tax Act 2007 Reprinted as at 30 August 2013 Imputation credits: second part The imputation credits for the dividend referred to in subsec- tion (5)(b) are treated as attached to that part as if it were a separate dividend not payable to a non-resident.
Deﬁned in this Act: amount, attribution period, foreign investment PIE, imput- ation credit, investor, investor class, multi-rate PIE, notiﬁed foreign investor, pay, PIE, supplementary dividend, tax credit Compare: 2007 No 97 ss HL 29(3)–(5), YA 1 “portfolio class fraction”, “port- folio investor interest fraction” Section HM 50: inserted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section HM 50(1): replaced, on 2 November 2012, by section 104(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).

Section HM 50(5) heading: inserted, on 1 April 2013 (applying for the 2013–14 and later income years), by section 104(2) of the Taxation (Annual Rates, Re- turns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section HM 50(5): inserted, on 1 April 2013 (applying for the 2013–14 and later income years), by section 104(2) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).

Section HM 50(6) heading: inserted, on 1 April 2013 (applying for the 2013–14 and later income years), by section 104(2) of the Taxation (Annual Rates, Re- turns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section HM 50(6): inserted, on 1 April 2013 (applying for the 2013–14 and later income years), by section 104(2) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).

Section HM 50(7) heading: inserted, on 1 April 2013 (applying for the 2013–14 and later income years), by section 104(2) of the Taxation (Annual Rates, Re- turns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section HM 50(7): inserted, on 1 April 2013 (applying for the 2013–14 and later income years), by section 104(2) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).

Section HM 50 list of deﬁned terms foreign investment PIE: inserted, on 2 November 2012, by section 104(3) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section HM 50 list of deﬁned terms notiﬁed foreign investor: inserted, on 2 November 2012, by section 104(3) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).

Section HM 50 list of deﬁned terms supplementary dividend: inserted, on 2 November 2012, by section 104(3) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
(7) 1962 Reprinted as at 30 August 2013 Income Tax Act 2007 Part H s HM 51 HM 51 Use of foreign tax credits by PIEs (1) (2) (3) (4) (5) When this section applies This section applies when a multi-rate PIE has a tax credit under subpart LJ (Tax credits for foreign income tax) that is attributable in a tax year to an investor other than— (a) (b) a zero-rated investor: an exiting investor who is treated under section HM 61 as zero-rated: a notiﬁed foreign investor in a foreign investment PIE: a transitional resident who chooses under section HM 55D(8) to use a prescribed investor rate set out in schedule 6, table 1, row 10 (Prescribed rates: PIE investments and retirement scheme contributions).
(c) (d) Using tax credit to satisfy income tax liability The multi-rate PIE may use the tax credit under section LS 1 (Tax credits for multi-rate PIEs) to satisfy its income tax liabil- ity for the tax year in relation to the investor.

The amount of the credit is determined under subsection (3).
Amount The total amount of the credits able to be used is the lesser of— (a) the total amount of credits attributed to the investor as a member of any investor class for the calculation period together with any amount attributed to the investor in an earlier calculation period that remains unused: the amount of the PIE’s tax liability in relation to the investor as a member of any investor class for the cal- culation period or an earlier calculation period, and not met by any credit allocated to the earlier period.
(b) Use under exit calculation option For a multi-rate PIE that calculates its tax liability for a tax year using the exit calculation option under section HM 42, the amount may be used for calculation periods earlier or later in the tax year, and in relation to different classes for the same investor.
Use under quarterly option For a multi-rate PIE that calculates its tax liability for a tax year using the quarterly calculation option under section 1963 Part H s HM 52 Income Tax Act 2007 Reprinted as at 30 August 2013 HM 43, the amount may be used only for the relevant calcu- lation period and later periods in the tax year, and in relation to different classes for the same investor.
Deﬁned in this Act: amount, calculation period, foreign investment PIE, income tax liability, investor, investor class, multi-rate PIE, notiﬁed foreign investor, PIE, prescribed investor rate, quarter, tax credit, tax year, transitional resident, zero-rated investor Compare: 2007 No 97 s HL 29(10)–(12) Section HM 51: inserted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section HM 51(1)(b): amended, on 29 August 2011 (applying for the 2012–13 and later income years for a foreign investment variable-rate PIE and a notiﬁed foreign investor in the PIE), by section 77(1) of the Taxation (Tax Administra- tion and Remedial Matters) Act 2011 (2011 No 63).
Section HM 51(1)(c): added, on 29 August 2011 (applying for the 2012–13 and later income years for a foreign investment variable-rate PIE and a notiﬁed for- eign investor in the PIE), by section 77(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).

Section HM 51(1)(c): amended, on 2 November 2012 (applying for the 2013–14 and later income years), by section 105(1) of the Taxation (Annual Rates, Re- turns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section HM 51(1)(d): inserted, on 2 November 2012 (applying for the 2013–14 and later income years), by section 105(1) of the Taxation (Annual Rates, Re- turns Filing, and Remedial Matters) Act 2012 (2012 No 88).

Section HM 51 list of deﬁned terms foreign investment PIE: inserted, on 29 August 2011, by section 77(2) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section HM 51 list of deﬁned terms notiﬁed foreign investor: inserted, on 29 August 2011, by section 77(2) of the Taxation (Tax Administration and Re- medial Matters) Act 2011 (2011 No 63).

inserted, on Section HM 51 list of deﬁned terms prescribed investor rate: 2 November 2012, by section 105(2) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section HM 51 list of deﬁned terms transitional resident: inserted, on 2 November 2012, by section 105(2) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
HM 52 Use of foreign tax credits by zero-rated and certain exiting investors When this section applies This section applies when a multi-rate PIE has a tax credit under subpart LJ (Tax credits for foreign income tax) that is attributable in a tax year to an investor who is— (a) a zero-rated investor: (1) 1964 Reprinted as at 30 August 2013 Income Tax Act 2007 Part H s HM 52 (2) (3) (b) an exiting investor who is treated under section HM 61 as zero-rated.
Using tax credit to satisfy income tax liability The investor may use the tax credit under section LS 3 or LS 4 (which relate to the use of tax credits) to satisfy their income tax liability for the tax year.

The amount of the credit is deter- mined under subsection (3) or (4).
Amount The total amount of the credits able to be used is the lesser of— (a) the total amount of the attributed foreign tax credits for the tax year or exit period, as applicable: the amount calculated by multiplying the attributed PIE income of the investor from the PIE for the tax year or exit period, as applicable by,— (i) (b) for an exiting investor described in subsection (1)(b), the notiﬁed investor rate in relation to the investor that the PIE would have used had the period not been an exit period; or for a zero-rated investor, their basic tax rate set out in schedule 1 (Basic tax rates: income tax, ESCT, RSCT, RWT, and attributed fringe bene- ﬁts) for the tax year.
(ii) Amount for PIEs or proxies (4) Despite subsection (3), the amount of the credit is the at- a multi-rate PIE; or a proxy for an investor in a multi-rate PIE.
tributed amount if the investor is— (a) (b) Deﬁned in this Act: amount, attributed PIE income, attribution period, exit period, foreign tax, income tax liability, investor, multi-rate PIE, notiﬁed in- vestor rate, notify, PIE, tax credit, tax year, zero-rated investor Compare: 2007 No 97 s HL 29(7), (8) Section HM 52: inserted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section HM 52(3)(b): amended, on 1 October 2010, by section 7(1) of the Tax- ation (Budget Measures) Act 2010 (2010 No 27).

Section HM 52(3)(b)(i): amended, on 1 October 2010, by section 7(2) of the Taxation (Budget Measures) Act 2010 (2010 No 27).
1965 Part H s HM 53 Income Tax Act 2007 Reprinted as at 30 August 2013 HM 53 Use of tax credits other than foreign tax credits by PIEs When this section applies This section applies when a multi-rate PIE has— (a) (b) a tax credit under Part L (Tax credits and other credits) other than a tax credit under subpart LJ (Tax credits for foreign income tax); and the credit is attributable in a tax year to an investor in an investor class other than— a zero-rated investor: (i) an exiting investor who is treated under section (ii) HM 61 as zero-rated: a notiﬁed foreign investor in a foreign investment PIE, in relation to a credit that is an imputation credit: a transitional resident who chooses under section HM 55D(8) to use a prescribed investor rate set out in schedule 6, table 1, row 10 (Prescribed rates: PIE investments and retirement scheme contributions).
(iii) (iv) Using tax credit to satisfy income tax liability The PIE may use the tax credit under section LS 1 (Tax credits for multi-rate PIEs) to satisfy its income tax liability for the tax year in relation to the investor as a member of the class or of another investor class.

A tax credit under this section is used only after the use of any credit under section HM 51.

Amount The amount of the tax credit is the amount attributed.
Deﬁned in this Act: amount, foreign investment PIE, income tax liability, in- vestor, investor class, imputation credit, multi-rate PIE, notiﬁed foreign in- vestor, prescribed investor rate, tax credit, tax year, transitional resident, zero- rated investor Compare: 2007 No 97 s HL 29(13) Section HM 53: inserted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section HM 53(1)(b)(ii): amended, on 29 August 2011 (applying for the 2012–13 and later income years for a foreign investment variable-rate PIE and a notiﬁed foreign investor in the PIE), by section 78(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section HM 53(1)(b)(iii): inserted, on 29 August 2011 (applying for the 2012–13 and later income years for a foreign investment variable-rate PIE and (1) (2) (3) 1966 Reprinted as at 30 August 2013 Income Tax Act 2007 Part H s HM 54 a notiﬁed foreign investor in the PIE), by section 78(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section HM 53(1)(b)(iii): amended, on 2 November 2012 (applying for the 2013–14 and later income years), by section 106(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).

Section HM 53(1)(b)(iv): inserted, on 2 November 2012 (applying for the 2013–14 and later income years), by section 106(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section HM 53(2): amended (with effect on 1 April 2010), on 7 September 2010 (applying for the 2010–11 and later income years), by section 70(1) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).

Section HM 53 list of deﬁned terms foreign investment PIE: inserted, on 29 August 2011, by section 78(2) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section HM 53 list of deﬁned terms imputation credit: inserted, on 29 August 2011, by section 78(2) of the Taxation (Tax Administration and Remedial Mat- ters) Act 2011 (2011 No 63).

inserted, on Section HM 53 list of deﬁned terms notiﬁed foreign investor: 29 August 2011, by section 78(2) of the Taxation (Tax Administration and Re- medial Matters) Act 2011 (2011 No 63).
Section HM 53 list of deﬁned terms prescribed investor rate: inserted, on 2 November 2012, by section 106(2) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).

Section HM 53 list of deﬁned terms transitional resident: inserted, on 2 November 2012, by section 106(2) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
HM 54 Use of tax credits other than foreign tax credits by investors (1) (2) When this section applies This section applies when a multi-rate PIE has a tax credit under Part L (Tax credits and other credits) other than a tax credit under subpart LJ (Tax credits for foreign income tax), that is attributable in a tax year to an investor who is— (a) (b) a zero-rated investor: an exiting investor who is treated under section HM 61 as zero-rated.
Using tax credit to satisfy income tax liability The investor may use the tax credit under section LS 3 or LS 4 (which relate to the use of tax credits) to satisfy their income tax liability for the tax year.

1967 Part H s HM 55 Income Tax Act 2007 Reprinted as at 30 August 2013 (3) Amount The amount of the tax credit is the amount attributed.
Deﬁned in this Act: amount, income tax liability, investor, multi-rate PIE, tax credit, tax year, zero-rated investor Compare: 2007 No 97 s HL 29(7)(b) Section HM 54: inserted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
HM 55 Tax credits for losses A multi-rate PIE that has a negative amount arising under sec- tion HM 47(5) and has not chosen to calculate its tax liabil- ity using the provisional tax calculation option under section HM 44 has a tax credit for a tax year under section LS 1 (Tax credits for multi-rate PIEs).
Deﬁned in this Act: amount, multi-rate PIE, provisional tax, tax credit, tax year Compare: 2007 No 97 s HL 28 Section HM 55: inserted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Special rules for foreign investment PIEs Heading: inserted, on 29 August 2011 (applying for the 2012–13 and later in- come years for a foreign investment variable-rate PIE and a notiﬁed foreign investor in the PIE), by section 79(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
HM 55C Modiﬁed source rules Business in New Zealand (1) Despite section YD 4(2) (Classes of income treated as having New Zealand source), income attributed to a notiﬁed foreign investor by a foreign investment PIE is not treated as having a source in New Zealand merely because the business of the PIE is carried on in New Zealand.
Contracts made or performed in New Zealand (2) Despite section YD 4(3), income attributed to a notiﬁed for- eign investor by a foreign investment PIE is not treated as hav- ing a source in New Zealand merely because the income is derived from a contract made or performed in New Zealand 1968 Reprinted as at 30 August 2013 Income Tax Act 2007 Part H s HM 55D but only to the extent to which the income relates to the PIE’s investments outside New Zealand.
Deﬁned in this Act: business, foreign investment PIE, income, New Zealand, notiﬁed foreign investor Section HM 55C: inserted, on 29 August 2011 (applying for the 2012–13 and later income years for a foreign investment variable-rate PIE and a notiﬁed for- eign investor in the PIE), by section 79(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
HM 55D Requirements for investors in foreign investment PIEs (1) (2) (3) (4) (5) What this section does This section applies to determine the treatment of a non-resi- dent person who is an investor in a multi-rate PIE that chooses under section HM 71B to become a foreign investment PIE.

This section overrides section HM 32(1).

Notiﬁcation If the person meets the requirements of subsections (3) and (4), they may notify the PIE that they wish to be treated as a notiﬁed foreign investor.
Status requirements The person must not be— (a) (b) (c) resident in New Zealand; or a CFC; or a FIF for which the item income interest in section EX 50(4) (Attributable FIF income method), for a per- son who is a New Zealand resident and the FIF, is 10% or more; or a non-resident trustee of a trust that is not a foreign trust.

(d) Information requirements The person must provide the PIE with the information set out in section 28D(1) of the Tax Administration Act 1994.
Non-residents’ rates If the person does not meet the requirements of subsections (3) and (4), the PIE must treat them as a non-resident person to whom schedule 6, table 1, row 2 (Prescribed rates: PIE investments and retirement scheme contributions) applies.
1969 Part H s HM 55D Income Tax Act 2007 Reprinted as at 30 August 2013 PIE relying on notiﬁcation (6) Despite subsection (5), the PIE may rely on the notiﬁcation given by a person and treat them as a notiﬁed foreign investor in the following circumstances: (a) the person notiﬁes the PIE that they wish to be treated as a notiﬁed foreign investor, but they have misrepresented their eligibility for notiﬁed foreign investor status: the person is a notiﬁed foreign investor but becomes resident in New Zealand and does not advise the PIE of the change in status: the person has notiﬁed the PIE that they are a notiﬁed foreign investor but do not in fact meet the requirements for that status.
(b) (c) (7) When status may be disregarded The Commissioner may advise a PIE to disregard notiﬁcation by an investor under subsection (2) if the Commissioner con- siders on reasonable grounds that the person does not meet or no longer meets the requirements of subsections (3) and (4).

As soon as reasonably practicable after receiving the advice, the PIE must treat the investor as a non-resident person de- scribed in subsection (5).
Cancelling status (8) A notiﬁed foreign investor who wishes to have their notiﬁed foreign investor status cancelled, must notify the PIE.

The sta- tus may be cancelled at any time.

Transitional residents (9) Despite subsection (3)(a), a transitional resident who is an in- vestor in a foreign investment zero-rate PIE may choose the prescribed investor rate set out in schedule 6, table 1, row 10.
Deﬁned in this Act: CFC, Commissioner, excluded income, FIF, foreign invest- ment PIE, foreign trust, income interest, multi-rate PIE, non-resident, notiﬁed foreign investor, notify, resident in New Zealand, transitional resident, trustee Section HM 55D: inserted, on 29 August 2011 (applying for the 2012–13 and later income years for a foreign investment variable-rate PIE and a notiﬁed for- eign investor in the PIE), by section 79(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
1970 Reprinted as at 30 August 2013 Income Tax Act 2007 Part H s HM 55F HM 55E Changes in status of investors in foreign investment PIEs (1) (2) When this section applies This section applies when— (a) a person who is a notiﬁed foreign investor in a foreign investment PIE— (i) becomes resident in New Zealand in a tax year; or cancels their notiﬁed foreign investor status in a tax year under section HM 55D(8): (ii) (b) a person who is an investor in a foreign investment PIE and who is resident in New Zealand becomes non-resi- dent in a tax year and chooses under section HM 55D(2) to have notiﬁed foreign investor status.
Time for changing treatment The PIE must change the treatment of the person as soon as reasonably practicable.

But, at the latest, the change must be made from the start of the following tax year.
Deﬁned in this Act: foreign investment PIE, non-resident, notiﬁed foreign in- vestor, resident in New Zealand, tax year Section HM 55E: inserted, on 29 August 2011 (applying for the 2012–13 and later income years for a foreign investment variable-rate PIE and a notiﬁed for- eign investor in the PIE), by section 79(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
HM 55F Treatment of income attributed to notiﬁed foreign investors (1) What this section does This section applies for a foreign investment PIE for the pur- poses of the calculations that must be made under sections HM 36 and HM 47 in relation to the income attributed to a notiﬁed foreign investor in the PIE or the income tax liability of the PIE.
Foreign investment zero-rate PIEs (2) A foreign investment zero-rate PIE must apply a prescribed investor rate of 0% under schedule 6, table 1, row 9 (Prescribed rates: PIE investments and retirement scheme contributions) to all amounts attributed to the investor.
1971 Part H s HM 55FB Income Tax Act 2007 Reprinted as at 30 August 2013 Foreign investment variable-rate PIEs (3) A foreign investment variable-rate PIE must, for all amounts attributed to the investor,— (a) (b) identify the income source of each amount; and identify the investment type of each amount that is not a foreign-sourced amount; and apply the relevant prescribed investor rate set out in schedule 6, table 1B to the amount.
(c) Deﬁned in this Act: amount, foreign investment PIE, foreign investment vari- able rate PIE, foreign investment zero-rate PIE, income, income tax liability, notiﬁed foreign investor, prescribed investor rate Section HM 55F: inserted, on 29 August 2011 (applying for the 2012–13 and later income years for a foreign investment variable-rate PIE and a notiﬁed for- eign investor in the PIE), by section 79(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
HM 55FB Notiﬁed foreign investors and tax credits for supplementary dividends When this section applies This section applies when— (a) a foreign investment PIE has an investment consisting of shares in a company resident in New Zealand; and a notiﬁed foreign investor in the PIE is a non-resident who meets the requirements of section LP 2(1)(a) (Tax credits for supplementary dividends); and the company has declared a dividend to be paid on a later date.
(b) (c) Notiﬁcation by PIE The PIE must notify the company of the investors referred to in subsection (1)(b) who have an investor interest in the PIE on the date on which ownership of the shares determines a legal entitlement to the dividend.

The PIE must provide the information before the date of payment of the dividend.
Sufﬁcient information The information provided by the PIE about the investor must be sufﬁcient to enable the calculation and payment of a sup- plementary dividend to the PIE in relation to the investor.

(1) (2) (3) 1972 Reprinted as at 30 August 2013 Income Tax Act 2007 Part H s HM 55G (4) Calculation and payment of supplementary dividend The company must use the information provided by the PIE in calculating and paying the supplementary dividend.
Deﬁned in this Act: company, dividend, foreign investment PIE, investor inter- est, non-resident, notiﬁed foreign investor, pay, resident in New Zealand, share, supplementary dividend Section HM 55FB: inserted, on 1 April 2013 (applying for the 2013–14 and later income years), by section 107(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
HM 55G Allowable amounts and thresholds for income with New Zealand source For the purposes of sections HM 19B and HM 55H, and schedule 6 (Prescribed rates: PIE investments and retirement scheme contributions) and for a foreign investment zero-rate PIE, the allowable amounts of income that have a source in New Zealand and the thresholds applying to the amounts are— (a) interest income from ﬁnancial arrangements with no term or a term of 90 days or less, for which the total value of the ﬁnancial arrangements must not be more than 5% of the total value of the PIE’s investments, de- termined without reference to an amount described in paragraph (c): a dividend paid by a company resident in New Zealand, if the total value of all the shares held by the PIE in companies resident in New Zealand is not more than 1% of the total value of the PIE’s investments: income from a derivative instrument or other non-inter- est bearing ﬁnancial arrangement that is related to the PIE’s foreign investments: attributed PIE income from a foreign investment zero- rate PIE or a PIE that meets the requirements of section HM 19B(1).
(b) (c) (d) Deﬁned in this Act: amount, attributed PIE income, company, dividend, ﬁnan- cial arrangement, foreign investment zero-rate PIE, foreign-sourced amount, income, interest, multi-rate PIE, New Zealand, resident in New Zealand Section HM 55G: inserted, on 29 August 2011 (applying for the 2012–13 and later income years for a foreign investment variable-rate PIE and a notiﬁed for- eign investor in the PIE), by section 79(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
1973 Part H s HM 55H Income Tax Act 2007 Reprinted as at 30 August 2013 HM 55H Treatment when certain requirements for foreign investment PIEs not met Income sources (1) A foreign investment zero-rate PIE that derives an amount of income other than a foreign-sourced amount or an amount al- lowable under section HM 55G is treated from the date on which the income is derived as a foreign investment variable- rate PIE.
(2) (3) (4) When thresholds exceeded: PIE applying zero rates Subsection (3) applies for an income year and a foreign invest- ment zero-rate PIE when— (a) on the last day of a quarter (the ﬁrst quarter), a thresh- old set out in section HM 55G(a) and (b) for allowable amounts of income is exceeded; and the failure is not remedied by the last day of the next quarter (the second quarter).
(b) Variable rates The PIE is treated from the ﬁrst day of the third quarter as a foreign investment variable-rate PIE, and must apply to each amount of income the variable investor rates under schedule 6, table 1B for all income sources and investment types.
When requirements not met: PIE applying variable rates Subsection (5) applies for an income year and a foreign invest- ment variable-rate PIE when— (a) on the last day of the ﬁrst quarter, the PIE does not meet the requirements of— (i) (ii) (iii) the failure is not remedied by the last day of the second quarter.

section HM 13(6): section HM 19C: section HM 55F(3): (b) (5) Multi-rate PIE The PIE is treated from the ﬁrst day of the third quarter as a multi-rate PIE that is not a foreign investment PIE.
1974 Reprinted as at 30 August 2013 Income Tax Act 2007 Part H s HM 56 (6) Transitional rule For the purposes of subsections (1) and (3), if a breach occurs and is not remedied before 1 April 2012, the PIE is treated as a multi-rate PIE that is not a foreign investment PIE.
Deﬁned in this Act: amount, foreign investment PIE, foreign investment vari- able rate PIE, foreign investment zero-rate PIE, income, income year, multi-rate PIE, quarter Section HM 55H: inserted, on 29 August 2011 (applying for the 2012–13 and later income years for a foreign investment variable-rate PIE and a notiﬁed for- eign investor in the PIE), by section 79(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Prescribed and notiﬁed rates for investors in multi-rate PIEs Heading: inserted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
HM 56 Prescribed investor rates: schedular rates (1) (2) Rates set out in schedule The prescribed investor rate of an investor in a multi-rate PIE is determined under schedule 6, tables 1 and 1B (Prescribed rates: PIE investments and retirement scheme contributions).
When amount not included in taxable income In the determination of a person’s prescribed investor rate under subsection (1), the person’s taxable income does not include an amount that— (a) arises because their notiﬁed investor rate is lower than their prescribed investor rate; and is treated as taxable income because section CX 56 (At- tributed income of certain investors in multi-rate PIEs) does not apply.
(b) Deﬁned in this Act: amount, investor, multi-rate PIE, notiﬁed investor rate, prescribed investor rate, taxable income Section HM 56: substituted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 49(1) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
Section HM 56(1) heading: inserted (with effect on 1 April 2010), on 29 August 2011 (applying for the 2010–11 and later income years), by section 80(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).

Section HM 56(1): amended, on 29 August 2011, by section 80(2) of the Tax- ation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
1975 Part H s HM 57 Income Tax Act 2007 Reprinted as at 30 August 2013 Section HM 56(2) heading: added (with effect on 1 April 2010), on 29 August 2011 (applying for the 2010–11 and later income years), by section 80(3) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section HM 56(2): added (with effect on 1 April 2010), on 29 August 2011 (ap- plying for the 2010–11 and later income years), by section 80(3) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).

Section HM 56 list of deﬁned terms amount: inserted (with effect on 1 April 2010), on 29 August 2011 (applying for the 2010–11 and later income years), by section 80(4) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section HM 56 list of deﬁned terms notiﬁed investor rate: inserted (with ef- fect on 1 April 2010), on 29 August 2011 (applying for the 2010–11 and later income years), by section 80(4) of the Taxation (Tax Administration and Re- medial Matters) Act 2011 (2011 No 63).
Section HM 56 list of deﬁned terms taxable income: added (with effect on 1 April 2010), on 29 August 2011 (applying for the 2010–11 and later income years), by section 80(4) of the Taxation (Tax Administration and Remedial Mat- ters) Act 2011 (2011 No 63).
HM 57 Prescribed investor rates for certain investors: 0% An investor (a zero-rated investor) in a multi-rate PIE has a prescribed investor rate of 0% if they are resident in New Zealand and are— a company: (a) an organisation or trust with income that is exempt in- (b) come under section CW 41 or CW 42 (which relate to charities): a proxy acting under section HM 33: [Repealed] a PIE or superannuation fund, other than a trustee who chooses a rate under schedule 6, table 1, row 3 or 5 (Pre- scribed rates: PIE investments and retirement scheme contributions): a person who derives income as a trustee and does not choose a rate under schedule 6, table 1, row 3, 5, or 7.
Deﬁned in this Act: company, exempt income, investor, multi-rate PIE, PIE, prescribed investor rate, resident in New Zealand, superannuation fund, trustee (c) (d) (e) (f) Section HM 57: substituted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 49(1) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
Section HM 57(d): repealed, on 2 November 2012, by section 108 of the Tax- ation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
1976 Reprinted as at 30 August 2013 Income Tax Act 2007 Part H s HM 58 HM 57B Prescribed investor rates for new residents (1) When this section applies This section applies for the purposes of determining a person’s prescribed investor rate under schedule 6, table 1 (Prescribed rates: investments and retirement scheme contributions) when the person becomes a New Zealand resident.
Determining rate (2) Despite section BD 1(5)(c) (Income, exempt income, excluded income, non-residents’ foreign-sourced income, and assess- able income), the person must include the total amount of their non-residents’ foreign-sourced income in their assessable in- come.
(3) (4) Choosing not to apply this section The person may choose not to apply this section for either the income year in which they become a New Zealand resident or the following income year (the resident years) or for both resident years, if they reasonably expect that their taxable in- come in the relevant resident year will be signiﬁcantly lower than their total income from all sources for the income year before the ﬁrst resident year.
Relationship with section CW 27 Section CW 27 (Certain income derived by transitional resi- dent) is ignored for the purposes of this section.

Deﬁned in this Act: amount, assessable income, income, income year, New Zealand resident, non-residents’ foreign-sourced income, prescribed investor rate, taxable income Section HM 57B: inserted, on 1 April 2012 (applying for the 2012–13 and later income years), by section 81(1) of the Taxation (Tax Administration and Re- medial Matters) Act 2011 (2011 No 63).
HM 58 Transition of rate for certain investors (1) When this section applies This section applies to a multi-rate PIE in relation to a person who is an investor in the PIE, and the person has, on 30 Sep- tember 2010, a notiﬁed investor rate of 12.5%, 19.5%, 21%, or 30%.
1977 Part H s HM 59 Income Tax Act 2007 Reprinted as at 30 August 2013 Rate applying on and after 1 October 2010 (2) On and after 1 October 2010, the person’s notiﬁed investor rate is— (a) (b) (c) 10.5%, if it was 12.5% on 30 September 2010: 17.5%, if it was 19.5% or 21% on 30 September 2010: 28%, if it was 30% on 30 September 2010.

(3) Exception: new notiﬁed rate Subsection (2) does not apply if the person advises the PIE of a different notiﬁed investor rate.
Deﬁned in this Act: multi-rate PIE, notiﬁed investor rate, notify Section HM 58: substituted, on 1 October 2010, by section 8 of the Taxation (Budget Measures) Act 2010 (2010 No 27).

Section HM 58(1): amended, on 1 October 2010, by section 71(1) of the Taxa- tion (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remed- ial Matters) Act 2010 (2010 No 109).
Section HM 58(2)(b): amended, on 1 October 2010, by section 71(2) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Re- medial Matters) Act 2010 (2010 No 109).

HM 59 Prescribed investor rates for certain investors: 0% [Repealed] Section HM 59: repealed, on 1 April 2010 (applying for the 2010–11 and later income years), by section 49(1) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
HM 60 Notiﬁed investor rates Notifying PIE (1) Despite sections HM 56 to HM 58, an investor other than a notiﬁed foreign investor who has provided their tax ﬁle number to a multi-rate PIE may notify the PIE of the investor rate to be applied for a period (the notiﬁed investor rate).

Section 28B of the Tax Administration Act 1994 sets out the requirements for the notice.

(2) Time of notiﬁcation The investor must give notice before the end of the relevant period.
1978 Reprinted as at 30 August 2013 Income Tax Act 2007 Part H s HM 60 (3) Application of rate For an investor for an income year, a multi-rate PIE must apply the most recent notiﬁed investor rate to every day in the calcu- lation period beginning with— (a) the later of— (i) the day after the day on which the multi-rate PIE receives the notice: the ﬁrst day of the calculation period for which the notiﬁed investor rate is supplied; or (ii) (b) the ﬁrst day of the calculation period in which the multi- rate PIE receives the notice.
Exception (3B) Subsection (3) does not apply if the PIE has made a voluntary payment of tax under section HM 45 that is intended to satisfy its income tax liability for a period in relation to the investor unless the rate last notiﬁed applies to the voluntary payment.
Exception for 2010–11 income year (3C) For the 2010–11 income year, a multi-rate PIE,— (a) (b) for a day before 1 October 2010, may apply a notiﬁed investor rate corresponding to the most recent notiﬁed investor rate, ignoring the Taxation (Budget Measures) Act 2010: for a day on or after 1 October 2010, must apply the most recent notiﬁed investor rate on or after 1 October 2010.
(3D) Consistent application of rates In applying notiﬁed investor rates, a multi-rate PIE must use the same approach under subsections (3) and (3C) for all in- vestors for an income year.
(4) When chosen rate lower than rate in sections HM 56 to HM 58 If an investor advises a notiﬁed investor rate that is lower than their prescribed investor rate that would apply under sections HM 56 to HM 58, income attributed to them by the PIE is not excluded income of the investor under section CX 56 (At- tributed income of certain investors in multi-rate PIEs).
1979 Part H s HM 60 Income Tax Act 2007 Reprinted as at 30 August 2013 When rate disregarded The Commissioner may notify a PIE to disregard an investor’s notiﬁed investor rate if the Commissioner considers the rate is incorrect.

The notiﬁcation must include a rate for the investor that the Commissioner considers appropriate.

When no rate notiﬁed If an investor does not advise a multi-rate PIE of their notiﬁed investor rate, the rate applying for a period is 28%.
Deﬁned in this Act: Commissioner, excluded income, income, investor, multi- rate PIE, notiﬁed foreign investor, notiﬁed investor rate, notify, pay, PIE, pre- scribed investor rate, tax ﬁle number Compare: 2007 No 97 s YA 1 “portfolio investor rate”, “prescribed investor rate” Section HM 60: inserted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section HM 60 heading: substituted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 50(1) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).

Section HM 60(1): amended, on 29 August 2011, by section 82(1) of the Tax- ation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section HM 60(1): amended, on 1 April 2010 (applying for the 2010–11 and later income years), by section 50(2)(a) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).

Section HM 60(1): amended, on 1 April 2010 (applying for the 2010–11 and later income years), by section 50(2)(b) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
Section HM 60(3) heading: substituted, on 1 October 2010, by section 9(1) of the Taxation (Budget Measures) Act 2010 (2010 No 27).

Section HM 60(3): replaced (with effect on 1 October 2010 and applying for the 2010–11 and later income years), on 17 July 2013, by section 66(1) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Section HM 60(3B) heading: inserted, on 1 October 2010, by section 72(2) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).

Section HM 60(3B): inserted, on 1 October 2010, by section 72(2) of the Taxa- tion (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remed- ial Matters) Act 2010 (2010 No 109).
Section HM 60(3B): amended (with effect on 1 October 2010 and applying for the 2010–11 and later income years), on 17 July 2013, by section 66(2) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Section HM 60(3C) heading: inserted (with effect on 1 October 2010 and ap- plying for the 2010–11 and later income years), on 17 July 2013, by section (5) (6) 1980 Reprinted as at 30 August 2013 Income Tax Act 2007 Part H s HM 61 66(3) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Section HM 60(3C): inserted (with effect on 1 October 2010 and applying for the 2010–11 and later income years), on 17 July 2013, by section 66(3) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).

Section HM 60(3D) heading: inserted (with effect on 1 October 2010 and ap- plying for the 2010–11 and later income years), on 17 July 2013, by section 66(3) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Section HM 60(3D): inserted (with effect on 1 October 2010 and applying for the 2010–11 and later income years), on 17 July 2013, by section 66(3) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).

Section HM 60(4) heading: amended, on 1 April 2010 (applying for the 2010–11 and later income years), by section 50(3)(a) of the Taxation (Conse- quential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
Section HM 60(4): amended (with effect on 1 April 2010), on 7 September 2010 (applying for the 2010–11 and later income years), by section 72(3) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).

Section HM 60(4): amended, on 1 April 2010 (applying for the 2010–11 and later income years), by section 50(3)(b) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
Section HM 60(4): amended, on 1 April 2010 (applying for the 2010–11 and later income years), by section 50(3)(c) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).

Section HM 60(5): substituted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 50(4) of the Taxation (Consequential Rate Align- ment and Remedial Matters) Act 2009 (2009 No 63).
Section HM 60(6): amended, on 1 October 2010, by section 9(2) of the Taxation (Budget Measures) Act 2010 (2010 No 27).

Section HM 60(6): amended, on 1 April 2010 (applying for the 2010–11 and later income years), by section 50(5) of the Taxation (Consequential Rate Align- ment and Remedial Matters) Act 2009 (2009 No 63).
Section HM 60 list of deﬁned terms notiﬁed foreign investor: inserted, on 29 August 2011, by section 82(2) of the Taxation (Tax Administration and Re- medial Matters) Act 2011 (2011 No 63).
HM 61 Certain exiting investors zero-rated When tax rate zero (1) Despite section HM 60, the tax rate applying to an investor for a quarter is 0% if— (a) the investor interest of the investor in a multi-rate PIE reaches the exit level or the investor has an exit period 1981 Part H s HM 61 Income Tax Act 2007 Reprinted as at 30 August 2013 in a quarter in which they are attributed income from the PIE; and the PIE calculates and pays tax using the quarterly cal- culation option under section HM 43; and the PIE does not choose to make voluntary payments under section HM 45.
(b) (c) Notiﬁed foreign investors This section does not apply if the exiting investor is a notiﬁed foreign investor in a foreign investment PIE.
Deﬁned in this Act: foreign investment PIE, income, investor, multi-rate PIE, notiﬁed foreign investor, pay, PIE, quarter Compare: 2007 No 97 s YA 1 “portfolio investor rate”, “prescribed investor rate” Section HM 61: inserted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section HM 61: amended, on 1 April 2010 (applying for the 2010–11 and later income years), by section 51(1) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).

Section HM 61(1) heading: inserted, on 29 August 2011, by section 83(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section HM 61(1)(a): amended (with effect on 1 April 2010), on 21 December 2010 (applying for the 2010–11 and later income years), by section 100(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).

Section HM 61(2) heading: added, on 29 August 2011 (applying for the 2012–13 and later income years for a foreign investment variable-rate PIE and a notiﬁed foreign investor in the PIE), by section 83(2) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section HM 61(2): added, on 29 August 2011 (applying for the 2012–13 and later income years for a foreign investment variable-rate PIE and a notiﬁed for- eign investor in the PIE), by section 83(2) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).

Section HM 61 list of deﬁned terms foreign investment PIE: inserted, on 29 August 2011, by section 83(3) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section HM 61 list of deﬁned terms notiﬁed foreign investor: inserted, on 29 August 2011, by section 83(3) of the Taxation (Tax Administration and Re- medial Matters) Act 2011 (2011 No 63).

Section HM 61 list of deﬁned terms quarter: inserted (with effect on 1 April 2008), on 7 December 2009, by section 126 of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
(2) 1982 Reprinted as at 30 August 2013 Income Tax Act 2007 Part H s HM 63 Exit levels and periods HM 62 Exit levels for investors An investor in a multi-rate PIE is treated as reaching the exit level when the PIE’s tax liability for the investor is equal to, or more than, the value of the investor interest of the investor in the PIE at the end of the exit period (the exit level).
Deﬁned in this Act: exit level, investor, investor interest, multi-rate PIE, PIE Section HM 62: inserted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section HM 62: amended (with effect on 1 April 2010) on 21 December 2010 (applying for the 2010–11 and later income years), by section 101(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
HM 63 Exit periods (1) (2) (3) (4) When this section applies This section applies when an investor in a multi-rate PIE reaches the exit level during a tax year.
Exit period: exit calculation For a PIE that calculates its tax liability using the exit calcula- tion option under section HM 42, the investor’s exit period— begins with the day that is the later of the start of the tax (a) year and the day on which the investor last became an investor; and ends on the day in the tax year when the exit level is reached.
(b) Exit period: quarterly calculation For a PIE that calculates its tax liability using the quarterly calculation option under section HM 43, the investor’s exit period is the quarter in which the exit level is reached plus a grace period of 5 working days after the end of the quarter.

Voluntary payments of tax Subsection (3) does not apply if the PIE voluntarily pays tax under section HM 45.
Deﬁned in this Act: exit level, investor, multi-rate PIE, pay, PIE, quarter, tax year, working day Compare: 2007 No 97 s YA 1 “portfolio investor exit period” 1983 Part H s HM 64 Income Tax Act 2007 Reprinted as at 30 August 2013 Section HM 63: inserted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Treatment of losses by PIEs Heading: inserted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Losses of certain multi-rate PIEs Heading: inserted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
HM 64 Use of investor classes’ losses When this section applies This section applies when an investor class of a PIE that cal- culates and pays tax using the exit calculation or quarterly cal- culation options under section HM 42 and HM 43 has a tax loss under section HM 35(7) for a calculation period.

But this section does not apply to a land loss as deﬁned in section HM 65(3).
Amount not carried forward The amount is not included in a loss balance carried forward under Part I (Losses) to a later calculation period.

Tax credits To the extent to which the amount relates to an investor other than a zero-rated investor or an investor treated under section HM 61 as zero-rated, the PIE has a tax credit under section LS 1 (Tax credits for multi-rate PIEs).

The amount of the credit is calculated under section HM 47(5).
Foreign investment PIEs For a notiﬁed foreign investor in a foreign investment PIE, the amount is disregarded.
Deﬁned in this Act: amount, calculation period, foreign investment PIE, in- vestor class, land loss, loss balance, notiﬁed foreign investor, pay, PIE, tax credit, zero-rated investor Compare: 2007 No 97 s HL 32(1) (1) (2) (3) (4) 1984 Reprinted as at 30 August 2013 Income Tax Act 2007 Part H s HM 65 Section HM 64: inserted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section HM 64(3): amended, on 2 November 2012, by section 109(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).

Section HM 64(4) heading: added, on 29 August 2011, by section 84(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).

Section HM 64(4): replaced, on 2 November 2012, by section 109(2) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section HM 64 list of deﬁned terms foreign investment PIE: inserted, on 29 August 2011, by section 84(2) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).

Section HM 64 list of deﬁned terms notiﬁed foreign investor: inserted, on 29 August 2011, by section 84(2) of the Taxation (Tax Administration and Re- medial Matters) Act 2011 (2011 No 63).
HM 65 Use of land losses of investor classes (1) (2) (3) When this section applies This section applies when an investor class of a multi-rate PIE that calculates and pays tax using the exit calculation option or the quarterly calculation option under section HM 42 or HM 43 has a land loss for a calculation period.
Amount carried forward The amount of land loss may be included in a loss balance car- ried forward under Part I (Losses) to a later calculation period and used under section HM 35(5) to reduce an amount of tax- able income from the class.
Meaning of land loss For the purposes of this section, a land loss means a tax loss under section HM 35(7) of an investor class of a PIE for a calculation period if, at the end of the period, the class has, through the investor interests of the members of the class, an entitlement to the distribution of the proceeds of the PIE’s in- vestments that— (a) are an investment of the type listed in subsection (4); and have a value that is more than 50% of the market value of all the PIE’s investments in which the class has the entitlement.
(b) 1985 Part H s HM 65 Income Tax Act 2007 Reprinted as at 30 August 2013 Investment types For the purposes of subsection (3)(a), the investment must be— (a) (b) an investment in land: an investment in a land investment company that is resi- dent in New Zealand: an investment in a non-resident land investment com- pany in which the investor class has a voting interest of more than 20%.
(c) Foreign investment PIEs For a notiﬁed foreign investor in a foreign investment PIE, the amount of land loss is disregarded.
Deﬁned in this Act: amount, calculation period, foreign investment PIE, in- vestor class, investor interest, land, land investment company, land loss, loss balance, market value, multi-rate PIE, non-resident, notiﬁed foreign investor, pay, PIE, quarter, resident in New Zealand, share, tax loss, taxable income, vot- ing interest Compare: 2007 No 97 s HL 32(2), (3) Section HM 65: inserted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section HM 65(3)(a): substituted (with effect on 1 April 2010), on 7 September 2010 (applying for the 2010–11 and later income years), by section 73(1) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
Section HM 65(4) heading: added (with effect on 1 April 2010), on 7 September 2010 (applying for the 2010–11 and later income years), by section 73(2) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
Section HM 65(4): added (with effect on 1 April 2010), on 7 September 2010 (applying for the 2010–11 and later income years), by section 73(2) of the Taxa- tion (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remed- ial Matters) Act 2010 (2010 No 109).

Section HM 65(5) heading: added, on 29 August 2011, by section 85(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section HM 65(5): replaced, on 2 November 2012, by section 110 of the Tax- ation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).

Section HM 65 list of deﬁned terms foreign investment PIE: inserted, on 29 August 2011, by section 85(2) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section HM 65 list of deﬁned terms non-resident: inserted (with effect on 1 April 2010), on 7 September 2010, by section 73(3) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
(4) (5) 1986 Reprinted as at 30 August 2013 Income Tax Act 2007 Part H s HM 67 inserted, on Section HM 65 list of deﬁned terms notiﬁed foreign investor: 29 August 2011, by section 85(2) of the Taxation (Tax Administration and Re- medial Matters) Act 2011 (2011 No 63).
Section HM 65 list of deﬁned terms resident in New Zealand: inserted (with effect on 1 April 2010), on 7 September 2010, by section 73(3) of the Taxa- tion (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remed- ial Matters) Act 2010 (2010 No 109).
Section HM 65 list of deﬁned terms voting interest: added (with effect on 1 April 2010), on 7 September 2010, by section 73(3) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).

Formation losses Heading: inserted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
HM 66 Formation losses carried forward to tax year (1) (2) What this section applies to This section applies to an entity that becomes a PIE, other than a multi-rate PIE that calculates and pays tax using the exit calculation or quarterly calculation option under section HM 42 or HM 43, when the entity has a formation loss.

Amount carried forward The amount of formation loss may be included in a loss bal- ance carried forward under Part I (Losses) to a tax year in which the entity is a PIE.
Deﬁned in this Act: amount, formation loss, loss balance, multi-rate PIE, pay, PIE, quarter, tax, tax year Compare: 2007 No 97 s HL 30(1), (2) Section HM 66: inserted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
HM 67 Formation losses carried forward to ﬁrst quarter (1) When this section applies This section applies when an entity becomes a multi-rate PIE that— (a) calculates and pays tax using the exit calculation or quarterly calculation option under section HM 42 or HM 43; and 1987 Part H s HM 68 Income Tax Act 2007 Reprinted as at 30 August 2013 (b) has a formation loss.
(2) Amount carried forward The amount of formation loss may be carried forward under Part I (Losses) to the quarter in which the entity becomes a PIE.

Deﬁned in this Act: amount, formation loss, multi-rate PIE, pay, PIE, quarter Compare: 2007 No 97 s HL 30(1) Section HM 67: inserted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
HM 68 When formation losses carried forward are less than 5% of formation investment value If the total amount of formation loss carried forward under section HM 67 is less than 5% of the total market value of the PIE’s investments at the time it becomes a PIE, it may allocate to an attribution period the amount not already allocated, when calculating under section HM 35(5) the taxable amount of an investor class for the attribution period.
Deﬁned in this Act: amount, attribution period, formation loss, investor class, market value, PIE taxable amount Compare: 2007 No 97 s HL 30(3) Section HM 68: inserted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
HM 69 When formation losses carried forward are 5% or more of formation investment value: 3-year spread What this section applies to This section applies to spread the formation loss over the period of 3 years from the date the entity becomes a PIE when the amount of formation loss carried forward under section HM 67 is 5% or more of the total market value of the PIE’s investments at the time it becomes a PIE.
Amount The maximum amount of formation loss that the PIE may al- locate to an attribution period, when calculating under section HM 35(5) the taxable amount of an investor class for the attri- bution period, is the amount calculated using the formula— (1) (2) 1988 Reprinted as at 30 August 2013 Income Tax Act 2007 Part H s HM 70 initial loss × days 1095.
(3) (4) Deﬁnition of items in formula In the formula,— (a) (b) initial loss is the amount of formation loss: days is the number of days in the attribution period.

Unused formation losses For the purposes of the calculation of the amount in subsection (2), the formation loss includes any unused formation loss that was allocated to an earlier attribution period.
Treatment after 3-year period (5) After the end of the period of 3 years referred to in subsection (1), any residual formation loss may be allocated to an attribu- tion period when a calculation is made under section HM 35(5) of the taxable amount for an investor class.
Deﬁned in this Act: amount, attribution period, formation loss, investor class, market value, PIE, tax year taxable amount Compare: 2007 No 97 s HL 30(4), (5) Section HM 69: inserted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section HM 69(5): substituted (with effect on 1 April 2010), on 7 September 2010 (applying for the 2010–11 and later income years), by section 74(1) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
HM 70 Maximum amount of formation losses allocated by multi-rate PIEs to investor classes Maximum amount for allocation (1) Despite sections HM 68 and HM 69, the maximum amount of formation loss that may be allocated, when calculating under section HM 35(5) the taxable amount of an investor class for an attribution period, is calculated using the formula— class net income credits rate.
Deﬁnition of items in formula In the formula,— (2) 1989 Part H s HM 71 Income Tax Act 2007 Reprinted as at 30 August 2013 (a) (b) (c) class net income is the amount of the net income of the investor class for the period under section HM 35(4): credits is the total amount attributed to the investor class for the period of— imputation credits: (i) (ii) Maori authority credits: (iii) RWT credits: FDP credits: (iv) rate is the basic rate for companies set out in schedule 1, part A, clause 2 (Basic tax rates: income tax, ESCT, RSCT, RWT, and attributed fringe beneﬁts).
Deﬁned in this Act: amount, attribution period, company, FDP credit, formation loss, imputation credit, investor class, Maori authority credit, net income, RWT Compare: 2007 No 97 s HL 30(6), (7) Section HM 70: inserted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Elections and consequences Heading: inserted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
HM 71 Choosing to become PIE An entity that, at the time of election, meets the requirements of the entry rules in sections HM 8 to HM 10, HM 17, HM 18, and HM 20, except to the extent to which the relevant require- ment is said not to be applicable to the entity, may choose to become a PIE by notifying the Commissioner under section 31B of the Tax Administration Act 1994.
Deﬁned in this Act: Commissioner, notify, PIE Compare: 2007 No 97 s HL 11(1), (3) Section HM 71: inserted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
HM 71B Choosing to become foreign investment PIE What this section applies to This section applies to an entity that— (a) is, or is eligible to become, a multi-rate PIE; and (1) 1990 Reprinted as at 30 August 2013 Income Tax Act 2007 Part H s HM 72 (b) (c) has, or intends to have, investors who are not resident in New Zealand; and does not calculate its income tax liability using the pro- visional tax calculation option in section HM 44.
(2) Foreign investment zero-rate PIEs The entity may choose to become a foreign investment zero- rate PIE if it meets the requirements of section HM 19B.

Foreign investment variable-rate PIEs (3) An entity may choose to become a foreign investment variable- rate PIE if it meets the requirements of section HM 19C.

(4) Election to become foreign investment PIE The entity makes the election by advising the Commissioner.
If the entity is not an existing multi-rate PIE, the entity must notify the Commissioner under section 31B of the Tax Admin- istration Act 1994.
Deﬁned in this Act: Commissioner, foreign investment PIE, foreign investment variable-rate PIE, foreign investment zero-rate PIE, income tax liability, multi- rate PIE, notify, resident in New Zealand Section HM 71B: inserted, on 29 August 2011 (applying for the 2012–13 and later income years for a foreign investment variable-rate PIE and a notiﬁed for- eign investor in the PIE), by section 86(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
HM 72 When elections take effect Notice of election (1) An election under section HM 71 or HM 71B to become a PIE or a foreign investment PIE, as applicable takes effect on the latest of the following dates: (a) (b) (c) the date the entity is formed: the date set out in the notice: 30 days before the Commissioner receives the notice.
When entity does not meet basic requirements (2) Despite subsection (1), an entity’s election to become a PIE does not take effect if, in the period ending 12 months after the date on which the election would be effective,— (a) (b) the entity cancels the election: an event or situation arises that means the entity would lose PIE status under any of sections HM 24 to HM 28 1991 Part H s HM 73 Income Tax Act 2007 Reprinted as at 30 August 2013 because the requirements of sections HM 11 to HM 16 were not met in each quarter of the 12-month period.
Notice of cancellation (3) An election under section HM 29 to cancel PIE status takes effect on the latest of the following dates: the date the entity became a PIE: (a) the date set out in the notice: (b) the date on which the Commissioner receives the notice.
(c) Deﬁned in this Act: Commissioner, foreign investment PIE, notice, PIE, quarter Compare: 2007 No 97 ss HL 11(2), (2B), (4), HL 13(1), (4), HL 15(2) Section HM 72: inserted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section HM 72(1): amended, on 29 August 2011, by section 87(1) of the Tax- ation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section HM 72(2)(b): substituted, on 1 April 2010 (applying for income years beginning on or after 1 April 2010), by section 52(1) of the Taxation (Conse- quential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).

Section HM 72 list of deﬁned terms foreign investment PIE: inserted, on 29 August 2011, by section 87(2) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section HM 72 list of deﬁned terms quarter: inserted (with effect on 1 April 2008), on 7 December 2009, by section 126 of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).

HM 73 Transition: provisional tax (1) (2) When this section applies This section applies when an entity chooses to become a PIE in an income year and has an increased liability for provisional tax for the income year because of the election.
Penalties and interest The entity is not liable to pay any penalty or interest for which it would otherwise be liable for an inaccuracy arising from the increased liability in— (a) (b) an estimate of provisional tax made before the election: a payment of provisional tax due before the end of the 2-month period that starts when the election takes effect.
Tax liability (3) An entity that becomes a PIE in a tax year and is liable to pay an amount of income tax because of the disposal and reacqui- 1992 Reprinted as at 30 August 2013 Income Tax Act 2007 Part H s HM 74 sition referred to in section HM 75 may satisfy the tax liability by paying the Commissioner at least— (a) (b) one third of the liability in the tax year; and one half of the balance remaining after a payment under paragraph (a) in the tax year after that in which the entity became a PIE; and the balance owing after the payments under paragraphs (a) and (b) in the second tax year after that in which the entity became a PIE.
(c) Deﬁned in this Act: amount, Commissioner, income tax, income year, pay, PIE, provisional tax, tax year Compare: 2007 No 97 s HL 14 Section HM 73: inserted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
HM 74 Transition: entities with non-standard income years (1) (2) When this section applies This section applies when— (a) (b) an entity with a non-standard income year chooses to become a PIE; and the entity calculates and pays its tax liability using the exit calculation or quarterly calculation option under section HM 42 or HM 43.
Consequential changes in balance date Section 39 of the Tax Administration Act 1994 applies as if— the day before that on which the election takes effect (a) were the original balance date of the entity; and the next 31 March after the election takes effect were a new balance date approved by the Commissioner for the entity.
(b) Deﬁned in this Act: Commissioner, non-standard income year, pay, PIE, quar- ter Compare: 2007 No 97 s HL 13(2) Section HM 74: inserted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
1993 Part H s HM 75 Income Tax Act 2007 Reprinted as at 30 August 2013 HM 75 Transition: treatment of shares held in certain companies When subsection (2) applies Subsection (2) applies when— (a) (b) an entity chooses to become a PIE; and before the election takes effect— (i) the entity holds a share in relation to which the proceeds of disposal would be excluded income under section CX 55(3)(a) and (b) (Proceeds from disposal of investment shares) once the entity becomes a PIE: the entity is a share supplier in a returning share transfer in relation to that type of share; and the share is in a company that is not a PIE and does not become a PIE within 6 months from the date on which the entity became a PIE.
(ii) Disposal and reacquisition The entity is treated as— (a) (b) disposing of the share to another person; and receiving consideration of an amount that equals the market value of the share at the time; and reacquiring the share from the other person for the same consideration.

Timing The disposal and reacquisition is treated as occurring on the day before that on which the election takes effect.
When subsection (5) applies Subsection (5) applies when an entity— (a) loses PIE status under any of sections HM 24 to HM 28 or chooses to cancel PIE status under section HM 29; and holds a share in relation to which the proceeds of disposal would be excluded income under section CX 55(3)(a) and (b) while the entity is a PIE.
Disposal and reacquisition The entity is treated as— (a) disposing of the share to another person; and (c) (c) (b) (1) (2) (3) (4) (5) 1994 Reprinted as at 30 August 2013 Income Tax Act 2007 Part H s HM 76 (6) (b) (c) receiving consideration of an amount that equals the market value of the share at the time; and reacquiring the share from the other person for the same consideration.

Timing The disposal and reacquisition is treated as occurring on the day before PIE status is lost.
Deﬁned in this Act: amount, company, exempt income, market value, PIE, re- turning share transfer, share, shareholder Compare: 2007 No 97 ss HL 13(3), HL 15(3) Section HM 75: inserted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
HM 76 Transition: FDPA companies When an FDPA company becomes a PIE during a tax year, the balance of the company’s FDP account at the end of the tax year for the purposes of section RM 21(2)(c) (Refunds when loss balances used to reduce net income) is equal to the balance of the FDP account immediately before the company becomes a PIE.
Deﬁned in this Act: FDP account, FDPA company, PIE, tax year Compare: 2007 No 97 s HL 13(3B) Section HM 76: inserted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Subpart HR—Other entities Contents Partnerships and joint ventures [Repealed] HR 1 Partnerships and joint ventures [Repealed] Funds HR 2 Group investment funds HR 3 Deﬁnitions for section HR 2: group investment funds HR 4 Government Superannuation Fund HR 4B Crown activities through New Zealand Superannuation Fund Page 1996 1996 1997 2000 2000 1995 Part H s HR 1 Income Tax Act 2007 Reprinted as at 30 August 2013 Airport operators HR 5 Airport operators: general HR 6 Airport operator’s assets HR 7 Meaning of airport operator’s activities HR 8 Transitional residents Transitional residents Financial institution special purpose vehicles HR 9 Financial institution special purpose vehicles are transparent 2001 2002 2003 2004 2007 HR 9B Bankruptcy-remote property during application of section 2009 HR 9 HR 10 What happens when vehicle stops being ﬁnancial 2010 institution special purpose vehicle?
Partnerships and joint ventures [Repealed] Heading: repealed (with effect on 1 April 2008), on 29 August 2011 (applying for the 2008–09 and later income years), by section 140(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).

HR 1 Partnerships and joint ventures [Repealed] Section HR 1: repealed, on 1 April 2008, by section 20(1) of the Taxation (Limited Partnerships) Act 2008 (2008 No 2).
HR 2 Group investment funds Funds Separate returns The trustee of a group investment fund must provide for a tax year under section 33 of the Tax Administration Act 1994, separate returns of its category A income and its category B income.
Designated group investment fund, category B income: application of trust rules If the trustee of a group investment fund derives an amount that is income derived from investments and funds of a designated group investment fund or category B income, the amount is (1) (2) 1996 Reprinted as at 30 August 2013 Income Tax Act 2007 Part H s HR 3 (3) treated as income derived by the trustee and the trust rules apply.
Category A income: application of company rules If the trustee of a group investment fund derives from the in- vestments and funds of the group investment fund an amount that is category A income, the amount is treated as income of a notional company.
Deﬁned in this Act: amount, category A income, category B income, designated group investment fund, group investment fund, income, return of income, tax year, trust, trust rules, trustee Compare: 2004 No 35 s HE 2(1), (1A) HR 3 Deﬁnitions for section HR 2: group investment funds Category A income (1) Category A income, for a group investment fund other than a designated group investment fund in an income year, means the amount of income derived from the investments and funds of the group investment fund that is calculated using the for- mula— last day value designated source investments pre-1983 investments × income.
last day value (2) Deﬁnitions for items in formula In the formula,— (a) last day value is the current value of all investments and funds of the group investment fund on the last day of the income year: designated source investments is the current value of the designated source investments in the group invest- ment fund on the last day of the income year: pre-1983 investments is the current value of the pre- 1983 investments in the group investment fund on the last day of the income year: income is the total income derived from all investments and funds of the group investment fund in the income year.
(b) (c) (d) 1997 Part H s HR 3 Income Tax Act 2007 Reprinted as at 30 August 2013 Category B income (3) Category B income, for a group investment fund other than a designated group investment fund, means the income derived from investments and funds of the group investment fund that is not category A income for the income year.
Current value (4) Current value, for a group investment fund and a day in an income year, means the capital value, as deﬁned by the Trustee Companies Act 1967 or the Public Trust Act 2001, of the in- vestments and funds of the group investment fund that is— (a) either— (i) (ii) last determined before the day under section 31 of the Trustee Companies Act 1967 or section 66 of the Public Trust Act 2001; or determined on the day, if that day is the day on which the capital value is determined; and for the purposes of the deﬁnition of designated source investments in subsection (7), and pre-1983 in- vestments in subsection (8), determined as if those investments and funds comprised all the investments and funds in the group investment fund at the time.
(b) Designated sources (5) Designated sources, for a group investment fund, means a trust, other than the trust under which the fund is established, whose trustee is a trustee of the group investment fund, that— (a) is created— (i) by will or codicil, or by order of court varying or modifying the provisions of a will or codicil; or on intestacy, including a partial intestacy, or by an order of court varying or modifying, in relation to an estate, the application of the law relating to the distribution of intestate estates; or by an order of court; or by an enactment; or to administer funds that are compensation or other money arising from the death of, or injury to, a person; or to vary the terms of a will or codicil or, in rela- tion to an estate, to vary the application of the (ii) (iii) (iv) (v) (vi) 1998 Reprinted as at 30 August 2013 Income Tax Act 2007 Part H s HR 3 law relating to the distribution of intestate es- tates, in either case for the sole purpose of ef- fecting a settlement out of court of an applica- tion made, or proposed to be made, under the Family Protection Act 1955 or a claim, or a pro- posed claim, to be made under the Law Reform (Testamentary Promises) Act 1949, if the terms are mainly the same as those likely to have been ordered by the court: (b) is not carried on for the private beneﬁt of an individual whose funds are applied entirely or mainly for benevo- lent, philanthropic, cultural, or public purposes in New Zealand.
Designated group investment fund (6) Designated group investment fund means a group invest- ment fund whose investments and funds are invested wholly— in investments authorised under section 4(1)(a) to (j) (a) of the Trustee Act 1956, which is interpreted as if the Trustee Amendment Act 1988 had not been enacted, and are not investments authorised solely by the instru- ment creating the trust under which the fund is estab- lished; or in, and for the purposes of, the carrying on of a forestry business on land in New Zealand, to the extent to which the investments and funds are invested in the land that the fund owned or otherwise held on 22 June 1983 for the purposes of the forestry business.
(b) Designated source investments (7) Designated source investments, for a group investment fund at any time, means investments and funds from designated sources invested at the time in the group investment fund.
(8) Pre-1983 investments Pre-1983 investments, for a group investment fund at any time, means investments and funds that were invested in the group investment fund at 22 June 1983, other than designated source investments, as if those investments and funds had con- tinued to be invested at the time, including— 1999 Part H s HR 4 Income Tax Act 2007 Reprinted as at 30 August 2013 (a) money deposited between 15 June and 23 June 1983 with the trustee of the group investment fund for invest- ment in the fund; and (b) money deposited between 22 June and 16 July 1983 with the trustee of the group investment fund for invest- ment in the fund, which, on or before 22 June 1983, was subject to a binding commitment to deposit that money.
Deﬁned in this Act: amount, business, category A income, category B income, Commissioner, current value, designated group investment fund, designated source investments, designated sources, group investment fund, income, income year, New Zealand, pre-1983 investments, trustee Compare: 2004 No 35 ss HE 2(2), (3), OB 1 “category A income”, “category B income”, “current value”, “designated group investment fund”, “group in- vestment fund” HR 4 Government Superannuation Fund The Government Superannuation Fund Authority is treated for income tax purposes as if the Government Superannuation Fund were a superannuation scheme that is a trust and the Au- thority the trustee of that scheme.
Deﬁned in this Act: income tax, Government Superannuation Fund, superannu- ation scheme, trust, trustee Compare: 2004 No 35 s HJ 1 HR 4B Crown activities through New Zealand Superannuation Fund Amounts of income derived and expenditure incurred by the Crown in relation to the activities of its New Zealand Super- annuation Fund are determined using the rules in this Act that apply to companies.
This treatment applies to determine— (a) how the amounts derived and incurred are quantiﬁed and timed: (b) whether income is treated as exempt income or ex- cluded income: any other matter concerning an activity of the Fund.
(c) Deﬁned in this Act: amount, company, excluded income, exempt income, in- come, tax Section HR 4B: inserted (with effect on 1 April 2011), on 29 August 2011 (ap- plying for the 2011–12 and later income years), by section 88(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
2000 Reprinted as at 30 August 2013 Income Tax Act 2007 Part H s HR 5 HR 5 Airport operators: general Airport operators (1) (2) (3) (4) (5) (6) (7) When this section applies This section and sections HR 6 and HR 7 apply to determine for this Act certain aspects of the treatment of an airport op- erator that is a joint venture between the Crown and a local authority.

Company The airport operator is treated as a company.
Shares in company Each joint venturer is treated as holding shares in the company in proportion to their share of the proﬁts of the joint venture, as determined under the joint venture agreement (after allowing for adjustments for earlier income years).

Separate from joint ventures The airport operator is treated as a person separate from— (a) (b) (c) the Crown; and each airport authority; and each other person.
Neither public nor local authority The airport operator is treated as neither a public authority nor a local authority.

Not subject to mutual association rules The airport operator is not treated as a mutual association for the purposes of subpart HE (Mutual associations).
Interest-bearing funding Subsection (8) applies to the extent to which— (a) a joint venturer provides funds for the airport operator’s activities; and the joint venturers expressly agree that the funds are to be provided for the airport operator’s activities; and the funds are provided for consideration in the nature of interest payable by the airport operator.
(b) (c) 2001 Part H s HR 6 Income Tax Act 2007 Reprinted as at 30 August 2013 (8) Funding The funds are treated as money borrowed by the airport oper- ator and the consideration is treated as interest.
Deﬁned in this Act: airport authority, airport operator, airport operator’s activ- ities, association, company, interest, local authority, public authority, share Compare: 2004 No 35 s OC 1(2) HR 6 Airport operator’s assets Ownership of airport assets (1) An airport operator is treated as owning each of its airport assets.
Time of acquisition (2) An airport operator is treated as having acquired an asset at the time— (a) (b) (c) it acquired it other than by way of purchase: it agreed to use it: it started to have the power to use it.

Cost of acquisition (3) An airport operator is treated as having incurred, in acquiring an asset, its market value at the time of acquisition.
(4) (5) (6) Ceasing to be airport asset If an asset ceases to be an airport asset of the airport operator, other than on sale, the airport operator is treated as having sold it, at the time, for a price equal to its market value at the time.
Disputes concerning value or timing Subsection (6) applies if a question arises concerning— (a) (b) (c) the market value of an asset: the cost of an airport asset: the time at which an airport operator acquired, agreed to use, or started to have the power to use an asset.

Resolved by agreement or Commissioner The question must be resolved by agreement between the air- port operator and the Commissioner or, failing agreement, by the Commissioner.
Meaning of airport asset In this section, for an airport operator, airport asset means— (7) 2002 Reprinted as at 30 August 2013 Income Tax Act 2007 Part H s HR 7 (a) (b) (c) (d) an asset that, under the joint venture agreement and for the purposes of the airport operator’s activities, the air- port authority— acquires: (i) agrees to use: (ii) (iii) is given the power to use: an asset owned by a person for the purposes of a depre- ciation sinking fund for an airport asset: an asset owned by a person for the purposes of a loan redemption sinking fund for a loan on which the interest payments are a charge against the joint venture income of the airport operator: an asset acquired by the airport operator using funds that are, or by exchanging property that is, acquired in carry- ing on the airport operator’s activities and not allocated or distributed to the joint venturers.
(8) Exclusion Subsection (7)(a) does not apply to an asset that— (a) the airport operator has— disposed of: (i) ceased to agree to use: (ii) (iii) ceased to have the power to use: the airport operator has acquired, agreed to use or ac- quired the power to use under a lease, unless the lease is a speciﬁed lease or a ﬁnance lease.
(b) Deﬁned in this Act: acquire, airport asset, airport authority, airport operator, airport operator’s activities, Commissioner, ﬁnance lease, interest, loan, speci- ﬁed lease Compare: 2004 No 35 s OC 1(2)–(6) HR 7 Meaning of airport operator’s activities (1) Meaning of airport operator’s activities In sections HR 5 and HR 6, airport operator’s activities means the following activities undertaken for the purposes of the airport operator’s joint venture agreement concerning the airport, including the airport’s approaches, buildings and equipment: (a) (b) its establishment: its improvement: 2003 Part H s HR 8 Income Tax Act 2007 Reprinted as at 30 August 2013 (c) (d) (e) its maintenance: its operation: its management.
(2) Meaning of airport In this section, airport has the meaning given in section 2 of the Airport Authorities Act 1966.
Deﬁned in this Act: airport, airport operator, airport operator’s activities Compare: 2004 No 35 s OC 1(6) Transitional residents HR 8 Transitional residents Provisions under which transitional resident treated as non-resident (1) When a foreign-sourced amount is derived by a transitional resident, the following provisions apply to produce a result for income tax purposes that is the same as if the transitional resident were non-resident: (a) sections CD 45, CE 2, CQ 2, CQ 5, and CW 27 (which relate to income): sections DN 2 and DN 6 (which relate to deductions): sections EW 5, EW 37, EW 41, EX 16, EX 41, and EX 64 (which relate to the ﬁnancial arrangements rules and to the CFC and FIF rules): sections HC 25, HC 26, and HC 30 (which relate to the trust rules): sections MC 5, MC 10, MD 7, and MF 5 (which relate to tax credits): sections RE 2, RE 5 and RF 12 (which relate to the RWT and NRWT rules): section YD 1 (Residence of natural persons): section 41 of the Tax Administration Act 1994.
(b) (c) (d) (e) (f) (g) (h) Meaning of transitional resident (2) A person is a transitional resident if— (a) they are resident in New Zealand through acquiring a permanent place of abode as described in section YD 1(2) or through the 183-day rule set out in section YD 1(3); and 2004 Reprinted as at 30 August 2013 Income Tax Act 2007 Part H s HR 8 (b) (c) (d) for a continuous period (the non-residence period) of at least 10 years immediately before they meet the re- quirements of section YD 1(2) or (3), ignoring the rule in section YD 1(4), (Residence of natural persons) for becoming resident in New Zealand, they— (i) (ii) were not resident in New Zealand; and they were not a transitional resident before the non-resi- dence period; and they have not ceased to be a transitional resident after the end of the non-residence period.
did not meet the requirements of that section: Natural persons (3) A natural person who meets the requirements of subsection (2) and does not make an election under subsection (4) is a transitional resident for a period— (a) (b) beginning from the ﬁrst day of the residence required by subsection (2)(a); and ending on the day that is the earlier of— (i) the day before the person stops being a New Zealand resident: the last day of the 48th month after the month in which they meet the requirements of section ignoring the rule in section YD 1(2) or (3), YD 1(4).
(ii) Choosing not to be transitional resident (4) A person who would otherwise be a transitional resident in an income year may choose by notice to the Commissioner or by notice under subsection (5) not to be a transitional resident for a period— (a) (b) beginning on or after the start of the income year; and ending immediately before the person stops meeting the requirements of subsection (2).
Applying for tax credits (5) An application under section 41 of the Tax Administration Act 1994 by a person who is eligible to be a transitional resident for a tax credit under subparts MA to MF and MZ (which relate to tax credits for families) for an income year is treated for the period of the application as— 2005 Part H s HR 8 Income Tax Act 2007 Reprinted as at 30 August 2013 (a) (b) a notice of election under subsection (4) by the person if they have not made one; and a notice of election under subsection (4) by a spouse, civil union partner, or de facto partner of the person.
Election irrevocable (6) An election under subsection (4) is irrevocable.

Notice of election (7) A notice under subsection (4) to stop being a transitional resi- dent must be received by the Commissioner by— (a) the time within which the person’s return of income must be ﬁled under section 37 of the Tax Administration Act 1994; or if the person or their tax agent applies for it, a further time allowed by the Commissioner.
(b) Deﬁned in this Act: foreign-sourced amount, New Zealand resident, non-resi- dent, notice, resident in New Zealand, tax credit, transitional resident Compare: 2004 No 35 ss FC 22–FC 24 Section HR 8(1) heading: substituted (with effect on 1 April 2008), on 6 October 2009, by section 293(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section HR 8(1): substituted (with effect on 1 April 2008), on 6 October 2009, by section 293(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section HR 8(2)(a): substituted (with effect on 1 April 2008), on 6 October 2009, by section 293(2)(a) of the Taxation (International Taxation, Life Insur- ance, and Remedial Matters) Act 2009 (2009 No 34).
Section HR 8(2)(b): amended (with effect on 1 April 2008), on 7 September 2010, by section 75(1) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).

Section HR 8(2)(b): amended (with effect on 1 April 2008), on 6 October 2009, by section 293(2)(b) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section HR 8(3)(a): amended (with effect on 1 April 2008), on 6 October 2009, by section 293(3)(a) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section HR 8(3)(b)(ii): amended (with effect on 1 April 2008), on 7 September 2010, by section 75(2) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
Section HR 8(3)(b)(ii): amended (with effect on 1 April 2008), on 6 October 2009, by section 293(3)(b) of the Taxation (International Taxation, Life Insur- ance, and Remedial Matters) Act 2009 (2009 No 34).

2006 Reprinted as at 30 August 2013 Income Tax Act 2007 Part H s HR 9 Section HR 8(4): amended (with effect on 1 April 2008), on 6 October 2009, by section 293(4) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section HR 8(7) heading: added (with effect on 1 April 2008), on 6 October 2009, by section 293(5) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section HR 8(7): added (with effect on 1 April 2008), on 6 October 2009, by section 293(5) of the Taxation (International Taxation, Life Insurance, and Re- medial Matters) Act 2009 (2009 No 34).
Financial institution special purpose vehicles Heading: added (with effect on 1 April 2008), on 6 October 2009, by section 294(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Heading: amended (with effect on 1 June 2010), on 7 September 2010, by sec- tion 76 of the Taxation (Annual Rates, Trans-Tasman Savings Portability, Kiwi- Saver, and Remedial Matters) Act 2010 (2010 No 109).
HR 9 Financial institution special purpose vehicles are transparent For the purposes of the liabilities and obligations under an In- land Revenue Act of a ﬁnancial institution described in the def- inition of ﬁnancial institution special purpose vehicle, para- graph (b), and the relevant ﬁnancial institution special purpose vehicle,— (a) the ﬁnancial institution is treated as carrying on an activ- ity carried on by the ﬁnancial institution special purpose vehicle, and having a status, intention, and purpose of the ﬁnancial institution special purpose vehicle, and the ﬁnancial institution special purpose vehicle is treated as not carrying on that activity or having that status, inten- tion, or purpose: the ﬁnancial institution is treated as holding property that the ﬁnancial institution special purpose vehicle holds, and the ﬁnancial institution special purpose vehicle is treated as not holding that property: the ﬁnancial institution is treated as being party to any arrangement to which the ﬁnancial institution special purpose vehicle is a party, and the ﬁnancial institution special purpose vehicle is treated as not being that party to that arrangement: (b) (c) 2007 Part H s HR 9 Income Tax Act 2007 Reprinted as at 30 August 2013 (d) the ﬁnancial institution is treated as doing a thing and being entitled to a thing that the ﬁnancial institution spe- cial purpose vehicle does or is entitled to, and the ﬁnan- cial institution special purpose vehicle is treated as not doing that thing or being entitled to that thing.
Deﬁned in this Act: arrangement, ﬁnancial institution, ﬁnancial institution spe- cial purpose vehicle, Inland Revenue Acts Section HR 9: added (with effect on 1 April 2008), on 6 October 2009, by section 294(1) of the Taxation (International Taxation, Life Insurance, and Re- medial Matters) Act 2009 (2009 No 34).
Section HR 9 heading: amended (with effect on 1 June 2010), on 7 September 2010, by section 77(1) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).

Section HR 9: amended (with effect on 1 June 2010), on 7 September 2010, by section 77(2)(a) of the Taxation (Annual Rates, Trans-Tasman Savings Porta- bility, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
Section HR 9: amended (with effect on 1 June 2010), on 7 September 2010, by section 77(2)(b) of the Taxation (Annual Rates, Trans-Tasman Savings Porta- bility, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).

Section HR 9: amended (with effect on 1 June 2010), on 7 September 2010, by section 77(2)(c) of the Taxation (Annual Rates, Trans-Tasman Savings Porta- bility, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
Section HR 9(a): amended (with effect on 1 June 2010), on 7 September 2010, by section 77(3)(a) of the Taxation (Annual Rates, Trans-Tasman Savings Porta- bility, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).

Section HR 9(a): amended (with effect on 1 June 2010), on 7 September 2010, by section 77(3)(b) of the Taxation (Annual Rates, Trans-Tasman Savings Porta- bility, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
Section HR 9(b): amended (with effect on 1 June 2010), on 7 September 2010, by section 77(3)(a) of the Taxation (Annual Rates, Trans-Tasman Savings Porta- bility, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).

Section HR 9(b): amended (with effect on 1 June 2010), on 7 September 2010, by section 77(3)(b) of the Taxation (Annual Rates, Trans-Tasman Savings Porta- bility, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
Section HR 9(c): amended (with effect on 1 June 2010), on 7 September 2010, by section 77(3)(a) of the Taxation (Annual Rates, Trans-Tasman Savings Porta- bility, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).

Section HR 9(c): amended (with effect on 1 June 2010), on 7 September 2010, by section 77(3)(b) of the Taxation (Annual Rates, Trans-Tasman Savings Porta- bility, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
Section HR 9(d): amended (with effect on 1 June 2010), on 7 September 2010, by section 77(3)(a) of the Taxation (Annual Rates, Trans-Tasman Savings Porta- bility, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).

Section HR 9(d): amended (with effect on 1 June 2010), on 7 September 2010, by section 77(3)(b) of the Taxation (Annual Rates, Trans-Tasman Savings Porta- bility, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
2008 Reprinted as at 30 August 2013 Income Tax Act 2007 Part H s HR 9B Section HR 9 list of deﬁned terms ﬁnancial institution: inserted (with effect on 1 June 2010), on 7 September 2010, by section 77(4)(b) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
Section HR 9 list of deﬁned terms ﬁnancial institution special purpose ve- inserted (with effect on 1 June 2010), on 7 September 2010, by sec- hicle: tion 77(4)(b) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
Section HR 9 list of deﬁned terms registered bank: repealed (with effect on 1 June 2010), on 7 September 2010, by section 77(4)(a) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
Section HR 9 list of deﬁned terms RMBS special purpose vehicle: repealed (with effect on 1 June 2010), on 7 September 2010, by section 77(4)(a) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Re- medial Matters) Act 2010 (2010 No 109).
HR 9B Bankruptcy-remote property during application of the tax debt— (i) section HR 9 Despite section HR 9, property that a ﬁnancial institution holds because of the application of section HR 9 cannot be attached, charged, disposed of, or otherwise used in the payment of its tax debt, except to the extent to which— (a) does not relate to income tax or provisional tax; and (ii) would have been the relevant ﬁnancial institution special purpose vehicle’s tax debt in the absence of section HR 9: the property could have been attached, charged, dis- posed of, or otherwise used in payment of the tax debt in the absence of section HR 9.
(b) Deﬁned in this Act: dispose, ﬁnancial institution, ﬁnancial institution special purpose vehicle, income tax, provisional tax, tax Section HR 9B: inserted (with effect on 1 June 2010), on 7 September 2010, by section 78 of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).

Section HR 9B: amended, on 21 December 2010, by section 102(1) of the Tax- ation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section HR 9B(a): amended, on 21 December 2010, by section 102(2) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).

Section HR 9B(b): amended, on 21 December 2010, by section 102(3) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).

2009 Part H s HR 10 Income Tax Act 2007 Reprinted as at 30 August 2013 HR 10 What happens when vehicle stops being ﬁnancial institution special purpose vehicle?
Property transferred and parties reconstituted (1) When a company or a trustee of a trust (the vehicle) stops being an ﬁnancial institution special purpose vehicle for any reason, other than on unwind, the following apply: (a) the relevant ﬁnancial institution is treated as disposing of its property (the property) that has been subject to section HR 9(b) in relation to the vehicle immediately before the vehicle stops being an ﬁnancial institution special purpose vehicle: the vehicle is treated as acquiring the property immedi- ately after the vehicle stops being an ﬁnancial institution special purpose vehicle: the relevant ﬁnancial institution is treated as not being a party to an arrangement (the arrangement) that it was treated as being a party to under section HR 9(c) in rela- tion to the vehicle immediately before the vehicle stops being an ﬁnancial institution special purpose vehicle: the vehicle is treated as being a party to the arrangement immediately after the vehicle stops being an ﬁnancial institution special purpose vehicle.
(b) (c) (d) (2) Property transferred: market value The disposition of property in subsection (1)(a) and the acqui- sition of property in subsection (1)(b) are treated as occurring with a single third party for a payments equal to the property’s market value.
Parties reconstituted: consideration (3) At the time the ﬁnancial institution or the vehicle becomes a party to an arrangement under subsection (1)(c) or (d), the market value, at that time, of consideration that has been paid, or is or will be payable, to or by the ﬁnancial institution or vehicle (as applicable) for or under the arrangement, ignoring section HR 9(c), is treated as consideration that has been paid, or is or will be payable, to or by the ﬁnancial institution or vehicle for or under the arrangement.
2010 Reprinted as at 30 August 2013 Income Tax Act 2007 Part H s HR 10 (4) Deﬁnition In this section, unwind means a process, ignoring section HR 9, by which— (a) guarantees and residential mortgage backed securities, as the case may be, described in the deﬁnition of ﬁnan- cial institution special purpose vehicle, paragraph (d) are cancelled; and interests described in the deﬁnition of ﬁnancial institu- tion special purpose vehicle, paragraph (b) are trans- ferred to the ﬁnancial institution; and the vehicle is terminated, by liquidation or otherwise.
(c) Deﬁned in this Act: arrangement, company, consideration, dispose, ﬁnancial institution, ﬁnancial institution special purpose vehicle, liquidation, residential mortgage backed securities, trustee, unwind (b) Section HR 10: added (with effect on 1 April 2008), on 6 October 2009, by section 294(1) of the Taxation (International Taxation, Life Insurance, and Re- medial Matters) Act 2009 (2009 No 34).
Section HR 10 heading: amended (with effect on 1 June 2010), on 7 September 2010, by section 79(1) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).

Section HR 10(1): amended (with effect on 1 June 2010), on 7 September 2010, by section 79(2)(a) of the Taxation (Annual Rates, Trans-Tasman Savings Porta- bility, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
Section HR 10(1)(a): amended (with effect on 1 June 2010), on 7 September 2010, by section 79(2)(b) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).

Section HR 10(1)(a): amended (with effect on 1 June 2010), on 7 September 2010, by section 79(2)(c) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
Section HR 10(1)(b): amended (with effect on 1 June 2010), on 7 September 2010, by section 79(2)(c) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).

Section HR 10(1)(c): amended (with effect on 1 June 2010), on 7 September 2010, by section 79(2)(b) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
Section HR 10(1)(c): amended (with effect on 1 June 2010), on 7 September 2010, by section 79(2)(c) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).

Section HR 10(1)(d): amended (with effect on 1 June 2010), on 7 September 2010, by section 79(2)(c) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
Section HR 10(3): amended (with effect on 1 June 2010), on 7 September 2010, by section 79(3) of the Taxation (Annual Rates, Trans-Tasman Savings Porta- bility, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).

2011 Income Tax Act 2007 Reprinted as at 30 August 2013 Section HR 10(4): substituted (with effect on 1 June 2010), on 7 September 2010, by section 79(4) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
Section HR 10 list of deﬁned terms ﬁnancial institution: inserted (with effect on 1 June 2010), on 7 September 2010, by section 79(5)(b) of the Taxation (An- nual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Mat- ters) Act 2010 (2010 No 109).
Section HR 10 list of deﬁned terms ﬁnancial institution special purpose ve- hicle: inserted (with effect on 1 June 2010), on 7 September 2010, by sec- tion 79(5)(b) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
Section HR 10 list of deﬁned terms registered bank: repealed (with effect on 1 June 2010), on 7 September 2010, by section 79(5)(a) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
Section HR 10 list of deﬁned terms RMBS special purpose vehicle: repealed (with effect on 1 June 2010), on 7 September 2010, by section 79(5)(a) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Re- medial Matters) Act 2010 (2010 No 109).
Subpart HZ—Terminating provisions Contents HZ 1 Distributions from trusts of pre-1989 tax reserves HZ 2 Trusts that may become complying trusts HZ 3 Special partnerships: transition into limited partnerships and limited partnerships deduction rules HZ 4 Overseas limited partnerships: transition into limited partnerships deduction rules HZ 4B Qualifying companies: transition into partnership HZ 4C Qualifying companies: transition into look-through companies HZ 4D Qualifying companies: transition into sole traderships HZ 5 Transitional provisions for PIE rules HZ 6 Saving of binding rules relating to portfolio investment entities Saving of binding rulings relating to settlements on trusts HZ 7 2012 Page 2013 2013 2014 2015 2016 2019 2021 2023 2024 2025 Reprinted as at 30 August 2013 Income Tax Act 2007 Part H s HZ 2 HZ 1 Distributions from trusts of pre-1989 tax reserves (1) (2) When this section applies This section applies if, and to the extent to which, a distribu- tion is received from a trust that is not a unit trust, a group investment fund, or a superannuation scheme, when the distri- bution— (a) consists of an amount of income or a capital gain de- rived by the trustee in the 1987–88 or earlier tax year; and is not also beneﬁciary income to which an entitlement exists in the tax year.
(b) Treatment of distribution The distribution is not income, and the provisions of this Act and the Tax Administration Act 1994 that correspond to the provisions of the Income Tax Act 1976, the Income Tax Act 1994, the Income Tax Act 2004, and the Income Tax Amend- ment Act (No 5) 1988 speciﬁed in the proviso to section 9 of the Act last referred to, do not apply.
Deﬁned in this Act: beneﬁciary income, distribution, group investment fund, income, superannuation scheme, tax year, trustee, trustee income, unit trust Compare: 2004 No 35 s HZ 1 HZ 2 Trusts that may become complying trusts (1) (2) When this section applies This section applies in relation to a settlement made on a trust on or before 17 December 1987, whether or not further settle- ments have been made on the trust after that date, when a settlor, trustee, or beneﬁciary of the trust chose under section 228(7) of the Income Tax Act 1976 on or before 31 May 1989 to pay income tax on trustee income derived in the 1988–89 tax year and later tax years.
Trustee income derived in earlier tax years Trustee income having a source outside New Zealand, or hav- ing a source in New Zealand only as non-resident passive in- come in relation to which the income tax obligations have been satisﬁed, in the 1987–88 tax year and earlier tax years when no trustee was resident in New Zealand is treated as liable to income tax, other than only as non-resident passive income.
2013 Part H s HZ 3 Income Tax Act 2007 Reprinted as at 30 August 2013 (3) Trustee’s obligations The trustee’s obligations in relation to their income tax liabil- ity on the trustee income are treated as having been satisﬁed.
Deﬁned in this Act: complying trust, income tax, income tax liability, New Zealand, non-resident passive income, pay, resident in New Zealand, settle- ment, source in New Zealand, settlor, tax year, trustee, trustee income Compare: 2004 No 35 s HZ 2 Section HZ 2(2): amended, on 21 December 2010, by section 103(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section HZ 2 list of deﬁned terms derived from New Zealand: repealed, on 21 December 2010, by section 103(2)(a) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).

Section HZ 2 list of deﬁned terms source in New Zealand: inserted, on 21 De- cember 2010, by section 103(2)(b) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
HZ 3 Special partnerships: transition into limited partnerships and limited partnerships deduction rules (1) When this section applies This section applies when a special partnership under Part 2 of the Partnership Act 1908— (a) (b) is in existence on 1 April 2008; and is terminated and a limited partnership registered under the Limited Partnerships Act 2008 (the new limited partnership) succeeds to that special partnership.
No disposal: same partnership (2) No partners’ interests are disposed of merely because of the termination and succession described in subsection (1)(b).

The partners of the special partnership are treated as the same partners of the new limited partnership.
Initial basis For the purposes of applying sections HG 11 and HG 12 (which relate to limited partnerships deduction rules) to the partners of the new limited partnership, all of the partners must choose one of the 2 following methods for calculating their partner’s basis under section HG 11(3): (a) they may choose to use the market value or the ac- counting book value of the amounts described in sec- tion HG 11(3), as at the day the calculation is ﬁrst per- (3) 2014 Reprinted as at 30 August 2013 Income Tax Act 2007 Part H s HZ 4 (b) formed, namely the last day of the ﬁrst income year in which they are subject to sections HG 11 and HG 12; or they may choose to apply section HG 11(3) as if the spe- cial partnership had always been a limited partnership and all relevant rules relating to limited partnerships had always existed (applying those rules with any necessary modiﬁcations).
Initial basis not less than zero If the application of sections HG 11 and HG 12, as modiﬁed by this section, calculates a partner’s basis as less than zero, then the partner’s basis is treated as being zero.

Deﬁned in this Act: disposal, limited partnership, partner, partner’s interests, partnership Section HZ 3: added, on 1 April 2008, by section 21(1) of the Taxation (Limited Partnerships) Act 2008 (2008 No 2).
(4) HZ 4 Overseas limited partnerships: transition into limited partnerships deduction rules (1) (2) When this section applies This section applies when a limited partnership described in paragraphs (a) and (b) of the deﬁnition of limited part- nership (the overseas limited partnership) existed before 1 April 2008, and a partner of that partnership (a relevant partner) is a member of the partnership on 1 April 2008 and is subject to sections HG 11 and HG 12 (which relate to limited partnerships deduction rules) on or after 1 April 2008.
Initial basis For the purposes of applying sections HG 11 and HG 12 to the relevant partners of the overseas limited partnership, all relevant partners must choose one of the 2 following methods for calculating their partner’s basis under section HG 11: (a) they may choose to use the market value or the ac- counting book value of the amounts described in section HG 11, as at the day the calculation is ﬁrst performed, namely the last day of the ﬁrst income year in which they are subject to sections HG 11 and HG 12; or they may choose to apply section HG 11 as if the over- seas limited partnership had always been a limited part- nership and all relevant rules relating to limited partner- (b) 2015 Part H s HZ 4B Income Tax Act 2007 Reprinted as at 30 August 2013 (3) ships had always existed (applying those rules with any necessary modiﬁcations).
Initial basis not less than zero If the application of sections HG 11 and HG 12, as modiﬁed by this section, calculates a partner’s basis as less than zero, then the partner’s basis is treated as being zero.

Deﬁned in this Act: limited partnership, partner, partnership Section HZ 4: added, on 1 April 2008, by section 21(1) of the Taxation (Limited Partnerships) Act 2008 (2008 No 2).
HZ 4B Qualifying companies: transition into partnership When this section applies This section applies when a QCP transitional process is carried out for a qualifying company or companies for the ﬁrst or sec- ond income year that starts on or after 1 April 2011, whichever is relevant (the transitional income year).
QCP transitional process: retrospective rule From the ﬁrst day of the transitional income year to the ﬁrst day of existence for the partnership that effectively replaces the qualifying company or companies under a QCP transitional process, the partnership is treated as existing and having the assets and liabilities of the qualifying company or companies, and associated rights and obligations, for that period.
On and after the ﬁrst day of the transitional year, the existence of the qualifying company or companies is ignored for the purposes of the Inland Revenue Acts except to the extent necessary to give effect to this section.
Taxation continuity The moving to the partnership of the assets, liabilities, and associated rights and obligations, under a QCP transitional process is treated for the purposes of the Inland Revenue Acts as a unique form of transference for such assets, liabilities, rights, and obligations, with the following effects: (a) the moving to the partnership of the assets, liabilities, and associated legal rights and obligations, is treated as not being a transfer of such assets, liabilities, rights, and obligations: (1) (2) (3) 2016 Reprinted as at 30 August 2013 Income Tax Act 2007 Part H s HZ 4B (b) (c) (d) (e) the qualifying company or companies has, before the ﬁrst day of the transitional income year, the relevant tax position in relation to the assets and liabilities, and as- sociated rights and obligations (the historical tax pos- itions): the partnership is treated as stepping into the place of the qualifying company or companies, and as having, on and after the ﬁrst day of the transitional income year,— the qualifying company’s or companies’ histor- (i) ical tax positions; and the tax position in relation to the assets and liabil- ities, and associated rights and obligations, that it would have if it had always had the historical tax positions: (ii) the qualifying company has no tax position in relation to the assets and liabilities, and associated rights and obligations, on and after the ﬁrst day of the transitional income year: all memorandum account balances and other tax ac- counting amounts for the qualifying company before the ﬁrst day of the transitional income year are ignored and have no effect on and after that day (for example, the qualifying company has no effective ASC on and after the ﬁrst day of the transitional income year).
(4) (5) Transparency Subsections (2) and (3) are applied immediately before section HG 2 (Partnerships are transparent) applies.
Initial basis For the purposes of applying sections HG 11 and HG 12 (which relate to limited partnership deduction rules) to the partners of a limited partnership described in subsection (2) for the transitional income year and later years, all of the part- ners must choose 1 of the 2 following methods for calculating their partner’s basis under section HG 11(3): (a) for calculating amounts under section HG 11(5)(a) for shares that were held at the end of the income year (the last year) before the transitional income year, they may choose to use the market value or the accounting book value of those shares as at the end of the last year.
2017 Part H s HZ 4B Income Tax Act 2007 Reprinted as at 30 August 2013 (b) Calculations under section HG 11(7)(b) and (8)(b) are changed to account for the valuation under this para- graph; or they may choose to apply section HG 11(3) as if the qualifying company had always been a limited partner- ship and all relevant rules relating to limited partner- ships had always existed, applying those rules with any necessary modiﬁcations.
(6) Initial basis not less than zero If the application of sections HG 11 and HG 12, as modiﬁed by this section, calculates a partner’s basis as less than zero, then the partner’s basis is treated as being zero.
Meaning of QCP transitional process (7) QCP transitional process means a process, for which all out- comes are achieved in an income year (the transitional in- come year), by which a company or companies that are all qualifying companies at the end of the income year before the transitional income year transform into a partnership.
The process must have the following outcomes: (a) the Commissioner receives a notice from the qualifying company or companies before the day that is 6 months after the start of the transitional income year, stating an intention to revoke the company’s or companies’ quali- fying company status and to complete the QCP transi- tional process relating to the partnership for the transi- tional income year; and the partners, or in the case of a limited partnership, the partners other than a company that is a general partner, are the same persons who, at the end of the income year before the transitional income year, were the sharehold- ers of the qualifying company or companies, ignoring any person who dies in the transitional year; and all assets and liabilities, and associated rights and obli- gations, of the qualifying companies are moved to the partnership, excluding those that are inappropriate for a partnership; and each partner must have the same net position in the part- nership as to relevant assets and liabilities, and associ- ated rights and obligations, as would arise on the wind- (b) (c) (d) 2018 Reprinted as at 30 August 2013 Income Tax Act 2007 Part H s HZ 4C ing up of the qualifying company or companies at the end of the income year before the transitional income year, treating any person who dies in the transitional year as still being a partner.
Deﬁned in this Act: ASC, Commissioner, company, income year, Inland Revenue Acts, limited partnership, memorandum account, partner, partnership, QCP transitional process, qualifying company, tax position, transfer Section HZ 4B: inserted, on 1 April 2011 (applying for income years beginning on or after 1 April 2011), by section 104(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section HZ 4B(5): amended (with effect on 1 April 2011), on 2 November 2012, by section 111(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).

Section HZ 4B(5)(a): replaced (with effect on 1 April 2011), on 2 November 2012, by section 111(2) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
HZ 4C Qualifying companies: transition into look-through companies (1) (2) When this section applies This section applies when a qualifying company ﬁrst becomes a look-through company for the ﬁrst or second income year, whichever is relevant, that starts on or after 1 April 2011 (the transitional year).
Initial basis For the purposes of applying sections HB 11 and HB 12 (which relate to look-through company deduction rules) to a person with an effective look-through interest for the look-through company for the transitional income year and later years, all of the persons who hold owner’s interests must choose 1 of the 2 following methods for calculating their basis under section HB 11(3): (a) for calculating amounts under section HB 11(5)(a) for shares that were held at the end of the income year (the last year) before the transitional income year, they may choose to use the market value or the accounting book value of those shares as at the end of the last year.
Calculations under section HB 11(7)(b) and (8)(b) are changed to account for the valuation under this para- graph; or 2019 Part H s HZ 4C Income Tax Act 2007 Reprinted as at 30 August 2013 (b) they may choose to apply section HB 11(3) as if the qualifying company had always been a look-through company and all relevant rules relating to look-through companies had always existed, applying those rules with any necessary modiﬁcations.
Initial basis not less than zero If the application of sections HB 11 and HB 12, as modiﬁed by this section, calculates an owner’s basis as less than zero, then the owner’s basis is treated as being zero.

Continuity of elections and methods The look-through company steps into the place of the qualify- ing company in relation to Inland Revenue Act elections and methods relating to the qualifying company.
(3) (4) Effect of elections and methods (5) After subsection (4) applies, section HB 1 (Look-through companies are transparent) applies, so that the elections and methods are those of an owner of an effective look-through interest for the look-through company.
Deﬁned in this Act: effective look-through interest, income year, Inland Rev- enue Acts, look-through company, owner’s interests, qualifying company Section HZ 4C: inserted, on 1 April 2011 (applying for income years beginning on or after 1 April 2011), by section 104(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section HZ 4C(2): amended (with effect on 1 April 2011), on 2 November 2012, by section 112(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).

Section HZ 4C(2)(a): replaced (with effect on 1 April 2011), on 2 November 2012, by section 112(2) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section HZ 4C(4) heading: added (with effect on 1 April 2011), on 29 August 2011 (applying for income years beginning on or after 1 April 2011), by sec- tion 89(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).

Section HZ 4C(4): added (with effect on 1 April 2011), on 29 August 2011 (applying for income years beginning on or after 1 April 2011), by section 89(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section HZ 4C(5) heading: added (with effect on 1 April 2011), on 29 August 2011 (applying for income years beginning on or after 1 April 2011), by sec- tion 89(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section HZ 4C(5): added (with effect on 1 April 2011), on 29 August 2011 (applying for income years beginning on or after 1 April 2011), by section 89(1) 2020 Reprinted as at 30 August 2013 Income Tax Act 2007 Part H s HZ 4D of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section HZ 4C list of deﬁned terms Inland Revenue Acts: inserted (with effect on 1 April 2011), on 29 August 2011 (applying for income years beginning on or after 1 April 2011), by section 89(2) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
HZ 4D Qualifying companies: transition into sole traderships (1) (2) (3) When this section applies This section applies when a QCST transitional process is car- ried out for a qualifying company for the ﬁrst or second income year, whichever is relevant, that starts on or after 1 April 2011 (the transitional income year).
QCST transitional process: retrospective rule From the ﬁrst day of the transitional income year to the ﬁrst day of existence for the sole tradership that effectively replaces the qualifying company under a QCST transitional process, the sole tradership is treated as existing and having the assets and liabilities of the qualifying company, and associated rights and obligations, for that period.
On and after the ﬁrst day of the transitional year, the existence of the qualifying company is ignored for the purposes of the Inland Revenue Acts except to the extent necessary to give effect to this section.
Taxation continuity The moving to the sole tradership of the assets, liabilities, and associated rights and obligations, under a QCST transitional process is treated for the purposes of the Inland Revenue Acts as a unique form of transference for such assets, liabilities, rights, and obligations, with the following effects: (a) the moving to the sole tradership of the assets, liabil- ities, and associated rights and obligations, is treated as not being a transfer of such assets, liabilities, rights, and obligations: the qualifying company has, before the ﬁrst day of the transitional income year, the tax position in relation to the assets and liabilities, and associated rights and obli- gations (the historical tax position): (b) 2021 Part H s HZ 4D Income Tax Act 2007 Reprinted as at 30 August 2013 (c) (d) (e) the sole tradership is treated as stepping into the place of the qualifying company, and as having, on and after the ﬁrst day of the transitional income year,— (i) the qualifying company’s historical tax position; and the tax position in relation to the assets and liabil- ities, and associated rights and obligations, that it would have if it had always had the historical tax position: (ii) the qualifying company has no tax position in relation to the assets and liabilities, and associated rights and obligations, on and after the ﬁrst day of the transitional income year: all memorandum account balances and other tax ac- counting amounts for the qualifying company before the ﬁrst day of the transitional income year are ignored and have no effect on and after that day (for example, the qualifying company has no effective ASC on and after the ﬁrst day of the transitional income year).
Meaning of QCST transitional process (4) QCST transitional process means a process, for which all outcomes are achieved in an income year (the transitional in- come year), by which a company that is a qualifying company at the end of the income year before the transitional income year is transformed into a sole tradership.
The process must have the following outcomes: (a) the Commissioner receives a notice from the qualifying company before the day that is 6 months after the start of the transitional income year, stating an intention to revoke the company’s qualifying company status and to complete the QCST transitional process relating to the sole tradership for the transitional income year; and the sole tradership is the same natural person who, at the end of the income year before the transitional income year, is the sole shareholder of the qualifying company; and all assets and liabilities, and associated rights and obli- gations, of the qualifying company are moved to the sole (b) (c) 2022 Reprinted as at 30 August 2013 Income Tax Act 2007 Part H s HZ 5 tradership, excluding those that are inappropriate for a sole tradership.
Deﬁned in this Act: ASC, Commissioner, company, income year, Inland Rev- enue Acts, memorandum account, notice, QCST transitional process, qualifying company, tax position, transfer Section HZ 4D: inserted, on 1 April 2011 (applying for income years beginning on or after 1 April 2011), by section 104(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
HZ 5 Transitional provisions for PIE rules (1) Intention of new law The PIE rules are the provisions of the Income Tax Act 2007 relating to portfolio investment entities in rewritten form, and are intended to have the same effect as the relevant correspond- ing provisions of the Income Tax Act 2007.

Subsection (3) overrides this subsection.
Using old law as interpretation guide (2) Unless subsection (3) applies, in circumstances where the meaning of a PIE rule (the new law) is unclear or gives rise to absurdity— (a) the wording of the provisions of the Income Tax Act 2007 relating to portfolio investment entities that cor- respond to and are replaced by the PIE rules (the old law) must be used to determine the correct meaning of the new law; and it can be assumed that a corresponding old law provision exists for each new law provision.
(3) Limits to subsections (1) and (2) Subsections (1) and (2) do not apply in the case of— (a) a PIE rule that repeals an old law and replaces it with a new law: a PIE rule that is amended after the commencement of section 292(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009, with effect from the date on which the amendment comes into force.
(b) (b) Deﬁned in this Act: PIE rules, portfolio investment entity Section HZ 5: inserted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 295(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
2023 Part H s HZ 6 Income Tax Act 2007 Reprinted as at 30 August 2013 Section HZ 5(3)(b): amended (with effect on 1 April 2010), on 7 September 2010 (applying for the 2010–11 and later income years), by section 80(1) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
HZ 6 Saving of binding rules relating to portfolio investment entities When, and extent to which, this section applies This section applies when, and to the extent to which,— before the commencement of this Act,— (a) (i) (b) (c) (d) an applicant has applied for a private ruling, a product ruling, or a status ruling, on an arrange- ment that is entered into, or that the applicant ser- iously contemplates will be entered into, before the commencement of this Act: a public ruling is issued; and (ii) the binding ruling is about a provision of the Income Tax Act 2007 relating to portfolio investment entities (the old law) that corresponds to and is replaced by the PIE rules; and the PIE rules corresponding to the old law (the new law) come into force on 1 April 2010; and the binding ruling— (i) continues to exist at the commencement of this Act: is made after the commencement of this Act in relation to an old law before 1 April 2010: is made in relation to an old law provision of the Income Tax Act 2004 to which section ZA 4 (Saving of binding rulings) of the Income Tax Act 2007 applies, that continues to exist at the commencement of this Act; and (ii) (iii) (e) in the absence of this section, the commencement of this Act would mean that the binding ruling would cease to apply because of section 91G of the Tax Administration Act 1994.
(1) 2024 Reprinted as at 30 August 2013 Income Tax Act 2007 Part H s HZ 7 (2) (3) Ruling about new law The binding ruling is treated as if it were made about the new law, so that the effect of the ruling at the commencement of this Act is the same as its effect before the commencement.
No conﬁrmation rulings To the extent to which a binding ruling continued by subsec- tion (2) exists and applies to an arrangement, or to a person and an arrangement, the Commissioner must not make a bind- ing ruling on how— (a) the new law applies to the arrangement or to the person and the arrangement; or this subsection applies to the arrangement or to the per- son and the arrangement.
(b) Deﬁned in this Act: arrangement, binding ruling, Commissioner, PIE rules, portfolio investment entity Section HZ 6: inserted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 295(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
HZ 7 Saving of binding rulings relating to settlements on trusts (1) When, and extent to which, this section applies This section applies when, and to the extent to which,— (a) before the commencement of the Taxation (Consequen- tial Rate Alignment and Remedial Matters) Act 2009— an applicant has applied for a binding ruling on (i) an arrangement that is entered into, or that the applicant seriously contemplates will be entered into, before the commencement of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009: a binding ruling is issued; and (ii) the binding ruling is about a provision of the Income Tax Act 2004 on the question of whether an amount is a settlement on a trust; and the binding ruling— (i) is made before or after the commencement of this Act and continues to exist at the commencement of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009; and (b) (c) 2025 Part H s HZ 7 Income Tax Act 2007 Reprinted as at 30 August 2013 (ii) is made in relation to a provision of the Income Tax Act 2004 to which section ZA 4 (Saving of binding rulings) of this Act would have ap- plied but for the intended change listed in sched- ule 51 (Identiﬁed changes in legislation) for sec- tion HC 27(2) (Who is a settlor?
); and (d) in the absence of this section, the commencement of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 would mean that the binding ruling would cease to apply because of section 91G of the Tax Administration Act 1994.
Ruling about new law The binding ruling continues to exist despite the intended change referred to in subsection (1)(c)(ii) from the com- mencement of this Act to the date on which the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 receives the Royal assent.
No conﬁrmation rulings To the extent to which a binding ruling continued by subsec- tion (2) exists and applies to an arrangement, or to a person and an arrangement, the Commissioner must not make a binding ruling in the period that starts on the date of the commence- ment of this Act and ends on the date on which the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 receives the Royal assent on how— (a) the new law applies to the arrangement or to the person and the arrangement; or this subsection applies to the arrangement or to the per- son and the arrangement.
(b) Deﬁned in this Act: arrangement, binding ruling, Commissioner, settlement Section HZ 7: added (with effect on 1 April 2008), on 7 December 2009, by section 53 of the Taxation (Consequential Rate Alignment and Remedial Mat- ters) Act 2009 (2009 No 63).
(2) (3) 2026 Reprinted as at 30 August 2013 Income Tax Act 2007 Part I s IA 2 Part I Treatment of tax losses Subpart IA—General rules for tax losses Contents IA 1 What this subpart does Tax losses IA 2 Using tax losses in tax year IA 3 Using loss balances carried forward to tax year IA 4 Restrictions on companies’ loss balances carried forward IA 5 Restrictions on companies grouping tax losses IA 6 Restrictions relating to ring-fenced tax losses IA 7 Restrictions relating to schedular income IA 8 IA 9 Ordering rules IA 10 Amended assessments Page 2027 2027 2031 2032 2032 2034 2034 2038 2039 2039 IA 1 What this subpart does This subpart— (a) deﬁnes the relationship between the core provisions of this Act, the provisions of this Part, and other provisions in this Act that allow a person with a tax loss to use the amount of the loss; and establishes the general rules for using a tax loss.
(b) Deﬁned in this Act: amount, tax loss Compare: 2004 No 35 s IE 1(1)(a) IA 2 Tax losses What is a tax loss?

(1) A person’s tax loss for a tax year is found by adding together the amounts referred to in subsections (2) to (4).
(2) Loss balances carried forward If the person has a loss balance carried forward under section IA 3(4) to the tax year, the amount is included in their tax loss for the tax year to the extent to which it is not subtracted under section IA 4(1)(a) from their net income for the tax year.
2027 Part I s IA 2 Income Tax Act 2007 Reprinted as at 30 August 2013 Net losses If the person has a net loss under section BC 4 (Net income and net loss) for the tax year, the amount is a tax loss component included in their tax loss for the tax year.
Additional amounts If the person is described in 1 or more of the following para- graphs and has the amount described in the paragraph, the amount is included as a tax loss component in their tax loss for the tax year: (a) a member fund that incurs excess expenditure: (i) the amount that is included in the tax loss under section DV 5(4)(b) (Investment funds: transfer of expenditure to master funds); and the amount that the fund chooses under section DV 7(2) (Carry forward of expenditure) to treat as an amount added to the tax loss under this section: (ii) (b) (c) (d) (e) (f) a person whose imputation credits are included in their the amount of annual gross income for the tax year: converted imputation credits arising under section LE 2 (Use of remaining credits by companies and trustees) for the tax year: a person who has an unallocated deduction for the pay- ment of a supplementary dividend in the corresponding income year: the amount referred to in section LP 10(3) (Limitation on deductions) for the tax year: a company (company A) if an Australian ICA com- pany has chosen under section OB 69(5) (Further in- come tax paid satisfying liability for income tax) to have a payment converted into a tax loss component of com- pany A: the amount calculated under section OB 69(7) for the tax year: a person who has an unused attributed controlled for- the eign company (CFC) net loss for the tax year: amount referred to in section IQ 2(3) (Ring-fencing cap on attributed CFC net losses) for the tax year: a person who has an unused foreign investment fund (FIF) net loss for the tax year: the amount referred to in (3) (4) 2028 Reprinted as at 30 August 2013 Income Tax Act 2007 Part I s IA 2 (g) section IQ 3(3) (Ring-fencing cap on FIF net losses) for the tax year: a person with a speciﬁed activity net loss for the tax year: the amount referred to in section IZ 1(1) (Use of speciﬁed activity net losses) for the tax year.
Ring-fenced amounts This section, and sections IA 3 and IA 4, do not apply to the amounts referred to in section IA 7, which are subject to par- ticular rules in other Parts or subparts that limit the way in which a person may use them.
Exclusion: net losses from schedular income [Repealed] [Repealed] Meaning of tax loss component For the purposes of this subpart, a tax loss component, for a tax year,— (a) means an amount included in a tax loss for the tax year (5) (6) (7) (b) under subsection (3) or (4): includes— (i) an unused amount of a net loss or an amount treated as a net loss or as an available net loss of a person arising before the 2008–09 tax year which the person was entitled to have carried for- ward under section IE 1 (Net losses may be offset against future net income) of the Income Tax Act 2004 to that tax year: an amount included in a company’s loss balance at the end of the tax year to which sections IZ 4 to IZ 6 (which relate to tax losses for tax years before 1992) apply, or other amounts in relation to which modiﬁed continuity rules apply.
(ii) Deﬁned in this Act: amount, annual gross income, attributed CFC net loss, Australian ICA company, company, deduction, FIF net loss, imputation credit, income, loss balance, net income, net loss, pay, speciﬁed activity net loss, sup- plementary dividend, tax loss, tax loss component, tax year, trustee Compare: 2004 No 35 ss BC 4(4), DV 5(4)(b), DV 7(2), IE 1(1), (3)(a), IE 2(1), IE 3(5), IE 4(6), LB 2(3), (3A), LE 4(5), ME 9(5B) Section IA 2(2): amended (with effect on 1 April 2008), on 7 December 2009, by section 54(1)(a) of the Taxation (Consequential Rate Alignment and Remed- ial Matters) Act 2009 (2009 No 63).
2029 Part I s IA 2 Income Tax Act 2007 Reprinted as at 30 August 2013 Section IA 2(2): amended (with effect on 1 April 2008), on 7 December 2009, by section 54(1)(b) of the Taxation (Consequential Rate Alignment and Remed- ial Matters) Act 2009 (2009 No 63).

Section IA 2(4)(b): substituted (with effect on 1 April 2008), on 7 December 2009, by section 54(2) of the Taxation (Consequential Rate Alignment and Re- medial Matters) Act 2009 (2009 No 63).
Section IA 2(4)(c): amended (with effect on 1 April 2008), on 7 December 2009, by section 54(3) of the Taxation (Consequential Rate Alignment and Re- medial Matters) Act 2009 (2009 No 63).

Section IA 2(4)(d): amended (with effect on 1 April 2008), on 7 December 2009, by section 54(4) of the Taxation (Consequential Rate Alignment and Re- medial Matters) Act 2009 (2009 No 63).
Section IA 2(4)(e): amended (with effect on 1 April 2008), on 7 December 2009, by section 54(5) of the Taxation (Consequential Rate Alignment and Re- medial Matters) Act 2009 (2009 No 63).

Section IA 2(4)(f): amended (with effect on 1 April 2008), on 7 December 2009, by section 54(5) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
Section IA 2(4)(f): amended (with effect on 1 April 2008), on 7 December 2009, by section 54(6) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).

Section IA 2(4)(g): amended (with effect on 1 April 2008), on 7 December 2009, by section 54(7) of the Taxation (Consequential Rate Alignment and Re- medial Matters) Act 2009 (2009 No 63).
Section IA 2(6) heading: repealed (with effect on 1 April 2008), on 7 December 2009, pursuant to section 54(8) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).

Section IA 2(6): repealed (with effect on 1 April 2008), on 7 December 2009, by section 54(8) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
Section IA 2(7): substituted (with effect on 1 April 2008), on 7 December 2009, by section 54(9) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).

Section IA 2 list of deﬁned terms corresponding income year: repealed (with effect on 1 April 2008), on 7 December 2009, by section 126 of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
Section IA 2 list of deﬁned terms schedular income: repealed (with effect on 1 April 2008), on 7 December 2009, by section 126 of the Taxation (Conse- quential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).

Section IA 2 list of deﬁned terms schedular income tax liability: repealed (with effect on 1 April 2008), on 7 December 2009, by section 126 of the Tax- ation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
Section IA 2 list of deﬁned terms trustee: added (with effect on 1 April 2008), on 7 December 2009, by section 126 of the Taxation (Consequential Rate Align- ment and Remedial Matters) Act 2009 (2009 No 63).

2030 Reprinted as at 30 August 2013 Income Tax Act 2007 Part I s IA 3 IA 3 Using tax losses in tax year Paying shortfall penalties (1) A person who has a tax loss for a tax year may use some or all of the amount of the tax loss under section IW 1 (Shortfall penalties) to pay a shortfall penalty.
Companies using tax losses (2) A company that has a tax loss for a tax year may— (b) (a) make the amount available to another company under section IC 5 (Company B using company A’s tax loss) to subtract from the other company’s net income for the tax year; or use the amount under section RG 6 (Using loss bal- ances) to satisfy a liability for a foreign dividend pay- ment (FDP) payable in the corresponding income year; or use the amount under sections FM 26 to FM 28, or RM 21, (which relate to FDP) to obtain a refund of an overpayment of FDP made in the corresponding income year.
(c) (3) (4) (5) Taxable distributions The amount of a tax loss for a tax year of a beneﬁciary of a non-complying trust may be used under section HC 22 (Use of tax losses to reduce taxable distributions from non-complying trusts) to adjust the amount of a taxable distribution derived in the corresponding income year.
Remaining loss balances carried forward If a person has a balance of tax loss remaining for a tax year after the uses described in this section, the balance is carried forward to the next tax year as a loss balance.

Relationship with other provisions in this subpart Sections IA 5, IA 8, and IA 10 override this section.
Deﬁned in this Act: amount, company, corresponding income year, FDP, for- eign dividend, loss balance, net income, non-complying trust, pay, shortfall penalty, tax loss, tax year, taxable distribution Compare: 2004 No 35 ss BC 4(4), HH 3(4), IE 1(1), (2), IG 10, NH 3(2), NH 4(5), (6), NH 5(6), (7) Section IA 3(5) heading: substituted (with effect on 1 April 2008), on 7 De- cember 2009, by section 55(1) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
2031 Part I s IA 4 Income Tax Act 2007 Reprinted as at 30 August 2013 Section IA 3(5): amended (with effect on 1 April 2008), on 7 December 2009, by section 55(2) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
IA 4 Using loss balances carried forward to tax year Priority uses (1) A person’s loss balance carried forward under section IA 3(4) to a tax year, must— (a) (b) ﬁrst, be subtracted from their net income, so far as it extends, for the tax year; and secondly, to the extent of a remaining loss balance car- ried forward under section IA 2(2), be included in their tax loss for the tax year.

(2) Relationship with other provisions in this subpart Sections IA 5 and IA 8 to IA 10 override this section.
Deﬁned in this Act: company, loss balance, net income, tax loss, tax year Compare: 2004 No 35 s IE 1(2) Section IA 4(1)(b): amended (with effect on 1 April 2008), on 7 December 2009, by section 56(1) of the Taxation (Consequential Rate Alignment and Re- medial Matters) Act 2009 (2009 No 63).

Section IA 4(2) heading: substituted (with effect on 1 April 2008), on 7 De- cember 2009, by section 56(2) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
Section IA 4(2): substituted (with effect on 1 April 2008), on 7 December 2009, by section 56(2) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).

IA 5 Restrictions on companies’ loss balances carried forward General statement (1) A company’s tax loss component is carried forward in a loss balance only if the minimum continuity requirements of sub- sections (2) and (3) are met.
The tax loss component includes an unused tax loss component carried forward from an earlier income year.

Continuity of voting interests (2) A tax loss component is carried forward in a loss balance under section IA 3(4) only if a group of persons holds for the con- tinuity period minimum voting interests in the company that add up to at least 49%.
2032 Reprinted as at 30 August 2013 Income Tax Act 2007 Part I s IA 5 (3) (4) (5) (6) Continuity of market value interests If a market value circumstance exists for the company at any time during the continuity period, the group of persons must also hold for the continuity period, minimum market value interests in the company that add up to at least 49%.
Breach of continuity of ownership in period If a tax loss component cannot be carried forward because the requirements of subsections (2) and (3) are not met, the com- pany may apply section IP 3 (Continuity breach: tax loss com- ponents of companies carried forward) to determine whether some or all of the tax loss component is carried forward in a loss balance.
Avoidance arrangements Section GB 3 (Arrangements for carrying forward loss bal- ances: companies) may apply to treat a company as not meet- ing the requirements of subsection (2) or (3).
Some deﬁnitions In this section,— continuity period means the period of time from the start of the income year that corresponds to the tax year in which a tax loss component is included in the tax loss to the end of the income year that corresponds to the tax year in which the company uses the tax loss component minimum market value interest, for a person and a continu- ity period, means the lowest market value interest they have in the company during the continuity period minimum voting interest, for a person and a continuity period, means the lowest voting interest they have in the company during the continuity period.
Deﬁned in this Act: company, continuity period, corresponding income year, group of persons, income year, loss balance, market value circumstance, market value interest, minimum market value interest, minimum voting interest, tax loss component, tax year, voting interest Compare: 2004 No 35 s IF 1(1) Section IA 5(1): substituted (with effect on 1 April 2008), on 7 December 2009, by section 57(1) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
Section IA 5(4): substituted (with effect on 1 April 2008), on 7 December 2009, by section 57(2) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).

2033 Part I s IA 6 Income Tax Act 2007 Reprinted as at 30 August 2013 Section IA 5(6) minimum market value interest: amended (with effect on 1 April 2008), on 7 December 2009, by section 57(3)(a) of the Taxation (Con- sequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
Section IA 5(6) minimum voting interest: amended (with effect on 1 April 2008), on 7 December 2009, by section 57(3)(b) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).

IA 6 Restrictions on companies grouping tax losses Groups of companies (1) A company that is part of a group of companies may use under section IA 3(2) a tax loss under subpart IC (Grouping tax losses) only if it meets the requirements of section IC 5 (Com- pany B using company A’s tax loss).
(2) (3) Consolidated groups Subpart ID (Use of tax losses by consolidated groups) applies to the grouping of tax losses by a consolidated group of com- panies.

Avoidance arrangements Section GB 4 (Arrangements for grouping tax losses: com- panies) may apply to treat a company as not meeting the re- quirements referred to in subsection (1).
Deﬁned in this Act: company, consolidated group, group of companies, tax loss Compare: 2004 No 35 ss IG 1(1), GC 4 Section IA 6(1): amended (with effect on 1 April 2008), on 7 December 2009, by section 58(1) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).

IA 7 Restrictions relating to ring-fenced tax losses (1) Non-application of sections IA 2 to IA 4 Sections IA 2 to IA 4 (the general rules) do not apply to an amount referred to in subsections (2) to (8).
Treatment as tax loss component (1B) For the purposes of the application of sections IA 5, IA 6, IA 9, and IA 10, a ring-fenced tax loss under this section is treated as if it were a tax loss component.
Tax losses of LAQCs 2034 Reprinted as at 30 August 2013 Income Tax Act 2007 Part I s IA 7 (2) (3) (4) (5) (6) (7) (8) [Repealed] [Repealed] Policyholder net losses [Repealed] [Repealed] Investment funds’ excess expenditure The general rules do not apply to excess expenditure of an investment fund under sections DV 5 and DV 7 (which relate to investment funds) except for— (a) the amount under section DV 5(4)(a) that the fund must treat as a tax loss component under section IA 2(4)(a)(i); and the amount under section DV 7(2) that the fund chooses to treat as a tax loss component under section IA 2(4)(a)(ii).
(b) Attributed CFC net losses The general rules do not apply to an attributed CFC net loss except a surplus under section IQ 2(3) (Ring-fencing cap on attributed CFC net losses).

The provisions that deal with this net loss, other than the surplus amount, are sections IQ 2, IQ 4, and IQ 6 to IQ 9 (which relate to foreign losses).

FIF net losses The general rules do not apply to a FIF net loss except a surplus amount under section IQ 3(3) (Ring-fencing cap on FIF net losses).
The provisions that deal with this net loss are sections IQ 3, IQ 5, and IQ 6 to IQ 9.

Mining net losses The general rules do not apply to a net loss of a mining com- pany, a resident mining operator, or a non-resident mining op- erator to the extent to which the net loss relates to a mining permit area.

The provisions that deal with these net losses are sections IS 1 to IS 4 and IS 6 (which relate to mining compan- ies’ tax losses).
Petroleum net losses The general rules do not apply to a petroleum mining com- pany’s net loss to the extent to which the net loss relates to a permit area.

The provisions that deal with this net loss are sec- 2035 Part I s IA 7 Income Tax Act 2007 Reprinted as at 30 August 2013 (9) tions IS 5, IZ 2, and IZ 3 (which relate to petroleum mining companies’ use of loss balances).
Amounts remitted The general rules do not apply to an amount that an associ- ated person has remitted as a condition of a new start grant under section CX 48 (Amounts remitted as condition of new start grant) or EW 46 (Consideration when debtor released as condition of new start grant).
Net losses of multi-rate PIEs (10) The general rules do not apply to a multi-rate PIE’s net loss when the PIE does not calculate and pay tax using the provi- sional tax calculation option under section HM 44 (Provisional tax calculation option).
Deﬁned in this Act: amount, associated person, attributed CFC net loss, FIF net loss, loss balance, mining company, mining permit area, multi-rate PIE, net loss, new start grant, non-resident mining operator, pay, permit area, petroleum mining company, PIE, provisional tax, ring-fenced tax loss, resident mining operator, tax, tax loss component Compare: 2004 No 35 ss DV 5(4)(b), DV 7(2), EY 42(10), HG 16, IE 1(2BB), (2C), IE 3(5), IE 4(6), IG 4(4), IG 5(4), IG 7(2), (3), IH 1, IH 2(1), IH 3–IH 5, II 1(1), (2) Section IA 7(1B) heading: inserted (with effect on 1 April 2008), on 7 Decem- ber 2009, by section 59(1) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
Section IA 7(1B): inserted (with effect on 1 April 2008), on 7 December 2009, by section 59(1) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).

Section IA 7(2) heading: repealed, on 17 July 2013, pursuant to section 172 of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Section IA 7(2): repealed, on 17 July 2013, by section 172 of the Taxation (Live- stock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).

Section IA 7(3) heading: repealed, on 1 July 2010, pursuant to section 296(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section IA 7(3): repealed, on 1 July 2010, by section 296(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section IA 7(5): amended (with effect on 1 April 2008), on 6 October 2009, by section 296(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

2036 Reprinted as at 30 August 2013 Income Tax Act 2007 Part I s IA 7 Section IA 7(6): amended (with effect on 1 April 2008), on 7 December 2009, by section 59(3) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
Section IA 7(6): amended (with effect on 1 April 2008), on 6 October 2009, by section 296(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section IA 7(10) heading: substituted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 296(4) of the Taxation (Inter- national Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section IA 7(10): substituted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 296(4) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section IA 7 list of deﬁned terms LAQC: repealed, on 17 July 2013, by section 172 of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Section IA 7 list of deﬁned terms life insurer: repealed, on 1 July 2010, by section 296(5) of the Taxation (International Taxation, Life Insurance, and Re- medial Matters) Act 2009 (2009 No 34).

Section IA 7 list of deﬁned terms loss-attributing qualifying company: re- pealed, on 17 July 2013, by section 172 of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Section IA 7 list of deﬁned terms loss balance: inserted (with effect on 1 April 2008), on 7 December 2009, by section 126 of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).

Section IA 7 list of deﬁned terms multi-rate PIE: inserted, on 1 April 2010, by section 296(6)(b) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section IA 7 list of deﬁned terms PIE: inserted, on 1 April 2010, by section 296(6)(b) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section IA 7 list of deﬁned terms policyholder net loss: repealed, on 1 July 2010, by section 296(5) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section IA 7 list of deﬁned terms portfolio tax rate entity: repealed, on 1 April 2010, by section 296(6)(a) of the Taxation (International Taxation, Life Insur- ance, and Remedial Matters) Act 2009 (2009 No 34).

Section IA 7 list of deﬁned terms provisional tax: inserted, on 1 April 2010, by section 296(6)(b) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section IA 7 list of deﬁned terms ring-fenced tax loss: inserted (with effect on 1 April 2008), on 7 December 2009, by section 126 of the Taxation (Conse- quential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
2037 Part I s IA 8 Income Tax Act 2007 Reprinted as at 30 August 2013 IA 8 Restrictions relating to schedular income Certain schedular income For the purposes of section BC 7 (Income tax liability of per- son with schedular income), a person must not take a tax loss into account in calculating a schedular income tax liability for a tax year for income described in the following paragraphs of the deﬁnition of schedular income: (aa) paragraph (a), which relates to life insurers’ schedular policyholder base income; or [Repealed] paragraph (f), for non-resident passive income de- scribed in section RB 3 (Schedular income tax liability for ﬁling taxpayers for non-resident passive income); or paragraph (g), which relates to non-resident shippers; or [Repealed] paragraph (i), which relates to non-resident general in- surers.
(a) (b) (c) (d) (e) Grouping tax losses For the purposes of subsection (1), a company that is part of a group of companies must not take a tax loss of another com- pany in the same group into account under section IC 5 or ID 2 (which relate to companies’ use of tax losses) in calculating a schedular income tax liability for the tax year.

Relationship with sections IA 3 to IA 7 This section overrides sections IA 3 to IA 7.
Deﬁned in this Act: company, general insurance, group of companies, income, insurer, non-resident, non-resident entertainer, non-resident passive income, schedular income, schedular income tax liability, schedular policyholder base income, tax loss, tax year Compare: 2004 No 35 s ID 1(1) Section IA 8(1)(aa): inserted, on 1 July 2010, by section 297(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section IA 8(1)(a): repealed (with effect on 1 April 2008), on 6 October 2009, by section 297(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section IA 8(1)(d): repealed, on 2 November 2012, by section 113 of the Tax- ation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
(1) (2) (3) 2038 Reprinted as at 30 August 2013 Income Tax Act 2007 Part I s IA 10 Section IA 8 list of deﬁned terms schedular policyholder base income: in- serted, on 1 July 2010, by section 297(3) of the Taxation (International Taxa- tion, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

IA 9 Ordering rules (1) (2) (3) Tax loss components Tax loss components that are included in a tax loss must be used in the order in which they arose.
Ring-fenced tax losses Ring-fenced tax losses must be used in the order in which they arose.

Losses in same tax year: consolidated groups and amalgamated companies For a consolidated group or on the amalgamation of compan- ies, tax loss components that the consolidated group or the companies have for the same tax year must be used in the order decided, as applicable, by the consolidated group or the amal- gamated company, who must also notify the Commissioner of the decision.
Without notiﬁcation, the amounts must be used on a pro rata basis.
Deﬁned in this Act: amalgamated company, amalgamation, amount, Commis- sioner, company, consolidated group, notify, ring-fenced tax loss, tax loss, tax loss component, tax year Compare: 2004 No 35 ss IE 1(3)(b), IF 5, IG 6(5) IA 10 Amended assessments (1) (2) When this section applies This section applies if, in a tax year, the Commissioner amends under section 113 of the Tax Administration Act 1994 a per- son’s assessment for an earlier tax year, and the amendment adjusts the amount of a tax loss component or a ring-fenced tax loss for the earlier tax year.
Reduced losses If the amount is reduced in the adjustment, the person must reduce their loss balance or ring-fenced tax loss for the earlier tax year by the amount of the adjustment.

If the loss balance or ring-fenced tax loss has been used in earlier tax years, they must similarly apply the reduction to the use of the loss balance or ring-fenced tax loss.
2039 Income Tax Act 2007 Reprinted as at 30 August 2013 (3) Increased losses If the amount is increased in the adjustment, the person must add an amount to their loss balance or ring-fenced tax loss for the earlier tax year.
Deﬁned in this Act: amount, assessment, Commissioner, loss balance, ring- fenced tax loss, tax loss component, tax year Subpart IC—Grouping tax losses Contents Introductory provisions IC 1 IC 2 IC 3 IC 4 Company A making tax loss available to company B Threshold levels for grouping tax losses in tax year Common ownership: group of companies Common ownership: wholly-owned groups of companies Requirements and methods Company B using company A’s tax loss IC 5 Common ownership for period IC 6 Residence of company A IC 7 Limitations on amounts used IC 8 IC 9 Date for payment and notice to Commissioner IC 10 When companies have different balance dates IC 11 Reduction of amounts used by companies IC 12 Bad debts or decline in value of shares IC 13 Variation of requirements for development companies in Niue Page 2040 2041 2042 2045 2046 2048 2048 2049 2049 2050 2051 2052 2053 Introductory provisions IC 1 Company A making tax loss available to company B When this subpart applies This subpart applies if 1 company that is part of a group of companies (company A) has a tax loss for a tax year that it makes available to another group company (company B) to subtract from its net income for the tax year.
(1) 2040 Reprinted as at 30 August 2013 Income Tax Act 2007 Part I s IC 2 (2) (3) (4) (5) Requirements for grouping tax losses The amount of a tax loss that company A has for a tax year may be made available to company B to subtract from its net income for the tax year only if— (a) (b) the threshold levels in section IC 2 are met; and the companies meet all the requirements of section IC 5.
Losing continuity or commonality in tax year If company A or company B fail to meet 1 or both of the thresh- old levels referred to in subsection (2)(a), a tax loss may not be grouped unless section IP 4 or IP 5 (which relate to the group- ing of part-year losses) applies.

References to years In this subpart, a reference to a tax year of a company includes a reference to a non-standard accounting year of the company that corresponds with the tax year.
Relationship with sections IA 3 and IA 4 This section overrides sections IA 3 and IA 4 (which relate to the general use of tax losses).
Deﬁned in this Act: amount, company, group of companies, net income, non- standard accounting year, tax loss, tax year Compare: 2004 No 35 ss IG 1(1), (3), IG 2(1), (2)(c), (e) IC 2 Threshold levels for grouping tax losses in tax year (1) (2) (3) Company A: continuity of ownership Company A may group a tax loss in a tax year under section IC 5 only if the requirements of section IA 5 (Restrictions on companies’ loss balances carried forward) are met.
Company A and company B: common ownership In addition to meeting the requirements referred to in subsec- tion (1), company A and company B must have the required common ownership under section IC 3 for the period referred to in section IC 6.
Part years: relationship with subpart IP Subpart IP (Meeting requirements for part-years) applies in a tax year that is part of the commonality period if the following requirements are met for the relevant part-year: (a) continuity of ownership in company A for the purposes of subsection (1); and 2041 Part I s IC 3 Income Tax Act 2007 Reprinted as at 30 August 2013 (b) common ownership of company A and company B for the purposes of subsection (2).
Deﬁned in this Act: commonality period, company, tax loss, tax year Compare: 2004 No 35 ss IG 1(1), (3), IG 2(1), (2)(c), (e) IC 3 Common ownership: group of companies Meaning (1) A group of companies means 2 or more companies, none of which is a multi-rate PIE or a listed PIE, in relation to which a group of persons holds— (a) (b) common voting interests that add up to at least 66%; and if a market value circumstance exists for a company that is part of a group of companies, common market value interests that add up to at least 66%.
Part of group at time or for period (2) A company is treated as part of a group of companies at a par- ticular time or for a particular period if the minimum common interests referred to in subsection (1) exist at the relevant time or are kept for the whole of the relevant period.

But it is not necessary that the group of persons holding the interests stays the same for the whole of the relevant period.
Restriction for mixed-ownership enterprises (2A) A mixed-ownership enterprise may be included in a group of companies only if, at the particular time or for the particular period, no other company in the group is a mixed-ownership enterprise.
(2B) When multi-rate PIEs included in group In relation to 2 or more companies of which 1 is a multi-rate PIE, the companies are treated as a group of companies at a particular time or for a particular period if— (a) the PIE owns 100% of the voting interests in the other companies; and the other companies in the group are— (i) (ii) (iii) multi-rate PIEs: land investment companies: subsidiary companies that meet the requirements of section HM 7(a) and (d) (Requirements): foreign PIE equivalents.
(b) (iv) 2042 Reprinted as at 30 August 2013 Income Tax Act 2007 Part I s IC 3 (2C) When listed PIEs included in group In relation to 2 or more companies of which 1 is a listed PIE, the companies are treated as a group of companies at a particu- lar time or for a particular period if the PIE owns 100% of the voting interests in the other companies.
When foreign investment PIEs included in group (2D) For the purposes of subsection (2B)(b), a multi-rate PIE that chooses under section HM 71B (Choosing to become foreign investment PIE) to become a foreign investment PIE, must not be part of a group of companies that includes a land investment company.
(3) (4) (5) Measuring common voting interests In subsection (1)(a), a person’s common voting interest in the relevant companies at a particular time is the percentage of their voting interests under section YC 2 (Voting interests) in each of the companies at the time.
Measuring common market value interests In subsection (1)(b), a person’s common market value interest in the relevant companies at a particular time is the percentage of their market value interests under section YC 3 (Market value interests) in each of the companies at the time.
Common interest percentages For the purposes of this section, in measuring a person’s com- mon voting interest or common market value interest in 2 or more companies at a particular time,— (a) for percentages that are the same in relation to each company, the person’s percentage interest at the time: for percentages that differ as between the companies, the lowest percentage interest in each company at the time.
(b) Deﬁned in this Act: common market value interest, common voting interest, company, foreign investment PIE, foreign PIE equivalent, group of companies, group of persons, listed PIE, land investment company, market value circum- stance, market value interest, mixed-ownership enterprise, multi-rate PIE, vot- ing interest Compare: 2004 No 35 s IG 1(2), (5) Section IC 3(1): amended, on 29 August 2011, by section 90(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
2043 Part I s IC 3 Income Tax Act 2007 Reprinted as at 30 August 2013 Section IC 3(1): amended (with effect on 1 April 2010), on 21 December 2010 (applying for the 2010–11 and later income years), by section 105(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).

Section IC 3(2A) heading: inserted, on 30 June 2012, by section 11 of the Public Finance (Mixed Ownership Model) Amendment Act 2012 (2012 No 45).
Section IC 3(2A): inserted, on 30 June 2012, by section 11 of the Public Finance (Mixed Ownership Model) Amendment Act 2012 (2012 No 45).

Section IC 3(2B) heading: substituted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 298(2) of the Taxation (Inter- national Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section IC 3(2B): substituted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 298(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section IC 3(2B)(b): substituted, on 29 August 2011, by section 90(2) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section IC 3(2C) heading: inserted, on 29 August 2011, by section 90(3) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).

Section IC 3(2C): inserted, on 29 August 2011, by section 90(3) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).

Section IC 3(2D) heading: inserted, on 29 August 2011, by section 90(4) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section IC 3(2D): inserted, on 29 August 2011, by section 90(4) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).

Section IC 3(3) heading: substituted (with effect on 1 April 2008), on 7 Septem- ber 2010 (applying for the 2008–09 and later income years), by section 82(1) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
Section IC 3(3): substituted (with effect on 1 April 2008), on 7 September 2010 (applying for the 2008–09 and later income years), by section 82(1) of the Taxa- tion (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remed- ial Matters) Act 2010 (2010 No 109).
Section IC 3(4) heading: substituted (with effect on 1 April 2008), on 7 Septem- ber 2010 (applying for the 2008–09 and later income years), by section 82(1) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
Section IC 3(4): substituted (with effect on 1 April 2008), on 7 September 2010 (applying for the 2008–09 and later income years), by section 82(1) of the Taxa- tion (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remed- ial Matters) Act 2010 (2010 No 109).
Section IC 3(5) heading: added (with effect on 1 April 2008), on 7 September 2010 (applying for the 2008–09 and later income years), by section 82(1) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
Section IC 3(5): added (with effect on 1 April 2008), on 7 September 2010 (ap- plying for the 2008–09 and later income years), by section 82(1) of the Taxa- 2044 Reprinted as at 30 August 2013 Income Tax Act 2007 Part I s IC 4 tion (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remed- ial Matters) Act 2010 (2010 No 109).
Section IC 3 list of deﬁned terms foreign investment PIE: inserted, on 29 Au- gust 2011, by section 90(5) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).

Section IC 3 list of deﬁned terms foreign PIE equivalent: inserted, on 29 Au- gust 2011, by section 90(5) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section IC 3 list of deﬁned terms land investment company: inserted, on 1 April 2010, by section 298(3)(b) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section IC 3 list of deﬁned terms listed PIE: inserted, on 29 August 2011, by section 90(5) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section IC 3 list of deﬁned terms mixed-ownership enterprise: inserted, on 30 June 2012, by section 11 of the Public Finance (Mixed Ownership Model) Amendment Act 2012 (2012 No 45).

Section IC 3 list of deﬁned terms multi-rate PIE: inserted, on 1 April 2010, by section 298(3)(b) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section IC 3 list of deﬁned terms portfolio land company: repealed, on 1 April 2010, by section 298(3)(a) of the Taxation (International Taxation, Life Insur- ance, and Remedial Matters) Act 2009 (2009 No 34).

Section IC 3 list of deﬁned terms portfolio land company: inserted, on 1 April 2008, by section 432(2) of the Taxation (Business Taxation and Remedial Mat- ters) Act 2007 (2007 No 109).
Section IC 3 list of deﬁned terms portfolio tax rate entity: repealed, on 1 April 2010, by section 298(3)(a) of the Taxation (International Taxation, Life Insur- ance, and Remedial Matters) Act 2009 (2009 No 34).

Section IC 3 list of deﬁned terms voting interest: inserted, on 1 April 2010, by section 298(3)(b) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
IC 4 Common ownership: wholly-owned groups of companies Interests held (1) A wholly-owned group of companies means 2 or more com- panies in relation to which a group of persons holds, for the relevant period,— (a) (b) common voting interests that add up to 100%; and if a market value circumstance exists for a company that is part of a group of companies, common market value interests that add up to 100%.
2045 Part I s IC 5 Income Tax Act 2007 Reprinted as at 30 August 2013 (2) Employees’ share purchase schemes In subsection (1), company shares held by the trustee of, or by employees or former employees of the company as a conse- quence of the operation of, a share purchase scheme are disre- garded to the extent to which they represent voting interests in the company that add up to no more than 3%, or, as applicable, market value interests in the company that add up to no more than 3%.
Deﬁned in this Act: common market value interest, common voting interest, company, employee, group of companies, group of persons, market value cir- cumstance, market value interest, share, share purchase scheme, trustee, voting interest, wholly-owned group of companies Compare: 2004 No 35 s IG 1(3) Requirements and methods IC 5 Company B using company A’s tax loss (1) Requirements Company A may make a tax loss available to company B to subtract from its net income under section IA 3(2) (Using tax losses in tax year) only if— (a) company A and company B have minimum common ownership for the relevant period as set out in sections IC 2(2) and IC 6; and company A meets the residence requirements of section IC 7; and company A has the required continuity of owner- ship under section IC 2(1) and, if it applies, section IC 10(2)(a); and the amount falls within the limits set by section IC 8(1) and (2); and the payment and notiﬁcation requirements of section IC 9 are met.
(b) (c) (d) (e) Method: election or subvention payment (2) Having met all the requirements set out in subsection (1), com- pany A may— (a) choose to make a tax loss that it has in a tax year avail- able to company B to use in the tax year, notifying the Commissioner as described in section IC 9; or 2046 Reprinted as at 30 August 2013 Income Tax Act 2007 Part I s IC 5 (3) (4) (5) (6) (7) (b) (c) agree with company B that company B should bear the amount of company A’s tax loss, or take a share in it, in return for a payment by company B to company A by the date set out in section IC 9; or apply both paragraphs (a) and (b) in relation to the tax loss.
Amounts used in tax year Company B must subtract the amount of the tax loss referred to in subsection (2)(a) or the payment referred to in subsection (2)(b), as applicable, from its net income for the tax year in relation to which company A makes the amount available or receives the payment.

When decisions made If company A chooses to make the amount available to com- pany B under subsection (2)(a), the decision is irrevocable.
Nature of payment To the extent to which an amount of tax loss is subtracted from net income, a payment from company B to company A under subsection (2)(b) is not a dividend.

Part-year tax losses Sections IP 4 and IP 5 (which relate to losses in part-years) modify this section for part-year calculations.
Tax years before 1981–82 and between 1981–82 and 1991–92 Section IZ 7 (Grouping tax losses for tax years before 1981–82 and between 1981–82 and 1991–92) modiﬁes the requirements of— (a) subsection (1)(a) for a tax loss component that arises in tax years between 1981–82 and 1991–92; and subsection (1)(b) for a tax loss component that arises in tax years before the 1991–92 tax year; and subsection (1)(a) for a tax loss component that arises in tax years before the 1981–82 tax year.
(b) (c) Deﬁned in this Act: amount, Commissioner, company, dividend, net income, notify, pay, tax loss, tax loss component, tax year Compare: 2004 No 35 s IG 2(2) 2047 Part I s IC 6 Income Tax Act 2007 Reprinted as at 30 August 2013 IC 6 Common ownership for period (1) (2) (3) (4) Commonality period For the purposes of section IC 2(2), common ownership under section IC 3 must exist from the start of the income year in which company A has a tax loss component that is included in the tax loss to the end of the income year in which company B subtracts the amount of the tax loss component from its net income.
In this Part, this length of time is called the common- ality period.

Multiple net losses The requirement set out in subsection (1) applies to net losses as they arise in an income year on an individual basis.

When companies have different balance dates If the balance dates of company A and company B are dif- ferent, section IC 10(2)(b) applies to extend the commonality period.
Relationship with section IZ 7 Section IZ 7(1) and (2)(Grouping tax losses for tax years be- fore 1981–82 and between 1981–82 and 1991–92) overrides subsections (1) and (2).
Deﬁned in this Act: commonality period, company, income year, net income, tax loss, tax loss component Compare: 2004 No 35 ss IG 1(1), (2), IG 2(2)(c), (4)(d)(ii), (5)(c)(ii) IC 7 Residence of company A Incorporation or carrying on business Company A, for the commonality period, must be either— (a) (b) incorporated in New Zealand; or carrying on a business in New Zealand through a ﬁxed establishment in New Zealand.
Residence in New Zealand In addition to meeting the requirements of subsection (1), com- pany A, for the commonality period, must not be a company resident in New Zealand that is— (a) treated under a double tax agreement, and for the pur- poses of the agreement, as not resident in New Zealand; or (1) (2) 2048 Reprinted as at 30 August 2013 Income Tax Act 2007 Part I s IC 9 (3) (b) liable by the law of another country or territory to in- come tax in that country or territory through domicile, residence, or place of incorporation.
Relationship with section IZ 7 Section IZ 7(4) (Grouping tax losses for tax years before 1981–82 and between 1981–82 and 1991–92) overrides this section.
Deﬁned in this Act: business, commonality period, company, double tax agree- ment, ﬁxed establishment, income tax, New Zealand, resident in New Zealand Compare: 2004 No 35 s IG 2(2)(d), (11) IC 8 Limitations on amounts used Limit on amounts (1) A tax loss made available, or a payment made, under section IC 5(2) must be no more than the amount that would be com- pany B’s net income for the tax year in which it subtracts the amount of the tax loss.
Limit for payments (2) An amount that company B agrees to pay company A under section IC 5(2)(b) must be no more than the amount of com- pany A’s tax loss.

(3) No accounting for amount by companies Company A and company B must ignore this section in calcu- lating their net incomes, but for the purposes of grouping tax losses, company B’s net income is found after taking into ac- count— (a) (b) ﬁrst, its own losses; and secondly, a tax loss made available to company B by another company.
Deﬁned in this Act: amount, company, loss, net income, pay, tax loss, tax year Compare: 2004 No 35 s IG 2(2)(f), (g) IC 9 Date for payment and notice to Commissioner Last date for payment (1) A payment under section IC 5(2)(b) must be made no later than the extended return date, or by a later date if the Commissioner allows.
2049 Part I s IC 10 Income Tax Act 2007 Reprinted as at 30 August 2013 (2) (3) Date and method for notifying Commissioner Company A must notify the Commissioner of an election or payment under section IC 5(2) by the extended return date or, if applicable, the later date allowed by the Commissioner.

The notiﬁcation may be made in the company’s annual return of income.
Extended return date In subsections (1) and (2), extended return date means the 31 March that, for company A and the tax year in which the amount of the tax loss is subtracted, is the latest date to which the time for providing the return of income may be extended under section 37(5) of the Tax Administration Act 1994.
Deﬁned in this Act: amount, Commissioner, company, extended return date, notify, pay, return of income, tax loss, tax year Compare: 2004 No 35 s IG 2(2)(g), (3) IC 10 When companies have different balance dates When this section applies This section applies in a tax year when company A and com- pany B do not have the same balance date.
Extensions for continuity and common ownership If company B’s income year ends after the last day of company A’s income year, for section IC 5 to apply to a tax loss in a corresponding tax year,— (a) continuity of ownership in company A under section IC 2(1) must extend to the end of company B’s income year; and common ownership of company A and company B under section IC 3 or IC 4 must extend to the end of company B’s income year.
(b) Part-year tax losses This section applies for part-year calculations through section IP 2(2) (Group companies’ common span).
Deﬁned in this Act: company, income year, tax loss, tax year Compare: 2004 No 35 s IG 2(2)(c), (e) (1) (2) (3) 2050 Reprinted as at 30 August 2013 Income Tax Act 2007 Part I s IC 11 IC 11 Reduction of amounts used by companies (1) (2) (3) (4) (5) (6) When this section applies This section applies in a tax year if— (a) (b) company A has a tax loss for the tax year that is made available to, and subtracted by, more than 1 company that is part of the group of companies; and the Commissioner determines under section 113 of the Tax Administration Act 1994 that the actual total tax loss for the tax year is less than the sum of the amounts subtracted by the companies in the group, and notiﬁes company A.
Reduced amounts The relevant companies must reduce the amounts they sub- tracted either in the way company A allocates under subsection (3) or, if no allocation is made, proportionately under subsec- tion (4).

Company A’s allocation Company A may choose how the amount by which the total must be reduced is allocated between or among the companies.
But if company A allocates an amount to a company that is no longer part of the group at the time of the allocation, and the amount is more than a proportionate amount, the allocation is disregarded.

Subsection (6) sets out the notice requirements for this subsection.
Proportionate amounts If company A does not allocate the amounts by which the total must be reduced, the amounts subtracted by the group com- panies are reduced in the same proportion as that by which the total amount was reduced in determining the actual total tax loss.
Subvention payments If the reduction results in a payment under section IC 5(2)(b) being treated as a dividend, the dividend is reduced to the ex- tent to which the payment is repaid by company A within the notiﬁcation period referred to in subsection (6).
Notifying Commissioner For the purposes of subsections (3) and (5), company A must notify the Commissioner of the allocation within 6 months 2051 Part I s IC 12 Income Tax Act 2007 Reprinted as at 30 August 2013 after the date on which the Commissioner notiﬁes company A that the reduction is required.

However, the Commissioner may agree to extend this notiﬁcation period.
Deﬁned in this Act: amount, Commissioner, company, dividend, group of com- panies, notify, tax loss, tax year Compare: 2004 No 35 s IG 2(7) IC 12 Bad debts or decline in value of shares (1) (2) When this section applies This section applies to companies that are part of a group of companies in a tax year when— (a) a company (company C) in the group has in the tax year a deduction— (i) under section DB 31 (Bad debts) for a loan to another company in the group: for a decline in the value of shares in another company in the group; and (ii) (b) a company (company A) in the group, other than com- pany C, has a tax loss for the tax year that includes a tax loss component arising from a deduction— (i) for expenditure funded by the loan referred to in paragraph (a)(i) or by the issue to company A of the shares referred to in paragraph (a)(ii); and taken into account in calculating company A’s tax loss for the 1993–94 tax year or a later tax year.
(ii) Limitation on loss grouping The amount of company A’s tax loss cannot be made available to another company in the group to use except to the extent to which the amount of the tax loss is more than the total amount of the deductions referred to in subsection (1)(a).
To that ex- tent, company A may choose to make the excess amount avail- able to a group company to use under section IA 3(2) and IA 5 (which relate to using and carrying forward tax losses) if the requirements for grouping tax losses are met.
(3) Determining decline in value of shares For the purposes of this section, shares are treated as declining in value if,— 2052 Reprinted as at 30 August 2013 Income Tax Act 2007 Part I s IC 13 (a) on the disposal of the shares, the amount for which they were disposed of is less than the deduction for the cost of the shares; or (b) when the shares have not been disposed of, their value as calculated under subpart EB (Valuation of trading stock (including dealer’s livestock)) or otherwise declines.
Deﬁned in this Act: amount, company, deduction, group of companies, loan, loss balance, pay, share, tax loss, tax year Compare: 2004 No 35 s IG 2(6) Section IC 12(1): substituted (with effect on 1 April 2008), on 7 September 2010 (applying for the 2008–09 and later income years), by section 83(1) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
Section IC 12(2) heading: substituted (with effect on 1 April 2008), on 7 Sep- tember 2010 (applying for the 2008–09 and later income years), by section 83(2) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
Section IC 12(2): substituted (with effect on 1 April 2008), on 7 September 2010 (applying for the 2008–09 and later income years), by section 83(2) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
Section IC 12 list of deﬁned terms loan: inserted (with effect on 1 April 2008), on 7 September 2010, by section 83(3) of the Taxation (Annual Rates, Trans- Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
IC 13 Variation of requirements for development companies in Niue (1) (2) When this section applies This section applies in relation to the required common own- ership of group companies set out in sections IC 2(2), IC 3, and IC 5(1)(a) for the purposes of providing relief to company A for losses incurred in connection with development work in Niue.
Order in Council The Governor-General may make an Order in Council varying the threshold in section IC 3(1)(a) and (b)applying to company A if satisﬁed that the company— (a) is carrying on a business or enterprise that— (i) has been or is carried on wholly or mainly for the development of Niue: 2053 Income Tax Act 2007 Reprinted as at 30 August 2013 (b) (ii) has been or is important to the development of Niue; and has incurred expenditure wholly or mainly in deriving income from Niue or in the course of carrying on a busi- ness or enterprise in Niue for the purpose of deriving income.
Named company For the purposes of subsection (2), company A must be a com- pany named in the order.

Application of order The order may specify a period or periods to which it applies.

If no period is speciﬁed, the order applies to the whole com- monality period.
Deﬁned in this Act: business, commonality period, company, group of com- panies, income Section IC 13: added (with effect on 1 April 2008), on 6 October 2009, by sec- tion 299 of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
(3) (4) Subpart ID—Use of tax losses by consolidated groups Contents ID 1 ID 2 ID 3 ID 4 ID 5 Treatment of tax losses by consolidated groups Pre-consolidation losses: general treatment Pre-consolidation losses: use by group companies Pre-consolidation losses on entry: part-year rule Pre-consolidation losses on exit: part-year rule Page 2054 2055 2056 2057 2058 ID 1 Treatment of tax losses by consolidated groups Consolidated group’s net losses (1) A tax loss of a consolidated group of companies is treated as the consolidated group’s tax loss, not the tax loss of a company that is part of the consolidated group.
Subparts IA and IC (which relate to the general use and grouping of tax losses), as modiﬁed by this subpart, apply as if the consolidated group were 1 company.

2054 Reprinted as at 30 August 2013 Income Tax Act 2007 Part I s ID 2 Ring-fenced tax losses (2) Nothing in this subpart applies to a consolidated group whose companies are mining companies.
Deﬁned in this Act: company, consolidated group, mining company, tax loss Compare: 2004 No 35 s IG 6(1A)–(3) ID 2 Pre-consolidation losses: general treatment (1) (2) (3) When this section applies This section applies in a tax year when a company that meets the requirements of section IA 5 (Restrictions on companies’ loss balances carried forward) and is part of a consolidated group has a pre-consolidation loss balance carried forward to the tax year.
First use The ﬁrst use of the loss balance must be to make the amount of the loss balance available to the consolidated group to subtract from its net income, so far as it extends, for the tax year.
Second use If, after subsection (2) is applied, some of the loss balance re- mains, the company may choose to do 1 or more of the follow- ing: (a) subtract the remaining amount from its net income for the tax year: (b) make the remaining amount available to another con- solidated group to subtract from its net income for the tax year: (c) make the remaining amount available under section IC 5 (Company B using company A’s tax loss).
(4) Third use If, after subsections (2) and (3) are applied, a loss balance re- mains, the remaining amount is carried forward to the next tax year.

2055 Part I s ID 3 Income Tax Act 2007 Reprinted as at 30 August 2013 (5) Relationship with sections IA 3, IA 4, IC 5, and provisions in this subpart This section overrides sections IA 3, IA 4, and IC 5 (which relate to the general use and grouping of tax losses).

Sections ID 3 to ID 5 override this section.
Deﬁned in this Act: amount, company, consolidated group, net income, loss balance, tax year Compare: 2004 No 35 s IG 6(4), (6), (7) ID 3 Pre-consolidation losses: use by group companies When this section applies This section applies in a tax year when— (a) (b) a company (company A) that is part of a consolidated group has a loss balance to which section ID 2 applies; and company A, in the continuity period relating to a tax loss component included in the loss balance, does not have the required common ownership under section IC 3 (Common ownership: group of companies) with 1 or more companies in the consolidated group.
Limit on amount available The amount made available under section ID 2(2) to the con- solidated group is limited as follows: if all the companies, including company A, in the (a) consolidated group meet the requirements of section IC 6(1) (Common ownership for period): the amount available is limited to the amount of the loss balance to the extent of the net income of the consolidated group for the tax year: if some of the companies in the consolidated group meet the requirements of section IC 6(1): the amount avail- able is limited to the total of— (i) (b) the amount that company A could subtract from its net income for the tax year if it were not in the tax year part of a consolidated group; and the amount that could be made available under section IC 5 (Company B using company A’s tax loss) to the other group companies in the tax year, ignoring the consolidation of the companies and (ii) (1) (2) 2056 Reprinted as at 30 August 2013 Income Tax Act 2007 Part I s ID 4 (3) (4) presuming all steps required under section IC 5 were taken in order for the section to apply.
Relationship with section FM 3 In subsection (2), the calculation of the consolidated group’s net income must be made in accordance with section FM 3 (Liability of consolidated groups and group companies).

Relationship with section ID 2 This section overrides section ID 2.
Deﬁned in this Act: amount, company, consolidated group, continuity period, group of companies, loss balance, net income, tax loss component, tax year Compare: 2004 No 35 s IG 6(6) Section ID 3(1): substituted (with effect on 1 April 2008), on 6 October 2009, by section 300(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section ID 3 list of deﬁned terms tax loss component: inserted (with effect on 1 April 2008), on 6 October 2009, by section 300(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

ID 4 Pre-consolidation losses on entry: part-year rule (1) (2) (3) When this section applies This section applies if a company that is part of a consolidated group has a loss balance to which section ID 2 applies in a tax year when the company joins the consolidated group.
Limit on amount available The amount of the loss balance to be made available to the consolidated group under section ID 2(2) is the lesser of the amount the company establishes in ﬁnancial statements under subsection (3), or the amount calculated using the formula in subsection (4), but in either case, it must not be more than the limit set out in section ID 3(2).
Financial statements The company may establish the amount to be made available by providing the Commissioner, at the time of providing the consolidated group’s return of income, with adequate ﬁnancial statements that— (a) relate to the part of the tax year when the company was part of the consolidated group; and 2057 (4) (5) Part I s ID 5 Income Tax Act 2007 Reprinted as at 30 August 2013 (b) disclose the amount that would be the net income at- tributable to the part of the tax year when the company was part of the consolidated group, determined on a fair and reasonable basis of attribution.
Formula The amount that may be made available under section ID 2(2) and referred to in subsection (2) is calculated using the for- mula— unused amount (part-year net income + part-year net loss).
Deﬁnition of items in formula In the formula,— (a) unused amount is the loss balance carried forward from an earlier tax year or years that would be sub- tracted from the consolidated group’s net income for the tax year in the absence of section ID 3 or this section: part-year net income is the company’s net income for the part of the tax year before the company joins the consolidated group: part-year net loss is the amount of a pre-consolidation tax loss that must be subtracted under section ID 2 from the net income of another consolidated group of which the company was part in the tax year before joining the consolidated group referred to in subsection (1).
(b) (c) (6) Relationship with section ID 2 This section overrides section ID 2.

Deﬁned in this Act: amount, Commissioner, company, consolidated group, loss balance, net income, return of income, tax loss, tax year Compare: 2004 No 35 s IG 6(7) ID 5 Pre-consolidation losses on exit: part-year rule When this section applies This section applies if a company that is part of a consolidated group has a loss balance to which section ID 2 applies in a tax year when the company leaves the consolidated group.
Limit on amount available In addition to the amount available under section IP 3(3) (Con- tinuity breach: tax loss components of companies carried for- (1) (2) 2058 Reprinted as at 30 August 2013 Income Tax Act 2007 Part I s IE 1 ward) but subject to the limit in section ID 3(2), the amount of the company’s loss balance that is carried forward to the tax year must be no more than the consolidated group’s net income for the relevant part of the tax year.
For part-year calculations, see subpart IP (Meeting requirements for part-years).

Financial statements The consolidated group must provide the Commissioner with adequate ﬁnancial statements that disclose the amount that would be the consolidated group’s net income for the relevant part of the tax year, determined on a fair and reasonable basis of attribution.

The statements must be ﬁled with the consoli- dated group’s return of income for the tax year.
Continuity requirements For the purposes of this section, the company must meet the threshold level set out in section IC 2(1) (Threshold levels for grouping tax losses in tax year) for the relevant part of the tax year.

Relationship with section ID 2 This section overrides section ID 2.
Deﬁned in this Act: amount, Commissioner, company, consolidated group, loss balance, net income, return of income, tax year Compare: 2004 No 35 s IG 6(8) (3) (4) (5) Subpart IE—Treatment of tax losses on amalgamation of companies Contents IE 1 When this subpart applies IE 2 IE 3 IE 4 Treatment of tax losses by amalgamating company Treatment of tax losses by amalgamated company Group companies’ treatment of tax losses on amalgamation Applying the continuity provisions when companies amalgamate IE 5 IE 1 When this subpart applies This subpart applies if, in an amalgamation,— Page 2059 2060 2061 2062 2062 2059 Part I s IE 2 Income Tax Act 2007 Reprinted as at 30 August 2013 (a) (b) either the amalgamating company or the amalgamated company has, before the date of the amalgamation, a tax loss component or ring-fenced tax loss: a company that is part of a group of companies has a tax loss for the tax year of amalgamation that may be made available to the amalgamated company to subtract from its net income for the tax year.
Deﬁned in this Act: amalgamated company, amalgamating company, amalgam- ation, group of companies, net income, ring-fenced tax loss, tax loss, tax loss component, tax year Compare: 2004 No 35 ss IF 4–IF 6 IE 2 Treatment of tax losses by amalgamating company When this section applies This section applies if an amalgamating company that meets the requirements of section IA 5 (Restrictions on companies’ loss balances carried forward) ends its existence on a resident’s restricted amalgamation, and has a tax loss for a tax year that— has not, before the date of amalgamation, been used by (a) the company; and could be made available and subtracted from the amal- gamated company’s net income for the part of the tax year that ends with the date of amalgamation.
(b) Attributing losses to amalgamated company If the amalgamated company meets the requirements of sec- tion IE 5, the tax loss is attributed to the amalgamated com- pany.

The amalgamated company may, after the date of amal- gamation, subtract the amount of the tax loss from its net in- come for the tax year, or make it available to another company to subtract from its net income for the tax year.
Other amalgamating companies In subsection (1)(b), the amalgamated company includes a company that has amalgamated with the amalgamating com- pany before or during the tax year in which the amount is used.

The tax year referred to in that subsection means the tax year of the relevant company.

(1) (2) (3) 2060 Reprinted as at 30 August 2013 Income Tax Act 2007 Part I s IE 3 (4) New companies Subsection (1)(b) does not apply if the amalgamated company is incorporated only on the amalgamation.
Deﬁned in this Act: amalgamated company, amalgamating company, amount, company, net income, resident’s restricted amalgamation, tax loss, tax year Compare: 2004 No 35 s IF 4 IE 3 Treatment of tax losses by amalgamated company (1) (2) (3) (4) When this section applies This section applies if an amalgamated company that meets the requirements of section IA 5 (Restrictions on companies’ loss balances carried forward) has a loss balance carried forward to the tax year in which the amalgamation takes place, and the loss balance— (a) has not, before the date of amalgamation, been used by the company; and could be made available under and subtracted by each amalgamating company from the net income attributable to the part of the relevant company’s tax year that ends with the date of amalgamation.
(b) Loss balances carried forward If the requirements of sections IA 5, IC 2, and IC 5 (which relate to the use and grouping of tax losses) are met, the amal- gamated company’s loss balance is carried forward to the tax year in which the amalgamation takes place or to a later tax year.
Attributed CFC net losses and FIF net losses For the purposes of subsection (1)(b), if the tax loss is an at- tributed controlled foreign company (CFC) net loss or a for- eign investment fund (FIF) net loss, it may be made available only to a wholly-owned group of companies.

Relationship with sections IA 3 and IA 4 This section overrides sections IA 3 and IA 4 (which relate to the general use of tax losses).
Deﬁned in this Act: amalgamated company, amalgamating company, amalgam- ation, attributed CFC net loss, FIF net loss, loss balance, net income, tax loss, tax year, wholly-owned group of companies Compare: 2004 No 35 s IF 6 2061 Part I s IE 4 Income Tax Act 2007 Reprinted as at 30 August 2013 IE 4 Group companies’ treatment of tax losses on amalgamation (1) (2) When this section applies This section applies on an amalgamation if a company that is part of a group of companies— (a) meets the requirements of section IA 5 (Restrictions on companies’ loss balances carried forward); and has a tax loss for part of a tax year before the date of amalgamation; and (b) (c) may use the tax loss under section IC 5, IQ 4, or IQ 5 (which relate to a company’s use of another company’s loss, including foreign losses).
Use by amalgamated company The amount of the tax loss may be subtracted from the net income of the amalgamated company for the tax year only if both the company and the amalgamated company, and each company that before or during the amalgamation amalgamated with the amalgamated company, meet the requirements of sub- parts IA, IC, and IQ (which relate to the general loss rules and certain foreign losses) that allow companies to group tax losses.
Deﬁned in this Act: amalgamated company, amalgamation, amount, company, group of companies, net income, tax loss, tax year Compare: 2004 No 35 s IG 9 IE 5 Applying the continuity provisions when companies amalgamate The provisions of this Act apply as if the amalgamated com- pany did not exist separately before amalgamation, and was instead the amalgamating companies with the same holders of shares and options over shares, each with the same number and class of shares and options over shares, as they held in the amalgamating company, to determine whether a tax loss or loss balance,— (a) may be used or is carried forward under sections IA 3 and IA 4 (which relate to the general use of tax losses): (b) may be subtracted from the net income of another com- pany under section IC 5, IQ 4, or IQ 5 (which relate to 2062 Reprinted as at 30 August 2013 Income Tax Act 2007 Part I s IP 1 (c) a company’s use of another company’s loss, including foreign losses): in the case of a group company, may be subtracted from the net income of the amalgamated company under sec- tion IC 5, IQ 4, or IQ 5.
Deﬁned in this Act: amalgamated company, amalgamating company, amalgam- ation, company, loss balance, net income, share, tax loss Compare: 2004 No 35 ss IF 4, IG 8, IG 9 Subpart IP—Meeting requirements for part-years Contents Introductory provisions IP 1 When this subpart applies IP 2 Group companies’ common span Tax loss components carried forward IP 3 Continuity breach: tax loss components of companies carried forward Grouping part-year tax losses Breach in income year in which tax loss component arises Breach in tax year in which loss balance is grouped Statements and notices Financial statements required Notices required IP 4 IP 5 IP 6 IP 7 Page 2063 2064 2065 2066 2068 2069 2070 Introductory provisions IP 1 When this subpart applies (1) Breaches of continuity and commonality This subpart applies if either or both the following breaches occur: (a) when commonality of ownership required by section IC 5(1)(a) (Company B using company A’s tax loss) is not met during a tax year (a commonality breach): 2063 Part I s IP 2 Income Tax Act 2007 Reprinted as at 30 August 2013 (b) when continuity of ownership required by section IA 5(1) (Restrictions on companies’ loss balances carried forward) is broken during a tax year, or when a new or existing company joins a group of companies during a tax year (a continuity breach).
(2) Relationship with subparts IA, IC, and ID: part-year calculations The general rules for the treatment of tax losses in subparts IA, IC, and ID (which relate to the general use and grouping of tax losses) apply, as modiﬁed or overridden by the provisions of this subpart, to— (a) (b) a part-year tax loss as if it were a tax loss for a tax year: part-year net income as if it were net income for a tax year: the common span as if the period of time were a tax year.
(c) Deﬁned in this Act: common span, net income, tax loss, tax year Compare: 2004 No 35 s IG 2(4)(e), (f), (5)(e), (f) Section IP 1(1)(a): substituted (with effect on 1 April 2009), on 6 October 2009, by section 301(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section IP 1(1)(b): substituted (with effect on 1 April 2009), on 6 October 2009, by section 301(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

IP 2 Group companies’ common span Common span In this subpart, the corresponding parts of company A’s in- come year and company B’s income year when the require- ments for commonality of ownership under section IC 5(1)(a) (Company B using company A’s tax loss) are met is called the common span.
Common span when balance dates differ If the income years of company A and company B do not end on the same date, the common span is that part of company B’s income year or income years in which the requirements for commonality are met.

Section IC 10(2)(b) (When companies have different balance dates) may apply to extend the period.
(1) (2) 2064 Reprinted as at 30 August 2013 Income Tax Act 2007 Part I s IP 3 (3) Calculating group companies’ tax losses For the purposes of this subpart and the grouping of tax losses, the amount of a tax loss component is found after taking into account any amount of the tax loss component subtracted from the net income of any group company.
Deﬁned in this Act: amount, common span, company, income year, net income, tax loss, tax loss component Compare: 2004 No 35 s IG 2(2)(e), (4)(c), (d), (5)(b), (c) Tax loss components carried forward IP 3 Continuity breach: tax loss components of companies carried forward (1) When this section applies This section applies for the purposes of section IA 4 (Us- ing loss balances carried forward to tax year) if a breach oc- curs in the requirements for continuity of ownership of sec- tion IA 5 (Restrictions on companies’ loss balances carried forward) that enable a tax loss component included in a com- pany’s loss balance to be carried forward to or from a tax year.
Tax loss components for earlier income years (2) Despite the breach, a tax loss component arising in an earlier income year is carried forward to a tax year (year A) to the extent to which— (a) the requirements for continuity of ownership would be met if the continuity period included only part of the income year of the company that corresponds to year A; and the company has net income for part of the correspond- ing income year; and the company provides the Commissioner with adequate ﬁnancial statements under section IP 6 calculating the amount of the company’s net income for the relevant part of the corresponding income year.
(b) (c) (3) Limit on tax loss components carried forward to year A The total tax loss components carried forward under subsec- tion (2) must be no more than the amount calculated under sub- section (2)(b) and (c), although the amount may be increased if section IP 5 applies.
2065 Part I s IP 4 Income Tax Act 2007 Reprinted as at 30 August 2013 Tax loss components of year of breach (4) Despite the breach, a tax loss component is carried forward to the tax year (year B) from year A to the extent to which— (a) the requirements for continuity of ownership would be met if the continuity period included only part of the income year that corresponds to year A; and the company provides the Commissioner with adequate ﬁnancial statements under section IP 6 calculating the amount of the company’s net loss for the part of year A.
(b) (5) Limit on tax loss components carried forward to year B The amount of the tax loss component carried forward under subsection (4) must be the least of— (a) (b) (c) the part-year net loss calculated under subsection (4)(b): if the company has net income for year A, zero: if the company has a net loss for year A, the company’s net loss for year A. Deﬁned in this Act: amount, Commissioner, company, continuity period, cor- responding income year, income year, loss balance, net income, net loss, tax loss component, tax year Compare: 2004 No 35 s IF 1(2), (3) Grouping part-year tax losses IP 4 Breach in income year in which tax loss component arises When this section applies This section applies for the purposes of sections IA 6 and IC 5 (which relate to the use and grouping of tax losses) when com- pany A has a tax loss component arising in an income year in which either the continuity or commonality requirements for grouping tax losses are breached.
Modiﬁed requirements The tax loss component is included in a tax loss that company A makes available under section IA 3(2) (Using tax losses in tax year) to company B only to the extent to which the follow- ing requirements, which modify those set out in section IC 5 (Company B using company A’s tax loss), are met: (a) the tax loss component arises in the common span; and (1) (2) 2066 Reprinted as at 30 August 2013 Income Tax Act 2007 Part I s IP 4 (ab) (b) (c) (d) the amount of the tax loss component is no more than the net income that company B derives in the common span; and continuity of ownership in company A under section IC 2(1) (Threshold levels for grouping tax losses in tax year) applies from the beginning to the end of the com- mon span; and company A and company B provide the Commissioner with adequate ﬁnancial statements under section IP 6; and company A notiﬁes the Commissioner of the treatment of the tax loss under section IP 7.
Determining amounts For the purposes of determining the amount of tax loss that company A and company B may use, sections IC 5 and IC 8 (which relate to the treatment of tax losses by companies) apply as if the common span were a corresponding income year.

(3) Relationship with section IC 8 (4) Despite subsection (2)(ab), section IC 8 overrides this section in limiting the amount that may be used when the net income derived in the common span is more than the net income of company B for the income year.
Deﬁned in this Act: amount, Commissioner, common span, company, corres- ponding income year, income year, net income, notify, tax loss, tax loss com- ponent Compare: 2004 No 35 s IG 2(4) Section IP 4(2)(ab): inserted (with effect on 1 April 2008), on 29 August 2011 (applying for the 2008–09 and later income years), by section 91(1) of the Tax- ation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section IP 4(4) heading: added (with effect on 1 April 2008), on 29 August 2011, by section 91(2) of the Taxation (Tax Administration and Remedial Mat- ters) Act 2011 (2011 No 63).

Section IP 4(4): added (with effect on 1 April 2008), on 29 August 2011, by section 91(2) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
2067 Part I s IP 5 Income Tax Act 2007 Reprinted as at 30 August 2013 IP 5 Breach in tax year in which loss balance is grouped When this section applies This section applies for the purposes of sections IA 6 and IC 5 (which relate to the use and grouping of tax losses) when com- pany A has a loss balance carried forward to a tax year in which either the continuity or commonality requirements for group- ing tax losses are breached.
Modiﬁed requirements The loss balance is included in a tax loss that company A makes available under section IA 3(2) (Using tax losses in tax year) to company B only to the extent to which the follow- ing requirements, which modify those set out in section IC 5 (Company B using company A’s tax loss), are met: (a) the amount of company A’s loss balance carried forward to the tax year in which the breach occurred is not more than the amount of— (i) company B’s net income for the common span, if no company in the group other than company B has net income for the common span of more than zero; or the total of the amounts of net income for the common span of companies in the group; and (ii) (b) (c) (d) continuity of ownership in company A under section IC 2(1) (Threshold levels for grouping tax losses in tax year) applies in the common span; and company B provides the Commissioner with adequate ﬁnancial statements under section IP 6; and company A notiﬁes the Commissioner of the treatment of the tax loss under section IP 7.
Determining amounts For the purposes of determining the amount of the loss balance that company A and company B may use, sections IC 5 and IC 8 (which relate to the treatment of tax losses by companies) apply as if the common span were a tax year.
Deﬁned in this Act: amount, Commissioner, common span, company, loss bal- ance, notify, tax loss, tax loss component, tax year Compare: 2004 No 35 s IG 2(2)(b)–(f), (5) Section IP 5(2)(a): substituted (with effect on 1 April 2008), on 7 September 2010 (applying for the 2008–09 and later income years), by section 84(1) of (1) (2) (3) 2068 Reprinted as at 30 August 2013 Income Tax Act 2007 Part I s IP 6 the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
Statements and notices IP 6 Financial statements required (1) (2) (3) (4) Financial statements required from company: section IP 3 For the purposes of this subpart, a company must provide the Commissioner with adequate ﬁnancial statements under sec- tion IP 3(2)(c) and (4)(b) relating to the continuity period.
Financial statements required from company A: section IP 4 For the purposes of this subpart, company A must provide the Commissioner with adequate ﬁnancial statements under sec- tion IP 4(2)(c) relating to the common span, calculating the amount of the tax loss component, determined on a fair and reasonable basis of attribution.
Financial statements required from company B: sections IP 4 and IP 5 For the purposes of this subpart, company B must provide the Commissioner with adequate ﬁnancial statements under sec- tions IP 4(2)(c) and IP 5(2)(c) relating to the common span, calculating the amount of the net income in the common span, determined on a fair and reasonable basis of attribution.
Different balance dates For the purposes of subsections (2) and (3), if the balance dates of company A and company B differ, the common span is taken as the period of time in the tax year in which the tax loss or loss balance is used— (a) that includes, but is not limited to, all or part of the tax year in which company A is in the same group of companies as company B; and in which company A and company B are at all times part of the same group of companies; and in which company A meets the continuity requirements of section IC 2(1) (Threshold levels for grouping tax losses in tax year).
(b) (c) 2069 Part I s IP 7 Income Tax Act 2007 Reprinted as at 30 August 2013 (5) Applying provisions to part-year periods In preparing the ﬁnancial statements described in this section, the company must, to the extent possible, apply the provisions of this Act to the common span as if it were a tax year.
Deﬁned in this Act: amount, Commissioner, common span, company, continu- ity period, group of companies, loss balance, net income, notify, tax loss, tax loss component, tax year Compare: 2004 No 35 ss IF 1(2), (3), IG 2(4)(c), (d), (5)(c), (d), (10) IP 7 Notices required (1) (2) Notifying Commissioner In sections IP 4(2)(d) and IP 5(2)(d), company A must notify the Commissioner by its extended return date that it intends to treat a tax loss or loss balance in the way described in the relevant section.
Meaning of extended return date In subsection (1), extended return date has the meaning set out in section IC 9 (Date for payment and notice to Commis- sioner), and includes a later date allowed by the Commissioner.
Deﬁned in this Act: Commissioner, company, extended return date, loss bal- ance, notice, notify, pay, tax loss Compare: 2004 No 35 s IG 2(4), (5) Subpart IQ—Attributed controlled foreign company net losses and foreign investment fund net losses Contents IQ 1A When this subpart applies IQ 1 General treatment IQ 1B Losses carried forward to tax year IQ 2 Ring-fencing cap on attributed CFC net losses IQ 2B Effect of attributed CFC net loss and FIF net loss from before ﬁrst affected year Page 2071 2071 2072 2072 2077 IQ 2C Effect of FIF net loss if attributed FIF income method not 2084 available Ring-fencing cap on FIF net losses Group companies using attributed CFC net losses Group companies using FIF net losses [Repealed] 2085 2087 2089 IQ 3 IQ 4 IQ 5 2070 Reprinted as at 30 August 2013 Income Tax Act 2007 Part I s IQ 1 Pre-consolidation losses: general treatment IQ 6 IQ 7 When group membership lacking in loss period IQ 8 When group membership lacking in tax year of use IQ 9 When attributed CFC net loss becomes FIF net loss 2089 2090 2092 2093 IQ 1A When this subpart applies This subpart applies when, for a country or territory and a tax year, a person has— (a) an amount of attributed CFC net loss or FIF net loss— (i) for the tax year: carried forward from an earlier tax year: (ii) an amount of attributed CFC income or FIF income calculated under the branch equivalent method or at- tributed FIF income method and another person makes available to the person an amount of attributed CFC net loss or FIF net loss.
(b) Deﬁned in this Act: attributed CFC net income, attributed CFC net loss, at- tributed FIF income method, branch equivalent method, company, FIF income, FIF net loss, group, tax year Section IQ 1A: inserted (with effect on 1 April 2008), on 29 August 2011 (ap- plying for the 2008–09 and later income years), by section 92(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section IQ 1A(b): amended (with effect on 1 July 2011), on 29 August 2011, by section 92(2) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
IQ 1 General treatment (1) General statement For an amount of a person’s attributed CFC net loss or FIF net loss to be carried forward to a tax year,— (a) the person, if a company, must meet the requirements of section IA 5 (Restrictions on companies’ loss balances carried forward); and the amount must be used in the order required by section IA 9 (Ordering rules); and the amount must be adjusted when required by section IA 10 (Amended assessments).
(b) (c) 2071 Part I s IQ 1B Income Tax Act 2007 Reprinted as at 30 August 2013 When net losses arise (2) An attributed CFC net loss or a FIF net loss arises on the last day of the tax year in which the loss is attributed.

(3) (4) Treatment of net losses by consolidated groups If a consolidated group has an amount of attributed CFC net loss or FIF net loss, no part of the amount belongs to a com- pany that is part of the consolidated group.
Treatment of net losses on amalgamation The treatment of tax losses, including amounts of attributed CFC net loss and FIF net loss, on the amalgamation of com- panies is dealt with under subpart IE (Treatment of tax losses on amalgamation of companies) and the provisions of this sub- part do not apply.
Deﬁned in this Act: amalgamation, amount, attributed CFC net loss, company, consolidated group, FIF net loss, tax loss, tax year Compare: 2004 No 35 ss IE 3(1), IE 4(1), IF 3, IF 6, IG 4(1), IG 5(1), IG 7(1) Section IQ 1(1): substituted (with effect on 1 April 2008), on 29 August 2011 (applying for the 2008–09 and later income years), by section 93(1) of the Tax- ation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
IQ 1B Losses carried forward to tax year An attributed CFC net loss or a FIF net loss or both may be carried forward to a tax year.

Section IA 5 (Restrictions on companies’ loss balances carried forward) applies for the pur- poses of this subpart as if the net loss were a tax loss compo- nent.
Deﬁned in this Act: attributed CFC net loss, FIF net loss, tax loss component, tax year Section IQ 1B: inserted (with effect on 1 April 2008), on 7 December 2009, by section 61(1) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
IQ 2 Ring-fencing cap on attributed CFC net losses When this section applies (1A) This section applies if a person, for a tax year and a country or territory (the jurisdiction),— (a) derives an amount of attributed CFC income or FIF income calculated under the attributable FIF income method; and 2072 Reprinted as at 30 August 2013 (b) Income Tax Act 2007 Part I s IQ 2 has an amount of attributed CFC net loss or FIF net loss— (i) (ii) made available under section IQ 4 to the person by another company in the same group.
carried forward to the tax year: (1) Amount subtracted: losses not from elective attributing CFCs or elective attributing FIFs The total amount of attributed CFC net loss and FIF net loss, relating to a CFC or FIF (the loss entity) resident in the juris- diction when the loss arises and not an elective attributing CFC or elective attributing FIF, that is subtracted from the person’s net income for the tax year is the lesser of— (a) the total amount of attributed CFC income, and FIF income calculated under the attributable FIF income method or branch equivalent method, that the person derives in the tax year in relation to a CFC or FIF that is resident in the jurisdiction for the accounting period corresponding to the tax year: the total amount of attributed CFC net loss and FIF net loss— (i) (ii) relating to the loss entity and the jurisdiction; and carried forward to the tax year or made available in the tax year to the person by another company in the same group; and available to the person under subsection (1B), (1C), or section IQ 3.
(iii) (b) Amount subtracted: losses from elective attributing CFCs or elective attributing FIFs (1BA) The total amount of attributed CFC net loss and FIF net loss, relating to an elective attributing CFC or elective attributing FIF (the loss entity) resident in the jurisdiction when the loss arises, that is subtracted from the person’s net income for the tax year is the lesser of— (a) the total amount of attributed CFC income, and FIF income calculated under the attributable FIF income method or branch equivalent method, that the person de- rives in the tax year in relation to an elective attributing CFC or elective attributing FIF— 2073 Part I s IQ 2 Income Tax Act 2007 Reprinted as at 30 August 2013 (i) (ii) with the same election commencement date as the loss entity; and resident in the jurisdiction for the accounting period corresponding to the tax year: (b) the total amount of attributed CFC net loss and FIF net loss— (i) (ii) relating to the loss entity and the jurisdiction; and carried forward to the tax year or made available in the tax year to the person by another company in the same group; and available to the person under subsection (1B), (1C), or section IQ 3.
(iii) Losses from year after transition If an amount of attributed CFC net loss or FIF net loss arises for a person in an income year for which section IQ 2B applies to the person, or is made available to the person by a company for which the loss arises in an income year for which section IQ 2B applies to the company, all of the attributed CFC net loss or FIF net loss is available for subtracting from the person’s net income for the tax year.
Attributed CFC net losses from income year before transition If an amount of attributed CFC net loss of a person, or made available to the person, relates to an income year before section IQ 2B applies to the person and is carried forward to a tax year in which section IQ 2B applies to the person,— (a) the amount of the attributed CFC net loss available in the tax year for subtracting from the person’s net income is equal to the equivalent CFC loss under section IQ 2B: the amount of the attributed CFC net loss is reduced by the converted BE loss under section IQ 2B.
(b) Income only once In subsection (1), the person may take into account an amount of attributed CFC income or FIF income only to the extent to which they have not accounted for it in— (a) calculating a deduction under sections DN 4 or DN 8 (which relate to ring-fencing caps); or establishing their entitlement to make available, under section IC 5 (Company B using company A’s tax loss) (b) (1B) (1C) (2) 2074 Reprinted as at 30 August 2013 Income Tax Act 2007 Part I s IQ 2 (3) or IQ 4, an amount of attributed CFC net loss or FIF net loss carried forward; or applying subsection (1) in relation to another attributed CFC net loss or FIF net loss.
(c) Treatment of excess If the person cannot use all of the maximum amount referred to in subsection (1) because there is insufﬁcient net income, the surplus is no longer available to them as a CFC net loss, but becomes a tax loss component under section IA 2(4) (Tax losses).
Deﬁned in this Act: amount, attributed CFC income, attributable FIF income, attributed CFC net loss, branch equivalent method, CFC, company, deduction, elective attributing CFC, elective attributing FIF, FIF, FIF income, FIF net loss, income year, net income, tax loss component, tax year Compare: 2004 No 35 s IE 3(2), (3), (5) Section IQ 2(1A) heading: inserted (with effect on 1 April 2008), on 29 August 2011 (applying for the 2008–09 and later income years), by section 94(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section IQ 2(1A): inserted (with effect on 1 April 2008), on 29 August 2011 (applying for the 2008–09 and later income years), by section 94(1) of the Tax- ation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).

Section IQ 2(1A)(a): amended (with effect on 1 July 2011), on 29 August 2011 (applying for income years beginning on or after 1 July 2011), by section 94(2) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section IQ 2(1) heading: replaced (with effect on 30 June 2009), on 2 November 2012 (applying for income years beginning on or after 1 July 2009), by section 114(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).

Section IQ 2(1): replaced (with effect on 30 June 2009), on 2 November 2012 (applying for income years beginning on or after 1 July 2009), by section 114(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section IQ 2(1BA) heading: inserted (with effect on 30 June 2009), on 2 November 2012 (applying for income years beginning on or after 1 July 2009), by section 114(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).

Section IQ 2(1BA): inserted (with effect on 30 June 2009), on 2 November 2012 (applying for income years beginning on or after 1 July 2009), by section 114(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section IQ 2(1B) heading: substituted (with effect on 30 June 2009), on 29 Au- gust 2011 (applying for income years beginning on or after 1 July 2009), pur- suant to section 94(5) of the Taxation (Tax Administration and Remedial Mat- ters) Act 2011 (2011 No 63).
2075 Part I s IQ 2 Income Tax Act 2007 Reprinted as at 30 August 2013 Section IQ 2(1B): substituted (with effect on 30 June 2009), on 29 August 2011 (applying for income years beginning on or after 1 July 2009), by section 94(5) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section IQ 2(1C) heading: inserted (with effect on 30 June 2009), on 6 October 2009, by section 302(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section IQ 2(1C): inserted (with effect on 30 June 2009), on 6 October 2009, by section 302(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section IQ 2(1C): amended (with effect on 30 June 2009), on 29 August 2011 (applying for income years beginning on or after 1 July 2009), by section 94(6)(a) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).

Section IQ 2(1C)(a): amended (with effect on 30 June 2009), on 29 August 2011 (applying for income years beginning on or after 1 July 2009), by section 94(6)(b) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section IQ 2(1C)(b): amended (with effect on 30 June 2009), on 29 August 2011 (applying for income years beginning on or after 1 July 2009), by section 94(6)(c) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).

Section IQ 2(2)(b): substituted (with effect on 1 April 2008), on 29 August 2011 (applying for the 2008–09 and later income years), by section 94(7) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section IQ 2(2)(c): substituted (with effect on 1 April 2008), on 29 August 2011 (applying for the 2008–09 and later income years), by section 94(7) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).

Section IQ 2(3): substituted (with effect on 1 April 2008), on 6 October 2009, by section 302(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section IQ 2 list of deﬁned terms attributable FIF income: inserted (with ef- fect on 30 June 2009), on 29 August 2011, by section 94(9) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).

Section IQ 2 list of deﬁned terms company: inserted (with effect on 1 April 2008), on 29 August 2011, by section 94(8) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section IQ 2 list of deﬁned terms elective attributing CFC: inserted (with ef- fect on 30 June 2009), on 2 November 2012, by section 114(2) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).

Section IQ 2 list of deﬁned terms elective attributing FIF: inserted (with ef- fect on 30 June 2009), on 2 November 2012, by section 114(2) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section IQ 2 list of deﬁned terms FIF net loss: inserted (with effect on 1 April 2008), on 29 August 2011, by section 94(8) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).

2076 Reprinted as at 30 August 2013 Income Tax Act 2007 Part I s IQ 2B Section IQ 2 list of deﬁned terms income year: inserted (with effect on 1 April 2008), on 29 August 2011, by section 94(8) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section IQ 2 list of deﬁned terms tax loss: repealed (with effect on 1 April 2008), on 7 December 2009, by section 126 of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
IQ 2B Effect of attributed CFC net loss and FIF net loss from before ﬁrst affected year (1) (2) When this section applies This section applies for a person and a country (the jurisdic- tion) when the person has an amount (the available BE loss) of attributed CFC net loss, or FIF net loss calculated using the branch equivalent method, that— (a) relates to a tax year (the loss year) before the ﬁrst tax year for which this section applies to the person; and relates to a CFC or FIF that is resident in the jurisdiction in the loss year; and is carried forward to a tax year (the conversion year) in which this section applies to the person or is made available to the person for the conversion year by an- other company in the same group.
(b) (c) What this section does In this section, subsection (3) gives the person an option that available BE loss for a jurisdiction not be carried forward and subsections (4) to (7) give, for whichever of the 4 possible alternative situations is relevant for the person,— (a) the amount of the available BE loss (the converted BE loss) for the jurisdiction that is— (i) treated as being converted into an amount re- ferred to in paragraph (b) in the conversion year; and not available to the person to be carried forward as available BE loss for the jurisdiction and a later tax year: (ii) (b) the amount (the equivalent CFC loss) of attributed CFC net loss or FIF net loss for the jurisdiction that, for the purposes of the rest of this subpart, is treated as arising on the last day of the conversion year.
2077 Part I s IQ 2B Income Tax Act 2007 Reprinted as at 30 August 2013 Option: loss not carried forward (3) A person may choose by giving a notice in a form and at a time acceptable to the Commissioner that the available BE loss for a jurisdiction not be carried forward under this section.
Person not resident group member: more jurisdictional BE income For a person who is not a resident group member and has juris- dictional BE income for the conversion year that is greater than zero and greater than the person’s jurisdictional attributed in- come for the conversion year,— (a) the person’s converted BE loss in the conversion year is the lesser of— (i) the person’s jurisdictional BE income for the conversion year: the person’s available BE loss for the conversion year: (ii) (b) (ii) the person’s equivalent CFC loss is the lesser of— (i) the person’s jurisdictional attributed income for the conversion year: the amount calculated by dividing the person’s available BE loss for the conversion year by the person’s jurisdictional income ratio for the con- version year.
Person not resident group member: more jurisdictional attributed income For a person who is not a resident group member and has jur- isdictional attributed income for the conversion year that is greater than or equal to zero and greater than or equal to the person’s jurisdictional BE income for the conversion year,— the person’s converted BE loss for the conversion year (a) is the lesser of— (i) the person’s available BE loss for the conversion year: the person’s jurisdictional attributed income for the conversion year: (ii) (b) the person’s equivalent CFC loss is equal to the person’s converted BE loss for the conversion year.
(4) (5) 2078 Reprinted as at 30 August 2013 Income Tax Act 2007 Part I s IQ 2B (6) (7) Resident group member: more jurisdictional BE income For a person who is a resident group member for a wholly- owned group of companies and has jurisdictional BE income for the conversion year that is greater than zero and greater than the person’s jurisdictional attributed income for the con- version year,— (a) the person’s converted BE loss for the conversion year is the lesser of— (i) (ii) the person’s available BE loss for the conversion year: the greater of the person’s jurisdictional BE in- come for the conversion year and the amount cal- culated by multiplying the group’s jurisdictional income ratio for the conversion year by the per- son’s jurisdictional attributed income for the con- version year: (b) the person’s equivalent CFC loss is the amount calcu- lated by dividing the person’s converted BE loss for the conversion year by the group’s jurisdictional income ra- tio for the conversion year.
Resident group member: more jurisdictional attributed income For a person who is a resident group member and has jurisdic- tional attributed income for the conversion year that is greater than or equal to zero and greater than or equal to the person’s jurisdictional BE income for the conversion year,— (a) (ii) the person’s converted BE loss for the conversion year is the lesser of— (i) the person’s available BE loss for the conversion year: the person’s jurisdictional attributed income for the conversion year multiplied by the group’s jur- isdictional income ratio for the conversion year: the person’s equivalent CFC loss is equal to the amount calculated by dividing the person’s converted BE loss for the conversion year by the group’s jurisdictional in- come ratio for the conversion year.
(b) 2079 Part I s IQ 2B Income Tax Act 2007 Reprinted as at 30 August 2013 Election by person or group to ﬁx jurisdictional income ratio (8) A person or wholly-owned group may choose under this sub- section by notice, in a form and at a time acceptable to the Commissioner, that the person or members of the group use a jurisdictional income ratio— (a) equal to the average of the jurisdictional income ratios for the person or group, under paragraph (b) of the def- inition in subsection (9), for 2 consecutive tax years— corresponding to an income year beginning on or (i) after 1 July 2011; and in each of which the person or group has jurisdic- tional BE income; and (ii) (b) for all tax years after the 2 tax years referred to in para- graph (a).
(9) Some deﬁnitions For a person or wholly-owned group and a tax year for which the person or members of the wholly-owned group have an in- come interest in a CFC that is resident in a country or territory (the jurisdiction),— jurisdictional attributed income means,— (a) (ii) (iii) for a person and the tax year, the amount that is the greater of zero and the amount calculated by— (i) ﬁnding, for each CFC resident in the jurisdiction, the attributed CFC income or loss of the person from the CFC for the tax year: ﬁnding, for each FIF resident in the jurisdiction for which the person uses the attributable FIF income method, the FIF income or loss of the person from the FIF for the tax year: subtracting the total of loss amounts under sub- paragraphs (i) and (ii) from the total of income amounts under subparagraphs (i) and (ii): for a wholly-owned group and the tax year, the amount that is the greater of zero and the attributed CFC income or loss and FIF income or loss, treating losses as nega- tive, of members of the group who are New Zealand residents from CFCs and FIFs that are resident in the jurisdiction for the tax year, consolidated for the pur- poses of the ﬁnancial statements of the group (b) 2080 Reprinted as at 30 August 2013 Income Tax Act 2007 Part I s IQ 2B jurisdictional BE income means,— (a) (ii) for a person and the tax year, the amount that is the greater of zero and the amount calculated by— (i) multiplying, for each CFC resident in the juris- diction, the person’s income interest in the CFC for the tax year by the branch equivalent income or loss of the CFC for the tax year or, if the per- son chooses, by the amount given by subsection (10) for the CFC for the tax year: ﬁnding, for each FIF resident in the jurisdiction for which the person uses the attributable FIF in- come method, the FIF income or loss calculated under the branch equivalent method of the person from the FIF for the tax year: subtracting the total of loss amounts under sub- paragraphs (i) and (ii) from the total of income amounts
 under subparagraphs (i) and (ii): for a wholly-owned group and the tax year, the amount that is the greater of zero and the amount calculated, treating losses as negative, by— (i) (iii) multiplying, for each CFC resident in the juris- diction, the income interest in the CFC of mem- bers of the group who are New Zealand residents for the tax year by the branch equivalent income or loss of the CFC for the tax year or, if the group chooses, by the amount given by subsection (10) for the CFC for the tax year: consolidating the results for the purposes of the ﬁnancial statements of the group (ii) (b) jurisdictional income ratio,— (a) for a person that has not made an election under subsec- tion (8), means the greater of 1 and the amount calcu- lated by dividing the person’s jurisdictional BE income for the tax year by the person’s jurisdictional attributed income for the tax year: for a wholly-owned group that has not made an election under subsection (8) for the tax year, means the greater of 1 and the amount calculated by dividing the group’s (b) 2081 Part I s IQ 2B Income Tax Act 2007 Reprinted as at 30 August 2013 (c) jurisdictional BE income for the tax year by the group’s jurisdictional attributed income for the tax year: for a person or wholly-owned group that has made an election under subsection (8) for the tax year, means the amount given by subsection (8) for the person or group and the tax year resident group member means a person who is a member of a wholly-owned group that has other New Zealand residents as members.
Option to determine jurisdictional BE income from accounts In determining the jurisdictional BE income of a person or wholly-owned group, the person or group may choose to use, instead of the branch equivalent income or loss of a CFC, the proﬁt or loss of the CFC before taxation given by accounts— complying with generally accepted accounting practice (a) in New Zealand or an equivalent standard for the consis- tent and undistorted reporting of net proﬁts in the coun- try in which the accounts are prepared; and audited by an accountant who is— (i) (b) a chartered accountant or an accountant of equivalent professional standard in the country in which the accounts are prepared; and independent of the CFC and the person or wholly-owned group; and (ii) (c) are given an unqualiﬁed opinion or an opinion of equivalent standard in the country in which the accounts are prepared.
Conversion of income from accounts into New Zealand currency If a person or wholly-owned group chooses under subsec- tion (10) to use the proﬁt or loss before taxation of a CFC given by accounts expressed in a currency other than New Zealand currency, the person or group must convert the proﬁt or loss into New Zealand currency— (a) by applying the close of trading spot exchange rate on the last day of the accounting period for the accounts; or (10) (11) 2082 Reprinted as at 30 August 2013 Income Tax Act 2007 Part I s IQ 2B (b) applying the average of the close of trading spot ex- change rates for the 15th day of each complete month that falls in the accounting period.
Deﬁned in this Act: accounting period, attributed CFC income, attributed CFC loss, attributable FIF income method, branch equivalent income, branch equiva- lent loss, CFC, close of trading spot exchange rate, company, FIF net loss, group of companies, income interest, jurisdictional attributed income, jurisdictional BE income, jurisdictional income ratio, New Zealand resident, resident group member, tax year, wholly-owned group, wholly-owned group of companies Section IQ 2B: inserted (with effect on 30 June 2009), on 6 October 2009, by section 303(1) of the Taxation (International Taxation, Life Insurance, and Re- medial Matters) Act 2009 (2009 No 34).
Section IQ 2B heading: substituted (with effect on 30 June 2009), on 29 Au- gust 2011, by section 95(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).

Section IQ 2B(1): replaced (with effect on 1 July 2009 and applying for in- come years beginning on or after that date), on 7 May 2012, by section 77(1) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section IQ 2B(2): replaced (with effect on 1 July 2009 and applying for in- come years beginning on or after that date), on 7 May 2012, by section 77(2) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).

Section IQ 2B(8)(a)(i): replaced (with effect on 1 July 2009 and applying for income years beginning on or after that date), on 7 May 2012, by section 77(3) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section IQ 2B(9) jurisdictional attributed income paragraph (a)(ii): amended (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 77(4) of the Taxation (International In- vestment and Remedial Matters) Act 2012 (2012 No 34).
Section IQ 2B(9) jurisdictional BE income paragraph (a)(ii): amended (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 77(5) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section IQ 2B(11) heading: inserted (with effect on 1 July 2009 and applying for income years beginning on or after that date), on 7 May 2012, by section 77(6) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).

Section IQ 2B(11): inserted (with effect on 1 July 2009 and applying for in- come years beginning on or after that date), on 7 May 2012, by section 77(6) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section IQ 2B list of deﬁned terms accounting period: inserted (with effect on 1 July 2009), on 7 May 2012, by section 77(7) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).

2083 Part I s IQ 2C Income Tax Act 2007 Reprinted as at 30 August 2013 Section IQ 2B list of deﬁned terms attributable FIF income method: inserted (with effect on 1 July 2011), on 7 May 2012, by section 77(8) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section IQ 2B list of deﬁned terms close of trading spot exchange rate: in- serted (with effect on 1 July 2009), on 7 May 2012, by section 77(7) of the Tax- ation (International Investment and Remedial Matters) Act 2012 (2012 No 34).

Section IQ 2B list of deﬁned terms company: inserted (with effect on 30 June 2009), on 29 August 2011, by section 95(4) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section IQ 2B list of deﬁned terms FIF net loss: inserted (with effect on 30 June 2009), on 29 August 2011, by section 95(4) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).

Section IQ 2B list of deﬁned terms tax loss: repealed (with effect on 1 April 2008), on 7 December 2009, by section 126 of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
IQ 2C Effect of FIF net loss if attributed FIF income method not available When this section applies This section applies for a person and a country (the jurisdic- tion) when— (a) the person has an amount (the available BE loss) of FIF net loss calculated using the branch equivalent method— (i) relating to a tax year (the loss year) before the ﬁrst tax year for which this section applies to the person; and relating to a FIF that is resident in the jurisdiction in the loss year; and carried forward to a tax year (the current year) in which this section applies to the person; and (ii) (iii) (b) (c) the person is not able to use the attributable FIF income method in the current year for the person’s interest in the FIF; and the person would be able to use the attributable FIF in- come method in the current year for the person’s in- terest in the FIF if the interest met the requirements of section EX 46(3)(a)(ii) (Limits on choice of calculation methods); and (1) 2084 Reprinted as at 30 August 2013 Income Tax Act 2007 Part I s IQ 3 (2) (3) (d) (e) the person does not have an income interest of 10% or more in a CFC in the jurisdiction in the current year; and the person does not have an attributing interest in a FIF in the jurisdiction in the current year for which the per- son can use the attributable FIF income method.
Use of FIF net loss The person’s available BE loss is available to be subtracted from the person’s FIF income, to the extent of the FIF income, in the current year from the FIF, if the FIF is resident in the jurisdiction in the current year.

Treatment of surplus If the person cannot use all of the available BE loss in the current year, the surplus is available to be carried forward for use under subsection (2) in another tax year.
Deﬁned in this Act: amount, attributable FIF income method, attributing in- terest, branch equivalent method, CFC, FIF, FIF income, FIF net loss, income interest, tax year Section IQ 2C: inserted (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 17 July 2013, by section 67(1) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
IQ 3 Ring-fencing cap on FIF net losses (1) Limit on amount: branch equivalent method If a person’s FIF net loss is carried forward to a tax year (the current tax year) or FIF net loss is made available to the per- son in the current tax year,— (a) FIF net loss relating to a tax year for which section IQ 2B applies to the person is available to be subtracted under section IQ 2 from the person’s net income for the current tax year; and FIF net loss relating to a tax year for which section IQ 2B does not apply to the person— (i) is available to be subtracted from the person’s net income for the current tax year to the extent of the equivalent CFC loss under section IQ 2B; and is reduced in the current tax year by the converted BE loss under section IQ 2B.
(ii) (b) 2085 Part I s IQ 3 Income Tax Act 2007 Reprinted as at 30 August 2013 Relationship with section CQ 5 (2) Despite subsection (1) and section IQ 2, if the person’s FIF net loss is carried forward to a tax year and section CQ 5(1)(d) or (e) (When FIF income arises) applies, they may subtract the amount from their net income for the tax year, but only to the extent to which the amount is no more than their assessable income from interests that would be interests in a FIF for the tax year in the absence of that section.
Treatment of excess If the person cannot use all of the amount that is available tax loss under section IQ 2(1) because there is insufﬁcient net income, the surplus is no longer available to them as a FIF net loss, but becomes a tax loss component under section IA 2(4) (Tax losses).
Deﬁned in this Act: amount, assessable income, attributed CFC income, branch equivalent method, CFC, deduction, FIF, FIF income, FIF net loss, net income, tax year Compare: 2004 No 35 s IE 4(2)–(6) Section IQ 3(1): substituted (with effect on 30 June 2009), on 29 August 2011 (applying for income years beginning on or after 1 July 2009), by section 96(2) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section IQ 3(2): amended (with effect on 1 April 2008), on 29 August 2011 (applying for the 2008–09 and later income years), by section 96(3) of the Tax- ation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).

Section IQ 3(3) heading: added (with effect on 1 April 2008), on 6 October 2009, by section 304(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section IQ 3(3): added (with effect on 1 April 2008), on 6 October 2009, by section 304(2) of the Taxation (International Taxation, Life Insurance, and Re- medial Matters) Act 2009 (2009 No 34).

Section IQ 3(3): amended (with effect on 1 April 2008), on 29 August 2011 (applying for the 2008–09 and later income years), by section 96(4) of the Tax- ation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section IQ 3 list of deﬁned terms attributed CFC income: inserted (with ef- fect on 1 April 2008), on 6 October 2009, by section 304(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section IQ 3 list of deﬁned terms CFC: inserted (with effect on 1 April 2008), on 6 October 2009, by section 304(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section IQ 3 list of deﬁned terms tax loss: repealed (with effect on 1 April 2008), on 7 December 2009, by section 126 of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 34).
(3) 2086 Reprinted as at 30 August 2013 Income Tax Act 2007 Part I s IQ 4 IQ 4 Group companies using attributed CFC net losses (1) (2) What this section does This section supplements the general rules relating to the grouping of net losses when, for a tax year (the current tax year), a company (company A) that is part of a group of companies has an amount— (a) of attributed CFC net loss for the current tax year or car- ried forward from an earlier tax year, or FIF net loss for the current tax year or carried forward from an earlier tax year; and remaining after section IQ 2 is applied for the current tax year and before any amount is made available to another company under this section.
(b) Modiﬁcations to general rules for grouping net losses For determining whether company A may make available an amount of attributed CFC net loss or FIF net loss to another company (company B) in the group of companies, the gen- eral rules relating to the grouping of net losses are modiﬁed as follows: (a) the group of companies must be a wholly-owned group of companies; and subpart IC (Grouping tax losses) and section GB 4 (Ar- rangements for grouping tax losses: companies) apply as if an amount of attributed CFC net loss or FIF net loss were a tax loss component; and subsection (3) overrides sections IC 5(1)(d) and IC 8 (which impose limits on the amount of transferred tax loss): section IA 3(2) (Using tax losses in tax year) and sub- part IP (Meeting requirements for part-years) do not apply.
(b) (c) (d) (3) Ring-fencing cap rule modiﬁed The amount of attributed CFC net loss or FIF net loss that company A may make available to company B in the tax year is limited by the following: (a) the total amount made available by company A to group companies must not exceed the amount referred to in subsection (1); and 2087 Part I s IQ 4 Income Tax Act 2007 Reprinted as at 30 August 2013 (b) the resulting reduction in company B’s net income in the tax year must not exceed the total amount that com- pany B derives in the tax year of attributed CFC in- come from CFCs, or FIF income calculated under the attributable FIF income method from FIFs, resident in the country or territory (the jurisdiction) in which the loss arose, reduced by the total of the following: (i) the total amount of the attributed CFC income or FIF income taken into account in calculating a deduction of company B under section DN 4 or DN 8 (which relate to ring-fencing caps on deductions): the total amount of attributed CFC net loss or FIF net loss that company B derives in the tax year from CFCs or FIFs resident in the jurisdiction: the total amount of attributed CFC net loss or FIF net loss, from CFCs or FIFs resident in the juris- diction, that company B carries forward to the tax year and is available tax loss for company B: the total amount of attributed CFC net loss or FIF net loss, from CFCs or FIFs resident in the jurisdiction, that is made available to company B for the tax year under this section by a company other than company A.
(ii) (iii) (iv) Deﬁned in this Act: amount, attributed CFC income, attributed CFC net loss, available tax loss, branch equivalent method, CFC, company, deduction, FIF, FIF income, FIF net loss, group of companies, net income, net loss, tax loss component, tax year, wholly-owned group of companies Compare: 2004 No 35 s IG 4 Section IQ 4(1): substituted (with effect on 1 April 2008), on 29 August 2011 (applying for the 2008–09 and later income years), by section 97(1) of the Tax- ation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section IQ 4(2) heading: substituted (with effect on 1 April 2008), on 29 Au- gust 2011 (applying for the 2008–09 and later income years), pursuant to sec- tion 97(2) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).

Section IQ 4(2): substituted (with effect on 1 April 2008), on 29 August 2011 (applying for the 2008–09 and later income years), by section 97(2) of the Tax- ation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section IQ 4(3): substituted (with effect on 1 April 2008), on 29 August 2011 (applying for the 2008–09 and later income years), by section 97(3) of the Tax- ation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
2088 Reprinted as at 30 August 2013 Income Tax Act 2007 Part I s IQ 6 Section IQ 4(3)(b): amended (with effect on 1 July 2011), on 29 August 2011 (applying for income years beginning on or after 1 July 2011), by section 97(4) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section IQ 4(3)(b)(iii): amended (with effect on 30 June 2009), on 29 August 2011 (applying for income years beginning on or after 1 July 2009), by sec- tion 97(5) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).

Section IQ 4 list of deﬁned terms available tax loss: inserted (with effect on 30 June 2009), on 29 August 2011, by section 97(7) of the Taxation (Tax Ad- ministration and Remedial Matters) Act 2011 (2011 No 63).
Section IQ 4 list of deﬁned terms FIF net loss: inserted (with effect on 1 April 2008), on 29 August 2011, by section 97(6) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).

Section IQ 4 list of deﬁned terms tax loss: repealed (with effect on 1 April 2008), on 7 December 2009, by section 126 of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
IQ 5 Group companies using FIF net losses [Repealed] Section IQ 5: repealed (with effect on 1 April 2008), on 29 August 2011 (ap- plying for the 2008–09 and later income years), by section 98(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
IQ 6 Pre-consolidation losses: general treatment (1) (2) (3) When this section applies This section applies if a company that is part of a consolidated group has under section IQ 1B an attributed CFC net loss or FIF net loss carried forward to a tax year.

First use The ﬁrst use of the amount must be by the company under subsection (3) or (4) in making the amount available to the consolidated group to subtract from its net income, so far as it extends, for the tax year.
CFC net losses If the amount is an attributed CFC net loss, it may be used only to the extent to which it is no more than the attributed CFC income that the consolidated group derives in the tax year from a CFC resident in the country in which the loss arose.
2089 Part I s IQ 7 Income Tax Act 2007 Reprinted as at 30 August 2013 (4) (5) FIF net losses If the amount is a FIF net loss, it may be used only to the extent to which it is no more than the FIF income that the consolidated group derives in the tax year from a FIF resident in the country in which the loss arose.
Second use If, after applying subsection (2), some of the amount remains, the company may— (a) subtract the remaining amount from its net income for the tax year; or (b) make the remaining amount available to another con- solidated group to subtract from its net income for the tax year under section IQ 4 or IQ 5; or (c) make the remaining amount available under section IC 5 (Company B using company A’s tax loss).
Deﬁned in this Act: amount, attributed CFC income, attributed CFC net loss, CFC, company, consolidated group, FIF, FIF income, FIF net loss, net income, tax year Compare: 2004 No 35 s IG 7(2) Section IQ 6(1): amended (with effect on 1 April 2008), on 7 December 2009, by section 65(1) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
IQ 7 When group membership lacking in loss period When this section applies This section applies if— (a) a company that is part of a consolidated group has a ring-fenced tax loss consisting of either an attributed CFC net loss or FIF net loss, or both, that is carried forward to a tax year and must be used under section IQ 6; and the company was not part of the consolidated group in the earlier tax year in which the net loss arose; and the company and 1 or more of the companies in the consolidated group do not meet the requirements for common ownership of section IC 5(1)(a) (Company B using company A’s tax loss) for the loss period.
(b) (c) (1) 2090 Reprinted as at 30 August 2013 Income Tax Act 2007 Part I s IQ 7 (2) (3) (4) (b) Limit on amount The amount that may be subtracted from the net income of the consolidated group in the tax year under section ID 2(2) must be no more than the total of— (a) the amount of ring-fenced tax loss referred to in sub- section (1) that the company could use to reduce its net income in the tax year under section IQ 2 or IQ 3 as applicable, if it were not in the tax year part of a con- solidated group; and the amount of ring-fenced tax loss referred to in subsec- tion (1) that the company could group with other com- panies in the group under section IQ 4 or IQ 5, as ap- plicable, determining— (i) the net income for each of the companies using the group’s calculation of each company’s net income; and the maximum amount of tax loss to be made available, ignoring the consolidation of the com- panies and presuming all steps required under those sections were taken in order for them to apply.
(ii) Relationship with section FM 3 In subsection (2), the amount of net income must be calculated in accordance with section FM 3 (Liability of consolidated groups and group companies).

Meaning of loss period In this section, the loss period means the tax year in which the ring-fenced tax loss arose and any tax years falling between that tax year and the tax year in which the amount is subtracted from net income.
Deﬁned in this Act: amount, attributed CFC net loss, company, consolidated group, FIF net loss, loss period, net income, ring-fenced tax loss, tax loss, tax year Compare: 2004 No 35 s IG 7(4) Section IQ 7(1)(a): amended (with effect on 1 April 2008), on 7 December 2009, by section 66(1)(a) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
Section IQ 7(1)(b): amended (with effect on 1 April 2008), on 7 December 2009, by section 66(1)(b) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).

2091 Part I s IQ 8 Income Tax Act 2007 Reprinted as at 30 August 2013 Section IQ 7(2)(a): amended (with effect on 1 April 2008), on 7 December 2009, by section 66(2)(a)(i) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
Section IQ 7(2)(a): amended (with effect on 1 April 2008), on 7 December 2009, by section 66(2)(a)(ii) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).

Section IQ 7(2)(b): amended (with effect on 1 April 2008), on 7 December 2009, by section 66(2)(b)(i) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
Section IQ 7(2)(b): amended (with effect on 1 April 2008), on 7 December 2009, by section 66(2)(b)(ii) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
IQ 8 When group membership lacking in tax year of use (1) (2) When this section applies This section applies if a company joins a consolidated group in a tax year with a ring-fenced tax loss consisting of an attributed CFC net loss or FIF net loss, or both, carried forward to the tax year, which must be used in the tax year under section IQ 6.
Limit on amount The amount that may be subtracted from the net income of the consolidated group for the tax year under section ID 2(2) is the lesser of— (a) the amount of ring-fenced tax loss referred to in section IQ 7(1) that the company could subtract from— (i) the amount that would be the company’s net in- come for the part of the tax year in which it was not part of a consolidated group; and the net income for the tax year of another con- solidated group of which the company was part before joining the present group; and (ii) (b) the amount that would be the group’s net income for the part of the tax year in which the company was part of the consolidated group, established by giving the Com- missioner, at the time of providing the group’s return of income for the tax year, adequate ﬁnancial statements that— (i) relate to the part of the tax year when the com- pany was part of the group; and disclose the amount that would be the company’s net income for the part of the tax year in which (ii) 2092 Reprinted as at 30 August 2013 Income Tax Act 2007 Part I s IQ 9 the company was part of the consolidated group, determined on a fair and reasonable basis of at- tribution.
Deﬁned in this Act: amount, attributed CFC net loss, Commissioner, company, consolidated group, FIF net loss, net income, return of income, ring-fenced tax loss, tax year Compare: 2004 No 35 s IG 7(5) Section IQ 8(1): amended (with effect on 1 April 2008), on 7 December 2009, by section 67(1) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
Section IQ 8(2)(a): amended (with effect on 1 April 2008), on 7 December 2009, by section 67(2) of the Taxation (Consequential Rate Alignment and Re- medial Matters) Act 2009 (2009 No 63).

IQ 9 When attributed CFC net loss becomes FIF net loss (1) (2) (3) When this section applies This section applies if, in a tax year, a person has an attributed CFC net loss that, under section 38 of the Income Tax Amend- ment Act (No 2) 1993, becomes a FIF net loss.
Treatment of net losses The attributed CFC net loss is treated as a FIF net loss of the person with effect from the tax year, as if the CFC were a FIF.

Calculation methods For the purposes of subsection (2) and the calculation of the amount of the loss, the attributable FIF income method is not used unless the person calculates their FIF income or net loss under the attributable FIF income method in relation to the interest on the date of the transition from an attributed CFC net loss to a FIF net loss.
Deﬁned in this Act: amount, attributed CFC net loss, attributable FIF income method, CFC, FIF, FIF income, FIF net loss, tax year Compare: 2004 No 35 s IE 3(4) Section IQ 9(3): amended (with effect on 1 July 2011 and applying for in- come years beginning on or after that date), on 7 May 2012, by section 78(1) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section IQ 9 list of deﬁned terms attributable FIF income method: inserted (with effect on 1 July 2011), on 7 May 2012, by section 78(2)(b) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).

Section IQ 9 list of deﬁned terms branch equivalent method: repealed (with effect on 1 July 2011), on 7 May 2012, by section 78(2)(a) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
2093 Income Tax Act 2007 Reprinted as at 30 August 2013 Subpart IS—Mining companies’ and petroleum miners’ tax losses Contents General treatment of mining companies’ net losses Treatment of net losses resulting from certain expenditure Holding companies’ tax losses Adjustments in certain circumstances Petroleum miners’ tax losses IS 1 IS 2 IS 3 IS 4 IS 5 IS 6 When company stops being mining company Page 2094 2095 2097 2098 2098 2099 IS 1 General treatment of mining companies’ net losses (1) Groups of companies In a tax year in which a company is a mining company, section IC 5 (Company B using company A’s tax loss) does not apply, and the company is not included in a group of companies for the purposes of the section.
Consolidated groups (2) A net mining loss of a mining company that is part of a con- solidated group is dealt with under this subpart and not subpart ID (Use of tax losses by consolidated groups).

Meaning of net mining loss For the purposes of this subpart, a net mining loss means that part of a net loss of a mining company, a resident mining oper- ator, or a non-resident mining operator that is described in sec- tion IA 7(7) (Restrictions relating to ring-fenced tax losses).
Deﬁned in this Act: company, consolidated group, group of companies, mining company, net mining loss, tax year Compare: 2004 No 35 ss IG 6(2), IH 4(2) Section IS 1 heading: substituted (with effect on 1 April 2008), on 7 Decem- ber 2009, by section 68(1) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
Section IS 1(2): amended (with effect on 1 April 2008), on 7 December 2009, by section 68(2) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).

Section IS 1(3) heading: added (with effect on 1 April 2008), on 7 December 2009, by section 68(3) of the Taxation (Consequential Rate Alignment and Re- medial Matters) Act 2009 (2009 No 63).
(3) 2094 Reprinted as at 30 August 2013 Income Tax Act 2007 Part I s IS 2 Section IS 1(3): added (with effect on 1 April 2008), on 7 December 2009, by section 68(3) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).

Section IS 1 list of deﬁned terms net mining loss: inserted (with effect on 1 April 2008), on 7 December 2009, by section 126 of the Taxation (Conse- quential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
Section IS 1 list of deﬁned terms tax loss: repealed (with effect on 1 April 2008), on 7 December 2009, by section 126 of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
IS 2 Treatment of net losses resulting from certain expenditure (1) (2) (3) (4) When this section applies This section applies if a company that is a mining company, or a resident mining operator, or a non-resident mining oper- ator— (a) has a net mining loss for a tax year as a result of incur- ring mining exploration expenditure or mining develop- ment expenditure in a mining permit area; and has an amount of net mining loss carried forward to a later tax year.
(b) Using loss balances The company may subtract the amount of the net mining loss from its net income for the later tax year, even though the con- tinuity of ownership required under section IA 5 (Restrictions on companies’ loss balances carried forward) is broken or is treated as absent under section GB 3 (Arrangements for carry- ing forward loss balances: companies), but only to the extent set out in subsection (3).
Limit on amount The amount subtracted under subsection (2) must be no more than the amount that would be the mining company’s net in- come if its only assessable income for the later tax year were from the mining permit area.

Amounts carried forward If the company cannot use all the net mining loss in the later tax year, the amount is carried forward to later tax years and subsection (2) applies to the remaining balance.
2095 Part I s IS 2 Income Tax Act 2007 Reprinted as at 30 August 2013 Use against other income The company may subtract the amount of the net mining loss from its net income that is not attributable to the mining per- mit area but only after meeting for the whole of the continu- ity period the requirements set out in sections GB 3 (Arrange- ments for carrying forward loss balances: companies) and IA 5 (Restrictions on companies’ loss balances carried forward).
For the purposes of applying section IA 5, the net mining loss is treated as if it were a tax loss component.
Deﬁned in this Act: amount, assessable income, company, mining company, mining development expenditure, mining exploration expenditure, mining per- mit area, net income, net mining loss, non-resident mining operator, resident mining operator, tax loss component, tax year Compare: 2004 No 35 ss IH 1(1), IH 5 Section IS 2 heading: substituted (with effect on 1 April 2008), on 7 Decem- ber 2009, by section 69(1) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
Section IS 2(1)(a): amended (with effect on 1 April 2008), on 7 December 2009, by section 69(2) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).

Section IS 2(1)(b): amended (with effect on 1 April 2008), on 7 December 2009, by section 69(3) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
Section IS 2(2): amended (with effect on 1 April 2008), on 7 December 2009, by section 69(4) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).

Section IS 2(4): amended (with effect on 1 April 2008), on 7 December 2009, by section 69(5) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
Section IS 2(5) heading: added (with effect on 1 April 2008), on 7 December 2009, by section 69(6) of the Taxation (Consequential Rate Alignment and Re- medial Matters) Act 2009 (2009 No 63).

Section IS 2(5): added (with effect on 1 April 2008), on 7 December 2009, by section 69(6) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
Section IS 2 list of deﬁned terms loss balance: repealed (with effect on 1 April 2008), on 7 December 2009, by section 126 of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).

inserted (with effect on Section IS 2 list of deﬁned terms net mining loss: 1 April 2008), on 7 December 2009, by section 126 of the Taxation (Conse- quential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
Section IS 2 list of deﬁned terms tax loss: repealed (with effect on 1 April 2008), on 7 December 2009, by section 126 of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).

(5) 2096 Reprinted as at 30 August 2013 Income Tax Act 2007 Part I s IS 3 Section IS 2 list of deﬁned terms tax loss component: inserted (with effect on 1 April 2008), on 7 December 2009, by section 126 of the Taxation (Conse- quential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
IS 3 Holding companies’ tax losses (1) (2) (3) (4) When this section applies This section applies in a tax year if— (a) (b) (c) a mining company has net income for the tax year after having subtracted an amount of any net mining loss that is carried forward; and the company and a holding company, which is not a mining company, would be included in a wholly-owned group of companies in the absence of section IS 1(1); and the holding company has a tax loss for the tax year that it cannot make available under section IC 5 (Company B using company A’s tax loss) to another company that is part of the wholly-owned group.
Using tax losses The mining company may subtract some or all of the amount of the holding company’s tax loss from its net income, so far as it extends, for the tax year.

Determining amounts The amount of the holding company’s tax loss is found with- out taking into account a deduction that the holding company may have under section DU 12 (Amount written off by hold- ing company) for an amount written off a loan from the holding company to the mining company.
Relationship with section IS 1 This section overrides section IS 1(1).

Deﬁned in this Act: amount, deduction, holding company, loan, mining com- pany, net income, net mining loss, tax loss, tax year, wholly-owned group of companies Compare: 2004 No 35 s IH 4(3) Section IS 3(1)(a): amended (with effect on 1 April 2008), on 7 December 2009, by section 70(1) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
Section IS 3 list of deﬁned terms loss balance: repealed (with effect on 1 April 2008), on 7 December 2009, by section 126 of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).

2097 Part I s IS 4 Income Tax Act 2007 Reprinted as at 30 August 2013 inserted (with effect on Section IS 3 list of deﬁned terms net mining loss: 1 April 2008), on 7 December 2009, by section 126 of the Taxation (Conse- quential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
IS 4 Adjustments in certain circumstances (1) (2) (3) When this section applies This section applies if, under section IS 3, the amount of a holding company’s tax loss for a tax year is subtracted from a mining company’s net income for the tax year instead of being carried forward to a later tax year.
Adjustments by Commissioner If the holding company applies for an adjustment and the Com- missioner agrees, the Commissioner may adjust the returns of income of the mining company and the holding company to reﬂect what is fair in the circumstances.

This subsection ap- plies in the tax year in which the holding company has the tax loss referred to in subsection (1), and to any of the 8 tax years following that tax year.
Time for applying to Commissioner The holding company must apply within 8 tax years after the end of the tax year in which the holding company has the tax loss referred to in subsection (1) or, despite the time bar, by a later date if the Commissioner allows.
Deﬁned in this Act: amount, Commissioner, holding company, mining com- pany, net income, return of income, tax loss, tax year, time bar Compare: 2004 No 35 s IH 4(3) proviso IS 5 Petroleum miners’ tax losses When this section applies This section applies in a tax year in which a petroleum miner with a tax loss for the tax year— (a) relinquishes a petroleum permit for which they have a deduction under section DT 7 (Exploratory well ex- penditure); or incurs expenditure on removal or restoration operations for which they have a deduction under section DT 16 (Removal or restoration operations).
(b) (1) 2098 Reprinted as at 30 August 2013 Income Tax Act 2007 Part I s IS 6 (2) (3) Net losses reduced The petroleum miner’s tax loss is reduced by the amount of the deduction, but only to the extent of the amount of the tax loss.

For the reduction in their tax loss, the petroleum miner is allowed a deduction in an earlier tax year for an amount that is equal to the amount of the reduction.

The deduction is allo- cated under section EJ 14 (Spreading deduction backwards).
Petroleum mining activities outside New Zealand This section applies to a petroleum miner who undertakes pet- roleum mining activities that are— (a) outside New Zealand and undertaken through a branch or a controlled foreign company (CFC); and substantially the same as the petroleum mining activ- ities governed by this Act.
(b) Using tax loss components (4) A shareholder company may use a tax loss component referred to in section IZ 2(2) (Petroleum mining companies: treatment of payments from shareholders) but only in the way described in section IZ 2(3) to (6).
Deﬁned in this Act: amount, CFC, deduction, New Zealand, petroleum miner, petroleum permit, relinquishment, removal or restoration operations, tax loss, tax year Compare: 2004 No 35 ss IH 2(1), IH 3 Section IS 5(2): substituted (with effect on 1 April 2008), on 7 December 2009, by section 71(1) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
IS 6 When company stops being mining company For the purposes of sections IS 1 to IS 5, if a mining company whose loss balance is carried forward to a tax year stops being a mining company at or before the end of the tax year, the company is nevertheless treated for the tax year as if it had continued as a mining company.
Deﬁned in this Act: loss balance, mining company, tax year Compare: 2004 No 35 ss IH 1, IH 4(1)(e) 2099 Income Tax Act 2007 Reprinted as at 30 August 2013 Subpart IT—Cancellation of life insurer’s losses Subpart IT: substituted, on 1 July 2010, by section 307(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Contents IT 1 IT 2 Cancellation of life insurer’s policyholder net losses Cancellation of life insurer’s tax loss when allowed into policyholder base Page 2100 2101 IT 1 Cancellation of life insurer’s policyholder net losses (1) (2) What this section applies to This section applies to the amount of a life insurer’s tax loss to be carried forward to the tax year corresponding to the in- come year that includes 1 July 2010 (the tax year), to the ex- tent to which the amount (the cancelled amount) would be a ring-fenced tax loss for policyholder net losses under sec- tion IA 7(3) (Restrictions relating to ring-fenced losses) if the enactment of the Taxation (International Taxation, Life Insur- ance, and Remedial Matters) Act 2009 were ignored.
Cancellation of life insurer’s policyholder net losses The cancelled amount— (a) is removed from the life insurer’s available tax loss for the tax year, except as provided by section EY 5(2) (Part-year tax calculations) for the ﬁrst part-year; and (c) (b) must not be subtracted from the life insurer’s net income under section BC 5 (Taxable income) for the tax year, except as provided by section EY 5(2) for the ﬁrst part- year; and is not a tax loss component on and after 1 July 2010; and is cancelled on and after 1 July 2010.
(d) Deﬁned in this Act: available tax loss, income year, life insurer, net income, policyholder net loss, ring-fenced tax loss, tax loss, tax loss component, tax year 2100 Reprinted as at 30 August 2013 Income Tax Act 2007 Part I s IT 2 Section IT 1: substituted, on 1 July 2010, by section 307(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
IT 2 Cancellation of life insurer’s tax loss when allowed into policyholder base (1) What this section applies to This section applies to the amount of a life insurer’s tax loss to be carried forward to a tax year corresponding to an income year that includes 1 July 2010 and later tax years.
Cancellation of life insurer’s tax loss (2) When the life insurer has for an income year a policyholder base allowable deduction as provided by section EZ 61 (Al- lowance for cancelled amount: spreading), an equal amount— is removed from the life insurer’s available tax loss for (a) the tax year corresponding to the income year; and (b) must not be subtracted from the life insurer’s net income under section BC 5 for the tax year; and is not a tax loss component; and is cancelled.
(c) (d) Deﬁned in this Act: available tax loss, income year, life insurer, net income, policyholder base allowable deduction, tax loss, tax loss component, tax year Section IT 2: added, on 1 July 2010, by section 307(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section IT 2 list of deﬁned terms tax loss component: inserted (with effect on 1 April 2008), on 7 December 2009, by section 126 of the Taxation (Conse- quential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).

Subpart IV—Treatment of certain supplementary dividends [Repealed] Subpart IV: repealed, on 1 April 2013 (applying for the 2013–14 and later tax years), by section 73(1) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
Contents IV 1 Supplementary dividend holding companies [Repealed] Page 2102 2101 Part I s IV 1 Income Tax Act 2007 Reprinted as at 30 August 2013 IV 1 Supplementary dividend holding companies [Repealed] Section IV 1: repealed, on 1 April 2013 (applying for the 2013–14 and later tax years), by section 73(1) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
Subpart IW—Use of tax losses to pay shortfall penalties Contents IW 1 Shortfall penalties IW 1 Shortfall penalties Page 2102 When this section applies This section applies in a tax year when a person has a shortfall penalty for an income tax liability.

Persons choosing to use tax losses If the person has a tax loss for the tax year, they may use the amount of the tax loss to pay the penalty, notifying the Com- missioner by the due date for payment of the penalty.
Wholly-owned groups choosing to use tax losses If a company that is part of a wholly-owned group of compan- ies has a tax loss for a tax year, the wholly-owned group may use the amount of the tax loss to pay the penalty imposed on the company, notifying the Commissioner by the due date for the payment of the penalty.

Time of use The tax loss is used at the time of notiﬁcation.
Lowest marginal tax rate and availability Each dollar of an amount of tax loss that is used under this section— (a) is equal to 1 dollar multiplied by the rate of tax or lowest marginal rate of tax that would apply to the person in the return period to which the tax shortfall relates if the person had tax to pay: (1) (2) (3) (4) (5) 2102 Reprinted as at 30 August 2013 Income Tax Act 2007 Part I s IZ 1 (6) (b) cannot, from the date the tax loss is used, be used or made available for use, or be carried forward to a later tax year.
Tax years and part-years In this section, a tax year includes a part of a tax year that may be taken into account under this Part for continuity or grouping purposes.
Deﬁned in this Act: amount, Commissioner, company, income tax liability, notify, pay, shortfall penalty, tax, tax loss, tax year, wholly-owned group of companies Compare: 2004 No 35 s IG 10 Subpart IZ—Terminating provisions Contents IZ 1 IZ 2 IZ 3 IZ 4 IZ 5 IZ 6 IZ 7 Use of speciﬁed activity net losses Petroleum mining companies: treatment of payments from shareholders Petroleum mining companies: use of loss balances Tax losses for tax years before 1977–78 tax year Companies’ tax losses for tax years before 1991–92 tax year Companies’ tax losses for 1990–91 and 1991–92 tax years Grouping tax losses for tax years before 1981–82 and between 1981–82 and 1991–92 Page 2103 2108 2110 2111 2112 2113 2113 IZ 1 Use of speciﬁed activity net losses Limit on amount (1) A person’s speciﬁed activity net loss that is carried forward to a tax year and subtracted from the person’s net income for the tax year must be no more than the sum of the net income for the tax year from the conduct of the same speciﬁed activity that gave rise to the net loss and $10,000.
If the person makes the net loss available to another person, the maximum amount that can be subtracted by the other person is $10,000.
2103 Part I s IZ 1 Income Tax Act 2007 Reprinted as at 30 August 2013 (2) (3) (4) When person conducts 2 or more speciﬁed activities For the purposes of subsection (1), if the speciﬁed activity net loss arises from the conduct of 2 or more speciﬁed activities— the amount subtracted from the net income for the tax (a) year must be no more than the lesser of— (i) the sum of the person’s speciﬁed activity net in- come from each of the speciﬁed activities; and $10,000; and (ii) the person may choose by notice which amounts of net income from the speciﬁed activities to subtract from their net income.
(b) When 2 or more persons conduct speciﬁed activity If 2 or more persons conduct a speciﬁed activity, this section applies as if every reference to— (a) (b) a person were a reference to each person; and an amount of speciﬁed activity net loss attributable to the conduct of the speciﬁed activity were a reference to the amount of each person’s share of the amount of any joint speciﬁed activity net loss for the tax year.
Income from personal exertion and hardship The Commissioner may determine that the limit under subsec- tion (1) does not apply, and may increase the amount of spe- ciﬁed activity net loss that may be subtracted from a person’s net income under that subsection if— (a) the person is engaged mainly in conducting a speciﬁed activity as their livelihood, and they derive income from personal exertion that— (i) is derived as a result of the conduct of the speci- ﬁed activity but is not income from the speciﬁed activity; and is made for the purpose of enabling the person to meet expenditure essential for the maintenance of either them and their dependants or for the continuation of the speciﬁed activity; and the person, in the opinion of the Commissioner would suffer hardship from the application of subsections (1) to (3).
(ii) (b) 2104 Reprinted as at 30 August 2013 Income Tax Act 2007 Part I s IZ 1 (5) (6) Relationship with general loss rules Subparts IA, IC, ID, IE, and IP (which relate to the general use of tax losses) apply to a speciﬁed net loss except to the extent to which subsections (1) to (3) override them.

Established activities excluded This section does not apply to a speciﬁed activity net loss that relates to an established activity.
Related activities (7) A speciﬁed activity is related to another speciﬁed activity, and is treated as part of the other speciﬁed activity, if— (a) (b) it is usually conducted in association with and is com- plementary to the other speciﬁed activity that an exist- ing farmer is already conducting; or it is conducted on land that an existing farmer has owned or held under lease, licence, or other agreement for 5 years before the activity is started and— (i) the existing farmer is carrying on the other spe- ciﬁed activity immediately before the related ac- tivity is started; or the existing farmer elects by notice in their return of income for the tax year in which they start the activity to have the activity treated as related; or the Commissioner determines the activity is re- lated.
(ii) (iii) (8) (9) Modiﬁcation for speciﬁed activity If this section would have a more favourable effect if the fol- lowing words in paragraph (c)(ii) of the deﬁnition of speciﬁed activity in section YA 1 (Deﬁnitions) were omitted, this sec- tion applies as if those words were omitted: “not including crops for which the preparation of the land, the planting and cultivation of the tree or plant, and the harvesting of the crop are accomplished within 12 months”.
When subsections (10) and (11) apply Subsections (10) and (11) apply for the purposes of the deﬁn- ition of established activity in subsection (12) when— (a) land is transferred under a settlement of relationship property; and 2105 Part I s IZ 1 Income Tax Act 2007 Reprinted as at 30 August 2013 (b) (c) the transferor conducted a speciﬁed activity on the land as at 1 October 1982, and the conduct of the activity constituted their livelihood or sole source of income; and the transferee conducts the same speciﬁed activity on the land.
Treatment of transferee (10) The transferee is treated as continuing the speciﬁed activity, and that activity is treated as constituting their livelihood and sole source of income.

Date of commencement (11) For the purposes of subsection (7), if the transferor was an existing farmer immediately before the date of transfer, the transferee is treated as having acquired the land on the date it was acquired by the transferor.
However, if the transferee starts to conduct the same kind of speciﬁed activity on the land that the transferor conducted immediately before the date of transfer, the transferee is not treated as having acquired the land on that date.
(12) Some deﬁnitions In this section,— conduct means carry on or engage in or hold an interest in a speciﬁed activity, whether or not jointly with another person established activity, for a person who is an existing farmer, means a speciﬁed activity, except an activity within the mean- ing of paragraph (j) of the deﬁnition of speciﬁed activity in section YA 1, that the person conducted on 11 October 1982, if the Commissioner considers the conduct of the speciﬁed ac- tivity constituted the livelihood of the person and their princi- pal source of income existing farmer means a person to whom both the following apply: (a) the person conducts in an income year 1 or more of the speciﬁed activities described in paragraphs (a) to (i) of the deﬁnition of speciﬁed activity; and the person’s livelihood and the person’s sole or princi- pal source of income is constituted, throughout the con- duct of the speciﬁed activity or the speciﬁed activities in (b) 2106 Reprinted as at 30 August 2013 Income Tax Act 2007 Part I s IZ 1 the income year, by the conduct of the speciﬁed activity or the speciﬁed activities income from personal exertion means income of a kind re- ferred to in sections CB 1 and CE 1 (which relate to amounts derived from business and in connection with employment), but does not include income from a business of renting, or lending money, or making ﬁnancial investments land,— (a) includes a lease, or an interest under a lease, of a leased area as deﬁned in the Marine Farming Act 1971; and includes a licence, or an interest under a licence, relating to a licensed area as deﬁned in the Marine Farming Act 1971; and includes an improvement on or in relation to the leased area or the licensed area to which a lease or licence under the Marine Farming Act 1971 relates (b) (c) related activity, for a speciﬁed activity conducted by a person in a tax year, means another speciﬁed activity that is treated as a related activity under subsection (7), whether or not it is conducted on the same land as the speciﬁed activity
 speciﬁed activity means— (a) the business of animal husbandry, including bee-keep- ing, the breeding of horses other than bloodstock, and poultry-keeping: otherwise deriving income from livestock including bees, horses other than bloodstock, and poultry: the business of growing trees or plants— (i) (ii) (iii) for sale as growing trees or plants; or for the production of ﬂowers; or for the production of fruit other than grapes, seeds, vegetables, or other crops, not including crops for which the preparation of the land, the planting and cultivation of the tree or plant, and the harvesting of the crop are accomplished within 12 months: (b) (c) (d) (e) (f) (g) the business of viticulture: the business of freshwater ﬁsh farming: the business of mussel farming: the business of rock oyster farming: 2107 Part I s IZ 2 Income Tax Act 2007 Reprinted as at 30 August 2013 (h) (i) (j) the business of scallop farming: the business of sea-case salmon farming: acquiring or holding of land with a view to deriving, from some or all of the land, rents or other revenues from a lease, licence, or other agreement relating to the land speciﬁed activity net income means, for a speciﬁed activity conducted by a person in a tax year, the result of subtracting from the sum of the income of the person allocated to that activity and the tax year the sum of the deductions of the person allocated to that activity and the tax year, if that result is a positive amount speciﬁed activity net loss means, for a speciﬁed activity con- ducted by a person in a tax year preceding the 1986–87 tax year in the case of an activity referred to in paragraphs (a) to (i) of the deﬁnition of speciﬁed activity in section YA 1, and the 1990–91 tax year in the case of an activity referred to in paragraph (j) of that deﬁnition, a loss from that speciﬁed ac- tivity referred to in section 188A of the Income Tax Act 1976.
Deﬁned in this Act: amount, business, Commissioner, conduct, deduction, es- tablished activity, existing farmer, income, income from personal exertion, land, net income, notice, related activity, return of income, settlement of relationship property, speciﬁed activity, speciﬁed activity net income, speciﬁed activity net loss, tax year Compare: 2004 No 35 ss FF 18, IE 2 IZ 2 Petroleum mining companies: treatment of payments from shareholders When this section applies This section applies if— (a) a tax loss arises from the allowance to a petroleum min- ing company in the 1990–91 tax year, or earlier tax year, of a deduction or further deduction under sections 214B(6), (13)(b), (14)(b), and (18)(c) of the Income Tax Act 1976 (or under section DZ 6(4) or (9)(c) of the In- come Tax Act 1994); and a payment has been made by a company, which is at the time of the payment a shareholder of the petroleum mining company, to the petroleum mining company an amount that was used for the purposes of petroleum de- (b) (1) 2108 Reprinted as at 30 August 2013 Income Tax Act 2007 Part I s IZ 2 velopment expenditure of the kind referred to in section DZ 6(4) for which the deduction or further deduction referred to in paragraph (a) is allowed.
Shareholder companies’ tax loss components The shareholder company has a tax loss component equal to the amount that bears to the tax loss the same proportion as the payment bears to the petroleum development expenditure.

However, the amount of the tax loss component must be no more than the total amount paid.
Elections by shareholder companies For the purposes of subsection (2), the shareholder company must make an election by notice under section 214B(22)(d) of the Income Tax Act 1976 or section DZ 6(12)(d) of the Income Tax Act 1994.

Treatment of tax losses The tax loss may not be carried forward and used except to the extent to which the amount of the tax loss is more than the total of all amounts deducted under subsection (2) in the tax year in which the tax loss arises.
(2) (3) (4) Further deductions (5) Despite subsection (4), if the tax loss arises from the allow- ance of a further deduction under the second proviso to section 214B(6) of the Income Tax Act 1976 or under section DZ 6(4) of the Income Tax Act 1994, the tax loss is treated as a tax loss arising in the tax year which in section DZ 6(4) is referred to as the year of cessation.
(6) Relationship with section CV 1 Section CV 1 (Group companies) does not apply to— (a) a tax loss referred to in this section except to the extent to which it is more than the total of all amounts deducted under subsection (2) in the tax year in which the tax loss arises; or a tax loss for the 1978–79 or earlier tax year.
(b) Deﬁned in this Act: amount, company, deduction, group of companies, notice, petroleum development expenditure, petroleum mining company, shareholder, tax loss, tax year Compare: 2004 No 35 s IH 2 2109 Part I s IZ 3 Income Tax Act 2007 Reprinted as at 30 August 2013 IZ 3 Petroleum mining companies: use of loss balances (1) When this section applies This section applies when— (a) some or all of a loss balance of a petroleum mining company for the 1990–91 tax year or earlier tax year arises from the allowance of— (i) a deduction of an amount of petroleum explor- ation expenditure that the company incurs on or before 30 September 1990 in exploring or search- ing for petroleum in an area that is or is subse- quently comprised in an existing privilege that was a mining licence or in 2 or more such areas; or a deduction of an amount for petroleum develop- ment expenditure that the company incurs before 30 September 1990; and (ii) (b) (c) at the start of a tax year following the tax year in which the tax loss arose, a loss balance relating to the permit area remains after taking into account any deductions that the petroleum mining company, or another com- pany, has for the expenditure or any amounts the com- pany has subtracted from its net income for earlier tax years; and the petroleum mining company was immediately before the commencement of section 214B of the Income Tax Act 1976 a company to which section 216 of that Act applied.
Using loss balances (2) Despite section IA 5 (Restrictions on companies’ loss balances carried forward) or GB 3 (Arrangements for carrying forward loss balances: companies), the loss balance may be subtracted from the petroleum mining company’s net income for the tax year referred to in subsection (1)(b) to the extent to which it is no more than the net income of the company for the tax year if the company’s only source of assessable income were from the relevant permit area.
2110 Reprinted as at 30 August 2013 Income Tax Act 2007 Part I s IZ 4 (3) (4) (5) Loss balances carried forward If, after applying subsection (2), the company has a loss bal- ance remaining, the amount is carried forward to the next tax year and subsection (2) applies in that tax year, and so on.
References in section For the purposes of this section,— (a) a reference in this section to expenditure in exploring or searching for petroleum in an area that is or is sub- sequently comprised in an existing privilege that was a mining licence is taken as including a reference to ex- penditure in exploring or searching for petroleum in an area that is outside but continuous or geologically con- tiguous with the area, being exploring or searching that was included, whether originally or additionally, in the programme of exploring or searching as a consequence of which application was made for the existing privil- ege: permit area means an area, and may include more than 1 area, of an existing privilege referred to paragraph (d) of the deﬁnition of existing privilege in section 2(1) of the Crown Minerals Act 1991.
(b) Relationship with section IZ 2 Section IZ 2 overrides this section.

Deﬁned in this Act: amount, assessable income, company, deduction, existing privilege, loss balance, net income, permit area, petroleum development ex- penditure, petroleum exploration expenditure, petroleum mining company, tax loss, tax year Compare: 2004 No 35 s IH 1(2) Section IZ 3(4)(b): amended, on 24 May 2013, by section 65 of the Crown Minerals Amendment Act 2013 (2013 No 14).
IZ 4 Tax losses for tax years before 1977–78 tax year A person’s loss balance for a tax year before the 1977–78 tax year is carried forward and may be used under section IA 4 (Using loss balances carried forward to tax year) if the person would have been entitled to have the tax loss carried forward for the purpose of assessing income tax under section 137 of the Land and Income Tax Act 1954 if the Income Tax Act 2111 Part I s IZ 5 Income Tax Act 2007 Reprinted as at 30 August 2013 1976, the Income Tax Act 1994, the Income Tax Act 2004, and this Act had not been passed.
Deﬁned in this Act: assessment, loss balance, tax loss, tax year Compare: 2004 No 35 s IF 1(5) IZ 5 Companies’ tax losses for tax years before 1991–92 tax year Loss balances carried forward (1) A company’s loss balance for a tax year before the 1991–92 tax year may be used under section IA 4 (Using loss balances carried forward to tax year) if— (a) the company would have been entitled to have some or all of the tax loss under section 188 of the Income Tax Act 1976 carried forward to a later tax year, if that section had continued to apply in the later tax year, as modiﬁed by section 188AA of that Act and as if the continuity percentage referred to in section 188(7) of that Act were always 40%; and for the period starting on the ﬁrst day of the 1992–93 tax year and ending on the last day of the later tax year, a group of persons holds total minimum voting interests in the company that add up to at least 49%.
(b) Market value circumstances and minimum interests For the purposes of subsection (1)(b),— (a) if, during the period a market value circumstance exists for the company, the group of persons must also hold for the period total minimum market value interests in the company that add up to at least 49%: a minimum interest of any person in the company in the period is equal to the lowest interest that the person has in the period.
(b) Deﬁned in this Act: company, group of persons, loss balance, market value circumstance, minimum market value interest, minimum voting interest, tax loss, tax year Compare: 2004 No 35 s IF 1(6) (2) 2112 Reprinted as at 30 August 2013 Income Tax Act 2007 Part I s IZ 7 IZ 6 Companies’ tax losses for 1990–91 and 1991–92 tax years (1) (2) (3) (4) When this section applies This section applies to a company that has a tax loss for the 1990–91 or 1991–92 tax year and section 188(7B) of the In- come Tax Act 1976 would not have applied to prevent some or all of the tax loss being carried forward if regard were had to only part of the relevant tax year.
Part-year tax losses carried forward Section 188(7B) does not apply to prevent the part of the tax loss attributable to the relevant part-period being carried for- ward under section 188(2).

Financial statements For the purposes of subsection (2), the company must provide the Commissioner with adequate ﬁnancial statements relating to the relevant part-period that disclose the amount that would be the tax loss for the relevant part of the tax year, on a fair and reasonable basis of attribution.
Application of subsection (7B) In subsection (1), the reference to subsection (7B) applies to the extent to which regard was required to be had to that part of the period starting with 8.00 pm New Zealand Standard Time on 30 July 1991 which falls within the tax year in which the tax loss component arises, and without prejudice to the application of that subsection to the extent to which it required regard to be had to later periods.
Deﬁned in this Act: amount, Commissioner, company, tax loss, tax loss com- ponent, tax year Compare: 2004 No 35 s IF 2 IZ 7 Grouping tax losses for tax years before 1981–82 and between 1981–82 and 1991–92 (1) Commonality period: between 1981–82 and 1991–92 For the purposes of section IC 5(1)(a) (Company B using com- pany A’s tax loss), if company A has a tax loss in a tax year between the 1981–82 and 1991–92 tax years, company A and company B may group the tax loss in a tax year that is later than the tax year in which the tax loss component arises only 2113 Part I s IZ 7 Income Tax Act 2007 Reprinted as at 30 August 2013 if company B is in the same group of companies as company A in the earlier tax year.
Commonality period: before 1981–82 For the purposes of section IC 5(1)(a), if company A has a tax loss in a tax year before the 1981–82 tax year, company A and company B may group the tax loss in a tax year that is later than the tax year in which the tax loss component arises only if company B is in the same group of companies as company A in the tax year in which the tax loss is used.
When companies have different balance dates For the purposes of subsections (1) and (2), the tax year is extended under section IC 10(2)(b) (When companies have different balance dates) if company B’s balance date is later than company A’s balance date.
Residence of company A For the purposes of section IC 5(1)(b), if company A’s tax loss component arose in a tax year before the 1991–92 tax year, company A and company B may group the tax loss component in a tax year that is later than the tax year ﬁrst referred to only if company A is, in both the earlier and the later tax year— (a) incorporated in New Zealand, or carrying on a business in New Zealand through a ﬁxed establishment in New Zealand; and resident in New Zealand, and not treated under a double tax agreement, and for the purposes of the agreement, as not resident in New Zealand, or liable by the law of another country or territory to income tax in that coun- try or territory through domicile, residence, or place of incorporation.
(b) Relationship with sections IC 5 and IC 6 Subsections (1) and (2) override sections IC 5(1)(a) and IC 6 (which relate to grouping requirements) and subsection (4) overrides sections IC 5(1)(b) and IC 6.
Deﬁned in this Act: balance date, business, company, double tax agreement, ﬁxed establishment, group of companies, New Zealand, resident in New Zealand, tax loss, tax loss component, tax year Compare: 2004 No 35 s IG 2(2)(c), (d)(ii)(B) (2) (3) (4) (5) 2114 Reprinted as at 30 August 2013 Income Tax Act 2007 Part L s LA 2 Part L Tax credits and other credits Subpart LA—General rules for tax credits Contents LA 1 What this Part does LA 2 LA 3 When total tax credit less than or equal to income tax Satisfaction of income tax liability liability LA 4 When total tax credit more than income tax liability LA 5 Treatment of remaining credits LA 6 Remaining refundable credits: PAYE, RWT, and certain other items Page 2115 2115 2116 2116 2117 2117 LA 7 Remaining refundable credits: tax credits under social 2119 policy schemes LA 8 Remaining refundable credits: non-resident withholding 2120 tax LA 8B General rules particular to life insurers LA 9 Use of tax credits LA 10 Meaning of tax credit 2121 2122 2122 LA 1 What this Part does This Part— (a) (b) identiﬁes when a person’s tax credit arises; and provides the rules that govern the use of a tax credit in satisfying an obligation under section BB 2 (Main obligations).
Deﬁned in this Act: tax credit LA 2 Satisfaction of income tax liability A person must use their total tax credit for a tax year to satisfy their income tax liability for the tax year.
Deﬁned in this Act: income tax liability, tax year, total tax credit Compare: 2004 No 35 s BC 9 2115 Part L s LA 3 Income Tax Act 2007 Reprinted as at 30 August 2013 LA 3 When total tax credit less than or equal to income tax liability (1) (2) Unsatisﬁed income tax liability If a person’s total tax credit for a tax year is less than their income tax liability for the tax year, the person has an amount of unsatisﬁed income tax liability for the tax year.
Amount The amount of unsatisﬁed income tax liability is— (a) equal to the difference between the person’s total tax credit for the tax year and their income tax liability for the tax year: satisﬁed when the person pays their terminal tax for the tax year.
(b) Deﬁned in this Act: amount, income tax liability, tax year, terminal tax, total tax credit Compare: 2004 No 35 s BC 9 LA 4 When total tax credit more than income tax liability (1) Satisﬁed income tax liability If a person’s total tax credit for a tax year is greater than their income tax liability for the tax year, the person must use their total tax credit, including the credits listed in paragraphs (a) to (d), to satisfy their income tax liability by using— (a) (b) (c) (d) ﬁrst, a non-refundable tax credit: second, a tax credit for a supplementary dividend: third, a tax credit for an imputation credit: fourth, a refundable tax credit.
Remaining tax credits (2) A person who has satisﬁed their income tax liability under subsection (1) must deal with their remaining tax credits for the tax year under section LA 5.
Deﬁned in this Act: imputation credit, income tax liability, non-refundable tax credit, refundable tax credit, supplementary dividend, tax credit, tax year, total tax credit Compare: 2004 No 35 ss BC 8(2), BC 9(1), BC 10, KD 4(2), LD 3(3), LD 3A(4), LE 2(6) 2116 Reprinted as at 30 August 2013 Income Tax Act 2007 Part L s LA 6 LA 5 Treatment of remaining credits (1) What this section applies to This section applies to a remaining tax credit referred to in section LA 4(2).
Non-refundable credits (2) A non-refundable tax credit is extinguished.

However, this subsection does not apply to a tax credit for income tax and foreign income tax paid in relation to foreign attributed income used under section LK 4 (Use of remaining credits).

Credits for supplementary dividends (3) A person uses a tax credit for a supplementary dividend by applying section LP 3 (Use of remaining credits).
Credits for imputation credits (4) A person uses a tax credit for an imputation credit by apply- ing section LE 2, LE 2B, or LE 3 (which relate to the use of remaining tax credits).

(5) Refundable credits The Commissioner refunds a refundable tax credit by applying section LA 6, LA 7, or LA 8.
Deﬁned in this Act: Commissioner, foreign attributed income, foreign income tax, imputation credit, income tax, non-refundable tax credit, refundable tax credit, supplementary dividend, tax credit Compare: 2004 No 35 ss BC 9, BC 10 Section LA 5(4): amended (with effect on 1 July 2010), on 7 September 2010, by section 85 of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
LA 6 Remaining refundable credits: PAYE, RWT, and certain other items (1) What this section applies to This section applies to a person’s tax credit remaining for a tax year under section LA 5(5) if it is a tax credit under— (a) (b) (c) (cb) (d) section LB 1 (Tax credits for PAYE income payments): section LB 2 (Tax credits for provisional tax payments): section LB 3 (Tax credits for resident withholding tax): section LB 6 (Tax credits for RSCT): subpart LF (Tax credits for foreign dividend payment (FDP) credits): 2117 Part L s LA 6 Income Tax Act 2007 Reprinted as at 30 August 2013 (db) (e) (f) (g) (h) (i) subpart LH (Tax credits for expenditure on research and development), although modiﬁed by section LH 2(6) (Tax credits relating to expenditure on research and de- velopment): subpart LO (Tax credits for Maori authority credits): section LS 1 (Tax credits for multi-rate PIEs): section LS 2 (Tax credits for investors in multi-rate PIEs), and the person is not a natural person or is a nat- ural person having the tax credit as a beneﬁciary of a trust: section LS 3 (Tax credits for zero-rated investors), and the person is not a natural person or is a natural person having the tax credit as a beneﬁciary of a trust: section LS 4 (Tax credits for certain exiting investors), and the person is not a natural person or is a natural person having the tax credit as a beneﬁciary of a trust.
Use of credits The Commissioner must— (a) (b) (c) (d) (e) ﬁrst, use a tax credit to satisfy the person’s income tax liability for a tax year that is before the tax year referred to in subsection (1): second, use a tax credit to satisfy the person’s income tax liability for a tax year that is later than the tax year referred to in subsection (1), applying this paragraph to earlier tax years before later tax years: third, pay the person’s provisional tax for a tax year that is later than the tax year referred to in subsection (1), applying this paragraph to earlier tax years before later tax years: fourth, treat a tax credit as tax paid in excess and as transferable under Part 10B of the Tax Administration Act 1994: ﬁfth, refund a tax credit by applying sections RB 4, RM 2 to RM 8, and RM 10 (which relate to refunds and their use), as applicable, and the Tax Administration Act 1994.
(2) 2118 Reprinted as at 30 August 2013 Income Tax Act 2007 Part L s LA 7 (3) Time bar The Commissioner may amend an assessment or a determin- ation to give effect to this section despite the time bar.
Deﬁned in this Act: assessment, Commissioner, income tax liability, PAYE, provisional tax, RWT, tax credit, tax year, time bar Compare: 2004 No 35 ss LD 1, LD 3, LD 3A, LD 6–LD 8, LD 12(5), MD 1 Section LA 6(1)(cb): inserted, on 1 April 2008, by section 433(1) of the Taxa- tion (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section LA 6(1)(db): inserted, on 1 April 2008, by section 433(2) of the Taxa- tion (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section LA 6(1)(e): amended (with effect on 1 April 2008), on 6 October 2009, by section 308(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section LA 6(1)(f): added (with effect on 1 April 2008), on 6 October 2009, by section 308(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section LA 6(1)(f): amended, on 17 July 2013, by section 68(1) of the Taxa- tion (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).

Section LA 6(1)(f): amended, on 1 April 2010 (applying for the 2010–11 and later income years), by section 308(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section LA 6(1)(g): inserted, on 17 July 2013, by section 68(1) of the Taxa- tion (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).

Section LA 6(1)(h): inserted, on 17 July 2013, by section 68(1) of the Taxa- tion (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).

Section LA 6(1)(i): inserted, on 17 July 2013, by section 68(1) of the Taxa- tion (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Section LA 6 compare note: amended (with effect on 1 April 2008), on 17 July 2013, by section 68(2) of the Taxation (Livestock Valuation, Assets Expend- iture, and Remedial Matters) Act 2013 (2013 No 52).

Section LA 6 compare note: amended, on 1 April 2008, by section 433(3) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
LA 7 Remaining refundable credits: tax credits under social policy schemes (1) What this section applies to This section applies to a person’s tax credit remaining for a tax year under section LA 5(5), if it is a tax credit under— (a) section LB 4 (Tax credits for families): 2119 Part L s LA 8 Income Tax Act 2007 Reprinted as at 30 August 2013 (2) (b) section LD 1(5) (Tax credits for charitable and other public beneﬁt gifts).
Use of credits The Commissioner must treat the person’s tax credit as trans- ferable under Part 10B of the Tax Administration Act 1994 or refundable under sections RB 4, RM 2 to RM 8, and RM 10 (which relate to refunds and their use), as applicable.
Deﬁned in this Act: Commissioner, tax credit, tax year Compare: 2004 No 35 ss BC 8(1), KD 4(2), MD 1 Section LA 7 heading: substituted (with effect on 1 April 2008), on 6 October 2009, by section 309(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section LA 7(1) heading: substituted (with effect on 1 April 2008), on 6 October 2009, by section 309(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section LA 7(1): substituted (with effect on 1 April 2008), on 6 October 2009, by section 309(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section LA 7 list of deﬁned terms family scheme income: repealed (with effect on 1 April 2008), on 29 August 2011 (applying for the 2008–09 and later income years), by section 140(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
LA 8 Remaining refundable credits: non-resident withholding tax What this section applies to This section applies to a person’s tax credit remaining for a tax year under section LA 5(5), if it is a tax credit under section LB 5 (Tax credits for non-resident withholding tax).
Use of credits The Commissioner must— (a) ﬁrst, treat the tax credit as tax paid in excess and as transferable under Part 10B of the Tax Administration Act 1994: second, refund the tax credit under sections RB 4, RM 2 to RM 8, and RM 10 (which relate to refunds and their use), as applicable.
(b) Deﬁned in this Act: Commissioner, non-resident withholding tax, tax credit, tax year Compare: 2004 No 35 ss LD 2, MD 1 (1) (2) 2120 Reprinted as at 30 August 2013 Income Tax Act 2007 Part L s LA 8B LA 8B General rules particular to life insurers (1) Apportionment For the purposes of this subpart, a life insurer’s total tax credit is apportioned between their policyholder base and shareholder base, to the extent to which section EY 4 (Appor- tionment of income of particular source or nature, and of tax credits) applies and apportions the credit.
Unsatisﬁed income tax liability (2) Despite section LA 3,— (a) a life insurer has an unsatisﬁed income tax liability to the extent to which— (i) (ii) the tax credit apportioned to their policyholder base is less than their schedular income tax liabil- ity for schedular policyholder base income (the policyholder base income tax liability): the tax credit apportioned to their shareholder base is less than their income tax liability for the tax year, calculating their income tax liabil- ity (the shareholder base income tax liability) as if they only had shareholder base income and allowable deductions: (b) (c) the amount of unsatisﬁed income tax liability is the total of the difference, if any, described in paragraph (a)(i) and the difference, if any, described in paragraph (a)(ii): the amount of unsatisﬁed income tax liability under paragraph (b) is satisﬁed when the life insurer pays their terminal tax for the tax year.
Use of credits (3) Despite section LA 4,— (a) (b) if the tax credit apportioned to the policyholder base or the shareholder base is greater than the relevant base income tax liability described in subsection (2)(a)(i) or (ii), the tax credit is used, in the order prescribed in section LA 4(1), to satisfy the relevant base income tax liability.
There is no cross-crediting: tax credits not used under paragraph (a) are treated as remaining tax credits referred to in section LA 4(2) and 2121 Part L s LA 9 Income Tax Act 2007 Reprinted as at 30 August 2013 the life insurer must deal with the credits under section LA 5.
Deﬁned in this Act: income tax liability, life insurer, policyholder base, schedu- lar policyholder base income, shareholder base, shareholder base allowable de- duction, shareholder base income, tax credit, tax year Section LA 8B: inserted, on 1 July 2010, by section 310(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

LA 9 Use of tax credits An amount of a tax credit is used once, so far as it extends.
Deﬁned in this Act: amount, tax credit Compare: 2004 No 35 ss BC 9(1), LB 2(2), LE 2(4), (8) Section LA 9: amended (with effect on 1 April 2008), on 6 October 2009, by section 311(1) of the Taxation (International Taxation, Life Insurance, and Re- medial Matters) Act 2009 (2009 No 34).

Section LA 9: amended, on 1 April 2008, by section 435 of the Taxation (Busi- ness Taxation and Remedial Matters) Act 2007 (2007 No 109).
LA 10 Meaning of tax credit An amount is a tax credit of a person if it is their tax credit under a provision in this Part.

Deﬁned in this Act: amount, tax credit Compare: 2004 No 35 s BC 9 Subpart LB—Tax credits for payments, deductions, and family payments Subpart LB heading: substituted, on 1 April 2008, by section 436 of the Taxa- tion (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Contents Tax credits for PAYE income payments Tax credits for provisional tax payments Tax credits for resident withholding tax Tax credits for families Tax credits for non-resident withholding tax Tax credits for RSCT Tax credits related to personal service rehabilitation payments: providers Page 2123 2124 2124 2125 2127 2127 2128 LB 1 LB 2 LB 3 LB 4 LB 5 LB 6 LB 7 2122 Reprinted as at 30 August 2013 Income Tax Act 2007 Part L s LB 1 LB 8 Tax credits related to personal service rehabilitation payments: payers 2129 LB 1 Tax credits for PAYE income payments (1) (2) When this section applies This section applies in a tax year when an employer provides the Commissioner with an employer monthly schedule that shows an amount of tax withheld from a PAYE income pay- ment of a person who is an employee.
Amount of credit The person has a tax credit for the tax year equal to the amount of tax shown as withheld.
Application to close companies (3) Despite subsection (2), the amount of the tax credit must be no more than the amount of tax paid to the Commissioner if— (a) (b) the employer is a close company; and the employer and the person are associated persons, or the employer and the spouse, civil union partner, or de facto partner of the person are associated persons; and the employer withheld the amount of tax for the PAYE income payment shown in the employer monthly sched- ule.
(c) (4) Exclusions The person’s credit is extinguished if the Commissioner does not receive an employer monthly schedule for the relevant amount of tax, or when the relevant particulars of the schedule are incorrect.

However, the credit is restored to the person if the relevant matter is corrected and, for the purposes of this section, it is as if the error had not been made.
Deﬁned in this Act: amount, amount of tax, associated person, close company, Commissioner, employee, employer, employer monthly schedule, pay, PAYE income payment, tax credit Section LB 1: substituted (with effect on 1 April 2008), on 6 October 2009, by section 312 of the Taxation (International Taxation, Life Insurance, and Remed- ial Matters) Act 2009 (2009 No 34).
2123 Part L s LB 2 Income Tax Act 2007 Reprinted as at 30 August 2013 LB 2 Tax credits for provisional tax payments A person has a tax credit for a tax year equal to the amount of provisional tax for the tax year paid by— (a) (b) the person; or an agent of the person, if the agent is liable to pay pro- visional tax on behalf of the person.
Deﬁned in this Act: agent, amount, pay, provisional tax, tax credit, tax year Compare: 2004 No 35 ss LD 6, LD 7 LB 3 Tax credits for resident withholding tax Tax credit (1) A person has a tax credit for a tax year equal to the amount of tax withheld and paid in relation to their resident passive income for the tax year if the evidential requirements of section 78D of the Tax Administration Act 1994 are met.
Exclusion (2) No credit exists under subsection (1) for an amount of tax for resident passive income that is a replacement payment.

(3) Multi-rate PIEs and their investors For a multi-rate PIE and an investor in a multi-rate PIE, the amount of a tax credit is limited to the extent allowed under subpart HM (Portfolio investment entities).
Exclusion: Trustees’ RWT substitution payment (4) No credit exists under subsection (1) for an amount of tax equal to the amount of an RWT substitution payment that a trustee has paid to the person in relation to the tax.

Effect of RWT substitution payment (5) A person who pays an RWT substitution payment has a tax credit for a tax year equal to the payment.
Deﬁned in this Act: amount of tax, investor, multi-rate PIE, replacement pay- ment, resident passive income, resident withholding tax, RWT substitution pay- ment, tax credit, tax withheld, tax year, trustee Compare: 2004 No 35 ss LD 3(2), NF 1(2)(b)(ix), (x), NF 8B(b) Section LB 3(3) heading: substituted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 313(1) of the Taxation (Inter- national Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
2124 Reprinted as at 30 August 2013 Income Tax Act 2007 Part L s LB 4 Section LB 3(3): substituted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 313(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section LB 3(4) heading: added (with effect on 1 April 2008), on 29 August 2011 (applying for the 2008–09 and later income years if the trustee has taken a tax position in a tax return that is consistent with subsection (1)), by sec- tion 99(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section LB 3(4): added (with effect on 1 April 2008), on 29 August 2011 (ap- plying for the 2008–09 and later income years if the trustee has taken a tax position in a tax return that is consistent with subsection (1)), by section 99(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section LB 3(5) heading: added (with effect on 1 April 2008), on 29 August 2011 (applying for the 2008–09 and later income years if the trustee has taken a tax position in a tax return that is consistent with subsection (1)), by sec- tion 99(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section LB 3(5): added (with effect on 1 April 2008), on 29 August 2011 (ap- plying for the 2008–09 and later income years if the trustee has taken a tax position in a tax return that is consistent with subsection (1)), by section 99(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section LB 3 list of deﬁned terms multi-rate PIE: inserted, on 1 April 2010, by section 313(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section LB 3 list of deﬁned terms portfolio tax rate entity: repealed, on 1 April 2010, by section 313(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section LB 3 list of deﬁned terms RWT substitution payment: inserted (with effect on 1 April 2008), on 29 August 2011, by section 99(2) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).

Section LB 3 list of deﬁned terms trustee: added (with effect on 1 April 2008), on 29 August 2011, by section 99(2) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
LB 4 Tax credits for families Tax credits under subparts MD and ME (1) A person has a tax credit for a tax year equal to the total amount of their tax credit under subpart MD (Abating WFF tax credits) and their minimum family tax credit under subpart ME (Min- imum family tax credit) for the tax year.
(2) Adjustments for credits used The person’s tax credit is adjusted if an instalment of the credit under subpart MF (Payment of credits) is used to satisfy an 2125 Part L s LB 4 Income Tax Act 2007 Reprinted as at 30 August 2013 amount of tax for an earlier income year.
The adjustment to the tax credit is equal to the total amount of instalments payable under section MF 1 (Application for payment of tax credit by instalment) that are recovered by the Commissioner under sec- tion MF 6 (Overpayment or underpayment of tax credit) as tax payable by the person.
Deﬁned in this Act: amount, amount of tax, corresponding income year, family scheme income, minimum family tax credit, pay, tax credit, tax year Compare: 2004 No 35 ss KD 1A(2), KD 2(1), KD 3(2), MD 1(3A) Section LB 4 heading: substituted, on 1 April 2008, by section 437(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section LB 4: amended, on 1 April 2008, by section 437(2)(a) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section LB 4: amended, on 1 April 2008, by section 437(2)(b) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section LB 4: amended, on 1 April 2008, by section 437(2)(c) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section LB 4: amended, on 1 April 2008, by section 437(2)(d) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section LB 4(1) heading: inserted (with effect on 1 April 2008), on 6 October 2009, by section 314(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section LB 4(2) heading: added (with effect on 1 April 2008), on 6 October 2009, by section 314(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section LB 4(2): added (with effect on 1 April 2008), on 6 October 2009, by section 314(2) of the Taxation (International Taxation, Life Insurance, and Re- medial Matters) Act 2009 (2009 No 34).

Section LB 4 list of deﬁned terms amount of tax: inserted (with effect on 1 April 2008), on 6 October 2009, by section 314(3) of the Taxation (Inter- national Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section LB 4 list of deﬁned terms corresponding income year: inserted (with effect on 1 April 2008), on 6 October 2009, by section 314(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section LB 4 list of deﬁned terms family assistance credit: repealed, on 1 April 2008, by section 437(3)(b) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section LB 4 list of deﬁned terms family tax credit: repealed, on 1 April 2008, by section 437(3)(b) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section LB 4 list of deﬁned terms minimum family tax credit: inserted, on 1 April 2008, by section 437(3)(a) of the Taxation (Business Taxation and Re- medial Matters) Act 2007 (2007 No 109).
2126 Reprinted as at 30 August 2013 Income Tax Act 2007 Part L s LB 6 Section LB 4 list of deﬁned terms pay: inserted (with effect on 1 April 2008), on 6 October 2009, by section 314(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section LB 4 compare note: amended (with effect on 1 April 2008), on 6 Oc- tober 2009, by section 314(4) of the Taxation (International Taxation, Life In- surance, and Remedial Matters) Act 2009 (2009 No 34).
LB 5 Tax credits for non-resident withholding tax A person has a tax credit for a tax year equal to the amount of tax withheld and paid in relation to their non-resident passive income for the tax year.
Deﬁned in this Act: amount of tax, non-resident passive income, non-resident- withholding tax, pay, tax credit, tax withheld, tax year Compare: 2004 No 35 s LD 2 LB 6 Tax credits for RSCT (1) (2) (3) (4) When this section applies This section applies when— (a) (b) (c) a person derives income as a retirement scheme contri- bution in an income year; and the retirement scheme contributor pays RSCT for the contribution; and the income is not excluded income of the person under section CX 50B (Contributions to retirement savings schemes).
Tax credit: New Zealand resident If the person is resident in New Zealand, they have a tax credit for the tax year corresponding to the income year of an amount equal to the RSCT withheld.

Tax credit: non-resident If the person is not resident in New Zealand, they have a tax credit for the tax year corresponding to the income year of an amount equal to the excess of RSCT withheld over NRWT paid in relation to the contribution.
When contribution is taxable Maori authority distribution If the person is not resident in New Zealand and the retirement scheme contribution is a taxable Maori authority distribution, 2127 Part L s LB 7 Income Tax Act 2007 Reprinted as at 30 August 2013 they have a tax credit for the tax year corresponding to the income year of an amount equal to the RSCT withheld.
Deﬁned in this Act: amount, excluded income, income, income year, non-resi- dent, NRWT, pay, resident in New Zealand, retirement scheme contribution, retirement scheme contributor, RSCT, tax credit, tax year Compare: 2004 No 35 s LD 12(1)–(4) Section LB 6: substituted, on 1 April 2008, by section 438(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
LB 7 Tax credits related to personal service rehabilitation payments: providers When this section applies This section applies when— (a) a person— (i) (ii) is paid under the Accident Compensation Act 2001 a personal service rehabilitation payment for a period for a key aspect of social rehabilita- tion referred to in the deﬁnition of personal ser- vice rehabilitation payment; and pays another person (a provider) for providing the key aspect to them for the period; or the Accident Compensation Corporation pays a provider a personal service rehabilitation payment for a period for providing a key aspect of social rehabilitation to the person.
(b) Tax credit The provider has a tax credit for the tax year corresponding to the income year in which the period falls.

Amount The amount of the tax credit is calculated using the formula— amount paid × tax rate tax rate.
1 Deﬁnition of items in formula In the formula,— (a) amount paid is the amount paid to the provider for pro- viding a key aspect of social rehabilitation to the per- son for the period, to the extent to which the amount is equal to or less than the amount of the personal service (1) (2) (3) (4) 2128 Reprinted as at 30 August 2013 Income Tax Act 2007 Part L s LB 8 (b) rehabilitation payment for the period after taking into account any amount of tax withheld: tax rate is the rate of tax applying to the personal ser- vice rehabilitation payment under schedule 4, part I, clause 1 (Rates of tax for schedular payments) unless the payment is 1 of the following kinds, in which case the rate of tax is that set out in the subparagraph: (i) for a payment to which section RD 18 (Schedular payments without notiﬁcation) applies, the rate under schedule 4, part I, clause 1 together with any additional amount required to be withheld under section RD 18, determined using the rates set out in that section: for a payment to which a special tax rate certiﬁ- cate applies, the rate applying to the payment as determined by the Commissioner under section 24N of the Tax Administration Act 1994.
(ii) Deﬁned in this Act: amount, amount of tax, income year, pay, personal service rehabilitation payment, tax credit, tax year Compare: 2004 No 35 s LD 1B Section LB 7: added, on 1 July 2008, by section 438(2) of the Taxation (Busi- ness Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section LB 7(1)(a)(i): amended, on 21 December 2010, by section 189 of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section LB 7(4)(b): substituted (with effect on 1 July 2008), on 6 October 2009, by section 315(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
LB 8 Tax credits related to personal service rehabilitation payments: payers (1) When this section applies This section applies when— (a) a person is paid under the Accident Compensation Act 2001 a personal service rehabilitation payment for a period for a key aspect of social rehabilitation referred to in the deﬁnition of personal service rehabilitation payment; and the person pays another person (the provider) for pro- viding the key aspect to them for the period; and (b) 2129 Part L s LB 8 Income Tax Act 2007 Reprinted as at 30 August 2013 (c) the amount paid to the provider is less than the amount of the personal service rehabilitation payment to the per- son for the period after taking into account any amount of tax withheld.
Tax credit The person has a tax credit for the tax year corresponding to the income year in which the period falls to the extent of the amount calculated using the formula— total tax withheld amount paid × tax rate tax rate.
1 Deﬁnition of items in formula In the formula,— (a) total tax withheld is the total amount of tax withheld from the personal service rehabilitation payment paid to the person for the period: amount paid is the amount paid to the provider: tax rate is the rate of tax applying to the personal ser- vice rehabilitation payment under schedule 4, part I, clause 1 (Rates of tax for schedular payments) unless the payment is 1 of the following kinds, in which case the rate of tax is that set out in the subparagraph: (i) for a payment to which section RD 18 (Schedular payments without notiﬁcation) applies, the rate under schedule 4, part I, clause 1 together with any additional amount required to be withheld under section RD 18, determined using the rates set out in that section: for a payment to which a special code applies, the rate applying to the payment as determined by the Commissioner under section 24N of the Tax Administration Act 1994.
(ii) (b) (c) Deﬁned in this Act: amount, amount of tax, income year, pay, personal service rehabilitation payment, tax credit, tax year Compare: 2004 No 35 s LD 1C Section LB 8: added, on 1 July 2008, by section 438(2) of the Taxation (Busi- ness Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section LB 8(1)(a): amended, on 21 December 2010, by section 189 of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
(2) (3) 2130 Reprinted as at 30 August 2013 Income Tax Act 2007 Part L s LB 8 Section LB 8(3)(c): substituted (with effect on 1 July 2008), on 6 October 2009, by section 316(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Subpart LC—Tax credits for natural persons Contents Page Tax credits for persons on low incomes [Repealed] LC 1 When net income under low income amount [Repealed] LC 2 When net income in low income abatement 2132 2132 range [Repealed] Tax credits for children [Repealed] LC 3 Child’s income [Repealed] Tax credits for transitional circumstances [Repealed] Tax credits for transitional circumstances [Repealed] LC 4 LC 5 Meaning of engaged in full-time work [Repealed] Tax credits for housekeeping [Repealed] Tax credits for housekeeping [Repealed] LC 6 LC 7 Meaning of housekeeper [Repealed] Some deﬁnitions [Repealed] LC 8 Tax credits for absentees [Repealed] LC 9 Tax credits for absentees [Repealed] Adjustments to certain tax credits [Repealed] LC 10 Adjustment for change in return date [Repealed] LC 11 Adjustment when person is non-resident for part of tax year [Repealed] LC 12 Assessment when person is non-resident [Repealed] Tax credits for independent earners LC 13 Tax credits for independent earners 2132 2132 2133 2133 2133 2133 2133 2134 2134 2134 2134 2131 Part L s LC 1 Income Tax Act 2007 Reprinted as at 30 August 2013 Tax credits for persons on low incomes [Repealed] Heading: repealed (with effect from 1 April 2008), on 29 May 2008, by section 24(1) of the Taxation (Personal Tax Cuts, Annual Rates, and Remedial Matters) Act 2008 (2008 No 36).
LC 1 When net income under low income amount [Repealed] Section LC 1: repealed (with effect from 1 April 2008), on 29 May 2008, by section 24(1) of the Taxation (Personal Tax Cuts, Annual Rates, and Remedial Matters) Act 2008 (2008 No 36).

LC 2 When net income in low income abatement range [Repealed] Section LC 2: repealed (with effect from 1 April 2008), on 29 May 2008, by section 25(1) of the Taxation (Personal Tax Cuts, Annual Rates, and Remedial Matters) Act 2008 (2008 No 36).
Tax credits for children [Repealed] Heading: repealed, on 29 May 2012 (applying for the 2012–13 and later tax years), by section 6(1)(a) of the Taxation (Budget Measures) Act 2012 (2012 No 38).

LC 3 Child’s income [Repealed] Section LC 3: repealed, on 29 May 2012 (applying for the 2012–13 and later tax years), by section 6(1)(b) of the Taxation (Budget Measures) Act 2012 (2012 No 38).
Tax credits for transitional circumstances [Repealed] Heading: repealed, on 29 May 2012 (applying for the 2012–13 and later tax years), by section 6(1)(c) of the Taxation (Budget Measures) Act 2012 (2012 No 38).
LC 4 Tax credits for transitional circumstances [Repealed] Section LC 4: repealed, on 29 May 2012 (for the purposes of schedule 2, and of sections 24B and 24H(7) of the Tax Administration Act 1994, applying for PAYE income payments made on or after 1 April 2013) by section 6(1)(d) of the Taxation (Budget Measures) Act 2012 (2012 No 38).
2132 Reprinted as at 30 August 2013 Income Tax Act 2007 Part L s LC 9 LC 5 Meaning of engaged in full-time work [Repealed] Section LC 5: repealed, on 29 May 2012 (for the purposes of schedule 2, and of sections 24B and 24H(7) of the Tax Administration Act 1994, applying for PAYE income payments made on or after 1 April 2013) by section 6(1)(d) of the Taxation (Budget Measures) Act 2012 (2012 No 38).
Tax credits for housekeeping [Repealed] Heading: repealed, on 29 May 2012 (applying for the 2012–13 and later tax years), by section 6(1)(e) of the Taxation (Budget Measures) Act 2012 (2012 No 38).

LC 6 Tax credits for housekeeping [Repealed] Section LC 6: repealed, on 29 May 2012 (applying for the 2012–13 and later tax years), by section 6(1)(f) of the Taxation (Budget Measures) Act 2012 (2012 No 38).
LC 7 Meaning of housekeeper [Repealed] Section LC 7: repealed, on 29 May 2012 (applying for the 2012–13 and later tax years), by section 6(1)(f) of the Taxation (Budget Measures) Act 2012 (2012 No 38).

LC 8 Some deﬁnitions [Repealed] Section LC 8: repealed, on 29 May 2012 (applying for the 2012–13 and later tax years), by section 6(1)(f) of the Taxation (Budget Measures) Act 2012 (2012 No 38).
Tax credits for absentees [Repealed] Heading: repealed, on 29 May 2012 (applying for the 2012–13 and later tax years), by section 6(1)(g) of the Taxation (Budget Measures) Act 2012 (2012 No 38).

LC 9 Tax credits for absentees [Repealed] Section LC 9: repealed, on 29 May 2012 (applying for the 2012–13 and later tax years), by section 6(1)(h) of the Taxation (Budget Measures) Act 2012 (2012 No 38).
2133 Part L s LC 10 Income Tax Act 2007 Reprinted as at 30 August 2013 Adjustments to certain tax credits [Repealed] Heading: repealed, on 29 May 2012 (applying for the 2012–13 and later tax years), by section 6(1)(i) of the Taxation (Budget Measures) Act 2012 (2012 No 38).

LC 10 Adjustment for change in return date [Repealed] Section LC 10: repealed, on 29 May 2012 (applying for the 2012–13 and later tax years), by section 6(1)(j) of the Taxation (Budget Measures) Act 2012 (2012 No 38).
LC 11 Adjustment when person is non-resident for part of tax year [Repealed] Section LC 11: repealed, on 29 May 2012 (applying for the 2012–13 and later tax years), by section 6(1)(j) of the Taxation (Budget Measures) Act 2012 (2012 No 38).

LC 12 Assessment when person is non-resident [Repealed] Section LC 12: repealed, on 29 May 2012 (applying for the 2012–13 and later tax years), by section 6(1)(j) of the Taxation (Budget Measures) Act 2012 (2012 No 38).
Tax credits for independent earners Heading: added, on 1 April 2009, by section 31 of the Taxation (Urgent Meas- ures and Annual Rates) Act 2008 (2008 No 105).
LC 13 Tax credits for independent earners (1) When this section applies This section applies for a natural person, for a period (the credit period) in a tax year when the person— (a) (b) (c) (d) (e) is not receiving an income-tested beneﬁt; and is not receiving a veteran’s pension; and is not receiving New Zealand superannuation; and is not entitled to a WFF tax credit; and is not the spouse, civil union partner, or de facto partner of a person who is entitled to a WFF tax credit; and is not receiving an amount that is— (f) 2134 Reprinted as at 30 August 2013 Income Tax Act 2007 Part L s LC 13 (g) (i) (ii) granted outside New Zealand; and in the nature of, and paid for similar purposes as, a beneﬁt, pension, superannuation payment, or tax credit described in paragraphs (a) to (d); and is not the spouse, civil union partner, or de facto partner of a person who receives an amount that is— granted outside New Zealand; and (i) in the nature of, and paid for similar purposes as, (ii) a tax credit described in paragraph (d); and (h) is resident in New Zealand.
(2) (3) (4) (5) Amount of credit For the credit period, the person has a tax credit equal to the positive amount calculated using the formula— (person’s credit full year abatement) × credit period months / 12.

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

Person’s credit Person’s credit is, if the person’s net income for the tax year is equal to or more than $24,000, $520.

Otherwise it is zero.


Full year abatement Full year abatement is, if the person’s net income is greater than $44,000 for the tax year, 13 cents for each complete dollar of the excess.

Credit period months (6) Credit period months is the number of whole months in the credit period.
Deﬁned in this Act: amount, civil union partner, de facto partner, income-tested beneﬁt, net income, New Zealand superannuation, resident in New Zealand, tax credit, tax year, veteran’s pension, WFF tax credit Section LC 13: added, on 1 April 2009, by section 31 of the Taxation (Urgent Measures and Annual Rates) Act 2008 (2008 No 105).
Subpart LD—Tax credits for gifts and donations Subpart LD heading: amended, on 6 January 2010, by section 319 of the Tax- ation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
2135 Income Tax Act 2007 Reprinted as at 30 August 2013 Contents Charitable and other public beneﬁt gifts LD 1 Tax credits for charitable or other public beneﬁt gifts LD 2 Exclusions LD 3 Meaning of charitable or other public beneﬁt gift Payroll donations LD 4 Tax credits for payroll donations LD 5 Calculating amount of tax credit and ﬁling particulars LD 6 When donation is paid to ineligible recipient LD 7 When donation returned to person LD 8 Meaning and ranking of payroll donation Page 2136 2137 2138 2139 2141 2141 2142 2143 Charitable and other public beneﬁt gifts Heading: inserted, on 6 January 2010, by section 320 of the Taxation (Inter- national Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
LD 1 Tax credits for charitable or other public beneﬁt gifts Amount of credit (1) A person who makes a charitable or other public beneﬁt gift in a tax year and who meets the requirements of section 41A of the Tax Administration Act 1994 has a tax credit for the tax year equal to the amount calculated using the formula in subsection (2).

(2) (3) Formula The formula referred to in subsection (1) is— total gifts × 331/3%.
Deﬁnition of item in formula In the formula, total gifts means the total amount of all charit- able or other public beneﬁt gifts made by the person in the tax year.
Administrative requirements (4) Despite subsection (1), the requirements of section 41A are modiﬁed if a tax agent applies for a refund under that section on behalf of a person, and— 2136 Reprinted as at 30 August 2013 Income Tax Act 2007 Part L s LD 2 (a) (b) the tax agent sees the receipt for the person’s charitable or other public beneﬁt gift; and the person retains the receipt for 4 tax years after the tax year to which the claim relates.
Refundable credits (5) A credit under this section is a refundable tax credit under section LA 7 (Remaining refundable credits: tax credits under social policy schemes) and is excluded from the application of sections LA 2 to LA 6 (which relate to a person’s income tax liability).
Deﬁned in this Act: amount, charitable or other public beneﬁt gift, refundable tax credit, tax agent, tax credit, tax year Compare: 2004 No 35 s KC 5 Section LD 1(1): substituted, on 1 April 2008, by section 440(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section LD 1(2): amended, on 1 April 2008, by section 440(2) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section LD 1(5): amended (with effect on 1 April 2008), on 6 October 2009, by section 321 of the Taxation (International Taxation, Life Insurance, and Re- medial Matters) Act 2009 (2009 No 34).

Section LD 1(5): amended, on 1 April 2008, by section 440(3) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
LD 2 Exclusions Section LD 1 does not apply to— (a) (b) (c) (d) (e) (f) an absentee: a company: a public authority: a Maori authority: an unincorporated body: a trustee liable for income tax under subpart HC, and section HZ 2 (which relate to trusts and distributions from trusts): in relation to the credit, a person who has a tax credit for a payroll donation.
(g) Deﬁned in this Act: absentee, company, income tax, Maori authority, public authority, trustee Compare: 2004 No 35 s KC 5(1) Section LD 2: amended, on 6 January 2010, by section 322(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
2137 Part L s LD 3 Income Tax Act 2007 Reprinted as at 30 August 2013 Section LD 2(f): amended, on 6 January 2010, by section 322(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section LD 2(g): added, on 6 January 2010, by section 322(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
LD 3 Meaning of charitable or other public beneﬁt gift Meaning For the purposes of this subpart, a charitable or other public beneﬁt gift— (a) means a gift of $5 or more that is paid to a society, in- stitution, association, organisation, trust, or fund, de- scribed in subsection (2) or listed in schedule 32 (Re- cipients of charitable or other public beneﬁt gifts): includes a subscription paid to a society, institution, as- sociation, organisation, trust, or fund, only if the sub- scription does not confer any rights arising from mem- bership in that or any other society, institution, associ- ation, organisation, trust, or fund: does not include a testamentary gift.
(b) (c) (b) Description of organisations The following are the entities referred to in subsection (1)(a): a society, institution, association, organisation, or trust (a) that is not carried on for the private pecuniary proﬁt of an individual, and whose funds are applied wholly or mainly to charitable, benevolent, philanthropic, or cultural purposes within New Zealand: a public institution maintained exclusively for any 1 or more of the purposes within New Zealand set out in paragraph (a): a Board of Trustees that is constituted under Part 9 of the Education Act 1989 and is not carried on for the private pecuniary proﬁt of any individual: a tertiary education institution that is established under Part 14 of the Education Act 1989 and is not carried on for the private pecuniary proﬁt of any individual: a fund established and maintained exclusively for the purpose of providing money for any 1 or more of the purposes within New Zealand set out in paragraph (a), (bb) (bc) (c) (1) (2) 2138 Reprinted as at 30 August 2013 Income Tax Act 2007 Part L s LD 4 (d) by a society, institution, association, organisation, or trust that is not carried on for the private pecuniary proﬁt of an individual: a public fund established and maintained exclusively for the purpose of providing money for any 1 or more of the purposes within New Zealand set out in paragraph (a).
Deﬁned in this Act: charitable or other public beneﬁt gift, charitable purpose, New Zealand, pay Compare: 2004 No 35 s KC 5(1)(aa)–(cp), (4) Section LD 3(2)(bb): inserted, on 1 July 2008, by section 31 of the Taxation (Personal Tax Cuts, Annual Rates, and Remedial Matters) Act 2008 (2008 No 36).

Section LD 3(2)(bc): inserted, on 1 July 2008, by section 31 of the Taxation (Personal Tax Cuts, Annual Rates, and Remedial Matters) Act 2008 (2008 No 36).
Section LD 3 list of deﬁned terms charitable or other public beneﬁt: repealed (with effect on 1 April 2008), on 2 November 2012, by section 115(a) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).

Section LD 3 list of deﬁned terms charitable or other public beneﬁt gift: in- serted (with effect on 1 April 2008), on 2 November 2012, by section 115(b) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section LD 3 list of deﬁned terms gift: repealed (with effect on 1 April 2008), on 2 November 2012, by section 115(a) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).

Payroll donations Heading: added, on 6 January 2010, by section 323 of the Taxation (Inter- national Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
LD 4 Tax credits for payroll donations (1) Who this section applies to This section applies to a person who— (a) is an employee whose employer— (i) ﬁles by electronic means an employer monthly schedule and a PAYE income payment form with particulars relating to the person’s PAYE income payments for a pay period; and agrees to offer payroll giving to their employees; and (ii) 2139 Part L s LD 4 Income Tax Act 2007 Reprinted as at 30 August 2013 (b) chooses to make a payroll donation in the pay period from an amount derived as pay.
Amount of credit The person has a tax credit for the pay period equal to an amount calculated using the formula— total donations × 331/3%.

Deﬁnition of item in formula In the formula, total donations is the total amount of all pay- roll donations made by the person in the pay period.

(2) (3) Maximum credit (4) Despite subsection (2), the amount of the tax credit must not be more than the amount of tax for the person’s pay for the period.
Non-refundable credits (5) A credit under this section is a non-refundable tax credit to which section LA 4(1) (When total tax credit more than in- come tax liability) applies for the tax year in which the period falls.

No refunds for donations (6) A person who has a tax credit under this section may not make an application under section 41A of the Tax Administration Act 1994 for any refund relating to the amount of a payroll donation.
(7) Meaning of pay for payroll donation purposes For the purposes of this section, and sections LD 8(1) and 24Q of the Tax Administration Act 1994, pay, for a person,— (a) means an amount referred to in section RD 5(1)(a) or (b) (b)(i) (Salary or wages); and includes any similar amount earned by an employee in the normal course of their employment; and [Repealed] (c) Deﬁned in this Act: amount, amount of tax, employee, employer, employer monthly schedule, employment, non-refundable tax credit, pay, pay period, PAYE income payment, PAYE income payment form, payroll donation, salary or wages, tax credit Section LD 4: added, on 6 January 2010, by section 323 of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
2140 Reprinted as at 30 August 2013 Income Tax Act 2007 Part L s LD 6 Section LD 4(7)(c): repealed, on 7 January 2010, by section 74 of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
LD 5 Calculating amount of tax credit and ﬁling particulars (1) (2) Employer’s responsibility The employer of a person who makes a payroll donation in a pay period must calculate the amount of the person’s tax credit for the pay period under section LD 4, and include the amount in the particulars described in section LD 4(1)(a).
Credit extinguished The tax credit is extinguished if— (a) receive an employer the Commissioner does not monthly schedule and PAYE income payment form for the relevant payroll donation: the relevant particulars ﬁled are incorrect.

(b) When matters corrected (3) Despite subsection (2), the credit is restored to the person if the relevant matter is corrected and, for the purposes of this section, it is as if the error had never been made.
Deﬁned in this Act: amount, Commissioner, employer, employer monthly schedule, pay period, PAYE income payment form, payroll donation, tax credit Section LD 5: added, on 6 January 2010, by section 323 of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
LD 6 When donation is paid to ineligible recipient (1) (2) (3) When this section applies This section applies for the purposes of section LD 4 when the employer or PAYE intermediary transfers the person’s payroll donation to an entity that is not a donee organisation.

Credit extinguished The tax credit is extinguished.
Consequences when credit extinguished The consequences that arise when a tax credit is extinguished under subsection (2) are— (a) the amount of the credit is removed from the person’s tax credits for PAYE income payments under section 2141 Part L s LD 7 Income Tax Act 2007 Reprinted as at 30 August 2013 LB 1 (Tax credits for PAYE income payments) for the tax year in which the pay period falls: (b) when the extinguishing of the credit results in a shortfall in an amount of tax for a PAYE income payment, section RD 4 (Payment of amounts of tax to Commissioner) applies to the shortfall.
Deﬁned in this Act: amount, amount of tax, donee organisation, employer, pay period, PAYE income payment, payroll donation, tax credit, tax year Section LD 6: added, on 6 January 2010, by section 323 of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section LD 6(3)(a): amended, on 7 January 2010, by section 75 of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
LD 7 When donation returned to person When this section applies This section applies for the purposes of section LD 4 when the amount of a payroll donation is, for whatever reason, returned to the person.

Treatment of credit The tax credit is extinguished.
Consequences when credit extinguished The consequences that arise when a tax credit is extinguished under subsection (2) are— (a) the amount of the credit is removed from the person’s tax credits for PAYE income payments under section LB 1 (Tax credits for PAYE income payments) for the tax year in which the pay period falls: (b) when the extinguishing of the credit results in a shortfall in an amount of tax for a PAYE income payment, section RD 4 (Payment of amounts of tax to Commissioner) applies to the shortfall.
Deﬁned in this Act: amount, amount of tax, pay period, PAYE income payment, payroll donation, tax credit, tax year Section LD 7: added, on 6 January 2010, by section 323 of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section LD 7(3)(a): amended, on 7 January 2010, by section 76 of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
(1) (2) (3) 2142 Reprinted as at 30 August 2013 Income Tax Act 2007 Part L s LD 8 LD 8 Meaning and ranking of payroll donation Meaning (1) A payroll donation, for a pay period and employer who agrees to offer payroll giving to their employees, is an amount that a person asks their employer to transfer from the amount of the person’s pay for the period to a donee organisation.
Priorities of amounts withheld and other deductions (2) A person may make a payroll donation for a pay period only after satisfying— (a) (b) any tax obligation they may have: any statutory or legal requirement they may be obliged to meet from their PAYE income payment.
Deﬁned in this Act: amount, donee organisation, pay, pay period, PAYE income payment, payroll donation Section LD 8: added, on 6 January 2010, by section 323 of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Subpart LE—Tax credits for imputation credits Contents Tax credits for imputation credits LE 1 LE 2 Use of remaining credits by companies and trustees LE 2B Use of remaining credits by life insurer on policyholder base Partners in partnerships Trustees for minor beneﬁciaries LE 3 Use of remaining credits by others LE 4 LE 5 Beneﬁciaries of trusts LE 6 LE 7 Credit transfer notices LE 7B Credit of RSCT for imputation credit LE 8 Application of imputation ratio LE 9 Application of combined imputation and FDP ratio LE 10 When income tax unpaid LE 11 Evidential requirements Page 2144 2146 2147 2148 2148 2149 2150 2151 2151 2152 2152 2153 2153 2143 Part L s LE 1 Income Tax Act 2007 Reprinted as at 30 August 2013 LE 1 Tax credits for imputation credits Amount of credit (1) A person whose assessable income for an income year in- cludes an imputation credit has a tax credit for the tax year cor- responding to the income year of an amount equal to the sum of the amount of the imputation credit and any credit carried forward from an earlier tax year.
Section OZ 11 (Tax credits for imputation credits and FDP credits) may apply to modify this section.

Multi-rate PIEs and their investors (1B) An investor in a multi-rate PIE who has an imputation credit attributed for use under section HM 54 (Use of tax credits other than foreign tax credits by investors) has a tax credit for the tax year of an amount equal to the amount of the imputation credit.
(2) (3) (4) Exclusion For a returning share transfer, a share user does not have a tax credit for an imputation credit attached to a dividend derived in a period in which they hold a share acquired under the transfer.

However, a person providing a share under a returning share transfer is allowed a tax credit for the amount of an imputation credit recorded in the credit transfer notice, see section LE 7.
When amount altered The amount of the person’s credit in subsection (1) may be reduced or increased if any of sections LE 4 to LE 10 apply.
Portfolio tax rate entities and investors in entities [Repealed] [Repealed] FIF income (4B) For the purposes of this section, an amount that would, in the absence of section EX 59 (Codes: comparative value method, deemed rate of return method, fair dividend rate method, and cost method), be income of a person from an attributing inter- est in a FIF is treated as if it were assessable income of the person.
Arrangements for tax advantage (5) A person’s credit under this section is extinguished if any of the following sections apply: 2144 Reprinted as at 30 August 2013 Income Tax Act 2007 Part L s LE 1 (a) (b) (c) section GB 36 (Reconstruction of imputation arrange- ments to obtain tax advantage): section GB 37 (Arrangements for payment of dividend by other companies): section GB 38 (When sections GB 35 to GB 37 apply to consolidated groups).
Deﬁned in this Act: amount, assessable income, attributing interest, credit trans- fer notice, dividend, FIF, imputation credit, income, income year, investor, multi-rate PIE, returning share transfer, share, share user, tax credit, tax year Compare: 2004 No 35 ss LB 1(1)(j), (k), LB 2(1), (1B), (1C), (2C) Section LE 1(1): amended (with effect on 1 April 2008), on 6 October 2009, by section 324(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section LE 1(1B) heading: substituted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 324(3) of the Taxation (Inter- national Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section LE 1(1B): substituted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 324(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section LE 1(4) heading: repealed (with effect on 1 April 2008), on 6 October 2009, pursuant to section 324(4) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section LE 1(4): repealed (with effect on 1 April 2008), on 6 October 2009, by section 324(4) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section LE 1(4B) heading: inserted, on 1 April 2008, by section 441(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section LE 1(4B): inserted, on 1 April 2008, by section 441(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section LE 1 list of deﬁned terms attributing interest: inserted, on 1 April 2008, by section 441(2) of the Taxation (Business Taxation and Remedial Mat- ters) Act 2007 (2007 No 109).
Section LE 1 list of deﬁned terms FIF: inserted, on 1 April 2008, by section 441(2) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section LE 1 list of deﬁned terms income: inserted, on 1 April 2008, by sec- tion 441(2) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section LE 1 list of deﬁned terms multi-rate PIE: inserted, on 1 April 2010, by section 324(5) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section LE 1 list of deﬁned terms portfolio tax rate entity: repealed, on 1 April 2010, by section 324(5) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
2145 Part L s LE 2 Income Tax Act 2007 Reprinted as at 30 August 2013 LE 2 Use of remaining credits by companies and trustees When this section applies This section applies when— (a) a person described in subsection (2) has an amount of tax credit remaining for a tax year under section LA 5(4) (Treatment of remaining credits): a life insurer has an amount of tax credit remaining for a tax year under section LA 5(4), but only to the extent to which the amount is for their shareholder base.
(b) Certain persons only The person referred to in subsection (1)(a) must be— a company that is not a life insurer; or (a) a trustee (other than the Maori trustee); or (b) a Maori authority.

(c) Calculating amount of tax loss component The person or the life insurer, as applicable, has a tax loss com- ponent for the corresponding income year equal to an amount calculated using the formula— person’s remaining credit tax rate.
Deﬁnition of items in formula In the formula,— (a) person’s remaining credit is the amount of the tax credit remaining for the tax year under section LA 5(4), but, for a life insurer, only to the extent to which the amount is for their shareholder base: tax rate is the basic rate of income tax set out in sched- ule 1, part A (Basic tax rates: income tax, ESCT, RSCT, RWT, and attributed fringe beneﬁts).
(b) Deﬁned in this Act: amount, company, corresponding income year, income tax, life insurer, Maori authority, shareholder base, tax loss component, tax year, trustee Compare: 2004 No 35 ss GC 22(4), (5), (9), GC 23, GC 24, LB 2(2B), (3) Section LE 2(1) heading: substituted, on 1 July 2010, by section 325(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section LE 2(1): substituted, on 1 July 2010, by section 325(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

(1) (2) (3) (4) 2146 Reprinted as at 30 August 2013 Income Tax Act 2007 Part L s LE 2B Section LE 2(2): amended, on 1 July 2010, by section 325(2)(a) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section LE 2(2)(a): amended, on 1 July 2010, by section 325(2)(b) of the Tax- ation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section LE 2(3): amended, on 1 July 2010, by section 325(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section LE 2(4)(a): amended, on 1 July 2010, by section 325(4) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section LE 2(4)(b): amended, on 1 April 2008, by section 562 of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section LE 2 list of deﬁned terms life insurer: inserted, on 1 July 2010, by section 325(5) of the Taxation (International Taxation, Life Insurance, and Re- medial Matters) Act 2009 (2009 No 34).
Section LE 2 list of deﬁned terms shareholder base: inserted, on 1 July 2010, by section 325(5) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
LE 2B Use of remaining credits by life insurer on policyholder base (1) (2) (3) When this section applies This section applies to a life insurer who has an amount of tax credit remaining for a tax year (the surplus credit year) under section LA 5(4) (Treatment of remaining credits), but only to the extent to which the amount is for their policyholder base.
Policyholder base allowable deduction The life insurer has a deduction included as their policyholder base allowable deduction, for the income year corresponding to the tax year after the surplus credit year equal to an amount calculated using the formula— policyholder remaining credit policyholder rate.
Deﬁnition of items in formula In the formula,— (a) policyholder remaining credit is the amount of the tax credit remaining for the surplus credit year under sec- tion LA 5(4), but only to the extent to which the amount is for the life insurer’s policyholder base: 2147 Part L s LE 3 Income Tax Act 2007 Reprinted as at 30 August 2013 (b) policyholder rate is the basic rate of income tax set out in schedule 1, part A, clause 8 (Basic tax rates: income tax, ESCT, RSCT, RWT, and attributed fringe beneﬁts).
Deﬁned in this Act: amount, deduction, income tax, income year, life insurer, policyholder base, policyholder base allowable deduction, tax credit, tax year Section LE 2B: inserted, on 1 July 2010, by section 326(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
LE 3 Use of remaining credits by others (1) (2) (3) When this section applies This section applies when a person other than a person referred to in section LE 2(2) or a life insurer has an amount of tax credit remaining for a tax year under section LA 5(4) (Treat- ment of remaining credits).

Amount carried forward The amount may be carried forward to the next tax year as a credit carried forward.
Amount of reduction The person’s credit is reduced by an amount equal to the amount carried forward and extinguished by the Commis- sioner under section 177C of the Tax Administration Act 1994.

Deﬁned in this Act: amount, Commissioner, life insurer, tax credit, tax year Compare: 2004 No 35 ss LB 1(1)(hb), LB 2(2B), (3B), (3C) Section LE 3(1): amended, on 1 July 2010, by section 327(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section LE 3 list of deﬁned terms life insurer: inserted, on 1 July 2010, by section 327(2) of the Taxation (International Taxation, Life Insurance, and Re- medial Matters) Act 2009 (2009 No 34).

LE 4 Trustees for minor beneﬁciaries (1) When this section applies This section applies when a person who has a tax credit under section LE 1 is the trustee of a trust for a minor who derives beneﬁciary income from the trust.
2148 Reprinted as at 30 August 2013 Income Tax Act 2007 Part L s LE 5 (2) Trustee treated as beneﬁciary To the extent to which section HC 7(2) (Trustee income) ap- plies, the person is treated as deriving the minor’s beneﬁciary income as a beneﬁciary.
Deﬁned in this Act: beneﬁciary income, minor, tax credit, trustee Compare: 2004 No 35 ss LB 1(1)(ab), LB 1A LE 5 Beneﬁciaries of trusts (1) (2) (3) When this section applies This section applies when a person who has a tax credit under section LE 1 is the beneﬁciary of a trust and, in that capacity, derives a dividend with an imputation credit attached.
Limitation on amount of credit The person’s credit is limited to an amount calculated using the formula— person’s distributions trust distributions × total beneﬁciary credits person’s supplementary dividend.
Deﬁnition of items in formula In the formula,— (a) person’s distributions is the total distributions for the tax year made to the person in their capacity as beneﬁ- ciary of the trust: trust distributions is the total distributions for the tax year made to all beneﬁciaries of the trust in their cap- acity as beneﬁciaries and includes all supplementary dividends paid to them: total beneﬁciary credits is the total imputation credits attached to dividends and total supplementary dividends for the tax year paid to all beneﬁciaries of the trust in their capacity as beneﬁciaries: person’s supplementary dividend is the total supple- mentary dividends for the tax year paid to the person in their capacity as beneﬁciary of the trust.
(b) (c) (d) Deﬁned in this Act: amount, distribution, dividend, imputation credit, pay, sup- plementary dividend, tax credit, tax year Compare: 2004 No 35 s LB 1(1)(a), (2)–(3A) 2149 Part L s LE 6 Income Tax Act 2007 Reprinted as at 30 August 2013 LE 6 Partners in partnerships When this section applies This section applies when a person who has a tax credit under section LE 1 is a partner in a partnership and, through the part- nership, derives a dividend with an imputation credit attached.
Limitation on amount of credit The person’s credit is limited to an amount calculated using the formula— partner’s income partnership income × partnership imputation credits partner’s supplementary dividend.
Deﬁnition of items in formula In the formula,— (a) (ii) partner’s income is the total assessable income of the person for the tax year derived as a partner of the part- nership excluding— (i) an imputation credit or a foreign dividend pay- ment (FDP) credit attached to a dividend derived by the person: a supplementary dividend derived by the person as a non-resident partner of the partnership: partnership income is the total assessable income for the tax year of all the partners of the partnership exclud- ing— (i) all imputation credits and FDP credits attached to dividends derived by the partners: all supplementary dividends derived by non-resi- dent partners of the partnership: (ii) partnership imputation credits is the total imputation credits attached to dividends and total supplementary dividends for the tax year derived by all partners of the partnership: partner’s supplementary dividend is the total supple- mentary dividends for the tax year derived by the person as a non-resident partner of the partnership.
(b) (c) (d) Deﬁned in this Act: amount, assessable income, dividend, FDP credit, imput- ation credit, non-resident, supplementary dividend, tax credit, tax year Compare: 2004 No 35 s LB 1(1)(b), (4), (4A), (4B) (1) (2) (3) 2150 Reprinted as at 30 August 2013 Income Tax Act 2007 Part L s LE 7B LE 7 Credit transfer notices (1) (2) When this section applies This section applies in relation to a tax credit when a share supplier is given a credit transfer notice under section 30C of the Tax Administration Act 1994 by a share user under a share- lending arrangement.
Amount of reduction The person’s credit is limited to the amount shown in the credit transfer notice.
Deﬁned in this Act: amount, credit transfer notice, share-lending arrangement, share supplier, share user, tax credit Compare: 2004 No 35 s LB 2(1C) LE 7B Credit of RSCT for imputation credit Retirement scheme contributions (1) A retirement scheme contributor who attaches an imputation credit to a retirement scheme contribution for a person in an income year has a tax credit for the corresponding tax year of an amount equal to the lesser of— (a) (b) the amount of the imputation credit: the liability of the contributor for RSCT on the contri- bution.
(2) When credit more than liability If the amount of the imputation credit is more than the liability of the contributor for RSCT on the contribution,— (a) the amount of the excess is treated as an imputation credit attached to a distribution from the contributor to the person; and the person responsible for withholding the RSCT must, within 30 days of the contribution, notify the person of the amount of the excess credit.
(b) Deﬁned in this Act: amount, imputation credit, income year, notify, retirement scheme contribution, retirement scheme contributor, RSCT, tax credit, tax year Compare: 2004 No 35 s LB 3 Section LE 7B: inserted, on 1 April 2008, by section 442 of the Taxation (Busi- ness Taxation and Remedial Matters) Act 2007 (2007 No 109).
2151 Part L s LE 8 Income Tax Act 2007 Reprinted as at 30 August 2013 LE 8 Application of imputation ratio (1) (2) When this section applies This section applies when a person who has a tax credit under section LE 1 receives an imputation credit attached to a divi- dend, and the dividend has an imputation ratio greater than the maximum permitted ratio calculated under section OA 18 (Calculation of maximum permitted ratios).
Section OZ 10 (Modifying ratios for imputation credits and FDP credits) may apply to modify this section.

Amount of reduction The person’s credit is reduced by an amount equal to the amount by which the credit is greater than the maximum permitted ratio.
Deﬁned in this Act: amount, dividend, imputation credit, imputation ratio, maximum permitted ratio, tax credit Compare: 2004 No 35 s LB 1(1)(c) Section LE 8(1): amended, on 1 April 2008, by section 443 of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
LE 9 Application of combined imputation and FDP ratio (1) When this section applies This section applies when— (a) a person who has a tax credit under section LE 1 re- ceives an imputation credit and an FDP credit attached to a dividend; and an excess credit amount arises in relation to the divi- dend; and the FDP credit is equal to or less than the excess credit amount.
(b) (c) (2) Amount of reduction The person’s credit for the dividend is reduced by an amount calculated using the formula— excess credit amount for dividend attached FDP credit.

 2152 Reprinted as at 30 August 2013 Income Tax Act 2007 Part L s LE 11 (3) Relationship with section OZ 10 Section OZ 10 (Modifying ratios for imputation credits and FDP credits) may apply to modify this section.
Deﬁned in this Act: amount, combined imputation and FDP ratio, dividend, excess credit amount, FDP credit, imputation credit, tax credit Compare: 2004 No 35 s LB 1(1)(e), (5) Section LE 9(3) heading: added, on 1 April 2008, by section 444 of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section LE 9(3): added, on 1 April 2008, by section 444 of the Taxation (Busi- ness Taxation and Remedial Matters) Act 2007 (2007 No 109).
LE 10 When income tax unpaid (1) (2) (3) When this section applies This section applies when— (a) (b) (c) a person has a tax credit under section LE 1 and an imputation credit is attached to a dividend; and the dividend is paid by a company that has a debit bal- ance in its imputation credit account at the end of the tax year; and the company has not paid further income tax by the due date in section OB 65(3) (Further income tax for ICA closing debit balance).
Amount of reduction The Commissioner may reduce the person’s credit by an amount equal to their proportion of the unpaid amount under subsection (1)(c).

When failure to pay remedied To the extent to which a company remedies the failure after the due date, this section does not apply.
Deﬁned in this Act: amount, Commissioner, company, dividend, further income tax, imputation credit, imputation credit account, pay, tax credit, tax year Compare: 2004 No 35 ss LB 1(1)(h), LB 2(5), (6) LE 11 Evidential requirements If a person who has a tax credit under section LE 1 does not meet the evidential requirements of section 78D of the Tax Administration Act 1994, the person’s credit may be reduced.
Deﬁned in this Act: tax credit Compare: 2004 No 35 ss LB 1(1)(f), LB 2(4) 2153 Income Tax Act 2007 Reprinted as at 30 August 2013 Subpart LF—Tax credits for foreign dividend payment (FDP) credits Contents Tax credits for FDP credits Trustees for minor beneﬁciaries Beneﬁciaries of trusts Partners in partnerships Credit transfer notices LF 1 LF 2 LF 3 LF 4 LF 5 LF 6 Application of FDP ratio LF 7 Application of combined imputation and FDP ratio LF 8 Credits for persons who are non-resident or who receive exempt income LF 9 When income tax unpaid LF 10 Evidential requirements Page 2154 2155 2156 2157 2158 2158 2158 2159 2160 2161 LF 1 Tax credits for FDP credits Amount of credit (1) A person whose assessable income for an income year in- cludes a foreign dividend payment (FDP) credit has a tax credit equal to the amount of the FDP credit for the tax year corres- ponding to the income year.
Section OZ 11 (Tax credits for imputation credits and FDP credits) may apply to modify this section.

(2) Exclusion For a returning share transfer, a share user does not have a tax credit for an imputation credit attached to a dividend derived in a period in which they hold a share acquired under the transfer.

However, a person providing a share under a returning share transfer is allowed a tax credit for the amount of an imputation credit recorded in the credit transfer notice, see section LF 5.
(3) When amount adjusted The amount of the person’s credit in subsection (1) may be reduced or increased if any of sections LF 2 to LF 9 apply.

2154 Reprinted as at 30 August 2013 Income Tax Act 2007 Part L s LF 2 (4) Multi-rate PIEs and their investors For a multi-rate PIE and an investor in a multi-rate PIE, the amount of a tax credit is limited to the extent allowed under subpart HM (Portfolio investment entities).
Arrangements for tax advantage (5) A person’s tax credit under this section is extinguished if either of the following sections apply: (a) section GB 36 (Reconstruction of imputation arrange- ments to obtain tax advantage): section GB 38 (When sections GB 35 to GB 37 apply to consolidated groups).

(b) (6) Relationship of sections in this subpart Sections LF 1 to LF 7, LF 9, and LF 10 do not apply in relation to a non-resident or a person who receives exempt income as set out in section LF 8.
Deﬁned in this Act: amount, assessable income, corresponding income year, credit transfer notice, dividend, exempt income, FDP credit, imputation credit, income year, investor, multi-rate PIE, non-resident, returning share transfer, share, share user, tax year Compare: 2004 No 35 ss LB 1(1)(l), LD 8(1), (1B), (1C) Section LF 1(1): amended, on 1 April 2008, by section 445 of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section LF 1(4) heading: substituted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 328(1) of the Taxation (International Taxa- tion, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section LF 1(4): substituted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 328(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section LF 1 list of deﬁned terms multi-rate PIE: inserted, on 1 April 2010, by section 328(2)(b) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section LF 1 list of deﬁned terms portfolio tax rate entity: repealed, on 1 April 2010, by section 328(2)(a) of the Taxation (International Taxation, Life Insur- ance, and Remedial Matters) Act 2009 (2009 No 34).
LF 2 Trustees for minor beneﬁciaries (1) When this section applies This section applies when a person who has a tax credit under section LF 1 is the trustee of a trust for a minor who derives beneﬁciary income from the trust.

2155 Part L s LF 3 Income Tax Act 2007 Reprinted as at 30 August 2013 (2) Trustee treated as beneﬁciary To the extent to which section HC 7(2) (Trustee income) ap- plies, the person is treated as deriving the minor’s beneﬁciary income as a beneﬁciary.
Deﬁned in this Act: beneﬁciary income, minor, tax credit, trustee Compare: 2004 No 35 ss LB 1(1)(ab), LB 1A LF 3 Beneﬁciaries of trusts When this section applies This section applies when a person who has a tax credit under section LF 1 is the beneﬁciary of a trust and, in that capacity, derives a dividend with an FDP credit attached.
Limitation on amount of credit The person’s tax credit is limited to an amount calculated using the formula— person’s distributions trust distributions × total beneﬁciary credits person’s supplementary dividend.
Deﬁnition of items in formula In the formula,— (a) person’s distributions is the total distributions for the tax year made to the person in their capacity as beneﬁ- ciary of the trust: trust distributions is the total distributions for the tax year made to all beneﬁciaries of the trust in their cap- acity as beneﬁciaries, and includes all supplementary dividends paid to them: total beneﬁciary credits is the total FDP credits at- tached to dividends and total supplementary dividends for the tax year paid to all beneﬁciaries of the trust in their capacity as beneﬁciaries: person’s supplementary dividend is the total supple- mentary dividends for the tax year paid to the person in their capacity as beneﬁciary of the trust.
(b) (c) (d) Deﬁned in this Act: amount, distribution, dividend, FDP credit, supplementary dividend, tax credit, tax year Compare: 2004 No 35 s LB 1(1)(a), (2), (3), (3A) (1) (2) (3) 2156 Reprinted as at 30 August 2013 Income Tax Act 2007 Part L s LF 4 LF 4 Partners in partnerships When this section applies This section applies when a person who has a tax credit under section LF 1 is a partner in a partnership and, through the part- nership, derives a dividend with an FDP credit attached.
Limitation on amount of credit The person’s credit is limited to an amount calculated using the formula— partner’s income partnership income × partnership FDP credits partner’s supplementary dividend.
(1) (2) (3) Deﬁnition of items in formula In the formula,— (a) (ii) partner’s income is the total assessable income of the person for the tax year derived as a partner of the part- nership excluding— (i) an imputation credit or FDP credit attached to a dividend derived by the person: a supplementary dividend derived by the person as a non-resident partner of the partnership: partnership income is the total assessable income for the tax year of all the partners of the partnership exclud- ing— (i) all imputation credits and FDP credits attached to any dividends derived by the partners: all supplementary dividends derived by non-resi- dent partners of the partnership: (ii) partnership FDP credits is the total FDP credits at- tached to dividends and total supplementary dividends derived for the tax year by all partners of the partner- ship: partner’s supplementary dividend is the total supple- mentary dividends for the tax year derived by the person as a non-resident partner of the partnership.
(b) (c) (d) Deﬁned in this Act: amount, assessable income, dividend, FDP credit, imput- ation credit, non-resident, supplementary dividend, tax credit, tax year Compare: 2004 No 35 s LB 1(1)(b), (4), (4A), (4B) 2157 Part L s LF 5 Income Tax Act 2007 Reprinted as at 30 August 2013 LF 5 Credit transfer notices (1) (2) When this section applies This section applies when a share supplier is given a credit transfer notice under section 30C of the Tax Administration Act 1994 by a share user under a share-lending arrangement.
Amount of reduction The share supplier’s tax credit is limited to the amount of FDP shown in the credit transfer notice.
Deﬁned in this Act: amount, credit transfer notice, FDP, share-lending arrange- ment, share supplier, share user, tax credit Compare: 2004 No 35 s LD 8(1C) LF 6 Application of FDP ratio (1) (2) When this section applies This section applies when a person who has a tax credit under section LF 1 receives an FDP credit attached to a dividend, and the dividend has an FDP ratio greater than the maximum permitted ratio calculated under section OA 18 (Calculation of maximum permitted ratios).
Section OZ 10 (Modifying ratios for imputation credits and FDP credits) may apply to modify this section.

Amount of reduction The person’s credit is reduced by an amount equal to the amount by which the credit is greater than the maximum permitted ratio.
Deﬁned in this Act: amount, dividend, FDP credit, FDP ratio, maximum per- mitted ratio, tax credit Compare: 2004 No 35 s LB 1(1)(d) Section LF 6(1): amended, on 1 April 2008, by section 446 of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
LF 7 Application of combined imputation and FDP ratio When this section applies This section applies when— (a) a person who has a tax credit under section LF 1 receives an imputation credit and an FDP credit attached to a dividend; and (1) 2158 Reprinted as at 30 August 2013 Income Tax Act 2007 Part L s LF 8 (b) (c) an excess credit amount arises in relation to the divi- dend; and the FDP credit is equal to or less than the excess credit amount.
Amount of reduction The person’s credit is reduced by an amount calculated using the formula— excess credit amount for dividend FDP credit attached.

Relationship with section OZ 10 Section OZ 10 (Modifying ratios for imputation credits and FDP credits) may apply to modify this section.
Deﬁned in this Act: amount, dividend, excess credit amount, FDP credit, im- putation credit, tax credit Compare: 2004 No 35 s LB 1(1)(e), (5) (2) (3) Section LF 7(3) heading: added, on 1 April 2008, by section 447 of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section LF 7(3): added, on 1 April 2008, by section 447 of the Taxation (Busi- ness Taxation and Remedial Matters) Act 2007 (2007 No 109).
LF 8 Credits for persons who are non-resident or who receive exempt income (1) (2) (3) When this section applies This section applies for a tax year when a company resident in New Zealand pays a dividend with an FDP credit attached to a person as shareholder if— (a) (b) the person is non-resident; or the person is resident in New Zealand and the dividend is exempt income other than under sections CW 9 and CW 10 (which relate to dividends that are exempt in- come).
Amount of tax credit The person has a tax credit for the tax year equal to the amount of the FDP credit attached to the dividend.

When amount altered The amount of the person’s credit in subsection (2) may be reduced or increased to the extent to which— (a) any of sections LF 2 to LF 7 apply: 2159 Part L s LF 9 Income Tax Act 2007 Reprinted as at 30 August 2013 (b) an FDP credit is used for a tax year to reduce the per- son’s liability under section RF 14 (Treatment of FDP credits).
Arrangements for tax advantage (4) A person’s tax credit under this section is extinguished if sec- tions GB 35 (Imputation arrangements to obtain tax advan- tage) and GB 36 (Reconstruction of imputation arrangements to obtain tax advantage) apply.

(5) Refunds To obtain a refund of the credit, the person must— (a) ask the Commissioner for the refund after the 31 May that follows the end of the tax year; and (b) meet the requirements of section 78D of the Tax Ad- ministration Act 1994.
Deﬁned in this Act: amount, Commissioner, company, dividend, exempt in- come, FDP credit, non-resident, pay, resident in New Zealand, shareholder, tax credit, tax year Compare: 2004 No 35 ss LB 1(1)(d), (l), LD 9 Section LF 8(1): substituted (with effect on 1 April 2008), on 21 December 2010 (applying for the 2008–09 and later income years), by section 108(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section LF 8(1)(b): amended (with effect on 1 July 2011), on 2 November 2012 (applying for income years beginning on or after 1 July 2009), by section 116(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
LF 9 When income tax unpaid When this section applies This section applies when— (a) (b) (c) a person has a tax credit under section LF 1 and an FDP credit is attached to a dividend; and the dividend is paid by a company that has a debit bal- ance in its FDP account at the end of the tax year; and the company has not paid further income tax by the due date referred to in section OB 65(3) (Further income tax for ICA closing debit balance).
Amount of reduction The Commissioner may reduce the person’s credit by an amount equal to their proportion of the unpaid amount under subsection (1)(c).

(1) (2) 2160 Reprinted as at 30 August 2013 Income Tax Act 2007 Part L s LF 10 (3) When failure to pay remedied To the extent to which a company remedies the failure after the due date, this section does not apply.
Deﬁned in this Act: amount, Commissioner, company, dividend, FDP account, FDP credit, further income tax, pay, tax credit, tax year Compare: 2004 No 35 ss LB 1(1)(i), LD 8(4), (5) LF 10 Evidential requirements If a person who has a tax credit under section LF 1 does not meet the evidential requirements of section 78D of the Tax Administration Act 1994, the person’s credit may be reduced.
Deﬁned in this Act: tax credit Compare: 2004 No 35 ss LB 1(1)(g), LD 8(3) Subpart LH—Tax credits for expenditure on research and development Subpart LH: inserted, on 1 April 2008, by section 448 of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Contents LH 1 Who this subpart applies to [Repealed] LH 2 Tax credits relating to expenditure on research and development [Repealed] LH 3 Requirements [Repealed] LH 4 Calculation of amount of credit [Repealed] LH 5 Adjustments to eligible expenditure [Repealed] LH 6 Research and development activities outside New Zealand [Repealed] LH 7 Research and development activities and related terms LH 8 Orders in Council [Repealed] LH 9 LH 10 Internal software development: no associated internal Internal software development: general [Repealed] software developer [Repealed] LH 11 Internal software development: associated internal software developer with same income year [Repealed] LH 12 Internal software development: associated internal software developer with different income year [Repealed] LH 13 Internal software development: limit [Repealed] LH 14 Treatment of depreciation loss for certain depreciable property [Repealed] Page 2162 2162 2162 2162 2162 2162 2163 2164 2164 2164 2164 2164 2165 2165 2161 Part L s LH 1 Income Tax Act 2007 Reprinted as at 30 August 2013 LH 14B Recovery of overpaid tax credit LH 15 Listed research providers [Repealed] LH 16 Industry research co-operatives [Repealed] LH 17 Some deﬁnitions 2165 2165 2165 2165 LH 1 Who this subpart applies to [Repealed] Section LH 1: repealed, on 1 April 2009, by section 19(1)(c) of the Taxation (Urgent Measures and Annual Rates) Act 2008 (2008 No 105).
LH 2 Tax credits relating to expenditure on research and development [Repealed] Section LH 2: repealed, on 1 April 2009, by section 19(1)(c) of the Taxation (Urgent Measures and Annual Rates) Act 2008 (2008 No 105).

LH 3 Requirements [Repealed] Section LH 3: repealed, on 1 April 2009, by section 19(1)(c) of the Taxation (Urgent Measures and Annual Rates) Act 2008 (2008 No 105).
LH 4 Calculation of amount of credit [Repealed] Section LH 4: repealed, on 1 April 2009, by section 19(1)(c) of the Taxation (Urgent Measures and Annual Rates) Act 2008 (2008 No 105).

LH 5 Adjustments to eligible expenditure [Repealed] Section LH 5: repealed, on 1 April 2009, by section 19(1)(c) of the Taxation (Urgent Measures and Annual Rates) Act 2008 (2008 No 105).
LH 6 Research and development activities outside New Zealand [Repealed] Section LH 6: repealed, on 1 April 2009, by section 19(1)(c) of the Taxation (Urgent Measures and Annual Rates) Act 2008 (2008 No 105).
2162 Reprinted as at 30 August 2013 Income Tax Act 2007 Part L s LH 7 LH 7 Research and development activities and related terms (1) (2) (3) (4) Research and development activities In this subpart, research and development activities of a per- son are— (a) systematic, investigative, and experimental activities that are performed for the purposes of acquiring new knowledge or creating new or improved materials, products, devices, processes, or services and that— (i) are intended to achieve an advance in science or technology by resolving scientiﬁc or technologi- cal uncertainty: involve an appreciable element of novelty: (ii) other activities that are wholly or mainly for the purpose of, required for, and integral to, the performing of the activities referred to in paragraph (a).
(b) Systematic, investigative, and experimental activities In this subpart, systematic, investigative, and experimental activities of a person are activities that— (a) are planned activities directed towards a particular pur- pose and following a logical progression of work in- volving hypothesis, experiment, observation, and evalu- ation; and are not excluded under schedule 21, part C (Expenditure and activities related to research and development).
(b) Scientiﬁc or technological uncertainty In this subpart, scientiﬁc or technological uncertainty means uncertainty concerning the scientiﬁc or technological possibil- ity of a thing, or the achievement of the thing in practice, cre- ated by an absence of relevant knowledge from the knowledge that is publicly available or deducible by a competent profes- sional working in the ﬁeld.
Novelty In this subpart, novelty means a development of technology or a new use of existing technology, by comparison with the knowledge of the technology that is publicly available on a reasonably accessible worldwide basis.

2163 Part L s LH 8 Income Tax Act 2007 Reprinted as at 30 August 2013 (5) Technology In this subpart, technology means the practical application of scientiﬁc principles and knowledge.
Deﬁned in this Act: novelty, research and development activities, scientiﬁc or technological uncertainty, systematic, investigative, and experimental activities, technology Section LH 7: inserted, on 1 April 2008, by section 448 of the Taxation (Busi- ness Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section LH 7 compare note: repealed (with effect on 1 April 2008), on 6 October 2009, by section 329 of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

LH 8 Orders in Council [Repealed] Section LH 8: repealed, on 1 April 2009, by section 19(1)(c) of the Taxation (Urgent Measures and Annual Rates) Act 2008 (2008 No 105).