New Zealand

Reprint as at 1 April 2014

Income Tax Act 2007

Public Act 2007 No 97 Date of assent 1 November 2007

Commencement see section A 2

Contents Page

A 1 Title 124 A 2 Commencement 124

Part A Purpose and interpretation

AA 1 Purpose of Act 126 AA 2 Interpretation 126 AA 3 Definitions 126 AA 4 Crown bound 127

Part B Core provisions

Subpart BA—Purpose BA 1 Purpose 129

Subpart BB—Income tax and resulting obligations BB 1 Imposition of income tax 129 BB 2 Main obligations 130

Note Changes authorised by subpart 2 of Part 2 of the Legislation Act 2012 have been made in this official reprint. Note 4 at the end of this reprint provides a list of the amendments incorporated. This Act is administered by the Inland Revenue Department.

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Income Tax Act 2007 Reprinted as at 1 April 2014

BB 3 Overriding effect of certain matters 130

Subpart BC—Calculating and satisfying income tax liabilities

BC 1 Non-filing and filing taxpayers 134 BC 2 Annual gross income 134 BC 3 Annual total deduction 134 BC 4 Net income and net loss 135 BC 5 Taxable income 135 BC 6 Income tax liability of filing taxpayer 137 BC 7 Income tax liability of person with schedular income 137 BC 8 Satisfaction of income tax liability 140

Subpart BD—Income, deductions, and timing BD 1 Income, exempt income, excluded income, non-residents’

foreign-sourced income, and assessable income 141

BD 2 Deductions 142 BD 3 Allocation of income to particular income years 142 BD 4 Allocation of deductions to particular income years 143

Subpart BE—Withholding liabilities BE 1 Withholding liabilities 144

Subpart BF—Other obligations BF 1 Other obligations 146

Subpart BG—Avoidance BG 1 Tax avoidance 147

Subpart BH—Double tax agreements BH 1 Double tax agreements 147

Part C Income

Subpart CA—General rules CA 1 Amounts that are income 150 CA 2 Amounts that are exempt income or excluded income 150

Subpart CB—Income from business or trade-like activities Business generally

CB 1 Amounts derived from business 153 CB 2 Amounts received on disposal of business assets that

include trading stock 153

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Schemes for profit CB 3 Profit-making undertaking or scheme 154

Personal property CB 4 Personal property acquired for purpose of disposal 154 CB 5 Business of dealing in personal property 154

Land CB 6 Disposal: land acquired for purpose or with intention of

disposal 155

CB 7 Disposal: land acquired for purposes of business relating to land

155

CB 8 Disposal: land used for landfill, if notice of election 156 CB 9 Disposal within 10 years: land dealing business 157 CB 10 Disposal within 10 years: land development or subdivision

business 158

CB 11 Disposal within 10 years of improvement: building business

158

CB 12 Disposal: schemes for development or division begun within 10 years

159

CB 13 Disposal: amount from major development or division and not already in income

160

CB 14 Disposal: amount from land affected by change and not already in income

161

CB 15 Transactions between associated persons 162

Exclusions for residential land CB 16 Residential exclusion from sections CB 6 to CB 11 163 CB 17 Residential exclusion from sections CB 12 and CB 13 163 CB 18 Residential exclusion from section CB 14 164

Exclusions for business premises CB 19 Business exclusion from sections CB 6 to CB 11 165 CB 20 Business exclusion from sections CB 12 and CB 13 165

Exclusions for farm land CB 21 Farm land exclusion from sections CB 12 and CB 13 166 CB 22 Farm land exclusion from section CB 14 167

Exclusion for investment land CB 23 Investment exclusion from sections CB 12 and CB 13 167 CB23B Land partially sold or sold with other land 168

Timber CB 24 Disposal of timber or right to take timber 168

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Income Tax Act 2007 Reprinted as at 1 April 2014

CB 25 Disposal of land with standing timber 169

Investments CB 26 Disposal of certain shares by portfolio investment entities 169

Farming, forestry, or fishing CB 27 Income equalisation schemes 170 CB27B Entering partners’ livestock income [Repealed] 171

Environmental restoration CB 28 Environmental restoration accounts 171

Minerals CB 29 Disposal of minerals 173

Intellectual property CB 30 Sale of patent applications or patent rights 173

Transfer of business CB 31 Sale of business: transferred employment income

obligations 173

Stolen property CB 32 Property obtained by theft 174

Look-through companies CB32B Owners of look-through companies 174 CB32C Income for first year of look-through company 175

Mutual associations CB 33 Amounts derived by mutual associations 178 CB 34 Amounts derived by members from mutual associations 178

Partners and partnerships CB 35 Amounts of income for partners 179

Emissions units under Climate Change Response Act 2002

CB 36 Disposal of emissions units 180

Subpart CC—Income from holding property (excluding equity) Land use

CC 1 Land 184 CC 1B Consideration for agreement to grant, renew, extend, or

transfer leasehold estate or licence 185

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CC 1C Consideration for agreement to surrender leasehold estate or terminate licence

185

CC 2 Non-compliance with covenant for repair 186

Financial instruments CC 3 Financial arrangements 186 CC 4 Payments of interest 187 CC 5 Annuities 187 CC 6 Prizes received under Building Societies Act 1965 188 CC 7 Consideration other than in money 188 CC 8 Use of money interest payable by Commissioner 189 CC 8B Certain commercial bills: non-resident holders 189

Royalties CC 9 Royalties 190 CC 10 Films 191

Finance leases CC 11 Lessee acquiring lease asset on expiry of term of lease 192 CC 12 Lessor acquiring lease asset on expiry of term of lease 193

Hire purchase agreements CC 13 Amounts paid in income years after hire purchase

agreement ends 193

Subpart CD—Income from equity Income

CD 1 Dividend 196 CD 2 Distribution excluded from being dividend 196

What is a dividend? CD 3 Meaning of dividend 196 CD 4 Transfers of value generally 197 CD 5 What is a transfer of value? 197 CD 6 When is a transfer caused by a shareholding relationship? 198 CD 7 Bonus issues in lieu of dividend 199 CD7B Shares issued under profit distribution plans 200 CD 8 Elections to make bonus issue into dividend 200 CD 9 Interests in money or property of foreign unit trust 201 CD 10 Bonus issue by foreign unit trust instead of money or

property 201

CD 11 Avoidance arrangements 202 CD 12 Superannuation schemes entering trust rules 202

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Income Tax Act 2007 Reprinted as at 1 April 2014

CD 13 Notional distributions of producer boards and co-operative companies

203

CD 14 Notional distributions of emigrating companies 203 CD 15 Tax credits linked to dividends 204 CD 16 Certain dividends not increased by tax credits 204 CD 17 Credit transfer notice 205 CD 18 Dividend reduced if foreign tax paid on company’s

income 206

CD 19 Foreign tax credits and refunds linked to dividends 207 CD 20 Benefits of shareholder-employees or directors 207 CD 21 Attributed repatriations from controlled foreign

companies [Repealed] 208

What is not a dividend? CD 22 Returns of capital: off-market share cancellations 208 CD 23 Ordering rule and slice rule 213 CD23B Returns of capital: shares repurchased under profit

distribution plans 214

CD 24 Returns of capital: on-market share cancellations 214 CD 25 Treasury stock acquisitions 215 CD 26 Capital distributions on liquidation or emigration 217 CD 27 Property made available intra-group 217 CD 28 Transfers of certain excepted financial arrangements

within wholly-owned groups 220

CD 29 Non-taxable bonus issues 220 CD29B Issues to shareholders of rights to subscribe for or sell

back shares 220

CD 30 Transfer by unit trust of legal interest after beneficial interest vests

221

CD 31 Flat-owning companies 221 CD 32 Employee benefits 222 CD 33 Payments corresponding to notional distributions of

producer boards and co-operative companies 222

CD 34 Distribution to member of co-operative company based on member’s transactions [Repealed]

223

CD34B Distributions to members of co-operative companies 223 CD 35 Resident’s restricted amalgamations 226 CD 36 Foreign investment fund income 226 CD36B Foreign superannuation withdrawals and pensions from

foreign superannuation scheme 229

CD 37 Maori authority distributions 229

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Calculation rules CD 38 General calculation rule for transfers of value 229 CD 39 Calculation of amount of dividend when property made

available 230

CD 40 Adjustment if dividend recovered by company 233 CD 41 Adjustment if amount repaid later 235 CD 42 Adjustment if additional consideration paid 236 CD 43 Available subscribed capital (ASC) amount 237 CD 44 Available capital distribution amount 245

Attributed repatriation calculation rules [Repealed]

CD 45 When does a person have attributed repatriation from a controlled foreign company? [Repealed]

251

CD 46 New Zealand repatriation amount [Repealed] 251 CD 47 New Zealand property amount [Repealed] 251 CD 48 Cost of tangible property [Repealed] 252 CD 49 Cost of associated party equity [Repealed] 252 CD 50 Outstanding balances of financial

arrangements [Repealed] 252

CD 51 Property transfers between associated persons [Repealed] 252 CD 52 Unrepatriated income balance [Repealed] 252

Prevention of double taxation CD 53 Prevention of double taxation of share cancellation

dividends 252

Returning share transfers CD 54 Replacement payments 254

Subpart CE—Employee or contractor income Employment income

CE 1 Amounts derived in connection with employment 255 CE 2 Value and timing of benefits under share purchase

agreements 257

CE 3 Restrictions on disposal of shares under share purchase agreements

259

CE 4 Adjustments to value of benefits under share purchase agreements

260

Definitions CE 5 Meaning of expenditure on account of an employee 260 CE 6 Meaning of share: when share acquired 262 CE 7 Meaning of share purchase agreement 262

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Attributed income CE 8 Attributed income from personal services 263

Restrictive covenants and exit inducement payments CE 9 Restrictive covenants 263 CE 10 Exit inducements 265

Income protection insurance CE 11 Proceeds from claims under policies of income protection

insurance 265

Tax credits CE 12 Tax credits for personal service rehabilitation payments 265

Subpart CF—Income from living allowances, foreign superannuation, compensation, and government grants

CF 1 Benefits, pensions, compensation, and government grants 266 CF 2 Remission of specified suspensory loans 269 CF 3 Withdrawals from foreign superannuation scheme 269

Subpart CG—Recoveries CG 1 Amount of depreciation recovery income 278 CG 2 Remitted amounts 278 CG 3 Bad debt repayment 279 CG 4 Receipts for expenditure or loss from insurance,

indemnity, or otherwise 279

CG 5 Recoveries or receipts by employers from superannuation schemes

280

CG5B Receipts from insurance, indemnity, or compensation for interruption or impairment of business activities

280

CG 6 Receipts from insurance, indemnity, or compensation for trading stock

281

CG 7 Recoveries after deduction of payments under lease 282 CG 8 Capital contributions 282

Subpart CH—Adjustments Matching rules: revenue account property, prepayments,

and deferred payments CH 1 Adjustment for closing values of trading stock, livestock,

and excepted financial arrangements 284

CH 2 Adjustment for prepayments 285 CH 3 Adjustment for deferred payment of employment income 285

Change to accounting practice CH 4 Adjustment for change to accounting practice 285

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Goods and services tax (GST) CH 5 Adjustment for GST 286

Finance leases CH 6 Adjustments for certain finance and operating leases 286

Avoidance and non-market transactions CH 7 Adjustment for avoidance arrangements 287 CH 8 Market value substituted 287

Interest apportionment on thin capitalisation CH 9 Interest apportionment: excess debt entity 288 CH 10 Interest apportionment: reporting bank 288

Subpart CO—Income from voluntary activities CO 1 Income from voluntary activities 289

Subpart CP—Income from portfolio investment entities CP 1 Attributed income of investors in multi-rate PIEs 289

Subpart CQ—Attributed income from foreign equity Attributed controlled foreign company income

CQ 1 Attributed controlled foreign company income 290 CQ 2 When attributed CFC income arises 290 CQ 3 Calculation of attributed CFC income 294

Foreign investment fund income CQ 4 Foreign investment fund income 294 CQ 5 When FIF income arises 294 CQ 6 Calculation of FIF income 299 CQ 7 Treatment of attributing interests subject to returning

share transfer [Repealed] 299

Subpart CR—Income from insurance CR 1 Policyholder base income of life insurer 300 CR 2 Shareholder base income of life insurer 300 CR 3 Income of non-resident general insurer 300 CR 4 Income for general insurance outstanding claims reserve 302

Subpart CS—Superannuation funds [Repealed]

Withdrawals [Repealed]

CS 1 Withdrawals [Repealed] 306

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Exclusions [Repealed]

CS 2 Exclusions of withdrawals of various kinds [Repealed] 306 CS 3 Exclusion of withdrawal on grounds of

hardship [Repealed] 306

CS 4 Exclusion of withdrawal to settle division of relationship property [Repealed]

306

CS 5 Exclusion of withdrawal paid as annuity or pension [Repealed]

306

CS 6 Exclusion of withdrawal on partial retirement [Repealed] 306 CS 7 Exclusion of withdrawal when member ends

employment [Repealed] 307

CS 8 Exclusion of withdrawal when member ends employment: lock-in rule [Repealed]

307

CS 9 Exclusion of withdrawal from defined benefit fund when member ends employment [Repealed]

307

CS 10 When member treated as not ending employment [Repealed]

307

CS 10B Exclusion of permitted withdrawals from KiwiSaver schemes and complying superannuation funds [Repealed]

307

Transfers to or from superannuation funds and superannuation schemes

[Repealed] CS 11 Transfer by superannuation fund to another superannuation

fund [Repealed] 308

CS 12 Transfer from superannuation scheme to superannuation fund [Repealed]

308

CS 13 Investment by superannuation fund in another superannuation fund [Repealed]

308

Treatment of amounts when superannuation fund becomes superannuation scheme or vice versa

[Repealed] CS 14 Superannuation fund becomes superannuation

scheme [Repealed] 308

CS 15 Superannuation fund becomes foreign superannuation scheme [Repealed]

308

CS 16 Superannuation scheme becomes superannuation fund [Repealed]

309

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Treatment of distributions when superannuation fund wound up [Repealed]

CS 17 Superannuation fund wound up [Repealed] 309

Treatment of loans to members [Repealed]

CS 18 Value of loan treated as fund income [Repealed] 309

Subpart CT—Income from petroleum mining CT 1 Disposal of exploratory material or petroleum mining

asset 310

CT 2 Damage to assets 310 CT 3 Exploratory well used for commercial production 310 CT 4 Partnership interests and disposal of part of asset 311 CT 5 Petroleum mining operations outside New Zealand 312

Definitions CT 6 Meaning of petroleum miner 312 CT 6B Meaning of petroleum mining operations 313 CT 7 Meaning of petroleum mining asset 314

Subpart CU—Income from mineral mining CU 1 Mineral miner’s income 315 CU 2 Treatment of mining land 316 CU 3 Disposal of mineral mining assets 316 CU 4 Recovery of certain expenditure 317 CU 5 Partnership interests and disposal of part of asset 317

Definitions CU 6 Meaning of mineral miner 318 CU 7 Some definitions 319 CU 8 Meaning of listed industrial mineral 320 CU 9 Some definitions 321

Subpart CV—Income specific to certain entities CV 1 Group companies 323 CV 2 Consolidated groups: income of company in group 323 CV 3 Consolidated groups: arrangement for disposal of shares 323 CV 4 Amalgamated companies: amount derived after

amalgamation 324

CV 5 Statutory producer boards 324 CV 6 Crown Research Institutes 324 CV 7 Australian wine producer rebate 325

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CV 8 Regulations: Australian wine producer rebate 325 CV 9 Supplementary dividend holding companies 326 CV 10 Foreign dividend payment account companies or conduit

tax relief companies [Repealed] 327

CV 11 Maori authorities 327 CV 12 Trustees: amounts received after person’s death 327 CV 13 Amounts derived from trusts 328 CV 14 Distributions from community trusts 328 CV 15 Amounts derived from trusts while person absent from

New Zealand 328

CV 16 Non-resident shippers 328 CV 17 Non-resident film renters [Repealed] 329 CV 18 Hedging of currency movements in Australian

non-attributing shares and attributing FDR method interests

329

CV 19 Additional income for certain imputation credits 329

Subpart CW—Exempt income Income from business or trade-like activities

CW 1 Forestry companies established by the Crown, Maori owners, and holding companies buying land with standing timber from founders

333

CW1B Treaty of Waitangi claim settlements: rights to take timber

334

CW 2 Forestry encouragement agreements 334 CW 3 Forestry companies and Maori investment companies 335 CW3B Pre-1990 forest land units: emissions trading

scheme [Repealed] 335

Income from holding property (excluding equity) CW 4 Annuities under life insurance policies 336 CW 5 Payments of interest: post-war credits 336 CW 6 Payments of interest: farm mortgages 336 CW 7 Foreign-sourced interest 337 CW 8 Money lent to government of New Zealand 337 CW8B Certain amounts derived from use of assets 338

Income from equity CW 9 Dividend derived from foreign company 339 CW10 Dividend within New Zealand wholly-owned group 340 CW11 Dividend of conduit tax relief holding

company [Repealed] 342

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CW12 Proceeds of share disposal by qualifying foreign equity investor

342

CW13 Proceeds from share or option acquired under venture investment agreement

348

CW14 Dividends derived by qualifying companies 350 CW15 Dividends paid by qualifying companies 350

Employee or contractor income CW16 Allowance of Governor-General and other benefits and

privileges 351

CW17 Expenditure on account, and reimbursement, of employees

351

CW17B Relocation payments 353 CW17C Payments for overtime meals and certain other

allowances 354

CW18 Allowance for additional transport costs 355 CW19 Amounts derived during short-term visits 357 CW20 Amounts derived by visiting entertainers including

sportspersons 358

CW21 Amounts derived by visiting crew of pleasure craft 359 CW22 Amounts derived by overseas experts and trainees in New

Zealand by government arrangement 360

CW23 Income for military or police service in operational area 362 CW24 Deferred military pay for active service 363 CW25 Value of board for religious society members 363 CW26 Jurors’ and witnesses’ fees 364

Certain income of transitional resident CW27 Certain income derived by transitional resident 364

Income from living allowances, foreign superannuation, compensation, and government grants

CW28 Pensions 364 CW28B Foreign superannuation withdrawal in initial period of

residency 365

CW28C Foreign superannuation withdrawal exceeding given amount

366

CW29 Reinvested amounts from foreign superannuation schemes in Australia

366

CW29B Amounts from Australian complying superannuation schemes reinvested in KiwiSaver schemes

367

CW30 Annuities from Crown Bank Accounts 367 CW31 Services for members and former members of Parliament 367 CW32 Maintenance payments 368

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CW33 Allowances and benefits 368 CW34 Compensation payments 369 CW35 Personal service rehabilitation payments 370 CW36 Scholarships and bursaries 371 CW37 Film production grants [Repealed] 371

Income of certain entities CW38 Public authorities 371 CW39 Local authorities 372 CW40 Local and regional promotion bodies 373 CW41 Charities: non-business income 374 CW42 Charities: business income 376 CW43 Charitable bequests 380 CW44 Friendly societies 381 CW45 Funeral trusts 382 CW46 Bodies promoting amateur games and sports 382 CW47 TAB and racing clubs 383 CW48 Income from conducting gaming-machine gambling 383 CW49 Bodies promoting scientific or industrial research 383 CW50 Veterinary services bodies 384 CW51 Herd improvement bodies 384 CW52 Community trusts 385 CW53 Distributions from complying trusts 385 CW54 Foreign-sourced amounts derived by trustees 385 CW55 Maori authority distributions 385 CW55BA Tertiary education institutions 385 CW55BAB Rebate of fees paid by FIF 386 CW55BB Minors’ income, to limited extent 386

Partners and partnerships CW55B Amounts of exempt income for partners 388

Income from certain activities CW56 Non-resident aircraft operators 388 CW57 Non-resident company involved in exploration and

development activities 389

CW58 Disposal of companies’ own shares 390 CW59 New Zealand companies operating in Niue 390 CW59B Income of and distributions by certain international

funds 392

CW59C Life reinsurance outside New Zealand 392 CW60 Stake money 392 CW61 Providing standard-cost household service 393 CW62 Interest paid under the KiwiSaver Act 2006 393

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CW62B Voluntary activities 393 CW63 Avoidance arrangements 395 CW64 Exemption under other Acts 395

Restructuring under New Zealand Railways Corporation Restructuring Act 1990

CW65 New Zealand Railways Corporation restructure: exempt income

395

Subpart CX—Excluded income Goods and services tax

CX 1 Goods and services tax 399

Fringe benefits Introductory provisions

CX 2 Meaning of fringe benefit 399 CX 3 Excluded income 400 CX 4 Relationship with assessable income 401 CX 5 Relationship with exempt income 401

Fringe benefits CX 6 Private use of motor vehicle 402 CX 7 Employer or associated person treated as having right to

use vehicle under arrangement 403

CX 8 Private use of motor vehicle: use by more than 1 employee

403

CX 9 Subsidised transport 403 CX 10 Employment-related loans 404 CX 11 Employment-related loans: loans by life insurers 405 CX 12 Services for members and former members of Parliament 405 CX 13 Contributions to superannuation schemes 406 CX 14 Contributions to sickness, accident, or death benefit funds 406 CX 15 Contributions to funeral trusts 407 CX 16 Contributions to life or health insurance 407 CX 17 Benefits provided to employees who are shareholders or

investors 409

CX 18 Benefits provided to associates of both employees and shareholders

410

Exclusions and limitations CX 19 Benefits provided instead of allowances 411 CX 20 Benefits to enable performance of duties 412 CX 21 Business tools 413 CX 22 Benefits to non-executive directors 413

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Income Tax Act 2007 Reprinted as at 1 April 2014

CX 23 Benefits provided on premises 413 CX 24 Benefits related to health or safety 414 CX 25 Benefits provided by charitable organisations 415 CX 26 Non-liable payments 416 CX 27 Assistance with tax returns 416 CX 28 Accommodation 417 CX 29 Entertainment 417 CX 30 Distinctive work clothing 417 CX 31 Contributions to income protection insurance 418 CX 32 Services provided to superannuation fund 418 CX 33 Goods provided at discount by third parties 419 CX33B Benefits for members of Parliament 419

Definitions CX 34 Meaning of emergency call 419 CX 35 Meaning of employee share loan 420 CX 36 Meaning of private use 421 CX 37 Meaning of unclassified benefit 421 CX 38 Meaning of work-related vehicle 422

Insurance CX 39 Life insurers and fully reinsured persons [Repealed] 422 CX 40 Superannuation fund deriving amount from life insurance

policy 423

CX 41 Resident insurance underwriters 423

Petroleum mining CX 42 Disposal of ownership interests in controlled petroleum

mining entities 424

CX 43 Farm-out arrangements for mining operations 424

Mineral mining [Repealed]

CX 44 Disposal of mining shares [Repealed] 424 CX 45 Disposal of mining shares acquired with reinvestment

profit [Repealed] 425

CX 46 Repayment of loans made from reinvestment profit [Repealed]

425

Government grants CX 47 Government grants to businesses 425 CX 48 Amounts remitted as condition of new start grant 427 CX48B Issue of post-1989 forest land units [Repealed] 429

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Government funding of film and television CX48C Government funding additional to government screen

production payments 429

Research and development CX48D Tax credits for expenditure on research and development 430

Superannuation and savings CX 49 Employer’s superannuation contributions 430 CX 50 Tax credits for KiwiSaver and complying superannuation

funds 431

CX50B Contributions to retirement savings schemes 431

Farming, forestry, or fishing CX 51 Income equalisation schemes 432

Emissions units under Climate Change Response Act 2002

CX51B Disposal of pre-1990 forest land emissions units 432 CX51C Disposal of fishing quota emissions units 432

Environmental restoration CX 52 Refund from environmental restoration account 433

Inflation-indexed instruments CX 53 Credits for inflation-indexed instruments 433

Share-lending arrangements CX 54 Share-lending collateral under share-lending

arrangements 434

Portfolio investment income CX 55 Proceeds from disposal of investment shares 434 CX 56 Attributed income of certain investors in multi-rate PIEs 436 CX56B Distributions to investors in multi-rate PIEs 438 CX56C Distributions to investors by listed PIEs 439 CX 57 Credits for investment fees 439

Minors’ beneficiary income CX 58 Amounts derived by minors from trusts 440 CX 59 Taxable distributions from non-complying trusts 440

Transactions between companies in consolidated groups CX 60 Intra-group transactions 440

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Income Tax Act 2007 Reprinted as at 1 April 2014

Avoidance arrangements CX 61 Avoidance arrangements 441

Partners and partnerships CX 62 Amounts of excluded income for partners 441

Look-through companies CX 63 Dividends derived after company ceased to be

look-through company 442

Subpart CZ—Terminating provisions CZ 1 Share purchase agreement income before 19 July 1968 444 CZ 2 Mining company’s 1970–71 tax year [Repealed] 444 CZ 3 Exchange variations on 8 August 1975 444 CZ 4 Mineral mining: company making loan before 1 April

1979 [Repealed] 446

CZ 5 Exempt interest: overseas money lent to government or local or public authority before 29 July 1983

446

CZ 6 Commercial bills before 31 July 1986 447 CZ 7 Primary producer co-operative companies: 1987–88

income year 447

CZ 8 Farm-out arrangements for petroleum mining before 16 December 1991

449

CZ 9 Available capital distribution amount: 1965 and 1985–1992

449

CZ 9B Available capital distribution amount: 1988 to 2010 450 CZ 10 Transitional relief for calculation of attributed repatriation

dividends: 2 July 1992 452

CZ 11 Recovery of deductions for software acquired before 1 April 1993

453

CZ 12 General insurance with risk period straddling 1 July 1993 454 CZ 13 Treatment of units and interests in unit trusts and group

investment funds on issue as at 1 April 1996 455

CZ 14 Treatment of superannuation fund interests in group investment funds on 1 April 1999

455

CZ 15 Accident insurance contracts before 1 July 2000 456 CZ 16 Interest payable to exiting company: 2001 456 CZ 17 Dividend of exiting company: 2001 456 CZ 18 Benefit provider approved within 6 months of

25 November 2003 457

CZ 19 Community trust receipts in 2004–05 or 2005–06 tax year 458 CZ 20 Disposal of personal property lease asset under specified

lease 458

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CZ 21 Superannuation fund loans made to members before 1 April 1989

459

CZ 21B Optional treatment of withdrawals from foreign superannuation schemes not included in return or assessed before 1 April 2014

459

CZ 22 Geothermal wells between 31 March 2003 and 17 May 2006

461

CZ 23 Insurance or compensation for buildings replaced as revenue account property affected by Canterbury earthquakes [Repealed]

462

CZ 23 Employee benefits for Canterbury earthquake relief: exempt income

462

CZ 24 Employee benefits for Canterbury earthquake relief: not fringe benefits

463

CZ 25 Land and buildings as revenue account property affected by Canterbury earthquakes and replaced—insurance or compensation, Government purchase

464

CZ 26 Land and buildings affected by Canterbury earthquakes—sections CB 9 to CB 11 and CB 14 overridden for Crown purchases

468

CZ 27 Prior bad debt deductions clawback 468 CZ 28 Transitional provision for mineral mining: previously

appropriated mining expenditure 469

Part D Deductions

Subpart DA—General rules DA 1 General permission 471 DA 2 General limitations 472 DA 3 Effect of specific rules on general rules 473 DA 4 Treatment of amount of depreciation loss 474 DA 5 Treatment of expenditure for commercial fit-out 474

Subpart DB—Specific rules for expenditure types Taxes and other amounts

DB 1 Taxes, other than GST, and penalties 478 DB 2 Goods and services tax 478 DB 3 Determining tax liabilities 480 DB3B Use of money interest 481 DB 4 Chatham Islands dues 482 DB4B Fees to purchase funds in tax pooling accounts 483

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Income Tax Act 2007 Reprinted as at 1 April 2014

Financing costs DB 5 Transaction costs: borrowing money for use as capital 483 DB 6 Interest: not capital expenditure 484 DB 7 Interest: most companies need no nexus with income 485 DB 8 Interest: money borrowed to acquire shares in group

companies 486

DB 9 Interest incurred on money borrowed to acquire shares in qualifying companies

488

DB 10 Interest or expenditure connected to profit-related or substituting debentures

489

DB10B Interest or expenditure connected to stapled debt security 489

Financial arrangements adjustments DB 11 Negative base price adjustment 490 DB 12 Base price adjustment under old financial arrangements

rules 490

DB 13 Repayment of debt sold at discount to associate of debtor 491 DB 14 Security payment 491 DB 15 Sureties 492

Share-lending arrangements DB 16 Share-lending collateral under share-lending

arrangements 492

DB 17 Replacement payments and imputation credits under share-lending arrangements

493

Premises or land costs DB 18 Transaction costs: leases 493 DB 19 Expenses of failed or withdrawn application for resource

consent 494

DB 20 Destruction of temporary building 494 DB20B Consideration for agreement to grant, renew, extend, or

transfer leasehold estate or licence 494

DB20C Consideration for agreement to surrender leasehold estate or terminate licence

495

DB 21 Amounts paid for non-compliance with covenant for repair

496

DB 22 Amounts paid for non-compliance and change in use 497

Revenue account property DB 23 Cost of revenue account property 498 DB 24 Share losses 499 DB 25 Cancellation of shares held as revenue account property 501

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DB 26 Amount from profit-making undertaking or scheme and not already in income

501

DB 27 Amount from major development or division and not already in income

502

DB 28 Amount from land affected by change and not already in income

503

DB 29 Apportionment when land acquired with other property 504 DB 30 Cost of certain minerals 504

Bad debts DB 31 Bad debts 505 DB 32 Bad debts owed to estates 510

Research and development DB 33 Scientific research 511 DB 34 Research or development 511 DB 35 Some definitions 514 DB 36 Patent expenses 516 DB 37 Expenses of failed or withdrawn patent application 516 DB 38 Patent rights: devising patented inventions 517 DB 39 Patent rights acquired before 1 April 1993 517 DB 40 Patent applications or patent rights acquired on or after

1 April 1993 518

Unsuccessful software development DB40B Expenditure in unsuccessful development of software 519

Marketing DB 41 Charitable or other public benefit gifts by company 520

Theft and bribery DB 42 Property misappropriated by employees or service

providers 521

DB 43 Making good loss from misappropriation by partners 522 DB 44 Restitution of stolen property 523 DB 45 Bribes paid to public officials 523

Pollution control DB 46 Avoiding, remedying, or mitigating effects of discharge

of contaminant 524

Repayments DB 47 Payments for remitted amounts 527 DB 48 Restrictive covenant breached 528

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Income Tax Act 2007 Reprinted as at 1 April 2014

Matching rules: revenue account property, prepayments, and deferred payments

DB 49 Adjustment for opening values of trading stock, livestock, and excepted financial arrangements

529

DB 50 Adjustment for prepayments 530 DB 51 Adjustment for deferred payment of employment income 530

Adjustments for leases that become finance leases DB51B Adjustments for leases that become finance leases 531

Change to accounting practice DB 52 Adjustment for change to accounting practice 531

Investment income DB 53 Attributed PIE losses of certain investors 532 DB 54 No deductions for fees relating to interests in multi-rate

PIEs 533

DB54B Expenditure incurred by foreign investment PIEs 533

Exempt income DB 55 Expenditure incurred in deriving exempt dividend 534

Use of motor vehicle under certain arrangements DB 56 Expenditure incurred in operating motor vehicle under

agreement or arrangement affected by section CX 7 535

Payments to spouses, civil union partners, or de facto partners

DB 57 Payments to spouses, civil union partners, or de facto partners other than for services

536

Avoidance and non-market transactions DB 58 Adjustment for avoidance arrangements 536 DB 59 Market value substituted 537

Emissions units and liabilities under Climate Change Response Act 2002

DB 60 Acquisition of emissions units 538 DB60B Liabilities for emissions 538 DB 61 Surrender of certain emissions units for post-1989 forest

land emissions 539

Legal expenses DB 62 Deduction for legal expenses 539

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Capital contributions DB 64 Capital contributions 540 DB 65 Allowance for certain commercial buildings 541

Subpart DC—Employee or contractor expenditure DC 1 Lump sum payments on retirement 544 DC 2 Pension payments to former employees 545 DC 3 Pension payments to former partners 546 DC3B Payments to working owners 547 DC 4 Payments to working partners 548 DC 5 Payments to spouses, civil union partners, or de facto

partners: services 549

DC 6 Contributions to employees’ benefit funds 550 DC 7 Contributions to employees’ superannuation schemes 550 DC 8 Attribution of personal services 551 DC 9 Restrictive covenants or exit inducements 552 DC 10 Sale of business: transferred employment income

obligations 552

DC 11 Transfers of employment income obligations to associates 554 DC 12 Loans to employees under share purchase schemes 554 DC 13 Criteria for approval of share purchase schemes: before

period of restriction ends 556

DC 14 Criteria for approval of share purchase schemes: when period of restriction ends

558

DC 15 Some definitions 559

Subpart DD—Entertainment expenditure DD 1 Entertainment expenditure generally 562 DD 2 Limitation rule 562 DD 3 When limitation rule does not apply 564 DD 4 Employment-related activities 564 DD 5 Promoting businesses, goods, or services 565 DD 6 Entertainment as business or for charitable purpose 566 DD 7 Entertainment outside New Zealand 567 DD 8 Entertainment that is income or fringe benefit 567 DD 9 Relationship with fringe benefit tax rules 567 DD 10 Interpretation: reimbursement and apportionment 567 DD 11 Some definitions 568

Subpart DE—Motor vehicle expenditure Introductory provisions

DE 1 What this subpart does 569 DE 2 Deductions for business use 569

23

Income Tax Act 2007 Reprinted as at 1 April 2014

DE 3 Methods for calculating proportion of business use 572 DE 4 Default method for calculating proportion of business use 572

Actual records DE 5 Actual records 573

Logbook DE 6 Using logbook for test period 573 DE 7 Logbook requirements 573 DE 8 Logbook term 574 DE 9 Inadequate logbook 575 DE 10 Variance during logbook term 576 DE 11 Replacement vehicles 576

Mileage rates DE 12 Mileage rate method 576

Subpart DF—Government grants, funding, and compensation

DF 1 Government grants to businesses 577 DF 2 Repayment of grant-related suspensory loans 579 DF 3 Identifying expenditure for purposes of sections DF 1 and

DF 2 580

DF 4 Payments for social rehabilitation 580 DF 5 Government funding additional to government screen

production payments 582

Subpart DG—Expenditure related to use of certain assets Introductory provisions

DG 1 What this subpart does 584 DG 2 Application of this subpart 584 DG 3 Meaning of asset for this subpart 586 DG 4 Meaning of private use for this subpart 588 DG 5 Meaning and treatment of interest expenditure for this

subpart 590

DG 6 Associated persons: company rule modified 591

When assets held simply DG 7 Expenditure related to income-earning use 591 DG 8 Expenditure limitation rule 592 DG 9 Apportionment formula 593

When assets held in corporate structures DG 10 Interest expenditure rules 595 DG 11 Interest expenditure: close companies 597

24

Reprinted as at 1 April 2014 Income Tax Act 2007

DG 12 Interest expenditure: group companies 599 DG 13 Interest expenditure: corporate shareholders 601 DG 14 Interest expenditure: non-corporate shareholders 604

Quarantined expenditure DG 15 Quarantined expenditure rules 605 DG 16 Quarantined expenditure when asset activity negative 606 DG 17 Allocation of amounts quarantined under section DG 16 608 DG 18 Quarantined expenditure: group companies and

shareholders 609

DG 19 Allocation of amounts quarantined under section DG 18 612

Certain modifications to rules DG 20 When income cannot be separately attributed 614 DG 21 Opting out of treatment under this subpart 614 DG 22 Application of rules to part years 615

Subpart DN—Attributed losses from foreign equity Attributed controlled foreign company (CFC) loss

DN 1 Attributed controlled foreign company loss 617 DN 2 When attributed CFC loss arises 618 DN 3 Calculation of attributed CFC loss 620 DN 4 Ring-fencing cap on deduction 620

Foreign investment fund (FIF) loss DN 5 Foreign investment fund loss 622 DN 6 When FIF loss arises 623 DN 7 Calculation of FIF loss 628 DN 8 Ring-fencing cap on deduction: attributable FIF income

method 629

Subpart DO—Farming and aquacultural business expenditure Farming

DO 1 Enhancements to land 632 DO 2 Plantings for erosion, shelter, and water protection

purposes 632

DO 3 Trees on farms 633 DO 4 Improvements to farm land 634 DO 5 Expenditure on land: planting of listed horticultural plants 636 DO 6 Expenditure on land: horticultural replacement planting 638 DO 7 Accounting for expenditure on listed horticultural plants

under sections DO 5 and DO 6 640

DO 8 Meaning of planting and plot 641

25

Income Tax Act 2007 Reprinted as at 1 April 2014

DO 9 Meaning of replaced area fraction 641 DO 10 Farming or horticulture expenditure of lessor or sublessor 642 DO 11 Improvement destroyed or made useless 643 DO11B Entering partners’ livestock deduction [Repealed] 644

Aquaculture DO 12 Improvements to aquacultural business 644 DO 13 Improvement destroyed or made useless 646

Subpart DP—Forestry expenditure DP 1 Expenditure of forestry business 647 DP 2 Plant or machinery 648 DP 3 Improvements to forestry land 649 DP 4 Improvement destroyed or made useless 650 DP 5 Forestry encouragement agreement: deductions 651 DP 6 Forestry encouragement agreement: no deduction 652 DP 7 Land contouring: no deduction 653 DP 8 Forestry business on land bought from the Crown, Maori

owners, or holding company: no deduction 653

DP 9 Cost of acquiring timber: forestry business on land bought from the Crown, Maori owners, or holding company

654

DP 9B Treaty of Waitangi claim settlements: rights to take timber 655 DP 10 Cost of acquiring timber or right to take timber: other

cases 655

DP 11 Cost of timber 657

Subpart DQ—Income equalisation schemes and environmental restoration accounts schemes

DQ 1 Main income equalisation scheme 658 DQ 2 Adverse event income equalisation scheme 659 DQ 3 Thinning operations income equalisation scheme 659 DQ 4 Environmental restoration accounts scheme 660

Subpart DR—Life insurance business expenditure DR 1 Policyholder base allowable deduction of life insurer 661 DR 2 Shareholder base allowable deduction of life insurer 662 DR 3 Life reinsurance outside New Zealand 662 DR 4 Life insurers’ claims 663

Subpart DS—Film industry expenditure DS 1 Acquiring film rights 664 DS 2 Film production expenditure 665 DS 2B Expenditure when film or film right intended for disposal 668 DS 3 Clawback of deductions for film reimbursement schemes 668

26

Reprinted as at 1 April 2014 Income Tax Act 2007

DS 4 Meaning of film reimbursement scheme 669

Subpart DT—Petroleum mining expenditure Petroleum exploration expenditure

DT1A Ring-fenced allocations 672 DT 1 Petroleum exploration expenditure 673 DT 2 Arrangement for petroleum exploration expenditure and

sale of property 673

DT 3 Acquisition of privileges and permits 675 DT 4 Acquisition of exploratory material 676

Petroleum development expenditure DT 5 Petroleum development expenditure 676 DT 6 Expenditure on petroleum mining assets 677 DT 7 Exploratory well expenditure 677 DT 8 Acquisition of certain petroleum mining assets 678 DT 9 Disposal of petroleum mining asset to associate 678 DT 10 Disposal of petroleum mining asset outside association 679 DT 11 Association ending 680

Other expenditure DT 12 Damage to assets 681 DT 13 Disposal of ownership interests in controlled petroleum

mining entities 681

DT 14 Farm-out arrangements 682 DT 15 Persons associated with petroleum miner 682 DT 16 Removal or restoration operations 683

General provisions DT 17 Attribution of expenditure 684 DT 18 Replacement permits 684 DT 19 Partnership interests and disposal of part of asset 684 DT 20 Petroleum mining operations outside New Zealand 685

Subpart DU—Mineral mining expenditure DU 1 Mining expenditure: prospecting and exploration

expenditure 686

DU 2 Mining expenditure: rehabilitation expenditure 686 DU 3 Acquisition of land for mining operations 687 DU 4 Acquisition of mineral mining assets 688 DU 5 Farm-out arrangements 689 DU 6 Deduction for certain mining expenditure spread over

assumed life of mine 689

27

Income Tax Act 2007 Reprinted as at 1 April 2014

DU 7 Deduction for certain mining expenditure spread on basis of units of production

690

Classes of mining expenditure DU 8 Classes of mineral mining expenditure 691 DU 9 Some definitions 692 DU 10 Meaning of mining exploration expenditure 693 DU 11 Meaning of mining development expenditure: exclusion

of operational expenditure 693

DU 12 Meaning of mining rehabilitation expenditure 695

Subpart DV—Expenditure specific to certain entities Superannuation funds

DV 1 Publicising superannuation funds 697 DV 2 Transfer of expenditure to master fund 698 DV 3 Formula for calculating maximum deduction 700 DV 4 Carry forward of expenditure 701 DV4B Carry forward of expenditure by member funds investing

in portfolio investment entities 703

Other entities DV 5 Investment funds: transfer of expenditure to master funds 704 DV 6 Formula for calculating maximum deduction 707 DV 7 Carry forward of expenditure 708 DV 8 Non-profit organisations 708 DV 9 Trusts 709 DV 10 Building societies 709 DV 11 Distribution to member of co-operative company,

excluded from being dividend 710

DV 12 Maori authorities: donations 711 DV 13 Group companies 712 DV 14 Amalgamated company: expenditure on improvements

for farming, horticultural, aquacultural, and forestry businesses

713

DV 15 Amalgamated companies: property passing on resident’s restricted amalgamation

713

DV 16 Consolidated groups: intra-group transactions 714 DV 17 Consolidated groups: expenditure or loss incurred by

group companies 715

DV 18 Statutory producer boards and co-operative companies 715 DV 19 Association rebates 716

Partners and partnerships DV 20 Partners 718

28

Reprinted as at 1 April 2014 Income Tax Act 2007

DV 21 Losses for QCs entering partnership regime 718

Look-through companies DV 22 Owners of look-through companies 720 DV 23 Losses for QCs entering look-through companies rules 721

Sole traders DV 24 Losses for QCs becoming sole traderships 722 DV 25 Hedging of currency movements in Australian

non-attributing shares and attributing FDR method interests

724

Subpart DW—Expenditure specific to certain industries DW 1 Airport operators 724 DW 2 Bloodstock racing 725 DW 3 Non-resident general insurers and shippers 726 DW 4 Deduction for general insurance outstanding claims

reserve 727

Subpart DX—Other expenditure DX 1 Testamentary annuities 730 DX 2 Tax credits: conduit financing arrangements [Repealed] 732 DX 3 Tax credits: supplementary dividend holding

companies [Repealed] 732

Subpart DZ—Terminating provisions DZ 1 Commercial bills before 31 July 1986 733 DZ 2 Life insurers acquiring property before 1 April 1988 733 DZ 3 Petroleum mining: development expenditure from

1 October 1990 to 15 December 1991 735

DZ 4 Expenditure on abandoned exploratory well before 16 December 1991

736

DZ 5 Farm-out arrangements for petroleum mining before 16 December 1991

737

DZ 6 Partnership interests and disposal of part of asset before 16 December 1991

739

DZ 7 Petroleum mining operations outside New Zealand before 16 December 1991

739

DZ 8 Buying patent rights before 1 April 1993 739 DZ 9 Premium paid on land leased before 1 April 1993 740 DZ 10 General insurance with risk period straddling 1 July 1993 740 DZ 11 Film reimbursement scheme on or before 30 June 2001 741 DZ 12 Mineral mining: 1954–2005 [Repealed] 743

29

Income Tax Act 2007 Reprinted as at 1 April 2014

DZ 13 Enhancements to land unamortised at end of 2004–05 year

743

DZ 14 Deductions under specified leases 744 DZ 15 Patent applications before 1 April 2005 744 DZ 16 Geothermal wells between 31 March 2003 and 17 May

2006 745

DZ 17 Expenditure on improvements to aquacultural business before 1995–96 income year

746

DZ 18 Expenditure on improvements to forestry land before 1995–96 income year

747

DZ 19 Attributed CFC loss carried back under section EZ 32C [Repealed]

748

DZ 20 Expenditure incurred while income-earning activity interrupted by Canterbury earthquake

748

DZ 21 Expenditure on certain assets before 31 March 2013 749

Part E Timing and quantifying rules

Subpart EA—Matching rules: revenue account property, prepayments, and deferred payments

EA 1 Trading stock, livestock, and excepted financial arrangements

751

EA 2 Other revenue account property 752 EA 3 Prepayments 753 EA 4 Deferred payment of employment income 755

Subpart EB—Valuation of trading stock (including dealer’s livestock)

Introductory provisions EB 1 When this subpart applies 759 EB 2 Meaning of trading stock 759 EB 3 Valuation of trading stock 760 EB 4 Trading stock valuation methods 761 EB 5 Transfers of trading stock within wholly-owned groups 762

Standard valuation EB 6 Cost 763 EB 7 Cost allocation: cost-flow method 764 EB 8 Cost allocation: budgeted method or standard cost method 765 EB 9 Discounted selling price 765 EB 10 Replacement price 766 EB 11 Market selling value 767 EB 12 Valuing closing stock consistently 768

30

Reprinted as at 1 April 2014 Income Tax Act 2007

Low-turnover valuation EB 13 Low-turnover valuation 768 EB 14 Low-turnover valuation methods 769 EB 15 Cost for low-turnover traders 769 EB 16 Cost allocation: cost-flow method for low-turnover

traders 770

EB 17 Costs: manufactured or produced stock of low-turnover traders

770

EB 18 Costs: other stock of low-turnover traders 771 EB 19 Discounted selling price for low-turnover traders 771 EB 20 Replacement price for low-turnover traders 772 EB 21 Market selling value for low-turnover traders 773 EB 22 Valuing closing stock consistently for low-turnover

traders 773

Low value trading stock EB 23 Valuing closing stock under $10,000 774

Disposal of business assets EB 24 Apportionment on disposal of business assets that include

trading stock 775

Subpart EC—Valuation of livestock Introductory provisions

EC 1 Application of this subpart 778 EC 2 Valuation of livestock 779 EC 3 Livestock valuation methods 779 EC 4 Transfers of livestock within wholly-owned groups 780 EC 4B Compulsory use of herd scheme method for associated

persons 781

EC 4C Value and timing of transfers 783 EC 5 Transfer of livestock because of self-assessed adverse

event 784

Valuation of specified livestock EC 6 Application of sections EC 7 to EC 27 784 EC 7 Valuation methods 784 EC 8 Restrictions arising from use of herd scheme 786 EC 9 Restrictions on use of national standard cost scheme 788 EC 10 Restrictions on use of cost price method 789 EC 11 Restrictions on making of elections 790 EC 12 Interests in livestock 792 EC 13 Changes in partnership interests 794

31

Income Tax Act 2007 Reprinted as at 1 April 2014

Herd scheme EC 14 Herd scheme 794 EC 15 Determining national average market values 795 EC 16 Valuation under herd scheme 795 EC 17 Herd value ratio 796 EC 18 Inaccurate herd value ratio 798 EC 19 Chatham Islands adjustment to herd value 798 EC 20 Herd livestock disposed of before values determined 799 EC 21 Herd livestock on death before values

determined [Repealed] 800

National standard cost scheme EC 22 National standard cost scheme 800 EC 23 Determining national standard costs 800 EC 24 Methods for determining costs using national standard

cost scheme 801

Other methods EC 25 Cost price, replacement price, or market value 801 EC 26 Bailee’s treatment of livestock 802

Partnerships: cost price and national standard cost scheme

EC26B Entering partners’ cost base 803

Definitions EC 27 Some definitions 805

Valuation of non-specified livestock EC 28 Application of sections EC 29 to EC 31 805 EC 29 Determining standard values 805 EC 30 Closing value methods 806 EC 31 Enhanced production 806

Valuation of high-priced livestock EC 32 Application of sections EC 33 to EC 37 807 EC 33 Determining depreciation percentages 807 EC 34 General rule 808 EC 35 Livestock reaching national average market value and

livestock no longer used for breeding 809

EC 36 Immature livestock and recently bought livestock 810 EC 37 Bailment 811

Valuation of bloodstock EC 38 Application of sections EC 39 to EC 48 811

32

Reprinted as at 1 April 2014 Income Tax Act 2007

EC 39 First income year in breeding business 811 EC 40 Later income years in breeding business 812 EC 41 Reduction: bloodstock not previously used for breeding in

New Zealand other than as shuttle stallions 812

EC 42 Reduction: bloodstock previously used for breeding in New Zealand

814

EC 43 Accident, birth deformity, or infertility 815 EC 44 Other bloodstock 815 EC 45 Residual value of bloodstock 815 EC 46 Use of bloodstock for racing 816 EC 47 Change of use of bloodstock in course of business 816 EC 48 Replacement breeding stock 817

Subpart ED—Valuation of excepted financial arrangements

ED 1 Valuation of excepted financial arrangements 819 ED 1B Valuation of emissions units issued for zero price 825 ED 2 Transfers of certain excepted financial arrangements

within wholly-owned groups 829

ED 3 Part-year tax calculations for transfers: general insurance OCR

830

ED 4 Valuation of certain excepted financial arrangements denominated in foreign currency

831

Subpart EE—Depreciation Introductory provision

EE 1 What this subpart does 835

Meaning of own EE 2 Nature of ownership of item 837 EE 3 Ownership of goods subject to reservation of title 838 EE 4 Ownership of lessee’s improvements: lessee 838 EE 5 Ownership of lessee’s improvements: other person 839

Meaning of depreciable property EE 6 What is depreciable property? 840 EE 7 What is not depreciable property? 841 EE 8 Election that property not be depreciable 842

How amounts of depreciation loss and depreciation recovery income are calculated

EE 9 Description of elements of calculation 844 EE 10 Calculation rule: item temporarily not available 845 EE 11 Calculation rule: income year in which item disposed of 845

33

Income Tax Act 2007 Reprinted as at 1 April 2014

Methods EE 12 Depreciation methods 846

Amount of depreciation loss under diminishing value method or straight-line method

EE 13 Application of sections EE 14 to EE 19 848 EE 14 Diminishing value or straight-line method: calculating

amount of depreciation loss 848

EE 15 Amount of adjusted tax value 848 EE 16 Amount resulting from standard calculation 849 EE 17 Amount resulting from petroleum-related depreciable

property calculation 850

EE 18 Cost: change from diminishing value to straight-line method

851

EE 19 Cost: fixed life intangible property 851

Amount of depreciation loss under pool method EE 20 Application of sections EE 21 to EE 24 852 EE 21 Pool method: calculating amount of depreciation loss 852 EE 22 Cases affecting pool 854 EE 23 Combined pools 856 EE 24 Property ceasing to qualify for pool 856 EE 25 Depreciation loss for plant variety rights application

granted in 2005–06 or later income year 857

Depreciation rates EE 26 Setting of economic depreciation rate 858 EE 27 Economic rate for certain depreciable property 859 EE 28 Economic rate for buildings 860 EE 29 Economic rate for certain aircraft and motor vehicles 861 EE 30 Economic rate for plant, equipment, or building, with

high residual value 862

EE 31 Annual rate for item acquired in person’s 1995–96 or later income year

864

EE 32 Election in relation to certain depreciable property acquired on or after 1 April 2005

867

EE 33 Annual rate for fixed life intangible property 868 EE 34 Annual rate for patent granted in 2005–06 or later income

year 869

EE 35 Special rate or provisional rate 870 EE 36 Using economic rate or provisional rate instead of special

rate 871

34

Reprinted as at 1 April 2014 Income Tax Act 2007

Improvements, items of low value, or items no longer used

EE 37 Improvements 872 EE 38 Items of low value 875 EE 39 Items no longer used 876

Transfers of depreciable property: associated persons and certain amalgamations

EE 40 Transfer of depreciable property on or after 24 September 1997

878

EE 41 Transfer of depreciable property on certain amalgamations on or after 14 May 2002

881

EE 42 Transfer of radiocommunications licence right on or after 24 September 1997

882

EE 43 Transfer of depreciable intangible property on or after 1 July 1997

883

Disposals and similar events EE 44 Application of sections EE 48 to EE 52 884 EE 45 Consideration for purposes of section EE 44 885 EE 46 Items for purposes of section EE 44 888 EE 47 Events for purposes of section EE 44 889 EE 48 Effect of disposal or event 891 EE 49 Amount of depreciation recovery income when item

partly used for business 893

EE 50 Amount of depreciation loss when item partly used to produce income

894

EE 51 Amount of depreciation recovery income when lost or stolen items recovered

898

EE 52 Amount of depreciation recovery income when compensation received

898

EE 53 Unused geothermal well brought into use 899

Interpretation provisions EE 54 Cost: GST 900

Adjusted tax value EE 55 Meaning of adjusted tax value 901 EE 56 Formula 901 EE 57 Base value in section EE 56 when none of sections EE 58,

EE 59, and EZ 22(1) applies 902

EE 58 Base value in section EE 56 when no previous deduction 903 EE 59 Base value in section EE 56 when property is

petroleum-related depreciable property 904

35

Income Tax Act 2007 Reprinted as at 1 April 2014

EE 60 Total deductions in section EE 56 905

Definitions EE 61 Meaning of annual rate 908 EE 62 Meaning of depreciable intangible property 910 EE 63 Meaning of estimated useful life 911 EE 64 Meaning of excluded depreciable property 911 EE 65 Meaning of maximum pooling value 912 EE 66 Meaning of poolable property 913 EE 67 Other definitions 913

Subpart EF—Taxes and levies EF 1 Fringe benefit tax 916 EF 2 Employer’s superannuation contribution tax 916 EF 3 Accident compensation levies and premiums 917 EF 4 Use of money interest payable by Commissioner 919 EF 5 Use of money interest payable by person 920 EF 6 Different tax years [Repealed] 922

Subpart EG—Recognition of accounting treatment EG 1 Election to use balance date used in foreign country 922 EG 2 Adjustment for changes to accounting practice 926 EG 3 Allocation of income, deductions, and tax credits by

portfolio tax rate entity [Repealed] 927

Subpart EH—Income equalisation schemes Introductory provisions

EH 1 Income equalisation schemes 931 EH 2 Income Equalisation Reserve Account 931

Main income equalisation scheme Application

EH 3 Persons to whom main income equalisation scheme applies

932

Deposits and accounts EH 4 Main deposit 932 EH 5 Main income equalisation account 934

Interest EH 6 Interest on deposits in main income equalisation account 935

Deduction EH 7 Deduction of deposit 936

36

Reprinted as at 1 April 2014 Income Tax Act 2007

Refunds: automatic EH 8 Refund of excess deposit 936 EH 9 Income does not include excess deposit 936 EH 10 Refund at end of 5 years 937 EH 11 Income when refund given at end of 5 years 937

Refunds: on application EH 12 Application for refund by person, trustee of estate, Official

Assignee, or liquidator 937

EH 13 Refund on request 938 EH 14 Income when refund given on request 938 EH 15 Refund for development or recovery 939 EH 16 Income when refund given for development or recovery 940 EH 17 Refund on retirement 941 EH 18 Income when refund given on retirement, and election to

allocate amount to earlier year 941

EH 19 Refund on death 942 EH 20 Income when refund given on death 942 EH 21 Income when refund given on death, and election to

allocate amount to earlier year 943

EH 22 Income when refund given on death, and election to allocate amount to later year or years

943

EH 23 Refund on bankruptcy 945 EH 24 Income when refund given on bankruptcy 945 EH 25 Refund on liquidation 945 EH 26 Income when refund given on liquidation 946

Refunds: general provisions EH 27 Amendment of assessment 946 EH 28 Minimum refund 946 EH 29 Deposits from which refunds come 946

Tax credit EH 30 When person entitled to tax credit 946 EH 31 Kind and amount of refund that entitles person to tax

credit 947

EH 32 Kind of person entitled to tax credit 947 EH 33 Amount of tax credit 948

Definitions EH 34 Meaning of income from forestry 948 EH 35 Meaning of main maximum deposit 949 EH 36 Other definitions 950

37

Income Tax Act 2007 Reprinted as at 1 April 2014

Adverse event income equalisation scheme Application

EH 37 Persons to whom adverse event income equalisation scheme applies

952

Deposits and accounts EH 38 Adverse event deposit 952 EH 39 Adverse event income equalisation account 953

Interest EH 40 Interest on deposits in adverse event income equalisation

account 954

Deduction EH 41 Deduction of deposit 954

Refunds: automatic EH 42 Refund of excess deposit 955 EH 43 Income does not include excess deposit 955

Refunds: on application EH 44 Application for refund by person, trustee of estate, Official

Assignee, or liquidator 956

EH 45 Refund on request 956 EH 46 Income when refund given on request 957 EH 47 Refund on retirement 957 EH 48 Income when refund given on retirement, and election to

allocate amount to earlier year 957

EH 49 Refund on death 958 EH 50 Income when refund given on death 958 EH 51 Income when refund given on death, and election to

allocate amount to earlier year 959

EH 52 Income when refund given on death, and election to allocate amount to later year or years

959

EH 53 Refund on bankruptcy 961 EH 54 Income when refund given on bankruptcy 961 EH 55 Refund on liquidation 961 EH 56 Income when refund given on liquidation 962

Refunds: general provisions EH 57 Amendment of assessment 962 EH 58 Minimum refund 962 EH 59 Deposits from which refunds come 963

38

Reprinted as at 1 April 2014 Income Tax Act 2007

Transfers EH 60 Transfer of deposit 963

Definitions EH 61 Meaning of adverse event maximum deposit 964 EH 62 Other definitions 965

Thinning operations income equalisation scheme Application

EH 63 Persons to whom thinning operations income equalisation scheme applies

966

Deposits and accounts EH 64 Thinning operations deposit 967 EH 65 Thinning operations income equalisation account 968

Interest EH 66 Interest on deposits in thinning operations income

equalisation account 969

Deductions EH 67 Deduction of deposit 970

Refunds: automatic EH 68 Refund of excess deposit 970 EH 69 Income does not include excess deposit 971

Refunds: on application EH 70 Application for refund by person or liquidator 971 EH 71 Refund on request 971 EH 72 Income when refund given on request 972 EH 73 Refund for development or recovery 972 EH 74 Income when refund given for development or recovery 973 EH 75 Refund on liquidation 974 EH 76 Income when refund given on liquidation 974

Refunds: general provisions, and tax credits EH 77 Sections of main income equalisation scheme that apply

to thinning operations income equalisation scheme 975

Definitions EH 78 Meaning of thinning operations maximum deposit 975 EH 79 Other definitions 976

39

Income Tax Act 2007 Reprinted as at 1 April 2014

Subpart EI—Spreading of specific income Farming and forestry

EI 1 Spreading backward of income from timber 977

Inflation-indexed instruments EI 2 Interest from inflation-indexed instruments 978

Intellectual property EI 3 Assigning or granting copyright 979 EI 4 Spreading income from patent rights 980

Land EI 4B Consideration for agreement to grant, renew, extend, or

transfer leasehold estate or licence 981

EI 5 Amount paid to lessor for non-compliance with covenant for repair

983

EI 6 Amount paid for non-compliance: when lessor ceases to own land

984

EI 7 Leases: income derived in anticipation 984 EI 8 Disposal of land to the Crown 985

Shareholder-employees EI 9 Matching rule for employment income of

shareholder-employee 986

Subpart EJ—Spreading of specific expenditure Farming and forestry

EJ 1 Spreading backward of deductions for costs of timber 988 EJ 2 Spreading forward of deductions for repairs to fishing

boats 989

EJ 3 Spreading forward of fertiliser expenditure 990

Films EJ 4 Expenditure incurred in acquiring film rights in feature

films 992

EJ 5 Expenditure incurred in acquiring film rights in films other than feature films

994

EJ 6 Certification of New Zealand films 995 EJ 7 Film production expenditure for New Zealand films

having no large budget film grant 996

EJ 8 Film production expenditure for other films having no large budget film grant

997

EJ 9 Avoidance arrangements 999

40

Reprinted as at 1 April 2014 Income Tax Act 2007

Leases EJ 10 Personal property lease payments 999 EJ 11 Amount paid by lessee for non-compliance with covenant

for repair 1000

Petroleum mining EJ 12 Petroleum development expenditure: default allocation

rule 1001

EJ 12B Petroleum development expenditure: reserve depletion method

1002

EJ 13 Relinquishing petroleum mining permit 1003 EJ 13B Dry well drilled 1004 EJ 13C Well not producing 1004 EJ 14 Spreading deduction backwards 1005 EJ 15 Disposal of petroleum mining asset 1006 EJ 16 Disposal of petroleum mining asset to associate 1006 EJ 17 Partnership interests and disposal of part of asset 1007 EJ 18 Petroleum mining operations outside New Zealand 1007

Definitions EJ 19 Meaning of offshore development [Repealed] 1008 EJ 20 Meaning of petroleum mining development 1008

Mineral mining EJ 20B Certain mining expenditure spread over assumed life of

mine 1009

EJ 20C Length of spreading period 1010 EJ 20D Measurement of assumed life of mine and application

to rate 1011

EJ 20E Certain mining expenditure spread on basis of units of production

1012

Superannuation contributions EJ 21 Contributions to employees’ superannuation schemes 1014

Research, development, and resulting market development

EJ 22 Deductions for market development: product of research, development

1015

EJ 23 Allocation of deductions for research, development, and resulting market development

1015

Subpart EK—Environmental restoration accounts EK 1 Environmental Restoration Funds Account 1018

41

Income Tax Act 2007 Reprinted as at 1 April 2014

EK 2 Persons who may make payment to environmental restoration account

1018

EK 3 Payments to environmental restoration account 1019 EK 4 Environmental restoration account 1019 EK 5 Details to be provided with payment to environmental

restoration account 1021

EK 6 Interest on payments to environmental restoration account 1021 EK 7 Deduction for payment 1022 EK 8 Deduction for transfer 1023 EK 9 Refund of payment if excess, lacking details 1024 EK 10 Certain refunds not income 1025 EK 11 Application for refund 1025 EK 12 Refund if request or excess balance 1025 EK 13 Income when refund given on request 1027 EK 14 Application for transfer 1028 EK 15 Transfer on request 1028 EK 16 Transfer on death, bankruptcy, or liquidation 1029 EK 17 Minimum refund or transfer 1030 EK 18 Payments from which refunds come 1030 EK 19 Environmental restoration account of amalgamating

company 1031

EK 20 Environmental restoration account of consolidated group company

1031

EK 21 Notices in electronic format 1032 EK 22 Meaning of maximum payment 1032 EK 23 Other definitions 1033

Subpart EM—Hedging of currency movements in Australian non-attributing shares and attributing FDR

method interests EM 1 Australian non-attributing shares and attributing FDR

method interests 1035

EM 2 Who does this subpart apply to? 1036 EM 3 What hedges does this subpart apply to? 1037 EM 4 Irrevocable elections 1038 EM 5 Fair dividend rate hedge portions 1038 EM 6 Income and expenditure for fair dividend rate hedge

portions 1041

EM 7 Quarterly test of fair dividend rate hedge portions 1042 EM 8 Some definitions 1043

42

Reprinted as at 1 April 2014 Income Tax Act 2007

Subpart EW—Financial arrangements rules Introductory provisions

EW 1 What this subpart does 1048 EW 2 Relationship of financial arrangements rules with other

provisions 1048

Meaning of financial arrangement and excepted financial arrangement

EW 3 What is a financial arrangement? 1049 EW 4 What is not a financial arrangement? 1050 EW 5 What is an excepted financial arrangement? 1051 EW 6 Relationship between financial arrangements and excepted

financial arrangements 1057

EW 7 Change from private or domestic purpose 1057 EW 8 Some short-term agreements for sale and purchase

acquired in business: election to treat as financial arrangements

1058

Application of financial arrangements rules EW 9 Persons to whom financial arrangements rules apply 1060 EW10 Financial arrangements to which financial arrangements

rules apply 1060

EW11 What financial arrangements rules do not apply to 1061

Calculation and allocation of income and expenditure over financial arrangement’s term

EW12 When use of spreading method required 1062 EW13 When use of spreading method not required 1062 EW14 What spreading methods do 1063 EW15 What is included when spreading methods used 1064 EW15B Applying IFRSs to financial arrangements 1065 EW15C Preparing and reporting methods 1066 EW15D IFRS financial reporting method 1067 EW15E Determination alternatives 1069 EW15F Expected value method 1072 EW15G Modified fair value method 1074 EW15H Mandatory use of some determinations 1077 EW15I Mandatory use of yield to maturity method for some

arrangements 1078

EW16 Yield to maturity method or alternative 1079 EW17 Straight-line method 1080 EW18 Market valuation method 1081 EW19 Choice among some spreading methods 1082

43

Income Tax Act 2007 Reprinted as at 1 April 2014

EW20 Determination method or alternative 1083 EW21 Financial reporting method 1084 EW22 Default method 1085 EW23 Failure to use method for financial reporting purposes 1086 EW24 Consistency of use of spreading method 1087 EW25 Consistency of use of straight-line method and market

valuation method 1088

EW25B Consistency of use of IFRS method 1089 EW26 Change of spreading method 1090 EW27 Spreading method adjustment formula 1092

Calculation and allocation of income and expenditure when rights and obligations under financial arrangement

cease EW28 How base price adjustment calculated 1094 EW29 When calculation of base price adjustment required 1094 EW30 When calculation of base price adjustment not required 1097 EW31 Base price adjustment formula 1098

Consideration Consideration when financial arrangement involves

property or services EW32 Consideration for agreement for sale and purchase of

property or services, hire purchase agreement, specified option, or finance lease

1100

EW33 Consideration for hire purchase agreement or finance lease

1102

EW34 Consideration in foreign currency 1102 EW35 Value relevant for non-financial arrangements rule 1103

Consideration treated as paid to person EW36 Consideration when person exits from rules: accrued

entitlement 1104

EW37 Consideration when person enters rules: accrued obligation

1105

EW38 Consideration when disposal for no, or inadequate, consideration

1106

EW39 Consideration affected by unfavourable factors 1106

Consideration treated as paid by person EW40 Consideration when person exits from rules: accrued

obligation 1107

EW41 Consideration when person enters rules: accrued entitlement

1108

44

Reprinted as at 1 April 2014 Income Tax Act 2007

EW42 Consideration when acquisition for no, or inadequate, consideration

1109

EW43 Consideration when debt sold at discount to associate of debtor

1109

EW44 Consideration when debt forgiven for natural love and affection

1110

EW45 Consideration when debtor released from obligation 1111 EW46 Consideration when debtor released as condition of new

start grant 1112

EW46B Consideration when party changes from fair value method

1114

Consideration when legal defeasance has occurred EW47 Legal defeasance 1115

Consideration when anti-avoidance provision applies EW48 Anti-avoidance provisions 1115

Income and deduction provisions specifically related to financial arrangements

EW49 Income and deduction when debt sold at discount to associate of debtor

1116

EW50 Income when debt forgiven to trustee 1117 EW51 Deduction for security payment 1119

Treatment of original share acquired under financial arrangement

EW52 Share supplier under share-lending arrangement 1119

One kind of avoidance EW53 Adjustment required 1120

Application of financial arrangements rules to cash basis persons

EW54 Meaning of cash basis person 1122 EW55 Effect of being cash basis person 1122 EW56 Natural person [Repealed] 1123 EW57 Thresholds 1123 EW58 Financial arrangements, income, and expenditure relevant

to criteria 1125

EW59 Exclusion by Commissioner 1127 EW60 Trustee of deceased’s estate 1128 EW61 Election to use spreading method 1128 EW62 When and how calculation of cash basis adjustment

required 1129

45

Income Tax Act 2007 Reprinted as at 1 April 2014

EW63 Cash basis adjustment formula 1131

Subpart EX—Controlled foreign company and foreign investment fund rules

Controlled foreign company (CFC) rules When is a company a controlled foreign company?

EX 1 Meaning of controlled foreign company 1136

Calculation of person’s control interest EX 2 Four categories for calculating control interests 1137 EX 3 Control interest: total of direct, indirect, and associated

person interests 1138

EX 4 Limits to requirement to include associated person interests

1139

EX 5 Direct control interests 1139 EX 6 Direct control interests include options and similar rights 1141 EX 7 Indirect control interests 1142

Calculation of person’s income interest EX 8 Income interests: total of direct and indirect interests 1143 EX 9 Direct income interests 1144 EX 10 Indirect income interests 1145 EX 11 Options and similar rights in certain cases 1146 EX 12 Reduction of total income interests 1147 EX 13 Income interests of partners [Repealed] 1147

Ten percent threshold and variations in income interest level

EX 14 Attribution: 10% threshold, not PIE 1148 EX 15 Associates and 10% threshold 1148 EX 16 Income interests for certain purposes 1149 EX 17 Income interest if variations within period 1149

Calculation of attributed CFC income or loss EX18A Scheme for finding person’s attributed CFC income or

loss 1150

EX 18 Formula for calculating attributed CFC income or loss 1152 EX 19 Taxable distribution from non-complying trust 1152 EX 20 Reduction in attributed CFC loss 1154

Attributable CFC amount and net attributable CFC income or loss

EX20B Attributable CFC amount 1154 EX20C Net attributable CFC income or loss 1165

46

Reprinted as at 1 April 2014 Income Tax Act 2007

EX20D Adjustment of cost fraction for excessively debt funded CFC

1171

EX20E Relative debt-asset ratio for CFC 1176

Calculation of branch equivalent income or loss [Repealed]

EX 21 Attributable CFC amount and net attributable CFC income or loss: calculation rules

1178

Non-attributing active CFCs EX21B Non-attributing active CFCs 1189

Tests for non-attributing active CFCs EX21C Applicable accounting standards for section EX 21E 1191 EX21D Non-attributing active CFC: default test 1194 EX21E Non-attributing active CFC: test based on accounting

standard 1197

Non-attributing Australian CFCs EX 22 Non-attributing Australian CFCs 1206 EX 23 Tax concession grey list CFCs [Repealed] 1207

Change of residence of companies EX 24 Companies moving to or from New Zealand 1207

Change of CFC’s balance date EX 25 Change of CFC’s balance date 1208

Ownership measurement concession EX 26 Use of quarterly measurement 1209

Anti-avoidance rule: stapled stock EX 27 Anti-avoidance rule: stapled stock 1210

Foreign investment fund (FIF) rules What is a foreign investment fund?

EX 28 Meaning of FIF 1210

Attributing interests in FIFs EX 29 Attributing interests in FIFs 1211 EX 30 Direct income interests in FIFs 1212 EX 31 Exemption for ASX-listed Australian companies 1213 EX 32 Exemption for Australian unit trusts with adequate

turnover or distributions 1215

EX 33 Exemption for Australian regulated superannuation savings [Repealed]

1218

47

Income Tax Act 2007 Reprinted as at 1 April 2014

EX 34 CFC rules exemption 1218 EX 35 Exemption for interest in FIF resident in Australia 1218 EX 36 Venture capital company emigrating to grey list country:

10-year exemption 1219

EX 37 Grey list company owning New Zealand venture capital company: 10-year exemption

1221

EX37B Share in grey list company acquired under venture investment agreement

1222

EX 38 Exemption for employee share purchase scheme of grey list company

1222

EX 39 Terminating exemption for grey list company with numerous New Zealand shareholders [Repealed]

1223

EX 40 Foreign exchange control exemption 1223 EX 41 Income interest of non-resident or transitional resident 1224 EX 42 New resident’s accrued superannuation entitlement

exemption [Repealed] 1224

EX42B Interests in foreign superannuation scheme other than FIF superannuation interests

1224

EX 43 Non-resident’s pension or annuity exemption 1225

Calculation of FIF income or loss EX 44 Five calculation methods 1226 EX 45 Exclusion of amounts of death benefit 1227 EX 46 Limits on choice of calculation methods 1227 EX 47 Method required for certain non-ordinary shares 1234 EX 48 Default calculation method 1235 EX 49 Accounting profits method [Repealed] 1235 EX 50 Attributable FIF income method 1236 EX 51 Comparative value method 1245 EX 52 Fair dividend rate method: usual method 1247 EX 53 Fair dividend rate method for unit-valuing funds and

others by choice 1253

EX 54 Fair dividend rate method and cost method: when periods affected by share reorganisations

1259

EX 55 Deemed rate of return method 1261 EX 56 Cost method 1265 EX 57 Conversion of foreign currency amounts: most methods 1270 EX 58 Additional FIF income or loss if CFC owns FIF 1271

Relationship with other provisions in Act EX 59 Codes: comparative value method, deemed rate of return

method, fair dividend rate method, and cost method 1273

EX 60 Top-up FIF income: deemed rate of return method 1276

48

Reprinted as at 1 April 2014 Income Tax Act 2007

EX 61 Top-up FIF income: 1 April 1993 uplift interests 1277

Changing calculation method EX 62 Limits on changes of method 1278 EX 63 Consequences of changes in method 1283

Cases of entry into and exit from FIF rules EX 64 Migration of persons holding FIF interests 1286 EX 65 Changes in application of FIF exemptions 1288 EX 66 Entities emigrating from New Zealand 1290 EX66B Entities ceasing to be FIFs 1292 EX 67 FIF rules first applying to interest on or after 1 April 2007 1293 EX67B Revaluation of inherited interests in grey list companies 1295

Measurement of cost EX 68 Measurement of cost 1296

Change of FIF’s balance date EX 69 Change of FIF’s balance date 1299

Market value rules EX 70 Market value of life policy and superannuation

entitlements 1300

EX 71 Non-market transactions in FIF interests 1301

Commissioner’s default assessment power EX 72 Commissioner’s default assessment power 1301

Election relating to CFC or FIF EX 73 Election that CFC not non-attributing active CFC or FIF

not non-attributing active FIF 1303

Subpart EY—Life insurance rules Introductory provisions

EY 1 What this subpart does 1310 EY 2 Policyholder base 1310 EY 3 Shareholder base 1312 EY 4 Apportionment of income of particular source or nature,

and of tax credits 1313

EY 5 Part-year tax calculations 1313 EY 6 Actuarial advice and guidance 1317 EY 7 Meaning of claim 1317 EY 8 Meaning of life insurance 1318 EY 9 Meaning of life insurance policy 1320 EY 10 Meaning of life insurer 1320

49

Income Tax Act 2007 Reprinted as at 1 April 2014

EY 11 Superannuation schemes providing life insurance 1321 EY 12 Meaning of life reinsurance 1324 EY 13 Meaning of life reinsurance policy 1327 EY 14 Life insurance and life reinsurance: how sections relate 1328

Policyholder base Non-participation policies

EY 15 Policyholder base income: non-participation policies 1328 EY 16 Policyholder base allowable deductions: non-participation

policies 1330

Profit participation policies EY 17 Policyholder base income: profit participation policies 1332 EY 18 Policyholder base allowable deductions: profit

participation policies 1334

Shareholder base Non-participation policies

EY 19 Shareholder base income: non-participation policies 1335 EY 20 Shareholder base allowable deductions: non-participation

policies 1336

Profit participation policies EY 21 Shareholder base income: profit participation policies 1337 EY 22 Shareholder base allowable deductions: profit

participation policies 1339

Non-participation policies: reserves EY 23 Reserving amounts for life insurers: non-participation

policies 1340

EY 24 Outstanding claims reserving amount: non-participation policies not annuities

1341

EY 25 Premium smoothing reserving amount: non-participation policies not annuities

1343

EY 26 Unearned premium reserving amount: non-participation policies not annuities

1345

EY 27 Capital guarantee reserving amount: non-participation policies not annuities

1346

Shareholder base other profit: profit participation policies EY 28 Shareholder base other profit: profit participation policies

that are existing business 1348

EY 29 Shareholder base other profit: profit participation policies that are new business

1351

50

Reprinted as at 1 April 2014 Income Tax Act 2007

Transitional adjustments and annuities EY 30 Transitional adjustments: life risk 1354 EY 31 Annuities 1364 EY 32 Mortality profit formula: when partial reinsurance

exists [Repealed] 1365

EY 33 Mortality profit formula: individual result may be negative only in some cases [Repealed]

1365

EY 34 Mortality profit formula: negative result [Repealed] 1365 EY 35 How discontinuance profit is calculated [Repealed] 1365 EY 36 Discontinuance profit for income year [Repealed] 1365 EY 37 Discontinuance profit formula (existing

policies) [Repealed] 1365

EY 38 Discontinuance profit formula (new policies) [Repealed] 1365 EY 39 Discontinuance profit formula (existing policies): when

partial reinsurance exists [Repealed] 1366

EY 40 Discontinuance profit formula (new policies): when partial reinsurance exists [Repealed]

1366

EY 41 Discontinuance profit formulas: individual result may never be negative [Repealed]

1366

EY 42 How policyholder income is calculated [Repealed] 1366 EY 43 Policyholder income formula [Repealed] 1366 EY43B Policyholder income formula: FDR

adjustment [Repealed] 1366

EY43C Policyholder income formula: PILF adjustment [Repealed]

1367

EY 44 Policyholder income formula: when partial reinsurance exists [Repealed]

1367

EY 45 Policyholder income formula: when life insurance business transferred [Repealed]

1367

EY 46 Income from disposal of property [Repealed] 1367 EY 47 Deductions for disposal of property [Repealed] 1367

Non-resident life insurers EY 48 Non-resident life insurers with life insurance policies in

New Zealand 1367

EY 49 Non-resident life insurer becoming resident 1369

Subpart EZ—Terminating provisions Life insurance

EZ 1 Life insurers acquiring property before 1 April 1988 1374 EZ 2 Deductions for disposal of property: 1982–83 and

1989–90 income years 1375

51

Income Tax Act 2007 Reprinted as at 1 April 2014

Petroleum mining EZ 3 Petroleum development expenditure from 1 October 1990

to 15 December 1991 1376

Livestock EZ 4 Valuation of livestock bailed or leased as at 2 September

1992 1377

EZ 5 Reduction: bloodstock not previously used for breeding in New Zealand: pre-1 August 2006

1379

EZ 6 Reduction: broodmare previously used for breeding in New Zealand: pre-1 August 2006

1380

Patent rights EZ 7 Buying patent rights before 1 April 1993 1381

Leases of land EZ 8 Premium paid on land leased before 1 April 1993 1382

Depreciation EZ 9 Pool method for items accounted for by globo method

for 1992–93 income year 1383

EZ 10 Pool items accounted for by globo method for 1992–93 income year

1383

EZ 11 Amounts of depreciation recovery income and depreciation loss for part business use up to 2004–05 income year

1384

EZ 12 Amount of depreciation loss for item acquired from associated person on or before 23 September 1997

1384

EZ 13 Annual rate for item acquired on or after 1 April 1993 and before end of person’s 1994–95 income year

1386

EZ 14 Pre-1993 depreciation rate 1387 EZ 15 Annual rate for excluded depreciable property: 1992–93

tax year 1389

EZ 16 Amount of depreciation loss for plant or machinery additional to section EZ 15 amount

1390

EZ 17 Additional amount of depreciation loss: between 16 December 1991 and 1 April 1994

1392

EZ 18 Section EZ 17 amount of depreciation loss when items transferred between companies in wholly-owned group before 1 April 1993

1392

EZ 19 Section EZ 17 amount of depreciation loss when person previously exempt from tax acquires item

1393

EZ 20 Adjusted tax value for software acquired before 1 April 1993

1394

52

Reprinted as at 1 April 2014 Income Tax Act 2007

EZ 21 Sections EE 45 and EE 47: permanent removal: allowance before 1 April 1995

1394

EZ 22 Base value and total deductions in section EE 56: before 1 April 1995

1395

EZ 23 Economic rate for plant or equipment acquired before 1 April 2005 and buildings acquired before 19 May 2005

1396

EZ 23B Property acquired after depreciable property affected by Canterbury earthquakes

1397

EZ 23BB Interest in property acquired after depreciable property affected by Canterbury earthquakes

1405

EZ 23C Insurance for Canterbury earthquake damage of property: deemed sale and purchase

1411

EZ 23D Insurance for Canterbury earthquake damage of property: limit on depreciation recovery income

1412

EZ 23E Item treated as available for use if access restricted due to Canterbury earthquake

1412

EZ 23F Insurance for Canterbury earthquake damage causing disposal: optional timing rule for income, deductions

1413

EZ 23G Insurance for repairs of Canterbury earthquake damage: optional timing rule for income, deductions

1415

Definitions EZ 24 Meaning of new asset 1416 EZ 25 Meaning of New Zealand-new asset 1418 EZ 26 Meaning of qualifying capital value 1419 EZ 27 Meaning of qualifying improvement 1420 EZ 28 Meaning of qualifying asset 1421

Accident insurance EZ 29 Private insurers under Accident Insurance Act 1998 1422 EZ 30 Base premium for 1998–99 premium year under Accident

Insurance Act 1998 1423

Controlled foreign company and foreign investment fund rules

EZ 31 Disclosure restrictions on grey list CFCs before 2011–12 [Repealed]

1424

EZ 32 Terminating exemption for grey list FIF investing in Australasian listed equities [Repealed]

1424

EZ 32B Transitional rule for IFRS reporting [Repealed] 1424 EZ 32C Treatment in section EX 20C of currency effects on

CFC’s borrowing [Repealed] 1424

EZ 32D Value of asset fraction: CFC with excessive debt funding and loan entered before 21 June 2012

1424

53

Income Tax Act 2007 Reprinted as at 1 April 2014

EZ 32E Change in section EX 20B for income of CFC insurer: interest on terminal tax

1425

EZ 32F Applicable accounting standard for section EX 21E: former generally accepted accounting practice without IFRS

1426

Old financial arrangements rules EZ 33 Application of old financial arrangements rules 1429 EZ 34 Election to apply financial arrangements rules in

subpart EW 1430

EZ 35 Accruals in relation to income and expenditure in respect of financial arrangements

1430

EZ 36 Excepted financial arrangement that is part of financial arrangement

1437

EZ 37 Cash basis holder 1437 EZ 38 Income and expenditure where financial arrangement

redeemed or disposed of 1442

EZ 39 Forgiveness of debt 1448 EZ 40 Accrued income written off 1449 EZ 41 Sale of debt to associate of debtor 1450 EZ 42 Post facto adjustment 1451 EZ 43 Variable principal debt instruments 1452 EZ 44 Relationship with rest of Act 1453 EZ 45 Application of old financial arrangements rules 1453 EZ 46 Election to treat short term trade credit as financial

arrangement 1455

EZ 47 Election to continue to treat certain excepted financial arrangements as financial arrangements

1455

EZ 48 Definitions 1456 EZ 49 Determination of core acquisition price where

consideration for property denominated in foreign currency

1470

EZ 50 Rules for non-market transactions 1471 EZ 51 Transitional adjustment when changing to financial

arrangements rules 1472

EZ 52 References to new rules include old rules 1474 EZ 52B Consistency of use of IFRS method: Determination G3

change allowed 1475

EZ 52C Change of spreading method: Determination G22 to Determination G22A

1476

EZ 52D Base price adjustment: financial arrangements to which Determination G22 and Determination G22A applied

1477

54

Reprinted as at 1 April 2014 Income Tax Act 2007

Life insurance transitional adjustment: expected death strain

Expected death strain formulas EZ 53 How expected death strain is calculated 1479 EZ 54 Expected death strain formulas 1479 EZ 55 Expected death strain formulas: option when more than

1 life insured 1480

EZ 56 Expected death strain formula (life): when annuity payable on death

1481

EZ 57 Expected death strain formulas: when annuity payable on survival to date or age specified in policy

1482

EZ 58 Expected death strain formula (life): when partial reinsurance exists

1482

Actuarial reserves EZ 59 Meaning of actuarial reserves 1483 EZ 60 Actuarial reserves: calculation 1484

Entry to new life insurance regime: transitional and miscellaneous provisions

EZ 61 Allowance for cancelled amount: spreading 1485 EZ 62 Reinsurance transition: life financial reinsurance may be

life reinsurance 1487

EZ 63 Disposal and acquisition upon entry 1487

Restructuring under New Zealand Railways Corporation Restructuring Act 1990

EZ 64 New Zealand Railways Corporation restructure: purpose and initial amounts for tax purposes

1488

EZ 65 Expenditure or loss incurred, and amounts derived 1489 EZ 66 Prepayments 1490 EZ 67 Leased assets 1491 EZ 68 Definitions 1491

IFRS financial reporting method EZ 69 IFRS financial reporting method: interest-free and

low-interest loans 1493

Part F Recharacterisation of certain transactions

Subpart FA—Recharacterisation of certain commercial arrangements

Introductory provision FA 1 What this subpart does 1495

55

Income Tax Act 2007 Reprinted as at 1 April 2014

Debentures and shares FA 2 Recharacterisation of certain debentures 1495 FA 2B Stapled debt securities 1498 FA 3 Recharacterisation of certain dividends: recovery of cost

of shares held on revenue account 1500

FA 4 Recharacterisation of shareholder’s base: company repurchasing share

1500

Leases FA 5 Assets acquired and disposed of after deduction of

payments under lease 1502

Finance leases FA 6 Recharacterisation of amounts derived under finance

leases 1503

FA 7 Determining amount of loan 1504 FA 8 Deductibility of expenditure under finance lease 1504 FA 9 Treatment when lease ends: lessee acquiring asset 1505 FA 10 Treatment when lease ends: lessor acquiring asset 1506 FA 11 Adjustments for leases that become finance leases 1507 FA11B Adjustments for certain operating leases 1508

Hire purchase agreements FA 12 Recharacterisation of amounts derived under hire purchase

agreements 1510

FA 13 Agreements recharacterised as sale with finance provided 1510 FA 14 Deductibility of expenditure or loss under hire purchase

agreement 1511

FA 15 Treatment when agreement ends: seller acquiring property

1511

FA 16 Treatment when agreement ends: when seller is cash basis person

1513

FA 17 Treatment when agreement ends: when buyer is cash basis person

1514

FA 18 Treatment of amounts paid in income years after agreement ends

1514

Subpart FB—Transfers of relationship property FB 1 What this subpart does 1516 FB 2 Personal property 1517 FB 3 Land acquired for certain purposes or under certain

conditions 1517

FB 4 Land under scheme for major development or division 1518 FB 5 Disposal of land 1519

56

Reprinted as at 1 April 2014 Income Tax Act 2007

FB 6 Timber or right to take timber 1519 FB 7 Land with standing timber 1520 FB 8 Patent applications and patent rights 1520 FB 9 Financial arrangements rules 1521 FB 10 Continuity provisions: shares and options 1521 FB 10B Look-through companies 1521 FB 11 Pension payments to former employees 1522 FB 12 Pension payments to former partners 1522 FB 13 Trading stock 1523 FB 14 Specified livestock 1524 FB 15 Specified livestock valued under herd scheme 1524 FB 16 Non-specified livestock 1525 FB 17 High-priced livestock 1526 FB 18 Bloodstock 1527 FB 19 Leased assets 1527 FB 20 Mining assets [Repealed] 1528 FB 21 Depreciable property 1528

Subpart FC—Distribution, transmission, and gifts of property

Introductory provisions FC 1 What this subpart does 1530 FC 2 Transfer at market value 1532

Exceptions for property transferred on death of person FC 3 Property transferred to spouse, civil union partner, or de

facto partner 1532

FC 4 Property transferred to charities or to close relatives and others

1533

FC 5 Land transferred to close relatives 1534 FC 6 Forestry assets transferred to close relatives 1535 FC 7 Transfer of prepaid property 1535 FC 8 Transfer of certain financial arrangements 1535

Subpart FE—Interest apportionment on thin capitalisation Introductory provisions

FE 1 What this subpart does 1538 FE 2 When this subpart applies 1539 FE 3 Interest apportionment for individuals 1542 FE 4 Some definitions 1545

Interest apportionment rules FE 5 Thresholds for application of interest apportionment rules 1546 FE 6 Apportionment of interest by excess debt entity 1553

57

Income Tax Act 2007 Reprinted as at 1 April 2014

FE 6B Alternative apportionment of interest by some excess debt entities

1557

FE 7 Apportionment of interest by reporting bank 1558 FE 8 Measurement dates 1559 FE 9 Elections 1560 FE 10 Currency 1560 FE 11 Temporary increases or decreases in value 1561

Calculations FE 12 Calculation of debt percentages 1562 FE 12B Calculations for group for test and apportionment using

interest-income ratio 1564

FE 13 Financial arrangements entered into with persons outside group

1565

Debt percentage of New Zealand group FE 14 Consolidation of debts and assets 1567 FE 15 Total group debt 1569 FE 16 Total group assets 1570

Debt percentage of worldwide group FE 17 Consolidation of debts and assets 1573 FE 18 Measurement of debts and assets of worldwide group 1574

New Zealand banking group FE 19 Banking group’s equity threshold 1576 FE 20 Financial value and regulatory value 1577 FE 21 Banking group’s New Zealand net equity 1577 FE 22 Notional offshore investment 1582 FE 23 Banking group’s funding debt 1584 FE 24 Regulations 1584

Determining membership of groups New Zealand group

FE 25 New Zealand group for excess debt entity that is a company

1585

FE 26 Identifying New Zealand parent 1586 FE 27 Establishing companies under parent’s control 1590 FE 28 Identifying members of New Zealand group 1592 FE 29 Combining New Zealand groups owned by natural

persons and trustees 1594

FE 30 Ownership interests in companies outside New Zealand group

1594

58

Reprinted as at 1 April 2014 Income Tax Act 2007

Worldwide group FE 31 Worldwide group for corporate excess debt entity if not

excess debt outbound company 1596

FE 31B Worldwide group for excess debt outbound companies 1598 FE 31C CFCs in worldwide group for natural persons or trustees

described in section FE 2(1)(g) 1599

FE 32 Joint venture parties 1600

New Zealand banking group FE 33 New Zealand banking group 1600 FE 34 Identifying ultimate parent 1601 FE 35 Persons who may be excluded from banking groups 1601 FE 36 Identifying members of New Zealand banking group in

usual case 1603

FE 36B Identifying members of New Zealand banking group: Crown-owned, no interest apportionment

1605

FE 37 Reporting bank for New Zealand banking group 1606

Measuring ownership interests in companies FE 38 Measuring ownership interests in companies 1607 FE 39 Direct ownership interests 1607 FE 40 Tiered ownership interests 1607 FE 41 Treatment of associated persons’ interests 1608

Subpart FF—Interest apportionment for conduit investment [Repealed]

Introductory provisions [Repealed]

FF 1 What this subpart does [Repealed] 1610 FF 2 When interest apportionment rule applies [Repealed] 1610 FF 3 Steps required to determine treatment of excessive interest

expenditure [Repealed] 1610

Interest apportionment rule [Repealed]

FF 4 Threshold for application of interest apportionment rule [Repealed]

1610

FF 5 Determination of excess amount of interest expenditure of group [Repealed]

1610

FF 6 Conduit tax relief [Repealed] 1611 FF 7 Surplus to foreign dividends [Repealed] 1611

59

Income Tax Act 2007 Reprinted as at 1 April 2014

Membership and debt percentages of foreign groups [Repealed]

FF 8 Identifying members of foreign groups [Repealed] 1611 FF 9 Calculating debt percentage of New Zealand foreign

groups [Repealed] 1611

FF 10 Calculating debt percentage of consolidated foreign groups [Repealed]

1611

FF 11 Changes in foreign group membership [Repealed] 1612

Subpart FL—Emigration of resident companies FL 1 What this subpart does 1612 FL 2 Treatment of emigrating companies and their shareholders 1613

Subpart FM—Consolidated groups of companies Introductory provisions

FM 1 What this subpart applies to 1615 FM 2 Consolidation rules 1616 FM 3 Liability of consolidated groups and group companies 1616 FM 4 Limiting joint and several liability of group companies 1618 FM 5 Liability when company leaves consolidated group 1619 FM 6 Some general rules for treatment of consolidated groups 1620

Calculating taxable income for consolidated group returns

Accounting generally FM 7 Treatment of amounts derived or expenditure incurred 1621 FM 8 Transactions between group companies: income 1622 FM 9 Amounts that are company’s income 1623 FM 10 Expenditure: intra-group transactions 1623 FM 11 Expenditure: nexus with income derivation 1624 FM 12 Expenditure when deduction would be denied to

consolidated group 1624

FM 13 Capital expenditure 1625 FM 14 Part-year financial statements 1626

Accounting for particular property FM 15 Amortising property and revenue account property 1627 FM 16 Land or business: certain farming or forestry expenditure 1629 FM 17 Trading stock 1629 FM 18 Financial arrangements: transfer from company A to

company B 1630

FM 19 Financial arrangements: transfer for fair and reasonable consideration

1631

60

Reprinted as at 1 April 2014 Income Tax Act 2007

FM 20 Financial arrangements: transfer at market value 1632 FM 21 Property transfers when companies leave consolidated

groups 1632

FM 22 Arrangements to avoid consolidation rules 1633 FM 23 Arrangements for disposal of shares 1633

Treatment of foreign dividends [Repealed]

FM 24 General treatment of foreign dividends [Repealed] 1635 FM 25 Reduction in payments for foreign dividends [Repealed] 1635 FM 26 Using tax losses to pay FDP [Repealed] 1635 FM 27 Refunds of FDP 1635 FM 28 Refund when consolidated group has loss 1636 FM 29 Treatment of credit balance in consolidated group’s FDP

account 1637

FM 30 Application of certain provisions to consolidated groups 1638

Membership of consolidated groups Eligibility and restrictions

FM 31 Eligibility rules 1640 FM 32 Restriction on membership of consolidated groups 1642 FM 33 When membership is reduced 1642

Nominated companies FM 34 Nominated companies 1643

Forming, joining, or leaving consolidated groups FM 35 Forming consolidated group 1644 FM 36 Joining existing consolidated group 1644 FM 37 Leaving consolidated group 1645

When membership starts and stops FM 38 Notice requirements on forming or joining consolidated

group 1645

FM 39 Choosing to leave consolidated group 1647 FM 40 Losing eligibility or entitlement to be part of consolidated

group 1647

FM 41 No nominated company 1649 FM 42 When company liquidated 1649

Subpart FN—Imputation groups of companies FN 1 When this subpart applies 1650 FN 2 Imputation rules 1650 FN 3 Liabilities of companies in imputation group 1651 FN 4 Eligibility rules 1651

61

Income Tax Act 2007 Reprinted as at 1 April 2014

FN 5 Imputation groups with reduced numbers 1653 FN 6 Nominated companies 1654 FN 7 Forming imputation groups 1655 FN 8 Trans-Tasman imputation groups and resident imputation

subgroups 1655

FN 9 Joining existing imputation group 1656 FN 10 When membership of imputation group ends 1657 FN 11 Company choosing to leave imputation group 1657 FN 12 Company no longer eligible or entitled to membership 1658 FN 13 Imputation group with no nominated company 1659 FN 14 Effect of liquidation of company 1659

Subpart FO—Amalgamation of companies Introductory provisions

FO 1 What this subpart does 1661 FO 2 Amalgamation rules 1661 FO 3 Resident’s restricted amalgamations 1661 FO 4 Rights and obligations of amalgamated companies 1663 FO 5 Amalgamations and remitted liabilities 1664

Treatment of shares, income, expenditure, and bad debts FO 6 Cancellation of shares 1664 FO 7 Income derived after amalgamation 1664 FO 8 Bad debts and expenditure or loss on resident’s restricted

amalgamation 1665

FO 9 Unexpired portion of prepaid expenditure 1665

Property passing to amalgamated company on amalgamation

FO 10 When property passes on resident’s restricted amalgamation

1666

FO 11 When property passes on amalgamation other than resident’s restricted amalgamation

1667

FO 12 Financial arrangements: resident’s restricted amalgamation, companies in wholly-owned group

1668

FO 13 Financial arrangements: resident’s restricted amalgamation, calculation method unchanged

1669

FO 14 Financial arrangements: resident’s restricted amalgamation, other cases

1670

FO 15 Financial arrangements: amalgamation other than resident’s restricted amalgamation

1670

FO 16 Amortising property 1671 FO 17 Land 1672

62

Reprinted as at 1 April 2014 Income Tax Act 2007

Treatment of financial arrangements between amalgamating companies

FO 18 When amalgamating companies are parties to financial arrangement

1673

FO 19 Calculation of outstanding accrued balance: consideration for discharge

1675

FO 20 Calculation of outstanding accrued balance: amounts remitted

1676

Subpart FZ—Terminating provisions Debentures

FZ 1 Treatment of interest payable under debentures issued before certain date

1678

Leases FZ 2 Effect of specified lease on lessor and lessee 1679 FZ 3 Income of lessor under specified lease 1682 FZ 4 Deductions under specified leases 1683

Relationship property FZ 5 Commercial bills 1683

Estate property FZ 6 Transitional valuation rule for estate property 1684

Earthquake-affected group property FZ 7 Valuation of group assets: insurance proceeds from

Canterbury earthquake 1685

Part G Avoidance and non-market transactions

Subpart GA—Avoidance: general GA 1 Commissioner’s power to adjust 1687 GA 2 Commissioner’s power to adjust: fringe benefit tax 1688

Subpart GB—Avoidance: specific Arrangements involving dividend stripping

GB 1 Arrangements involving dividend stripping 1692

Arrangements involving transfer pricing GB 2 Arrangements involving transfer pricing 1693

Arrangements involving tax losses GB 3 Arrangements for carrying forward loss balances:

companies 1693

63

Income Tax Act 2007 Reprinted as at 1 April 2014

GB 4 Arrangements for grouping tax losses: companies 1694

Arrangements to defeat continuity provisions GB 5 Arrangements involving trust beneficiaries 1695

Arrangements involving qualifying companies GB 6 Arrangements involving qualifying companies 1695

Arrangements involving controlled foreign companies GB 7 Arrangements involving CFC control interests 1696 GB 8 Arrangements involving attributed repatriation from

CFCs 1696

GB 9 Temporary disposals of direct control or income interests 1697 GB 10 Temporary acquisitions of direct control or income

interests 1698

GB 11 Temporary increases in totals for control interest categories

1699

GB 12 Temporary reductions in totals for control interest categories

1700

GB 13 When combination of changes reduces income 1701 GB 14 When combination of changes increases loss 1702 GB 15 CFC income or loss: arrangements related to quarterly

measurement 1703

GB15B Supplies affecting default test for non-attributing active CFC

1703

GB15C Arrangements related to accounting test for non-attributing active CFC

1704

Arrangements involving foreign investment funds GB 16 FIF income or loss: arrangements for measurement day

concessions 1705

Arrangements involving film rights GB 17 Excessive amounts for film rights or production

expenditure 1705

GB 18 Arrangements to acquire film rights or incur production expenditure

1706

GB 19 When film production expenditure payments delayed or contingent

1707

Arrangements involving petroleum and mineral mining GB 20 Arrangements involving petroleum and mineral mining 1708

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Arrangements involving financial arrangements GB 21 Dealing that defeats intention of financial arrangements

rules 1710

Arrangements involving trust beneficiary income GB 22 Arrangements involving trust beneficiary income 1711

Excessive remuneration GB 23 Excessive remuneration to relatives 1711 GB 24 Exemption for genuine contracts 1713 GB 25 Close company remuneration to shareholders, directors,

or relatives 1714

GB25B Excessive effective look-through interests 1715

Arrangements involving repatriation of commercial bills GB 26 Arrangements involving repatriation of commercial bills 1716

Attribution rule for income from personal services GB 27 Attribution rule for income from personal services 1717 GB 28 Interpretation of terms used in section GB 27 1720 GB 29 Attribution rule: calculation 1723

Arrangements involving restrictive covenants GB 30 Arrangements to avoid taxation of restrictive covenant

payments 1725

Arrangements involving fringe benefit tax GB 31 FBT arrangements: general 1726 GB 32 Benefits provided to employee’s associates 1727

Arrangements involving depreciation loss GB 33 Arrangements involving depreciation loss 1729

Arrangements involving imputation rules GB 34 ICA arrangements for carrying amounts forward 1729 GB 35 Imputation arrangements to obtain tax advantage 1730 GB 36 Reconstruction of imputation arrangements to obtain tax

advantage 1731

GB 37 Arrangements for payment of dividend by other companies

1733

GB 38 When sections GB 35 to GB 37 apply to consolidated groups

1734

Arrangements involving foreign dividends GB 39 FDP arrangements: general [Repealed] 1734

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Income Tax Act 2007 Reprinted as at 1 April 2014

GB 40 BETA arrangements for carrying amounts forward [Repealed]

1734

GB 41 FDPA arrangements for carrying amounts forward 1734

Arrangements involving Maori authority credits GB 42 Maori authority credit arrangements to obtain tax

advantage 1735

GB 43 Reconstruction of Maori authority credit arrangements to obtain tax advantage

1736

Arrangements involving tax credits for families GB 44 Arrangements involving tax credits for families 1737

Arrangements involving money not at risk GB 45 Arrangements involving money not at risk 1738 GB 46 Deferral of surplus deductions from arrangements 1740 GB 47 Calculation rules for sections GB 45 and GB 46 1743 GB 48 Defined terms for sections GB 45 and GB 46 1743

Arrangements involving returning share transfers GB 49 Arrangements involving returning share transfers 1745

Arrangements involving partners GB 50 Arrangements involving partners 1746

Subpart GC—Market value substituted Disposals of trading stock or similar property

GC 1 Disposals of trading stock at below market value 1747 GC 2 Disposals of timber rights or standing timber 1748 GC 3 Disposals by life insurers 1749 GC3B Disposals of emissions units 1749 GC 4 Disposals and acquisitions of FIF attributing interests 1750 GC4B Disposals of ETS units at below market value [Repealed] 1751

Leases GC 5 Leases for inadequate rent 1751

Transfer pricing arrangements GC 6 Purpose of rules and nature of arrangements 1753 GC 7 Excess amount payable by person 1754 GC 8 Insufficient amount receivable by person 1754 GC 9 Compensating arrangement: person paying less than

arm’s length amount 1756

GC 10 Compensating arrangement: person receiving more than arm’s length amount

1757

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GC 11 Requests for matching treatment 1758 GC 12 Effect on person’s withholding obligations 1759 GC 13 Calculation of arm’s length amounts 1759 GC 14 Definitions for sections GC 6 to GC 13 1760

Subpart GZ—Terminating provisions GZ 1 Limitation on section GB 20: petroleum and mineral

mining arrangements 1761

GZ 2 Arrangements involving cancellation of conduit tax relief credits [Repealed]

1762

GZ 3 Donations of trading stock for relief of Canterbury earthquakes

1762

Part H Taxation of certain entities

Subpart HA—Qualifying companies (QC) Introductory provisions

HA 1 What this subpart does 1765 HA 2 Meaning of qualifying company 1766 HA 3 Meaning of loss-attributing qualifying

company [Repealed] 1766

HA 4 Conditions applying 1766

Qualifying company status HA 5 Elections to become qualifying company 1767 HA 6 Corporate requirements 1769 HA 7 Shareholding requirements 1769 HA7B Grandparenting requirement 1771 HA 8 Shareholders’ personal liability 1771 HA8B No CFC income interests or FIF direct income interests

of 10% or more 1772

HA 9 Limit on foreign non-dividend income 1773 HA 10 Nature of LAQC shares [Repealed] 1773 HA 11 When requirements no longer met: qualifying companies 1773 HA11B When requirements no longer met: LAQCs [Repealed] 1776 HA 12 Avoidance arrangements [Repealed] 1776

Treatment of profits, dividends, and tax losses HA 13 Qualifying companies’ distributions 1776 HA 14 Dividends paid by qualifying companies 1776 HA 15 Fully imputed distributions 1777 HA 16 Dividends paid by qualifying companies to trustee

shareholders 1779

HA 17 Dividends derived by qualifying companies 1780

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HA 18 Treatment of dividends when qualifying company status ends

1780

HA 19 Credit accounts and dividend statements 1781 HA 20 Attribution of tax losses [Repealed] 1782 HA 21 Loss balances not carried forward 1782 HA 22 Group companies using tax losses 1783 HA 23 Treatment of tax losses on amalgamation 1783

Special tax matters for loss-attributing qualifying companies [Repealed]

HA 24 Treatment of tax losses other than certain foreign losses [Repealed]

1784

HA 25 Treatment of certain foreign losses [Repealed] 1784 HA 26 Attribution when balance dates differ [Repealed] 1784 HA 27 Attribution when loss results in reduction in value of

shares [Repealed] 1784

Elections: qualifying companies HA 28 Elections by trustee shareholders 1784 HA 29 Elections by majority shareholders 1785 HA 30 When elections take effect 1785 HA 31 Revocation of directors’ elections 1786 HA 32 Revocation of shareholders’ elections: by notice 1787 HA 33 Revocation of shareholders’ elections: by event 1787 HA33B Transitional rules for look-through companies,

partnerships, and sole traderships 1788

HA 34 Period of grace following death of shareholder 1789 HA 35 Period of grace following revocation of election 1789 HA 36 Period of grace following revocation of joint election 1790 HA 37 Period of grace for new shareholder 1790

Elections: loss-attributing qualifying companies [Repealed]

HA 38 Elections by directors and shareholders required [Repealed]

1791

HA 39 Revocation of elections [Repealed] 1791

Qualifying company election tax HA 40 Liability for qualifying company election tax 1791 HA 41 Calculating qualifying company election tax 1792 HA 42 Paying qualifying company election tax 1794

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Effective interests in qualifying companies HA 43 Meaning of effective interest 1794 HA 44 Measuring effective interests 1795

Subpart HB—Look-through companies HB 1 Look-through companies are transparent 1797 HB 2 Previous income and expenditure or loss 1799 HB 3 Loss balances extinguished 1800 HB 4 General provisions relating to disposals 1800 HB 5 Disposal of owner’s interests 1801 HB 6 Disposal of trading stock 1803 HB 7 Disposal of depreciable property 1804 HB 8 Disposal of financial arrangements and certain excepted

financial arrangements 1805

HB 9 Disposal of short-term agreements for sale and purchase 1807 HB 10 Disposal of livestock 1808 HB 11 Limitation on deductions by persons with interests in

look-through companies 1808

HB 12 Limitation on deductions by owners of look-through companies: carry-forward

1813

HB 13 LTC elections 1815

Subpart HC—Trusts Introductory provisions

HC 1 What this subpart does 1818 HC 2 Obligations of joint trustees for calculating income and

providing returns 1820

HC 3 Multiple settlements 1820 HC 4 Corpus of trust 1820

Trust income HC 5 Amounts derived by trustees 1822 HC 6 Beneficiary income 1822 HC 7 Trustee income 1824 HC 8 Amounts received after person’s death 1824

Classification of trusts HC 9 Classifying trusts 1825 HC 10 Complying trusts 1825 HC 11 Foreign trusts 1826 HC 12 Non-complying trusts 1826 HC 13 Charitable trusts 1827

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Distributions from trusts HC 14 Distributions from trusts 1827 HC 15 Taxable distributions from non-complying and foreign

trusts 1828

HC 16 Ordering rule for distributions from non-complying and foreign trusts

1830

Tax treatment of amounts that beneficiaries derive from trusts

HC 17 Amounts derived as beneficiary income 1832 HC 18 Taxable distributions from foreign trusts 1833 HC 19 Taxable distributions from non-complying trusts 1833 HC 20 Distributions from complying trusts 1833 HC 21 Distributions from community trusts 1834 HC 22 Use of tax losses to reduce taxable distributions from

non-complying trusts 1834

HC 23 Temporary absences of beneficiaries 1835

Tax treatment of trustee income HC 24 Trustees’ obligations 1836 HC 25 Foreign-sourced amounts: non-resident trustees 1837 HC 26 Foreign-sourced amounts: resident trustees 1839

Settlors and their liabilities HC 27 Who is a settlor? 1840 HC 28 Activities treated as those of settlor 1842 HC 29 Settlors’ liability to income tax 1843

Treatment of transition situations HC 30 Treatment of foreign trusts when settlor becomes resident 1845

Valuation of property, trading stock, and financial arrangements

HC 31 When existing trusts come into tax base 1846

Rate and payment of income tax HC 32 Liability of trustee as agent 1848 HC 33 Choosing to satisfy income tax liability of trustee 1849 HC 34 Taxable distributions from non-complying trusts 1849 HC 35 Beneficiary income of minors 1850 HC 36 Trusts and minor beneficiary rule 1851 HC 37 Testamentary trusts and minor beneficiary rule 1853

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Subpart HD—Agents Introductory provisions

HD 1 What this subpart does 1855 HD 2 Joint liability of principal and agent for tax obligations 1856 HD 3 Agents’ duties and liabilities 1856 HD 4 Treatment of principals 1856 HD 5 Matters between principals and agents 1857 HD 6 When relationship effectively that of principal and agent 1858 HD 7 Rate and amount of tax 1858

Particular cases HD 8 Circumstances giving rise to agency 1858 HD 9 Guardians 1858 HD 10 Mortgagees in possession 1859 HD 11 Nominated companies 1859 HD 12 Trusts 1859 HD 13 Unit trusts 1860 HD 14 Companies issuing debentures 1860 HD 15 Asset stripping of companies 1861 HD 16 Non-resident general insurers 1865 HD 17 Agent paying premiums to residents of Switzerland 1866

Absentees HD 18 Agency in relation to absentees generally 1866 HD 19 Persons receiving absentees’ income 1867 HD 20 Persons carrying on business for absentees 1867 HD20B General partners and partners carrying on with or

managing business involving absentees 1867

HD 21 Companies 1868 HD 22 Banking companies 1868 HD 23 Trustees of group investment funds 1869 HD 24 Shipping businesses 1869 HD 25 Persons remitting amounts outside New Zealand 1869

Non-residents HD 26 Agency in relation to non-residents generally 1870 HD 27 Employers 1870 HD 28 Government pensions and payments under superannuation

schemes 1871

HD 29 Persons buying goods from overseas 1871

Subpart HE—Mutual associations HE 1 Income and deductions of mutual associations 1872 HE 2 Classes of mutual transaction 1873

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HE 3 Association rebates 1873 HE 4 Apportionment when transactions with members and

non-members 1874

HE 5 Association rebates paid by shares or credit 1875

Subpart HF—Maori authorities Introductory provisions

HF 1 Maori authorities and the Maori authority rules 1876 HF 2 Who is eligible to be a Maori authority? 1876 HF 3 Applying provisions to Maori authorities 1878

Maori authority distributions HF 4 What constitutes a Maori authority distribution? 1879 HF 5 Notional distributions of co-operative companies 1880 HF 6 Tax treatment of Maori authority distributions 1880 HF 7 Taxable Maori authority distributions 1881 HF 8 Proportional allocation 1881

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

1883

HF 10 Market value calculations 1883 HF 11 Choosing to become Maori authority 1884

Subpart HG—Joint venturers, partners, and partnerships Joint venturers

HG 1 Joint venturers 1885

Partners and partnerships HG 2 Partnerships are transparent 1886 HG 3 General provisions relating to disposals 1888 HG 4 Disposal upon final dissolution 1889 HG 5 Disposal of partner’s interests 1890 HG 6 Disposal of trading stock 1892 HG 7 Disposal of depreciable property 1893 HG 8 Disposal of financial arrangements and certain excepted

financial arrangements 1894

HG 9 Disposal of short-term agreements for sale and purchase 1896 HG 10 Disposal of livestock 1897 HG 11 Limitation on deductions by partners in limited

partnerships 1898

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HG 12 Limitation on deductions by partners in limited partnerships: carry-forward

1904

Subpart HL—Portfolio investment entities [Repealed]

Introductory provisions [Repealed]

HL 1 Intended effect on portfolio tax rate entities and investors [Repealed]

1907

HL 2 Scheme of subpart [Repealed] 1907

Eligibility requirements: portfolio investment entities and foreign investment vehicles

[Repealed] HL 3 Eligibility requirements for entities [Repealed] 1908 HL 4 Effect of failure to meet eligibility requirements for

entities [Repealed] 1908

HL 5 Foreign investment vehicles [Repealed] 1908 HL 5B Meaning of investor and portfolio investor

class [Repealed] 1908

HL 5C Income interest requirement [Repealed] 1908 HL 6 Investor membership requirement [Repealed] 1908 HL 7 Investor return adjustment requirement: portfolio tax rate

entity [Repealed] 1909

HL 8 Imputation credit distribution requirement: portfolio listed company [Repealed]

1909

HL 9 Investor interest size requirement [Repealed] 1909 HL 10 Further eligibility requirements relating to

investments [Repealed] 1909

Becoming and ceasing to be portfolio investment entity [Repealed]

HL 11 Election to become portfolio investment entity and cancellation of election [Repealed]

1909

HL 12 Unlisted company choosing to become portfolio listed company [Repealed]

1910

HL 13 Becoming portfolio investment entity [Repealed] 1910 HL 14 Tax consequences from transition [Repealed] 1910 HL 15 Ceasing to be portfolio investment entity [Repealed] 1910

Periods relevant to calculation of portfolio entity tax liability

[Repealed]

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Income Tax Act 2007 Reprinted as at 1 April 2014

HL 16 Portfolio allocation period and portfolio calculation period [Repealed]

1910

Allocation of income in some cases [Repealed]

HL 17 Treatment of income from interest when entitlement conditional or lacking [Repealed]

1911

HL 18 Certain new investors treated as part of existing portfolio investor class [Repealed]

1911

Calculating portfolio entity tax liability [Repealed]

HL 19 Portfolio class net income and portfolio class net loss for portfolio allocation period [Repealed]

1911

HL 19B Treatment of certain provisions made by portfolio tax rate entity [Repealed]

1911

HL 20 Portfolio class taxable income and portfolio class taxable loss for portfolio allocation period [Repealed]

1912

HL 21 Portfolio entity tax liability and tax credits of portfolio tax rate entity for period [Repealed]

1912

Payment by portfolio tax rate entity of tax for tax year [Repealed]

HL 22 Payments of tax by portfolio tax rate entity making no election [Repealed]

1912

HL 23 Payments of tax by portfolio tax rate entity choosing to pay provisional tax [Repealed]

1912

HL 24 Payments of tax by portfolio tax rate entity choosing to make payments when investor leaves [Repealed]

1913

HL 25 Optional payments of tax by portfolio tax rate entities [Repealed]

1913

Results for investors [Repealed]

HL 26 Portfolio investor allocated income and portfolio investor allocated loss [Repealed]

1913

HL 27 Treatment of portfolio investor allocated loss for zero-rated portfolio investors and investors with portfolio investor exit period [Repealed]

1913

Tax credits for entity [Repealed]

HL 28 Treatment of portfolio investor allocated loss for other investors [Repealed]

1914

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Reprinted as at 1 April 2014 Income Tax Act 2007

HL 29 Credits received by portfolio tax rate entity or portfolio investor proxy [Repealed]

1914

Treatment of losses for entity [Repealed]

HL 30 Portfolio entity formation loss [Repealed] 1914 HL 31 Portfolio class taxable income and portfolio class taxable

loss for tax year [Repealed] 1914

HL 32 Treatment of portfolio class taxable loss and portfolio class land loss for tax year [Repealed]

1914

Portfolio investor proxies [Repealed]

HL 33 Portfolio investor proxies [Repealed] 1915

Subpart HM—Portfolio investment entities Introductory provisions

HM 1 Outline of subpart and relationship with other Parts 1918 HM 2 What is a portfolio investment entity? 1922 HM 3 Foreign PIE equivalents 1924 HM 4 Who is an investor? 1925 HM 5 What is an investor class? 1925 HM 6 Intended effects for multi-rate PIEs and investors 1927 HM6B Optional look-through rules for certain PIEs 1929

Entry rules HM 7 Requirements 1930

Requirements HM 8 Residence in New Zealand 1930 HM 9 Collective schemes 1931 HM10 Exclusion: life insurance business 1932 HM11 Investment types 1932 HM12 Income types 1933 HM13 Maximum shareholdings in investments 1935 HM14 Minimum number of investors 1937 HM15 Maximum investor interests 1937 HM16 Associates combined 1938 HM17 Same rights to all investment proceeds 1938 HM18 Requirements for listed PIEs: unlisted companies 1940 HM19 Requirements for listed PIEs: fully crediting distributions 1941 HM19B Modified rules for foreign investment zero-rate PIEs 1941 HM19C Modified rules for foreign investment variable-rate PIEs 1942 HM20 Re-entering as PIE: 5-year rule 1943

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Income Tax Act 2007 Reprinted as at 1 April 2014

Exceptions HM21 Exceptions for certain investors 1943 HM22 Exceptions for certain funds 1945 HM23 Exceptions for foreign PIE equivalents 1945

Exit rules HM24 Immediate loss of PIE status 1946 HM25 When entity no longer meets investment or investor

requirements 1946

HM26 Starting life insurance business 1947 HM27 When multi-rate PIE no longer meets investor interest

adjustment requirements 1947

HM28 When listed PIE no longer meets crediting requirement 1948 HM29 Choosing to cancel status 1948 HM30 When foreign PIE equivalent no longer meets

requirements 1948

Rules for multi-rate PIEs Introductory provisions

HM31 Rules for multi-rate PIEs 1949 HM32 Rules for and treatment of investors in multi-rate PIEs 1950 HM33 Proxies for PIE investors 1951

Attributing income to investors HM34 Attribution periods 1953 HM35 Determining net amounts and taxable amounts 1954 HM35B Treatment of certain provisions made by multi-rate PIEs 1955 HM35C Determining amounts for notified foreign investors 1957 HM36 Calculating amounts attributed to investors 1959 HM37 When income cannot be attributed 1960 HM38 When superannuation fund investor has conditional

entitlement 1962

HM39 New investors in existing investor classes 1963 HM40 Deductions for attributed PIE losses for zero-rated and

exiting investors 1963

Calculating and paying tax liability HM41 Options for calculation and payment of tax 1964 HM42 Exit calculation option 1965 HM42B Part-year tax calculations for PIEs under the exit

calculation option for the 2010–11 tax year 1966

HM43 Quarterly calculation option 1967 HM44 Provisional tax calculation option 1969 HM44B NRWT calculation option 1969

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HM45 Voluntary payments 1972 HM46 Calculation process 1972 HM47 Calculation of tax liability or tax credit of multi-rate PIEs 1973

Adjusting investors’ interests HM48 Adjustments to investor interests or to distributions 1975

Using tax credits HM49 Tax credits: when sections HM 50 to HM 55 apply 1977 HM50 Attributing credits to investors 1977 HM51 Use of foreign tax credits by PIEs 1980 HM52 Use of foreign tax credits by zero-rated and certain exiting

investors 1981

HM53 Use of tax credits other than foreign tax credits by PIEs 1983 HM54 Use of tax credits other than foreign tax credits by

investors 1984

HM55 Tax credits for losses 1985

Special rules for foreign investment PIEs HM55C Modified source rules 1985 HM55D Requirements for investors in foreign investment PIEs 1986 HM55E Changes in status of investors in foreign investment

PIEs 1988

HM55F Treatment of income attributed to notified foreign investors

1988

HM55FB Notified foreign investors and tax credits for supplementary dividends

1989

HM55G Allowable amounts and thresholds for income with New Zealand source

1990

HM55H Treatment when certain requirements for foreign investment PIEs not met

1991

Prescribed and notified rates for investors in multi-rate PIEs

HM56 Prescribed investor rates: schedular rates 1992 HM57 Prescribed investor rates for certain investors: 0% 1993 HM57B Prescribed investor rates for new residents 1994 HM58 Transition of rate for certain investors 1995 HM59 Prescribed investor rates for certain investors:

0% [Repealed] 1995

HM60 Notified investor rates 1995 HM61 Certain exiting investors zero-rated 1999

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Exit levels and periods HM62 Exit levels for investors 2000 HM63 Exit periods 2000

Treatment of losses by PIEs Losses of certain multi-rate PIEs

HM64 Use of investor classes’ losses 2001 HM65 Use of land losses of investor classes 2002

Formation losses HM66 Formation losses carried forward to tax year 2004 HM67 Formation losses carried forward to first quarter 2005 HM68 When formation losses carried forward are less than 5%

of formation investment value 2005

HM69 When formation losses carried forward are 5% or more of formation investment value: 3-year spread

2005

HM70 Maximum amount of formation losses allocated by multi-rate PIEs to investor classes

2006

Elections and consequences HM71 Choosing to become PIE 2007 HM71B Choosing to become foreign investment PIE 2008 HM72 When elections take effect 2008 HM73 Transition: provisional tax 2009 HM74 Transition: entities with non-standard income years 2010 HM75 Transition: treatment of shares held in certain companies 2011 HM76 Transition: FDPA companies 2012

Subpart HR—Other entities Partnerships and joint ventures

[Repealed] HR 1 Partnerships and joint ventures [Repealed] 2013

Funds HR 2 Group investment funds 2014 HR 3 Definitions for section HR 2: group investment funds 2014 HR 4 Government Superannuation Fund 2017 HR4B Crown activities through New Zealand Superannuation

Fund 2017

Airport operators HR 5 Airport operators: general 2018 HR 6 Airport operator’s assets 2019 HR 7 Meaning of airport operator’s activities 2021

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Transitional residents HR 8 Transitional residents 2021

Financial institution special purpose vehicles HR 9 Financial institution special purpose vehicles are

transparent 2024

HR9B Bankruptcy-remote property during application of section HR 9

2026

HR 10 What happens when vehicle stops being financial institution special purpose vehicle?

2027

Subpart HZ—Terminating provisions HZ 1 Distributions from trusts of pre-1989 tax reserves 2030 HZ 2 Trusts that may become complying trusts 2030 HZ 3 Special partnerships: transition into limited partnerships

and limited partnerships deduction rules 2031

HZ 4 Overseas limited partnerships: transition into limited partnerships deduction rules

2032

HZ 4B Qualifying companies: transition into partnership 2033 HZ 4C Qualifying companies: transition into look-through

companies 2036

HZ 4D Qualifying companies: transition into sole traderships 2038 HZ 5 Transitional provisions for PIE rules 2040 HZ 6 Saving of binding rules relating to portfolio investment

entities 2041

HZ 7 Saving of binding rulings relating to settlements on trusts 2042

Part I Treatment of tax losses

Subpart IA—General rules for tax losses IA 1 What this subpart does 2045 IA 2 Tax losses 2045 IA 3 Using tax losses in tax year 2049 IA 4 Using loss balances carried forward to tax year 2050 IA 5 Restrictions on companies’ loss balances carried forward 2050 IA 6 Restrictions on companies grouping tax losses 2052 IA 7 Restrictions relating to ring-fenced tax losses 2052 IA 8 Restrictions relating to schedular income 2056 IA 9 Ordering rules 2057 IA 10 Amended assessments 2058

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Subpart IC—Grouping tax losses Introductory provisions

IC 1 Company A making tax loss available to company B 2059 IC 2 Threshold levels for grouping tax losses in tax year 2060 IC 3 Common ownership: group of companies 2060 IC 4 Common ownership: wholly-owned groups of companies 2064

Requirements and methods IC 5 Company B using company A’s tax loss 2064 IC 6 Common ownership for period 2066 IC 7 Residence of company A 2067 IC 8 Limitations on amounts used 2067 IC 9 Date for payment and notice to Commissioner 2068 IC 10 When companies have different balance dates 2068 IC 11 Reduction of amounts used by companies 2069 IC 12 Bad debts or decline in value of shares 2070 IC 13 Variation of requirements for development companies in

Niue 2072

Subpart ID—Use of tax losses by consolidated groups ID 1 Treatment of tax losses by consolidated groups 2073 ID 2 Pre-consolidation losses: general treatment 2073 ID 3 Pre-consolidation losses: use by group companies 2074 ID 4 Pre-consolidation losses on entry: part-year rule 2076 ID 5 Pre-consolidation losses on exit: part-year rule 2077

Subpart IE—Treatment of tax losses on amalgamation of companies

IE 1 When this subpart applies 2078 IE 2 Treatment of tax losses by amalgamating company 2078 IE 3 Treatment of tax losses by amalgamated company 2079 IE 4 Group companies’ treatment of tax losses on

amalgamation 2080

IE 5 Applying the continuity provisions when companies amalgamate

2081

Subpart IP—Meeting requirements for part-years Introductory provisions

IP 1 When this subpart applies 2082 IP 2 Group companies’ common span 2083

Tax loss components carried forward IP 3 Continuity breach: tax loss components of companies

carried forward 2083

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Grouping part-year tax losses IP 4 Breach in income year in which tax loss component arises 2085 IP 5 Breach in tax year in which loss balance is grouped 2086

Statements and notices IP 6 Financial statements required 2087 IP 7 Notices required 2088

Subpart IQ—Attributed controlled foreign company net losses and foreign investment fund net losses

IQ 1A When this subpart applies 2089 IQ 1 General treatment 2090 IQ 1B Losses carried forward to tax year 2090 IQ 2 Ring-fencing cap on attributed CFC net losses 2091 IQ 2B Effect of attributed CFC net loss and FIF net loss from

before first affected year 2095

IQ 2C Effect of FIF net loss if attributed FIF income method not available

2102

IQ 3 Ring-fencing cap on FIF net losses 2103 IQ 4 Group companies using attributed CFC net losses 2105 IQ 5 Group companies using FIF net losses [Repealed] 2107 IQ 6 Pre-consolidation losses: general treatment 2108 IQ 7 When group membership lacking in loss period 2109 IQ 8 When group membership lacking in tax year of use 2110 IQ 9 When attributed CFC net loss becomes FIF net loss 2111

Subpart IS—Mineral miners’ and petroleum miners’ tax losses

IS 1 General treatment of mineral miners’ net losses 2112 IS 2 Treatment of net losses resulting from certain expenditure 2114 IS 3 Holding companies’ tax losses [Repealed] 2116 IS 4 Adjustments in certain circumstances [Repealed] 2116 IS 5 Petroleum miners’ tax losses 2116 IS 6 When company stops being mineral miner 2117

Subpart IT—Cancellation of life insurer’s losses IT 1 Cancellation of life insurer’s policyholder net losses 2118 IT 2 Cancellation of life insurer’s tax loss when allowed into

policyholder base 2119

Subpart IV—Treatment of certain supplementary dividends [Repealed]

IV 1 Supplementary dividend holding companies [Repealed] 2120

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Subpart IW—Use of tax losses to pay shortfall penalties IW 1 Shortfall penalties 2120

Subpart IZ—Terminating provisions IZ 1 Use of specified activity net losses 2122 IZ 2 Petroleum mining companies: treatment of payments

from shareholders 2127

IZ 3 Petroleum mining companies: use of loss balances 2128 IZ 4 Tax losses for tax years before 1977–78 tax year 2130 IZ 5 Companies’ tax losses for tax years before 1991–92 tax

year 2130

IZ 6 Companies’ tax losses for 1990–91 and 1991–92 tax years 2131 IZ 7 Grouping tax losses for tax years before 1981–82 and

between 1981–82 and 1991–92 2132

Part L Tax credits and other credits

Subpart LA—General rules for tax credits LA 1 What this Part does 2134 LA 2 Satisfaction of income tax liability 2134 LA 3 When total tax credit less than or equal to income tax

liability 2135

LA 4 When total tax credit more than income tax liability 2135 LA 5 Treatment of remaining credits 2136 LA 6 Remaining refundable credits: PAYE, RWT, and certain

other items 2136

LA 7 Remaining refundable credits: tax credits under social policy schemes

2139

LA 8 Remaining refundable credits: non-resident withholding tax

2139

LA 8B General rules particular to life insurers 2140 LA 9 Use of tax credits 2141 LA 10 Meaning of tax credit 2141

Subpart LB—Tax credits for payments, deductions, and family payments

LB 1 Tax credits for PAYE income payments 2142 LB 2 Tax credits for provisional tax payments 2143 LB 3 Tax credits for resident withholding tax 2143 LB 4 Tax credits for families 2144 LB 5 Tax credits for non-resident withholding tax 2146 LB 6 Tax credits for RSCT 2146

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LB 7 Tax credits related to personal service rehabilitation payments: providers

2147

LB 8 Tax credits related to personal service rehabilitation payments: payers

2148

Subpart LC—Tax credits for natural persons Tax credits for persons on low incomes

[Repealed] LC 1 When net income under low income amount [Repealed] 2151 LC 2 When net income in low income abatement

range [Repealed] 2151

Tax credits for children [Repealed]

LC 3 Child’s income [Repealed] 2151

Tax credits for transitional circumstances [Repealed]

LC 4 Tax credits for transitional circumstances [Repealed] 2151 LC 5 Meaning of engaged in full-time work [Repealed] 2152

Tax credits for housekeeping [Repealed]

LC 6 Tax credits for housekeeping [Repealed] 2152 LC 7 Meaning of housekeeper [Repealed] 2152 LC 8 Some definitions [Repealed] 2152

Tax credits for absentees [Repealed]

LC 9 Tax credits for absentees [Repealed] 2152

Adjustments to certain tax credits [Repealed]

LC 10 Adjustment for change in return date [Repealed] 2153 LC 11 Adjustment when person is non-resident for part of tax

year [Repealed] 2153

LC 12 Assessment when person is non-resident [Repealed] 2153

Tax credits for independent earners LC 13 Tax credits for independent earners 2153

Subpart LD—Tax credits for gifts and donations Charitable and other public benefit gifts

LD 1 Tax credits for charitable or other public benefit gifts 2155 LD 2 Exclusions 2156

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LD 3 Meaning of charitable or other public benefit gift 2157

Payroll donations LD 4 Tax credits for payroll donations 2158 LD 5 Calculating amount of tax credit and filing particulars 2160 LD 6 When donation is paid to ineligible recipient 2160 LD 7 When donation returned to person 2161 LD 8 Meaning and ranking of payroll donation 2162

Subpart LE—Tax credits for imputation credits LE 1 Tax credits for imputation credits 2163 LE 2 Use of remaining credits by companies and trustees 2165 LE 2B Use of remaining credits by life insurer on policyholder

base 2166

LE 3 Use of remaining credits by others 2167 LE 4 Trustees for minor beneficiaries 2168 LE 5 Beneficiaries of trusts 2168 LE 6 Partners in partnerships 2169 LE 7 Credit transfer notices 2170 LE 7B Credit of RSCT for imputation credit 2170 LE 8 Application of imputation ratio 2171 LE 8B Dividends from certain FIF interests 2171 LE 9 Application of combined imputation and FDP ratio 2172 LE 10 When income tax unpaid 2173 LE 11 Evidential requirements 2173

Subpart LF—Tax credits for foreign dividend payment (FDP) credits

LF 1 Tax credits for FDP credits 2174 LF 2 Trustees for minor beneficiaries 2175 LF 3 Beneficiaries of trusts 2176 LF 4 Partners in partnerships 2177 LF 5 Credit transfer notices 2178 LF 6 Application of FDP ratio 2178 LF 7 Application of combined imputation and FDP ratio 2178 LF 8 Credits for persons who are non-resident or who receive

exempt income 2179

LF 9 When income tax unpaid 2180 LF 10 Evidential requirements 2181

Subpart LH—Tax credits for expenditure on research and development

LH 1 Who this subpart applies to [Repealed] 2182

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LH 2 Tax credits relating to expenditure on research and development [Repealed]

2182

LH 3 Requirements [Repealed] 2182 LH 4 Calculation of amount of credit [Repealed] 2182 LH 5 Adjustments to eligible expenditure [Repealed] 2182 LH 6 Research and development activities outside New

Zealand [Repealed] 2182

LH 7 Research and development activities and related terms 2183 LH 8 Orders in Council [Repealed] 2184 LH 9 Internal software development: general [Repealed] 2184 LH 10 Internal software development: no associated internal

software developer [Repealed] 2184

LH 11 Internal software development: associated internal software developer with same income year [Repealed]

2184

LH 12 Internal software development: associated internal software developer with different income year [Repealed]

2184

LH 13 Internal software development: limit [Repealed] 2185 LH 14 Treatment of depreciation loss for certain depreciable

property [Repealed] 2185

LH14B Recovery of overpaid tax credit 2185 LH 15 Listed research providers [Repealed] 2185 LH 16 Industry research co-operatives [Repealed] 2185 LH 17 Some definitions 2185

Subpart LJ—Tax credits for foreign income tax LJ 1 What this subpart does 2188 LJ 2 Tax credits for foreign income tax 2189 LJ 3 Meaning of foreign income tax 2192 LJ 4 Meaning of segment of foreign-sourced income 2192 LJ 5 Calculation of New Zealand tax 2192 LJ 6 Taxable distributions and NRWT rules 2195 LJ 7 Repaid foreign tax: effect on income tax liability 2196 LJ 8 Repaid foreign tax: effect on FDP liability 2197

Subpart LK—Tax credits relating to attributed controlled foreign company income Amounts of credits

LK 1 Tax credits relating to attributed CFC income 2200 LK 2 Calculation of amount of credit 2204 LK 3 Currency conversion 2204

Use of credits in later tax years LK 4 Use of remaining credits 2205

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Income Tax Act 2007 Reprinted as at 1 April 2014

LK 5 Companies’ credits carried forward 2205 LK 5B Credits from tax year before first affected year 2206 LK 6 Use of credits by group companies 2209

Treatment of taxable distributions LK 7 Taxable distributions and NRWT rules 2210

Consolidated companies LK 8 Tax credits of consolidated companies 2212 LK 9 Use of company’s credits carried forward 2212 LK 10 When group membership lacking in tax year in which

credit arises 2213

LK 11 When group membership lacking in tax year in which credit used

2213

Amalgamations of companies LK 12 Treatment of credits when companies amalgamate 2215 LK 13 Use of credits by amalgamated company 2215 LK 14 Use by amalgamated company of credits carried forward 2216 LK 15 Use of amalgamating company’s credits 2216

Subpart LL—Underlying foreign tax credits (UFTC) [Repealed]

LL 1 What this subpart does [Repealed] 2217 LL 2 Tax credits for underlying foreign tax [Repealed] 2217 LL 3 Meaning of grey list dividend [Repealed] 2218 LL 4 Tracking accounts [Repealed] 2218 LL 5 Meaning of foreign dividend company net

earnings [Repealed] 2218

LL 6 Foreign dividend company lower tier UFTCs [Repealed] 2218 LL 7 Conduit financing arrangements [Repealed] 2218 LL 8 Currency conversion [Repealed] 2218 LL 9 Some definitions [Repealed] 2218

Subpart LO—Tax credits for Maori authority credits LO 1 Tax credits for Maori authority credits 2219 LO 2 Beneficiaries of trusts 2219 LO 2B Credit of RSCT for Maori authority credit 2220 LO 3 Application of Maori authority distribution ratio 2221 LO 4 When income tax unpaid 2221 LO 5 Evidential requirements 2222

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Subpart LP—Tax credits for supplementary dividends Introductory provision

LP 1 What this subpart does 2223

Use of credits LP 2 Tax credits for supplementary dividends 2223 LP 3 Use of remaining credits 2226 LP 4 Continuity rules for carrying credits forward 2228 LP 5 Application of benchmark dividend rules and imputation

credit ratio 2229

LP 6 Deriving supplementary dividend and breach of terms of trust

2229

Supplementary dividend holding companies LP 7 Requirements for supplementary dividend holding

companies [Repealed] 2230

LP 8 Relationship with exempt income rules [Repealed] 2230 LP 9 Relationship with RWT rules [Repealed] 2230 LP 10 Limitation on deductions [Repealed] 2230

Subpart LQ—Tax credits of conduit tax relief companies [Repealed]

LQ 1 Tax credits of CTR companies [Repealed] 2231 LQ 2 Limitation on amount of credit [Repealed] 2231 LQ 3 Determining percentage of non-resident

shareholders [Repealed] 2231

LQ 4 Date for determining percentage of non-resident shareholders [Repealed]

2231

LQ 5 CTR additional dividends [Repealed] 2231

Subpart LR—Tax credits for policyholder income [Repealed]

LR 1 Tax credits for policyholder income [Repealed] 2232

Subpart LS—Tax credits for multi-rate PIEs and investors LS 1 Tax credits for multi-rate PIEs 2232 LS 2 Tax credits for investors in multi-rate PIEs 2234 LS 3 Tax credits for zero-rated investors 2235 LS 4 Tax credits for certain exiting investors 2236

Subpart LU—Tax credits for mineral miners LU 1 Tax credits for mineral miners 2237

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Income Tax Act 2007 Reprinted as at 1 April 2014

Subpart LZ—Terminating provisions Underlying foreign tax credits

[Repealed] LZ 1 Low tax jurisdiction companies [Repealed] 2240

Credits for certain non-resident investment companies LZ 2 Certain development projects [Repealed] 2241 LZ 3 Interest derived from development investments [Repealed] 2241 LZ 4 Dividends derived from development

investments [Repealed] 2241

LZ 5 Some definitions [Repealed] 2241

Credits for interest on home vendor mortgages LZ 6 Interest on home vendor mortgages 2241 LZ 7 Maximum amount of credit under section LZ 6 2242 LZ 8 Meaning of home vendor mortgage 2243

Credits for savings in special home ownership accounts LZ 9 Savings in special home ownership accounts 2243 LZ 10 Maximum amount for 1 special home ownership account

for 1 tax year 2244

LZ 11 Maximum amount for all special home ownership accounts for all tax years

2244

LZ 12 Meaning of increase in savings 2244

Part M Tax credits paid in cash

Subpart MA—General provisions MA 1 What this Part does 2246 MA 2 Relationship with core provisions 2246 MA 3 Excluded income 2247 MA 4 Calculation of amounts of credit producing negative

amounts 2247

MA 5 Advice from outside agencies 2247 MA 6 Avoidance arrangements 2247 MA 7 Meaning of full-time earner for family scheme 2247 MA 8 Some definitions for family scheme 2249

Subpart MB—Adjustment of net income for family scheme

MB 1 Adjustments for calculation of family scheme income 2253 MB 2 Adjustment for period that is less or more than 1 year 2258 MB 3 When person carries on 1 or more businesses or

investment activities 2258

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Reprinted as at 1 April 2014 Income Tax Act 2007

MB 4 Family scheme income of major shareholders in close companies

2259

MB 5 Treatment of distributions from superannuation schemes 2261 MB 6 Treatment of distributions from retirement savings

schemes 2262

MB 7 Family scheme income of settlor of trust 2262 MB7B Family scheme income from employment benefits:

employees not controlling shareholders 2265

MB 8 Family scheme income from fringe benefits: controlling shareholders

2266

MB 9 Family scheme income from deposits in main income equalisation accounts

2267

MB10 Family scheme income from certain pensions and annuities

2267

MB11 Family scheme income from amounts derived by dependent children

2268

MB12 Family scheme income from non-residents’ foreign-sourced income

2269

MB13 Family scheme income from other payments 2270

Subpart MC—Entitlements under family scheme MC 1 What this subpart does 2272 MC 2 Who qualifies for entitlements under family scheme? 2274 MC 3 First requirement: person’s age 2274 MC 4 Second requirement: principal care 2274 MC 5 Third requirement: residence 2275 MC 6 When person does not qualify 2276 MC 7 When spouse or partner entitled under family scheme 2277 MC 8 Continuing requirements 2277 MC 9 Credits for person aged 18 2279 MC10 Principal caregiver 2280 MC11 Relationship periods and entitlement periods 2282

Subpart MD—Abating WFF tax credits Calculating amount of credit

MD 1 Abating WFF tax credit 2284 MD 2 Calculating net contributions to credits 2286

Family tax credit MD 3 Calculation of family tax credit 2287

In-work tax credit MD 4 Entitlement to in-work tax credit 2291 MD 5 First requirement: person’s age 2291

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Income Tax Act 2007 Reprinted as at 1 April 2014

MD 6 Second requirement: principal care 2292 MD 7 Third requirement: residence 2292 MD 8 Fourth requirement: person not receiving benefit 2293 MD 9 Fifth requirement: full-time earner 2294 MD10 Calculation of in-work tax credit 2297

Parental tax credit MD11 Entitlement to parental tax credit 2299 MD12 Calculation of parental tax credit 2301

Credit abatement MD13 Calculation of family credit abatement 2302 MD14 Person receiving protected family tax credit 2304 MD15 Family scheme income for purposes of section MD 14 2305 MD16 Calculation of parental tax credit abatement 2305

Subpart ME—Minimum family tax credit ME 1 Minimum family tax credit 2307 ME 2 Meaning of employment for this subpart 2309 ME 3 Meaning of net family scheme income 2310

Subpart MF—Payment of credits MF 1 Application for payment of tax credit by instalment 2312 MF 2 When person not entitled to payment by instalment 2313 MF 3 Calculating amount of interim WFF tax credit 2314 MF 4 Requirements for calculating instalment of tax credit 2315 MF4B Calculation of instalments: 1 April 2008 to 30 September

2008 [Repealed] 2316

MF4C Calculation of instalments: 1 October 2008 to 31 March 2009 [Repealed]

2316

MF4D Calculation of instalments: 1 April 2010 to 30 September 2010

2316

MF4E Calculation of instalments: 1 October 2010 to 31 March 2011

2320

MF 5 Recovery of overpaid tax credit 2323 MF 6 Overpayment or underpayment of tax credit 2324 MF 7 Orders in Council 2325

Subpart MK—Tax credits for KiwiSaver schemes and complying superannuation funds

MK 1 Tax credits for superannuation contributions 2330

Tax credits for fund providers MK 2 Eligibility requirements 2331 MK 3 Payment of tax credits 2332

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Reprinted as at 1 April 2014 Income Tax Act 2007

MK 4 Amount of tax credit 2334 MK 5 Crown contributions for members 2335 MK 6 Credit given by fund providers 2335 MK 7 Amounts paid in excess 2336 MK 8 Treatment of tax credits on permanent emigration 2336

Tax credits for employers [Repealed]

MK 9 Eligibility requirements [Repealed] 2337 MK10 Amount of credit [Repealed] 2337 MK11 When tax credits arise [Repealed] 2338 MK12 Using tax credits [Repealed] 2338 MK13 When short payment and unpaid compulsory employer

contributions found after tax credit used [Repealed] 2338

MK14 Employees opting out [Repealed] 2338 MK15 Groups of persons 2338 MK16 Private domestic workers 2339

Subpart ML—Tax credits for redundancy payments [Repealed]

ML 1 What this subpart does [Repealed] 2339 ML 2 Tax credit for redundancy payments [Repealed] 2339 ML 3 Payment by Commissioner [Repealed] 2339

Subpart MZ—Terminating provisions MZ 1 Entitlement to child tax credit 2340 MZ 2 Calculation of child tax credit 2341 MZ 3 Exclusions from determination of family scheme income 2341

Part O Memorandum accounts

Subpart OA—General provisions Introductory provisions

OA 1 What this Part does 2344 OA 2 Memorandum accounts 2344 OA 3 General rules for maintaining memorandum accounts 2345 OA 4 Certain credits and debits arising only in group accounts 2346

Credits and debits OA 5 Credits 2346 OA 6 Debits 2348

Opening balances OA 7 Opening balances of memorandum accounts 2350

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Income Tax Act 2007 Reprinted as at 1 April 2014

Shareholder continuity requirements OA 8 Shareholder continuity requirements for memorandum

accounts 2352

Treatment of credits and debits on resident’s restricted amalgamation

General provision OA 9 General treatment of credits and debits on resident’s

restricted amalgamation 2355

When companies amalgamate OA 10 When credits or debits due to amalgamating company but

not recorded 2356

OA 11 FDP account on resident’s restricted amalgamation 2357 OA 12 CTR account on resident’s restricted

amalgamation [Repealed] 2358

OA 13 Policyholder credit account on resident’s restricted amalgamation

2358

Amalgamation of companies in consolidated groups OA 14 Continuity of shareholding when group companies

amalgamate 2359

OA 15 When credits or debits due to consolidated group but not recorded

2360

OA 16 When FDP account ends on resident’s restricted amalgamation

2361

OA 17 When policyholder credit account ends on resident’s restricted amalgamation

2362

Maximum permitted ratios OA 18 Calculation of maximum permitted ratios 2363

Subpart OB—Imputation credit accounts (ICA) Introductory provisions

OB 1 General rules for companies with imputation credit accounts

2367

OB 2 Australian companies choosing to have imputation credit accounts

2369

OB 3 Imputation credit accounts 2372 OB3B General rule for life insurer’s policyholder base 2372

Imputation credits OB 4 ICA payment of tax 2373 OB 5 ICA deposit in tax pooling account 2375

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Reprinted as at 1 April 2014 Income Tax Act 2007

OB 6 ICA transfer from tax pooling account 2375 OB 7 ICA payment of further income tax 2376 OB7B ICA payment of qualifying company election tax 2377 OB7C ICA expenditure on research and development 2377 OB 8 ICA resident withholding tax withheld 2378 OB 9 ICA dividend derived with imputation credit 2378 OB9B ICA attributed PIE income with imputation credit 2379 OB 10 ICA dividend derived with FDP credit 2379 OB 11 ICA payment of FDP [Repealed] 2379 OB 12 ICA transfer from FDP account 2380 OB 13 ICA transfer of debit balance on leaving wholly-owned

group 2380

OB 14 ICA payment of tax on leaving wholly-owned group 2382 OB 15 ICA payment of tax on joining wholly-owned group 2382 OB 16 ICA attribution for personal services 2383 OB 17 ICA transfer from policyholder credit account [Repealed] 2383 OB 18 ICA transfer from ASC account 2383 OB 19 ICA transfer to master fund 2384 OB 20 ICA distribution with Maori authority credit 2385 OB 21 ICA balance of Maori authority credit account 2385 OB 22 ICA replacement payment to company under

share-lending arrangement 2386

OB 23 ICA credit transfer to company 2386 OB 24 ICA credit on resident’s restricted amalgamation 2386 OB 25 ICA reversal of tax advantage arrangement 2388 OB 26 ICA elimination of double debit 2389 OB 27 ICA non-resident withholding tax withheld 2390 OB 28 ICA payment of amount of tax for schedular payment 2390 OB 29 ICA payment of schedular income tax 2391

Imputation debits OB 30 ICA payment of dividend 2391 OB 31 ICA allocation of provisional tax 2392 OB 32 ICA refund of income tax 2392 OB 33 ICA amount applied to pay other taxes 2394 OB 34 ICA refund from tax pooling account 2395 OB 35 ICA transfer within tax pooling account 2397 OB35B ICA debit for transfer from tax pooling account for

policyholder base liability 2398

OB 36 ICA refund of FDP 2399 OB 37 ICA refund of tax credit 2399 OB 38 ICA overpayment of FDP 2400 OB 39 ICA transfer for net foreign attributed income [Repealed] 2401

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Income Tax Act 2007 Reprinted as at 1 April 2014

OB 40 ICA attribution for personal services 2401 OB 41 ICA debit for loss of shareholder continuity 2402 OB 42 ICA on-market cancellation 2403 OB 43 ICA breach of imputation ratio 2404 OB 44 ICA debit on leaving wholly-owned group 2405 OB 45 ICA redemption debit 2405 OB 46 ICA transfer from member fund 2408 OB 47 Debit for policyholder base imputation credits 2409 OB 48 ICA credit balance when Maori authority credit account

starts 2409

OB 49 ICA replacement payment by company under share-lending arrangement

2410

OB 50 ICA returning share transfer 2410 OB 51 ICA credit transfer by company 2410 OB 52 ICA imputation credit of consolidated imputation group 2411 OB 53 ICA debit on resident’s restricted amalgamation 2412 OB 54 ICA tax advantage arrangement 2413 OB 55 ICA retrospective imputation credit 2413 OB 56 ICA final balance 2414 OB 57 ICA refund of NRWT 2414 OB 58 ICA refund of amount of tax for schedular payment 2415 OB 59 ICA refund of schedular income tax 2415

Imputation credits attached to dividends OB 60 Imputation credits attached to dividends 2416 OB 61 ICA benchmark dividend rules 2417 OB 62 Retrospective attachment of imputation credits 2419 OB 63 Australian dividends 2421 OB 64 Replacement payments 2422

Further income tax OB 65 Further income tax for ICA closing debit balance 2422 OB 66 Further income tax when company stops being ICA

company 2423

OB 67 Reduction of further income tax 2424 OB 68 Income tax paid satisfying liability for further income tax 2425 OB 69 Further income tax paid satisfying liability for income tax 2426 OB 70 Application of other provisions 2427

Imputation additional tax OB 71 Imputation additional tax on leaving wholly-owned group 2428 OB 72 Imputation additional tax on joining wholly-owned group 2431 OB72B Limit on using entitlement to refund after joining

wholly-owned group 2434

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Reprinted as at 1 April 2014 Income Tax Act 2007

Distributions of statutory producer boards and co-operative companies

OB 73 Statutory producer boards attaching imputation credits to cash distributions

2437

OB 74 Statutory producer boards attaching imputation credits to notional distributions

2439

OB 75 Statutory producer boards’ notional distributions that are dividends

2441

OB 76 Statutory producer boards attaching FDP credits 2442 OB 77 When and how statutory producer board makes election 2443 OB 78 Co-operative companies attaching imputation credits to

cash distributions 2443

OB 79 Co-operative companies attaching imputation credits to notional distributions

2445

OB 80 Co-operative companies’ notional distributions that are dividends

2446

OB 81 Co-operative companies attaching FDP credits 2447 OB 82 When and how co-operative company makes election 2448

Tables of credits and debits in memorandum accounts Table O1: imputation credits Table O2: imputation debits

Subpart OC—Foreign dividend payment accounts (FDPA) Introductory provisions

OC 1 General rules for companies with FDP accounts 2455 OC 2 FDP accounts 2457 OC2B General rule for life insurer’s policyholder base 2457 OC 3 Choosing to become FDPA company 2457 OC 4 When company chooses to stop being FDPA company 2458 OC 5 When company emigrates 2458

FDP credits OC 6 FDPA payment of FDP [Repealed] 2459 OC 7 FDPA dividend derived with FDP credit 2459 OC 8 FDPA payment of FDP for transfer from CTR

account [Repealed] 2459

OC 9 FDPA transfer for net foreign attributed income [Repealed] 2459 OC 10 FDPA payment of FDP for conduit debit

balance [Repealed] 2459

OC 11 FDPA credit transfer to company 2460 OC 12 FDPA reversal of tax advantage arrangement 2460

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Income Tax Act 2007 Reprinted as at 1 April 2014

FDP debits OC 13 FDPA payment of dividend 2461 OC 14 FDPA refund of FDP 2461 OC 15 FDPA overpayment of FDP 2462 OC 16 FDPA refund of tax credit 2462 OC 17 FDPA credit transfer by company 2463 OC 18 FDPA transfer to imputation credit account 2463 OC 19 FDPA transfer to CTR account [Repealed] 2465 OC 20 Debit for policyholder base FDP credits 2465 OC 21 FDPA transfer to group account 2465 OC 22 FDPA breach of FDP ratio 2466 OC 23 FDPA breach of FDP ratio by PCA company [Repealed] 2467 OC 24 FDPA debit for loss of shareholder continuity 2467 OC 25 FDPA tax advantage arrangement 2468 OC 26 FDPA final balance 2468

FDP credits attached to dividends OC 27 FDP credits attached to dividends 2469 OC 28 FDPA benchmark dividend rules 2470 OC 29 FDP credits and imputation credits attached to dividends 2472

Further income tax OC 30 Payment of further income tax for closing debit balance 2473 OC 31 Payment of further income tax when company no longer

New Zealand resident 2475

OC 32 Reduction of further income tax 2476 OC 33 Income tax paid satisfying liability for further income tax 2477 OC 34 Further income tax paid satisfying liability for income tax 2478

Some definitions [Repealed]

OC 35 Meaning of FDP reference period [Repealed] 2479 OC 36 Meaning of maximum deficit debit [Repealed] 2479 OC 37 Meaning of policyholder FDP ratio [Repealed] 2479 OC 38 Meaning of reduced deficit debit [Repealed] 2479 OC 39 Meaning of shareholder FDP ratio [Repealed] 2479

Table O3: FDP credits Table O4: FDP debits

Subpart OD—Conduit tax relief accounts (CTRA) [Repealed]

96

Reprinted as at 1 April 2014 Income Tax Act 2007

Introductory provisions [Repealed]

OD 1 General rules for companies with CTR accounts [Repealed]

2484

OD 2 CTR accounts [Repealed] 2484 OD 3 Choosing to become CTR company [Repealed] 2484 OD 4 When company stops being CTR company [Repealed] 2485

CTR credits [Repealed]

OD 5 CTRA tax credit for conduit tax relief [Repealed] 2485 OD 6 CTRA transfer from FDP account [Repealed] 2485 OD 7 CTRA dividend derived with CTR credit [Repealed] 2485 OD 8 CTRA reduction of FDP [Repealed] 2485 OD 9 CTRA reversal of tax advantage arrangement [Repealed] 2486

CTR debits [Repealed]

OD 10 CTRA payment of dividend [Repealed] 2486 OD 11 CTRA transfer to FDP account [Repealed] 2486 OD 12 CTRA transfer to group account [Repealed] 2486 OD 13 CTRA adjustment for conduit tax relief [Repealed] 2486 OD 14 CTRA break in shareholding chain for group

company [Repealed] 2487

OD 15 CTRA break in shareholding chain for company [Repealed]

2487

OD 16 CTRA increase in resident shareholding [Repealed] 2487 OD 17 CTRA breach of CTR ratio [Repealed] 2487 OD 18 CTRA tax advantage arrangement [Repealed] 2487 OD 19 CTRA final balance [Repealed] 2487

CTR credits attached to dividends [Repealed]

OD 20 CTR credits attached to dividends [Repealed] 2488 OD 21 CTRA benchmark dividend rules [Repealed] 2488 OD 22 CTR credits and imputation credits attached to

dividends [Repealed] 2488

Payment of FDP and refunds [Repealed]

OD 23 FDP payable for CTR debits [Repealed] 2488 OD 24 FDP payable on resident’s restricted

amalgamation [Repealed] 2489

OD 25 Refunds on transfers to CTR account [Repealed] 2489

97

Income Tax Act 2007 Reprinted as at 1 April 2014

Table O5: conduit tax relief credits [Repealed]

Table O6: conduit tax relief debits [Repealed]

Subpart OE—Branch equivalent tax accounts (BETA) Introductory provision

OE 1 General rules for persons with branch equivalent tax accounts

2491

Companies with branch equivalent tax accounts [Repealed]

Introductory provisions [Repealed]

OE 2 Branch equivalent tax accounts of companies [Repealed] 2492 OE 3 Choosing to become BETA company [Repealed] 2492 OE 4 When company stops being BETA company [Repealed] 2492 OE 5 Treatment of attributed CFC income and FIF income in

this subpart 2492

Branch equivalent tax credits [Repealed]

OE 6 BETA payment of income tax on foreign income [Repealed]

2493

OE 7 BETA payment of income tax [Repealed] 2493 OE 8 BETA unused amount of debit balance [Repealed] 2494 OE 9 BETA refund of FDP [Repealed] 2494 OE 10 BETA credit for loss of shareholder continuity [Repealed] 2494 OE 11 BETA final balance [Repealed] 2494

Treatment of debits from conduit relief [Repealed]

OE11B Company with debit balance, including debits from conduit relief, in some income years [Repealed]

2494

Branch equivalent tax debits [Repealed]

OE 12 BETA payment of FDP [Repealed] 2495 OE 13 BETA reduction in FDP [Repealed] 2495 OE 14 BETA refund of income tax [Repealed] 2495 OE 15 BETA debit for loss of shareholder continuity [Repealed] 2495 OE 16 BETA final balance [Repealed] 2495

98

Reprinted as at 1 April 2014 Income Tax Act 2007

Debit if credit balance at beginning of first affected income year [Repealed]

OE16B Company with credit balance at beginning of first affected income year [Repealed]

2496

Persons with branch equivalent tax accounts Introductory provisions

OE 17 Person choosing to become BETA person 2496 OE 18 When person stops being BETA person 2496

Branch equivalent tax credits OE 19 BETA person’s payment of income tax on foreign income 2497

Branch equivalent tax debits OE 20 BETA person’s payment of income tax 2498 OE 21 BETA person’s refund of income tax 2499 OE 22 BETA person’s final balance 2499

Table O7: branch equivalent tax credits [Repealed]

Table O8: branch equivalent tax debits [Repealed]

Table O9: person’s branch equivalent tax credits Table O10: person’s branch equivalent tax debits

Subpart OF—Available subscribed capital accounts (ASCA)

Introductory provisions OF 1 General rules for companies with ASC accounts 2502 OF 2 ASC accounts 2503 OF 3 Choosing to become ASC account company 2503

ASC credits OF 4 ASCA redemption credit 2504

ASC debits OF 5 ASCA transfer to imputation credit account 2505

Table O11: ASC credits Table O12: ASC debits

Subpart OJ—Policyholder credit accounts (PCA) [Repealed]

99

Income Tax Act 2007 Reprinted as at 1 April 2014

Introductory provision [Repealed]

OJ 1 General rules for companies and other persons with policyholder credit accounts [Repealed]

2509

Companies with policyholder credit accounts [Repealed]

Introductory provision [Repealed]

OJ 2 Policyholder credit accounts of companies [Repealed] 2510

Policyholder credits of PCA company [Repealed]

OJ 3 PCA transfer from imputation credit account [Repealed] 2510 OJ 4 PCA transfer from FDP account [Repealed] 2510 OJ 5 PCA transfer of life insurance business [Repealed] 2510 OJ 6 PCA credit for maximum deficit in FDP

account [Repealed] 2511

OJ 7 PCA credit for reduced deficit in FDP account [Repealed] 2511

Policyholder debits of PCA company [Repealed]

OJ 8 PCA payment of tax relating to policyholder base [Repealed]

2511

OJ 9 PCA transfer to imputation credit account [Repealed] 2511 OJ 10 PCA transfer to group account [Repealed] 2511 OJ 11 PCA company’s transfer of life insurance

business [Repealed] 2511

Persons with policyholder credit accounts [Repealed]

Introductory provisions [Repealed]

OJ 12 Choosing to become PCA person [Repealed] 2512 OJ 13 Choosing to stop being PCA person [Repealed] 2512

Policyholder credits of PCA person [Repealed]

OJ 14 PCA person’s equivalent credit [Repealed] 2512 OJ 15 PCA person’s credit for transfer of life insurance

business [Repealed] 2512

Policyholder debits of PCA person [Repealed]

100

Reprinted as at 1 April 2014 Income Tax Act 2007

OJ 16 PCA person’s payment of tax relating to policyholder base [Repealed]

2513

OJ 17 PCA person’s equivalent debit [Repealed] 2513 OJ 18 PCA person’s debit for transfer of life insurance

business [Repealed] 2513

Table O13: policyholder credits [Repealed]

Table O14: policyholder debits [Repealed]

Table O15: person’s policyholder credits [Repealed]

Table O16: person’s policyholder debits [Repealed]

Subpart OK—Maori authority credit accounts (MACA) Introductory provision

OK 1 General rules for Maori authorities with Maori authority credit accounts

2515

Maori authority credits OK 2 MACA payment of tax 2516 OK 3 MACA payment of tax to other Maori authorities 2517 OK 4 MACA payment of further income tax 2517 OK4B MACA expenditure on research and development 2517 OK 5 MACA distribution with Maori authority credit 2518 OK 6 MACA dividend derived with imputation credit 2518 OK6B MACA attributed PIE income with imputation credit 2519 OK 7 MACA dividend derived with FDP credit 2519 OK 8 MACA resident withholding tax withheld 2520 OK 9 MACA reversal of tax advantage arrangement 2520

Maori authority debits OK 10 MACA distribution 2521 OK 11 MACA allocation of provisional tax 2521 OK 12 MACA refund of income tax 2521 OK 13 MACA payment of other taxes 2523 OK 14 MACA refund of FDP 2524 OK14B MACA refund of tax credit 2524 OK 15 MACA debit for loss of shareholder continuity 2525 OK 16 MACA breach of Maori authority credit ratio 2526 OK 17 MACA tax advantage arrangement 2527

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Income Tax Act 2007 Reprinted as at 1 April 2014

OK 18 MACA final balance 2527

Maori authority credits attached to distributions OK 19 Maori authority credits attached to distributions 2528 OK 20 MACA benchmark distribution rules 2529

Further income tax OK 21 Further income tax for closing debit balance 2530 OK 22 Further income tax paid when Maori authority no longer

Maori authority 2530

OK 23 Further income tax paid satisfying liability for income tax 2531 OK 24 Income tax paid satisfying liability for further income tax 2532

Table O17: Maori authority credits Table O18: Maori authority debits

Subpart OP—Memorandum accounts of consolidated groups

Introductory provisions OP 1 Memorandum accounts of consolidated groups 2541 OP 2 When credits and debits arise only in group accounts 2542

Consolidated groups and imputation credit accounts Introductory provisions

OP 3 Changes in consolidated imputation groups 2542 OP 4 Resident imputation subgroups 2543 OP 5 When credits and debits arise only in consolidated

imputation group accounts 2544

OP 6 Provisions applying to consolidated imputation groups 2545

Imputation credits of consolidated imputation groups OP 7 Consolidated ICA payment of tax 2549 OP 8 Consolidated ICA deposit in tax pooling account 2550 OP 9 Consolidated ICA transfer from tax pooling account 2551 OP 10 Consolidated ICA allocation from company with overpaid

provisional tax 2552

OP 11 Consolidated ICA payment of further income tax 2552 OP 11B Consolidated ICA expenditure on research and

development 2553

OP 12 Consolidated ICA dividend derived with imputation credit 2553 OP 13 Consolidated ICA dividend derived with FDP credit 2554 OP 14 Consolidated ICA payment of FDP [Repealed] 2554 OP 15 Consolidated ICA replacement payment to company

under share-lending arrangement 2554

102

Reprinted as at 1 April 2014 Income Tax Act 2007

OP 16 Consolidated ICA credit transfer to company 2555 OP 17 Consolidated ICA resident withholding tax withheld 2555 OP 18 Consolidated ICA transfer from group company’s FDP

account 2556

OP 19 Consolidated ICA transfer from group’s FDP account 2556 OP 20 Consolidated ICA transfer from group company’s

policyholder credit account [Repealed] 2557

OP 21 Consolidated ICA transfer from group’s policyholder credit account [Repealed]

2557

OP 22 Consolidated ICA group company’s credit 2557 OP 23 Consolidated ICA elimination of double debit 2558 OP 24 Consolidated ICA reversal of tax advantage arrangement 2559 OP 25 Consolidated ICA non-resident withholding tax withheld 2560 OP 26 Consolidated ICA payment of amount of tax for schedular

payment 2561

OP 27 Consolidated ICA payment of schedular income tax 2561

Imputation debits of consolidated imputation groups OP 28 Consolidated ICA payment of dividend 2562 OP 29 Consolidated ICA allocation of provisional tax 2562 OP 30 Consolidated ICA refund of income tax 2563 OP 31 Consolidated ICA amount applied to pay other taxes 2564 OP 32 Consolidated ICA refund from tax pooling account 2565 OP 33 Consolidated ICA transfer within tax pooling account 2566 OP 33B Consolidated ICA debit for transfer from tax pooling

account for policyholder base liability 2567

OP 34 Consolidated ICA refund of FDP 2568 OP 35 Consolidated ICA refund of tax credit 2568 OP 36 Consolidated ICA overpayment of FDP 2570 OP 37 Consolidated ICA group company’s debit 2570 OP 38 Consolidated ICA transfer for net foreign attributed

income [Repealed] 2571

OP 39 Consolidated ICA replacement payment by company under share-lending arrangement

2571

OP 40 Consolidated ICA returning share transfer 2572 OP 41 Consolidated ICA credit transfer by company 2572 OP 42 Consolidated ICA debit for loss of shareholder continuity 2573 OP 43 Consolidated ICA breach of imputation ratio 2573 OP 44 Consolidated ICA debit for policyholder base imputation

credits 2574

OP 45 Consolidated ICA redemption debit 2575 OP 46 Consolidated ICA tax advantage arrangement 2577 OP 47 Consolidated ICA final balance 2577

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Income Tax Act 2007 Reprinted as at 1 April 2014

OP 48 Consolidated ICA refund of NRWT 2578 OP 49 Consolidated ICA refund of amount of tax for schedular

payment 2578

OP 50 Consolidated ICA refund of schedular income tax 2579

Table O19: imputation credits of consolidated imputation groups

Table O20: imputation debits of consolidated imputation groups

Consolidated groups and FDP accounts Introductory provisions

OP 51 FDP accounts of consolidated FDP groups 2584 OP 52 Choosing to stop being consolidated FDP group 2584 OP 53 When group company emigrates 2585 OP 54 When credits and debits arise only in consolidated FDP

group accounts 2586

OP 55 Provisions applying to consolidated FDP groups 2587

FDP credits of consolidated FDP groups OP 56 Consolidated FDPA payment of FDP [Repealed] 2587 OP 57 Consolidated FDPA payment of further FDP [Repealed] 2587 OP 58 Consolidated FDPA dividend derived with FDP credit 2588 OP 59 Consolidated FDPA group company’s credit 2588 OP 60 Consolidated FDPA credit transfer to company 2589 OP 61 Consolidated FDPA transfer from group’s CTR

account [Repealed] 2589

OP 62 Consolidated FDPA transfer for net foreign attributed income [Repealed]

2590

OP 63 Consolidated FDPA reversal of tax advantage arrangement 2590

FDP debits of consolidated FDP groups OP 64 Consolidated FDPA payment of dividend 2590 OP 65 Consolidated FDPA credit transfer by company 2591 OP 66 Consolidated FDPA refund of FDP 2591 OP 67 Consolidated FDPA overpayment of FDP 2592 OP 68 Consolidated FDPA refund of tax credit 2593 OP 69 Consolidated FDPA transfer to imputation credit account 2593 OP 70 Consolidated FDPA transfer to group’s CTR

account [Repealed] 2594

OP 71 Consolidated FDPA group company’s debit 2594 OP 72 Consolidated FDPA breach of FDP ratio 2595 OP 73 Consolidated FDPA debit for loss of shareholder

continuity 2595

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OP 74 Consolidated FDPA debit for policyholder base FDP credits

2596

OP 75 Consolidated FDPA breach of FDP ratio by PCA company 2596 OP 76 Consolidated FDPA tax advantage arrangement 2597 OP 77 Consolidated FDPA final balance 2597

Table O21: FDP credits of consolidated FDP groups Table O22: FDP debits of consolidated FDP groups

Consolidated groups and CTR credits [Repealed]

Introductory provisions [Repealed]

OP 78 CTR accounts of consolidated groups [Repealed] 2602 OP 79 When credits and debits arise only in CTR group

accounts [Repealed] 2602

OP 80 Provisions applying to consolidated groups with CTR accounts [Repealed]

2602

CTR credits of consolidated groups [Repealed]

OP 81 Consolidated CTRA tax credit for conduit tax relief [Repealed]

2603

OP 82 Consolidated CTRA reduction of FDP [Repealed] 2603 OP 83 Consolidated CTRA dividend derived with CTR

credit [Repealed] 2603

OP 84 Consolidated CTRA group company’s credit [Repealed] 2603 OP 85 Consolidated CTRA transfer from group’s FDP

account [Repealed] 2603

OP 86 Consolidated CTRA reversal of tax advantage arrangement [Repealed]

2603

CTR debits of consolidated groups [Repealed]

OP 87 Consolidated CTRA payment of dividend [Repealed] 2604 OP 88 Consolidated CTRA transfer to group’s FDP

account [Repealed] 2604

OP 89 Consolidated CTRA adjustment for conduit tax relief [Repealed]

2604

OP 90 Consolidated CTRA group company’s debit [Repealed] 2604 OP 91 Consolidated CTRA increase in resident

shareholding [Repealed] 2604

OP 92 Consolidated CTRA breach of CTR ratio [Repealed] 2605

105

Income Tax Act 2007 Reprinted as at 1 April 2014

OP 93 Consolidated CTRA tax advantage arrangement [Repealed]

2605

OP 94 Consolidated CTRA final balance [Repealed] 2605

Consolidated groups’ FDP payments and refunds [Repealed]

OP 95 FDP payable for credits and debits in group’s CTR account [Repealed]

2605

OP 96 Refund on transfer from group’s FDP account [Repealed] 2605

Table O23: conduit tax relief credits of consolidated groups

[Repealed]

Table O24: conduit tax relief debits of consolidated groups [Repealed]

Consolidated groups and branch equivalent tax accounts [Repealed]

Introductory provisions [Repealed]

OP 97 Branch equivalent tax accounts of consolidated BETA groups [Repealed]

2606

OP 98 Choosing to stop being consolidated BETA group [Repealed]

2606

OP 99 When credits and debits arise only in branch equivalent tax group accounts [Repealed]

2607

Branch equivalent tax credits of consolidated BETA groups

[Repealed] OP100 Consolidated BETA payment of income tax on foreign

income [Repealed] 2607

OP 101 Consolidated BETA payment of income tax [Repealed] 2607 OP 102 Consolidated BETA remaining debit balances [Repealed] 2607 OP 103 Consolidated BETA refund of FDP [Repealed] 2608 OP 104 Consolidated BETA credit for loss of shareholder

continuity [Repealed] 2608

Treatment by consolidated BETA groups of BETA debits from conduit relief

[Repealed] OP104B Consolidated BETA group with debit balance,

including debits from conduit relief, in certain income years [Repealed]

2608

106

Reprinted as at 1 April 2014 Income Tax Act 2007

Branch equivalent tax debits of consolidated BETA groups [Repealed]

OP105 Consolidated BETA payment of FDP [Repealed] 2608 OP 106 Consolidated BETA reduction of FDP [Repealed] 2609 OP 107 Consolidated BETA refund of income tax [Repealed] 2609 OP 108 Consolidated BETA debit for loss of shareholder

continuity [Repealed] 2609

Debit if credit balance at beginning of first affected income year [Repealed]

OP108B Consolidated BETA group with credit balance at beginning of first affected income year [Repealed]

2609

Table O25: branch equivalent tax credits of consolidated BETA groups [Repealed]

Table O26: branch equivalent tax debits of consolidated BETA groups [Repealed]

Consolidated groups and policyholder credit accounts [Repealed]

Introductory provision [Repealed]

OP109 Policyholder credit accounts of consolidated groups [Repealed]

2610

Policyholder credits of consolidated groups [Repealed]

OP110 Consolidated PCA transfer from imputation credit account [Repealed]

2610

OP 111 Consolidated PCA transfer from FDP account [Repealed] 2611 OP 112 Consolidated PCA group company’s credit [Repealed] 2611 OP 113 Consolidated PCA maximum deficit debit in FDP

account [Repealed] 2611

OP 114 Consolidated PCA reduced deficit debit in FDP account [Repealed]

2611

Policyholder debits of consolidated groups [Repealed]

OP115 Consolidated PCA payment of tax relating to policyholder base [Repealed]

2611

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Income Tax Act 2007 Reprinted as at 1 April 2014

OP116 Consolidated PCA transfer to imputation credit account [Repealed]

2612

Table O27: policyholder credits of consolidated groups [Repealed]

Table O28: policyholder debits of consolidated groups [Repealed]

Subpart OZ—Terminating provisions OZ 1 No imputation credit for pre-imputation tax paid 2613 OZ 2 No imputation debit for pre-imputation refund 2613 OZ 3 Overpaid income tax or foreign dividend payment for

pre-imputation income year 2613

OZ 4 Terminating modifications to debits for loss of shareholder continuity

2614

OZ 5 ASCA lost excess available subscribed capital 2615 OZ 6 ASCA redemption of unused investments 2617 OZ 7 Memorandum accounts in transitional period 2617 OZ 7B Maori authority credit ratios for transitional period 2618 OZ 8 Attaching imputation credits and FDP credits: maximum

permitted ratio 2620

OZ 9 Benchmark dividends: ratio change 2621 OZ 10 Modifying ratios for imputation credits and FDP credits 2622 OZ 11 Tax credits for imputation credits and FDP credits 2623 OZ 12 Tax credits for non-resident investors 2625 OZ 13 Fully credited dividends: modifying actual ratio 2627 OZ 14 Dividends from qualifying companies 2627 OZ 15 Attaching imputation credits and notional distributions:

modifying amounts 2628

OZ 16 BETA reductions [Repealed] 2629 OZ 17 CTRA reductions [Repealed] 2629 OZ 18 Credit-back of PCA balance 2629

Part R General collection rules

Subpart RA—General withholding and payment obligations

Introductory provisions RA 1 What this Part does 2632 RA 2 Amounts treated as income tax 2633

Payment and withholding obligations RA 3 Terminal tax obligations 2633

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RA 4 Provisional tax obligations 2633 RA 5 Tax obligations for employment-related taxes 2634 RA 6 Withholding and payment obligations for passive income 2635 RA6B Withholding and payment obligations for retirement

scheme contributions 2636

RA 7 Payment of tax by public authorities 2636 RA 8 Liability of persons receiving payments or benefits 2636 RA 9 Treatment of amounts withheld as received 2636 RA 10 When obligations not met 2637 RA 11 Adjustment to correct errors: certain underpayments 2638 RA 12 Adjustment to correct errors: certain excess amounts 2639

Payment dates RA 13 Payment dates for terminal tax 2641 RA 14 Payment dates for provisional tax 2642 RA 15 Payment dates for interim and other tax payments 2642 RA 16 Payment date when taxable activity ends 2645 RA 17 Payment date when RWT exemption certificate expires 2646 RA 18 Payment date for emigrating companies 2646

Refunds RA 19 Refunds of excess amounts or when amounts mistakenly

paid 2647

Amalgamations RA 20 Amalgamation of companies 2647

Regulations RA 21 Regulations 2648

Application of other provisions RA 22 Limits on application of other provisions for purposes of

PAYE rules 2650

RA 23 Application of other provisions for purposes of ESCT rules and NRWT rules

2651

RA 24 Application of other provisions for purposes of RSCT rules

2651

Subpart RB—Terminal tax RB 1 Payment of terminal tax 2652 RB 2 Income tax liability for non-filing taxpayers for

non-resident passive income 2652

RB 3 Schedular income tax liability for filing taxpayers for non-resident passive income

2653

RB 4 Using refunds to satisfy tax liabilities 2653

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Income Tax Act 2007 Reprinted as at 1 April 2014

Subpart RC—Provisional tax Introductory provisions

RC 1 What this subpart does 2655 RC 2 Provisional tax rules and their application 2656 RC 3 Who is required to pay provisional tax? 2657 RC 4 Choosing to pay provisional tax 2658

Calculating provisional tax liability RC 5 Methods for calculating provisional tax liability 2658 RC 6 Standard method 2660 RC 7 Estimation method 2661 RC 8 GST ratio method 2663

Instalments of provisional tax RC 9 Provisional tax payable in instalments 2666

Table R1: Summary of instalment dates and calculation methods for provisional tax

RC 10 Calculating amount of instalment under standard and estimation methods

2671

RC 11 Calculating amount of instalment using GST ratio 2672 RC 12 Voluntary payments 2673 RC 13 Paying 2 instalments for tax year 2673 RC 14 Paying 1 instalment for tax year 2674

Requirements for using GST ratio RC 15 Choosing to use GST ratio 2675 RC 16 Who may use GST ratio? 2676 RC 17 When GST ratio must not be used 2677 RC 18 Changing calculation method 2678 RC 19 Disposal of assets 2680

Transitional years RC 20 Calculating residual income tax in transitional years 2681 RC 21 Paying provisional tax in transitional years 2682 RC 22 Calculating instalments in transitional years: standard

method 2684

RC 23 Calculating instalments in transitional years: estimation method

2685

RC 24 Calculating instalments in transitional years: GST ratio method

2687

RC 25 Consequences of change in balance date 2687

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Reprinted as at 1 April 2014 Income Tax Act 2007

When persons start or stop paying GST, or change taxable periods

RC 26 Registering for GST or cancelling registration 2688 RC 27 Payment of provisional tax instalments when GST cycle

changed 2690

Treatment of groups of companies and amalgamated companies

RC 28 Provisional tax rules and consolidated groups 2691 RC 29 Residual income tax of consolidated groups 2692 RC 30 Consolidated groups using estimation method 2692 RC 31 Consolidated groups using GST ratio method 2693 RC 32 Wholly-owned groups of companies 2694 RC 33 Amalgamated companies: calculating residual income tax 2695

Attribution rule for income from personal services RC 34 Attribution rule for income from personal services 2696

Credits RC 35 Further income tax credited to provisional tax liability 2698

Disaster relief [Repealed]

RC 36 Persons affected by adverse events [Repealed] 2699

Early-payment discounts RC 37 Availability of early-payment discounts 2699 RC 38 Crediting income tax with early-payment discount 2700 RC 39 Credit treated as payment of income tax 2701 RC 40 Some definitions 2701

Subpart RD—Employment-related taxes Introductory provision

RD 1 What this subpart does 2704

PAYE rules and PAYE income payments Introductory provisions

RD 2 PAYE rules and their application 2705 RD 3 PAYE income payments 2706 RD 4 Payment of amounts of tax to Commissioner 2708

Types of PAYE income payments RD 5 Salary or wages 2709 RD 6 Certain benefits and payments 2713 RD 7 Extra pay 2714

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Income Tax Act 2007 Reprinted as at 1 April 2014

RD 8 Schedular payments 2715

Calculating amounts of tax RD 9 Maximum amount 2716 RD 10 Amounts of tax for PAYE income payments 2716 RD 11 Reduction in certain circumstances 2718

Adjustments for certain PAYE income payments RD 12 Multiple payments of salary or wages 2719 RD 13 Advance payments of salary or wages 2720 RD13B Adjustments for payroll donations 2721 RD 14 Changes to tax rates for salary or wages 2721 RD 15 Payments of salary or wages in pay periods 2722 RD 16 Payments to private domestic workers 2723 RD 17 Payment of extra pay with other PAYE income payments 2724 RD 18 Schedular payments without notification 2726 RD 19 Schedular payments to non-resident entertainers 2727 RD 20 Schedular payments to subcontractors 2728

Paying amounts of tax RD 21 When amounts of tax not withheld or payment insufficient 2728 RD 22 Returns for amounts of tax paid to Commissioner 2729 RD 23 Bonds given by employers of certain non-resident

employees 2732

RD 24 Exemption certificates for non-resident contractors 2734

Fringe benefit tax (FBT) rules and fringe benefits Introductory provisions

RD 25 FBT rules and their application 2735 RD 26 Liability for FBT 2735

Value of fringe benefits RD 27 Determining fringe benefit values 2736 RD 28 Private use of motor vehicle: calculation methods 2736 RD 29 Private use of motor vehicle: formulas 2738 RD 30 Private use of motor vehicle: 24-hour period 2739 RD 31 Motor vehicle test period 2740 RD 32 Replacement motor vehicles 2742 RD 33 Subsidised transport 2742 RD 34 Employment-related loans: value using prescribed interest

rates 2743

RD 35 Employment-related loans: value using market interest rates

2744

RD 36 Repayment of employment-related loans 2745

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Reprinted as at 1 April 2014 Income Tax Act 2007

RD 37 Contributions to superannuation schemes 2747 RD 38 Contributions to funds, trusts, and insurance premiums 2747 RD 39 Benefits provided by charitable organisations 2748 RD 40 Goods 2749 RD 41 Services 2751 RD 42 Goods at staff discount 2752 RD 43 Goods on special with staff discount 2752 RD 44 Goods sold by group companies 2753 RD 45 Unclassified benefits 2753 RD 46 Adjustments for unclassified benefits on amalgamation 2755

Attributing fringe benefits to employees RD 47 Attribution of certain fringe benefits 2757 RD 48 When attributed benefits provided to more than 1

employee 2758

RD 49 Application of thresholds to attributed benefits 2758 RD 50 Employer’s liability for attributed benefits 2759 RD 51 Calculation of all-inclusive pay 2760 RD 52 Calculation for certain employees when information

lacking 2763

RD 53 Pooling non-attributed benefits 2764

Taxable value of fringe benefits RD 54 Value of and payments towards fringe benefits 2765 RD 55 Private use of motor vehicle: taxable value in cases of

part ownership 2766

RD 56 Private use of motor vehicle: when schedular value not used

2766

RD 57 Private use of motor vehicle: when schedular value used 2767

Options for payment of FBT RD 58 Single rate option 2768 RD 59 Alternate rate option 2769 RD 60 Close company option 2770 RD 61 Small business option 2772 RD 62 Changes in payment periods 2774 RD 63 When employer stops employing staff 2775

Employer’s superannuation contribution tax (ESCT) rules and employer’s superannuation contributions

Introductory provisions RD 64 ESCT rules and their application 2776 RD 65 Employer’s superannuation cash contributions 2776 RD 66 Complying fund rules [Repealed] 2780

113

Income Tax Act 2007 Reprinted as at 1 April 2014

Calculating amounts of tax RD 67 Calculating amounts of tax for employer’s superannuation

cash contributions 2780

RD 68 Choosing to have amount treated as salary or wages 2781 RD 69 Choosing different rates for employer’s superannuation

cash contributions [Repealed] 2782

RD 70 Calculating amounts of tax on failure to withhold 2782 RD 71 Amounts of tax treated as paid to and received by

superannuation funds 2783

Tax on certain withdrawals from superannuation funds [Repealed]

RD 72 Recovery of tax paid by superannuation funds [Repealed] 2784

Subpart RE—Withholding tax on resident passive income (RWT)

Introductory provisions RE 1 RWT rules and their application 2785 RE 2 Resident passive income 2786

Withholding obligations RE 3 Obligation to withhold RWT 2791 RE 4 Persons who have withholding obligations 2791 RE 5 No withholding obligation in certain circumstances 2794 RE 6 When obligation to withhold unreasonable 2795 RE 7 When resident passive income paid to trustees 2795 RE 8 When resident passive income paid to nominees 2796 RE 9 Agents’ or trustees’ obligations in relation to certain

dividends 2796

RE 10 Special rule relating to payments of interest 2797 RE 10B Amounts withheld from distributions to holders of FIF

attributing interests 2798

RE 11 Notification by companies 2799

Calculating amounts of tax RE 12 Interest 2800 RE 13 Dividends other than non-cash dividends 2802 RE 14 Non-cash dividends other than certain share issues 2803 RE 15 Bonus issues in lieu and shares issued under profit

distribution plans 2804

RE 16 Taxable Maori authority distributions 2806 RE 17 Replacement payments under share-lending arrangements 2807 RE 18 Payments made by RWT proxies 2808 RE 19 Choosing other rates 2808

114

Reprinted as at 1 April 2014 Income Tax Act 2007

Paying amounts of tax RE 20 Paying RWT 2809 RE 21 Basis for payment of RWT 2810 RE 22 When payment treated as non-resident passive income 2811 RE 23 When amount of tax treated as FDP credit 2812 RE 24 When amount of tax treated as Maori authority credit 2812 RE 25 When amount of tax treated as imputation credit 2812 RE 26 Payment by proxy 2813

RWT exemption certificates RE 27 RWT exemption certificates 2813 RE 28 When certificates expire 2814 RE 29 Establishing whether person holds certificate 2814 RE 30 When unincorporated bodies hold certificates 2816

Subpart RF—Withholding tax on non-resident passive income (NRWT)

Introductory provisions RF 1 NRWT rules and their application 2818 RF 2 Non-resident passive income 2820

Withholding obligations RF 3 Obligation to withhold amounts of tax for non-resident

passive income 2822

RF 4 Non-resident passive income received by agents and others

2823

RF 5 When amounts of tax already withheld 2824 RF 6 When amounts of tax not withheld or partly withheld 2824

Calculating amounts of tax RF 7 General rate for NRWT 2825 RF 8 Certain dividends 2825 RF 9 When dividends fully imputed or fully credited 2827 RF 10 Non-cash dividends 2828 RF 11 Dividends paid to companies associated with

non-residents 2831

RF 11B Dividends paid by companies in certain situations 2832 RF 12 Interest paid by approved issuers or transitional residents 2833 RF 12B Interest derived jointly with residents 2834 RF 12C Amount derived from non-resident life insurer becoming

resident 2835

115

Income Tax Act 2007 Reprinted as at 1 April 2014

Paying amounts of tax RF 13 Basis for payment of amounts of tax for non-resident

passive income 2835

RF 14 Treatment of FDP credits 2836 RF 15 Commissioner’s power to vary amounts of tax 2836 RF 16 Relationship with RSCT rules 2837

Subpart RG—Payments for foreign dividends (FDP) [Repealed]

Introductory provisions [Repealed]

RG 1 FDP rules and their application [Repealed] 2838 RG 2 Foreign dividends [Repealed] 2838

Obligation to make payments [Repealed]

RG 3 Obligation to pay FDP [Repealed] 2839

Calculation of payments [Repealed]

RG 4 Calculating amount of FDP [Repealed] 2839

Adjustments to payments [Repealed]

RG 5 Credit balance in branch equivalent tax account [Repealed] 2839 RG 6 Using loss balances [Repealed] 2839 RG 7 Reduction of payments for conduit tax relief [Repealed] 2839

Subpart RH—Withholding tax on retirement scheme contributions

RH 1 RSCT rules and their application 2840 RH 2 Retirement scheme contributions 2841 RH 3 Retirement savings schemes 2842 RH 4 Retirement scheme contributors 2843

Calculating amounts of tax RH 5 Calculating amounts of tax for retirement scheme

contribution 2844

RH 6 Calculating amounts of tax on failure to withhold 2844

Subpart RM—Refunds Introductory provision

RM 1 What this subpart does 2846

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Reprinted as at 1 April 2014 Income Tax Act 2007

Refunds for overpaid amounts RM 2 Refunds for overpaid tax 2846 RM 3 Refunds for overpaid FDP 2848 RM 4 Overpayment on amended assessment 2848 RM 5 Overpayment on income statements 2849 RM 6 Refunds after 4-year period ends [Repealed] 2850 RM 7 Refunds to PAYE intermediaries 2850 RM 8 Overpaid RWT or NRWT 2850 RM 9 Calculations for attributed and non-attributed fringe

benefits 2853

Use of refunds RM10 Using refund to satisfy tax liability 2853 RM11 Using GST refund to pay instalment of provisional tax 2854 RM12 Reduction in provisional tax liability 2855

Limits on refunds and transfers ICA companies

RM13 Limits on refunds for ICA companies 2856 RM14 Limits on refunds when company stops being ICA

company 2857

RM15 Changes in credit balances 2858 RM16 Treatment of amounts not refunded 2858 RM17 Treatment of further income tax paid 2859

Companies receiving foreign dividends RM18 Limits on refunds related to foreign dividends 2859 RM19 Treatment of financial arrangements 2860 RM20 Treatment of amounts not refunded 2861 RM21 Refunds when loss balances used to reduce net income 2861

Maori authorities RM22 Limits on refunds for Maori authorities 2863 RM23 Limits on refunds when Maori authority stops being

Maori authority 2865

RM24 Increase in credit balances 2865 RM25 Treatment of amounts not refunded 2866 RM26 Treatment of further income tax paid 2866 RM27 Application when no credits arise 2867

Persons with policyholder credit accounts RM28 Limits on refunds for PCA persons 2867 RM29 Limits on refunds when person no longer PCA person 2867 RM30 Changes in credit balances 2868

117

Income Tax Act 2007 Reprinted as at 1 April 2014

RM31 Treatment of amounts not refunded 2868

Qualifying companies RM32 Application of sections RM 13 to RM 17 to qualifying

companies 2869

Certain unit trusts and group investment funds RM33 Limits on refunds for certain unit trusts and group

investment funds 2869

Subpart RP—Intermediaries Introductory provision

RP 1 What this subpart does 2871

PAYE intermediaries Obligations and treatment of PAYE intermediaries

RP 2 PAYE intermediaries 2872 RP 3 Requirements for listed PAYE intermediaries 2872 RP 4 Payment of subsidies to certain PAYE intermediaries 2873 RP 5 Subsidy claims 2874 RP 6 Operation of PAYE intermediaries’ trust accounts 2875

Employers’ responsibilities RP 7 General responsibilities of employers 2876 RP 8 Information required from employers 2877 RP 9 Authorised transfers from accounts 2878 RP 10 When transfers from accounts not authorised 2878 RP 11 Employer’s superannuation cash contributions 2879 RP 12 When payments made directly to employees 2879

PAYE intermediaries’ responsibilities RP 13 General responsibilities of PAYE intermediaries 2880 RP 14 Collection, payment, and information requirements 2881 RP 15 When employers have authorised transfers from accounts 2881 RP 16 Obligations for employer’s superannuation contributions 2882

Tax pooling intermediaries RP 17 Tax pooling intermediaries 2882 RP 17B Tax pooling accounts and their use 2883 RP 18 Deposits in tax pooling accounts 2888 RP 19 Transfers from tax pooling accounts 2889 RP 19B Transfers for certain expected tax liabilities 2891 RP 20 Declining, amending, or reversing transfers 2892 RP 21 Refunds from tax pooling accounts 2893

118

Reprinted as at 1 April 2014 Income Tax Act 2007

Subpart RZ—Terminating provisions Provisional tax

RZ 1 Certain elections to become person with provisional tax liability

2894

RZ 2 Amount of provisional tax based on 1997–98 or earlier tax year

2895

RZ 3 Standard method: 2010–11 to 2012–13 income years 2895 RZ 4 GST ratio method: 2010–11 to 2013–14 income years 2897 RZ 5 Calculating amounts under standard method: 2010–11

to 2012–13 income years 2899

RZ 5B Standard method: new personal tax rate persons from 1 October 2008 to end 2009–10 income year [Repealed]

2900

RZ 5C GST ratio method: new personal tax rate persons from 1 October 2008 to end 2009–10 income year [Repealed]

2900

RZ 5D Standard method or GST method: transition for Maori authorities

2901

Refunds RZ 6 Limits on refunds: transitional dates 2902

Withdrawal income RZ 7 Withdrawal income 2902 RZ 8 Payment and rate of withdrawal tax 2903 RZ 9 Relief in certain cases 2904 RZ 10 Recovery of amounts payable to Commissioner 2904 RZ 11 Refunds for life insurers 2904

Part Y Definitions and related matters Subpart YA—General definitions

YA 1 Definitions 2906 YA 2 Meaning of income tax varied 3174 YA 3 Treatment of qualifying company election tax, FBT,

FDP penalty tax, imputation penalty tax, and withdrawal tax [Repealed]

3176

Subpart YB—Associated persons and nominees Table Y1: Associated person rules

[Repealed]

Associated persons YB 1 What this subpart does 3177 YB 2 Two companies 3179 YB 3 Company and person other than company 3181

119

Income Tax Act 2007 Reprinted as at 1 April 2014

YB 4 Two relatives 3181 YB 5 Person and trustee for relative 3182 YB 6 Trustee and beneficiary 3183 YB 7 Two trustees with common settlor 3183 YB 8 Trustee and settlor 3183 YB 9 Settlor and beneficiary 3184 YB 10 Who is a settlor? 3184 YB 11 Trustee and person with power of appointment or removal 3184 YB 12 Partnership and partner 3185 YB 13 Look-through companies and owners of interests 3186 YB 14 Tripartite relationship 3187 YB 15 Exceptions for employee trusts 3188 YB 16 Exceptions for certain trusts and charitable organisations 3189 YB 17 Partnerships: partnership and associate of

partner [Repealed] 3190

YB 18 Persons habitually acting together: 1988 version provisions [Repealed]

3190

YB 19 Person and controlled non-profit organisation: 1990 version provisions [Repealed]

3190

YB 20 Some definitions [Repealed] 3190

Nominees YB 21 Transparency of nominees 3190

Subpart YC—Measurement of company ownership Control [Repealed]

YC 1 Meaning of control [Repealed] 3192

Voting and market value interests YC 2 Voting interests 3193 YC 3 Market value interests 3193 YC 4 Look-through rule for corporate shareholders 3193 YC 5 Treatment of special corporate entities 3195 YC5B Treatment of mixed-ownership enterprises 3196 YC 6 Disregarding certain securities 3196

Voting and market value interests: modifications for continuity provisions

YC 7 When sections YC 8 to YC 19B apply 3197 YC 8 Death of share or option holder 3197 YC 9 Shares or options held by trustees 3198 YC 10 Shareholders holding less than 10% direct interests 3199 YC 11 No look-through rule for companies in certain cases 3199

120

Reprinted as at 1 April 2014 Income Tax Act 2007

YC 12 Public unit trusts 3200 YC 13 Corporate spin-outs 3201 YC 14 Disregarding concessionary rules 3204 YC 15 Directors’ knowledge of failure to meet requirements of

continuity provision 3204

YC 16 Disregarding market value changes 3206 YC 17 Demutualisation of insurers 3207 YC 18 Reverse takeovers 3210 YC18B Corporate reorganisations not affecting economic

ownership 3213

YC18C Railways restructure not affecting Crown economic ownership

3215

YC 19 Legislative conversion of foreign company of proprietors 3216 YC19B Treatment when certain trusts terminated 3217 YC 20 Credit account continuity provisions: excluded fixed rate

securities 3217

Subpart YD—Residence and source in New Zealand Residence

YD 1 Residence of natural persons 3219 YD 2 Residence of companies 3221 YD 3 Country of residence of foreign companies 3221 YD3B Crown 3222

Source YD 4 Classes of income treated as having New Zealand source 3223 YD 5 Apportionment of income derived partly in New Zealand 3226 YD 6 Apportionment of income from sea transport 3227 YD 7 Apportionment of film rental income [Repealed] 3228 YD 8 Apportionment of premiums derived by non-resident

general insurers 3228

Conduit tax relief companies: special residence rules [Repealed]

YD 9 Residence of CTR company shareholders [Repealed] 3230 YD 10 Meaning of CTR holding company [Repealed] 3231 YD 11 Meaning of CTR group member [Repealed] 3231

Subpart YE—References to balance dates and years YE 1 References to balance dates and years 3231

Subpart YF—Currency conversion YF 1 General rules for currency conversion 3233

121

Income Tax Act 2007 Reprinted as at 1 April 2014

YF 2 Other rules for currency conversion: approved alternatives

3235

Subpart YZ—Terminating provisions YZ 1 Source rule for interest 3236 YZ 2 Saving of effect of section 394L(4A) of Income Tax Act

1976 3236

YZ 3 Saving effect of section DF 5 of Income Tax Act 1994 3236

Part Z Repeals, amendments, and savings

ZA 1 Repeals 3238 ZA 2 Consequential amendments to other enactments 3238 ZA 3 Transitional provisions 3239 ZA 4 Saving of binding rulings 3240 ZA 5 Saving of accrual determinations 3241 ZA 6 Comparative tables of old and new provisions 3242

Schedule 1 3244 Basic tax rates: income tax, ESCT, RSCT, RWT, and

attributed fringe benefits

Schedule 2 3257 Basic tax rates for PAYE income payments

Schedule 3 3261 Payment of provisional tax and terminal tax

Schedule 4 3264 Rates of tax for schedular payments

Schedule 5 3274 Fringe benefit values for motor vehicles

Schedule 6 3279 Prescribed rates: PIE investments and retirement

scheme contributions

Schedule 10 3284 Straight-line equivalents of diminishing value rates

of depreciation

Schedule 11 3288 New banded rates of depreciation

Schedule 12 3289 Old banded rates of depreciation

122

Reprinted as at 1 April 2014 Income Tax Act 2007

Schedule 13 3290 Depreciable land improvements

Schedule 14 3291 Depreciable intangible property

Schedule 17 3292 Types and classes of livestock

Schedule 18 3295 Categories of livestock for which national standard

costs to be declared

Schedule 19 3296 Expenditure in avoiding, remedying, or mitigating detrimental effects of discharge of contaminant

Schedule 20 3299 Expenditure on farming, horticultural, aquacultural,

and forestry improvements

Schedule 21 3303 Expenditure and activities related to research and

development [Repealed]

Schedule 24 3304 International tax rules: grey list countries

Schedule 25 3306 Foreign investment funds

Schedule 26 3306 Low tax jurisdictions or territories

[Repealed]

Schedule 27 3307 Countries and types of income with unrecognised tax

Schedule 28 3308 Requirements for complying fund rules

Schedule 29 3311 Portfolio investment entities: listed investors

Schedule 31 3313 Annualised equivalent amount for Part M

Schedule 32 3316 Recipients of charitable or other public benefit gifts

123

s A 1 Income Tax Act 2007 Reprinted as at 1 April 2014

Schedule 33 3323 Default fractions of foreign superannuation

withdrawals

Schedule 36 3325 Government enterprises

Schedule 37 3327 Statutory producer boards

Schedule 38 3328 Acts exempting income from tax: income included in

family scheme income

Schedule 39 3329 Items for purposes of definition of special excluded

depreciable property

Schedule 48 3330 Enactments repealed

Schedule 49 3331 Enactments amended

Schedule 50 3377 Amendments to Tax Administration Act 1994

Schedule 51 3491 Identified changes in legislation

Schedule 52 3497 Comparative tables of old and rewritten provisions

A 1 Title This Act is the Income Tax Act 2007. Compare: 2004 No 35 s A 1

A 2 Commencement 1 April 2008

(1) This Act comes into force on 1 April 2008. Charitable entities

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

124

Reprinted as at 1 April 2014 Income Tax Act 2007 s A 2

Act effective for 2008–09 income year and later (2) However, except when the context requires otherwise, this Act

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

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Income Tax Act 2007 Reprinted as at 1 April 2014

Part A Purpose and interpretation

Contents Page

AA 1 Purpose of Act 126 AA 2 Interpretation 126 AA 3 Definitions 126 AA 4 Crown bound 127

AA1 Purpose of Act The main purposes of this Act are— (a) to define, and impose tax on, net income: (b) to impose obligations concerning tax: (c) to set out rules for calculating tax and for satisfying the

obligations imposed. Defined in this Act: net income, tax Compare: 2004 No 35 s AA 1

AA2 Interpretation Aids to interpretation

(1) Diagrams, flowcharts, readers’ notes, and the lists of defined terms following sections are included in this Act only as inter- pretational aids. If there is conflict between an interpretational aid and a provision of this Act, the provision prevails. Defined terms

(2) If a defined term is used in a section and is not included in the list of defined terms following the section, the term is never- theless used in the section as defined. Compare: 1994 No 164 s AA 2

AA3 Definitions Role of Part Y

(1) Definitions of terms that apply generally for the purposes of this Act, and general provisions on the interpretation and con- struction of this Act, appear in Part Y (Definitions and related matters).

126

Reprinted as at 1 April 2014 Income Tax Act 2007 Part A s AA 4

Role of Interpretation Act (2) The Interpretation Act 1999 also contains definitions of terms,

including in particular the term person, and other provisions that apply to the interpretation and construction of this Act. Compare: 2004 No 35 s AA 3(2)

AA4 Crown bound This Act binds the Crown.

127

Part A s AA 4 Income Tax Act 2007 Reprinted as at 1 April 2014

Part B Core provisions

Flowchart B1: Outline of Part

128

Reprinted as at 1 April 2014 Income Tax Act 2007 Part B s BB 1

Subpart BA—Purpose

Contents Page

BA 1 Purpose 129

BA 1 Purpose The purposes of this Part are— (a) to impose income tax, provisional tax, withholding li-

abilities, and other tax obligations concerning taxes: (b) to set out procedures to be followed for calculating tax

and satisfying the obligations imposed under this Act: (c) to provide a basis for applying the other Parts: (d) generally to set up the scheme of the Act and the main

links between its Parts. Defined in this Act: income tax, provisional tax, tax Compare: 2004 No 35 s BA 1

Subpart BB—Income tax and resulting obligations

Contents Page

BB 1 Imposition of income tax 129 BB 2 Main obligations 130 BB 3 Overriding effect of certain matters 130

BB 1 Imposition of income tax Income tax is imposed on taxable income, at the rate or rates of tax fixed by an annual taxing Act, and is payable to the Crown under this Act and the Tax Administration Act 1994. Defined in this Act: annual taxing Act, income tax, pay, tax, taxable income Compare: 2004 No 35 s BB 1

129

Part B s BB 2 Income Tax Act 2007 Reprinted as at 1 April 2014

BB 2 Main obligations Income tax liability

(1) A person’s income tax liability for a tax year must be calcu- lated, and satisfied by the person, under subpart BC (Calculat- ing and satisfying income tax liabilities). Non-filing taxpayer

(2) Despite subsection (1), a non-filing taxpayer is not required to file a return of income. Provisional tax

(3) A person liable to pay provisional tax must pay provisional tax for a tax year under the provisional tax rules. Withholding liabilities

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

(5) A person who has an obligation in relation to another ancillary tax under subpart BF (Other obligations) must satisfy it under that subpart. Defined in this Act: ancillary tax, income tax liability, non-filing taxpayer, pay, provisional tax rules, provisional tax, return of income, tax year Compare: 2004 No 35 s BB 2

BB 3 Overriding effect of certain matters Tax avoidance arrangements: subpart BG

(1) Under Part G (Avoidance and non-market transactions), the Commissioner may counteract a tax advantage from a tax avoidance arrangement. Double tax agreements: subpart BH

(2) Under subpart BH (Double tax agreements) a double tax agreement has effect in relation to— (a) income tax; or (b) any other tax imposed by this Act; or (c) the exchange of information that relates to a tax, as de-

fined in paragraphs (a)(i) to (v) of the definition of tax in section 3 of the Tax Administration Act 1994.

Defined in this Act: Commissioner, double tax agreement, income tax, tax, tax avoidance arrangement Compare: 2004 No 35 s BB 3

130

Reprinted as at 1 April 2014 Income Tax Act 2007 Part B s BB 3

Subpart BC—Calculating and satisfying income tax liabilities

Contents Page

BC 1 Non-filing and filing taxpayers 134 BC 2 Annual gross income 134 BC 3 Annual total deduction 134 BC 4 Net income and net loss 135 BC 5 Taxable income 135 BC 6 Income tax liability of filing taxpayer 137 BC 7 Income tax liability of person with schedular income 137 BC 8 Satisfaction of income tax liability 140

131

Income Tax Act 2007 Reprinted as at 1 April 2014

Flowchart B2: Calculating and satisfying income tax liabilities

132

Reprinted as at 1 April 2014 Income Tax Act 2007 Part B s BB 3

133

Part B s BC 1 Income Tax Act 2007 Reprinted as at 1 April 2014

Flowchart B2: amended (with effect on 1 April 2008), on 7 December 2009, by section 4 of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).

BC 1 Non-filing and filing taxpayers Non-filing taxpayer

(1) The income tax liability of a non-filing taxpayer for a tax year is the total tax withheld from amounts of income included in the taxpayer’s annual gross income for the year. Filing taxpayer

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

(3) If a filing taxpayer has schedular income, their income tax li- ability calculation is modified by section BC 7. Defined in this Act: amount, annual gross income, filing taxpayer, income, in- come tax liability, non-filing taxpayer, schedular income, tax, tax year Compare: 2004 No 35 s BC 1

BC 2 Annual gross income A person’s annual gross income for a tax year is the total of their assessable income that is allocated to the corresponding income year. Defined in this Act: annual gross income, assessable income, corresponding income year, tax year Compare: 2004 No 35 s BC 2

BC 3 Annual total deduction A person’s annual total deduction for a tax year is the total of their deductions that are allocated to the corresponding income year. Defined in this Act: annual total deduction, corresponding income year, deduc- tion, tax year Compare: 2004 No 35 s BC 3

134

Reprinted as at 1 April 2014 Income Tax Act 2007 Part B s BC 5

BC 4 Net income and net loss Income more than deductions

(1) If, for a tax year, a person’s annual gross income is more than their annual total deduction, the difference is their net income for the year. Income equal to deductions

(2) If, for a tax year, a person’s annual gross income equals their annual total deduction, their net income for the year is zero. Deductions more than income

(3) If, for a tax year, a person’s annual total deduction is more than their annual gross income, the difference is their net loss for the year, and their net income for the year is zero. Treatment of net loss

(4) A person’s net loss for a tax year is included under Part I (Treatment of tax losses) in their tax loss for the tax year that may, under Part I, be— (a) subtracted from their net income for a future tax year: (b) made available to another person to subtract from that

other person’s net income for that or a future tax year: (c) used in certain other ways. Defined in this Act: annual gross income, annual total deduction, net income, net loss, tax loss, tax year Compare: 2004 No 35 s BC 4

BC 5 Taxable income A person’s taxable income for a tax year is determined by subtracting any available tax loss that the person has from their net income under Part I (Treatment of tax losses). Defined in this Act: available tax loss, net income, tax loss, taxable income, tax year Compare: 2004 No 35 s BC 5

135

Part B s BC 5 Income Tax Act 2007 Reprinted as at 1 April 2014

Flowchart B3: Calculating income tax liability

136

Reprinted as at 1 April 2014 Income Tax Act 2007 Part B s BC 7

BC 6 Income tax liability of filing taxpayer Calculation of amount

(1) The income tax liability of a filing taxpayer for a tax year is the amount calculated by multiplying their taxable income for the tax year by the basic tax rate. The income tax liability of a filing taxpayer with schedular income is determined under section BC 7. When liability zero or negative

(2) If the income tax liability calculated under subsection (1) is zero or negative, the filing taxpayer’s income tax liability for the tax year is zero. Defined in this Act: amount, basic tax rate, filing taxpayer, income tax liability, schedular income, tax year, taxable income Compare: 2004 No 35 s BC 6

BC 7 Income tax liability of person with schedular income Modified income tax liability

(1) The income tax liability for a tax year of a person who has schedular income for the year is the total of— (a) their schedular income tax liability for the year calcu-

lated under subsection (2) or (3); and (b) the amount that would be their income tax liability for

the year if they had no schedular income. Schedular income tax liability

(2) If a person has 1 kind of schedular income for a tax year, their schedular income tax liability for the year is the amount that would be the income tax liability for the year if their only in- come for the year were that schedular income. Multiple schedular income

(3) If a person has more than 1 kind of schedular income for a tax year, their schedular income tax liability for the year is the total of the amounts calculated for each kind of schedular income.

137

Part B s BC 7 Income Tax Act 2007 Reprinted as at 1 April 2014

Income tax liability of multi-rate PIEs (4) The income tax liability for a tax year of a multi-rate PIE is

determined under subpart HM (Portfolio investment entities). Defined in this Act: amount, income, income tax liability, multi-rate PIE, schedular income, schedular income tax liability, tax year Compare: 2004 No 35 s BC 7

138

Reprinted as at 1 April 2014 Income Tax Act 2007 Part B s BC 7

Flowchart B4: Satisfying income tax liability

139

Part B s BC 8 Income Tax Act 2007 Reprinted as at 1 April 2014

Section BC 7(4) heading: added, on 1 April 2010 (applying for the 2010–11 and later income years), by section 4(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34). Section BC 7(4): added, on 1 April 2010 (applying for the 2010–11 and later income years), by section 4(1) of the Taxation (International Taxation, Life In- surance, and Remedial Matters) Act 2009 (2009 No 34). Section BC 7 list of defined terms multi-rate PIE: inserted, on 1 April 2010, by section 4(2) of the Taxation (International Taxation, Life Insurance, and Re- medial Matters) Act 2009 (2009 No 34).

BC 8 Satisfaction of income tax liability Use of tax credits

(1) Credits for tax paid, tax withheld, or other circumstances, cal- culated under Parts L (Tax credits and other credits) and M (Tax credits paid in cash), satisfy a person’s income tax liabil- ity for a tax year as far as the credits extend. Ordering rule

(2) The order in which the person uses their credits is set out in section LA 4 (When total tax credit more than income tax li- ability). Terminal tax

(3) If the person’s income tax liability is more than the total of their credits, the difference is the person’s terminal tax. The person must pay the terminal tax to complete the satisfaction of their income tax liability. Remaining credits

(4) The treatment of any credits remaining after the person’s in- come tax liability is satisfied is dealt with in section LA 5 (Treatment of remaining credits). Defined in this Act: income tax liability, pay, tax, tax credit, tax year, terminal tax Compare: 2004 No 35 s BC 9

Subpart BD—Income, deductions, and timing

Contents Page

BD 1 Income, exempt income, excluded income, non-residents’ foreign-sourced income, and assessable income

141

140

Reprinted as at 1 April 2014 Income Tax Act 2007 Part B s BD 1

BD 2 Deductions 142 BD 3 Allocation of income to particular income years 142 BD 4 Allocation of deductions to particular income years 143

BD 1 Income, exempt income, excluded income, non-residents’ foreign-sourced income, and assessable income Amounts of income

(1) An amount is income of a person if it is their income under a provision in Part C (Income). Exempt income

(2) An amount of income of a person is exempt income if it is their exempt income under a provision in subpart CW (Exempt income) or CZ (Terminating provisions). Excluded income

(3) An amount of income of a person is excluded income if— (a) it is their excluded income under a provision in subpart

CX (Excluded income) or CZ; and (b) it is not their non-residents’ foreign-sourced income. Non-residents’ foreign-sourced income

(4) An amount of income of a person is non-residents’ foreign- sourced income if— (a) the amount is a foreign-sourced amount; and (b) the person is a non-resident when it is derived; and (c) the amount is not income of a trustee to which sec-

tion HC 25(2) (Foreign-sourced amounts: non-resident trustees) applies.

Assessable income (5) An amount of income of a person is assessable income in the

calculation of their annual gross income if it is not income of any of the following kinds: (a) their exempt income: (b) their excluded income: (c) their non-residents’ foreign-sourced income. Defined in this Act: amount, annual gross income, assessable income, excluded income, exempt income, foreign-sourced amount, income, non-resident, non- residents’ foreign-sourced income Compare: 2004 No 35 s BD 1

141

Part B s BD 2 Income Tax Act 2007 Reprinted as at 1 April 2014

BD 2 Deductions An amount is a deduction of a person if they are allowed a deduction for the amount under Part D (Deductions). Defined in this Act: amount, deduction Compare: 2004 No 35 s BD 2

BD 3 Allocation of income to particular income years Application

(1) Every amount of income must be allocated to an income year under this section. General rule

(2) An amount of income is allocated to the income year in which the amount is derived, unless a provision in any of Parts C or E to I provides for allocation on another basis. Interpretation of derive

(3) When the time of derivation of an amount of income is being determined, regard must be had to case law, which— (a) requires some people to recognise income on an accrual

basis; and (b) requires other people to recognise income on a cash

basis; and (c) more generally, defines the concept of derivation. Income credited in account

(4) Despite subsection (3), income that has not previously been derived by a person is treated as being derived when it is cred- ited in their account or, in some other way, dealt with in their interest or on their behalf. Role of Part E

(5) Part E (Timing and quantifying rules) contains a number of provisions that— (a) specifically modify the allocation of income or have the

effect of modifying the allocation of income; or (b) allocate income as part of the process of quantifying it. Single allocation

(6) An amount of income may be allocated only once. Defined in this Act: amount, income, income year Compare: 2004 No 35 s BD 3

142

Reprinted as at 1 April 2014 Income Tax Act 2007 Part B s BD 4

BD 4 Allocation of deductions to particular income years Application

(1) Every deduction must be allocated to an income year under this section. General rule

(2) A deduction for an amount of expenditure or loss is allocated to the income year in which the expenditure or loss is incurred, unless a provision in any of Parts D to I provides for allocation on another basis. Interpretation of incur

(3) When the time of incurrence of an amount of expenditure or loss is being determined, regard must be had to case law, which— (a) requires some people to recognise expenditure or loss

on an accrual basis; and (b) requires other people to recognise expenditure or loss

on a cash basis; and (c) more generally, defines the concept of incurrence. Role of Part E

(4) Part E (Timing and quantifying rules) contains a number of provisions that— (a) specifically modify the allocation of deductions or have

the effect of modifying the allocation of deductions; or (b) allocate deductions as part of the process of quantifying

them. Allocation

(5) If an expenditure or loss gives rise to more than 1 deduction, the deductions are allocated to income years to the extent that their total is no more than the amount of the expenditure or loss. Defined in this Act: amount, deduction, income year, loss Compare: 2004 No 35 s BD 4

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Income Tax Act 2007 Reprinted as at 1 April 2014

Subpart BE—Withholding liabilities

Contents Page

BE 1 Withholding liabilities 144

BE 1 Withholding liabilities PAYE income payments

(1) A person who makes a PAYE income payment must withhold an amount from the payment under the PAYE rules. Resident passive income

(2) A person who makes a payment of resident passive income must withhold an amount from the payment under the RWT rules. Non-resident passive income

(3) A person who makes a payment of non-resident passive in- come must withhold an amount from the payment under the NRWT rules. Fringe benefits

(4) A person who provides a fringe benefit to another person must pay fringe benefit tax under the FBT rules. Employer’s superannuation cash contributions

(5) A person who makes an employer’s superannuation cash con- tribution must pay ESCT under the ESCT rules. Retirement scheme contributions

(5B) A person who makes a retirement scheme contribution to a retirement savings scheme must pay RSCT under the RSCT rules. FDP [Repealed]

(6) [Repealed] Defined in this Act: amount, dividend, employer’s superannuation cash contribution, ESCT, ESCT rules, FBT rules, fringe benefit, fringe benefit tax, non-resident passive income, NRWT rules, pay, PAYE income payment, PAYE rules, resident passive income, retirement savings scheme, retirement scheme contribution, RSCT, RSCT rules, RWT rules, superannuation fund Compare: 2004 No 35 s BE 1

144

Reprinted as at 1 April 2014 Income Tax Act 2007 Part B s BE 1

Section BE 1(1) heading: substituted (with effect on 1April 2008), on 6October 2009, by section 5(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34). Section BE 1(1): substituted (with effect on 1 April 2008), on 6 October 2009, by section 5(1) of the Taxation (International Taxation, Life Insurance, and Re- medial Matters) Act 2009 (2009 No 34). Section BE 1(5) heading: substituted (with effect on 1April 2008), on 6October 2009, by section 5(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34). Section BE 1(5): substituted (with effect on 1 April 2008), on 6 October 2009, by section 5(2) of the Taxation (International Taxation, Life Insurance, and Re- medial Matters) Act 2009 (2009 No 34). Section BE 1(5B) heading: inserted, on 1 April 2008, by section 308(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109). Section BE 1(5B): inserted, on 1 April 2008, by section 308(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109). Section BE 1(6) heading: repealed (with effect on 30 June 2009), on 6 Octo- ber 2009, pursuant to section 5(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34). Section BE 1(6): repealed (with effect on 30 June 2009), on 6 October 2009, by section 5(3) of the Taxation (International Taxation, Life Insurance, and Re- medial Matters) Act 2009 (2009 No 34). Section BE 1 list of defined terms employer’s superannuation cash contri- bution: inserted (with effect on 1 April 2008), on 6 October 2009, by section 5(5)(b) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34). Section BE 1 list of defined terms employer’s superannuation contribution: repealed (with effect on 1 April 2008), on 6 October 2009, by section 5(5)(a) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34). Section BE 1 list of defined terms FDP: repealed (with effect on 30 June 2009), on 6 October 2009, by section 5(6) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34). Section BE 1 list of defined terms FDP rules: repealed (with effect on 30 June 2009), on 6 October 2009, by section 5(6) of the Taxation (International Taxa- tion, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34). Section BE 1 list of defined terms PAYE income payment: inserted (with ef- fect on 1 April 2008), on 6 October 2009, by section 5(5)(b) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34). Section BE 1 list of defined terms PAYE payment: repealed (with effect on 1 April 2008), on 6 October 2009, by section 5(5)(a) of the Taxation (Inter- national Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34). Section BE 1 list of defined terms retirement savings scheme: inserted, on 1 April 2008, by section 308(2) of the Taxation (Business Taxation and Remed- ial Matters) Act 2007 (2007 No 109).

145

Income Tax Act 2007 Reprinted as at 1 April 2014

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

Subpart BF—Other obligations

Contents Page

BF 1 Other obligations 146

BF 1 Other obligations A person must pay the following types of income or ancillary tax under the relevant Part: (a) qualifying company election tax under Part H (Taxation

of certain entities): (b) income tax on taxable distributions from non-comply-

ing trusts under Part H: (c) further income tax under Part O (Memorandum ac-

counts): (d) [Repealed] (e) withdrawal tax under Part R (General collection rules). Defined in this Act: ancillary tax, further income tax, income tax, non-comply- ing trust, pay, qualifying company election tax, taxable distribution, withdrawal tax Compare: 2004 No 35 s BF 1 Section BF 1(d): repealed (with effect on 30 June 2009), on 6 October 2009, by section 6(1) of the Taxation (International Taxation, Life Insurance, and Re- medial Matters) Act 2009 (2009 No 34). Section BF 1 list of defined terms further FDP: repealed (with effect on 30 June 2009), on 6 October 2009, by section 6(2) of the Taxation (International Taxa- tion, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

146

Reprinted as at 1 April 2014 Income Tax Act 2007 Part B s BH 1

Subpart BG—Avoidance

Contents Page

BG 1 Tax avoidance 147

BG1 Tax avoidance Avoidance arrangement void

(1) A tax avoidance arrangement is void as against the Commis- sioner for income tax purposes. Reconstruction

(2) Under Part G (Avoidance and non-market transactions), the Commissioner may counteract a tax advantage that a person has obtained from or under a tax avoidance arrangement. Defined in this Act: Commissioner, income tax, tax avoidance arrangement Compare: 2004 No 35 s BG 1

Subpart BH—Double tax agreements

Contents Page

BH 1 Double tax agreements 147

BH1 Double tax agreements Meaning

(1) Double tax agreement means an agreement that— (a) has been negotiated for 1 or more of the purposes set

out in subsection (2); and (b) has been agreed between—

(i) the government of any territory outside New Zealand and the government of New Zealand; or

(ii) the Taipei Economic and Cultural Office in New Zealand and the New Zealand Commerce and Industry Office; and

147

Part B s BH 1 Income Tax Act 2007 Reprinted as at 1 April 2014

(c) has entered into force as a result of a declaration by the Governor-General by Order in Council under subsec- tion (3).

Purposes (2) The following are the purposes for which a double tax agree-

ment may be negotiated: (a) to provide relief from double taxation: (b) to provide relief from tax: (c) to tax the income derived by non-residents from any

source in New Zealand: (d) to determine the income to be attributed to non-resi-

dents or their agencies, branches, or establishments in New Zealand:

(e) to determine the income to be attributed to NewZealand residents who have special relationships with non-resi- dents:

(f) to prevent fiscal evasion: (g) to facilitate the exchange of information: (h) to assist in recovering unpaid tax. Entry into force

(3) An agreement to which subsection (1)(a) and (b) apply enters into force on the date specified by the Governor-General by Order in Council. Overriding effect

(4) Despite anything in this Act, except subsection (5), or in any other Inland Revenue Act or the Official Information Act 1982 or the Privacy Act 1993, a double tax agreement has effect in relation to— (a) income tax: (b) any other tax imposed by this Act: (c) the exchange of information that relates to a tax, as de-

fined in paragraphs (a)(i) to (v) of the definition of tax in section 3 of the Tax Administration Act 1994.

Agreement for recovery of tax (5) An agreement that provides for the recovery of unpaid tax is

subject to Part 10A of the Tax Administration Act 1994.

148

Reprinted as at 1 April 2014 Income Tax Act 2007 Part B s BH 1

Reference to profits (6) A reference in a double tax agreement to the profits of an ac-

tivity or business is to be read, if possible, as a reference to the amount that would be a person’s net income if that activity or business were their only activity or business. Reference to unrelated persons

(7) A reference in a double tax agreement to 2 persons being un- related is to be read, if possible, as a reference to 2 persons being not associated. Defined in this Act: associated, business, double tax agreement, income, in- come tax, Inland Revenue Acts, net income, New Zealand, New Zealand resi- dent, non-resident, pay, source in New Zealand, tax Compare: 2004 No 35 s BH 1 Section BH 1(7) heading: added, on 8 December 2009, by section 5 of the Tax- ation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63). Section BH 1(7): added, on 8 December 2009, by section 5 of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63). Section BH 1 list of defined terms associated: inserted, on 8 December 2009, by section 126 of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).

149

Income Tax Act 2007 Reprinted as at 1 April 2014

Part C Income

Subpart CA—General rules

Contents Page

CA 1 Amounts that are income 150 CA 2 Amounts that are exempt income or excluded income 150

CA1 Amounts that are income Amounts specifically identified

(1) An amount is income of a person if it is their income under a provision in this Part. Ordinary meaning

(2) An amount is also income of a person if it is their income under ordinary concepts. Defined in this Act: amount, income Compare: 2004 No 35 s CA 1

CA2 Amounts that are exempt income or excluded income What this section does

(1) This section identifies the subparts in this Act that deal with exempt income and excluded income. Exempt income

(2) An amount of income of a person is exempt income if it is their exempt income under a provision in subpart CW (Exempt income) or CZ (Terminating provisions). Excluded income

(3) An amount of income of a person is excluded income if— (a) it is their excluded income under a provision in subpart

CX (Excluded income) or CZ; and (b) it is not their non-residents’ foreign-sourced income. Defined in this Act: amount, excluded income, exempt income, non-residents’ foreign-sourced income Compare: 2004 No 35 s CA 2

150

Reprinted as at 1 April 2014 Income Tax Act 2007 Part C s CA 2

Subpart CB—Income from business or trade-like activities

Contents Page

Business generally CB 1 Amounts derived from business 153 CB 2 Amounts received on disposal of business assets that

include trading stock 153

Schemes for profit CB 3 Profit-making undertaking or scheme 154

Personal property CB 4 Personal property acquired for purpose of disposal 154 CB 5 Business of dealing in personal property 154

Land CB 6 Disposal: land acquired for purpose or with intention of

disposal 155

CB 7 Disposal: land acquired for purposes of business relating to land

155

CB 8 Disposal: land used for landfill, if notice of election 156 CB 9 Disposal within 10 years: land dealing business 157 CB 10 Disposal within 10 years: land development or subdivision

business 158

CB 11 Disposal within 10 years of improvement: building business

158

CB 12 Disposal: schemes for development or division begun within 10 years

159

CB 13 Disposal: amount from major development or division and not already in income

160

CB 14 Disposal: amount from land affected by change and not already in income

161

CB 15 Transactions between associated persons 162

Exclusions for residential land CB 16 Residential exclusion from sections CB 6 to CB 11 163 CB 17 Residential exclusion from sections CB 12 and CB 13 163 CB 18 Residential exclusion from section CB 14 164

Exclusions for business premises CB 19 Business exclusion from sections CB 6 to CB 11 165 CB 20 Business exclusion from sections CB 12 and CB 13 165

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Income Tax Act 2007 Reprinted as at 1 April 2014

Exclusions for farm land CB 21 Farm land exclusion from sections CB 12 and CB 13 166 CB 22 Farm land exclusion from section CB 14 167

Exclusion for investment land CB 23 Investment exclusion from sections CB 12 and CB 13 167 CB23B Land partially sold or sold with other land 168

Timber CB 24 Disposal of timber or right to take timber 168 CB 25 Disposal of land with standing timber 169

Investments CB 26 Disposal of certain shares by portfolio investment entities 169

Farming, forestry, or fishing CB 27 Income equalisation schemes 170 CB27B Entering partners’ livestock income [Repealed] 171

Environmental restoration CB 28 Environmental restoration accounts 171

Minerals CB 29 Disposal of minerals 173

Intellectual property CB 30 Sale of patent applications or patent rights 173

Transfer of business CB 31 Sale of business: transferred employment income

obligations 173

Stolen property CB 32 Property obtained by theft 174

Look-through companies CB32B Owners of look-through companies 174 CB32C Income for first year of look-through company 175

Mutual associations CB 33 Amounts derived by mutual associations 178 CB 34 Amounts derived by members from mutual associations 178

Partners and partnerships CB 35 Amounts of income for partners 179

152

Reprinted as at 1 April 2014 Income Tax Act 2007 Part C s CB 2

Emissions units under Climate Change Response Act 2002

CB 36 Disposal of emissions units 180

Business generally CB 1 Amounts derived from business

Income (1) An amount that a person derives from a business is income of

the person. Exclusion

(2) Subsection (1) does not apply to an amount that is of a capital nature. Defined in this Act: amount, business, income Compare: 2004 No 35 s CB 1

CB 2 Amounts received on disposal of business assets that include trading stock When this section applies

(1) This section applies in an income year when— (a) a person (person A) who owns or carries on a business

disposes of some or all of the assets of the business to another person (person B); and

(b) the disposal is made outside the ordinary course of the business, or to put an end to the business or a part of it; and

(c) the assets consist of or include trading stock of the busi- ness, or a share or interest in trading stock.

Assessable income of person A (2) An amount that person A receives from the disposal of the

trading stock is taken into account in determining their income for the income year. The amount is derived at the time of disposal referred to in subsection (1). Price of acquisition by person B

(3) In the calculation of the taxable income of person B for the in- come year or a later income year, person B is treated as acquir-

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Part C s CB 3 Income Tax Act 2007 Reprinted as at 1 April 2014

ing the trading stock for the amount of the disposal referred to in subsection (2). Disposal

(4) In this section, a disposal— (a) includes the passing of property by an exchange, gift,

distribution under a will or on intestacy; and (b) does not include a disposal under any of sections FC 3

to FC 8 (which relate to distributions after death) that is not at market value.

Relationship with section CB 1 (5) This section overrides section CB 1.

Defined in this Act: amount, assessable income, business, dispose, distribution, income year, market value, property, taxable income, trading stock Compare: 2004 No 35 s FB 3

Schemes for profit CB 3 Profit-making undertaking or scheme

An amount that a person derives from carrying on or carrying out an undertaking or scheme entered into or devised for the purpose of making a profit is income of the person. Defined in this Act: amount, income Compare: 2004 No 35 s CB 2

Personal property CB 4 Personal property acquired for purpose of disposal

An amount that a person derives from disposing of personal property is income of the person if they acquired the property for the purpose of disposing of it. Defined in this Act: amount, income, personal property Compare: 2004 No 35 s CB 3

CB 5 Business of dealing in personal property An amount that a person derives from disposing of personal property is income of the person if their business is to deal in property of that kind. Defined in this Act: amount, business, income, personal property Compare: 2004 No 35 s CB 4

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Reprinted as at 1 April 2014 Income Tax Act 2007 Part C s CB 7

Land CB 6 Disposal: land acquired for purpose or with intention of

disposal Income

(1) An amount that a person derives from disposing of land is income of the person if they acquired the land— (a) for 1 or more purposes that included the purpose of dis-

posing of it: (b) with 1 or more intentions that included the intention of

disposing of it. Exclusions

(2) Subsection (1) is overridden by the exclusions for residential land in section CB 16 and for business premises in section CB 19. Land partially sold or sold with other land

(3) This section and sections CB 7 to CB 23 apply whether the land disposed of— (a) is part only of the land to which the relevant section

applies: (b) is the whole of the land to which the relevant section

applies: (c) is the whole of the land to which the relevant section

applies, together with other land. Defined in this Act: amount, business, dispose, income, land Compare: 2004 No 35 ss CB 5, OB 1 “land” paragraph (a)(i)

CB 7 Disposal: land acquired for purposes of business relating to land Income

(1) An amount that a person (person A) derives from disposing of land is income of person A if— (a) both the following apply:

(i) at the time person A acquired the land they, or an associated person, carried on a business of dealing in land; and

(ii) person A acquired the land for the purpose of the business; or

(b) both the following apply:

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Part C s CB 8 Income Tax Act 2007 Reprinted as at 1 April 2014

(i) at the time person A acquired the land they, or an associated person, carried on a business of developing land or dividing land into lots; and

(ii) person A acquired the land for the purpose of the business; or

(c) all the following apply: (i) at the time person A acquired the land they, or

an associated person, carried on a business of erecting buildings; and

(ii) person A acquired the land for the purpose of the business; and

(iii) before or after acquiring the land person A, or the associated person, made improvements to it.

Exclusions (2) Subsection (1) is overridden by the exclusions for residential

land in section CB 16 and for business premises in section CB 19. Defined in this Act: amount, associated person, business, dispose, improve- ments, income, land Compare: 2004 No 35 s CB 6

CB 8 Disposal: land used for landfill, if notice of election An amount that a person derives from disposing of land is income of the person if— (a) the person uses the land as a landfill before disposing of

the land; and (b) at the time of disposal, the land is not being used as a

landfill; and (c) the person acquiring the land is not an associated per-

son; and (d) the person gives written notice to the Commissioner of

an election that the land be subject to this section by the day that is the later of the following: (i) the day that is 12 months after the day on which

the person acquires the land: (ii) 24 June 2006; and

(e) the person makes an election under paragraph (d) for all land that the person acquires and uses as a landfill; and

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Reprinted as at 1 April 2014 Income Tax Act 2007 Part C s CB 9

(f) any person associated with the person makes an elec- tion under paragraph (d) for all land that the associated person acquires and uses as a landfill.

Defined in this Act: associated person, Commissioner, dispose Compare: 2004 No 35 s CB 6B Section CB 8(c): substituted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 7(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

CB 9 Disposal within 10 years: land dealing business Income

(1) An amount that a person derives from disposing of land is income of the person if— (a) they dispose of the land within 10 years of acquiring it;

and (b) at the time they acquired the land, they carried on a

business of dealing in land, whether or not the land was acquired for the purpose of the business.

Income: associated person in business of dealing in land (2) An amount that a person (person A) derives from disposing

of land within 10 years of acquiring it is income of person A if a person (person B) associated with them at the time the land was acquired carried on a business of dealing in land, whether or not— (a) person A carried on a business of dealing in land; or (b) the land was acquired for the purpose of person B’s

business. Exclusions

(3) Subsections (1) and (2) are overridden by the exclusions for residential land in section CB 16 and for business premises in section CB 19. Defined in this Act: amount, associated person, business, dispose, income, land, year Compare: 2004 No 35 s CB 7

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Part C s CB 10 Income Tax Act 2007 Reprinted as at 1 April 2014

CB10 Disposal within 10 years: land development or subdivision business Income

(1) An amount that a person derives from disposing of land is income of the person if— (a) they dispose of the land within 10 years of acquiring it;

and (b) at the time they acquired the land, they carried on a

business of developing land or dividing land into lots, whether or not the land was acquired for the purpose of the business.

Income: associated person in business of developing or subdividing land

(2) An amount that a person (person A) derives from disposing of land within 10 years of acquiring it is income of person A if a person (person B) associated with them at the time the land was acquired carried on a business of developing land or dividing land into lots, whether or not— (a) person A carried on a business of developing land or

dividing land into lots: (b) the land was acquired for the purpose of person B’s

business. Exclusions

(3) Subsections (1) and (2) are overridden by the exclusions for residential land in section CB 16 and for business premises in section CB 19. Defined in this Act: amount, associated person, business, dispose, income, land, year Compare: 2004 No 35 s CB 8

CB11 Disposal within 10 years of improvement: building business Income

(1) An amount that a person derives from disposing of land is income of the person if— (a) they dispose of the land within 10 years of completing

improvements to it; and

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Reprinted as at 1 April 2014 Income Tax Act 2007 Part C s CB 12

(b) at the time they began the improvements, they carried on a business of erecting buildings, whether or not the land was acquired for the purpose of the business.

Income: associated person in business of erecting buildings (2) An amount that a person (person A) derives from disposing

of land within 10 years of completing improvements on it is income of person A if another person (person B) associated with person A at the time the improvements were begun car- ried on a business of erecting buildings, whether or not— (a) person A carried on a business of erecting buildings; or (b) the land was acquired for the purpose of person B’s

business. Exclusions

(3) Subsections (1) and (2) are overridden by the exclusions for residential land in section CB 16 and for business premises in section CB 19. Defined in this Act: amount, associated person, business, dispose, improve- ments, income, land, year Compare: 2004 No 35 s CB 9

CB12 Disposal: schemes for development or division begun within 10 years Income

(1) An amount that a person derives from disposing of land is income of the person if the amount is derived in the following circumstances: (a) an undertaking or scheme, which is not necessarily in

the nature of a business, is carried on; and (b) the undertaking or scheme involves the development of

the land or the division of the land into lots; and (c) the person, or another person for them, carries on devel-

opment or division work on or relating to the land; and (d) the development or division work is not minor; and (e) the undertaking or scheme was begun within 10 years

of the date on which the person acquired the land. Exclusions

(2) Subsection (1) is overridden by the exclusions for residential land in section CB 17, for business premises in section CB 20,

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Part C s CB 13 Income Tax Act 2007 Reprinted as at 1 April 2014

for farm land in section CB 21, and for investment land in section CB 23. Defined in this Act: amount, business, dispose, income, land, year Compare: 2004 No 35 s CB 10

CB13 Disposal: amount from major development or division and not already in income Income

(1) An amount that a person derives from disposing of land is income of the person if— (a) the amount is not income under any of sections CB 6 to

CB 12 and CB 14; and (b) the amount is derived in the following circumstances:

(i) an undertaking or scheme, which is not necessar- ily in the nature of a business, is carried on; and

(ii) the undertaking or scheme involves the develop- ment of the land or the division of the land into lots; and

(iii) the person, or another person for them, carries on development or division work on or relating to the land; and

(iv) the development or division work involves sig- nificant expenditure on channelling, contouring, drainage, earthworks, kerbing, levelling, road- ing, or any other amenity, service, or work cus- tomarily undertaken or provided in major pro- jects involving the development of land for com- mercial, industrial, or residential purposes.

Exclusions (2) Subsection (1) is overridden by the exclusions for residential

land in section CB 17, for business premises in section CB 20, for farm land in section CB 21, and for investment land in section CB 23.

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Reprinted as at 1 April 2014 Income Tax Act 2007 Part C s CB 14

Relationship with section DB 27 (3) Section DB 27 (Amount from major development or division

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

CB14 Disposal: amount from land affected by change and not already in income Income

(1) An amount that a person derives from disposing of land is income of the person if— (a) the amount is not income under any of sections CB 6 to

CB 12; and (b) the person disposed of the land within 10 years of ac-

quiring it; and (c) the total amount that they derive from its disposal is

more than the cost of the land; and (d) at least 20% of the excess arises from a factor, or more

than 1 factor, that— (i) relates to the land; and (ii) is described in subsection (2); and (iii) occurs after the person acquired the land, for the

factors described in subsection (2)(c), (e), (g), and (i).

Factors for purposes of subsection (1)(d) (2) The factors referred to in subsection (1)(d) are—

(a) the rules of an operative district plan under the Resource Management Act 1991:

(b) the likelihood of the imposition of rules: (c) a change to the rules: (d) the likelihood of a change to the rules: (e) a consent granted under the Resource Management Act

1991: (f) the likelihood of a consent being granted:

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Part C s CB 15 Income Tax Act 2007 Reprinted as at 1 April 2014

(g) a decision of the Environment Court made under the Resource Management Act 1991:

(h) the likelihood of a decision being made: (i) the removal of a condition, covenant, designation, her-

itage order, obligation, prohibition, or restriction under the Resource Management Act 1991:

(j) the likelihood of the removal of a condition, covenant, designation, heritage order, obligation, prohibition, or restriction:

(k) an occurrence of a similar nature to any of the occur- rences described in any of paragraphs (a) to (j):

(l) the likelihood of an occurrence of a similar nature to any of the occurrences described in any of paragraphs (a) to (j).

Exclusions (3) Subsection (1) is overridden by the exclusions for residential

property in section CB 18 and for farm land in section CB 22. Defined in this Act: amount, dispose, income, land, year Compare: 2004 No 35 s CB 12

CB15 Transactions between associated persons Income

(1) An amount that a person (the transferee) derives from dis- posing of land is income of the transferee under whichever is applicable of sections CB 6 to CB 14 if— (a) the land has been transferred to the transferee from an-

other person (the transferor); and (b) the transferor and the transferee are associated persons

at the time of the transfer; and (c) the amount derived is more than the cost of the land to

the transferee; and (d) the amount derived would have been income of the

transferor under any of sections CB 6 to CB 14 if the transferor had retained and disposed of the land.

Date on which some transferees acquire land (2) For the purposes of sections CB 7 to CB 12 and CB 14, if

the transferor and transferee are associated persons at the time

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Reprinted as at 1 April 2014 Income Tax Act 2007 Part C s CB 17

of the transfer, the transferee is treated as having acquired the land on the date on which the transferor acquired it. Defined in this Act: amount, associated person, dispose, income, land Compare: 2004 No 35 s CB 13

Exclusions for residential land CB16 Residential exclusion from sections CB 6 to CB 11

Exclusion (1) Sections CB 6 to CB 11 do not apply if—

(a) the person— (i) acquired the land with a dwellinghouse on it; or (ii) acquired the land and erected a dwellinghouse on

it; and (b) the dwellinghouse was occupied mainly as a residence

by— (i) the person and any member of their family living

with them; or (ii) if the person is a trustee, 1 or more beneficiaries

of the trust. What exclusion applies to

(2) The exclusion applies to the land that has the dwellinghouse on it. It also applies to land related to the land that has the dwellinghouse on it if the total area of the related land is— (a) 4,500 square metres or less; or (b) more than 4,500 square metres, if the larger area is re-

quired for the reasonable occupation and enjoyment of the dwellinghouse.

Who exclusion does not apply to (3) The exclusion does not apply to a person who has engaged in

a regular pattern of acquiring and disposing, or erecting and disposing, of dwellinghouses. Defined in this Act: dispose, land, trustee Compare: 2004 No 35 s CB 14

CB17 Residential exclusion from sections CB 12 and CB 13 Exclusion: developing or dividing land for residential use

(1) Sections CB 12 and CB 13 do not apply if—

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Part C s CB 18 Income Tax Act 2007 Reprinted as at 1 April 2014

(a) the work involved in the undertaking or scheme is to create or effect a development, division, or improve- ment; and

(b) the development, division, or improvement is for use in, and for the purposes of, the residing on the land of the person or any member of their family living with them.

Exclusion: dividing residential land (2) Sections CB 12 and CB 13 do not apply if—

(a) the land is a lot that came out of a larger area of land that the person divided into 2 or more lots; and

(b) the larger area of land— (i) was 4,500 square metres or less immediately be-

fore it was divided; and (ii) was occupied by the person mainly as residential

land for themselves and a member of their family living with them.

Defined in this Act: land Compare: 2004 No 35 s CB 15 Section CB 17(1): amended, on 1 April 2008, by section 310 of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

CB18 Residential exclusion from section CB 14 Exclusion

(1) Section CB 14 does not apply if— (a) the person acquired the land and used it or intended to

use it for residential purposes; and (b) they disposed of the land to another person who ac-

quired it for residential purposes. Purpose of acquisition for purposes of subsection (1)(b)

(2) For the purposes of subsection (1)(b), the purpose of the ac- quisition by the other person is ascertained from the circum- stances of the disposal and other relevant matters. Meaning of residential purposes

(3) In this section, residential purposes— (a) means a purpose that the person has of using the land or

intending to use the landmainly as a residence for them- selves and members of their family living with them; and

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Reprinted as at 1 April 2014 Income Tax Act 2007 Part C s CB 20

(b) includes the purpose of erecting a dwellinghouse on the land to be occupied as such a residence.

Defined in this Act: dispose, land, residential purposes Compare: 2004 No 35 s CB 16

Exclusions for business premises CB19 Business exclusion from sections CB 6 to CB 11

Exclusion (1) Sections CB 6 to CB 11 do not apply to a disposal of land if—

(a) the land is the premises of a business; and (b) the person acquired and occupied, or erected and occu-

pied, the premises mainly to carry on a substantial busi- ness from them.

Who exclusion does not apply to (2) The exclusion does not apply to a person who has engaged in

a regular pattern of acquiring and disposing, or erecting and disposing, of premises for businesses. Meaning of land

(3) In this section, land includes land that— (a) is reserved, with the premises, for the use of the busi-

ness; and (b) is of an area no greater than that required for the reason-

able occupation of the premises and the carrying on of the business.

Defined in this Act: business, dispose, land Compare: 2004 No 35 s CB 17

CB20 Business exclusion from sections CB 12 and CB 13 Sections CB 12 and CB 13 do does not apply if— (a) the work involved in the undertaking or scheme is to

create or effect a development, division, or improve- ment; and

(b) the development, division, or improvement is for use in, and for the purposes of, the carrying on of a business by the person on the land; and

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Part C s CB 21 Income Tax Act 2007 Reprinted as at 1 April 2014

(c) the business does not consist of the undertaking or scheme.

Defined in this Act: business, land Compare: 2004 No 35 s CB 18 Section CB 20: amended, on 1 April 2008, by section 311(2) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109). Section CB 20 heading: amended, on 1 April 2008, by section 311(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Exclusions for farm land CB21 Farm land exclusion from sections CB 12 and CB 13

Exclusion (1) Sections CB 12 and CB 13 do not apply if—

(a) the land is a lot resulting from the division of a larger area of land into 2 or more lots; and

(b) immediately before the land was divided, the larger area of land was occupied or used by the person, their spouse, civil union partner or de facto partner, or both of them, mainly for the purposes of a farming or agri- cultural business carried on by either or both of them; and

(c) the area and nature of the land disposed of mean that it is then capable of being worked as an economic unit as a farming or agricultural business; and

(d) the land was disposed of mainly for the purpose of using it in a farming or agricultural business.

Circumstances for purposes of subsection (1)(d) (2) The circumstances of the disposal of the land are relevant to

the decision on whether the land was disposed of mainly for the purpose of using it in a farming or agricultural business. The circumstances include— (a) the consideration for the disposal of the land: (b) current prices paid for land in that area: (c) the terms of the disposal: (d) a zoning or other classification relating to the land:

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Reprinted as at 1 April 2014 Income Tax Act 2007 Part C s CB 23

(e) the proximity of the land to any other land being used or developed for uses other than farming or agricultural uses.

Defined in this Act: business, dispose, land, pay Compare: 2004 No 35 s CB 19

CB22 Farm land exclusion from section CB 14 Exclusion

(1) Section CB 14 does not apply if— (a) the person (person A) acquired the land, and they, their

spouse, civil union partner or de facto partner, or both of them used or intended to use the land mainly for the purposes of a farming or agricultural business carried on by them, their spouse, civil union partner, or de facto partner, or both of them; and

(b) they disposed of the land to another person (person B) mainly for the purposes of the continuing use of the land in a farming or agricultural business.

Purposes of acquisition for purposes of subsection (1)(b) (2) For the purposes of subsection (1)(b), person B’s purposes in

acquiring the land are ascertained from circumstances of the disposal arising after person A acquired the land and other relevant matters, not including the factors described in section CB 14(1). Defined in this Act: business, dispose, land Compare: 2004 No 35 s CB 20

Exclusion for investment land CB23 Investment exclusion from sections CB 12 and CB 13

Sections CB 12 and CB 13 do does not apply if— (a) the work involved in the undertaking or scheme is to

create or effect a development, division, or improve- ment; and

(b) the development, division, or improvement is for use in, and for the purposes of, the person’s deriving from

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Part C s CB 23B Income Tax Act 2007 Reprinted as at 1 April 2014

the land income of the kind described in section CC 1 (Land).

Defined in this Act: income, land Compare: 2004 No 35 s CB 21 Section CB 23: amended, on 1 April 2008, by section 312(2) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109). Section CB 23 heading: amended, on 1 April 2008, by section 312(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

CB23B Land partially sold or sold with other land Sections CB 6 to CB 23 apply to an amount derived from the disposal of land if the land is— (a) part of the land to which the relevant section applies: (b) the whole of the land to which the relevant section ap-

plies: (c) disposed of together with other land. Defined in this Act: amount, dispose, land Compare: 2004 No 35 s CB 5A Section CB 23B: inserted, on 1April 2008, by section 313 of the Taxation (Busi- ness Taxation and Remedial Matters) Act 2007 (2007 No 109).

Timber CB24 Disposal of timber or right to take timber

Income (1) An amount is income of a person if they derive it from—

(a) disposing of timber; or (b) disposing of a right to take timber. Whether or not person owns land

(2) Subsection (1) applies whether or not the person owns the land on which the timber is situated. Disposal for below market value

(3) Section GC 2 (Disposals of timber rights or standing timber) may apply to treat a person as deriving an amount on the grant of a right to take timber or disposal of standing timber. Defined in this Act: amount, dispose, income, own, right to take timber, stand- ing timber Compare: 2004 No 35 s CB 22

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Reprinted as at 1 April 2014 Income Tax Act 2007 Part C s CB 26

CB25 Disposal of land with standing timber When this section applies

(1) This section applies when a person disposes of landwith stand- ing timber on it. Exclusions

(2) This section does not apply when the standing timber is of 1 of the following kinds: (a) trees that are ornamental or incidental, as evidenced by

a certificate given under section 44C of the Tax Admin- istration Act 1994; or

(b) trees in a crop subject to a forestry right, as defined in section 2 of the Forestry Rights Registration Act 1983, registered under the Land Transfer Act 1952; or

(c) trees subject to a right to take a benefit (in the form of a profit a prendre) granted before 1 January 1984.

Income (3) The amount that the person derives from disposing of the

standing timber is income of the person. Defined in this Act: amount, dispose, income, standing timber Compare: 2004 No 35 s CB 23

Investments CB26 Disposal of certain shares by portfolio investment entities

When this section applies (1) This section applies when—

(a) the income from the disposal by a person (the entity) of the share is excluded income under section CX 55 (Proceeds from disposal of investment shares); and

(b) a dividend from the share is— (i) declared before the disposal; and (ii) paid to a holder of the share who, after the dis-

posal, becomes entitled to the dividend; and (c) the entity attributes the proceeds from the disposal to

investors who are not entitled to the benefit of the divi- dend.

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Part C s CB 27 Income Tax Act 2007 Reprinted as at 1 April 2014

Income (2) The entity is treated as deriving an amount of income calcu-

lated using the formula— (shares at declaration − shares on distribution) × dividend. Definition of items in formula

(3) In the formula,— (a) shares at declaration is the number of shares held by

the entity when the dividend is declared: (b) shares on distribution is the number of shares for

which the entity derives a dividend: (c) dividend is the amount of the dividend per share or, for

a share issued by an ICA company, the amount of the dividend per share that is not fully imputed.

Positive result (4) The result of the formula must be a positive amount.

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

Farming, forestry, or fishing CB27 Income equalisation schemes

Income derived by a person, as timed and quantified under any of the following provisions, is income of the person: (a) sections EH 11, EH 14, EH 16, EH 18, EH 20 to EH 22,

EH 24, and EH 26 (which relate to the main income equalisation scheme):

(b) sections EH 46, EH 48, EH 50 to EH 52, EH 54, and EH 56 (which relate to the adverse event income equal- isation scheme):

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Reprinted as at 1 April 2014 Income Tax Act 2007 Part C s CB 28

(c) sections EH 72, EH 74, and EH 76 (which relate to the thinning operations income equalisation scheme).

Defined in this Act: adverse event income equalisation scheme, income, main income equalisation scheme, person, thinning operations income equalisation scheme Compare: 2004 No 35 s CB 24

CB27B Entering partners’ livestock income [Repealed] Section CB 27B: repealed (with effect on 1 April 2009), on 6 October 2009, by section 9(1) of the Taxation (International Taxation, Life Insurance, and Re- medial Matters) Act 2009 (2009 No 34).

Environmental restoration CB28 Environmental restoration accounts

Income from refund (1) A person who receives a refund for a tax year under section

EK 12 (Refund if request or excess balance) derives for the person’s corresponding income year an amount of income cal- culated using the formula—

refund tax rate.

Income from transfer from environmental restoration account (2) If there is a transfer from a person’s environmental restoration

account under section EK 15, EK 16, or EK 19 (which relate to environmental restoration accounts), the person derives for the corresponding income year an amount of income calculated using the formula—

transfer tax rate.

Definitions of items in formulas (3) The items in the formulas are defined in subsections (4) to (6).

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

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Part C s CB 28 Income Tax Act 2007 Reprinted as at 1 April 2014

Tax rate (5) Tax rate is the highest rate of income tax on taxable income

that— (a) is set out in schedule 1 (Basic tax rates: income tax,

ESCT, RSCT, RWT, and attributed fringe benefits); and (b) would apply to the person for the tax year if the person

had sufficient taxable income. Transfer

(6) Transfer is the amount in the environmental restoration ac- count that is transferred. Income arising from renewal of resource consent

(7) A person who incurs expenditure of a type listed in schedule 19, part A, clauses 2 to 5 (Expenditure in avoiding, remedying, or mitigating detrimental effects of discharge of contaminant) and not in schedule 19, part C derives income under subsection (8) if— (a) the deduction under section DB 46 (Avoiding, rem-

edying, or mitigating effects of discharge of contamin- ant) for the expenditure is determined by the period for which a resource consent is granted; and

(b) the period of the grant of the resource consent is ex- tended by more than 50% in a later income year or a new resource consent is granted for a period that is more than 50% of the total period of the resource consent.

Amount of income (8) The person derives for the income year in which the period of

the resource consent is extended, or the new resource consent is granted, an amount of income equal to the greater of zero and the difference between— (a) the total deduction under section DB 46 for the person

for the period from the grant of the resource consent to the beginning of the income year:

(b) the total deduction for the expenditure that the person would have had under section DB 46 for the period re- ferred to in paragraph (a), if the period of the resource consent at the time of the grant had been 35 years.

Defined in this Act: corresponding income year, environmental restoration ac- count, income, income tax, resource consent, taxable income, tax year Compare: 2004 No 35 s CB 24B

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Reprinted as at 1 April 2014 Income Tax Act 2007 Part C s CB 31

Section CB 28(5)(a): amended, on 1 April 2008, by section 562 of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Minerals CB29 Disposal of minerals

Income (1) An amount that a person derives from disposing of minerals

taken from land is income of the person. Whether or not person owns land

(2) Subsection (1) applies whether or not the person owns the land from which the minerals are taken. Defined in this Act: amount, dispose, income, mineral, own Compare: 2004 No 35 s CB 25

Intellectual property CB30 Sale of patent applications or patent rights

If a person derives an amount from the sale of a patent appli- cation with a complete specification or from the sale of patent rights, the amount is income of the person. Defined in this Act: amount, income, patent rights Compare: 2004 No 35 s CB 26

Transfer of business CB31 Sale of business: transferred employment income

obligations When this section applies

(1) This section applies when section DC 10 (Sale of business: transferred employment income obligations) applies and the reduction in the consideration is more than the amount the buyer actually pays for the transferred obligation. Income

(2) The excess is income of the buyer.

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Part C s CB 32 Income Tax Act 2007 Reprinted as at 1 April 2014

Timing of income (3) The income is allocated to the income year in which the reduc-

tion of the transferred provision is required to be recognised by the buyer under generally accepted accounting practice. Defined in this Act: amount, generally accepted accounting practice, income, income year, pay Compare: 2004 No 35 s CB 27

Stolen property CB32 Property obtained by theft

Income (1) If a person obtains possession or control of property without

claim of right, an amount equal to the market value of the property is income of the person. Timing of income

(2) The income is allocated to the income year in which the person obtains possession or control of the property. Whether or not constructive trust

(3) Subsection (1) applies whether or not the person holds the property as a trustee under a constructive trust. Defined in this Act: amount, claim of right, income, income year, possession, property, trustee Compare: 2004 No 35 s CB 28

Look-through companies Heading: inserted, on 1 April 2011 (applying for income years beginning on or after 1 April 2011), by section 26(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).

CB32B Owners of look-through companies A person who has an effective look-through interest for a look- through company has an amount of income to the extent to which an amount of income results from the application of subpart HB (Look-through companies) to them and the look- through company. Defined in this Act: amount, effective look-through interest, income, look- through company

174

Reprinted as at 1 April 2014 Income Tax Act 2007 Part C s CB 32C

Section CB 32B: inserted, on 1April 2011 (applying for income years beginning on or after 1 April 2011), by section 26(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).

CB32C Income for first year of look-through company Income

(1) A person has an amount of income for an income year equal to the amount given by the formula in subsection (3) if the income year is one in which the person has,— (a) on the first day of that year, an effective look-through in-

terest for a look-through company (LTC), and the com- pany existed in the previous income year, but was not a look-through company in that previous year:

(b) on the day after a look-through company amalgamates in that year with a company that ceases to exist after the amalgamation (the amalgamating company), an ef- fective look-through interest for the LTC, and the amal- gamating company was not a look-through company immediately before the amalgamation.

Exclusion (2) A person does not have income under this section if the income

year is 1 of the first or second income year that starts on or after 1 April 2011, and— (a) the LTC was a qualifying company that first becomes a

look-through company for the income year; and (b) subsection (1)(b) does not apply for the income year. Income formula

(3) For the purposes of subsection (1), the amount of income is a positive amount calculated using the following formula:

untaxed reserves × effective interest. Definition of items in formula

(4) In the formula in subsection (3),— (a) untaxed reserves is the amount given by the formula

in subsection (5): (b) effective interest is the person’s effective look-through

interest for a look-through company on the relevant day under subsection (1)(a) or (b).

175

Part C s CB 32C Income Tax Act 2007 Reprinted as at 1 April 2014

Untaxed reserves formula (5) For the purposes of subsections (3) and (4), the amount of

untaxed reserves is calculated using the following formula: balances

dividends + balances − assessable income − tax rate − exit exemption.

Definition of items in formula (6) The items in the formula in subsection (5) are defined in sub-

sections (7) to (11). Dividends

(7) Dividends is the sum of the amounts that would be dividends if the following events occurred for the company or the amal- gamating company (the company), immediately before it be- came a look-through company or amalgamated with a look- through company: (a) it disposed of all of its property, other than cash, to an

unrelated person at market value for cash; and (b) it met all of its liabilities at market value, excluding

income tax payable through disposing of the property or meeting the liabilities; and

(c) it was liquidated, with the amount of cash remaining being distributed to shareholders without imputation credits or FDP credits attached.

Balances (8) Balances is the sum of the following amounts:

(a) the balance in the company’s imputation credit account: (b) the balance in the company’s FDP account: (c) an amount of income tax payable for an earlier income

year but not paid before the relevant date, less refunds due for the earlier income year but paid after the relevant date.

Assessable income (9) Assessable income is the total assessable income that the com-

pany would derive by taking the actions described in subsec- tion (7)(a) and (b) less the amount of any deduction that the company would have for taking those actions.

176

Reprinted as at 1 April 2014 Income Tax Act 2007 Part C s CB 32C

Tax rate (10) Tax rate is the basic tax rate for the income year of the

company that contains the relevant day described in subsec- tion (12). Exit exemption

(11) Exit exemption is the amount given by the formula in section CX 63(2) (Dividends derived after ceasing to be look-though company), treating the amount described in subsection (7) as a dividend paid by the company for the purposes of section CX 63(1), if section CX 63 would apply to a dividend paid by the company. Relevant day

(12) In subsections (7) to (9) and (11), the relevant day for measur- ing items in the formula is— (a) the last day of the income year before the income year

described in subsection (1)(a), as applicable; or (b) the day of the amalgamation described in subsec-

tion (1)(b) as applicable. Income tax and refund

(13) For the purposes of subsection (8)(c),— (a) 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):

(b) a refund of income tax due is the amount that would, when paid, give rise to a debit to the company’s im- putation credit account under sections OB 30 to OB 59 (which relate to imputation debits).

Defined in this Act: amalgamating company, amalgamation, amount, assess- able income, basic tax rate, company, deduction, dispose, dividend, effective look-through interest, FDP account, FDP credit, imputation credit, imputation credit account, income, income tax, income year, liquidation, look-through company, qualifying company Section CB 32C: inserted, on 1April 2011 (applying for income years beginning on or after 1 April 2011), by section 26(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).

177

Part C s CB 33 Income Tax Act 2007 Reprinted as at 1 April 2014

Mutual associations CB33 Amounts derived by mutual associations

When this section applies (1) This section applies when an association enters into a trans-

action of a kind described in section HE 2 (Classes of mutual transaction) with— (a) 1 or more members; or (b) 1 or more members along with 1 or more persons who

are not members of the association. Income: other income provisions

(2) If the association derives from the transaction an amount that would, in the absence of this subsection, be income under a provision in this Part but for the mutual character of the trans- action, the amount is income of the association. Defined in this Act: amount, association, income, income year, member Compare: 2004 No 35 s HF 1(1) Section CB 33(2) heading: substituted (with effect on 1 April 2008), on 7 Sep- tember 2010 (applying for the 2008–09 and later income years), by section 5(1) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109). Section CB 33(2): substituted (with effect on 1 April 2008), on 7 September 2010 (applying for the 2008–09 and later income years), by section 5(1) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).

CB34 Amounts derived by members from mutual associations When this section applies

(1) This section applies when an association, in relation to a mu- tual transaction, pays an association rebate to a member in an income year in circumstances where a payment for the trans- action would be taken into account in determining the taxable income of the member. Income

(2) The amount of the association rebate is income of the member in the income year but only to the extent of the amount of the association’s deduction under section DV 19 (Association rebates).

178

Reprinted as at 1 April 2014 Income Tax Act 2007 Part C s CB 35

Statutory producer boards: timing of payment (3) If a statutory producer board pays an association rebate to

a member that is a mutual association, the association is treated as deriving the amount in the income year in which the producer board chooses under section DV 19(7) to have the amount as the deduction. When amount paid

(4) For the purposes of this section, an amount is treated as hav- ing been paid to a person when it is credited in account or dealt with in some way in their interest or on their behalf. Subsec- tion (3) overrides this subsection. Relationship with dividend rules

(5) An association rebate— (a) is not a dividend to the extent to which it is a payment of

the kind described in subsection (2) and is no more than the amount of the deduction the association is allowed under section DV 19; and

(b) for an association that is not a company, and to the ex- tent to which it is more than the amount of the deduc- tion the association is allowed under section DV 19, is income of the member.

Defined in this Act: amount, association, association rebate, deduction, divi- dend, income, income year, member, pay, statutory producer board Compare: 2004 No 35 s HF 1(3)(c), (5), (6)

Partners and partnerships Heading: added, on 1 April 2008, by section 5(1) of the Taxation (Limited Partnerships) Act 2008 (2008 No 2).

CB35 Amounts of income for partners A person who is a partner has an amount of income to the ex- tent to which an amount of income results from the application of subpart HG (Joint venturers, partners, and partnerships) to them and their partnership. Defined in this Act: amount, income, partner, partnership Section CB 35: added, on 1 April 2008, by section 5(1) of the Taxation (Limited Partnerships) Act 2008 (2008 No 2).

179

Part C s CB 36 Income Tax Act 2007 Reprinted as at 1 April 2014

Emissions units under Climate Change Response Act 2002

Heading: substituted (with effect on 1 January 2009), on 6 October 2009, by section 10 of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

CB36 Disposal of emissions units When this section applies

(1) This section applies when a person disposes of an emissions unit. Income

(2) The amount that the person derives on the disposal is income. Surrender of unit: deemed sale at given value

(3) If the disposal is by surrender under the Climate Change Re- sponse Act 2002, the person is treated as having sold the unit, at the time of the surrender, to an unrelated person for an amount equal to— (a) the unit’s cost, if none of paragraphs (b) to (f) applies;

or (b) the unit’s value under section ED 1(7B) (Valuation of

excepted financial arrangements), if that subsection ap- plies and none of paragraphs (c) to (f) apply; or

(c) zero, if subsection (4) applies; or (d) zero, if subsection (5) applies; or (e) the unit’s market value, if subsection (6) applies; or (f) the unit’s market value, if subsection (7) applies. Surrender of unit: emissions relating to post-1989 forest land

(4) The person is treated as selling the unit for an amount of zero if the person surrenders the emissions unit in relation to post- 1989 forest land. Surrender of unit: under forest sink covenant

(4B) The person is treated as selling the unit for an amount of zero if the person transfers the emissions unit to the Crown under a forest sink covenant under section 67Y of the Forests Act 1949. Surrender of unit: deforestation of some pre-1990 forest land

(5) The person is treated as selling the unit for an amount of zero if—

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Reprinted as at 1 April 2014 Income Tax Act 2007 Part C s CB 36

(a) the person surrenders the emissions unit in relation to the deforestation of pre-1990 forest land; and

(b) the person would derive income, other than exempt in- come or excluded income, from a disposal of the land without timber at the time of the surrender.

Surrender of post-1989 forest land emissions unit or forest sink emissions unit: for other purposes

(6) The person is treated as selling a post-1989 forest land emis- sions unit or forest sink emissions unit for an amount equal to the unit’s market value if the person surrenders the emissions unit other than— (a) for emissions in relation to post-1989 forest land: (b) by a transfer to the Crown under a forest sink covenant

under section 67Y of the Forests Act 1949. Surrender of unit: free unit other than forest land unit

(7) The person is treated as selling a unit that is not a forest land emissions unit for an amount equal to the unit’s market value if— (a) the person surrenders the unit when it has a value of

zero; and (b) the unit was transferred to the person under Part 4, sub-

part 2 of the Climate Change Response Act 2002 at a price of zero.

Converted unit treated as sold (8) If a person converts a New Zealand emissions unit, other than

a forest land emissions unit, into a Kyoto unit as defined in sec- tion 4(1) of the Climate Change Response Act 2002, the per- son is treated as having sold the converted unit for an amount equal to— (a) the unit’s value under section ED 1(7B), if that subsec-

tion applies; or (b) the unit’s cost, otherwise. Excluded income: pre-1990 forest land emissions unit

(9) Section CX 51B (Disposal of pre-1990 forest land emissions units) applies to the disposal to another person of a pre-1990 forest land emissions unit.

181

Part C s CB 36 Income Tax Act 2007 Reprinted as at 1 April 2014

Excluded income: fishing quota emissions unit (10) Section CX 51C (Disposal of fishing quota emissions units)

applies to the disposal to another person of a fishing quota emissions unit. Defined in this Act: amount, convert, emissions unit, fishing quota emissions unit, forest land emissions unit, forest sink emissions unit, New Zealand emis- sions unit, pre-1990 forest land emissions unit, post-1989 forest land emissions unit, surrender Section CB 36: substituted (with effect on 1 January 2009), on 6 October 2009, by section 10 of the Taxation (International Taxation, Life Insurance, and Re- medial Matters) Act 2009 (2009 No 34). Section CB 36(4): amended (with effect on 1 July 2010), on 17 July 2013, by section 5 of the Taxation (Livestock Valuation, Assets Expenditure, and Re- medial Matters) Act 2013 (2013 No 52). Section CB 36(4B) heading: inserted (with effect on 1 January 2009), on 7 Sep- tember 2010, by section 6(1) of the Taxation (Annual Rates, Trans-Tasman Sav- ings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109). Section CB 36(4B): inserted (with effect on 1 January 2009), on 7 September 2010, by section 6(1) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109). Section CB 36(6) heading: substituted (with effect on 1 January 2009), on 7 September 2010, by section 6(2) of the Taxation (Annual Rates, Trans-Tas- man Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109). Section CB 36(6): substituted (with effect on 1 January 2009), on 7 September 2010, by section 6(2) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109). Section CB 36(7): substituted (with effect on 1 July 2010), on 21 December 2010, by section 27 of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130). Section CB 36(9) heading: substituted (with effect on 1 January 2009), on 7 September 2010, by section 6(3) of the Taxation (Annual Rates, Trans-Tas- man Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109). Section CB 36(10) heading: added (with effect on 1 July 2010), on 7 September 2010, by section 6(4) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109). Section CB 36(10): added (with effect on 1 July 2010), on 7 September 2010, by section 6(4) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109). Section CB 36 list of defined terms fishing quota emissions unit: inserted (with effect on 1 July 2010), on 7 September 2010, by section 6(5)(a) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109). Section CB 36 list of defined terms forest sink emissions unit: inserted (with effect on 1 January 2009), on 7 September 2010, by section 6(5)(b) of the Taxa-

182

Reprinted as at 1 April 2014 Income Tax Act 2007 Part C s CB 36

tion (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remed- ial Matters) Act 2010 (2010 No 109). Section CB 36 list of defined termsKyoto emissions unit: repealed (with effect on 1 January 2009), on 27 February 2014, by section 5 of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).

Subpart CC—Income from holding property (excluding equity)

Contents Page

Land use CC 1 Land 184 CC 1B Consideration for agreement to grant, renew, extend, or

transfer leasehold estate or licence 185

CC 1C Consideration for agreement to surrender leasehold estate or terminate licence

185

CC 2 Non-compliance with covenant for repair 186

Financial instruments CC 3 Financial arrangements 186 CC 4 Payments of interest 187 CC 5 Annuities 187 CC 6 Prizes received under Building Societies Act 1965 188 CC 7 Consideration other than in money 188 CC 8 Use of money interest payable by Commissioner 189 CC 8B Certain commercial bills: non-resident holders 189

Royalties CC 9 Royalties 190 CC 10 Films 191

Finance leases CC 11 Lessee acquiring lease asset on expiry of term of lease 192 CC 12 Lessor acquiring lease asset on expiry of term of lease 193

Hire purchase agreements CC 13 Amounts paid in income years after hire purchase

agreement ends 193

183

Part C s CC 1 Income Tax Act 2007 Reprinted as at 1 April 2014

Land use CC1 Land

Income (1) An amount described in subsection (2) is income of the owner

of land if they derive the amount from— (a) a lease, licence, or easement affecting the land; or (b) the grant of a right to take the profits of the land. Amounts

(2) The amounts are— (a) rent: (b) a fine: (c) a premium: (d) a payment for the goodwill of a business: (e) a payment for the benefit of a statutory licence: (f) a payment for the benefit of a statutory privilege: (g) other revenues. Amounts derived from certain assets

(2B) Despite subsections (1) and (2), an amount referred to in sec- tion CW 8B (Certain amounts derived from use of assets) is not a payment of rent or another amount for the purposes of this section. Relationship with section GC 5

(3) The treatment of leases of property to related parties for less than an adequate rent is dealt with in section GC 5 (Leases for inadequate rent). Defined in this Act: amount, business, income, lease, own, pay Compare: 2004 No 35 s CC 1 Section CC 1(2B) heading: inserted (with effect on 1 April 2013 and applying for the 2013–14 and later income years), on 17 July 2013, by section 6(1) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52). Section CC 1(2B): inserted (with effect on 1 April 2013 and applying for the 2013–14 and later income years), on 17 July 2013, by section 6(1) of the Taxa- tion (Livestock Valuation, Assets Expenditure, and RemedialMatters) Act 2013 (2013 No 52).

184

Reprinted as at 1 April 2014 Income Tax Act 2007 Part C s CC 1C

CC1B Consideration for agreement to grant, renew, extend, or transfer leasehold estate or licence When this section applies

(1) This section applies when a person (the payee) derives an amount as consideration for the agreement by the payee to the grant, renewal, extension, or transfer of a right (the land right) that is a leasehold estate, or a licence to use land. Exception for payment to holder by transferee

(2) This section does not apply to an amount derived— (a) by the payee as the holder of a land right; and (b) as consideration for the transfer of the land right to the

person paying the amount. Income

(3) The amount is income of the payee. Exception for tenant or licensee of residential premises

(4) The amount is not income if a payee is a natural person and de- rives the amount as a tenant or licensee of residential premises whose expenditure on the residential premises does not meet the requirements of the general permission. Defined in this Act: amount, general permission, income, land, leasehold estate, pay Section CC 1B: inserted (with effect on 1 April 2013 and applying to an amount that is derived on or after that date in relation to a lease or licence entered, renewed, extended, or transferred on or after that date), on 17 July 2013, by section 7(1) of the Taxation (Livestock Valuation, Assets Expenditure, and Re- medial Matters) Act 2013 (2013 No 52).

CC1C Consideration for agreement to surrender leasehold estate or terminate licence When this section applies

(1) This section applies when a person (the payee) derives an amount as consideration for the agreement by the payee to the surrender or termination of a right (the land right) that is a leasehold estate or licence to use land, and the payee is— (a) the person who owns the estate in land from which the

land right is granted: (b) the person who owns the land right. Income

(2) The amount is income of the payee.

185

Part C s CC 2 Income Tax Act 2007 Reprinted as at 1 April 2014

Exception for tenant or licensee of residential premises (3) The amount is not income if the payee is a natural person

and derives the amount as a tenant or licensee of residential premises whose expenditure on the residential premises does not meet the requirements of the general permission. Defined in this Act: amount, general permission, income, land, leasehold estate, own Section CC 1C: inserted (with effect on 1 April 2013 and applying to an amount that is derived on or after that date), on 17 July 2013, by section 7(2) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).

CC2 Non-compliance with covenant for repair When this section applies

(1) This section applies when a person who is a lessor of land derives an amount for non-compliance by the lessee with an obligation under a lease of the land— (a) to maintain the land; or (b) to make repairs to improvements on the land. Income

(2) The amount is income of the lessor. Timing of income

(3) The income is allocated to the income year in which the lessor receives the amount. Relationship with sections EI 5 and EI 6

(4) Subsection (3) is overridden by sections EI 5 (Amount paid to lessor for non-compliance with covenant for repair) and EI 6 (Amount paid for non-compliance: when lessor ceases to own land). Defined in this Act: amount, income, income year, lease, repairs Compare: 2004 No 35 s CC 2

Financial instruments CC3 Financial arrangements

Income: party to financial arrangement (1) If a person who is a party to a financial arrangement is treated

as deriving an amount of income under the financial arrange-

186

Reprinted as at 1 April 2014 Income Tax Act 2007 Part C s CC 5

ment under subpart EW (Financial arrangements rules), the amount is income of the person. Income: trustee

(2) Income derived by a trustee in the circumstances described in section EW 50 (Income when debt forgiven to trustee) is income of the trustee. Defined in this Act: amount, financial arrangement, income, trustee Compare: 2004 No 35 s CC 3

CC4 Payments of interest Income

(1) Interest derived by a person is income of the person. Apportionment

(2) Interest due but unpaid on the date on which a person disposes of a security is apportioned between the person disposing of the security and the person acquiring it. Defined in this Act: income, interest, pay Compare: 2004 No 35 s CC 4

CC5 Annuities Income

(1) An annuity derived by a person is income of the person. Apportionment

(2) Income under an annuity due but unpaid on the date on which a person disposes of the annuity is apportioned between the person disposing of the annuity and the person acquiring it. Relationship with sections CW 4 and CW 30

(3) This section is overridden by sections CW 4 (Annuities under life insurance policies) and CW 30 (Annuities from Crown Bank Accounts). Defined in this Act: income, pay Compare: 2004 No 35 s CC 5

187

Part C s CC 6 Income Tax Act 2007 Reprinted as at 1 April 2014

CC6 Prizes received under Building Societies Act 1965 Income

(1) A prize received by a person under section 31A of the Building Societies Act 1965 is income of the person, whether they take it as cash or as an advance. Timing of income

(2) The income is allocated as follows: (a) a cash prize is allocated to the day on which the bonus

ballot giving rise to the prize is held; and (b) an advance is allocated to the day on which the advance

is made or, if the advance is made in a series of ad- vances, to the first day on which an advance is made.

Defined in this Act: income Compare: 2004 No 35 s CC 6

CC7 Consideration other than in money When this section applies

(1) This section applies when— (a) a lender provides money to a borrower for use in a busi-

ness that the borrower carries on in New Zealand; and (b) the borrower provides to the lender, as some or all of the

consideration, a tangible or intangible benefit that— (i) is not interest; and (ii) may or may not be relief from an obligation; and (iii) may or may not be convertible into money; and

(c) the borrowing is a commercial transaction under which the borrower would have been liable to pay interest at the current commercial rate, given the nature and term of the loan, if the borrower had not provided the benefit, whether or not the contract between the borrower and the lender provides for the payment of interest if the benefit is not provided.

Income (2) The amount described in subsection (3) is income of the lender.

Amount of income (3) The amount is the interest that the borrower would have been

liable to pay if the lender had lent the money to the borrower in consideration of the payment of interest at the current com-

188

Reprinted as at 1 April 2014 Income Tax Act 2007 Part C s CC 8B

mercial rate, given the nature and term of the loan, reduced by the amount of any interest that the borrower pays. Defined in this Act: amount, business, income, interest, New Zealand, pay Compare: 2004 No 35 s CC 7

CC8 Use of money interest payable by Commissioner Income

(1) Interest payable by the Commissioner to a person under Part 7 of the Tax Administration Act 1994 is income of the person. Timing of income

(2) Interest to which this section applies is allocated under section EF 4 (Use of money interest payable by Commissioner). Relationship with financial arrangements rules

(3) Interest to which this section applies is disregarded for the pur- poses of the financial arrangements rules. Defined in this Act: Commissioner, financial arrangements rules, income, in- terest, pay Compare: 2004 No 35 s CC 8

CC8B Certain commercial bills: non-resident holders When this section applies

(1) This section applies when a non-resident holder of a commer- cial bill who is required to calculate and allocate income and expenditure under neither the financial arrangements rules nor the old financial arrangements rules because of the application of section EW 9(2) to (4) or EZ 45(e) (which relate to the ap- plication of the rules)— (a) disposes of the commercial bill other than by redemp-

tion; or (b) redeems a commercial bill whose issuer is an associated

person of the non-resident. Income: disposal

(2) The value of the commercial bill on the day the non-resident holder disposes of it is income of the person.

189

Part C s CC 9 Income Tax Act 2007 Reprinted as at 1 April 2014

Income: redemption (3) The amount that the non-resident holder receives on redemp-

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

Royalties CC9 Royalties

Income (1) A royalty derived by a person is income of the person.

Meaning of royalty (2) Royalty includes a payment of any kind derived as consider-

ation for— (a) the use of, or right to use, a copyright, patent, plant

variety rights, trademark, design or model, plan, secret formula or process, or other similar property or right:

(b) the use of, or right to use, a mine or quarry: (c) the extraction, removal, or other exploitation of stand-

ing timber or a natural resource: (d) the right to extract, remove, or otherwise exploit stand-

ing timber or a natural resource: (e) the use of, or right to use, a film, a videotape, or a tape

in connection with radio broadcasting: (f) the supply of scientific, technical, industrial, or com-

mercial knowledge or information: (g) the total or partial forbearance of the use of, or the grant

of a right to use, property or a right referred to in any of paragraphs (a) to (e):

(h) the supply of assistance that enables the application or use of anything in any of paragraphs (a) to (f):

(i) the total or partial forbearance of the supply of know- ledge or information or assistance referred to in para- graph (f) or (h).

190

Reprinted as at 1 April 2014 Income Tax Act 2007 Part C s CC 10

Relevance of description of payment (3) For the purposes of subsection (2), none of the following is

relevant: (a) how the payment is described or computed: (b) whether the payment is periodical or otherwise: (c) whether the payment is an instalment of the purchase

price of real property: (d) whether the payment is an instalment of the purchase

price of personal property. Defined in this Act: income, natural resource, pay, royalty, standing timber Compare: 2004 No 35 s CC 9 Section CC 9 list of defined terms natural resource: inserted (with effect on 1 April 2008), on 7 December 2009, by section 126 of the Taxation (Conse- quential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).

CC10 Films When this section applies

(1) This section applies when a person has a right or interest of any of the kinds described in subsection (2) in or to— (a) a film; or (b) a print of the film; or (c) publicity material for the film; or (d) any other tangible asset relating to the film. Right or interest

(2) The right or interest is a right or interest, including a future or contingent right or interest, of any of the following kinds: (a) copyright in the film: (b) a licence relating to the copyright: (c) an equitable right in the copyright: (d) an equitable right in a licence relating to the copyright: (e) any other right existing in or attaching to the film: (f) a right to income, or a share of income, from the rental,

sale, use, or other exploitation of the film. Income

(3) The following amounts are income of the person: (a) an amount received or receivable by the person for—

(i) the use of, or the right to use, the film or a right or interest in a right in the film:

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(ii) the granting of a licence for a future right in the film:

(iii) the disposal of some or all of a right or interest in a right in the film:

(iv) the assignment of a right or an interest in a right: (v) the assignment of a right to derive income from

the use of a right or interest; and (b) an amount derived by the person from the rental, sale,

use, or other exploitation of the film. Relationship with sections CV 17 and YD 7 [Repealed]

(4) [Repealed] Defined in this Act: amount, film, income Compare: 2004 No 35 s CC 10 Section CC 10(4) heading: repealed, on 2 November 2012, by section 5 of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88). Section CC 10(4): repealed, on 2 November 2012, by section 5 of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).

Finance leases CC11 Lessee acquiring lease asset on expiry of term of lease

When this section applies (1) This section applies for the purposes of section FA 9 (Treat-

ment when lease ends: lessee acquiring asset), when, after the term of a finance lease, a lessee acquires the personal property lease asset and then disposes of it. Income of lessee

(2) If the lessee disposes of the lease asset for an amount that is more than the consideration paid for it, the difference is in- come of the lessee in the income year in which they dispose of the asset. Defined in this Act: consideration, finance lease, income, lessee, pay, personal property lease asset, tax year Compare: 2004 No 35 s FC 8E

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Reprinted as at 1 April 2014 Income Tax Act 2007 Part C s CC 13

CC12 Lessor acquiring lease asset on expiry of term of lease When this section applies

(1) This section applies for the purposes of section FA 10(3) (Treatment when lease ends: lessor acquiring asset), when, after the term of a finance lease,— (a) a lessor under the lease sells, assigns, or leases the per-

sonal property lease asset to another person under an- other finance lease; and

(b) the consideration is more than the amount determined under section FA 10(2).

Income of lessor (2) To the extent to which the difference between the amount de-

termined under section FA 10(2) and the consideration is not paid by the lessor to the lessee under the original finance lease, the amount is income of the lessor in the income year in which the original lease term ends. Defined in this Act: consideration, finance lease, income, lessee, lessor, pay, personal property lease asset, tax year Compare: 2004 No 35 s FC 8D(2)

Hire purchase agreements CC13 Amounts paid in income years after hire purchase

agreement ends When this section applies

(1) This section applies for the purposes of section FA 18 (Treat- ment of amounts paid in income years after agreement ends), when an amount that is liable to be paid under a hire purchase agreement is paid in an income year that is later than the in- come year in which the agreement ends. Income of seller

(2) An amount that the buyer is liable to pay under the terms of the agreement is income of the seller in the income year in which they receive it.

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Income of buyer (3) An amount paid by the seller to the buyer under section

FA 18(3)(b) is income of the buyer in the income year in which the amount is paid. Defined in this Act: amount, hire purchase agreement, income, income year, pay Compare: 2004 No 35 s FC 10(5)(d)–(f)

Subpart CD—Income from equity

Contents Page

Income CD 1 Dividend 196 CD 2 Distribution excluded from being dividend 196

What is a dividend? CD 3 Meaning of dividend 196 CD 4 Transfers of value generally 197 CD 5 What is a transfer of value? 197 CD 6 When is a transfer caused by a shareholding relationship? 198 CD 7 Bonus issues in lieu of dividend 199 CD7B Shares issued under profit distribution plans 200 CD 8 Elections to make bonus issue into dividend 200 CD 9 Interests in money or property of foreign unit trust 201 CD 10 Bonus issue by foreign unit trust instead of money or

property 201

CD 11 Avoidance arrangements 202 CD 12 Superannuation schemes entering trust rules 202 CD 13 Notional distributions of producer boards and co-operative

companies 203

CD 14 Notional distributions of emigrating companies 203 CD 15 Tax credits linked to dividends 204 CD 16 Certain dividends not increased by tax credits 204 CD 17 Credit transfer notice 205 CD 18 Dividend reduced if foreign tax paid on company’s

income 206

CD 19 Foreign tax credits and refunds linked to dividends 207 CD 20 Benefits of shareholder-employees or directors 207 CD 21 Attributed repatriations from controlled foreign

companies [Repealed] 208

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What is not a dividend? CD 22 Returns of capital: off-market share cancellations 208 CD 23 Ordering rule and slice rule 213 CD23B Returns of capital: shares repurchased under profit

distribution plans 214

CD 24 Returns of capital: on-market share cancellations 214 CD 25 Treasury stock acquisitions 215 CD 26 Capital distributions on liquidation or emigration 217 CD 27 Property made available intra-group 217 CD 28 Transfers of certain excepted financial arrangements

within wholly-owned groups 220

CD 29 Non-taxable bonus issues 220 CD29B Issues to shareholders of rights to subscribe for or sell

back shares 220

CD 30 Transfer by unit trust of legal interest after beneficial interest vests

221

CD 31 Flat-owning companies 221 CD 32 Employee benefits 222 CD 33 Payments corresponding to notional distributions of

producer boards and co-operative companies 222

CD 34 Distribution to member of co-operative company based on member’s transactions [Repealed]

223

CD34B Distributions to members of co-operative companies 223 CD 35 Resident’s restricted amalgamations 226 CD 36 Foreign investment fund income 226 CD36B Foreign superannuation withdrawals and pensions from

foreign superannuation scheme 229

CD 37 Maori authority distributions 229

Calculation rules CD 38 General calculation rule for transfers of value 229 CD 39 Calculation of amount of dividend when property made

available 230

CD 40 Adjustment if dividend recovered by company 233 CD 41 Adjustment if amount repaid later 235 CD 42 Adjustment if additional consideration paid 236 CD 43 Available subscribed capital (ASC) amount 237 CD 44 Available capital distribution amount 245

Attributed repatriation calculation rules [Repealed]

CD 45 When does a person have attributed repatriation from a controlled foreign company? [Repealed]

251

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Part C s CD 1 Income Tax Act 2007 Reprinted as at 1 April 2014

CD 46 New Zealand repatriation amount [Repealed] 251 CD 47 New Zealand property amount [Repealed] 251 CD 48 Cost of tangible property [Repealed] 252 CD 49 Cost of associated party equity [Repealed] 252 CD 50 Outstanding balances of financial

arrangements [Repealed] 252

CD 51 Property transfers between associated persons [Repealed] 252 CD 52 Unrepatriated income balance [Repealed] 252

Prevention of double taxation CD 53 Prevention of double taxation of share cancellation

dividends 252

Returning share transfers CD 54 Replacement payments 254

Income CD1 Dividend

A dividend derived by a person is income of the person. Defined in this Act: dividend, income Compare: 2004 No 35 s CD 1

CD2 Distribution excluded from being dividend A distribution, derived by a member of a co-operative com- pany, that is excluded by section CD 34B from being a divi- dend is income of the member. Defined in this Act: co-operative company, dividend, income Compare: 2004 No 35 s CD 1B Section CD 2: amended (with effect on 1 April 2010), on 7 September 2010, by section 7 of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).

What is a dividend? CD3 Meaning of dividend

Sections CD 4 to CD 21 define what is a dividend. Defined in this Act: dividend Compare: 2004 No 35 s CD 2

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CD4 Transfers of value generally Transfers of value from company

(1) A transfer of value from a company to a person is a dividend if— (a) the cause of the transfer is a shareholding in the com-

pany, as described in section CD 6; and (b) none of the exclusions in sections CD 22 to CD 37 ap-

plies to the transfer. Calculation rules

(2) Sections CD 38 to CD 42 apply for the purposes of calculating the amount of the dividend. Defined in this Act: company, dividend, transfer of value Compare: 2004 No 35 s CD 3

CD5 What is a transfer of value? General test

(1) A transfer of value from a company to a person occurs when— (a) the company provides money or money’s worth to the

person; and (b) if the person provides any money or money’s worth to

the company under the same arrangement, the market value of what the company provides is more than the market value of what the person provides.

Release of debt (2) A company provides money’s worth to a person if the person

is released from an obligation to pay money to the company, either by agreement or by operation of law. When shares are cancelled

(2B) The market value of any transfer from the shareholder to the company on the cancellation of a share of the shareholder’s rights as a shareholder is zero. Provision of services for less than market value

(3) Despite subsection (1), a transfer of value does not occur to the extent to which the money’s worth provided by the company is only the provision of services.

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Part C s CD 6 Income Tax Act 2007 Reprinted as at 1 April 2014

Limit to subsection (3) (4) Subsection (3) does not apply to the provision of services by a

company that is a close company, if the provision is the benefit of expenditure of the company. Defined in this Act: arrangement, close company, company, market value, pay, services, share, shareholder, transfer of value Compare: 2004 No 35 s CD 4 Section CD 5(2B) heading: inserted (with effect on 1 April 2008), on 6 October 2009, by section 12(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34). Section CD 5(2B): inserted (with effect on 1 April 2008), on 6 October 2009, by section 12(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34). Section CD5 list of defined termsmarket value: inserted (with effect on 1April 2008), on 6 October 2009, by section 12(2) of the Taxation (International Tax- ation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34). Section CD 5 list of defined terms share: inserted (with effect on 1 April 2008), on 6October 2009, by section 12(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34). Section CD 5 list of defined terms shareholder: inserted (with effect on 1 April 2008), on 6 October 2009, by section 12(2) of the Taxation (International Tax- ation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

CD6 When is a transfer caused by a shareholding relationship? General test

(1) A transfer of value from a company to a person (the recipient) is caused by a shareholding in the company if— (a) the recipient at any relevant time—

(i) holds shares in the company; or (ii) is associated with a shareholder; and (iii) [Repealed]

(b) the company makes the transfer because of that share- holding of the relevant shareholder.

Indication that test met (2) One indication that a transfer is caused by a shareholding is

if the terms of the arrangement that results in the transfer are different from the terms on which the company would enter into a similar arrangement if no shareholding were involved. Deductible distributions of producer boards

(3) Despite subsection (1), a transfer of value by a statutory pro- ducer board to a member is not caused by a shareholding if—

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Reprinted as at 1 April 2014 Income Tax Act 2007 Part C s CD 7

(a) the transfer is a cash distribution; and (b) the distribution is a deduction under subpart HE (Mu-

tual associations) or any other provision of this Act; and (c) the board does not choose to treat the distribution as

a dividend under section OB 73 (Statutory producer boards attaching imputation credits to cash distribu- tions).

Deductible distributions of co-operative companies (4) Despite subsection (1), a transfer of value by a co-operative

company to a shareholder is not caused by a shareholding if— (a) the transfer is a cash distribution; and (b) the distribution is a deduction under subpart HE or any

other provision of this Act; and (c) the company does not choose to treat the distribution as

a dividend under section OB 82 (When and how co-op- erative company makes election).

Relationship with section DV 18 and subpart HE (5) For the purposes of subsections (3)(b) and (4)(b), subpart HE

is not overridden by section DV 18 (Statutory producer boards and co-operative companies). Defined in this Act: arrangement, associated person, company, co-operative company, deduction, share, shareholder, statutory producer board, transfer of value, trustee Compare: 2004 No 35 s CD 5 Section CD6(1)(a)(ii): amended, on 1April 2010 (applying for the 2010–11 and later income years), by section 13(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34). Section CD 6(1)(a)(iii): repealed, on 1 April 2010 (applying for the 2010–11 and later income years), by section 13(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

CD7 Bonus issues in lieu of dividend Bonus issues in lieu

(1) A bonus issue in lieu is a dividend. Amount of dividend

(2) The amount of the dividend is the money or money’s worth offered as an alternative. Defined in this Act: amount, bonus issue in lieu, dividend, pay, RWT Compare: 2004 No 35 s CD 6

199

Part C s CD 7B Income Tax Act 2007 Reprinted as at 1 April 2014

Section CD 7(2): amended (with effect on 1 October 2012), on 2 November 2012, by section 6 of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).

CD7B Shares issued under profit distribution plans Profit distribution plan shares

(1) A share issued by a company under a profit distribution plan is a dividend. Amount of dividend

(2) The amount of the dividend is the amount offered by the com- pany for the repurchase of the share. Relationship with section CD 22

(3) Section CD 22 does not apply in relation to a share issued under a profit distribution plan and repurchased by the com- pany as part of the plan. Defined in this Act: amount, company, dividend, profit distribution plan, RWT, share Section CD 7B: inserted (with effect on 1 October 2012), on 2 November 2012, by section 7 of the Taxation (Annual Rates, Returns Filing, and Remedial Mat- ters) Act 2012 (2012 No 88).

CD8 Elections to make bonus issue into dividend Treating bonus issues as dividends

(1) A bonus issue that is not a bonus issue in lieu or a share issued under a profit distribution plan is a dividend if— (a) the bonus issue—

(i) is issued fully paid from reserves of the company: (ii) if a dividend, would not be exempt income under

section CW 10 (Dividend within New Zealand wholly-owned group); and

(b) the company chooses under this section to treat the bonus issue as a dividend.

Form of election (2) A company chooses to treat a bonus issue as a dividend by—

(a) resolving, when it makes the bonus issue, that it is a dividend; and

(b) resolving, when it makes the bonus issue, the amount to be treated as a dividend, which must be more than zero; and

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Reprinted as at 1 April 2014 Income Tax Act 2007 Part C s CD 10

(c) giving notice to the Commissioner under section 63 of the Tax Administration Act 1994 of the election and the amount.

Amount of dividend (3) The amount of the dividend is the amount chosen by the com-

pany. Defined in this Act: amount, bonus issue, bonus issue in lieu, Commissioner, company, dividend, notice, pay, profit distribution plan, share Compare: 2004 No 35 s CD 7 Section CD 8(1): amended (with effect on 1 October 2012), on 2 November 2012, by section 8(1) of the Taxation (Annual Rates, Returns Filing, and Re- medial Matters) Act 2012 (2012 No 88). Section CD 8(1)(a)(ii): amended (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7May 2012, by section 4(1) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34). Section CD 8 list of defined terms profit distribution plan: inserted (with ef- fect on 1 October 2012), on 2 November 2012, by section 8(2) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88). Section CD 8 list of defined terms share: inserted (with effect on 1 October 2012), on 2 November 2012, by section 8(2) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).

CD9 Interests in money or property of foreign unit trust Interest absolutely vested in unit holder

(1) If a beneficial interest in money or property of a unit trust that is a foreign company vests absolutely in a unit holder, the money or property is a dividend for the unit holder. Amount of dividend

(2) The amount of the dividend is the value of the money or prop- erty. Defined in this Act: dividend, foreign company, unit holder, unit trust Compare: 2004 No 35 s CD 7B

CD10 Bonus issue by foreign unit trust instead of money or property Interest absolutely vested in unit holder

(1) A bonus issue made to a unit holder by a unit trust that is a foreign company is a dividend for the unit holder if the issue is made under an arrangement or decision that the unit trust will

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Part C s CD 11 Income Tax Act 2007 Reprinted as at 1 April 2014

make the bonus issue instead of causing a beneficial interest in money or property of the unit trust to vest absolutely in the unit holder. Amount of dividend

(2) The amount of the dividend is the value of the money or prop- erty in which a beneficial interest would have vested in the unit holder if the bonus issue had not been made. Defined in this Act: bonus issue, dividend, foreign company, unit holder, unit trust Compare: 2004 No 35 s CD 7C

CD11 Avoidance arrangements An amount treated as a dividend under any of the following sections is a dividend: (a) section GB 1 (Arrangements involving dividend strip-

ping): (b) section GB 23(7) (Excessive remuneration to relatives): (c) section GB 25 (Close company remuneration to share-

holders, directors, or relatives). Defined in this Act: amount, close company, director, dividend, relative, share- holder Compare: 2004 No 35 ss GB 1(3), GD 3(1), (2), GD 5

CD12 Superannuation schemes entering trust rules When this section applies

(1) This section applies when a superannuation scheme that is treated as a company because it is a unit trust becomes a super- annuation fund. Treatment as liquidated

(2) The company is treated as liquidated immediately before the date on which the scheme becomes a superannuation fund. Defined in this Act: company, liquidation, superannuation fund, superannuation scheme Compare: 2004 No 35 s HH 1(9)

202

Reprinted as at 1 April 2014 Income Tax Act 2007 Part C s CD 14

CD13 Notional distributions of producer boards and co-operative companies Notional distributions of producer boards

(1) A notional distribution of a statutory producer board is a divi- dend if the board determines to attach an imputation credit to the notional distribution under section OB 74 (Statutory pro- ducer boards attaching imputation credits to notional distribu- tions). Calculation: section OB 75

(2) The amount of the dividend is calculated under section OB 75 (Statutory producer boards’ notional distributions that are dividends). Notional distributions of co-operative companies

(3) A notional distribution of a co-operative company is a divi- dend if the company determines to attach an imputation credit to the notional distribution under section OB 79 (Co-opera- tive companies attaching imputation credits to notional distri- butions). Calculation: section OB 80

(4) The amount of the dividend is calculated under section OB 80 (Co-operative companies’ notional distributions that are divi- dends). Corresponding payments not dividends

(5) Section CD 33 means that a payment that corresponds to a notional distribution may not be a dividend. Defined in this Act: amount, co-operative company, dividend, imputation credit, pay, statutory producer board Compare: 2004 No 35 s CD 8

CD14 Notional distributions of emigrating companies Dividend

(1) A notional distribution of an emigrating company under sec- tion FL 2 (Treatment of emigrating companies and their share- holders) is a dividend for a shareholder of the company.

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Part C s CD 15 Income Tax Act 2007 Reprinted as at 1 April 2014

Amount of dividend (2) The amount of the dividend is determined by a shareholder’s

entitlement in the circumstances set out in section FL 2. Defined in this Act: amount, dividend, emigrating company, shareholder Compare: 2004 No 35 s FCB 2(b)

CD15 Tax credits linked to dividends Imputation and FDP credits

(1) The amount of a dividend is increased by— (a) an imputation credit attached to the dividend: (b) a foreign dividend payment (FDP) credit attached to the

dividend. Relationship with sections CD 16 and CD 17

(2) Subsection (1) is overridden by sections CD 16 and CD 17. When subsection (1) does not apply

(3) Subsection (1) does not apply in— (a) Part L (Tax credits and other credits), except for subpart

LP (Tax credits for supplementary dividends); or (b) Part M (Tax credits paid in cash); or (c) Part O (Memorandum accounts); or (d) Part R (General collection rules). Arrangement for dividend from another company

(4) Section GB 37 (Arrangements for payment of dividend by other companies) may apply to treat an imputation credit as not being included in the amount of a dividend. Defined in this Act: amount, arrangement, dividend, FDP credit, imputation credit, income, tax Compare: 2004 No 35 s CD 9

CD16 Certain dividends not increased by tax credits When this section applies

(1) This section applies when a unit trust manager, in the ordinary course of their management activities for a unit trust,— (a) acquires units from unit holders under the terms on

which the units were offered to potential unit holders; and

(b) derives a dividend from the redemption or other cancel- lation of units in the unit trust.

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Reprinted as at 1 April 2014 Income Tax Act 2007 Part C s CD 17

Credit not included (2) For the purposes of Parts B, C, E, and F, the dividend derived

does not include an amount of imputation credit attached to it to the extent to which the dividend (exclusive of the imputation credit) recovers the price paid by the unit trust manager to acquire the units. Relationship with section FA 3

(3) To the extent to which subsection (2) applies, section FA 3 (Recharacterisation of certain dividends: recovery of cost of shares held on revenue account) does not apply. Some definitions

(4) In this section,— imputation credit includes an FDP credit unit trust manager includes— (a) a person nominated by the unit trust manager; or (b) a trustee or a manager of a group investment fund that

derives category A income; or (c) a person nominated by the trustee or the manager of the

group investment fund. Defined in this Act: amount, cancellation, dividend, FDP credit, imputation credit, pay, tax, unit trust, unit trust manager Compare: 2004 No 35 s CD 10

CD17 Credit transfer notice When this section applies

(1) This section applies when a share user under a share-lending arrangement— (a) derives a dividend for the original share, with an imput-

ation credit attached; and (b) issues a credit transfer notice for the dividend. Credit not included

(2) The dividend derived by the share user does not include the amount of the imputation credit. Income

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

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Part C s CD 18 Income Tax Act 2007 Reprinted as at 1 April 2014

Meaning of imputation credit (4) In this section, imputation credit includes an FDP credit.

Defined in this Act: amount, credit transfer notice, dividend, FDP credit, im- putation credit, original share, share-lending arrangement, share supplier, share user Compare: 2004 No 35 s CD 10B

CD18 Dividend reduced if foreign tax paid on company’s income When this section applies

(1) This section applies when a person— (a) derives a dividend from a company that is a foreign

company; and (b) has a liability under the laws of a country or territory

outside New Zealand for income tax on income of the company corresponding to the liability that the person would have under the laws of New Zealand for income tax on income of the company if the company were a partnership in which the person were a partner; and

(c) pays the income tax; and (d) provides to the Commissioner upon request, in the time

allowed by the Commissioner, sufficient information to satisfy the Commissioner as to the amount of income tax paid.

Amount of dividend reduced (2) The amount of the dividend is reduced by the greater of zero

and the amount calculated using the formula— total tax paid − earlier reductions.

Definition of items in formula (3) In the formula,—

(a) total tax paid is the total amount of income tax on in- come of the company that the person has paid in the country by the time that the person derives the dividend:

(b) earlier reductions is the total amount of reductions under this section that, by the time that the person de-

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Reprinted as at 1 April 2014 Income Tax Act 2007 Part C s CD 20

rives the dividend, have affected other dividends de- rived by the person from the company.

Defined in this Act: Commissioner, company, dividend, foreign company, in- come, income tax, New Zealand, pay Compare: 2004 No 35 s CD 10C

CD19 Foreign tax credits and refunds linked to dividends Foreign tax credits

(1) If a double tax agreement gives a person a tax credit in a for- eign country when they derive a dividend from that country, the amount of the dividend is increased by the tax credit. Foreign tax refunds

(2) When a person who has derived a dividend from outside New Zealand also derives a refund of income tax of a foreign coun- try, the refund is treated as a dividend if— (a) the company paying the dividend was entitled to deduct

the tax from the dividend; and (b) the person was not personally liable to pay the tax. Defined in this Act: amount, company, dividend, double tax agreement, income tax, New Zealand, pay, tax Compare: 2004 No 35 s CD 11

CD20 Benefits of shareholder-employees or directors Unclassified fringe benefits

(1) A non-cash benefit provided by a company to an employee is a dividend if— (a) the benefit is an unclassified benefit; and (b) the employee is a shareholder in the company; and (c) the company chooses, under section CX 17(2) (Bene-

fits provided to employees who are shareholders or in- vestors), to treat the benefit as a dividend.

Non-executive directors’ non-cash benefits (2) A non-cash benefit provided by a company to a non-executive

director of the company is a dividend if the director is a share- holder in the company, even if the benefit is provided solely because the director is a non-executive director.

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Part C s CD 21 Income Tax Act 2007 Reprinted as at 1 April 2014

Other shareholder-employee benefits (3) In any other case of a non-cash benefit provided by a company

to a person who is both an employee and a shareholder, the benefit is not a dividend if— (a) the application of section CX 17(2) means it is a fringe

benefit; and (b) section CD 32 accordingly excludes it from being a

dividend. Meaning of non-executive director

(4) In this section, non-executive directormeans a person whose only services to the company as an employee are the formal occupation of the role of director and compliance with the as- sociated statutory obligations. Defined in this Act: company, director, dividend, employee, fringe benefit, non- executive director, shareholder, unclassified benefit Compare: 2004 No 35 s CD 12

CD21 Attributed repatriations from controlled foreign companies [Repealed] Section CD 21: repealed (with effect on 30 June 2009), on 6 October 2009, by section 14(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

What is not a dividend? CD22 Returns of capital: off-market share cancellations

When this section applies (1) This section applies when a company pays an amount to a

shareholder because of the off-market cancellation of a share in the company, other than on liquidation of the company. Ordering rule

(2) The amount is not a dividend to the extent to which it is less than or equal to the available subscribed capital per share cal- culated under the ordering rule, if— (a) 1 of the bright line tests in subsection (3) is met; and (b) the company is not an unlisted trust that has chosen the

slice rule for the share under subsection (4); and (c) the anti-avoidance rule in subsection (6) does not apply.

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Reprinted as at 1 April 2014 Income Tax Act 2007 Part C s CD 22

Bright line tests (3) The bright line tests referred to in subsection (2)(a) are as fol-

lows: (a) the cancellation is part of a pro rata cancellation that re-

sults in a fifteen percent capital reduction for the com- pany:

(b) the cancellation is part of a pro rata cancellation that re- sults in a ten percent capital reduction for the company and the Commissioner has given a notice under subsec- tion (8):

(c) the cancellation is not part of a pro rata cancellation and results in the shareholder suffering a fifteen percent interest reduction:

(d) the company is an unlisted trust and the cancellation is not part of a pro rata cancellation:

(e) the share is a non-participating redeemable share. Unlisted trusts choosing slice rule

(4) If the company is an unlisted trust, it may issue a share on terms that the ordering rule does not apply and that instead the slice rule applies to the cancellation. If this happens, the amount paid is not a dividend to the extent to which it is less than or equal to the available subscribed capital per share calculated under the slice rule (but still subject to the anti-avoidance rule in subsection (6)). Calculation concessions for foreign unlisted widely-held trusts

(5) If a company is an unlisted widely-held trust not resident in New Zealand and a shareholder cannot obtain sufficient infor- mation to calculate the available subscribed capital per share under the ordering rule,— (a) the share is treated as if it were issued under subsection

(4) on terms that the slice rule applies; and (b) the available subscribed capital under the slice rule is—

(i) the amount paid for the issue of the share, if sub- paragraph (ii) does not apply; or

(ii) the value of the money or property in which a beneficial interest would have vested in the share- holder had the share not been issued, if the share

209

Part C s CD 22 Income Tax Act 2007 Reprinted as at 1 April 2014

is a taxable bonus issue under paragraph (d) of the definition of the term.

Overriding anti-avoidance rule (6) Neither subsection (2) nor (4) excludes an amount paid by a

company on cancellation of a share from being a dividend if any part of the payment is in lieu of the payment of a dividend. Factors relevant in applying anti-avoidance rule

(7) For the purposes of applying subsection (6), the following fac- tors must be considered: (a) the nature and amount of dividends paid by the com-

pany before or after the cancellation; and (b) the issue of shares in the company after the cancellation;

and (c) the expressed purpose or purposes of the cancellation;

and (d) any other relevant factor. Commissioner notifying view

(8) If no part of a payment on cancellation of a share is in lieu of the payment of a dividend, the Commissioner may give notice to the company that subsection (6) does not apply to the can- cellation. Some definitions

(9) In this section,— counted associate means— (a) a person associated with the shareholder other than

merely by virtue of being a relative; or (b) a spouse, civil union partner or de facto partner, or

minor child of the shareholder, or a trustee of a trust under which a spouse, civil union partner or de facto partner, or minor child of the shareholder has benefited or is eligible to benefit

fifteen percent capital reduction means the circumstance in which the total amount paid by the company on account of the cancellation (or on account of any other pro rata cancellation of participating shares in the company occurring at the same time) is at least 15% of the market value of all participating shares in the company at the time the company first gave notice to shareholders of the cancellation

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fifteen percent interest reductionmeans the circumstance in which, immediately after and as a result of the cancellation (together with any other cancellation of participating shares in the company occurring at the same time),— (a) the total direct voting interests in the company of the

shareholder and any counted associates is 85% or less of their total direct voting interests in the company im- mediately before the cancellation; and

(b) if at the time of the cancellation a market value circum- stance exists, the total direct market value interests in the company of the shareholder and any counted asso- ciates is 85% or less of their total direct market value interests immediately before the cancellation

non-participating redeemable share means a share that meets the following conditions (a) the share is issued, under the company’s constitution or

establishing legislation, on terms that involve the share being required or allowed to be redeemed or repaid be- fore the company is liquidated; and

(b) the share is— (i) a redeemable share under section 68 of the

Companies Act 1993 or an equivalent provision of foreign law; or

(ii) issued under 1 of New Zealand’s Acts relating to co-operative companies; or

(iii) subject to sections FA 2 (Recharacterisation of certain debentures) and FZ 1 (Treatment of inter- est payable under debentures issued before cer- tain date) or section FA 2B(2) (Stapled debt se- curities); or

(iv) a unit in a unit trust that is not a widely-held trust; and

(c) the share is either a fixed-rate share or a share for which the amount payable on cancellation is no more than the available subscribed capital per share calculated under the slice rule; and

(d) the shareholder does not have shareholder deci- sion-making rights in relation to the share except— (i) a protective right; or

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Part C s CD 22 Income Tax Act 2007 Reprinted as at 1 April 2014

(ii) if the company is subject to 1 of New Zealand’s Acts relating to co-operative companies

participating sharemeans a share that is not a non-participat- ing redeemable share protective right means a shareholder decision-making right that— (a) arises only if the shareholder’s position may be altered

to the shareholder’s detriment or if the company de- faults on its obligations under the terms of the share; and

(b) is granted to the shareholder only to assist the share- holder to prevent the alteration or to remedy the default; and

(c) when the share is issued is not expected to arise ten percent capital reduction means the circumstance in which the total amount paid by the company on account of the cancellation, or paid on account of any other pro rata cancellation of participating shares in the company occurring at the same time, is at least 10% of the market value of all participating shares in the company at the time the company first gave notice to shareholders of the cancellation unlisted trustmeans a unit trust or group investment fund, the units or interests in which are not quoted on the official list of a recognised exchange. Defined in this Act: amount, associated person, available subscribed capital, cancellation, Commissioner, company, co-operative company, counted asso- ciate, direct market value interest, direct voting interest, dividend, fifteen per- cent capital reduction, fifteen percent interest reduction, fixed-rate share, group investment fund, liquidation, market value circumstance, New Zealand, non- participating redeemable share, notice, off-market cancellation, ordering rule, participating share, pay, pro rata cancellation, protective right, recognised ex- change, relative, resident in New Zealand, share, shareholder, shareholder deci- sion-making right, slice rule, taxable bonus issue, ten percent capital reduction, trustee, unit trust, unlisted trust, unlisted widely-held trust, widely-held trust Compare: 2004 No 35 s CD 14 Section CD 22(9) counted associate paragraph (b): amended, on 1 April 2010 (applying for the 2010–11 and later income years), by section 15(1)(a) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34). Section CD 22(9) non-participating redeemable share paragraph (b)(iii): amended (with effect on 1 April 2008), on 6 October 2009, by section 15(1)(b) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

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CD23 Ordering rule and slice rule Ordering rule

(1) Under the ordering rule, the available subscribed capital per share is calculated for a share using the formula—

available subscribed capital of class shares being cancelled of class.

Definition of items in formula (2) In the formula in subsection (1),—

(a) available subscribed capital of class is the available subscribed capital, of all shares of the same class as the share, at the relevant time for the calculation:

(b) shares being cancelled of class is the number of shares of the same class as the share, including the share, being cancelled at the time.

Slice rule (3) Under the slice rule, the available subscribed capital per share

is calculated for a share using the formula— available subscribed capital of class

shares of class.

Definition of items in formula (4) In the formula in subsection (3),—

(a) available subscribed capital of class is the available subscribed capital, of all shares of the same class as the share, at the relevant time for the calculation:

(b) shares of class is the number of shares of the same class as the share, including the share, on issue at the time.

Amount when foreign company information inadequate (5) Despite subsections (2) to (4), the available subscribed capital

per share calculated under the ordering rule is zero if— (a) the company is not resident in New Zealand; and

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Part C s CD 23B Income Tax Act 2007 Reprinted as at 1 April 2014

(b) the relevant shareholder cannot obtain sufficient infor- mation to calculate the actual available subscribed cap- ital per share using the relevant rule.

Defined in this Act: available subscribed capital, cancellation, foreign com- pany, ordering rule, resident in New Zealand, share, shareholder, shares of the same class, slice rule Compare: 2004 No 35 s CD 15

CD23B Returns of capital: shares repurchased under profit distribution plans When this section applies

(1) This section applies when a company has issued a share to a shareholder under a profit distribution plan and the shareholder exercises the option to have the share repurchased by the com- pany. Amount paid

(2) The amount paid by the company to repurchase the share is not a dividend. Defined in this Act: amount, company, dividend, pay, profit distribution plan, share, shareholder Section CD 23B: inserted (with effect on 1October 2012), on 2November 2012, by section 9 of the Taxation (Annual Rates, Returns Filing, and Remedial Mat- ters) Act 2012 (2012 No 88).

CD24 Returns of capital: on-market share cancellations Companies acquiring own shares

(1) An amount paid by a company in acquiring any of its shares in an on-market cancellation is not a dividend. When excess amount relevant

(2) Despite subsection (1), any excess of the amount paid over the available subscribed capital per share calculated under the ordering rule— (a) is treated as a dividend and not a return of capital when

applying— (i) section CD 40: (ii) section CD 43(2)(c): (iii) section GA 1(4) (Commissioner’s power to ad-

just); and

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(b) gives rise to an imputation credit account debit under section OB 42 (ICA on-market cancellation).

Defined in this Act: amount, available subscribed capital, company, dividend, imputation credit account, on-market cancellation, ordering rule, pay, share Compare: 2004 No 35 s CD 16 Section CD 24(2)(a)(i): amended (with effect on 1April 2008), on 21December 2010 (applying for the 2008–09 and later income years), by section 28(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).

CD25 Treasury stock acquisitions Treasury stock generally

(1) An amount paid by a company in acquiring any of its shares is not a dividend if— (a) the acquisition is treated as not resulting in the cancella-

tion of the share, under section 67A(1) of the Compan- ies Act 1993 or section 24 of the Co-operative Compan- ies Act 1996 (each of which relates to treasury stock); and

(b) the acquisition is not part of a pro rata cancellation or something that is in substance a pro rata cancellation.

Reversion to on-market cancellation treatment (2) Subsections (4) to (6) apply in the case of an acquisition of

a share to which subsection (1) or section CD 17(1) of the In- come Tax Act 2004 or section CF 3(1)(d) or (da) of the Income Tax Act 1994 applies if,— (a) before the first anniversary of the acquisition, the com-

pany cancels the share; or (b) at the first anniversary, the company has failed to trans-

fer a share of the same class in an arm’s length transfer, except if the company is established under NewZealand co-operative company legislation; or

(c) after the first anniversary, the company, which is estab- lished under New Zealand co-operative company legis- lation, cancels the share.

Requirement for arm’s length transfers (3) When subsection (2)(b) is applied,—

(a) a transfer is arm’s length only if it is— (i) to a person not associated with the company; or

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Part C s CD 25 Income Tax Act 2007 Reprinted as at 1 April 2014

(ii) in a transaction that occurs on a recognised ex- change, through a broker or some other agent in- dependent of the company, and that is not pre- ceded by any arrangement between the transferee and the company for the transfer; and

(b) each arm’s length transfer of a share is taken into ac- count only in relation to a single share acquisition to which subsection (1) has applied.

Reduction of available subscribed capital (4) If subsection (2) applies, then, with effect from the cancella-

tion or the first anniversary, depending on which first causes subsection (2) to apply, the available subscribed capital of the class of the share is reduced by the lesser of— (a) the amount paid to the shareholder on the acquisition;

and (b) the available subscribed capital per share calculated

under the ordering rule and, in the case of the first anniversary, calculated as if the share and any other shares to which this subsection applies on that date were cancelled on that date.

Imputation credit account debit (5) If subsection (2) applies, then, with effect from the date of

the acquisition by the company, section OB 42 (ICA on-mar- ket cancellation) applies as if the original acquisition were an on-market cancellation but item “ASC per share excess” of the formula in section OB 42 were equal to only the excess of the amount received by the shareholder over the reduction described in subsection (4). Relief from imputation penalty tax

(6) No imputation penalty tax is imposed under section 140B of the Tax Administration Act 1994 (nor any late payment penalty imposed under that Act in relation to the imputation penalty tax) if it would not have arisen had subsection (5) applied only with effect from the date of cancellation or first anniversary, depending on which first causes subsection (2) to apply. Defined in this Act: agent, amount, arrangement, associated person, available subscribed capital, cancellation, company, co-operative company, dividend, imputation credit account, imputation penalty tax, New Zealand, on-market

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cancellation, ordering rule, pay, pro rata cancellation, recognised exchange, share, shareholder Compare: 2004 No 35 s CD 17 Section CD 25(4): substituted (with effect on 1 April 2008), on 6 October 2009, by section 16(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

CD26 Capital distributions on liquidation or emigration When this section applies

(1) This section applies when a shareholder— (a) is paid an amount in relation to a share on the liquidation

of the company: (b) is treated under section FL 2 (Treatment of emigrat-

ing companies and their shareholders) as being paid an amount in relation to a share in the company.

Return of subscribed capital or capital gains (2) The amount paid is a dividend only to the extent to which it is

more than— (a) the available subscribed capital per share calculated

under the ordering rule; and (b) the available capital distribution amount calculated

under section CD 44. Statutory producer board capital levies

(3) If the company is a statutory producer board, the amount is not a dividend to the extent to which it is a return of a levy charged specifically for capital development. Non-deductible capital

(4) An amount that is not a dividend as a result of subsection (3) is nevertheless treated as a return of capital for the purposes of the capital limitation. Defined in this Act: amount, available capital distribution amount, available subscribed capital, capital limitation, company, dividend, emigrating company, levy, liquidation, ordering rule, pay, share, shareholder, statutory producer board Compare: 2004 No 35 s CD 18

CD27 Property made available intra-group When this section applies

(1) This section applies when—

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Part C s CD 27 Income Tax Act 2007 Reprinted as at 1 April 2014

(a) a transfer of value is made by a company (the first com- pany) to another company (the associated company); and

(b) in the absence of this section, the transfer would be a dividend under section CD 6(1)(a)(ii) because the asso- ciated company is associated with a shareholder in the first company.

Intra-group property arrangements worth $10,000 or less (2) The transfer of value is not a dividend if—

(a) the transfer consists of making property available for less than market value; and

(b) the transfer is not a loan; and (c) in the income year of the first company in which the

transfer occurs, the total amount of transfers of value by the first company to the associated company that would be dividends for the year in the absence of this section, is $10,000 or less.

Downward transfers of value (3) The transfer of value is also not a dividend if—

(a) either— (i) the first company has a voting interest in the as-

sociated company; or (ii) the first company is associated with a company

(the parent company) that has a voting interest in the associated company and that could have received the transfer of value without the transfer being assessable income or non-resident passive income; and

(b) the associated company does not have a voting interest in the first company; and

(c) no person, other than the parent company, has both— (i) a voting interest or, if there is a market value cir-

cumstance in relation to either the first company or the associated company, a market value inter- est in the first company; and

(ii) a voting interest or, if there is a market value cir- cumstance in relation to either the first company or the associated company, a market value inter- est in the associated company, of more than 10%.

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Reprinted as at 1 April 2014 Income Tax Act 2007 Part C s CD 27

Relationship with section FA 3 (4) Subsection (3) does not apply to a transfer of value that is sub-

ject to section FA 3 (Recharacterisation of certain dividends: recovery of cost of shares held on revenue account). Rules for identifying voting interests

(5) For the purposes of subsection (3)(a) and (b),— (a) for the purposes of determining if a company has a vot-

ing interest in another company, the look-through rule in section YC 4 (Look-through rule for corporate share- holders) does not apply to treat the initial company’s voting interest as held by its shareholders or anyone else; and

(b) a zero voting interest is not a voting interest. Rules for identifying voting and market value interests

(6) For the purposes of subsection (3)(c),— (a) for the purposes of determining the extent to which a

person, other than the parent company, has a voting in- terest or market value interest in the first company or the associated company, the look-through rule in sec- tion YC 4 does not apply to treat the person’s voting interest or market value interest as held by the person’s shareholders or anyone else unless the person treated as holder is the parent company; and

(b) for the purposes of determining the extent to which a person, other than the parent company, has a voting interest or market value interest of more than 10% in the associated company, the look-through rule in sec- tion YC 4 does not apply to treat a voting interest or market value interest of the first company or the parent company in the associated company as held by their re- spective shareholders or anyone else; and

(c) a zero voting interest is not a voting interest and a zero market value interest is not a market value interest.

Defined in this Act: amount, assessable income, associated person, company, dividend, income year, loan, market value circumstance, market value interest, non-resident passive income, shareholder, tax year, transfer of value, trustee, voting interest Compare: 2004 No 35 s CD 19

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Part C s CD 28 Income Tax Act 2007 Reprinted as at 1 April 2014

Section CD 27(1)(b): substituted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 17(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34). Section CD 27(3)(a)(ii): substituted (with effect on 30 June 2009), on 6 October 2009, by section 17(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34). Section CD 27 list of defined termsFDP: repealed (with effect on 30 June 2009), on 6October 2009, by section 17(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

CD28 Transfers of certain excepted financial arrangements within wholly-owned groups When section ED 2 (Transfers of certain excepted financial ar- rangements within wholly-owned groups) applies to a transfer of an excepted financial arrangement within a wholly-owned group of companies, the transfer does not give rise to a divi- dend. Defined in this Act: dividend, excepted financial arrangement, wholly-owned group of companies Compare: 2004 No 35 s CD 20

CD29 Non-taxable bonus issues A non-taxable bonus issue is not a dividend. Defined in this Act: dividend, non-taxable bonus issue Compare: 2004 No 35 s CD 21

CD29B Issues to shareholders of rights to subscribe for or sell back shares Issue of rights to subscribe for shares

(1) The issue by a company to a shareholder of a right to subscribe for a share, or to sell a share in the company to the company, is not a dividend. Issue of shares under rights to subscribe for shares

(2) The issue by a company of a share to a person for consideration less than the market value, immediately before the issue, of a share in the same class of shares, is not a dividend if— (a) the person subscribes for the share under a right (a sub-

scription right) issued by the company to a shareholder holding shares before the issue of the right; and

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(b) the company does not, as part of the issue of the sub- scription right, give the person a right to dispose of the share to the company.

Premiums from issue of rights to subscribe for shares (3) A distribution by a company to a shareholder is not a dividend

if— (a) the company issues to the shareholder a right (the share-

holder right) to subscribe for, or dispose of to the com- pany, a share in the company at a given price (the share- holder price); and

(b) the shareholder fails or is ineligible to exercise the shareholder right; and

(c) another person pays to the company an amount— (i) for the shareholder right: (ii) greater than the shareholder price, for the issue

of a share under the shareholder right; and (d) the distribution is from the amount of the payment that

does not increase the company’s available subscribed capital.

Defined in this Act: available subscribed capital, bonus issue in lieu, company, consideration, dividend, pay, share, shareholder Section CD 29B: inserted (with effect on 1 April 2008 and applying for the 2008–09 and later tax years), on 17 July 2013, by section 8(1) of the Taxa- tion (Livestock Valuation, Assets Expenditure, and RemedialMatters) Act 2013 (2013 No 52).

CD30 Transfer by unit trust of legal interest after beneficial interest vests If money or property of a unit trust is a dividend under section CD 9 for a unit holder, a transfer to the unit holder of the legal interest in the money or property is not a dividend. Defined in this Act: dividend, unit holder, unit trust Compare: 2004 No 35 s CD 21B

CD31 Flat-owning companies Occupation rights

(1) If a flat-owning company makes residential property available to a person, that is not a dividend.

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Part C s CD 32 Income Tax Act 2007 Reprinted as at 1 April 2014

Meaning of flat-owning company (2) In this section, flat-owning company means a company—

(a) whose constitution provides that every registered share- holder is entitled to the use of a specific residential prop- erty in New Zealand owned by the company; and

(b) whose only significant assets are residential properties available for use by specific shareholders and funds re- served for meeting the company’s costs.

Defined in this Act: company, dividend, flat-owning company, New Zealand, shareholder Compare: 2004 No 35 s CD 22

CD32 Employee benefits FBT rules

(1) A fringe benefit subject to fringe benefit tax is not a dividend. Board

(2) An amount that is employment income under section CE 1(1B) (Amounts derived in connection with employment) is not a dividend. Defined in this Act: amount, dividend, employment income, FBT rules, fringe benefit, fringe benefit tax Compare: 2004 No 35 s CD 23 Section CD 32(2): amended (with effect on 1 April 2008), on 29 August 2011 (applying for the 2008–09 and later income years), by section 140(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).

CD33 Payments corresponding to notional distributions of producer boards and co-operative companies Statutory producer board payments

(1) An amount paid by a statutory producer board to a person in relation to an income year is not a dividend if— (a) the person was a member of the board at some time

during the income year; and (b) unless the Commissioner allows otherwise, the amount

is calculated on the basis of the member’s share of— (i) the total produce transactions of members with

the board during the income year; or (ii) the total levies payable by members to the board

for the income year; and

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(c) the amount corresponds to a notional distribution amount treated as a dividend under section CD 13(1).

Co-operative company payments (2) An amount paid by a co-operative company to a person in

relation to an income year is not a dividend if— (a) the person was a shareholder of the company at some

time during the income year; and (b) the amount is calculated on the basis of the share-

holder’s share of the total produce transactions of shareholders with the company during the income year; and

(c) the amount corresponds to a notional distribution amount treated as a dividend under section CD 13(3).

Non-deductible capital (3) An amount that is not a dividend as a result of this section is

nevertheless treated as a return of capital for the purposes of the capital limitation. Defined in this Act: amount, capital limitation, Commissioner, co-operative company, dividend, income year, levy, member, pay, produce transactions, pro- ducer board, shareholder, statutory producer board Compare: 2004 No 35 s CD 24

CD34 Distribution to member of co-operative company based on member’s transactions [Repealed] Section CD 34: repealed (with effect on 1 April 2010), on 7 September 2010, by section 8 of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).

CD34B Distributions to members of co-operative companies What this section applies to

(1) This section applies to a distribution by a co-operative com- pany, or by a company (a subsidiary) in which the co-opera- tive company has a voting interest of 100%, if— (a) the distribution is made after the Commissioner has re-

ceived, from the co-operative company, an election in writing to apply this section; and

(b) the election has not been revoked.

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Part C s CD 34B Income Tax Act 2007 Reprinted as at 1 April 2014

General rule: co-operative company distributions not dividends

(2) If the requirements in subsection (4) are met, a distribution by a co-operative company, or by a subsidiary, to a member of the co-operative company is not a dividend, to the extent to which the distribution is for their— (a) transaction shares: (b) projected transactions shareholding: (c) limited non-transaction shares. Exception: distributions for excess shareholdings

(3) Subsection (2)(c) is ignored,— (a) for a distribution to a member, if the member holds

shares in the co-operative company that— (i) are not transaction shares, are not their projected

transactions shareholding, and are not limited non-transaction shares; and

(ii) may entitle members to enter trading transac- tions:

(b) for all distributions to all members, if the constitution of the co-operative company permits any member to hold shares that— (i) are not transaction shares, are not their projected

transaction shareholding, and are not limited non-transaction shares; and

(ii) may entitle members to enter trading transac- tions.

Requirements (4) For the purposes of subsection (2), the requirements are—

(a) the co-operative company is resident in New Zealand for the period to which the distribution relates; and

(b) the company making the distribution is resident in New Zealand for the period to which the distribution relates; and

(c) the co-operative company believes on reasonable grounds that the member at the time of the distribu- tion— (i) is resident in New Zealand: (ii) has a fixed establishment in New Zealand.

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Meaning of transaction shares (5) In this section, transaction sharesmeans the number of shares

in the co-operative company that the member holds for trading transactions that occurred in the period to which the distribu- tion relates. The number of shares must determine the value of the trading transactions. Meaning of limited non-transaction shares

(6) In this section, limited non-transaction shares means the member’s shares that are not the member’s transaction shares or their projected transactions shareholding, and that may en- title the member to enter trading transactions, if the number of those shares is less than or equal to the greater of the follow- ing: (a) 20% of the member’s transaction shares on the date of

entitlement for the distribution under section 125 of the Companies Act 1993:

(b) 20% of the member’s projected transactions sharehold- ing on the date of entitlement for the distribution under section 125 of that Act.

Meaning of projected transactions shareholding (7) In this section, projected transactions shareholding means

the number of shares in the co-operative company that the member would have had to hold if the trading transactions ac- tually had occurred that the member had projected, using rea- sonable assumptions, would occur in the period to which the distribution relates. The number of shares must determine the value of the trading transactions. Meaning of trading transactions

(8) In this section, trading transactions means transactions be- tween themember and the co-operative company or subsidiary that are— (a) the sale and purchase of trading stock of the vendor that

is not intangible property; and (b) not subject to section CB 2 (Amounts received on dis-

posal of business assets that include trading stock). Companies Act 1993

(9) The 20 working day rule for fixing a date in section 125(2) of the Companies Act 1993 does not apply to members’ entitle-

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Part C s CD 35 Income Tax Act 2007 Reprinted as at 1 April 2014

ments to receive distributions that are for transaction shares, projected transaction shareholdings, limited non-transaction shares, or shares described in subsection (3), if— (a) the co-operative company or the subsidiary, as the case

may be, has given a copy of the election described in subsection (1) to the Registrar of Companies before the relevant distributions are paid; and

(b) for the purposes of section 125(1) of the Companies Act 1993, the co-operative company or the subsidiary, as the case may be, fixes a date in relation to members’ entitlements to receive distributions before the entitle- ments arise, and that date is within the year or period to which the distributions relate.

Defined in this Act: Commissioner, company, co-operative company, dividend, limited non-transaction shares, projected transaction shareholding, resident in New Zealand, share, trading stock, trading transactions, transaction shares Section CD 34B: inserted (with effect on 1 April 2010), on 7 September 2010, by section 9 of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).

CD35 Resident’s restricted amalgamations An amount derived by an amalgamated company on a resi- dent’s restricted amalgamation from an amalgamating com- pany that ends its existence on the amalgamation is not a divi- dend if it arises from— (a) the amalgamated company acquiring property of the

amalgamating company; or (b) the amalgamated company being relieved of an obliga-

tion owed to the amalgamating company. Defined in this Act: amalgamated company, amalgamating company, amal- gamation, amount, dividend, resident’s restricted amalgamation Compare: 2004 No 35 s CD 25

CD36 Foreign investment fund income Amount not dividend

(1) An amount paid by a company to a person is not a dividend if,— (a) at the time the person derives the amount, the person’s

interest in the company is an attributing interest, or

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would have been if the company had not been liqui- dated; and

(b) the person calculates their foreign investment fund (FIF) income or loss in relation to the interest and the period in which the amount is paid under— (i) the comparative value method: (ii) the deemed rate of return method: (iii) the cost method: (iv) the fair dividend rate method.

(c) [Repealed] Exclusion for interests in FIFs resident in Australia

(2) Subsection (1)(b)(iv) does not apply if the person’s interest in the company is included, at the beginning of the income year in which the payment is made, in a direct income interest of 10% or more in a FIF that, at the beginning of the income year,— (a) meets the requirements of section EX 35(b)(i) to (iii)

(Exemption for interest in FIF resident in Australia); and

(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 (3) Subsection (2) does not apply if—

(a) the person is a portfolio investment entity, an entity eli- gible to be a portfolio investment entity, or a life insur- ance company; and

(b) the FIF is a foreign PIE equivalent. Defined in this Act: amount, attributing interest, company, comparative value method, cost method, deemed rate of returnmethod, direct income interest, divi- dend, fair dividend rate method, FIF income, foreign investment fund, foreign PIE equivalent, income year, life insurance, liquidation, loss, pay, portfolio in- vestment entity Compare: 2004 No 35 s CD 26 Section CD 36(1) heading: inserted (with effect on 1 April 2008), on 6 October 2009, by section 19(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34). Section CD 36(b): substituted, on 1 April 2008, by section 315(1) of the Taxa- tion (Business Taxation and Remedial Matters) Act 2007 (2007 No 109). Section CD 36(1)(b)(iv): amended (with effect on 1 April 2008), on 6 October 2009, by section 19(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

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Part C s CD 36 Income Tax Act 2007 Reprinted as at 1 April 2014

Section CD 36(1)(c): repealed (with effect on 1 April 2008), on 6 October 2009, by section 19(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34). Section CD 36(2) heading: replaced (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 5(1) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34). Section CD 36(2): replaced (with effect on 1 July 2011 and applying for in- come years beginning on or after that date), on 7 May 2012, by section 5(1) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34). Section CD 36(3) heading: added (with effect on 1 April 2008), on 6 October 2009, by section 19(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34). Section CD 36(3): added (with effect on 1 April 2008), on 6 October 2009, by section 19(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34). Section CD 36(3)(b): substituted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 19(4) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34). Section CD 36 list of defined terms direct income interest: inserted (with ef- fect on 1 April 2008), on 6 October 2009, by section 19(5) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34). Section CD 36 list of defined terms foreign investment vehicle: repealed, on 1 April 2010, by section 19(6) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34). Section CD 36 list of defined terms foreign PIE equivalent: inserted, on 1April 2010, by section 19(6) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34). Section CD 36 list of defined terms grey list company: repealed (with effect on 1 July 2011), on 7 May 2012, by section 5(2) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34). Section CD 36 list of defined terms income year: inserted, on 1 April 2008, by section 315(2) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109). Section CD 36 list of defined terms life insurance: inserted (with effect on 1April 2008), on 6October 2009, by section 19(5) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34). Section CD 36 list of defined terms portfolio investment entity: added (with effect on 1 April 2008), on 6 October 2009, by section 19(5) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

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Reprinted as at 1 April 2014 Income Tax Act 2007 Part C s CD 38

CD36B Foreign superannuation withdrawals and pensions from foreign superannuation scheme An amount paid to a person by a company that is a foreign superannuation scheme is not a dividend if the person derives the amount as a— (a) foreign superannuation withdrawal: (b) pension. Defined in this Act: company, dividend, foreign superannuation withdrawal Section CD 36B: inserted, on 1 April 2014, by section 6 of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).

CD37 Maori authority distributions AMaori authority distribution is not a dividend except for the purposes of section CW 10 (Dividend within New Zealand wholly-owned group). Defined in this Act: dividend, Maori authority, wholly-owned group Compare: 2004 No 35 s HI 4(2)

Calculation rules CD38 General calculation rule for transfers of value

Difference in value (1) The amount of a dividend that is a transfer of value from a

company to a person is calculated using the formula— value from company − value from person.

Definition of items in formula (2) In the formula,—

(a) value from company is the market value of the money or money’s worth that the company provides to the per- son:

(b) value from person— (i) is the market value of the money or money’s

worth, if any, that the person provides to the com- pany as consideration for the transfer; and

(ii) excludes any amount that is attributable merely to the holding or giving up of rights as a share- holder in the company.

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Part C s CD 39 Income Tax Act 2007 Reprinted as at 1 April 2014

Relationship with sections CD 39 to CD 42 (3) This section is overridden by sections CD 39 to CD 42.

Defined in this Act: amount, company, dividend, shareholder, transfer of value Compare: 2004 No 35 s CD 27

CD39 Calculation of amount of dividend when property made available How this section applies

(1) This section applies to determine the amount of a dividend that arises under section CD 3 because a company makes property available to a person. Amounts calculated quarterly

(2) The amount of the dividend is calculated for each quarter dur- ing which the property is made available. Date when amounts treated as paid

(3) The amount of the dividend calculated for a quarter is treated as being paid by the company to the person and as being de- rived by the person 6months after the end of the company’s in- come year. However, if the company gives notice to the share- holder on an earlier date of the amount of the dividend for that quarter, the amount is treated as being paid and derived on that earlier date instead. Using FBT rules

(4) Unless the property made available is a loan, the amount of the dividend for each quarter is the value of the fringe benefit for that quarter calculated under the fringe benefit tax (FBT) rules as if— (a) making the property available were the provision of a

fringe benefit by the company to an employee in relation to employment, despite anything in sections CX 6 to CX 38 (which relate to fringe benefits); and

(b) the company were not to choose to pay fringe benefit tax on an income year basis under section RD 60 (Close company option).

Using difference from benchmark rate (5) If the property made available is a loan, the amount of the divi-

dend for each quarter is the excess, if any, of interest, calcu- lated for the quarter on the basis of the daily balance of the

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loan and the benchmark rate specified in subsections (6) to (8), over the actual amount of interest accruing on the loan in the quarter. However, the company may choose instead to calcu- late the dividend as the excess of the benchmark interest rate amount over the amount of income accruing to the company in the quarter calculated under the yield to maturity method. Benchmark rate: fringe benefit tax rate for certain loans

(6) For the purposes of subsection (5), the benchmark rate of in- terest is the prescribed rate of interest if— (a) all amounts payable to the company for the loan are

expressed in New Zealand dollars; and (b) either the borrower is not a company or, if the borrower

is another company, the company making the loan no- tifies the Commissioner that this subsection is to apply to the loan and the quarter.

Setting benchmark rate (7) For the purposes of subsection (5), the benchmark rate is the

rate set by the Commissioner if— (a) all amounts payable to the company in relation to the

loan are payable in a single currency other than New Zealand dollars; and

(b) the Commissioner has set a benchmark rate for that cur- rency and the quarter; and

(c) either the borrower is not a company or, if the borrower is another company, the company making the loan no- tifies the Commissioner that this subsection is to apply to the loan and the quarter.

Default benchmark rate (8) For the purposes of subsection (5), if neither subsection (6)

nor (7) applies, the benchmark rate of interest is a market rate determined at the end of the quarter for a loan made on the same terms between persons at arm’s length. Daily loan balance: certain repayments backdated

(9) For the purposes of subsection (5), in determining the daily balance of a loan during a tax year, an amount repaid during the tax year is treated as having been applied in repayment of the loan at the start of the company’s tax year or, if later, the day the loan was made, if—

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Part C s CD 39 Income Tax Act 2007 Reprinted as at 1 April 2014

(a) the amount is repaid by applying any salary, wages, ex- tra pay, dividends, or interest payable by the company to the borrower; and

(b) the amount payable by the company is income of the borrower in the tax year or an earlier tax year; and

(c) the amount payable by the company is payable without any amount of tax being withheld and paid under the PAYE rules, the RWT rules, or the NRWT rules.

Daily loan balance: company nominating amount (10) Subject to subsection (9), for the purposes of subsection (5),

the daily balance of the loan for a tax year is treated as being equal to the notional balance chosen under subsection (11) by the company making the loan if— (a) the borrower is a company; and (b) the loan is a variable principal debt instrument; and (c) the company making the loan notifies the Commis-

sioner that this subsection applies for the loan and the tax year; and

(d) the amount of the dividend calculated as a result for the loan, the borrower, and the tax year is nomore than 30% greater or less than the amount that would be calculated if this section did not apply.

Notional balance options (11) The notional balance referred to in subsection (10) is

whichever of the following is chosen by the company making the loan and notified to the Commissioner: (a) the average of the outstanding balances of the loan at

the end of each month in the company’s tax year: (b) the average of—

(i) the outstanding balance of the loan at the start of the tax year or the first time during the tax year at which the loan exists, whichever is later; and

(ii) the outstanding balance of the loan at the end of the tax year or the last time during the tax year at which the loan exists, whichever is earlier.

Notice generally by tax returns (12) Reference in this section to a company notifying the Commis-

sioner is a reference to—

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(a) a notice given to the Commissioner with the company’s return of income for the relevant tax year; or

(b) if no return is required, a notice given by the date on which a return would be required to be filed for the tax year if a return had been required.

Attributed repatriation dividends (13) No amount of dividend arises under section CD 4 as a result of

any difference between the interest, if any, payable by a person to a CFC in an accounting period of the CFC under a loan and the benchmark rate of interest specified in any of subsections (6) to (8) if— (a) the outstanding balance of the loan at the end of the

accounting period is taken into account under sections CD 46 to CD 52 in calculating the New Zealand repatri- ation amount of the CFC for the accounting period; and

(b) as a result, the person derives a dividend under section CD 21.

When loan disregarded (14) Subsection (13) does not apply to the extent to which the loan

is a loan to which— (a) section CD 50(11) applies, meaning that the loan is dis-

regarded for the accounting period; or (b) section CZ 10(4) (Transitional relief for calculation of

attributed repatriation dividends: 2 July 1992) applies, meaning that the loan is effectively disregarded for the accounting period.

Defined in this Act: accounting period, amount, amount of tax, attributed re- patriation, CFC, Commissioner, company, dividend, employee, extra pay, FBT rules, fringe benefit, fringe benefit tax, income, income year, interest, loan, New Zealand, New Zealand repatriation amount, notice, notify, NRWT rules, pay, PAYE rules, prescribed rate of interest, quarter, return of income, RWT rules, shareholder, tax year, variable principal debt instrument Compare: 2004 No 35 s CD 28

CD40 Adjustment if dividend recovered by company When dividends recovered

(1) If a company recovers a dividend from a shareholder under section 56 of the Companies Act 1993 or an equivalent provi- sion of foreign law, this section applies to the extent necessary to ensure that—

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(a) the recovered dividend and any attached imputation credit or FDP credit are disregarded for the purposes of this Act; and

(b) the resulting refunds are made. Amendment of assessments

(2) Section 113B of the Tax Administration Act 1994 requires the Commissioner to amend assessments if given notice of the re- covery. Refunds

(3) If the Commissioner is given notice of the recovery, the Com- missioner must refund any relevant— (a) income tax, FDP, or FDP penalty tax of the shareholder;

and (b) non-resident withholding tax (NRWT) or resident with-

holding tax (RWT) of the company. Relationship with subpart RM

(4) The refund is made despite sections RM 2 to RM 5 (which relate to refunds of excess tax) and RM 18 to RM 21 (which relate to limits on refunds), but subject to the other provisions of this Act. Adjustments to accounts

(5) A credit or debit (as applicable) arises as at the date of recov- ery, and must be recorded in— (a) the imputation credit account of the company; or (b) if the shareholder is an imputation credit account (ICA)

company or foreign dividend payment account (FDPA) company, the imputation credit account or FDP account of the shareholder.

Defined in this Act: assessment, Commissioner, company, dividend, FDP, FDP account, FDP credit, FDP penalty tax, FDPA company, ICA company, imput- ation credit, imputation credit account, income tax, notice, NRWT, RWT, share- holder Compare: 2004 No 35 s CD 29 Section CD 40(4): amended (with effect on 1 April 2013), on 17 July 2013, by section 9 of the Taxation (Livestock Valuation, Assets Expenditure, and Re- medial Matters) Act 2013 (2013 No 52).

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Reprinted as at 1 April 2014 Income Tax Act 2007 Part C s CD 41

CD41 Adjustment if amount repaid later When released debt repaid

(1) If the release by a company of a shareholder’s obligation to pay money to the company has been treated as a dividend and the released amount is later repaid to the company, this section applies to the extent necessary to ensure that— (a) the dividend is disregarded for the purposes of this Act;

and (b) the resulting refunds are made. When close company expenditure repaid

(2) If any expenditure of a close company that shareholders in the company believed on reasonable grounds was only for the benefit of the company is nevertheless a dividend and the ex- penditure is later repaid to the company, this section applies to the extent necessary to ensure that— (a) the dividend is disregarded for the purposes of this Act;

and (b) the resulting refunds are made. Amendment of assessments

(3) Section 113B of the Tax Administration Act 1994 requires the Commissioner to amend assessments if given notice of the re- payment. Refunds

(4) If the Commissioner is given notice of the repayment, the Commissioner must refund any relevant tax of the shareholder. Relationship with sections RM 2 to RM 5

(5) The refund is made despite sections RM 2 to RM 5 (which relate to refunds of excess tax), but subject to the other provi- sions of this Act. Repayment of pre-1992 loans

(6) Subsection (1) also applies to the repayment of an amount treated as a dividend under section 4(1)(b) of the Income Tax Act 1976 (as it applied before 1 April 1992 to give the Com- missioner a discretion to treat loans as dividends), as if the amount repaid were a released amount that is repaid. Defined in this Act: amount, assessment, close company, Commissioner, com- pany, dividend, notice, pay, shareholder, tax Compare: 2004 No 35 s CD 30

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Part C s CD 42 Income Tax Act 2007 Reprinted as at 1 April 2014

Section CD 41(5) heading: amended (with effect on 1 April 2013), on 17 July 2013, by section 10(1) of the Taxation (Livestock Valuation, Assets Expend- iture, and Remedial Matters) Act 2013 (2013 No 52). Section CD 41(5): amended (with effect on 1 April 2013), on 17 July 2013, by section 10(2) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).

CD42 Adjustment if additional consideration paid Differences from market value

(1) If a dividend from a company arises because of a difference between the market value of property provided by or to the company and the consideration paid for it, the dividend is dis- regarded for the purposes of this Act if the conditions in sub- sections (2) to (4) are met. Market value

(2) The consideration paid must have been an amount that the company considered was the market value, having taken rea- sonable steps at the time of the transaction to ascertain a mar- ket value. Difference paid

(3) The recipient of the dividend must have later paid to the com- pany— (a) sufficient additional consideration to reflect the actual

market value of the property at the time of the transac- tion; or

(b) a refund of any excess consideration paid by the com- pany.

Accounts adjusted (4) Any necessary adjustments must have been made to the ac-

counts of the company and the recipient for the additional con- sideration or refund. Defined in this Act: amount, company, dividend, pay Compare: 2004 No 35 s CD 31

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CD43 Available subscribed capital (ASC) amount Formula for calculating amount of available subscribed capital

(1) For a share (the share) in a company at any relevant time (the calculation time), the amount of available subscribed cap- ital is calculated using the formula—

1 July 1994 balance + subscriptions − returns − look-through company returns.

Definition of items in formula (2) In the formula in subsection (1),—

(a) 1 July 1994 balance is,— (i) if the company existed before 1 July 1994, the

amount calculated under subsection (3); and (ii) in any other case, zero:

(b) subscriptions, subject to subsections (6) to (21), is the total amount of consideration that the company received, after 30 June 1994 and before the calculation time, for the issue of shares of the same class (the class) as the share, ignoring section HB 1 (Look-through companies are transparent):

(c) returns, subject to subsections (22) and (23), is the total amount of consideration that the company paid, after 30 June 1994 and before the calculation time, on the cancellation of shares in the relevant class and that was not a dividend because of section CD 22, CD 23B, or CD 24 or a corresponding provision of an earlier Act:

(d) look-through company returns is the total amount of consideration that the company paid, before the calcula- tion time, on the cancellation or buyback of shares in the relevant class while the company was a look-through company, ignoring section HB 1.

1 July 1994 balance (3) The 1 July 1994 balance is calculated using the formula—

paid-up capital + premiums all shares issued

× 30 June 1994 shares.

Definition of items in formula (4) In the formula in subsection (3),—

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Part C s CD 43 Income Tax Act 2007 Reprinted as at 1 April 2014

(a) paid-up capital, subject to subsection (5) relating to bonus issues, is the total amount of capital paid up be- fore 1 July 1994 for shares in the class:

(b) premiums is the total amount of qualifying share pre- mium paid to the company before 1 July 1994 for shares in the class, but not including amounts applied before 1 July 1994 in paying up capital:

(c) all shares issued is the number of shares in the class ever issued at the end of 30 June 1994:

(d) 30 June 1994 shares is the number of shares in the class on issue at the end of 30 June 1994.

1 July 1994 balance: bonus issues after 30 September 1988 (5) The capital amount included in calculating the 1 July 1994

amount does not include an amount paid up by way of a bonus issue made after 30 September 1988, unless— (a) the bonus issue was a taxable bonus issue; or (b) the amount was paid up by application of an amount of

qualifying share premium. Subscriptions amount: taxable bonus issues and debt capitalisations

(6) The subscriptions amount includes,— (a) in the case of a bonus issue in lieu, the amount offered

as an alternative to the bonus issue; and (ab) in the case of a share issued under a profit distribution

plan, the amount offered by the company for the repur- chase of the share; and

(b) in the case of a taxable bonus issue that is not a bonus issue in lieu or a share issued under a profit distribution plan, the amount of the dividend arising from the tax- able bonus issue; and

(c) in the case of shares issued on conversion of, or as con- sideration for the release of, a debt claim against the company, the amount of debt converted or released.

Subscriptions amount: non-taxable and exempt bonus issues (7) The subscriptions amount does not include—

(a) an amount for a bonus issue if none of subsection (6)(a), (ab), or (b) applies; or

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(b) an amount for a taxable bonus issue made to a share- holder to whom the bonus issue was exempt income under section CW 9 (Dividend derived by company from overseas) or CW 10 (Dividend within New Zealand wholly-owned group), or under a correspond- ing repealed provision, except to the extent to which the taxable bonus issue is fully credited.

Subscriptions amount: reinvested exempt dividends (8) The subscriptions amount does not include—

(a) an amount received by the company that is mainly at- tributable, directly or indirectly, to the company paying a dividend to a shareholder,— (i) if the dividend was exempt income of the share-

holder under section CW 9 or CW 10, or a cor- responding provision of an earlier Act; and

(ii) if the shareholder was not required to withhold and pay an amount of FDP from the dividend by section RG 3 (Obligation to pay FDP); and

(iii) to the extent to which the dividend is not fully credited; or

(b) an amount received by the company if the amount is mainly attributable, directly or indirectly, to the pay- ment by the company of a dividend to a controlled for- eign company at a time when the company is also a con- trolled foreign company, regardless of whether either company is a grey list company or non-attributing Aus- tralian CFC.

Subscriptions amount: share-for-share exchanges (9) Subsection (10) applies if—

(a) the company receives an amount, directly or indirectly, for the issue of shares in the class that is in the form of shares in another company; and

(b) immediately after the issue there are 1 or more per- sons whose common voting interests (or common mar- ket value interests), as measured in section IC 3(3) to (5) (Common ownership: group of companies), in the company and the other company total 10% or greater; and

(c) the receipt is not on an amalgamation.

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Part C s CD 43 Income Tax Act 2007 Reprinted as at 1 April 2014

Subscriptions amount: no uplift for share-for-share exchanges

(10) If subsection (9) applies, the subscriptions amount does not include the amount received to the extent to which it is more than the total available subscribed capital per share, calculated under the slice rule and calculated after deducting any ineli- gible capital amount described in subsections (13) and (14) of the shares in the other company at the date on which the amount is received. Subscriptions amount: company share capital reorganisation

(11) Subsection (12) applies if a company receives an amount for the issue of shares in the class in the form of— (a) a shareholder giving up rights of membership in the

company; or (b) a shareholder giving up rights of membership in a com-

pany associated with the company or that is in substance the same company.

Subscriptions amount: no uplift for share capital reorganisation

(12) If subsection (11) applies, the subscriptions amount does not include the amount received to the extent to which it is more than the total available subscribed capital per share of the rights given up at the date they are given up, calculated— (a) under the slice rule; and (b) after deducting any ineligible capital amount described

in subsections (13) and (14); and (c) as if the rights given up were shares, if they are not

shares. Subscriptions amount: when ineligible capital arises

(13) For the purposes of subsections (10) and (12), an ineligible capital amount arises if— (a) a company (the acquiring company) issues shares

in consideration for acquiring, directly or indirectly, shares in another company (the acquired company); and

(b) the acquired company has issued shares in anticipation of the shares being acquired by the acquiring company; and

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(c) those shares issued in anticipation are not a fully cred- ited taxable bonus issue; and

(d) the acquiring company pays an amount in consideration for acquiring the shares in the acquired company in add- ition to issuing shares in the acquiring company.

Subscriptions amount: amount of ineligible capital (14) The ineligible capital amount is the lesser of—

(a) the total of the available subscribed capital per share calculated under the slice rule of the shares in the ac- quired company that is attributable to the shares issued in anticipation, except to the extent to which the shares issued in anticipation are a fully credited taxable bonus issue; and

(b) the total additional amount paid by the acquiring com- pany referred to in subsection (13)(d).

Subscriptions amount: amalgamated company (15) The subscriptions amount for a company that is an amalga-

mated company resulting from an amalgamation— (a) includes an amount, as if it were consideration received

at the time of the amalgamation for the issue of the amalgamated company’s shares, equal to the available subscribed capital, at the time of the amalgamation, of all shares in the amalgamating companies that are— (i) of an equivalent class to the class; and (ii) not held directly or indirectly by an amalgamat-

ing company; and (iii) not shares in the amalgamated company:

(b) does not include any other amount for the agreement of shareholders of an amalgamating company to the amal- gamation and the resulting property acquisitions by the amalgamated company.

Subscriptions amount: emigrating company (16) If a company has been treated under section FL 2 (Treatment

of emigrating companies and their shareholders) as paying a distribution to shareholders, the subscriptions amount includes the amount of the distribution that is a dividend.

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Part C s CD 43 Income Tax Act 2007 Reprinted as at 1 April 2014

Subscriptions amount: Maori authority (17) If the company is a Maori authority, the subscriptions amount

includes the taxable income derived by the Maori authority in the 2003–04 tax year or an earlier tax year. Subscriptions amount: no double counting

(18) The subscriptions amount does not include amounts included in calculating the 1 July 1994 balance. Subscriptions amount: treasury stock sales excluded

(19) The subscriptions amount does not include the amount of con- sideration received by a company for disposing of a share if the disposal is taken into account under section CD 25 to de- termine that the amount paid by the company on a previous share acquisition is not subject to section CD 25(4) to (6). Subscriptions amount: superannuation fund’s interest in GIF

(20) The subscriptions amount of a company that is a group invest- ment fund includes the value of the interest of a superannu- ation fund in the group investment fund at the end of 31March 1999. 1 July 1994 and subscriptions amount: foreign currency conversions

(21) If an amount of consideration that a company receives for the issue of shares is payable in a foreign currency, the amount paid is treated, for the purposes of this section, as if it were converted into New Zealand currency at the calculation time. Returns amount: on-market cancellations by associate

(22) If the acquisition of a share by an associate of the company is within the meaning of an acquisition under paragraph (d) of the definition of on-market cancellation, it is treated in the same way for the purposes of calculating the returns amount. Returns amount: recovered amounts

(23) The returns amount does not include any amount recovered by the company before the calculation time under section 56 of the Companies Act 1993 or an equivalent provision of foreign law. Returns amount: shares cancelled on amalgamation

(24) If shares in an amalgamated company held by an amalgam- ating company are cancelled on the amalgamation, the returns

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amount included in calculating the available subscribed capital amount of a share in the amalgamated company that is of the same class as the cancelled shares is increased by the amount calculated using the formula—

cancelled shares × asc per share. Definition of items in formula

(25) In the formula in subsection (24),— (a) cancelled shares is the number of cancelled shares: (b) asc per share is the available subscribed capital per

share calculated under the slice rule of each cancelled share immediately before the amalgamation.

Meaning of fully credited (26) In this section, the part of a dividend that is fully credited is

the part that is calculated using the formula— actual ratio

dividend excluding credits × maximum ratio.

Definition of items in formula (27) In the formula in subsection (26),—

(a) dividend excluding credits is the dividend excluding any attached imputation credit or FDP credit:

(b) actual ratio is the total of the imputation ratio and FDP ratio of the dividend (sectionOZ 13 (Fully credited divi- dends: modifying actual ratio) may apply to modify this paragraph):

(c) maximum ratio is the maximum imputation ratio spe- cified in section OA 18 (Calculation of maximum per- mitted ratios).

Meaning of qualifying share premium (28) In this section, qualifying share premium means an amount

of premium paid to a company for the issue of a share by the company if— (a) the amount was credited to a share premium account in

the company’s books; and

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Part C s CD 43 Income Tax Act 2007 Reprinted as at 1 April 2014

(b) the issue of shares was not in consideration for the ac- quisition, directly or indirectly, of shares in another company.

Defined in this Act: amalgamated company, amalgamating company, amal- gamation, amount, associated person, available subscribed capital, bonus issue, bonus issue in lieu, cancellation, common market value interest, common vot- ing interest, company, consideration, controlled foreign company, dividend, ex- empt income, FDP, FDP credit, FDP ratio, fully credited, grey list company, group investment fund, imputation credit, imputation ratio, look-through com- pany, Maori authority, New Zealand, non-attributing Australian CFC, on-mar- ket cancellation, pay, profit distribution plan, qualifying share premium, share, shareholder, shares of the same class, slice rule, superannuation fund, tax year, taxable bonus issue, taxable income Compare: 2004 No 35 s CD 32 Section CD 43(1) formula: amended, on 1 April 2011 (applying for income years beginning on or after 1 April 2011), by section 29(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130). Section CD 43(2)(b): amended, on 1 April 2011 (applying for income years beginning on or after 1 April 2011), by section 29(2) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130). Section CD 43(2)(c): amended (with effect on 1 October 2012), on 2 Novem- ber 2012, by section 10(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88). Section CD 43(2)(c): amended, on 1 April 2011 (applying for income years beginning on or after 1 April 2011), by section 29(3) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130). Section CD 43(2)(d): added, on 1 April 2011 (applying for income years be- ginning on or after 1 April 2011), by section 29(3) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130). Section CD 43(6)(ab): inserted (with effect on 1 October 2012), on 2 Novem- ber 2012, by section 10(2) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88). Section CD 43(6)(b): amended (with effect on 1 October 2012), on 2 Novem- ber 2012, by section 10(3) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88). Section CD 43(7)(a): amended (with effect on 1 October 2012), on 2 Novem- ber 2012, by section 10(4) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88). Section CD 43(8)(b): substituted (with effect on 30 June 2009), on 6 October 2009, by section 20(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34). Section CD 43(9)(b): amended (with effect on 1 April 2008), on 7 September 2010 (applying for the 2008–09 and later income years), by section 10(1) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109). SectionCD43(27)(b): amended, on 1April 2008, by section 316 of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

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Reprinted as at 1 April 2014 Income Tax Act 2007 Part C s CD 44

Section CD 43 list of defined terms consideration: inserted (with effect on 1April 2008), on 6October 2009, by section 20(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34). Section CD 43 list of defined terms look-through company: inserted, on 1 April 2011, by section 29(4) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130). Section CD 43 list of defined terms non-attributing Australian CFC: inserted (with effect on 30 June 2009), on 6 October 2009, by section 20(2) of the Tax- ation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34). Section CD 43 list of defined terms profit distribution plan: inserted (with ef- fect on 1 October 2012), on 2 November 2012, by section 10(5) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).

CD44 Available capital distribution amount Formula for calculating amount of available capital distribution

(1) For a share (the share) on the liquidation of the company, the available capital distribution amount is calculated using the formula—

capital gains + (capital property distributed − cost) − capital losses(receipt − asc per share) ×

total receipts − total asc.

Definition of items in formula (2) In the formula,—

(a) receipt is the amount received by the shareholder on the liquidation for the share:

(b) asc per share is the available subscribed capital per share calculated under the ordering rule for the share at the time of the liquidation:

(c) capital gains is the total of the capital gain amounts available for distribution to shareholders in the com- pany on the liquidation, but excluding any gain occur- ring when the company distributes property to a share- holder on the liquidation:

(d) capital property distributed is the total market value of capital property of the company distributed to share- holders on the liquidation:

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Part C s CD 44 Income Tax Act 2007 Reprinted as at 1 April 2014

(e) cost is the total cost to the company of the capital prop- erty included in the capital property distributed item:

(f) capital losses is the total of capital loss amounts of the company arising in the 1992–93 tax year or a later tax year, but excluding any loss occurring when the com- pany distributes property to shareholders on the liquid- ation:

(g) total receipts is the total of all amounts received by shareholders on the liquidation:

(h) total asc is the total of the available subscribed capital of all shares in the company at the time of the liquid- ation.

Positive amounts (3) Despite subsection (1), the available capital distribution

amount per share is zero if either multiplier in the formula is negative. When foreign company information inadequate

(4) Despite subsection (1), the available capital distribution amount is zero if— (a) the company is not resident in New Zealand; and (b) the shareholder cannot obtain sufficient information

to calculate the actual available capital distribution amount.

Capital gain amount: bonus issued capital gains (5) A capital gain amount is treated as still being available for

distribution to the extent to which— (a) it has been applied to pay up a bonus issue made after

30 September 1988; and (b) the bonus issue is a non-taxable bonus issue; and (c) the bonus issued share is still on issue at the time of the

company’s liquidation. This subsection is overridden by subsection (6). Capital gain amount: capital gains after 31 March 1988 and before 1992–93

(6) A capital gain amount, derived after 31March 1988 and before the 1992–93 tax year, is not available for distribution to the ex- tent to which a capital loss amount has arisen for the company in the tax year in which the capital gain amount was derived

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Reprinted as at 1 April 2014 Income Tax Act 2007 Part C s CD 44

or in a later tax year before the 1992–93 tax year. Capital loss amounts are offset against capital gain amounts in the chrono- logical order in which each arose and, to the extent offset, are then disregarded for the purposes of this subsection. Capital gain amount: when capital gain amounts arise

(7) For the purposes of this section, a company derives a capital gain amount if,— (a) after 31 March 1988, it disposes of capital property

for an amount of consideration that is more than the cost of the property to the company, including a dis- posal that the company is treated as making under sec- tion DB 26 (Amount from profit-making undertaking or scheme and not already in income) or DB 27 (Amount from major development or division and not already in income); the capital gain amount is the excess; or

(b) after 31March 1988, it receives a capital gain, including a gift, and no part is assessable income of the company; the capital gain amount is the amount of the capital gain; or

(c) an amount is derived by the company from another company on liquidation of the other company that is excluded from being a dividend as a result of section CD 26(2)(b) and this section; or

(d) an amount is derived by the company that is attributable to a revaluation of livestock in the 1992–93 tax year or a later tax year under section 86D of the Income Tax Act 1976 or section EC 16 (Valuation under herd scheme) or EC 20 (Herd livestock disposed of before values de- termined); or

(e) the amount is described in section CZ 9(1) (Available capital distribution amount: 1965 and 1985–1992).

Capital gain amount: amalgamated company inheriting gain (8) An amalgamated company is treated as deriving a capital gain

amount at the time of the amalgamation equal to a capital gain amount of an amalgamating company to the extent to which— (a) the amalgamating company ends its existence on the

amalgamation; and (b) the amalgamating company’s capital gain amount was

available for distribution at the time and was not dis-

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Part C s CD 44 Income Tax Act 2007 Reprinted as at 1 April 2014

tributed to anyone other than the amalgamated com- pany.

Capital losses amount: when capital losses arise (9) For the purposes of this section, a company incurs a capital loss

if it disposes of capital property for an amount of consideration less than the cost of the property to the company. The capital loss amount is the deficit. Capital losses amount: company existing before 1 April 1988

(10) In the case of a company that existed before 1 April 1988, the capital losses amount cannot be more than the total of — (a) the amount of the capital gains item in the formula

in subsection (1) to the extent derived after 31 March 1988; and

(b) the amount of the capital property distributed item, minus the amount of the cost item, in the formula.

Associated persons transactions (10B) No capital gain amount is derived or capital loss amount

incurred by a company after 31 March 2010 on disposing of property under an arrangement with an associated person. This subsection is overridden by subsection (10C). Close company liquidations

(10C) Subsection (10B) does not apply if— (a) the company is a close company; and (b) the associated person is not a company; and (c) the disposal is on the liquidation of the company. Related person transactions [Repealed]

(11) [Repealed] Close companies liquidations [Repealed]

(12) [Repealed] Reinvested exempt dividends

(13) When a capital gain amount, a capital loss amount, or the cost of capital property is determined, the cost of any shares sub- scribed for by the company in another company does not in- clude any consideration for the subscribed shares that is ex-

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Reprinted as at 1 April 2014 Income Tax Act 2007 Part C s CD 44

cluded from the available subscribed capital of the other com- pany under section CD 43(7)(b) or (8). Amounts written up

(14) When a capital gain amount, a capital loss amount, or the cost of capital property is determined, the cost of the relevant cap- ital property is increased to the extent to which— (a) the value of the property is written up in the company’s

books; and (b) because it was attributed to the write-up,—

(i) an amount paid before 11 June 1965 is treated as described in section CZ 9(2)(a); or

(ii) an issue of a share before 1 April 1988 is treated as described in section CZ 9(2)(b).

Relationship with section CZ 9B (14B) For capital gain amounts derived or capital loss amounts in-

curred between 1 April 1988 and 31 March 2010, see section CZ 9B (Available capital distribution amount: 1988 to 2010). Meaning of related person [Repealed]

(15) [Repealed] Look-through relatives and nominees [Repealed]

(16) [Repealed] Look-through interposed companies [Repealed]

(17) [Repealed] Meaning of capital property

(18) In this section, capital property means property of the com- pany that is not revenue account property. Defined in this Act: amalgamated company, amalgamating company, amalgam- ation, amount, assessable income, available capital distribution amount, avail- able subscribed capital, bonus issue, capital property, close company, company, dividend, income, liquidation, non-taxable bonus issue, ordering rule, pay, rela- tive, resident in New Zealand, revenue account property, share, shareholder, tax year, trustee Compare: 2004 No 35 s CD 33 Section CD 44(7)(b): amended (with effect on 1 April 2008), on 29 August 2011 (applying for the 2008–09 and later income years), by section 4(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).

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Part C s CD 44 Income Tax Act 2007 Reprinted as at 1 April 2014

Section CD 44(10B) heading: inserted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 21(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34). Section CD 44(10B): inserted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 21(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34). Section CD 44(10C) heading: inserted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 21(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34). Section CD 44(10C): inserted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 21(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34). Section CD 44(11) heading: repealed, on 1 April 2010 (applying for the 2010–11 and later income years), pursuant to section 21(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34). Section CD 44(11): repealed, on 1 April 2010 (applying for the 2010–11 and later income years), by section 21(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34). Section CD 44(12) heading: repealed, on 1 April 2010 (applying for the 2010–11 and later income years), pursuant to section 21(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34). Section CD 44(12): repealed, on 1 April 2010 (applying for the 2010–11 and later income years), by section 21(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34). Section CD 44(14B) heading: inserted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 21(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34). Section CD 44(14B): inserted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 21(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34). Section CD 44(15) heading: repealed, on 1 April 2010 (applying for the 2010–11 and later income years), pursuant to section 21(4) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34). Section CD 44(15): repealed, on 1 April 2010 (applying for the 2010–11 and later income years), by section 21(4) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34). Section CD 44(16) heading: repealed, on 1 April 2010 (applying for the 2010–11 and later income years), pursuant to section 21(4) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34). Section CD 44(16): repealed, on 1 April 2010 (applying for the 2010–11 and later income years), by section 21(4) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

250

Reprinted as at 1 April 2014 Income Tax Act 2007 Part C s CD 47

Section CD 44(17) heading: repealed, on 1 April 2010 (applying for the 2010–11 and later income years), pursuant to section 21(4) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34). Section CD 44(17): repealed, on 1 April 2010 (applying for the 2010–11 and later income years), by section 21(4) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34). Section CD 44 list of defined terms assessable income: inserted (with effect on 1 April 2008), on 29 August 2011, by section 4(2) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63). Section CD 44 list of defined terms related person: repealed, on 1 April 2010, by section 594 of the Taxation (International Taxation, Life Insurance, and Re- medial Matters) Act 2009 (2009 No 34).

Attributed repatriation calculation rules [Repealed]

Heading: repealed (with effect on 30 June 2009), on 6 October 2009, by sec- tion 22(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

CD45 When does a person have attributed repatriation from a controlled foreign company? [Repealed] Section CD 45: repealed (with effect on 30 June 2009), on 6 October 2009, by section 22(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

CD46 New Zealand repatriation amount [Repealed] Section CD 46: repealed (with effect on 30 June 2009), on 6 October 2009, by section 22(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

CD47 New Zealand property amount [Repealed] Section CD 47: repealed (with effect on 30 June 2009), on 6 October 2009, by section 22(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

251

Part C s CD 48 Income Tax Act 2007 Reprinted as at 1 April 2014

CD48 Cost of tangible property [Repealed] Section CD 48: repealed (with effect on 30 June 2009), on 6 October 2009, by section 22(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

CD49 Cost of associated party equity [Repealed] Section CD 49: repealed (with effect on 30 June 2009), on 6 October 2009, by section 22(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

CD50 Outstanding balances of financial arrangements [Repealed] Section CD 50: repealed (with effect on 30 June 2009), on 6 October 2009, by section 22(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

CD51 Property transfers between associated persons [Repealed] Section CD 51: repealed (with effect on 30 June 2009), on 6 October 2009, by section 22(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

CD52 Unrepatriated income balance [Repealed] Section CD 52: repealed (with effect on 30 June 2009), on 6 October 2009, by section 22(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Prevention of double taxation CD53 Prevention of double taxation of share cancellation

dividends When this section applies

(1) This section applies when— (a) a person derives an amount from the cancellation of a

share in a company; and (b) the amount is income of the person under 1 of the fol-

lowing provisions (the other rules):

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Reprinted as at 1 April 2014 Income Tax Act 2007 Part C s CD 53

(i) section CB 1 (Amounts derived from business); or

(ii) section CB 3 (Profit-making undertaking or scheme); or

(iii) section CB 4 (Personal property acquired for pur- pose of disposan( � or

(iv) section CB 5 (Business of dealing in personal property); or

(v) any other provision of this Act outside this sub- part.

Treatment of amount (2) For the purposes of the other rules, the amount derived by the

person from the company is treated as if it were reduced, but not below zero, by the amount of any dividend derived by the person in relation to the cancellation, excluding any attached imputation credit or FDP credit. Non-taxable dividends

(3) Subsection (2) does not apply to the extent to which the divi- dend is exempt income of the person under sections CW 9 and CW 10 (which relate to income from equity). Subsection (3)(b): formula [Repealed]

(4) [Repealed] Definition of items in formula [Repealed]

(5) [Repealed] Relationship of dividend exclusions to other provisions

(6) Subject to subsection (2), the amount derived by the person from the company may be income of the person despite the fact that the amount is excluded from being a dividend by any of sections CD 22 to CD 27. Relationship with section FA 3

(7) This section is overridden by section FA 3 (Recharacterisation of certain dividends: recovery of cost of shares held on rev- enue account). Defined in this Act: amount, cancellation, company, dividend, exempt income, imputation credit, income, income tax, share, tax year Compare: 2004 No 35 s CD 42

253

Part C s CD 54 Income Tax Act 2007 Reprinted as at 1 April 2014

Section CD 53(3) heading: substituted (with effect on 30 June 2009), on 6 Oc- tober 2009, by section 23(1) of the Taxation (International Taxation, Life Insur- ance, and Remedial Matters) Act 2009 (2009 No 34). Section CD 53(3): substituted (with effect on 30 June 2009), on 6 October 2009, by section 23(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34). Section CD 53(3): amended (with effect on 1 July 2011 and applying for in- come years beginning on or after that date), on 7 May 2012, by section 6(1) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34). Section CD 53(4) heading: repealed (with effect on 30 June 2009), on 6 October 2009, pursuant to section 23(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34). Section CD 53(4): repealed (with effect on 30 June 2009), on 6 October 2009, by section 23(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34). Section CD 53(5) heading: repealed (with effect on 30 June 2009), on 6 October 2009, pursuant to section 23(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34). Section CD 53(5): repealed (with effect on 30 June 2009), on 6 October 2009, by section 23(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34). Section CD 53(5)(b): amended, on 1 April 2008, by section 562 of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109). Section CD 53(5)(b): amended, on 1 April 2008, by section 318 of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109). Section CD 53 list of defined termsFDP: repealed (with effect on 30 June 2009), on 6October 2009, by section 23(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34). Section CD 53 list of defined termsFDP credit: repealed (with effect on 30 June 2009), on 6 October 2009, by section 23(3) of the Taxation (International Tax- ation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Returning share transfers CD54 Replacement payments

The amount of a replacement payment derived by a person under a returning share transfer is income of the person when it is paid to the person. Defined in this Act: income, pay, replacement payment, returning share transfer Compare: 2004 No 35 s CD 43

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Reprinted as at 1 April 2014 Income Tax Act 2007 Part C s CE 1

Subpart CE—Employee or contractor income

Contents Page

Employment income CE 1 Amounts derived in connection with employment 255 CE 2 Value and timing of benefits under share purchase

agreements 257

CE 3 Restrictions on disposal of shares under share purchase agreements

259

CE 4 Adjustments to value of benefits under share purchase agreements

260

Definitions CE 5 Meaning of expenditure on account of an employee 260 CE 6 Meaning of share: when share acquired 262 CE 7 Meaning of share purchase agreement 262

Attributed income CE 8 Attributed income from personal services 263

Restrictive covenants and exit inducement payments CE 9 Restrictive covenants 263 CE 10 Exit inducements 265

Income protection insurance CE 11 Proceeds from claims under policies of income protection

insurance 265

Tax credits CE 12 Tax credits for personal service rehabilitation payments 265

Employment income CE 1 Amounts derived in connection with employment

Income (1) The following amounts derived by a person in connection with

their employment or service are income of the person: (a) salary or wages or an allowance, bonus, extra pay, or

gratuity:

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Part C s CE 1 Income Tax Act 2007 Reprinted as at 1 April 2014

(b) expenditure on account of an employee that is expend- iture on account of the person:

(c) [Repealed] (d) a benefit received under a share purchase agreement: (e) directors’ fees: (f) compensation for loss of employment or service: (g) any other benefit in money. Benefit of accommodation

(1B) The market value of the following benefits provided to a per- son is income of the person if the benefit is provided in relation to an office or position held by them: (a) the provision of accommodation: (b) the provision of an accommodation allowance instead

of accommodation. Meaning of accommodation

(2) For the purposes of this section and section CX 28 (Accom- modation), accommodation means board or lodging, or the use of a house or living premises, or the use of part of a house or living premises. Defined in this Act: accommodation, amount, expenditure on account of an employee, extra pay, income, salary or wages, share purchase agreement Compare: 2004 No 35 s CE 1 Section CE 1(1) heading: inserted (with effect on 1 April 2008), on 6 October 2009, by section 24(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34). Section CE 1(1)(c): repealed (with effect on 1 April 2008), on 21 December 2010 (applying for the 2008–09 and later income years), by section 30(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130). Section CE 1(1B) heading: inserted (with effect on 1 April 2008), on 21Decem- ber 2010 (applying for the 2008–09 and later income years), by section 30(2) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130). Section CE 1(1B): inserted (with effect on 1 April 2008), on 21 December 2010 (applying for the 2008–09 and later income years), by section 30(2) of the Tax- ation (GST and Remedial Matters) Act 2010 (2010 No 130). Section CE 1(2) heading: added (with effect on 1 April 2008), on 6 October 2009, by section 24(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34). Section CE 1(2): added (with effect on 1 April 2008), on 6 October 2009, by section 24(3) of the Taxation (International Taxation, Life Insurance, and Re- medial Matters) Act 2009 (2009 No 34).

256

Reprinted as at 1 April 2014 Income Tax Act 2007 Part C s CE 2

Section CE 1 list of defined terms accommodation: inserted (with effect on 1April 2008), on 6October 2009, by section 24(4) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

CE 2 Value and timing of benefits under share purchase agreements What this section does

(1) This section determines the value of a benefit that an employee receives under a share purchase agreement and the allocation of the benefit to a particular income year. If restrictions apply to the disposal of shares received under a share purchase agree- ment, section CE 3 applies. If employees acquire shares

(2) If an employee acquires shares under a share purchase agree- ment, the value of the benefit to the employee is the amount by which the value of the shares when they were acquired is more than the amount paid or payable for them. The employee receives the benefit in the income year in which they acquire the shares. If employees dispose of rights to non-associates

(3) If an employee disposes of their rights under a share purchase agreement to a person who is not associated with them, the value of the benefit is the consideration for the disposal of the rights. The employee receives the benefit in the income year in which they dispose of the rights. If associates acquire shares

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

(5) If, following 1 or more transactions between associated per- sons, a person who is not an associated person acquires the rights under a share purchase agreement, the value of the bene-

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Part C s CE 2 Income Tax Act 2007 Reprinted as at 1 April 2014

fit is the consideration paid for that disposal. The employee receives the benefit in the income year in which the last asso- ciated person disposes of the rights. If shares transferred when employees end employment or die

(6) The value of the benefit is zero if a share purchase agreement provides unconditionally that, when the employee ends their employment or service or dies, the shares must be transferred to the employer or to the person from whom they were ac- quired, either without consideration or for a consideration no more than that paid by the employee. If benefits arise under approved schemes

(7) The value of the benefit is zero if the benefit arises under a share purchase scheme. Disposal of rights under share purchase option

(8) For the purposes of subsection (3), a disposal of rights under a share purchase agreement includes the cancellation of a share option in return for a cash payment. Reduction of value of benefit in circumstances relating to non-resident

(9) The value of a benefit arising from a period of employment is reduced, from the value that the benefit would have in the absence of this subsection,— (a) if, when the employee acquires the shares under the

share purchase agreement or disposes of the rights under the share purchase agreement, the employee is a transitional resident; and

(b) by an amount calculated using the formula— period employed as non-resident

value before reduction × period employed.

Defined in this Act: amount, associated person, employee, employer, income year, non-resident, pay, share, share purchase agreement, share purchase scheme, transitional resident Compare: 2004 No 35 s CE 2

258

Reprinted as at 1 April 2014 Income Tax Act 2007 Part C s CE 3

CE 3 Restrictions on disposal of shares under share purchase agreements Effect of restrictions

(1) When the benefit to an employee under a share purchase agree- ment is being valued, a restriction in the agreement on the dis- posal of the shares is taken into account only if the restriction is of a kind described in subsection (2) or (3). First restriction

(2) The first restriction is one that applies for a period that ends— (a) at least 8 years after the end of the tax year in which the

employee receives the benefit; or (b) with the date of the employee’s death. Second restriction

(3) The second restriction is one that— (a) applies for a period that ends—

(i) at least 8 years after the end of the tax year in which the employee receives the benefit; or

(ii) with the date of the employee’s death; and (b) provides that an employee who ends their employment

or service before the end of the period must uncondi- tionally transfer some or all of the shares to the em- ployer or to the person from whom the employee ac- quired them, either without consideration or for a con- sideration that is no more than that paid by the em- ployee.

Transfers of shares under relationship agreements (4) If a share purchase agreement does not restrict an employee

from transferring the shares under a relationship agreement, but the disposal of the shares by the person to whom the shares are transferred is restricted for a period that ends at least 8 years after the end of the tax year in which the employee would otherwise have received the benefit or after the death of the employee, then the restriction is treated as applying to the em- ployee. Defined in this Act: employee, employer, pay, relationship agreement, share, share purchase agreement, tax year, year Compare: 2004 No 35 s CE 3

259

Part C s CE 4 Income Tax Act 2007 Reprinted as at 1 April 2014

CE 4 Adjustments to value of benefits under share purchase agreements The Commissioner may at any time adjust the previously de- termined value of a benefit under a share purchase agreement if the value is reduced because— (a) a restriction on disposal exists when the employee dis-

poses of the shares that was not taken into account in valuing the benefit; or

(b) further consideration is required for the shares; or (c) the shares are reacquired either without consideration

or for a consideration no more than that paid by the employee.

Defined in this Act: Commissioner, employee, pay, share, share purchase agree- ment Compare: 2004 No 35 s CE 4

Definitions CE 5 Meaning of expenditure on account of an employee

Meaning (1) Expenditure on account of an employee means a payment

made by an employer relating to expenditure incurred by an employee or to be incurred by an employee. Inclusion

(2) Expenditure on account of an employee includes a premium that an employer pays on a life insurance policy taken out for the benefit of the employee, or their spouse, civil union partner, de facto partner, or their child. This subsection is overridden by subsection (3)(f) to (i). Exclusions

(3) Expenditure on account of an employee does not include— (a) expenditure for the benefit of an employee, or a payment

made to reimburse an employee, under section CW 17 (Expenditure on account, and reimbursement, of em- ployees):

(b) an allowance for additional transport costs under sec- tion CW 18 (Allowance for additional transport costs):

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Reprinted as at 1 April 2014 Income Tax Act 2007 Part C s CE 5

(bb) an amount paid under section CW 17B (Relocation payments) or section CW 17C (Payments for overtime meals and certain other allowances):

(c) expenses that an employee pays in connection with their employment or service to the extent to which the ex- penditure is their employer’s liability, if the employee undertakes to discharge the liability in consideration of the making of the payment by the employer:

(d) expenditure on an employment-related loan to which the fringe benefit tax (FBT) rules apply:

(e) an employer’s superannuation contribution: (f) a premium that an employer pays on a life insurance

policy taken out for the benefit of the employee, or their spouse, civil union partner, de facto partner, or their child, if— (i) the premium cannot be refunded to, or converted

to cash by, the employee or an associated person; and

(ii) the only benefits that are payable under the policy are those payable on the death of the employee, or their spouse, civil union partner, de facto part- ner, or their child, or those payable because of accident, disease, or sickness of the employee, or their spouse, civil union partner, de facto partner, or their child:

(g) a premium that an employer that is a close company pays on a life insurance policy taken out for the benefit of the employee, or their spouse, civil union partner, de facto partner, or their child, to the extent to which the expenditure is treated as a dividend under subpart CD (Income from equity):

(h) a premium that an employer pays on a life insurance policy taken out for the benefit of the employee, or their spouse, civil union partner, de facto partner, or their child, if the policy is, or is included in, a superannu- ation category 1 scheme, a superannuation category 2 scheme, or a superannuation category 3 scheme:

(i) a premium that an employer pays on a life insurance policy taken out for the benefit of the employee, or their

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Part C s CE 6 Income Tax Act 2007 Reprinted as at 1 April 2014

spouse, civil union partner, de facto partner, or their child, if the policy is held by or for the trustees of a superannuation category 3 scheme:

(j) a premium for income protection insurance that an em- ployer is liable to pay or make a contribution towards for the benefit of an employee.

Defined in this Act: additional transport costs, associated person, close company, contribution, dividend, employee, employer, employer’s superannu- ation contribution, employment-related loan, expenditure on account of an employee, FBT rules, life insurance policy, pay, premium, superannuation cat- egory 1 scheme, superannuation category 2 scheme, superannuation category 3 scheme, trustee Compare: 2004 No 35 s CE 5 Section CE 5(1): replaced (with effect on 1 April 2008), on 2 November 2012 (applying for the 2008–09 and later income years), by section 11(1) of the Tax- ation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88). Section CE 5(3)(bb): inserted (with effect on 1 April 2008), on 6 October 2009, by section 25 of the Taxation (International Taxation, Life Insurance, and Re- medial Matters) Act 2009 (2009 No 34).

CE 6 Meaning of share: when share acquired Meaning

(1) In sections CE 2 to CE 4and CE 7, share includes a convertible note. Use in sections CE 2 to CE 4 and CE 7

(2) For the purposes of sections CE 2 to CE 4and CE 7,— (a) shares are treated as having been acquired on the date

on which the right or option to buy them is exercised; and

(b) if shares or rights are acquired or transferred under an agreement by a trustee for the benefit of an employee to whom section CE 2 applies, the employee is treated as having acquired or transferred the shares or rights.

Defined in this Act: convertible note, employee, share, trustee Compare: 2004 No 35 s CE 6

CE 7 Meaning of share purchase agreement In sections CE 1 to CE 4, share purchase agreement means an agreement to sell or issue shares in a company to an em- ployee that is entered into in connection with the employee’s

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Reprinted as at 1 April 2014 Income Tax Act 2007 Part C s CE 9

employment or service, whether or not an employment rela- tionship exists when the employee receives a benefit under the agreement. Defined in this Act: company, employee, share, share purchase agreement Compare: 2004 No 35 s CE 7

Attributed income CE 8 Attributed income from personal services

When this section applies (1) This section applies when, under sections GB 27 to GB 29

(which relate to the attribution rule), a person is required to attribute an amount to another person. Income