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New Zealand law explained for everyone

Income Tax Act 2007

Income - Recoveries

CG 2: Remitted amounts

You could also call this:

“Explaining how forgiven debts become taxable income”

This section talks about what happens when you don’t have to pay back money that you owed. It applies when you were allowed to reduce your taxes because of money you owed, but later you didn’t have to pay all or some of that money back.

If this happens to you, the money you don’t have to pay back becomes income. You need to count it as income in the year when you found out you didn’t have to pay it back.

There are different ways this can happen. It could be that someone lets you off the debt, or you’re released from paying it because of bankruptcy laws. It could also happen if a company is shut down, or if you make a deal with the people you owe money to. Sometimes, it can even happen if too much time passes and the debt becomes too old to collect.

There are some other rules in sections CG 2C to CG 2E that might change how this works, so you need to check those too.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM1512832.

Topics:
Money and consumer rights > Taxes
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Part C Income
Recoveries

CG 2Remitted amounts

  1. This section applies when—

  2. a person is allowed a deduction in an income year of an amount that the person is liable to pay; and
    1. the person’s liability for the amount is later remitted or cancelled, wholly or partly; and
      1. the remission or cancellation is not a dividend; and
        1. the person is not required to calculate a base price adjustment by section EW 29 (When calculation of base price adjustment required).

          1. The amount to which the remission or cancellation applies is income of the person.

          2. The income is allocated to the income year in which the remission or cancellation occurs.

          3. Remission or cancellation occurs, for the purposes of this section, in 1 of the following ways:

          4. a liability is remitted to the extent to which the person is discharged from it without fully adequate consideration in money or money’s worth:
            1. a liability is cancelled to the extent to which the person is released from it under the Insolvency Act 2006, except by—
              1. being discharged from bankruptcy:
                1. being released under Part 5, other than subpart 1, of the Insolvency Act 2006 from liability for each debt that is a provable debt under that Act and is not a debt of a type for which the person’s liability is specifically preserved by that Act:
                2. a liability is cancelled to the extent to which the person is released from it under the Companies Act 1993 or the laws of a country or territory other than New Zealand:
                  1. a liability is cancelled to the extent to which the person is released from it by a deed or agreement of composition with the person’s creditors:
                    1. a liability is cancelled to the extent to which it is irrecoverable or unenforceable through lapse of time.

                      1. Sections CG 2C to CG 2E override this section.

                      Compare
                      Notes
                      • Section CG 2(4)(ab): inserted, on , by section 26(1) (and see section 26(4)) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
                      • Section CG 2(4)(b): amended, on , by section 26(2) (and see section 26(4)) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
                      • Section CG 2(5) heading: replaced, on ), by section 26(3) (and see section 26(4)) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
                      • Section CG 2(5): replaced, on , by section 26(3) (and see section 26(4)) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).