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New Zealand law explained for everyone

Income Tax Act 2007

Timing and quantifying rules - Valuation of excepted financial arrangements

ED 2: Transfers of certain excepted financial arrangements within wholly-owned groups

You could also call this:

“Rules for transferring certain financial items between related companies”

This law is about what happens when one company gives a special type of financial item to another company that it owns. Here’s what you need to know:

The law applies when a company (let’s call it Company A) gives a financial item to another company it owns (Company B). This financial item is something Company A planned to sell to make money. For this law to work, a few things need to be true:

The two companies must be part of the same group that one company completely owns. They can’t be giving each other the financial item as part of a deal to lend shares. Both companies need to be based in New Zealand when Company A gives the item to Company B. Also, the item must be worth less money now than when Company A first got it.

If all these things are true, then the law says we should treat the financial item as if Company B paid the same amount for it that Company A did when they first got it.

If Company B ever stops being part of the group of companies, we pretend that they sold the financial item and then bought it back at whatever price it’s worth at that time.

Lastly, when Company A gives this financial item to Company B, it doesn’t count as giving them money or profits (which is called a dividend).

This text is automatically generated. It might be out of date or be missing some parts. Find out more about how we do this.

View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM1514485.

Topics:
Money and consumer rights > Taxes
Business > Industry rules
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Part E Timing and quantifying rules
Valuation of excepted financial arrangements

ED 2Transfers of certain excepted financial arrangements within wholly-owned groups

  1. This section applies when—

  2. a company that is part of a wholly-owned group of companies (company A) transfers to another company in the same group (company B) an excepted financial arrangement that is revenue account property of company A; and
    1. the transfer of the excepted financial arrangement is not made under a share-lending arrangement; and
      1. both companies are resident in New Zealand on the date of the transfer; and
        1. the market value of the excepted financial arrangement on the date of the transfer is less than its cost to company A.

          1. The consideration for the transfer is treated as being equal to the cost of the excepted financial arrangement to company A.

          2. If company B stops being part of the wholly-owned group, the company is treated as disposing of and reacquiring the excepted financial arrangement at its market value at the time the company stops being part of the group.

          3. A transfer of an excepted financial arrangement to which this section applies does not give rise to a dividend.

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