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Income Tax Act 2007

Timing and quantifying rules - Spreading of specific income

EI 7: Leases: income derived in anticipation

You could also call this:

“Spreading advance income from lease-related payments over multiple years”

If you earn money in advance from things like fines, premiums, or payments for goodwill when granting a lease, you can choose to spread this income over six years. You can split the money into six equal parts and count one part in the year you get the money, and one part in each of the next five years.

If you want to do this, you need to tell the tax office (the Commissioner) about your choice. You must do this in the tax year after the year you got the money. The Commissioner can cancel this arrangement at any time. If they do, all the money that hasn’t been counted yet will be added to your income for the year before the cancellation.

If you earned this kind of money before the 2015-16 tax year and haven’t finished spreading it out, there are special rules. If it’s been more than five years since you got the money, you need to count all the leftover amount in the 2015-16 year. If it’s been less than five years, you need to split the leftover amount equally between the remaining years, starting from the 2015-16 year.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM1515077.

Topics:
Money and consumer rights > Taxes
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Part E Timing and quantifying rules
Spreading of specific income

EI 7Leases: income derived in anticipation

  1. This section applies when a person derives, in a tax year, income in anticipation from fines, premiums, a payment of goodwill on the grant of a lease, or in another similar way.

  2. The person may choose to—

  3. divide the income into 6 equal portions; and
    1. allocate a portion to the income year in which they derive the amount; and
      1. similarly allocate a portion to each of the next 5 income years.

        1. The following provisions apply to an allocation for the purposes of subsection (2):

        2. the person must notify the Commissioner of their election:
          1. the person must give the notice in the tax year following the tax year to which the income year of derivation corresponds:
            1. the Commissioner may cancel the allocation at any time.

              1. If the Commissioner cancels the allocation, the income allocated to the income year in which the cancellation occurs and to future income years is allocated to the income year before the income year in which the cancellation occurs.

              2. Despite subsection (2), when a person has derived an amount of income to which this section applies before the 2015–16 income year, and all or part of that amount remains unallocated at the start of that income year, the person must—

              3. if the period of 5 income years after the income year of derivation has expired by the start of the 2015–16 income year, allocate the remaining amount to the 2015–16 income year; or
                1. if the period of 5 income years after the income year of derivation has not expired before the start of the 2015–16 income year, divide the remaining amount into equal portions based on the number of income years left in the period, and allocate a portion to each of those income years falling after the end of the 2014–15 income year.

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                  Notes
                  • Section EI 7(2): replaced, on (applying for the 2015–16 and later income years), by section 71(1) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
                  • Section EI 7(3)(a): amended, on (applying for the 2015–16 and later income years), by section 71(2) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
                  • Section EI 7(5) heading: inserted, on (applying for the 2015–16 and later income years), by section 71(3) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
                  • Section EI 7(5): inserted, on (applying for the 2015–16 and later income years), by section 71(3) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
                  • Section EI 7 list of defined terms amount: inserted, on (applying for the 2015–16 and later income years), by section 71(4) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).