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Income Tax Act 2007

Timing and quantifying rules - Financial arrangements rules

EW 5: What is an excepted financial arrangement?

You could also call this:

“Certain financial arrangements treated differently for tax purposes”

An excepted financial arrangement is a type of financial arrangement that is treated differently for tax purposes. Here are the main points about excepted financial arrangements:

You should know that:

  • Certain types of arrangements are considered excepted financial arrangements, such as some annuities, bets, cryptocurrencies, employment contracts, insurance contracts, leases, loans, and shares.

  • Some arrangements can stop being excepted financial arrangements in certain situations, like if a party makes an election under section EW 8.

  • There are specific rules for things like agreements to buy and sell property or services, options, and variable principal debt instruments to be considered excepted financial arrangements.

  • The value and purpose of the arrangement can affect whether it’s considered excepted. For example, some arrangements are only excepted if used for private or domestic purposes or if their total value is below a certain amount.

  • Some types of excepted financial arrangements have additional conditions, like needing to be settled within 365 days.

These rules help determine how different financial arrangements are treated for tax purposes. If you’re unsure about a specific arrangement, it’s best to check with a tax professional.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM1515242.

Topics:
Money and consumer rights > Taxes
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EW 4: What is not a financial arrangement?, or

“Items not considered financial arrangements include giving away rights and being released from obligations”

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EW 6: Relationship between financial arrangements and excepted financial arrangements, or

“How special financial agreements fit within larger financial arrangements”

Part E Timing and quantifying rules
Financial arrangements rules

EW 5What is an excepted financial arrangement?

  1. Excepted financial arrangement means an arrangement described in any of subsections (2) to (25). However,—

  2. an arrangement described in any of subsections (18) to (20) may cease to be an excepted financial arrangement through the operation of section EW 7:
    1. an arrangement described in any of subsections (21) to (25) may cease to be an excepted financial arrangement for a party who makes an election under section EW 8.

      1. Each of the following is an excepted financial arrangement to the extent to which it is not life financial reinsurance:

      2. an annuity for a term contingent on human life:
        1. an annuity for a term not contingent on human life to which section EY 8(2)(c) (Meaning of life insurance) applies.

          1. A bet on any of the following is an excepted financial arrangement:

          2. a race, as defined in section 5(1) of the Racing Industry Act 2020:
            1. a sporting event under a sports betting system administered under Part 4 of the Racing Industry Act 2020:
              1. gambling, including a New Zealand lottery, as those terms are defined in section 4(1) of the Gambling Act 2003.

                1. A cryptocurrency is an excepted financial arrangement if the cryptocurrency does not meet the requirements of subsection (3BAB).

                2. A cryptocurrency is not an excepted financial arrangement if a consequence of ownership of the cryptocurrency is that the owner receives or is entitled to receive, during the period of ownership, amounts that are determined—

                3. by reference to the quantity or value of the cryptocurrency; and
                  1. on a basis that is known by the owner in advance; and
                    1. not by reference to the profits of a business activity.

                      1. An emissions unit is an excepted financial arrangement.

                      2. A greenhouse gas unit that is not an emissions unit is an excepted financial arrangement.

                      3. An agreement between a person and another person (the provider) that the provider will provide property or services to the person in consideration for a payment to the provider by a public authority under a research and development growth grant for the benefit of the person is an excepted financial arrangement for the person.

                      4. An employment contract is an excepted financial arrangement.

                      5. A farm-out arrangement is an excepted financial arrangement.

                      6. An interest in a group investment fund is an excepted financial arrangement.

                      7. A hire purchase agreement for livestock or bloodstock is an excepted financial arrangement.

                      8. An insurance contract to the extent to which it is not life financial reinsurance is an excepted financial arrangement.

                      9. A lease that is not a finance lease is an excepted financial arrangement.

                      10. A loan to which all the following apply is an excepted financial arrangement for the lender:

                      11. the loan is in New Zealand currency; and
                        1. the loan is interest-free; and
                          1. the loan is repayable on demand.

                            1. An interest in a partnership or a joint venture is an excepted financial arrangement.

                            2. A look-through interest for a look-through company is an excepted financial arrangement.

                            3. An arrangement for the assignment of a pre-1990 forest land emissions unit by the holder to a person who is not an associated person (the lender) and for the later assignment of the same or another New Zealand emissions unit by the lender to the holder, as part of a financial arrangement that is a loan to the holder by the lender, is an excepted financial arrangement that is subject to section EW 52B.

                            4. A share-lending arrangement is an excepted financial arrangement.

                            5. A share, or an option to acquire or to dispose of shares, is an excepted financial arrangement, if the share is acquired, or the person becomes a party to the option, on or after 20 May 1999. This subsection does not apply to a withdrawable share or to an option to acquire or to dispose of withdrawable shares.

                            6. An option to acquire or to dispose of cryptocurrency is an excepted financial arrangement.

                            7. A specified preference share to which section FZ 1 (Deduction for dividends paid on certain preference shares) of the Income Tax Act 2004 applies is an excepted financial arrangement.

                            8. A membership of a superannuation scheme is an excepted financial arrangement.

                            9. A warranty for goods or services is an excepted financial arrangement.

                            10. An arrangement to which a transitional resident is a party is an excepted financial arrangement for the transitional resident if—

                            11. no other party to the arrangement is a New Zealand resident; and
                              1. the arrangement is not for a purpose of a business carried on in New Zealand by a party to the arrangement.

                                1. A loan to which all the following apply is an excepted financial arrangement for the borrower:

                                2. the loan is in foreign currency; and
                                  1. the borrower is a cash basis person; and
                                    1. the borrower uses the loan for a private or a domestic purpose.

                                      1. An option to acquire or dispose of property, other than an interest in a financial arrangement, is an excepted financial arrangement for a person who becomes a party to the option for a private or a domestic purpose.

                                      2. An agreement for the sale and purchase of property or services entered into by a person, or a specified option granted to or by a person, is an excepted financial arrangement for the person if,—

                                      3. first,—
                                        1. the agreement is entered into by the person for a private or a domestic purpose; or
                                          1. the option is granted to or by the person for a private or a domestic purpose; and
                                          2. second, the subject matter of the agreement or option is—
                                            1. real property whose purchase price is less than $1,000,000; or
                                              1. any other property whose purchase price is less than $400,000; or
                                                1. services whose purchase price is less than $400,000; and
                                                2. third,—
                                                  1. the agreement requires settlement of the property, or performance of the services, to take place on or before the 365th day after the date on which the agreement is entered into; or
                                                    1. the option requires settlement of the property, or performance of the services, if an agreement is entered into as a result of the exercise of the option, to take place on or before the 365th day after the date on which the option is granted.

                                                    2. An agreement for the sale and purchase of property or services is an excepted financial arrangement, except for a party who makes an election under section EW 8, if—

                                                    3. all a party’s sales or purchases under the agreement are prepaid; and
                                                      1. for all the party’s agreements under which all sales and purchases are prepaid, the total value of prepayments, on every day in an income year, is $50,000 or less.

                                                        1. A short-term agreement for sale and purchase is an excepted financial arrangement, except for a party who makes an election under section EW 8.

                                                        2. A short-term option is an excepted financial arrangement, except for a party who makes an election under section EW 8.

                                                        3. Travellers’ cheques are excepted financial arrangements, except for a party who makes an election under section EW 8.

                                                        4. A variable principal debt instrument is an excepted financial arrangement, except for a party who makes an election under section EW 8, if the total value on every day in an income year of all variable principal debt instruments to which a person is a party is $50,000 or less.

                                                        Compare
                                                        Notes
                                                        • Section EW 5(2): amended, on , by section 132(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
                                                        • Section EW 5(3)(a): amended, on , by section 129 of the Racing Industry Act 2020 (2020 No 28).
                                                        • Section EW 5(3)(b): amended, on , by section 129 of the Racing Industry Act 2020 (2020 No 28).
                                                        • Section EW 5(3BA) heading: inserted (with effect on 1 January 2009), on , by section 96(1) of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
                                                        • Section EW 5(3BA): inserted (with effect on 1 January 2009), on , by section 96(1) of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
                                                        • Section EW 5(3BAB) heading: inserted (with effect on 1 January 2009), on , by section 96(1) of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
                                                        • Section EW 5(3BAB): inserted (with effect on 1 January 2009), on , by section 96(1) of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
                                                        • Section EW 5(3B) heading: substituted (with effect on 1 January 2009), on , by section 132(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
                                                        • Section EW 5(3B): substituted (with effect on 1 January 2009), on , by section 132(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
                                                        • Section EW 5(3C) heading: replaced, on , by section 280 of the Climate Change Response (Emissions Trading Reform) Amendment Act 2020 (2020 No 22).
                                                        • Section EW 5(3C): replaced, on , by section 280 of the Climate Change Response (Emissions Trading Reform) Amendment Act 2020 (2020 No 22).
                                                        • Section EW 5(3D) heading: inserted (with effect on 1 October 2010), on , by section 56(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
                                                        • Section EW 5(3D): inserted (with effect on 1 October 2010), on , by section 56(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
                                                        • Section EW 5(3D): amended, on , by section 70 of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
                                                        • Section EW 5(8): amended, on , by section 132(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
                                                        • Section EW 5(11B) heading: inserted, on (applying for income years beginning on or after 1 April 2011), by section 56(2) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
                                                        • Section EW 5(11B): inserted, on (applying for income years beginning on or after 1 April 2011), by section 56(2) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
                                                        • Section EW 5(11C) heading: inserted (with effect on 1 April 2018), on , by section 63(1) (and see section 63(2) for application) of the Taxation (Annual Rates for 2019–20, GST Offshore Supplier Registration, and Remedial Matters) Act 2019 (2019 No 33).
                                                        • Section EW 5(11C): inserted (with effect on 1 April 2018), on , by section 63(1) (and see section 63(2) for application) of the Taxation (Annual Rates for 2019–20, GST Offshore Supplier Registration, and Remedial Matters) Act 2019 (2019 No 33).
                                                        • Section EW 5(13B) heading: inserted (with effect on 1 January 2009), on , by section 96(2) of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
                                                        • Section EW 5(13B): inserted (with effect on 1 January 2009), on , by section 96(2) of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
                                                        • Section EW 5 list of defined terms emissions unit: inserted (with effect on 1 January 2009), on , by section 132(4)(b) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
                                                        • Section EW 5 list of defined terms ETS unit: repealed (with effect on 1 January 2009), on , by section 132(4)(a) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
                                                        • Section EW 5 list of defined terms greenhouse gas unit: inserted, on , by section 280 of the Climate Change Response (Emissions Trading Reform) Amendment Act 2020 (2020 No 22).
                                                        • Section EW 5 list of defined terms life financial reinsurance: inserted, on , by section 132(5) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
                                                        • Section EW 5 list of defined terms look-through company: inserted, on , by section 56(4) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
                                                        • Section EW 5 list of defined terms look-through interest: inserted, on , by section 56(4) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
                                                        • Section EW 5 list of defined terms non-Kyoto greenhouse gas unit: repealed, on , by section 280 of the Climate Change Response (Emissions Trading Reform) Amendment Act 2020 (2020 No 22).
                                                        • Section EW 5 list of defined terms public authority: inserted (with effect on 1 October 2010), on , by section 56(3) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).