Plain language law

New Zealand law explained for everyone

Income Tax Act 2007

Timing and quantifying rules - Financial arrangements rules

EW 29: When calculation of base price adjustment required

You could also call this:

“When you need to work out the base price for a financial arrangement”

You need to calculate a base price adjustment for a financial arrangement in several situations:

If you stop being a New Zealand resident, you must calculate it on the day you leave. However, there are some exceptions to this rule.

If you’re not a New Zealand resident but you’re part of a financial arrangement for a business you run through a fixed place in New Zealand, you need to calculate it when you stop being part of that arrangement.

You must calculate it when the arrangement ends.

If an arrangement hasn’t ended because a small amount hasn’t been paid, and it looks like it was set up to avoid certain rules, it’s treated as if it has ended.

You need to calculate it if you sell the arrangement, give away all your rights under it, or cancel all your responsibilities under it.

If you owe money and the person you owe it to sells the debt to someone connected to you at a lower price, you need to calculate it.

You also need to calculate it if you’re let off from making all the remaining payments without a good reason, or if you’re released from payments because of insolvency or an agreement with people you owe money to.

If all the remaining payments become impossible to collect or enforce because too much time has passed, you need to calculate it.

If you change how you value the arrangement in certain ways, you need to calculate it in the first year you use the new method.

If you’re part of a financial arrangement as an owner or partner of a look-through company or partnership, and also in another way, you need to calculate it when the arrangement is sold in certain situations.

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 It might be out of date or be missing some parts.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=DLM1515300.

Topics:
Money and consumer rights > Taxes
Business > Industry rules
Previous

EW 28: How base price adjustment calculated, or

“Calculating the base price adjustment for financial arrangements”

Next

EW 30: When calculation of base price adjustment not required, or

“When you don't need to calculate base price adjustments for financial arrangements”

Part E Timing and quantifying rules
Financial arrangements rules

EW 29When calculation of base price adjustment required

  1. A party to a financial arrangement who ceases to be a New Zealand resident must calculate a base price adjustment as at the date of the party’s ceasing to be a New Zealand resident. This subsection is overridden by section EW 30(1) and (2).

  2. A person who is not a New Zealand resident and who is a party to a financial arrangement for the purpose of a business the party carries on through a fixed establishment in New Zealand must calculate a base price adjustment as at the date of the party’s ceasing to be a party to the arrangement for that purpose.

  3. A party to a financial arrangement must calculate a base price adjustment as at the date on which the arrangement matures.

  4. A financial arrangement that has not matured because an amount has not been paid is treated as if it had matured if—

  5. the amount not paid is immaterial; and
    1. the arrangement has been structured to avoid the application of section EW 31.

      1. A party to a financial arrangement who disposes of the arrangement must calculate a base price adjustment as at the date of the disposal.

      2. A party to a financial arrangement who makes an absolute assignment of all the party’s rights under the arrangement must calculate a base price adjustment as at the date of the absolute assignment.

      3. A party to a financial arrangement who makes a legal defeasance of all the party’s obligations under the arrangement must calculate a base price adjustment as at the date of the legal defeasance.

      4. A party to a financial arrangement that is a debt must calculate a base price adjustment as at the date on which the creditor disposes of the debt to a person associated with the debtor and at a discount in the circumstances described in section EW 43.

      5. A party to a financial arrangement must calculate a base price adjustment as at the date on which a party to the arrangement is discharged from making all remaining payments under the arrangement without fully adequate consideration.

      6. A party to a financial arrangement must calculate a base price adjustment as at the date on which a party to the arrangement is released from making all remaining payments under the arrangement under the Insolvency Act 2006 or the Companies Act 1993 or the laws of a country or territory other than New Zealand.

      7. A party to a financial arrangement must calculate a base price adjustment as at the date on which a party to the arrangement is released from making all remaining payments under the arrangement by a deed or agreement of composition with the party’s creditors.

      8. A party to a financial arrangement must calculate a base price adjustment as at the date on which all remaining payments under the arrangement become irrecoverable or unenforceable through the lapse of time.

      9. A party to a financial arrangement must calculate a base price adjustment, for the first income year for which a changed method is used for the financial arrangement, where the change in method is—

      10. from the fair value method and the financial arrangement is not subject to a creditor workout:
        1. from the market value method to a method for IFRS under section EW 15B.

          1. A person that is party to a financial arrangement in their capacity as owner or partner of a look-through company or a partnership must calculate a base price adjustment as at the date of disposal of the financial arrangement under section HB 4(3) or (6) or HG 4 (which relate to cessation of LTCs and dissolution of partnerships) if they are also a party in a capacity other than as owner or partner (private capacity). They calculate the base price adjustment under this subsection in their private capacity.

          Compare
          Notes
          • Section EW 29(8) heading: amended (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on , by section 242(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
          • Section EW 29(8): amended (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on , by section 242(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
          • Section EW 29(13) heading: added, on , by section 378(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
          • Section EW 29(13): amended (with effect on 1 April 2008), on , by section 33 of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
          • Section EW 29(13): substituted (with effect on 1 April 2008), on , by section 146(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
          • Section EW 29(14) heading: inserted, on (with effect on 1 April 2011 and applying for income years beginning on or after that date), by section 79(1) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
          • Section EW 29(14): inserted, on (with effect on 1 April 2011 and applying for income years beginning on or after that date), by section 79(1) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
          • Section EW 29 list of defined terms creditor workout: inserted (with effect on 1 April 2008), on , by section 146(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
          • Section EW 29 list of defined terms fair value method: inserted, on , by section 378(2) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
          • Section EW 29 list of defined terms look-through company: inserted, on (with effect on 1 April 2011), by section 79(2) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
          • Section EW 29 list of defined terms partner: inserted, on (with effect on 1 April 2011), by section 79(2) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
          • Section EW 29 list of defined terms partnership: inserted, on (with effect on 1 April 2011), by section 79(2) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).