Plain language law

New Zealand law explained for everyone

Income Tax Act 2007

Timing and quantifying rules - Financial arrangements rules - Consideration treated as paid to person

EW 37: Consideration when person enters rules: accrued obligation

You could also call this:

“How to handle money you owe when your tax status changes”

This law talks about what happens when you have to pay money as part of a financial deal, and your situation changes. It applies to you if you owe money in a financial arrangement and one of these things happens:

You’re not from New Zealand, but you start doing business here through a fixed place.

You’re not from New Zealand, you joined the deal after 1 April 2008, you become a temporary resident, and you need to work out your income or spending for this deal.

You move to New Zealand to live, and you weren’t doing business here before.

You were a temporary resident, but the deal is no longer exempt from financial rules.

You were a temporary resident, but now you’re a permanent resident, so the deal isn’t exempt anymore.

You stop using the arrangement for personal reasons, so it’s not exempt anymore.

If any of these things happen to you, the law says it’s like you’ve taken on the debt right after your situation changed. It’s as if someone paid you to take on this debt, and the amount they paid was what it would be worth at that time.

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 It might be out of date or be missing some parts.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=DLM1515324.

Topics:
Money and consumer rights > Taxes
Previous

EW 36: Consideration when person exits from rules: accrued entitlement, or

“Payment rights when you leave the financial arrangement rules”

Next

EW 38: Consideration when disposal for no, or inadequate, consideration, or

“How you're taxed when giving up financial rights for less than their value”

Part E Timing and quantifying rules
Financial arrangements rules: Consideration treated as paid to person

EW 37Consideration when person enters rules: accrued obligation

  1. This section applies to a person who is a party to a financial arrangement if, when the person has an accrued obligation to pay consideration under the arrangement, 1 or more of the following situations arise:

  2. the person is a non-resident who becomes a party to the arrangement for the purpose of a business carried on by the person through a fixed establishment in New Zealand:
    1. the person is a non-resident who—
      1. becomes a party to the arrangement after 1 April 2008; and
        1. becomes a transitional resident after becoming a party to the arrangement; and
          1. must calculate and allocate income or expenditure under the arrangement for an income year under the financial arrangements rules:
          2. the person is a non-resident who—
            1. becomes a New Zealand resident who is not a transitional resident; and
              1. is not, immediately before becoming a New Zealand resident, a party to the arrangement for the purpose of a business carried on by the person through a fixed establishment in New Zealand:
              2. the person is a transitional resident for whom the arrangement ceases to be an excepted financial arrangement described in section EW 5(17):
                1. the person is a transitional resident who becomes a New Zealand resident who is not a transitional resident, resulting in the arrangement ceasing to be an excepted financial arrangement described in section EW 5(17):
                  1. the person stops using the arrangement for a private or domestic purpose, resulting in the arrangement ceasing to be an excepted financial arrangement described in any of section EW 5(18) to (20).

                    1. The person is treated as having assumed the accrued obligation immediately after the situation arose and as having been paid the market value that a contract to assume the obligation had at that time.

                    Compare
                    Notes
                    • Section EW 37(1)(ab): inserted (with effect on 1 April 2008), on , by section 63(1) (and see section 63(3) for application) of the Taxation (Annual Rates for 2023–24, Multinational Tax, and Remedial Matters) Act 2024 (2024 No 11).
                    • Section EW 37 list of defined terms financial arrangements rules: inserted (with effect on 1 April 2008), on , by section 63(2) of the Taxation (Annual Rates for 2023–24, Multinational Tax, and Remedial Matters) Act 2024 (2024 No 11).