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

You could also call this:

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

This law applies to you if you are part of a financial arrangement. It covers situations where you have a right to receive something under this arrangement, and you give up this right. If you give up this right for free, or for less than what it’s worth, the law has a special rule.

The rule says that even if you didn’t actually get paid the full value, you’ll be treated as if you did. This means that for tax purposes, it’s as if you received the full market value of your right on the day you gave it up.

For example, if you had the right to receive $100 under a financial arrangement, and you gave up this right for only $50, the law would treat you as if you had received the full $100. This is important because it affects how your taxes are calculated.

Remember, this only applies when you’re dealing with financial arrangements, and specifically when you’re giving up a right you had under that arrangement. It’s the government’s way of making sure that people pay the right amount of tax, even in situations where money might not actually change hands.

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 It might be out of date or be missing some parts.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=DLM1515326.

Topics:
Money and consumer rights > Taxes
Previous

EW 37: Consideration when person enters rules: accrued obligation, or

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

Next

EW 39: Consideration affected by unfavourable factors, or

“Rules for valuing financial arrangements when sold for less than expected”

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

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

  1. This section applies when—

  2. a person is a party to a financial arrangement; and
    1. the person has an accrued entitlement under the arrangement; and
      1. the person disposes of the arrangement; and
        1. the disposal of the accrued entitlement—
          1. is not for monetary consideration; or
            1. is for a consideration that is less than the market value of the entitlement on the date of the disposal.

            2. The person is treated as having been paid the market value that the accrued entitlement had on the date of the disposal.

            Compare