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Income Tax Act 2007

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

EW 39: Consideration affected by unfavourable factors

You could also call this:

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

This law applies when you’re part of a financial arrangement and you have the right to receive something from it. If you sell or get rid of this arrangement, and the amount you get for it is less than expected because of certain reasons, this law comes into play.

The reasons that might make the amount less than expected are: if the other person in the arrangement becomes less likely to pay, if there’s a bigger chance they won’t fulfil their part of the deal, or if something happens that reduces or cancels what they’re supposed to do.

However, this law doesn’t apply if dealing with these kinds of financial arrangements is part of your job, and if you and the other person in the arrangement aren’t closely connected (like family or business partners).

If this law does apply to you, you’re treated as if you got the full value of what you were supposed to receive, even if you actually got less because of those reasons mentioned earlier.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM1515328.

Topics:
Money and consumer rights > Taxes
Money and consumer rights > Banking and loans
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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”

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EW 40: Consideration when person exits from rules: accrued obligation, or

“Calculating what you owe when you leave a financial arrangement”

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

EW 39Consideration affected by unfavourable factors

  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 consideration for the disposal is affected by any of the following factors:
          1. a decline in the other party’s creditworthiness between the date on which the arrangement was entered into and the date of the disposal; or
            1. an increase, between the date on which the arrangement was entered into and the date of the disposal, in the possibility that the other party will not meet an obligation under the arrangement; or
              1. the occurrence of an event reducing or cancelling the other party’s obligations under the arrangement.

              2. This section does not apply when—

              3. the person’s business includes holding or dealing in financial arrangements of the class disposed of; and
                1. the parties to the arrangement disposed of are not associated persons.

                  1. The person is treated as having been paid the market value that the accrued entitlement had on the date of the disposal, as if the consideration had not been affected by a factor described in subsection (1)(d).

                  2. Repealed
                  Compare
                  Notes
                  • Section EW 39(4) heading: repealed, on (with effect on 1 April 2011 and applying for income years beginning on or after that date), pursuant to section 81(1) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
                  • Section EW 39(4): repealed, on (with effect on 1 April 2011 and applying for income years beginning on or after that date), by section 81(1) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
                  • Section EW 39 list of defined terms self-remission: repealed, on (with effect on 1 April 2011), by section 81(2) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).