Plain language law

New Zealand law explained for everyone

Income Tax Act 2007

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

EW 43: Consideration when debt disposed of at discount to associate of debtor

You could also call this:

“Special rules for debt sold at a discount to someone connected to the debtor”

If you’re someone who owes money (a debtor), and the person you owe money to (the creditor) sells your debt to someone connected to you for a much lower price, here’s what you need to know:

This rule applies when the creditor sells your debt on or after 20 May 1999 to someone associated with you, and they sell it at a discount. A discount means they sell it for 80% or less of what the debt is actually worth.

When figuring out what the debt is worth, some things don’t count. These include events that might reduce or cancel what you owe, your ability to pay becoming worse, or the chance of you not paying becoming higher.

Even though the debt was sold for less, you’re treated as if you paid the full amount that the person associated with you paid to buy your debt. This means you can’t benefit from the discount.

This rule is designed to make sure that people can’t use their connections to avoid paying the full amount they owe.

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 It might be out of date or be missing some parts.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=DLM1515337.

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

EW 42: Consideration when acquisition for no, or inadequate, consideration, or

“How to calculate value when you get something for free or less than it's worth in a financial arrangement”

Next

EW 44: Consideration when debt forgiven for natural love and affection, or

“Forgiving debts due to love and affection: tax implications”

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

EW 43Consideration when debt disposed of at discount to associate of debtor

  1. This section applies when a creditor disposes of a debt on or after 20 May 1999 to a person associated with the debtor and at a discount.

  2. A creditor disposes of a debt at a discount if the creditor disposes of it for 80% or less of the market value of the debt.

  3. The market value of a debt affected by any of the following factors is determined as if its market value were not affected by the factor. The factors are—

  4. the occurrence of an event reducing or cancelling the debtor’s obligations under the debt; or
    1. the occurrence of 1 of the following between the date on which the debt was entered into and the date of the disposal:
      1. a decline in the debtor’s creditworthiness; or
        1. an increase in the possibility that the debtor will not meet an obligation under the debt.

        2. The debtor is treated as having paid the creditor the amount that the person associated with the debtor pays the creditor.

        Compare
        Notes
        • Section EW 43 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 43(1): 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 43(1): amended, on , by section 21 of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
        • Section EW 43(2): 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 43 list of defined terms 1988 version provisions: repealed, on , by section 594 of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).