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Income Tax Act 2007

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

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

You could also call this:

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

You need to know about a special rule for when someone forgives a debt because of love and affection. This can happen in two ways:

First, if you owe money to a person, and they forgive your debt because they love you, this rule applies.

Second, if a trust owes money, and it was set up mainly to help either a person the lender loves or a charity, this rule also applies. The lender must be a real person, not a company.

In both cases, the debt includes any money that hasn’t been paid yet. It doesn’t matter how the debt is forgiven - it could be in a will or any other way.

When this happens, it’s treated as if you paid back the debt on the day it was forgiven. This is important for tax purposes.

Remember, this rule is about debts forgiven out of love and affection, not business debts. If you’re not sure if this applies to you, it’s best to ask an adult or a professional for help.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM1515339.

Topics:
Money and consumer rights > Taxes
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Part E Timing and quantifying rules
Financial arrangements rules: Consideration treated as paid by person

EW 44Consideration when debt forgiven for natural love and affection

  1. This section applies when—

  2. a person is a debtor; and
    1. the creditor is a natural person; and
      1. the creditor forgives the debtor’s debt because of the natural love and affection the creditor has for the debtor.

        1. This section also applies when—

        2. a trust is a debtor; and
          1. the trust was established mainly to benefit 1 or both of the following:
            1. a natural person for whom the creditor has natural love and affection:
              1. an organisation or a trust whose income is exempt under section CW 41 (Charities: non-business income) or CW 42 (Charities: business income); and
              2. the creditor is a natural person; and
                1. the creditor forgives the debtor’s debt.

                  1. For the purposes of subsections (1) and (2),—

                  2. the debtor’s debt includes an amount accrued and unpaid at the time of the forgiveness; and
                    1. the means by which the debt is forgiven, whether in a will or otherwise, is immaterial.

                      1. The debtor is treated as having paid the debt on the date on which the creditor forgives it.

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