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EW 44: Consideration when debt forgiven for natural love and affection
or “Forgiving debts due to love and affection: tax implications”
You could also call this:

“Calculating tax when you're no longer required to repay money you owe”

When you owe money under a financial arrangement, sometimes you might be released from paying it. This can happen in a few ways. It could be through section 304 of the Insolvency Act 2006, or through any of the Inland Revenue Acts. It could also be through a special kind of loan, or through the small business cashflow scheme under section 7AA of the Tax Administration Act 1994.

The special kind of loan is one that the government makes. It’s designed to help achieve a social policy goal. If you meet certain conditions, you might not have to pay back all or part of the loan. The Governor-General can decide which loans count as this special type.

When you’re released from paying the money you owe, it’s treated as if you’ve already paid it on the day you’re released. This is important for how your taxes are calculated.

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Next up: EW 46: Consideration when debtor released as condition of new start grant

or “This old rule about tax effects of debt relief from new start grants no longer applies”
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Part E Timing and quantifying rules
Financial arrangements rules: Consideration treated as paid by person

EW 45Consideration when debtor released from obligation

  1. This section applies when—

  2. a person is released from the obligation to pay an amount owing under a financial arrangement; and
    1. the release occurs under—
      1. section 304 of the Insolvency Act 2006; or
        1. any of the Inland Revenue Acts; or
          1. a loan described in subsection (2); or
            1. the terms of a loan under the small business cashflow scheme under section 7AA of the Tax Administration Act 1994.

            2. A loan referred to in subsection (1)(b)(iii) is a loan that—

            3. is made by a department or instrument of the executive government of New Zealand; and
              1. provides for the person’s liability to pay to be wholly or partly remitted if they meet conditions intended to promote a social policy objective of the government of New Zealand; and
                1. is of a class declared by the Governor-General by Order in Council to be a social assistance suspensory loan.

                  1. The Governor-General may make an Order in Council declaring a class of loan that meets the criteria in subsection (2) to be a social assistance suspensory loan.

                  2. An Order in Council under subsection (3) is secondary legislation (see Part 3 of the Legislation Act 2019 for publication requirements).

                  3. The person is treated as having paid the amount owing on the date on which they are released from the obligation to pay it.

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                  Notes
                  • Section EW 45(1)(b)(iii): amended, on , by section 6(1) of the COVID-19 Response (Taxation and Other Regulatory Urgent Measures) Act 2020 (2020 No 10).
                  • Section EW 45(1)(b)(iv): inserted, on , by section 6(1) of the COVID-19 Response (Taxation and Other Regulatory Urgent Measures) Act 2020 (2020 No 10).
                  • Section EW 45(3B) heading: inserted, on , by section 3 of the Secondary Legislation Act 2021 (2021 No 7).
                  • Section EW 45(3B): inserted, on , by section 3 of the Secondary Legislation Act 2021 (2021 No 7).
                  • Section EW 45 list of defined terms small business cashflow scheme: inserted, on , by section 6(2) of the COVID-19 Response (Taxation and Other Regulatory Urgent Measures) Act 2020 (2020 No 10).