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Income Tax Act 2007

Timing and quantifying rules - Financial arrangements rules - Consideration when anti-avoidance provision applies

EW 57: Thresholds

You could also call this:

“Thresholds for financial arrangements and their tax treatment”

This section talks about thresholds that apply to financial arrangements. You need to meet these thresholds to use a certain tax treatment.

If the total value of your income and spending from all your financial arrangements in a year is $100,000 or less, you meet the first threshold.

You meet the second threshold if the total value of all your financial arrangements is $1,000,000 or less every day of the year. The value depends on the type of arrangement.

There’s also a third threshold. It involves a special calculation for each of your financial arrangements. If the total result is $40,000 or less, you meet this threshold.

The calculation compares what your income and spending would be under two different accounting methods. These methods are called ‘accrual’ and ‘cash basis’.

The government can change these threshold amounts by making a new rule called an Order in Council. This new rule is a type of law that must be published for everyone to see.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM1515380.

Topics:
Money and consumer rights > Taxes
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EW 56: Natural person, or

“This provision about individual taxpayers and anti-avoidance rules has been removed”

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EW 58: Financial arrangements, income, and expenditure relevant to criteria, or

“Rules for calculating financial arrangements and related income or expenses”

Part E Timing and quantifying rules
Financial arrangements rules: Consideration when anti-avoidance provision applies

EW 57Thresholds

  1. For the purposes of section EW 54(1)(a)(i), this subsection applies if the absolute value of the person’s income and expenditure in the income year under all financial arrangements to which the person is a party is $100,000 or less.

  2. For the purposes of section EW 54(1)(a)(ii), this subsection applies if, on every day in the income year, the absolute value of all financial arrangements to which the person is a party added together is $1,000,000 or less. The value of each arrangement is,—

  3. for a fixed principal financial arrangement, its face value:
    1. for a variable principal debt instrument, the amount owing by or to the person under the financial arrangement:
      1. for a financial arrangement to which the old financial arrangements rules apply, the value determined under those rules.

        1. For the purposes of section EW 54(1)(b), this subsection applies if the result of applying the formula in subsection (4) to each financial arrangement to which the person is a party at the end of the income year and adding the outcomes together is $40,000 or less.

        2. The formula is—

          (accrual income − cash basis income) + (cash basis expenditure − accrual expenditure).

          Where:

          • The items in the formula are defined in subsections (6) to (9).

          • Accrual income is the amount that would have been income derived by the person under the financial arrangement if the person had been required to use a spreading method in the period starting on the date on which they became a party to the arrangement and ending on the last day of the income year for which the calculation is made. It is calculated using 1 of the following methods, as chosen by the person:

          • the yield to maturity method, whether or not the person may use it, or has chosen to use it, for their financial arrangement; or
            1. the straight-line method, whether or not the person may use it, or has chosen to use it, for their financial arrangement; or
              1. an alternative method approved by the Commissioner.

                1. Cash basis income is the amount that would have been income derived by the person under the financial arrangement if the person had been a cash basis person in the period starting on the date on which they became a party to the arrangement and ending on the last day of the income year for which the calculation is made.

                2. Cash basis expenditure is the amount that would have been expenditure incurred by the person under the financial arrangement if the person had been a cash basis person in the period starting on the date on which they became a party to the arrangement and ending on the last day of the income year for which the calculation is made.

                3. Accrual expenditure is the amount that would have been expenditure incurred under the financial arrangement if the person had been required to use a spreading method in the period starting on the date on which they became a party to the arrangement and ending on the last day of the income year for which the calculation is made. It is calculated using 1 of the following methods, as chosen by the person:

                4. the yield to maturity method, whether or not the person may use it, or has chosen to use it, for their financial arrangement; or
                  1. the straight-line method, whether or not the person may use it, or has chosen to use it, for their financial arrangement; or
                    1. an alternative method approved by the Commissioner.

                      1. The Governor-General may make an Order in Council increasing a sum specified in any of subsections (1) to (3).

                      2. An Order in Council under subsection (10) is secondary legislation (see Part 3 of the Legislation Act 2019 for publication requirements).

                      Compare
                      Notes
                      • Section EW 57(1): amended, on , by section 11(1) of the Taxation (Business Tax Measures) Act 2009 (2009 No 5).
                      • Section EW 57(2): amended, on , by section 11(2) of the Taxation (Business Tax Measures) Act 2009 (2009 No 5).
                      • Section EW 57(3): amended, on , by section 11(3) of the Taxation (Business Tax Measures) Act 2009 (2009 No 5).
                      • Section EW 57(10) heading: added, on , by section 11(4) of the Taxation (Business Tax Measures) Act 2009 (2009 No 5).
                      • Section EW 57(10): added, on , by section 11(4) of the Taxation (Business Tax Measures) Act 2009 (2009 No 5).
                      • Section EW 57(11) heading: inserted, on , by section 3 of the Secondary Legislation Act 2021 (2021 No 7).
                      • Section EW 57(11): inserted, on , by section 3 of the Secondary Legislation Act 2021 (2021 No 7).