EZ 37Cash basis holder

1. Subject to this section, a natural person is a cash basis holder in respect of financial arrangements held by that person in any income year, where—

2. either—
   1. the income derived by that person in that income year in respect of those financial arrangements, calculated in accordance with subpart EW or section EZ 35 or EZ 38, as the case may be, does not exceed $70,000 (or such greater amount as the Governor-General may by Order in Council declare (see subsection (10))); or
   2. the total value of financial arrangements held by the person in the income year does not exceed at any time in the income year $600,000 (or such greater amount as the Governor-General may by Order in Council declare (see subsection (10))), the value in respect of each financial arrangement being,—
      1. in the case of a fixed principal financial arrangement, the greater of the acquisition price of the arrangement or the nominal or face value of the arrangement; and
      2. in the case of a variable principal debt instrument, the amount of money owing to the person according to the arrangement; and
      3. in the case of a financial arrangement to which subpart EW applies, the value determined under that subpart; and
3. the difference between the following amounts does not exceed $20,000 (or such greater amount as the Governor-General may by Order in Council declare (see subsection (10))):
   1. the amount of income that would be calculated by the person for the income year—in respect of financial arrangements held by the person at the end of the income year; and
      1. using, at the option of the person, either the yield to maturity method or the straight-line method referred to in section EZ 35(3) (regardless of whether or not the person is entitled or has opted to use that method) or in accordance with subpart EW, as the case may be, or, where it is not possible to calculate an amount of income or expenditure in respect of the financial arrangements by using either of those methods, an alternative method approved by the Commissioner; and
      2. under either section EW 31 or EZ 38—
   2. the amount of income that would be calculated by the person for the income year in respect of financial arrangements held by the person at the end of the income year if the person were a cash basis holder.

4. For the purposes of subsection (1), a person must take into account financial arrangements to which subpart EW applies.

5. Notwithstanding anything in subsection (1), the Commissioner may,—

6. where the Commissioner is satisfied, having regard to the tenor of section EZ 35(2), that treatment of a class of financial arrangements other than under section EZ 35 results in a fair and reasonable allocation of income or expenditure among income years, deem natural persons to be cash basis holders in respect of such financial arrangements; and
7. where the Commissioner is satisfied that a class of financial arrangements has been structured and promoted with the objective of postponing any liability to income tax which would have arisen had those financial arrangements not been so structured, deem natural persons not to be cash basis holders in respect of such financial arrangements.

8. In any income year where a person who was a cash basis holder in the previous income year ceases to be a cash basis holder, the person must take into account, in calculating income or deductions for the income year, an accruals basis adjustment, in respect of every financial arrangement (other than arrangements that are already dealt with according to section EZ 35 or in respect of which the Commissioner has exercised the discretion given under subsection (3)(a)) acquired in a previous income year and held by the person at the end of the income year equal to an amount calculated in accordance with the following formula:

   $a\; -\; b\; -\; c\; +\; d$

   Where:

   • a a

     is the sum of all amounts which would have been income derived by the person in respect of the financial arrangement from the date it was acquired to the end of the income year if the person had not been a cash basis holder at any time during that period

   • b b

     is the sum of all amounts that would have been deductions of the person in respect of the financial arrangement from the date the financial arrangement was acquired to the end of the income year if the person had not been a cash basis holder at any time during the period

   • c c

     is the sum of all amounts of income of the person in respect of the financial arrangement since it was acquired to the end of the previous income year

   • d d

     is the sum of all amounts that have been deductions of the person in respect of the financial arrangement since it was acquired to the end of the previous income year;—

   and the person must not take into account in the income year any other amount in respect of any such financial arrangement except those calculated under the accruals basis adjustment.

9. In any income year where a person who was not a cash basis holder in the previous income year becomes a cash basis holder, that person may take into account, in calculating income or deductions for the income year, a cash basis adjustment, in respect of every financial arrangement (other than arrangements already treated on a cash basis) acquired in a previous income year and held by the person at the end of the income year, equal to an amount calculated in accordance with the following formula:

   $a\; -\; b\; -\; c\; +\; d$

   Where:

   • a a

     is the sum of all amounts which would have been income derived by the person in respect of the financial arrangement from the date it was acquired to the end of the income year if the person had been a cash basis holder in respect of the financial arrangement for the whole of that period

   • b b

     is the sum of all amounts which would have been deductions of the person in respect of the financial arrangement from the date the financial arrangement was acquired to the end of the income year if the person had been a cash basis holder in respect of the financial arrangement for the whole of the period

   • c c

     is the sum of all amounts treated as income of the person in respect of the financial arrangement since it was acquired to the end of the previous income year

   • d d

     is the sum of all amounts that have been deductions of the person in respect of the financial arrangement since it was acquired to the end of the previous income year;—

   and, where the cash basis adjustment has been taken into account, the person must not take into account any other amount in respect of any such financial arrangement in the income year except those calculated under the cash basis adjustment:

   provided that the person is deemed not to be a cash basis holder in relation to any financial arrangement in respect of which the person does not take into account a cash basis adjustment.

10. The amount of the accruals basis adjustment or the cash basis adjustment in respect of any financial arrangement and any income year is,—

11. where it is a positive amount, income deemed to be derived by the holder in the income year; and
12. where it is a negative amount, deemed to be a deduction of the holder in the income year.

13. For the purposes of subsection (1), but subject to subsections (8) and (9),—

14. all income in respect of financial arrangements that is trustee income or beneficiary income under the trust rules is disregarded, as is the value of all such financial arrangements producing such income; and
15. no person who holds such financial arrangements is a cash basis holder in relation to such financial arrangements.

16. Subsection (7) does not apply to financial arrangements held on a bare trust, or to income in respect of such financial arrangements, and the financial arrangements held and the income derived by the trustees is treated as being held or, as the case may be, derived by a beneficiary of the trust to the extent of the beneficiary’s share of the beneficial interest in the financial arrangement.

17. Where a deceased person was at the time of his or her death a cash basis holder,—

18. nothing in subsection (7) or in any requirement under this section that a cash basis holder be a natural person, in respect of the income year in which the death occurred and in each of the 4 immediately succeeding income years, applies to prevent the trustee of the estate of the deceased person from being a cash basis holder for the purposes of this Act in respect of financial arrangements issued or held by the estate, where the estate would otherwise qualify as a cash basis holder under this section; but
19. if at any time during those income years the estate ceases to so otherwise qualify as a cash basis holder, it does not again qualify to become a cash basis holder by operation of paragraph (a);—
and for the purposes of subsections (4) and (5), any trustee of an estate who is a cash basis holder under this subsection is deemed to be the same person as the deceased cash basis holder.

20. An Order in Council under subsection (1) is secondary legislation (see Part 3 of the Legislation Act 2019 for publication requirements).

21. Repealed

Compare

• 2004 No 35 s EZ 34

Notes

• Section EZ 37(1)(a)(i): amended, on 28 October 2021, by section 3 of the Secondary Legislation Act 2021 (2021 No 7).
• Section EZ 37(1)(a)(ii): amended, on 28 October 2021, by section 3 of the Secondary Legislation Act 2021 (2021 No 7).
• Section EZ 37(1)(b): amended, on 28 October 2021, by section 3 of the Secondary Legislation Act 2021 (2021 No 7).
• Section EZ 37(10): inserted, on 28 October 2021, by section 3 of the Secondary Legislation Act 2021 (2021 No 7).
• Section EZ 37(10): repealed, on 1 April 2008, by section 15(1) of the Taxation (Limited Partnerships) Act 2008 (2008 No 2).