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FE 2: When this subpart applies
or “When interest apportionment rules apply to people and businesses with foreign connections”
You could also call this:

“How interest is divided for individuals and trustees in certain tax situations”

This law is about how interest is split for individuals and trustees in some tax situations. Here’s what it means for you:

If you’re a person or a trustee, the law looks at your New Zealand group. This group includes you and people connected to you who live in New Zealand, do business here, or earn money here that’s taxed by New Zealand.

When looking at your assets, the law doesn’t count your personal things like your house or car.

For trustees, the New Zealand group includes the trustee and companies the trustee controls, as defined in section FE 27.

The law also talks about a worldwide group. For trustees, this is just their New Zealand group.

There are some special rules if you’re a person or trustee involved with companies that have a lot of debt overseas. In this case, your New Zealand group is a bit different. It includes you and connected people who aren’t part of these high-debt overseas companies.

For trustees in this situation, the worldwide group includes more than just the New Zealand group. It also includes overseas companies and investments that the trustee or members of the New Zealand group have certain types of interests in.

Remember, when calculating a person’s total assets in these situations, personal items are not included.

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Next up: FE 4: Some definitions

or “Definitions of key financial terms used in tax law”
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Part F Recharacterisation of certain transactions
Interest apportionment on thin capitalisation

FE 3Interest apportionment for individuals

  1. This subpart applies to a natural person or trustee not described in section FE 2(1)(g) with the following modifications:

  2. the New Zealand group of a natural person is made up of the person and all associated persons who—
    1. are resident in New Zealand; or
      1. are carrying on business in New Zealand through a fixed establishment in New Zealand; or
        1. derive income, other than non-resident passive income, that has a source in New Zealand and for which relief from New Zealand tax under a double tax agreement is unavailable:
        2. the amount of the total assets of a natural person is calculated excluding the person's private and domestic assets:
          1. the New Zealand group of a trustee is made up of the trustee and all companies identified under section FE 27 as being under the control of the trustee, other than a company with a New Zealand parent not determined under section FE 26(4D):
            1. the worldwide group of a trustee is made up of the trustee's New Zealand group.

              1. This subpart applies to a natural person or trustee described in section FE 2(1)(g) with the following modifications:

              2. the New Zealand group of the natural person or trustee is made up of the natural person or trustee and all associated persons who are not excess debt outbound companies and are not included in a New Zealand group of an excess debt outbound company, and who—
                1. are resident in New Zealand; or
                  1. are carrying on business in New Zealand through a fixed establishment in New Zealand; or
                    1. derive income, other than non-resident passive income, that has a source in New Zealand and for which relief from New Zealand tax under a double tax agreement is unavailable:
                    2. the worldwide group of the trustee is made up of the trustee and—
                      1. the trustee's New Zealand group; and
                        1. all CFCs in which the trustee or a member of the trustee's New Zealand group has an income interest; and
                          1. all FIFs in which the trustee or a member of the trustee's New Zealand group has an interest that meets the requirements of section EX 35 (Exemption for interest in FIF resident in Australia); and
                            1. all FIFs in which the trustee or a member of the trustee's New Zealand group has an interest for which the person uses the attributable FIF income method:
                            2. in the calculation of the amount of the natural person's total assets, private and domestic assets are excluded.

                              Notes
                              • Section FE 3: substituted (with effect on 30 June 2009), on , by section 208(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
                              • Section FE 3(1)(a): amended, on , by section 258 of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
                              • Section FE 3(1)(a): amended, on (applying for the 2015–16 and later income years), by section 107(1) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
                              • Section FE 3(1)(a)(iii): replaced (with effect on 1 July 2011 and applying for income years beginning on or after that date), on , by section 52(1) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
                              • Section FE 3(1)(b): replaced, on (applying for the 2015–16 and later income years), by section 107(2) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
                              • Section FE 3(1)(c): replaced, on (applying for the 2015–16 and later income years), by section 107(2) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
                              • Section FE 3(1)(d): inserted, on (applying for the 2015–16 and later income years), by section 107(2) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
                              • Section FE 3(2)(a)(iii): replaced (with effect on 1 July 2011 and applying for income years beginning on or after that date), on , by section 52(2) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
                              • Section FE 3(2)(b)(ii): amended (with effect on 1 July 2011 and applying for income years beginning on or after that date), on , by section 52(3) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
                              • Section FE 3(2)(b)(iii): inserted (with effect on 1 July 2011 and applying for income years beginning on or after that date), on , by section 52(3) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
                              • Section FE 3(2)(b)(iv): inserted (with effect on 1 July 2011 and applying for income years beginning on or after that date), on , by section 52(3) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
                              • Section FE 3 list of defined terms attributable FIF income method: inserted (with effect on 1 July 2011), on , by section 52(4) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
                              • Section FE 3 list of defined terms FIF: inserted (with effect on 1 July 2011), on , by section 52(4) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
                              • Section FE 3 list of defined terms income: inserted (with effect on 1 July 2011), on , by section 52(4) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
                              • Section FE 3 list of defined terms New Zealand tax: inserted (with effect on 1 July 2011), on , by section 52(4) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
                              • Section FE 3 list of defined terms non-resident: inserted, on , by section 107(3) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
                              • Section FE 3 list of defined terms non-resident passive income: inserted (with effect on 1 July 2011), on , by section 52(4) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).