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Income Tax Act 2007

Recharacterisation of certain transactions - Interest apportionment on thin capitalisation - New Zealand group

FE 28: Identifying members of New Zealand group

You could also call this:

“How to determine which companies belong to a New Zealand tax group”

When you’re part of a New Zealand group for tax purposes, there are specific rules about who is included. The group usually includes an excess debt entity, its New Zealand parent, and other companies that meet certain conditions.

To be in the group, a company needs to be doing business in New Zealand, living here, or earning money from New Zealand that can’t avoid New Zealand tax. The New Zealand parent must control the company, as described in section FE 27. However, the company can’t be part of a registered bank’s New Zealand banking group.

If the excess debt entity isn’t an excess debt outbound company and doesn’t meet the control threshold, the group is made up differently. It includes the entity and companies that would be under its control if it were the New Zealand parent, or under the control of other companies in the group.

For excess debt outbound companies that don’t meet the control threshold, they can still be part of the group if they meet the business and banking group conditions, and if a group member owns at least half of the company.

These rules help decide which companies are part of a New Zealand group for tax purposes.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM1516517.

Topics:

Money and consumer rights > Taxes

FE 27: Establishing companies under parent’s control, or

“How to determine which companies are part of a New Zealand tax group”

FE 29: Combining New Zealand groups owned by natural persons and trustees, or

“Rules for joining New Zealand groups with shared ownership by people or trustees”

Part F Recharacterisation of certain transactions
Interest apportionment on thin capitalisation: New Zealand group

FE 28Identifying members of New Zealand group

A New Zealand group is made up of an excess debt entity, the entity's New Zealand parent, and a company—
that is—
1. resident in New Zealand:
2. carrying on a business in New Zealand through a fixed establishment in New Zealand:
3. deriving 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; and
that is identified under section FE 27 as being under the control of the New Zealand parent; and
that is not a member of the New Zealand banking group of a registered bank.

Despite subsection (1), if the excess debt entity is not an excess debt outbound company and is not a company identified under section FE 27 as being under the control of the New Zealand parent because the threshold is not met, the New Zealand group is made up of the entity and a company—
that is—
1. resident in New Zealand:
2. carrying on a business in New Zealand through a fixed establishment in New Zealand:
3. deriving 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; and
that is a company that is not a member of the New Zealand banking group of a registered bank and—
1. would be identified under section FE 27 as being under the control of the entity if the entity were treated as the New Zealand parent; or
2. if the entity is identified under section FE 27 as being under the control of another company (company A), would be identified under section FE 27 as under the control of company A if company A were included in the New Zealand group and treated as the New Zealand parent; or
3. would be identified under section FE 27 as under the control of a company (company B) included in the entity's New Zealand group under subparagraph (ii), if company B were treated as the New Zealand parent.

Despite subsection (1), if the excess debt entity is an excess debt outbound company and is not a company identified under section FE 27 as being under the control of the New Zealand parent because the threshold is not met, the entity is included in the New Zealand group for the New Zealand parent if—
the entity is a company that meets the requirements of subsection (1)(a) and (c); and
a member of the New Zealand group has a 50% or more ownership interest in the entity.

Notes

Section FE 28: substituted (with effect on 30 June 2009), on 6 October 2009, by section 221(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section FE 28(1)(a)(iii): replaced (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 61(1) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section FE 28(2)(a)(iii): replaced (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 61(2) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section FE 28(2)(b): amended (with effect on 30 June 2009 and applying for income years beginning on or after 1 July 2009), on 24 February 2016, by section 175(4) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section FE 28(2)(b): amended (with effect on 1 April 2008), on 24 February 2016, by section 175(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section FE 28(2)(b)(iii): amended (with effect on 30 June 2009 and applying for income years beginning on or after 1 July 2009), on 24 February 2016, by section 175(5) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section FE 28(2)(b)(iii): amended (with effect on 1 April 2008), on 24 February 2016, by section 175(2) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section FE 28(2)(b)(iv): repealed (with effect on 30 June 2009 and applying for income years beginning on or after 1 July 2009), on 24 February 2016, by section 175(6) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section FE 28(2)(b)(iv): repealed (with effect on 1 April 2008), on 24 February 2016, by section 175(3) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section FE 28 list of defined terms control: repealed, on 1 April 2010, by section 594 of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section FE 28 list of defined terms non-resident passive income: inserted (with effect on 1 July 2011), on 7 May 2012, by section 61(3) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section FE 28 list of defined terms ownership interest: inserted, on 1 April 2015, by section 116(1) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section FE 28 list of defined terms tax: inserted (with effect on 1 July 2011), on 7 May 2012, by section 61(3) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).