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Income Tax Act 2007

Avoidance and non-market transactions - Avoidance: specific

GB 20: Arrangements involving petroleum and mineral mining

You could also call this:

“Rules for tax on special deals in oil and mineral mining”

This law is about special deals involving oil and mineral mining. If you’re involved in these kinds of deals, you need to be careful not to avoid paying the right amount of tax.

The law applies when there’s an arrangement that includes selling mining assets, spending money on oil or mineral exploration, or sharing mining rights with others (called a farm-out arrangement). If the arrangement is made to avoid paying tax, the Commissioner of Inland Revenue can change how much tax you have to pay.

Some examples of arrangements that might be seen as avoiding tax are:

  1. When you sell a mining asset, but the buyer won’t actually have to pay for it or will get their money back somehow.

  2. When you spend money on mining, but you won’t really have to pay for it or you’ll get your money back in some way.

  3. When you share mining rights with someone else (farm-out), but they won’t really have to pay for their share or they’ll get their money back somehow.

  4. When you sell a mining asset to someone you’re connected with (like a family member or business partner) for less than it’s worth, so they can claim a bigger tax deduction.

  5. When you share mining rights with someone you’re connected with on terms that let them claim a bigger tax deduction than they should.

This law also applies if you’re a New Zealand company doing mining outside of New Zealand. If you’re in a partnership, you’re treated as owning a share of the mining permits and property based on how much of the partnership’s income you get.

Remember, these rules apply even if you’re only selling or dealing with part of a mining asset, not the whole thing.

This text is automatically generated. It might be out of date or be missing some parts. Find out more about how we do this.

View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM1516950.

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Part G Avoidance and non-market transactions
Avoidance: specific

GB 20Arrangements involving petroleum and mineral mining

  1. This section applies when—

  2. an arrangement includes—
    1. the disposal of a petroleum mining asset or a mineral mining asset (the mining asset); or
      1. the incurring of petroleum exploration expenditure or 1 or more of the classes of mineral mining expenditure referred to in section DU 8 (Classes of mineral mining expenditure) (the mining expenditure); or
        1. a farm-out arrangement; and
        2. the arrangement has a purpose or effect of tax avoidance.

          1. The Commissioner may apply section GA 1 (Commissioner's power to adjust) to adjust the taxable income of a person affected by the arrangement so as to counteract a tax advantage obtained by the person.

          2. Without limiting the generality of subsection (1), arrangements having the effect of tax avoidance include the arrangements described in subsections (4) to (8).

          3. An arrangement has the effect of tax avoidance if it involves the disposal of a mining asset and it is probable that, at the time the arrangement is entered into, the person acquiring the mining asset—

          4. will, through a related arrangement, not have to suffer some or all of the expenditure of acquiring the mining asset; or
            1. will be effectively compensated in some way for some or all of the expenditure.

              1. An arrangement has the effect of tax avoidance if it involves the incurring of mining expenditure and it is probable that, at the time the arrangement is entered into, the person who is to incur the mining expenditure—

              2. will, through a related arrangement, not have to suffer some or all of the mining expenditure; or
                1. will be effectively compensated in some way for some or all of the mining expenditure.

                  1. An arrangement has the effect of tax avoidance if it involves a farm-out arrangement and it is probable that, at the time the arrangement is entered into,—

                  2. the farm-in party will, through a related arrangement, not have to suffer some or all of the farm-in expenditure attributable to the proportionate interest acquired by the farm-in party under the farm-out arrangement; or
                    1. the farm-in party or an associated person will be effectively compensated in some way for some or all of the farm-in expenditure.

                      1. An arrangement has the effect of tax avoidance if it involves a petroleum miner or mineral miner disposing of a mining asset to an associated person for a purpose of ensuring that the associated person has a greater deduction than would have been allowed if the asset had been disposed of for its market value.

                      2. An arrangement has the effect of tax avoidance if it involves a petroleum miner or a mineral miner entering into a farm-out arrangement with an associated person for the purpose of ensuring that the associated person has a greater deduction than would have been allowed if the farm-out arrangement had been entered into on substantially the same terms as those on which it would have been entered into with a person who is not associated.

                      3. This section applies, with the necessary modifications, to a petroleum miner or a mineral miner who undertakes mining operations or that are—

                      4. outside New Zealand and undertaken through a branch or CFC; and
                        1. substantially the same as the mining activities governed by this Act.

                          1. For the purposes of this section, a partner is treated as having a share or interest in a petroleum permit, exploration permit, prospecting permit, or mining permit, as applicable, or other property of a partnership to the extent of their income interest in the partnership.

                          2. For the purposes of this section, references to the disposal of an asset apply equally to the disposal of part of an asset.

                          Notes
                          • Section GB 20: replaced, on (applying for the 2014–15 and later income years), by section 78(1) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
                          • Section GB 20(1)(a)(ii): amended (with effect on 1 April 2014), on , by section 77 of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).