Plain language law

New Zealand law explained for everyone

Income Tax Act 2007

Avoidance and non-market transactions - Avoidance: specific

GB 45: Arrangements involving money not at risk

You could also call this:

“Rules for tax arrangements where you might claim more deductions than you earn”

You need to know about a rule that helps stop people from avoiding taxes. This rule looks at arrangements where someone might be trying to claim more tax deductions than they should.

Here’s how it works: The rule can apply when someone sells or promotes a financial arrangement. If you’re part of this arrangement, and you’re claiming more in deductions than you’re earning from it, the rule might affect you.

The rule also looks at whether you’ve borrowed money in a special way called a ‘limited-recourse loan’. If you and people connected to you have borrowed more than half the cost of the property in the arrangement using these loans, you might be caught by this rule.

Another thing the rule checks is whether the total cost of the property in the arrangement is more than 142.85% of the cost of what’s called ‘acceptable property’. Acceptable property includes things like land, buildings, machinery, and some types of shares.

The rule looks at these things over a period of time, which could be one, two, or three income years, starting from when you first got involved in the arrangement.

If all these conditions are met, section GB 46 might apply to you, which could change how your income and deductions are calculated for tax purposes.

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 It might be out of date or be missing some parts.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=DLM1517034.

Topics:
Money and consumer rights > Taxes
Previous

GB 44B: Arrangements involving FamilyBoost tax credits, or

“Rules against misusing FamilyBoost tax credits”

Next

GB 46: Deferral of surplus deductions from arrangements, or

“Delaying tax deductions for certain financial arrangements when expenses exceed income”

Part G Avoidance and non-market transactions
Avoidance: specific

GB 45Arrangements involving money not at risk

  1. Section GB 46 can apply to an arrangement when—

  2. a person sells or issues, or promotes the selling or issuing of, the arrangement, whether or not for remuneration; and
    1. a person (the participant) who is a party to the arrangement or affected by it, considered together with their affected associates, has for an assessment period a total amount of deductions from the arrangement that is more than their total amount of assessable income from the arrangement, having regard to the rules in subsection (2); and
      1. as part of or for the purposes of the arrangement, the participant or an affected associate borrows a limited-recourse amount under a limited-recourse loan; and
        1. on the relevant balance date, the total of the limited-recourse amounts of the limited-recourse loans of the participant and affected associates is more than half of the total cost of their arrangement property on the relevant balance date; and
          1. on the relevant balance date, the total cost of their arrangement property is more than 142.85% of the total cost of the part of the property that is acceptable property.

            1. For the purposes of subsection (1)(b), the following amounts are disregarded:

            2. a deduction under section GB 46:
                1. an amount of income under section GB 46.

                  1. In this section,—

                    acceptable property is—

                    1. land:
                      1. buildings:
                        1. plant:
                          1. machinery:
                            1. shares in a listed company that in total represent a direct voting interest of 10% or less in the listed company:
                              1. a share and an option that are acquired or created with an intention that the share or option will produce income that is employment income of a participant under section CE 1(1)(d) (Amounts derived in connection with employment):
                                1. a share in a foreign company, if the proceeds of a disposal of the share would not be assessable income of the holder other than under the FIF rules

                                  arrangement property means property held as part of the arrangement by the participant and affected associates

                                    assessment period is any of—

                                    1. the earliest income year (the first income year) in which an interest in the arrangement was acquired by the participant or an affected associate of the participant:
                                      1. the first income year and the next income year:
                                        1. the first income year and the next 2 income years

                                          relevant balance date means the balance date, or the latest balance date, of the participant and affected associates that ends the assessment period.

                                          Compare
                                          Notes
                                          • Section GB 45(2)(b): repealed, on , by section 172 of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
                                          • Section GB 45(3) acceptable property: amended (with effect on 1 April 2008), on , by section 241 of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
                                          • Section GB 45 list of defined terms LAQC: repealed, on , by section 172 of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).