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Income Tax Act 2007

Avoidance and non-market transactions - Avoidance: specific

GB 46: Deferral of surplus deductions from arrangements

You could also call this:

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

This law talks about what happens when you’re part of a special financial arrangement. It applies when you and people connected to you have more expenses than income from this arrangement in a year, and when the arrangement involves a special kind of loan.

If this happens, you might have to count some extra income for that year. The amount of extra income is worked out using a special calculation. This calculation looks at how much your expenses are more than your income, compared to the total extra expenses for everyone involved in the arrangement.

The next year, you can subtract the same amount from your income. This helps balance things out over time.

The law also explains some special rules about these arrangements:

  • Some ways of paying back loans don’t count as really paying them back.
  • When working out your income and expenses for this law, there are some special things to include or leave out.

This law is part of rules to make sure people pay the right amount of tax and don’t use complicated arrangements to pay less tax than they should.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM1517046.

Topics:
Money and consumer rights > Taxes
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GB 45: Arrangements involving money not at risk, or

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

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GB 47: Calculation rules for sections GB 45 and GB 46, or

“Rules for calculating income, expenses, and property costs in group arrangements”

Part G Avoidance and non-market transactions
Avoidance: specific

GB 46Deferral of surplus deductions from arrangements

  1. This section applies when—

  2. an arrangement of the type described in section GB 45 is made; and
    1. a person (the participant) is a party to the arrangement or affected by it; and
        1. the participant has, for an income year, 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 (6); and
          1. the participant considered together with their affected associates has for the income year 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 (6); and
            1. on the balance date, or the latest balance date, of the participant and affected associates for the income year, the arrangement involves a limited-recourse loan in relation to which the participant or an affected associate of the participant is a borrower.

              1. The participant is treated as deriving in the income year an amount of assessable income calculated using the formula—

                (participant's excess deductions ÷ total individual excess deductions)× total ineligible amount.

                Where:

                • In the formula,—

                • participant’s excess deductions is the amount of excess deductions of the participant for the income year described in subsection (1)(d):
                  1. total individual excess deductions is the amount, for the income year, by which the total deductions from the arrangement are more than the total assessable income from the arrangement, having regard to the rules in subsection (6), for the group that consists of—
                    1. the participant; and
                      1. each affected associate of the participant who has, for the income year, a total amount of deductions from the arrangement that is more than their total assessable income from the arrangement, having regard to the rules in subsection (6):
                      2. total ineligible amount is the lesser of—
                        1. the total individual excess deductions for the group and the income year as described in subsection (1)(e); and
                          1. the total limited-recourse amount that, on the balance date or the latest balance date of the participant and the affected associates, the participant and the affected associates have an undischarged obligation to repay as part of or for the purposes of the arrangement.

                          2. A participant who has an amount of assessable income for an income year under subsection (2) has a deduction of an equal amount for the following income year.

                          3. For the purposes of subsections (1) and (3)(c)(ii), an obligation to repay a limited recourse amount is not discharged by a transaction to the extent to which the transaction—

                          4. involves, as part of the arrangement, the use of—
                            1. a put or call option that is not a contract for the sale for future delivery of goods at market value:
                              1. a contract of insurance or guarantee; and
                              2. does not give rise to assessable income for the person who is the borrower of the limited-recourse amount under the limited-recourse loan.

                                1. For the purposes of subsections (1)(d) and (e) and (3)(b),—

                                2. a deduction of a person includes—
                                  1. a deduction under subsection (4); and
                                    2. income of a person excludes an amount of income arising under subsection (2).

                                      Compare
                                      Notes
                                      • Section GB 46(1)(c): repealed, on , by section 172 of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
                                      • Section GB 46(1)(e): amended, on , by section 172 of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
                                      • Section GB 46(3)(b)(ii): amended, on , by section 172 of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
                                      • Section GB 46(6)(a)(ii): repealed, on , by section 172 of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
                                      • Section GB 46 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).