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Income Tax Act 2007

Taxation of certain entities - Agents

HD 14: Companies issuing debentures

You could also call this:

“Rules for companies that issue loans to investors”

When a company issues a debenture, it’s treated as if it’s acting for the person who holds the debenture. This means the company is like an agent for the debenture holder when they earn income from it.

There are some exceptions to this rule. It doesn’t apply if the debenture is a special kind that’s linked to profits or is a ‘stapled debt security’. It also doesn’t apply if the debenture is given to someone living in New Zealand, and the company tells the tax office about all the debentures it has given out, who has them, and how much interest they’re paying.

If you’re named as having a debenture in the company’s list, you have to pay tax on the money you make from it. But if you sell your debenture to someone else, you need to tell the tax office. If you do, the new owner will have to pay the tax instead of you.

If you’ve already paid tax on money that a new owner of your old debenture made, you can get that money back from them.

It doesn’t matter if the debenture is secured by the company’s property or if the person who owns it lives outside New Zealand - these rules still apply.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM1517411.

Topics:
Money and consumer rights > Taxes
Money and consumer rights > Banking and loans
Business > Industry rules
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Part H Taxation of certain entities
Agents

HD 14Companies issuing debentures

  1. A company is treated as an agent of a person if—

  2. the company has issued a debenture; and
    1. the person, as a debenture holder, derives income from the debenture.

      1. Subsection (1) does not apply to a debenture if—

      2. it is a profit-related debenture to which section FA 2 (Recharacterisation of certain debentures) applies or a stapled debt security to which section FA 2B (Stapled debt securities) applies; or
        1. it is issued to a New Zealand resident, and the company provides the Commissioner with a certified list containing particulars of the debentures, the name and details of each person to whom a debenture has been issued, and details of the interest payments before an assessment is made in a tax year of the debenture holder.

          1. A person named as a debenture holder in the list referred to in subsection (2)(b) is liable for income tax on income derived from the debenture. Subsection (4) overrides this subsection.

          2. Despite section BB 2 (Main obligations), if a debenture holder disposes of a debenture, they remain liable for income tax unless they notify the Commissioner of the disposal before an assessment is made in a tax year that takes into account the income derived from the debentures. On notification, the subsequent holder is liable in relation to the debentures, and the liability of the transferor is ended.

          3. If a person who formerly held a debenture pays income tax on taxable income that takes into account income derived by a subsequent holder, the income tax is treated as paid on behalf of the subsequent holder to the extent of the liability of the subsequent holder, and the person may recover that amount from them.

          4. For the purposes of subsection (1), it does not matter whether the debenture is charged on the company’s property, nor whether a debenture holder is an absentee.

          Compare
          Notes
          • Section HD 14(2)(a): substituted (with effect on 1 April 2008), on , by section 268(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
          • Section HD 14(2)(a): amended, on (not applying, for an income year, to a debenture that a person is party to, if the debenture is issued under an arrangement entered into before 22 November 2013; and a binding ruling on the application of section FA 2(5) was issued to the person in relation to the arrangement; and the binding ruling would continue to apply but for the repeal of the substituting debenture rule by the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (the Act); and for the whole of the income year, the total amount and the term of all debentures issued under the arrangement are not more than those disclosed in the application for the binding ruling; and the person makes an irrevocable election in writing, received by the Commissioner on or before 31 July 2014, that the repeal of the substituting debenture rule in the Act does not apply to their debenture), by section 125(1) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
          • Section HD 14 list of defined terms stapled debt security: inserted (with effect on 1 April 2008), on , by section 268(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).