Income Tax Act 2007

Taxation of certain entities - Other entities

HR 10: What happens when vehicle stops being transparent debt funding special purpose vehicle?

You could also call this:

“Changes when a debt funding vehicle loses its special status”

When a company or trust stops being a special vehicle for debt funding, some changes happen. This is what you need to know:

The company or trust that used to own the property is treated as if they sold it. The special vehicle is then treated as if they bought the property. This is seen as happening with another person, and the price is what the property is worth.

If the original owner owed money, it’s now treated as if the special vehicle owes that money instead. If the original owner was owed money, it’s now treated as if the special vehicle is owed that money. In both cases, it’s treated as if this change happened with another person, and the amount is what the debt or asset is worth.

This doesn’t apply if the special vehicle is ending in a specific way called an “unwind”. An unwind is when the special vehicle cancels its debts and guarantees, gives back any ownership to the original owner, and then closes down.

These rules are more important than the rules in section HZ 10, which talks about what happens when someone chooses to use these special vehicle rules.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM2575746.

Topics:
Money and consumer rights > Taxes
Money and consumer rights > Banking and loans

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Part H Taxation of certain entities
Other entities

HR 10What happens when vehicle stops being transparent debt funding special purpose vehicle?

  1. When a company or a trustee of a trust (the vehicle) stops being a debt funding special purpose vehicle for any reason, other than on unwind, and an election has been made under section HR 9BA or HZ 9 (Elections to treat existing debt funding special purpose vehicles as transparent) that relates to the debt funding special purpose vehicle, the following apply:

  2. the relevant originator is treated as disposing of its property (the property) that has been subject to section HR 9(b) in relation to the vehicle immediately before the vehicle stops being a debt funding special purpose vehicle:
    1. the vehicle is treated as acquiring the property immediately after the vehicle stops being a debt funding special purpose vehicle:
      1. the relevant originator is treated as not being a party to an arrangement (the arrangement) that the originator was treated as being a party to under section HR 9(c) in relation to the vehicle immediately before the vehicle stops being a debt funding special purpose vehicle:
        1. the vehicle is treated as being a party to the arrangement immediately after the vehicle stops being a debt funding special purpose vehicle.
          1. The disposition of property in subsection (1)(a) and the acquisition of property in subsection (1)(b) are treated as occurring with a single third party for payments equal to the property’s market value.

          2. At the time of the relevant originator becoming not a party to an arrangement, and the vehicle becoming a party to the arrangement, under subsection (1)(c) or (d),—

          3. if the arrangement is a liability of the originator,—
            1. the vehicle is treated as receiving consideration equal to the market value of the liability, expressed as a positive amount, from a single third party:
              1. the originator is treated as paying consideration equal to the market value of the liability, expressed as a positive amount, to a single third party; or
              2. if the arrangement is an asset of the originator,—
                1. the originator is treated as receiving consideration equal to the market value of the asset from a single third party:
                  1. the vehicle is treated as paying consideration equal to the market value of the asset to a single third party.
                  2. In this section, unwind means a process, ignoring section HR 9, by which—

                  3. guarantees, securities, and debts, as applicable, described in the definition of debt funding special purpose vehicle, paragraph (d), are cancelled; and
                    1. interests described in the definition of debt funding special purpose vehicle, paragraph (b) are transferred to the relevant originator; and
                      1. the vehicle is terminated, by liquidation or otherwise.
                        1. This section overrides section HZ 10 (What happens when election is made under section HZ 9?).

                        Notes
                        • Section HR 10: replaced, on , by section 225(1) (and see section 225(2) for application) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).