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Income Tax Act 2007

Timing and quantifying rules - Spreading of specific income

EI 4B: Consideration for agreement to grant, renew, extend, or transfer leasehold estate or licence

You could also call this:

“Rules for payments related to land use agreements”

This law talks about what happens when you get money or spend money for agreeing to give someone the right to use land. It applies when the money is related to letting someone use land for a set time.

If you get or spend this money before the end of the time period, you need to split it equally across each month of that period. But this only applies to months that end after you get or spend the money, and only for up to 50 years from when the agreement starts.

If you get or spend the money after the time period ends, you count it all in the year you get or spend it.

There are special rules for when you stop owning the land or the right to use it before the time period ends. In these cases, you might need to count all the money in the year you stop owning it, instead of spreading it out.

The same thing happens if you give up your right to use the land or if it’s taken away from you before the time period ends. In this case, you count all the money in that year.

These special rules are more important than the general rule about spreading the money over time.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM5502507.

Topics:
Money and consumer rights > Taxes
Housing and property > Land use
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Part E Timing and quantifying rules
Spreading of specific income

EI 4BConsideration for agreement to grant, renew, extend, or transfer leasehold estate or licence

  1. This section applies when a person, in an income year, derives an amount that is income under section CC 1B (Consideration for agreement to grant, renew, extend, or transfer leasehold estate or licence), or incurs an amount of expenditure that is allowed as a deduction under section DB 20B (Consideration for agreement to grant, renew, extend, or transfer leasehold estate or licence), and the amount is incurred or derived—

  2. in relation to a right (the land right) that is a leasehold estate or a licence to use land; and
    1. in relation to a period (the spreading period)—
      1. beginning with the commencement, or a renewal or extension, of the land right; and
        1. ending before the earliest following date on which the land right may be terminated, or may expire, if not extended or renewed.

        2. This section does not apply to an amount that is income under section CC 1 or CG 8 (which relate to income from land or capital contributions).

        3. If the amount is incurred or derived—

        4. before the end of the spreading period, the amount is allocated in equal portions to each month that—
          1. includes part of the spreading period; and
            1. ends after the amount is incurred or derived; and
              1. is included in an income year ending within 50 years from the beginning of the spreading period; and
              2. at or after the end of the spreading period, the amount is allocated to the income year in which it is incurred or derived.

                1. If an amount of income would be allocated to a spreading period of a land right under subsection (3) for a person in the absence of this subsection, the amount is allocated to an income year (the balance year) ending before the end of the spreading period, if—

                2. at the beginning of the balance year, the person holds the land right, or the estate in land from which the land right is granted; and
                  1. in the balance year, the person ceases to hold the land right, or the estate in land from which the land right is granted; and
                    1. the amount would be allocated under subsection (3) to an income year—
                      1. ending before, or including, the end of the spreading period; and
                        1. after the balance year.

                        2. If an amount of a deduction would be allocated to a spreading period of a land right under subsection (3) for a person (the affected person) in the absence of this subsection, the amount is allocated to an income year (the balance year) ending before the end of the spreading period, if—

                        3. at the beginning of the balance year, either or both of the land right and the estate in land from which the land right is granted are held by the affected person or a person associated with the affected person; and
                          1. at the end of the balance year, neither of the land right and the estate in land from which the land right is granted are held by the affected person or a person associated with the affected person; and
                            1. the amount would be allocated under subsection (3) to an income year—
                              1. ending before, or including, the end of the spreading period; and
                                1. after the balance year.

                                2. If an amount of a deduction would be allocated to a spreading period of a land right under subsection (3) for a person (the affected person) in the absence of this subsection, the amount is allocated to an income year (the balance year) ending before the end of the spreading period, if—

                                3. the affected person holds the estate in land from which the land right is granted; and
                                  1. the land right is surrendered or terminated in the balance year.

                                    1. Subsections (4), (5), and (5B) override subsection (3).

                                    Notes
                                    • Section EI 4B: inserted (with effect on 1 April 2013 and applying to an amount that is incurred or derived on or after that date in relation to a lease or licence entered, renewed, extended, or transferred on or after that date), on , by section 48(1) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
                                    • Section EI 4B(5B) heading: inserted (with effect on 1 April 2013 and applying to an amount that is incurred or derived on or after that date in relation to a lease or licence entered, renewed, extended, or transferred on or after that date), on , by section 70(1) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
                                    • Section EI 4B(5B): inserted (with effect on 1 April 2013 and applying to an amount that is incurred or derived on or after that date in relation to a lease or licence entered, renewed, extended, or transferred on or after that date), on , by section 70(1) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
                                    • Section EI 4B(6): replaced (with effect on 1 April 2013 and applying to an amount that is incurred or derived on or after that date in relation to a lease or licence entered, renewed, extended, or transferred on or after that date), on , by section 70(2) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).