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Income Tax Act 2007

Income - Terminating provisions

CZ 27: Prior bad debt deductions clawback

You could also call this:

“Repay past tax deductions for bad debts under new rules”

If you acquire a debt before the Taxation Bill was introduced and still have it at the start of the 2014-15 income year, this rule might apply to you. It’s about money you claimed as a tax deduction for bad debts in the past.

You need to check if you’ve taken a deduction for this debt before the Bill was introduced. Also, you shouldn’t have any ongoing disputes with the tax office about these past deductions.

If all this applies to you, you might have to report some income. You’ll need to work out the difference between the total deductions you actually took and what you would have been allowed to take if the new rules had been in place when you first got the debt.

The amount of this difference is what you’ll need to report as income. This is because the law has changed how bad debt deductions work, and they want to make sure everyone is treated fairly under the new 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=DLM5972027.

Topics:
Money and consumer rights > Taxes
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Part C Income
Terminating provisions

CZ 27Prior bad debt deductions clawback

  1. This section applies when—

  2. a person acquires a debt before the introduction of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Bill (the introduction day); and
    1. the debt exists on the first day of the 2014–15 income year and a base price adjustment under section EW 31 (Base price adjustment formula) is not calculated for the debt in the 2014–15 income year or an earlier income year; and
      1. the person has taken, in a return of income, a deduction for the debt under section DB 31 (Bad debts) for an income year that starts before the introduction day (a prior bad debt deduction); and
        1. the prior bad debt deduction arose before the introduction day; and
          1. the person does not have a dispute with the Commissioner on the introduction day in relation to any prior bad debt deduction for the debt.

            1. The person has an amount of income equal to the difference between their total prior bad debt deductions for the debt, and the amount of deductions that they would have had for the debt under section DB 31 for the same period of the prior bad debt deductions if section DB 31(3B), (4B), (4C), and (5B) were treated as applying on and after the first day that the person acquires the debt.

            Notes
            • Section CZ 27: inserted (with effect on 20 May 2013), on , by section 30 of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
            • Section CZ 27(2): amended (with effect on 20 May 2013), on , by section 90 of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).