Income Tax Act 2007

Avoidance and non-market transactions - Avoidance: specific

GB 51: Proportionality between amount of debt and ownership interests

You could also call this:

“Matching company ownership and debt levels for tax purposes”

This section applies when you or a trustee linked to you have ownership interests in a company. It also applies when there’s an arrangement that affects how your ownership interest in the company relates to the company’s debt that’s connected to you. If this arrangement goes against the intent of the rules about interest apportionment on thin capitalisation, it will be ignored.

The law says that if there’s an arrangement that changes how your ownership in the company matches up with the company’s debt related to you, and this arrangement tries to work around the rules about thin capitalisation, it won’t be considered. The rules about thin capitalisation can be found in subpart FE of the Income Tax Act 2007.

In simple terms, if you try to change how much you own of a company compared to how much the company owes because of you, in a way that doesn’t follow the spirit of the tax rules, the tax department will ignore those changes when they’re looking at the company’s debt levels.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM6442207.

Topics:
Money and consumer rights > Taxes

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GB 51B: Increases or decreases in value, or

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Part G Avoidance and non-market transactions
Avoidance: specific

GB 51Proportionality between amount of debt and ownership interests

  1. This section applies when—

  2. a person has ownership interests in a company or a trustee who is a linked trustee for the person under section FE 4 (Some definitions) has ownership interests in the company; and
    1. an arrangement affects the relationship between the level of an ownership interest in the company relating to the person and the company's debt relating to the person; and
      1. the arrangement has an effect of defeating the intent and application of subpart FE (Interest apportionment on thin capitalisation).
        1. The effect of the arrangement on the proportionality between the level of an ownership interest in the company relating to the person and the company's debt relating to the person is disregarded for the purposes of subpart FE.

        Notes
        • Section GB 51: inserted, on , by section 120 of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).