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Income Tax Act 2007

Recharacterisation of certain transactions - Treatment of notional loans to New Zealand branches of foreign banks

FG 2: Notional loans

You could also call this:

“How banks' internal money transfers to branches are treated as loans for tax purposes”

When a bank makes money available to its branch, it’s considered a ‘notional loan’. This means it’s treated like the bank lent money to the branch. This is important for rules about taxing money sent overseas and for the Stamp and Cheque Duties Act 1971.

The amount of this notional loan doesn’t include money that the bank got from another financial deal if they’ve already paid certain taxes on the interest from that deal. This only applies if the interest came from New Zealand.

If the branch gives money back to the bank as if it’s paying back this notional loan, and they record this in their books for the year, it’s treated as if they’re actually paying back some or all of the notional loan.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM7219803.

Topics:
Money and consumer rights > Taxes
Money and consumer rights > Banking and loans
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FG 1: When this subpart applies, or

“This part explains when rules apply to foreign banks lending money to their New Zealand branches”

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FG 3: Notional interest, or

“How banks handle notional interest for tax purposes”

Part F Recharacterisation of certain transactions
Treatment of notional loans to New Zealand branches of foreign banks

FG 2Notional loans

  1. The amount that the bank makes available to the branch is a notional loan and, for the purposes of the NRWT rules and the Stamp and Cheque Duties Act 1971, is treated as money lent to the branch by the bank.

  2. The amount of the notional loan does not include an amount provided as funding to the bank under a financial arrangement if NRWT or approved issuer levy is paid, in the absence of this subpart, in relation to interest that—

  3. is derived under the arrangement; and
    1. has a source in New Zealand.

      1. If the branch makes an amount available to the bank as a notional repayment of the amount referred to in subsection (1), recording the transaction in their accounting records for an income year, the amount is treated as a repayment of some or all of the amount of the notional loan.

      Notes
      • Section FG 2: inserted, on , by section 105(1) (and see section 105(2)) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
      • Section FG 2 list of defined terms approved issuer: inserted, on (with effect on 30 March 2017), by section 99 of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
      • Section FG 2 list of defined terms approved issuer levy: repealed, on (with effect on 30 March 2017), by section 99 of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).