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Income Tax Act 2007

General collection rules - Withholding tax on non-resident passive income (NRWT)

RF 12D: Determining amount of non-resident financial arrangement income

You could also call this:

“Calculating income from loans to related parties”

When you lend money to a related party, the amount of non-resident financial arrangement income you get in a year is the same as what the borrower spends on the debt that year.

This rule applies to several other sections of the law about how to treat prepayments and non-resident financial arrangement income.

The money spent doesn’t include anything that you, as the lender, won’t receive, even if it’s an expense for the borrower.

For these kinds of loans, you need to use the same method as the borrower to figure out how much was spent. But you can’t use the fair value method or the market valuation method. You have to use a different method instead.

You need to do all the calculations in the same currency as the loan.

If the borrower makes money from the loan, you’re treated as if you didn’t make any money from it.

When the law talks about a year, it can also mean part of a year.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM7227940.

Topics:

Money and consumer rights > Taxes

Money and consumer rights > Banking and loans

RF 12C: Amount derived from non-resident life insurer becoming resident, or

“Tax rules when a foreign life insurer moves to New Zealand”

RF 12E: When non-resident financial arrangement income treated as paid, or

“When income from overseas financial arrangements is considered paid”

Part R General collection rules
Withholding tax on non-resident passive income (NRWT)

RF 12DDetermining amount of non-resident financial arrangement income

The amount of non-resident financial arrangement income derived by a lender in an income year is an amount equal to the expenditure incurred in the income year on the related-party debt by the borrower.
Subsections (3), (4), (5), (6), and (7) apply for the purposes of subsection (1) and sections RF 2B, RF 2C, RF 12E to RF 12J, and RZ 13 (Treatment of prepayments).
Expenditure excludes an amount that may be an expense of the borrower under the arrangement but is not, and will not be, an amount received by the lender.
For financial arrangements involving related-party debt, the spreading method that must be applied in determining the amount incurred is the method used by the borrower for the financial arrangement under subpart EW (Financial arrangements rules) excluding the following methods for which another spreading method must be substituted:
the fair value method:
the market valuation method under section EW 18 (Market valuation method).

The calculation of total interest and total expenditure must be made in the currency of the financial arrangement.
In the calculation of non-resident financial arrangement income, if the borrower has income on the related-party debt, the amount derived by the lender is treated as zero.
For the purposes of subsection (1), a reference to an income year includes a reference to a part of an income year.

Notes

Section RF 12D: inserted, on 30 March 2017, by section 279 (and see section 5) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).