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Income Tax Act 2007

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

RF 12H: Meaning of related-party debt

You could also call this:

“What counts as a loan between connected parties for tax purposes”

Related-party debt is when someone lends money to another person or company they’re connected to. This connection can happen in a few ways:

  1. The lender and borrower are associated with each other.
  2. The money is provided through an indirect associated funding arrangement, which is explained in another part of the law.
  3. The lender is part of a group of non-resident owners that is associated with the borrower.

For it to be related-party debt, the borrower must also be able to claim a tax deduction for the expenses from this arrangement.

This definition doesn’t apply to financial arrangements involving New Zealand banking groups, except for the indirect associated funding part.

If the lender is part of a non-resident owning group associated with the borrower, they’re treated as if they’re associated for this and some other specific tax 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=DLM7227950.

Topics:
Money and consumer rights > Taxes
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RF 12I: Concepts used for definition of related-party debt, or

“How related-party debt is defined using indirect lending and non-resident ownership”

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

RF 12HMeaning of related-party debt

  1. Related-party debt means a financial arrangement under which—

  2. a person (the lender) is party to an arrangement that provides funds to another person (the borrower) when—
    1. the lender and borrower are associated persons; or
      1. the funding is provided through an indirect associated funding arrangement, as described in section RF 12I(2); or
        1. the lender is a member of a non-resident owning body that is associated with the borrower, as described in section RF 12I(3); and
        2. expenditure arises for the borrower for which they are allowed a deduction.

          1. Subsection (1), other than paragraph (a)(ii), does not apply to a financial arrangement to which a member of a New Zealand banking group as determined under section FE 33 (New Zealand banking group) is party.

          2. When subsection (1)(a)(iii) applies, the borrower and the member of the non-resident owning body are treated as if they were associated for the purposes of this section, and sections RF 2C, RF 12, RF 12D to RF 12G, RF 12I, and RF 12J and section 32M of the Tax Administration Act 1994.

          Notes
          • Section RF 12H: inserted, on , 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).