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Income Tax Act 2007

General collection rules - Terminating provisions

RZ 13: Treatment of prepayments

You could also call this:

“How to handle prepayments for overseas financial arrangements”

This section explains how to handle prepayments for tax purposes when you live in New Zealand and have a financial arrangement with someone outside the country. It applies to arrangements made before 30 March 2017.

If you’ve paid approved issuer levy or haven’t had to withhold non-resident withholding tax (NRWT) before this date, and the arrangement would be considered a related-party debt under sections RF 12H to RF 12J, this section applies to you if you’re still part of the arrangement on or after 30 March 2017.

If you’ve paid more interest than the total cost you’ve recorded for the arrangement by the time this law takes effect, the extra interest is treated as if it was paid on that date.

When the arrangement is in a foreign currency, you need to calculate the total interest and costs in that currency first. Then, you convert any extra amount to New Zealand dollars using the rules in subpart YF.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM7228612.

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Part R General collection rules
Terminating provisions

RZ 13Treatment of prepayments

  1. This section applies for the purposes of the NRWT rules when—

  2. a person resident in New Zealand enters into a financial arrangement before the date on which the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 receives the Royal assent (the date of enactment); and
    1. either—
      1. no obligation to withhold NRWT has arisen in relation to the arrangement before the date of enactment; or
        1. approved issuer levy has been paid in relation to the arrangement before the date of enactment; and
        2. the arrangement would be a related-party debt if sections RF 12H to RF 12J (which relate to related-party debt) had applied to the arrangement before the date of enactment; and
          1. the person is party to the arrangement on or after the date of enactment.

            1. If, at the date on which section 273(1) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 applies in relation to the arrangement, the total interest paid under the arrangement is more than the total expenditure accrued by the person on the arrangement, the excess interest is treated as paid on that date.

            2. For the purposes of subsection (2) and an arrangement that is denominated in a foreign currency, the calculation of total interest and total expenditure must be made in the currency of the arrangement and the excess converted to New Zealand dollars under subpart YF (Currency conversion).

            Notes
            • Section RZ 13: inserted, on , by section 287 (and see section 5) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
            • Section RZ 13 list of defined terms approved issuer: inserted, on (with effect on 30 March 2017), by section 241 of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
            • Section RZ 13 list of defined terms approved issuer levy: repealed, on (with effect on 30 March 2017), by section 241 of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).