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Income Tax Act 2007

Recharacterisation of certain transactions - Interest apportionment on thin capitalisation

FE 4B: Meaning of public project asset, public project debt, and public project participant debt

You could also call this:

“Explaining key terms for public project funding and assets”

You need to know about three important terms related to public projects: public project asset, public project debt, and public project participant debt.

A public project asset is something in New Zealand that comes from a project done for the government or a public authority. The project must last at least 10 years and involve creating, upgrading, or maintaining assets in New Zealand. After the project is done, the government or public authority will own these assets. The people working on the project can’t sell these assets to anyone else for at least 10 years, except in special cases.

Public project debt is money borrowed by a company (called an excess debt entity) to pay for a public project. This money must be used for the project or to pay back other loans used for the project. The company can’t lend this money to others, except for small amounts. The interest on this debt must be paid in New Zealand.

Public project participant debt is a special kind of public project debt. It’s money loaned by the owners of the company doing the project, or by other companies working on the project together. The amount each owner or company loans should match how much of the project they’re responsible for.

These definitions help make sure that companies working on big public projects in New Zealand borrow money in a fair way and use it properly for the project.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=LMS65370.

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“Definitions of key financial terms used in tax law”

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Part F Recharacterisation of certain transactions
Interest apportionment on thin capitalisation

FE 4BMeaning of public project asset, public project debt, and public project participant debt

  1. Public project asset means an interest in an asset in New Zealand—

  2. arising from a project performed under a contract—
    1. with the Sovereign in right of New Zealand or a public authority; and
      1. for which borrowing by the Crown or public authority is approved by the Minister of Finance under the Public Finance Act 1989 or the Crown Entities Act 2004; and
        1. for a period of 10 years or more; and
          1. requiring the persons performing the project to provide, upgrade, or create assets in New Zealand and to operate or maintain the assets in New Zealand; and
            1. requiring that, after completion of the contract, the assets be owned by the Sovereign in right of New Zealand or the public authority; and
            2. that each person performing the contract is not permitted under the terms of the contract to dispose of within 10 years from the beginning of the project, except to the Sovereign in right of New Zealand or a public authority, as provided by the contract, or to another person performing the project; and
              1. the income from which has a source in New Zealand for each person performing the contract.

                1. Public project debt, for an excess debt entity and a project, means a total amount of debt, each part of which is for a loan to the excess debt entity, that—

                2. is applied by the excess debt entity to—
                  1. the project to give rise to public project assets or income derived from public project assets:
                    1. refinance a loan that has been applied in a way satisfying this paragraph; and
                    2. does not provide funds, exceeding a minor or incidental amount, that the excess debt entity lends—
                      1. to a person who is not an associated person performing the project; and
                        1. for a period that is not a delay in the application of the funds to the project; and
                        2. gives rise to interest expenditure that the excess debt entity incurs in New Zealand.

                          1. Public project participant debt, for an excess debt entity and a project, means an amount of a loan that is—

                          2. public project debt for the project; and
                            1. if the excess debt entity is the sole person performing the contract, is made or refinanced—
                              1. by 1 of the persons (the owners) who holds ownership interests in the excess debt entity; and
                                1. under an arrangement between the owners with a purpose or effect that each owner provide funding in proportion to the ownership interest in the excess debt entity held by the owner; and
                                2. if the excess debt entity is 1 of the persons performing the contract (the project participants), made or refinanced—
                                  1. by 1 of the project participants, or by a person associated with a project participant; and
                                    1. under an arrangement between the project participants with a purpose or effect that each project participant, or a person associated with the project participant, provide funding in proportion to the interest in the project held by the project participant.

                                    Notes
                                    • Section FE 4B: inserted, on , by section 19(1) (and see section 19(2) for application) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).