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Income Tax Act 2007

Recharacterisation of certain transactions - Interest apportionment on thin capitalisation - Debt percentage of New Zealand group

FE 16B: Total group non-debt liabilities

You could also call this:

“Calculating a group's total non-debt financial obligations”

When calculating total group non-debt liabilities for a New Zealand group in an income year, you start with the total outstanding balances of liabilities shown in the financial statements. This applies to a natural person, an excess debt entity, or another member of the New Zealand group. From this total, you subtract certain types of liabilities.

You don’t include liabilities that are part of the total group debt calculation. You also don’t include some financial arrangements between a company in the group and its shareholders. These arrangements must provide funds to the company and meet specific conditions about shareholder voting interests.

You don’t include certain shares in a group company held by shareholders, if the shares were issued in a specific way and the shareholder has a significant voting interest. Provisions for dividends are also not included.

You can choose to exclude some deferred tax liabilities related to asset depreciation, but only under specific conditions.

For a worldwide group, the calculation is similar. You start with the total outstanding balances of liabilities shown in the financial statements of the worldwide group. Then you subtract the liabilities included in the total group debt and certain financial arrangements.

If a shareholder is part of a wholly-owned group, there are special rules about how to treat that group for these calculations.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=LMS65792.

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FE 16: Total group assets, or

“How to calculate the total value of assets for a New Zealand group”

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FE 17: Consolidation of debts and assets, or

“Adding up a company group's debts and assets”

Part F Recharacterisation of certain transactions
Interest apportionment on thin capitalisation: Debt percentage of New Zealand group

FE 16BTotal group non-debt liabilities

  1. In this subpart, for a New Zealand group, total group non-debt liabilities for an income year means the total of the outstanding balances of liabilities shown in the financial statements of a natural person, or an excess debt entity, or another member of the New Zealand group, reduced by the total of liabilities shown in the financial statements, each of which is—

  2. included in the calculation of total group debt under section FE 15:
    1. under a financial arrangement, other than an agreement for the sale and purchase of property or services, entered into by a company that is a member of the group with a shareholder, if the financial arrangement provides funds to the company and—
      1. the funding is provided under an arrangement between shareholders and the amount of the funds provided by each shareholder is proportional to the voting interest of each shareholder at the time:
        1. the shareholder and associated persons hold 10% or more of the voting interests in the company:
        2. a share in a company that is a member of the group held by a shareholder, if—
          1. the share was issued as part of a share issue to shareholders and the number of shares issued to each shareholder was proportional to the voting interest of each shareholder at the time:
            1. the shareholder and associated persons hold 10% or more of the voting interests in the company:
            2. a provision for dividends:
              1. a deferred liability for tax that a person chooses to include in a reduction under this section if—
                1. the deferred liability arises from a difference between the value shown in the financial statements of the person for an asset and the amount of depreciation loss remaining available to the person for the asset; and
                  1. the deferred liability is for an amount of tax that would not arise if the asset were sold for the value shown in the financial statements; and
                    1. the value shown in the financial statements for the asset is calculated by reference to the amount that the person is allowed as a deduction or depreciation loss for the asset, or on the basis that the asset is non-depreciable or depreciable at a rate of zero.

                    2. In this subpart, for a worldwide group, total group non-debt liabilities for an income year means the total of the outstanding balances of liabilities shown in the financial statements of the worldwide group, reduced by the total of liabilities that are included in the total group debt and the total of liabilities under financial arrangements that are removed under section FE 18(3B) from the measurement of total group debt.

                    3. If a shareholder is a member of a wholly-owned group,—

                    4. for the purposes of section FE 16B(1)(b)(i) and (c)(i), the wholly-owned group is treated as the shareholder for all shares held by persons who are members of the wholly-owned group; and
                      1. for the purposes of section FE 16B(1)(b), the wholly-owned group is treated as the provider of all the funds that are provided by persons who are members of the wholly-owned group.

                        Notes
                        • Section FE 16B: inserted, on , by section 31(1) (and see section 31(2) for application) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
                        • Section FE 16B(1)(b): amended (with effect on 1 July 2018), on , by section 120(1) (and see section 120(6) for application) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
                        • Section FE 16B(1)(b)(i): amended (with effect on 1 July 2018), on , by section 120(2) (and see section 120(6) for application) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
                        • Section FE 16B(1)(c)(i): amended (with effect on 1 July 2018), on , by section 120(3) (and see section 120(6) for application) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
                        • Section FE 16B(1)(e): amended (with effect on 1 July 2018), on , by section 194 of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
                        • Section FE 16B(3) heading: inserted (with effect on 1 July 2018), on , by section 120(4) (and see section 120(6) for application) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
                        • Section FE 16B(3): inserted (with effect on 1 July 2018), on , by section 120(4) (and see section 120(6) for application) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
                        • Section FE 16B list of defined terms wholly-owned group: inserted (with effect on 1 July 2018), on , by section 120(5) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).