1Interpretation

1. In this schedule, unless the context otherwise requires—

2. any term or expression that is defined in the Income Tax Act 2007 and used, but not defined, in this schedule has the same meaning as in the Income Tax Act 2007; and
3. Act means the Income Tax Act 2007.

2Adjustments to net income for purpose of determining adjusted net income

1. For the purposes of section 73 of this Act, the adjustments to net income in clauses 3 to 15 apply for the purposes of determining adjusted net income.

3Non-resident's foreign-sourced income

1. The adjusted net income of a borrower who is non-resident includes the net income of the non-resident's foreign-sourced income, as if the borrower were a New Zealand resident.

4Borrowers who carry on business and investment activities

1. The income and deductions for any investment activity, or for any business, for a tax year are ignored when calculating a borrower's adjusted net income for that tax year if, treating the borrower as having only the income and deductions of that investment activity or of that business, the borrower would have a net loss for that year.

2. For the purposes of applying subclause (1), 2 or more business or investment activities may be treated as a single activity if the Commissioner considers that those business or investment activities are of a kind that are normally carried on in association with each other.

3. For the purposes of applying subclause (1), as modified by subclause (2), deductions that relate to an asset used in carrying on 2 or more business or investment activities must be appropriately apportioned between those activities on the basis of the use of that asset in those activities.

5Exempt income included

1. An amount derived by the borrower is not treated as exempt income if it is—

2. an overseas pension within the meaning of section CW 28(2)(a) of the Act:
3. an amount of salary or wages that is exempt from income tax under an Act, or under a regulation or Order in Council made under an Act, that is listed in Schedule 38 of the Act (Acts exempting income from tax: income included in family scheme income).

5AExcluded income

1. The following amounts are not included in adjusted net income of the borrower:

   Retirement scheme contributions

2. an amount of retirement scheme contribution that is not excluded income of the borrower and would be their excluded income in the absence of section CX 50B(2) of the Act (Contributions to retirement savings schemes):

Amounts of depreciation loss on disposal of building

3. in relation to a building from the disposal of which the borrower derives assessable income, an amount of depreciation loss allowed in the 2002–03 or earlier income year.

4. However, subclause (1)(b) does not apply to an amount of depreciation loss of a business or investment activity that under clause 4 is treated as having no net income for the purposes of calculating adjusted net income.

6Income from portfolio investment entities

1. An amount of income attributed by a portfolio investment entity to the borrower for an income year—

2. is not included in adjusted net income of the borrower for the income year if the portfolio investment entity is a superannuation fund or retirement savings scheme:
3. is included in adjusted net income of the borrower for the income year if paragraph (a) does not apply.

4. A distribution from a listed PIE that is derived by the borrower in an income year is included in adjusted net income of the borrower for the income year.

7Deposits in main income equalisation accounts

1. The borrower’s adjusted net income is increased by the amount of a main income equalisation deposit the borrower makes for the income year.

7ARefunds from main income equalisation accounts

1. The borrower’s adjusted net income does not include the amount of a main income equalisation refund the borrower receives for the income year.

8Borrowers who are major shareholders in close companies

1. This clause applies for the purpose of determining the amount that is included in the adjusted net income of a borrower for an income year when the borrower is a major shareholder in a close company (the company) on the last day of the company’s income year.

2. Section MB 4 of the Act applies as if the references in that section to family scheme income were references to adjusted net income and with all other necessary modifications.

3. Repealed

4. Repealed

5. Repealed

9Treatment of distributions from superannuation schemes

1. Subclause (3) applies if a borrower receives a distribution from a superannuation scheme in an income year and—

2. an employer of the borrower has made contributions to the superannuation scheme in the income year in which the distribution was received or in the 2 income years immediately before that income year; and
3. the borrower continues to work for the employer for 1 month or more after the date of the distribution.

4. Subclause (3) does not apply if a borrower receives a distribution from a superannuation scheme—

5. as a result of, and on or after, the person's retirement from employment with an employer who was a contributor to the scheme; or
6. if the superannuation scheme is a KiwiSaver scheme or a complying superannuation fund.

7. For the purposes of calculating adjusted net income, the distribution (excluding any amount attributable to a contribution by the borrower as a member of the superannuation scheme) is adjusted net income of the borrower derived in the tax year or tax years that corresponds to the income year or years in which the employer contributions were made.

10Treatment of distributions from retirement savings schemes

1. Subclause (2) applies if—

2. a borrower receives a distribution of a retirement scheme contribution from a retirement savings scheme in an income year; and
3. RSCT has been withheld from the contribution; and
4. at the time of the distribution, the person—
   1. is not eligible for New Zealand superannuation; and
   2. is eligible for a distribution of a retirement scheme contribution from a retirement scheme contributor.

5. For the purposes of calculating adjusted net income, the distribution is adjusted net income of the person derived in the income year in which the distribution is made.

11Borrowers who are settlors of trusts

1. This clause applies for the purpose of determining the amount that is included in the adjusted net income of a borrower for an income year when the borrower is the settlor of a trust (the borrower’s trust) at a time in the income year, other than solely as a result of providing personal services for less than market value in the administration of the trust or the maintenance of trust property.

2. This clause does not apply if—

3. the trustee of the borrower’s trust is registered as a charitable entity under the Charities Act 2005:
4. the borrower’s trust is solely for the benefit of a local authority:
5. interest and dividends derived by the trustee of the borrower’s trust would be exempt income of the trustee under section CW 45 (Funeral trusts) of the Act:
6. the borrower’s trust is a superannuation fund:
7. the borrower is not permitted to benefit from the borrower’s trust except under an order of a court.

8. The amount included in the borrower’s adjusted net income is the amount calculated using the formulas in subclauses (4) and (5), adjusted, if applicable, by subclauses (6) and (7) for main income equalisation account amounts.

9. For the purposes of subclause (3), the relevant amount is calculated using the formula—

   $(a\; +\; b)\; ÷\; c$

   Where:

   • a a

     is the net income of the trustee of the borrower’s trust for the income year reduced, to not less than zero, by the amount of the trustee’s income that vests or is paid by the trustee as beneficiary income for the trustee’s income year

   • b b

     is the greater of zero and the amount given by totalling the amounts calculated by applying the formula in subclause (5) to each company in which the trustee of the borrower’s trust and associated persons hold, on the last day of the company’s income year, voting interests of 50% or more

   • c c

     is the number of settlors of the borrower’s trust who are alive at any time in the income year, including the borrower, for which this clause applies.

10. For the purposes of item b in the formula in subclause (4), an amount to be totalled is, for each relevant company, calculated using the formula—

    $d\; \times \; (e\; -\; f)$

    Where:

    • d d

      is the percentage voting interests for the relevant company held, on the last day of the company’s income year, by the trustee

    • e e

      is the net income of the relevant company for the company’s income year

    • f f

      is the total dividends paid by the relevant company for the company’s income year.

11. For the purposes of subclause (3), if the trustee or a company described in the definition of item b in subclause (4) makes a main income equalisation deposit for an income year, the amount of the deposit is added to—

12. item a in the formula in subclause (4), if the trustee makes the deposit:
13. item e in the formula in subclause (5), if the company makes the deposit.

14. For the purposes of subclause (3), if the trustee or a company described in the definition of item b in subclause (4) receives a main income equalisation refund for an income year, the amount of the refund is subtracted from—

15. item a in the formula in subclause (4), if the trustee receives the refund:
16. item e in the formula in subclause (5), if the company receives the refund.

12Income from fringe benefits

1. Subclause (2) applies if—

2. a borrower is an employee of a company in which the borrower and associated persons hold voting interests of 50% or more on the last day of the income year; and
3. the company provides a fringe benefit that must be attributed to the borrower under section RD 47 of the Act (Attribution of certain fringe benefits).

4. The adjusted net income of the borrower for the income year includes an amount equal to the total of the following amounts:

5. the taxable value of the fringe benefits that the company must attribute to the borrower under sections RD 47 to RD 49 of the Act for the income year; and
6. the company’s FBT liability in relation to the borrower under section RD 50 of the Act (Employer’s liability for attributed benefits) for the income year.

12AIncome from employment benefits

1. This clause applies to a borrower to whom clause 12 does not apply if the borrower's employer makes a motor vehicle or a short term charge facility available to the borrower in the income year.

2. If the borrower's employer makes a motor vehicle available for the borrower’s private use (the benefit) and, under the terms of the borrower’s employment, the borrower would be entitled to a greater amount of employment income if the borrower chose not to receive the benefit, the borrower's adjusted net income for that income year includes an amount equal to the amount by which the borrower's employment income would be greater without the benefit.

3. If the borrower's employer makes any short term charge facility available to the borrower (the facility), and the total value for the income year of any such facilities (excluding any fringe benefit tax) is more than the lesser of $1,200 or 5% of the borrower's salary or wages, then the borrower's adjusted net income for the income year includes the total value of the facilities including any fringe benefit tax.

4. In calculating under subclause (3) the amount of fringe benefit tax on a facility, the person may use—

5. the rate of fringe benefit tax used by the person’s employer in calculating the fringe benefit tax payable on the facility:
6. the maximum basic rate of fringe benefit tax specified in the Income Tax Act 2007, schedule 1, part C, table 1.

13Income from deposits in main income equalisation accounts (Repealed)

14Income from certain pensions and annuities

1. If, in the income year, a borrower derives a pension or an annuity that is exempt income of the borrower under section CW 4 of the Act (Annuities under life insurance policies) or is a pension from a superannuation fund, the adjusted net income of the borrower for the income year—

2. includes half the amount of pension or annuity derived in the income year; and
3. does not include the other half of the amount of pension or annuity derived in the income year.

14BRemission income of discharged bankrupt excluded (Repealed)

15Payments from trusts, not being beneficiary income, and where borrower not settlor

1. For the purposes of calculating adjusted net income, a borrower must include all payments from trusts in the adjusted net income of the person derived in the income year in which the distribution is made where—

2. the distribution is not beneficiary income in relation to the borrower; and
3. the borrower is not the settlor of the trust.

4. The Commissioner may, in his or her discretion, determine the circumstances in which payments from a trust should be excluded for the purposes of calculating adjusted net income.