Section EZ 41 — Income Tax Act 2007: Sale of debt to associate of debtor

EZ 41 Sale of debt to associate of debtor (1) This section applies to a financial arrangement that is a debt which is sold at a discount to a person associated with the debtor on or after 20 May 1999. (2) A creditor is treated as having sold a debt at a discount if the debt is sold to a person associated under the 1988 version provisions with the debtor for 80% or less of the market value of the debt. (3) Subsection (4) applies to a debt that is sold if its market value was influenced by— (a) the decline in the original debtor’s creditworthiness between the date the debt was entered into and the date of sale; or (b) an increase in the possibility that the original debtor would not pay an amount owing under the debt between the date the debt was entered into and the date of sale; or (c) an event that occurred which reduced or cancelled the original debtor’s obligations under the debt. (4) For the purposes of subsection (2), a debt’s market value is determined as if its market value were not influenced by a factor listed in subsection (3)(a) to (c). (5) If a debt is sold at a discount to a person associated with the debtor, the associated person is treated as having provided the debtor with an interest free loan for the amount paid for the debt. (6) If the debtor subsequently repays the person associated with the debtor more than the amount the associated person paid for the debt, the excess amount paid by the debtor is— (a) a deduction to the debtor; and (b) income of the person associated with the debtor. Compare: 2004 No 35 s EZ 38