Section EZ 42 — Income Tax Act 2007: Post facto adjustment

EZ 42 Post facto adjustment (1) A financial arrangement is subject to the provisions of this section where— (a) any of the amount or amounts payable under the financial arrangement are determined in the terms of the financial arrangement, as to whole or part, at the discretion of either the issuer or the holder, or both of them, or at the discretion of any other person where either the issuer or the holder and the other person are associated persons; and (b) the change in the amount or amounts payable under the financial arrangement upon the exercise of a discretion as provided for in paragraph (a) does not reflect changes in economic, commodity, industrial, or financial indices or banking or general commercial rates; and (c) the making of such financial arrangements is not generally accepted commercial practice; and (d) the effect of the arrangement is to defeat the intent and application of the old financial arrangements rules. (2) Where a financial arrangement is subject to the provisions of this section, both the holder and the issuer of the financial arrangement are required to calculate a post facto adjustment in respect of the following income years: (a) the income year in which the person ceases to be a holder or an issuer, as the case may be, in respect of the financial arrangement; and (b) where the person has not ceased to be a holder or an issuer of the financial arrangement at the end of the fifth income year following the income year of its issue or acquisition by the person, in that fifth income year; and (c) until the person ceases to be an issuer or a holder in respect of the financial arrangement, in every fifth income year succeeding the income year in which the post facto adjustment was last required to be made under this section. (3) In order to calculate the post facto adjustment, a person must,— (a) having regard to all amounts specified in section EZ 35(1) which have been paid or are payable, in respect of the financial arrangement, since acquisition or issue of the financial arrangement by the person to the end of the income year in which the post facto adjustment applies, calculate amounts of income or expenditure under the arrangement for each income year using the yield to maturity method as prescribed in a determination made by the Commissioner for the purposes of section EZ 35(2) : provided that where the post facto adjustment is made at a time determined by subsection (2)(b) or (c), the person is, for the purpose of the post facto adjustment calculation, deemed to have transferred the financial arrangement for an amount equal to its market value on the last day of the income year; and (b) recalculate the income tax liability for each income year using the amounts of income or expenditure calculated under paragraph (a) in substitution for the amounts of income or expenditure previously calculated in respect of the financial arrangement for each income year. (4) Where a person has been required to calculate the post facto adjustment, the person is required to make a special return in respect of the post facto adjustment in the form required by the Commissioner, no later than the time at which that person is required to file an annual return for the income year in which the post facto adjustment is made. (5) Despite the time bar, the Commissioner must amend the person’s assessment for the income years to which the post facto adjustment relates in accordance with the alterations to that income or expenditure as calculated by the post facto adjustment. Compare: 2004 No 35 s EZ 39