Section FE 6 — Income Tax Act 2007: Apportionment of interest by excess debt entity

FE 6 Apportionment of interest by excess debt entity Who this section applies to (1) This section applies to an excess debt entity or a natural person if section FE 5 requires the entity or person to apportion their interest expenditure for an income year under this section. A natural person is treated as an excess debt entity for the purposes of this section other than in the item threshold amount . Formula (2) The excess debt entity is treated under section CH 9 (Interest apportionment: excess debt entity) as deriving in the income year an amount of income calculated for the income year using the formula— (total deduction + FRD – adjust) × total debt – concession × group debt percentage – threshold amount total debt group debt percentage. Items in formula (3) In the formula,— (a) total deduction is the whole amount of the excess debt entity’s deduction for interest allowed under any of sections DB 6 to DB 8 (which relate to deductions for interest expenditure) less— (i) the total amount allowed in relation to interest payable to a company that is a member of the entity’s New Zealand group under sections FE 3 and FE 28 , but this does not include an amount referred to in subparagraph (ii); and (ii) the total amount allowed in relation to interest payable under a financial arrangement excluded from the total group debt of its New Zealand group under section FE 15 : (ab) FRD is the total amount of dividends paid by the excess debt entity in relation to fixed-rate foreign equity or fixed-rate shares–– (i) issued by the entity; and (ii) held by a person resident in New Zealand who is not a company that is a member of the entity's New Zealand group: (ac) adjust is— (i) zero, if the excess debt entity is not an excess debt outbound company or a natural person or trustee described in section FE 2(1)(g) ; or (ii) the amount (the group finance cost ) that is the total amount for the New Zealand group found by calculating for each member of the New Zealand group the total amount (the member finance cost ) of the items total deduction and FRD for the member, if the group finance cost is $1,000,000 or less and subparagraph (i) does not apply; or (iii) the amount found by multiplying the amount by which $2,000,000 exceeds the group finance cost by the ratio obtained by dividing the member finance cost for the excess debt entity by the group finance cost, if the group finance cost is more than $1,000,000 and less than $2,000,000 and subparagraph (i) does not apply; or (iv) zero, if the group finance cost is $2,000,000 or more and subparagraph (i) does not apply: (b) total debt is the total amount of the debt of the excess debt entity’s New Zealand group for the income year as calculated under section FE 15 , before allowing for a reduction under section FE 13 : (c) concession is any reduction allowed under section FE 13 in the total group debt of the excess debt entity’s New Zealand group for the income year, averaged when section FE 8(1)(a) or (b) applies: (d) group debt percentage is the debt percentage of the excess debt entity’s New Zealand group for the income year: (e) threshold amount is, as applicable,— (i) if the excess debt entity is not a trustee and not an excess debt outbound company, or is a trustee who is not described in section FE 2(1)(g) , the greater of 60% and 110% of the debt percentage of their worldwide group: (ii) if the person is a natural person who is not described in section FE 2(1)(g) , 60%: (iii) if the excess debt entity is an excess debt outbound company, or is a trustee who is described in section FE 2(1)(g) , the greater of 75% and 110% of the debt percentage of their worldwide group: (iv) if the person is a natural person who is described in section FE 2(1)(g) , 75%. Alternative calculation (4) If a company that is in the same wholly-owned group of companies as the excess debt entity has a deduction for interest under any of sections DB 6 to DB 8 , the company may choose to be treated as deriving the income that the excess debt entity would otherwise, under subsection (2), be treated as deriving for the income year. The amount of income is not calculated using the formula in subsection (2) but is limited as set out in subsection (5). Limitation on election amount (5) The amount of income for which the company may make the election under subsection (4) must not be more than the total amount of deductions that the company has for interest for the income year, having taken into account any other income that the company chooses to treat itself as deriving under subsection (4). Defined in this Act: amount , company , deduction , excess debt entity , excess debt outbound company , financial arrangement , fixed-rate foreign equity , fixed-rate share , income , income year , interest , natural person , New Zealand , pay , total group debt , trustee , wholly owned group of companies Compare: 2004 No 35 s FG 8 Section FE 6(1) heading: substituted (with effect on 30 June 2009), on 6 October 2009, by section 211(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34). Section FE 6(1): substituted (with effect on 30 June 2009), on 6 October 2009, by section 211(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34). Section FE 6(2) formula: amended (with effect on 30 June 2009), on 6 October 2009, by section 211(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34). Section FE 6(3)(a): amended (with effect on 1 April 2008), on 6 October 2009, by section 211(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34). Section FE 6(3)(a)(i): amended (with effect on 1 April 2008), on 29 August 2011, by section 45(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63). Section FE 6(3)(ab): inserted (with effect on 30 June 2009), on 6 October 2009, by section 211(4) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34). Section FE 6(3)(ac): inserted (with effect on 30 June 2009), on 6 October 2009, by section 211(4) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34). Section FE 6(3)(ac)(ii): substituted (with effect on 23 November 2010), on 29 August 2011, by section 45(2) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63). Section FE 6(3)(ac)(iii): substituted (with effect on 23 November 2010), on 29 August 2011, by section 45(2) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63). Section FE 6(3)(ac)(iv): substituted (with effect on 23 November 2010), on 29 August 2011, by section 45(2) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63). Section FE 6(3)(e): substituted, on 1 April 2011 (applying for the 2011–12 and later income years), by section 88(1) of the Taxation (Budget Measures) Act 2010 (2010 No 27). Section FE 6(4) heading: added (with effect on 1 April 2008), on 29 August 2011 (applying for the 2008–09 and later income years), by section 45(3) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63). Section FE 6(4): added (with effect on 1 April 2008), on 29 August 2011 (applying for the 2008–09 and later income years), by section 45(3) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63). Section FE 6(5) heading: added (with effect on 1 April 2008), on 29 August 2011 (applying for the 2008–09 and later income years), by section 45(3) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63). Section FE 6(5): added (with effect on 1 April 2008), on 29 August 2011 (applying for the 2008–09 and later income years), by section 45(3) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63). Section FE 6 list of defined terms excess debt outbound company : inserted, on 1 April 2011 (applying for the 2011–12 and later income years), by section 88(2) of the Taxation (Budget Measures) Act 2010 (2010 No 27). Section FE 6 list of defined terms fixed-rate foreign equity : inserted (with effect on 30 June 2009), on 6 October 2009, by section 211(5) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34). Section FE 6 list of defined terms fixed-rate share : inserted (with effect on 30 June 2009), on 6 October 2009, by section 211(5) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34). Section FE 6 list of defined terms wholly owned group of companies : added (with effect on 1 April 2008), on 29 August 2011 by section 45(4) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).