Section GB 46 — Income Tax Act 2007: Deferral of surplus deductions from arrangements

GB 46 Deferral of surplus deductions from arrangements When this section applies (1) This section applies when— (a) an arrangement of the type described in section GB 45 is made; and (b) a person (the participant ) is a party to the arrangement or affected by it; and (c) the participant is not an LAQC; and (d) the participant has, for an income year, a total amount of deductions from the arrangement that is more than their total amount of assessable income from the arrangement, having regard to the rules in subsection (6); and (e) the participant considered together with their affected associates, excluding an LAQC that has a tax loss from the arrangement for the income year, has for the income year a total amount of deductions from the arrangement that is more than their total amount of assessable income from the arrangement, having regard to the rules in subsection (6); and (f) on the balance date, or the latest balance date, of the participant and affected associates for the income year, the arrangement involves a limited-recourse loan in relation to which the participant or an affected associate of the participant is a borrower. Income for participant (2) The participant is treated as deriving in the income year an amount of assessable income calculated using the formula— participant's excess deductions × total ineligible amount. total individual excess deductions Definition of items in formula (3) In the formula,— (a) participant’s excess deductions is the amount of excess deductions of the participant for the income year described in subsection (1)(d): (b) total individual excess deductions is the amount, for the income year, by which the total deductions from the arrangement are more than the total assessable income from the arrangement, having regard to the rules in subsection (6), for the group that consists of— (i) the participant; and (ii) each affected associate of the participant who is not an LAQC and who has, for the income year, a total amount of deductions from the arrangement that is more than their total assessable income from the arrangement, having regard to the rules in subsection (6): (c) total ineligible amount is the lesser of— (i) the total individual excess deductions for the group and the income year as described in subsection (1)(e); and (ii) the total limited-recourse amount that, on the balance date or the latest balance date of the participant and the affected associates, the participant and the affected associates have an undischarged obligation to repay as part of or for the purposes of the arrangement. Matching deduction in following year (4) A participant who has an amount of assessable income for an income year under subsection (2) has a deduction of an equal amount for the following income year. Obligation to repay limited-recourse amount not discharged (5) For the purposes of subsections (1) and (3)(c)(ii), an obligation to repay a limited recourse amount is not discharged by a transaction to the extent to which the transaction— (a) involves, as part of the arrangement, the use of— (i) a put or call option that is not a contract for the sale for future delivery of goods at market value: (ii) a contract of insurance or guarantee; and (b) does not give rise to assessable income for the person who is the borrower of the limited-recourse amount under the limited-recourse loan. Some deductions included, some income excluded (6) For the purposes of subsections (1)(d) and (e) and (3)(b),— (a) a deduction of a person includes— (i) a deduction under subsection (4); and (ii) a deduction under section HA 20 (Attribution of tax losses); and (b) income of a person excludes an amount of income arising under subsection (2). Defined in this Act: arrangement , assessable income , associated person , deduction , income year , LAQC, limited-recourse amount , limited-recourse loan , tax loss , Compare: 2004 No 35 s GC 31