Plain language law

New Zealand law explained for everyone

Income Tax Act 2007

Income - Income from equity

CD 36: Foreign investment fund income

You could also call this:

“Income from foreign companies: when it's not considered a dividend”

When a company pays you money, it’s not always a dividend. It’s not a dividend if:

You have a special kind of interest in the company called an ‘attributing interest’.

You work out your foreign investment fund (FIF) income or loss for this interest using one of these methods:

  • Comparing values
  • Using a set rate of return
  • Looking at the cost
  • Using a fair dividend rate

The money you get is considered ‘excluded income’ under section CX 57B.

There’s an exception to this rule. If you own 10% or more of a company in Australia that pays normal company tax, the money you get might still be a dividend.

This exception doesn’t apply if you’re a special kind of investor like a portfolio investment entity or a life insurance company, and the foreign company is similar to a portfolio investment entity.

There’s also a special rule for money you get from a controlled foreign company (CFC) that’s a unit trust. If the CFC owns an interest in another foreign investment fund, and this interest meets certain conditions, the money you get from the CFC isn’t a dividend if it comes from that other foreign investment fund.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM1512656.

Topics:
Money and consumer rights > Taxes
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Part C Income
Income from equity

CD 36Foreign investment fund income

  1. An amount paid by a company to a person is not a dividend if,—

  2. at the time the person derives the amount, the person’s interest in the company is an attributing interest, or would have been if the company had not been liquidated; and
    1. the person calculates their foreign investment fund (FIF) income or loss in relation to the interest and the period in which the amount is paid under—
      1. the comparative value method:
        1. the deemed rate of return method:
          1. the cost method:
            1. the fair dividend rate method; and
              1. the amount is excluded income under section CX 57B (Amounts derived during periods covered by calculation methods).

                1. Subsection (1)(b)(iv) does not apply if the person's interest in the company is included, at the beginning of the income year in which the payment is made, in a direct income interest of 10% or more in a FIF that, at the beginning of the income year,—

                2. meets the requirements of section EX 35(b)(i) to (iii) (Exemption for interest in FIF resident in Australia); and
                  1. does not have its liability for income tax reduced by an exemption, allowance, or relief referred to in section EX 35(c)(i) or (ii); and
                    1. is not a unit trust or is a unit trust subject under Australian law to income tax on its income in the same way as a company.

                      1. Subsection (2) does not apply if—

                      2. the person is a portfolio investment entity, an entity eligible to be a portfolio investment entity, or a life insurance company; and
                        1. the FIF is a foreign PIE equivalent.

                          1. An amount paid by a CFC to a person (the CFC distribution) is not a dividend—

                          2. if the CFC—
                            1. is a unit trust that is not subject under Australian law to income tax on its income in the same way as a company; and
                              1. has an interest in a foreign investment fund (the FIF); and
                              2. if the interest of the CFC in the FIF is an attributing interest of the person (the indirect FIF interest) that meets the requirements of section EX 59(1) in all the time that the interest is an attributing interest of the person or of an associated person; and
                                1. to the extent to which the CFC distribution is funded directly or indirectly from the indirect FIF interest.

                                  Compare
                                  Notes
                                  • Section CD 36(1) heading: inserted (with effect on 1 April 2008), on , by section 19(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
                                  • Section CD 36(1)(b): substituted, on , by section 315(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
                                  • Section CD 36(1)(b)(iv): amended, on , by section 13(1) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
                                  • Section CD 36(1)(c): repealed (with effect on 1 April 2008), on , by section 19(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
                                  • Section CD 36(1)(d): inserted, on , by section 13(2) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
                                  • Section CD 36(2) heading: replaced (with effect on 1 July 2011 and applying for income years beginning on or after that date), on , by section 5(1) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
                                  • Section CD 36(2): replaced (with effect on 1 July 2011 and applying for income years beginning on or after that date), on , by section 5(1) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
                                  • Section CD 36(2)(b): amended (with effect on 1 July 2014), on , by section 14(1)(a) (and see section 14(3) for application) of the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Act 2023 (2023 No 5).
                                  • Section CD 36(2)(c): inserted (with effect on 1 July 2014), on , by section 14(1)(b) (and see section 14(3) for application) of the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Act 2023 (2023 No 5).
                                  • Section CD 36(3) heading: added (with effect on 1 April 2008), on , by section 19(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
                                  • Section CD 36(3): added (with effect on 1 April 2008), on , by section 19(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
                                  • Section CD 36(3)(b): substituted, on (applying for the 2010–11 and later income years), by section 19(4) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
                                  • Section CD 36(4) heading: inserted, on , by section 14(2) (and see section 14(4) for application) of the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Act 2023 (2023 No 5).
                                  • Section CD 36(4): inserted, on , by section 14(2) (and see section 14(4) for application) of the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Act 2023 (2023 No 5).
                                  • Section CD 36 list of defined terms direct income interest: inserted (with effect on 1 April 2008), on , by section 19(5) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
                                  • Section CD 36 list of defined terms excluded income: inserted, on , by section 13(3) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
                                  • Section CD 36 list of defined terms foreign investment vehicle: repealed, on , by section 19(6) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
                                  • Section CD 36 list of defined terms foreign PIE equivalent: inserted, on , by section 19(6) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
                                  • Section CD 36 list of defined terms grey list company: repealed (with effect on 1 July 2011), on , by section 5(2) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
                                  • Section CD 36 list of defined terms income year: inserted, on , by section 315(2) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
                                  • Section CD 36 list of defined terms life insurance: inserted (with effect on 1 April 2008), on , by section 19(5) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
                                  • Section CD 36 list of defined terms portfolio investment entity: added (with effect on 1 April 2008), on , by section 19(5) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).