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New Zealand law explained for everyone

Income Tax Act 2007

Income - Attributed income from foreign equity

CQ 2: When attributed CFC income arises

You could also call this:

“When you might have income from a controlled foreign company”

You can have attributed CFC income from a foreign company in an income year if:

  • The company is a controlled foreign company (CFC) during one of its accounting periods.
  • The accounting period ends in your income year.
  • You’re not a portfolio investment entity.
  • You have an income interest in the company for that period.
  • At some point in that period, you’re a New Zealand resident who isn’t a transitional resident.
  • Your income interest is 10% or more for the part of the period when you’re a New Zealand resident (not transitional).
  • Either the CFC has net attributable income or gets a distribution from a non-complying trust.
  • The CFC isn’t a non-attributing active CFC or a non-attributing Australian CFC.

You can also have attributed CFC income if you have an attributing interest in a foreign investment fund (FIF), you’re using the attributable FIF income method, and the FIF gets a taxable distribution from a non-complying trust.

If you and a non-attributing active CFC or non-attributing Australian CFC meet the first five conditions, and the CFC earns income from personal services, you have attributed CFC income. This income is calculated by multiplying your income interest by the CFC’s income from personal services minus related expenses.

If you stop being a New Zealand resident, any attributed CFC income is treated as if you earned it while still a resident.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM1512878.

Topics:
Money and consumer rights > Taxes
Business > Industry rules
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CQ 1: Attributed controlled foreign company income, or

“Income from foreign companies you control counts as your income”

Next

CQ 3: Calculation of attributed CFC income, or

“How to work out your attributed CFC income or loss”

Part C Income
Attributed income from foreign equity

CQ 2When attributed CFC income arises

  1. A person has attributed CFC income from a foreign company in an income year if—

  2. the foreign company is a CFC at any time during 1 of its accounting periods, under sections EX 1 to EX 7 (which relate to the definition of a controlled foreign company); and
    1. the accounting period ends during the income year; and
      1. the person is not a portfolio investment entity; and
        1. the person has an income interest in the foreign company for the accounting period, under sections EX 8 to EX 13 (which relate to calculating a person’s income interest); and
          1. at any time in the accounting period, the person is a New Zealand resident who is not a transitional resident; and
            1. the person’s income interest is 10% or more for the part of the accounting period during which the person is a New Zealand resident who is not a transitional resident, under sections EX 14 to EX 17 (which relate to the 10% threshold); and
              1. either—
                1. the CFC has net attributable CFC income for the accounting period under section EX 20C (Net attributable CFC income or loss); or
                  1. the special rule in section EX 19 (Taxable distribution from non-complying trust) applies because the CFC gets a distribution from a non-complying trust; and
                    1. the CFC is not a non-attributing active CFC for the accounting period, under section EX 21B (Non-attributing active CFCs); and
                      1. the CFC is not a non-attributing Australian CFC for the accounting period, under section EX 22 (Non-attributing Australian CFCs).

                        1. A person also has attributed CFC income if section EX 50(5) (Attributable FIF income method) applies because—

                        2. the person has an attributing interest in a foreign investment fund (FIF); and
                          1. the person is using the attributable FIF income method to calculate FIF income; and
                            1. the FIF receives a taxable distribution from a non-complying trust.

                              1. If a person and a non-attributing active CFC or non-attributing Australian CFC meet the requirements of subsection (1)(a) to (e) and the CFC derives income from personal services that is an attributable CFC amount under section EX 20B(3)(h) (Attributable CFC amount), the person has attributed CFC income from the CFC equal to the product of—

                              2. the person's income interest in the CFC:
                                1. the amount by which the CFC's income from personal services exceeds the expenditure incurred by the CFC in deriving the income from personal services.

                                  1. Attributed CFC income of a person who has stopped being a New Zealand resident is treated as being derived while the person was a New Zealand resident.

                                  2. Repealed
                                  Compare
                                  Notes
                                  • Section CQ 2(1)(bb): inserted (with effect on 1 July 2011 and applying for income years beginning on or after that date), on , by section 7(1) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
                                  • Section CQ 2(1)(f)(i): substituted (with effect on 30 June 2009), on , by section 29(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
                                  • Section CQ 2(1)(g): repealed (with effect on 30 June 2009), on , by section 29(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
                                  • Section CQ 2(1)(h): added (with effect on 30 June 2009), on , by section 29(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
                                  • Section CQ 2(1)(i): added (with effect on 30 June 2009), on , by section 29(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
                                  • Section CQ 2(2) heading: replaced, on , by section 81(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
                                  • Section CQ 2(2): amended (with effect on 1 July 2011 and applying for income years beginning on or after that date), on , by section 7(2) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
                                  • Section CQ 2(2)(b): amended (with effect on 1 July 2011 and applying for income years beginning on or after that date), on , by section 7(3) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
                                  • Section CQ 2(2B) heading: inserted (with effect on 30 June 2009), on , by section 29(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
                                  • Section CQ 2(2B): inserted (with effect on 30 June 2009), on , by section 29(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
                                  • Section CQ 2(4) heading: repealed (with effect on 30 June 2009), on , pursuant to section 29(4) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
                                  • Section CQ 2(4): repealed (with effect on 30 June 2009), on , by section 29(4) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
                                  • Section CQ 2 list of defined terms attributable CFC amount: inserted (with effect on 30 June 2009), on , by section 29(5)(b) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
                                  • Section CQ 2 list of defined terms attributable FIF income method: inserted (with effect on 1 July 2011), on , by section 7(4)(b) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
                                  • Section CQ 2 list of defined terms attributed repatriation: repealed, on , by section 81(2) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
                                  • Section CQ 2 list of defined terms branch equivalent income: repealed (with effect on 30 June 2009), on , by section 29(5)(a) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
                                  • Section CQ 2 list of defined terms branch equivalent method: repealed (with effect on 1 July 2011), on , by section 7(4)(a) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
                                  • Section CQ 2 list of defined terms net attributable CFC income: inserted (with effect on 30 June 2009), on , by section 29(5)(b) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
                                  • Section CQ 2 list of defined terms non-attributing active CFC: inserted (with effect on 30 June 2009), on , by section 29(5)(b) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
                                  • Section CQ 2 list of defined terms non-attributing Australian CFC: inserted (with effect on 30 June 2009), on , by section 29(5)(b) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
                                  • Section CQ 2 list of defined terms portfolio investment entity: inserted (with effect on 1 July 2011), on , by section 7(4)(b) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).