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Income Tax Act 2007

Deductions - Attributed losses from foreign equity

DN 4: Ring-fencing cap on deduction

You could also call this:

“Limits on deductions for losses from controlled foreign companies”

You can only claim a deduction for losses from a controlled foreign company (CFC) up to a certain limit. This limit depends on whether the CFC is an elective attributing CFC or not.

If the CFC is not an elective attributing CFC, you can deduct losses up to the total of:

  • Income from other CFCs in the same country
  • Income from foreign investment funds (FIFs) in the same country, if you use the attributable FIF income method for them

If the CFC is an elective attributing CFC, you can deduct losses up to the total of:

  • Income from other elective attributing CFCs in the same country that started in the same year
  • Income from elective attributing FIFs in the same country that started in the same year

You can’t use the same income to offset losses from more than one CFC or FIF.

If you can’t deduct all your losses because of these limits, the extra amount becomes an attributed CFC net loss. You might be able to use this in other ways, as explained in sections IQ 2, IQ 4, and IQ 9.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM1513901.

Topics:
Money and consumer rights > Taxes
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DN 3: Calculation of attributed CFC loss, or

“How to figure out an attributed CFC loss”

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DN 5: Foreign investment fund loss, or

“How to claim a deduction for losses from foreign investments”

Part D Deductions
Attributed losses from foreign equity

DN 4Ring-fencing cap on deduction

  1. The deduction that a person is allowed in an income year for an attributed CFC loss from a CFC (the first CFC) that is not an elective attributing CFC for the person in the income year is no more than the total of—

  2. total attributed CFC income of the person for the income year from other CFCs, each of which is resident in the same country as the first CFC for the relevant accounting period:
    1. total FIF income of the person for the income year from FIFs,—
      1. each of which is resident in the same country as the first CFC for the relevant accounting period; and
        1. for each of which the person uses the attributable FIF income method.

        2. The deduction that a person is allowed in an income year for an attributed CFC loss from a CFC (the first CFC) that is an elective attributing CFC for the person in the income year is no more than the total of—

        3. total attributed CFC income of the person for the income year from other CFCs, each of which—
          1. is resident in the same country as the first CFC for the relevant accounting period; and
            1. is an elective attributing CFC for the person in the income year; and
              1. has the same election commencement year as the first CFC:
              2. total FIF income of the person for the income year from FIFs, each of which—
                1. is resident in the same country as the first CFC for the relevant accounting period; and
                  1. is an elective attributing FIF for the person in the income year; and
                    1. has the same election commencement year as the first CFC.

                    2. When subsection (1) or (1B) is applied to an attributed CFC loss, an amount of attributed CFC income or FIF income may be used only to the extent to which the income is not used when—

                    3. subsection (1) or (1B) is applied to another attributed CFC loss; or
                      1. section DN 8 is applied to a FIF loss.

                        1. Any excess not able to be deducted because of subsection (1) or (1B) is an attributed CFC net loss able to be used under sections IQ 2, IQ 4, and IQ 9 (which relate to the use of attributed CFC net losses).

                        Compare
                        Notes
                        • Section DN 4(1) heading: replaced (with effect on 30 June 2009), on (applying for income years beginning on or after 1 July 2009), by section 24(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
                        • Section DN 4(1): replaced (with effect on 30 June 2009), on (applying for income years beginning on or after 1 July 2009), by section 24(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
                        • Section DN 4(1)(b)(ii): amended (with effect on 1 July 2011 and applying for income years beginning on or after that date), on , by section 24(2) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
                        • Section DN 4(1B) heading: inserted (with effect on 30 June 2009), on (applying for income years beginning on or after 1 July 2009), by section 24(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
                        • Section DN 4(1B): inserted (with effect on 30 June 2009), on (applying for income years beginning on or after 1 July 2009), by section 24(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
                        • Section DN 4(2): amended (with effect on 30 June 2009), on (applying for income years beginning on or after 1 July 2009), by section 24(3) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
                        • Section DN 4(3): replaced (with effect on 30 June 2009), on (applying for income years beginning on or after 1 July 2009), by section 24(4) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
                        • Section DN 4 list of defined terms attributable FIF income method: inserted (with effect on 1 July 2011), on , by section 13(2)(b) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
                        • Section DN 4 list of defined terms branch equivalent method: repealed (with effect on 1 July 2011), on , by section 13(2)(a) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
                        • Section DN 4 list of defined terms election commencement year: inserted, on , by section 24(5) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
                        • Section DN 4 list of defined terms elective attributing CFC: inserted, on , by section 24(5) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
                        • Section DN 4 list of defined terms elective attributing FIF: inserted, on , by section 24(5) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).