Plain language law

New Zealand law explained for everyone

Income Tax Act 2007

Deductions - Attributed losses from foreign equity

DN 6: When FIF loss arises

You could also call this:

“When you might have a loss from foreign investments”

You can have a FIF loss in an income year if:

  • You have rights in a foreign company, foreign superannuation scheme, or certain other foreign entities.
  • These rights count as an attributing interest in a FIF.
  • The rights are not exempt from being an attributing interest in a FIF. There are many specific exemptions listed.
  • If you’re an individual, the total cost of your FIF interests is over $50,000, or you’ve included FIF income/loss in your tax return this year or in one of the last 4 years.
  • If you’re a trustee of certain types of trusts, similar rules apply about the cost of FIF interests and including FIF income/loss in returns.
  • You’re a New Zealand resident (not a transitional resident) when you hold the interest.
  • Using the calculation method you’ve chosen, a loss amount is worked out for the year.

There are some extra rules:

  • If you use the attributable FIF income method, the FIF’s accounting period must end during your income year for a loss to arise.
  • You might have additional FIF loss if you have a big stake in a controlled foreign company that owns a FIF.
  • Special rules apply to certain trusts, like those for deceased estates or set up because of court orders.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM1513906.

Topics:
Money and consumer rights > Taxes
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DN 5: Foreign investment fund loss, or

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

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DN 7: Calculation of FIF loss, or

“How to work out your Foreign Investment Fund loss”

Part D Deductions
Attributed losses from foreign equity

DN 6When FIF loss arises

  1. A person has a FIF loss in an income year if,—

  2. at any time in the year, the person has—
    1. rights in a foreign company, or a foreign superannuation scheme, or an entity listed in schedule 25, part A (Foreign investment funds); or
      1. rights under a life insurance policy issued by a non-resident; and
      2. at that time, the rights are an attributing interest in a FIF under section EX 29 (Attributing interests in FIFs); and
        1. at that time, the rights are not exempt from being an attributing interest in a FIF under any of—
          1. the exemption for ASX-listed Australian companies in section EX 31 (Exemption for ASX-listed Australian companies):
            1. the exemption for Australian unit trusts with 25% turnover in section EX 32 (Exemption for Australian unit trusts with 25% turnover):
              1. the exemption for Australian regulated superannuation savings in section EX 33 (Exemption for Australian regulated superannuation savings):
                1. the CFC rules exemption in section EX 34 (CFC rules exemption):
                  1. the exemption in section EX 35 (Exemption for interest in FIF resident in Australia):
                    1. the 10-year exemption for a venture capital company emigrating to a grey list country in section EX 36 (Venture capital company emigrating to grey list country: 10-year exemption):
                      1. the 10-year exemption for a grey list company owning a New Zealand venture capital company in section EX 37 (Grey list company owning New Zealand venture capital company: 10-year exemption):
                        1. the exemption for an employee share scheme of a grey list company in section EX 38 (Exemptions for employee share schemes):
                          1. the terminating exemption for a grey list company with numerous New Zealand shareholders in section EX 39 (Terminating exemption for grey list company with numerous New Zealand shareholders):
                            1. the terminating exemption for a grey list company investing in Australasian equities in section EZ 32 (Terminating exemption for grey list FIF investing in Australasian listed equities):
                              1. the foreign exchange control exemption in section EX 40 (Foreign exchange control exemption):
                                1. the exemption for a non-resident or transitional resident, in section EX 41 (Income interest of non-resident or transitional resident):
                                    1. the annuity or pension exemption in section EX 43 (Non-resident’s pension or annuity exception):
                                      1. an exemption given by sections EX 50, EX 18A(2)(b)(i), and EX 21B (which relate to the attributable FIF income method and FIFs corresponding to non-attributing active CFCs); and
                                      2. if the person is a natural person,—
                                        1. the total cost, calculated under section EX 68 (Measurement of cost), of attributing interests in FIFs that the person holds at any time in the year when the person is a New Zealand resident is more than $50,000:
                                          1. the person includes, in a return for the year, FIF income or loss from an attributing interest in a FIF:
                                            1. the person has, in the return for 1 of the preceding 4 income years (the earlier year), included FIF income or loss from attributing interests in FIFs with a total cost of $50,000 or less, calculated under section EX 68, at all times in the earlier year when the person is a New Zealand resident; and
                                            2. if the person is acting as trustee of a trust that meets the requirements of subsection (4),—
                                              1. the total cost, calculated under section EX 68, of attributing interests in FIFs that the person holds at any time in the year is more than $50,000:
                                                1. the person includes, in a return for the year, FIF income or loss from an attributing interest in a FIF:
                                                  1. the person has, in a return for 1 of the preceding 4 income years (the earlier year), included FIF income or loss from attributing interests in FIFs with a total cost of $50,000 or less, calculated under section EX 68, at all times in the earlier year; and
                                                  2. at any time in the year, the person is a New Zealand resident who is not a transitional resident and holds the attributing interest; and
                                                    1. under the relevant calculation method chosen by the person, a loss amount is calculated for the income year or relevant accounting period under sections EX 44 to EX 56 (which relate to the calculation of FIF income or loss), EX 60 or EX 61 (which relate to top-up FIF income).

                                                      1. If a person is treated under section EX 63(5), EX 65 or EX 67 (which relate to changes in method or application of FIF rules) as disposing of or acquiring rights in an income year, the disposal or acquisition is ignored for the purposes of subsection (1)(d) and (e).

                                                      2. Despite subsection (1), if the calculation method is the attributable FIF income method,—

                                                      3. FIF loss arises in the income year only if the relevant accounting period of the FIF ends during the year; and
                                                        1. the tests in subsection (1)(a), (b), (c), and (f) are applied on the basis that references in subsection (1)(a), (b), (c), and (f) to any time in the income year are read as references to any time in the relevant accounting period.

                                                          1. FIF loss also includes an amount of additional FIF loss that a person with an income interest of 10% or more in a CFC has in an income year under section EX 58 (Additional FIF income or loss if CFC owns FIF), regardless of whether the CFC is a non-attributing active CFC under section EX 21B (Non-attributing active CFCs) or a non-attributing Australian CFC under section EX 22 (Non-attributing Australian CFCs).

                                                          2. Subsection (1)(e) applies to the trustee of a trust for an income year if—

                                                          3. the trust is of the estate of a deceased person and the income year begins on or before the day that is 5 years after the person’s death:
                                                            1. the settlor of the trust—
                                                              1. is a relative or legal guardian of a beneficiary of the trust, or a person associated with a relative or legal guardian of a beneficiary of the trust; and
                                                                1. is required by a court order to pay damages or compensation to the beneficiary:
                                                                2. the settlor of the trust—
                                                                  1. is the estate of a deceased person; and
                                                                    1. is required by a court order to settle on the trust the proceeds of damages or compensation for the beneficiaries of the trust:
                                                                    2. the settlor of the trust is the Accident Compensation Corporation.

                                                                      Compare
                                                                      Notes
                                                                      • Section DN 6(1)(c)(iii): replaced (with effect on 1 April 2014), on , by section 108(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
                                                                      • Section DN 6(1)(c)(iv): amended, on , by section 108(2) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
                                                                      • Section DN 6(1)(c)(v): replaced (with effect on 1 July 2011 and applying for income years beginning on or after that date), on , by section 15(1) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
                                                                      • Section DN 6(1)(c)(viii): amended (with effect on 29 September 2018), on , by section 48(1) of the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Act 2023 (2023 No 5).
                                                                      • Section DN 6(1)(c)(viii): amended, on , by section 50 of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
                                                                      • Section DN 6(1)(c)(xiii): repealed, on , by section 36 of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
                                                                      • Section DN 6(1)(c)(xiv): amended (with effect on 1 July 2011 and applying for income years beginning on or after that date), on , by section 15(2) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
                                                                      • Section DN 6(1)(c)(xv): inserted (with effect on 1 July 2011 and applying for income years beginning on or after that date), on , by section 15(2) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
                                                                      • Section DN 6(1)(d): replaced (with effect on 1 July 2011 and applying for income years beginning on or after that date), on , by section 15(3) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
                                                                      • Section DN 6(1)(d): amended, on , by section 258 of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
                                                                      • Section DN 6(1)(e): replaced (with effect on 1 July 2011 and applying for income years beginning on or after that date), on , by section 15(3) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
                                                                      • Section DN 6(1B) heading: inserted, on , by section 344(3) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
                                                                      • Section DN 6(1B): inserted, on , by section 344(3) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
                                                                      • Section DN 6(2): amended (with effect on 1 July 2011 and applying for income years beginning on or after that date), on , by section 15(4) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
                                                                      • Section DN 6(3) heading: substituted (with effect on 30 June 2009), on , by section 91(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
                                                                      • Section DN 6(3): substituted (with effect on 30 June 2009), on , by section 91(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
                                                                      • Section DN 6(3): amended, on , by section 108(3) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
                                                                      • Section DN 6 list of defined terms accounting profits method: repealed (with effect on 1 July 2011), on , by section 15(5)(a) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
                                                                      • Section DN 6 list of defined terms attributable FIF income method: inserted (with effect on 1 July 2011), on , by section 15(5)(b) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
                                                                      • Section DN 6 list of defined terms branch equivalent method: repealed (with effect on 1 July 2011), on , by section 15(5)(a) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
                                                                      • Section DN 6 list of defined terms employee share scheme: inserted (with effect on 29 September 2018), on , by section 48(2) of the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Act 2023 (2023 No 5).
                                                                      • Section DN 6 list of defined terms FIF income: inserted (with effect on 1 July 2011), on , by section 15(5)(b) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
                                                                      • Section DN 6 list of defined terms loss: inserted (with effect on 1 July 2011), on , by section 15(5)(b) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
                                                                      • Section DN 6 list of defined terms non-attributing Australian CFC: inserted (with effect on 30 June 2009), on , by section 91(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
                                                                      • Section DN 6 list of defined terms settlor: inserted, on , by section 243 of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).