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New Zealand law explained for everyone

Income Tax Act 2007

Deductions - Expenditure specific to certain entities

DV 2: Transfer of expenditure to master fund

You could also call this:

“Shifting certain fund costs to a larger investment fund”

You can transfer some of your superannuation fund’s expenses to another fund it invests in. This applies when your fund (called the member fund) puts some of its money into a bigger fund (called the master fund).

The expenses you can transfer are those for developing, marketing, selling, promoting, advertising, or managing your fund. These expenses must be income for whoever receives the payment. You can’t transfer costs for buying buildings, equipment, land, machinery, or plants.

You need to tell the tax department if you want to do this transfer. You have to do this when you file your tax return, or later if the tax department lets you.

When you transfer the expenses, the master fund can claim them as a deduction on their taxes. There’s a limit to how much they can deduct, which is worked out using a special calculation. If the master fund is a special type called a multi-rate PIE, they can deduct the full amount you transfer, but only up to your share of their taxable income.

After you transfer the expenses, you can’t claim them on your own taxes anymore. The master fund gets to claim them instead.

This transfer affects the general rules about tax deductions in different ways. It gives the master fund more deductions, but it takes away your right to claim those expenses.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM1514135.

Topics:
Money and consumer rights > Taxes
Money and consumer rights > Savings and retirement
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Part D Deductions
Expenditure specific to certain entities

DV 2Transfer of expenditure to master fund

  1. This section applies when—

  2. a superannuation fund (the member superannuation fund) invests some or all of its funds in another superannuation fund (the master superannuation fund); and
    1. while the member superannuation fund has funds invested in the master superannuation fund, the member superannuation fund incurs expenditure of a kind described in subsection (2).

      1. The expenditure is expenditure to which all the following apply:

      2. it is incurred—
        1. in developing, marketing, selling, promoting, or advertising the fund; or
          1. in managing the fund; and
          2. it is not incurred in acquiring a building, equipment, land, machinery, or plant; and
            1. it is assessable income of the recipient.

              1. The member superannuation fund may choose to treat some or all of the expenditure as expenditure incurred by the master superannuation fund in deriving assessable income.

              2. The member superannuation fund makes the election by giving notice to the Commissioner within 1 of the following times:

              3. the time in which its return of income must be filed under section 37 of the Tax Administration Act 1994; or
                1. a longer time allowed by the Commissioner.

                  1. When the member superannuation fund makes an election, subsections (6) to (9) apply to the part or the whole, as chosen, of the expenditure.

                  2. The expenditure is treated as being incurred by the master superannuation fund as follows:

                  3. for a master fund that is a multi-rate PIE, in the income year in which the expenditure is transferred by the member superannuation fund; or
                    1. for other master funds, in the same income year as that in which it was incurred by the member superannuation fund.

                      1. The master superannuation fund is allowed a deduction for the expenditure. The amount of the deduction is limited by subsection (8).

                      2. The formula in section DV 3 is used to calculate the maximum deduction that the master superannuation fund is allowed for expenditure of the member superannuation fund treated as being incurred by the master superannuation fund.

                      3. Despite subsection (8), a master superannuation fund that is a multi-rate PIE is allowed a deduction for expenditure transferred to it by a member superannuation fund. However, the maximum amount transferred must be no more than the member fund's share of the taxable income of the PIE for the income year in which the amount is transferred, any excess being treated as not transferred.

                      4. The expenditure for which the master superannuation fund is allowed a deduction is treated as not being incurred by the member superannuation fund.

                      5. The link between this section and subpart DA (General rules) is as follows:

                      6. for subsection (7),—
                        1. it supplements the general permission:
                          1. it overrides the capital limitation and the exempt income limitation:
                            1. the other general limitations still apply:
                            2. subsection (9) overrides the general permission.

                              Compare
                              Notes
                              • Section DV 2(6): substituted, on (applying for the 2010–11 and later income years), by section 102(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
                              • Section DV 2(8B) heading: inserted (with effect on 1 April 2008), on , by section 102(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
                              • Section DV 2(8B) heading: amended, on (with effect on 1 April 2008), by section 60 of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
                              • Section DV 2(8B): substituted, on (applying for the 2010–11 and later income years), by section 102(4) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
                              • Section DV 2 list of defined terms investor interest: repealed (with effect on 1 April 2010), on , by section 43 of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
                              • Section DV 2 list of defined terms multi-rate PIE: inserted, on , by section 102(6)(b) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
                              • Section DV 2 list of defined terms portfolio investor interest: repealed, on , by section 102(6)(a) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
                              • Section DV 2 list of defined terms portfolio tax rate entity: repealed, on , by section 102(6)(a) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).