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Income Tax Act 2007

Deductions - Expenditure specific to certain entities

DV 6: Formula for calculating maximum deduction

You could also call this:

“How to calculate the maximum tax deduction for a master fund”

There’s a special formula you can use to work out the biggest amount you can take off your taxes. This formula is mentioned in section DV 5(7). The formula looks like this:

taxable income - non-resident passive income

‘Taxable income’ means the money the master fund would have to pay tax on in the tax year when the expense is moved over. This is figured out without looking at sections DV 5 to DV 7.

‘Non-resident passive income’ is all the money the master fund gets in a year that fits the description in section RF 2(5). This is the same year when the expense happens.

It’s important to know that this rule doesn’t apply if you’re moving an expense to a master fund that’s a multi-rate PIE (a special kind of investment).

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM1514150.

Topics:
Money and consumer rights > Taxes
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DV 5: Investment funds: transfer of expenditure to master funds, or

“Transferring expenses from investment funds to master funds”

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DV 7: Carry forward of expenditure, or

“Allowing leftover superannuation fund expenses to be used in future years”

Part D Deductions
Expenditure specific to certain entities

DV 6Formula for calculating maximum deduction

  1. The formula referred to in section DV 5(7) is—

    taxable income − non-resident passive income.

    Where:

    • The items in the formula are defined in subsections (3) and (4).

    • Taxable income is the amount that would be the master fund’s taxable income in the tax year in which the expenditure is transferred in the absence of sections DV 5 to DV 7.

    • Non-resident passive income is the total of any amounts of non-resident passive income of any of the kinds to which section RF 2(5) (Non-resident passive income) applies derived by the master fund in the corresponding income year in which the expenditure is incurred.

    • This section does not apply to an amount of expenditure transferred to a master fund that is a multi-rate PIE.

    Compare
    Notes
    • Section DV 6(5) heading: substituted, on (applying for the 2010–11 and later income years), by section 106(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
    • Section DV 6(5): substituted, on (applying for the 2010–11 and later income years), by section 106(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
    • Section DV 6 list of defined terms multi-rate PIE: inserted, on , by section 106(4)(b) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
    • Section DV 6 list of defined terms portfolio tax rate entity: repealed, on , by section 106(4)(a) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).