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EW 63: Cash basis adjustment formula
or “How to calculate adjustments when changing money tracking methods”
You could also call this:

“What counts as a controlled foreign company for New Zealand tax purposes”

A foreign company is considered a controlled foreign company (CFC) if any of these situations apply:

You and up to four other New Zealand residents together have more than 50% control of the company in any control category.

You are a New Zealand resident who has 40% or more control of the company. However, this doesn’t apply if someone else has equal or more control than you, isn’t a New Zealand resident, and isn’t connected to you.

You and up to four other New Zealand residents can control the company’s decisions and affairs.

There’s an exception to these rules. A foreign company isn’t a CFC if it’s similar to a foreign PIE (portfolio investment entity) and one of the New Zealand residents is a PIE, qualifies to be a PIE, or is a life insurance company.

If any of these situations happen at any time during the company’s accounting period, and the exception doesn’t apply, the company is treated as a CFC for the whole accounting period.

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Next up: EX 2: Four categories for calculating control interests

or “Four ways to measure a person's control over a foreign company”
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Part E Timing and quantifying rules
Controlled foreign company and foreign investment fund rules: When is a company a controlled foreign company?

EX 1Meaning of controlled foreign company

  1. A foreign company is a controlled foreign company (CFC) if any of the following tests is met:

  2. there is a group of 5 or fewer New Zealand residents whose total control interests in the company are more than 50% in any one of the control interest categories:
    1. a single New Zealand resident holds a control interest of 40% or more unless at the same time—
      1. the person's control interest is less than or equal to a control interest in the same category held by another person; and
        1. the other person is not a New Zealand resident; and
          1. the other person is not associated with the New Zealand resident:
          2. there is a group of 5 or fewer New Zealand residents who can control the exercise of the shareholder decision-making rights for the company and, as a result, control the company’s affairs.

            1. Even if a test in subsection (1) is met, a foreign company is not a CFC if—

            2. the foreign company is a foreign PIE equivalent; and
              1. 1 of the New Zealand residents is—
                1. a portfolio investment entity:
                  1. an entity that qualifies for PIE status:
                    1. a life insurance company.

                    2. If any of the tests in subsection (1) is met at any time in a foreign company’s accounting period and the exception in subsection (2) does not apply at the time, the company is treated as a CFC for the whole of the accounting period.

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                    Notes
                    • Section EX 1(1)(b)(i): substituted (with effect on 1 April 2008), on , by section 42(1) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
                    • Section EX 1(2): amended, on , by section 381 of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
                    • Section EX 1(2)(a): amended, on (applying for the 2010–11 and later income years), by section 149(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
                    • Section EX 1(2)(b)(ii): substituted, on (applying for the 2010–11 and later income years), by section 149(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
                    • Section EX 1 list of defined terms control: repealed, on , by section 594 of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).