Plain language law

New Zealand law explained for everyone

Income Tax Act 2007

Timing and quantifying rules - Controlled foreign company and foreign investment fund rules - Calculation of person’s income interest

EX 11: Options and similar rights in certain cases

You could also call this:

“Rules for calculating income interest in foreign companies when you have certain rights or options”

You need to know about some rules that can increase your income interest in a controlled foreign company (CFC). These rules apply in certain situations.

The rules come into play when you or someone else has the right to get something related to the CFC, but you don’t actually have it yet. This right is called an option.

For these rules to work, the person who actually has the thing that the option is for can’t be another CFC. They also can’t be someone who lives in New Zealand, unless their income interest in the CFC is less than 10%.

The option needs to have one of these features:

  1. Without this rule, the option would go against what the law is trying to do about income from foreign companies.
  2. The price to use the option is less than what the thing is really worth when you get it.
  3. The person with the option (or someone connected to them) has helped pay for or support the person who actually has the thing.

If all of these conditions are met, we calculate your income interest as if you had used the option to get the thing.

This text is automatically generated. It might be out of date or be missing some parts. Find out more about how we do this.

View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM1515437.

Topics:
Money and consumer rights > Taxes
Previous

EX 10: Indirect income interests, or

“How to calculate your share in a foreign company owned through another company”

Next

EX 12: Reduction of total income interests, or

“Adjusting ownership shares in foreign companies when total exceeds 100%”

Part E Timing and quantifying rules
Controlled foreign company and foreign investment fund rules: Calculation of person’s income interest

EX 11Options and similar rights in certain cases

  1. The rules in this section apply to increase a person’s income interest in a CFC (the first CFC) in some cases.

  2. This section applies when the person, or some other person, such as another CFC taken into account when calculating an indirect income interest of the person in the first CFC, has at any time an entitlement (the option) to acquire 1 of the things listed in section EX 9(1) in relation to the first CFC but does not hold it.

  3. For this section to apply, the actual holder of the thing subject to the option must not be—

  4. another CFC:
    1. a New Zealand resident, unless they are a New Zealand resident whose income interest in the first CFC for the accounting period in question is less than 10% under sections EX 14 to EX 17.

      1. For this section to apply, the option must have 1 of the following features:

      2. in the absence of this section, the effect of the option would be to defeat the intent and application of subpart CQ (Attributed income from foreign equity) or DN (Attributed losses from foreign equity) or this subpart, taking into account the economic benefit that the person gets as a result of the CFC deriving income:
        1. the consideration payable for the exercise of the option is less than the market value of the thing acquired at the time of the acquisition:
          1. the holder of the option (or an associated person) has directly or indirectly funded or assisted the actual holder to acquire or hold the thing subject to the option.

            1. If each requirement for this section to apply is met, the person’s income interest is calculated as if the option holder had exercised the option.

            Compare
            Notes
            • Section EX 11(3)(b): amended, on , by section 382 of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).