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Income Tax Act 2007

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

EX 12: Reduction of total income interests

You could also call this:

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

When figuring out how much of a Controlled Foreign Company (CFC) you own, sometimes the total ownership for all owners can add up to more than 100%. This happens because the rules say to use the highest percentage when ownership rights change.

If this happens, the law has a way to fix it. Each person’s share of ownership (called an income interest) is reduced. To do this, you use a simple math formula. You take your original income interest and multiply it by 100. Then you divide that by the total of everyone’s original income interests. This gives you your new, reduced income interest.

This rule makes sure that when you add up everyone’s ownership shares, it always equals exactly 100%.

If you want to know more about why this might happen, you can look at section EX 9(3).

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM1515441.

Topics:
Money and consumer rights > Taxes
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“Rules for calculating income interest in foreign companies when you have certain rights or options”

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EX 13: Income interests of partners, or

“This rule about calculating a partner's income interest has been removed”

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

EX 12Reduction of total income interests

  1. This section applies when the total income interests for a CFC for an accounting period would be more than 100%, because section EX 9(3) requires the highest percentage to be taken if varying percentage shareholder rights are held.

  2. Each person’s income interest for the period is reduced to the amount calculated using the formula—

    income interest before reduction × 100 ÷ total income interests before reduction.

    Where:

    Compare