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 - Change of CFC’s balance date

EX 25: Change of CFC’s balance date

You could also call this:

“Rules for changing a foreign company's financial year”

When you have a stake in a foreign company, you might want to change the accounting year you use to work out how much money you make from it. This is called changing the CFC’s balance date. You can’t just do this on your own - you need to ask the tax commissioner for permission first.

The commissioner will think about a few things before saying yes. They’ll look at why you want to change, like if someone new owns the company now, or if there are tax rules in another country that make it necessary. They might also check if you’re trying to make all your companies use the same dates, or if you’re just trying to pay your taxes later.

If the new accounting year ends later than the old one, you might think you can delay paying tax on the money you make. But that’s not allowed. You still have to pay tax on that money in the same year you would have before. This only happens once, when you’re changing over.

Remember, a CFC is a type of foreign company that you partly own. When we talk about ‘attributed CFC income’, we mean the money you’re supposed to pay tax on from your share of the CFC, even if the company hasn’t actually given you that money yet.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM1515490.

Topics:
Money and consumer rights > Taxes
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“How tax accounting periods change when companies move in or out of New Zealand”

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Part E Timing and quantifying rules
Controlled foreign company and foreign investment fund rules: Change of CFC’s balance date

EX 25Change of CFC’s balance date

  1. This section applies when a person—

  2. has an income interest in a CFC; and
    1. has calculated attributed CFC income or loss from the CFC on the basis of 1 accounting year (the old accounting year); and
      1. wants to change to use a different accounting year (the new accounting year) for the calculations.

        1. The person may make the change only if the Commissioner agrees.

        2. The Commissioner may consider any relevant factors when making the decision, including—

        3. whether the change is sought because ownership of the CFC has changed:
          1. whether the change is sought because of taxation or other legal requirements in a country where the CFC is resident or does business:
            1. whether the change is sought to achieve consistent balance dates in a group of companies:
              1. whether the change would postpone liability to income tax on attributed CFC income.

                1. If the new accounting year ends in a later income year than the year the old accounting year ends in, and that fact would result in an amount of attributed CFC income being derived in the later income year, the amount is not deferred to the later income year and instead is treated as derived in the previous income year. However, this subsection applies only once, in the year of the transition.

                Compare
                Notes
                • Section EX 25(1)(b): amended, on , by section 143(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
                • Section EX 25(3)(d): substituted (with effect on 30 June 2009), on , by section 165(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
                • Section EX 25(3)(d): amended, on , by section 143(2) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
                • Section EX 25(4): amended, on , by section 143(3) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
                • Section EX 25 list of defined terms attributed repatriation: repealed, on , by section 143(4) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
                • Section EX 25 list of defined terms FDP: repealed (with effect on 30 June 2009), on , by section 165(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).