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Income Tax Act 2007

Timing and quantifying rules - Controlled foreign company and foreign investment fund rules - Calculation of FIF income or loss

EX 46: Limits on choice of calculation methods

You could also call this:

“Rules for choosing how to calculate Foreign Investment Fund income or loss”

This section explains the rules for choosing calculation methods for Foreign Investment Fund (FIF) income or loss. Here’s what you need to know:

You must use the same calculation method for all your interests in the same FIF during a period, unless the interests are different classes or the choice is limited by other rules.

You can use the attributable FIF income method only if:

  • The FIF is a company
  • Your income interest is 10% or more
  • You’re not a portfolio investment entity
  • You can provide the required information to the Commissioner

You can use the deemed rate of return method only if required by another section.

You can use the comparative value method only in specific cases, such as if you’re a natural person or certain types of trusts.

You can’t use the fair dividend rate method for some types of shares, like fixed-rate shares or shares in companies that mainly hold debt instruments.

You can use the cost method only if using the fair dividend rate method is allowed but not practical because you can’t determine the market value of your interest.

The section also defines what counts as a non-ordinary share, which affects which calculation methods you can use.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM1515559.

Topics:
Money and consumer rights > Taxes
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EX 47: Method required for certain non-ordinary shares, or

“Special calculation method needed for certain foreign shares”

Part E Timing and quantifying rules
Controlled foreign company and foreign investment fund rules: Calculation of FIF income or loss

EX 46Limits on choice of calculation methods

  1. If a person has 2 or more attributing interests in the same FIF for the same period, the person must use the same calculation method for calculating FIF income or loss from each interest in that period, except to the extent to which—

  2. the interests are of different classes; and
    1. the choice of method for a class is limited by this section or section EX 47, EX 48, or EX 62.

      1. Repealed

      2. A person may use the attributable FIF income method to calculate FIF income or loss from an attributing interest in a FIF for an accounting period only if the person can provide to the Commissioner, if requested, sufficient information to enable the Commissioner to check the calculations required by section EX 50 and,—

      3. at all times in the accounting period during which the person has rights in the FIF,—
        1. the FIF is a company; and
          1. the item income interest given by section EX 50(4) for the person and the FIF is 10% or more, treating the period that the person has rights in the FIF as the accounting period for the purposes of section EX 50(4) when the person does not have rights in the FIF for the entire accounting period; and
            1. the person is not a portfolio investment entity:
            2. the FIF is a CFC and the person cannot determine the market value of the attributing interest at the beginning of the accounting period except by independent valuation and neither the person nor a person who has a direct income interest of 10% or more in the FIF is—
              1. a listed company:
                1. a group investment fund:
                  1. a portfolio investment entity:
                    1. a superannuation scheme:
                      1. a unit trust:
                        1. a trustee of a trust with a beneficiary described in 1 or more of subparagraphs (i) to (iv).

                        2. Repealed

                        3. A person may use the deemed rate of return method to calculate FIF income or loss from an attributing interest in a FIF only if the person is required by section EX 47 to use the deemed rate of return method for the interest.

                        4. A person may use the comparative value method to calculate FIF income or loss from an attributing interest in a FIF that is a share in a foreign company for an income year only if—

                        5. the person is a natural person:
                          1. the person is the trustee of a trust that—
                            1. has no gifting settlor who is not a natural person or deceased person; and
                              1. at all times in the income year, is a complying trust for a distribution made at the time; and
                                1. is, at all times in the income year, mainly for the benefit of a natural person for whom the gifting settlors of the trust have natural love and affection (or had natural love and affection when alive) or is mainly for the benefit of an organisation or trust with income that is exempt income under section CW 41 or CW 42 (which relate to the income of charities); and
                                  1. is not a superannuation scheme:
                                    1. the share is a non-ordinary share described in subsection (10):
                                      1. the person is the share user of the share under a returning share transfer to which section EX 47B applies.

                                        1. Repealed

                                        2. A person must not use the fair dividend rate method to calculate FIF income or loss from an attributing interest in a FIF that is a share in a foreign company for an income year if—

                                        3. the share is a non-ordinary share described in subsection (10):
                                          1. the person chooses to use the comparative value method for another attributing interest that is a share in a foreign company and for which the person would be allowed, in the absence of this paragraph, to use the fair dividend rate method.

                                            1. A person may use the cost method to calculate FIF income or loss from an attributing interest in a FIF that is a share in a foreign company only if—

                                              1. use of the fair dividend rate method is allowed but is not practical because the person cannot determine the market value of the attributing interest at the start of the income year except by an independent valuation.

                                                1. For the purposes of subsections (6)(d) and (8)(a), a non-ordinary share in a foreign company is—

                                                2. a fixed-rate share that meets the requirements of the definition of fixed-rate share, paragraph (f)(i) or (f)(iii), or both:
                                                  1. a non-participating redeemable share:
                                                    1. an interest in a non-resident holding directly or indirectly assets of which 80% or more by value at a time in the income year—
                                                      1. consist of fixed-rate foreign equities, or financial arrangements providing funds to a person; and
                                                        1. are denominated in New Zealand dollars or are assets having a value in New Zealand dollars that is governed by 1 or more related financial arrangements that remove 80% to 125% of foreign currency risk for the assets and are entered with the sole purpose and net effect of offsetting exposure to foreign currency exchange rate movement in the value of the assets:
                                                        2. an interest in a non-resident if—
                                                          1. the non-resident holds directly or indirectly assets of which 80% or more by value at a time in the income year consist of fixed-rate foreign equities or financial arrangements providing funds to a person ignoring financial arrangements between the non-resident and other members of a group of companies that it is a member of; and
                                                            1. the non-resident is not listed on a recognised exchange or is listed on a recognised exchange but is a foreign PIE equivalent, ignoring section HL 10(4) (Further eligibility requirements relating to investments) for the purposes of this subparagraph; and
                                                              1. the interest has a value in New Zealand dollars that is governed by 1 or more related financial arrangements that remove 80% to 125% of foreign currency risk for the interest and are entered with the sole purpose and net effect of offsetting exposure to foreign currency exchange rate movement in the value of the interest:
                                                              2. a share that involves an obligation—
                                                                1. of another person to provide to the investor, directly or indirectly through an arrangement, an amount that is more than the issue price of the share; and
                                                                  1. that is non-contingent or subject to a contingency that is sufficiently remote to be immaterial:
                                                                  2. an interest in a non-resident if—
                                                                    1. the non-resident is related to the person holding the interest, or the interest is or is part of a structured arrangement; and
                                                                      1. the non-resident is not a foreign PIE equivalent; and
                                                                        1. the non-resident is allowed a deduction against income or an equivalent tax relief, under the taxation law of a country or territory outside New Zealand, for the payment of a dividend arising from the interest:
                                                                        2. a share of a kind that the Commissioner determines under section 91AAO of the Tax Administration Act 1994 to be an interest for which the fair dividend rate method is not available.

                                                                          1. Subsection (10)(a) to (d) does not apply to a share if the Commissioner determines under section 91AAO of the Tax Administration Act 1994 that the share is an interest for which the fair dividend rate method is available.

                                                                          2. A gifting settlor, for a trust (the relevant trust), means a person who—

                                                                          3. makes a transfer of value, by disposing of property, to the trustee of—
                                                                            1. the relevant trust:
                                                                              1. a trust with a trustee who settles property on the relevant trust, directly or through the trustees of other trusts; and
                                                                              2. is not the trustee of a trust.

                                                                                Compare
                                                                                Notes
                                                                                • Section EX 46(1)(b): replaced, on , by section 79 of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
                                                                                • Section EX 46(2) heading: repealed (with effect on 1 July 2011 and applying for income years beginning on or after that date), on , pursuant to section 32(1) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
                                                                                • Section EX 46(2): repealed (with effect on 1 July 2011 and applying for income years beginning on or after that date), on , by section 32(1) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
                                                                                • Section EX 46(3) heading: replaced (with effect on 1 July 2011 and applying for income years beginning on or after that date), on , by section 32(2) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
                                                                                • Section EX 46(3): replaced (with effect on 1 July 2011 and applying for income years beginning on or after that date), on , by section 32(2) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
                                                                                • Section EX 46(3)(a): amended (with effect on 1 July 2011), on , by section 68(1) of the Taxation (Annual Rates for 2023–24, Multinational Tax, and Remedial Matters) Act 2024 (2024 No 11).
                                                                                • Section EX 46(3)(a)(ii): amended (with effect on 1 July 2011), on , by section 68(2) of the Taxation (Annual Rates for 2023–24, Multinational Tax, and Remedial Matters) Act 2024 (2024 No 11).
                                                                                • Section EX 46(4) heading: repealed (with effect on 1 July 2011 and applying for income years beginning on or after that date), on , pursuant to section 32(3) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
                                                                                • Section EX 46(4): repealed (with effect on 1 July 2011 and applying for income years beginning on or after that date), on , by section 32(3) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
                                                                                • Section EX 46(5) heading: replaced (with effect on 1 July 2011 and applying for income years beginning on or after that date), on , by section 32(4) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
                                                                                • Section EX 46(5): replaced (with effect on 1 July 2011 and applying for income years beginning on or after that date), on , by section 32(4) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
                                                                                • Section EX 46(6)(b): substituted, on , by section 392(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
                                                                                • Section EX 46(6)(b)(iii): amended (with effect on 1 April 2008), on , by section 173(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
                                                                                • Section EX 46(6)(b)(iv): added (with effect on 1 April 2008), on , by section 173(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
                                                                                • Section EX 46(6)(c): repealed (with effect on 1 July 2011 and applying for income years beginning on or after that date), on , by section 32(5) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
                                                                                • Section EX 46(6)(d): substituted (with effect on 1 April 2008), on , by section 173(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
                                                                                • Section EX 46(6)(e): inserted, on , by section 15(1) (and see section 15(4) for application) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
                                                                                • Section EX 46(7) heading: repealed (with effect on 1 July 2011 and applying for income years beginning on or after that date), on , pursuant to section 32(6) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
                                                                                • Section EX 46(7): repealed (with effect on 1 July 2011 and applying for income years beginning on or after that date), on , by section 32(6) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
                                                                                • Section EX 46(8): amended (with effect on 1 July 2011 and applying for income years beginning on or after that date), on , by section 32(7) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
                                                                                • Section EX 46(8)(a): substituted (with effect on 1 April 2008), on , by section 173(5) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
                                                                                • Section EX 46(9)(a): repealed (with effect on 1 July 2011 and applying for income years beginning on or after that date), on , by section 32(8) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
                                                                                • Section EX 46(10) heading: substituted (with effect on 1 April 2008), on , by section 173(6) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
                                                                                • Section EX 46(10): amended (with effect on 1 April 2008), on , by section 173(7) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
                                                                                • Section EX 46(10)(a): substituted (with effect on 30 June 2009), on , by section 39(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
                                                                                • Section EX 46(10)(a): amended, on (with effect on 30 June 2009), by section 88(1) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
                                                                                • Section EX 46(10)(c): substituted, on , by section 392(2) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
                                                                                • Section EX 46(10)(c)(i): amended (with effect on 1 April 2009), on , by section 30 of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
                                                                                • Section EX 46(10)(c)(ii): replaced (with effect on 26 June 2019), on , by section 61(a) of the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Act 2023 (2023 No 5).
                                                                                • Section EX 46(10)(cb): inserted (with effect on 1 April 2009), on , by section 173(9) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
                                                                                • Section EX 46(10)(cb)(i): amended (with effect on 1 April 2009), on , by section 30 of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
                                                                                • Section EX 46(10)(cb)(ii): amended, on (applying for the 2010–11 and later income years), by section 173(10) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
                                                                                • Section EX 46(10)(cb)(iii): replaced (with effect on 26 June 2019), on , by section 61(b) of the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Act 2023 (2023 No 5).
                                                                                • Section EX 46(10)(db): inserted, on , by section 15(2) (and see section 15(4) for application) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
                                                                                • Section EX 46(11) heading: amended, on , by section 392(3) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
                                                                                • Section EX 46(11): amended (with effect on 1 April 2008), on , by section 94 of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
                                                                                • Section EX 46(11): amended, on , by section 392(3) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
                                                                                • Section EX 46(12) heading: added, on , by section 392(4) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
                                                                                • Section EX 46(12): added, on , by section 392(4) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
                                                                                • Section EX 46 list of defined terms attributable FIF income method: inserted (with effect on 1 July 2011), on , by section 32(9)(b) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
                                                                                • Section EX 46 list of defined terms branch equivalent method: repealed (with effect on 1 July 2011), on , by section 32(9)(a) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
                                                                                • Section EX 46 list of defined terms dividend: inserted, on , by section 15(3) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
                                                                                • Section EX 46 list of defined terms fixed-rate foreign equity: inserted (with effect on 1 January 2009), on , by section 173(13) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
                                                                                • Section EX 46 list of defined terms fixed-rate share: inserted, on (with effect on 30 June 2009), by section 88(2) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
                                                                                • Section EX 46 list of defined terms foreign investment vehicle: repealed, on , by section 173(12)(a) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
                                                                                • Section EX 46 list of defined terms foreign PIE: repealed (with effect on 1 April 2008), on , by section 173(11)(a) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
                                                                                • Section EX 46 list of defined terms foreign PIE equivalent: inserted, on , by section 173(12)(b) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
                                                                                • Section EX 46 list of defined terms gifting settlor: inserted, on , by section 243 of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
                                                                                • Section EX 46 list of defined terms IFRS 9: inserted, on , by section 80 of the Taxation (Annual Rates for 2019–20, GST Offshore Supplier Registration, and Remedial Matters) Act 2019 (2019 No 33).
                                                                                • Section EX 46 list of defined terms non-resident: inserted, on , by section 15(3) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
                                                                                • Section EX 46 list of defined terms pay: inserted, on , by section 15(3) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
                                                                                • Section EX 46 list of defined terms PIE: inserted, on , by section 173(12)(b) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
                                                                                • Section EX 46 list of defined terms related: inserted, on , by section 15(3) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
                                                                                • Section EX 46 list of defined terms request: inserted, on , by section 74 of the Taxation (Transformation: First Phase Simplification and Other Measures) Act 2016 (2016 No 27).
                                                                                • Section EX 46 list of defined terms returning share transfer: inserted, on , by section 15(3) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
                                                                                • Section EX 46 list of defined terms share supplier: inserted, on , by section 15(3) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
                                                                                • Section EX 46 list of defined terms share user: inserted, on , by section 15(3) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
                                                                                • Section EX 46 list of defined terms structured arrangement: inserted, on , by section 15(3) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).