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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 53: Fair dividend rate periodic method

You could also call this:

“Calculating income from foreign investments using daily market values”

You use the fair dividend rate periodic method to calculate your FIF income if:

  • You’re required to use this method, or
  • You choose to use it and you work out the market value of your FIF interest for each day (or part of a day) in the income year

The total FIF income for the year is calculated by adding up the amounts for each period using this formula:

(0.05 x opening value x period ÷ year) + quick sale adjustment

The opening value is the total market value of your FIF interests at the start of each period.

There’s a quick sale adjustment if you buy and sell FIF interests within the same period. This is to account for any short-term gains.

The calculation uses the lower of:

  • The peak holding method amount, or
  • The quick sale gain amount

There are specific rules for how to calculate these amounts.

This method applies to FIF interests that aren’t in certain types of foreign companies. There are some exceptions for portfolio investment entities and life insurance companies.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM1515604.

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EX 52: Fair dividend rate annual method, or

“Yearly calculation of income from overseas investments using a standard rate”

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EX 54: Fair dividend rate method and cost method: when periods affected by share reorganisations, or

“Calculating foreign investment income when shares change during a period”

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

EX 53Fair dividend rate periodic method

  1. This section applies when a person (the interest holder), who calculates under the fair dividend rate method the FIF income from an attributing interest in a FIF for an income year,—

  2. is required under section EX 52A to use the fair dividend rate periodic method:
    1. determines the market value of the attributing interest for each period of a day (the unit valuation period) in the income year and—
      1. is not required to use the fair dividend rate periodic method; and
        1. chooses to use the fair dividend rate periodic method.

        2. Repealed

        3. The total FIF income for the income year of the fund or person (the interest holder) from the attributing interests in FIFs (the FDR interests) for which the fund or person uses the fair dividend rate method is the total of the amounts calculated using the formula in subsection (3) for each unit valuation period.

        4. The formula is—

          (0.05 × opening value × period ÷ year) + quick sale adjustment.

          Where:

          • The items in the formula in subsection (3) are defined in subsections (5) to (15).

          • Opening value is the total of the market values of the FDR interests held by the person at the start of the unit valuation period that are not, at the start of the unit valuation period, included in a direct income interest of 10% or more in a FIF that, at the start of the income year,—

          • meets the requirements of section EX 35(b)(i) to (iii); and
            1. does not have its liability for income tax reduced by an exemption, allowance, or relief referred to in section EX 35(c)(i) or (ii); and
              1. is not a unit trust or is a unit trust subject under Australian law to income tax on its income in the same way as a company.

                1. Subsection (5)(b) does not apply if—

                2. the interest holder is a portfolio investment entity, an entity eligible to be a portfolio investment entity, or a life insurance company; and
                  1. the FIF is a foreign PIE equivalent.

                    1. Period is the number of days in the unit valuation period.

                    2. Year is the number of days in the income year.

                    3. The quick sale adjustment is required, and is not zero, only if the interest holder has a unit valuation period of more than 1 day and, in the unit valuation period,—

                    4. acquires or increases an FDR interest to which this section applies; and
                      1. later disposes of or reduces the FDR interest.

                        1. Quick sale adjustment is the lesser of—

                        2. the total of the amounts (the peak holding method amount) calculated for each FDR interest using the formula in subsection (10):
                          1. the total of the amounts (the quick sale gain amount) calculated for each FDR interest using the formula in subsection (14), treating a negative total as being zero.

                            1. The formula is—

                              0.05 × peak holding differential × average cost.

                              Where:

                              • The items in the formula in subsection (10) are defined in subsections (12) and (13).

                              • Peak holding differential is,—

                              • if no share reorganisation occurs in the unit valuation period, the lesser of—
                                1. the difference between the greatest shareholding in the period and the shareholding at the start of the period:
                                  1. the difference between the greatest shareholding in the period and the shareholding at the end of the period; or
                                  2. if a share reorganisation occurs in the period, the amount calculated under section EX 54 for the period.

                                    1. Average cost is—

                                    2. if no share reorganisation occurs in the unit valuation period, the total amount of expenditure that the interest holder incurs in acquiring or increasing during the period the attributing interest in the FIF divided by the total for the period of the shareholding increase in the attributing interest in the FIF for each acquisition or increase; or
                                      1. if a share reorganisation occurs in the period, the amount calculated under section EX 54 for the period.

                                        1. The formula, for each acquisition or increase in the attributing interest that is disposed of or reduced in the unit valuation period, is—

                                          gain − (interest × average cost).

                                          Where:

                                          • In the formula in subsection (14),—

                                          • gain is the total amount that the interest holder derives from holding or disposing of the acquisition or increase:
                                            1. interest is the amount of the shareholding acquisition or increase:
                                              1. average cost is the total amount of expenditure that the interest holder incurs in acquiring or increasing the attributing interest in the FIF divided by the total for the period of the shareholding increase in the interest for each acquisition or increase.

                                                1. For the purposes of subsection (14), attributing interests in a FIF are treated as being disposed of in the reverse order of their acquisition (last in-first out).

                                                2. For the purposes of subsection (9), if the person is treated as disposing of or acquiring an attributing interest in an income year under section EX 67, the disposal or acquisition is ignored.

                                                3. For a person using the fair dividend rate annual method to calculate FIF income for an attributing interest in a FIF that is an original share subject to a returning share transfer, the attributing interest is treated as being held by the share supplier, except if—

                                                4. the share user is related to the share supplier:
                                                  1. the returning share transfer is or is part of a structured arrangement.

                                                    1. In this section, shareholding means the number of shares or units in an attributing interest.

                                                    Compare
                                                    Notes
                                                    • Section EX 53 heading: replaced, on , by section 151(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
                                                    • Section EX 53(1) heading: replaced, on (applying for the 2016–17 and later income years), by section 151(2) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
                                                    • Section EX 53(1): replaced, on (applying for the 2016–17 and later income years), by section 151(2) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
                                                    • Section EX 53(1B) heading: repealed, on (applying for the 2016–17 and later income years), pursuant to section 151(2) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
                                                    • Section EX 53(1B): repealed, on (applying for the 2016–17 and later income years), by section 151(2) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
                                                    • Section EX 53(2): substituted (with effect on 1 April 2008), on , by section 178(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
                                                    • Section EX 53(5): replaced (with effect on 1 July 2014), on , by section 63(1) (and see section 63(2) for application) of the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Act 2023 (2023 No 5).
                                                    • Section EX 53(5B) heading: inserted (with effect on 1 April 2008), on , by section 178(5) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
                                                    • Section EX 53(5B): inserted (with effect on 1 April 2008), on , by section 178(5) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
                                                    • Section EX 53(5B)(b): amended, on (applying for the 2010–11 and later income years), by section 178(6) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
                                                    • Section EX 53(8): substituted (with effect on 1 April 2008), on , by section 178(7) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
                                                    • Section EX 53(9)(a): substituted (with effect on 1 April 2008), on , by section 178(8) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
                                                    • Section EX 53(9)(b): substituted (with effect on 1 April 2008), on , by section 178(8) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
                                                    • Section EX 53(13)(a): amended, on , by section 395(7) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
                                                    • Section EX 53(14) formula: amended, on , by section 395(8) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
                                                    • Section EX 53(15)(a): substituted, on , by section 395(9) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
                                                    • Section EX 53(15)(a): amended (with effect on 1 April 2008), on , by section 178(9)(a) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
                                                    • Section EX 53(15)(b): substituted, on , by section 395(9) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
                                                    • Section EX 53(15)(c): amended (with effect on 1 April 2008), on , by section 178(9)(b) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
                                                    • Section EX 53(16B) heading: inserted, on , by section 395(10) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
                                                    • Section EX 53(16B): inserted, on , by section 395(10) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
                                                    • Section EX 53(16C) heading: inserted (with effect on 1 April 2008), on , by section 178(10) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
                                                    • Section EX 53(16C): replaced, on , by section 18(1) (and see section 18(3) for application) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
                                                    • Section EX 53 list of defined terms direct income interest: inserted (with effect on 1 July 2011), on , by section 38(2) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
                                                    • Section EX 53 list of defined terms fair dividend rate annual method: inserted, on , by section 18(2) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
                                                    • Section EX 53 list of defined terms fair dividend rate periodic method: inserted, on , by section 151(3) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
                                                    • Section EX 53 list of defined terms foreign investment vehicle: repealed, on , by section 178(12)(a) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
                                                    • Section EX 53 list of defined terms foreign PIE equivalent: inserted, on , by section 178(12)(b) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
                                                    • Section EX 53 list of defined terms life insurance: inserted (with effect on 1 April 2008), on , by section 178(11) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
                                                    • Section EX 53 list of defined terms original share: inserted (with effect on 1 April 2008), on , by section 178(11) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
                                                    • Section EX 53 list of defined terms portfolio investment entity: inserted (with effect on 1 April 2008), on , by section 178(11) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
                                                    • Section EX 53 list of defined terms related: inserted, on , by section 18(2) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
                                                    • Section EX 53 list of defined terms returning share transfer: inserted (with effect on 1 April 2008), on , by section 178(11) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
                                                    • Section EX 53 list of defined terms share: inserted (with effect on 1 April 2008), on , by section 178(11) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
                                                    • Section EX 53 list of defined terms share supplier: inserted (with effect on 1 April 2008), on , by section 178(11) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
                                                    • Section EX 53 list of defined terms share user: inserted, on , by section 18(2) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
                                                    • Section EX 53 list of defined terms shareholding: 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 53 list of defined terms structured arrangement: inserted, on , by section 18(2) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
                                                    • Section EX 53 list of defined terms unit valuation period: repealed, on , by section 243 of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).