EX 55Deemed rate of return method

1. If a person is using the deemed rate of return method to calculate FIF income or loss from an attributing interest in a FIF for an income year, the FIF income or loss is calculated—

2. by the formula in subsection (3) (the standard formula) if the person has held the interest unchanged throughout the income year; and
3. by totalling the amounts calculated by the formula in subsection (5) (the part-year formula) for each part of the income year during which the interest is unchanged, in any other case.

4. A person’s attributing interest in a FIF changes during an income year if the person—

5. acquires or increases the interest; or
6. disposes of or reduces the interest, but merely receiving an annuity payment from the interest is not a disposal or reduction.

7. The standard formula is—

   $opening\; book\; value\; \times \; deemed\; rate.$

   Where:

8. In the standard formula,—

9. opening book value is the book value of the interest at the end of the previous income year, calculated under subsection (7):
10. deemed rate is the rate set by the Governor-General by Order in Council for this section for the relevant income year (see subsection (15)).

11. The part-year formula is—

    $(opening\; book\; value\; +\; costs)\; \times \; deemed\; rate\; \times \; days\; ÷\; 365.$

    Where:

12. In the part-year formula,—

13. opening book value is the book value, if any, of the interest at the end of the period before the part of the income year, calculated under subsection (7):
14. costs is the total for the part of the income year of—
    1. all expenditure, if any, that the person incurs in acquiring or increasing the interest:
    2. income tax on the income of the FIF for which the person is liable under the laws of a country or territory outside New Zealand and which is paid by the person in the part of the income year:
15. deemed rate is the rate set by the Governor-General by Order in Council for this section for the relevant income year (see subsection (15)):
16. days is the number of days in the part of the income year; and for this purpose, an acquisition or increase is treated as occurring at the start of a day, and a disposition or reduction is treated as occurring at the end of a day.

17. The book value, at the end of an income year or, in a case in which subsection (5) applies, a part of an income year, of an attributing interest of a person in a FIF under the deemed rate of return method is, unless subsection (9) applies, calculated using the formula (the closing book value formula)—

    $opening\; book\; value\; +\; costs\; +\; deemed\; income\; +\; top-up\; amounts\; -\; gains.$

    Where:

18. In the closing book value formula,—

19. opening book value is the book value, if any, of the interest at the end of the previous income year or the part of the income year, calculated under subsection (7):
20. costs is the total for the income year or part of the income year of—
    1. all expenditure, if any, that the person incurs in acquiring or increasing the interest:
    2. income tax on the income of the FIF for which the person is liable under the laws of a country or territory outside New Zealand and which is paid by the person in the income year or part of the income year:
21. deemed income is the FIF income from the interest for the year or the part of the income year calculated under subsection (3) or (5):
22. top-up amounts is amounts, gains from holding or disposing of the interest, that are top-up FIF income in the year under section EX 60 or EX 61:
23. gains is the total of all amounts that the person derives during the year or the part of the income year from holding or disposing of the interest; the amounts including any foreign withholding tax or other amount that the person is allowed as a credit under section LE 1 (Tax credits for imputation credits) or LJ 2 (Tax credits for foreign income tax).

24. The closing book value is always zero if the person is using a calculation method for the interest different from the deemed rate of return method at the end of the income year or, in a case to which subsection (5) applies, the part of the income year.

25. If the closing book value of a person’s attributing interest in a FIF at the end of an income year or a part of an income year is below zero, the person has additional FIF income equal to the deficit for the relevant income year.

26. Subsection (10) does not apply if—

27. the person is a natural person; and
28. at all times during the income year the total value of the person’s attributing interests in FIFs is $250,000 or less, the value of each interest being—
    1. its book value, calculated under subsection (7), at the end of the previous income year, if the person held the interest then and used the deemed rate of return method to calculate FIF income for all attributing interests in the previous income year:
    2. its market value, in any other case; and
29. the deficit in closing book value arises only because the person disposed of some or all of the interest; and
30. the gain that the person derived from disposing of the interest or part-interest is not income, or is income only to the extent to which it gives rise to FIF income.

31. A person calculating FIF income under the deemed rate of return method can also have additional FIF income under section EX 60.

32. If a person has disposed of the whole of an attributing interest in a FIF and the closing book value for the relevant income year or the part of the income year is more than zero, the excess is subtracted when the person’s FIF income under the deemed rate of return method for the income year is calculated.

33. Subsection (13) does not apply if—

34. the person is a natural person; and
35. at all times during the income year the total value of attributing interests in FIFs held by the person is $250,000 or less, the value of each interest being—
    1. its book value, calculated under subsection (7), at the end of the previous income year, if the person held the interest then and used the deemed rate of return method to calculate FIF income for all attributing interests in the previous income year:
    2. its market value, in any other case; and
36. the gain that the person derived from disposing of the interest or part-interest is not income, or is income only to the extent to which it gives rise to FIF income.

37. An Order in Council under subsection (4)(b) or (6)(c) is secondary legislation (see Part 3 of the Legislation Act 2019 for publication requirements).

Compare

• 2004 No 35 s EX 45

Notes

• Section EX 55(4)(b): 8.63% is the deemed rate applying for the 2023–24 income year, on 6 June 2024, by clause 3 of the Income Tax (Deemed Rate of Return on Attributing Interests in Foreign Investment Funds, 2023–24 Income Year) Order 2024 (SL 2024/119).
• Section EX 55(4)(b): amended, on 28 October 2021, by section 3 of the Secondary Legislation Act 2021 (2021 No 7).
• Section EX 55(6)(c): 8.63% is the deemed rate applying for the 2023–24 income year, on 6 June 2024, by clause 3 of the Income Tax (Deemed Rate of Return on Attributing Interests in Foreign Investment Funds, 2023–24 Income Year) Order 2024 (SL 2024/119).
• Section EX 55(6)(c): amended, on 28 October 2021, by section 3 of the Secondary Legislation Act 2021 (2021 No 7).
• Section EX 55(8)(e): amended (with effect on 1 April 2008), on 29 August 2011 (applying for the 2008–09 and later income years), by section 140(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
• Section EX 55(15) heading: inserted, on 28 October 2021, by section 3 of the Secondary Legislation Act 2021 (2021 No 7).
• Section EX 55(15): inserted, on 28 October 2021, by section 3 of the Secondary Legislation Act 2021 (2021 No 7).