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Income Tax Act 2007

Timing and quantifying rules - Controlled foreign company and foreign investment fund rules - Relationship with other provisions in Act

EX 59: Codes: comparative value method, deemed rate of return method, fair dividend rate method, and cost method

You could also call this:

“Rules for calculating income from foreign investments using specific methods”

When you calculate your income or loss from a foreign investment fund (FIF) using certain methods, some special rules apply.

If you use the comparative value method, deemed rate of return method, fair dividend rate method, or cost method to work out your FIF income or loss, any other money you get from that investment (except for FIF income) is excluded income. This means you don’t have to pay tax on it.

However, if you get a refund of fees that you’ve already claimed as a tax deduction, that refund isn’t excluded income.

You can’t claim a tax deduction for money you spend on buying more of the investment during this time, unless it’s part of calculating your FIF income or loss.

Your FIF investment isn’t treated as trading stock during this time, so the rules for valuing trading stock don’t apply to it.

There are some exceptions to these rules for certain types of investments and investors, like some companies that meet specific requirements or portfolio investment entities.

Remember, these rules are quite complex, so it’s a good idea to get help from a tax expert if you’re not sure how they apply to you.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM1515690.

Topics:
Money and consumer rights > Taxes
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EX 58: Additional FIF income or loss if CFC owns FIF, or

“Extra tax on overseas investments owned through foreign companies”

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EX 60: Top-up FIF income: deemed rate of return method, or

“Extra income from foreign investments calculated using a set rate”

Part E Timing and quantifying rules
Controlled foreign company and foreign investment fund rules: Relationship with other provisions in Act

EX 59Codes: comparative value method, deemed rate of return method, fair dividend rate method, and cost method

  1. This section applies when a person has an attributing interest in a FIF and calculates their FIF income or loss from the interest for a period using—

  2. the comparative value method:
    1. the deemed rate of return method:
      1. the fair dividend rate method:
        1. the cost method.

          1. Subsection (1)(c) does not apply if the person's interest in the company is included, at the beginning of the income year in which the payment is made, in a direct income interest of 10% or more in a FIF that, at the beginning of the income year,—

          2. 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 (1B) does not apply if—

                2. the person 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. An amount, other than FIF income, that is derived in the period from the interest is excluded income under section CX 57B (Amounts derived during periods covered by calculation methods).

                    2. An amount derived by the person from the interest is not disregarded under subsection (2) if—

                    3. the amount is a rebate of fees; and
                      1. the person was allowed a deduction for the payment of the fees.

                        1. The person is denied a deduction for any amount incurred in the period on acquiring some or all of the interest, except to the extent to which the amount is taken into account under the relevant calculation method in calculating FIF income or loss for the period.

                        2. The interest is not trading stock in the period and accordingly subpart EB (Valuation of trading stock (including dealer’s livestock)) does not apply.

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                        Notes
                        • Section EX 59(1)(c): substituted (with effect on 1 April 2008), on , by section 181(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
                        • Section EX 59(1B) heading: replaced (with effect on 1 July 2011 and applying for income years beginning on or after that date), on , by section 40(1) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
                        • Section EX 59(1B): replaced (with effect on 1 July 2011 and applying for income years beginning on or after that date), on , by section 40(1) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
                        • Section EX 59(1B)(b): amended (with effect on 1 July 2014), on , by section 64(1) (and see section 64(3) for application) of the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Act 2023 (2023 No 5).
                        • Section EX 59(1B)(c): inserted (with effect on 1 July 2014), on , by section 64(2) (and see section 64(3) for application) of the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Act 2023 (2023 No 5).
                        • Section EX 59(1C) heading: inserted (with effect on 1 April 2008), on , by section 181(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
                        • Section EX 59(1C): inserted (with effect on 1 April 2008), on , by section 181(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
                        • Section EX 59(1C)(b): substituted, on (applying for the 2010–11 and later income years), by section 181(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
                        • Section EX 59(2): replaced, on , by section 89(1) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
                        • Section EX 59(2B) heading: inserted (with effect on 1 April 2009), on , by section 181(4) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
                        • Section EX 59(2B): inserted (with effect on 1 April 2009), on , by section 181(4) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
                        • Section EX 59 list of defined terms company: inserted (with effect on 1 April 2008), on , by section 181(5) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
                        • Section EX 59 list of defined terms direct income interest: inserted (with effect on 1 April 2008), on , by section 181(5) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
                        • Section EX 59 list of defined terms dividend: repealed, on , by section 89(2)(b) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
                        • Section EX 59 list of defined terms excluded income: inserted, on , by section 89(2)(a) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
                        • Section EX 59 list of defined terms foreign investment vehicle: repealed, on , by section 181(6)(a) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
                        • Section EX 59 list of defined terms foreign PIE equivalent: inserted, on , by section 181(6)(b) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
                        • Section EX 59 list of defined terms grey list company: repealed (with effect on 1 July 2011), on , by section 40(2) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
                        • Section EX 59 list of defined terms life insurance: inserted (with effect on 1 April 2008), on , by section 181(5) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
                        • Section EX 59 list of defined terms portfolio investment entity: inserted (with effect on 1 April 2008), on , by section 181(5) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).