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Income Tax Act 2007

Timing and quantifying rules - Controlled foreign company and foreign investment fund rules - Changing calculation method

EX 63: Consequences of changes in method

You could also call this:

"What happens to your taxes if you change how you calculate your foreign investment fund income"

Illustration for Income Tax Act 2007

If you change the way you calculate your FIF income or loss, it can affect your taxes. You might be treated as if you sold and then bought back your interest in the FIF. This means you will be treated as having received and paid an amount equal to the interest's market value at the time. If you change from one method to another, you will be treated as having sold and bought back your interest. The amount you receive and pay will depend on the methods you are changing between. For example, if you change from the cost method to the comparative value method, you will be treated as having received and paid an amount equal to what would have been the interest's opening value under section EX 56 if you had applied the cost method. You will be treated as having sold and bought back your interest if you change between certain methods. The amount you receive and pay will be equal to the interest's market value at the time. This applies when you change between the comparative value method and the fair dividend rate method. If you change from the deemed rate of return method to the comparative value method or fair dividend rate method, you will be treated as having received and paid an amount equal to the interest's closing book value under section EX 55(7) for the preceding income year. You will be treated as having sold and bought back your interest when you change methods. The amount you receive and pay will depend on the methods you are changing between.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM1515705.

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EX 62: Limits on changes of method, or

"Rules for changing how you calculate your foreign investment fund income"

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EX 64: Migration of persons holding FIF interests, or

"Rules for foreign investments when your New Zealand residency changes"

Part ETiming and quantifying rules
Controlled foreign company and foreign investment fund rules: Changing calculation method

EX 63Consequences of changes in method

  1. Subsection (2) applies if a person holding an attributing interest in a FIF changes the calculation method for calculating FIF income or loss from the interest—

  2. from 1 of the 4 cost-based calculation methods (the comparative value method, the deemed rate of return method, the fair dividend rate method, or the cost method) to the attributable FIF income method; or
    1. from a look-through calculation method (the attributable FIF income method or the accounting profits method) to 1 of the 4 cost-based calculation methods.

      1. The person is treated as having—

      2. disposed of the interest to an unrelated person immediately before the start of the first accounting period to which the new method applies; and
        1. reacquired the interest at the start of the period; and
          1. received for the disposal and paid for the reacquisition an amount equal to the interest’s market value at the time.

            1. If a person holding an attributing interest in a FIF changes from either of the comparative value method and the fair dividend rate method to either of the cost method and the deemed rate of return method for calculating FIF income or loss from the interest, the person is treated as having—

            2. disposed of the interest to an unrelated person immediately before the start of the first income year to which the new method applies; and
              1. reacquired the interest at the start of the income year; and
                1. received for the disposal and paid for the reacquisition an amount equal to the interest’s market value at the time of the disposal.

                  1. If a person holding an attributing interest in a FIF changes from either of the cost method or the deemed rate of return method to either of the comparative value method or fair dividend rate method for calculating FIF income or loss from the interest, the person is treated as having—

                  2. disposed of the interest to an unrelated person immediately before the start of the first income year to which the new method applies; and
                    1. reacquired the interest at the start of the income year; and
                      1. received for the disposal and paid for the reacquisition an amount equal to,—
                        1. for a person changing from the cost method, what would have been the interest’s opening value under section EX 56 if the person had applied the cost method for the income year; or
                          1. for a person changing from the deemed rate of return method, the interest’s closing book value under section EX 55(7) for the preceding income year.

                          2. If a person holding an attributing interest in a FIF changes from either of the comparative value method and the fair dividend rate method to the other of the comparative value method and the fair dividend rate method for calculating the FIF income or loss from the interest, the person is treated as having—

                          3. disposed of the interest to an unrelated person immediately before the start of the first income year to which the new method applies; and
                            1. reacquired the interest at the start of the income year; and
                              1. received for the disposal and paid for the reacquisition an amount equal to the market value of the interest at the time of the disposal.

                                Compare
                                Notes
                                • Section EX 63(1)(a): replaced (with effect on 1 July 2011 and applying for income years beginning on or after that date), on , by section 42(1) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
                                • Section EX 63(1)(b): replaced (with effect on 1 July 2011 and applying for income years beginning on or after that date), on , by section 42(1) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
                                • Section EX 63(1)(b): amended, on , by section 154(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
                                • Section EX 63(2) heading: amended (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on , by section 242(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
                                • Section EX 63(2)(b): replaced (with effect on 1 July 2011 and applying for income years beginning on or after that date), on , by section 53(1) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
                                • Section EX 63(3)(b): replaced (with effect on 1 July 2011 and applying for income years beginning on or after that date), on , by section 53(2) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
                                • Section EX 63(4)(b): replaced (with effect on 1 July 2011 and applying for income years beginning on or after that date), on , by section 53(3) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
                                • Section EX 63(5) heading: added, on , by section 399 of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
                                • Section EX 63(5): added, on , by section 399 of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
                                • Section EX 63 list of defined terms attributable FIF income method: inserted (with effect on 1 July 2011), on , by section 42(2) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
                                • Section EX 63 list of defined terms branch equivalent method: repealed, on , by section 154(2) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).