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Income Tax Act 2007

Timing and quantifying rules - Controlled foreign company and foreign investment fund rules - Cases of entry into and exit from FIF rules

EX 65: Changes in application of FIF exemptions

You could also call this:

“Rules for reporting changes in overseas investments”

When you own certain types of overseas investments, sometimes the rules about how you need to report them can change. This law explains what happens in those situations.

If you have an investment that becomes subject to the FIF (Foreign Investment Fund) rules, or if you start having FIF income or loss because you’ve spent money on an investment and gone over a $50,000 limit, here’s what happens:

If you’re using certain methods to calculate your FIF income or loss, it’s as if you sold your investment and then bought it back at its current market value, right when the rules changed.

If you’re using a different method (the attributable FIF income method) and the rules change partway through an accounting period, your FIF income or loss is reduced. The reduction is based on how many days were in the period before the change happened.

The same kind of thing happens if you have an investment that stops being subject to the FIF rules, or if you stop having FIF income or loss because you sold some investments and went below the $50,000 limit.

If you’re using certain methods to calculate your FIF income or loss, it’s again treated as if you sold your investment and bought it back at its current market value when the rules changed.

If you’re using the attributable FIF income method and the rules change partway through an accounting period, your FIF income or loss is reduced. This time, the reduction is based on how many days were in the period after the change happened.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM1515710.

Topics:
Money and consumer rights > Taxes
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EX 64: Migration of persons holding FIF interests, or

“Rules for foreign investments when your New Zealand residency changes”

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EX 66: Entities emigrating from New Zealand, or

“Rules for when a company you own rights in becomes a foreign investment fund”

Part E Timing and quantifying rules
Controlled foreign company and foreign investment fund rules: Cases of entry into and exit from FIF rules

EX 65Changes in application of FIF exemptions

  1. Subsections (2) to (4) apply if a person—

  2. holds rights in 1 of the categories of rights described in section EX 29(2) to (4); and
    1. either—
      1. the rights become an attributing interest in a FIF because 1 of the exemptions in sections EX 31 to EX 43 ceases to apply; or
        1. the person starts having FIF income or loss from the rights because they incur a cost on an attributing interest in a FIF and exceed the $50,000 threshold in sections CQ 5(1)(d) or (e) (When FIF income arises) and DN 6(1)(d) or (e) (When FIF loss arises).

        2. If the person uses the comparative value method, deemed rate of return method, the fair dividend rate method, or the cost method to calculate FIF income or loss from the rights for the period following the change, the person is treated as having—

        3. disposed of the rights to an unrelated person immediately before the change; and
          1. reacquired them immediately after the change; and
            1. received for the disposal and paid for the reacquisition an amount equal to their market value at the time.

              1. If the change occurs during an accounting period of the FIF and the person uses the attributable FIF income method to calculate FIF income or loss from the rights for that period, the FIF income or loss is reduced by subtracting the amount calculated using the formula—

                FIF income or loss × days before change ÷ days in period.

                Where:

                • In the formula in subsection (3),—

                • FIF income or loss is the FIF income or loss of the person from the rights for the period before allowing for the reduction:
                  1. days before change is the number of complete days in the period before the change occurs:
                    1. days in period is the number of days in the period.

                      1. Subsections (6) to (8) apply if a person—

                      2. holds an attributing interest in a FIF; and
                        1. either—
                          1. the interest ceases to be an attributing interest in a FIF because 1 of the exemptions in sections EX 31 to EX 43 starts to apply; or
                            1. the person ceases having FIF income or loss from the interest because they dispose of an attributing interest in a FIF and fall below the $50,000 threshold in sections CQ 5(1)(d) or (e) and DN 6(1)(d) or (e).

                            2. If the person uses the comparative value method, the deemed rate of return method, fair dividend rate method, or cost method to calculate FIF income or loss from the interest for the period before the change, the person is treated as having—

                            3. disposed of the interest to an unrelated person immediately before the change; and
                              1. reacquired it immediately after the change; and
                                1. received for the disposal and paid for the reacquisition an amount equal to its market value at the time.

                                  1. If the change occurs during an accounting period of the FIF and the person uses the attributable FIF income method to calculate FIF income or loss from the interest for that period, the FIF income or loss is reduced by subtracting the amount calculated using the formula—

                                    FIF income or loss × days after change ÷ days in period.

                                    Where:

                                    • In the formula in subsection (7),—

                                    • FIF income or loss is the FIF income or loss of the person from the interest for the period before allowing for the reduction:
                                      1. days after change is the number of complete days in the period after the change occurs:
                                        1. days in period is the number of days in the period.

                                          Compare
                                          Notes
                                          • Section EX 65(1)(b)(i): amended (with effect on 1 April 2008), on , by section 183(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
                                          • Section EX 65(2)(c): 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 65(3): amended (with effect on 1 July 2011 and applying for income years beginning on or after that date), on , by section 44(1) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
                                          • Section EX 65(5)(b)(i): amended (with effect on 1 April 2008), on , by section 183(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
                                          • Section EX 65(6)(c): 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 65(7): amended (with effect on 1 July 2011 and applying for income years beginning on or after that date), on , by section 44(2) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
                                          • Section EX 65 list of defined terms accounting profits method: repealed (with effect on 1 July 2011), on , by section 44(3)(a) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
                                          • Section EX 65 list of defined terms attributable FIF income method: inserted (with effect on 1 July 2011), on , by section 44(3)(b) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
                                          • Section EX 65 list of defined terms branch equivalent method: repealed (with effect on 1 July 2011), on , by section 44(3)(a) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).