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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 66: Entities emigrating from New Zealand

You could also call this:

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

If you own rights in a company that becomes a Foreign Investment Fund (FIF), this law explains what happens.

When a company becomes a FIF, it’s like you sold your rights and then bought them back right away. The price for this pretend sale and purchase is the same as what your rights were worth at the end of the business day when the company became a FIF.

If this change happens during an accounting period and you use the attributable FIF income method to work out your FIF income or loss, you need to reduce your FIF income or loss. You do this by taking away an amount that you calculate using a special formula.

The formula looks at how many days were in the period before the change happened, compared to the total days in the period. It then applies this to your FIF income or loss.

To use the formula, you need to know three things:

  1. Your FIF income or loss for the whole period
  2. How many full days were in the period before the change
  3. How many days are in the whole period

This law helps make sure your FIF income or loss is fair when a company you have rights in becomes a FIF during an accounting period.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM1515722.

Topics:
Money and consumer rights > Taxes
Business > Industry rules
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EX 65: Changes in application of FIF exemptions, or

“Rules for reporting changes in overseas investments”

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EX 66B: Entities ceasing to be FIFs, or

“Rules for when a foreign investment stops being 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 66Entities emigrating from New Zealand

  1. This section applies when a person holds rights that become an attributing interest in a FIF because an entity becomes a FIF.

  2. The person is treated as having—

  3. disposed of the interest immediately before the change to an unrelated person; and
    1. reacquired it immediately after the change; and
      1. received for the disposal and paid for the reacquisition an amount equal to the market value of the interest at the end of the business day on which the change occurred.

        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, section EX 24 does not apply and 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,—

          • 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.

                Compare
                Notes
                • Section EX 66(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 66(2)(b): 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 66(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 66(3): amended (with effect on 1 July 2011 and applying for income years beginning on or after that date), on , by section 45(1) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
                • Section EX 66 list of defined terms accounting profits method: repealed (with effect on 1 July 2011), on , by section 45(2)(a) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
                • Section EX 66 list of defined terms attributable FIF income method: inserted (with effect on 1 July 2011), on , by section 45(2)(b) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
                • Section EX 66 list of defined terms branch equivalent method: repealed (with effect on 1 July 2011), on , by section 45(2)(a) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).