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Income Tax Act 2007

Timing and quantifying rules - Controlled foreign company and foreign investment fund rules - Measurement of cost

EX 68: Measurement of cost

You could also call this:

“How to calculate the cost of your overseas investments”

When you’re figuring out the cost of your attributing interest in a FIF (Foreign Investment Fund), there are some special rules you need to follow. These rules apply in different situations, like when you’re checking if your investment is worth more than $50,000, or when you’re using different methods to calculate your FIF income.

If you’ve bought and sold parts of your investment many times, and you can’t figure out exactly how much each part cost, you should use the FIFO method. This means you assume you sold the oldest parts first.

If you get more of the investment because of things like share splits or bonus issues that aren’t taxable, you need to split the cost fairly based on market values at the time. From then on, you treat the new parts as if you bought them when you got the original investment.

If you pay for the investment with something other than money, you should use the market value of what you paid at the time you got the investment.

For life insurance policies, you don’t include premiums that were just for term life insurance in earlier years in the cost.

You don’t include costs like interest on money you borrowed to buy the investment or other holding costs in the total cost.

There are some special rules for investments you bought before 1 January 2000 and before 1 January 2005. For these old investments, you might be able to use their market value at a certain date instead of their actual cost.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM1515735.

Topics:
Money and consumer rights > Taxes
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“Rules for inherited overseas investments in certain companies”

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“Changing the accounting year for calculating FIF income or loss”

Part E Timing and quantifying rules
Controlled foreign company and foreign investment fund rules: Measurement of cost

EX 68Measurement of cost

  1. This section applies when the cost of a person’s attributing interest in a FIF is being measured for the purposes of—

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

            1. If sections EX 52(14) and EX 53(16) do not apply and it is not possible to specifically identify the cost of the interest because of multiple acquisitions or dispositions or both by the person, the first-in-first-out (the FIFO) method of identifying cost flows is applied.

            2. Repealed

            3. If the person acquires the interest as the result of a share split, non-taxable bonus issue, or similar event, and the acquisition is not income for the person, subsections (5) and (6) apply.

            4. The cost of the interest is a fair allocation, based on market values at the time of the split, of the cost of the original property that is split.

            5. For the income year in which the split occurs and later,—

            6. the cost allocated to the interest is no longer the cost of the original property that was split; and
              1. the person is treated as having incurred the allocated cost amount on acquiring the interest when the original property was acquired; and
                1. the person is treated as not incurring any other cost on the interest merely because the original property ceases to exist.

                  1. If any cost is incurred in kind and not in money, the amount of the cost is equal to the market value of the cost incurred in kind, measured as at the time incurred.

                  2. If the interest is rights to benefit under a life insurance policy, the cost of the interest excludes a premium incurred in an earlier income year, or accounting period, to the extent to which the premium relates only to term life insurance for the previous period and does not increase the policy’s surrender value.

                  3. The cost of the interest does not include any expenditure under the financial arrangements rules or interest on money borrowed to acquire it, or other holding costs, incurred after its acquisition.

                  4. Subsection (11) applies, for the purposes of the $50,000 threshold in sections CQ 5(1)(d) or (e) and DN 6(1)(d) or (e), if—

                  5. the interest was acquired before 1 January 2000; and
                    1. the person chooses, for the income year for which the relevant paragraph is applied or an earlier income year, that subsection (11) applies to all interests acquired before 1 January 2000.

                      1. Despite subsections (1) to (9), the cost of the interest is treated as equal to half the market value of the interest on 1 April 2007.

                      2. For interests that were acquired by the person before 1 January 2005 and excluded by section EX 39 from being attributing interests until the beginning of the 2012–13 income year, the person may choose to treat the cost of every interest as being the market value of the interest at the beginning of the 2012–13 income year, for the purposes of the $50,000 threshold in sections CQ 5(1)(d) or (e) and DN 6(1)(d) or (e).

                      Compare
                      Notes
                      • Section EX 68(1)(a): amended, on , by section 258 of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
                      • Section EX 68(2) heading: substituted, on , by section 401 of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
                      • Section EX 68(2): substituted, on , by section 401 of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
                      • Section EX 68(3) heading: repealed, on , by section 401 of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
                      • Section EX 68(3): repealed, on , by section 401 of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
                      • Section EX 68(12) heading: inserted (with effect on 1 October 2011), on (applying for the 2012–13 and later income years), by section 51(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
                      • Section EX 68(12): inserted (with effect on 1 October 2011), on (applying for the 2012–13 and later income years), by section 51(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).