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Income Tax Act 2007

Timing and quantifying rules - Controlled foreign company and foreign investment fund rules - Commissioner’s default assessment power

EX 72: Commissioner’s default assessment power

You could also call this:

“Tax office can estimate your overseas investment income if you don't provide proper information”

This section explains what happens when you don’t share information about your overseas investments properly. It applies in three situations:

  1. If you don’t tell the tax office about your control or income interests in a CFC (Controlled Foreign Company) or your attributing interests in a FIF (Foreign Investment Fund) when you’re supposed to.

  2. If you don’t give the tax office information they ask for about these interests.

  3. If you can’t get enough information to work out your income or loss from these interests.

In these cases, the Commissioner of Inland Revenue can decide how much income or loss you have from your overseas investments. They can use different ways to work this out, such as:

  • Looking at the accounts of the overseas company
  • Assuming your income has gone up by 10% or more each year
  • Using the change in the value of your investment
  • Using the actual gains or losses you’ve made

The Commissioner can choose which method to use based on the information they have.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM1515754.

Topics:
Money and consumer rights > Taxes
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EX 71: Non-market transactions in FIF interests, or

“Rules for buying or selling foreign investment fund interests at non-market prices”

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EX 73: Election that CFC not non-attributing active CFC or FIF not non-attributing active FIF, or

“Choosing to treat your foreign company or fund as active for tax purposes”

Part E Timing and quantifying rules
Controlled foreign company and foreign investment fund rules: Commissioner’s default assessment power

EX 72Commissioner’s default assessment power

  1. This section applies when—

  2. a person has failed to disclose their control interest or income interest in a CFC or attributing interest in a FIF, under section 61 of the Tax Administration Act 1994:
    1. a person has failed to disclose information regarding their control interest or income interest in a CFC or attributing interest in a FIF, requested under section 17 of that Act:
      1. a person cannot obtain enough information to calculate their attributed CFC income or loss or FIF income or loss for a period.

        1. The Commissioner may make an assessment of the amount of attributed CFC income or loss or FIF income or loss for the relevant period.

        2. Without limiting the Commissioner’s discretion, the assessment may be based on any of the following:

        3. the accounts of the CFC or FIF for the relevant period prepared for tax authorities, creditors, shareholders, or others:
          1. the application of a rate of presumed increase of 10% or more, compounded annually, to the CFC's net attributable CFC income or to the FIF's net attributable FIF income, for a previous period:
            1. the application of a rate of presumed increase of 10% or more, compounding annually, to the CFC’s or FIF’s accounting profits as shown in its accounts for a previous period:
              1. an imputed rate of return on the market value of the interest at the start of the period:
                1. the actual gains or losses of the person in the period from holding or disposing of the interest:
                  1. the change in the market value of the interest over the period.

                    Compare
                    Notes
                    • Section EX 72(1)(c): replaced (with effect on 1 July 2009 and applying for income years beginning on or after that date), on , by section 49(1) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
                    • Section EX 72(2): amended, on , by section 155 of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
                    • Section EX 72(3)(b): replaced (with effect on 1 July 2011 and applying for income years beginning on or after that date), on , by section 49(2) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
                    • Section EX 72 list of defined terms attributed repatriation: repealed (with effect on 1 July 2011), on , by section 49(3)(a) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
                    • Section EX 72 list of defined terms attributable FIF income method: inserted (with effect on 1 July 2011), on , by section 49(3)(b) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
                    • Section EX 72 list of defined terms branch equivalent income: repealed (with effect on 1 July 2011), on , by section 49(3)(a) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
                    • Section EX 72 list of defined terms net attributable CFC income: inserted (with effect on 1 July 2011), on , by section 49(3)(b) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
                    • Section EX 72 list of defined terms net attributable FIF income: inserted (with effect on 1 July 2011), on , by section 49(3)(b) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
                    • Section EX 72 list of defined terms request: inserted, on , by section 74 of the Taxation (Transformation: First Phase Simplification and Other Measures) Act 2016 (2016 No 27).