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Income Tax Act 2007

Recharacterisation of certain transactions - Interest apportionment on thin capitalisation - New Zealand banking group

FE 22: Notional offshore investment

You could also call this:

“Calculating a bank group's overseas investments for tax purposes”

This section explains how to calculate the notional offshore investment for a New Zealand banking group in a tax year. You need to use a special formula to work this out. The formula looks at foreign tax credits, which are money that the group can claim back for taxes they’ve paid overseas. But it doesn’t count all foreign tax credits - only some types are included.

The formula also uses a threshold amount. This can be set by the government, or if it’s not set, it’s worked out based on the number of months in the tax year or set at $5,000,000.

You also need to know the tax rate for companies and an interest rate of return. The interest rate can be set by the government, or if it’s not set, it’s 7%.

The formula takes into account how many months are in the tax year, starting from 1 July 2005.

If the government decides to change the threshold amount or the interest rate of return, they need to follow special rules to make it official.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM1516488.

Topics:
Money and consumer rights > Taxes
Money and consumer rights > Banking and loans
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“How to work out your bank's net value in New Zealand”

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FE 23: Banking group’s funding debt, or

“How to calculate a banking group's debt used for funding”

Part F Recharacterisation of certain transactions
Interest apportionment on thin capitalisation: New Zealand banking group

FE 22Notional offshore investment

  1. This section applies for the purposes of section FE 21(14) to determine an amount of notional offshore investment for a New Zealand banking group for an income year.

  2. The amount of notional offshore investment is calculated using the formula—

    (foreign tax credits − threshold) × 12÷ (tax rate × interest rate of return × months).

    Where:

    • In the formula,—

    • foreign tax credits is the total amount of foreign tax credits for the tax year corresponding to the income year claimed as a credit against the income tax liability for the tax year of a member of the group or a person excluded from the group under section FE 35 that does not arise from—
      1. attributed CFC income or from FIF income; or
        1. income derived before 1 July 2005.
        2. threshold is—
          1. the amount set by the Governor-General by Order in Council as the threshold amount for the purposes of this subsection; or
            1. $416,667 multiplied by the number of months beginning on or after 1 July 2005 in the income year that includes that date, if no threshold is set under subparagraph (i); or:
              1. $5,000,000 if no threshold amount is set under subparagraph (i) or (ii):
              2. tax rate is the rate of tax for companies set out in schedule 1, part A, clause 2 (Basic tax rates: income tax, ESCT, RSCT, RWT, and attributed fringe benefits) for the tax year corresponding to the income year referred to in subsection (1):
                1. interest rate of return is—
                  1. the percentage amount set by the Governor-General by Order in Council as the interest rate of return for the purposes of this subsection; or
                    1. 7%, if no interest rate of return is set under subparagraph (i):
                    2. months is the number of months beginning on or after 1 July 2005 in the corresponding income year.

                      1. An Order in Council under subsection (3)(b)(i) or (d)(i) is secondary legislation (see Part 3 of the Legislation Act 2019 for publication requirements).

                      Compare
                      Notes
                      • Section FE 22(3)(b)(ii): amended (with effect on 1 April 2008), on , by section 66 of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
                      • Section FE 22(3)(c): amended, on , by section 562 of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
                      • Section FE 22(4) heading: inserted, on , by section 3 of the Secondary Legislation Act 2021 (2021 No 7).
                      • Section FE 22(4): inserted, on , by section 3 of the Secondary Legislation Act 2021 (2021 No 7).