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HR 2: Group investment funds
or “Special rules for reporting income from group investment funds”
You could also call this:

“Explaining how income is calculated for group investment funds for tax purposes”

You need to know about a special way of calculating income for group investment funds. This is important for tax purposes.

Category A income is calculated using a special formula. This formula takes into account the total value of all investments in the fund at the end of the year, minus some special types of investments. It then uses this to work out a portion of the total income.

Category B income is all the other income that isn’t Category A income.

The law also explains what “current value” means. It’s the value of the investments as worked out under specific laws.

There are special rules about “designated sources”. These are usually trusts set up for specific purposes, like looking after money from someone’s will or helping people after an accident.

A “designated group investment fund” is a special type of fund that only invests in certain approved things. The law lists what these approved investments are, like government bonds or mortgages.

The law also defines “designated source investments” and “pre-1983 investments”. These are important for working out the different types of income.

All these definitions help to make sure that different types of investments in group investment funds are taxed in the right way.

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Next up: HR 4: Government Superannuation Fund

or “Special tax treatment for the Government Superannuation Fund Authority”
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Part H Taxation of certain entities
Other entities

HR 3Definitions for section HR 2: group investment funds

  1. Category A income, for a group investment fund other than a designated group investment fund in an income year, means the amount of income derived from the investments and funds of the group investment fund that is calculated using the formula—

    ((last day value − designated source investments − pre-1983 investments)÷ last day value) × income.

    Where:

    • In the formula,—

    • last day value is the current value of all investments and funds of the group investment fund on the last day of the income year:
      1. designated source investments is the current value of the designated source investments in the group investment fund on the last day of the income year:
        1. pre-1983 investments is the current value of the pre-1983 investments in the group investment fund on the last day of the income year:
          1. income is the total income derived from all investments and funds of the group investment fund in the income year.

            1. Category B income, for a group investment fund other than a designated group investment fund, means the income derived from investments and funds of the group investment fund that is not category A income for the income year.

            2. Current value, for a group investment fund and a day in an income year, means the capital value, as defined by the Trustee Companies Act 1967 or the Public Trust Act 2001, of the investments and funds of the group investment fund that is—

            3. either—
              1. last determined before the day under section 31 of the Trustee Companies Act 1967 or section 66 of the Public Trust Act 2001; or
                1. determined on the day, if that day is the day on which the capital value is determined; and
                2. for the purposes of the definition of designated source investments in subsection (7), and pre-1983 investments in subsection (8), determined as if those investments and funds comprised all the investments and funds in the group investment fund at the time.

                  1. Designated sources, for a group investment fund, means a trust, other than the trust under which the fund is established, whose trustee is a trustee of the group investment fund, that—

                  2. is created—
                    1. by will or codicil, or by order of court varying or modifying the provisions of a will or codicil; or
                      1. on intestacy, including a partial intestacy, or by an order of court varying or modifying, in relation to an estate, the application of the law relating to the distribution of intestate estates; or
                        1. by an order of court; or
                          1. by an enactment; or
                            1. to administer funds that are compensation or other money arising from the death of, or injury to, a person; or
                              1. to vary the terms of a will or codicil or, in relation to an estate, to vary the application of the law relating to the distribution of intestate estates, in either case for the sole purpose of effecting a settlement out of court of an application made, or proposed to be made, under the Family Protection Act 1955 or a claim, or a proposed claim, to be made under the Law Reform (Testamentary Promises) Act 1949, if the terms are mainly the same as those likely to have been ordered by the court:
                              2. is not carried on for the private benefit of an individual, and whose funds are applied entirely or mainly for benevolent, philanthropic, cultural, or public purposes in New Zealand.

                                1. Designated group investment fund means a group investment fund whose investments and funds are invested wholly—

                                2. in authorised investments; or
                                  1. in, and for the purposes of, the carrying on of a forestry business on land in New Zealand, to the extent to which the investments and funds are invested in the land that the fund owned or otherwise held on 22 June 1983 for the purposes of the forestry business.

                                    1. In subsection (6)(a), authorised investment means any of the following:

                                    2. any investment authorised by the instrument (if any) creating the trust:
                                      1. an investment in New Zealand Government securities or securities of any Australian government or of the Government of Fiji:
                                        1. an investment in a mortgage on land in New Zealand:
                                          1. an investment in securities issued under any general or special statutory authority by a local authority, public utility, harbour board, drainage board, or transport board:
                                            1. an investment in a deposit with, or securities issued by, a trustee bank’s successor company:
                                              1. an investment in securities issued by Kāinga Ora–Homes and Communities:
                                                1. an investment in debentures issued by any dairy finance company:
                                                  1. an investment in a deposit with any building society or in the National Provident Fund:
                                                    1. an investment in securities guaranteed by the Government of New Zealand:
                                                      1. an investment in a deposit with any dealer in the short-term money market approved by the Reserve Bank of New Zealand as a short-term money market dealer, only if there are mortgaged to the trustee (or held by any bank on behalf of the trustee) by that dealer investments described in paragraphs (a) to (i) that have at the time of the deposit a redemption value not less than the amount deposited.

                                                        1. Designated source investments, for a group investment fund at any time, means investments and funds from designated sources invested at the time in the group investment fund.

                                                        2. Pre-1983 investments, for a group investment fund at any time, means investments and funds that were invested in the group investment fund at 22 June 1983, other than designated source investments, as if those investments and funds had continued to be invested at the time, including—

                                                        3. money deposited between 15 June and 23 June 1983 with the trustee of the group investment fund for investment in the fund; and
                                                          1. money deposited between 22 June and 16 July 1983 with the trustee of the group investment fund for investment in the fund, which, on or before 22 June 1983, was subject to a binding commitment to deposit that money.

                                                            Compare
                                                            • 2004 No 35 ss HE 2(2), (3), OB 1 category A income, category B income, current value, designated group investment fund, group investment fund
                                                            Notes
                                                            • Section HR 3(5)(b): amended (with effect on 1 April 2008 and applying for the 2008–09 and later income years), on , by section 193(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
                                                            • Section HR 3(6)(a): replaced, on , by section 161 of the Trusts Act 2019 (2019 No 38).
                                                            • Section HR 3(6A): inserted, on , by section 161 of the Trusts Act 2019 (2019 No 38).
                                                            • Section HR 3(6A)(f): amended (with effect on 30 January 2021), on , by section 116 of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).