LJ 5Calculation of New Zealand tax

1. This section provides the rules that a person must use to calculate the amount of New Zealand tax for an income year in relation to each segment of foreign-sourced income of the person that is allocated to the income year.

2. If the person has a notional income tax liability of more than zero, the amount of New Zealand tax for the income year relating to the allocated segment is calculated using the following formula, the result of which can not be less than zero:

   $((segment\; -\; person\text{'}s\; deductions)\; ÷\; person\text{'}s\; net\; income)\; \times \; notional\; liability.$

   Where:

3. In the formula in subsection (2),—

4. segment is the amount of the segment of foreign-sourced income for the income year:
5. person's deductions is the amount of the person's deduction for the tax year corresponding to the income year that is attributable to the segment of foreign-sourced income:
6. person's net income is the person's net income for the tax year corresponding to the income year under section BC 4(1) to (3) (Net income and net loss):
7. notional liability is the person's notional income tax liability for the income year under subsection (5).

8. Subsection (4B) applies for the income year when the total amount of New Zealand tax for all segments of foreign-sourced income of the person calculated under subsection (2) is more than the notional income tax liability.

9. Each amount of New Zealand tax calculated under subsection (2) in relation to each segment of foreign-sourced income is adjusted by multiplying the amount by the following ratio:

   $person\text{'}s\; notional\; income\; tax\; liability\; ÷\; NZ\; tax.$

   Where:

10. In the formula in subsection (4B), NZ tax is the amount given by adding together the result of the calculation under subsection (2), for each segment of assessable income from all sources, including assessable income sourced in New Zealand.

11. For the purposes of this section, a person’s notional income tax liability for a tax year is calculated using the formula—

    $(person’s\; net\; income\; -\; losses)\; \times \; tax\; rate.$

    Where:

12. In the formula in subsection (5),—

13. person’s net income is the person’s net income for the tax year:
14. losses—
    1. is the amount of the loss balance carried forward to the tax year that the person must subtract from their net income under section IA 4(1)(a) (Using loss balances carried forward to tax year):
    2. must be no more than the amount of the person's net income:
15. tax rate is the basic rate of income tax set out in schedule 1, part A (Basic tax rates: income tax, ESCT, RSCT, RWT, and attributed fringe benefits).

16. If the person is a beneficiary of a trust and has a segment of foreign-sourced income (the foreign income) that was received by the trust and is beneficiary income of the person, the person is treated for the purposes of this section as having the amount of deductions relating to the foreign income that a trustee of the trust would have had if the trustee were calculating their New Zealand tax for the foreign income under this section.