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New Zealand law explained for everyone

Income Tax Act 2007

Tax credits and other credits - Tax credits relating to attributed controlled foreign company income

LK 2: Calculation of amount of credit

You could also call this:

“How to work out your foreign tax credit amount”

When you want to figure out how much tax credit you can get, you need to use a special formula. This formula helps you work out the credit for a tax year.

The formula looks like this: section EX 18 income interest × (tax paid - excluded foreign tax).

Here’s what the different parts of the formula mean:

The “section EX 18 income interest” is a special number that shows how much of a foreign company’s income belongs to you. You use this number when you’re calculating your income from that foreign company.

“Tax paid” is the amount of tax that has been paid or needs to be paid by the foreign company or by you. Sometimes, it might even be paid by a company in your group. This includes any tax that someone else might have kept back to pay on behalf of the foreign company.

“Excluded foreign tax” is tax paid in certain countries that New Zealand doesn’t recognise. There’s a special list called Schedule 27 that tells you which countries these are and what types of income this applies to.

In some cases, you might not need to use the “section EX 18 income interest” part of the formula. This happens when you’ve paid foreign tax yourself on income from the foreign company, or when a company in your group is getting the tax credit.

Remember, this is just a way to calculate your tax credit. It’s part of a bigger set of rules about taxes and credits in New Zealand.

This text is automatically generated. It might be out of date or be missing some parts. Find out more about how we do this.

View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM1518138.

Topics:
Money and consumer rights > Taxes
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LK 1: Tax credits relating to attributed CFC income, or

“Tax credits for income from foreign companies you control”

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LK 3: Currency conversion, or

“How to convert foreign tax paid by a controlled foreign company into New Zealand dollars”

Part L Tax credits and other credits
Tax credits relating to attributed controlled foreign company income

LK 2Calculation of amount of credit

  1. For the purposes of section LK 1(1) and (1B), the amount of a tax credit for a tax year for a person is equal to an amount calculated using the formula—

    section EX 18 income interest × (tax paid − excluded foreign tax).

    Where:

    • In the formula,—

    • section EX 18 income interest is the income interest of the person used to calculate attributed CFC income under section EX 18 (Formula for calculating attributed CFC income or loss) for the accounting period corresponding to the tax year:
      1. tax paid is the amount of income tax or foreign income tax paid or payable by the CFC or the person or, when section LK 1(1B) applies, the group company, for the accounting period corresponding to the tax year, including an amount withheld by another person and paid or payable on behalf of the CFC:
        1. excluded foreign tax is an amount of foreign income tax paid in a country or territory listed in schedule 27 (Countries and types of income with unrecognised tax) to the extent to which the foreign income tax is paid on the types of income listed in the schedule.

          1. For the purposes of the formula in this section, when section LK 1(1)(d) applies to provide a tax credit for a tax year when foreign income tax is paid by the person in relation to the CFC from which the income is derived, the calculation of the amount of the tax credit is made under subsection (1), ignoring the section EX 18 income interest in subsection (2)(a).

          2. For the purposes of the formula in this section, when section LK 1(1B) applies to provide a tax credit for a tax year to a group company, the calculation of the amount of the tax credit is made under subsection (1), ignoring the section EX 18 income interest in subsection (2)(a).

          Compare
          Notes
          • Section LK 2(1): amended, on (with effect on 1 July 2009), by section 161(1) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
          • Section LK 2(2)(b): substituted (with effect on 1 April 2008), on , by section 341(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
          • Section LK 2(2)(b): amended, on (with effect on 1 July 2009), by section 161(2) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
          • Section LK 2(3) heading: inserted, on (with effect on 1 April 2008 and applying for the 2008–09 and later income years), by section 161(3) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
          • Section LK 2(3): inserted, on (with effect on 1 April 2008 and applying for the 2008–09 and later income years), by section 161(3) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
          • Section LK 2(4) heading: inserted, on (with effect on 1 July 2009), by section 161(4) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
          • Section LK 2(4): inserted, on (with effect on 1 July 2009), by section 161(4) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
          • Section LK 2 list of defined terms company: inserted, on , by section 161(5) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
          • Section LK 2 list of defined terms group of companies: inserted, on , by section 161(5) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
          • Section LK 2 list of defined terms income: inserted, on , by section 161(5) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).