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Income Tax Act 2007

Timing and quantifying rules - Controlled foreign company and foreign investment fund rules - Calculation of attributed CFC income or loss

EX 18A: Scheme for finding person's attributed CFC income or loss

You could also call this:

“How to calculate tax on income from a foreign company you partly own”

When you own part of a foreign company, you might need to pay tax on its income. This is called attributed CFC income. To figure out how much attributed CFC income you have, you need to follow these steps:

  1. Use a special formula that takes into account how much of the company you own and how much money it made.

  2. Check if you have any extra income from the company that needs to be added.

  3. See if there are any losses that can reduce your income.

If you own a fraction of the company, you’ll usually pay tax on that same fraction of the company’s income. But there are some exceptions:

You won’t have to pay tax on the company’s income if it’s what’s called a “non-attributing active CFC” or a “non-attributing Australian CFC”. These are special types of foreign companies that follow certain rules.

To know if a company is a “non-attributing active CFC”, you need to do some tests. You can choose which test to use depending on the company’s financial records. There are also some extra rules you need to follow when doing these tests.

Remember, this is just a simple explanation of a complicated law. If you need to use these rules, it’s a good idea to ask an adult or a tax expert for help.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM2543371.

Topics:
Money and consumer rights > Taxes
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EX 18: Formula for calculating attributed CFC income or loss, or

“How to work out your share of a foreign company's income or loss”

Part E Timing and quantifying rules
Controlled foreign company and foreign investment fund rules: Calculation of attributed CFC income or loss

EX 18AScheme for finding person's attributed CFC income or loss

  1. The attributed CFC income or loss of a person (an interest holder) holding an income interest in a CFC, for the purposes of the general rules in sections CQ 2(1) and DN 2(1)(which relate to attributed CFC income or loss), is found for the CFC and an accounting period from—

  2. the formula in section EX 18, which uses the interest holder's income interest and the CFC's net attributable CFC income or loss determined as described in subsection (2):
    1. the interest holder's additional CFC attributed income under section EX 19:
      1. the reduction in the interest holder's attributed CFC loss under section EX 20.

        1. An interest holder with an income interest of a fraction (the fraction) in a CFC with an attributable CFC amount under section EX 20B for an accounting period has under section EX 18, for the CFC and accounting period,—

        2. attributed CFC income or loss equal to the fraction of the CFC's net attributable CFC income or loss under sections EX 20C to EX 20E and the rules in sections EX 21 and EX 24 to EX 27, if paragraph (b) does not apply:
          1. no attributed CFC income or attributed CFC loss, if the CFC is—
            1. a non-attributing active CFC under section EX 21B, determined as described in subsection (3), for which the interest holder is not affected by an election under section EX 73:
              1. a non-attributing Australian CFC under section EX 22.

              2. Whether a CFC is a non-attributing active CFC is determined under section EX 21B using—

              3. a test in—
                1. section EX 21D, if the interest holder does not use a test referred to in subparagraph (ii); or
                  1. section EX 21E, if the CFC has accounts prepared to a standard meeting the requirements of section EX 21C and the interest holder chooses to use a test in that section based on those accounts; and
                  2. the rules in sections EX 21 and EX 24 to EX 27.

                    Notes
                    • Section EX 18A: inserted (with effect on 30 June 2009), on , by section 153(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
                    • Section EX 18A(2)(b)(i): amended (with effect on 30 June 2009), on (applying for income years beginning on or after 1 July 2009), by section 40(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).