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Income Tax Act 2007

Timing and quantifying rules - Controlled foreign company and foreign investment fund rules - Cases of entry into and exit from FIF rules

EX 66B: Entities ceasing to be FIFs

You could also call this:

“Rules for when a foreign investment stops being a foreign investment fund”

This law applies to you if you own rights in a foreign investment fund (FIF) that stops being a FIF. When this happens, the law treats it as if you sold your rights to someone you don’t know, and then bought them back right away. The price for this pretend sale and purchase is set at what the rights were worth at the end of the business day when the change happened.

If this change happens during an accounting period and you use a special method called the attributable FIF income method to work out your FIF income or loss, there’s a special rule. The law says you need to reduce your FIF income or loss. To do this, you use a math formula. You multiply your FIF income or loss by the number of days left in the period after the change, and then divide by the total number of days in the period.

This helps make sure you’re only taxed on the right amount of income for the time the investment was still a FIF.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM2571414.

Topics:
Money and consumer rights > Taxes
Business > Industry rules
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EX 66: Entities emigrating from New Zealand, or

“Rules for when a company you own rights in becomes a foreign investment fund”

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EX 67: FIF rules first applying to interest on or after 1 April 2007, or

“New rules for foreign investments starting to make money from 1 April 2007”

Part E Timing and quantifying rules
Controlled foreign company and foreign investment fund rules: Cases of entry into and exit from FIF rules

EX 66BEntities ceasing to be FIFs

  1. This section applies when a person holds rights that cease to be an attributing interest in a FIF because an entity ceases to be a FIF.

  2. The person is treated as having,—

  3. immediately before the change, disposed of the interest to an unrelated person; and
    1. immediately after the change, reacquired the interest; and
      1. received for the disposal and paid for the reacquisition an amount equal to the market value of the interest at the end of the business day on which the change occurred.

        1. If the change occurs during an accounting period of the FIF and the person uses the attributable FIF income method to calculate FIF income or FIF loss from the rights for that period, section EX 24 does not apply and the FIF income or FIF loss is reduced by subtracting the amount calculated using the formula—

          FIF income or loss × days after change ÷ days in period.

          Where:

          • In the formula,—

          • FIF income or loss is the FIF income or FIF loss of the person from the rights for the period before allowing for the reduction:
            1. days after change is the number of complete days in the period after the change occurs:
              1. days in period is the number of days in the period.

                Notes
                • Section EX 66B: inserted (with effect on 1 April 2009), on , by section 184(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
                • Section EX 66B(2) heading: amended (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on , by section 242(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
                • Section EX 66B(2)(b): amended (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on , by section 242(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
                • Section EX 66B(2)(c): amended (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on , by section 242(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
                • Section EX 66B(3): amended (with effect on 1 July 2011 and applying for income years beginning on or after that date), on , by section 46(1) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
                • Section EX 66B list of defined terms accounting profits method: repealed (with effect on 1 July 2011), on , by section 46(2)(a) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
                • Section EX 66B list of defined terms attributable FIF income method: inserted (with effect on 1 July 2011), on , by section 46(2)(b) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
                • Section EX 66B list of defined terms branch equivalent method: repealed (with effect on 1 July 2011), on , by section 46(2)(a) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).