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HM 12: Income types
or “Types of income a portfolio investment entity must mainly receive”
You could also call this:

“Limits on how much companies can own in other businesses”

This section explains the rules about how much a company can own in other companies. These rules are for special types of companies called entities.

When an entity invests in another company by buying shares, there are limits on how much they can own. The entity can’t own more than 20% of the voting power or value of the company. This rule doesn’t apply if the company they’re investing in is a PIE, a foreign PIE, or a land investment company.

For unit trusts, the entity can’t own more than 20% of the total value of the trust.

These 20% limits apply to each type of investor in the entity, not just the entity as a whole.

However, there’s an exception to these rules. The entity can go over the 20% limit for some investments, as long as the total value of all the investments that go over the limit is not more than 10% of all the entity’s investments.

There are also special rules for foreign investment variable-rate PIEs that invest in New Zealand land investment companies or companies that can be PIEs. They can’t own more than 20% of the voting power or value of these companies.

If these rules are broken, section HM 55H(4) and (5) explain what happens next.

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Next up: HM 14: Minimum number of investors

or “Number of investors required for different types of PIEs”
Next

Part H Taxation of certain entities
Portfolio investment entities: Requirements

HM 13Maximum shareholdings in investments

  1. This section applies when an entity has an investment consisting of shares in a company other than shares in—

  2. a PIE, or an entity that qualifies for PIE status:
    1. a foreign PIE equivalent:
      1. a land investment company.

        1. The investment must not carry voting interests or market value interests of more than 20%. This subsection does not apply to a unit trust. Subsection (5) overrides this subsection.

        2. For an investment in a unit trust, the investment must have a market value no more than 20% of the market value of all interests in the unit trust. Subsection (5) overrides this subsection.

        3. For each investment and each investor class of the entity, the percentage thresholds set out in subsections (2) and (3) apply to the investment by the class in the same way as they apply to the investment by the entity. Subsection (5) overrides this subsection.

        4. Despite subsections (2) to (4), the 20% cap in those subsections can be exceeded if the total market value of all investments where the cap is exceeded is not more than 10% of the market value of the total investments of the entity or investor class.

        5. Despite the exclusion in subsection (1)(a) and (c), if a foreign investment variable-rate PIE has an investment in a land investment company resident in New Zealand or in an entity that qualifies for PIE status, the investment must—

        6. carry voting interests in the company or entity, as applicable, of no more than 20%; or
          1. have a market value of no more than 20% of all interests in the entity, if the entity is a unit trust.

            1. Section HM 55H(4) and (5) apply in the case of a breach of subsection (6).

            Compare
            • s HL 10(3)–(5)
            Notes
            • Section HM 13: inserted, on (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
            • Section HM 13(2) heading: replaced, on , by section 126(1) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
            • Section HM 13(2): replaced, on , by section 126(1) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
            • Section HM 13(6) heading: added, on (applying for the 2012–13 and later income years for a foreign investment variable-rate PIE and a notified foreign investor in the PIE), by section 60(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
            • Section HM 13(6): added, on (applying for the 2012–13 and later income years for a foreign investment variable-rate PIE and a notified foreign investor in the PIE), by section 60(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
            • Section HM 13(7) heading: added, on (applying for the 2012–13 and later income years for a foreign investment variable-rate PIE and a notified foreign investor in the PIE), by section 60(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
            • Section HM 13(7): added, on (applying for the 2012–13 and later income years for a foreign investment variable-rate PIE and a notified foreign investor in the PIE), by section 60(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
            • Section HM 13 list of defined terms foreign investment PIE: inserted, on , by section 60(2) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
            • Section HM 13 list of defined terms foreign investment variable-rate PIE: inserted (with effect on 29 August 2011), on , by section 88 of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
            • Section HM 13 list of defined terms market value interest: inserted, on , by section 126(2) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
            • Section HM 13 list of defined terms resident in New Zealand: inserted, on , by section 60(2) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).