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Income Tax Act 2007

Taxation of certain entities - Portfolio investment entities - Using tax credits

HM 50: Attributing credits to investors

You could also call this:

“How tax credits from investments are shared with investors”

When a multi-rate PIE (Portfolio Investment Entity) has a tax credit that isn’t under subpart LS, it needs to share this credit with its investors. Here’s how it works:

The PIE calculates how much of the credit each investor gets for a certain time period. They do this for each investment the PIE has and for each day in that period.

To work out an investor’s share, the PIE uses a special maths formula. This formula takes into account:

  1. The amount of the credit
  2. How much of the investment’s returns the investor’s class gets
  3. How much of the class’s returns the individual investor gets
  4. How many days are in the period

For foreign investment PIEs paying dividends to overseas investors, they split the dividend into two parts:

  1. One part for certain overseas investors who meet special rules
  2. Another part for all other investors

The PIE treats the tax credits for these two parts as if they were separate dividends. This helps make sure everyone gets the right amount of credit.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM2888820.

Topics:
Money and consumer rights > Taxes
Money and consumer rights > Savings and retirement
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HM 49: Tax credits: when sections HM 50 to HM 55 apply, or

“When tax credit rules apply to multi-rate PIEs and their investors”

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HM 51: Use of foreign tax credits by PIEs, or

“How investment funds can use overseas tax credits for most investors”

Part H Taxation of certain entities
Portfolio investment entities: Using tax credits

HM 50Attributing credits to investors

  1. This section applies when a multi-rate PIE has a tax credit other than a tax credit under subpart LS (Tax credits for multi-rate PIEs and investors).

  2. The amount of the credit attributable to an investor in an investor class of the PIE for an attribution period is calculated using the formula in subsection (3). The amount attributed to the investor is the total of the amounts calculated for each investment of the PIE and each day in the attribution period.

  3. The formula is—

    credit × class's percentage × investor's percentage ÷ days in period.

    Where:

    • In the formula,—

    • credit is the amount of the credit the PIE has in relation to the investment that gives rise to the credit:
      1. class's percentage is the percentage of the proceeds from the investment to which the investor class is entitled, including related tax credits:
        1. investor's percentage is the percentage to which the investor is entitled of a distribution by the PIE to the investor class:
          1. days in period is the number of days in the attribution period.

            1. For the purposes of this section and for a payment of a dividend and related supplementary dividend to a foreign investment PIE, the dividend is treated as if it were divided into separate dividends as follows:

            2. a dividend of an amount that represents the part to which the notified foreign investors in the PIE who meet the requirements of section LP 2(1)(c) (Tax credits for supplementary dividends) are entitled; and
              1. a dividend of an amount that represents the remaining part to which all investors other than those referred to in paragraph (a) are entitled.

                1. The imputation credits for the dividend referred to in subsection (5)(a) are treated as attached to that part as if it were a separate dividend.

                2. The imputation credits for the dividend referred to in subsection (5)(b) are treated as attached to that part as if it were a separate dividend not payable to a non-resident.

                Compare
                • ss HL 29(3)–(5), YA 1 portfolio class fraction, portfolio investor interest fraction
                Notes
                • Section HM 50: 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 50(1): replaced, on , by section 104(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
                • Section HM 50(5) heading: inserted, on (applying for the 2013–14 and later income years), by section 104(2) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
                • Section HM 50(5): inserted, on (applying for the 2013–14 and later income years), by section 104(2) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
                • Section HM 50(5)(a): amended (with effect on 1 April 2013 and applying for the 2013–14 and later income years), on , by section 90(1) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
                • Section HM 50(6) heading: inserted, on (applying for the 2013–14 and later income years), by section 104(2) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
                • Section HM 50(6): inserted, on (applying for the 2013–14 and later income years), by section 104(2) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
                • Section HM 50(7) heading: inserted, on (applying for the 2013–14 and later income years), by section 104(2) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
                • Section HM 50(7): inserted, on (applying for the 2013–14 and later income years), by section 104(2) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
                • Section HM 50 list of defined terms foreign investment PIE: inserted, on , by section 104(3) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
                • Section HM 50 list of defined terms notified foreign investor: inserted, on , by section 104(3) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
                • Section HM 50 list of defined terms supplementary dividend: inserted, on , by section 104(3) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).