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Income Tax Act 2007

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

HM 51: Use of foreign tax credits by PIEs

You could also call this:

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

This law talks about how a special type of investment fund, called a multi-rate PIE, can use foreign tax credits. These credits are for taxes the fund paid in other countries.

The fund can use these credits for most of its investors, but not for some special types of investors. These special investors include people who don’t pay tax on their investment, people who are leaving the fund, foreign investors in a special type of fund, and some people who have just moved to New Zealand.

For the other investors, the fund can use the tax credits to help pay its own tax bill. The amount of credits it can use is limited. It can only use the smaller of two amounts: either all the credits given to the investor, or the amount of tax the fund owes for that investor.

If the fund calculates its tax at the end of the year, it can use the credits for any time during that year. If it calculates tax every three months, it can only use the credits for that three-month period and any time after that in the same year.

The fund can use these credits for different types of investments the same investor has with them.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM2888823.

Topics:

Money and consumer rights > Taxes

Business > Industry rules

HM 50: Attributing credits to investors, or

“How tax credits from investments are shared with investors”

HM 52: Use of foreign tax credits by zero-rated and certain exiting investors, or

“How investors can use foreign tax credits from multi-rate PIEs to reduce their tax”

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

HM 51Use of foreign tax credits by PIEs

This section applies when a multi-rate PIE has a tax credit under subpart LJ (Tax credits for foreign income tax) that is attributable in a tax year to an investor other than—
a zero-rated investor:
an exiting investor who is treated under section HM 61 as zero-rated:
a notified foreign investor in a foreign investment PIE:
a transitional resident who chooses under section HM 55D(8) to use a prescribed investor rate set out in schedule 6, table 1, row 10 (Prescribed rates: PIE investments and retirement scheme contributions).

The multi-rate PIE may use the tax credit under section LS 1 (Tax credits for multi-rate PIEs) to satisfy its income tax liability for the tax year in relation to the investor. The amount of the credit is determined under subsection (3).
The total amount of the credits able to be used is the lesser of—
the total amount of credits attributed to the investor as a member of any investor class for the calculation period together with any amount attributed to the investor in an earlier calculation period that remains unused:
the amount of the PIE’s tax liability in relation to the investor as a member of any investor class for the calculation period or an earlier calculation period, and not met by any credit allocated to the earlier period.

For a multi-rate PIE that calculates its tax liability for a tax year using the exit calculation option under section HM 42, the amount may be used for calculation periods earlier or later in the tax year, and in relation to different classes for the same investor.
For a multi-rate PIE that calculates its tax liability for a tax year using the quarterly calculation option under section HM 43, the amount may be used only for the relevant calculation period and later periods in the tax year, and in relation to different classes for the same investor.

Compare

s HL 29(10)–(12)

Notes

Section HM 51: inserted, on 1 April 2010 (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 51(1)(b): amended, on 29 August 2011 (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 77(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section HM 51(1)(c): added, on 29 August 2011 (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 77(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section HM 51(1)(c): amended, on 2 November 2012 (applying for the 2013–14 and later income years), by section 105(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section HM 51(1)(d): inserted, on 2 November 2012 (applying for the 2013–14 and later income years), by section 105(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section HM 51 list of defined terms foreign investment PIE: inserted, on 29 August 2011, by section 77(2) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section HM 51 list of defined terms notified foreign investor: inserted, on 29 August 2011, by section 77(2) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section HM 51 list of defined terms prescribed investor rate: inserted, on 2 November 2012, by section 105(2) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section HM 51 list of defined terms transitional resident: inserted, on 2 November 2012, by section 105(2) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).