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Income Tax Act 2007

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

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

You could also call this:

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

When you invest in a multi-rate PIE (a type of investment fund), you might get some foreign tax credits. These credits can help reduce the tax you need to pay. Here’s how it works:

If you’re a zero-rated investor or an exiting investor treated as zero-rated, you can use these credits to lower your income tax for the year. The amount of credit you can use is the smaller of two numbers: either all the foreign tax credits you got, or the amount of tax you’d pay on your PIE income at your tax rate.

If you’re a person living in New Zealand, you can only use these credits to adjust your PIE schedular tax. You can’t use more credits than the tax you owe on your PIE income.

For most investors, the amount of credit you can use depends on your investor rate or your basic tax rate. But if you’re another multi-rate PIE or representing an investor in one, you can use the full amount of credits given to you.

Remember, these rules are meant to help you pay the right amount of tax on your investment income. If you’re unsure about how this applies to you, it’s a good idea to ask for help from someone who knows about taxes.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM2888825.

Topics:
Money and consumer rights > Taxes
Money and consumer rights > Savings and retirement
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HM 51: Use of foreign tax credits by PIEs, or

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HM 53: Use of tax credits other than foreign tax credits by PIEs, or

“How PIEs can use certain tax credits for their income tax”

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

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

  1. 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 who is—

  2. a zero-rated investor:
    1. an exiting investor who is treated under section HM 61 as zero-rated.

      1. The investor may use the tax credit under section LS 3 or LS 4 (which relate to the use of tax credits) to satisfy their income tax liability for the tax year. The amount of the credit is determined under subsection (3) or (4).

      2. Subsection (2) does not apply to an investor who is a natural person resident in New Zealand. In this case,—

      3. the amount of the investor’s tax credit calculated under this section may only be used in making a PIE schedular tax adjustment under section HM 36B; and
        1. the total amount of the tax credit that may be used is limited to the extent of the investor’s tax liability on their PIE schedular income.

          1. The total amount of the credits able to be used is the lesser of—

          2. the total amount of the attributed foreign tax credits for the tax year or exit period, as applicable:
            1. the amount calculated by multiplying the attributed PIE income of the investor from the PIE for the tax year or exit period, as applicable by,—
              1. for an exiting investor described in subsection (1)(b), the notified investor rate in relation to the investor that the PIE would have used had the period not been an exit period; or
                1. for a zero-rated investor, their basic tax rate set out in schedule 1 (Basic tax rates: income tax, ESCT, RSCT, RWT, and attributed fringe benefits) for the tax year.

                2. Despite subsection (3), the amount of the credit is the attributed amount if the investor is—

                3. a multi-rate PIE; or
                  1. a proxy for an investor in a multi-rate PIE.

                    Compare
                    • s HL 29(7), (8)
                    Notes
                    • Section HM 52: 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 52(2B) heading: inserted (with effect on 1 April 2020), on , by section 92(1) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
                    • Section HM 52(2B): inserted (with effect on 1 April 2020), on , by section 92(1) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
                    • Section HM 52(3)(b): amended, on , by section 7(1) of the Taxation (Budget Measures) Act 2010 (2010 No 27).
                    • Section HM 52(3)(b)(i): amended, on , by section 7(2) of the Taxation (Budget Measures) Act 2010 (2010 No 27).
                    • Section HM 52 list of defined terms foreign tax: repealed, on , by section 142 of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
                    • Section HM 52 list of defined terms PIE schedular income: inserted (with effect on 1 April 2020), on , by section 92(2) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).