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HM 68: When formation losses carried forward are less than 5% of formation investment value
or “Treatment of small formation losses for Portfolio Investment Entities”
You could also call this:

“Spreading large PIE formation losses over three years for tax calculations”

This section explains how you can spread out a formation loss over three years if you’re a PIE (Portfolio Investment Entity) and your formation loss is 5% or more of your total investments when you become a PIE.

You can only use a certain amount of your formation loss each time you calculate how much tax investors owe. To figure out this amount, you use a special formula. You multiply your initial loss by the number of days in the period you’re calculating for, then divide that by 1095 (which is the number of days in three years).

You can include any unused formation loss from earlier periods when you do this calculation. After the three years are up, you can use any leftover formation loss when you’re working out how much tax investors owe.

This rule applies from the day you become a PIE or change how you calculate your tax from the provisional tax method to the exit calculation or quarterly calculation method.

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Next up: HM 70: Maximum amount of formation losses allocated by multi-rate PIEs to investor classes

or “Limit on startup losses that investment funds can assign to different investor groups”
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Part H Taxation of certain entities
Portfolio investment entities: Formation losses

HM 69When formation losses carried forward are 5% or more of formation investment value: 3-year spread

  1. This section applies to spread the formation loss over the period of 3 years from the date the entity either becomes a PIE or changes its calculation option from the provisional tax calculation option to the exit calculation or quarterly calculation option when the amount of formation loss carried forward under section HM 67 is 5% or more of the total market value of the PIE’s investments at the time it becomes a PIE.

  2. The maximum amount of formation loss that the PIE may allocate to an attribution period, when calculating under section HM 35(5) the taxable amount of an investor class for the attribution period, is the amount calculated using the formula—

    initial loss × days ÷ 1095.

    Where:

    • In the formula,—

    • initial loss is the amount of formation loss:
      1. days is the number of days in the attribution period.

        1. For the purposes of the calculation of the amount in subsection (2), the formation loss includes any unused formation loss that was allocated to an earlier attribution period.

        2. After the end of the period of 3 years referred to in subsection (1), any residual formation loss may be allocated to an attribution period when a calculation is made under section HM 35(5) of the taxable amount for an investor class.

        Compare
        • s HL 30(4), (5)
        Notes
        • Section HM 69: 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 69(1): amended, on , by section 135(1) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
        • Section HM 69(5): substituted (with effect on 1 April 2010), on (applying for the 2010–11 and later income years), by section 74(1) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
        • Section HM 69 list of defined terms provisional tax: inserted, on , by section 135(2) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
        • Section HM 69 list of defined terms taxable amount: repealed, on , by section 243 of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).