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Income Tax Act 2007

Taxation of certain entities - Portfolio investment entities - Formation losses

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

You could also call this:

“Limit on startup losses that investment funds can assign to different investor groups”

When a multi-rate PIE (Portfolio Investment Entity) allocates formation losses to investor classes, there’s a limit to how much they can allocate. This limit is calculated using a special formula.

The formula is: class net income minus (credits divided by rate).

In this formula:

  • Class net income is how much money the investor class made during the period.
  • Credits include things like imputation credits, Maori authority credits, and RWT credits that were given to the investor class.
  • Rate is the basic tax rate for companies, which you can find in a specific part of the tax laws.

This formula helps make sure that the PIE doesn’t allocate more formation losses than it should when it’s working out how much tax each investor class needs to pay.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM2888870.

Topics:
Money and consumer rights > Taxes
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HM 69: When formation losses carried forward are 5% or more of formation investment value: 3-year spread, or

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

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HM 71: Choosing to become PIE, or

“How to choose to become a Portfolio Investment Entity (PIE)”

Part H Taxation of certain entities
Portfolio investment entities: Formation losses

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

  1. Despite sections HM 68 and HM 69, the maximum amount of formation loss that may be allocated, when calculating under section HM 35(5) the taxable amount of an investor class for an attribution period, is calculated using the formula—

    class net income − (credits ÷ rate).

    Where:

    • In the formula,—

    • class net income is the amount of the net income of the investor class for the period under section HM 35(4):
      1. credits is the total amount attributed to the investor class for the period of—
        1. imputation credits:
          1. Maori authority credits:
            1. RWT credits:
              2. rate is the basic rate for companies set out in schedule 1, part A, clause 2 (Basic tax rates: income tax, ESCT, RSCT, RWT, and attributed fringe benefits).

                Compare
                • s HL 30(6), (7)
                Notes
                • Section HM 70: 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 70(2)(b)(iv): repealed, on , by section 143(1) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
                • Section HM 70 list of defined terms FDP credit: repealed, on , by section 143(2) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).