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HM 42: Exit calculation option
or “How multi-rate PIEs calculate and pay tax for exiting and remaining investors”
You could also call this:

“How PIEs calculate tax in two parts for the 2010-11 tax year”

If you are a PIE (Portfolio Investment Entity) in the 2010-11 tax year, you can choose to split your tax calculations into two parts. This applies if section HM 42 is relevant to you and you decide to file a tax return using this method.

For your income tax, you’ll treat the year as if it’s split into two separate tax years, with 1 October 2010 as the dividing line. Income you earned before 1 October 2010 goes in the first part, and you’ll use the tax rate your investors told you about before that date. For income after 1 October 2010, you’ll use any new tax rates your investors told you about on or after that date.

This split creates two separate tax calculations and two tax bills for the year. You can send tax returns and notices to investors for the whole year or for each part separately.

Even though the year is split, you can still use tax credits for foreign income tax in either part of the year, as long as they belong to the first part.

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Next up: HM 43: Quarterly calculation option

or “How PIEs can calculate and pay tax every three months”
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Part H Taxation of certain entities
Portfolio investment entities: Calculating and paying tax liability

HM 42BPart-year tax calculations for PIEs under the exit calculation option for the 2010–11 tax year

  1. This section applies to a PIE for the 2010–11 tax year if section HM 42 applies to the PIE for that year and the PIE chooses to apply this section by filing a return under section 57B(5) or (7) of the Tax Administration Act 1994 in accordance with this section.

  2. For calculating their income tax liability for the 2010–11 tax year, the PIE treats references to an income year or a tax year as if they are references to 2 separate tax years and corresponding income years within that tax year, divided by 1 October 2010 (for example: an amount of income attributed to a date before 1 October 2010 is included in the first part-year and taxed using the notified investor rate advised before 1 October 2010. A notified investor rate advised on or after 1 October 2010 is applied only to the amount of income attributed to the second part-year).

  3. The part-year calculations may give rise to income and deductions for the income year and they do create part-year tax return obligations, except that the requirement for returns under section 57B(7)(a) of the Tax Administration Act 1994 and for notice in relation to investors or proxies under section 31C(4) of that Act can be met by sending returns or notices on a full-year or part-year basis. The 2 part-year calculations create 2 income tax liabilities for 2 part-years.

  4. Despite subsections (2) and (3), tax credits under subpart LJ (Tax credits for foreign income tax) may be used in accordance with section HM 51 in either part-year, if they are attributable to the first part-year.

Notes
  • Section HM 42B: inserted, on , by section 69 of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
  • Section HM 42B list of defined terms notice: inserted, on , by section 74 of the Taxation (Transformation: First Phase Simplification and Other Measures) Act 2016 (2016 No 27).