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HM 35: Determining net amounts and taxable amounts
or “How to work out net and taxable amounts for investor classes in multi-rate PIEs”
You could also call this:

“How multi-rate PIEs can include future income and costs in their calculations”

This section explains how multi-rate PIEs (a type of investment) can handle certain financial provisions. You need to know about this if you’re dealing with attributing income to investors.

When a multi-rate PIE is likely to have future income or makes a provision for future costs or losses, they can include these amounts in their calculations. This applies if the amount is shown in how they value investor interests or in their financial statements.

When figuring out the net amount for an attribution period, the PIE can consider future income that would be assessable income. They can also include future costs or losses that are likely to happen in the current tax year or within 93 days after it ends, as long as these would be deductible.

The PIE needs to make a good guess about these amounts. If asked, they should be able to explain why and when they expect the income or costs, and show how they calculated the amounts.

The PIE can also include a credit impairment provision, but only if it’s counted as one under IFRS 9 (a financial reporting standard). The 93-day time limit doesn’t apply to credit impairment provisions.

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Next up: HM 35C: Determining amounts for notified foreign investors

or “Rules for calculating tax and income for foreign investors in investment entities”
Next

Part H Taxation of certain entities
Portfolio investment entities: Attributing income to investors

HM 35BTreatment of certain provisions made by multi-rate PIEs

  1. This section applies for the purposes of section HM 35 when—

  2. a multi-rate PIE—
    1. is likely to have future income:
      1. makes a provision for future expenditure or loss; and
      2. the amount—
        1. is reflected in the PIE's valuation of investor interests; or
          1. if subparagraph (i) does not apply, is shown in its financial statements.

          2. For the purposes of determining a net amount under section HM 35(2) for an attribution period, a multi-rate PIE may take account of an amount of future income or future expenditure or loss that is—

          3. for future income, an amount that, when derived, would be assessable income under section HM 35(3)(a):
            1. for future expenditure or loss,—
              1. an expense likely to be incurred by the PIE in the tax year in which the attribution period falls, or within 93 days after the end of the tax year; and
                1. an amount that, when incurred, would be a deduction under section HM 35(3)(b).

                2. For the purposes of subsection (2), the PIE must make a reasonable estimate of the amount and must be able to demonstrate, if required, the reasonableness of the estimation by—

                3. explaining why and when the income is likely to be derived or the expense is likely to be incurred, as applicable; and
                  1. providing the calculation method and actual calculations used to determine the amount, with details showing why the method is appropriate.

                    1. A multi-rate PIE may take account of a credit impairment provision under this section but only if the provision is counted as a credit impairment provision under IFRS 9. However, the time limit set out in subsection (2)(b)(i) does not apply in relation to a credit impairment provision.

                    Notes
                    • Section HM 35B: inserted (with effect on 1 April 2010), on , by section 95(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
                    • Section HM 35B(1)(b)(i): amended (with effect on 1 April 2010), on , by section 100 of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
                    • Section HM 35B(4): amended, on , by section 80 of the Taxation (Annual Rates for 2019–20, GST Offshore Supplier Registration, and Remedial Matters) Act 2019 (2019 No 33).
                    • Section HM 35B list of defined terms IFRS 9: inserted, on , by section 80 of the Taxation (Annual Rates for 2019–20, GST Offshore Supplier Registration, and Remedial Matters) Act 2019 (2019 No 33).
                    • Section HM 35B list of defined terms NZIAS 39: repealed, on , by section 80 of the Taxation (Annual Rates for 2019–20, GST Offshore Supplier Registration, and Remedial Matters) Act 2019 (2019 No 33).