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Income Tax Act 2007

Timing and quantifying rules - Controlled foreign company and foreign investment fund rules - Election relating to CFC or FIF

EX 73: Election that CFC not non-attributing active CFC or FIF not non-attributing active FIF

You could also call this:

“Choosing to treat your foreign company or fund as active for tax purposes”

You can choose to make a special rule for your controlled foreign company (CFC) or foreign investment fund (FIF) if you own at least 10% of it. This rule says that your CFC or FIF won’t be treated as a non-attributing active company or fund.

You can’t make this choice for a bank, insurance company, or a company controlled by one. You also can’t choose this for a non-attributing Australian CFC.

To make this choice, you need to tell the government. The choice will apply to all accounting periods starting from a certain date, depending on when you make the choice.

Once you make this choice, it stays in effect until you cancel it or it stops working for other reasons. You can cancel it if you ask the government and they agree.

Your choice might stop working if your CFC or FIF changes in certain ways, like if you stop owning enough of it or if it becomes a bank or insurance company.

If your choice stops working, there are rules about what happens to any losses from the CFC or FIF.

You can make this choice again later, but you need to explain why to the government and get their agreement.

You can’t make this choice if someone connected to you has already made and cancelled the same choice, unless you get special permission from the government.

When you tell the government about your choice, you need to use the form and method they say to use.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM4886000.

Topics:
Money and consumer rights > Taxes
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Part E Timing and quantifying rules
Controlled foreign company and foreign investment fund rules: Election relating to CFC or FIF

EX 73Election that CFC not non-attributing active CFC or FIF not non-attributing active FIF

  1. A person (the interest holder) may elect by notice to the Commissioner for each accounting period of the election, that—

  2. a CFC of the interest holder, in which the interest holder has an income interest of 10% or more, not be a non-attributing active CFC for the interest holder:
    1. a FIF of the interest holder, for which the interest holder uses the attributable FIF income method, not be a non-attributing active FIF for the interest holder.

      1. The interest holder must not make an election under subsection (1) for a CFC or FIF that is—

      2. an entity carrying on a business of banking or insurance or is directly or indirectly controlled by such an entity:
        1. a non-attributing Australian CFC.

          1. An election under subsection (1) is made for all accounting periods—

          2. for a CFC, ending in the interest holder's income years beginning on or after 1 July 2009, if the notice—
            1. specifies that the election is made under this paragraph or for that period; and
              1. meets the requirements of subsection (4); or
              2. for a FIF, ending in the interest holder's income years beginning on or after 1 July 2011, if the notice—
                1. specifies that the election is made under this paragraph or for that period; and
                  1. meets the requirements of subsection (4); or
                  2. beginning in the interest holder's income years beginning after—
                    1. the date on which the notice is given to the Commissioner; or
                      1. another date agreed by the Commissioner.

                      2. A notice of election for a period given by subsection (3)(a) or (b) is not effective unless given to the Commissioner by the later of—

                      3. the end of the interest holder's income year in which this subsection receives the Royal assent:
                        1. a date allowed by the Commissioner.

                          1. An election under subsection (1) remains effective until the beginning of the earliest income year—

                          2. for which the election is revoked under subsection (6):
                            1. in which the election ceases to be effective under subsection (7).

                              1. The interest holder may revoke an election under subsection (1) if—

                              2. the interest holder gives notice of the revocation to the Commissioner before the beginning of the interest holder's first income year for which the notice is given; and
                                1. the interest holder satisfies the Commissioner that—
                                  1. expenditure or loss of a CFC included, while the election is effective, in net attributable CFC income or loss for the interest holder is extremely unlikely to result after the revocation in an amount that would otherwise have been an attributable CFC amount for the CFC; and
                                    1. the revocation is not made for a purpose or effect of reducing a tax liability; and
                                    2. the Commissioner agrees to the revocation.

                                      1. An election by the interest holder under subsection (1) ceases to be effective in an income year if the election is for—

                                      2. a CFC that in the income year ceases to be a CFC in which the interest holder has an income interest of 10% or more, except if the CFC becomes at that time a FIF for which the interest holder uses the attributable FIF income method, in which case the election becomes effective as if made for the FIF:
                                        1. a FIF that in the income year ceases to be a FIF for which the interest holder uses the attributable FIF income method, except if the FIF becomes at that time a CFC meeting the requirements of subsection (8), in which case the election becomes effective as if made for the CFC:
                                          1. a CFC or FIF that in the income year becomes an entity carrying on a business of banking or insurance or becomes directly or indirectly controlled by such an entity:
                                            1. a CFC that becomes a non-attributing Australian CFC in the income year.

                                              1. For a CFC to be affected under subsection (7)(b) by an election,—

                                              2. the interest holder must have an income interest of 10% or more in the CFC; and
                                                1. the CFC must not be a non-attributing Australian CFC.

                                                  1. If an election under subsection (1) ceases to be effective for a CFC or FIF,—

                                                  2. becoming effective for a FIF under subsection (7)(a) because the CFC becomes a FIF for which the interest holder uses the attributable FIF income method, the interest holder may carry forward under section IQ 1B (Losses carried forward to tax year) attributed CFC losses of the CFC to a later tax year as if they were FIF net losses that were attributed from the FIF when the CFC losses were attributed from the CFC:
                                                    1. becoming effective for a CFC under subsection (7)(b) because the FIF becomes a CFC of the interest holder in which the interest holder has an income interest of 10% or more, the interest holder may carry forward under section IQ 1B the FIF net losses of the FIF as if they were attributed CFC losses that were attributed from the CFC when the FIF losses were attributed from the FIF:
                                                      1. other than under paragraphs (a) and (b), the interest holder must not carry forward under section IQ 1B an attributed CFC loss from an elective attributing CFC, or a FIF net loss from an elective attributing FIF, to an income year for which the election for the CFC or FIF has ceased to be effective.

                                                        1. The interest holder may make a further election under subsection (1) for a period given by subsection (3)(c) after an earlier election ceases to be effective, if—

                                                        2. the interest holder gives notice of the election to the Commissioner before the beginning of the interest holder's first income year for which the notice is given; and
                                                          1. the interest holder satisfies the Commissioner that—
                                                            1. the expiry of the earlier election was due to an oversight on the part of the interest holder or the CFC or FIF; and
                                                              1. the interest holder gave notice of the further election within a reasonable time after the expiry; and
                                                                1. the further election has no purpose or effect of allowing the attribution of deductions without the attribution of corresponding income; and
                                                                2. the Commissioner agrees to the election.

                                                                  1. An interest holder may not make an election under subsection (1) for a CFC or FIF for which an earlier election by a person associated with the interest holder has ceased to be effective, unless—

                                                                  2. the interest holder gives notice of the proposed election to the Commissioner before the beginning of the interest holder's first income year for which the election is made; and
                                                                    1. the interest holder satisfies the Commissioner that the proposed election has no purpose or effect of allowing the attribution of deductions without the attribution of corresponding income; and
                                                                      1. the Commissioner agrees to the proposed election.

                                                                        1. A notice to the Commissioner under this section must be given in the form and by the means prescribed by the Commissioner.

                                                                        Notes
                                                                        • Section EX 73: inserted (with effect on 30 June 2009), on (applying for income years beginning on or after 1 July 2009), by section 52(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
                                                                        • Section EX 73 list of defined terms non-attributing active FIF: repealed, on , by section 90 of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).