Section EG 1 — Income Tax Act 2007: Election to use balance date used in foreign country

EG 1 Election to use balance date used in foreign country When this section applies (1) This section applies when— (a) a person has foreign source income or foreign expenditure that is taken into account in determining the income tax, not merely the withholding tax, payable by them in a foreign country or territory; and (b) the foreign source income or foreign expenditure has been included in 1 of their income tax returns in the country or territory; and (c) the annual income tax balance date that is relevant for them for the income tax return in the country or territory falls in a period that is an income year for them; and (d) if the person did not make an election under this section,— (i) the foreign source income would be allocated to their previous income year; or (ii) the foreign expenditure would be a deduction allocated to the previous income year if the only income of the person were foreign source income to which this section applies. Election to allocate (2) If the person has not already included the foreign source income or foreign expenditure in their return of income for the previous tax year, they may choose to allocate the foreign source income or the foreign expenditure to the income year referred to in subsection (1)(c). How election made (3) The person makes the election by including the foreign source income or foreign expenditure in their return of income for the income year referred to in subsection (1)(c). What election applies to (4) The election applies to all the person’s foreign source income and foreign expenditure to which subsection (1) applies, except for— (a) income or expenditure under the financial arrangements rules, unless the Commissioner agrees in writing; or (b) dividends, unless the Commissioner agrees in writing and the person is not a company; or (c) attributed controlled foreign company (CFC) income; or (d) foreign investment fund (FIF) income or income derived from an attributing interest; or (e) in the case of foreign expenditure, foreign expenditure that would be allowed as a deduction if the only income of the person were income to which paragraphs (a) to (d) apply. Timing of income (5) The foreign source income and foreign expenditure to which the election applies is allocated to the income year referred to in subsection (1)(c). Election treated as continuing (6) A person who has made an election is treated as making the same election for all later income years, unless— (a) the Commissioner agrees in writing to allow the person to revoke the election; or (b) the person’s net income for the relevant income year would be more than $100,000 if their only income in the income year were foreign source income. Net income of more than $100,000 (7) If subsection (6)(b) applies,— (a) foreign source income and foreign expenditure is allocated to the income year referred to in subsection (1)(c) only if it was derived or incurred in that year; and (b) foreign source income and foreign expenditure to which the election would have applied if subsection (6)(b) had not existed is allocated to the previous income year; and (c) if necessary, the previous tax year’s return is amended. Factors considered (8) In deciding whether to agree to an election applying to income or expenditure under the financial arrangements rules or dividends, the Commissioner must consider— (a) whether the person is likely to incur significant compliance costs if the Commissioner does not agree to the election; and (b) the risk to the revenue if the Commissioner agrees to the election; and (c) any other factors the Commissioner considers relevant. Person ceasing to be, or becoming, resident (9) If the person ceases to be, or becomes, resident in New Zealand, this section applies in the same way as for other persons except that— (a) it does not apply to income or expenditure that is allocated, other than under this section, to a period when the person is not resident in New Zealand; and (b) if it allocates foreign source income derived or foreign expenditure incurred while the person is resident in New Zealand to a period after the person has ceased to be resident in New Zealand,— (i) the foreign source income is assessable income in the income year in which the foreign source income is allocated under this section, despite section BD 1(5)(c) (Income, exempt income, excluded income, non-residents’ foreign-sourced income, and assessable income); and (ii) the foreign expenditure is allowed as a deduction in the income year to which the foreign expenditure is allocated under this section. Some definitions (10) In this section,— annual income tax balance date includes a date that is substantially equivalent to an annual income tax balance date foreign expenditure means expenditure that is incurred in deriving foreign source income foreign source income means income that does not have a source in New Zealand and that is not exempt income. Defined in this Act: annual income tax balance date , assessable income , attributed CFC income , attributing interest , Commissioner , company , deduction , dividend , exempt income , FIF income , financial arrangements rules , foreign expenditure , foreign source income , income , income tax , income year , net income , pay , resident in New Zealand , return of income , source in New Zealand , tax year , Compare: 2004 No 35 s EG 1 Section EG 1(10) foreign source income : amended, on 21 December 2010, by section 55(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010, No 130). Section EG 1 list of defined terms derived from New Zealand : repealed, on 21 December 2010, by section 55(2)(a) of the Taxation (GST and Remedial Matters) Act 2010 (2010, No 130). Section EG 1 list of defined terms source in New Zealand : inserted, on 21 December 2010, by section 55(2)(b) of the Taxation (GST and Remedial Matters) Act 2010 (2010, No 130).