Section EX 53 — Income Tax Act 2007: Fair dividend rate method for unit-valuing funds and others by choice

EX 53 Fair dividend rate method for unit-valuing funds and others by choice When this section applies: first case (1) This section applies when a person— (a) calculates FIF income from an attributing interest in a FIF for an income year under the fair dividend rate method; and (b) is a unit trust or other entity (the fund ) that— (i) makes investments for the benefits of other persons (the investors ); and (ii) assigns each investor an interest (the unit ) in a proportion of the net returns from the investments; and (iii) determines the value of the investor’s units for each of a number of periods (the unit valuation periods ) making up the income year. When this section applies: second case (1B) This section applies also when a person— (a) calculates FIF income from an attributing interest in a FIF for an income year under the fair dividend rate method; and (b) the person is not subject to subsection (1); and (c) the person— (i) determines the market value of the attributing interest for each period of a day (the unit valuation period ) in the income year; and (ii) chooses that this section applies. FIF income (2) The total FIF income for the income year of the fund or person (the interest holder ) from the attributing interests in FIFs (the FDR interests ) for which the fund or person uses the fair dividend rate method is the total of the amounts calculated using the formula in subsection (3) for each unit valuation period. Formula (3) The formula is— (0.05 × opening value × period ) + quick sale adjustment. year Definition of items in formula (4) The items in the formula in subsection (3) are defined in subsections (5) to (15). Opening value (5) Opening value is the total of the market values of the FDR interests that— (a) the interest holder holds at the start of the unit valuation period; and (b) are not, at the beginning of the income year, included in a direct income interest of 10% or more in a FIF that, at the beginning of the year,— (i) meets the requirements of section EX 35(b)(i) to (iii) ; and (ii) does not have its liability for income tax reduced by an exemption, allowance, or relief referred to in section EX 35(c)(i) or (ii) . Exclusion for certain managed funds (5B) Subsection (5)(b) does not apply if— (a) the interest holder is a portfolio investment entity, an entity eligible to be a portfolio investment entity, or a life insurance company; and (b) the FIF is a foreign PIE equivalent. Period (6) Period is the number of days in the unit valuation period. Year (7) Year is the number of days in the income year. When quick sale adjustment required (8) The quick sale adjustment is required, and is not zero, only if the interest holder has a unit valuation period of more than 1 day and, in the unit valuation period,— (a) acquires or increases an FDR interest to which this section applies; and (b) later disposes of or reduces the FDR interest. Quick sale adjustment (9) Quick sale adjustment is the lesser of— (a) the total of the amounts (the peak holding method amount ) calculated for each FDR interest using the formula in subsection (10): (b) the total of the amounts (the quick sale gain amount ) calculated for each FDR interest using the formula in subsection (14), treating a negative total as being zero. Peak holding method amount formula (10) The formula is— 0.05 × peak holding differential × average cost. Definition of items in formula (11) The items in the formula in subsection (10) are defined in subsections (12) and (13). Peak holding differential (12) Peak holding differential is,— (a) if no share reorganisation occurs in the unit valuation period, the lesser of— (i) the difference between the greatest shareholding in the period and the shareholding at the start of the period: (ii) the difference between the greatest shareholding in the period and the shareholding at the end of the period; or (b) if a share reorganisation occurs in the period, the amount calculated under section EX 54 for the period. Average cost (13) Average cost is— (a) if no share reorganisation occurs in the unit valuation period, the total amount of expenditure that the interest holder incurs in acquiring or increasing during the period the attributing interest in the FIF divided by the total for the period of the shareholding increase in the attributing interest in the FIF for each acquisition or increase; or (b) if a share reorganisation occurs in the period, the amount calculated under section EX 54 for the period. Quick sale gain amount formula (14) The formula, for each acquisition or increase in the attributing interest that is disposed of or reduced in the unit valuation period, is— gain − (interest × average cost). Definition of items in formula (15) In the formula in subsection (14),— (a) gain is the total amount that the interest holder derives from holding or disposing of the acquisition or increase: (b) interest is the amount of the shareholding acquisition or increase: (c) average cost is the total amount of expenditure that the interest holder incurs in acquiring or increasing the attributing interest in the FIF divided by the total for the period of the shareholding increase in the interest for each acquisition or increase. LIFO for identifying attributing interests disposed of (16) For the purposes of subsection (14), attributing interests in a FIF are treated as being disposed of in the reverse order of their acquisition (last in-first out). Deemed transaction under section EX 67 ignored (16B) For the purposes of subsection (9), if the person is treated as disposing of or acquiring an attributing interest in an income year under section EX 67 , the disposal or acquisition is ignored. Treatment of attributing interests subject to returning share transfer (16C) If an attributing interest in a FIF is an original share subject to a returning share transfer, for the purposes of a person using the fair dividend rate method to calculate FIF income, the attributing interest is treated as held by the share supplier. Meaning of shareholding (17) In this section, shareholding means the number of shares or units in an attributing interest. Defined in this Act: amount , attributing interest , direct income interest , fair dividend rate method , FIF , FIF income , foreign PIE equivalent , income year , investor , life insurance , market value , New Zealand , original share , portfolio investment entity , returning share transfer , share , share reorganisation , share supplier , unit valuation period Compare: 2004 No 35 ss EX 44B(1), (3) , EX 44D Section EX 53 heading: amended, on 1 April 2008, by section 395(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109). Section EX 53(1) heading: amended, on 1 April 2008, by section 395(2) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109). Section EX 53(1)(a): amended (with effect on 1 April 2008), on 6 October 2009, by section 178(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34). Section EX 53(1B) heading: inserted, on 1 April 2008, by section 395(3) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109). Section EX 53(1B): inserted, on 1 April 2008, by section 395(3) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109). Section EX 53(1B)(a): amended (with effect on 1 April 2008), on 6 October 2009, by section 178(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34). Section EX 53(2): substituted (with effect on 1 April 2008), on 6 October 2009, by section 178(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34). Section EX 53(5): amended (with effect on 1 April 2008), on 6 October 2009, by section 178(4) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34). Section EX 53(5): amended, on 1 April 2008, by section 395(5) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109). Section EX 53(5)(a): added, on 1 April 2008, by section 395(5) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109). Section EX 53(5)(b): replaced (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 38(1) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34). Section EX 53(5B) heading: inserted (with effect on 1 April 2008), on 6 October 2009, by section 178(5) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34). Section EX 53(5B): inserted (with effect on 1 April 2008), on 6 October 2009, by section 178(5) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34). Section EX 53(5B)(b): amended, on 1 April 2010 (applying for the 2010–11 and later income years), by section 178(6) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34). Section EX 53(8): substituted (with effect on 1 April 2008), on 6 October 2009, by section 178(7) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34). Section EX 53(9)(a): substituted (with effect on 1 April 2008), on 6 October 2009, by section 178(8) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34). Section EX 53(9)(b): substituted (with effect on 1 April 2008), on 6 October 2009, by section 178(8) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34). Section EX 53(13)(a): amended, on 1 April 2008, by section 395(7) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109). Section EX 53(14) formula: amended, on 1 April 2008, by section 395(8) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109). Section EX 53(15)(a): substituted, on 1 April 2008, by section 395(9) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109). Section EX 53(15)(a): amended (with effect on 1 April 2008), on 6 October 2009, by section 178(9)(a) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34). Section EX 53(15)(b): substituted, on 1 April 2008, by section 395(9) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109). Section EX 53(15)(c): amended (with effect on 1 April 2008), on 6 October 2009, by section 178(9)(b) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34). Section EX 53(16B) heading: inserted, on 1 April 2008, by section 395(10) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109). Section EX 53(16B): inserted, on 1 April 2008, by section 395(10) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109). Section EX 53(16C) heading: inserted (with effect on 1 April 2008), on 6 October 2009, by section 178(10) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34). Section EX 53(16C): inserted (with effect on 1 April 2008), on 6 October 2009, by section 178(10) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34). Section EX 53 list of defined terms direct income interest : inserted (with effect on 1 July 2011), on 7 May 2012, by section 38(2) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34). Section EX 53 list of defined terms foreign investment vehicle : repealed, on 1 April 2010, by section 178(12)(a) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34). Section EX 53 list of defined terms foreign PIE equivalent : inserted, on 1 April 2010, by section 178(12)(b) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34). Section EX 53 list of defined terms life insurance : inserted (with effect on 1 April 2008), on 6 October 2009, by section 178(11) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34). Section EX 53 list of defined terms original share : inserted (with effect on 1 April 2008), on 6 October 2009, by section 178(11) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34). Section EX 53 list of defined terms portfolio investment entity : inserted (with effect on 1 April 2008), on 6 October 2009, by section 178(11) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34). Section EX 53 list of defined terms returning share transfer : inserted (with effect on 1 April 2008), on 6 October 2009, by section 178(11) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34). Section EX 53 list of defined terms share : inserted (with effect on 1 April 2008), on 6 October 2009, by section 178(11) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34). Section EX 53 list of defined terms share supplier : inserted (with effect on 1 April 2008), on 6 October 2009, by section 178(11) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).